Greek Death March: As Goes Greece, so Goes the Rest of Europe, Down the Economic Drain (without massive influx of cash)

Insert sound file - Funeral March.
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[What we should take away from this boys and girls is - we should not bet on the Europeans.  Everything is relative when it comes to perspectives.]





The Greek Bailout Flop


The "rescue" hasn't stopped contagion. It has spread it..

The Wall Street Journal
May 5, 2010


It hasn't been a week since the terms of Athens's €110 billion ($145 billion) bailout were set, and already the reviews of this latest Greek drama are saying it's a flop. Yesterday the euro sank to its lowest level in a year. Stock markets across Europe fell nearly 3%. Greek interest-rate spreads climbed higher again, and market players have turned their attention to the euro zone's other weak sisters as everyone tries to figure out who is most likely to follow Greece down the road to national insolvency.

The bailout, in other words, hasn't stopped the much-feared contagion. If anything, it has spread it.

Part of the problem lies with the bailout's terms. The €110 billion agreed over the weekend was more than twice the €45 billion originally proposed, but it came with revised deficit projections that immediately made even the higher number look inadequate to fund Greece's bloated state. Part of the problem, too, comes from the Greeks themselves: On Tuesday, civil servants held another paralyzing strike, calling into question Athens's will to see through its program of spending cuts and tax hikes.

But perhaps the largest part of the problem has been the view, pervasive among European leaders, that the Greek crisis is fundamentally a problem of market confidence or psychology. They have misread the signals that Greece is well and truly bankrupt.

According to the latest official projections, Greek public debt, currently 108% of gross domestic product, will top 149% of GDP in 2013, the year that the bailout loans, in theory, come due. Assuming an average interest rate of 6% on that debt, Greece would be left paying 9% of its GDP to bondholders, 80% of whom are located abroad. Put another way, 25% of Greek tax revenue would go toward interest payments to foreign bondholders. Meanwhile, Greece's government spending equals more than 50% of GDP and labor productivity is well below the EU average, neither of which bode well for growth going forward.

The EU and IMF insistence that no haircuts and no restructuring are in the cards isn't credible, as yesterday's market turmoil testifies. There is now a real possibility that national parliaments in Germany, Slovakia and other EU states won't approve some of the promised funds. The contentiousness of funding Greece's bailout makes any further bailouts, whether for Portugal or for Greece in a second round, look remote. Far from silencing the market speculation about Greece's fate, activating the bailout has turned up the volume.

It's time that Greece and the rest of Europe started listening to the market instead of attacking it. That goes double when the market's messengers are being asked to provide the capital to keep the Continent's deficit-spending welfare states afloat.

 
 
 
 
 
 
 
europe sinks