Village of Oia on Santorini in Greece. Source: Big Stock Photo
June 2, 2010
More bad news
Manufacturing contracts even faster in May
Reuters reports:
"Greece's manufacturing industry weakened further in May, with output, orders and employment contracting at a faster pace, indicating that the country's recession is deepening as austerity measures bite."
For more on the poor outlook, read Alen Mattich's short piece at WSJ on how eurozone policy will inadvertently push Greece from recession into depression.
Greece issuing new bonds
Associated Press at Bloomberg covers the story that Papandreou's government is about to issue new bonds to cover the $4.86 billion euro bonds coming due in July. Another infusion of IMF/eurozone bailout money is not due until mid-September.
"[finance minister] George Papaconstantinou says Greece has short-term debt issues expiring and due for renewal in July. "We will be there in the market for these" treasury bills, he said, according to a transcript of an interview released Tuesday.
...Unable to borrow directly from international markets because of high interest rates, Greece avoided bankruptcy last month with the first installment of a euro110 billion rescue package from the European Union and the International Monetary Fund."
In the campaign to rebuild confidence in the Greek future, as far as defaulting on existing and the new debts the Papandreou government is creating, Nick Skrekas at the Dow Jones Newswire via WSJ:
"Papaconstantinou insisted there was no question of an exit from the euro zone, or of the budget deficit not being reduced on time.
The Minister said that Greece will likely test the international debt markets next month, probably with a short-term Treasury bill auctions "and the issue will be the yield that emerges in these fragile and volatile markets."
"The Greek government can absolutely be relied on, and debt restructuring or default is absolutely unthinkable, because it would have such serious ramifications for citizens and would lead the country into decades of recession," the finance minister add."
Forbes: Government employee unions bar the path out of the Greek mess
Thomas F. Cooley at Forbes gives a simple summary of the history of the Greek money crisis and looks into a dark future of massive contraction for the Greek state:
"Greece's economy has been hugely uncompetitive and burdened by a bloated public sector that accounts for 40% of GDP. The projected fiscal deficit at the end of 2009 was 12.7% of GDP, and its outstanding debt is 124.9% of GDP. About 80% of the debt is external, meaning it is held by non-residents. Interest payments on the debt account for nearly 40% of the projected fiscal deficit--nearly all money that will flow out of the country.
Greece is notable for its tax evasion, lack of transparency and large inefficient bureaucracy. Its pension system encourages early retirement with generous benefits.
... The E.U. stretched its rules to allow Greece to join the currency union in 2001, a year before euro notes and coins went into circulation. Greece had every incentive to make it work. The stable currency meant low inflation and low interest rates for most of the euro's first decade. There was a very strong incentive to compete in the eurozone and instill fiscal discipline. Instead Greek politicians used it as a reason to borrow, creating a mess they won't easily escape.
... They can't afford to have the level of tax evasion they now have; they can't afford the bloated public sector; they can't afford their pension system. That will have to change. The logic of improving the efficiency of their labor markets is inescapable. Whether they have the political will to do what is needed is another matter entirely. They have been beset by a series of nationwide strikes led by government employee unions since the austerity measures were announced."
Austerity measures not producing results yet; vow to not leave eurozone
Nick Skrekas at the Wall Street Journal details the June 1 press conference with finance minister George Papaconstantinou:
"So far, the IMF and EU are requiring the socialist government to cut pensions and public-sector wages, as well as raise the value-added and excise taxes. But the revenue-raising measures don't seem to be producing the anticipated results as the economy slips further into recession, with GDP expected to contract 4% in 2010.
"In Greece we have a lot of tax evasion, and we hope to capture some of this to help our revenue raising efforts," the finance minister explained.
"We will restructure tax collection and auditing services to put them in a modern framework, and we expect to collect a good deal, if not all, of back taxes owed," said Papaconstantinou.
The minister stressed that Greece had lost its credibility, limiting its policy options. As a result, the government was forced to take a raft of bitter and unpopular austerity measures, "because we were on the brink of bankruptcy."
Greece's Golden Visa program
