Sometimes it seems like the whole world is holding its breath. That is about where we are at right now in financial circles.

The major currency and debt markets are hushed in tension as they await the outcome of the standoff between the IMF, ECU Central Bank, Germany, the Greek government and the population of Greece itself – who do not necessarily agree with their politicians but have little choice in what they do from here.

The Greek Debt promblem put into perspective

In amongst all of this, i thought it would be of interest to put it all into perspective because there has been so very little on offer in mainstream reports or even from expert analysis.

Firstly, let’s make my position on this clear – i think that the Greek government should have defaulted on the external debt some time ago. It would have made everything very clear, and the EU would have been forced to act like a political body with at least some semblance of a brain. The austerity measures being imposed in return for the handouts of cash from the powers-that-be are almost guaranteed to take away Greece’s ability to repay its debts or to gain traction against the huge outstanding balance. i also think that the powers-that-be are pointing their tut-tut fingers at Greece from behind very thinly glassed houses. It’s almost as though the whole kindergarten has decided that from now on every little thing that happens will be blamed on the little kid that has been misbehaving the most this term.

OK. Let’s look at the facts.

Here is a link to the Financial Standard website, where a fellow by the name of Benjamin Ong has put together the history of Greece and its financial position since it was granted entry to the European Community. You can see that the financials of Greece have been an issue since day 1.

Here is a link to the Das Spiegel International website, which has a huge array of information on the unfolding drama.

 This particular article link shows just how much money Greece needs to sort out its problems in the next few years. You will notice that Greece requires 27.6 billion euros to rollover its bonds due to mature this year. The figure for next year is 33.7 billion and for 2013 it is 30.7 billion. There are all large figures but pale into insignificance when measured against what was put into place during the depths of the Global Financial Crisis.

This article also suggests that the largest impediment to a full backstop position is Germany. It seems the population feels that the Greek population has been bad and needs to be punished for its deeds. The suggestion of a German historian is that the German goverment had best be careful that some old bogies of the past aren’t resurrected by a desperate Greek government because if they were then the dollars involved would be very considerable indeed. However, to my mind that is a bit low – trawling up the past at this point in time – and only likely to result in a tit-for-tat argument that resolves nothing.

The German Perspective

A cynic could look at this as all being in Germany’s favour, and here’s why…

Here is Wikipedia’s information on the German economy. Notice the size of Gross Domestic Product (GDP) – around $3.303 trillion dollars in 2010. As one of the world’s biggest exporting nations (exports make up around 1/3rd of national output), anything that increases the €1.146 trillion of exports must surely be seen as a good thing? Germany’s exports have increased back to pre-GFC levels, which suggests that the economy has been massively supported by a range of factors – one of which is a competitive currency. The Euro has dropped significantly in value because of the debt crisis precipitated by Greece (and contributed to by Ireland, Portugal and Spain) and Germany has been the major beneficiary of that.

Greece has a total economy of around $330 billion US dollars and under the same measure, Germany is around the $3,048 billion level. The rise in exports for Germanycan be measured in the hundreds of billions of dollars. This doesn’t mean that they should have to share any of it but it does put into perspective the level to which a competitive Euro has benefitted the German economy.

The initial bailout in 2010 involved Germany coming up with $28bn. The latest package talks of far larger numbers but the dollar figures being put forward by the various partners are naturally smaller figures, and only due when conditions are met.

In fact, if you work through all the garbage surrounding the issue, you will find that all that is being asked for here, is what was promised last year. It is just another INSTALMENT in what has already been agreed to.  The arguments and turmoil are all about the politics.

The Greek Perspective

Greece has managed $20bn of ‘austerity measures’. That is a very large saving. It is certainly a lot more than Australia has achieved (remember, our ‘savings’ are a pledge to keep increases low…!) and has resulted in a massive shock to the Greek economy. The original package proposed back in March 2010 is tabled here.

The newer austerity measures are higher again. All of these cutbacks are being implemented in an environment of reduced access to credit, high unemployment (over 14%!) and higher taxes. It is hard to see how the citizens of Greece will rebuild their economy to the point where they can pay any of this money back.

Of course, all of this will cause social unrest, protest and could easily lead to a fall of government, at which stage a new government could step in and refuse to follow the already agreed-to measures. We know it can happen because that is exactly what happened in Ireland. Anarchists have had a strong hand in Greece ever since they were the few to openly protest against previous oppressive dictatorships, and conditions such as those in play now can bring extremists of all varieties out of the woodwork.

Alternatives

There are alternatives. The folk holding the Greek bonds bought them knowing the conditions in the country, and many hedge fund managers bought them on the assumption that the high interest rates (which are supposed to reflect an appropriate reward for risk) would be made better again because the EU wouldn’t let the capital go unpaid. In other words, many of these characters are out and out speculators, seeking to get it both ways. If you buy a soveriegn bond at 16% yield then you are accepting a large risk of default. If you refuse to participate in a restructuring then perhaps the Greek government – or the EU with the Greek government – should force the creditors to accept amended terms, as occured with the Dubai debt crisis.

Of course, the unspoken point here is that Greece is not really the problem – it is the flow on or ‘contagion’ effect that occurs when investors stop buying other EU sovereign bonds out of fear of possible default. This would mean that Portugal, Ireland, Spain and Italy could all have trouble repaying their debts.

Given how obvious the issues are, you’ve got to wonder at the inability of the EU leadership. How have they managed to allow last years problem to reoccur as this years problem? If fear of contagion is the main point, why not just sort out Greece’s problems in one very large hit and show that the second largest economic bloc in the world is actually capable of doing something.

Politics and Indecision

It’s a bit like the Monty Python scene where the Jerusalem terrorists are holding a meeting to decide on when they will hold a meeting to work out what agenda should apply to any subsequent meeting at which a motion is to be passed, and hopefully seconded, so that something can actually happen.

Except this time, nobody is laughing. They’re holding their breath instead.