The country is gradually yet irrevocably entering a phase of controlled default, as foreseen by Plan B of Angela Merkel?s Germany, given that George Papandreou?s government, following a series of amateurish moves of the saddest kind, introduced a memorandum which did not match the needs of the real economy and which it was unable to implement.
Greece is simply going with the flow of events and the government is harmonizing its behavior with decisions taken by Merkel, whose foremost goal is saving the euro and the countries which belong to the common European currency. If, incidentally, this also leads Greece to salvation, it will be determined in the long run and well after a dramatic cut in the ?wealth loan? of the last decades.
In the last 18 months Greece?s eurozone partners have confronted the following possibility with awe: an uncontrolled default and a return to the drachma, which would lead to the loans established in past years under Greek legislation — about 50 percent — being turned into drachmas and in case of default undergoing a haircut of up to 80-90 percent and paid up in inflationary drachmas. In this case, both the European and the global system would suffer a terrifying and possible fatal shock.
Neither of the two main political parties in Greece nor the active players in the real economy wished to even consider such a possibility, because essentially, this would have crushing consequences for the country, which would have to accept responsibility for a potentially major disaster, at least on the European level. This threat could have been used back in May 2010 for securing a program of milder adjustment, but that opportunity — if it ever existed — has well and truly passed.
The implementation of the midterm fiscal plan decided on July 21 solves this problem for the eurozone, because given the foreseen restructuring, the country?s entire public debt, will come under British legislation, and will have to be paid off in euros with collateral, no matter what any government wishes to call it. From this point of view, Greece is in fact being incorporated entirely in the European system.
Of course the 21 percent haircut which was decided upon on July 21 is not sufficient, and that is why there is now talk of at least a 50 percent haircut. However, the haircut in whatever form of default — whether controlled or not — means, besides investors? losses on Greek bonds, an equal, if not greater reduction of ?wealth? in all kinds of salaries and values, such as properties. This is, unfortunately, the flow of events or the price of our recklessness.