...and it won't be pretty.
The second IMF/ECB agreement with Greece (the one Greeks protested in late May and June) is dead on arrival. For a number of reasons.
One, the Finnish have demanded collateral from Greece and thereby undercut the size of the program.
http://online.wsj.com/...
Two, European politicians are rejecting the terms of the agreement and forcing their elective reps, the ones who made the agreement, to back off.
http://blogs.wsj.com/...
Three, austerity measures in Greece have caused the country to miss its targets. While the Greeks have slashed their gov't budget by an amount that is totally unprecedented in EU history, the concomitant drop in their economy is forcing them to miss their IMF/ECB targets (one might note that this has happened in every single country which has undergone IMF shock therapy, which begs the question why anyone expected any different).
http://www.telegraph.co.uk/...
Four, a recession is taking hold in Europe. Thereby making it more difficult for the peripheral countries to rebound out of the debt doldrums.
http://www.bloomberg.com/...
Five, see link above. The ECB is vexed by Italy's unwillingness to carry out austerity measures, and this has totally unnerved the core countries.
Also, on Italy: http://www.ft.com/...
Six, European politicians and bankers are running for cover. Panic is setting in.
EXHIBIT A for point six: A junior partner in Merkel's gov't says Greece isn't keeping its word:
"This is not about non-binding statements of intent, but contractually secured reciprocity for the emergency loans," he said. "We insist these agreements are observed."
The argument goes that because Greece's economy isn't growing, the Greeks have broken their word. Someone should tell the Greeks that they promised that their economy would grow fast.
The Greek reply: http://www.washingtonpost.com/...
"You're killing us."
EXHIBIT B: Germans are making alternate plans for Europe. Break-up the Euro:
http://www.ft.com/...
Seven, get a load of this WOW event that occurred within the last few days. Greece and the IMF/ECB are at public loggerheads for the first time:
http://www.google.com/...
Some analysis under the fold:
Greece is not finding enough takers for the bond swap plan agreed to in the early summer:
http://www.nytimes.com/...
Many are perplexed as to why banks would not take this incredibly attractive deal for banks, to exchange their horrid debt for a very small haircut. Greece barely benefits from this. Greece, seeing that it doesn't have enough takers, realizes that it can't make the new agreement work with so little bank participation. Worse, the EU is spooked at the recalcitrance of banks. They must be refusing the 20% haircut on Greek debt (it should be a 60% haircut!) because those losses might be enough to bankrupt the banks themselves!! Greece can't agree to these bank swaps if it eventually means that Greece will suffer a horrid default anyway (more on this below, as to why Greece can't agree to do this).
So, now what?
IMF source expects a calamitous Greek "hard" default soon: http://www.businessinsider.com/...
What would be the result of a hard default?
Bank collapses, eurozone interest rates skyrocket because of instability in the zone, increased pressure on huge countries such as Spain and Italy, collapse of the Eurozone and therefore: Depression, according to some Euro ministers:
http://www.reuters.com/...
The Flemish part of Belgium is already clamoring to be let into the northern league's new currency formation!
This is all imminent. There is no leadership in the banks, since accepting the terms of a haircut means many of these banks would be treading water. Therefore, the hard default will end these banks altogether as the executives parachute out and leave the life-savings of dowagers divebombing into a scorched landscape.
So, why doesn't Greece play ball?
Because the deal with the banks needs to be comprehensive. There needs to be more European unity instead of demands for collateral and a Greek exit from the euro. Otherwise, there's no point in Greece going along. Why? Because 95% of Greek debt is encumbered by legal authorities residing in Greece itself. Which means, when vulture funds inevitably scoop up the charred remains of Greek bonds for pennies on the dollar, they will litigate a full recovery of the money lost to a Greek default in Greek courts. Good luck with that, you vultures!! The EU tried to create a bridge over this "problem" by instituting a debt swap that would issue new debt for Greece to replace the debt issued IN and BY Greece, and the new debt would be litigated internationally. Which means Greece would be on the hook for eons for all the money loaned to it (and then recycled to banks) at incredibly high interest rates.
Greece simply will not sink the country in perpetual servitude the way African countries have been sold off to vulture funds, not without lead-pipe assurances that the eurozone will hold together and that Greece will be allowed to remain inside the eurozone.
That's not going to happen.
Absent eurobonds (which the publics of the Netherlands and Germany absolutely refuse to allow even if issued by the ECB and not Germany itself), there is no way out. We are looking at a Greek default (which would be horrific for Greece) followed by the collapse of European banks, followed by a recession/depression in Europe, followed by big problems for the American economy as one of our largest trading partners enters a very dark period.
Oh, I haven't even mentioned the CDS' that American banks have been selling like morons!! [EDITED]
If Obama doesn't survive the next election, it may not matter at all, since whoever emerges victorious will be dealing with AT LEAST four years of calamitous recession regardless.