“A harder Default To Come”

Wolf Richter's picture

Wolf Richter   www.testosteronepit.com

“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. While everyone other than the bondholders was applauding, 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%. And 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 Center 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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jwoop66's picture

Shit, I never throw away what few meds I have. 

non_anon's picture

the denuding of western civilization

Marty Rothbard's picture

Inevitably, what is happening in Greece, will happen in the US.  I would reccomend that chronic disease victims like me, start accumulating your medications, and find alternative therapies.  If you can develop a backlog, don't forget to rotate your stock, and take the oldest stuff first.  Try to find herbal, and nutritional remedies.  They are usually cheaper, and some of the herbs, you can grow.  Practice weaning yourself off your meds, while saving them for a rainy day.  Dropping flab, and gaining muscle helps for both type 2 diabetes, and hypertension.  Your health is more valuable than FRNs.   Once the price controls go into force, and they always do, supply will dry up.  You have been warned.

Uchtdorf's picture

I don't have diabetes, but remembered reading this news:

June 24, 2011 (San Diego) -- A very low-calorie diet of 600 calories a day may be able to reverse type 2 diabetes, preliminary research suggests.

Eleven people who had been diagnosed with type 2 diabetes within the past four years slashed their calories for eight weeks, sticking to a diet of liquid diet drinks and non-starchy vegetables.

Three months after going off the diet, seven were free of diabetes.

More here: http://diabetes.webmd.com/news/20110624/very-low-calorie-diet-may-reverse-diabetes


paulbain's picture

Marty Rothbard wrote:

Once the price controls [PC's] go into force, and they always do, supply will dry up.  You have been warned.


Yes! Exactly. Some ZH participants understand this simple fact, but the majority still do NOT get it. And there is another complication: after the PC's are imposed, you will have to buy a substantial portion of your goods (e.g., fuel, food) on the black market (due to the shortages that you mentioned), where the price will be significantly higher than the legal price.

When the PC's are imposed, the sh1t will begin to hit the fan, although not right away.

-- Paul D. Bain


Libertarian777's picture

ZIRP is the most insidious and all-encompassing price control.

disabledvet's picture

odd place the USA. When i think of it my mind wanders to Illinois..."a state with a political capital with a population of 5,000 and it's next major City...Chicago...about 2 million." And when i look at my checking account and it says "i'm out of money" again i realize..."the system is working."

holdbuysell's picture

Leave the Euro. Devalue the Drachma. People will visit to spend their more valuable currencies (e.g. US dollar). The Greece people will work hard (produce) aligned to their advantages, such as tourism.

Tourism will grow.

I expect similarly for other over-consuming countries as well.

Free markets work.

John_Coltrane's picture

Indeed, when I visited Greece in my student days in 1975 the cheap drachma made it the best and most popular tourist destination in Europe along with Italy and Ireland for the same low "standard of living" and great exchange rates.  People in the country were very poor but quite happy.  They even made their own shoes!  When I returned to visit in the 2000s the 'standard of living" didn't seem any better and the people certainly weren't happier being on the Euro.

Its weird that only unproductive socialists seem to think income and assets are the mainstay of happiness. 

mjcOH1's picture

"....The Greece people will work hard (produce) aligned to their advantages, such as tourism...."

bwaaahahaha!   You had me going there for a minute.

lolmao500's picture

Free market is a sin for the banksters and their puppets... it allows fair competition.

q99x2's picture

Those 160 tax collectors are headed straight away to do an inventory on Greece's gold. What else could they be going there for?

the tower's picture

They better send those gold inspectors to NY...

williambanzai7's picture

I have yet to hear anyone explain the business case that allows Greece to return to sustainable growth under the weight of all that debt, competing in a global economy that now has the likes of China under cost pressure.

Every country in the world is trying to lure manufacturing. I don't think tourism is going to do the trick. I suppose they could try to be the first European subsidiary of China Inc.

