Monday, February 27, 2012

The {uro crisis, and realities

It has been a long time since we have been hearing of Greece and all. Just when people start to think it is gonna be the end of the day for the Eurozone, suddenly the warcries die and one presumes that a solution has been achieved. This is the kind of sentiment that arose - specially in faraway countries like India- after the big congress of the Eurozone leaders happened a couple of months back. We all heard that David Cameron and Mr. Sarkozy did not shake hands once when they crossed each other and eventually Dave left the meeting without signing the MOUs (well, the treaty is yet to be signed). This sparked speculations about the future of Britain inspite of the Eurozone and the Financial Services industry that thrived in Britain and all. But on the other hand, there was muffled praise at having saved the Eurozone and all and if memory serves right, the markets gained a couple pennies. Then there was the lull and now since the last fortnight, the Greek demons raised their heads yet again. I for one got interested to know the real facts and numbers. So it turned out that there was a principal payment due coming March on the Greek debt and the Eurozone leaders along with the Euro Central Bank(ECB), uncle Sam's IMF and all were fighting yet again to resolve and voila looks like they have again pulled the strings or so they clim. There are proposals of another bail-out fund from the nexus and if the parliaments of the zone ratify it, Greece would get the funds before they need to shelve out the money to its creditors albeit in some Escrow accounts. And on the other side, is the minor issue of the harsh austerity measures that lady Merkel and her team would impose on the Greek sheep (read people really).
But is it such a bad thing this austerity. Thats the whole point of this writeup, I dont know. How am I supposed to know when the greatest of the Economists and political leaders with tonnes of experience and age backing them are everyday mincing words and have not been able to speak coherently. Ofcourse some of them say austerity means less spending and brings down the growth rate and doesnt help in any way. Makes sense. But then hey, my inexperienced mind's common sense says who is stopping you from increasing the GDP. Just produce goods and export them. Oh well, I dont understand how exports work but this doesnt look like too complex. But hey, then one Economist educates that this is the real problem with Greece. They are part of the Eurozone and have a common currency. So the exports happen in Euros and it might be the difficulty they would have. A highly values currency discourages exports we have heard. Anyway this is a base argument and outside the main reasoning. The Economist tells that the real reason for the Greek crisis is something called a balance of payments. He shows how the much professed welfare state is not the reason for the problems by demostrating how Germany, Austria, Belgium and France, closely run by Finland have a higher % of GDP in their public spending by governments. Then he shows how even budget deficit does not account for the issue by depicting how Portugal, Spain and Ireland lag far behind in such deficits to the above mentioned states. Then he goes on toshow how a surplus money and consequent inflation, some kind of an overvaluation of the southern states (this is again noteworthy, all the affected states are generally southern) in the early noughties led to a decreased competitiveness of the now troubled states. But still the policies that are being built are built around the budget deficit and welfare state concerns. So whats the point here really. The simple point is that the more you read into the arguments and facts, the more you are baffled as some of the generally professed and accepted bytes of wisdom when dug deeper, do not comply with good old plain common sense and then you can find some source corroborating your understanding. Consider this.
The latest plan to save Greece is really an exercise in anticipation. The debt sustainability assessment which is drawn for a long term as much as till 2030 is clearly pretty ambitious. If everything goes well which includes a very generous private sector involvement, great political stability within states and among Eurozone, and a multitude of such factors, then by 2030 the Debt-GDP ratio would come down to something like 110%. That assumes a average 50%-70% haircut in principal balance on the bonds to private investors. That it is a highly leveraged curve is a truth and a slight discord in balancing factors may cause it to tumble is a real possibility.
Still, some tabloids may paint the picture as much more rosy and inspire a greater confidence in the situation and its ultimate solvability. Make no mistake, the situation may still be solvable and I hope forthe best. But I also worry for the fact that are elections looming large over the Euro landscape. And my fear is that the current measures of pushing the real scene under the carpet to just buy some time may well be to find the way to the power corridors first. And it makes perfect sense as well. How are you anyway going to solve a problem if you loose your own crown. But I am afraid that the problem may still not be solved even after the current breed of leaders make it to the power chambers again. And then, they would have no incentive in hiding the real grim political-economic situation and all of us, being so accustomed to the sugar coated headlines might find it harshly indigestible to confront those news bytes. But then, it might just be a figment of imagination and we may well and truly reach a solution later in the day. Heres hoping for it.

No comments: