Wednesday, February 15, 2012


Greece economy shrank close to 7% in 2011 and it's entering its fifth year of recession.  It's efforts to push through a tough austerity measure may in all likelihood win it a bailout package (second time) from Troika (EU, IMF and ECB); but how this will help the country in the long run is the question.

Unemployment is north of 20% compared to 7.7% in 2008.  With more and more tightening that is being pushed down its throat, in return for a proposed Euro 130 billion package, Greece's GDP is likely to go down a whopping 20-30% over the next few years. Almost one half of Greek below the age of 25 are out of work and many of those who still hold a job have not been paid in months.

Even after Greece parliament has signed off for an harsh package of spending, wage and pension cuts, the troika sent Papademos back to the drawing to board to come up with further cut of 300 million Euros. Euro Zone finance ministers have called off a scheduled meeting and instead holding a tele conference today hopefully to decide the fate of Greece and a bailout package.

It is justified that troika is dragging its feet; Greece failed to implement reforms it promised in exchange for it's first bailout (110 billion Euros) more than a year back - missed targets for reducing budget deficits, still dilly dallying on privatizing state assets,  trimming the staff strength of public sector and such. Greece has done a remarkable job in bringing down primary deficit and private consumption but far from where they have to be!

Chief Economist at citigroup has coined a term Grexit (Greece exit) and they see a 50% probability of Greece exiting the Eurozone in the next 18 months. It could well be the best for Greece.  However, does Greece have the luxury to opt out? International lenders will withdraw aid and financial system would collapse.  It probably makes more economic sense for Greece to continue to swallow bitter medicine and bear painful side effects; which is precisely what the political leaders are opting for.  

However how long will Greeks put up with rising unemployment, negative output and increasing homelessness? That ultimately would decide Grexit and how quick!

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