Ο καπιταλισμός είναι ζωντανός και καλά, και εσείς ? (aka. why the Market really wants the package signed)
Ο καπιταλισμός είναι ζωντανός και καλά, και εσείς ? … the first part of our title is an attempt for a Greek version of a stencil spotted on the Parisian pavement: “Capitalism is alive and kicking, what about you?“. Our Greek fellows will appreciate the question. They will also appreciate one of the reasons Capitalism finds a second wind every time one of those rescue packages are signed on their back.
Indeed, why is it that average Greek citizens seem to increasingly suffocate, whilst financial institutions and capital markets are actually “not that affected by the convulsions of the Greek street“*?
Greece has been in recession for 2 years: the GDP has shrunk by 12%, the unemployment rate is reaching 21% – with a peak of 30% for the youth under 25. Yet, this is not enough misery to get mercy from those who could help save Greece from herself. The ‘troika’ (IMF + European Commission + European Central Bank) is pushing hard for more austerity measures without growth stimulus.
Following a first ‘rescue package’ in 2010 that was worth 80 billion euros, the latest plan is now worth 130 billion euros and comes with the requirement to cut 22% of the benchmark minimum wage (following several cuts already made in the public sector) and another 150,000 public sector lay-offs.
The Telegraph: A protester stands near a riot policeman during a demonstration in central Athens, where there has been violence on the streets for a week Photo: AP
What can you seriously expect from such drastic measures if not a deeper recession, lower tax revenue to be collected by an already broken State, and therefore a rising debt? Meanwhile, most of the wealthiest Greeks – and the National Orthodox Church – still enjoy significant tax exemptions.
The NYT summarised the situation very well when it wrote “It now appears that Europe is prepared to pay what it needs to pay to save its banks. But not to rescue Greece.”
The NYT also adds a little historical anecdote about Venezuela in 1902 in order to remind everyone of the purity of the European Bankers’ motives:
“There is nothing new in leading European states’ insisting that debts owed to their banks and citizens by sovereign states must take precedence over any other call on a debtor nation’s resources. It is not, however, a particularly noble tradition.
In 1902, Venezuela seemed to be unwilling to discuss settling international debts incurred during a series of civil wars. Germany, Italy and Britain responded by sending in gunboats. German ships bombarded a Venezuelan fort — the Germans said the Venezuelans fired first — and some civilians were killed.
In the end, Venezuela agreed that 30 percent of its revenue from tariffs on imports would be diverted to debt service. Some of the debts — which included reimbursing the European powers for the costs of sending the warships — were reduced.”
Fast forward to 2012… To be crystal clear, 80% (EIGHT. ZERO.) of the money received via the package will immediately go back to Germany, France and other European banks in order to service the outstanding debt. The actual Greek people will only see 20% of it.
This is why “the market” is so anxious to see a deal signed: not because there is some race against the clock to get the money to the country in order to pay workers. No. It is because Athens needs this fresh money to repay 14.5 billion euros of (existing) debt that will “mature” (i.e. is due) on March 20 (reuters). You get the point? They will borrow (with interests) in order to repay an existing debt. Like getting a new loan, to repay an existing loan. This type of arrangement is leading to the country’s financial suicide. In the same vein, Spain has repaid the equivalent of THREE times her 2000 debt. Which means that all those repayments have gone into interests, therefore financial profits, to the lenders…
So there you go. Next time you read a media report frowning at those Greek protesters, think how you would feel if a loan shark tried to take advantage of your family struggling in debt, and asked you to take a 2nd, then 3rd mortgage with compounded interests that would end-up make you repay multiple times what you really owe… And see ya after March 20 when Greece may need another bail-out once the current rescue runs out (FT)…
{ NKN, Paris – leLaissezFaire, Sydney – 19 February 2012 }
(*): straight quote to one of the co-bloggers from a trader working at a global investment bank.
.
