Greek Economy Will Not Recover Until 2017

Former Bank of England executive David G. Blanchflower said that a second bailout package for Europe in inevitable. He told Bloomberg, the Eurozone faces the euro’s “unstoppable” decline until it is at parity with the U.S. dollar

Blanchflower’s name can be added to the long list of economists and traders who believe that the nearly $1 trillion aid package put in place to support sovereigns in the region and the euro is entirely inadequate given the massive national debt levels of  Greece, Spain, and Portugal.

S&P said today that it lowered and removed from CreditWatch negative its credit ratings on all  Greek securitization notes rated above ‘A’ to ‘A’ on account of its view of  how increased country risk may affect Greek structured finance transactions.

The ratings agency also indicated that unrest and strikes were likely to be a major cause of the long-term problems of Greece.

The current negative outlook on the  ratings on Greece reflects the possibility of a further downgrade if, in our  view, the Greek government’s ability to implement its fiscal and structural  reform program is undermined by domestic political opposition or materially weakens for other reasons, including even weaker economic conditions than we currently assume.

These troubles have caused S&P to take the extremely pessimistic position that Greece’s GDP will not return to 2008 levels until 2017. That in turn will greatly increase the risk that Greece will not be able to refinance its debt without ongoing support from the IMF and Eurozone nations. The current $140 billion package Greek aid package will only last for the next three years.

S&P’s outlook on Greece is a partial confirmation of Blanchflower’s view–  the bailout of Europe is only at the start of what will be a long and expensive process.

Douglas A. McIntyre