June 24th, 2011
07:26 PM GMT
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The Troika trying to manage Greece’s path to normality – the European Union, European Central Bank and the International Monetary Fund – struck an upbeat tone as they broke out from meetings in Brussels Friday, but the reality is one of long lasting pain for the Hellenes with little progress after a five year austerity plan.

The Troika and the Greek Prime Minister George Papandreou are now at least singing from the same hymn sheet and the numbers look like this in the final package: $40 billion in higher taxes and cuts in spending until 2015. Privatisations have been put down to raise $72 billion and at late night Thursday the new Greek finance minister, Evangelos Venizelos, closed a $5 billion budget short fall with a final burst of tax increases and spending cuts. Final tally now: $117 billion.

The President of the European Commission, Jose Manuel Barroso said: “We have once again shown that we find agreement when agreement is needed,” adding, “we did this with an openness and frankness that I have not seen before.”

Some would take an entirely different view. Eighteen months ago the European debt storm was just beginning to take shape and Greece was the first in its path. I remember quite vividly Prime Minister Papandreou’s appearance in Davos at the end of January 2010. I think he was surprised that international bankers were expressing concerns around the small, but now instrumental test case for the euro. His counterparts in Brussels, Frankfurt and Paris should have shared the same level of concerns as the Davos private sector elite.

Back then, interest rates on the Greek 10 year bond were close to five percent. Today they hover at just below 17 percent. What is shaping up to be a Greek tragedy is the level of long term debt that the country and its people will still be left with after all the reforms, taxes and spending cuts are done. Long term debt this year is expected to peak at 157 percent of gross domestic product. Finance officials in Athens say that number will dip to only 140 percent by 2015. That is tragic considering what the Greek people will go through.

Many current and past leaders, especially northern Europeans, express a common refrain, that austerity is the only way out for Greece and that an economy cannot function with public sector workers making three times that of their counterparts in the private sector.

As the saying goes, hindsight is always 20-20. Prime Minister Papandreou’s predecessor Kostas Karamanlis ignored over-runs after the 2004 Olympics and chose not to pursue reforms, when low interests and low inflation would have made that job much easier. As many top flight economists noted, the Greeks lived off German monetary policy for the first decade of the euro and they are paying a heavy price now and probably will continue to do so for a generation.

The German Chancellor Angela Merkel put on a brave face after the meetings concluded saying, “It was a good message that Greece met with the Troika, the European Commission, the ECB and the IMF, and that they agreed on its contributions. We have agreed that there will be a new program for Greece.”

The new program, many believe, will be just as large as the first, some $160 billion. It provided a moment of relief in financial markets that a common ground has been found, but it won’t alleviate what brought Greece to the brink of collapse, it mounting level of debt.

soundoff (19 Responses)
  1. PJ

    Greece should sell Mt. Olympus to Disney. That would bring capital and tourists.

    June 24, 2011 at 10:10 pm |
  2. Paul Johnston, PhD Economics

    Greek politicians lied their way into the Euro zone with the help of Goldman Sachs and U.S. and European Bankers in a blatant conspiracy. They hid the extent of Greece’s financial mess before being admitted and then bought time by issuing bonds that they had no idea about how they would ever pay back. They gave government employees huge pension and health benefit packages that could never have afforded before the bond issuance. They collect less then 15% of the taxes they should. Egregious tax cheating in Greece is a way of life with no consequences. They simply don't function with the same work ethics and financial ethics as the rest of the Eurozone. Whatever EU, IMF funds are given them will not work, but only continue to be stolen, mismanaged, wasted and lost down the drain. Why do you think there are 100s of thousands of Greek citizens in the streets protesting their political leadership?

    June 25, 2011 at 5:50 am |
  3. Anthony

    More keynesian economics for ya! I do not know how to long it will take people to realize that keynesian economics is the worst economic system ever invented.

