08:28 – I drove Barbara to an appointment with her doctor yesterday. Barbara drove us home, approved to drive again and return to work. She just left for work, making joyful noises.
The Greek government will likely collapse this week, probably after a vote of (no) confidence tomorrow. Papandreou is down to 149 of 300 seats, and it’s by no means certain that all of those 149 will vote to support him. Papandreou’s finance minister and heir presumptive, Evangelos Venizelos, is now in open rebellion against Papandreou, but again it’s by no means certain that Venizelos would be able to form a new government. What’s really worrisome is that Papandreou has just sacked and replaced the top officer corps of the Greek military, presumably because he fears a military coup is at least possible, albeit not probable at this point. Meanwhile, EU officials are now talking openly about the departure of Greece and the breakup of the eurozone and probably the EU itself, and Italian bond yields reached 6.4%.
12:48 – And now I see that Papandreou has withdrawn his call for a referendum. Merkozy made it clear that the gloves were coming off, not least by announcing that Greece would not receive the sixth and final aid tranche, due to be paid this month, unless Greece did exactly what it had been ordered to do. Without that €8 billion payment, Greece will not be able to pay government employee salaries and pensions, which means Greece would likely be in full revolution soon after the first payment is missed. Merkozy also made it abundantly clear to Papandreou that the referendum announcement was the final straw, and that they were fully prepared to expel Greece from the eurozone. Because it is technically and legally impossible to expel a nation from the eurozone without also expelling it from the EU–actually, there’s no legal mechanism to expel a nation, period, but the one implies the other and Merkozy has certainly shown they have no respect for EU treaties or laws–Greece would find itself not just being forced to convert overnight to the new drachma, but also cut off from all of the benefits of EU membership, such as free trade within the EU.
Not surprisingly, the Greeks are back-pedaling fast, but it’s probably too late for that. Even the mention of a Greek referendum was the small shove that was needed to set the eurozone in particular and the EU in general toppling. Even the fact that the new head of the ECB announced a 25-point cut in interest rates to 1.25% and promised to keep subsidizing Italian and Spanish bonds isn’t going to help stop the collapse. At this point there’s only one solution remaining: the ECB has to start printing euros by the boatload to allow that massive pile of sovereign debt to be paid off in inflated euros. Of course, if there’s one thing Germany won’t stand for, it’s inflating the euro. If that begins to happen, you can be sure that Germany will revert to its own currency, quickly followed by the rest of the FANG nations, leaving the southern tier, including France and Belgium, twisting in the wind. So, one way or the other, it’s a default for sure.