Wednesday, November 28, 2012

The latest Greek bailout: sounds more and more desperate to me

The Troika (EU, IMF, ECB) finally came to an agreement this week on the next tranche of assistance to Greece. It doesn't sound like much progress to me. From Nick Malkoutzis, Is This Greek Deal for Real? Bloomberg Businessweek 11/27/2012:

The formula for reducing Greek debt has several parts, which include a 1 percentage point reduction on the interest rates charged by other euro zone members to lend to Greece as part of the country’s first bailout. This means Athens will have an annual servicing rate of just 0.69 percent for the initial loans from its partners—substantially cheaper than the rate some of the rescuers must pay for their own borrowings. Euro zone finance ministers also decided to extend by 15 years the maturities on loans from Greece’s second bailout and to defer interest payments for 10 years. The European Central Bank will return to Greece any profits it makes from Greek bonds it purchased on the secondary market in 2010 and 2011. Greece will embark on an effort to buy back privately held Greek bonds at substantially reduced prices; the goal is to withdraw them from the market.

The aim is to reduce Greek debt to 124 percent of gross domestic product by 2020 and then — should Greece be producing the fiscal performance its lenders want — the euro zone may consider further actions, including a possible write-down of loans, to reduce the country’s debt to "substantially lower" than 110 percent of GDP in 2022. Given that Greek public debt is projected to reach 189 percent of GDP next year, the potential for such a substantial debt reduction is a boon for the country.
In other words, the Troika hasn't solved the Greek debt problem. After years now of austerity economics not working, they are insisting on more. And if the austerity economics that hasn't worked starts working, the Troika will come up with something else to kick the can down the road.

Sounds like one more step to a eurozone crackup to me.

Klaus Stuttmann depicts the latest deal in a cartoon of 11/27/2012 in which the EU gives a destitute Greece a small donation with an admonition:

"But this is now really the very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, very, last time!!"

This is also a lovely bit on privatizations from the Malkoutzis article, a neoliberal favorite on which the Troika is, of course, insisting:

As part of Tuesday’s agreement, Athens will have to place any privatization revenues into a "segregated" account. Money from projected primary surpluses, as well as 30 percent of any extra surplus achieved, will also have to be paid into this special account, which will be used to pay back Greece’s lenders.
In other words, even the revenue that comes from selling off public assets at fire-sale prices can't be used for spending that would stimulate the Greek economy.

This is Angie-nomics is all its glory. German Chancellor Angela "Frau Fritz" Merkel must be proud. Economic nationalism for Germany, economics as twisted morality play for Greece.

But Angie can't be gloating much. The IMF has been pushing for the eurozone to forgive a substantial portion of Greece's debt. But that kind of haircut would cost Germany real money, and Frau Fritz doesn't want to have to face voters in 2013 with that decision having been taken. Thanks is no small part to a spectacular failre in leadership by Frau Fritz, her CDU/CSU party and the Social Democratic Party (SPD), aid to eurozone countries like Greece is unpopular. But it's especially unpopular among the CDU/CSU base.

Here is the take of John Psaropoulos, Greek Bailout Remains a Ticking Time Bomb New Athenian 11/28/2012):

The eurozone spent two weeks deliberating on how to deem Greece’s debt as viable, in order to be able to release the money. The International Monetary Fund, which is bailing Greece out along with the European Union, had deemed the debt unsustainable after the economy shrank more than expected this year (recent figures by the Greek Statistical Service revised the recession from a forecast figure of about four percent to seven percent of GDP by the end of the year). This means that Greece’s economy is not thought to be strong enough to reduce the debt over time, only to roll it over indefinitely. It would condemn Greece to a perennial Sisyphian task of rolling the debt uphill, only to see it roll back to the bottom. Sustainability consists of the firm prediction that the boulder will roll down the other side of the hill. As economist George Pagoulatos put it to The New Athenian, the debt would overtax an “anaemic” Greek recovery after 2014, and it therefore “traps the economy in an equilibrium of very low growth.”

The ultimate challenge to the eurozone, which is now Greece’s main creditor, is to forgive a chunk of the capital they have lent Greece. But that would have to come from the pockets of European taxpayers. They are not in a forgiving mood and fear that greater concessions to bigger eurozone debtors like Italy might follow.

For the moment, the Eurogroup has managed to make Greek debt look sustainable on paper by tinkering with interest charged on that capital. The eurozone has lowered it from 1.5 percent to half a point, and offered a ten year moratorium on interest premiums. It also extended the maturity period on Greece’s bailout loans by fifteen years. [my emphasis]
Veit Medick und Philipp Wittrock are correct when they write (Parteien in der Griechenland-Krise: Die Blender von Berlin Spiegel Online 28.11.2012):

Tatsächlich ist die Geschichte der Griechenland-Rettung in der deutschen Politik auch die Geschichte eines großen Selbstbetrugs. Das allerdings gilt nicht nur für die Bundesregierung. Nein, auch die, die jetzt am lautesten nach mehr Redlichkeit rufen, sollten sich nichts vormachen. Denn einen Plan hat auch die SPD nicht. In der Euro-Krise fahren alle auf Sicht - und die scheint manchmal gleich null zu sein.

[Actually, the history of the rescue of Greece in German politics is also the history of a great self-deception. In any case, that holds not only for the Federal Government {a CDU-FDP coalition}. No, also those that now are calling the loudest for more discussion should not deceive themselves. Because the SPD also has no plan. In the euro crisis everyone is driving blind - and they sometimes appear to be clueless.]

As Psaropoulos puts it:

All of these measures theoretically bring Greece's debt to 124 percent of GDP in 2020, which, if true, is already a concession of four points by the IMF. But this will only hold true if Greece sticks to the programme, which it has a poor track record at doing, and if the international environment doesn't adversely affect it. These are two big ifs. Greece already has 25 percent nominal unemployment, and is looking at deeper recession and joblessness for another year, possibly two. Its latest austerity measures, voted into law this month, take effect on January 1. Growth initiatives, on the other hand, need time to mature. Given that things will get worse before they get better, it is quite possibly that Syriza, which has led the five month-old government in the polls for at least a month, will accede to power before long. The party says it will ultimately uphold the bailout loans, but will tear up the austerity memoranda. Figuring out what that means in practice may take months. The smooth running of the Greek programme should not be taken for granted, or set by creditors as a precondition. Doing so sets a political time bomb ticking. [my emphasis]
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