Saving the Greek government will not be the end
"Greece needs to come up with something. They need that money. Whether they stick to their agreements or not, we'll find out later... The Greeks will not be able to go do that path. They may stick to it a year or so... then it will become too painful."
- post #20
"Let the riots begin. They will justify the default. And that in turn will get Europe to turn its back on Greece for years to come."
- post #62
"Once Greece is forced out, the official line will be: It's contained !"
- post #71
Some think that Greece will announce a restructuring of its debt this week, and that will be the end of the crisis. They expect a nice rally in the markets. I don't believe it.
The fact is: the austerity measures that the government is likely to agree will have negative knock-on effects in other parts of its economy. Such as the Greek property market. Reduced incomes will make it difficult for people to servive their mortgages. This is clear in a post from elsewhere on GEI:
House prices in Athens are going down steeply ,although % information is not clear, since
there are very few transactions, market is dead, frozen. One of the reasons is that people
are taxed on the basis of Max(declared income, x), where x is an amount depending on individual
lifestyle, taking into account owned property, cars, swimming pools etc. Low income workers
who have inherited property are in trouble. Another reason is the recent 'property levy', included
in electricity bills, which may be as high as 600 Euros/year for a small apartment in Athens.
There are some people who borrowed heavily to buy an apartment. They have seen wages cut
by 15% so far ,another 20% looming, income taxes rise, tax rebates on their mortgage decrease,
new taxes on property introduced, insecurity on their job tenure increase.
Who in his right mind would like to invest in property, even if he could,
since new mortgages are hard to obtain, given the liquidity problems in banks.
It's amazing that the cumulative recession is nominal terms (not corrected for inflation) is ONLY 20% in 5 years.
Greece or Hellas is in a deadly deflationary spiral, where only the prices of necessary goods
remains stubbornly high. If the instructions of the Troica continue to be strictly obeyed, income will decrease to
0, taxes to 100% and still the national debt could not be repayed.
A 15-20% cut in incomes, combined with rising rates and higher taxes is a formula for much lower property prices in Greece. Lower property will keep pressure on the balance sheets of banks. Some may go bust. So they are not going to be eager to lend more mortgage loans until property prices hit bottom, and that bottom could be years away.
What's the way out for Greece?
The best thing might be to withdraw from the Euro. That way, mortgages could be redenominated into a New Drachma currency, and the loss could be taken in the FX rate, not on bank balance sheets.
I think the restructuring of the Debts, with private lenders taking a 70% haircut, is only the latest step in a very long dance routine... Maybe leading to freedom from European "influence."
(For the price record here):
Greece Govt Bond 1Year Yield