Fixing Greek Debt Remains Elusive Euro-Zone Target
By CHARLES FORELLE And MARCUS WALKER
In a string of meetings beginning next week, European leaders will again wrestle with how to keep Greece from running out of cash, but they almost certainly won't solve the far bigger question of how to cut down the growing pile of debt that is slowly suffocating the country.
The consequences are stark. Greece must shoulder a frightful debt burden while suffering an epic recession. The euro zone, which had once hoped to patch Greece up and move along, now faces the prospect of dealing with its problems for years, or engineering a divorce.
By CHARLES FORELLE And MARCUS WALKER
In a string of meetings beginning next week, European leaders will again wrestle with how to keep Greece from running out of cash, but they almost certainly won't solve the far bigger question of how to cut down the growing pile of debt that is slowly suffocating the country.
The consequences are stark. Greece must shoulder a frightful debt burden while suffering an epic recession. The euro zone, which had once hoped to patch Greece up and move along, now faces the prospect of dealing with its problems for years, or engineering a divorce.
Agence France-Presse/Getty Images: Port police officers light flares and shout slogans during a demonstration in Athens protesting government austerity measures on Nov. 1.
Europe has choices for addressing the first problem, though none is appetizing. There is almost no political will to decisively attack the latter problem. One option under consideration is a buyback of some debt. But that would only nibble at the edges.
Greek debt will be €346 billion ($448 billion) next year, the government said Wednesday. At 189% of gross domestic product, that debt is nearly twice what the government thinks next year's economic output will be.
The weight of debt erodes confidence in Greece's government, its financial system and in the economy.
It also scares off investment and renders ineffective recent palliative measures from the European Central Bank, which is trying to persuade investors that stressed countries won't quit the euro zone, and so it is safe to lend to their governments and businesses. To a degree, this approach has worked for Spain and Italy.
Europe has choices for addressing the first problem, though none is appetizing. There is almost no political will to decisively attack the latter problem. One option under consideration is a buyback of some debt. But that would only nibble at the edges.
Greek debt will be €346 billion ($448 billion) next year, the government said Wednesday. At 189% of gross domestic product, that debt is nearly twice what the government thinks next year's economic output will be.
The weight of debt erodes confidence in Greece's government, its financial system and in the economy.
It also scares off investment and renders ineffective recent palliative measures from the European Central Bank, which is trying to persuade investors that stressed countries won't quit the euro zone, and so it is safe to lend to their governments and businesses. To a degree, this approach has worked for Spain and Italy.
But the risk of a second Greek default, after one earlier this year, and a possible euro exit "hasn't been removed from the table by the ECB," says Ross Pamphilon, co-chief investment officer of ECM, a London-based asset manager specializing in credit markets.
Substantially reducing that risk requires cutting Greece's debt to a sustainable level. Few European governments are even willing to talk about taking such steps. No surprise—they hold most of Greece's debt.
Euro-zone governments made €53 billion in loans to Greece in 2010 and 2011. The ECB and other central banks in the euro zone now have roughly €45 billion in Greek bonds.
The euro-zone bailout fund has lent Greece €74 billion and is scheduled to lend another €71 billion in the coming years—much of it in the coming months. All told, that is more than two-thirds of Greece's debt burden.
By contrast, private bondholders have a bit more than €60 billion. Those bonds trade at around 25 European cents on the euro. So in theory, euro-zone governments could engineer a buyback to retire some of them.
They could lend Greece another €30 billion, say, to buy them back at 50 cents on the euro, cutting Greece's debt by €30 billion, less than 10% of the total stock.
More drastic measures collide with political reality. Germany, the dominant player in all euro-zone negotiations that involve money, is among creditors least willing to countenance forgiving any of Greece's debt.
Other frugal Northern European countries, like the Netherlands and Finland, also insist Greece make tough internal reforms.
The International Monetary Fund wants the euro zone to forgo some of what Greece owes it. But German Finance Minister Wolfgang Schäuble said during the IMF's October meeting in Tokyo that Greece's problems were "caused by Greece, and they must be solved by Greece."
Moreover, Chancellor Angela Merkel faces national elections in fall 2013 and is loath to risk splits in her coalition or attacks from euro-skeptic German media by admitting Greece mightn't repay all its debt to Europe.
