Greek Bonds Slump As Austerity Backfires, Country Enters "Death Spiral", And The Violent End Game Approaches

Tyler Durden's picture

Those patiently following the Greek Bond-Bund spread to its inevitable conclusion have been fully aware that the plan that Europe is betting its entire future on, is patently flawed: namely that austerity, by its definition does not, and will not work. In fact, instead of bringing stability, austerity will slowly but surely eat away at the economy of whatever country it is instituted in - in some cases slowly, in others, like Greece, very rapidly. Indeed, the Greek spread has now risen to levels last seen during the early May near-revolution in Athens, at well over 800 bps. And for the specific consequences of austerity, Germany's Spiegel has done a terrific summary of what it defines as a "death spiral" for the Mediterranean country: "Stores are closing, tax revenues are falling and unemployment has hit an unbelievable 70 percent in some places. Frustrated workers are threatening to strike back. A mixture of fear, hopelessness and anger is brewing in Greek society." Spiegel quotes a atypical Greek: ""If you take away my family's bread, I'll take you down -- the government needs to know that. And don't call us anarchists if that happens! We're heads of our families and we're desperate." All those who think violent strikes in the PIIGS are a thing of the past, we have news for you. The (pseudo) vacation season is over, and millions of workers are coming back. They may not have money, but they have lots of free time, lots of unemployment, and even more pent up anger. Things are about to get very heated once again, first in Greece, and soon after, everywhere else.

Spiegel summarizes the big picture for those who still don't get it:

The feast of the Assumption of Mary on Aug. 15 is the high point of summer in the Greek Orthodox world. Here in one of the country's many churches, believers pray to the Virgin for mercy, with many of them falling to their knees.

The newspaper Ta Nea has recommended that the Greek government adopt the very same approach -- the country's leaders have to hope that Mary comes up with a miracle to save Greece from a serious crisis, the paper writes. Without divine intervention, the newspaper suggested, it will be a difficult autumn for the Mediterranean state.

This dire prognosis comes even despite Athens' massive efforts to sort out the country's finances. The government's draconian austerity measures have managed to reduce the country's budget deficit by an almost unbelievable 39.7 percent, after previous governments had squandered tax money and falsified statistics for years. The measures have reduced government spending by a total of 10 percent, 4.5 percent more than the EU and International Monetary Fund (IMF) had required.

The problem is that the austerity measures have in the meantime affected every aspect of the country's economy. Purchasing power is dropping, consumption is taking a nosedive and the number of bankruptcies and unemployed are on the rise. The country's gross domestic product shrank by 1.5 percent in the second quarter of this year. Tax revenue, desperately needed in order to consolidate the national finances, has dropped off. A mixture of fear, hopelessness and anger is brewing in Greek society.

The specifics on how the economy is getting skewered:

Unemployment Rates of up to 70 Percent:

There's hardly a worker in the shipbuilding district of Perama who could still manage that. Unemployment in the city hovers between 60 and 70 percent, according to a study conducted by the University of Piraeus. While 77 percent of Greek shipping companies indicate they are satisfied with the quality of work done in Perama, nearly 50 percent still send their ships to be repaired in Turkey, Korea or China. Costs are too high in Greece, they say. The country, they argue, has too much bureaucracy and too many strikes, with labor disputes often delaying delivery times.

Perama is certainly an unusually extreme case. But the shipyards' decline provides a telling example of the Greek economy's increasing inability to compete. Barely any of the country's industries can keep up with international competition in terms of productivity, and experts expect the country's gross domestic product to fall by 4 percent over the course of the entire year. Germany, by way of comparison, is hoping for growth of up to 3 percent.

Sales Figures Dropping Everywhere:

A short jaunt through Athens' shopping streets reveals the scale of the decline. Fully a quarter of the store windows on Stadiou Street bear red signs reading "Enoikiazetai" -- for rent. The National Confederation of Hellenic Commerce (ESEE) calculates that 17 percent of all shops in Athens have had to file for bankruptcy.

