‘Greece sliding towards third-world status’Published: 20 February, 2012, 21:13
Greece needs a greater rescue package than the one being negotiated in Brussels, says economist Johan van Overtveldt. In fact, the new bailout should be worth at least as much as the entire Greek economy.
As eurozone finance ministers meet in Brussels to decide if Greece has done enough to get an additional 130-billion euro financial aid package, Overtveldt told RT that Greece actually needs around 170 billion euros to make it through the next few years.
“The negative spiral in which the Greek economy and Greek society have been imprisoned for almost two years will only get worse,” he explained. “The austerity program that is imposed on the country will worsen the recession, which in its turn will worsen the budget outlook.”Overtveldt says what Greece really needs at the moment is a growth perspective for its economy – which can be achieved only by exiting the eurozone. “It will lead, of course, to a devaluation of the new drachma but that is exactly what is needed to get the economy growing again through international trade,” he concluded.
Over the last two years, Greece has seen a number of rallies and demonstrations that often escalate into clashes of angry and desperate people with the police. Last Saturday, the approval of a new austerity package was followed by a major clash with tear gas being used against some demonstrators. One person was injured and about 60 detained over the violence. ‘Greece sliding towards third-world status’
What Greece really needs right now is a redevelopment plan – and the IMF is the best pick for for the job, economist Harlan Green told RT.“Greece is sliding very quickly into being a third world country, and the IMF knows how to deal with third world countries,” the editor of PopularEconomics.com said. “In Greece’s case, they’ve lost productivity, they’ve lost what economists call aggregate demand, by just demanding austerity without a plan for recovery.”Green says that productivity has fallen dramatically not only in Greece, but in Europe as a whole when compared with the US.“Greeks themselves are very hard workers,” he added. “But it is very inefficient.”Greece downgraded next to default level by FitchPublished:
22 February, 2012, 17:32 Fitch has downgraded Greece to a pre - default level (Reuters / John Kolesidis)
Fitch rating agency wasn’t impressed by the EU leaders’ decision to grant a second bailout for Greece.It downgraded the country to pre-default level.
The sovereign long-term default rating of Greece now stands at the pre-default "С" level, down from "ССС".
The decision comes after the Eurogroup agreed on Tuesday it’ll release a second lifeline of 130 billion euro to Greece, with private creditors also writing off 53.5% of the country’s debt. Fitch says should private creditors complete a bond swap, the agency will have the grounds to announce a Greek default.
“The rating downgrade won’t influence the world markets dramatically, as they have already taken into consideration the unsteady Greek economy and its probable default. If markets demonstrate any reaction to the rating decrease, these will be short-term changes. Long-term trends might not change,” says Anna Bodrova from Investcafe.
However, the downgrade, which reflects existing doubts whether Greece will be able to solve longer term Greek debt problem, “sets a negative tone for other South European countries, like Portugal and Spain,” Dimitri Kryukov, a head of Russian office of Verno Investment Research, tells Business RT.
http://www.fxstreet.com/fundamental/market-view/currency-currents/2012/02/21/So what?” he asked. “Things will only get worse. We have reached a point where we’re trying to figure out how to survive just the next day, let alone the next 10 days, the next month, the next year.”
-Anastasis Chrisopoulos, Athens taxi driver (from Reuters)
130-billion-euro here, 130-billion-euro there, and pretty soon you have to start finding some growth!
One adage that seems to work as much as anything else, and why it is an adage I guess, is “buy the rumor and sell the news.” I won’t bore you with the behavioral aspects of why this works, I think you know. We are seeing it a bit this morning on display on news a Greek default has been averted: the euro is lower, and ditto for most Eurozone bonds since the announcement of a deal that gives Greece another 130-billion-euro it can pour down the rabbit hole with the rest of the money funneled in by Eurozone taxpayers.
Of course, sooner or later financial engineering reaches the limits of its public relations effect and there must be some underlying payoff from said engineering besides getting funds to follow banks chasing into periphery debt for a trade. It’s not that rising periphery bond prices, i.e. lower yields, isn’t helpful; it is. But even at current rate levels, it will be mighty hard for many countries to maintain austerity pledges; all attempts to do so will likely accentuate the trend we see in the chart below:
And of course, this chart is the mirror image of the domestic adjustments periphery countries have to make because they do not have a free-floating currency available to help them make these adjustments: 
Thus, periphery economies desperately need some growth. Rising unemployment and tighter budgets will not produce revenues needed to pay debt; instead it produces a self-feeing vicious spiral downward. This view seems completely at odds with the Troika program even though the Greek economy provides them with live test case of abject failure stemming directly from the implementation of their own flawed theories.
And here is why it will likely get worse for Greece and other periphery countries whose growth is heading lower—the real economy will be starved.
We have already witnessed this economic/money/manipulation phenomenon in the US, from the WSJ this morning:
“The eight giant European banks that have disclosed their annual results in recent weeks reported holding a total of about $816 billion in cash and deposits at central banks as of Dec. 31. That is up 50% from a year earlier, when the same banks were holding roughly $543 billion.”
Does any of this sound familiar? You can lead a horse to water, in fact you can force-feed said horse with massive amounts of reserves, but you can’t make him lend any of it to the real economy where real people build real businesses and hire other real people who need real jobs.
Just in case you forgot just how tightly US banks have held on to their Fed sponsored reserves via the massively steep yield curve that impoverishes savers to subsidize bank healing, here is a look. This chart shows reserves in the US banking system ... hmmm ... three years and counting so far since Bernanke and Company decided this is the only viable strategy for the economy. Viable for financial assets, but the other side of the economy is still starved... 
The point is, despite the new Greek rescue (I am losing count how many we have had so far), it appears the Eurozone, now clearly a two-track world with Germany bathing in credit and low rates and low unemployment (which adds to more angst and animosity toward Germans amongst the PIIGS), appears collectively heading into deeper recession.
One wonders if now, finally, EU leaders have run out of rabbits of financial engineering to pull from their hats. Financial engineering is a lot easier than real growth. If you don’t believe me, go ask Goldman; after all it is their fun and games that caused much of this Greek problem in the first place. 
