Greek PM Lucas Papademos was as dramatic as he could. Speaking at the cabinet meeting under the shadow of the resignations of six members of his government, Papademos stressed that he will do “whatever it takes ” to get the ratification of the new loan agreement and the austerity package by the parliament. “We cannot allow Greece to go bankrupt,” Papademos told his cabinet and warned that whoever disagrees and will not vote in favor of the programme cannot remain in the government.”
Further he revealed the impact of a Greek default, criticizing at the same time those claiming “Better Default than painful austerity measures”, as he said describing them as “grievously mistaken” and dangerous demagogues”.
Papademos: Impact of Disorderly Default
“A disorderly bankruptcy would throw our country into a disastrous adventure. Circumstances would create economic chaos and uncontrollable social explosion. The adverse consequences of a disorderly bankruptcy would be multiple and extremely painful for the Greek economy and society.
The state will be unable to pay salaries, pensions, to cover basic functions, such as hospitals and schools, as it still has a primary deficit of 5.2 billion euro.. That the state revenues are insufficient to cover expenses, even if we would stop to serve the debt.
The direct spending cuts, to which we would proceed in case of a disorderly bankruptcy, would result into real wages and pensions collapse, especially since it would be even more difficult to collect taxes.
The import of basic goods such as medicines, oil, machinery, etc., would be particularly problematic, as the country, both the public and the private sectors, would lose all access to borrowing and liquidity would shrink. Businesses would close in mass, unable to raise financing.
In case of a disorderly default the living standards of the Greeks would collapse and the country would drift into a long spiral of recession, instability, unemployment and destitution.
These developments would lead sooner or later to Euro exit. ….
We look the Greek people in the eyes under full sense of the historical responsibility. The social cost that rises from the [austerity] programme will be limited in comparison with the economic and social collapse that will occur, if we do not accept it.” (sources: To Vima, Proto Thema)