WASHINGTON – News reports from Athens indicate that the Greeks are feeling much better these days. Since the recent elections that brought the far left, anti-austerity Syriza party into power the mood has improved. People look more confident. The coalition government enjoys sky-high popularity, 70% in some polls.
All is well in Athens
It would appear that to most Greeks the “We shall not pay you” approach embraced by Prime Minister Alexis Tsipras regarding Greece’s catastrophic debt looks proper, realistic and reasonable.
And there is more. The new Greek government now stated that it intends to collect war reparations from Germany on account of its brutal military occupation of Greece during WWII. (Never mind that the whole issue of war reparations from Germany had been settled a long time ago).
We are rich!
So, here we go. All of a sudden, a miracle! Greece is doing well. It will not pay its debts to Europe, at least not all of them, and not according to a schedule agreed upon by the previous Greek government (that obviously was not looking after the best interest of the suffering people). And now it stands to get a fat financial settlement check from the Germans. What do you know. How fast things can change. From debtor to creditor, overnight!
Look, to some extent I understand that the Greeks may want to cling to childish fantasies. But I hope they wake up soon. Improvident Greece will not get out of trouble only because it elected a populist Prime Minister who promised during the campaign that he knows how to fix this gigantic debt issue.
Just like before?
Hoping to get some relief here and there from the much maligned creditors troika (EU, ECB, and IMF) is one thing. But the Greeks now seem to really believe that austerity has been abolished by their vote. They seem to believe that by electing a new government their debt somehow vanished. Therefore, the civil servants who lost their jobs because of budget cuts will get them back soon. People will retire early, with full benefits, just like they used to. All entitlements will be restored, and all will be well.
As I said, we can all be excused for engaging at times in wishful thinking. For sure, all of us would like to imagine that unpleasant troubles we are facing will miraculously vanish. But this Greek collective denial seems to have pathological proportions.
Greece is bankrupt
On its own, Greece is totally bankrupt. Its debt is now 175% of GDP. Unemployment is at 25%. Youth unemployment is at 50%. The economy is weak. The country’s very economic and financial survival today, and for many years to come, will be tied to the good will of its European creditors. (The total EU credit is $ 210 billion of the $ 340 billion Greece owes now). The notion that after having taken all the money from Brussels (EU) and Frankfurt (ECB) the Greeks now have the option of not paying back, without any consequences, is ludicrous.
But this seems to be thinking in Athens. After all, the new Prime Minister was elected on the basis of his campaign promises to fix all this. Therefore, the Greeks expect him to negotiate a good (and certainly painless) solution with the European creditors.
I suspect that this euphoria will not last long. The EU partners may be willing to extend terms and relax some conditions. May be. But they are not going to forgive this massive debt. And I believe that even the option of forgiving some of it is out of the question.
The impact of a Greek default
That said, the prospect of a Greek default, very real now, is not at all pleasant. The portion of the Greek debt engineered via the Eurozone bailout mechanism is $ 210 billion. Germany is on the hook for 27% of that. And that is $ 57 billion. France’s share is $ 42 billion. And Italy would have to absorb a loss of $ 37 billion.
If Greece goes bankrupt, staying within the Eurozone or after a messy exit, these EU countries have lost their money. Germany may be able to absorb the blow. But shaky France? And almost equally indebted Italy? I am not so sure.