While I make no pretence of being an international financier, much less someone able to predict the actions of foreign governments that operate in another alphabet, my gut now says George Papandreou’s jaikit is on a shoogly nail. Despite cramming bitter fiscal austerity down the throats of his country(wo)men so that the country can repay emergency transfusions of £45bn from France, £30bn from Germany & £9bn from us, the patient is now resisting treatment, especially by more bitter medicine now being mixed in the lab,

What’s the down side of their being bolshy? Why agree to the terms of any rescue package if terms can be improved by keeping the streets alive with protest? Greek default would destabilise EU economies and possibly the global ones too. The IMF is therefore likely to keep funding Greece’s ballooning public debt.

Opposition leader, Antonis Samaras, stands foursquare against the bailout. Crowds protesting in the center of Athens have followed suit, calling the EU/IMF plans acts of “evil foreigners” to “subjugate the proud Greek people.” Dissent carries little cost as foreign creditors have little choice but to fund the country.  Papandreou has hardly led by example, avoiding any clash with public unions, which are strongly opposed to any idea of privatisation or modernisation. As a result, the private sector has taken much of the austerity pain and not one Greek public servant has been laid off.

EU leaders could have put conditions on the first bailout or stated that this new one was the very last. But they didn’t. They evaded the tough questions and tried to cover for the French and German banks that took bad bets on Greece. And what have they wound up propping up? One of the world’s sickest economy, whose heart for the last 40 years has been dedicated to providing benefits to public-sector clientele.

As long as a second bailout is still a possibility, the Euro will stay propped up. But with a Greek default looking more likely (and from the perspective  of a Greek worker, even desirable) by the day, the Euro’s year long bull run could backpedal fast. And, if Greece does fail, all bets are off. It will have to invent a mechanism to leave the Euro, which will fall through the floor as a result. The Greeks will revive the drachma, promptly devalue it and thereby slash their debt at a stroke. Spending  the next decade in purdah will be eased by boosts in tourism as prices become competitive.

This will be somewhat offset by the fact that the Euro will have fallen too. But ince that will have made German exports even more competitive, their boom will accelerate, taking much of the eurozone with it. So, impoverished but recovering Greeks, damaged but booming EU and the remaining world economies suddenly finding themselves uncompetitive against both.

Why wouldn’t both Papandreou and Merkel want to take it over the brink? Dig out your old drachmas!