A major problem with our global system of finance is one of contagion: the way bad debt has been sliced, diced, repackaged and turned into a weird form of financial sausage – all ground up and blended together – means that the entire system seems to have a single point of failure. All fo the fuss over the PIGS in Europe – Portugal, Italy, Greece and Spain – is that the level of bad debt and government insolvency there is such that if one country goes down, the run it will cause might very well cause any of the others to go down, also. At the moment, Greece is on the brink. The country is flat broke, and desperately needs the Eurozone to bail it out. The good news is that Greece is small enough to bail out. Should it take aknee and Italy follow suit, however, the EU is looking at financial armageddon, as Italy is too big to save.
You can see it in the world financial markets – with every day there is good or bad news coming out of Greece that some hope remains for their financial salvation, the markets respond accordingly. It has been putting the Western financial world on the edge of a collective nervous breakdown to see Greek crowds riot over the merest mention of government austerity, especially since Greece’s financial problems are, in large part, due to profligate government spending. (Strangely, this did not stop the New York Post from suggesting their problems also came from government over-regulation of business. I imagine they threw that in there so they could keep open future comparisons to Greece when criticizing political candidates financial policies here in the states. That would be a Post thing to do.)
Several days ago, it looked like a deal had finally been made between Greece and the Eurozone where Greece would agree to some pretty severe austerity measures in return for a bailout package that included a huge cash infusion and debt write-down, all largely funded by Germany and France. The markets jumped on the news, and it looked like finally, the madness had come to an end. And then, Greece’s Prime Minister surprised everybody when he suggested he would bring the matter to a public referendum, giving the very same Greek people whose unrealistic financial expectations got the country into the mess in the first place, the final say on the terms of its own bailout.