“A harder Default To Come”

“We owed it to our children and grandchildren to rid them of the burden of this debt,” said Greek Finance Minister Evangelos Venizelos about the bond swap that had just whacked private sector investors with a 74% loss. While everyone other than the bondholders was applauding, the drumbeat of Greece’s economic horror show continued in its relentless manner.

In central Athens, a stunning 29.6% of the businesses ceased operations, up from 24.4% in August; in Piraeus 27.3%, a 10-point jump since March. The whole Attica region lost 25.6% of its businesses. “This worsening of the survival index in the commercial sector … shows that resistance is waning,” said Vasilis Korkidis, president of the National Confederation of Hellenic Commerce. “We must continue the battle of daily survival and keep our shops open,” he pleaded—while fourth quarter GDP was being revised down to -7.5% on an annual basis. The Greek economy has shrunk about 20% since 2008.

Unemployment is veering toward disaster. The overall rate of 21% in December, announced Thursday, was horrid enough, but youth unemployment rose to a shocking 51.1%, double the rate before the crisis. A record 1,033,507 people were unemployed, up 41% over prior year. Only 3,899,319 people had jobs—a mere 36.1% of a total population of 10.8 million!

No economy can service a gargantuan—and rapidly growing—mountain of debt when only 36.1% of its people contribute (by comparison, the US employment population ratio is 58.6%, down from 64.7% in 2000). Hence, another bout of red ink. The “cash deficit” at the end of 2011 hit €24.9 billion, 11.5% of GDP, far above the general budget deficit. Government-owned enterprises, such as the public healthcare sector, couldn’t pay their bills. Total owed their suppliers: €5.73 billion.

Yet, forcing down the deficit is one of the many conditions that the bailout Troika of EU, ECB, and IMF have imposed on Greece. And: “If the Greek people or the Greek political elite do not apply all of these conditions, they exclude themselves from the Eurozone,” said Luxembourg’s Finance Minister Luc Frieden. All of these conditions. Then he added the crucial words: “The impact on other countries now will be less important than a year ago.”

Under pressure to cut its healthcare budget, the government reduced the prices that the industry can charge state-owned insurers. So wholesalers are selling their limited supply outside Greece, while out-of-money state-owned insurers delay payments to pharmacies and hospitals, which then can’t pay their wholesalers for the medications they do get. In return, wholesalers turn off the spigot. And the system is locking up.

Even Health Minister Andreas Loverdos conceded that there were shortages, but that they were limited to lower-priced medications. Of the 500 most common drugs, 243 have disappeared from the shelves, including antibiotics and drugs for treating diabetes and hypertension. The Panhellenic Association of Women with Breast Cancer, for example, received many complaints from patients who claim they weren’t treated due to lack of oncology drugs. And the world’s largest pharmaceutical companies are worried that Greece and some other countries might not be able to pay them at all.

A bright spot: tourism. In 2011, receipts rose by 9.5% over prior year as the Arab Spring had scared tourists away from destinations such as Egypt and Tunisia. In July, receipts jumped 14.4% and in October 15%. Alas, in December they declined 4.9%. And that reversal has now infected 2012. Tourist arrivals so far this year are down 10.7% in Athens and 6.7% for the country. Its last growth industry has hit the skids, too.

With unemployment climbing, production and consumption tanking, businesses shutting down, and tourism nose-diving, there is only one way for tax revenues: down. Budget deficits will be worse than promised. Greece’s debt—now largely to taxpayers of other countries—will continue to balloon. The standard of living of the vast majority of Greeks will get slammed, though the elite that are negotiating these deals will do just fine.

“We still don’t have a solution for Greece, so there will be a harder default to come,” predicted Charles Wyplosz, director of the Geneva-based International Center for Money and Banking Studies. Yet, in a bitter irony, Germany—the country where tax dodging is a national sport—has decided to send 160 employees of its Ministry of Finance to Athens to fix against all odds the tax collection system, a debacle that will endear the already reviled Germans even more to the Greeks. Read…. Final Spasm: Greco-Teutonic Wrestling.

