Greek finance minister: Bankruptcy is still a risk - Greece's finance minister has slightly deflated the sense of optimism as we ease into the Christmas break, by warning that the country faces another very difficult year.
Yannis Stournaras has cautioned against getting carried away by recent progress, pointing that things could unravel next year "if the political system finds the situation too difficult to handle".
He made the comments in an interview with the Financial Times, published just a day after Greece's credit rating was upgraded.
Stournaras is not all doom and despair, arguing that 2013 will be crucial:
We can make it next year if we can stick to the programme agreed with the EU and IMF.
But only if the Greek people accept the job cuts and austerity measures that were contained in the 2013 budget. Stournaras warns that this is far from guaranteed:
What we have done so far is necessary but not sufficient to achieve a permanent solution for Greece...The issue now is implementation.
As such, there's a 'possible risk' of Greece leaving the euro, he added, despite Athens having now received its latest aid tranche.
With bond yields falling sharply, and yesterday's general strike passing off peacefully, Greece has reached a calmer state. But it's going to be a grim winter for many Greeks - and Stournaras is clearly concerned that he may struggle to hit his deficit targets and improve the competitiveness of the battered Greek economy.
As he put it:
We still face the possible risk of bankruptcy.
But get through 2013, and the future will be brighter, he added.
1 comment:
Forecasting is at best an inexact science - partly because of random events and political actors (such as George Osbourne) sticking to policies which have clearly failed. There is no fool proof algorithm which predicts the economic future. After all all models said in 2007 the economy was sound.
Perhaps one of the biggest such political actions was the Coalition Government prophesying doom over the budget deficit and made wild and disconcerting announcements. This froze out any growth in the economy and effectively neutralised monetary policy - low interest rates did not lead to a business investment boom as many expected. This classic liquidity trap doomed the economy into recession again. This politicking effectively altered the economic parameters of the economy and ensured that the forecasts were over optimistic.
This is despite that fact the government's big cuts are yet to come. Worst the banks are still recapitalising / deleveraging / reducing loan exposures - i.e. money is being sucked out of the economy by the financial institutions and the budget deficit plus some Quantitative Easing is just about balancing out this hole in the nominal GDP. Until this is solved growth will be elusive - unfortunately it has to be internationally based as all major banks around the world are effectively unable to lend or undercapitalised.
A new economic paradigm is required before short term forecasts can become more reliable. This requires some more regulation and government action - such as using QE for infrastructure , housing and business development - it would be better than giving it all to the banks. The Bank of England would hold the debt - along with 33% of teh National Debt. But at least we would have growth and tax receipts and a smaller budget deficit. Good old keynesian economics.
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