Daily Austerity Watch: The New Greek Bailout

Has the nation of Greece reached a financial bottom yet?   Daily Austerity Watch doesn’t think so.

The Wall Street Journal is reporting that a new $86.1 billion bailout from the European Union and the International Monetary Fund.   That’s in addition to the $110 billion it received less than a year ago and contradicts statements from Greek officials that the country was not  seeking to restructure its debts.   This raises all sorts of disturbing questions.

First, will this be enough?  Many cash-strapped individuals have such a poor handle on the state of their finances that they have no idea the extent of their indebtedness.   The same may be true in countries such as Greece, where tax evasion remains epidemic making projecting finances problematic.     Indeed, revenues not surprisingly are lagging targets.  Strikes protesting austerity policies are commonplace.  One is scheduled for Wednesday.   S&P today lowered Greece’s debt ratings further into junk territory, angering the government in Athens, whose credibility on fiscal matters is suspect to say the least.   By the way, Greece, where some say Western Civilization started,  is considered as bad of a credit risk as some developing nations.

Supposedly,  Greece wants to drop the euro and Germany is sick of bailing out its poor neighbors.   It’s a certainty, though, that what happens in Greece will set a precedent for other countries.   Let’s take Ireland.

There are calls by some prominent experts that the country needs to reschedule its bailout of as much as $121 billion.  Irish central bank Governor Patrick Honohan is quoted by Bloomberg News as saying that the country will avoid economic “doomsday.”  Not everyone is so sure.  Irish economist Morgan Kelly, dubbed Ireland’s Dr. Doom,  argues “the country faces `economic ruin’ unless it walks away from last year’s bailout, withdraws support for banks and cuts its fiscal deficit to zero. Ireland’s debt will peak at 116 percent of gross domestic product in 2014, ”  Bloomberg says.

Meanwhile, the EU is expected to approve a $111.8 billion bailout of Portugal later this week. ” Opposition politician Pedro Passos Coelho was quoted as saying that Portuguese deal has a better chance of success than the financial rescues of Greece and Ireland.   Those are mighty big words considering that economists expect Portugal’s economy to contract by 2 percent this year.

The question on investors’ minds is which country will be next to succumb to the debt contagion.

Earlier this week,  investor Jim Rogers argued — not persuasively — that the U.K.  was going to need a bailout.   Officials in Spain argue that they will not need a bailout even though its banks hold a huge amount of Portuguese debt and its workers face 20 percent unemployment.    Investors are worried about Belgium, which has high debts and no government.    Matthew Lynn, a columnist at Bloomberg News, argued that investors should be concerned about France.

“It is increasingly politically unstable, its debt position is getting worse all the time, it is losing competitiveness against Germany, and it shows little willingness to change,” he writes.  “Those are all good reasons for the bond markets to make France the next battleground.”

Anyone who thinks they know the extent of the European debt crisis is either psychic or deluded.

–Jonathan Berr