Tag Archives: Greek debt

Giving Greece a chance, not just a tranche

It is a sad indictment of the manner in which the Greek crisis has been handled by all sides that for probably the first time since the economic unravelling began about three years ago, moderates in Athens as well as other eurozone capitals looked at each other in the wake of another inconclusive Eurogroup meeting on Wednesday and wondered: “Why did we ever get involved with these guys?”

The rest of the eurozone’s grievances with Greece – many justified, some the product of stereotyping – have been well documented but the inconclusive 11 hours of discussions between eurozone finance ministers in Brussels this week tipped the balance the other way. It was the turn of level-headed Greeks, fully aware of their own country’s shortcomings, to fume about their euro partners’ footdragging and failings.

Yet, just as it has been unfair for Europeans to have undue expectations of Greece, so it is excessive for Greeks to expect 16 eurozone countries to each easily overcome their national concerns and promptly agree a strategy that would make Greek debt sustainable.

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Midnight at the oasis

It’s a measure of the absurd situation that Greece and its lenders have got themselves into that it’s highly doubtful whether there is a single Greek MP or European official that believes the austerity package due to be voted through Parliament around midnight on Wednesday will contribute towards the country’s recovery.

Apart from the dewy-eyed optimists (it would be a shock if there are any of those left), there is unlikely to be anyone who has confidence that the 13.5 billion euros of spending cuts and tax hikes over the next two years will play a part in halting Greece’s incessant decline.

The 2013 budget foresees a primary surplus – the first in over a decade – of 0.4 percent of GDP on the back of the latest measures. While achieving this surplus is one of the milestones on the road to stability, there are serious questions about how it should be achieved. With approximately 9.5 billion euros of measures (equivalent to 4.5 percent of GDP) to be implemented next year, the program of cuts demanded by the troika makes a mockery of assertions by leading economists and even the International Monetary Fund managing director Christine Lagarde that frontloading will end up being destructive, not just counterproductive.

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A changing tide to lift Greece

A rising tide lifts all boats, they say. The changing tide in Europe produced by the eurozone leaders’ decisions in Brussels on Friday could certainly help give Greece, sinking deeper into trouble over the last three years, the buoyancy it needs to survive.

Although still far from finalized, the outline deal that emerged somewhere around 4 a.m. in the Belgian capital paves the way for banks in eurozone countries to be recapitalized directly from the European Stability Mechanism (ESM), to which all members contribute money.

If this scheme applies to Greece, there are two key benefits. Firstly, it would reduce the public debt substantially. The current recapitalization of Greek banks involves 48 billion euros being lent to the government via the EFSF and this being distributed to the lenders via a public fund, the HFSF. This means 48 billion euros are being added to the national debt, whereas if the money is lent directly to the banks by the ESM, Greece would avoid this extra burden. Even after the debt restructuring (PSI) in March, Greece is still expected to owe just over 160 percent of its GDP at the end of the year. A direct recapitalization from the ESM would reduce this debt by about 25 percent of GDP. It would also slash the amount Athens pays in interest each year.

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Greece’s long, painful suicide

Illustration by Manos Symeonakis for Cartoon Movement (http://www.cartoonmovement.com/p/6035)

There are many ways one can look upon Dimitris Christoulas’s decision to end his life in front of Parliament on Wednesday. Each has a different interpretation, each has different implications, but no matter which one you choose, they will all fill you with sorrow.

On a personal level, it is a tragedy that a 77-year-old man should feel so discouraged by what he saw around him, so appalled by his own financial misfortune and the prospect of scrounging from garbage cans to survive, that he should choose to shoot himself in the center of Athens.

One can feel nothing but despair that an active member of his community should feel so alone that he should opt to exit society in such a dramatic way. It tells us of the isolation and hopelessness that many around us feel. Lest we forget, it brings us face to face with the impact of the crisis and the flawed economic polices it has spawned. We see more clearly the people who have lost their jobs, businesses, homes and aspirations. It reminds us that the human cost of the so-called fiscal adjustment makes debates about the political cost irrelevant.

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PSI: Gift horse or Trojan horse?

Illustration by Manos Symeonakis

Given that Greece struggled for weeks to find just a few billion euros in savings to convince its eurozone partners to grant a second bailout, you’d have thought the wiping out of some 100 billion euros from the country’s debt pile — the largest restructuring the world has seen — would have been greeted with the world’s largest collective sigh of relief. It wasn’t.

The lack of high-fiving and back-slapping on the streets of Athens does not mean the bond swap should be dismissed. After all, it’s perhaps the first time in this crisis that all parties involved accepted that Greece can’t pay its debts and that they needed to do something practical about it.

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