Greek Fire, Part 22

The unquenchable flames of legend are becoming less of a metaphor and more of a reality in the era of massive austerity cuts.

“This tragedy does not have a solution,” said Hans-Werner Sinn, head of the prestigious IFO Institute in Munich.

“The policy of forced 'internal devaluation', deflation, and depression could risk driving Greece to the edge of a civil war. It is impossible to cut wages and prices by 30pc without major riots,” he said, speaking at the elite European House Ambrosetti forum at Lake Como. 

“Greece would have been bankrupt without the rescue measures. All the alternatives are terrible but the least terrible is for the country to get out of the eurozone, even if this kills the Greek banks,” he said.

Pretty heavy stuff for a Sunday morning, but there you are.  Greece is one stiff wind from collapsing again at this point, and the massive IMF/EU bailout has not worked.

The joint bail-out was hoped to safeguard Greece against the pressure from global capital markets for two and half years, but the relief rally proved short. Spreads on longer-term Greek government debt have surged back to crisis levels of about 800 basis points, implying a high risk of default. 

“We are in the second Greek crisis right now, today,” said Dr Sinn. 

Only a matter of time now before Greece defaults.  Instead of buying forgiveness until the end of 2012, the bailout bought only a few months.  Greek debt once again is threatening to bring down all of Europe and set the continent aflame.  What happens this time?