Merkel speaks and it is not only Greece that suffers but Portugal too

Yesterday saw yet another ratcheting up of the Greece crisis on both the market and the political level. I feel that it is one of the most revealing aspects of this crisis in that what politicians consider to be a valuable weapon, talk and promises, now actually makes the situation worse. There was an interesting piece of research from BNP Paribas last week which looked explicitly at the cycle Greece was in which went as follows. 1. Greece gets hit on markets,2. Politicians talk and bluster,3. A small rally and some time is bought,4. Market sees through bluster and Greece gets hit on markets and so on… However on Friday the rally section (3) lasted for three hours at most and yesterday there was no rally at all from Chancellor Merkel’s statement explaining Germany’s position, instead Greece was hit again. The financial markets are showing little mercy to a country that in boxing terms is plainly on the ropes.

What did Chancellor Merkel say?

“We need a positive development in Greece together with further savings measures,” and “Germany will help if the appropriate conditions are met. Germany feels an enormous obligation towards the stability of the euro.” and “If Greece is ready accept tough measures, not just in one year but over several years, then we have a good chance to secure the stability of the euro for us all.”

What does it mean?

Germany wants a three-year austerity programme from Greece that is both specified and harsh or she will not loan her any money. When you look at how confident (blustering) politicians usually are in their statements I think the use of “good chance ” is significant. Similarly the phrase “We need a positive development in Greece” is revealing (apart from contradicting virtually every statement up to this weekend from all euro zone officials and politicians) as again it suggests that Germany wants to apply a policy of tough love to Greece. It introduces a further element of doubt into Germany’s proposed aid package for Greece.

Chancellor Merkel did not say it but it is plain that she would like to delay signing any cheques to Greece until after the election in North-Rhine Westphalia on the 9th May. According to opinion polls aid for Greece is unpopular in Germany. So I guess she joins UK politicians in trying to put off difficult decisions until after an election, so much for the concept of an informed electorate making their choices in a vote! Let them know as little as possible appears to be the watchword in Germany as well as the UK.

Apparently I gather from German sources that dithering and vacillating has been a feature of her administration and they even have a phrase for it Sich durchmerkeln which apparently means “to Merkel through.”   So I guess that inside Germany the shambolic response to Greece’s problems has not been a surprise. I am grateful to CNBC for a full translation. “to bumble along without commitment, hoping that a critical situation will solve itself by postponing decisions.” Sounds familiar doesn’t it?

This policy will cost Europe a lot of money as if the right decisions had been taken say 3 months ago the German taxpayer would be facing a smaller bill and Greece would be in better shape.

Market Response

This is best represented by referring to my article on the 22nd April.

What does this mean if you bought at one of the recent issues?

On March 11th Greece issued 5 billion euros of a  ten-year bond with a coupon of 6.25% at a price of 98.742 according to the Greek Public Debt Management Agency. So by my maths it was yielding 6.33%. At last nights closing yield of 8.1% I estimate that investors have  lost over 11 points. For a bond market that is quite a rate of capital loss, 12% in just over a month or 600 million euros. It will hardly encourage them to buy again. As it was heavily over-subscribed it turned out that many were lucky to miss out.

Last night that particular bond closed at 79.16 according to Reuters. So since the 11th March nearly 20 points or pretty much 20% has been lost. For a sovereign bond this is a staggering loss over such a short time period, as it amounts to 1.2 billion Euros.

If one looks at the yield on this bond it is 9.53% and this is now over three times Germany’s equivalent bund. The shorter end of Greece’s government bond yield curve is at even higher rates with her 3 year bond yielding 12.58%

Comment

The three-year bond yield is significant in two respects. Firstly I suspect it will be the yield raised in the German Constitutional Court to calculate a “subsidy” for Greece and as it is now 7.58% over the proposed cost of Greece borrowing from the euro zone I am looking forward to the official explanation of how this is not in effect a subsidy. Secondly shorter term yields exceeding longer term ones means the bond markets are afraid of restructuring and default. I cannot blame them for that.

