Andrew Morris, managing director of Signature, considers the underlying political and economic fundamentals delaying proper rescue of Greece.
Greece is facing another crisis. I hadn’t appreciated the last one had been resolved. To put things in context, I would say there has been more crises’ recently witnessed in Greece than managers at Chelsea – somewhat disturbing. Austerity is clearly worsening the situation for Greece, hence the questioning by the IMF of sustainability. The economy has been in recession for over five years now, which at the same time has significantly worsened the country’s debt position as well as decimating confidence, driving a self-fulfilling decline. After all, this is a balance sheet recession and simultaneous private sector deleveraging and public sector austerity can only end badly without external support.
Given the prevailing economic environment and in spite of having had some fairly precarious political moments at times, it is somewhat surprising that the Greek political environment has remained relatively stable and not drifted to the extremes. This latest development undermines both the substantial pain that the Greek population has endured as well as the government’s diminishing goodwill. It is quite clear that the country’s debt position is unsustainable and that some form of restructuring is required. Official European creditor institutions and the IMF hold roughly 70% of the country’s outstanding debt and therefore will be in the firing line for this.
If we are being honest, if Greece was part of Latin America, it would have imploded a long time ago. EU politics are clearly at play here. The pending rescue funds will defer rather than cure the problem and the widespread belief that the country is bust will continue to stifle investment and any chance of recovery. The German election next year complicates matters further and should official creditors yield to debt relief then, the German government will be in the unenviable position of explaining this to its electorate. Unfortunately, this means that the negotiations are influenced more by political considerations than the underlying economic facts. The sad fact is that had they done this at the start, the overall cost would probably have been far less.