by Dr. Shayne Heffernan, Economist and CEO/Fund Manager for institutions and high net worth individuals
June 16, 2012 (TSR) – Greek voters will make a serious choice for or against the international bailout program containing painful and useless austerity measures as Sunday’s parliamentary election nears. Their decision will decide Greece’s future and whether the country will remain in the eurozone.
Failing austerity and structural reforms are eating away at the economy. Everyone wants an real way out, if possible.
Greeks have undergone a change over the past two years, witnessing a dramatic drop in their living standards, record-high unemployment rates and a deep recession in an effort to meet the deficit- reduction goals set by the fiscal adjustment program and stave off a chaotic default after falling to an organized default this year.
Yet only two years ago, Greeks enjoyed the wild excess of 14 monthly salaries a year, four weeks of paid vacation, plus various allowances, and free education and medical service. It is only natural they are unhappy about losing all these perks and may well leave the Euro so they can become masters of their own destiny.
The government debt is hovering at over 160 percent of its gross domestic product and that is being kept on a life support of 240 billion euros (300 billion U.S.dollars) in bailout loans, there is no alternative Greece must collapse in some form.
Regardless of the outcome of Sunday’s polls, Greeks must face up to the bitter reality that they can’t avoid forced austerity if they want to remain in the eurozone and that the other eurozone members would not afford to pay to avoid Greece’s exit even if it means a breakup of the single currency area.
Yes, a Greek exit would cause serious contagion across the eurozone and Europe. Yes, it is a viable option that other vulnerable eurozone countries may also leave the single-currency club, resulting in a collapse of the euro. European leaders are not bluffing when they say they can withstand a Greek exit from the eurozone, they simply can not sell enough paper or raise enough cash to save Greece.
In addition to the political spin called contingency plans it has been preparing, the powerless and ineffective European Central Bank is expected to unveil a number of so called master strokes in case of a Greek exit, including establishing a eurozone-wide deposit insurance system and announcing a roadmap for eurobonds, among others. It is widely believed that these steps would help prevent the domino effect of the eurozone crisis. None of which should offer any comfort to investors,
The World Bank and the IMF are also to blame for the current situation in Greece. In designing the bailout programs, they didn’t take into account the obvious contractionary effect of large-scale austerity, and growth is not mentioned anywhere in the two programs, the plan will fail.
International lenders must offer Greece a legitimate prospect after the polls. Five years of recession in a row and 50 percent of youth unemployment in Greece point to the impasse created by the bailout program. If a revision of the program proves impossible, Greece’s European partners must roll out a stimulus plan to boost growth and create jobs for Greece.
Greece should bear the biggest part of the responsibility for countering the acute structural problems that it faces, but no ailing economy in the eurozone can make it through the crisis on its own.
Greeks have the first say this weekend, and the dilemma they face at the polling stations is acute. For sure, Greeks are caught between Scylla and Charybdis, and hopefully after this harrowing experience, they will realize how necessary it is to change.
AUTHOR: Shayne Heffernan
Shayne Heffernan oversees the management of funds for institutions and high net worth individuals at Heffernan Capital Management and contributor for Live Trading News. Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reached a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial.