The Greek conundrum

 
Lightning illuminates the ancient Parthenon temple on top of the Acropolis hill in Athens on 14 October 2012

They are closing in on agreement. That is the word from Athens.

After three months of talking between the Greek government and inspectors from the IMF [International Monetary Fund], the EU and the ECB [European Central Bank], they have narrowed the differences over the savings Greece must make in order to qualify for the next tranche of money.

The mood music from the politicians has been positive. The Greeks, we are told in Brussels, are this time serious about reform.

The German chancellor signals her support for Greece by flying to Athens.

German Finance Minister Wolfgang Schaeuble is more explicit. He does not think there will be a Greek default: "We do not see that there is any sense to speculate on Greece leaving the euro, that would be very damaging for Greece and the euro."

Most of the summer talk about Greece leaving the euro has evaporated.

But here is the problem. The Greek government and the troika are still arguing over the figures, although they are close.

The main problem is that once again, the depth of the Greek recession has been underestimated. Tax revenues are down and the shrinking economy undermines projections.

Even so, heads of government this week at a summit in Brussels may well end up discussing a new deal for Greece if the talks in Athens succeed.

Almost certainly Greece will be given two more years to meet its commitments. The IMF backs this and so do most of the eurozone finance ministers.

More time, as Mr Schaeuble pointed out, means more money. Perhaps 20bn euros (£16bn). Perhaps more. That will have to be found. Even so, that is the easier part.

Hard choices

The strategy was for Greece to bring its debt-to-GDP ratio down to 120% by 2020. That clearly will not happen.

The IMF predicts a ratio next year of 182%. By 2020, the IMF believes they might get the figure down to 140%. The European Commission is a touch more optimistic.

What all this means is that the current plan is not sustainable. It is not working.

The Greek economy, with a few exceptions, is in free fall. Sooner rather than later, a cold choice will have to be made.

Will there be a restructuring of debt (with this time national governments and the ECB taking losses), or will there be a third bailout, or will the politicians accept the medicine is not working?

The pervading sense of unreality was broken this week by Swedish Finance Minister Anders Borg who was quoted as saying: "It is most probable they [the Greeks] will leave."

That may or may not be true, but a Greek exit cannot be said to be off the table until the key question has been answered: How will the Greek debt mountain be reduced?

 
Gavin Hewitt, Europe editor Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this
    +6

    Comment number 18.

    The lending of money to a bankcrupt is something any economist or bank manager will tell you is completely insane.

    Yet the technocrats in Brussells, ever-eager to save face, will kick the can further down the road Yet Again!!

    The technocrats would rather do Anything than admit their policies are inept.

    Membership of the Euro is killing Greece slowly... Spanish and Italian debt is looming.

  • rate this
    0

    Comment number 17.

    #15 BB

    "So I have to wonder why this angle is not being exposed to the benefit of the Greek People."

    -- There are more Greeks participating in fraud -- and with much larger total amounts.

    -- Goldman Sachs are amateurs when compared with Greece and Greeks when it comes to fraud.

    --there is enough evidence to support the statement.

  • rate this
    0

    Comment number 16.

    @15 I doubt that. The Greeks knew very well what they were doing, and what GS were doing on Greece's behalf. They both are guilty of fraud. Papandreou admitted in 2009 that his country had cooked the books with GS aid to get into the euro. Not only that, but the Greek govt had lied about the true state of the country's finances since it joined the EZ. They thought they could get away with it.

  • rate this
    +1

    Comment number 15.

    Greek people are victims of Wall Street, namely Goldman Sachs. Greece is a crime scene. Way back 2001/2, Goldman Sachs stuck deal to convert euros to yen & then take them back as euros. Goldman has admitted they did currency exchanges for Greeks; in my opinion Greece was fooled & Goldman committed fraud. So I have to wonder why this angle is not being exposed to the benefit of the Greek People.

  • rate this
    +4

    Comment number 14.

    #12Dmr

    "Greek people are suffering, like the pensioners having their pensions reduced by hundreds of Euros."


    IKA director Spyropoulos said that 150,000 people who are receiving pensions have failed to register He said that another 110,000 people who receive supplementary pensions have also failed to appear.

