Found in today's Financial Times:
It is time to recognise that Greece is not just suffering from a liquidity crisis; it is facing an insolvency crisis too. Rating agencies have started to downgrade its public debt to junk level, while spreads on Greek sovereign bonds last week spiked to new highs. The €110bn bail-out agreed by the European Union and the International Monetary Fund in May only delays the inevitable default and risks making it disorderly when it comes. Instead, an orderly restructuring of Greece’s public debt is needed now.
The austerity measures to which Greece signed up as a condition of its bail-out require a draconian fiscal adjustment of 10 per cent of gross domestic product. This would prolong the country’s recession and still leave it with a public debt-to-GDP ratio of 148 per cent by 2016. At this level, even a small shock is likely to trigger a further debt crisis. Sharp austerity may be needed – as agreed by the Group of 20 over the weekend – to stabilise debt-to-GDP ratios by 2016 in advanced economies; but for Greece such “stabilisation” would be at levels that are unsustainable.
Compare Greece today with Argentina in 1998-2001, a crisis that culminated in a disorderly default. Argentina’s fiscal deficit at the onset was 3 per cent of GDP; Greece’s is 13.6 per cent. Argentina’s public debt was 50 per cent of GDP; Greece’s is 115 per cent and rising. Argentina had a current account deficit of 2 per cent of GDP; Greece’s is now 10 per cent. If Argentina was insolvent, Greece is insolvent to the power of two or three.
And that's just the beginning of his article!
Again, it's about the culture: How long has this day been coming? How many attempts have been made to stave it off, in hopes that somehow the problem would just go away?
How many trips to the brink, followed by announcements by The People In Charge Of Such Things that all is well, move on, nothing to see here...
Qatar is being called in to hoover up cash for an equity stake. That'll fix it, no worries...
It will take at least a decade to clean up this mess, but the first step in the process will have to be truth-telling: The present situation is unsustainable, and a sober solution will have to be found. No more pretending, no more delays, no more press releases. For the sake of our grandchildren, let's clean this mess up.
2 comments:
To clean up the mess would mean that today's Greeks will have to work, and work hard. They don't want to do that and they do not think they really have to do so. Why should they? They never have; why now? Why can't there be another Ponzi game just like the last one?
They will see no reason why THEY should be the ones to bite the bullet. Let someone else do it.
While Roubini in the FT writes that the EU should allow Greece to default, the EU State and Finance Leaders have consistently announced that default will not be an option:
1) In May 2010, the eurocracy, that is the EU State leaders, were called to meeting by President Herman Van Rompuy, and were well aware of Greece’s staggering level of debt relative to GDP, and announced bilateral loans to Greece, but in reality they are seigniorage grants, based on the committment to continue with a common union, and create what was called at that time “economic governance” to preserve the value of the euro.
2) In June, 2010, the EU state leaders and finance leaders met and announced a debt union to create Euro bonds via the EFSF agency, for seigniorage loans to Greece and other nations experiencing sovereign distress, based upon the premise that a default by Greece would likely wipe out the banking system of Europe, as both Germany and France hold large amounts of Greece sovereign debt. Mr Van Rompuy called a press conference after the June meeting and said default is not an option.
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