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  11 comments for ““A harder Default To Come”

  1. Me says:

    Contrary to popular Greek opinion, Germany does not, nor should they have to run deficits & add debt to fund the outrageous Greek pensions & pay that were created by fantasy socialistic, unionized government employees.
    The chickens are coming home to roost in Greece (and elsewhere) and those used to the "something for nothing" economic model had better wake up to reality.

  2. Wolf says:

    Yup, "something for nothing" has been the policy in the US as well. Hence the gigantic deficits. But we've got a Fed that has been printing the dollar into oblivion, which gives us the feeling of "something for nothing" — though the resulting inflation has lowered the standard of living for over ten years. Greece can't do that. So they extort money from whomever they can. Neither system will work long-term. That's the sad truth.

  3. oil patch worker says:

    The Germans are starting to recoupe the territory they lost in '45, without firing a shot! The whining will start in earnest once they take over France.

    Greece will die a slow miserable death regardless of how often they are bailed out or what austerity measures are imposed on them. Their elected government has been replaced with sociopath bankers, the army has contemplated a coup and even the police union has threatened to throw ECB officials in jail. Unfortunately they can't convince any judges to issue a warrant.

    What they should have done is followed Icelands lead. Iceland told the banks to ….go bankrupt. Now Iceland is busy throwing the bankers in jail and even contemplating adopting the Canadian dollar as their currency. Must be a real slap in the face for the Euromasters.

  4. Wolf Richter says:

    Oil patch worker – agree, there is a lot to be said for how Iceland has handled the fallout from its crisis.

  5. bancophobe says:

    Chk-out http://www.webofdebt.com OR, Google Bank of North Dakota Great Insight into Bunking cons

  6. Geoff-UK says:

    To free (barely) citizens of Greece! Lend me your ears! I have but one word for you! One word that will set you free and make you a hero to your children and grand-children! And that word is:


  7. Wolf Richter says:

    Geoff – but Iceland didn't have the euro and wasn't a threat to the Eurozone. So they let it go without much fuss.

  8. svcy says:

    I am in Athens for the weekend and it is impossible to tell that their is a crisis. I have never seen more BMW and Porches in my life..not even in LA. Cafes are full, shops are full, restaurants are full, it's huge party….who is fooling who here???

    I think Greece is pulling the greatest magic trick ever..their is no crisis here just easy living fun everywhere! Don't believe the hype, people here are very well off.

  9. Wolf Richter says:

    svcy – I've heard the same thing from tourists and business travelers. But I've also heard from Greeks who live there, and they say it's getting tough for those whose benefits and wages are getting chopped. Clearly there is a very well-off elite. All those billions that Greece swallowed over the years must have gone somewhere. And now that the billions have started flowing again…. The real economy is in shambles though.

  10. Mark says:

    Greece better return to drachma, get out of EU, lets face it you can not buy BMW's by selling oilve oil or tomotos, Greeks are the most currupt nation in the face of this earth, sleeping all day partying all noght, cheating the Tuorists every chance they get,
    and blaming the Germans from WW2,
    Greece should never aqllowed to join EU that goes for Greek Cyprus, Greece is a Leach for the rest of the Europe, Europe should get rid of Greece,and us Germans should never visit Greece , my friends were treated very badly, one of the 23 year old was beaten so bad he was hospitilizes, Greeks hates us Germans than we have no place in Greece,
    when they were dining one waiter draw a Nazi swastika on the menu before he presented, and others are screaming bloody murder about the Jews, they said Jews did this to them,
    everyone is guilty but the Greeks whom stolen billions of Euro and pocketed it now they got to pay it back

  11. jimbo says:

    "I am in Athens for the weekend and it is impossible to tell that their is a crisis. I have never seen more BMW and Porches in my life..not even in LA. Cafes are full, shops are full, restaurants are full, it's huge party….who is fooling who here???" You can't go by that Bro. The BMWs are paid for with debt, borrowed from Germany. This is why Germany has been bailing out Greece so that Greece can keep Germany's export based economy, which is now hanging by a thread, going. All consumption in the USA is debt based too. Its bound to collapse. Don't get a false sense of security.

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