Friday, 12 February 2010

Greece still in trouble

Back in early December last year I blogged about the Greeks having a spot of bother with their economy. I mused over the possible outcomes of the current situation and ended like this:

So, either the Greek government cracks, cuts spending and is probably booted from office, or, Brussels cracks and starts giving money to Greece to continue living beyond its means (German taxpayers would love that!) or Greece simply leaves the euro, reverts to the drachma, and devalues - thus stoking their economy and reducing their debt.

My money is on some sort of fudged bail-out from Brussels.

Well, the Greek government has cracked and planned some nasty little cuts: only 1 in 5 public sector workers to be replaced when they retire; retirement age itself to rise - by 5 years for most people, by 10 years for some categories of worker who were on rather generous terms.

Of course these are all futurisms.Where are the pay and spending cuts now like they had in Ireland?

And the Europeans have also come up with their favourite dish - fudge. They've all agreed they are going to stand right behind Greece and help out as best they can, but all without quite putting any money on the table or committing to anything concrete.

Would you like to read the Euro-statement in full? OK, well here it is...

All euro area members must conduct sound national policies in line with the agreed rules. They have a shared responsibility for the economic and financial stability in the area. In this context, we fully support the efforts of the Greek government and their commitment to do whatever is necessary, including adopting additional measures to ensure that the ambitious targets set in the stability programme for 2010 and the following years are met. We call on the Greek government to implement all these measures in a rigorous and determined manner to effectively reduce the budgetary deficit by 4% in 2010.

We invite the Ecofin Council to adopt at its meeting of the 16th of February the recommendations to Greece based on the Commission's proposal and the additional measures Greece has announced.

The Commission will closely monitor the implementation of the recommendations in liaison with the ECB and will propose needed additional measures, drawing on the expertise of the IMF. A first assessment will be done in March.

Euro area Member states will take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole. The Greek government has not requested any financial support. (Link)

That's pretty firm and hard-hitting, isn't it? It's full of "additional measures", "close monitoring", future resolutions and assessments, and I expect the IMF is glad the EU will be "drawing on [their] expertise" rather than drawing on their cash.

If Greece were to receive EU cash it would come ultimately from German taxpayers. And Germany has just flatlined again - their economy didn't grow at all in the last quarter. (We beat them with our +0.1% growth! Yay for us.) I don't think the Germans are in a giving mood at the moment though.

Greece's problems can be summarised like this. Population: 10 million Greeks and 3 million illegal immigrants; industries: shipping and tourism, both decimated by the world economy; tax: optional; politics: hard left socialism, jobs for life in the public sector but no vacancies in the private sector; national attitude: paranoia - remember these people arrest you for plane spotting or dressing like a nun.

And all the spending numbers produced by the Greek government don't include the defence budget. The defence budget is secret; no-one may know the defence budget. If you knew the defence budget they'd have to shoot you. Sometimes it feels like the colonels are still running the country. The net effect is that the Greek budget stats are completely untrustworthy and the real financial situation is likely to be far worse than they admit.

So why are we so concerned about this small, far away and irrelevant country? Well, because it's the weakest link in the Euro and this is the first time the Euro has been tested since its launch in 2002. We want to see how it responds to stress. Will Greece be supported whatever the cost? Or will Greece be cast out of the club? Or will the whole Euro-zone fall apart?

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