Greek saga

For quite some time now, the situation around Greece has kept world markets in a state of constant tension. This tension rises and falls. And now, over the past three weeks, we have been observing another increase in this tension, and it seems that right now this process is inexorably approaching its peak.

The most unpleasant thing in this situation is that, in addition to the purely economic aspects of this problem, the political component is becoming more and more clearly visible. It all started last summer, when it became clear that the Greek economy had completely collapsed. At that time, many analysts and economists saw Greece’s default as a standard economic plan for getting out of the current situation. However, upon closer examination of the issue, one very unpleasant detail became clear. Greece did not have its own national currency and, accordingly, its own emission cent. At this moment, the question arose about the need for the Greeks to leave the euro zone, return to the national currency of the drachma and, by devaluing it, achieve the desired result in which the economy would begin its path to recovery. This is where the political component of the current crisis first emerged.

German Chancellor Angela Merkel and French President Nicolas Sarkozy, after consulting with each other, came to the conclusion that the return of the Greeks to the national currency would cast doubt on the prestige of the “United Europe” project, which was still considered successful. At the same time, the reputation and political career of Merkel and Sarkozy themselves will suffer. But elections are just ahead of them. They considered it absolutely impossible to allow this to happen and decided to save Greece by any means available. As a justification for this decision, they cited the fact that there was no mechanism for leaving the euro zone, prescribed in the fundamental European documents. It was then that Frau Merkel said: “Exiting the eurozone is in principle not possible and will not be considered.”

It was after this that a series of emergency EU summits began to save Greece and bring Europe out of the debt crisis. Plans began to be proposed to cut spending, increase taxes and allocate more and more funds to support the Greek economy. However, the Greek economy, being absolutely not competitive, did not want to fit into the forecast framework. Economic indicators deteriorated, yields on debt securities rose, and as a result, Greece’s rating was downgraded by rating agencies to “junk,” which effectively deprived the country of the ability to independently borrow on the international debt market.

The latest decisive step on the part of the EU was the decision to “voluntarily” write off 50% of Greece’s debts by private investors. The Greeks and private investors had to agree on this before the new year. However, life makes its own adjustments. An agreement has not yet been reached, and the economic situation dictates the objective need to write off not 50, but as much as 70 percent of the debt. In addition, the savings program adopted by the Greeks under pressure from the troika of creditors turned out to be ineffective and required urgent revision. The troika informed the Greek government about this.

What do creditors now demand from Greece? And all the same, even more tightening of belts, which the Greeks themselves do not call anything other than “a noose around the neck of the people.” Among the main requirements:

- medical costs must be reduced from 1.9% of GDP to 1.5% of GDP;

- the minimum wage should be reduced by 20%;

- 150,000 public sector employees (employees of state enterprises) should be laid off;

- 15,000 people in the public sector (government employees) must be laid off;

- reduction of the funded part of pensions by 15%;

- compensation for employees upon dismissal is reduced from six to three salaries;

- the sale of Greek state assets should be carried out in the first half of 2012.

Naturally, the Greeks themselves do not like this way of putting the question. Yesterday, a 24-hour general strike ended in the country. Government officials and employees of private companies took to the streets. Strikes carried out by individual trade unions have become commonplace. Not a day goes by without someone going on strike.

The Greek government and parliament are faced with a difficult choice. Either they accept and approve all the new demands of creditors and receive the next package of financial assistance in the amount of 130 billion euros, or they do not accept and then the country will face the inevitability of default in March. The problem can be formulated differently as follows: either the risk of a massive explosion of popular discontent, or default. What to choose in this situation? The approaching elections to the Greek parliament are also exerting pressure. In this whole situation, you also need to save face in front of your voters. Yesterday, Greek Prime Minister Lucas Papadimos held difficult seven-hour negotiations with the leaders of the parties represented in parliament. In a tweet at the end of the consultations, he wrote that “all basic issues regarding the debt agreement were approved, with the exception of one.” However, such information can be considered as an undoubted failure of the negotiations, since at the request of the creditors the package must be accepted in full. Negotiations continued this morning. One Greek government official said Greece hopes to reach a final agreement on the loan at a Eurogroup meeting today.

Perhaps the Greeks will come to an agreement within parliament and vote to accept the creditors' ultimatum. And then, most likely, the country will receive another portion of assistance. This will certainly cheer up the markets. It remains only to understand how long this joy will last. But here there are very strong doubts. Such large-scale wage cuts and layoffs of workers will entail an inevitable reduction in consumption, and this will lead to a further contraction of the country’s GDP. Lenders are already predicting a contraction in Greece's GDP in 2012 and are setting the task of not allowing it to exceed more than 5%. But the entire previous course of the Greek epic saga indicates that this is unlikely to be achieved. The growing wave of social protests cannot be discounted.

It seems that all these actions by the EU, ECB, creditors and the Greek government are only delaying the worst times for Greece and helping some European political leaders gain additional points in the election race. The further development of the situation around Greece seems quite sad. Most likely, it will not be possible to avoid a default, but this may well happen under the pressure of the aggravation of the internal situation within Greece itself caused by an explosion of discontent and a sharp deterioration in social policy.