Last night history was made. Greece pushed the biggest restructuring in history managing to lift over €100bn off the shoulders of its people and its future generations. The PSI -Private Sector Involvement- has been a vital prerequisite to Greece’s second €130bn rescue package.
Here is a snapshot. Participation in the PSI was 85%. Since it exceeded the 75% threshold, the Greek government can (and probably will) trigger the CACs (Collective Action Clauses) reaching a staggering 95.7% participation (remaining 4.3% refers to non-Greek law bonds). Given a 53.5% of debt write-off on this €206bn privately held Greek debt, this translates into €110bn of debt unloading. Whichever way one looks at it, this is simply extraordinary.
But one also needs to look at the big picture. Today, Greek public debt stands at around 160% of GDP. The PSI along with the second rescue package aim at bringing it down to 120% by 2020. Now, this target is extremely sensitive to two main variables – GDP growth and debt/rescue packages, so don’t be surprised if the Troika revises its estimates upwards or downwards over the next years.
In reality, the PSI and the two bail-out funds, bought Greece extra time to materialize all the essential reforms this country so much needs to jump-start its economy. Remember that in Greece’s case, the first step to growth is to attract investments. Given the circumstances, there is no driver to boost private consumption as there is neither government money nor enough household savings (at least within Greece!). Foreign direct investment is the Alpha and the Omega to this puzzle. Greece needs to think and do big, now.
Now we have the time to do as promised. Make our country and economy investment friendly. Privatize under-performing state-owned firms, tackle bureaucracy and encourage entrepreneurship, open up closed professions that keep prices artificially high, but most importantly, change our mentality, think collectively, think long-term, think business-FRIENDLY. The ball is in our court now.
It’s been more than a year since Greece signed the notorious EU-IMF €110 bln aid package in an attempt to deter the country’s economic default. Today, Greece faces even greater challenges, domestic and external. This week’s cabinet reshuffling aimed at unifying the ruling party to make it able to pass new highly anti-populist austerity measures, necessary for disciplining its ‘home economics’. Reshuffling is obviously not the solution to the problem. It’s just a tactic to shift public aggravation towards new political faces, earn some time, and maximise the likelihood of staying in power.
This time last year, I was one of those people who believed that in a year’s time, things would be on a positive course. I was deeply mistaken. I even read recently from a highly-respected source that CIA fears a potential coup d’etat in Greece. I am sure some people in Greece wouldn’t mind such a twist of events. Greek politics are the source and the outcome of Greece’s today’s ‘tabescence’. The idea of a universal government with an independent Prime Minister seemed like a good idea. However, egos, individualism, thirst for power and lack of vision prevailed once more.
I find it hard not to comment on the talks being made about offering a new ‘rescue’ package estimated around €120 bln. A package I am highly confident was already in the minds of the people who offered the first one. Now, if you add this to the €110 bln you get a total of Greece’s GDP. In other words, the country is if not for sale, then definitely for a long rent. The idea of that is simply sad.
The truth to the matter is that no reshuffling, no new government, no massive protests can change the faith of the Greek economy. Mr. Sarkozy and Chancellor A. Merkel are those two that will decide Greece’s future. All that Greece and its people can do is live with the idea that this country is and will be for the next five to ten years under strict financial occupation. In the meantime, deregulating the energy industry, opening up the closed professions, investing in tourism and services and reforming education are all of paramount importance for its economy to become attractive to investors and eventually bounce back. The resources are there, the determination is yet to be seen.
‘Kalimera’, ‘Kalispera’. As a concerned Greek yet global citizen, I enjoy keeping up with global news especially from the worlds of politics and economics. In times of extreme uncertainty I find it challenging to try and shape an opinion on major events. My motives for running this blog are rather ... Continue reading →