{"id":524405,"date":"2010-04-12T11:14:32","date_gmt":"2010-04-12T15:14:32","guid":{"rendered":"tag:www.economist.com,21005980"},"modified":"2010-04-12T11:14:32","modified_gmt":"2010-04-12T15:14:32","slug":"not-enough","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/524405","title":{"rendered":"Not enough"},"content":{"rendered":"

AS MENTIONED in yesterday’s Link exchange, European governments have agreed to a package of loans to Greece to help cover financing needs while fiscal adjustments are made. The package is fairly generous; some \u20ac30 billion will be available the first year, with more authorised for 2011 and 2012. But big as that seems, it’s unlikely to be enough. Here<\/a> is The Economist<\/em>:<\/p>\n

\n

Whether it does convince the markets may soon be clear: On April 13th Greece was due to try to auction a fresh slice of short-term debt. The government needs to borrow about \u20ac11 billion by the end of May to roll over maturing debt and service interest charges. All in all, the country may need to borrow more than \u20ac50 billion in 2010 (estimates vary)…<\/p>\n

Representatives from the commission, the ECB and the Greek government will meet IMF officials on April 12th to discuss the conditions that would be imposed on Greece and the exact size of the IMF contribution. The combined EU-IMF package is a substantial one but few imagine that it will be a one-off: on Sunday Reuters news agency quoted a Greek official as saying the country is likely to need a total \u20ac80 billion of loans over three years. If so it will be the largest multilateral rescue of a debt-ridden country yet seen.<\/p>\n<\/blockquote>\n

The Economist<\/em> has also estimated<\/a> that \u20ac80 billion in adjustement assistance would be necessary. Meanwhile, here<\/a> is the Financial Times<\/em>‘ Wolfgang M\u00fcnchau:<\/p>\n

\n

So will this stave off insolvency? It is important to distinguish the near-term insolvency as a result of the failure to roll over existing debt, and the country\u2019s long-term solvency position. This deal, I am confident, will solve the first issue. As I predicted last week<\/span>, Greece will not default this year. But I am still sticking with my second prediction that Greece will eventually default. The numbers simply look too bad. The adjustment effort Greece is asked to make will be one of the largest in history. But unlike other countries that made a similar effort in the past, Greece cannot devalue; it faces a much more challenging global environment; it has a weak fiscal infrastructure; a low consensus in society in favour of deep reforms<\/span>; and a fragile financial system. The agreed bail-out terms do not exactly offer much relief, except in the very short-term. It will become clear very soon that this loan agreement represents a net transfer of wealth from Athens to Berlin \u2013 and not the other way round.<\/p>\n

All this points to an eventual but not imminent default. It is important to remember that default does not usually imply a complete wipe-out. Bondholders usually recover some proportion of their holdings. I would expect that some form of restructuring of the Greek debt is inevitable, whereby bondholders will see a percentage subtracted from the par value of the assets. The 5 per cent interest rate, relative to the market rate, may already be a metric of the size of a future restructuring. It is hard enough to imagine how Greece can get out of a simultaneous debt and competitiveness crisis without falling into some vicious circle \u2013 debt deflation, for example, or just extreme public hostility that will thwart the government\u2019s reform efforts. But it is impossible, at least for me, to imagine a situation in which Greece can manage to extricate itself from a pending catastrophe without some debt restructuring.<\/p>\n<\/blockquote>\n

Without leaving the euro zone, an eventuality which is almost impossible to imagine, Greece can’t devalue against its largest trading partners. But it is a cruel irony for Greece that the announcement of the aid package has boosted the euro, leaving Greek exports still less competitive against the rest of the world’s goods. And Peter Boone and Simon Johnson add a pessimistic note<\/a>:<\/p>\n

\n

Often assistance packages of this nature just help \u201csmart money\u201d to get out ahead of a default.  This could be the case here; 40-45 billion euros total money could last roughly one year.  Both Russia and Argentina got large packages in the late 1990s but never regained access to private markets, so eventually everything fell apart.<\/p>\n<\/blockquote>\n

Things look better for Greece than they did on Friday. But they still look pretty bad.<\/p>\n","protected":false},"excerpt":{"rendered":"

AS MENTIONED in yesterday’s Link exchange, European governments have agreed to a package of loans to Greece to help cover financing needs while fiscal adjustments are made. The package is fairly generous; some \u20ac30 billion will be available the first year, with more authorised for 2011 and 2012. But big as that seems, it’s unlikely […]<\/p>\n","protected":false},"author":4534,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-524405","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/524405","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/4534"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=524405"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/524405\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=524405"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=524405"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=524405"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}