I was speaking to a European Commission insider over the weekend whose take on the situation was (these are his views and not necessarily mine):

• The Greeks lied to gain entry to the Euro and simply cannot sustain membership. It would be better for everyone, including Greece, if they left. The Germans would take a hit of about 100 billion but they deserve it because membership of the Euro has subsidised Germany.

• The Italians are generally OK except for their series of corrupt governments. They make things and have a real economy.

• Portugal does not have an economy to sustain membership of the Euro. While they did not have a property bubble, they just do not belong and membership of the Euro is affecting their cost competitiveness.

• Spain is in denial about what it has to do to maintain membership of the Euro. Spain has not accepted its losses on property and banks. However, Spain has an economy and can work through any problems if it makes the right decisions.

• No one really cares about high levels of government borrowing, It is perfectly natural and acceptable for a country like Ireland to have a debt of 100 billion as long as the interest gets paid and the economy of growing.

Make of this what you will.

My response was that the Germans knew the Greeks were lying but wanted them as part of the Euro at any cost. Yes the Greeks were lying but the people to whom they were lying either believed the lies, did not question what they were being told or accepted the lies but felt it would be alright in the end.

They took a gamble and lost and now they have to pay.

The Euro was and still it a vanity project dreamed up by the Germans and French and supported by a commission that lives in its own world - witness its recent attempts to get a substantial budget increase. It was not just the commission that ignored the Greek lies: it was the architects of the Euro project who pushed it through. They wanted Greece as a member because it gave the Euro coverage to the periphery of the EU.

The Germans accepted the lies because of the substantial benefits they have derived from the Euro. They have been the real winners to the amount of trillions.

I tool was surprised about the comments on Portugal: no one cares.

I do not accept the comments about debts. But then again look at what any normal person would regard as unsustainable debts by countries like the US, UK and France - USD20 trillion by these three countries alone. Yet, these debts are being sustained.

The comments about Portugal betray a hubris that is a bit scary and should trouble residents of other countries that don't matter like Finland, Ireland, Latvia, Austria etc. I would add Belgium but since that's where the Eurocrats reside, I assume that Belgium "matters", despite it's dysfunctional democracy.

Very telling comment. In my 16 years of dealing with Commission officials from various DGs and all MS, the one thing they all have in common is an extraordinary contempt for smaller member states. There is a persistent mindset that says that the 'real' EU is Fr, Ger, UK, Italy, Sp, Bel, Poland, Neth and Lux and the rest are either irrelevant and tiresomely good (Scandinavians), irrelevant and tiresomely troublesome (Greece, Portugal, Ireland, Bulgaria), or just irrelevant (pretty much anyone who acceded post 2004, Poland aside).

There's an obvious case there for the 'irrelevant' countries to come together to cooperate in a closely aligned block/blocks.

The European Central Bank is now taking risky measures to help save Athens from its acute financial emergency. Increasingly, euro-zone leaders are pushing the dirty work on the ECB. In the end, though, they will likely have no choice but to pay Greece the next tranche of its bailout package.

"There is no time to lose," Jean-Claude Juncker warned just a few days ago. Leaders must use "all means at their disposal" to save the currency union, the head of the Euro Group said. But one thing is becoming clear: Politicians are increasingly pushing the dirty work on to the European Central Bank (ECB).

Take Greece, for example, where liquidity is becoming scarce. The government in Athens needs to repay a maturing bond worth €3 billion ($3.7 billion) to the ECB by Aug. 20. The solution to that problem seems paradoxical: The ECB itself is pumping money into Greece, so that the country can in turn repay the ECB.

It's a controversial plan, because the central bank is prohibited from financing governments directly. As a result, no one is talking openly about the absurd flows of money. The ECB has only hinted that it will extend a helping hand to Greece.

Now, information has leaked regarding how the ECB plans to keep Greece on its feet until the next tranche of European Union-International Monetary Fund aid is paid out. The ECB has chosen a detour via the Greek central bank. It will allow it to issue additional emergency loans to the country's banks. These in turn are supposed to use the money to buy up Greek bonds with short maturities. This will scrape together €4 billion, according to the plan.

The Greek central bank will accept the dodgy bonds as collateral, and will provide the country's equally troubled commercial banks with freshly printed euros -- which ultimately come from the ECB.

Draghi Jumps In To Save Euro

What is particularly absurd is the fact that, for the past two weeks, the ECB has no longer been accepting Greek government bonds as collateral for its refinancing operations. But the Greek central bank -- which in reality is little more than the Athens branch of the ECB -- is still allowed to accept them. The fact that the euro bankers are willing to go through such contortions shows just how precarious the situation is. At the moment, a Greek default is being fought off from week to week -- and politicians are trying to duck responsibility.

