Palm Beach, FL 2/23/12 (StreetBeat) -- The Eurogroup welcomes the latest EU130 billion agreement to bailout Greece. They also welcome the approval of the deal by the Greek government and their commitment to further austerity now and in the future, post election anyways. I know this because they said both of those things in the statement following the lengthy meeting that hammered out the details of the plan. They also said in their statement that, “This new program provides a comprehensive blueprint for putting the public finances and the economy of Greece back on a sustainable footing and hence for safeguarding financial stability in Greece and in the euro area as a whole.” Hope springs eternal.The Eurogroup was hopeful back on May 2, 2010 when they said they were “confident that the ambitious fiscal adjustment and comprehensive structural reforms under the Geek authorities’ programme are appropriate to stabilize the fiscal and economic situation and address the fiscal and structural challenges of the Greek economy in a decisive manner.” That’s how they put it in the statement that announced the initial, EU110 billion, bailout of Greece. They went to great lengths then as they have now, it’s just the odds of success have gotten even longer. At the same time the tempers became shorter; in the conference rooms of Brussels that’s because they don’t believe Greece has not gone far enough and in the streets of Athens it’s because they feel the euro zone’s demands have gone more than a few steps over the line.
Europe’s 2010 deal for Greece was designed to start fast, the equivalent of ripping off the band aid all at once; so they figured there would be a tough stretch for the Greek economy. “Real GDP growth is expected to contract sharply in 2010-11 and recover thereafter,” said an IMF staff report on the effect they thought the proposal would have.”Growth is expected to follow a V-shaped pattern: the frontloaded fiscal contraction in 2010-11 will suppress domestic demand in the short run; but from 2012 onward, confidence effects, regained market access, and comprehensive structural reforms are expected to lead to a growth recovery. Unemployment is projected to peak at nearly 15 percent by 2012.” They were certainly correct that there would be a descent, but they fell short of guessing the magnitude. The Greek GDP fell about seven percent in 2011; a decline that was more than twice as bad as the IMF expected it would be. The Greek Unemployment Rate didn’t peak below 15%, as of November it’s at 20.9%, and counting.
“The authorities broadly agreed with the overall macroeconomic outlook,” explained the IMF report. But, the authorities were wrong, because as it turns out the Greek economy didn’t merely stumble as they thought it would, it fell flat on its face. “By many indicators, Greece is devolving into something unprecedented in modern Western experience,” suggested the New York Times Sunday Magazine article called The Way Greeks Live Now. “A quarter of all Greek companies have gone out of business since 2009, and half of all small businesses in the country are unable to meet payroll. The suicide rate increased by 40 percent in the first half of 2011. A barter economy has sprung up, as people try to work around a broken financial system. Nearly half the population under 25 is unemployed. Last September, organizers of a government sponsored seminar on emigrating to Australia, an event that drew 42 people a year earlier, were overwhelmed when 12,000 people signed up. Greek bankers told me that people had taken about one-third of their money out of their accounts; many it seems, were keeping what savings they had under their beds or buried in their backyards. One banker, part of whose job these days is persuading people to keep their money in the bank, said to me, ‘Who would trust a Greek bank?’”
Since the Greek economy fell a lot faster than did the debt burden of the country the authorities were also mistaken about how high debt to GDP ratio might soar. Back in 2010 the IMF assumed that the “debt-ratio would peak at 149 percent of GDP in 2013”; up from the 115% at the time the first bailout deal was inked. While it’s still possible the ratio will peak next year, the 2011 year end mark of 165% is not a very good starting point for bailout number two; although it is possible that a successful PSI debt swap could reset the ratio at the previous IMF estimate of the peak. In any case the latest hope of the Eurogroup is that all of the collective efforts “should ensure that Greece’s public debt ratio is brought on a downward path reaching 120.5 percent of GDP by 2020.”
With the yawning gap between the previous estimates and the reality on the ground in Greece, there is only one question that needs to be answered; 120.5? Point five?!? Really! Pretty darn confident economists over at the Eurogroup; they probably could have taken to the third decimal, but didn’t want to show off. Hope springs.
A key difference between the first and second bailout is that this time the Euro Zone, IMF and ECB will be in Athens looking over the shoulder of the Greek moneymen. Officially it is “an enhanced and permanent presence on the ground in Greece, in order to bolster its capacity to provide and coordinate technical assistance.” Unofficially, in Syntagma Square and on the front pages of the popular press, it is the financial equivalent of a German jackboot on the throat, a discomforting historical echo in a country that knew the real thing. Greece could have said no to the de facto loss of sovereignty, but that would have meant saying no to the money as well. They are not ready to do that, not yet.
While the memories of the second-world-war make Germany’s insistence on fiscal probity grate on the people of Greece, there was a time when they looked to the north for leadership.
After more than three centuries being ruled by the Ottoman Empire, Greece broke free in the late 1820s after their war of independence. A few years later, under the guidance of the Great Powers (the UK, France and Russia) Greece became a monarchy; one that was in need of a king. To fill the position they recruited Otto, Prince of Bavaria, and son of King Ludwig I of Bavaria. In 1832 the seventeen year old Prince ascended to the throne and became Othon, King of Greece. He ruled, for better or worse, for thirty years. He was deposed in 1862 when he was away from the office, roaming the countryside of his kingdom. He got the message and went back to Bavaria, where he died five years later.
The second King of Greece, George I, oh, they got him from Denmark.
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Since the Greek economy fell a lot faster than did the debt burden of the country the authorities were also mistaken about how high debt to GDP ratio might soar. Back in 2010 the IMF assumed that the “debt-ratio would peak at 149 percent of GDP in 2013”; up from the 115% at the time the first bailout deal was inked. While it’s still possible the ratio will peak next year, the 2011 year end mark of 165% is not a very good starting point for bailout number two; although it is possible that a successful PSI debt swap could reset the ratio at the previous IMF estimate of the peak. In any case the latest hope of the Eurogroup is that all of the collective efforts “should ensure that Greece’s public debt ratio is brought on a downward path reaching 120.5 percent of GDP by 2020.”
With the yawning gap between the previous estimates and the reality on the ground in Greece, there is only one question that needs to be answered; 120.5? Point five?!? Really! Pretty darn confident economists over at the Eurogroup; they probably could have taken to the third decimal, but didn’t want to show off. Hope springs.
A key difference between the first and second bailout is that this time the Euro Zone, IMF and ECB will be in Athens looking over the shoulder of the Greek moneymen. Officially it is “an enhanced and permanent presence on the ground in Greece, in order to bolster its capacity to provide and coordinate technical assistance.” Unofficially, in Syntagma Square and on the front pages of the popular press, it is the financial equivalent of a German jackboot on the throat, a discomforting historical echo in a country that knew the real thing. Greece could have said no to the de facto loss of sovereignty, but that would have meant saying no to the money as well. They are not ready to do that, not yet.
While the memories of the second-world-war make Germany’s insistence on fiscal probity grate on the people of Greece, there was a time when they looked to the north for leadership.
After more than three centuries being ruled by the Ottoman Empire, Greece broke free in the late 1820s after their war of independence. A few years later, under the guidance of the Great Powers (the UK, France and Russia) Greece became a monarchy; one that was in need of a king. To fill the position they recruited Otto, Prince of Bavaria, and son of King Ludwig I of Bavaria. In 1832 the seventeen year old Prince ascended to the throne and became Othon, King of Greece. He ruled, for better or worse, for thirty years. He was deposed in 1862 when he was away from the office, roaming the countryside of his kingdom. He got the message and went back to Bavaria, where he died five years later.
The second King of Greece, George I, oh, they got him from Denmark.
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