The end of Greece’s “guardianship” by Brussels, the ECB and the IMF on Monday, August 20, was touted as a victory by the media. If we are to judge by their headlines, the Greek crisis is over: “How Greece Got Out of the Crisis”, “Greece: the Return of Growth”, “Greece Turns the Page After Eight Years of Crisis”, “Greece Is No Longer Under Perfusion”, etc. Pierre Moscovici, European Commissioner for Economic and Financial Affairs, states that "Greece is on the way to ensure sustainable growth.” Should we then believe everything is going better?
But when one looks closer at the economic reality, one realizes that this is but enormous fake news. Greece, with its three bailout plans, has received a total of 289 billion euro. Who can believe she will one day reimburse all of that? The larger part of this sum came from the European Union, which means all of us European taxpayers, who will be stuck with this loss at the end. As for France, it is estimated that a little over 40 billion euro has been loaned to Greece through aid funds such as the European Stability Mechanism (ESM). I guess we can say goodbye to it.
Greece’s public debt represents nearly double its GDP (exactly 180%), which means that paying 1% interest on it drains 2% of the GDP (annual growth in wealth), 2% drains 4% of the GDP, and so forth. This is hardly sustainable... and we’re only talking about servicing the debt, here, not about actually reimbursing it. On the other hand, its banking system is totally bankrupt, if we are to judge by the European Banking Authority (EBA) official numbers, since 44.9% of loans are NPLs (non-performing loans). How can anybody pretend that the country is back on track? Or that it is getting there?
But Greece’s creditors (EU, ECB, IMF), discreetly, used a subterfuge: last June 22, they pushed back by ten years the date at which Greece will have to start reimbursing the debt, from 2022 to 2032! Ten years in one shot, with a simple signature on a document, but without publicizing it in the media, this time, of course. So the European Union and the IMF have just invented a new concept: “Zero Debt”. After zero rates that – with the help of QE and a deluge of liquidity – brought servicing the debt to almost nothing, here comes “zero debt”, making reimbursement of the capital vanish into an indefinite future. In 2031, when it dawns on everyone that Greece cannot start reimbursing its debt – and certainly, as well, not pay the whole of the interest on it – they will just postpone again for ten years, saying “Greece is on the way back”, “growth is coming back”, etc.
The concept of “zero debt” just saves face: Greece does not go bankrupt, creditors do not register any losses, the fiction of reimbursing the debt is maintained, and the euro zone is going well. Welcome to Potemkin’s village of debt! I would bet that this idea of zero debt will really take hold when rates slowly start to rise, strangling a number of borrowers, countries or large corporations. Giving more time to start the principal repayment will help maintain the illusion for a little longer. I reckon that the main international instances show no lack of imagination for pushing away the debt menace, but they do nothing to get to the root of the evil (cleaning up public accounts and banks’ balance sheets). I guess this is too simple for those brilliant minds.
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Philippe Herlin Finance Researcher / Member of the Goldbroker.com Editorial Team
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.