Unfortunately, the magic that works for arithmetic seems likely to doom the rescue efforts in Europe. Here’s a selection of the numbers that could add up to disaster for Greece.
As envisaged, the bailout plan will ringfence €50bn worth of Greek assets, ranging from ports to airports to the Parthenon (I might be kidding about the Parthenon). They will be put into a special fund and sold to repay debt, recapitalise the banks and make unspecified investments to boost growth in the future. However, consider that the proceeds from the Greek privatisations already under way are set to raise a skimpy €4bn.
Moreover, the market capitalisation of one of the nation’s best assets, the Piraeus Port Authority, is about €333m. Economy minister George Stathakis says the holdings to reach that sales total “obviously do not exist.” If even Greece’s economy minister doesn’t believe there’s €50bn worth of family silver, why should anyone else?
In the next two years, Greece’s debt will peak at 200% of its GDP, the IMF said in a report. Less than a fortnight ago, the IMF’s prediction was just 170%.
Both figures are a million miles away from the 60% ratio that the original Maastricht Treaty set as the qualifying target for any country to be deemed economically worthy of euro membership. The issue of debt rescheduling (or re-profiling or moratorium or extension or whatever euphemism you choose over “Greece can’t afford its repayments”) is slowly coming to the fore. Greece’s economy is so trashed no one really knows just how indebted the nation will end up being.
That’s how long capital controls lasted in Cyprus, after it went bankrupt. Greece’s banks are still shuttered, and its people are still restricted to withdrawing €60 per day from ATMs. Meanwhile, the banks are running out of the collateral they need to borrow from the ECB, and will need an infusion from the European Stability Mechanism.
In the absence of support by the ESM, financial stability risks for Greece will not be manageable and the banking sector will inevitably collapse. Greek banks have been closed since the end of June, and it’s still anybody’s guess when they’ll be able to reopen.
What Greece is due to repay the ECB on Monday. A month ago, if anyone asked what the repercussions might be of Greece failing to pay, they’d have replied it would mean exiting the euro. Today, it’s just another imaginary number. Greece is already in arrears to the IMF, and has missed so many deadlines that blowing past another one will hardly matter. n Bloomberg News