Greek Debt is Out of Control, Report Says

According to the newly-formed State Budget Execution Monitoring Office in Athens – staffed by independent analysts – a significant increase of debt, a high primary deficit and the deep recession have boosted to the extreme the dynamics of  Greek debt – and it is now spinning out of control, they write in a report, quoted by the Greek news paper Kathimerini, Friday.

“What does the EU do with a country that is unwilling to undergo change and structural reform, because there is a lack of political will, of functioning administration and of support of the population?”

 Frankfurter Allgemeine Zeitung

The Greek economy is shrinking at an alarming rate, offsetting the impact of the first EUR 159 billion bailout loan, according to the reports. But Greek finance minister Evangelos Venizelos states that the report lacks validity of equivalent international reports. 

Venizelos last week admitted that Greece is likely to contract by more than 4.5% this year, worse than an earlier 3.5% forecast.

Meanwhile, Greece’s debt has ballooned to over EUR 350 billion.

The deficit has climbed to EUR 15,5 billion by July, compared to a target of EUR 16,68 billion for the entire year.

Greek deficit reached EUR 15,5 billion in July, at the same time the economy is contracting by 4.5%.

To make up for revenue shortfall, Greece raises VAT by 10 percentage points on food and restaurants.

Parts of state revenue included in this year’s calculations will not be collected until early 2012.

To make up the shortfall, the authorities on Thursday raised VAT for food at restaurants and hotels by ten points to 23%.

The restaurant sector has described the measure as ruinous and some operators have threatened to withhold the tax to avoid closing down altogether, www.eurointelligence.com reports.

Separately, the Greek Finance Ministry says it will publicize the names of taxpayers who has owed the state more than 150.000 euros for over a year, according to another article in the Greek news paper, Kathimerini.

“Greece is a Lost Cause”

After the Greek parliament’s admission that the Greek debt has spun out of control, Frankfurter Allgemeine Zeitung’s economics editor, Holger Steltzner,  urges the euro zone in a front page editorial to wake up to the fact that Greece is a lost cause.

“The public service and the private sector have ballooned as a consequence of living on debt and they are not competitive and that is why the ‘rescue billions’ will disappear”, Steltzner asserts.

“What does the EU do with a country that is unwilling to undergo change and structural reform, because there is a lack of political will, of functioning administration and of support of the population?” the German editor writes.

Related by the EconoTwist’s:

• Writer Returns From Vacation in Greece – Shocked and Disillusioned
• Chaos in Financial Markets are “Potentially Dangerous for Humanity”
• Europe: “Time to Get Angry”
• Greece About To Enter The Death Spiral
• Greece: Corruption Behind Crisis
• Greece: Just Do It!
• Time For Some Uncommon Sense

Other related articles:

• Greece, EU talks hit snag (business.financialpost.com)
• EU official: Greece, troika disagree over deficit (sfgate.com)
• Greece, EU/IMF at odds over deficit; pause talks (huffingtonpost.com)
• Tension grows over Greece deficit (theglobeandmail.com)
• Greece Bond Yields Go Nuts, Hit Eurozone Record (businessinsider.com)
• Greek debt review on pause (seattletimes.nwsource.com)
• Greece to Miss Deficit Target (online.wsj.com)
• Talks Over $8 Billion In Bailout Funds Stalled After Greeks Miss Reform Goals (businessinsider.com)
• Retaliation: Greek Budget Expert Fired For Opposing Europe, Telling The Truth About Country’s Insolvency (zerohedge.com)

Greek Opposition To Vote Against Bailout

The EU/IMF deal will find a majority in the Greek parliament, but last night’s decision by Antonis Samaras, leader of the opposition New Democracy, to vote against the IMF/EU package destroys any hopes of a lasting consensus for reform, the Greek newspaper Kathimerini reports.

“We do not deny financial support, necessitated more, but we disagree with the policy that led us thus far and the government’s economic strategy to address the crisis.”

Antonis Samaras

This signals a return to the politics as usual at a rather early stage in the adjustment process, and destroys any hope of a national consensus, which is so critical when it comes to the implementation of long-term adjustment programmes. The decision makes it very likely that Greece will not be able to maintain the commitments it made in its negotiations, except in the very short term.

