Greece faces devaluation, default or deflation. Next stop the IMF

[CHIMO]

We feel your pain. But not enough to put our hands in our pockets to help you. Behind the sham show of solidarity, the simple message for the troubled government of George Papandreou was that Greece is not Alabama and Brussels is not Washington.

In the United States, the federal budget is worth around 25% of national output each year. States where the economy is booming pay more in tax receipts to the Treasury than they take out in spending. Poor states receive more from Washington than they raise in taxes. The sun belt subsidises the rust belt.

Europe has no such mechanism. Brussels does have a budget, but it is tiny in comparison with Washington's at little more than 1% of Europe's GDP. Money is redistributed from the rich core to the poorer periphery, but on a much smaller scale than on the other side of the Atlantic.

The fact that there is monetary union but no fiscal union helps explain why Greece is no nearer a solution to its problems today than it was yesterday. Lacking a centralised budgetary mechanism, the only way out for Papandreou would be if the Germans were prepared to play the role of Good Samaritan or if Brussels could come up with an innovative way of raising funds.
http://www.guardian.co.uk/commentisfree/2010/feb/11/germany-greece-debt-crisis-euro

Europe seems to be waiting for a Bismark. Wish I knew how the markets will play this one.

[lxlxlxl]

1. will be the germans...but damn this is interesting isnt it?

.x.x.x.

[CHIMO]

2. Doesn't

Have to be from Germany. Just someone that can pull the whole concept together.

[Statistical]

3. Greece can't devalue or deflate. They can't print money.

Unlike US Treasury, Greece no longer has the ability to print their way out of problems.

EU Central bank controls monetary supply and they won't devalue entire Euro zone to help one country.

No Greece will need to grow its way out. If growth rate > deficit then they will be able to shrink size of debt relative to GDP.

However it is very hard to grow at any meaningful rate (3%+) in a recession when you can't deficit spend.

Greece look to your right, that is a rock. Look to your left, that is a hard place.

[roamer65]

4. They will leave the euro and a massive currency crisis will result.

They have no choice.