Quest Means Business   « Back to Blog Main
April 12, 2010
Posted: 1608 GMT

Everyday brings a new twist in the Greece saga and with it comes market reaction.

Monday was positive for Greek bonds and the euro after euroland finance ministers said they would provide up to $40bn over three years at a fixed rate just under five percent - if Greece asks for help, that is.

For now, Greece has to still sell its bonds in the markets and hope that the interest rate comes down closer to six than to seven.

The deal could make it easier for Greece to sell debt and at a lower rate, but it does nothing to help Greece cut its budget deficit in the short run, or help public sector workers accept pay and pension cuts or worse job cuts.

But at least Europe has realized that it can't just promise vague help without putting up the cash.

Will this really help Greece? Will it have to tap this money, or is the Greek government correct when it says just having this backstop could be enough to give the market some confidence in Greece?

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Filed under: Business •Quest Means Business


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Theresa   April 12th, 2010 4:36 pm ET

God I hope so.

Ruth Hirt   April 12th, 2010 4:45 pm ET

How healthy are the economies who would dare help to bail? Otherwise each country is ready for the worse for themselves. Or, is this leading to the dawn of an impending one-world, centralized economy? Is this a fool-talk? Correct me, but please, be sensible.

Shuvankar Mukherjee   April 12th, 2010 5:39 pm ET

Sorry Richard, But It seems what Ruth says has lots of value in it. The countries who bared their taxpayers chest to bailout Privately owned large corporations are daring to teach fiscal discipline to Greece.

Fact is the recovery bubble is becoming larger and thinner by the hour, big investors are unsure of the stability if the bubble. Greece is just the favourite excuse to readjust their own debt:equity:deriv ratio in their portfolio, in other words, simple profit taking from the bubble.

joe   April 12th, 2010 6:36 pm ET

Well actuallly many countries were forced to join the euro market without bieng ready. Greece is only the begining, Spain, Ireland, Italy and Portugal will soon follow. Is Germany also going to bail them out? One country cannot support the euro. Greece will never be able to pay off the interest in the loan they got. Maybe it is time to make serious decisions to leave the euro, before the whole country falls into bankrupcy.

Haggus   April 12th, 2010 7:21 pm ET

Greece gets the carrot, but not the stick. Whatever pressure there was to cut expenses is now gone.

Don't be surprised if other nations don't look for a bailout instead of making the hard choices.

Labros   April 12th, 2010 7:59 pm ET

Why on earth will Greece not be able to pay off the interest? Why all this "panic" all of a sudden, when the Greek economy fundamentals have not really changed for at least 10 years, and are not much different than those of other Western nations?

A "signal" was given in late 2009, and bond prices started rising (usually following rumours and "analyses") creating a self-fulfilling prediction. If bond yields were (say) around 5% (which is the maximum that corresponds to the true state of the Greek economy), Greece would be borrowing normally, and nobody would even be talking about it.
Of course it has to take painful measures, like other countries. But its main problem are those market games, that make bond yields (and thus difficulty of borrowing) go to hell from one day to the other.

Indeed, we see dozens of headlines daily in economic media, rumours, denials, analyses, predictions and an atmosphere of panic. The best "aid" to Greece would have been to stop this daily soap opera and leave it alone.

But then, think that all this Greek "publicity":
– has so far shielded U.S. and U.K. bonds
– has lowered even German borrowing costs
– has lowered the Euro to more desirable levels literally "saving" economies like Germany's
and, on top of all these,
any potential "bail-out" will be profitable. If the agreed package is requested, most Eurozone countries will borrow at 3% to lend Greece with 5%. So at the end of the day, they will actually have made a net profit. The Greek taxpayer will have actually sent money to Europe.

I just hope other nations will be able to avoid a similar nasty game that can bring them to their knees, at the mercy of markets and speculators.

Prof. Dave W. Dawson   April 12th, 2010 9:57 pm ET

*** HOT WEATHER PLAGUES GREECE .... ***
The hotter the day, the less the work out of it.
The cost of air-conditioning is astronomical in many tropical & sub-tropical zones.
What skills aid Greece?
Greece, once the home of Philosophy now needs to philosophise what skills it needs to attract to raise its' Prosperity.
By now, we all know what's missing before us.
Pushing National Stability before the Greek Government and Greek Industrialists & seeing results for it would say that Greece is approaching Recovery.
My favourite word is RECOVERY.

sokratis   April 13th, 2010 11:16 am ET

@ Haggus
You should be informed that Greece has already begun a powerful deficit reduction program of 4% of GDP. Expenses have been already cut deeply (example: public servants suffer an average 10% cut), tobacco, gas and alcohol have risen about 30% due to tax raises, to mention a few measures.
The problem is not that Greece is not working harder than anyone for a serious course correction, but that, as it is usually the case, many find this as an opportunity to buy the country cheap.

