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The Greek Tragedy of Epic Proportions is just unfolding. The world just saw one of the oldest civilization crumble to financial ruins & virtually plead for Mercy in form of Bailouts from International Monetary & Financial Institutions. The Greek Tragedy is a stark reminder to the whole world about what fiscal prudence & debt management is about. While the world discussed the Greek Tragedy on a Flip Side this saga has marked the rise of Germany lead by its Chancellor Angela Merkel as a force to reckon with in European Union & the world. The Rise of Germany’s as Europe Power house is the untold story of the Greek Tragedy that has skipped most. It has always been Europe’s Dilemma when Germany was weak it tempted Foreign Invasions mostly French & whenever it became united it was strong enough to defeat its neighbors single handedly. In a sense this crisis also speak about a resurgent United Germany under Chancellor Merkel as a powerhouse of EU.
But the moot Question is how Greece Reached to this Dire Situation of a total financial meltdown?. Greece endured an awful occupation under German troops during WWII. This was nothing to the civil war that erupted following the end of the occupation, as communists and government troops tore the country apart. A government victory in 1949 left Greece economically wrecked scarred and politically deeply polarised. These divisions have lingered on with a formal accord over the civil war only reached in the 1980s when many exiled communists returned home.
Greece Entry into EU & Goldman Sachs:
Greece has had a tricky time with its finances. In the 1990s it consistently ran significant budget deficits while using the Drachma. As a result of this economic mismanagement it joined the Euro in 2001, rather than 1999 like many other EU nations. The story of Greece joining EU is another sordid saga marred with controversies of fudging of Greece’s debts by Goldman Sachs to enable it to join EU.
Creative accounting took priority when it came to totting up government debt. Since 1999, the Maastricht rules threaten to slap hefty fines on euro member countries that exceed the budget deficit limit of three percent of gross domestic product. Total government debt mustn’t exceed 60 percent. The Greeks have never managed to stick to the 60 percent debt limit, and they only adhered to the three percent deficit ceiling with the help of blatant balance sheet cosmetics. One time, gigantic military expenditures were left out, and another time billions in hospital debt. After recalculating the figures, the experts at Eurostat consistently came up with the same results: In truth, the deficit each year has been far greater than the three percent limit. In 2009, it exploded to over 12 percent.
Greece’s debt managers agreed a huge deal with the savvy bankers of US investment bank Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period — to be exchanged back into the original currencies at a later date. Such transactions are part of normal government refinancing. But in the Greek case the US bankers devised a special kind of swap with fictional exchange rates. That enabled Greece to receive a far higher sum than the actual euro market value of 10 billion dollars or yen. In that way Goldman Sachs secretly arranged additional credit of up to $1 billion for the Greeks. This credit disguised as a swap didn’t show up in the Greek debt statistics. Eurostat’s reporting rules don’t comprehensively record transactions involving financial derivatives.
At some point Greece will have to pay up for its swap transactions, and that will impact its deficit. The bond maturities range between 10 and 15 years. Goldman Sachs charged a hefty commission for the deal and sold the swaps on to a Greek bank in 2005.
Olympic Drain on Greece:
Another Important Reason that the Greeks were left in Ruins because of the Athens Olympics 2004 that virtually drained out Greek Economy into Further Debt. In 2013, Yannis Stournaras, then finance minister, argued that the Games had broken even. That August, he also said Greece would not need another bailout. Other estimates put the cost of the Athens Games at more than €7 billion, perhaps a lot more. Those figures may include upgrades to hospitals and archaeological sites. They do not include the cost of infrastructure projects such as a new airport, an extended and renovated subway and light rail systems. The Athens Games were so expensive, in part, because the Greeks made such a mess of their preparations. The IOC warned the organizers repeatedly about delays. The late rush to completion escalated the costs. The improved infrastructure is nice but the chief legacy of the Olympic Games is debt for the host. The IOC, on the other hand, reported that it made $985 million from the Athens Games.
