I don’t want to rain on anyone’s parade, but we all know that the Greek budget crisis hasn’t been resolved, right? It’s merely been postponed until April and May.
That’s when Greece has to refinance $27 billion in debt. (Doesn’t seem like much? Well, if you scaled that number up to reflect the difference in size between the Greek economy (an estimated $340 billion in GDP, according to the CIA World Factbook) and the U.S. economy ($14.3 trillion in 2009), Greece would be looking at the need to refinance $1.1 trillion in debt in just two months. (Tells you why there is a Greek budget crisis, doesn’t it?)
So far all that’s really happened in the way of a fix is that the Greek government has promised to deliver an austerity budget that would cut the budget deficit from 12.7% of GDP in 2009 to 3% of GDP by 2013 and that European Union governments have delivered vague promises to do something if Greece gets in rally deep trouble..
There’s good reason to believe that those budget cuts just aren’t going to happen.
(And given Greece’s history of providing bogus budget figures to the European Union, there’s no reason to put much faith in these promises. For more on that history see my post http://jubakpicks.com/2010/03/09/the-lesson-of-the-greek-crisis-everybody-government-cheats-and-no-one-wants-to-know/ )
Not only is the public sector the target of most of the cuts, but it also provides 40% of the country’s jobs. That means any budget cuts stand a good chance of sending the country’s economy into a tailspin. Falling economic activity would reduce government revenues, increase the budget deficit again, and create the need for even more cuts. The Greek government has already reduced its forecast for economic growth in 2010 to a negative 2% from a prior negative 0.3%.
The European Union promises of help are so vague that the bond market is likely to see right through them come the Greek refinancing in April and May. That’s likely to push up the interest rates Greece has to offer to refinance its debt. Which, of course, will add to the budget deficit.
I think there’s a good chance the Greek crisis will return to TV screens near you just in time for the summer re-run season.