Via Mark J. Grant, author of Out Of The Box,
“The only relevant test of the validity of a hypothesis is comparison of prediction with experience [9]”
-Milton Friedman
It was on January 13, 2010 that I first predicted that Greece would default. The yield on their ten year was 4.38%. I took a lot of flak for that call at the time. Vindication was mine in the end and Greece may be the spark that lights the fuse by the time we all look back and marvel at the way the European Union played out. Yesterday as we all watched the Holland and Hollande Show; Greece was scarcely on the radar. That act was behind us now we think and we are off to different adventures. Not so fast my friends, a moment’s respite; nothing more.
The Greek Statistical Office released new data yesterday and the results were anything but positive. The official debt to GDP ratio now stands at 165.3%, a fourteen percent increase from last year’s numbers. Quite frankly, this is a disaster and hardly in-line with all of the fantasy projections that Greece will now be heading towards the mythical 120% number bandied about by both the EU and the IMF. The rest of the economics for the country continue to worsen with a 21.8% unemployment rate and more younger people without jobs than employed. Greece is in its fifth year of recession and estimates place the economic contraction for 2012 between 4.5%-6.9%. They have elections on May 6 and to get the next round of aid the IMF is demanding further spending cuts of 5.5% of their GDP or around $14 billion plus an additional $4 billion from better tax collection. In my opinion, if history is any guide, none of these fantasies will be actualized so that Europe will face Round III of bailouts in the not too distant future which is one ungodly exercise in futility with the Greek people bearing the whip of their Germanic Masters.
It is quite likely, in my view, that the Greek elections will amount to a material political push-back and may well result in either the IMF/EU refusing to provide more aid and/or the newly elected government, finding no more capital forthcoming, heading back to the Drachma and devaluation as the only real solution left. This, of course, would mean that the old Greek debt held at the EU/ECB/IMF will head south along with the new bonds that were jammed upon the previous investors. What is readily apparent now is that the last aid package for Greece is significantly deficient and that it will either be more aid or someone’s exit strategy that will have to prevail because the current situation is little more than a Greek farce. I think the “wink, blink and nod” strategy which has been employed by Greece is about to end either as a result of the will of the people or as a result of the till being closed by political forces in the funding countries. There will either be a conclusion or Berlin can absorb Greece as a welfare state and be done with it.
Ich Bin Ein Athener
To make matters worse; the banks in Greece are losing $344 million a day and have capital outflows of about $500 million per month. Even with the $32.2 billion in recapitalization funds it does not take a fiscal genius to see where this is all leading which is right down the Spartan rabbit hole. May 6 is hard upon us with elections both in France and Greece and the outcomes of both contests may result in a quite different Europe than we had the day before.
Elections are a good deal like marriages. There's no accounting for anyone's taste. Every time we see a bridegroom we wonder why she ever picked him, and it's the same with public officials. - Will Rogers