The premise of the whole Greek bailout exercise has rested on its economy improving. So far, it has not: Since the country’s first bailout last spring, unemployment has risen sharply and GDP ground to a halt.
So after a year of bailout roulette, the head of Pimco, the world’s largest bond fund, said Sunday what many are now thinking: Why keep lending money to Greece if default is inevitable?
“Every indicator has unfortunately worsened, despite the incredible quantity of financial assistance,” Mohammed El-Erian said an interview with Italy’s Corriere della Sera.
“All of this has terrible human consequences and it’s associated with a transfer of liabilities from private creditors to European taxpayers. Why? Very little is being done to deal with the excess of public debt, and the conditions for higher growth are not being put in place.”
In the very short term, the lines have been written: Thanks to Prime Minister George Papandreou’s cabinet reshuffling, the Greek parliament should pass next week the latest round of austerity measures called for by bailout overseers. Greece will then get another top-up of billions of Euros to avoid a default.
After that, things get murky. It is not as if Greeks have grown more comfortable with austerity. The Guardian published Sunday an excellent account of Greece’s “Angry Ones”, snagging the following quote from a school teacher:
“After 15 years’ service, I’m only on €1,200 (£1,056) a month,” she says. “I didn’t see any boom; I simply paid my taxes and now I am being punished.”
On the other side of the trenches, banks are now “being asked to take voluntary measures of debt forgiveness” to help stave off default. That idea too is flawed: “asking” someone to do something “voluntarily” sounds a lot like coercion. And ratings agencies have said anything that smacks of coercion could amount to default.
If neither Greek citizens nor the banks blink, it will again come down to voters in other European countries — mainly Germany and France — to decide whether to keep the Greek bailout exercise going. At that point, the Eurozone will have reached its breaking point.
