We are moved and humbled by the prime minister's steadfastness. Strange though: he seems to be in paltry company when he goes into these bouts of verisimilitude and begins to sing his we'll-pay-the-debts-won't-default little tune. With the exception of some EU top brass, including ECB boss Jean-ClaudeTrichet -- who better be on the side of Mr. Papandreou since his shop is buying lots of junk Greek paper every day in the hope of averting a pan-European banking crisis -- the rest of the financial-analytical community seems almost entirely convinced that Greece won't make it. Reuters's Felix Salmon, for example, reports:
I spent most of this afternoon attending a fascinating discussion looking at Greece from the perspective of emerging-market veterans who are used to sovereign debt default and restructurings. There was quite a lot of consensus on the panel, and not in a good way: everybody agreed that the bailout of Greece was only postponing the inevitable, and many people reckoned that it wasn’t going to postpone it very long: one pair of hedge fund managers in the audience reckoned that it would last about six months before the default finally happens. [Emphasis added].
Martin Feldstein, who teaches economics at Harvard and was Chairman of President Reagan's Council of Economic Advisors and President of the US National Bureau of Economic Research, said:
Greece will default on its national debt. That default will be due in large part to its membership in the European Monetary Union. If it were not part of the euro system, Greece might not have gotten into its current predicament and, even if it had gotten into its current predicament, it could have avoided the need to default.
Professor Feldstein goes on to explain why the manic cutbacks that Mr. Papandreou has chosen as the sole tool of his monochromatic "salvation" foisted on this Nation won't work because of simple arithmetic:
To achieve [reducing the deficit to a level that stops the rise in the debt-to-GDP ratio], the current deficit of 14% of GDP would have to fall to 5% of GDP or less. But to bring the debt-to-GDP ratio to the 60% level prescribed by the Maastricht Treaty would require reducing the annual budget deficit to just 3% of GDP – the goal that the eurozone’s finance ministers have said that Greece must achieve by 2012.
Reducing the budget deficit by 10% of GDP would mean an enormous cut in government spending or a dramatic rise in tax revenue – or, more likely, both. Quite apart from the political difficulty of achieving this would be the very serious adverse effect on aggregate domestic demand, and therefore on production and employment. Greece’s unemployment rate already is 10%, and its GDP is already expected to fall at an annual rate of more than 4%, pushing joblessness even higher.
Depressing economic activity further through higher taxes and reduced government spending would cause offsetting reductions in tax revenue and offsetting increases in transfer payments to the unemployed. So every planned euro of deficit reduction delivers less than a euro of actual deficit reduction. That means that planned tax increases and cuts in basic government spending would have to be even larger than 10% of GDP in order to achieve a 3%-of-GDP budget deficit. [Emphasis added].
Wolfgang Münchau, who has been looking closely at the Greek crisis since its inception with a sharp eye, put it as follows:
Under the scenario of interest rates at 6% and nominal growth rate at 2%, the total size of the adjustment would be a whopping 13 percentage points. If the growth rate falls to zero, the adjustment would be 15.5 percentage points. Note that Germany’s insistence on market rates [for lending Greece] raise the hurdle for the Greeks by some 3.5 percentage points in terms of necessary primary balance adjustment. The only advanced economies in modern times ever to achieve such a shift were Denmark, Sweden and Finland during the 1980s and 1990s. But they benefited from vastly superior growth.
The Greek general government had total expenditures of 44% of GDP in 2008, and tax revenues of 41% of GDP. If the 13% adjustment effort were to come entirely from expenditures, this would imply a cut in public spending of 30% of GDP. Conversely, if all the adjustment were to come from taxes, it would require a tax hike of a similar scale. Given the degree of corruption and the inadequacy of the Greek tax collection system, there is no way that taxation could take the lion share of this adjustment. [Emphasis added].
The list of those who shoot Mr. Papandreou's monotonous we'll-make-it rhetoric, not to mention that of his finance minister, out of the sky with facts and figures, which are always absent from the Greek government's phonily happy announcements, is endless.
