A Greek on the bankruptcy of the two countries would prefer to austerity. A fault on the entire Greek debt may however have dramatic consequences for the population. Unless you are organized within the framework of European solidarity. A poster of German Chancellor Angela Merkel and the IMF director Christine Lagarde pinned to the Greek Parliament during a protest against austerity in Athens, February 12, 2012.
According to the government, the Greek parliament chose Sunday to accept the austerity imposed by its creditors in order to avoid bankruptcy and stay in the euro area, after a parliamentary vote in favor of a draconian austerity program. The vote Monday was hailed by EU leaders. European Commissioner for Economic Affairs Olli Rehn, this is "a crucial advance". "We expressly welcome" the vote "demonstrates the willingness of Greece to undertake difficult reforms," responded his side the German chancellery. Markets also liked. The main European stock markets ended higher Monday moderate – Paris gained 0.34%, 0.68% Frankfurt and London 0.91%.
The relief of markets and European partners in contrast to the violence of the demonstrations that greeted the vote in Greece's plan. Neoclassical buildings ravaged by fire, windows broken: according to official counts, 45 buildings were totally or partially damaged on the night of Sunday to Monday. The Ministry of Health has reported 54 people injured and 68 police wounded in its ranks. The law passed by the House includes indeed Greek for a particularly painful for the population (further cuts in wages and pensions and a new wave of job cuts in the public service) to save 3.3 billion euros in 2012 .
This vote is a first step towards providing loans of 130 billion euros and deletion of part of the country's debt. It avoids bankruptcy which threatened the country while Greece has to repay 14.5 billion euros of debt in March. But it does not solve fundamental problems affecting the Greek economy. The country is moving toward a slow disintegration. In January, the expected tax receipts fell by 7% when they were to increase by 9% according to government forecasts. "Greece is the perfect illustration of the adage" too much tax kills tax "[the Laffer curve, note], believes Jesus Castillo, an economist at Natixis.
Social explosion
For two years, the Greeks are subjected to a drastic course of rigor, consisting primarily of tax increases and lower salaries. Result: the economy atrophies at high speed, she should know in 2012 a fourth consecutive year of recession. The Greek population is impoverished – their standard of living has fallen 50% in two years – and unemployment is over 20%. Above all, they see no crisis: austerity accentuating the recession, the deficit reduction targets are not met and the government is obliged to take further fiscal savings.
Today, Greeks are tired. A poll conducted these days by the institute and published by the RASS news247.gr site notes that 48% of Greeks prefer bankruptcy to austerity against only 38% who agree to pay for the rescue of their country. For Thibault Mercier, economist at BNP Paribas, "bankruptcy of Greece would be terrible for the country is better austerity, admittedly painful, and the pursuit of fiscal adjustment in return for funding from the EU and the IMF." Who says bankruptcy, said failure on the entire government debt. In doing so, the country would no longer have to pay interest charges and his government deficit would be lowered by 6 points.
But there would still be three point deficit to finance (6 billion). A default would result in further losses for banks Greek equivalent to 200% of their equity. In other words, they would go bankrupt and would need to be recapitalized to the tune of 60 billion euros. But Mercier said Thibault, "nobody wants to lend money to Greece, nor Europe, let alone the markets." The only solution for the country would be to leave the euro area, restore the drachma, to devalue sharply and to print more money to finance the government and banks. With consequent high inflation and a dramatic decline in the purchasing power of households – Greece imports more than it exports.
Organize bankruptcy
Should we then continue on its current path, that is to say, lending money to Greece in return for ever more severe austerity? "No, because Greece is insolvent and lend him more money is useless," said Jesus Castillo. It would take a reduction of 110 percentage points of GDP of the entire public debt of the country to restore its fiscal solvency, against 40 points for entering planned in the European rescue plan. It would also reduce by 25% for rebalancing demand within the trade balance. It's impossible.
"A cancellation of almost all Greek debt, the equivalent of bankruptcy, is the only solution, says economist of Natixis. But it must be done in a cooperative situation at European level." In other words, the country would remain in the euro area and its partners would lend him enough to recapitalize its banks and invest in its economy to restore its competitiveness and, ultimately, permanent improvement of its growth. The default solution is a political choice that European leaders do not seem to be willing to do. Because it could set a precedent and lead to a contagion effect to other countries in the euro area. Otherwise, it is feared that the Greek crisis continues much longer do.