Bankrupt Greece Can Not Escape Terminal Debt
While the politicians negotiate over numbers on paper and freshly printed Euro’s the reality Greece is Bankrupt with no viable plan to escape.
The real issue is Terminal Debt.
Terminal debt is the point at which the payments on the interest of a debt surpass the revenues of the debtor (i.e. the debt becomes fiscally unstable.)
Hyper-inflation is the terminal stage of any fiat currency. In hyper-inflation, money looses most of its value practically overnight. Hyper-inflation is often the result of increasing regular inflation to the point where all confidence in money is lost. In a fiat monetary system, the value of money is based on confidence, and once that confidence is gone, money irreversibly becomes worthless, regardless of its scarcity. Gold has replaced every fiat currency for the past 3000 years.
Greek Prime Minister Alexis Tsipras was finalizing a tough package of tax hikes and pension reforms to send to euro zone authorities by midnight in a race to secure agreement at the weekend on a third financial rescue for his country.
European Council President Donald Tusk, who is to chair a special euro group summit on Sunday that will decide Greece’s fate, hoped the plans would be concrete and realistic.
“The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors. Only then will we have a win-win situation,” he said. “Otherwise, we will continue the lethargic dance we have been dancing for the past five months.”
Failure to reach a deal on Sunday, including releasing some money to enable Athens to cover debt service over the next few weeks could lead to a collapse of Greek banks next week, sending the economy into freefall and possibly catapulting the country out of the euro zone.
If there is no agreement, all 28 European Union leaders will discuss measures to limit the damage from a Greek collapse, including humanitarian aid, possible border controls and steps to mitigate the impact on neighbors, EU officials said.
German Chancellor Angela Merkel said a classic “haircut” – a write-off of principal – was out of the question. She did not rule out other forms of debt relief such as extending loan maturities, lower interest rates or a longer moratorium on debt service payments.
International Monetary Fund chief Christine Lagarde and U.S. Treasury Secretary Jack Lew both said on Wednesday that debt restructuring must be part of a viable solution to keep Greece in the euro zone.
Lagarde said any program would have to walk on two legs. “One leg is about significant reforms and fiscal consolidation … And the other leg is debt restructuring, which we believe is needed in the particular case of Greece for it to have debt sustainability.”
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