Financial Times
July 19, 2011
Greece, despite €110bn in assistance from the EU and the International Monetary Fund last year, still cannot access private credit markets. Ireland and Portugal also needed bail-outs, and were still downgraded by rating agencies. Spain and even Italy have come into the investors’ crosshairs.
Why? The “bail-outs” provided little relief. In every case, the EU and the IMF added to the countries’ debt and the austerity programs – salary cuts, higher public utility tariffs, and increased taxes – cut gross domestic product. The debt-to-GDP ratio, a key measure of country risk, rose. With Greece’s ratio forecast to go up from about 120 per cent in 2009 to 160 per cent by 2012, the authorities there have a snowflake’s chance in hell of ever gaining entry to private credit markets.
How did the erudite leaders from the core European countries and the legions of PhD economists at the IMF miss this basic fact? Simple.
In my opinion, the bail-outs were never intended to improve the debt-ridden countries’ economies, but to enable European leaders to pretend that no “credit event” had occurred. Credit impairment would have posed a serious threat to the stability of the banking system. Even though 10-year Irish paper is trading at less than 60 cents on the euro because of fears of a restructuring, creditor banks do not have to raise additional capital.
More
No comments:
Post a Comment