German politicians trust only that Greek politicians will carry out painful economic reform under duress. For them, forgiving debt would remove pressure on Athens to change its ways.
European policy makers have discussed forgiving some or all of the €53 billion in loans euro-zone governments disbursed to Athens. But Ms. Merkel and Mr. Schäuble view the proposal as "absurd," according to a senior German official.
"Northern Europe doesn't want to make Greek debt too sustainable. In their own mind, they need Greece's debt to be close to unsustainable so that it implements reforms," says Gabriel Sterne, economist at London-based brokerage Exotix Ltd.
Tough austerity policies demanded by Germany and its friends worsen Greece's debt problem by shrinking the economy, lessening the productive base from which debt can be repaid, many economists argue.
Greece's creditors have continually underestimated the extent of the economic damage. In their first bailout of Greece, in 2010, they anticipated that Greece's GDP would be €235 billion in 2013. The Greek government now says it will be €183 billion.
Greece's other problem—its need for short-term cash—is in many ways easier to solve. While Germany and others resist simply writing a check, there are other tools.
Greece could continue issuing high levels of short-term Treasury bills to its banks. The countries might agree to hand over to Greece the profits that the ECB will receive from its Greek bond holdings, which are being repaid in full despite the central bank's having bought them at a discount.
Or the euro zone could give Greece a break on the interest it owes. As largest creditor, the euro zone gets the bulk of the €10 billion Greece will spend next year on interest.
Credit Suisse CSGN.VX +0.09% analysts say a moratorium through 2016 on interest due to the euro zone would save Greece €23.4 billion. In effect, the euro zone would give up some money to avoid another bailout.
Such a move could well be more politically palatable.
Write to Charles Forelle at charles.forelle@wsj.com and Marcus Walker atmarcus.walker@wsj.com
Hit by crisis, Greek society in free-fall
Substantially reducing that risk requires cutting Greece's debt to a sustainable level. Few European governments are even willing to talk about taking such steps. No surprise—they hold most of Greece's debt.
Euro-zone governments made €53 billion in loans to Greece in 2010 and 2011. The ECB and other central banks in the euro zone now have roughly €45 billion in Greek bonds.
The euro-zone bailout fund has lent Greece €74 billion and is scheduled to lend another €71 billion in the coming years—much of it in the coming months. All told, that is more than two-thirds of Greece's debt burden.
By contrast, private bondholders have a bit more than €60 billion. Those bonds trade at around 25 European cents on the euro. So in theory, euro-zone governments could engineer a buyback to retire some of them.
They could lend Greece another €30 billion, say, to buy them back at 50 cents on the euro, cutting Greece's debt by €30 billion, less than 10% of the total stock.
More drastic measures collide with political reality. Germany, the dominant player in all euro-zone negotiations that involve money, is among creditors least willing to countenance forgiving any of Greece's debt.
Other frugal Northern European countries, like the Netherlands and Finland, also insist Greece make tough internal reforms.
The International Monetary Fund wants the euro zone to forgo some of what Greece owes it. But German Finance Minister Wolfgang Schäuble said during the IMF's October meeting in Tokyo that Greece's problems were "caused by Greece, and they must be solved by Greece."
Moreover, Chancellor Angela Merkel faces national elections in fall 2013 and is loath to risk splits in her coalition or attacks from euro-skeptic German media by admitting Greece mightn't repay all its debt to Europe.
German politicians trust only that Greek politicians will carry out painful economic reform under duress. For them, forgiving debt would remove pressure on Athens to change its ways.
European policy makers have discussed forgiving some or all of the €53 billion in loans euro-zone governments disbursed to Athens. But Ms. Merkel and Mr. Schäuble view the proposal as "absurd," according to a senior German official.
"Northern Europe doesn't want to make Greek debt too sustainable. In their own mind, they need Greece's debt to be close to unsustainable so that it implements reforms," says Gabriel Sterne, economist at London-based brokerage Exotix Ltd.
Tough austerity policies demanded by Germany and its friends worsen Greece's debt problem by shrinking the economy, lessening the productive base from which debt can be repaid, many economists argue.
Greece's creditors have continually underestimated the extent of the economic damage. In their first bailout of Greece, in 2010, they anticipated that Greece's GDP would be €235 billion in 2013. The Greek government now says it will be €183 billion.
