Natixis Asset Management’s Philippe Waechter argues Greeks and their creditors must both make hard decisions

For Antonis Samaras, the Greek prime minister, the recent trip to Berlin and Paris has not changed the picture.

The Greek economy has made important efforts to improve its situation and Samaras expected that to fulfill the Greek government commitment he could have a two year delay from Germany and France.

In fact he had the usual ambiguous answer from Berlin and Paris. They said that they want Greece to stay inside the Euro Zone but that it is necessary for the Greeks to fulfill their commitments without delay.

This situation is a nightmare.

On the one hand Greek Government has to reduce expenditures and increase taxes to try to converge to public finance equilibrium. Currently this leads to recession as this reduces the final demand to companies. To measure the effort made by Greeks, keep in mind that in 2009 the Greek primary deficit was at 10.6% of GDP and that in 2011 it was just 2.4%. It’s better than most of other European countries. In 2012 there are no large discrepancies to this trend.

To be more precise, public sector wage is set to be down by 23% this year relative to 2009. There are similar figures on spending on social benefits or on investment expenditure. That’s why after a new commitment to save €11.5bn Samaras asked for a two year delay.

With a low primary imbalance, public deficit will for the most part be interests paid on public debt. This debt is detained mainly by European governments and institutions. It’s a kind of recycling.

On the other hand, the probability of a Greek exit from the Euro area is still high. There are a lot of comments on the lack of progress (read above on primary deficit) on the fact that the Euro area would be manageable with an exit (contagion would be manageable), and that in fact a Greece exit could be needed for the Euro area to survive.

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