Greek Economy Shrinks 40% in year to Nov 2012
Yesterday I was struck by the contents of a paper written November 15th by the eminent Professor Tim Congdon, CBE and John Petley, entitled: ” Greece – Nemesis before Catharsis”.
The authors argue that things in Greece are so bad that the country must leave the Eurozone, restore the drachma and devalue by between 25 and 30%.
I wrote back to Professor Congdon today saying:
“Every Eurozone finance minister should read this. A large amount of recent data is carefully analysed. They show that none of the supposed solutions are helping anyone in Greece. 1/3 of Athenian businesses have closed in the last 3 years, youth unemployment is at 50%, and most worryingly the corporation tax take is down 40% in the year to Oct 2012. These are incredible data.”
The paper makes it crystal clear that Greece’s public sector debts are unrepayable, and that its economy is being quickly destroyed.
The authors refer to the negotiations presently taking place, seemingly centred around whether Eurozone creditors should forgive some Greek debt as well as soften bailout terms agreed only earlier this year:
“These creditors know full well that, when they give the Greek government more money to spend, they are in fact playing a long-term game of cat-and-mouse, with the purpose of that game being to minimize the loss on the loans they have already made.”
It is as if “these creditors” were investors in Bernie Madoff’s $17billion Ponzi scheme. The difference between the two sets of investment is that, being a company or partnership fund structure, the laws of solvency were eventually applied to the Madoff fund and it was shut down.
But in Euroland the judges of solvency are the creditors themselves, or rather officials and politicians representing creditor countries. And these officials have different vested interests from their citizens. They want to keep their highly paid jobs, and their MEPs might struggle in the private sector to replace their €15,000 tax free monthly incomes.
And therefore the Ponzi scheme is not shut down, and different stories are spun as to why this or that bailout tactic will “work”, by which most commentators mean the restoration of economic growth.
In the past 18 months the range of tactics that has been employed to maintain the pretence that sovereign debts can be brought under control, and the dream of growth restored. These tactics have lurched randomly from one or more of the following, with the ‘official’ excuses for the failure of each and/ or my comments in brackets:
- Global ‘troika’ bailouts (not large enough)
- Terms of EFSF support too harsh (softened, but had no effect on the crisis)
- EFSF too small – therefore ESM established (unfunded, struggling to raise funds)
- Maastricht was never enforced properly, so December 2011 a new “International Agreement” exposing Eurozone nations to court proceedings and possible expulsion if they mismanage finances was proposed. (This is not a contract at all, another “agreement to agree “ document. Therefore it was quickly signed by all parties but has had no effect whatsoever.)
- Bailing out insolvent banking systems loads too much debt on the sovereign balance sheet, so direct recapitalisations proposed via a “banking union”. (This will not happen.)
The measures forced upon Greece’s leaders have had one positive effect, the government is starting to balance its budget:
“In August 2012 Greek government expenditure fell below revenue for the first time since January 2010. Indeed, month by month the deficit in 2012 has consistently been coming in lower than in 2011.”
But this effect, though welcome, has no effect on creditor concerns. Bernie Madoff would have willingly agreed to cut his lavish expenses if he had been spared jail and allowed to keep his Ponzi scheme going from a modest management fee.
The Congdon and Petley paper makes it perfectly clear that everybody involved in the present Greek talks knows there will be no growth, just shrinkage in Greece. The longer this continues, the greater the damage being suffered by the economies of the creditor nations. It is in everyone’s interest for Greece to prepare a Plan B, debt default, currency revival, withdrawal from the Eurozone. Everyone that is, except for the officials and politicians living high on this bailout circus hog.
Gordon Kerr is a banker and founder of Cobden Partners, Helping Nations Solve Banking Crises www.cobdenpartners.co.uk
He is also the author of a recent report explaining how bankers are able to falsify reported profits and capital:
Link to this article: : http://www.goldmadesimplenews.com/analysis/greek-economy-shrinks-40-in-year-to-nov-2012-8895/