Greek Protestors Seek 'Stay of Execution' on Bailout
Violent protests erupted on the streets of Athens on Wednesday. They could help the Greek government make its case for less stringent bailout conditions to its international creditors.
Market focus has turned away from Greece towards larger Spain since Greece’s June elections. That does not mean the situation has improved. The newly installed Greek government is hammering out details of a new budget with officials from the troika of the European Central Bank (ECB),International Monetary Fund (IMF), and European Commission this week. (Read More: Greece Closer to Austerity Deal.)
“If people did not protest, there would be something wrong with the measures,” Petros Christodoulou, deputy chief executive, National Bank of Greece, told CNBC Europe’s “Squawk Box” Wednesday. “People realize there’s no other way. They know the downside of exiting the euro very well.”
Finance Minister Yannis Stournaras — one of the new coalition government members who seems to have been well received by the rest of the euro zone — said on Tuesday that Greece would need an extra 13 billion to 15 billion euros ($16.7 billion to $19.3 billion) to fund a two-year extension to its bailout. He added that the country hopes to be able to do this without extra burdens being imposed on the rest of the European Union.
“They are trying to see whether they can have a stay of execution, and the protests are actually probably going to help, because it’s obvious that they can’t take any more austerity,” Vicky Pryce, economist and author of “Greekonomics,” told CNBC Europe’s “Squawk Box.” “The cost has been great for the Greeks. These are very difficult conditions for people to just sit back and accept it. If they find that they can start trusting their government and believe that the Europeans are serious about getting the economy to grow again. There’s just no light at the end of the tunnel at present. Once there is I think the Greeks will be prepared to do it.”
While Greece has received several tranches of its bailout from international lenders, much of this has gone towards recapitalizing its troubled banks rather than into the real economy.
“I believe that the recap money that comes in will eventually be recycled in the economy,” Christodoulou said. “This point in the cycle is usually where the night gets darkest and the fatigue peaks and I’m not sure we’ve turned that yet.”
ECB board member Joerg Asmussen ruled out the central bank taking part in further restructuring of the country’s sovereign debt Tuesday.
Rumblings from core euro zone countries increasingly suggest that they are less well-disposed towards Greece’s problems.
“There is no free money and no subsidies, which makes the argument that you hear from some of the Northern countries a bit unfair,” Christodoulou said. “It’s not a make-or-break if Greece stays in the euro zone or not. It’s about sending a clear signal that the euro zone is sticking together.” (Read More: Greece Needs to Leave the Euro.)
More analysts are looking at what would happen if Greece returned to the drachma. Ben May, economist at Capital Economics this week argued that going back to its old currency would “kick start a Greek economic recovery” by “increasing exports, encouraging import substitution and, in time, boosting domestic demand.” He predicted a 25 percent rise in Greek exports in three years following an exit from the euro.
“If Greece left this year, we think that (gross domestic product) might start to expand by late 2013 and that by 2014 Greece would be one of Europe’s strongest economic performers,” May wrote in a research note.
The examples of Sweden, Brazil, Thailand, and South Korea — where currency devaluation after a crisis has been followed by export strength — were cited by May.
Christodoulou is still optimistic that the Greeks can turn their situation around.
“We want people to get off the comfort zone of the public sector and move to entrepreneurship. The big change that’s happening is uprooting that mentality,” he said. “People are learning to live with less.” (Read More:Entrepreneurs in Greece.)