Greece’s debt and the so­lu­tion

Finweek English Edition - - Coverstory -

THE EURO­PEAN UNION (Ger­many is now al­most the only sol­vent mem­ber) and the In­ter­na­tional Mon­e­tary Fund are con­vinced that, in the in­ter­est of eco­nomic sta­bil­ity, they must res­cue Greece through a huge in­jec­tion of more than €100bn. Bill Bon­ner gives the fol­low­ing short out­line of the Greek tragedy: De­cide how you’d feel if our Govern­ment de­cided to use part of your tax money to res­cue this coun­try.

This is what Bon­ner says: “Back to Greece – the fis­cal fu­ture is re­ally messy. Lat­est pro­jec­tions show that by 2013 pub­lic debt-to-GDP will ap­proach 150%, debt­ser­vices charges will ab­sorb 9% of GDP and 25% of tax rev­enues will be si­phoned to bond­hold­ers out­side the coun­try. Govern­ment spend­ing is 50% of GDP and the pub­lic ser­vice doesn’t seem will­ing to ac­cept even a freeze – not a cut – to wages, ben­e­fits and pen­sions.”

The fu­ture for Greece is sim­ple: any coun­try that must use 10% of its fu­ture GDP to pay in­ter­est on old state debt is head­ing for a re­ces­sion. It’s no won­der even grey-haired pen­sion­ers were re­cently protest­ing on the streets of Athens.

If you think Greece – and per­haps many other coun­tries, such as Por­tu­gal and Spain – must ac­cept the con­di­tions of the EU/IMF aid pack­age, take Bon­ner’s ad­vice and keep away from shares. And that’s not only Greek shares, but also those in SA.

Here’s Bon­ner’s and many of us will prob­a­bly feel much the same: “Fire one out of ev­ery five govern­ment work­ers, cut the bud­get by 20% and de­fault on your loans.

“Fol­low the Greeks.”

(and even more so to Bri­tain):

“Take a long vacation.” If you agree with that ad­vice – and es­pe­cially Bon­ner’s view that the banks vol­un­tar­ily bought for­mer Greek state debt: that is, they bought bonds be­cause they of­fered a higher re­turn than the far safer Ger­man bunds – it’s just plain un­re­al­is­tic to ex­pect Ger­man tax­pay­ers to have to help them out (again). Take your pain: af­ter all, you were pre­pared to gam­ble on a higher re­turn – which al­ways goes with a higher risk.

And keep away from shares, es­pe­cially bank shares. See Lu­cas de Lange’s story on p42, Marc Ash­ton’s on p44 and Simon Dingle’s on p15.

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