Things aren't any better in the smaller towns. Chalkidona was, until just a few years ago, a hub for trucking traffic in the area around Thessaloniki. Two main streets, lined with fast food restaurants and stores catering to truckers, intersect in the small, dismal town. Maria Lialiambidou's house sits directly on the main trucking route. Rent from a pastry shop on the ground floor of the building used to provide her with €350 per month, an amount that helped considerably in supplementing her widow's pension of €320.

A sign on the other side of the street advertises "Sakis' Restaurant." The owner, Sakis, is still hanging on, with customers filling one or two of the restaurant's tables now and then. "There's really no work for me here anymore," says one Albanian employee, who goes by the name Eleni in Greece. "Many others have already gone back to Albania, where it's not any worse than here. We'll see when I have to go too."

A pervasive depression with no way out:

The entire country is in the grip of a depression. Everything seems to be going downhill. The spiral is continuing unabated, and there is no clear way out. The worse part, however, is the fact that hardly anyone still hopes that things will improve one day.

The country's unemployment rate makes this trend particularly clear. In 2009, it was 9.5 percent. This year it may rise to 12.1 percent and economists expect it to reach 14.3 percent in 2011. Those, though, are only the official numbers, which were provided by Angel Gurría, secretary general of the Organisation for Economic Co-operation and Development (OECD). The Greek trade union association GSEE considers those numbers far too optimistic. It considers 20 percent to be a more likely figure for 2011. This would put the unemployment rate as high as it was in 1960, when hundreds of thousands of Greeks were forced to emigrate. Meanwhile, purchasing power has fallen to its 1984 level, according to the GSEE.

And most dangerously, 'Things Are Starting to Simmer'

Menelaos Givalos, a professor of political science at Athens University, has appeared on television, warning viewers that the worst times are still to come. He predicts a large wave of layoffs starting in September, with "extreme social consequences."

"Everything is getting more expensive, I'm hardly earning any money, and then I'm supposed to pay more taxes to help save the country? How is that supposed to work?" asks Nikos Meletis, the shipbuilder. His friends, gathered in a small cafeteria on the pier in Perama, are gradually growing more vocal. They are all unemployed, desperate and angry at the politicians who got them into this mess. There is no sympathy here for any of the political parties and no longer any for the unions either.

"They only organize strikes to serve their own interests!" shouts one man, whose name is Panayiotis Peretridis. "The only thing that interests me anymore is my daily wage. A loaf of bread is my political party. I want to help my country -- give me work and I'll pay taxes! But our honor as first-class skilled workers, as heads of families, as Greeks, is being dragged through the dirt!"

"If you take away my family's bread, I'll take you down -- the government needs to know that," Meletis says. "And don't call us anarchists if that happens! We're heads of our families and we're desperate."

He predicts the situation will only become more heated. "Things are starting to simmer here," he says. "And at some point they're going to explode."

The experiment in saving Europe is coming to a close. Germany had its miracle run as exports surged courtesy of a sub 1.20 Euro, and are now contracting, with the Fed stepping back on the printer gas. And with the imminent resumption of the contraction, the revulsion at having bailed out Greece will return, and with it all the unpleasant xenophobic side effects. Europe needed to buy 3-6 months of breathing room to get its house in order. It got it, but the house is in ever worse place than before. And now it is time for the aftermath of the expiration of the sugar high. European CDS spreads are looking way too cheap all over again. 

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jswede's picture

congratulations on your stock picking.   your original comment makes even less sense now.

"cried wolf"?....  "I'll keep [picking] stocks"...?

Janice's picture

If you ain't got no money, take your broke ass home.

caconhma's picture

The Greek play is very informative since it will provide a preview of event to be taken place here in America.

Conclusion: watch, enjoy, take notes, and be ready to implement it here in America.

equity_momo's picture

You do that. You'll probably experience some very nice paper profits.  

When the repo-man comes round for the car and plasma though dont say you werent warned.

sethstorm's picture

Invest in a lead delivery vehicle and make it the repo's last trip.

Iam_Silverman's picture

"Invest in a lead delivery vehicle and make it the repo's last trip."

I don't understand this reasoning.  Is someone trying to take something that you have already paid in full for?  NO!  It is not yours, so why kill someone doing their job?  Would you also deliver lead to the Sheriffs Department Deputy that usually accompanies the repo man?

