Just how bad is the real economy in Greece after four years of recession, countless strikes, and 17.7% unemployment? Registrations of new and used vehicles plunged 30% in 2011, after having already plunged 37% in 2010. Only 107,737 vehicles were registered, the lowest level in over 20 years.
And yet, more cuts are coming. Mid January, inspectors from the Troika (EU Commission, IMF, and ECB) will once again head to Greece to inspect its books and come up with a budget deficit number for 2011—no one trusts Greek numbers anymore. And they will once again leave angry. Indications are that the deficit ranged from 9.5% to 10.7% of GDP, significantly higher than the already revised Troika-set limit of 9% that Greece had vowed to abide by.
So, new “structural reforms,” as they’re called, will have to be implemented, including cutting everything in sight … auxiliary pensions, public sector salaries, social and welfare benefits, healthcare, defense, tax exemptions. Agencies will have to be closed and tens of thousands of civil servants will finally have to be laid off.
All to get the next bailout installment. Of the first bailout package of €110 billion, €73 billion have already been paid. The sixth installment, €5 billion, has been moved from December to March due to lack of progress, and the seventh installment, €10 billion, has been moved from March to June.
“If our mission in mid-January reaches the conclusion that there are delays, then we should revise the March installment,” announced Olivier Bailly, spokesperson for the EU Commission. Piling pressure on Greece is the name of the game.
Then there is the second bailout package of €130 billion put together last October. €89 billion are to be released in February. It will enable Greece to pay for €17.5 billion in maturing bonds due in March. But the Troika imposed conditions.
First, Greece needs to force the financial institutions that hold $206 billion of its bonds to accept a “voluntary” 50% haircut as demanded during the Eurozone summit in October. Negotiations have been dragging. But now word is that bondholders buckled under the threat of losing their entire principle if Greece tumbles into a disorderly default. And a deal has emerged: a 50% haircut with a hit to net present value not to exceed 60%. Their old bonds would be swapped for new bonds with a coupon of 5%. They would have the same status as loans Greece receives from the Eurozone and the IMF.
Second, Greece needs to implement “structural reforms” in the private sector to make it competitive. Among the targets: cutting salaries, reducing the minimum wage of €751 (in France it’s €1,398), scrapping the still existing 13th and 14th monthly salary, and eliminating automatic pay raises.
“So we can get the next loan installment,” Prime Minister Lucas Papademos explained at a meeting with the major labor unions. Employers and unions would have to come to an agreement this month to meet the Troika’s demands. And then the nuclear option: “Without an agreement with the troika and the ensuing funding, Greece faces the threat of a disorderly default in March.”
Disorderly default. Greek politicians muttered threats before, and each time, money materialized. But last October, the Troika said no.
But cutting wages didn’t sit well with the unions. At the forefront: Giannis Panagopoulos, president of the GSEE, the highest confederation of private-sector unions in Greece. His resistance was vehement. Salaries, he said, were not the reason for Greece’s lack of competitiveness. Instead, companies should secure their jobs. Other union officials spoke up too. So, there won’t be any progress in implementing “structural changes.”
Hence, the Troika inspectors will once again leave angry. But Greek politicians have become expert at their extortion game—even with bond holders. They found that the Troika, after some huffing an puffing, will keep Greece afloat another month. And if the people with the money lose their fear of that threatened end of the world, accept their losses, and move on without Greece?
“True Hell,” is how Giorgos Provopoulos, Governor of the Bank of Greece, described the possibility of life without the euro.
Even Beatrice Weder di Mauro, member of Germany’s Council of Economic Experts confirmed that a breakup of the euro in 2012 “cannot be excluded.”
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate “beer money.” I appreciate it immensely. Click on the beer mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.