The Athens parliament has said yes to the 28 billion euro austerity package and the 50 billion euro privatization plan. Therefore, Greece can avoid default for at least another couple of months and the ball for decisions returns to Brussels and Frankfurt. The situation remains critical and uncertain. Doubts remain about possibility (and the opportunity) to privatize the 'family jewels', a key ingredient in the financing plan approved today. Just as the divisions within the European ruling class remain, between no categorical any type of Greek debt restructuring e sudden openings to private involvement.
The truth, which we have known for months now, is that Greece is insolvent and the question that remains unanswered is whether Europe will somehow manage to avoid the inevitable or if it will simply build a dam around the contagion coming from the probable Athens default.
If we limit ourselves to looking at recent history, from Lehman Brothers onwards, we observe that faced with the danger of a catastrophic domino effect on the global financial system, a pragmatic and coordinated approach has instead prevailed, which while on the one hand managed to avoid a dramatic solution to the financial crisis (a 'redde rationem' for the world's major debtors is still a long way off), had the cost of prolonging the economic slowdown, loading public budgets with private debt and causing anemic growth in the West that is not foreseeable still the end.
And will the Greeks be saved? The red light of mathematics flashes against them. High interest rates and primary budget deficits (expenditure minus revenue) increase the debt-to-GDP ratio; inflation and GDP growth reduce it. Greek debt, this year at 160% of GDP, is quickly starting at 180%, in a context of recession (for the third year in a row) with deflationary tendencies, punitive interest rates (4,2%) and with the a balanced budget which is still a mirage, not to mention a surplus (-2,8% is expected in 2011). Add unemployment at 15%, destined to rise with the new cuts, and domestic consumption which will consequently languish. Add the impossibility of devaluing one's own currency, the absence of raw materials and a solid industrial apparatus to relaunch with exports.
If Europe and the IMF also manage to somehow stabilize the Greek debt, this will happen at a level of approximately between 180 and 200% of GDP, from which no country has ever returned in history. To stay in the euro at all costs and return to the 60% established by the Maastricht treaty, it will take either a superhuman fiscal effort (a primary surplus of between 5 and 10% of GDP for 30 years) or an impetuous growth spurt currently inexistent. An immediate default, on the other hand, would lead to playpen Argentinian (at best) oa Weimar (at worst).
Between yesterday and today, 10 people protested in Syntagma Square against the maneuver by the socialist government. Perhaps European taxpayers will somehow be able to save themselves. But let us expect that, in the coming months, the number of angry citizens and the desperation of an increasingly impoverished middle class will grow in the streets of Greece.
