S&P’s sensational threat: ‘any debt renegotiation is a default’. But Greek PM wants debt forgiveness.
The chickens are coming home and roosting noisily in the EU this weekend. And it’s not so much debt contagion the folks in Brussels and Germany need to worry about from here on: we are into a new phase now – a curious but deadly mixture of ratings contagion and violence contagion.
Protesters belonging to the left-wing All-Workers Militant Front (PAME) union unfolded a giant banner from the roof of the finance ministry building on the central Syntagma square yesterday, calling for a nationwide strike against the new austerity measures that the government agreed to take in return for the new bailout package. Beyond the Trots in PAME however, for the tenth day running, angry Greeks held anti-government demonstrations against the measures. As is the fashion since the Arabian unpleasantness, protesters have set up a camp in the central square of the capital. That’s a method which has in turn spread from Spain, where things are also on a knife-edge. In a poll released last Monday, fully one third of all Greeks claimed to have joined at least one demonstration.
There is nothing new in Latins draping flags over government buildings, but the way these developments are being reported in the debtor nations is genuinely new. In a leading article in the Irish Times this morning (headed ‘Greece: Ireland’s partner in crisis’) Arthus Beesley argues, ‘If different forces lie behind the domino-like collapse of the “Pig” countries – Portugal, Ireland and Greece – the brute effect of the crunch is exactly the same: all need external aid because the markets won’t lend to them. Much as the Greek turmoil last year magnified Ireland’s debt dilemma, each country needs the other to find a way out of the morass. No one expects Greece to get back into the markets next year, and that will make it more difficult for Ireland to make its own return….’.
The chief similarity Beesley notes in all the piigs is the excesses and corruption of the few now being visited upon the many:
‘Ireland’s implosion had its roots in a grinding bank bust, crippled public finances and inattentive leaders who chose lax regulation over proper supervision of greedy financial institutions….[in Greece]….pay is generally low and the political system is tainted by tax evasion and corruption….’
And behind these primary miscreants is another equally hated set: terrified near-insolvent eurobanks and unforgiving Belgian/German austerity freaks….who continue to demand more and more of what is clearly (among the ClubMeds anyway) making things worse, not better.
But if solidarity is growing among the debtors, ratings agencies are in turn outdoing each other in their determination to take a hard line on debt rescheduling. There is no sense of the widespread forgiveness offered to South America and the Russian Federation in the past. In a sensational development late yesterday, Standard & Poors vowed to take a very tough line if the EU ‘tries to disguise’ debt rescheduling behind a second bailout.
A credit insider close to the Greek situation told The Slog last night, “This is really a shot across the bows of Brussels, not Athens….they think, and they’re right, that all this is being done to buy time for dumb French and German banks who stand to get wiped out if the Greek default is grisly. But it’s too little, too late. Greece is broke, period.”
It seems doubtful that the protestors in the streets throughout the Latin Quarter of the EU have as yet made this connection, viz, Chancellor Merkel’s tough line is primarily to get her re-elected and save Germany’s financial system. They may never do so, but the Germans aren’t winning many friends at the minute: having leapt to the destruction of the Spanish cucumber industry last week, resentment against Germany is running high in Spain today. An unforgiving debt attitude would soon turn that into national outrage: but a forgiving attitude would also produce a frenzy of negativity among the credit ratings agencies.
The same Slog source affirms that Papandreou has made it abundantly clear to the EU/IMF/ECB ‘troika’ that, without some debt forgiveness, there is no hope for his country now anyway. But this will stick in their throats given that Papandreou’s associates and family members have shipped a large bundle of public money over to Switzerland.
For the politicians, banks and gravy-train bureaucrat of the EU, there are fewer and fewer places to hide. The Great Project is crumbling into dust.