Not Going To Work

After 13 hours, Euro zone finance ministers got another bailout for debt-laden Greece. This is the second bailout for Greece as European leaders are desperate to keep Greece within the Euro zone.

It’s not going to work. I think given the scale of the problems besieging Greece at the moment, European leaders need to accept the inevitable. Greece cannot be saved and they need to bit the bullet.

Even with the bailout passed by the Euro zone finance ministers, Greece's debt would only be cut to around 121% of its GDP (gross domestic product) by 2020. That is if everything goes well. So in the best case scenario; in 8 years time, after years of strict measures imposed by the European Central Bank (ECB), if all goes according to plan, Greece's debt would only be cut to around 121% of its GDP. Is anyone truly happy with that?

Europeans leaders have been trying for many years to save Greece and it has been failure after failure. If 121% of GDP is the best they could come up with, then wouldn’t it be more advisable to just write off the whole thing? I mean under this latest bailout, private investors will see a cut on the value of their bonds to a loss of around 75% anyway!

The bottom-line is that the bailout will cost Europe 130 billion euros (made up of 130 billion euros in fresh loans and 100 billion euros in write-downs on privately held Greek government bonds) and the debt will only be cut to 121%. I just cannot see how Greece is worth that much money for that bad of a result.

And that is in a best case scenario! Can you see things going wrong? I sure do.