Whatever agreement is now Athens and the European Union, the Greek drama continues. And to imagine an optimistic scenario in the economy of Greece, it is necessary to have a very rich imagination.
July 6 Greeks rejected the referendum program troika of creditors (EU, ECB, IMF). Offers creditors did not contain specific atrocities. On the contrary, in many respects it looked logical and relatively gentle treatment option for a patient running. Requires lenders budget surplus of 2-3% of GDP is far from cannibalism, the same United Kingdom almost all XIX century had a similar surplus, paying for expensive wars of the XVIII century.
senior economist George Magnus, UBS notes that Greece and lenders have different views on the problems of the country: in triplets microeconomic, in Athens – the macroeconomic. “The European proposal focused on the need to enhance management efficiency, transparency of decision-making, price competition, privatization, and the rule of law, fight against corruption and tax evasion. Alexis Tsipras rejected all the proposals and, crumpling them in one pile, accused of blackmail creditors,” – he said. Greeks focused on her as a victim of the modern European (if not global) order.
The antagonism manifested in the approach and during a speech in the European Parliament Tsipras July 8. The Greek prime minister has accused the creditors in an attempt to terrorize the country. This leader of the Liberals in the European Parliament, former Belgian Prime Minister Guy Verhofstadt announced Tsipras “false prophet” and advised to go from accusations to concrete reforms: to reduce the public sector, to eliminate closed professions deprive shipowners and military privileges.
simply can not expel
The way out of the contradictions, it may become out of the eurozone. For Europe, now this is not very painful. A few years ago a Greek exit from the eurozone would lead to huge losses of European banks, but now their investment in Greek paper are minimal. In addition, other peripheral eurozone countries (Portugal, Spain, Italy) are also tired of the austerity measures, and they also would not mind writing off its debt. Finally, the decision not to pay Greece’s € 1,6 млрд IMF June 30 endanger the authority of the fund, which has always had immunity in case of default.
However, not all pessimistic. French economist Thomas Piketty, who became world-famous through the manifesto “Capital in the XXI century”, according to the results of the referendum recalled in an interview with Die Zeit, that Germany is not without sin: “I was particularly struck by the fact that Germany – one of the most striking examples of the country, which during its history has never paid off its foreign debt. However, it is often forced to pay other countries. It does not have the right to teach others. ” In particular, he recalled that the post-war economic miracle was based in part on the London Agreement of 1953, in which it was written off 60% of German foreign debt.
To the supporters of soft line towards Greece are adjacent and other well-known economists, such as Joseph Stiglitz, John Galbraith, Jeffrey Sachs, Paul Krugman and others. The need for debt restructuring of Greece unexpectedly announced July 8 and the head of the IMF Christine Lagarde. However, in March 2012, the lenders have already written off € 100 billion of Greek debt (52% of GDP), while recourse to the Piketty debt relief in Germany in 1953 is not entirely convincing, because by the time the country was occupied, and even divided into two parts.
As long as the eurozone countries have given the Greek time until July 10 to prepare a package of proposals for reform. July 8 Alexis Tsipras government sent a request to the program of aid to Greece under the European Stability Mechanism (ESM), and specific reform proposals announced on Thursday. New offers Athens EU summit will consider on July 12 and it is likely to be the deadline for agreement. According to the Greek newspaper Naftemporiki, measures partially agreed with the proposal of creditors (for example, raising taxes on profits and luxury). “The reality is that we have five days to find a final agreement. If we can not come to him, it could lead to bankruptcy and the collapse of the Greek banking system,” – said the head of the European Council, Donald Tusk.
Breaking the Deadlock
If a compromise is reached, the Greeks still have to tighten their belts, but serious collapse lenders are unlikely to allow. However, the IMF in its “Preliminary Debt Sustainability Analysis” (against the proposals of him also voted Greeks) promises to increase the output of Greece in the 2020 (three scenarios, ranging from 3.5% to 4.1% of GDP) and the transition to a sustainable reduction public debt (from the current 174% of GDP to 137,5-150% in 2020, and 85-118% in 2030). However, these overoptimistic forecasts of the IMF made since 2010.
However, an agreement with the lenders and Greece stays in the euro area remain the most optimistic scenario. If, moreover, Greece will manage to agree on the next debt relief, a chance to grow out of the impasse. “A possible solution to the Greek problem – in the official debt conversion into bonds, the payment of which would depend on the rate of growth of GDP in Greece and its possibilities – reminds Dmitry Timofeev, head of analytical department of the Criminal Code” Parma-Management “.- The market has traded warrants Greece tied of GDP, but the volume is small. ” However, aid to Greece does not negate the need to reform its inefficient and populist economics (see. The publication of “The drama of the Greek carelessness”).