The Greek Crash:
This house of cards came tumbling down with the financial crash of 2008. Like many other countries in the EU Greece was seriously affected, but it was unable to climb out of the hole as it had in the past by printing more currency (thus boosting the economy) as the Euro was controlled by the European Central Bank (ECB). Unemployment spiraled to 28 per cent. In 2010, the Troika (ECB, the International Monetary Fund and the European Commission) started handing Greece loans in exchange for spending cuts and tax hikes. This did not go down well in Greece although the economy did pick up. A second later bailout brought the total amount given to Greece roughly £169 billion. From Fudging in Balance Sheets to Over Spending in Athens Olympics to launching Pension & other social security schemes that proved massive drain on already burned out Greek Economy sending it into debt spiral downwards.
The situation despite bailouts from Troika got worse with Greek Debt to GDP Ratio soaring from 21% in 1980 to 100% in the year 2000 to 172% in the year 2015. Greece’s Debt is 320 bn Euros & it already has taken 240 Bn Euro of bailouts from Troika & Creditors with its GDP falling by 25% since 2010 & unemployment rate at a staggering high of 26% owing to austerity cuts conditioned along with the bailouts leading to less wages, jobs & recession.
The bailout program was extended by 6 months in November 2014 till June 2015 pending a negotiation of a new deal. In January 2015, Syriza the Left leaning party in Greece was elected to power that was anti austerity & despised the motives of Troika to impose austerity cuts like Pension Cuts & more taxes as part of the deal that was rejected by Greek PM Alexis Tsipras who called for a referendum on the bailout being offered Troika. Greek Govt instead called foe Debt restructuring & haircut, which the Euro Group hax time & again rejected while its now being acceded too even by the IMF. The Greek Referendum overwhelmingly rejected the Troika Austerity deal by 61% No Vote to 39 % Yes vote amid sharp anti German rhetoric for WWII Debts it owed to Greece. The call for referendum & rhetoric sealed the fate of Greece with banks remaining shut with tight capital controls to save off emergency liquidity provided by the ECB. In meanwhile Greek Finance Minister Yanis Varfoukis resigned amid renewed talks between Greece & the Euro Group leaders. Antagonized by Greek’s snub of a referendum & rhetoric; backed by Public Opinion, German Chancellor Angela Merkel mooted the idea of Temporary Greek Exit out of Euro, which made situation in financially starved Greece more dire. Ultimately Greek Govt left with no choice had to bend & accepted a harsher austerity deal than on offer before the referendum; with a 3rd bailout package of 85 Billion Euros. The IMF has set off a political earthquake in Europe, warning that Greece may need a full moratorium on debt payments for 30 years and perhaps even long-term subsidies to claw its way out of depression. “The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date,” said the IMF in a confidential report. Greek public debt will spiral to 200pc of GDP over the next two years, compared to 177pc in an earlier report on debt sustainability issued just two weeks ago.
The terms of Greece bailout secured are: Greece’s parliament must approve the deal and legislate Troika diktats into law with Tsipras’ signature by July 15. Monetization of Greek assets in hands of EU to generate 50 Bn euros of which 25 Bn will be used for repayment of recapitalization of banks & other assets & 50% of remaining 25 bn will be used to decrease debt GDP ratio while remaining 50% will be used for Investments. Higher regressive VAT taxes hitting millions of impoverished Greeks hardest along with broadening the tax base affecting ordinary people most. Stiff pension cuts (on top of 40% eliminated earlier) including for poor retirees cut no slack. Adopting a Code of Civil Procedure to streamline procedures and reduce costs – in other words, continued stiff budget cuts harming millions of Greeks already suffering hugely from earlier imposed austerity. Giving foreign investors freer access Greece’s economy. Privatizing power generation and transmission along with other state enterprises previously off-limits. Neutralizing labor rights ahead of eliminating them altogether – including restricting collective bargaining and right to strike as well as eliminating hiring and firing restrictions.
Bottom line: Athens has entirely surrendered to Troika. Greater than ever austerity imposed, hitting millions of impoverished/unemployed Greeks hardest, including poor pensioners to receive less than their already meager payments. Already Greek Unions have called for a Strike against Harsh deal with some speculating that Greece is heading for snap polls sooner than later. To conclude it’s a perfect Greek Tragedy with a Civilization gone to financial ruins.