By Paolo von Schirach
October 6, 2012
WASHINGTON – Greece is in sticky a situation. (Yes, it is Greece again). The European Central bank (ECB), and the International Monetary Fund (IMF), have not yet released $ 41 billion worth of additional loans to Athens, because they do not like the savings plans put forward by Greece.
Greece is behind, but Germany will help
This is a charitable way of putting it. The truth is that Greece is delinquent on most of its reform pledges. Be it the agreed upon shrinking of the public sector or the pace of privatizations, the Greeks are chronically behind. And this is a clear indication of how poorly and I would add unseriously Greece goes about taking care of its own affairs.
Still, despite that, now the Greek leaders seem to be getting needed political cover, in the form of an official visit by Angela Merkel, the German Chancellor. This gesture is correctly interpreted as an open commitment to Greece. Greece will stay in the eurozone; and so the never ending bail out will have to continue. Germany will keep paying and Athens will get more money.
But even in this desperate situation, the Greeks continue their game of self-deception. Commenting on the current impasse with its lenders, Greek Prime Minister Antonis Samaras is quoted by Reuters saying that: “The key is liquidity. That is why the next credit tranche is so important to us“. And how far would Greece go without this additional money from indulgent lenders? Not that far: just until November.
Now, words have meaning. Only a fool or a liar would call this disaster a “liquidity” problem. You may have a liquidity problem when you are short of cash for a limited period of time. For example, you may be in a temporary bind because you have payments due, while others who owe you money are late paying you.
Greece is insolvent
This is not the case in Greece. Greece is totally broke. Its problem is called “solvency“, or better yet “insolvency“. And from the looks of it the crisis is beyond solutions. There is just too much debt, and a structurally weak economy that cannot possibly generate enough revenue to pay current bills, plus interest on the debt and principal repayment.
Germany likely to keep the bail out going
If Angela Merkel, fearful of any fall out that would occur as a consequence of Greece being forced to exit the eurozone, has decided that it is in Germany’s political and economic interest to keep supporting Greece for the indefinite future, then Prime Minister Samaras has nothing to fear. If and when Germany will have enough of this, then Greece is dead. And its demise will be due to insolvency and not because of a temporary liquidity issue.