GREEK ‘BAILOUT’: Are you listening, Brussels-am-Berlin? The world’s economists think you’re round the bend.


Jonathan Loynes from Capital Economics:

‘It seems to us that the plan rests on initial forecasts for the economy and public finances which are little short of fantasy. Recent survey evidence suggests that the economic impact of capital controls has been catastrophic, with measures of activity collapsing to levels way below those seen even when the economy was contracting at annual rates of 9pc in 2010-11. Of course, such extreme weakness may end when the controls are lifted. But it is not clear that will be very soon. And even if it is, GDP could still fall much more sharply this year than the 2.1pc to 2.3pc estimate reportedly factored into the bailout’s fiscal projections. We expect a contraction of about 4pc or worse. And lasting damage to Greece’s economy and financial system, as well as its fundamental lack of competitiveness, could prolong the slump into next year and beyond.

This, in turn, suggests that even the amended fiscal targets will prove extremely demanding, if not utterly unachievable. Indeed, the downturn in the economy looks likely to push the primary budget sharply back into deficit in the coming quarters.That would leave the surplus targets requiring considerable extra austerity, with corresponding further damage on the economy.’

New York Times:

‘Even before the latest damage registered, the European Commission and the European Central Bank were forced to revise downward their forecast for Greece’s growth. From 0.5 percent predicted for 2015 in their spring forecast, they now expect a decline of 2.0 percent to 4.0 percent, according to a July 10 report. It concluded that Greece was expected to have a funding gap of more than 74 billion euros from July 2015 to July 2018.

The I.M.F. put the figure even higher, at 85 billion euros. Negotiations are for a loan of about 86 billion euros, but with banks in such serious trouble (they may require up to 25 billion euros more for recapitalization) and a severe shortfall in revenues, it is difficult to know what Greece’s true needs will be.

The Bank of Greece (the country’s central bank) noted in a June report that nonperforming loans came to 100 billion euros; in the same month, tax arrears amounted to 78.37 billion euros, or 42.39 percent of G.D.P., according to the General Secretariat for Public Revenues. The first half of 2015 showed a 2.36-billion-euro shortfall in revenues. With more debt and a still-unknown impact on G.D.P., even the European Commission’s “adverse scenario” of debt amounting to 187 percent of G.D.P. in 2020 could be optimistic.’

Joseph Stiglitz:

‘Having spent the last week in Athens talking to ordinary citizens, young and old, as well as current and past officials, I’ve come to the view that this is about far more than just Greece and the euro.

Some of the basic laws demanded by the Troika deal with taxes and expenditures, and the balance between the two, and some deal with the rules and regulations affecting specific markets. What is striking about the new program (called ‘the third Memorandum’) is that on both scores it makes no sense either for Greece or for its creditors.

Whether or not the program is well implemented, it will lead to unsustainable levels of debt, just as a similar approach did in Argentina….It’s like a 19th-century debtors’ prison. I strongly believe that the policies being imposed will not work, that they will result in depression without end, unacceptable levels of unemployment and ever-growing inequality.’
James Galbraith:
‘Nobody wants this deal…What Syriza tried to do, which I thought was very honourable, was try to negotiate a better deal within the euro…[I was]…asked to look into the problems and challenges that could be faced. Questions of liquidity, payments systems, transitions and so on...The requirement in the current bailout plan for Greece to build up sizeable primary budget surpluses over the next few years looks extremely demanding, if not utterly fantastical.’
But this is the response of Berlin to The International Monetary Fund saying Greece’s debts are too big to pay and need to be partly forgiven:
Germany says that’s out of the question.

German officials, led by Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble, say that as part of a new rescue package for Greece they will consider giving it more time to pay its debts and perhaps lower interest rates. But no outright cut on what it owes.

If pressed, Germany officials concede the IMF may be right in saying that Greece’s debt pile is too big to pay, no matter how many years it gets to pay it. Still, they exclude any write-offs. The German position — joined by several other countries, including Finland and the Netherlands.’

