Keeping it together until the fall
There should be no doubt in our minds that a major taboo has finally been broken and Greek debt held by the official sector will undergo a write-down at some point, and a big one at that. The taboo was broken thanks to the insistence of the International Monetary Fund and its managing director, Christine Lagarde – the ultimate irony, considering that it was Germany and Chancellor Angela Merkel in particular that insisted on the participation of the IMF in the Greek bailout program in the first place.
Greece, of course, is in a rush to secure the biggest possible “haircut” quickly, even though it is highly unlikely that it will take place before the German general elections in the fall of 2013, as only a powerful coalition government – which is what most in Berlin are expecting – will be able to handle the backlash from such a move. Up until a write-down takes place, our partners and lenders will be keeping a very close eye on Greece to see whether it is implementing the commitments it has made. There are many in Berlin just waiting to see Greece relax if any promises of a haircut are made.
The big question, however, concerns what might happen in Greece up until the German elections. Many pundits are already predicting that the current government won’t last past next spring. There are those who can’t wait for that to happen, but it is widely accepted that this is going to be a very difficult winter for a large part of society, which will turn against the government.
It would be very dangerous to intensify widespread fear regarding developments and exaggerating the likelihood of Greece being kicked out of the eurozone. Neither the government nor the opposition are helping restore some semblance of normalcy in the country. The governing coalition is allowing itself to appear split over issues such as the tax reform, effectively shooting itself in the foot. That the government is exhausted and frustrated is understandable, but it must have something that looks like a solid plan to show from now on.
As far as the opposition is concerned, is appears overeager to govern while at the same time doing everything in its power to increase the sense of insecurity and uncertainty of anyone, Greek or foreign, thinking about investing in Greece.
The winter will be difficult, possibly the most difficult anyone under 50 has experienced, so it is crucial that we manage to make it to the fall of 2013 without any major mishaps or crises, as that is when the real decisions about the Greek debt crisis will be made.
