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i say

GREECE IS TOO BIG TO FAIL AND TOO SMALL TO SUCCEED

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Greek Finance Minister George Papaconstantinou has the European Central Bank over a barrel and doesn't even know it. If he had a handle on the situation, he'd thumb his nose at the ECB's austerity measures, and demand a no-strings-attached loan package to help his country get through the current rough patch. Instead, he's carrying on like a faint-hearted schoolboy. Papaconstantinou is concerned that Greece's dire economic situation will lead to default and capital flight. But his fears are overblown. The ECB is not going to let Greece default and trigger another Lehman Brothers-type meltdown. That won't happen. The Finance Minister needs pull himself together and realize that he's in the cat-bird seat.

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There's no excuse for the Finance Minister not knowing what to do. The path has already been cleared by trailblazing investment banks in the US which have used the Too Big To Fail mantra to extort trillions of dollars of public funds. No one has imposed "austerity measures" at Goldman Sachs or Citigroup, nor will they. If Papaconstantinou plays hardball, he'll get the same treatment which will help his people dig out of the current slump. It just takes a bit of political moxie. Here's how economist Bill Mitchell sums it up on Billy Blog:

"Is the Greek government close to default? Answer: not even near it. The ECB will not allow that to happen. It would destabilize the Euromonetary system. The financial crisis has exposed the cracks in the arrangement. But as long as the citizens do not revolt as the real sector is squeezed the ECB will keep funding the Greek government.The alternative is to leave the EMU and restore currency sovereignty. Even though this would be a difficult transition back to the Drachma it would be a path worth taking in my assessment. I would also relieve all voluntary constraints which force debt-issuance and restore domestic demand and employment. But that will not be an option the Greek government takes. Their northern neighbours will make it very difficult for them to do that even if it means compromising the rules of the EMU. They know that if Greece leaves, the next cab on the ranks looks like being Portugal." (Bill Mitchell's Billy Blog)

Greece's problems are just the tip of the iceberg. Portugal is next in line. All of the so-called Club Med countries (Portugal, Spain, Italy and Greece) have serious debt-overhang problems that could lead to default if the right policies are not put in place. The magnitude of the crisis has exposed the vulnerability of the eurozone system. Critics have begun to question the feasibility of the EMU (European Monetary Union) where the needs of the individual members are so dramatically different. Perhaps a "one currency" system is not the best way to go, after all.

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