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Posts Tagged ‘PIIGS’

“Brutal change” is coming to Athens

February 26, 2010 Leave a comment

From Reuters:

Speaking to parliament after a visit by EU economic inspectors, Papandreou said Greece did not want other countries to pay for its debts but expected solidarity from its European peers as it struggled with worse than expected fiscal problems.

“Unfortunately, history has fully confirmed our worst fears,” he said. “Our duty today is to forget about political costs and only think about the survival of our country … Past policies make it necessary to proceed to brutal changes.”

This, of course, means Greece will continue to play bitch to banksters, NATO, and its own wealthy families – ensuring the survival of the country only ensures the survival of their lifestyle.

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Greecing the skids on the European social compact

February 13, 2010 Leave a comment

Lab Rat

Greece must renounce its debt.

Yes, we said it: Greece must renounce its public debt, withdraw from NATO, and slash its military budget. It is the only game changer the George Papandreou, the Greek prime minister, has left.

It will result in an attempted (probably successful) coup by the military, and expose the monstrous machinations of Washington and Wall Street to get their hands on the trillions of dollars currently locked up in the European social compact. And, it is the only move which will end Papandreou’s silly whining about the lack of real support for the Greek socialist government – as if Washington, Bonn, London and Paris gave a tinker’s damn about the prospects of socialist rule in Greece.

Papandreou, President of the Socialist International, the worldwide organisation of social democratic, socialist and labour parties, and President of the Panhellenic Socialist Movement (PASOK)  is struggling to figure out how to eviscerate social democratic institutions in order to come up with the cash needed to pay bankers on Wall Street.

According to one report, those cuts (which are said to eventually total 4 percent of Greece’s GDP – a recession level event in itself)  have already targeted some of the most important constituents of the social welfare state:

In the run-up to the conference, Papandreou proposed drastic cuts in government spending. They included cutting Greece’s budget deficit by a massive 4 percent of GDP in 2010, increasing the public sector retirement age by two years to 63, freezing wages and cutting bonuses, while imposing a 10 percent increase in fuel prices. These cuts could cost tens of thousands of jobs in private firms that work for the government.

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Greece is the WOR(L)D: February 10, update

February 10, 2010 Leave a comment

Greece military spending in context (2008)

There is a good article at Naked Capitalism that shows how Goldman Sachs helped the previous Greek government hide at least $1 billion of its public debt:

Greece’s debt managers agreed a huge deal with the savvy bankers of US investment bank Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period — to be exchanged back into the original currencies at a later date.

Such transactions are part of normal government refinancing. Europe’s governments obtain funds from investors around the world by issuing bonds in yen, dollar or Swiss francs. But they need euros to pay their daily bills. Years later the bonds are repaid in the original foreign denominations.

But in the Greek case the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks.

Far from blameless in this sordid tale, successive government have falsified the true picture of Greece’s debt bomb. An important part of that spending spree was on lavish military procurements:

The Greeks have never managed to stick to the 60 percent debt limit, and they only adhered to the three percent deficit ceiling with the help of blatant balance sheet cosmetics. One time, gigantic military expenditures were left out, and another time billions in hospital debt. After recalculating the figures, the experts at Eurostat consistently came up with the same results: In truth, the deficit each year has been far greater than the three percent limit. In 2009, it exploded to over 12 percent.

Another study cites the close link between Greece military expenditures and its public debt:

Greece has over the years allocated substantial human and material resources to defence. Its defence burden (i.e. military expenditure as a share of GDP) has invariably been substantially higher than the EU and NATO averages. Furthermore, during the post-bipolar period, when the defence budgets of most countries shrunk, Greek defence spending grew in real terms. This paper contributes to the existing literature on Greek defence spending and its effects by empirically estimating the impact of such expenditures on the country’s fiscal situation during the period 1960-2001 something that has largely been ignored in the relevant literature. In particular, it focuses on the effects of military spending on government debt and its two components: internal and external debt. The empirical findings reported here suggest that central government debt and, in particular, external debt has been adversely influenced by military expenditure but also by the domestic political cycle.

Deepening debt is what we would expect, since Greece was pursuing fairly aggressive military expansion without a corresponding trade surplus to offset the cost. As Krugman’s model states, such a policy had to result, sooner or later, in an attack on its currency, and corresponding collapse of the country’s economy. The fact that Greece uses the euro doesn’t alter the issue: If it cannot devalue its currency, wages must fall in any case. Government spending is a part of the surplus product of a country, if it and total profits are to be maintained at some level previously in excess of existing total surplus produced, as was the case in Greece, wages must fall.

Yves Smith points out that Goldman’s deals are often used, “to shift risk onto chumps.” It turns out that the chumps, in this case, will be the unions. The working class of Greece is going to take it in the neck on this one – exports have to expand, and this will come at their expense if Athens, Washington and Wall Street have their way. Without deliberate effort to reduce military expenditures and renunciation of external debt, Greece is going to reenact Argentina in short order.

Greece is the WOR(L)D…

February 9, 2010 3 comments

Prime Minister George Papandreou

Investment adviser John Mauldin has some advice for Greece: In order to avoid default, the socialist government of Greece should impose a severe austerity regime on its voters. Greece could default on its debt, but Wall Streets would not take too kindly with that move

…if Greece defaults it does not necessarily mean they have to leave the EU, any more than if Illinois defaulted they would have to leave the United States. Greece could still use the euro and life could go on. EXCEPT. The markets would no longer lend the Greek government money at anything close to a livable rate. Greece would be forced to balance its budget.

Greece, because it uses the euro also doesn’t have the option of devaluing its currency as Argentina was forced to do when it was pushed to the brink. So their only option is to downsize government:

Since they are part of the euro, devaluing the currency is not an option. The results of controlling their fiscal deficit would not initially be pretty and would almost insure a serious prolonged recession or depression in the Greek area, with fall out in the region. It would be a sad decade for Greece. But in the long run, it is a better option than default.

A better option for whom? Mauldin is not clear. Perhaps it is better for the member states of the EU, who would be threatened by the Wall Street if they show any leniency toward Greece:

Bailing out Greece without serious and credible deficit reductions by their government over the next few years would simply delay the problem, and it is not altogether clear the bond markets would go along for very long.

So the writing is on the Wall Street – no help for Greece:

At the end of the day, it may be the bond market which forces the Greek government and its people to take some very bitter medicine.

In case you didn’t get the message, Spain, Ireland, Italy, Portugal, et el, we’re coming for you next:

Stay tuned. This is just the beginning of what will be a series of sovereign debt crises over the coming decade. It is important for the world that we get this one solved right, or the consequences will be quite severe.

Further, and more important to the rest of Europe and the world, the results of a Greek default would be financial turmoil. 250 billion euros (and maybe 300!) of Greek debt is in international bond funds, pension and insurance companies, and above all at banks. Think German banks. Already undercapitalized banks. Also, think of all the investment banks who have been selling relatively cheap (given the apparent risk) credit default swaps on Greece, in an unregulated market, exposing their balance sheets. What should be a simple, if sad, matter for the Greeks, becomes a problem for the world, just as subprime debt in the US caused a world credit crisis. And the risk of contagion from Portugal, Spain, et al is serious. 2 trillion euros of debt could get downgraded by the bond market in very short order. It could be a replay of the last credit crisis, just with new actors as the prime problem.