Merkel wears a bob, Sarkozy sideburns and Papandreou still has got a bald head. What will be Greece’s haircut at the end of the day?
By Lisa Kittel
Photo by Davide Martinotti
Today is the day of decision. After having organized the “technical work” in the days leading up to Sunday, and having put pressure on Italy to make a reform proposal, the heads of state will finally announce their position concerning the euro rescue-umbrella and how to proceed with Greece.
Of course today's decision is important for the country. The Greek government just said that they have only enough money to pay public servants' wages until the end of October, when the country would need the next tranche of the EFSF. Prime minister Giorgos Andrea Papandreou's strict austerity policy makes it hard for the Greek citizens to finance daily life, a lot of them have lost their jobs. Bob or long hair with layers? Today's haircut is going to decide about their lives.
But the decision is also important for the whole Euro zone, and even the world economy, if it comes to a destabilization of the Euro. At the beginning, the Euro zone members did not want to accept a Greek default but, by and by, such an eventuality was discussed..
If numbers could cut hair, Greece would get a mohawk
The only solution to rescue Greece and the Eurozone seems to be a radical action. Now, the question is not if but which so-called haircut Greece should get. Radical and robust? Numbers advocate a mohawk: 21% of debt relief has already been decided. Remarking that this would not help because of the dimensions of the crisis, Germany wants to cut 50-60% and France, whose banks are still more involved in Greece, could foresee a cut of 30%.
But now, even these plans won't be enough, according to the Financial Times. Until 2020, Greece would need more than twice as much money as previously expected, about 252 billion Euros. If the recession continues, this could grow up to 444 billion. This is the estimation which the IMF, ECB and EU commission troika reported on Friday. Short and sweet, this means that the necessary minimum haircut should "attack" at least 60% of Greece's Mediterranean curls. An unrealistic project?
Be radical, but even 60% might relieve only one quarter of Greece's debt!
It is highly probable that some part of it will be contributed by the member states. Nevertheless, for a radical enough haircut, the banks as private investors in Greece's “fortune” must agree deliberately on reducing the debts. Otherwise the rating agencies must declare a loan default on Greece, which should be avoided.
A decision in that vein could be welcomed but still, it would not guarantee to save Greece because reducing half of this external debt would relieve Greece of only one quarter of their debt. Not to forget the conjuncture could also get worse. Greek investors could lose confidence in their own banks and withdraw all their money. The economic system would collapse completely. That’s why certain specialists think it is not enough to cut Greece a Mohawk.
Other possibilities? - Too courageous to be thought those last days
But what’s the alternative? A Greek departure from the eurozone? Daniel Gros Of the Centre of European Policy Studies recommend a still more radical measure. Here comes the bald head version: Greek should be freed from all it’s depts, until 2020. He sees hope only if the country don’t have to pay more interests. Also, the national Greek banks should be nationalized and sold to some stabile north European institutes. But those frightening steps probably weren’t discussed the last days.
Facing the dimension of the crisis and the actors involved in reaching a decision, we can only hope that member states and private investors are willing to proceed in a radical way. The money that European countries put into Greece, if these measures don’t succeed, will be like a drop in the ocean.