Economic expansions are created by credit being unveiled upon the economy; the reverse happens when a recession is experienced. Not to drone on, but the Greek bailout deal provides further credit tightening for Greece, which will result in a deepening economic crisis for the nation. Case in point; thousands of Greeks will have to return earnings received for work as the austerity measures for the bailout call for a reduction in salaries rolled back to November 2011, and the newly imposed salaries are far lower than before, constituting an owing to the government. Can you believe such a farce? Imagine hearing that you must pay back salaries earned, because you earned too much previously based on a newly imposed agreement today, or that you must work for a period of time for nothing to make up the difference.
An economy also needs the private sector to invest in its products and services to generate growth. As the private sector (mainly overseas) has taken a massive haircut in the valuation of its bond debt instruments with Greece, it’s highly unlikely to provide support in the coming months and years, beyond what has occurred in the bail-out package that provides nothing to stimulate the Greek economy. Meanwhile, the thrust of the austerity measures imposed to get the bailout package risks hampering the growth necessary so it can pay its debt obligations in the future. It’s a chicken and the egg situation.
So, it is a dire mess for Greece and a welcome result for the EU and euro, both of which will remain intact for the time being, at the expense of 12 million Greek citizens. If it was me, I would be out of Greece yesterday and applying for citizenship elsewhere, because it will only get worse for that tiny nation with a great history, a lousy present and a darker future.
The EU has dodged a bullet this time, thanks to some private sector lender participants willing to forgo debt repayment and accept lower interest rates and longer maturities on the debt, but in some order Portugal, Ireland, Austria, Belgium, Spain and Italy will be at the same bargaining table for their hand-outs, which will probably not happen, because their national plights are just too big to handle. At this point, it is a changing of the guard as many economic strongholds of Europe are being replaced by Eastern cousins, such as China, Russia, Singapore, Vietnam and India.