Δευτέρα, 6 Φεβρουαρίου 2012

Greece must not sign the troika’s new deal otherwise she will revisit the 1930s with all that entails



Today is yet another day where deadlines for debt and bailout deals for Greece have come and gone with no resolution. It is also a day with a grim historical portent as on this day some 179 years ago a Bavarian was crowned King Otto the first of Greece. He had been brought in to ensure payment of the matter mentioned in Hansard (The UK Parliament’s official record) below.
It was then found that a loan was necessary, and it was determined that the allied Powers should be the guarantees for its repayment.
There are all sorts of historical analogies here. For a start what is it with Germans and other countries Royal Families? And as I am typing this there is another type of Bavarian intervention as her Finance Minister has just announced that Greece won’t be able to avert default. Thank you to Joseph Cotterill for the historical information.
There is something very wrong with the new proposals for Greece
Last night the Greek Prime Minister issued a five point statement and claimed that a deal had been reached on these points with 3 opposition party leaders. This was to achieve this.

an agreement with the troika on the new economic program in Greece that is a prerequisite for new financial support of the country .
The troika is the name for the 3 bodies supervising Greece’s bailout namely the European Commission, the European Central Bank and the International Monetary Fund. But take a look at the proposals.
1) The measures in 2012 to reduce public spending by 1.5% of GDP.
2) Ensuring the sustainability of supplementary pension funds.
3) Dealing with the deficit competitiveness through measures that include adjustments in various areas, such as reducing the wage and non wage labor costs, in order to promote employment and economic activity.
4) the recapitalization of banks with combined resources to ensure the promotion of public interest and business autonomy.
There is an immediate glaring flaw which has run right through the whole Greek “rescue” episode and it is highlighted by the fact that wages will be cut but banks will be recapitalized! Sound familiar? It should as this drumbeat has been going all the way through and is a major reason contributing to the failures so far. Karl Marx would have had some thoughts on the relative treatment of labour and capital that is happening here.
Also exactly how do you “promote public interest and business autonomy?” Aren’t they contradictory aims?
Regular readers will no doubt have spotted that the same failed medicine of public sector austerity is being applied again which so far has led to a shrinking economy which has led to the need for extra austerity and repeat. So let us take a look at the underlying Greek economy to see how it would be impacted by this.
Greece’s economic situation
The Building Industry and Construction
In many economic recoveries we see housing and construction begin to pick up first (often in response to interest-rate reductions) which leads to orders for material and increased employment which helps stimulate the wider economy. Let us take a look for this in this mornings new data.
in October 2011 the total Building Activity (private-public), in the whole country issued in the whole country -amounted to 2,628 . This figure corresponds to 409.3 thousand m2 of surface
and 1,475.7 thousand m3 of volume, reflecting respectively a 34.0 % decrease in the number of building permits, a 52.7 % decrease in surface and a 51.4 % decrease in volume, compared to the month of 2010.
So not only are we not seeing a recovery we have the prospect of a further deterioration! This is because the 3 percentage declines shown above had gone -24.8%, -41.9% and -37.6% for the ten months of 2011 for which we have data. Accordingly the situation worsened in October compared to earlier in the year.
So rather than a recovery we are left with fears that we may be seeing a continued downward slide. As I already thought that Greece was in an economic depression this is looking extremely serious.
Greek trade figures disappoint too
There has been much talk of export-led recoveries around the world in the last couple of years and not a few claims that Greece has been exhibiting something of one. It is true that her deficit has improved but if we break the numbers down we see more worrying developments. Let me illustrate this by giving you her trade deficit for the last three November’s so we go (from 2009) -3.154 billion Euros, -2.246billion Euros and this November -1.108 billion Euros.
Looks good so far doesn’t it? But the problem is that of the 2 billion Euro improvement approximately 75% is from shrinking import levels. So we now see this is part of the reduction is due to economic weakness and not strength. There has been an export improvement but it is only around a quarter of what you might assume from the headline number and even worse it took place in 2009/10 and may now have stopped.
The total value of exports-dispatches, excluding oil products, in November 2011 amounted to 1409,6 million euros (1916,4 million dollars) in comparison with 1465,0 million euros (2007,5 million dollars) in November 2010, recording a drop, in euros, of3,8%
For the year so far exports remain higher and have grown by 10.6% but are they now dipping? I am always cautious about monthly trade figures but these ones do fit with other evidence. Also they may not tell the true story as the 2011 figures do not have numbers for oil products yet. These days if something is excluded from official statistics it rarely turns out to be good.
Do we have something a little more up to date?
Yes we do as we have the purchasing managers index for January 2011 and here it is. 
The headline Purchasing Managers’ Index® (PMI®) – a composite indicator designed to provide a single-figure snapshot of the performance of the manufacturing economy – slipped from December’s 42.0 to a reading of 41.0 in January. Remaining well below the 50.0 no-change mark, the headline index signalled another steep deterioration in operating conditions and extended the current period of contraction to 29 consecutive months.
So the immediate picture looks not only very weak but there are concerns it may be getting worse. Also there were hints of problems for exporting too which back up the trade figures shown above.

New export orders continued to fall in January…….. According to panellists, the fragile economic climate had a negative impact on foreign sales.
What is this on top of?
It is always hard to get up to date figures but Greece has an economy going backwards. If we look at the first quarter of 2009 her GDP was 58.8 billion Euros and in 2011 it was 55.5 billion and this quarter will be lower still unless we see the manipulation of 2010! The European statistics agency Eurostat expects the Greek economy to shrink by 2.8% in 2012 but sadly, I feel that it is likely to be worse than that and maybe much worse.
Comment
So here is my contention. If you put new wage cuts and more public spending austerity on the Greek economy right now you risk making a grim situation even worse. Indeed you would be repeating a supposed medicine that has left the patient weaker. A bit like the old treatment for illnesses of leeching blood from the body as a supposed treatment which in general made the patient weaker and not stronger.
As Greece is already in an economic depression in my opinion, such a move would not only be a mistake it would be tantamount to a criminal act. It seems as though the bond markets are now on the case as on a day of rumour and promises Greece’s one-year bond yield has gone above 500% to 506%!
Should the troika and Greece’s technocratic government try to invoke the measures above then in my view it is time to echo the words of an Englishman from the past.
You have sat too long for any good you have been doing lately… Depart, I say; and let us have done with you. In the name of God, go!
However I am a democrat and would want democracy going forwards as I feel Oliver Cromwell got it wrong with some of his next moves.

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