In theory, Europe's leaders created the temporary euro rescue fund, the European Financial Stability Facility (EFSF) and its successor, the European Stability Mechanism (ESM), precisely to support countries facing financial bottlenecks. But providing more help for Greece would be a very tough sell for Europe's politicians. Chancellor Angela Merkel would have to get the consent of the German parliament, the Bundestag, which could prove tricky. And Merkel's junior coalition partner, the conservative Bavarian Christian Social Union (CSU), has been adopting an increasing shrill tone against Greece lately -- meaning that the government could plunge into crisis if the chancellor supports more aid for Athens.

For some weeks now, it has been clear that the Greeks would run out of money this summer. And there is no emergency backup plan in place. Everyone has instead counted on the ECB. For his part, ECB chief Mario Draghi seems to have accepted this and allowed the leaders of the euro-zone countries to force him into the role of the pragmatic emergency helper.

For now, the priority for Greece is to keep its head above water until it receives its next planned bailout payment. The troika overseeing Greece's aid package, comprised of the European Commission, the ECB and the International Monetary Fund (IMF), is expected to decide on the payment of the next tranche of €31 billion in September.

The partner countries initially held back that tranche in order to pressure Greece to undertake greater austerity measures and reforms, and the troika is currently reviewing whether the government in Athens has fulfilled those demands. In the end, though, the controllers are unlikely to have any choice but to disburse the money. Otherwise Greece could face an unstructured bankruptcy, with economic consequences that would be difficult to foresee.

has increased risks for Bulgarian banks with respect to the provision of liquidity and capital."

Romania has the second largest exposure to the problems of the Greek banking sector. At the end of 2011, Greek banks held 13.3 percent of Romania's banking sector assets, according to Unicredit Group's estimates.

In an extreme scenario of strong pressure in Greek banking system, there could be an acceleration of the deleveraging process in Romania, said Dan Bucsa, senior economist at Unicredit Tiriac Bank.

However, he added, "we don't expect a rapid drawdown of capital, since 70 percent of lines extended by Greek to local subsidiaries have maturities longer than one year and liquid assets are limited to less than 2 billion euros."

But if Greek banks are in a hurry to sell their liquid assets that would also affect the yields, warned Bucsa, adding that "the biggest two local banks with Greek capital held some 0.6 billion euros in Romanian government bonds in March 2012."

Elsewhere in the region, Serbia is now struggling to reach an agreement with IMF, which may act as a buffer to contagion troubles, since Greek banks have lent over 18.5 percent of Serbian GDP to local entities.

Tiny Albania is related to Greece and Italy not only via banking sector, but also through its remittances which provide an important source to feed the country's current account.

Last year Albanians workers sent back home more than 830 million euro, less than in previous years. Italy and Greece are the main commercial partners for Albania, amounting up to 70 percent of total merchandise trade by volume, so the economy could be affected by problems in peripheral eurozone.

there is more

LONDON--The spread of bad loans because of Greece's long-running recession threatens the viability of the country's financial system and jeopardizes the already slim chances of success for the country's second bailout deal, senior Greek bankers warned.

Senior banking officials in the euro zone's most troubled country say that they are now labeling as bad 20% of their loans to the domestic economy, as the recession and successive waves of budget cuts deprive companies and households of the means to repay their loans.

there is more

The "We're not Greece" mantra is frightening the hell out of me it actually reminds me of the period of the "Soft Landing" mantra that also gripped the nation.

Over the next two years, Greek house prices are set to fall by a further 17% according to ratings agency, Fitch.

Since 2009. prices have already fallen by 20%, and the total decline is set to be 37%, if Fitch is correct. however, the agency reached its conclusion on the assumption that the recission, and austerity measures will weaken in 2014. If they don't, the reduction in house prices will fall even further.

If Greece leaves the Eurozone, the agency says prices will be in freefall and it is impossible to predict exactly how far they will plummet.

<snip>

Unemployment, will rise from May's 23.9% befor falling in 2014 to 18%

Never fear, OW, there's no danger of us turning into Greece. That would require a population prepared to say "enough is enough".

Greece has always had one of the lowest suicide rates in Europe, but its economic crisis has triggered a disturbing increase in the number of people killing themselves.

On July 16, a businessman and father of three hanged himself in his shop on the island of Crete. A 49-year-old man from Patras was found by his son. He had also hanged himself. On July 25, a 79-year-old man on the southern Peloponnese peninsula hanged himself with a cable tied to an olive tree. On August 3, a 31-year-old man shot himself to death at his home near Olympia. On August 5, a 15-year-old boy hanged himself in Pieria. And, on August 6, a 60-year-old former footballer self-immolated in Chalcis.

"Don't walk like a robot! Open your spirit!" one note written in red letters on a piece of cardboard reads. The lines that Dimitris Christoulas wrote in a suicide note are engraved into a marble plaque.

http://www.spiegel.de/international/eur ... 50129.html