Thursday, July 9, 2015

Constantin Gurdgiev — 10/7/15: New Greek Proposals: Can + Foot ≠ Real Solution

Greek Government proposal to the EU on Bailout package 3.0 have been published here: http://www.naftemporiki.gr/finance/story/976680/the-greek-reform-proposals.
Quick read through suggests the following: 
These proposals are pretty much in line with June 26th proposals that were subsequently rejected by the 'No' vote in the Greek referendum;….
These are the details so far.

My view is that this proposal will probably be acceptable to the EU, which will close its eyes on two glaringly obvious things: 
1. The proposal from the EU on which this current Greek counter proposal is based was based on assumptions and estimates that are at least 3 weeks old, and for some figures - older. Economic and fiscal losses since then have been significant and most likely remain un-covered by the current Greek proposal. These losses will not be terminated immediately post-agreement, so the Greeks have a much more serious problem on their hands. 
2. Most importantly, the Greek proposal does nothing to address the existent debt overhang - the one that the IMF believes cannot be addressed via enhanced 'reforms' and increased 'austerity' and requires debt haircuts.
However, I suspect that since avoiding Grexit is now clearly Greek Government priority, and since doing the same always was and remains the EU priority, both sides will ignore the discomforts of reality. In this case, under the Bailout 3.0, Greek debt will rise (once again), Greek economy will get a negative shock of higher taxation (corporate, personal and indirect), and a large number of Greek voters will get a strong sense of having been cheated out of their 'No' votes.

This can kicking will not last long...
true economics
10/7/15: New Greek Proposals: Can + Foot ≠ Real Solution
Constantin Gurdgiev

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