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Europe’s Destiny Left To Greek Street Justice

The Greek Prime Minister, George Papandreou, is now starting to sell the EU/IMF rescue package to the Greek people as the county’s workers unions denounce what they see as “unjust” budget cuts. If Papandreou fails, Greece will be back to square one of its fiscal disaster. And the European debt crisis will probably spread further,  faster and with no mercy.

“We find ourselves before the most savage, unprovoked and unjust attack. The answer will be given in the street.”
Spyros Papaspyros

While there are still ongoing negotiations about the details of the rescue, the main components of the package were leaked last night to the Financial Times. The main components is said to be tax hikes, freezing and cutting wages, raising retirement age,  privatization of state corporations and sale of state-owned properties.
Still, several prominent experts believe the measures won’t be enough to save the Kingdom of Greece from bankruptcy.
The question about the package – and probably about any other upcoming rescue packages – is whether it can stave off insolvency.
As for Greece, we will have to see what the growth assumptions are before any solvency calculations can be done.
The details are expected to be announced over the weekend, including what exactly the headline number of €24bn refers to.
But rough estimates and comments by financial experts suggest that the overall size of the package will be sufficient to produce a primary surplus sufficiently large enough to stabilize the debt-to-GDP ratio.
In an interview with Die Welt, Moritz Kramer of Standard & Poor’s,  defended  the decision to downgrade Greek debt to junk status, adding that the bailout, while welcome, does not change the rating agency’s medium-term perspective on the country.
“Even if the aid will be increased, EU and IMF give away any money.  Rather, the loans to Greece in the future must still repay further.  It may be that the longer financing even mean that the government puts less discipline in the necessary consolidation of public finances in the day, though in the case of Greece so far indicates little to such a development,” the S&P chief economist says.
Based on past experience, there is a 14% chance that investors lose 50-70% over their investments over 10 years, Mr. Kramer says.
But past experiences is definitely one of the things that investors NOT should relay on in this unprecedented situation for the euro zone.

Rough Justice
Prime minister George Papandreou is now starting his attempt to sell the package to the Greek people as unions denounce “unjust” budget cuts, Bloomberg writes.
“We find ourselves before the most savage, unprovoked and unjust attack,” head of the ADEDY civil servants union, Spyros Papaspyros, says.
“The answer will be given in the street.”
The Greek newspaperKathimerini have more on the unions reaction to the measures.
While signs of an accord ended a bond market sell-off in Europe yesterday, Moody’s Investors Service warns that Greece could be vulnerable to a “multi-notch” downgrade if measures don’t go far enough.
Such an action is likely to make the European debt crisis to spread even further.

Banks Unable To Borrow Money
The first signs of the next stage of this contagious disease is already beginning to show.
According to The Financial Times, it has the potential of developing into a whole new crisis.
“Many European banks have become shut out of the international lending markets because of continuing concerns over Greece, sparking fears that some could collapse as they run out of cash.  Greek and Portuguese banks cannot borrow in the international money markets, while weaker European banks are also struggling to raise money as fears of counter-party risk have grown sharply,” the FT reports.
Even French and German banks have difficulties because of their exposure to Greek debt. German, French and Spanish banks have had to pay higher premiums for short-term debt.

To Test The Markets
Meanwhile, Portugal is working on additional austerity measures.
The capital gains is raised to 20% and applies not only to investors residing in Portugal, but also traders and investors who sell Portuguese company shares, Jornal de Negocios reports.
An article in Jornal de Negocios reports that the Portuguese government will test the public debt market next Monday, announcing that it will hold an auction of repurchase about €5.6bn in 10y obligations that expires May 20.
Markets seem also willing to  give Spain a truce, according to El Pais, but investors expects more reforms, especially in the labor market.
If the government cannot deliver results soon, speculation against Spain will start again.
“The big problem of Spain is unemployment and that requires decisions,” the Spanish newspaper writes, adding that more collaboration between social partners and the government also will be needed.

Disclosure: No positions