Wither Greece?

And that is what the USA should have done as well. Instead, we essentially socialized their losses by performing capital injection to the banking system and making the tax payers non-voting stock holders. They did it this way to stomach what they felt was 'nationalization' of the banking system. But in essence, what they did was far worse. They socialized the losses and privatized the gains.And now they seem shocked that the gap between rich and poor is far larger than it was before.I always find it funny how the wealthy scream about any notions of wealth redistribution. Yet in essence, that is exactly what has happened. The ZIRP policy of the Fed and QE basically gave free loans to the banks. They in turn used that money to buy stocks, distressed housing, etc when they were supposed to loan it out to free up the credit system.Regarding Greece, as someone who is Greek and still has family there, I don't see any scenario that is going to end well for them. Unfortunately. Continuing on the austerity road with crushing debt is just death by a thousand cuts. Leaving the Euro and going back to their own currency comes with numerous pitfalls as well. Although to be honest, it is probably the less egregious of the two options.Incidentally, the main reason that the ECB is hesitant on writing off the Greek debts (or at least a portion of them) is they are fully cognizant of the fact that if that occurs, countries like Spain and Portugal will go through similar referendums to achieve the same outcome. Spain especially already has rumblings with regards to electing one of their fringe parties to start getting them on a path to growth as well. The end result is the ECB would have massive write downs and losses to contend with. Which could plunge the Eurozone into a financial crisis.Edited by Diomedes, : Fixed typo

Not that I am his biggest fan, but Alan Greenspan said exactly that. You hit the nail on the head. Countries with internal territories (states) have federal mechanisms in place to subsidize the lower performing states with the revenue from the higher performing states. Generally speaking, you will find this is almost always affected by population. So more populous states with higher population densities will invariably yield more revenue at the federal tax level which in turn will be used to shore up the revenues of the less populous states.What we have in Europe however are vastly different countries with different agendas, business models, etc attempting to function on one currency. The result is what we are seeing. Invariably, the 'stronger' countries are now asserting undue influence on the 'weaker' countries and essentially strong-arming them into submission.One final note from a geopolitical perspective: many people in Greece are getting utterly fed up with Europe and are starting to look to Russia for assistance. Now Putin isn't exactly in the best position to offer loans, but what if he did provide some assistance in return for the usage of Greek ports for the Russian navy? As we all know, the big issue with Crimea and the reason Russia wants to retain it is because it is their only cold water port. Without it, their fleet would be frozen in during winter.Now Greece is a NATO member but who knows what desperate acts their government might take in order to get out of their current quagmire. And most may not realize it, but many in Greece are pretty pro-Russian. And this situation is only exacerbating the bad feelings they have for Europe and more positive feelings for Putin and his oligarchy.Edited by Diomedes, : Fixed typo

Percy, you happen to recall that classic SNL skit from the 1970s with Steve Martin as the Barber of York?NBC was kind of enough to provide the link:http://www.nbc.com/...ght-live/video/theodoric-of-york/n8661My favorite lines:Steve Martin (speaking to a wounded Bill Murray): "You'll feel better after a good bleeding!
Bill Murray: "But I'm bleeding already!"

Exactly my point in my earlier post.Greece only contributes about 1-3% of the total GDP of Europe. That is a pittance. So a Grexit or even a default could theoretically be absorbed.However, a country like Spain is a full 10% of the European GDP. Their debt is intrinsically far larger. A debt write-down or a referendum asking for concessions by the ECB would be a very large pill to swallow. Such an act could destabilize the European banking system and plunge Europe into a recession. Although arguably, that may be inevitable at this stage.Spain is actually more left wing than Greece when you look at its history. Spain had a fascist government for years and their politics have always been heavily socialist. Syriza getting their way in Greece may be just the catalyst that a left-wing Spain party might need to bolster their chances in their upcoming elections.

Interesting chart. It's odd that Greek GDP velocity was actually quite good during the financial crisis when everyone else was trending poorly. Now, it has fallen off a cliff.Italy isn't doing too well either. And moving in the wrong direction. And although Spain and Portugal have had slight trend reversals, a minor hiccup in the global economy could see that go the wrong way. And they are still at nightmarish unemployment rates, especially for their youth.

That statement demonstrates what many have been saying up to this point: this 'agreement' has nothing to do with fundamental economics and has everything to do with politics.The Eurozone leaders (mostly Germany) are thinking about how to save face in regards to their constituents. At the same time, they want to do everything to squash the likelihood that any other leftist party might gain traction in other countries like Spain or Italy.Unfortunately, all that is occurring is the can is being kicked down the road yet again. Greece will likely continue to decline. At some point (if it hasn't already been reached) a breaking point will occur and the outcome could be far worse. i.e. they will default on a much larger amount of debt. At the same time, as the other countries in similar situations continue to flounder, that could lead to the contagion spreading despite Merkel's best efforts to keep it contained.

One additional follow-up:I watched Fareed Zacharia this weekend and he had Paul Krugman as a guest to discuss the Greek bailout. As one might guess, Paul thinks the bailout was a horrible idea and will end badly for Greece. He also believes that a Grexit is inevitable in light of the additional austerity that will cripple their economy.As a side-bar, he also gave a pretty sour opinion of the Syriza party, saying they basically played chicken but had absolutely no contingency plans in place. i.e. having the ability to fall back to an alternate currency (the Drachma) or any indications of mechanisms in place to shore up their banking system.So while we can lay blame on the ECB and Germany for being too strident, we can also say that the Greek government was woefully ill prepared and borderline incompetent in its execution.