Today begins with hopes of a new path for Greece where the people have been under the shackles of a Euro area imposed austerity programme which collapsed the Greek economy. It was not supposed to be that way as the future was bright according to the official forecasts and their apologists.
put the debt-to-GDP ratio on a declining path from 2013.
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.
As you can see that was a complete hoax call and a much worse one than the one troubling Prime Minister Cameron. Even at the end of 2012 rather than the promised “growth recovery” the Greek economy was instead shrinking at an annual rate of 5.7% on it way to losing around a quarter of its output overall. Even worse the unemployment rate which was supposed to peak at 15% climbed and climbed and as of the latest monthly numbers was still at an appalling 25.8% in October 2014. It is hard to imagine a worse failure especially as the apologists for this economic destruction regularly rubbished alternatives with the claim that they would lead to an economic Armageddon.
I consistently argued that there is another and better way I subject I returned to on the 30 th of December.
I am one of those who have consistently argued that Greece should default and devalue along the lines of the sort of programme that the IMF used to apply before it switched from plans based on economics to ones based on (French) politics.
So far the only rescue has been for the French and German banks which overextended and overexposed themselves in Greece. In return their taxpayers find themselves exposed to a threat of default by Greece via the various off-balance sheet mechanisms (EFSF and ESM) which have been used as bank errors were socialised.
A Fiscal Problem
The claim has been that the Greek public finances have been reformed but as we stand issues remain as the quote from Kathimerini below illustrates.
According to officials from the General Accounting Office, the lag in tax revenues compared to the targets set for January is greater than 1 billion euros. When this is added to 2014’s 1.3-billion-euro tax revenue shortfall, the fiscal gap in revenues amounts to 2.3 billion euros.
Added to this is the enormous debt burden which is Greece is now carrying. As of the end of the third quarter of 2014 it amounted to some 315.5 billion Euros or some 176% of Greece’s GDP (Gross Domestic Product). Here we see complete failure as the default/haircut of 2012 was supposed to reduce this ratio to 120% whereas it was saying “I’ll be back” just like the Terminator.
The interest payments have been cut and cut by the creditors who are now mostly taxpayers of other countries as organisations they support own around 4/5 ths of Greece’s national debt now. So interest payments have been contained for now but the capital issue or how this will ever be repaid was kicked into an undefined future. So the banking sector was bailed out but mostly Euro area and some of the rest of the world taxpayers (via the IMF) got what is called in rugby a “hospital pass” of the accumulated debt and losses.
Up until now the Greek political class has in essence supinely adopted whatever policies it has been told to implement by the Troika (European Commission, ECB and IMF) except for one major omission. This comes under the category of reform which of course would include removing themselves! Also if Greece had managed to tax its oligarchs the problem would have been reduced considerably in scale. So those presenting the solution were always part of the problem which is why that I hope that the new government that has just been formed by Syriza turns out to be a new boom clearing out the political and economic dust and cobwebs.
It is one of the tenets of this blog that I do not do politics and thus I will steer clear of the political debate. However I welcome this which is an excerpt from a Bloomberg interview with the newly appointed finance minister Yanis Varoufakis.
“extend and pretend was applied to a whole nation (Greece)”
To end this vicious cycle…….which is beating into a pulp a proud nation in the south-east of Europe.
According to Channel 4 in the UK he has presented himself as an economic reformer.
‘We are going to destroy the Greek oligarchy system’
Let us hope that there is genuine economic reform in Greece starting today as there is no time to lose. As Tears for Fears put it.
You can change
Let us also hope that this from The Last Resort by the Eagles will stop being prescient.
Some rich men came and raped the land,
Nobody caught ’em
Initially the Euro fell on the foreign exchanges to an eleven year low but a bit like the Duke of York (ahem) it marched back up the hill to where is began! So it is now just above 1.12 versus the US Dollar. The Greek equity market has dropped 2% but things seems calm although some care is needed as of course the ECB with its planned QE (Quantitative Easing) program which begins in March is sitting there as a back-stop. Although of course the QE program did in a way start very early in Greece as so much of its debt is in official hands.
There may have been action elsewhere however as rumours have been circulating that the Swiss National Bank has been capping the Swiss Franc against the Euro again. Well I guess it has intervened at almost every level on the way up! Whatever the exact cause the two currencies have returned to parity,for now at least.
The Greek election has ramifications for several other Euro area countries as for the first time a government has been elected on what we might call an anti-Troika vote. Should it hold its nerve and prove to be stable then it will be hard for the Euro area establishment to copy what it did to Ireland and play Gerry Rafferty from its loudspeakers.
Get it right next time
They of course will be hoping that the words from Hotel California remain true for the Euro.
“Relax, ” said the night man,
“We are programmed to receive.
You can check-out any time you like,
But you can never leave! ”
My advice is that of course Greece could and should leave the Euro and default. There are of course dangers in such a course but they are dwarfed by the economic and human catastrophe that has already taken place. I think that it is much more likely that Greece will reform itself and throw of the shackles of its establishment that is like an anchor on a ship in such a scenario. Actually you do not have to take my word for it you can instead read the words of the “on track” high priestess Christine Lagarde of the IMF.
‘Reforms Are Still Needed In Greece’ (Le Monde)
With apologies to the Bee Gees perhaps this can come true.
I saw my problems and I’ll see the light
We got a lovin’ thing, we gotta feed it right
There ain’t no danger we can go too far
We start believin’ now that we can be who we are – greece is the word