Historically, the classic reaction of Greek governments, confronted with unpalatable facts and figures, is, almost always, to blame those who present the facts with a conspiracy against all that is good and decent and denounce them as "speculators" and "dark cabals" seeking to dismember Greece.
Mr. Papandreou, bewildered and at a loss, has, unavoidably, chosen the same path. Already, his government has instructed a senior prosecutor to investigate (!) who is spreading "rumors" about the country's default and its return to the drachma or a rough equivalent. It remains to be seen whether the prosecutor will choose to indict persons and organizations as above in an extreme demonstration of populist stabbing at windmills while Mr. Papandreou's "Titanic" slowly turns belly up and begins her rapid descent into the dark and cold depths (we should not forget that it was the Greek prime minister and his finance minister both who spent a considerable amount of time at the beginning of this administration declaring in every direction that Greece was indeed a "Titanic" about to fall into the depths).
The Greek prime minister has invited all those who predict Greece's default to visit us here and see for themselves how, according to his socialist government, this country is apparently bouncing back and generating lots of income that can cover hundreds of billions of debt plus interest plus the monies being pumped into Greece by the European-IMF "support package" in under a decade.
Indeed, a trip to Greece these days could be deeply educational. Apart from the Greek government's burgeoning drug-induced hallucinations, the visitor
• will meet millions of people who exist in daily fear and awe because of the destruction of what went as a "social security system" locally;
• will watch millions of people living on a knife edge and on the verge of desperation watching their income brutally slashed by Procrustean salary and pension cuts never seen before in this country, not to mention tax hikes that could put an Ottoman sultan to shame;
• will lay eyes on hundreds of thousands losing their jobs and having no hope of finding employment before hell freezes over;
• will experience a domestic market on its death bed, with smaller and medium businesses failing in the thousands as if hit by the Ten Plagues of Egypt;
• will learn of almost all of the country's more significant enterprises preparing their flight abroad as the only means for survival;
• will observe a banking system trembling at the mere thought of a run on one of the smaller institutions that could easily trigger the panic of the century and the irrevocable cracking of an otherwise "safe" local banking environment;
• will witness many families, possessing even modest means, seriously considering immigrating to other European countries or, even, farther away;
• and will experience first hand the abysmal gap separating the Alice-in-Wonderland "reality" surrounding a psychologically tone-deaf government and the harsh here-and-now "on the ground" conditions asphyxiating millions of Greeks.
Mr. Papandreou and his finance minister -- who misses no opportunity to be academically acerbic when speaking of "speculators" but has very little, if anything, of substance to say on how people in this country won't crash down the cliff -- make an honest, even successful, effort in their Don Draper roles. And they are both fairly effective in convincing a large number of people inside this country that our life-threatening malaise is actually the handiwork of foreign "conspirators," who spent their days in "betting" on Greece's ultimate demise and pushing "international capital" to hammer us to death.
Not a word about the real roots of our impending trip across the great divide.
And not a word of course about the credibility of the preposterous proposition, but also the real probability, of so many individual academics, bankers, professors, expert commentators, internationally recognized analysts, and financial markets watchers, spread all across the globe, being honestly connected by an "international conspiracy" against Greece.
Our grim condition is now too far gone beyond the usual posturing and tap dancing that has been at the center of loser Greek politics for what feels like eternity to allow for being occupied with the popularity ratings of Papandreou et.al.
Mr. Papandreou, his cabinet, and his party have all acquired the pen-and-ink sharpness of an almost macabre, cartoon-like definition amid this Perfect Storm that threatens to consume us all with the finality only Nature can bestow on catastrophic events.
The current administration has neither solutions to offer nor anything else that can be positive for the welfare of the overwhelming majority of people in this country beyond arguing, with disarming honesty and a straight face, that this condemned inner city tenement called "Hellas" can actually spare close to €600 billion in the next ten years to pay creditors and have the small cash to meet all of its other pressing needs to boot.
Our socialists should dismantle their circus tent, wrap it up, and go now.
(Which, under the circumstances, could happen much faster than all of the Papandreou admirers abroad and locally ever thought possible -- unfortunately wrecking Mr. Papandreou's posthumous fame, not to mention that of his happily robotic cabinet helpers).