As you have probably heard, the Greek parliament, if you can still call it that, has passed the austerity bill. Overnight Athens has erupted in protest with a reported 80,000 people on the streets and up to 30 buildings on fire.
All of KKE, Syriza and Democratic Left members voted no, as well as 21 New Democracy members and 13 Pasok members. Laos members also voted No with their leader absent. All but one Democratic Alliance members voted Yes.
The political fallout is in full swing as I type, with Antonis Samaras expelling 21 members from his party and George Papandreou doing the same. 43 members in total have been removed.
What a complete mess.
What makes the situation completely surreal are the numbers. Greek debt in 2008 was approximately 260bn Euro. The first bailout was 110bn, the current one, that appears to be tearing the country apart, is 130bn. Add in the PSI+ haircut of approximately 100bn ( after sweetener deduction ) and you realized that Europe could have simply paid the entire bill in 2008 and saved itself 80bn Euro. Ok, that is an oversimplification of the problem but you can see my point.
However now, after 340bn Euros, Greece is still has an unmanageable debt, is in a far worse position than it was 3 years ago and it appears the country itself is coming apart at the seams.
So basically the Greek politicians and the other Eurocrats took a quarter of a billion euro problem and turned it into a existential trillion Euro one. Worst still their refusal to work cooperatively and misguided policies based around “expansionary fiscal contraction” have plunged Greece into a depression which threatens contagion to other weak economies. Yet at this point I can see absolutely no data suggesting the country is in any way more competitive than it was 3 years ago.
That being the case, the idea that all these cuts and bailouts will somehow lead to Greece having a debt to GDP ratio of 120% by 2020 appears as misguided as the initial policies.
So what happens next?
Well there are still a number of hurdles. The EU still has to approve the bailout deal and it is yet to be seen if the country’s political parties can cope with the fall-out given there is supposed to be an election in 2 months.
If we ignore all these problems, along with the fact that the European banking system is shrinking, Portugal suffers from similar problems and Spain is the elephant in the room, then we could see some stability return to financial markets over the next few months. If this does occur then Europe has a window of opportunity to finally implement a permanent and credible solution.
Well, at least until Greece or one of the other periphery suggest the need for another bailout.