Others are pointing out that Greece’s equity market is not pricing in fear of default in the same way. This is probably true but I have seen this before where bond markets move 4, 5 or even 6 months before equity markets in response to general problems. This morning Greek bank prices are falling because mortgage covered bonds of Greece’s three biggest lenders were cut or placed on negative review by Moody’s Investors Service.

Contagion

As Greece’s position has deteriorated I have feared for Spain and Portugal as they have been in danger of being sucked into this crisis. The main problem is that once it starts it becomes self-fulfilling. If you feel that a country’s fiscal position is in trouble and you sell her bonds and the price falls then going forward the costs of financing that countries national debt rise and the fiscal position deteriorates maybe leading to someone else selling her debt and so on….

Portugal

I have mentioned Portugal’s situation before particularly in my articles on the 16th and 22nd of April. She appears now to be actually being sucked into Greece’s tailwash. Just as a reminder she has a fiscal deficit of 9.4% and a national debt of around 77% of Gross Domestic Product(GDP) which will rise to 85% at the end of this year. Like Greece she is not accounting for the interest outright on her national debt, instead she is rolling it up and adding it to her debt. However in many respects her situation is different and I wish to explain those differences today.

Lack of Growth

Since joining the Euro Portugal has had the slowest growth rate of the euro zone nations which contrasts her strongly with Greece who was growing (assuming you believe the numbers) at around 3/4% per annum over this period. Portugal has had an average rate of less than 1% over this period. This has been caused by several factors.

1. There has been a “brain drain” where many educated Portuguese emigrate although because of EU rules it is hard to get exact numbers.

2. Portugal had and has quite a few industries which are price competitive and these have been affected by the growth of price competitive manufacturing in China and the Far East as well as in Eastern Europe.

3. Portugal had a privatisation programme for many utilities but it would appear that there has been a form of “soft corruption” where ex-politicians rather than businessman have been appointed to the boards of such firms making them inflexible and the reverse of dynamic.

4.Portugal has rigid labour laws, which there is little political will to reform and she has one of Europe’s toughest employee-protection regimes.

Public Finances

So sustained low growth has put pressure on Portugal’s public finances but to be fair she has tried to address them. In the period 2005/07 she set her stall out and took some tough fiscal measures and  cut her budget deficit in half, from 6.1% of GDP to 2.6%. For example there has been reform of Portugal’s pension system which means that she is a European leader in this area. But the credit crunch knocked her off course and her low growth rate this century has returned to haunt her.

Competitiveness

Portugal has been badly affected by a loss of economic competitiveness as her low value products have simply been under cut by others.She is trying hard to change but this will take a timescale which financial markets will not give her.

A Possibly Fatal Error By Her Government

 This fiscal year the Portuguese government issued a new Stability and Growth Plan (SGP).However unlike the plan for 2005/07 it was more a letter of intent than a specified plan. Also  it became plain that the intent was to try to delay any real change and postpone difficult decisions to the future and in particular to future governments and taxpayers.  This was immediately seen through by financial markets I feel and made Portugal vulnerable to a change in sentiment in financial markets. Perhaps the most complacent section of the SGP was the announcing of  a target reduction in the public deficit of a mere 1% of GDP for 2010 (from 9.4% to 8.3% of GDP).

Comment

Portugal is in her current position for two main reasons and one she shares with Greece but the other she does not. Her main problem has been a lack of growth and this has caught her out in her plans for her public finances and left her vulnerable. The bit she shares with Greece is that her government lost its nerve at a crucial time and dithered. If it had responded positively like Ireland’s government then she would not be facing the issues and problems she has now.

As an example of this her ten-year government bond yields were 4.18% at the beginning of April and they closed last night at 5.23%. The spread over Germany’s ten-year bund has risen to +2.17% whereas it has spent some time around +1.2%.