    June 25, 2011 at 5:49 pm |
  4. GARY

    Next week there will be people in Greece injured in the riots, some may
    Even get killed because the control freaks in the IMF and ECB are trying to enslave
    The people of Greece, 75%+ of the Greek’s want out, and in the end
    People power will win anyway, better 2 year’s of pain, then a never ending
    Mountain of debt and enslavement to a bunch of control freaks. the ordinary people of Greece didn’t ask for, or deserve this, it’s the corrupt politicians that brought this about, and they will gladly vote for the bailout, so they can sit around doing nothing whilst drawing there large salaries, while the ordinary people of Greece (most of which are honest and hard working) suffer the consequences. Yes it’s a catch 22 but look at Poland, the painkillers will work quicker, this indecisiveness will only prolong and inflict more pain, on the people that least deserve it.
    Looking across the eurozone periphery as a whole, the total for the US is €193bn and the UK is €74bn. Core European banks’ indirect exposure stands at only at €35bn. So the majority of the [insurance] guaranteeing periphery debt appears to have been underwritten by UK and US banks.”
    Financial institutions typically insure against falling bond prices by taking out a credit default swap (CDS). The difference between a traditional insurance policy and a CDS is that anyone can purchase one, even those who have no direct interest in the loan being repaid. That means speculators, such as hedge funds, can use them to bet on defaults. Credit analysts estimate around €240 billion ($340 billion) of Greek debt will have to be written off.

    June 26, 2011 at 1:54 pm |
  5. bananarepublic07

    If the Greek government does not get its sh-t together, Greece will collapse broke and divided. This is what happens when a country lives beyond its means based on cheap credit, false political and social expectations, lies, and lots of corruption. Cheap socialism does not work! It´s clear that Greece is not alone in this: banks and friendly governments will also feel the sting of so much irresponsibility. Popular uprisings will not help in this case, for what the Greek public economy needs to do is to shrink in size while the private sector is reactivated and grows pari passu through privatizations. Even if the government were to fall, salvation from more stringent measures would be nowhere in sight and the Greeks would pay a high price for their lack of discipline. In general, the PIIGS´ economies need to be disciplined by the harsh economic realities facing the world today. It is against this background that the role of the IMF needs to be enhanced so that Greece complies with agreed to structural conditionality, thus qualifying to receive pari passu timely disbursements of agreed to financial aid

    June 26, 2011 at 2:01 pm |
  6. JapoUs

    Greece shuld sell whole country in open market with all resources and population . China , India, may be takers.Once declared as slaves they cannot strike.

    June 26, 2011 at 3:06 pm |
  7. German Violante Treviño

    I do not know if this is the place to put my commentary . But this is the only place that I have found in CNN. I saw in the past days a comment about Youngstown, Ohio where I made my Internship (I am a MD). I was sorry to know That the hospital iI was is closed. And the commentary I wish to delivery you is this YOU, AND YOU ALONE ARE PUTTING THE ROPE TO THE NECK ( as we said in Mexico) BECAUSE YOU ARE SENDING ALL DE HANDCRAFT TO OVERSEAS.

    June 26, 2011 at 6:16 pm |
  8. Gregor Mirt

    I know some good proverb.It goes like that Graeca fides, nulla fides. Translation: "No one trusts a Greek (Greek honesty is no honesty)". If EU continues to help Greece, then in the end EU will fall. Simple as that .

    June 26, 2011 at 10:03 pm |
  9. CraigNL

    More momey will be given to Greece. Taxpayers money. Why? To stabilize Banks. Once that has happened, the debt will be scratched because Greece will never be able to pay it. It is a very clever way to ripp the taxpayers again to save banks. You have to be blind not to see that.

    June 26, 2011 at 10:39 pm |
  10. yl

    I always don't understand why the french and german keep expanding EURO zone to include poor countries like Greek , competing with US? Come on , got to have a better chose

    June 27, 2011 at 12:41 am |
  11. Mervyn

    Cry FREEDOM!!

    Debt only enslaves and Banks love Debt, Country debt is even better as it enslaves a whole polultion..

    June 27, 2011 at 12:46 am |
  12. ian stevenson

    We should just refer to this whole mess as (PIG) portugal ireland & above all GREECE. I would have thought by now the governing parties of europe would have realised that these lazy olive munching ouzo swilling bums are just waiting for the money then they will have another excuse on why they cannot pay back said loans. They couldnt care less if they collapse Europe or not, I personally cannot understand all this greed & selfishness.

