Stratfor: A number of other eurozone nations, however, are facing fiscal situations nearly as difficult as Athens’, and the European Union may decide to make an example of Greece to encourage other high-spending nations to cut their debt levels.
The roots, Stratfor explains, are from over-spending:
Greece is considered one of Europe’s most notorious overspenders. Even prior to the current crisis, it was fighting high budget deficits, primarily caused by high social spending, a symptom of the country’s ever-present social tensions.
That has caused soaring deficits:
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The Greek banking sector is also in trouble:
Stratfor: Greek exposure, particularly to the Balkans, is therefore troubling for the overall economy. The fear is that, unlike the larger Italian and Austrian banks, Greek banks will not be able to refinance loans or absorb losses of affiliates abroad.
Greek banks have thus far drawn around 40 billion euros of cheap credit from the ECB, out of a total of around 665 billion euros extended to all eurozone banks. This represents between 6 and 7 per cent of total ECB outstanding liquidity, much higher than the Greek share of EU economy (2.5 per cent), and puts Greek banks second only to the Irish in terms of dependence on ECB emergency liquidity.
The basic economic indicators aren’t good:
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So what to do? Stratfor notes that balancing the budget (resulting in high unemployment); leaving the Eurozone (which would kill its ability to raise funds); and defaulting on the debt (which would “sever Greece from capital markets”) are all unrealistic options.
Only bailout remains:
Stratfor: That leaves an internal European bailout. Here the obstacle is Germany. The Germans feel that they have already bailed out all of Europe — twice (once by absorbing East Germany without a cent of assistance from the rest of the Continent, a second time in absorbing so many small and weak economies into the eurozone which Germany underwrites).
If Germany is to sign off on a Greek bailout, therefore, it will only be under terms which give EU institutions an unprecedented ability to regulate Greek finances. Since Athens has already signed away monetary policy in order to accede to the eurozone, all that is left is budgetary control.
Problem is, it’s not like others in Europe have lots of extra funds:
[image url="http://static.businessinsider.com/image/4b2253d10000000000035af4/image.jpg" link="lightbox" caption="" source="" alt="greek greece budget deficit" align="left" size="xlarge" nocrop="true" clear="true"]
Whatever happens, a Greek collapse could set off a nasty chain reaction. As Stratfor analyst Peter Zeihan told us for a feature on 10 Looming Geopolitical Disasters, “Greece is going to be plowing the way, and where Greece goes, Italy may follow. Spain may follow shortly thereafter.”
“We just don’t know what’s going to happen,” says Zeihan.
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