The decision of the New Republic to vote against the funding agreement by the support mechanism in the euro area and the IMF announced late last night, the party president, Antonis Samaras.

“We do not deny financial support, necessitated more, but we disagree with the policy that led us thus far and the government’s economic strategy to address the crisis,” he said, according to Kathimerini.

After several hours of discussion  and continuous consultations, Mr. Samaras finally leaned towards a “no”.

In a statement last night he explained the reasons for its decision;

“We disagree with the policy that led us thus far and the government’s economic strategy to address the crisis.”

He accused the government  for wanting a vote of tolerance “for the record” and that it “seeks the complicity in a policy” which has led to mistakes, delays, bilingualism and the incredible escapades of the Greek government.

When it comes to impose the responsibilities for the use of IMF in handling of the government, he says that ” Greece certainly has a deficit problem, but similar to that which existed in many other countries in the euro zone.”

Mr. Samaras added, however, that the South West, regardless of its position, “will honor the money given juncture in Greece by the governments of our partners and the International Monetary Fund” and that “we are bound by contracts signed by the Greek state, even when we disagree, we will do everything we can so money can be returned as agreed in the contracts. “Greece has dignity,” he underlined.

In conclusion he said that “Greece is in urgent need of politicians who do not bow their heads, or runs out in protest, but makes room for view outlets, which at critical moments know how to withstand pressure, but also knows to resist populism and solvents phenomena.”

Prime Minister George Papandreou and the government are waiting to manifest the concern of the current unrest, but the outcome of the battle will be tomorrow when the House is set to pass the EU/IMF agreement and the package of measures, Kathimerini writes.

See the report in Kathimerini for more details.

Meltdown Continues

Yesterday investors became more skeptical about Greece, about the spread of the crisis, and the world economy in general.

Equity markets had a rough day, southern European bond spreads were back up, as were CDS ratings of south European sovereigns, and the euro fell towards to $1.30, the weakest level in a year.

The latest rout was triggered by comments from Germany’s economics minister, who said that the finance package would last only 18 months, and by Germany’s finance minister, who warned the Greeks that a failure to meet the objectives would lead to bankruptcy.

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This is not what the market wants to hear now. The Greek two-year yield subsequently rose by 4.2% to 14.5%.

Portugal And Spain Next In Line

The crisis is currently spreading to Portugal, the next candidate for a combined IMF/EU programme.

A bewildered Jose Luis Zapatero gave an angry response to press reports which alleged that he was preparing a €280bn rescue package for the Spanish economy, according to El Pais.

Pointing towards the (still) relatively low level of Spanish debt-to-GDP ratio, he said the speculation was without foundation.

Investors are probably aware of the Spanish public deficit- and debt numbers. but it is the private debt, and the liabilities of a state-guaranteed banking they are worried about.

In an editorial, El Pais makes the point that the problem for Spain is not so much the actual numbers, but the perception that the country is not reforming, especially in the labor market.

Tano Santos in Nada es Gratis writes in a commentary that Spain needs to reboot its entire economic strategy to survive this crisis, something that is not possible with the present government, and especially not with Zapatero.

He makes the points that Spain needs an increase in potential GDP growth through reforms, the courage to close down banks, and restrictions on the expenditure of municipalities.

Another Time Bomb About To Explode

Wolfgang Munchau says in his FT Deutschland column that he is not certain about the actual status of the loan to Greece, and criticizes the EU and the German government for failing to come clean on this matter, and clarify the implications.

The financial markets believe – probably correctly – that the debt is junior. After all, one of the main goals of the package had been to stabilize markets. But if the debt is junior – and given a non-trivial probability of debt restructuring down the line – it is virtually guaranteed that only parts of the loan will be paid back.

Munchau assumes that the German government is deliberately hiding this fact in order to facilitate passage of the legislation, as the country’s financially illiterate MPs are unlikely to get bogged down in questions about the seniority of debt.

But this game of smoke and mirrors is hugely dangerous gamble, and could lead to massive political and legal backlash, once people (and constitutional court justices) realize that this is a fiscal transfer after all, contrary to what Merkel has been saying.

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