Greece's other problem—its need for short-term cash—is in many ways easier to solve. While Germany and others resist simply writing a check, there are other tools.
Greece could continue issuing high levels of short-term Treasury bills to its banks. The countries might agree to hand over to Greece the profits that the ECB will receive from its Greek bond holdings, which are being repaid in full despite the central bank's having bought them at a discount.
Or the euro zone could give Greece a break on the interest it owes. As largest creditor, the euro zone gets the bulk of the €10 billion Greece will spend next year on interest.
Credit Suisse CSGN.VX +0.09% analysts say a moratorium through 2016 on interest due to the euro zone would save Greece €23.4 billion. In effect, the euro zone would give up some money to avoid another bailout.
Such a move could well be more politically palatable.
Write to Charles Forelle at charles.forelle@wsj.com and Marcus Walker atmarcus.walker@wsj.com
-------------------------------------------------------
Hit by crisis, Greek society in free-fall
By ELENA BECATOROS | Associated Press
Associated Press/Petros Giannakouris - FILE In this Monday, Sept. 24, file photo an elderly man walks inside the Athens' central fish market. To the casual visitor, all might appear well in Athens. But scratch …more
ATHENS, Greece (AP) — A sign taped to a wall in an Athens hospital appealed for civility from patients. "The doctors on duty have been unpaid since May," it read, "Please respect their work."
Patients and their relatives glanced up briefly and moved on, hardened to such messages of gloom. In a country where about 1,000 people lose their jobs each day, legions more are still employed but haven't seen a paycheck in months. What used to be an anomaly has become commonplace, and those who have jobs that pay on time consider themselves the exception to the rule.
To the casual observer, all might appear well in Athens. Traffic still hums by, restaurants and bars are open, people sip iced coffees at sunny sidewalk cafes. But scratch the surface and you find a society in free-fall, ripped apart by the most vicious financial crisis the country has seen in half a century.
It has been three years since Greece's government informed its fellow members in the 17-country group that uses the euro that its deficit was far higher than originally reported. It was the fuse that sparked financial turmoil still weighing heavily on eurozone countries. Countless rounds of negotiations ensued as European countries and the International Monetary Fund struggled to determine how best to put a lid on the crisis and stop it spreading.
The result: Greece had to introduce stringent austerity measures in return for two international rescue loan packages worth a total of €240 billion ($313 billion), slashing salaries and pensions and hiking taxes.
The reforms have been painful, and the country faces a sixth year of recession.
Life in Athens is often punctuated by demonstrations big and small, sometimes on a daily basis. Rows of shuttered shops stand between the restaurants that have managed to stay open. Vigilantes roam inner city neighborhoods, vowing to "clean up" what they claim the demoralized police have failed to do. Right-wing extremists beat migrants, anarchists beat the right-wing thugs and desperate local residents quietly cheer one side or the other as society grows increasingly polarized.
"Our society is on a razor's edge," Public Order Minister Nikos Dendias said recently, after striking shipyard workers broke into the grounds of the Defense Ministry. "If we can't contain ourselves, if we can't maintain our social cohesion, if we can't continue to act within the rules ... I fear we will end up being a jungle."
CRUMBLING LIVING STANDARDS
Vassilis Tsiknopoulos, runs a stall at Athens' central fish market and has been working since age 15. He used to make a tidy profit, he says, pausing to wrap red mullet in a paper cone for a customer. But families can't afford to spend much anymore, and many restaurants have shut down.
The 38-year-old fishmonger now barely breaks even.
"I start work at 2:30 a.m. and work 'till the afternoon, until about 4 p.m. Shouldn't I have something to show for that? There's no point in working just to cover my costs. ... Tell me, is this a life?"
The fish market's president, Spyros Korakis, says there has been a 70 percent drop in business over the past three years. Above the din of fish sellers shouting out prices and customers jostling for a better deal, Korakis explained how the days of big spenders were gone, with people buying ever smaller quantities and choosing cheaper fish.
Private businesses have closed down in the thousands. Unemployment stands at a record 25 percent, with more than half of Greece's young people out of work. Caught between plunging incomes and ever increasing taxes, families are finding it hard to make ends meet. Higher heating fuel prices have meant many apartment tenants have opted not to buy heating fuel this year. Instead, they'll make do with blankets, gas heaters and firewood to get through the winter. Lines at soup kitchens have grown longer.
