Friday, February 17, 2012

The Greek Tragedy

 The siren song of easy credit for Greece has now trapped Greece into an impossible situation of giving up autonomy or watching their economy crash and burn. From the Telegraph:
The regime of drastic cuts has tipped the economy into a violent downward spiral. They thought that private industry would muddle through as the state went through the austerity mincer. What the EU-IMF "Troika" did not fully understand is how many firms were really part of the state in disguise.

"The Greek government outsources everything," said one official with close knowledge of the events.

Faced with the guillotine, the state first slashed procurement contracts and then stopped paying its bills altogether. The government is now €7bn (£5.8bn) in arrears to private companies, including €3bn in unpaid VAT refunds for exporters. It is why business has borne the brunt of the fiscal squeeze, suffering 450,000 job losses, and why Greece's unemployment has soared to 21pc.

At the same time the banking system seized up. More than €60bn of deposits were withdrawn. By November, no Greek bank could issue a letter of credit accepted anywhere in the world, with calamitous implications for trade. "Greece became a leper, and is now stuck in Catch-22," said one official.

Hellenic Petroleum was unable to import basic fuel. The reason why Greece's reliance on oil imports from Iran jumped from 15pc to 70pc in a two-week period in November was because Tehran agreed to take on the credit risk.

* * *

The rhetoric has turned poisonous as Berlin, Helsinki and The Hague show every sign that they intend to eject Greece from the euro whatever it now does, calculating that the eurozone is at last strong enough to withstand contagion.

German finance minister Wolfgang Schaeuble is raising fresh demands, suggesting that Greece should postpone April's elections and appoint a technocrat government for a year without key PASOK and New Democracy parties, prompting the headline "Schaeuble Junta" in newspaper Eleftheros Typos.

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