THE TRIUMPH OF SCHADENFREUDE OVER UTILITY
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.’
‘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.
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.