Greek crisis still unsolved

     Late last year Greek bondholders agreed to take a haircut. Also the unreliable elected Prime Minister George Papandreou resigned. He was replaced by the unelected EU approved Lucas Papademos.
    But the Greece situation is still not sorted out even as press attention focuses on Italy and even France. The creditors banks and hedge funds are locked in battle with the Troika--the EU, IMF and European Central Bank and in negotiations with the Greek government.
   Some of the bondholders are reluctant to accept the 50 per cent haircut. There is a conflict of interest in that some debt holders who hold insurance in the form of credit default swaps can actually make money if Greece defaults! However Angela Merkel has urged that Greece be given a chance and that IMF austerity may work as it has elsewhere she claims. But Greece is already in recession and it is not clear how austerity measures will increase production. Quite the opposite by reducing demand it will probably lead to a further decline in GDP making the debt load worse. For more see this article.
    A more detailed account of the crisis can be found here.  The Troika is seeking a deal that would see Greek's debt fall from 180 per cent of GDP to 120 per cent. The talks broke up last Friday without a deal . If a deal is not reached Greece will not get the next installment of its bailout money. Within a couple of months Greece will be unable to pay its bills if this happens.
   The IMF warns that if creditors make the terms even harsher they could win only to see Greece default a situation much worse. Many analysts such as London based Professor Costas Lapavistas are concerned about the situation. Lapavistas says: "There is rising despair in Athens," "There is sullen anger and a lot of fear. The mix is combustible."
  Even if an agreement is reached it will do little but buy time for what looks to be an eventual default. Unemployment in Greece is a horrendous 18 per cent. Investment is collapsing both public and private.The  Greek economy has already shrunk by more than 15 per cent. With the economy shrinking further there is little hope that the debt burden will decrease.