At the end of the day, as the fish market gradually packed up, a beggar crawled around the stalls, picking up the fish discarded onto the floor and into the gutters.
"I've been here since 1968. My father, my grandfather ran this business," Korakis said. "We've never seen things so bad."
Tsiknopoulos' patience is running out.
"I'm thinking of shutting down," he said, "I think about it every day. That, and leaving Greece."
JUSTICE
On a recent morning in a crowded civil cases court in the northern city of Thessaloniki, frustration simmered. Plaintiffs, defendants and lawyers all waited for the inevitable — yet another postponement, yet another court date.
Greece's sclerotic justice system has been hit by a protracted strike that has left courts only functioning for an hour a day as judges and prosecutors protest salary cuts.
For Giorgos Vacharelis, it means his long quest for justice has grown longer. Vacharelis' younger brother was beaten to death in a fairground in 2003. The attacker was convicted of causing a fatal injury and jailed. The family felt the reasons behind the 24-year-old's death had never been fully explained, and filed a civil suit for damages. Nearly 10 years later, Vacharelis and his parents had hoped the case would finally be over.
But the court date they were given in late September got caught up the strike. Now they have a new date: Feb. 28, 2014.
"This means more costs for them, but above all more psychological damage because each time they go through the murder of their relative again," said Nikos Dialynas, the family's lawyer.
Vacharelis and his family are in despair.
"If a foreigner saw how the justice system works in Greece, he would say we're crazy," said the 35-year-old.
"Each time we come to court we get even more outraged," he said. "We see a theater of the absurd."
VIGILANTES
In September, gangs of men smashed immigrant street vendors' stalls at fairs and farmers' markets. Videos posted on the Internet showed the incident being carried out in the presence of lawmakers from the extreme right Golden Dawn party. Formerly a fringe group, Golden Dawn — which denies accusations it has carried out violent attacks against immigrants — made major inroads into mainstream politics. It won nearly 7 percent of the vote in June's election and 18 seats in the 300-member parliament. A recent opinion poll showed its support climbing to 12 percent.
Immigrant and human rights groups say there has been an alarming increase in violent attacks on migrants. Greece has been the EU's main gateway for hundreds of thousands of illegal migrants — and foreigners have fast become scapegoats for rising unemployment and crime.
While there are no official statistics, migrants tell of random beatings at the hands of thugs who stop to ask them where they are from, then attack them with wooden bats.
Assaults have been increasing since autumn 2010, said Spyros Rizakos, who heads Aitima, a human rights group focusing on refugees. Victims often avoid reporting beatings for fear of running afoul of the authorities if they are in the country illegally, while perpetrators are rarely caught or punished even if the attacks are reported.
"Haven't we learned anything from history? What we are seeing is a situation that is falling apart, the social fabric is falling apart," Rizakos said. "I'm very concerned about the situation in Greece. There are many desperate people ... All this creates an explosive cocktail."
In response to pressure for more security and a crackdown on illegal migration, the government launched a police sweep in Athens in early August. By late October, police had rounded up nearly 46,000 foreigners, of whom more than 3,600 were arrested for being in the country illegally.
Police say that in the first two months of the operation, there was also a 91 percent drop in the numbers of migrants entering the country illegally along the northeastern border withTurkey, with 1,338 migrants arrested in the border area compared to 14,724 arrested during the same two months in 2011.
HEALTHCARE
At a demonstration by the disabled in central Athens, tempers were rising.
Healthcare spending has been slashed as the country struggles to reduce its debt. Public hospitals complain of shortages of everything from gauzes to surgical equipment. Pharmacies regularly go on strike or refuse to fill subsidized social security prescriptions because government funds haven't paid them for the drugs already bought. Benefits have been slashed and hospital workers often go unpaid for months.
And it is the country's most vulnerable who suffer.
"When the pharmacies are closed and I can't get my insulin, which is my life for me, what do I do? ... How can we survive?" asked Voula Hasiotou, a member of an association of diabetics who turned out for the rally.
The disabled still receive benefits on a sliding scale according to the severity of their condition. But they are terrified they could face cuts, and are affected anyway by general spending cuts and the pharmacy problems.
