Greece is DOOMED!

[jimmy olsen]

So how will this effect the EU/Euro if Greece defaults?

http://www.nytimes.com/2009/12/12/world/europe/12greece.html?_r=2&hp

Greece Struggles to Stay Afloat as Debts Pile On

By RACHEL DONADIO and NIKI KITSANTONIS
Published: December 11, 2009

ATHENS — Ever since Greece's credit rating was downgraded last week, its new Socialist government has fought back, saying it has the mettle to tackle the soaring deficit and structural woes that have earned it a reputation as the weak link in the Euro zone.

"We will reduce the deficit, we will control the debt, and there will be no need for a bailout," the Greek finance minister, George Papaconstantinou, said in an interview in his office here last week. "We are not Iceland, we are not Dubai."

But Mr. Papaconstantinou may have good reason for the traditional Greek metal worry beads he fingered during the interview. Outside his office, garbage was piled high in Syntagma Square, the result of a two-week strike by trash collectors.

A student demonstration was advancing on the square a day after pensioners had taken to the streets. The previous week, protests for the first anniversary of the death of an Athenian teenager shot by the police turned violent, but did not cause as much damage as last year.

Common in Greece even during better times, such protests are expected to increase dramatically once the government introduces austerity measures in its 2010 budget, including wage freezes and scaling back on public-sector hiring, which it says are needed to bring Greece's finances under control.

As Mr. Papaconstantinou suggested, the problem is not Greece's alone — heavily indebted countries, including Ireland, Britain and Spain, are under pressure to show that they can stimulate growth and grapple with enormous debt burdens at the same time. Investors and European monetary officials are skeptical.

Greece, in particular, has to transform a culture with a low tolerance for change and a high tolerance for protest, no easy task for a two-month-old Socialist government that says it is committed to sustaining social spending. Beyond convincing European Union leaders in Brussels, the new government has to win over Greece.

The president of civil servants union ADEDY, Spyros Papaspyros, said his union was prepared to strike if cutbacks were unilateral and severe. "If funding cuts are made in critical sectors such as health or welfare, we create a serious risk of destabilization," he said.

The political and social challenges are intense. "It will be a very tall order for any country to pull off the fiscal rescue they've now got to pull off," said Simon Tilford, the chief economist at the Centre for European Reform in London, a think tank. In light of Greece's political challenges, he added, "I find it at this point difficult to see how Greece is going to manage this without some kind of fiscal crisis."

Certainly, the bond markets remain to be convinced that the government can avoid default. Yields on 2-year bonds soared to 3.09 percent from 1.9 percent this week — the worst for the markets here in more than a decade — while the 10-year bond rose to 5.3 percent from an already elevated 4.99 percent. In Germany, by contrast, a 10-year bond yields 3.2 percent, and a 2-year bond only 1.2 percent.

The dire economic situation has prompted the question of what went wrong in a country that was once seen as the poster child for European Union membership and enjoyed 15 years of sustained growth, coming from behind to host the 2004 Olympics.

"We didn't use the Olympic spirit well," said Elias Clis, a former Greek ambassador. "The previous government took the safe way, and the safe way is a very dangerous path."

After winning by a wide margin in October, the Socialist government of George Papandreou announced that the country's budget deficit was 12.7 percent of the gross domestic product, more than four times the 3 percent ceiling set by European monetary union and twice as high as previous estimates.

Mr. Papandreou last week estimated the national debt at $430 billion, calling it the worst crisis facing Greece in three decades and blaming his conservative predecessors for the economic state. Greece's national debt is expected to rise above 110 percent of G.D.P.

Last week, the ratings agency Fitch downgraded Greece's credit rating on fears that its deficit might cause it to default, sending Greek shares plunging and making the markets jittery. Standard and Poor's has said it will reserve judgment until it sees the plan the government is expected to announce in January.

On Friday, Mr. Papandreou stressed the need for drastic measures.
"We acknowledge the scale of the problem that we are faced with, and we are determined to make the shift toward a sustainable and healthy economy," he told reporters in Brussels.

