Unpalatable Greek Facts

Did the Greek problem vanish, wonders Irwin Stelzer in today’s Wall Street Journal: “Everything’s fine with Greece, Just Ignore Some Facts”. Apparently the eurocracy and the IMF are satisfied with the country’s ability to meet the austerity targets they set for it. But of course, “to reach that conclusion, the only one available to those with a political stake in the durability of the euro, the authorities had to ignore a few nasty facts.”

… “The markets do not deem it sufficiently credit-worthy to be allowed to borrow at tolerable rates. (They) have higher standards than the EC, IMF and ECB, and no political reason to show any tolerance.”

Meanwhile, tax evasion continues unabated, banks’ capital is still declining and their bad loans are rising, and there is no sign of economic recovery since (my comment) the penalty real exchange rate with Germany has not been improved, while the euro is re-appreciating against the dollar.

“Austerity will take about 10% out of GDP … and still leave Greece with unmanageable debt levels and interest obligations.”

A political economy conclusion follows:

“Fortunately for Greece, in the bargaining between the bailed and the bailers, it has the upper hand. The cost to Greece of default is relatively trivial compared to the cost to its creditors, mostly European banks uneager to take large write-downs. And the political cost of having been unable to forestall default by one of its tiniest members is unacceptable to the eurocracy. … So the Greek government just might decide, if necessary, to bow to an angry public and renege on promises of austerity, passing the cost of its pas profligacy on to German and other euroland taxpayers, or to its creditors. Some 95% of Greek debt was issued in Greece, and is subject to sovereign immunity laws, which reduce the options available to unhappy creditors … It would be understandable if they decide that unhappy euro-zone taxpayers or short-changed creditors are lesser evils than angry Greek voters.”

But then, default will become inevitable if the German taxpayer wearies of a perpetual Greek bailout.

Beware, turbulence ahead! And read the paper here.