A World of Problems
Europe is facing a banking crisis, a reappearance of Greece’s financial crisis, and a crisis in Syria. Hold on to your hats. From The Zman at theburningplatform.com:
Back when the Germans were threatening to shut down Greece and sell it off for parts, it was fairly obvious that there was no way to “fix” the Greek problem. Even it were possible to radically overhaul their public sector, the debt payments are too high to maintain the level of social services expected from a modern social democracy. Default was unthinkable because close to 80 percent of Greece’s public debt is owned by public institutions, primarily the EU governments and the ECB.
The “solution” was to kick the can down the road until a miracle happened, but now the problem is back.
ATHENS—Greece’s economic recovery is proving elusive, challenging the forecasts of the country’s government and foreign creditors still counting on growth reviving this year.
The International Monetary Fund said last week that the economy is stagnating, in the first admission from creditors that Greece’s recovery is off track again. Growth will only restart next year, the head of the IMF’s team in Greece said on a conference call with reporters, without offering details.
Of particular concern is that exports, which are supposed to lead Greece out of trouble, are on a slow downward trajectory, hampered by capital controls, taxes and a lack of credit.
“There is no chance we will see a rebound unless we see some bold political decisions that would introduce a more stable business environment,” said Dimitris Tsakonitis, general manager at mining company Grecian Magnesite.
The bailout agreement between Greece and its German-led creditors assumes rapid growth from late 2016 onward, including an official forecast of 2.7% growth in 2017. Private-sector economists believe next year’s growth could be closer to 0.6%.
Weaker growth would undermine the budget, likely leading to fresh arguments with lenders about extra austerity measures.
Greece is still grappling with the measures it has already agreed to. Late on Tuesday the country’s parliament approved pension overhauls and other policy changes that have been delayed for months, holding up bailout funding.
Greek government officials are sticking to their view that the economy is on the cusp of growth. “We are at the turning point at which we can we say with certainty that we are leaving the recession behind us,” Economy Minister George Stathakis told supporters of the ruling left-wing Syriza party Sunday.
The economy will get a push from investors as of the end of the year, when lenders are expected to provide some debt relief and the country qualifies for a European Central Bank bond buyback program, Prime Minister Alexis Tsipras said in an interview with The Wall Street Journal last week.
In other words, the miracle did not happen and the problem is now worse. This comes at a time when Europe’s biggest bank is in very serious trouble.