    June 27, 2011 at 4:34 am |
  13. Per Holmlund

    The real test.
    Short term no problem to cover dust with a carpet. But the real problem will come when the business cycle turns down. A global cycle that just now is supported by polinomics – Political Economics. Polinomics with focus on election cycles in countries like US and France. You don´t need a big brain to understand the effect when the budget swamp becomes an economic crisis when the cycle turns down 201X – X , 1, 2 or 3. To avoid a disastrous European domino – PIIGS, I, UK, F, B... – the solution should be to take an immediate cut on the Greece debt with a least 30 percent and to secure the rest. The price for accepting Greece into the € zoon. And the engineering a depreciation of the € with 30 percent plus. Time is not on Europe's side. 2000 stock market crisis, 2007 financial crisis and 201X economic crisis!

    June 28, 2011 at 2:01 pm |
  14. ian stevnson get a life

    Hey Ian seriously get a life you loser....How about Germany pays back debts they owe the greek government from WW2..then we wouldnt be in this situation would we....inbred.

    June 29, 2011 at 12:05 pm |
  15. sam kohen

    Simple solution; Greece should sell of their islands between Crete and Cyprus. They would make a fortune and pay of their debt.

    June 29, 2011 at 12:46 pm |
  16. Georgy

    The Greek government (PASOK) today has signed the death warrant of the Greek people and Greece together. Since the return of Democracy in 1974, Greek politicians and their associates without any reservations looted the country's wealth, gave false accounts to enter the EU and lied to us about the financial status of the country. Now and for years to come we will have to pay for the looted money and suffer from high taxes and cuts in wages with no future for anyone and no hope for prosperity to the country. No hope what so ever for Greece's prosperity.

    June 29, 2011 at 1:14 pm |
  17. Paul

    The Greeks and the rest of Europe will be facing tough days ahead. Here's to hoping everything gets resolved with less bloodshed: http://www.youtube.com/watch?v=1X2bf76wn54

    June 29, 2011 at 3:02 pm |
  18. Mino Geedorgos

    It is indeed a rather tragic moment for Greece and most of all for those that work in the private sector as they are now called to pay for the bloated public sector that has been building up over more than 30 years of absolute political corruption.

    Workers syndicates are equally to blame as the politicians themselves, though they are very much related, since they have followed a simple minded philosophy centered around the concept of simply asking for more every year. An in any business transaction there must be a give and take relationship, but in the case of the syndicates it has been a simple plan of just asking for more every year, in turn the Greek politicians (for obvious reasons) accommodated at least part of the demands each time they were made. After a point the syndicates wizened up with its tactics knowing that the politicians would negotiate a bit, thus they always demanded for allot more and always got something more.

    What is shameful is that the whole country is being judged according to the perceptions our European "partners" have, based on the levels that the public sector has set. Private sector workers in Greece work as much as any in the EU and are paid far less, while the cost of living is as high as in any EU country.

    While Greece has only itself to blame, it must be noted that a substantially large percentage of borrowed funds in essence financed the lenders own economies as the Greeks bought German cars, and subsidized many business to German companies, bought French military aircraft, Dutch Frigates etc etc.

    And now more funds are being loaned to Greece to make sure the previous loans can be paid, same story as before just different product. The worst part of this crisis is that it has given a strong voice to those who had always opposed the European Union as it has now become only too evident that the union's model is one that is tailor made to for the plans of the Strongest economies. And now its time to sell off all assets while the prices are low.

    It seems that it is only a matter of time before bankruptcy hits Greece, Europe is already philosophically bankrupt and as long as there is no centralized government the weaker member states will always be at the mercy of the strong.

    June 29, 2011 at 3:07 pm |
  19. joe

    Remember the Athens Olympics?everybody thought Greece was gone screw up.Well Greece had the best Olympics ever held.Due to that reason I am very optimistic about the future of this nation.Speculations many times may hurt and that's because some George Soros type of investors will speculate on purpose bad matters in order to cause panic and make a quick buck.I am sure Greeks will find a way out of this phenomenon and the whole planet will say the dam GREEKS DID IT AGAIN.

    July 1, 2011 at 10:08 pm |

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