Friday, April 17, 2015

Greece's big nowhere

by Theodore Pelagidis

Brookings Institution

April 17, 2015

Syriza will eliminate the primary budget surplus and cease or reverse the privatization efforts of the Samaras government, the cost of which for 2015 alone would be around 8 billion euros. Meanwhile, bond maturities in 2015 will reach almost 25 billion euros. Since most of the maturities are held by state entities, one should not discount the possibility of either a violent ‘Grexit’ from the euro or, conversely, a long transition to some kind of normality that will unfortunately kill any hope of an imminent ‘Grecovery.’

- My January 5 blog post, Greece in 2015: Assessing the 'Syriza' Political Risk

Syriza’s behavior is unpredictable….What comes next might be something far worse than a nightmare.

- My January 28 blog post, Greece’s New Government: Empty Pockets and Empty Promises

The nightmare is here

What is the current situation of the Greek economy? GDP is about to contract again after an increase of 0.6 percent in 2014 fuelled by tourism and an increase of private consumption of around 1.5 percent. Employment, after an increase of 0.6 percent in 2014, seems to be falling again, and the primary budget surplus has evaporated in a three month period.

There is no doubt that the political risk has killed the (albeit anemic) 2014 recovery. It has also destroyed the troika program. However, polls show that people seem to be still relatively happy with a government that is said to play hard ball with the Europeans and the IMF—but the honeymoon is very close to being over. People are beginning to understand that the postponement of the drama—i.e, painful short-term reforms—will only make the end even worse. This is not even mentioning the possibility of an economic disaster such as a “Grexit,” meaning that the poor will first and foremost pay a heavy price. In any case, sooner or later, the Greeks will have to face the reality and, after calculating real costs and benefits, will possibly show in the polls a more cool-headed view about the future of the country. In the meantime, the pretending-to-be-cool government is serving IMF liabilities and Treasury bill redemptions by using cash from pension funds, counties, and public organizations, ironically making a future possible default much more painful and disastrous. As time passes by, it becomes evident that behind the government’s frozen smiles, the country is going nowhere. And the creditors have finally got it.


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