Hello Drachma!
Where could be sadder version of the full-scale default and exit the eurozone. The most important immediate date is July 20, when Greece is due to repay a debt of € 3,5 млрд to the ECB. Non-payment of € 1,6 млрд June 30 the IMF de facto default, but by the criteria of rating agencies after the cross-default was not announced, as the IMF is not a commercial lender. If Greece fails to pay the money to the ECB July 20 (or a deadline – August 19, if the ECB will provide Grace period up to 30 days), then the default rating is not avoided.
This will mean the following. Now the ECB liquidity support for Greek banks through the mechanism of emergency liquidity assistance. That is, it provides liquidity to banks in the amount of € 89 billion, taking Greek bonds as collateral. If the non-payment of these bonds after July 20 will be considered defaulted, devalued collateral, Greek banks will have margin call from the ECB will not be able to satisfy it, and will be without the support of the ECB and the euro (retail deposits in the system – by € 120 billion). Then the collapse of the banks is inevitable.
In this case, it is possible that the Greek government was left without the banking sector will be forced to move to the issue of promissory notes, ie a system of parallel currencies. This may be the first step out of the eurozone.
Opinion that Greece’s position in its better to go to its own currency, it is doubtful. “Firstly, the exit from the eurozone by default the country will lose access to the ECB and to the global capital markets and restore it as long as at least begins to service the debt, and the IMF will not sign with him a new program, which could take years – says the chief economist at Alfa Bank, Natalia Orlova.- Secondly, the introduction of its own currency will be illegal from the point of view of European law and may become a reason for exclusion of Greece from the EU, which entails the imposition of trade tariffs for Greek products, as well as restrictions on the work of the Greeks in the EU. The export income could be adversely affected. The new currency will be doomed to the periodic devaluation, but the country could enter a period of hyperinflation. ”
there are precedents. In late 2001, Argentina defaulted on its public debt in the amount of $ 93 billion. January 1, 2002 the country was forced to abandon the peg the peso to the dollar (analogue for Greece could be the transition from the drachma to the euro). The peso was devalued several times to the last, with the dollar-denominated bank deposits were converted into pesos at the rate significantly below pre-crisis (pesofikatsiya).
The negative effect of default, devaluation and pesofikatsii is difficult to overstate. In 2002, Argentina’s GDP in dollar terms fell by almost three times – from $ 321 billion to $ 117 billion (GDP per capita – from $ 8.9 thousand. To $ 3.2 thousand.). Inflation in 2002 reached 26%, unemployment rose from 19.2% to 22.5%. However, the depth of the fall was offset by the speed of recovery. In the pre-crisis GDP per capita Argentina managed to return in 2008 (now, according to the IMF, GDP per capita in Argentina is $ 13.3 thousand., In Russia – $ 8.2 thousand., Ukraine – $ 2 thousand .).
Greece, despite the deep recession, there is much to fall. GDP per capita in Greece is now $ 18.9 thousand. This is a sharp drop from a peak of $ 31.9 thous. In 2008, but even more than in 2003 – $ 18.4 thousand. (And in the early 1980s, per capita GDP in Greece was lower than in Argentina). When the Argentine version with the introduction of the drachma and the paralysis of the Bank of Greece threatens to fall to the level of, for example, Russia or Bulgaria (per capita GDP – $ 7.2 thousand.).
Worse Argentina?
Argentine scenario of a deep fall and rapid recovery in Greece may not be realized. On the eve of default of the Argentine debt was about 45% of GDP, the Greek is now – about 174% of GDP. And Argentina’s debt simply because no one to forgive. After the default of the national debt jumped to 138%, reaching restructuring is still (partly debt was remodeled in the above-mentioned warrants tied to GDP growth).
Argentina and its creditors lucky during her recovery took place in the resource super-cycle associated with the growth of China. Greece with a foreign background can not get lucky. The worst situation is with Demography: Greece – one of the world’s oldest (median age 43.5 years against Argentina with 31 a year) and will continue to age, and, therefore, pension costs will rise.
We can not exclude the risk of political chaos. The downturn in the economy and anarchy in politics often go hand in hand, or operate on the principle of positive feedback. American political scientist Adam Przeworski has estimated that between 1946 and 1988 in any democratic or authoritarian regime in South America, which had a positive dynamics of GDP, the probability to retain power over the next 12 months amounted to 91.6%, the regime with the falling GDP in the current year – 81.8%, and modes with the economy being in recession two years – only 67%. 2015 th will be the sixth year of recession in Greece since 2008 (weak growth of 0.7% was only in 2014). So, the risk that Greece will become a failed state – a failed state – all of the above.
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