Greece is shocked as European leaders accepted Germany’s proposal for a big haircut of 50-60% of the Greek bonds, much bigger than the 21% that was agreed on July 21. The banks have still problems with it , however the final decision is to be taken on Wednesday – time enough for negotiations. Greece has accepted the German proposal; after all the debt-ridden country has nothing to say on the issue. By the way, Athens refuses to talk about a ‘haircut’ and sticks to ‘a relief of the debt weight’. As if this description would change anything on the substance of driving Greeks to impoverishment, loads of taxes and with a haircut of this scale surely cuts in the health sector. Not to mention the effects on the insurance and pension funds.
Fearing a bank run, Greek media repeatedly stressed on Sunday night that a haircut won’t affect people’s savings.
After almost two years of strict austerity, wrong calculations by the Troika and severe delays on cutting state expenditures by the Greek government, we are at the starting point again. Well done, guys!
“”The head of an international banking lobby that has been leading negotiations on giving Greece easier terms on its debt says the private sector and the eurozone are far from reaching a deal to cut Greece’s debt load.
Charles Dallara, the head of the Institute of International Finance, says Saturday “we’re nowhere near a deal.”
Banks in July agreed to accept 21 percent losses on their Greek bonds. But a report Friday by Greece’s international debt inspectors said its debt might have to be cut up to 60 percent for the country to recover.
Dallara told The Associated Press plans to slash Greece debt would still leave it as “a ward of Europe” for years.
He says “we would be open to an approach that involves additional efforts from everyone.” ” (source: BusinessWeek)
Shocked or relieved? The ‘haircut’ is in effect a reduction in Greece’s debt liabilities of 50-60% at the expense of the creditors, mainly European banks. It reduces the amount Greece has to pay. Though you are right that there still seems no relaxation of the austerity/impoverishment policies. Heather Stewart puts it well in this good article:
“A substantial write-off of Greece’s debts, as envisaged under the deal being hammered out in Brussels, will help if it comes off; but the advice to almost any other country in such a deep rut – saddled with uncompetitive firms and a creaking tax system, and trapped in recession – would be a sharp devaluation to buy some competitiveness and hopefully kickstart growth.
Without such a devaluation, Greece will need substantial economic aid – not yet more loans – to rebuild its shattered economy, and there’s little sign of that materialising.”
http://www.guardian.co.uk/business/2011/oct/23/greece-austerity-turns-crisis-into-disaster
you know, because they refused to do a haircut to the public sector and proceed with privatizations, we again have to pay the price. but it’s late now, I try to write something more understandable tomorrow