By Paolo von Schirach
December 21, 2012
WASHINGTON – Thanks to huge liquidity injections care of Mario Draghi, President of the European Central Bank, (ECB), the Eurozone crisis subsided. But even though no country is going bankrupt because of this new cash infusion, there is no sign that a new culture of work, productivity and accountability has taken roots.
Money infusion improves picture…
Sure enough with (mostly German) money now flooding the system, the obsessively watched ”spread” between German 10 year bonds and those of the poor cousins of Southern Europe (Greece, Italy, Spain and Portugal) is much smaller. Even wretched Greece is doing a lot better. Greek 10 year bonds until a few months ago used to have a 40% yield –yes, it was 40%. Now the yield is “only” 11%. (Germany’s 10 year bonds have a yield below 2%).
…Yet, no real changes
That said, let’s not be fooled. Central Banks can provide strong pain killers; but they have no cure of deep illnesses. There is no sign that Southern Europe has turned any proverbial corners. The economies remain weak, investments are low, productivity gains non existent, unemployment still sky high, (Spain is above 25%), while long term demographic trends indicate populations becoming rapidly older and therefore more reliant on government funded social programs.
Even as the Greek Government may rejoice in looking at bond yields descending from surreal levels, the Greek national debt, with all the massive injections from the EU, the ECB and the IMF with a rating of B- is just junk. Notwithstanding years of support with more to come The Greek national debt will stay way above 100% of GDP, with no chance of significant reductions.
Which is to say that Greece is in permanent intensive care with little or no chance to get back on its feet and become a self-sustaining society if and when all these massive interventions will stop.
Greeks in denial
And this is due mostly to the simple fact that most Greeks have yet to grasp the seriousness of their predicament. The people remain in an infantile state of denial. Instead of getting busy, the Greeks keep on protesting. They protest and they strike, on a daily basis, against “everything”: lay offs, against social programs cuts, against reductions in public employment. And all this takes place in an atmosphere of angry chaos.
As the WSJ reports, (In Greece, When Everything Grinds To a Halt, Nobody is Surprised), there are so many strikes that some IT people set up a dedicated website called “apergia”, the Greek word for strike. While the article looks like a piece of entertaining “local color”, in fact it describes a country near melt down in which all public services, from transportation, to schools, to courts are disrupted on a daily basis, causing enormous economic losses, not to mention inconvenience and stress.
Up to a point this picture of life in constant chaos may look funny, just like an old Marx Brothers movie. But if you think of it it is truly tragic. The Greek debt crisis exploded in the Fall of 2009. Greece has gone through every possible bail out package. There have been political crises, new elections resulting in a new coalition government, and what not. And yet the people still do not get the message. “Fellow citizens, the free lunch is over. It is time to get serious, invest, work and become a productive society”. No, Sir. We keep protesting against this injustice caused by malicious hidden enemies.
More free lunches
In fact, may be there is a reason why the Greeks are still in denial. And that is the bail outs. While the country is essentially bankrupt, the Northern Europeans have decided that keeping Greece alive through constant cash infusions is a price worth paying because a messy Greek exit from the Eurozone would have (in their estimates) even worse repercussions on European financial markets.
And so this means that the “free lunch” is not over for the Greeks. In fact, with the latest bail out package, they just got some more. And it seems that they decided to use this new precious respite to protest and strike some more; this way guaranteeing that the hoped for turn around will never take place. The web site detailing the daily strikes may very well become Greece’s obituary: “Death By Self-Inflicted Thousand Cuts”.