Greece: the debt crisis just won't go away

03/13/2013 2:11 pm EST


Jim Jubak

Founder and Editor,

The auditors are back in Athens. And I can’t tell what’s scarier, the incredible optimism from Greek finance minister expressed before the meeting or leaks from the auditing team from the International Monetary Fund, the European Central Bank, and the European Commission about the degree of austerity measures that the Greek government will be asked to apply to an economy with 27% unemployment.

In an interview with England’s Guardian finance minister Stournaras said Greece is out of the woods and that a Greek exit from the Eurozone is now off the table. Greece has covered two-thirds of the distance to the goal on its budget adjustments and three-quarters of he distance to the goal on competitiveness, the finance minister said. “I think the worse is behind us and we can look at the future with hope,” he concluded.

I think a very different picture will emerge from the talks with the Troika auditors that were due to begin yesterday but that didn’t get rolling until today. The auditors are in Athens in preparation for the next installment of rescue money—a relatively small 2.8 billion euros. The group has a rather long list of issues that it wants Greece to address before it signs off on the payment. The country’s creditors want to see a highly unpopular tax on property extended through 2013 and a speed up in reductions to the government workforce.

As much as Stournaras’ “out of the woods” comments scare me because they may be evidence of a government out of touch with reality, the Troika’s demands are even more disconnected from the actual situation in the country. Greece is in the midst of what amounts to an internal default—no one is paying anyone because liquidity has almost totally dried up. To ask for an extension of the property tax under those circumstances seems—well, the word “delusional” comes to mind. In addition the Troika’s demands for a speed up in civil service layoffs stands a good chance of provoking a crisis in Athens that will bring down the shaky coalition government. If this pro-euro government falls, the next one stands a good chance of being dominated to parties that favor leaving the euro.

The betting right now in financial markets seems to be that some compromise will get worked out that postpones the hard decisions until after German elections at the end of September. That increasingly strikes me as too optimistic.

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