Greece: the road to Insolvency

The news arriving from Greece are becoming ever and ever more tragic. If an example were needed for the failing of austerity policies, this country would provide a shining one. But Greece is not an “example.” It is made up of 10 million people who are suffering without any hope of rescue. Greece is on a dead end road which can lead to nothing else than to default on its remaining debt, part of which has already been restructured under conditions akin to an orderly default. Clearly, between now and June, Greece will find itself insolvent.

The last agreement signed in fall between the government and the Troika, i. e. the IMF, the ECB and the European Union, foresaw that the interests on the Greek debt would be paid by the way of loans from said Troïka, with the provision for the Government to engineer a current account Budget surplus (what is called a “primary surplus”). But this goal is ever more receding. Receipts from VAT and tariffs on imports have diminished by 8.7% during the second quarter of 2012 and by 10% during the third quarter1. Income and property taxes, who had experienced a strong increase during the second quarter of 2012 in comparison with the same period in 2011 (+29%) saw their annual rate of increase tumble during the third quarter (+10%). The first indications available about the 4th quarter of 2012, and above all about the month of January 2013, show that these receipts too are diminishing in the absolute. For the month of January, the budget was 246 million Euros short of equilibrium. The government therefore decided to cut expenses by the same amount in an authoritarian way, thus setting in motion a mechanism beyond its grasp, which will precipitate catastrophe.

Part of these developments is due, evidently, to the continuous degradation of the economic activity of the country. Production (in the sense of current prices GDP, which is the one used as a basis for fiscal pressure), has amounted during the 3rd quarter 2012 to only to 51,7 billion Euros against 55,7 billion during the corresponding period in 2011, that is a drop of -7.1%. The results of the 4th quarter, which have just been released, are even worse. Production has fallen to 47.2 billion, that is a drop of -7.3% in comparison with the figures of the corresponding period in 2011.!.....................................

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