Greece - or why a country may not become bankrupt

The troj, ECB, EU and IMF, have set their standards: Greece will not receive any more money until they are convincened of Greece's budgetplans and stimulation package in action. That will bring Greece even a little closer to state-bankruptcy and who knows, maybe this is the way to go...

I have followed Greece's financial development throughout a couple of years thanks to my sister who actually is living there. Budget tightening hits the people of Greece and espescially the once who already are suffering. The richest in Greece have successfully avoided paying taxes and the country is now suffering from interest payments for both old and, even worth, new loans. Loans that financed a huge administrative sector and a non-existing industry. Where did the money go? Well, I wrote once a couple of months ago about the construction of the greek highway. It took the country more than 30 years to build it, during which the government got paid through road taxes, and still: a loan was needed to finish construction.... where did the money go? No one knows.

Now, the government is creeping on its bare knees, the heavy weight of internationally financed loans on its shoulders. So, why not apply for bankruptcy? Why not letting it all go and try to restart economics? A country can not, by definition, become bankcrupt. Yes, it would initially lead to higher interest rates, currency depreciation and become more difficult to sign on new loans. But out of most depressions, comes something good. A bankruptcy would acutally make international lenders cut loans, implying lower interest payments. This could actually give Greece the possibility to catch some breath and to start all over again. So why not?

I think, one has to look at who will loose most if a bankruptcy would occur, to be able to find an explanation. The once who loose most if greek loans are cut, are banks throughout the world, espescially in other EU-countries i.e. Germany and France. German economic gains today more thanks to interest payments made by Greece, than it loses. A deflation of greek loans would cause the need of big depreciation in those bank's receivable ledgers, prompting an even bigger economical disaster throughout Europe. Please do not forget that european banks already are on the step of bankruptcy themselves and that it took the whole force of big governments as Germany to secure the survival of some of the world's oldest banks, such as Deutsche Bank. So what could happen then?

Well, nightmare scenario is the bankruptcy of a country, lead by financial and economical earthquake shaking both Greece, EU and even the world's market in a situation when stability is needed to outride the effects of the latest depression. Upsides? Of course, in a bright pink world, greek loans would be cut, followed by lower interest payments and a more stable economical situation in Greece and even the EU, as financial markets could focus on transactions instead of worrying about the question of one country's survival. One thing is for sure: reality will catch up with both Greece and EU and when bankruptcy no longer can be avoided, we will find new ways to go and the thought behind the european market will be tested for real. Will the European Union survive? It is all written in the stars.... both on the flag and in the sky.