Photo: Courtesy of Peter Sommer Travel
“We owed it to our children and grandchildren to rid them of the burden of this debt,” said Greek Finance Minister Evangelos Venizelos about the bond swap that had just whacked private sector investors with a 72% loss. But the drumbeat of Greece’s economic horror show continued in its relentless manner.In central Athens, a stunning 29.6% of the businesses ceased operations, up from 24.4% in August; in Piraeus 27.3%, a 10-point jump since March. The whole Attica region lost 25.6% of its businesses. “This worsening of the survival index in the commercial sector … shows that resistance is waning,” said Vasilis Korkidis, president of the National Confederation of Hellenic Commerce. And fourth quarter GDP was revised down to -7.5% on an annual basis. The Greek economy has shrunk about 20% since 2008.
Unemployment is veering toward disaster: 21% in December, announced Thursday, was horrid enough. But youth unemployment rose to a shocking 51.1%, double the rate before the crisis. A record 1,033,507 people were unemployed, up 41% over prior year. Only 3,899,319 people had jobs—a mere 36.1% of a total population of 10.8 million!
No economy can service a gargantuan mountain of debt when only 36.1% of its people contribute (by comparison, the US employment population ratio is 58.6%, down from 64.7% in 2000). Hence, another bout of red ink. The “cash deficit” at the end of 2011 hit €24.9 billion, 11.5% of GDP, far above the general budget deficit. Government-owned enterprises, such as the public healthcare sector, couldn’t pay their bills. Total owed their suppliers: €5.73 billion.
Yet, forcing down the deficit is one of the many conditions that the bailout Troika of EU, ECB, and IMF have imposed on Greece. And: “If the Greek people or the Greek political elite do not apply all of these conditions, they exclude themselves from the Eurozone,” said Luxembourg’s Finance Minister Luc Frieden. All of these conditions. Then he added the crucial words: “The impact on other countries now will be less important than a year ago.” Read…. Firewalls In Place, Markets ready: Greece Can Go To Heck.
Under pressure to cut its healthcare budget, the government reduced the prices that the industry can charge state-owned insurers. So wholesalers are selling their limited supply outside Greece, while out-of-money state-owned insurers delay payments to pharmacies and hospitals, which then can’t pay their wholesalers for the medications they do get. Wholesalers turn off the spigot. And the system locks up.
Even Health Minister Andreas Loverdos conceded that there were shortages, but that they were limited to lower-priced medications. Of the 500 most common drugs, 243 have disappeared from the shelves, including antibiotics. The Panhellenic Association of Women with Breast Cancer, for example, received many complaints from patients who claim they weren’t treated due to lack of oncology drugs. And the world’s largest pharmaceutical companies are worried that Greece might not be able to pay them at all.
A bright spot: tourism. In 2011, receipts rose by 9.5% over prior year as the Arab Spring scared tourists away from destinations such as Egypt and Tunisia. In October, receipts jumped 15%. Alas, in December they declined 4.9%. That reversal has now infected 2012. Tourist arrivals so far this year are down 10.7% in Athens and 6.7% for the country. Greece’s last growth industry has hit the skids.
With unemployment climbing, production and consumption tanking, businesses shutting down, and tourism nose-diving, there is only one way for tax revenues: down. Budget deficits will be worse than promised. Greece’s debt—now largely to taxpayers of other countries—will continue to balloon. The standard of living of the vast majority of Greeks will get slammed, though the elite that are negotiating these deals will do just fine.
“We still don’t have a solution for Greece, so there will be a harder default to come,” predicted Charles Wyplosz, director of the Geneva-based International centre for Money and Banking Studies. Yet, in a bitter irony, Germany—the country where tax dodging is a national sport—decided to send 160 employees of its Ministry of Finance to Athens to fix the tax collection system. For that whole debacle that will endear the already reviled Germans even more to the Greeks, and for just how long a tax dodger can abuse the courts, read…. Final Bout of Spastic Greco-Teutonic Wrestling.
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