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Christopher Mahoney
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I spent eight years at Bank of America in New York (1978-86) covering Wall Street, then moved to Moody's Investors Service where I worked for 22 years, covering banks, sovereigns and corporates. I chaired the Credit Policy Committee for four years. I retired in 2007 as vice chairman.
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  • Will Greece Finally Submit? 0 comments
    Jul 17, 2012 12:19 AM

    As someone who is not an admirer of European social democracy in any of its costumes, I observe Greece's financial spasms with clinical interest. For over two years, Greece has promised austerity in order to continue to get more handouts from the EU. Many repeated promises, but no actual public sector layoffs or social welfare cutbacks.

    As we sit here, the Greek political class is searching for a way convince the Troika to fork over more money without having to lay off one single state employee. They need the money really really bad right now, because their government revenue is spiralling downward. They can't raise revenue and they can't borrow, so they have to get paid right now as in, like, yesterday.

    The Troika, so far at least, has not blinked. They want to see parliament pass and the government implement the austerity legislation that they have so painstakingly dictated (see: "Germany plays with Greece", Feb. 9th). Cut spending or no more handouts.

    The Greeks have leverage: Give us the money or we will repudiate all of our debts. In the past, this threat has been successful. It may yet be again. But, as I say, so far the Troika hasn't blinked. The longer the Troika doesn't blink, the more desperate the Greeks will become because it appears that they are really about run out of money.

    They face an unpalatable choice: pass the legislation, lay off a lot of people and face riots; or, default, repudiate and redenominate. While redenomination will allow them to pay all of their employees and social dependents with Monopoly money, it won't allow them to import anything unless it can be used to buy hard currency. That is a hard constraint.

    The political class cannot imagine laying off state employees or cutting welfare programs, so they can only play games with the Troika. But it appears that they will soon have no choice but to obey the Troika's diktat.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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