The Greek Tragedy

At the outset, what is pretty obvious to everyone is that  the Greek crisis is simply on account of public debt (of the government). However, as history will show that this is directly linked to the private debt. Since in the event of bust in the private sector, perpetrates increase in governmental debt on account of decline of government income and increase in government expenditure on social sector, secondly, there would be some part of private debt guaranteed implicitly or explicitly by the government, which government needs to address through its public debt. Given this the variation in public and private debt is quite cyclic in nature, with the latter following the former. While in Eurozone on the whole the public debt is within healthy 85% of GDP, individual countries do not replicate the same strength. Greece for instance has seen the public debt far exceeding 100% of the GDP, landing into a deficit to the extent of around 13%. The public debt which took the upward direction from 2005 in Greece, kept upward journey unchecked when analysts, having failed miserably in predicting the US recession  and sovereign debt crisis, in a move for redemption, went in frenzy with downgrading the Greek government to BBB plus rating for the first time in ten years on the 8th of December, 2009. Market always being a sentimental being responded with panic waves all around. Moody's and S&Ps warned of further downgrade with the fear of debt further going up to to 25% over the GDP in 2010. What made the matter graver was the fact that Greece has been cooking up its books, keeping under veils its debt which had reached 30 Bn Euro taking it to 113% of the GDP. This was followed by the announcement of austerity measure by the prime minister of Greece, George Papandreou, it contained serious measures than the one announced by UPA and ridiculed on net by their MP. For one 90 percent tax on bonuses of senior private sector bankers, ban in bonuses of public sector executives and 10% cut on civil servant allowances. On January 11, the wold community responded to the panic calls coming from Eurozone with IMF ( INternational Monetary Fund) appointing technical committee to assist Greek government in policy alignment and formulating measures to ward off the danger. As the Greek crisis pulled down the Euro to five year low, scathing attack came on Greece from the EU Commissioner, Joaqim Almunia criticizing the Greece government for fudging the data, while the statement of Dutch Finance minister Wouter Bos, calling it a Greek problem to be resolved by Greece only, reflected the general sentiment among EU member countries to stay away from the crisis, already reeling themselves under the impact of last years global recession. Greece however, extended its plea for a bailout package to the tune of 60Bn USD to EU and IMF. Towards the end of January, the investments of around 28 Bn USD in the first of the year government bond in Greece calmed some nerves. This was to an extent driven by a rumor that Greek government has Goldman Sachs to sell government debt to China, a swift denial of which brought back the clouds after a very brief sunshine. On February 11th 2010, a communication which marked the end of apprehensions on the survival of EU, notified the willlingness of the EU leader to support the bailout of Greek government subject to committed and visible efforts to reduce the deficit. March 4, again sentiments were revived, as the investors acted like a young soul in love, with the news of selling of 5 Bn Euro worth of 10 year bonds by Athens. Eurozone members on April 12th agreed to provide loans to the tune of 30 Bn Euro at the rate of 5 percent for three years, over and above 15 Bn Euro coming from IMF. April 22nd saw the deficit growing to 13.6 percent as against the estimate of 12.9 percent, enough to cause panic to already fearful markets on the back of highest in six years unemployment data. Subsequent downgrading by rating agencies, saw Greek regulator banning short selling of the stocks, as Germany predicted a need for around 100 to 120 Bn Euro to revive the Greek economy. The approval of this rescue plan is expected to come on 10th of May, 2010, when we will know if we are able to stave off the Greek tragedy, at least for now. While the financial tribe in India keeps tab on these developments, on an hour by hour basis, hope the matter is given due consideration by the political class in India, whose political ideologies revolve around free TV, Free rice and Free power, without any consideration to the far reaching impacts. The general populace can claim ignorance, but what about those who offer such populist lollypops. In India, we are not much better off given our own deficit is around 10.3%, we are still in perceivably better situation possibly because, growth in India is yet far from stagnation, and could be only a matter of perception, after Satyam and Lehman Brothers who do you trust. We as citizens need to decide between our most immediate selfish reasons and what we are going to leave for our children as we all know, there is no free lunch in this world, sooner or later we will have to pay for what we use.