WASHINGTON – We were told months ago that Greece, the ultra-sick member of the Eurozone, was essentially out of danger. Thanks to a gigantic aid package, (240 billion Euro, or $ 306 billion), jointly created by the European Union, the European Central Bank and the International Monetary Fund, Greece had been stabilized.
Greece had been fixed
No more talk of Greece being forced out of the Eurozone. In fact, Athens had managed to go back to the international credit markets and sell bonds. The incredible spread between its treasury bonds and those issued by Germany and other “healthy” states had shrunk, significantly.
So, it seemed that the tough diet of spending cuts, privatizations and forced slimming down the once bloated public sector had worked.
Well, not really.
Greece back in the news
While many Eurozone economies this year are stagnating (France) or are in recession (Italy), Greece, sadly, is in much worse shape. So much so that, according to the Italian daily La Repubblica, Jyrki Katainen, the EU Commissioner for Economic Affairs, felt obliged to issue a statement of support in which he stressed that the EU will continue to assist Greece “in order to assure that it will be able to collect funds in the markets, and that it will continue to have full access to them”.
Economy in bad shape
Why this reassurance? Because the Greek stock market just collapsed. After sustained losses over the Summer, It lost 9% on October 15. Yes, this is 9%, in one day. The economy is still doing poorly, (-3.9% in 2013, a little above zero growth in 2014). Greek unemployment is still at 26.4%. Youth unemployment is at 50%.
And now potential Greek debt buyers demand higher interest rates. The Greek 10 year bond carried an already high interest of 7.6%, now it is 8.96%. (German 10 year bonds have less than 1% interest rate, US Treasury Bonds come at 2.15%). May be this has something to do with the fact that the Greek national debt, after all the interventions, loans and other measures concocted by its saviors, is now 190% of GDP.
Not an inspiring picture.
To make things worse, the government headed by Prime Minister Antonis Samaras survives on an extremely small parliamentary majority. There are now rumors of early elections.
The possibility of a good showing by the left-wing Syriza Party, likely to quarrel with Brussels on all issues related to the (demonized) EU-imposed austerity, creates fears of political instability, on top of extreme economic and financial weakness. Hence the (feeble) attempts by the EU to reassure the markets.
Well, good luck with that. The truth is that after years of extraordinary interventions (the Greek financial crisis started in October 2009) and many near death experiences, Greece is not out of the woods. This is not just a minor relapse. This is serious. As the rest of Eurozone seems to have caught a bad cold, it appears that Greece has got pneumonia.
More bailouts for Athens?