Huge debts of Greece and Italy threaten the Euro

There has been no resolution of the Greek debt crisis, the only relief has been to reschedule their repayments far into the future. The unpleasant truth remains that the Greeks will never be able to repay their debts without a large part of these loans being forgiven. This will happen in the future when our present leaders in the Eurozone countries and in the European Central Bank will all be in their graves.

The Greeks and the EU are congratulating themselves that the private sector is buying Greek bonds now, but these are just short-term bonds. These investors are just betting that Greece will not default in the next 3 years! One wonders how many of Greece’s bonds are in the vaults of the European Central Bank?

It is the same story with Italy, whose banks are in such bad shape that government bailouts will require a huge amount money. The current public debt is also huge and the new government is planning to issue more debt. They claim that public debt as a percentage of GDP will fall. This is not based on falling debt or even stable debt. They are just hoping that the increases in debt will be slower than the increase in GDP.

The major buyer of Italian debt are not foreigners, but the European Central Bank – the mighty saviour of excessive debt doing “whatever it takes” as Mr. Draghi said 6 years ago to save the Euro: 

“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” Mario Draghi.

So “whatever it takes” is a bet that taxpayers within the Euro system will remain at risk for the misbehaviour of a few badly managed governments, and their ardent supporters. The costs of such behaviour are be more than enough to provide some improvements in climate change, reasonable care for the elderly and a good education for our children. 

But these are not the top priorities for today’s leaders, who have their heads firmly stuck ion the sand.

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