Opinion

I believe that there is still a window for Portugal but that she would have to grab it now. Further reductions in her deficit with cuts and tax rises which impact in the next year still have a chance but that chance may now be fleeting. Please take it Jose Socrates the alternative is worse and Sich durchmerkeln will simply not do.

Just a Thought (4.15pm)

Portuguese three-year government bond yields have now risen above 5% partly because she has just been downgraded. The significance of this will not be lost on people who understand that she will be expected to provide funds to Greece at 5%……..

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27 thoughts on “Merkel speaks and it is not only Greece that suffers but Portugal too

  1. Hello there,

    A question for you: Speculation and rumours are rampant here, that Ms. Merkel wants us to commit to chopping off the so called “2 extra salaries” that will mean a minimum income decrease of 15% for every employee in the country (be it employed in the private or the public sector).

    Of course, there MAY (and this is a big MAY) be cases where “honorable businesses” can offset this, by giving their employees a 15% pay raise and call it even, but admittedly, the majority should not bother to do that.

    My question is: Considering even the Hellenic Federation of Enterprises opposes this measure, do you believe it would hold any merit, especially in a “blanket ban”? Would it actually accomplish anything apart from a drastic fall in consumption?

    I know that I use the “13th” and “14th” salary to pay off my car, for instance – Other people may use these “seasonal” boosts to buy clothes (in Christmas) or whatever – What’s your opinion on this?

    Ty,

    Ioannis

    • Hi Ioannis
      I think that you raise several issues. Firstly as to speculation around what will be requested of Greece and her citizens I am sure there is plenty. I do not know what will be asked by the IMF but I do know that Greece will have to have lower real wages going forwards to help with her competitiveness problem. This is a price in a way of remaining in the Euro as otherwise Greece would devalue her currency to help.

      The 14 salary payments per year play badly abroad in terms of public perception as to non-Greek ears it sounds as though you are receiving two extra payments when in fact your annual salaries are divided by 14 rather than 12. Personally I see it as a red herring in that the real problem is that real wages will have to fall from the levels that exist now…One way that would help and would reduce the necessary amount of real wage cuts would be for Greece to take an axe to the non-productive parts of her public sector as her public sector is simply too large for her economy to support. I realise that this is exchanging wage cuts for many/all for unemployment for some but Greece needs reform as well as wage cuts I feel.

      I realise that to Greeks like yourself these real wage cuts will be painful and I sympathise. The guilty people in this situation to my mind are the Greek governments who have misrepresented Greece’s financial position for the last 10 or so years. It pains me that none of them are being punished for what I consider to be crimes. Unfortunately I see your second paragraph as an example of the sort of thinking that these politicians indulged in over the last 10 years and that way leads to even worse problems.

      So yes wage cuts can help and will be necessary for many I am afraid. This will mean that as I have written before the Greek economy is likely to contract over the next 2 years and it will be a matter of skill and finesse in the terms imposed on her to stop this becoming a “vicious circle” of decline. This is a reason why I have called for IMF primacy in these matters. I believe that the IMF is far from perfect but the alternative of EU politicians running the show is worse.

      • I see your points, and tend to agree. After all, most of the (educated to a level beyond primary school) Greeks do know why things are happening right now.

        By “second paragraph” you mean the offsetting of the decreases? I’m not sure if this will happen, but I can certainly see executives / managers / and the lot pushing for their cost to the corporation to remain stable per year. Although it’s not sure that the corporations will actually accept.

        However, barring the public sector in its majority (there are a few sectors that DO work productively, such as the educational technology & internet network equivalent to JANET in the UK), I’m not sure about that “competitiveness” issue people mumble about.

        Greeks on average work more hours per week than many other nations (including overtime work, etc, of course, which can push things above and beyond the 40 hours / week that are legislated). Also, because of the working conditions, many employees, including me, do stay for overtime from time to time (or even daily) without any extra pay for it.

        On the other hand, in several companies I know of in the UK, Netherlands, Germany and elsewhere, there is a small “traffic jam” at 17:00 so that everyone can get out right then and there, something that does not usually happen here.

