The Greek Dilemma
The Greek Dilemma
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Greece has recently received another bit of help. The ECB participation in the debt restructuring is providing yet another incentive for accepting the tough but necessary conditions requested by the Troika. This, added with the private sector haircut should be sufficient to push Greece toward an agreement. Yet Greece faces a a big dilemma: this higher level of austerity, that will require a 20% cut of minimum wages and lower pensions, comes with a high social price tag that close to the elections is not an easy choice.
But what is the other option? A default will probably carry even higher social sacrifices for Greece. As such I feel that Greece will have to accept the lesser of two evils and accept to implement the tough but needed reforms requested by the Troika.
Markets seems to have already priced in an approval of the deal.
How much Austerity is too much ?
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But austerity too has some limits. On one side it can precipitate Greece and other European economies in a even deeper recession and, on the other, it can fuel a greater social unrest. So unless austerity is combined to pro-growth initiatives the problem will not go again by itself and the long term debt reduction will not occur. So while a deal with Greece might occur as early as this week the problem it is far from over. While austerity is in some situations the very much needed medicine, it others it can simply worsen the already recessionary Economy to an even deeper recession that will require an even higher price to pay from citizens and, potentially, fuel even further social unrest. So a question comes to mind: Is default really a much worse option ?
Bullish markets thanks to the ECB
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Despite the various uncertainties markets have maintained their bullish sentiment still fueled by the "mission accomplished" liquidity operation of the ECB that has removed the specter of a wide European banking crisis. In an environment where several European countries are still dealing with high unemployment and recession I remain bullish in two sectors: quality undervalued European financials AND European multinationals with Worldwide operation in high growth area and therefore immune to the European low/no growth curse.
Reader Commentary
at 09:48 pm
The greek much austerity that is too much is the big dilemma which required 20% cut of minimum wages and pensions,high social price tag.
Default in these case is a much worse option,because it is not helping any problem at all,but adding to it.
Then ECB may also be invited to greek economy dilemma solution.
at 03:30 pm
Greece is probably going to receive a loan of é130 billion with a salty interest rate , why you consider that as help or bail out etc.??
Greece is obliged to pay back plus interest plus all that austerity in very short time therefore people is suffering economy stagnates etc.
The only thing was not considered to be subject in cuts is the arms programm purchased by Greece from France and Germany.