I guess that I am unusually sensitive about that kind of thinking since my brother is in that exact line of work.  It would be silly of you to think that they (the repo men) are not also (heavily) armed, with training too.  My brother is also in the reserves and serves in an MP unit.  A special MP unit.

doggings's picture

lol, Greek stocks? good luck with that numpty.

Ethics Gradient's picture

You lot 'junk' too easily. I can't get any amusement from the original comment now it's been junked into oblivion!

Please tell me it was Leo.....

Double down's picture

If those comments does not frighten you then seek help.  This is not about investing.  

septicshock's picture

On that note, I wonder why 20 million people suffering in pakistan doesn't even make headlines.  That country has 100's of nukes and a starving population.  Put two and two together... disaster. 

War is always the biggest motivator for people to rally... simply because of the fear it causes.  All countries on the brink of collapse will have to go to war. 

Greece already gave a glimpse by instituting martial law during their strikes.  I wonder if the next time... they will declare war against well... anyone.. doesn't matter... to distract people from their problems.

Bigger problems will distract people from smaller problems.  Even our own body's physiology is proof.  A bigger wound causing more pain will mask a small wound causing less pain.

JLee2027's picture

All countries on the brink of collapse will have to go to war. 

Plenty of history examples where that happened, and where it didn't happen (Ottoman Empire, Soviet Union, etc).

Thurifer's picture

Free Constantinople! 500 years of occupation is enough!

cougar_w's picture

Let's see would that make it the 5th or the 6th Crusade? I forget how many there were last time around.

jakoye's picture

Apparently this will be number 10. Didn't realize there'd actually been that many.

ghostfaceinvestah's picture

This is what needs to happen, give austerity time to work.

tmosley's picture

Exactly.  This is the bitter medicine that must be taken in order for the economy to reorganize into a form that is productive.  All those who were on the government dole must be tossed out into the street before they can find productive employment elsewhere.

These guys should be glad I'M not the one in charge.  I'd have cut their expenditures by 90%in year one, and I would have done it again in year two.  By year four they would be the most powerful economy in Southern Europe.  

MachoMan's picture

Part of our predicament is the speed of change; too quick, and the world burns.

Does the BP well get capped in the credit winter?  Are all of OUR (yes our) nuclear weapons accounted for in the credit winter?  Does the supply chain remain remotely together in the credit winter?  How does the wealth gap get utilized to fill the power vacuum created by the credit winter?

I suppose the genius in our stupidity is that we're hamstrung as to possible choices...  austerity is our only possible avenue...  and it will be incredibly brutal...  but, we will also do everything in our power to control the demolition and ease the pain.

Don't worry, you'll get your austerity (be careful what you wish for).  It will just be on a longer timeline than you desire.  Patience.

Mark_BC's picture

"austerity is our only possible avenue"

What about currency destruction followed by a barter system and then a new currency?

MachoMan's picture

It's doomed anyway...  but the point is austerity is our only avenue to prolong the inevitable.  We've reached the high point of printing with reckless abandon (maybe one more crazy budget, but I doubt it).  The wolves are howling at the door.

Lucky Guesst's picture

Exactly "exactly"!

I'd say your pretty close on the 90% cut too.

It's just like the school supplies I have been made to buy every year. They were getting ridiculous with the requests. The teachers were treating back to school like Christmas. Suddenly the economy is bad and I get a supply list with just the basics. The kids didn't really need 3 different size boxes of crayons, 4 different kinds of markers and multiple shapes of scissors and glue. Most people just do not have the ethics to spend someone else's money the same way they would spend their own IMO. The government is treating our tax money in the same manner...... extravagant.

Lucky Guesst's picture

So you think my comment is too basic to even be said? Maybe so, but I am surrounded by my children and their friends all day long while I work. The most important job I have is to educate and prepare them to be self reliant, positive additions to this world. I am constantly breaking down the most complex issues into simple examples that they can understand. I don't care how intelligent you think you are. It's not only you, your peers and those you hope to impress that will be voting and making the policies that will affect you.'s picture

"The most important job I have is to educate and prepare them".

U forgot to include calorie counting in this list. just remember your fondness for this activity.  ;-)

Lucky Guesst's picture

Well duh!

