Greece will default, but not this year
By Wolfgang Münchau
Published: April 4 2010 19:14 | Last updated: April 4 2010 19:14
I am willing to risk two predictions. The first is that Greece will not default this year. The second is that Greece will default. The Greek government has demonstrated that it can still borrow at a rate of about 6 per cent but if you do the maths on the public debt dynamics, as I did recently, it would be hard to arrive at any other scenario than an eventual default.
Meu pitaco: concordo. Vai quebrar mesmo. Os efeitos do pacote de ajuda Europeu foram nulos,pois Grécia continua tendo que pagar taxas bem elevadas para rolar sua dívida o que só piora o problema..
The adjustment effort needed to prevent a debt explosion is extremely large. The Nordic countries achieved
adjustment on a similar scale during the 1980s and 1990s, but they had two advantages over Greece. They did it in a different global environment; but more crucially they were, in part, able to devalue and improve their competitiveness. As a member of a large monetary union Greece can improve its competitiveness only through relative disinflation against the eurozone average, which in effect means through deflation. But as the French economist Jacques Delpla* has pointed out, this will invariably produce a debt-deflation dynamic in the Greek private sector of the kind described by the economist Irving Fisher during the 1930s.
Meu pitaco: o ajuste fiscal necessário por lá é tão violento que irá reduzir demanda interna de forma dramática, aumentando desemprego e derrubando consumo. Logo, haverá uma deflação, isto é, os preços internos e salários irão cair!! Porém com juros elevados como estão e com o aperto na oferta de crédito que isto causa, deverá levar aum calote gigantesco nos Bancos Gregos e a queda ainda maior da arrecadação.
So Greece will not only have to make an extremely large public sector deficit reduction effort but it will also have todo this under a condition of disinflation, and possibly deflation, which would push its nominal growth rate to
negative levels during the adjustment period. That, in turn, would jeopardise the debt reduction programme of boththe public and private sectors. Under those circumstances, there is no way that Greece could ever stabilise its debt-to-gross domestic product ratio, no matter how hard the government of George Papandreou tries.
Meu pitaco: não há como reduzir endividamento público num cenário de deflação!!
To get out of this mess, one of five things will have to happen. The first, and most optimistic, solution would be a
significant fall in the euro’s exchange rate, say to parity with the US dollar, coupled with a strong recovery in the
eurozone. This might just do the trick to sustain Greek growth as it adjusts.
Meu pitaco: se euro se desvalorizar uns 20 % ou 30% aí há alguma chance de sair desta….. Isto somado com uma recuperação forte na Europa poderia tirar Grécia do abismo. Porém, ECB teria que deixar inflação na Alemanha subir muito, pois o choque cambial iria fazer com que preços na Alemanha ( que ja está com economia bem aquecida) disparasse…
The second is that Greece gets accessto low interest rate loans from the European Union and the International Monetary Fund.
meu pitaco: de fato se europeus começarem a subsidiar juro cobrado da GRécia poderia haver uma chance pequena…Porém, os alemães não estão dispostos a fazer isto..
The third would be aprivate sector debt restructuring to prevent a Fisher-style debt-deflation dynamic.
meu pitaco: uma esticada ( alongamento) de prazos na dívida pública pode ser uma saída com redução de juros, porém imagine o estrago que isto causaria nos Bancos Gregos…. e quem iria coordernar isto???
The fourth is that Greece leavesthe eurozone.
Meu pitaco: se grécia sair da Eurozone seria equivalente ao curralito Argentino: quem tiver papel grego denominado em euros teria agora uma papel de um páis ex euro agora em dracmas… E a Grécia seria devastada com uma hiperinflação boliviana
The fifth is default.
If you go through the options one by one, you realise that the first is improbable.The EU has in effect ruled out the second. The third would require an unlikely additional bail-out of the European banks. While option four would be most convenient for the Germans, the Greeks are not so stupid as to leave the eurozone. That leaves them with option five: to default inside the eurozone.
It is the only option that is consistent with what we know.
But it would throw the eurozone into a potentially terminal crisis. Spain and Portugal have problems of a different
kind but of a similar dimension. Spain will have to go through a disinflation/deflation period that will produce a
formidable private sector debt-deflation spiral. Without devaluation, or the possibility of a sustained fiscal boost, the Spanish depression could last forever, or at least for as long as the country stays in the monetary union. Portugal, like Greece, suffers from a combined public and private sector debt problem.
Meu pitaco: se Grécia der calote, imagine a pressão emcima de Portugal,Hungria, Espanha, ein?? Ia ser duro eles segurarem o tranco…Lembra da quebra da Lehman??
When a country such as Greece pays 300 basis points over the yield of a supposed risk-free bond, this means,
mathematically, that investors see a probability of around 17 per cent that they will lose 17 per cent of their
investment. So in other words, a spread of 300 basis points is a valuation in which default is still considered
improbable. If those perceptions changed from improbable to, say, moderately probable, the yield spreads betweensouthern European countries and Germany would explode.
For the time being, Greece can get by because of its excellent debt management, which is why I am confident that
Greece is not going to need an immediate bail-out. But given the political economy of the EU, this might turn out tobe a disadvantage. Europe’s complacent leaders will only step in if a crisis is both imminent and visible. The really treacherous aspect about the Greek crisis is that the country’s liquidity position is better than its solvency position.
Insolvency is a gradual, invisible process. The negative effects of debt-deflation dynamics have not yet begun, butwill become inevitable as the Greek public and private sectors go through a simultaneous debt reduction process. In such an environment my assumption of a 2 per cent rate of nominal growth might be far too optimistic. And even with such an unrealistically optimistic assumption, default would be hard to avoid.
There have only ever been two intellectually honest views about economic and monetary union. The first is that itcould not work, as it would eventually produce a situation in which a country’s national interest conflicts with theinterest of the monetary union at large. The second is that it could work, but only for as long as member states are ready to co-ordinate economic policy in the short run, and move towards a minimally sufficient fiscal union in thelong run. The message from the EU, and from Germany in particular, is that the latter has now been ruled out.
A crise vai levar ao default da Greçia e provavelmente a problemas sérios em Portugal e Espanha. Duro comprar EURO NUMA HORA DESTA!
ps: vamos torcer para que eu esteja errado…. pois um calote de um país poderia abortar todo esta tendência de melhora que temos visto. A boa notícia é que Grécia já equacionou sua rolagem de dívidas dos próximos meses… e que dados fiscais do primeiro trimestre prometem ser bons ! Logo, teremos algum tempo.
*Il est urgent de lutter contre la déflation par la dette en Europe du Sud,
www.lesechos.fr
munchau@eurointelligence.com
More columns at www.ft.com/wolfgangmunchau
