- Written by Duncan
The International Monetary Fund moved a step closer to a bailout of Greece in this bad economy, announcing that a team will travel to the country next week to begin negotiating the terms of a possible aid package. Other "eurozone" countries have promised about €30 billion in emergency loans if Greece needs them -- provided that the Greeks agree to IMF assistance. But this is just the tip of the iceberg.
Athens needs to raise €11.6 billion ($15.8 billion) by the end of May to cover maturing debt, part of about €54 billion (73.3 billion) needed for the whole year. In the long run, Greece faces a public debt of around €300 billion ($410 billion, or about as much as wall street gave out in executive bonuses last year). The simple fact is that all of Europe just does not have that kind of money available to bail out Greece.
EU Economic and Monetary Affairs Commissioner Olli Rehntold said that Greece will not default on its debt. "Default is not an issue, there will be no default.". Germany, as the largest economy in the 16-member eurozone, will do its part to help Greece if needed. For instance, they have made a bid to purchase the Parthenon for about €12 billion, and relocate it to a site somewhere near Dusseldorf as a tourist attraction.
Finance ministers of the eurozone on Sunday hammered out a more detailed aid package for Greece, pledging €30 billion euros ($41 billion) in the form of bilateral loans in the first year to bail out Greece if necessary. Unfortunately, this is only a temporary solution, and in less than a year Athens will have to come back for more or face a complete collapse of its economy and a devaluation of the euro. "If that happens, they will pull everyone into the toilet." said the Ministerio de Economía y Hacienda (Spanish finance minister).
European gains weakened as fears regarding Greece reignited, putting the euro back under pressure. The markets still lack "faith that Greece can weather the storm" despite the positive spin on the economy put out by Athens. "The country's problems will likely require ongoing attention from the international community, and will leave the country barren and destitute for many years." said a Turkish ambassador.
Since a currency devaluation isn't an option given Greece's use of the euro, the economy will have to undergo a difficult adjustment in wages and prices to return to competitiveness. They will have to sell off key assets, such as their portfolio of Olympic assets. At this point the International Olympic Committee (IOC) has refused to comment.
Other plans from Athens as part of their Hellenic Stability and Growth Initiative (HSGI) include enforcing patents on traditional Greek foods, such as Greek salad, souvlaki and baklava. All restaurants around the world would have to pay a license fee for the rights to prepare Greek foods, which would then go towards the national debt. Combine this with a cultural initiative to encourage more people to eat Greek food, and it could make a dent in their huge debts.
But Greece is not the only European country in trouble. Italy’s finance minister, Giulio Tremonti said that Italy’s debt is five times as big. They are already in talks to sell off major landmarks and assets to raise funds for debt repayment. The Italian government has promised Brussels that the deficit will be back to its 2008 level of 2.7% by 2012. But to achieve that without savage cuts in public spending will take solid GDP growth.
Silvio Berlusconi last week said that they were in negotiation with Stouffers and General Mills regarding patent infringements pizza and pizza-pops products. There is also rumor that the patents on certain pasta dishes are up for sale, and Kraft foods are interested. "If this goes well, we could pull ourselves out of debt within five years. Everyone knows that pizza is better than that oily Greek food. We might even make a profit!" he said.
The IMF, which provides below-market loans to help troubled nations stabilize their economies in a bad economy, typically attaches conditions to its lending that include changes in economic and other policies. One of those conditions could include adopting English as the official language for all eurozone countries, and driving on the right side of the road. Time will tell if these come true.