That is an irrational position to hold. But then, the German ‘program’ is being spearheaded by Wolfgang Schäuble – a former Interior Ministry spook with no degree or credible expertise to back up his aspiration to be head of the much vaunted eurozone’s Fiskalunion.

So small wonder, then, that serious economists think a sort of madness has taken hold of Messrs Schäuble, Dijesslbleom, and Butt.




Yes, I think they may have a point.

15 thoughts on “GREEK ‘BAILOUT’: Are you listening, Brussels-am-Berlin? The world’s economists think you’re round the bend.

  1. Do the Greeks fear being pushed out of the EU and left with all those migrants to deal with? Nowhere to send them to as there will be no free train rides for them to get to germany.


  2. When you get to the point that the people just won’t pay their taxes, you haven’t got a next step, Herr Schauble.


  3. With or without the EU, Greece is being forced to deal with migrants. Their 100,000+ arrivals puts the approx 5,000 in Calais into perspective, doesn’t it. Maybe someone in Greece will get wise and threaten to give all these new arrivals instant EU paperwork and a free ticket to the country of their choice, with no option to stay in Greece at all. It’d probably be cheaper for Greece than sheltering and feeding them all, and might make Germany reconsider its position.


  4. Syriza is right now split down the middle. This impossible plan is all about forcing a Gresxit but all to many leftist Greeks are still clinging to the vain hope that the ERU will be forced to reconsider. It should be obvious since the IMF is not going along with Grermeny;s fantasy that in reality there is going to be no bailout to be ” reconsidered” so I guess the real question is how long before there is anarchy in the Streets of Athens.


  5. We won’t be going to Greece for our wonderfully happy holidays ever again. We have enjoyed very fond memories of the islands, but these are now history. In the past, we were bemused by a solitary sentry amongst the sheep in army fatigues looking out to the Turkey East to warn of imminent invasion – as per Cyprus. It would seem that today that is not happening either, as groups of immigrants just float across the sea and arrive in time for breakfast, with no difficulties whatsoever. This is purely a result of the multi lingual dithering in Brussels it would seem, while enjoying their palacial standards of living at our expense.


  6. The single currency, otherwise known as the Euro, should be renamed the ‘single coffin’, which is what it is for the PIIGS”, and ,of course, FRANCE,, which is the next member of this club.The fantasy world, promulgated by Jacques Delors, all those years ago, is over. The acid test in democracies has always been Politicians v the Markets, as George Soros memorably proved in the early 1990s, with a substantial transfer of wealth from the UK taxpayer (60 million people) to a fund where he was the majority shareholder! So, what next? China is in freefall, rigged economy, devaluation, the rich running for the door. Australia is f…ed.Brazil, another basket case, corruption, and the rest.Moscow, bust, civil strife 2 years down the road. Saudi Arabia, the one that buy all our weapons, well they are trading into insolvency as Iran pumps up oil production. Germany, export led model, pause for a long breath. I like small countries that are democratic, with sound finances, NORWAY!


  7. It didn’t actually need Gallbraith or Stiglitz to work it out . Someone who could do simple sums,unvested common sense and some brain cells would have done.! Oh and empathy.


  8. The failure of this article is to differentiate between the German government and the German nation. German savers, who tend to invest in bonds and not equities, will probably have lost as much from low bond yields as their Government has saved.

    Go back and ask a very simple question: why is the German government so desperate to avoid explicitly writing off Greek debt (as opposed to implicitly writing off Greek debt by maturity extensions and cuts in interest rates)? It is to maintain the fiction that Germans will not lose from having given up the Deutsche Mark.


  9. Are we back to the same old standoff, where Berlin is implicitly telling Greece to default?

    After all, they didn’t complain much when Greece voted against the austerity measures… at least they didn’t until Obama waded in and told Europe to behave itself and disregard a democratic vote (something the EU is renown for, and smacks of the autocratic leanings the US is well known for).

    Remember this is about private banks, not Germany and certainly not Greece!


  10. Pingback: GREEK ‘BAILOUT’: Are you listening, Brussels-am-Berlin? The world’s economists think you’re round the bend. | Ελεύθερη Λαική Αντιστασιακή Συσπείρωση

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