For Whom The Bailout Tolls
Posted on February 21, 2012 by Edward Hugh
“On an optimistic view, that a deal was struck implies that neither side was ultimately willing to risk a Greek exit because they recognise that no one fully understands all the ramifications of such a decision. Under this scenario, when pressure again builds, the authorities will do the same: let Greece remain in the euro, even if it fails to keep to its adjustment programme. So, the reality of “bail-out II” means that, if the situation becomes critical, there will be a bail-out III”. Sushil Wadhwani, writing in the Financial Times
So Greece has finally been awarded a second bailout. One may wish the country will live to tell the tale.
According to IMF DG Christine Lagarde, speaking at the post agreement press conference, “It’s not an easy (program), it’s an ambitious one,”. Never a truer word was said, and certainly not in jest. Not only is the program an ambitious one, it is more than probably a “pie in the sky” one too. The objective of 120% for Greek debt in GDP is totally unrealistic, not only because it won’t be attained (it won’t), but because even if it were the country would still be in an unsustainable situation in 2020. So this is hardly something to be proud of, or look forward to.
And then there is growth. Ah yes, growth. Noone really has any idea how this will be achieved, and of course without it even the (un)ambitious 120% goal is way out of reach. But beyond the details, I have serious doubts whether Greece itself is now rescuable. I don’t mean the financial dimension, I mean whether or not the country will even raise its head again. The social fabric and the country’s reputation is being so destroyed, that it is hard to see serious investors getting back into the country again, with or without that much needed internal devaluation. At the end of the day the Greek bailout is not for the Greeks at all. Certainly they will see very little of the money, and there will be none whatsoever to help restart their withering economy.The Greek bailout is to protect the rest. It is a vain attempt to let Greece go its course (or even die) while preventing the contagious smell from reaching Spain or Italy. The only real creditors now are the official sector. This is not a bailout, it is a “cordon sanitaire”.
The outcome is already almost guaranteed – young people tired of continually being unable to find work commensurate with their skills will simply vote with their feet and leave, leaving an ever more unsustainable pension and health system for the Troika to manage. A common story these days along Europe’s periphery, but still, Greece definitely seems destined to be the worst of worst cases scenario.
Perhaps the best simple summary of what just happened was written by Annika Breidthardt and Jan Strupczewski in their Reuters report:
“The complex deal wrought in overnight negotiations buys time to stabilize the 17-nation currency bloc and strengthen its financial firewalls, but it leaves deep doubts about Greece’s ability to recover and avoid default in the longer term”.
We have just bought some time for the rest of us, while Greece is sent off to default and beyond. The Troika representatives didn’t “sign off” on the new deal, they effectively washed their hands of the whole messy situation. Naturally Greece won’t be able to comply with the conditions, and at the next review, or the one after, the country will be face to face with the inevitable.
Mai departe aici