Greek Debt

Greek Debt

Another long series of flights allowed me the time to reflect on a puzzling problem –Greece and the debt crisis.  How could a county, only recently admitted to the EU, be is such sad shape?

To be admitted to the EU a nation has to conform to specific financial metrics — over an extended period of time (not in an opportune snapshot).  Clearly, Greece presented the EU with accounting that met the EU standards prior to admission.

All EU members are expected to have a debt burden less than 60 percent of their GDP, as well as a deficit that is no more than 3 percent of GDP.  While not exactly indefectible – it is sufficient to gain admission to a union of wealthier and more prudent players.  I am led to a single conclusion, Greece fudged the data.  This has not been a difficult conclusion to arrive at, given that the Greeks admit it.  They flat out lied, defrauding the EU member nations and bond buyers.  Enron fudged data, WorldCom fudged data, Sir Alan Stanford fudged data – and Greece fudged data.  This is criminal fraud.  It was so bad that the Greek government had to discharge the ministry of finance from the numbers business and set up a specialized commission to get the numbers right.  The Elstat, the commission set up to get the numbers correct, is now the subject of protests for “casting Greece in a bad light”.  This manipulation apparently surprises no one — former ministers and statisticians readily admit to cooking the books “for the benefit of Greece” (and Bernie Madoff manipulated the number “for the benefit of his investors”).

It should be acknowledged that Greece has failed, allowing the private market to determine the value of Greek bonds.  Barring that, Greece needs to put up some real collateral.  No more General Obligation bonds, since the government and ministry of finance admittedly lie about economic metrics.  Greece needs to post a few of their islands and monuments as collateral, or a few of the state owned enterprises — oil, gas, navigation, or even fishing rights — because it is now obvious that even the Elstat numbers are not reliable. (Thankfully the Elgin Marbles are safe – thanks to the reader Tim for reminded me of that…)

In short, the Greek politicians bought more votes than they could pay for, and they financed the votes with their children’s futures.  The voters get this and the politicians and are afraid. A day of reckoning was certain when Greece joined the EU and lost the option of inflating their way out of their never ending vote buying mess.

Any amount of OPSEC on the part of the banks, or any amount of intelligence gathering would have exposed this.  Really.  Any amount of due diligence.  Why would anyone have bought Greek bonds between 1990 and 2009?  I would like to see what “side letter” agreements were made to “motivate” buyers.

For more comments, see…

http://www.ft.com/cms/s/0/c1992278-eb82-11e0-a576-00144feab49a.html#ixzz1ZYJsHNDA

http://www.ft.com/intl/cms/s/0/78c1ff3a-ffe2-11de-ad8c-00144feabdc0.html#axzz1ZYJdLjGs

New figures dramatize Athens’s mire. As recently as July, the IMF was forecasting  Greece for a 0.6 percent GDP growth. Just 10 weeks later, the IMF revises projections that Greece’s GDP will shrink 2.5 percent in 2012 after a 5.5 percent GDP contraction in 2011.

Greek tax revenues are shrinking as the economy evaporates, debt will rise to over 175 percent of GDP in 2012 from 162 percent this year. The speed of the deterioration is numbing and accelerating as of writing this article.

With productivity 30 percent below the EU average  a low labor force participation rate, and paralyzing red tape tying business up opportunity Greece has little hope.

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