Chuck Walla's picture

@ Bill Banzai - Obama isn't trying to draw any manufacturing, not really - Hey, is that the plan after all?  The Greecing of America?  In Germany 1924-27, both the Commies and Nazis were trying to use the desperation and misery of the people to get control... Just wondering aloud...

walküre's picture

WB, their base model has 1.5% growth forecasted in 2013!!!! Didn't you read that memo?

Unicorns and Skittles.

pashley1411's picture

If a beach Disneyland is all you have, then a beach Disneyland is going to be what you get.  

Greece is going back to the basics; olive trees, goat herding, and naked wrestling.  

BigDuke6's picture


have a green to even it up.

greece is, and always has been an economic basket case.

due to the population being mainly sexual perverts.


withnmeans's picture

I'm with you Banzai to a point, no, tourism is not the only answer. This problem may take 20 to 30 years, however it can be done. As anybody knows "except for the U.S." you have to import less then you export.

First, they will have to give up the "wants" ipods, ipads, Mercedes, etc..

Second, they will have to rebuild from within, restructure, capitalize on exporting anything and everything, their pricing will be cheap because they are starting at the bottom. They will be happy to get any wage or pension funding now that they have nothing, that makes them cost competitive.

Third, Tourism on a more competitive basis, there are people that still want to travel.

Germany knows this all too well, look how long it took them to repay for their wars. They are a super power in Europe now, and they had nothing. 

Yes, Greece got the proverbial shaft, they should of just said to hell with it, and they still can "and maybe will". Like the saying goes "When your at the bottom there is only one way to go"

AnAnonymous's picture

Waoooo... Piling on US citizen facts.

Germany has been one of the most helped countries in the world.

They had nothing? Sure.

They will be happy to get any wage or pension funding now that they have nothing, that makes them cost competitive.

Sure, sure. Great understanding of Smithian economics. Really. And Smithian economics is at the core of US citizen economics.

Marty Rothbard's picture

If I were running Greece, I'd go off the Euro, legalize brothels, and cannabis shops, and become a mecca for dope tourists.  I'd require that all cannabis be grown in Greece though.  After a few years, I'd introduce a commodity backed currency, probably by the gold that I'd not let the banks have, and eliminate all taxation, save for excise taxes, and import duties.  I wolud cut government employment to about 5% of the peak value, and release all prisoners incarcerated for anything other than violent crimes, and theft of one sort or another.  I would repeal all labor laws, save for the right to sue due to workplace injury.  I would also eliminate all professional liscenture, and institute strict laws regarding fraudulent representations of educational, and trade certifications.  Within ten years Greece would have the fastest growing middle class in Europe, and would be moving into manufacturing.

ZeroPoint's picture

They should move into heroin to give Afghanistan/CIA some competition.


bbq on whitehouse lawn's picture

Thats what Germany did in the 1920's.

IAmNotMark's picture

If I were running Greece, I'd put on a uniform, get really nationalistic, institute compulsary military for all, pick a neighbor country to blame, and attack it. Warfare, baby!  That way the people won't complain.  Well, I'll shoot the complainers.

The difference between your pipedream and mine?  Your's is a libertarian dream and mine is a historical reality.

I do like your's better. 


bbq on whitehouse lawn's picture

Thats what Germany did in the 1930's.


Libertarian777's picture

Germany had a manufacturing base with which to make weapons of war. What the Greeks gonna use? old yogurt and hope their neighbours die of diarrhea

FeralSerf's picture

Greece is a card carrying NATO member.  Americans will come to her defence and provide free weapons if need be.

garcam123's picture

That, Sir, is a great idea.  Only I would add a law that public malfeasance would be punishable by death and destitution of the family.

The Alarmist's picture

Kind of like Amsterdam with better weather ... Gives a new meaning to going for the Olympic Gold.

Wouldn't mind getting a hit of that fine Olympian Gold and a romp with a babe in a rich Corinthian Leather bustier.

Doña K's picture

Talking about Olympics: How about start charging for the flame?

