The market is starting to fret over a possible Greek debt default and the FTSE dropped 1% today as a result. The spreads on Greek bonds are now 400+ bps above bunds. The Greeks are still waiting for the EU cavalry to ride to their rescue but its starting to look like Stalingrad. Wealthy Greeks have already shifted €10 bn abroad in the first two months of 2010. The IMF have seen this all before most recently in Argentina. Greek banks have just received a €17 bn aid package from their government but the other Eurozone banks are cutting Greek bank credit lines a sure sign a default is on the cards.
Greece wants an admission that it is all the fault of the 'crats beloved EMU but that is not going to come. There are lots of conflicting stories coming out of Athens particularly about what role if any the IMF play. Thank God its not a shooting war or we would all be dead whilst Brussels considers its navel.
The BIS, the central banks central bank, based in Basel has just published a report saying the sovereign debt crisis is at boiling point. They are best placed to know. All central banks have accounts with the BIS. Guess which country the BIS fingers as having the highest structural deficit in the G20 and therefore the biggest long term debt problem? No its not the Greeks its the good old UK. So which party will get us out of this jam, well none of them. They are all in imminent election induced denial.
I see a return to the hyper inflation we suffered in the 70s as the only way out. Interest rates will soar but we will be able to repay Johnny Foreigner with devalued pounds like we did before. Otherwise we will have a severe slump and civil unrest. Politicians don't like civil unrest in their own countries. There is too much danger they might be lynched by a rightfully enraged populace. Much safe to inflate than end up dead.
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