He called for a "merciless crackdown on the corruption that is endemic in society and on widespread tax evasion."

Yet that is not expected to be easy. The underground economy, which some estimates place as high as 30 percent of G.D.P., helps citizens in countries like Greece with European prices but salaries below the European average.

As he sat in a cafe with friends in the chic Kolonaki area on a recent afternoon, Antonis, 33, who would only disclose his first name, proudly announced that he refused to pay taxes.

"Why should I pay?" he asked with a grin.

"I don't care about my government, I don't care about my country," he added, conceding, however that he did care about soccer and women. While not always so vehement, such views are common in Greece, where the government is widely seen as corrupt, regardless of who is in power. Indeed, few people expect much from the state — except highly coveted public sector jobs. Today, one in four Greek workers is employed by the state, a result of decades of public hiring to stave off social unrest.

The Papandreou administration has said that in 2010 it will hire only one new state worker for every five who retire. But that, too, poses problems. Savas Robolis, a member of the main labor union GSEE who serves on a government committee on pension reform, called the pension situation "a ticking time bomb."

He said that Greece has only enough money to pay pensions for one more year. If the country does not replenish the pension funds, "Then we will face a huge social crisis in 10 years," Mr. Robolis said.

Fears of cutbacks are causing widespread anxiety. Lambrini, who has worked at the Health Ministry for 11 years and would give only her first name, said a possible freeze on her $1,300-a month salary was a real concern for her and her husband, a municipal worker.

"We want to plan a family, but I don't see how we can with such low incomes and with prices going up all the time," she said.

She said she had never joined a labor protest before but would take to the streets if her salary were frozen or cut. "I'll be there," she said. "And so will half the population."

[Habbaku]

So how will this effect the EU/Euro if Greece defaults?

[jimmy olsen]

So how will this effect the EU/Euro if Greece defaults?

Quite right.

[Richard Hakluyt]

I was surprised how modern and mainstream Greece has become on my most recent visits. Quite impressed in some respects; OTOH I knew they had some very dodgy economic indicators. An appalling budget deficit and bad balance of trade for example.

What they always used to do at times like this is devalue the drachma........but now they are part of the euro. I wonder how they can solve their problems within that straitjacket?

[Syt]

I was surprised how modern and mainstream Greece has become on my most recent visits. Quite impressed in some respects; OTOH I knew they had some very dodgy economic indicators. An appalling budget deficit and bad balance of trade for example.

What they always used to do at times like this is devalue the drachma........but now they are part of the euro. I wonder how they can solve their problems within that straitjacket?

Look at what they did in 2006:
http://www.nytimes.com/2006/09/27/business/worldbusiness/27iht-grecon.2953042.html

Greece revises GDP to include underground activity - Business - International Herald Tribune

ATHENS — Greece will revise upward its gross domestic product for the past six years by as much as 25 percent a quarter by including parts of its underground economy, top officials said Wednesday.

The revision will help Greece meet deficit standards set by the European Unions by shrinking its budget deficit as a percentage of GDP. The 2006 deficit will fall to 2.1 percent from current estimates of 2.6 percent, well below the EU's 3 percent limit.

"The revised GDP will include some money from illegal activities, such as money from cigarette and drinks smuggling, prostitution and money laundering," the National Statistics Service chief, Manolis Kontopyrakis, said.

Greece has repeatedly revised budget and national accounts since 2003 and the EU urged the country to improve its statistics in cooperation with the bloc's statistical agency, Eurostat.

"It is important to know that member states revise their figures regularly, but this is quite a significant revision and needs to be checked," Amelia Torres, a European Commission spokeswoman, said. She said that Eurostat was looking into the figures and that the verification would take at least a few weeks.

Kontopyrakis said the adjustment was in accordance with Eurostat rules and part of revisions done by all EU countries every five years or so.

But Torres said Eurostat had not been consulted in advance.

"There have been no prior discussions between Greece and Eurostat on the subject," she said. "So if Greece is saying that this has already been cleared by Eurostat, this is not correct."