        I feel we are obliged to pay through the nose for the public sector, but many Greeks do not bear sympathy to that public sector, since it performs horribly and is unsustainable anyway. The thing is that instead of revoking permanent placement in the public sector, and then gradually increasing the redundancies there, we are forced to take action now.

        And that immediate action is bound to be more painful for the country as a whole.

        PS: I don’t really mind. I can always stop paying my loans and emigrate, forcing the bank to swallow this as a loss since it won’t be able to find me internationally. But I fear that such extreme measures will eventually be taken by many employees here, and then, who will save the financial system from collapsing on its own weight?

  2. I doubt Ms Merkel is worrying herself about the details of terms and conditions of employees pubic or private.However,for sure,she is looking for severe cuts in public expenditure.The precise mechanisms will be left to the domestic government of the day.

    Indeed you are quite right that a fall in disposable income impacts demand. It is after the dismal science.

    Direct inference in private sector pay would be odd.More likely you may see increases in taxation.Is income tax deducted at source from the payroll in Greece?

    • Yes – Let me illustrate:

      My own nominal salary is at 1,200 EUR / month, or 16,800 EUR / year. However, I receive 980 EUR / month. From the remainder, approximately 35 EUR / month is the income tax for my salary class (deducted at source), and approximately 185 EUR is the sum of compulsory payments for social security, healthcare, and pension funds (all paid to one organization).

      There is much fear cultivation here regarding potential ways to decrease the income of employees across the board. At the end of the day, the government can take away the labor legislation that mandated “14 yearly payments”, which will in effect make employers non-liable to pay the “2 payments after 12”.

      An interesting fact is that, as our government claims, this move would put excess strain at the social security / insurance / pension funds, because they would all receive 2 contributions less per year.

      I don’t know – Private sector over here isn’t operating on “grossly” uncompetitive salaries… Entry level employees usually receive 700 EUR or less (or 9,800 EUR /yr) in cash, after the salary tax or mandatory social security payment), and I find it hard to see how would things get better if they received, in essence, 600 EUR instead (or 8,400 EUR/yr).

      What is conveniently left outside of any relevant discussions is the prices and inflation – Greece once again has a 3,9 % inflation, with an EU median in the 1-2%, and prices here have skyrocketed much more than in other Eurozone countries. The problem is that, as things already stand, the majority of employees cannot cope with the prices with their existing salaries – a 15% further reduction would lead to…I don’t know…chaos?

  3. It is interesting to hear this.Perhaps these rumours are intended to stir up anti German sentiment. It is all part of the blame game.Let’s hope the decision making process is not made on the streets of Athens.

  4. It is becoming clear that the EU plan is unworkable. German politicians are hesitant on the loan, started talking of a default, this increased the spreads of Greece and Portugal and others. By the time the loans are decided because of the overall uncertainty, the spreads of several countries would go beyond 5%, making the loans impossible and inducing either a full IMF plan or default. Greece might have done terrible things in the past but the peculiar approach of Germany of the issue creates a wide-spread crisis. By the pace of developments it seems to me that there is enough time until their elections to have wrecked not only Greece but the whole Eurozone. Nice work.

  5. Congratulations once again to S&P for some excellent rear view mirror driving.

    Limited support from EU/ECB/IMF is now pointless.A total rescue of Greek liabilities or a harsh default looks to be all that’s left on the table.

    So disaster or disaster,tough choice.

  6. I think you are right Andy. The rating of Greek debt has now been reduced to Junk status – BB+ !!

    How long will it now be before the market wakes up to the true risks in the UK Gilt market with rising UK inflation?

