It is not so much a question of if but when the default will become official. technically Greece is already in default. Greeks concede that the big problem afflicting the economy, now
in its fifth year of recession, is the uncertainty about whether Greece
can stay in the euro and get its act together. Savers are anxious that
their cash might be forcibly converted to a new Greek currency. By
November the Greek banking system had lost a quarter of the deposits it
had two years earlier. Banks have had to borrow $56 billion from the Greek central bank on
top of €73 billion of secured loans from the European Central Bank. Credit is in short supply because banks have had to cut
loans and raise borrowing costs. Informal credit arrangements between
firms are breaking down and many foreign suppliers now demand cash payment
upfront, making liquidity even scarcer.
Few investors or businesses are brave enough to risk long-term bets
on the Greek economy in these conditions. “You can buy good companies for pocket money,”
says one business chief. Assets are cheap but they would become cheaper
still were Greece forced out of the euro. Capital spending is down by
almost half from four years ago; house building has fallen by
two-thirds. The one bright spot is tourism: visitors to Greece were up
by 10% last year, in part because tourists steered clear of the unrest
in north Africa.
There are hopes that the economy might recover next year if Greece’s
place in the euro is confirmed. Agreement on a big new support package
from the euro zone and the IMF would put some minds at rest.
Greek politicians also have to come up with around 3bn euros
in extra spending cuts or tax rises, to unlock the first tranche of the
revamped 130bn euros IMF rescue package, first announced to
the world by European leaders more than six months ago. This means Greece must put public finances on a sustainable path, that would require that private-sector creditors sign
up to a bond-exchange deal that will see more then half of the face value of
their Greek paper written off. For weeks, there has been a clear gap between the amount of debt
relief for Greece that the private sector would "voluntarily" sign up
to, and the amount needed for the IMF or anyone else to be able to say,
with a straight face, that Greek sovereign debt was on a sustainable
path. Many suggest that the ECB will also have to take a write down to help
bridge the gap, but this is only one piece of the
horrendously complicated puzzle that is the Greek "bailout". For one thing, those private sector creditors voluntarily
losing a large part of their shirts still have actually to sign on the
dotted line. That assessment already looks too sanguine as the headwinds facing
the economy are proving much stronger than had been forecast. Greece’s
GDP probably fell by 6% last year, far more than expected as a weaker
economy has made it harder for Greece to meet its fiscal targets.
The Greek central bank’s figures show that bank credit to households
and private firms fell by 2.4% in the year to November. Banks suffering a
drain of deposits have had to husband their liquidity. Official lending
figures do not reflect the drying up of other sorts of credit. An
informal system by which firms used postdated cheques to pay for
supplies has also broken down. Firms complain that the
government is slow to pay value-added-tax (VAT) rebates, making the
liquidity shortage worse. While public opinion also still favors the euro with more than 70% of Greeks say
they want to stay in the single currency, from where will Greece get the
breathing-room it needs to right its economy? It has to convince its
rescuers that they are not throwing good money after bad. A deal on
private-sector losses is only a first step; it seems likely that the
euro zone will also have to stump up more money than expected to keep
Greece going.
There is huge pressure for the
Greek political leaders to agree a deal but a package of cuts
and reforms would go down very badly with an austerity weary Greek
nation. Some of the proposed ideas include cutting
minimum wage by 22%, reducing supplementary pensions by 15% and possibly basic pensions as well, and cutting 15,000 public sector jobs by the end of 2012. Oh yes, and after they have done all that, those same Greek
politicians may have to agree, at Germany's request, to let the new
money go into an account with a big EU-IMF padlock on it, marked: "Use
first for paying off bondholders. Payments to Greek government itself
only under advisement." You can imagine how much Greek voters would love
that.
If the Greek government does not sign up to all this, it is difficult to see how
Greece avoids a formal sovereign default in the next few weeks.
European officials are said to be "exasperated" with all the
delays. But they cannot be entirely surprised. If I were a Greek
politician, faced with these options, I'd be pretty keen to put off any agreement as protesters gather in the streets and outside parliament in Athens. Eurozone ministers insist that the
Greek coalition gives "strong political assurances" on the
implementation of this "program" as the world looks on. It is clear that
Greece cannot service its huge debt, we must face reality and our fears that
a default could endanger Europe's financial stability and even lead to a
break-up of the Eurozone.
THE 2/13/2012 UPDATE
Trips that I have made to
Greece over the years confirm that it is a lovely but very poor country
where the fastest growing occupation may be that as a pick-pocket in
Athens. As I write this Greeks are rioting in the streets. The economy
has ground to a halt. The most recent austerity measures have been
passed that will allow the next phase of the bailout to move forward,
but passed not without a cost.
This is not, and should
not be a surprise or a reason for celebration as members were pressed
hard to pass the package under the concept of "vote for the awful or be
prepared for worse". About 40 of the elected members of the Greek
Parliament have been "expelled" because they would not vote for the
austerity package. Point is these austerity measures will not be supported by the masses
Little
coverage by the media of the massive protest in Portugal is making the
airwaves. Is this a glimpse of what democracy will look like across
the world in coming years? Another circus, a farce, a sham, lie stacked
upon lie, this a another gimmick, we are seeing the can is again being
kicked down the road. It seems our whole "system" is a lie and that is a
fact. Democracy is being redefined to mean "they will do with us what
ever they want to."
. .
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