David Njuguna   April 13th, 2010 2:03 pm ET

Hi,

I am struggling to understand this. Hear me out, Greece is in doldrums so people make a farce. Zimbabwe is in deeper doldrums, why isn't there much farce? Why aren't big economies concerned with the citizens of that country. I think and also believe that when you select policies haphazardly and with double standards, things will fall apart in a definite way. That anyway is a lost cause. My main beckoning is "will the European Union be able to balance between the so called strong economies of Europe and the weaker ones.The integration of the union was also done hurriedly, they should have taken time to establish an equitable and fiscal friendly system that covers all their borders. The smaller countries in Europe do not have conditions for British people when coming to their countries but there is in vice versa

David

George   April 13th, 2010 2:35 pm ET

No bailout on its own will help Greece. So whatever measures are taken they have to be focused on making changes to the root causes: overspending and under producing. Greece doesn't need money, it needs growth! On the other hand just having a 'backstop' will not be stimulate this growth which has to come from Greece itself since Greeks are still very much disillusioned with government overall and lacking confidence. If the resultant aggression can be put into practice as aggressive productivity then we may see this saga turn around sooner than we think.
Granted, none of this can be possible as long as corruption, vertical and horizontal clientelism still exists to the extent they do. And so I believe, the make or break will come from how fast an arena without these problems can be put in place for active Greeks to sniff the smelling salts and get fighting for growth. Holding back from tapping the money until the arena is clear may be the smelling salts the Greeks need but the effects will fade if the arena is not cleared quickly, and then tapping the money or not, very little positive effect will be seen. This ones going to be tough; its all in the timing.

pelorios   April 13th, 2010 2:39 pm ET

Well Richard, you are right on the money, again. However the reason Germany and the EU in general, delayed-has reservations, apart from not having purpusfully (as the whole EU idea, doesnt, at this point) rules and procedures for this, is that greeks are cunning enough to have fooled and used eu good will, for their part, to live the good life for 30 odd years. The implications of how they handle greece should in no way reflect on the procedures which do exist, for the rest of the pigs did no require them, non? Sometimes either you are on-board and nuff said or you learn the hard way. Germany can do that. But not alone. The aim is to help greece, and sometimes a slap now is better than a kick later. Trust in old europe for they have seen falls after rises, enough to be bored. Do not discount "brilliance of youth" coming from the newlands with the discount of lifes risks so apparent yet so magical, respected.

Do not try to teach greece a lesson. There is a certain greek fire which is a mirror of sorts. Takes your energy, absorbs and discards the good parts and reflects the bad parts back to you. Its a remenant of its 400 years under rule, and is particularly used on its "young" to rear them into "establishment".

Do not try to help greece to a *fast* recovery here. Deal with Turkey instead. At least they have something more than "hot air" to "sell" you.

Sometimes, like love, hope, in excess, is not recommended. Greeks can smell hope 400 years away. The truth is that modern greece was, perhaps, a mistake, but one worth making, once. One thing you can take away from all this. See, that Greeks are esenttialy Turks. Genetic and social assimilation was probably completed in the first 200 years. What greeks are today is the worst scenario of what turks could become once they are full members of the EU. Understand that and help the Turks see that it will lead them to isolation. You know the drill..

David Nyori   April 14th, 2010 4:45 am ET

Ever met a homeless / jobless person? try selling him policies on how he should grow economically. I think Greece will do well with the loan, let them think policies later. For now, let them pay what is pinching at their shoe.