  7. Shaun,
    thank you for the posts and for taking the time to answer and clarify things. I very much appreciate it.

    Now, in Merkel’s (that is, the German government’s) defence, the Greek government has not come up with a budget showing that after so many years they will have balanced the budget. Judging from their own projections of needed borrowing through 2012, they will be needing about 15-20 billion euros more than the maturing debt and interest per year. That is, even after the 120-150 billion euros extra borrowing, they will not have balanced the budget. Am I missing something? Indeed, the Greek government has not come out and said loud and clear that they will have a balanced budget by 2012.
    Methinks there are several reasons they cannot do this. One of them is that the government simply does not know who is on its payroll. Petalotis, the government spokesman said so openly during an interview a few days ago. The IMF team currently in Athens has run into the same problem when asking for information at the different ministries: in one ministry, the money in the ministry’s budget was not in the ministry’s accounts, and the minister could not provide any explanations.
    Another reason is that tax collection has collapsed. The state is way behind in tax collection, and apparently the way they are showing some positive results for their budget plan is by stopping payments to state suppliers and contractors (hospital suppliers, gas and fuel for army, etc.). Oh, and they have not paid out the tax refunds. No, they are not issuing IOUs, but I think there is something similar going on in terms of providing liquidity to businesses that are owed money. This means that the present year’s budget plans may be going down the drain and for more than one reason (contraction of the economy being another).
    On top of all this is the situation with the pensions system (major retirement funds are broke), which the government has not settled yet.
    In the Greek government’s defence, they seem to have been trying to get the needed information together, and tackle the pensions/social security problems, but it’s taking a long time. And the political costs are very high.

    js

    PS: Apparently Sandard & Poor’s has just downgraded Greek debt to BB+.

  8. Shawn.. any words of wisdom after today’s debacle ?
    Ambrose Evans-Pritchard is quoting RBS’s Europe Chief Economist as saying that the southern European bond markets are beginning to melt down and called for the ECB to pull a Ben Bernanke.. ie.. direct purchases of EU member debt. I can’t see Axel Weber approving of this one.. parts of me are beginning to have nightmares of Lehman 2.0
    Thoughts ?
    Thanks

    • Hi Mr.Kowalski
      I think that Ambrose may be trying to pull a fast one here but is in fact a liittle transparent. I think even the thought of direct purchases of EU member debt would shake the Bundesbank to the roots of its foundations! I think that if you wanted to break up the Euro quickly then trying such a policy would be the way to do it. And of course Ambrose….

      There is a lot going on and my experience of past furores always makes me think of the Hitchikers Guide to the Galaxy which had “Don’t Panic” on the front in big friendly words (whatever the last bit means). The answers remain the same but it would appear that no-one wants to try them.

      As to direct purchases of government debt as a policy I feel that in the UK it turned into a policy mistake. For the US I think that there was more success because a higher proportion of corporate bonds was bought. Purchases of government bonds have done Japan no good at all. So the track record for it as a policy tool is poor. My first thought is once it bought them what would it do next? You see the authorities in the UK never thought of that and I feel it is a problem which will return.

      So to my mind even suggesting it smacks of desperation. As to Lehman 2.0 then I feel that there is still time to change course and make reforms as I suggested earlier today for Portugal but this crisis is like a nightmare where you can see things going wrong but somehow people do not understand what is going on and do not react.

  9. Portugal’s response today in far from inspiring:

    The Portuguese government angrily denounced an “attack from the markets” on Tuesday after its credit rating was downgraded and rejected any comparison to the debt crisis in Greece. “It is a decisive moment. The country must respond to this attack from the markets,” Finance Minister Fernando Teixeira dos Santos said in a statement.

    Denial and attacks did’nt work for Greece. This man would’ve been better off sipping coffee in a cafe than issuing this absurdity. It’s this very incompetence and denial of reality that worries me.

  10. Now that the EU mechansim has been announced and markets see how cumbersome the whole thing is (they have suspected this all along) and also knowing that the interests rate on loans will be 5% I think that there is a very easy way to bankrupt Greece: increase spreads for other Eurozone countries close or above 5%. This might actually be justified because these countries by saying that Greece won’t bankrupt and looking at the mountain Greece has to climb they deserve to have their borrowing rates increased so that Greece’s condition reflects also on them. The whole thing looks like a joke to me, and I mean both the ability of the markets to attack sovereign countries and the way sovereign countries react with plans and allow markets to speculate and bet on them. Crazy system.

