Despite second bailout, Greece is still a time bomb
Greece is a crisis postponed, not eliminated. The country’s economy and its social fabric are unravelling at an alarming pace and the second bailout, combined with a sovereign bond haircut, will do next to nothing to stop the horror show.
The sad truth is that fixing Greece was never the rescue mission’s goal. The goal was to prevent, or at least stem, euro zone debt contagion; to slow the run on the Greek banks for fear that the bank-run could hit other weak countries; to prevent Greece from high-tailing it out of the euro zone and printing drachmas; and to broker a “voluntary” peace agreement with Greek bondholders.
The math of the rescue package says as much. Of the €130-billion ($175-billion) in fresh loot from the European Union and the International Monetary Fund, very little is devoted to massaging the Greek economy, now entering its fifth year of debilitating recession, back to life. Most of it goes finance the swap with private bond investors (the “haircut”) and prop up the banks. For example, about €30-billion alone will go for “sweeteners” to convince the private investors to visit the barbershop.
But won’t the haircut help the economy in some way? You would think that knocking a bit less than a third off Greece’s crushing national debt load of €368-billion (the figure at the end of December) by slicing 53.5 per cent off the face value of the privately held bonds would remove a brick or two from the wall of worry. It won’t. While the debt crunch might make the IMF gnomes happy, the economy will remain distressingly uncompetitive.
http://www.theglobeandmail.com/report-on-business/commentary/eric-reguly/despite-second-bailout-greece-is-still-a-time-bomb/article2349487/
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