Archive for October 2011
Italy is a ticking bomb and has the potential to make the Greek debt crisis seem like a walk in the park.
According to Eurostat, Italy’s debt in 2010 stood at EUR1.842trl, 118% of the country’s domestic product, historically representing approximately a quarter of the total debt of the euroarea. In nominal terms, only Germany has a bigger debt outstanding, for Germany it stands at 83% of the country’s GDP.
The marathon of summits and negotiations that started last weekend concluded in the early morning hours of Thursday with a framework to address Greece’s debt sustainability, the fire power and reach of EFSF and European banks re-capitalisation to cushion the impact from sovereign debt exposures.
Within hours of the announcement, the Greek political system went into motion, with the government sounding upbeat (considering they have to sell it to the Greek people as a win), the main opposition party, in its usual monotone, looking for reasons to differentiate itself and not be seen standing alongside the government and the parties on the left and right of the political spectrum already anathematic on the grounds of sovereignty, a rhetoric favoured by the coincidence of Greece celebrating today saying ‘No’ to the Italians on 28 October 1940, one of the most heroic moments in the country’s modern history.
Let’s attempt to decipher what this framework really means for Greece, whether this arrangement opens a new chapter for the country and if it indeed settles accounts with the past, as the Greek Prime Minister stated.
Last Friday, 21 October, newswires and twitter timelines went on fire when the troika’s ‘strictly confidential’ analysis of Greece’s debt sustainability surfaced.
The report presents a revised baseline scenario for the sustainability of Greek debt, justifying the reassessment on the grounds that the country is adjusting through recession and wage channels, rather than increases in productivity, slower recovery, lower privatisation proceeds, reduced fiscal adjustment needs and delayed market financing.
In the last 48 hours hundreds of thousands of Greeks took the streets of Athens to protest against a ‘bailout’ program that has pushed the limits of the society to such lengths that threatens the social cohesion of the country.
Sadly, social cohesion took another heavy blow yesterday, having witnessed violent clashes between anarchists and labour unions groups that were guarding their protest, clashes the led to the death of a 53 years old constructions worker from heart attack. Reports from doctors and witnesses suggest that tension from the riots and a tear gas bomb that went off next to him could have contributed to his passing.
Today’s shadow fighting between the government and the opposition highlighted that Greece’s real deficit is not the one of the budget but that of political leadership.
While the country is facing one of the biggest and most complicated crises in its recent history, the Prime Minister and the opposition leader – apparently room mates during their student years in the States – cannot even agree on the reason they fell out, let alone maturely and responsibly form a national strategy that will put an end to the recession spiral and most importantly reach a consensus on Greece’s negotiating position in the upcoming EU summit in the weekend.
Germany’s ducking of the war reparations issue makes its attitude to the current Greek debt crisis somewhat hypocritical.
It may or may not have been wise to put the issue of reparations and other unsettled claims on Germany to rest after 1990. Back then, the Germans argued that any plausible bill would exceed the country’s resources, and that continued financial co-operation in Europe instead would be infinitely more preferable. They may have had a point. But now is the time for Germany to deliver on the promise, act wisely and keep the bull away from the china shop.
Following the G20 meeting last week in Paris the IMF published its paper for the global economic prospects and policies challenges.
In the Policies section, paragraph 13, the Fund is proposing for the advanced G20 economies “credible medium term fiscal consolidation plans with specific measures embedded in realistic macroeconomic framework”, much in line with the Fund’s policies historically.