Tuesday, 20 July 2010

Will Greece default and when?

Probably one of the greatest concerns of the Greek man on the street currently is the question if Greece will manage to cut its debt over the coming four years or if, as an alternative, it will be forced to default on its debt. 

I believe there is a substantial risk that the $110 billion loan from the IMF and the EU will only delay the inevitable. The Greek economy, it is clear, will not grow for the coming two years. Possibly 2013 will be the first year when the economy will show signs of growth. Inspite of all austerity measures which have been introduced, it looks to me as if Greece will have continued difficulties in servicing its debt. For the coming years the IMF loan - and do not forget it is a loan which also has to be repaid - will give Greece a certain security but it will not replace the need of the country to borrow on the capital markets. 

Part of the recent problem and ultimately the reason why the country had to take the $110 billion loan is the fact that it was too expensive to borrow on the free markets. There were high fears on the financial markets that Greece could default and thus the rates for lending to the country were prohibitively high. If a time does not come when there is enough international confidence in the future of the Greek economy then Greece would be forced to borrow at rates it could not afford to pay. In this scenario the only alternative would be for Greece to "restructure" its debt, i.e. default on at least part of it and let the financial markets take what is called a "haircut", i.e. the country could offer to repay 60% or 70% and default on the rest.

Saturday, 27 February 2010

The economy in Greece - austerity measures here we come!


After the previous turbulent week in Greek politics and a nationwide strike, I see the people of Greece now braced for the worst. We await in the coming days news of further tightening of the belts. After a visit to Athens last week by members of the European Central Bank, the European Commission and the International Monetary Fund, the latest revelation is grim. On top of previous calculations, Greece will need to make a further savings of up to Euro 4 billion in 2010 to reduce the budget deficit by the amount targeted for the end of 2010.
Apparently on Friday even the political colleagues of Papandreou were shocked by the grim message he delivered in Parliament. In a nutshell he admitted that the Greek economy is on the edge of disaster and that even waiting until tomorrow will be too late. We must act now. A foretaste, I would say, of what we can expect in terms of austerity measures this coming week. While there is no sign of panic in the country, there is a dejected and depressing if not insecure and uncertain atmosphere. The grim faces of the people on the bus - the eternal winter sales (70%!) which will probably continue to the summer as shops try and survive when Greek citizens have stopped spending money - many because they have none. And the consolation of being a member of the European Union is a weak one - in spite all the talk of offering political support, there is no mention of specific measures to help Greece. Papandreou until now has rejected a financial bail out in any form stating that Greece has its pride and will have to pay off the debts it owes. But time may run out quickly. Greece can service its debts until mid-March. It then has to raise billions in the coming two months to service the next installment. All this at a time when the markets and speculators have turned against the country. Greece's credit rating was downgraded in the previous month for the second time, making it more expensive to borrow money on the international markets.

Where are we going? How did we get into such a mess? Who are responsible - the Greek's themselves? People here today are asking themselves a thousand questions. And always lurking in the background are the rising unemployment figures, now well over 10%. Now we await the visit of Financial Commissioner, Rehn, on Monday, the ideal occasion, one could think, for the unavoidable announcement of further tax rises and measures to save the economy.

Thursday, 25 February 2010

I could not resist this one - Greece bankrupt?

A holiday in Greece? No let's just buy it!

Greece - austerity measures - does Greece need a bail out

Things are grim in Greece at the moment - yesterday we had the country paralyzed by a general strike - government employees, air traffic controllers, bus drivers - an estimated 2 million were on strike some sources say. This is the worse climate I have experienced in Greece in 15 years.

You only have to look at the faces of the people travelling on the bus this morning - expressions were morose, one can even feel other people's insecurity. Unemployment is raising its head even higher and people are simply afraid - and rightly so. How much worse can it get and how did the country get into this disastrous situation in the first place.

There are more questions than there are answers. Let's start with one FACT. In previous years, previous governments cooked the books to hide the national deficit - by fair means and foul. The national statistics office was not independent of the political powers and obviously painted the picture they were told to by the powers on how. PASOK claims when in came to power in October 2009 - it discovered and revealed to the public that the deficit was actually double what the previous government had claimed it to be.

Then we have the issue of a bloated public administration - by the way those in secure jobs and the first to strike because of a pay freeze - that's hardly what I call solidarity. Jobs in the public administration even ridiculous department were created to provide jobs for friends - not to serve better the Greek citizen. Corruption in Greece was a daily fact of life - it was uncommon for a doctor or a dentist to provide you with a receipt for their services - instead the black money went into their pockets and past the taxman. I suppose at some time there had to be an end ot this ugly story - those who earn big salaries - the doctors, the dentists, the lawyers were the most astute at not paying taxes. Taxi drivers went on strike last week because they are going to be forced to issue receipts - i.e. they will have to account and declare their real income - unthinkable in Greece - but the reality of life in the rest of Europe.

And our European friends - both Eurozone and beyond - there is a mixed message, as I see it. On the one hand they feel angered that Greece has shown itself incapable of getting in act and finances in order and ont he other they reaslie leaving the country out on a link could potentially damage the Euro, damage credibiliity in the Eurozone and ultimately political damage the credibility of the whole European concept. They feel caught between a rock and a hard place. Rumours of Greece asking to leave the Eurozone - it cannot be expelled - do not help the situation. The richi n fear of being confronted with the new devalued drachma are getting their money out of the country into Swiss banks - disaster can be a self-fulfilling prophesy.