November 4, 2011
Opinion
THE multibillionaire investor George Soros uncharacteristically hedged his bets when asked for his opinion on the most recent bailout deal for Greece.
Revered and reviled in equal measure by investors, politicians and the media, the Hungarian-born American, who famously broke the Bank of England in the early 1990s, predicted last week that the European Union rescue package would last for between ''one day and three months''.
He didn't have to wait too long to be proved correct. Only four days after the europhoria that propelled Wall Street to its strongest gain in years, the deal was in tatters.
Greece, the country in desperate need of the bailout to stave off economic chaos, isn't sure it really wants the cash. Or at least the Prime Minister, George Papandreou, isn't sure he will survive politically if he agrees to the stringent austerity measures attached to the bailout, which will confine his countrymen to years or even decades of economic hardship.
His decision to hold a national referendum, in spite of the urgency to resolve the crisis, has been met with stunned disbelief by leaders of the world's 20 biggest economies meeting in Cannes in a desperate effort to avert a full banking and financial system meltdown.
Perhaps it was best for the whole thing to fall apart at the outset because the emergency package, announced last Friday, clearly fell short of what was required. The package did not contain anywhere near enough cash to rescue Greece and the banks that recklessly lent to the bankrupt nation, let alone the looming debt problems in Spain, Portugal, Italy and Ireland.
Even more worrying, it relied on pumping even more debt in to solve the debt crisis, along with vague plans to press-gang a clearly reluctant China into supplying the readies.
As has been the case for more than a year, it was too little, too late. And, as Soros pointed out, the rescue deal did nothing to solve the crisis. Greece would still be insolvent and further austerity would not make it solvent.
But what is the alternative? If Greece quit the European Union and reverted to the drachma, its currency would be so debased it would never be able to repay the debts. Such a move would trigger the banking crisis European leaders and global financiers are desperate to avoid. And it would throw Greece and nearby nations into social turmoil.
The crisis has reopened old wounds within Europe. The German Chancellor, Angela Merkel, has poignantly pointed to the need for the EU to remain intact, arguing that countries with a common currency do not wage war with one another. Her countrymen, meanwhile, are railing against Greek profligacy.
The French leader, Nicolas Sarkozy, has expressed regret that Greece was allowed to join the EU in the first place and Greeks have raised Germany's ugly past.
There certainly won't be much time during the next few days for the beach or sightseeing in the south of France for the Gang of 20 world leaders, including the Prime Minister, Julia Gillard.
But don't expect a quick resolution. Instead, prepare for more uncertainty and turbulence on financial markets.
