Since 2009 no privatisation of State’s owned assets has been executed to reduce fix sovereign expenses. The introduction of an irrational Growth & Stability Pact, following to international pressure to cut public deficits and reduce sovereign debt as precondition for bailouts, have led Greece to a de facto insolvency.

The GSP was fully inadequate in supporting industrial growth and consumer spending and could not improve, but further deteriorate the scruffy condition of the Greek economy. In round terms it was completely inappropriate to manage the sovereign emergency and reason of deep recession (-4.5% 2010/2011) as well as debt growth (€340bn from €270bn in 2009). Actually the goal of the government was to reduce, not accelerate sovereign debt towards a sovereign insolvency. The austerity plan was tactically good enough to avoid a default in 2010 facilitating lifetime to a government to keep its power.

The EU, ECB and IMF have to take an inevitable decision to avoid nightmarish consequences to the global financial system: a controlled bailout of selected debt, cancellation of particular liabilities and a moratorium for a range of bonds. Leaving the Euro-area will destroy the valuation of sovereign assets and market acceptance in issuing necessary sovereign debt in the future. Moreover Italy, Belgium, Ireland, Spain and Portugal will consequently also lose the legitimation in being part of a common currency, the Euro will die and German tax payers will pay a substantial higher bill than today.

Greece reached 2002 the conditional targets to be considered member of the Euro-currency area simply following legal criteria provided by the EU council due to EUROSTAT, not declaring swaps issued in the market as sovereign debt. The transaction legitimated to hide a real deficit of 5.2% and to match the EU requirements with a technical 1.2%. Not the Greeks, but the EU Council itself, supported by left-wing governments in France and Germany, decided in 2001 to accept a left-wing ruled Greek State in the Euro-area, despite universally known deficit and Cassandra warning by the ECB.

Greece needs lower taxes and substantial privatisation of sovereign assets to restore confidence, not a punishment for the labor force, only available source of economic growth. Delays in taking decision for bailouts by EU/IMF/ECB, pressure on the Greek government to introduce inadequate austerity measures, tremendous greedy behavior of investors, passive role of rating agencies, inappropriate statements of opinion leaders and crucial lack of competence in Athens managing the crisis are the reason of the disaster.

It is bizarre to require today support from private investors, who caused the collapse selling Greek bonds substantially (since 2010 daily liquidity -98% to €23m/day!), as condition to agree on a useless bailout and ignore a structurally deteriorated macro. This Armageddon was avoidable in 2010. Investors need to avoid greedy driven capital markets, ignore recurring “water level reports” of opinion leaders and switch on the analytical human intellect learnt at the school: it helps to know the letters and see double – Pythagoras.

Von Nicola Facciorusso, Founder, Autenrieth Capital

Ursprünglich erschienen im GoingPublic Magazin 08-09/2011.