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IMF pulls the plug on Greece as EU leaders fail to reach agreement on debt rescue plan

By: Peter Cooper, Arabian Money


-- Posted Sunday, 23 October 2011 | | Disqus

The International Monetary Fund dropped a bombshell on the EU leaders summit last night saying that it would not after all pay for a second Greek bailout, according to The Daily Telegraph. Senior sources said privately that the IMF has indicated that it will not be willing to bailout Greece any further.

Greek debts have topped $368 billion and the IMF is manouvering for a 60 per cent haircut for lenders to Greece. The IMF pulling the plug on the Greek bailout sends the whole crisis to a different level.

Bad relationship

At the same time reports from pre-summit meetings point to increasing acrimony between the leaders of Germany and France with stand-up rows more like a broken marriage than negotiations betwixt heads of state. The entente cordiale at the heart of the eurozone is clearly stretched to the limit.

If the leaders of Europe cannot decide what to do next then the financial markets are going to sort this out for them. They have patiently idled in a trading range waiting for a decisive pointer to the next direction, up or down. Gold and silver will follow the markets down but should bounce back quickly (click here).

As the ArabianMoney website has argued for many months it has never been clear to us exactly how the eurozone crisis could be satisfactorily resolved (click here). The main solution suggested by the US is for a repeat of the balance sheet expanding bailouts that have massively ramped up US debts and deficits since 2008 and done nothing to actually solve their problem of low growth and high unemployment.

The market ’solution’ is very different: bankrupt the bad banks, liquidate the banks, let stock markets crash and then the whole system will right itself at a lower level of debt. The problem of course is that for democratic politicians the collateral damage may be enormous, not the unemployment and public misery, rather then end of their political careers.

IMF strategy risky

The IMF is taking a high risk strategy itself by pulling the plug on Greece. Will this be enough to bring the naughty school children of the 27 EU states into line? Headmistress Christine Lagarde is taking the biggest risk of her political career too.

Financial markets may take a breath and give her the benefit of the doubt before casting their vote on this shambles. The eurozone summit is not yet over. Yet there is a growing sense about this EU summit not that time is running out but that is has already run out.

Greek debt is way too high for any bailout mechanism currently on the table to handle, and now the IMF is not supporting the current proposal anyway. The eurozone looks trapped in an impossible dilemma of its own making with the Greek default now a reality.


-- Posted Sunday, 23 October 2011 | Digg This Article | Source: GoldSeek.com

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About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link




 



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