  11. If the domino effect materialises, Greece, Portugal. Italy. Spain. What is the solution? Change Eurozone rules quickly and print money?

  12. Greece and Portugal are an EU problem; Spain or Italy are global problems. Ultimately the answer would lie in some sort of global currency solution (ie.. the world’s great powers decide to print enough money collectively out of thin air to monetize the problem) if it got truly out of hand. But drastic currency moves have consequences all their own, beginning with rising prices for the serfs back home. The ECB will be painfully slow to employ such a solution; other nations can act much more quickly (US,China). But it’s not only sovereign debt; Greek, Portugese and others’ banks and municipalities also have debts, many of these having CDS’s on them as well.

  13. Just found this informative link describing the mechanisms in each EU country to agree the release of funds for the loan to Greece. Ignoring any “local difficulties” along the way, this timetable is further evidence that no early resolution is in sight, and reassurances by Greek politicians that “the money will be there when we need it” seem rather hollow.

    http://www.reuters.com/article/idUSTRE63Q1W820100427

  14. With the latest downgrading of Greek bonds and their ban on shorting financials it looks like the futility of the ECB/IMF rescue plan is becoming apparent. It would seem Greece is about to bear the brunt of the abject failure of the political class to do anything constructive in sorting out the fiscal problems this country has and looking at Portugal’s downgrading contagion is starting.
    I think Ioannis’s postings put a human face to the problem and we can see direct impact the average Greek will be faced with.

  15. At the moment there are two camps here: The “We must commit to structural and painful changes, it’s the only way forward”, advocated by the government of course (and a large portion of the media which are govt-friendly), and the “The government was not voted in to take us to the IMF, in fact they proclaimed “Money exist to take the country forward” before the election, and then performed a U-turn on its manifesto.”

    You know, both are right. The vast majority of Greek employees (and not private practitioners such as doctors, lawyers, notaries, etc) have no way to “avoid tax evasion” or “cheat the system”, as it’s widely proclaimed. Shopkeepers, businesses, and other categories can (and do) hide vast amounts of their income to avoid taxation.

    We both need a drastic shake-up of the economy, and a discussion on how to avoid things from lapsing again in the future. But, it’s true, the socialist government of PASOK (which many, many Greeks voted for in October) was never remotely “authorised” to steer the country to the IMF.

    What remains interesting is that, there are laws in place with regards to MP immunity and “minister responsibility” that basically write off any felony/crime they might have committed (such as misuse of public funds, thievery of public resources, etc) after a small time period of 5 or so years.

    This does in fact explain why noone of the ex-finance ministers is in jail at the moment – Legally, they’re all untouchable as things stand!

    The system itself (MP’s, ministers, and Parliament employees) usually remains untouchable. Fun fact? Parliament employees in particular get 16 monthly salaries per calendar year. The “normal” 14 everyone has, plus 1+1 when the Parliament begins and ends its yearly session. And, guess what, noone has even touched the subject of their salaries being cut off (~2,000 employees).

    We’ll be in touch – I’ll write up updates from Athens here for you to have a clear image of what’s up and down.

  16. Hi Shawn

    Came across this blog via several comments on different news sources and think I have found my new favourite web site as you are speaking so much truth and sharing so much of your obviously incredible knowledge.

    I am a self employed web devloper by trade (btw this blog could do with a facelift!) but IF I ever get the capital together would love to move into stocks and shares and specualting as it fascinates me. I managed to call the housing / credit crunch (we cashed in and rented at the peak) much to the annoyance to our friends and family who are losing and stand to lose a lot more over the coming austerity years but can I ask where you think interest rates are likely to go over the next 4 years? I think 10% could be here within 3 years but others think I’m mad!

    Anyways enough ramblings form me, keep up the great work!

