Greece has been given the largest bail out ever at 110 bn€ to a single country. Reuters report, "whilst this eased fears of a near-term sovereign debt default, doubts lingered about whether the country will be able to carry out the tough austerity measures it has promised. Worries also persist about other heavily indebted countries in the euro zone". That says it all. Brussels is rightly worried about intra Eurozone contagion and has thrown a huge amount of money at Greece. I opine it will not work. Greek politics will scupper it.
The market is right to be worried over the 'implementation' risk. This morning BBC news reported a fresh 48 hour strike by public sector workers plus some irate teachers hijacking the Greek Education ministers TV broadcast last night over 17000 part time teacher redundancies already going ahead. They could only be bought off by putting out their own statement live warning of the dire consequences for the Greek education system. Twenty five percent of Greeks are employed in the public sector so there are a lot of potential strikers.
In Hong Kong this morning, 4th May, Reuters report, "U.S. Treasuries inched up on Tuesday on growing concerns about the political hurdles facing Europe's massive bailout plan for Greece".
Merkel has clearly been twisting German bankers arms to maitain their credit lines to Greek banks and their holdings of Greek debt. This strategy was tried in 1929 in the US and failed. It cannot work.
While writing this I went to take a phone call and saw a very interesting vox pop on Sky News from the streets of Athens. An out of work builder asked how on earth can this money be repaid given there is no work or only work at less wages. In the face of continued strikes Greek tourist bookings are reported as down 50%. No one wants to be caught in up a strike. The other factor to emerge was that surprise, surprise the Greek political class was not going to share the pain and the Greek people felt that much of the EU/IMF bail out would simply disappear into the pockets the politicians cronies.
The IMF has a lot of experience in dealing with corrupt regimes but will they be allowed to in Greece given the corruption and Spanish practices on pensions etc in Brussels itself. The IMF will find its hands tied by the EU which will put the EU in direct conflict with the US. There can only be one winner in that contest.