Galery

1

Victoria Mindova

A series of changes have started in Greece due to the beginning of the crisis and after the Greeks have suddenly found that they are close to bankruptcy. One of these changes was the introduction of strictly economic terms, familiar to experts and financiers, in the vocabulary of ordinary people. Suddenly they all became financial analysts and economists. It is easy to answer the question "How did this change come and how was it brought in Greece?"
 
After the Prime Minister George Papandreou came out and said, "There is no money and we are sinking like Titanic," all the Greek media news left behind cross-party fights and scandals, and there began a daily survey of the macroeconomic indicators of the country to details, which were of almost no interest to the average Greek until recently. The first news was about how Greek bonds are sold, about the movement of the stock exchange index or what changes the Government plans, before it itself issues an official statement about them. Remarks such as "These credit agencies are to blame for everything" or "Now they think of the size of our foreign debt and raised the spread" could be heard in the buses and underground, in the market and the shop, at work and even on the beach. Even a 92-year-old friend of my mother-in-law told me one day: "Any such speculators as Moody’s-toodis ruined Greece."

So, the new Greek slang began to take shape about a year and a half ago and terms like spread index, foreign debt, deficit, credit rating agency, controlled bankruptcy and other previously unheard words have become part of the everyday speech of the Greeks. If we have to look at things from scratch, we have to go back to the early months of George Papandreou ruling, who, having taken the power in the autumn of 2009 found that there is no money. Contrary to his election promises. What does it mean that there is no money, asked the Greeks themselves, who have been living in a well-maintained financial ease in the last ten years. They did not ask why we have money or where it comes from. Just we're rich, and this is it. Yes, but no.

Without examining why people in Greece lived in the delusion that they have money if they produce a lot less than they consumed, we come to the first term, which slapped the Greeks at the beginning of the crisis. Budget deficit which is the difference in the revenue and expenditure of a country. In the beginning before the crisis it was thought that its value was close to the permitted rate for the euro area countries, or about 3% of the GDP. After searching a little, it turned out that maybe it was about 7% of the GDP actually. Skipping several stages of surprise, we come to the final disclosure of the European Statistical Office (Eurostat). In November last year after a long examination of the Greek papers, Eurostat found that the deficit for 2009 was whole 15.4% of the GDP, or five times greater than the rate established in the union (3%). So, the Greek authorities have hidden the truth for the local finances under the carpet for a long time so as to please Brussels.

So, the protruding thread of the inaccurate data about the budget deficit began to unravel the vest of the Greek economy. Countries that collect less revenue than they need should borrow. In our case, Greece sells government bonds for a certain period of time for which it receives the necessary loans to cover the gaps in the budget. As part of the 16 countries using a single currency – the euro – the interest rates on these loans are compared with the interest rates on loans to Germany. The difference between the two interest rates is called spread. It began to grow rapidly and the Greek lending rates came close to those of credit cards, almost 11%, when Germany could borrow money at an interest rate of about 3%. So, while the spread of Greek government bonds acquired monstrous dimensions, the libido of the Greek government got completely low.

Greece fell into disgrace with the capital markets, which are not different than banks, investment or pension funds availing a large amount of money and they want to multiply it by investing in various securities for a shorter or longer period of time. Such securities are the Greek government bonds, which unfortunately ceased to be attractive to potential investors due to the above troubles. To guarantee the interests of investors that lend money to various organizations or countries, the global financial system has established the credit rating agencies such as Moody's, Fitch and Standard & Poor's. Unfortunately, they were not very profound in forecasting the global economic crisis in 2008, when Lehman Brothers collapsed in the U.S., which made them much more careful afterwards.

And after the Greek government began to send an SOS that government finances sink, credit agencies, in turn, began to cut the credit rating of Greece and its banks. Instead of taking a lesson after the first downgrading, the socialist government continued to tour Europe and the world, telling how tragic the situation in Greece is. This inevitably led to speculation that Greece could go bankrupt. A country’s bankruptcy, however, is not as simple as a company bankruptcy (I say it with respect and apology to the owners who have experienced bankruptcy). As it can occur to all of us, the people who manage billions of euros were not born yesterday, to say it plainly. They have invented the financial tool called CDS (Credit Default Swap), which actually is insurance of the government bonds and is activated in the event of bankruptcy, also known as a credit event - bankruptcy, suspension of payments, debt restructuring and so on. In other words, this is what happens when a country does not pay on time or at all its obligations to investors.

The whole drama about Greece was offset by the financial support the country received from the International Monetary Fund (IMF), the European Central Bank (ECB) and the European Commission (EC). In return for the low-interest loan, which allowed the Socialists to continue to pay salaries and pensions, Greece has agreed to make some changes in the functioning of the public sector and the management of its finances so as to fit within its means. In other words, it has agreed to implement fiscal consolidation and structural changes. In early May, 2010 George Papandreou thanked Brussels (EC), Washington (IMF) and Frankfurt (ECB) for the 110 billion euros and promised to arrange the things in the country so that the deficit falls to zero at the end of 2014. Then, the country would start producing primary budget surpluses, which means that the revenues exceed expenditure in order to pay its foreign debt with the positive balance.

None of this seems possible a year after the beginning of the recovery program. The hopes of the Minister of Finance Georgios Papaconstantinou were that when the credit rating agencies see how well the Greek government is doing with the deficit reduction, Greece would be welcome and the country would be able to borrow money from the capital markets again at the end of 2011. The deficit actually fell by as much as 5% and reached 10.4% of the GDP in late 2010, but unfortunately it was at least two points higher than what was planned for that period. Moreover, since the government has shown determination to cut the pensions and salaries and to raise the taxes, it did nothing to restrict substantially the bloated public sector and the costs it makes at the expense of the ordinary taxpayer. Nothing significant has been done to limit tax crime, and for state enterprises, which cost billions of euros per year and have no productive return.

In the overall picture of discontent and resentment, the Greeks sank in the specific terms of economic analysts without being aware that they themselves should initiate the change.