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The Greek haircut and the skin-headed Euro-zone The Greek haircut and the skin-headed Euro-zone
by Thanos Kalamidas
2011-10-28 07:41:34
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The last twenty-four hours the euro-zone leaders reached one more – major according to them – plan to manage the euro-zone crisis and I’m sorry if one more time I might sound cynic but this “one more time” somehow holds me back. The crisis is not new and I’m afraid despite all said hasn’t reached its peak yet still the European leaders seem for “one more time” incapable to reach a solution but too ready for “one more time” an experimental alternative to manage the problem. But managing you doesn’t solve the problem, you just postpone the trouble and that’s exactly what they have done.

And even for the ones who gloat this minute that the Greek “haircut” and strengthening the European Banking Authority is the solution, the answer is that it is just a solution under the circumstances. Actually it is the procrastination of any kind of decision that might had let to a solution. And I’m not an economist - I have made that clear many times in the past – but obviously the euro-zone leadership incapable to find economic solutions escaped to marketing to cover the problem.

I wrote “under the circumstances” because the whole thing is based under the idea that the global economic environment will not change for the next twenty years and Greece will be able to come out of the storm not – be careful in this “not” – without any debt but with controllable debt. But looking back only in the last two years it is at least ironic talking about stable global economic environment for the next twenty years. After all who would ever expect the devaluation of the American economy ten years ago? Nobody can guarantee that nothing will change in the next two months and fine this minute they have dealt with the Greek drama but what will happen if the Italian operetta starts? And if they were worrying for the ripples the Greek crisis might bring into the European economy what is going to happen if the Italian tsunami hits the European industrial world since Italy is one of the three most industrial powers in Europe? And we have already stopped mentioning Spain, Portugal and Ireland.

As far the marketing turn of the euro-zone the best discover the euro-leadership brought after ten hours of meetings was the word “haircut.” There are pro and con with the “haircut.” Actually there is only one pro for Greece in the 50% “haircut”, if everything goes well and nothing major happens for the next twenty years, Greece has the chance for a restart in the sense that the country has the time to reform and leave behind mistakes of the past. But again everything depends on the circumstances which make the whole thing a very dangerous haircut and the pro can easily turn into a con.

This minute most think that the Greek debt has been “shaved” – to use the contemporary terminology – 50% but then it would have been called cut and not “haircut.” Haircut because what really happened was that they extended by 50% the repayment day believing – hoping, praying, I’m not sure what word would have suitable this minute – that Greece with strict and very tough economic policy will manage to recover and return to a radical growth that will lead to repayments and the same time national elevation. But this is all the cons start. Apart from the fact that these things will work if the global economic environment will stay reasonable stable for the next twenty years Greece will not stop borrowing money to repay. On the contrary trying to relive a bit its citizens after the inhuman measures the state was forced to take they will have to borrow money soon to help the people most likely increasing the amount of the debt again hoping that will boost productivity, money circulation and commerce to reach some kind of growth. And the recovery after the repeated shocks will not come overnight; it will probably take over two years before this will actually reach the people and another two years before the people can actually trust the state and its effects. And this is really long time – this is where it really goes well – under the circumstances! Concluding the whole thing is an accounting trick with a hip marketing name!

In the meantime nothing will change for the Greek people, on the contrary more measures might come and austerity will be the reality for long time with the devaluation of their life, unemployment keep rising and poverty becoming a class of its own moving the Athenian democracy to a roman plutocracy where gold is power and if you don’t have any you are doomed.  And that makes itself a lot of cons!

And I’m sorry if I won’t spare any tears for the banks that have started tearing their cloths the last hours but things are not exactly as their marketing represent them. Their going to take a part of the hit but in what form. Despite rumours the banks don’t print money, most of time they have to borrow money from institutions or other banks especially when it comes to led to states. So for example a bank borrows 10 million Euros with interest 1.5% and payback 11 years period to led to Greece the same money with interest 7% with payback period 10 years. Just make the calculations to see where the profit lays and how big it is. Now with the haircut all the loans the bank took to led Greece they have the same payback day but the time they will get their money from Greece has extended by another 5 years minimizing their profit from the interest since the capital and some profit remains the same. But as I said there is no reason to feel sorry for them, in their case to apply a “haircut” to their creditors will be easier since their relationship is two-ways serving both sides and partners always help partners.

And talking about partners I remembered the case of a partner state that is going to take a small blow with the Greek “haircut”. Since payment day will not change since that state even though tried to pay it banker is not in partnership relationship with its creditors and payment day remains the same and in long term the haircut might extent far beyond the profit that oddly was even included in the state’s future budget. I suppose names are not necessary Jutta, but by now you know what short of short-sighting and opportunistic politicans brought Greece in this situation.

As far the industrialists, the European industries and the banks don't worry for them either. For the next few years everyday more Greek companies will follow the long way for the bankruptcy without this minimizing the needs of the people for goods and services and this is where the banks – yes the very same ones who cry for their loses this minute – the industries and the companies from Germany and France will go to Greece to cover the gap. That’s the dream that scared Berlusconi last week and he said to his partners to keep their hands short when it comes to Italy!

And now we are all waiting if this new idea will have any effect crossing fingers that the market will react positively and this reaction will last more than the weekend before we start again looking for the next major solution “one more time” which will serve the situation under the circumstances “one more time” remembering that the Greek haircut was only a few tens of billion Euros the Italian haircut will leave all Europe skinhead!


         
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