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Greece bought itself more time Friday for Prime Minister Alexis Tsipras to continue his push for less imposing austerity measures tied to reconciling the country’s debt load. Greece and Eurozone finance ministers reached a deal to extend the heavily indebted country’s rescue by four months.
German Chancellor Angela Merkel and other hawks in the currency union appear willing to cede some ground in allowing the Greek economy breathing room to grow again, but many members are largely in favour of holding Greece to the strict conditions of its international bailout.
As the 19-member Eurogroup continues to weigh Greece’s options in Brussels, Marc Faber wonders how long it will take for them to wise up, cut their ties, and give their head a shake as to why the country was allowed to join in the first place.
“In my view it’s inconceivable under any condition that Greece will be able to repay their debts. That should be clear. I’m more interested in what happens if Greece leaves the EU or is kicked out of the EU, which I think would be the right thing,” said the editor and publisher of The Gloom, Boom & Doom Report.
While the impact of a Grexit could have toppled the Eurozone had the Greek debt saga reached a boiling point at the height of violent anti-austerity demonstrations in Athens and double digit jobless figures, today the risk of a domino effect of countries leaving is much diminished. Unemployment has fallen and failing banks have recapitalized.
Faber is on the fence about a potential parting between the EU and Greece – he says the odds are 50/50 – but what he is sure of is Greece’s role as dead weight in the grander scheme of Eurozone prosperity.
“The EU should never have taken Greece as a member. When the first problem occurred a few years ago, they should have written off Greece right away. But no, the central bank and the ECB supported by the Federal Reserve, they kicked the can down the street and leant them more and more money with the result that Greece now owes the EU and banks in the EU to the tune of $250 to $300 billion,” he said.
Analysts warn that a Grexit would be both costly and complex, speculating that bank machines would have to be shut down to prevent mass withdrawals and thousands of mortgages would have to be converted to a new currency. Faber says the currency ultimately stands to gain in Greece’s absence.
“I believe it will strengthen not weaken because the Euro needs strong countries not weak countries. We have to take a write off at this stage if Greece leaves,” he said.
BNN commentator Kevin O’Leary says there isn’t a policy fix for Greece’s problems, and the Eurozone shouldn’t make room for a member that’s unable to collect taxes effectively. He says Greeks have to undergo a cultural shift to embrace the merits of being taxed, and their government has to punish those who refuse to comply.
“Until they do that, Greeks won’t pay tax and they never will. Part of the culture of Greece is to celebrate the fact that you can have a swimming pool and you don’t have to pay the tax,” said O’Leary.
Faber holds out little hope for Greece, even with improved growth prospects stemming from the European Central Bank's €1.1-trillion quantitative easing program.
“The ECB could buy all the Greek bonds or lend them the money. It’s futile. They money won’t do anything to Greece. It won’t help Greece. It will keep it kind of afloat. In the end, instead of foreign debt between $200 and $300 billion, Greece will have a trillion dollars in debt,” he said.