It is sometimes hard to explain macro-economic events to people not schooled in the concepts.
And then there are times like this, when the idea is very simple.
For instance, Greece simply doesn't have any money left.
Almost everyone, from the German public, to Merkel's coalition partners, to Citigroup, expects Greece to exit the Euro.
"Cash reserves are almost zero. It is risky to say until when [they will last] as it always depends on the budget execution, revenues and expenditure," Deputy Finance Minister Christos Staikouras told state NET television.
"But we are certainly on the brink, we did not receive the aid tranche we were supposed to and we have the pending issue of an ECB bond maturing on August 20."
This has led to the Greek public withdrawing their money from the banks and sending it out of the country before a default and devaluation.
All that money leaving the financial system (plus the economic depression and austerity measures) has left the country cash short and totally dependent on international loans.
This has created an unusual opening for alternative currencies.
Last month there was a lot of news about bitcoin being more stable than the Euro, with more and more investors transferring their funds into these types of currencies.While things are critical in Greece, the real problem is Spain. With a 24.6% unemployment rate (53% among the young), Spain is in economic crisis. The regional government of Catalona is so broke that 100,000 workers will simply not be paid. The problems extend to the private sector.
While bitcoin is still popular in Greece, and still growing in popularity by the day, another currency by the name of “TEM” is being used locally by the city of Volos.
According to a recent article at radicalsocialentreps.org :After creating an account, members do business with each other using TEM credits. New members are allowed to deficit-spend up to 300 TEMs, which is effectively an interest-free loan from the community. Only by offering demanded goods and services in return can the new members replenish their balances to keep making purchases.Credits are created according to these guidelines as new members join — no central banking or monetary authority required.The ideas behind alternative systems like TEM aren’t new. ‘Barter clubs’ or ‘LET’ systems have been around for a while. They’re most often successful in conditions of extreme monetary dysfunction; Argentina saw the nationwide spread of barter clubs during their various Peso crises in the late 1990s and early 2000s.
The Catalan Association of Relief calculated that 63% of companies cannot meet the payroll this month.Like Greece, Spain is watching money flow out of the country.
Capital outflows from Spain quadrupled in May to €41.3 billion from May 2011 in a sign of waning confidence in the country's ailing banking sector. In the first five months of this year, outflows reached a record €163 billion, according to figures from the country's central bank.So like Greece, Spain is expected to be asking for a bailout. But that runs into a problem of size. Spain's economy is larger than Greece, Ireland, and Portugal combined. It's not just too big to fail. It's too big to bail out as well.
Over the last 11 months, funds equivalent to 26 percent of gross domestic product exited the country, Tuesday's data from the Bank of Spain showed.
A full-blown sovereign bail-out of Spain would be economically and politically impossible and cost up to €650bn (£510bn), an in-depth study has warned.Ever so slowly, people are coming to the realization that bailouts do not solve problems. They merely postpone them. Bailouts are not a substitute for real reform.
Between now and mid-2015, Spain has funding needs of €542bn, with its banks requiring up to €100bn on top of this. The Spanish regions possibly require another €20bn, according to the study.
A Greek-style bail-out for Spain would bleed dry the eurozone’s €500bn rescue fund, making an alternative solution essential.
“The current bank rescue plan is clearly insufficient, while a full bail-out – which could be in the region of €650bn – is impossible.”
Open Europe said that seven of Spain’s 17 regions have “unattainable” deficit reduction targets this year, as they are expected to achieve cuts worth more than 2.5pc of their gross domestic product.
In America bailing out Wall Street has done nothing but allowed us to avoid making hard choices.
In Europe it has been an even bigger failure. At this point is seems unlikely that the Euro experiment will make it to the end of the year (in its current form) without some major economic and political reform. In fact, the day of reckoning for the Euro is probably only a month or two away.