    • Hi Andy and wellcome

      Thank you for the compliments, as to blog skills I know I am limited in this respect and am grateful to WordPress for giving me a format. At the moment events are moving so fast that I am afraid I am unlikely to do much about a blog facelift! Especially as I like to take time out during such events to simply think as it is easy to “float along” with events.

      I think that the Monetary Policy Committee will hold short-term interest rates at these levels for as long as it can. As to longer-term interest rates such as our government bond yields I feel that they will go higher over the next year or two. For the moment risk aversion may make them go lower and indeed is currently doing so. This only goes to show that unexpected events can have the most unexpected consequences. A friend of mine is a technical analyst and he contacted me recently to say that the message from his charts was that US government bond yields could have a drop and looking at the world at that time using more fundamental analysis the only route to that in my opinion was a crisis and what is called a flight to quality. Now it is much clearer how such a scenario could play out…. But in terms of a longer term trend I still think that longer term interest rates will go higher and maybe a fair bit higher.

      The only way they may stay down is if we make such a hash of the current crisis that the world heads towards a 1930s type scenario. Two years ago the press was full of people imagining it wasn’t it and yet curiously they are now silent. You see I still see it is a low probability but to my mind it is more likely now than it was then.

  17. Ioannis:

    Do you get the feeling that the people there are in the mood to elect somebody who would default on their external debts.. ie.. “If we’re going to have a Depression, why bother paying the debts off ?”

    Thanks, and I have sympathy for most of the Greek people, who really don’t deserve whats about to happen to them.

    • No, not really. The people are being bombarded (and I mean bombarded) by the media regarding “our default” “our reckless behavior” “our bloated accounts” et al.

      I don’t watch TV AT ALL, but I know what news broadcasts etc say (keep in mind that “the news” here are not like they are in the UK – the evening news last for an hour or more, and after a 3 min. report, people gather and chat about the issue for 10 or more minutes! Tiring really…and useful to cultivate fear).

      People at the moment are in the “we’re screwed” mode, but not all of them. If the IMF measures actually require people to be turned upside down and empty their pockets, I suspect things will get more serious.

      Up until now, things have been “calm” compared to other situations (for instance, the riots in Athens are very scarce, in Dec 2008 with the Grigoropoulos murder things were a hell on earth for two weeks or so, every day…).

      But the general consensus is that “They (the politicians, the businessmen, the people overcharging the public finances etc) stole the money! Where did the money go! Why is noone in jail?!”. The funny thing is that this feeling is even shared by tax-evaders themselves (such as: taxi drivers, or doctors, or lawyers), because if you ask them vis-a-vis about the issue they’ll respond:

      “Why, did I PERSONALLY make us go bankrupt? THEY stole the money!”

      Of course, this sentiment is quite stronger with the people who really did not evade taxes etc. For reference, the private sector employees are 3 or 4 millions, and touching them (keeping in mind that they cannot evade taxes themselves, but their employers can) will be catastrophic for the government.

      Despite all that, however, the government is more “popular” than the opposition, because in the minds of Greeks the only “tangible” opposition is the New Democracy party (conservatives – previous govt), which is widely considered as “the nail in the coffin” for the country, and thus keeps being disliked after losing the elections by 10%.

      As such, I cannot say that people will vote for someone urging us to default, because no major party actually says so, only minor parties do. I can see people rioting as time goes by, however, especially if the privately employed are harassed with legislation mandating pay cuts, et al.

      • Ioannis
        It seems a desperate situation with only very harsh decisions made now which might be of eventual benefit. Looks to be the IMF route is the only workable option, given ECB posturing and lack of clarity by domestic politicians, and yes they will ‘turn everyone over and empty pockets’.
        Best of luck……….

  18. In my opinion, it is actually surprising that this option is considered an absolute anathema by almost everybody. Probably, it will be considered unfriendly to take this sort of action within Eurozone. It has to come out of unwillingness from others to help than anything else. Otherwise it might hide many many other type of dangers for Greece.

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