We are not picking on Greece today but in the shadow of Lagarde's (and Thomsen's) comments on how shiny everything is in Greece but risks remain, we thought this anecdote-and-analysis discussion between RGE's Megan Greene and CMC's Michael Hewson was so timely as a follow-up to our previous discussion in December [4]. From her experience in a coffee-less and book-less cafe/bookstore in Athens to a succinct perspective on debt sustainability, competitive issues, elections, and implementing structural reforms, the discussion is a quick-and-dirty way to grasp that it's all about the politics and less about the economics. Greece has a reputation for having done nothing since the initial bailout but that is not true - it has undergone quite dramatic fiscal adjustments. But critically Green points out the much more important 'change that the Greeks can believe in' is the structural reforms - and unfortunately there really has been very little progress. Simply put, until Greece sees a whole new political class (who are not inherently captured and self-dealing) that are capable of implementing the kind of structural reforms necessary to improve Greek competitiveness, Greece will never reach sustainability. This leads to her conclusion (spoiler alert) that what it will take (given that all political parties are at the heart of it the same in Greece from Euro adoption and product ad labor reform perspective) is for Greece to exit the Euro. Quite unapologetically, Megan notes the political 'spring' in the youth that is building in sound and fury and feels that this new political class will not succeed until Greece has hit rock-bottom - though this could take a while as mindsets shift from Euro-friendly to Austerity-unfriendly with perhaps post German elections in 2013 as a catalyst with an amicable divorce.
After the first 7:30 ,focused on Greece, they go on to discuss the LTRO strengths and weaknesses - well worth staying on for...
and at around 10:00 she discusses the Spanish elephant in the room (and the Italian political instability over the next year)...