Wednesday, June 15, 2011

Greece at its Limit

Ryan Avent provides an excellent summary of recent developments in the Greek debt drama:
Unpleasant Greek options

TODAY has been nasty day for markets, those in Europe especially. Equities are off. The euro is falling against the dollar. And yields on the debt of euro-zone periphery governments are rising to new heights. The yield on 3-month Greek securities is now over 12%. Markets want nothing to do with Greece if they can help it.

European yields have spiked many times before, and each time European leaders have responded with a new bail-out package or other reassurances to prevent Greek panic from fueling a broader contagion... So where's this go-round's intervention? Well the trouble at the moment is that Europe's leaders can't agree on one...

...It's not an insoluble set of problems. But given the euro-zone's institutional weaknesses, it's not a walk in the park, either.
I would have used stronger language than Ryan did in that last sentence, but I agree with the sentiment: the EU has demonstrated that it simply does not have the necessary mechanisms and institutions to deal with a deeply difficult problem like this.

Meanwhile, the Greek economy has been shut down by a general strike, the government is scrambling to avoid a collapse in the face of possible revolt by its own members of parliament, and protesters have been fighting "running battles with the police" today in the streets of Athens. All of that means that it seems increasingly improbable that the Greek government will be able to actually implement the new austerity package that was forced upon it by the "Troika" (the EU, IMF, and ECB).

If the agreed-to austerity measures are not passed into law by the Greek government, what happens? That would essentially mean the end of Greece's voluntary cooperation with the "kicking the can down the road" strategy. And if Greece isn't cooperating, then it's really hard to see how the Troika will agree to extend additional loans to Greece. This act in the drama may finally, finally be drawing to a close.


  1. ellerveira9:15 PM

    Greece may as well bite the bullet now, and the EC too. Postponing the default will only make it more traumatic when it comes, as it will.

  2. If the Greek austerity measures fail, what revenues are going to fund the non-austere alternative?  I don't think there is an option of returning to the Greek public sector status quo of 12 months ago by defaulting.  There probably must be some level of debt repudication plus much of the austerity being proposed anyway.  Exiting the Euro and letting the "New Drachma" do much of that unfortunate work is possibly the most socially cohesive way to move forward from here.  Still, I observe that the benefits of Greece's public sector fiscal policies leading to this point were pretty widely shared.  Tax evasion was very widespread and the number of families with members slotted into minimally productive public work by either PASOK or ND was quite large.  This isn't a case where a very tiny elite took everything.