Kontopyrakis said the GDP revision was not related to Greece's efforts to meet EU-prescribed targets. But analysts said the timing might be questioned by its EU partners, who have been nervous about Greek revisions in the past.

"It's not the best point in time in my view," said Theodor Schonebeck, a Deutsche Bank economist.

"It would perhaps have been a bit more advisable to do it next year, once Greece has shown it is fulfilling its obligations to the Stability Pact without resorting to accounting measures," he added, referring to the EU's economic guidelines.

Analysts say such revisions seem to have a greater impact in countries with larger underground economies.

The Greek economy minister, George Alogoskoufis, said the new GDP figures would not be included in the 2007 draft budget to be presented next week

Most of the revision comes after surveys replaced estimates to measure economic activity in several parts of the economy, including construction and trade, Kontopirakis said. A smaller factor is the inclusion of estimates of illegal activities, like drug trafficking and prostitution, he said.

Kontopirakis said he expected Eurostat to approve the GDP revision because it was in line with EU guidelines. "We expect no reverberations there," he said.

Kontopirakis declined to say how much the new GDP figures would affect the deficit. "Some revisions, such as the one on GDP, may deflate it while others, regarding the surpluses of social security funds may increase it," he said.

Greece's debt was the EU's highest at 107.5 percent of GDP last year. The country has the lowest credit rating among the 12 countries sharing the euro. Moody's Investors Service ranks Greece's debt A1, its fifth-highest investment grade rating. Standard & Poor's and Fitch Ratings grade the debt one level lower at A.

[Zanza]

Greece's economy is about 3% of the Eurozone economy, so it is not going to let the Eurozone disintegrate or something. That said, the fearmongers here already point out that other countries (Spain, Portugal, Ireland) also have bad public finances.

Best: we let them default and crash. They tricked us when they entered, they tricked us now. Fuck them. They should learn the hard way.
Worst: the EU actively intervenes in domestic Greek politics and bails them out. That would set all kinds of unsavory precedents.
Realistic: if Greece deterioriates further, the EU will ask the IMF to bail Greece out and support that.

[Richard Hakluyt]

The essential problem is that the euro is the D-mark writ large.

Which is fine for you Germans because that is the way that you behave, but a bit of a problem for feckless mediterranean types 

As indeed it would be for the feckless and spendthrift British. One of the few bright patches on our economic horizon is that at least we have devalued by about 25%.

[Zanza]

I think devaluation is a short term solution that only makes a country poorer. Especially one with a gigantic trade deficit like the UK.

[Zanza]

By the way, I am not sure how dropping out of the Eurozone would help Greece. It's not like anybody would be happily lending them money once they are back to drachmas they can print at whim.

[Richard Hakluyt]

The advantage of devaluation is that it is a way of reducing wages and salaries. Also, by printing drachmae they could cause inflation and destroy their national debt.

I prefer sound finances on the German model myself; but it relies on co-operation from the German population and the financial discipline of German workers. I'm not sure that the Greeks can operate with a hard currency for any length of time. Well, we shall see.

[Crazy_Ivan80]

The EU could bail them out and take control over their finances :p German Banker types cold then run Greece. Maybe install a new monarchy too

[Neil]

The EU could bail them out and take control over their finances :p German Banker types cold then run Greece. Maybe install a new monarchy too

You'd also have to exterminate the people living in Greece right now.

[Jaron]

The EU could bail them out and take control over their finances :p German Banker types cold then run Greece. Maybe install a new monarchy too

You'd also have to exterminate the people living in Greece right now.

They sure as hell aren't the Greeks I know of. My big fat Greek wedding ought to have been named My Big fat Runaway Turkish wedding

[Admiral Yi]

Shouldn't affect the euro at all.  Will probably affect the EU somewhat since if the Greek economy collapses they will be shelling out more state welfare.

[Neil]

They sure as hell aren't the Greeks I know of. My big fat Greek wedding ought to have been named My Big fat Runaway Turkish wedding

There's some inferior South Slav genes in there as well, which is why full-blooded Turks are so superior to the modern Greek.