George   April 16th, 2010 12:05 pm ET

@ Pelorios:

Helping only one side of this ancient conflict of Greece & Turkey will lead to one side being isolated. I think any impartial help should be even handed to prevent this isolation. Are you suggesting to leave Greece to suffer its fate now and help Turkey join the EU instead?? This would be a disaster to everything from economics to social politics. The bottom line to this 'conflict' if in fact it can be called that is for both sides to swallow their prides a little. All things considered with whats been happening to Greece in the last 10 years including coming under attack for objections to FYROM being re-named Macedonia to the wide spread critique for the current economic situation I think it is more than fair to say that Greece has done its share of 'pride swallowing'.
To return to the point and continue your comparison, Greece is and always will be a European country, and because of the occupation by Turkey Greece was the only European country denied a Renaissance. Maybe this is the reason for the socio-cultural discrepancies with other European countries. I am happy Greece is part of the EU, at least, now... where it belongs and it may be the case that this 'crisis' is exactly what Greece needs to have its Renaissance, shed the residual effects of 400 years of Turkish occupation and come up to speed with the rest of Europe and perhaps beyond? Turkey will definitely play a role in the answer to that question... but its how they play their cards. To reiterate, its time for Turkey too to be reminded that no one ever chocked to death because they swallowed their pride.

pelorios   April 16th, 2010 10:17 pm ET

@ George

I agree with you. You cannot help one while leaving the other behind. However pride swallowing will not be effected by accepting FYROMs use of Macedonia or even Northern Macedonia which i think will finaly be the case, and also an interesting excercise in how fast in todays connected/electronic world you can change, a name 😉

I am not sure what you mean by Renaissance. I know very little about history, from what i can remember it was a period of blooming in terms of science, arts, and i expect other things as well, a celebration of freedom after the oppression of the Medival times?

I am sorry to say and this is in no way reflected on you, personally, but here in Greece we are very close to the point that it is not consructive to *suggest* anymore. The first step to attacking a situation is cutting off communication. Time is a friend, be it languish, but also when its fleeting. I am not suggesting things are about to accelerate but just about the last thing i can afford to suggest. I will be very happy and strive to comment only, in how things develop from here, remarking on how wrong things that have and will happen here by the current goverment. The reson is that in its previous long tenure the current goverment was nothing more than a bunch of unskilled labourers and their "great thinkers" where educated the wrong way, coming more form a communist perspective than a free-economy one. Throughout that long tenure this goverment did little more than adopt the oppositions suggestions and that, after it repainted it and made sure it remained state controled. The result has been a still growing public sector, which if you project will end you up in 5 years time in a communist oligarhy of sorts, kind of like what Hitler effected in Germany, and by that i mean, bad. Add to that unions which today effectively cover 90% of the working population and i hope that you understand that if these people have been around for 30 years, its very hard to dislodge, not only them but the perception of the people young and old as to how to achieve "prosperity" and pursue happiness in this life.
The current global environment of lax monetary policy is even worse because to them its a grand opportunity to suck more money in and rear the next generation. Hopefully some peoples will not allow that to happen.

To name a few recent indicators of how things are going bad, a couple of weeks ago while going through talks in europe on how to reign things up including the public sector, the prime minister came back and amongst other things like speeches about how " times are tough and we should all try" he anounced another 10,000 new jobs in the public sector. Most public sector jobs start at 8 and finish at 2 pm, i.e they work 3 hours less and fridays a lot of them do not accept anything more than enquiries for the whole day. You have peopel in offices receiving security-guard bonuses, and there is probably none to one dedicated security guard. The onset of IT instead of being amalgamated onto the procedures has doubled the job positions, with the extra staff doing data entry, only. To add a final disgrace only a couple of days ago they anounced the abolishment of a pass grade in schools, effectively ensuring that ,'all our children go to universities'. If you call that fostering education and supplying ourselves and our european partners with skilled labour, i am sorry but you shouldnt be reading this. The candy used is again the pleight of immigrands as we once were once forced to be, but i bet if you ask immigrants they will tell you that they did not come here to see things degrade to how their country is. But few see that, or have time to. Pretty soon you are a cog in the wheel trying to make ends meet, blessed for having children for they are going to be tommorows slaves – i am sorry but even if you pay a soon-to-become-idiot, he wont know what to do with the money anyway, but spend spend spend.

The fall of the USSR has removed a barrier without which capitalism might rage unchecked in the worst of ways. I have even heard of the argument that shares, the concept of issuing shares was to entice communists. If you think about it, if you have a company and its going well, you can deal with a lot less than having shareholders. Why share your profits. Another pitfall that capitalism is in danger of falling into, is the misconception that for things to work people have to spend, consume. That sure is the road to hell. Capitalism cornerstone is enterpreneurship, not consumption. Consumption is the result not the cause. The result of satisfying needs and wants, the former (need) being 90% of it and the latter (want) an important but small portion of the equation.

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