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article imageOp-Ed: Greek Bailout, Band Aid or Amputation?

By Kelly Bowlin     Oct 27, 2011 in World
Brussels - Euro-Zone leaders reached a deal that will require private holders of toxic Greek debt to take a 50 percent haircut on their bond holdings. Whether it's enough to stave off the looming meltdown of southern euro-union members has yet to be seen.
The $130 billion agreement, struck against a desperate backdrop of escalating riots in Greece and a growing resentment in Germany, will require a 50 percent haircut by private bondholders in the European Union. This means banks in stronger countries like Germany will agree to write-down 50 percent of the toxic debt they hold on Greek Government Bonds. This is seen by many as a last ditch effort to stave off a Greek default on its sovereign debt which is tantamount to bankruptcy.
In a complicated milieu of interconnected world finance that includes the U.S., Europe, and China, the deal is being viewed as a temporary fix that will hopefully slow the contagion of failed derivatives that have plagued world economies since the catastrophic financial meltdown of 2008. China’s role in the bailout is still a big question mark. China, which is the world’s largest creditor nation has said in the past they’d be willing to assist in some form of financial aid package, but have been reluctant to jump in due to the lack of a clear plan and solid commitment on the part of debtor nations like Greece and Spain to voluntarily reduce their spending and budget deficits.
This all comes a day after former Fed Chairman Alan Greenspan said he believes the European Union is doomed to failure due to huge differences between northern and southern European Union countries. In an interview conducted by CNBC he told reporters: "At the outset of the creation of the euro in 1999, it was expected that the southern eurozone economies would behave like those in the north; the Italians would behave like Germans. Instead, northern Europe fell into subsidizing southern Europe’s excess consumption, that is, its current account deficits."
U.S., European and Asian markets rallied on the news as persistent questions remain about the ability of Greece and its neighbors in Iceland, Portugal, Spain, and Italy to survive the looming meltdown in their respective economies.
While Greek protests have quieted down for the moment, there is an uneasy suspicion that the austerity measures being imposed on the country, may be too harsh for Greek citizens to live with, particularly the 15-24 aged youths who are at a whopping 40 percent unemployment rate. Greece has seen a drastic reduction in government services and recently tax collectors walked off their jobs in Athens.
German Chancellor Merkel has been arguing vehemently for Germany and its stronger European neighbors like France to step to the plate in an attempt to avoid a financial meltdown like the one experienced by Lehman Brothers in a few years ago.
It should be noted that the bailout wasn’t made by governments, but by private enterprise banks with huge holdings in Greece and other southern European Union nations. Implicit in the banks concessions is the notion that they’ll be supported by the governments of stronger nations like the U.S. Germany and France in the event the near insolvent countries like Greece Spain and Italy continue their downward spiral.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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