Greek Government Favours Drachma - Vows Will Not “Bow To Blackmail”

Greece Government Favours Drachma – Vows Will Not “Bow to Blackmail”

- Merkel, Hollande, Juncker, Lagarde and Draghi in “emergency” meeting re Greece
- Bankrupt Greece must find €1.6 billion to pay IMF in June
- First instalment of €300 million due on Friday
- Leaders of EU, IMF and ECB hold emergency summit in Brussels
- 58% of Syriza membership in favour of returning to Drachma
- Unforeseeable consequences and risks of ‘Grexit’

By Mark O'Byrne: An emergency meeting was held in Berlin last night between Angela Merkel, Francois Hollande, EU Commission President Junker, Christine Lagarde of the IMF and ECB president Mario Draghi. The meeting was reported to have continued past midnight.

The discussions were apparently aimed at formulating a “take it or leave it” offer that would be acceptable to the Syriza government that would allow the remaining €7 billion of the existing bailout package to be unlocked so that cash can be handed back to Greece’s creditors and avoid a default. Greece, a country whose own finance minister has described it as “bankrupt” is due to pay the IMF €1.6 billion over the course of June. The first instalment of four – totalling €300 million is due this Friday.

There were fears that the country would not be able to pay its public sector wages in May demonstrating the very fragile state of its finances. It would appear that the European leadership and that of the IMF and ECB also fear the state of Greece’s finances and its ability to make its payments to the IMF this month.

A recent poll suggests that 58% of Syriza supporters would rather return to the Drachma than to remain in the single currency while severe austerity measures are imposed. Syriza have a 26 point lead over the next most popular party, New Democracy.
From this point of view it is, therefore, not entirely politically untenable for Syriza to choose the default and exit option should the “institutions” fail to respect Prime Minister Tsipras’s “red line” on VAT hikes, pension cuts and labour market reforms.
Greek 10-year bond yields have been creeping higher – currently at 11.49% – indicating that the markets view the risk of a default as being quite high.
The “institutions”, however, are likely to want to keep Greece in the fold at any cost. In a softening of tone Junker told German newspaper Süddeutsche Zeitung yesterday:
“Anyone who doesn’t see there is a humanitarian crisis in Greece is deaf and blind to what is happening there.”
The unforeseeable risks posed by a default and “Grexit” to the Euro project are too great for the powers that be to wilfully allow it to happen. It could trigger credit default swaps and a derivatives crisis in the banking system.

It might also lead to a geopolitical crisis should erstwhile NATO member Greece turn to Russia for financial assistance in the form of funding, trade, economic and other cooperation agreements.

The consequences of making an acceptable offer to Greece may also be unforeseeable. In the short term it may buy time but in the longer term it is hard to see how Greece can come off life-support without a large scale write-off of some of its debts.
It may also embolden anti-austerity groups across Europe, particularly those in heavily indebted Italy and Spain.
The threats posed by the Greek situation to the euro – and indeed the threat posed by the entire European economic situation to the euro – make holding gold outside the banking system a vital form of financial insurance.
History and recent academic studies show that gold protects wealth from financial and economic risks.

Source