They both play sports and I cook dinner so weight isn't an issue for them. Of course my reward for doing things right is that Michelle O. wants to take my tax dollars and put it towards feeding all the starving fat kids. :-P

Why'd u ditch the boobies?'s picture

they are still on my chest. but have come to respect myself, i guess a little more, with

l e s s   i s   m o r e

jakoye's picture

Or maybe kathy was just emphatically agreeing with you. I would just assume the positive until proven otherwise! :)

Ethics Gradient's picture

Ethics? I'm a bit naive so far as they're concerned.

Rick Masters's picture

LOL Tmosley, really? Guess the end of day one of your reign you'd be looking up at the blade of a guillotine. You simply can't do that; it's not reasonable.

Iam_Silverman's picture

"by the end of day one of your reign you'd be looking up at the blade of a guillotine."

I guess he forgot to mention the part about rasing the wages of the military by 25%.  You gotta have friends....

Young's picture

+1, take the pain now or follow Bernanke in fulfilling Einsteins definition of insanity.

MichaelG's picture

+1,776 How do you think the US will deal with the austerity that will be forced upon them? (99% serious question)

jakoye's picture

Not well. Spoiled children never react well to having their toys taken away.

septicshock's picture

"Or they could just default"

Default?  How?  As the EU has already assured everyone when they did their 'stress tests'...  default is just not an option.  

I wonder if the media will even show even a tiny glimpse of the rampage that will hit greece this time.   If you ask the average joe, they never even knew riots happened in greece.

bigkahuna's picture

I have thought open war was going to engulf Greece since the beginning of the year. I am not certain why it has not yet. Perhaps it will, perhaps it will not.

MichaelG's picture

We have the ECB. It's like the Fed, only worse. It has less of mandate. Fewer ideas. Less ingenuity. More porn.

Anyone not convulsed in laughter - see you on the other side. (I hope.)

Phil's picture


I agree.  Seems to me that if the article accurately defines the position on the ground, the default "restructuring" conversation will start in the end of 2010 and be done within a year of that.  

You can bet Spain and Portugal are watching this closely



Ethics Gradient's picture

I don't know how it works.

They have a fake stress test and it's published by everyone.

They talk about default and no-one is interested.

I can't believe there's a conspiracy featuring so many individuals. Going on experience, it's more likely that most of the population cant deal with change. Or it doesn't sell air time.

Iam_Silverman's picture

"I wonder if the media will even show even a tiny glimpse of the rampage that will hit greece this time. "

Not as long as there is real news to report.  How is the Lohan girl doing, oh and that old guy with throat cancer, will he still be starting out the NBC Nightly News?

midtowng's picture

When has it ever worked? Look at the 3rd world. They've done austerity time and time again. Most of them are poorer now than when they first started it.

Arthor Bearing's picture

Bullshit. Do you work for JPMorgan or Goldman? Greece should default immediately, as should the USA, and they should start over without borrowing money.

Edited to add: Austerity is just another word for international banks bleeding a country dry until there's nothing left to steal and leaving a shattered, ruined wreck behind to pick up the pieces. It's like rape except with more victims.

Village Idiot's picture

"Austerity is just another word for international banks bleeding a country dry until there's nothing left to steal and leaving a shattered, ruined wreck behind to pick up the pieces..."


"Freedom is just another word for nothing left to lose,
Nothing don’t mean nothing honey if it ain’t free, now now.
And feeling good was easy, Lord, when he sang the blues,
You know feeling good was good enough for me,
Good enough for me and my Bobby McGee."


Both kind of had the same ring - please move along.'s picture

janis rocked, now it is ani. that babe uses a new guitar with every new song she belts out in a set. kick ass message, but damn she sure holds a guitar with her body mighty mighty fine.

MsCreant's picture

When you default, no one extends you credit, austerity is in the bag any way you go. Me, I like defaulting instead of inflating the currency. More honest and forces good behavior.

RockyRacoon's picture

That assumes that people do the right and logical thing, Missy.  That doesn't happen in politics or rigged banking.

The best line in the entire article:

A loaf of bread is my political party.

jakoye's picture

Reminds me of the Bolshevik mantra "Peace, land, bread".