Vigilante's picture

Clearly you don't know Greece...the last Soviet republic.

disabledvet's picture

"do you make concrete?" "yes." "then you have an economy!" ridiculous this whole "Club-euro" thing. The FIRST thing you do is get rid of the money...cuz "then you can have banking and the possibility of a financial system." It really is this simple....

JohnnyBriefcase's picture

And long before any of that actually happened, the central bankers would have taken you out.

Uchtdorf's picture

Exactly. As soon as such a plan would be announced, it would suddenly be discovered that the head of Greece is guilty of suppressing the human rights of its citizens. CNN announcers would report, breathlessly, that diplomatic efforts had failed and our faithful leader had been quoted as saying that, "all options were being considered."

BliptoP3's picture

progressivism is a religion, and the eurocrats are the high priests: only your lack of faith prevents their miracles from working.


Yes We Can. But Lets Not.'s picture

In that case, I'm a committed atheist.

Kobe Beef's picture

Salvation through State Intervention. Amen.

Greenhead's picture

The statist, socialist model has imploded.  Not enough worker bees to support the drones and the honey has run out.  Thatcher said something to the effect that socialism works until you run out of someone else's money.  How much more borrowing can be supported? 

AnAnonymous's picture

Thatcher said something to the effect that socialism works until you run out of someone else's money. How much more borrowing can be supported?


Made me laugh.

What about the US running out of Indian lands to transfer?

Sounds like somebody invented the scheme of running out of other people's wealth before.

But hey, US citizens, everything to avoid self indiction...

FeralSerf's picture

Not to worry!  When they ran out of Indian land, they looked south and, with superior military resources, took half of Mexico, including the gold in California and Nevada.  They're still working that one.

When they run out of that, there's always Canada.  The Canadians don't know shit about how to build a strip mall yet.  There's South America too.

CompassionateFascist's picture

Indians did little or nothing with "their" land, except horse around and shoot arrows at each other. White Anglo-Saxons developed a continent and built a great nation. Just made one mistake: let Zion in, which has now given it all away to you fucking dog-eaters. I hear a distant barking...AnAnonymous' next meal is wandering down the street.

New World Chaos's picture

It was their land and they had the right to do little or nothing with it.  The way we're going, it's looking like they were right.  We pissed away the resources on an empire of blood, fraud and strip malls.  After the collapse, what will we have to show for all our striving?  A land blighted by decaying carcasses of strip malls, to remind the next ten generations that we were a bunch of idiots. 

tickhound's picture

I wonder what the Indians did before that 16th century introduction of the horse?

I guess just walk around and shoot arrows.

Yes We Can. But Lets Not.'s picture

AnAnony, the Indians beat each others brains out over territory. So whitey comes along and beats their brains out for the territory, and that is somehow worse? That is racist thinking.

Chuck Walla's picture

Jeebus, looking back with 20/20 hindsight solves nothing today. Indict away, a meaningless mental masturbation of the mindless.

the tower's picture

Fiat money is based on borrowing, Thatcher knew this better than anyone else... she needed the "socialists" to do the borrowing to save face for her voters. 

It has always been one coin with two sides... but it's still one coin, a fiat coin.

Republican/Democrat, socialist/capitalist.. all the same bullshit.


If you still don't see this then you will never understand...

garcam123's picture

Right Right and Right.

And to add to that, in Amerika the so called representative government we are supposed to have are nothing more than whores at the trough for thier personal enrichment Obama included.

Kobe Beef's picture

Whores? The government is pimping us.

covsire's picture

That's only because we don't actually have capitalism anymore.  It's full on socialism/socialism-lite.  Those are our only choices.  The dichotomy is alive and well when it comes to social issues but in economics you are closer to home.

Neo's picture

There is little difference between socialism and capitalism in practice, except for who gets the loot. Though I believe in Capitalism I can't shake the notion that like the Right/Left debate, it's simply a pretty label on what sounds like a good idea, but an idea that can never be fully realized. Like Socialism, Capitalism has one fatal flaw, man.

The socialist will tell you that socialism has only failed around the world becuase its practioners were doing it wrong.

Is that not what we say about Capitalism today?