Greeks yanked €65 billion out of their bank accounts since 2009, Finance Minister Evangelos Venizelos told parliament on Friday. “Of that total, €16 billion has been legally taken abroad,” he said. The rest? Stashed under mattresses or hauled to Switzerland via the land route. A whopping 20% of GDP! Capital flight of massive proportions. They see a forced conversion of their euros to drachmas.
And now even the political elite in Greece is taking cover: former Prime Minister George Papandreou told MPs of his party, the Pasok, that the coalition government of Prime Minister Lucas Papademos should stay in power till the regular elections in late 2013—rather than hold early elections.
Thus, Papademos would take the fall for Greece’s default and exit from the Eurozone. The former Governor of the Bank of Greece is a “technocrat” who was anointed last November when Papandreou resigned. He is expendable. Dynastic career politicians like Papandreou might then rise from the chaos that would follow Greece’s return to the drachma. Political positioning for the “afterwards” has begun.
It’s been one heck of a ride. In 2009, the government said that the budget deficit wasn’t 6% of GDP, as expected, but 12.7%. A gasp went around the world. In 2010, the truth seeped out: the government had for years misrepresented its deficits and debt so that it could continue its borrowing binge and blow that money on vote buying schemes and other worthy projects. Then the deficit was revised up to 13.6% of GDP, and Greece was cratering. In late 2010, EU’s statistical agency Eurostat came up with its own number: 15.4% of GDP. Life in the Eurozone was essentially over for Greece.
Yet they haven’t giving up hunting for money. Bailout number one for €110 billion wasn’t enough. Number two for €130 billion, whose details haven’t been decided yet, has already been declared insufficient, and another €15 billion is needed. In total €255 billion, or 105% of Greece’s GDP. Meanwhile, the bailout Troika (EU, IMF, and ECB) has been imposing ever stricter budget cuts and tax increases, which have never been fully adopted by the Greek parliament or executed by the ministries.
Exhibit A: In 2011, the national healthcare system spent €4.1 billion (2% of GDP) for medications though the Troika had set a budget of €3.8 billion. For 2012, the Troika cut that to €2.1 billion. Options: rationing medications and forcing price reductions on the pharmaceutical industry. But on Thursday, Health Minister Andreas Loverdos told representatives of the pharmaceutical industry that he was shooting for €3.1 billion, and that he was working on a compromise with the Troika.
So it goes. The Troika imposes cuts. The country pushes back. The deficit is coming down, but too slowly, and gobbles up more bailout money than anticipated, as the economy continues to deteriorate. But for once, there was news that wasn’t even more catastrophic than feared, which in Greece is worthy of being leaked. The budget deficit for 2011 will be above the Troika-set limit of 9% of GDP but won’t hit the feared 9.5%, thanks to €2 billion from the detested property tax that was instituted in September amidst waves of protests.
Demands for debt forgiveness has become a growth industry. Last summer, private-sector holders of Greek sovereign bonds were pushed to accept a “voluntary” haircut of 20%, which grew to 50%, and it’s still not enough, and the negotiations are bogged down. If there is no agreement, the Troika threatened to withhold the next bailout tranche. In return, Greece threatened to default in March. And now there is more…. Abysmal news for Greek Bonds and Debt Swap Negotiations.
But it’s still not enough. Now the Greek government demanded that public-sector holders also accept haircuts. The ECB, which bought $45 billion of these crappy bonds to prop up the country, and Germany were incensed.
The core of the fiasco isn’t just Greece’s debt and the political machine that took it on and hid it, but also the bloated public sector and uncompetitive private sector. So the Troika demanded brutal cuts in private-sector wages and benefits. Alas, they’re set by a wage pact. And unions are rebelling. On Thursday, they were joined by employer groups. Together they’d oppose the government and the Troika. And on Friday, the Prime Minister threatened to resign unless the Troika’s demands were implemented. A Greek tragedy turns into a farce.
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.