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Upcoming Events in Greece

It is possible, that the Euro-zone begins to unravel in the next few weeks and months, starting with Greece. Yesterday, despite riots outside the Greek Parliament, Greece lawmakers passed an austerity bill which will further decrease salaries and pensions, raise the retirement age, and increase taxes. Greece needed to pass the bill in order to receive the next round of bailout loans. Greece politicians have said that Greece will go bankrupt on November 16th without the next round of bailout funds. In addition, Greece will need to pass a  budget vote for 2013 on Sunday. The budget will layout the basis for which the country’s creditors will make a decision whether or not Greece deserves the next round of bailouts.

Even if Greece passes the budget there is a chance that the troika of debt inspectors from the EU, IMF, and ECB may not think Greece has done enough to deserve the next round of bailouts. Then there is the issue of all of this being reviewed, voted on, and approved by next Friday. With 6 consecutive years of recession, 25% unemployment, numerous defections from members of Greece’s parliament and political parties, and Greek citizens rioting, I am finding it increasingly unlikely that all of this gets done in time to avoid a Greek default. Furthermore, how long can Greece continue to pass austerity measures to receive bailouts at the expense of the future before the Greek people overthrow the government or before the creditors decide Greek is not a suitable credit?

Perhaps in the next few weeks and months, the Euro-zone will begin to unravel, beginning with Greece. If Greece did default or return to the drachma, the IMF and ECB would need to go into damage control to try and avoid the contagion from spreading to Spain, Italy, Portugal, Ireland, etc. I am not sure what the plan would be to stop the contagion from spreading, but I am confident that it would be a very difficult task. It is sure to be an interesting next few weeks in Greece and Europe.


  1. This is a very sobering topic, because the Euro zone is big enough to spill over and affect us. (See the IMF Spillover Report for simulations.)
    One way to rephrase the question: is it worse for “Greece” to stay keep the Euro or to exit the Euro (the quotes are because we need multiple metrics to examine what might happen: Greece = GDP? % of population in poverty? loss of real weath = asset values and net present value of pensions?).
    In any case, it’s not just Greece (which is small in the Euro zone) that faces unpalatable and probably unsustainable political choices as it tries to tough things out; it’s also Spain. But thinking about Greece keeps the problem focused.
    Now … what would exit look like? When I looked a year ago (well, last spring?) I found no detailed scenarios. Without such, we can’t know whether the cost of exit would be very large or extremely large. (The cost of staying is already very large.) There are no good options at this point, only the horrible and the really horrible. However, we need scenarios to understand what might come next.
    Finally, this challenge of devising adjustment packages only to have events move downhill faster than envisioned is one I saw first-hand in the 1979 IMF-commercial bank restructuring for Jamaica (I was the representive of all Japanese banks at those talks). The first package failed, in part for that reason (by the time banks had signed off on their end it was already impossible for Jamaica to hit any of the targets). A second and equally large reason was that the package ignored domestic politics: it wasn’t enough for then-Prime Minister Manley to sign off on the package, because he was in effect the head of a loose coalition and proved unable to gain acquiescence from other members of his cabinet. We’ll find out what happens in Greece.
    • poetzsch poetzsch

      It is interesting to rephrase the question : Is it worse for Greece to stay or exit the Euro? I think that is a debate that ECB and Euro-zone leaders need to thinking about seriously rather than just continuing to kick the can down the road.

      A quick update: Greece did pass their budget vote tonight, but the next round of bailout funds still needs to be approved by the troika. Leaders have stated that this process may not happen on Monday, it will likely take a few days and the troika will not be pressured into rushing the bailout. It appears the consensus view is the bailout will be approved before Friday.

  2. And in Greece neo-Nazi groups are on the rise, according to an NPR story this morning (13 Nov).

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