    A census of 1.2 million Greeks who receive farming pension also began on Monday.

  • rate this
    +2

    Comment number 13.

    #10 MH

    "It is now up to the Greek people to take it and show the world .....a corrupt system."

    "Almost four in every seven (56 percent) self-employed people in Greece have declared an annual income beneath the tax-free ceiling of 5,000 euros this year,

    Out of the 347,304 self-employed, only 2,443 declared incomes of 100,000 euros or over for 2011 from their freelancing activity "

  • rate this
    +2

    Comment number 12.

    Ordinary Greek people are suffering, like the pensioners having their pensions reduced by hundreds of Euros.
    This is not for Greek benefit, it is the price they are paying because Eurocrats don't want leaving the Euro to be seen as the answer to a countries problems, even if it benefits the people living there.

  • rate this
    +5

    Comment number 11.

    #6 Dmr

    "The Greek people are suffering to keep a Eurocrat dream alive," ?

    http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_15/10/2012_466056

    "Greek authorities collected just 19 million euros out of a total of 13 billion euros in outstanding debts to the state between May and September of this year, according to a document submitted to Parliament ..."

    -- Suffering ???

  • rate this
    +2

    Comment number 10.

    4 PARISSIA

    How refreshing to hear a Greek person not blaming the world and its wife for this crisis. You are of course quite correct.

    The EU has given the country a unique second chance to put its house in order after years of mismanagement and corruption by its own government. It is now up to the Greek people to take it and show the world that it is serious in reforming a corrupt system.

  • rate this
    +10

    Comment number 9.

    Paul Mason of Newsnight, as he often does, made some telling street level observations. What is not getting reported is the increasing level of sectarian and racial violence in Greece. Extremism is increasing in parallel with austerity ( Germany of all nations should know this) to the extent that it may gather sufficient momentum to generate a coup sooner than anyone would expect. Then what?

  • rate this
    +2

    Comment number 8.

    The steps Greece should have taken from the start are: first stimulate the economy, then improve tax collection and only then cut costs. The current problems exist because Greece has been forced by its donor countries to start with the final step.

    If we are prepared to give money to help Greece, why do we not allow them to use it wisely?

  • rate this
    -1

    Comment number 7.

    Just so long as the German people realise, en masse, how much they benefit from the Euro & allow their leaders to stump up the cash for the bailouts the Euro will be fine.

    After all, Germany can afford to bail out the PIGS several times over - but will enough of them see the benefits to themselves?

    Without weaker members the Euro will sky rocket & decimate German exports.....

  • rate this
    +10

    Comment number 6.

    Sooner or later they will run out of road to kick the can down and will have to face the fact that Greece needs to go back to the Drachma, so they can devalue and become competitive again.
    The Greek people are suffering to keep a Eurocrat dream alive, the politics have become so detached from the people, they're losing sight of what really matters.

  • rate this
    0

    Comment number 5.

    Yes No. 3 they are arguing about how quickly the Greek economy will be tanked. A 7% increase in unemployment in a year - that is 7% of the working population not 7% of the numbers of unemployed should tell the EZ that austerity is not working. Even the IMF is saying that as recorded in Paul Mason's latest piece.

  • rate this
    +6

    Comment number 4.

    Unless half of the one-million strong gov't work-force go and unless the gov't stops paying the pensions of hundrends of thousands of early retirees, the math will never add up. The greek gov't is dependent on all these votes, so, it's up to lenders to impose what must be done

  • rate this
    +10

    Comment number 3.

    The Troika and the government are arguing about where the deckchairs should be on the Titanic

  • rate this
    +9

    Comment number 2.

    Sorry, John, but Daily Mail rhetoric won't fix Greece's problems, any more than collecting tax.
    If that was the only problem, I'd agree, but it is far from the only problem (a problem in all countries, btw!).

    I'm surprised the Greek people did not vote to exit the Euro: the period of pain would be far shorter, and they would be their own masters again.
    Easy for me to suggest, but very tough to do

  • rate this
    +2

    Comment number 1.

    The crisis would be solved in an instant if the tax avoiders/evaders paid their dues! I'm surprised the ECB don't pursue these people!

 

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