Greek prime minister George Papandreou survived a vote of confidence as expected. However, nothing has changed. Greece will now default later rather than sooner. Papandreou will not survive the next election given support of a mere 20% of the Greek population.
Spanish 10-year government bonds are still an elevated 5.5%, unchanged following the vote of confidence. Meanwhile, Portuguese bonds have worsened, with 10-year yield hitting a new high of 11.34%.
No One Cheering, Nothing is Fixed
No one is cheering loudly (except protesters) for the simply reason nothing is fixed.
Structural problems remain in the economies of Greece, Spain, Ireland, and Italy. The Euro itself has structural problems.
Greek Government Survives Vote of Confidence
Reuters reports Greek government survives vote, battles on to avert bankruptcy
Speaking just hours after the vote, Mohamed El-Erian, head of Pimco, the world’s biggest bond fund, said he expected Greece to end up defaulting on its debt.
“For the next three years, we’re going to see different economies work out different problems. For European economies, especially Greece, it would be through default,” El-Erian told a conference in Taipei.
All of Papandreou’s Socialist Party deputies voted solidly with the government, handing him a victory by 155 votes to 143 with two abstentions, while thousands of protesters besieged the parliament building, shouting insults at politicians and shining hundreds of green laser lights at the building and at Greek police.
Most analysts remain skeptical that Greece will be able to reduce its vast public debt pile of 340 billion euros, 1.5 times its annual economic output and more than 30,000 euros for each of its 11.3 million people, even if the reforms are implemented.
As parliament debated the confidence motion, demonstrators stepped up their protests in the square, where hundreds have camped for weeks to show their opposition to more austerity, which has deepened the worst recession for 37 years.
“I believe we should go bankrupt and get it over with. These measures are slowly killing us,” said 22-year-old student Efi Koloverou. “We want competent people to take over.”
Glykeria Madaraki, a 39-year-old unemployed woman, said: “God help us. There is no way these people are getting us out of the crisis. I feel insecure and I see my country being sold off. They didn’t ask what we think about all this. I want elections.”
Inside parliament the opposition poured similar disdain on the government.
“This is not a program to salvage the economy, it’s a program for pillage before bankruptcy,” said Alexis Tsipras, head of the small opposition Left Coalition.
Needed Reforms or Program for Pillage?
The correct answer to the above question is both.
Many of the reforms Papandreou has agreed to are indeed necessary. To be competitive, the retirement age in Greece cannot be 7 years earlier than in Germany. Greek public unions need to be shown the door.
However, it’s a huge mistake to think reforms and austerity will do anything for Greece any time soon.
Pledging of assets at fire-sale prices won’t help.
Time for common sense on Greece
Martin Wolf says it’s Time for common sense on Greece
[The Greek] debt profile has moved from horrible to still worse: in the initial programme the ratio of gross debt to GDP was forecast to peak at 149 per cent of GDP in 2012. In the March review this had already jumped to 159 per cent. Second, the economy looks extraordinarily uncompetitive. The most telling indicator is the combination of the still huge current account deficit with a deep recession. This external deficit cannot now be financed in the market. Third, prospects for the current account deficit are seen to be deteriorating sharply: initially, the IMF forecast the current account deficit at 2.8 per cent of GDP in 2014; in the March review, it forecasts this at 5.5 per cent of GDP. Fourth, without a surge in exports, it will be impossible to return to sustainable growth. But such a surge will require a big reduction in nominal costs. If this is feasible at all, which I doubt, this will raise the ratio of debt to GDP still more.
The market’s scepticism about the ability of Greece to become creditworthy is warranted. It rests on awareness of two facts: the massive indebtedness and the lack of competitiveness. The fact that the Greek people are unwilling to bear the pain merely makes the already implausible quite inconceivable. If this was the state of, say, Finland, one might just believe it. Rightly or wrongly, few believe that today’s Greece is another Finland.
When an outcome is inevitable, it is necessary to plan for it. In this case, that outcome seems to most informed observers inevitable. I can see little merit in having Greece default to the public sector years of agony hence rather than to the private sector soon. The best policy is to act pre-emptively. One aspect of such pre-emption would consist of acting to shore up other fragile eurozone members and financial systems more strongly than now. In at least one case, Ireland, that might require debt restructuring. This will also surely require a further move toward a eurozone-wide financial system, with matching fiscal support.
Yet the principal requirement now is to recognise unpleasant reality. One cannot make the incredible credible by endless delay. One can only make the recognition of reality more painful when it finally comes. The time has surely come to recognise the reality of the Greek predicament and act at once on the wider ramifications for its partners.
Schäuble wants to turn Greece into a hub for renewable energy
Euro Intelligence reports on German Finance Minister’s Proposal to Save Greece.
Wolfgang Schäuble thinks that Greece will be very competitive as a potential exporter of renewable energy in the future. “One approach could be to push the Mediterranean countries stronger to participate in our push towards renewable energy, for example with solar energy”, Schäuble told the weekly Die Zeit. “Greece has many more hours of sun per year than we do in Germany and it could export electricity to us. With that the Greek economy would have a competitive and desired export product. Without this and other growth perspectives I would be very hard pressed to burden the German tax payer with the considerable risk of a new (rescue) program (for Greece).”
Schäuble has so far not made a single plausible proposal about how to return Greece to sustainability. When he talks about solar energy at a time like this, he tells us that they really clueless.
That proposal by Schäuble shows just how unlikely it will be for officials to display the common sense that Martin Wolf requests.
Mike “Mish” Shedlock
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