"We are fighting hard to manage something, a dignified life," said Anastasia Mouzakiti, a paraplegic who came to the demonstration from the northern city of Thessaloniki with her husband, who is also handicapped.
With extra needs such as wheelchairs and home help for everyday tasks such as washing and dressing, many of Greece's disabled are struggling to make ends meet, Mouzakiti said.
"We need a wheelchair until we die. This wheelchair, if it breaks down, how do we pay for it? With what money?"
___________________________________________
Costas Kantouris in Thessaloniki, Greece contributed to this story.
Associated Press/Petros Giannakouris - FILE In this Monday, Sept. 24, file photo an elderly man walks inside the Athens' central fish market. To the casual visitor, all might appear well in Athens. But scratch …more
ATHENS, Greece (AP) — A sign taped to a wall in an Athens hospital appealed for civility from patients. "The doctors on duty have been unpaid since May," it read, "Please respect their work."
Patients and their relatives glanced up briefly and moved on, hardened to such messages of gloom. In a country where about 1,000 people lose their jobs each day, legions more are still employed but haven't seen a paycheck in months. What used to be an anomaly has become commonplace, and those who have jobs that pay on time consider themselves the exception to the rule.
To the casual observer, all might appear well in Athens. Traffic still hums by, restaurants and bars are open, people sip iced coffees at sunny sidewalk cafes. But scratch the surface and you find a society in free-fall, ripped apart by the most vicious financial crisis the country has seen in half a century.
It has been three years since Greece's government informed its fellow members in the 17-country group that uses the euro that its deficit was far higher than originally reported. It was the fuse that sparked financial turmoil still weighing heavily on eurozone countries. Countless rounds of negotiations ensued as European countries and the International Monetary Fund struggled to determine how best to put a lid on the crisis and stop it spreading.
The result: Greece had to introduce stringent austerity measures in return for two international rescue loan packages worth a total of €240 billion ($313 billion), slashing salaries and pensions and hiking taxes.
The reforms have been painful, and the country faces a sixth year of recession.
Life in Athens is often punctuated by demonstrations big and small, sometimes on a daily basis. Rows of shuttered shops stand between the restaurants that have managed to stay open. Vigilantes roam inner city neighborhoods, vowing to "clean up" what they claim the demoralized police have failed to do. Right-wing extremists beat migrants, anarchists beat the right-wing thugs and desperate local residents quietly cheer one side or the other as society grows increasingly polarized.
"Our society is on a razor's edge," Public Order Minister Nikos Dendias said recently, after striking shipyard workers broke into the grounds of the Defense Ministry. "If we can't contain ourselves, if we can't maintain our social cohesion, if we can't continue to act within the rules ... I fear we will end up being a jungle."
CRUMBLING LIVING STANDARDS
Vassilis Tsiknopoulos, runs a stall at Athens' central fish market and has been working since age 15. He used to make a tidy profit, he says, pausing to wrap red mullet in a paper cone for a customer. But families can't afford to spend much anymore, and many restaurants have shut down.
The 38-year-old fishmonger now barely breaks even.
"I start work at 2:30 a.m. and work 'till the afternoon, until about 4 p.m. Shouldn't I have something to show for that? There's no point in working just to cover my costs. ... Tell me, is this a life?"
The fish market's president, Spyros Korakis, says there has been a 70 percent drop in business over the past three years. Above the din of fish sellers shouting out prices and customers jostling for a better deal, Korakis explained how the days of big spenders were gone, with people buying ever smaller quantities and choosing cheaper fish.
Private businesses have closed down in the thousands. Unemployment stands at a record 25 percent, with more than half of Greece's young people out of work. Caught between plunging incomes and ever increasing taxes, families are finding it hard to make ends meet. Higher heating fuel prices have meant many apartment tenants have opted not to buy heating fuel this year. Instead, they'll make do with blankets, gas heaters and firewood to get through the winter. Lines at soup kitchens have grown longer.
At the end of the day, as the fish market gradually packed up, a beggar crawled around the stalls, picking up the fish discarded onto the floor and into the gutters.
"I've been here since 1968. My father, my grandfather ran this business," Korakis said. "We've never seen things so bad."
Tsiknopoulos' patience is running out.
"I'm thinking of shutting down," he said, "I think about it every day. That, and leaving Greece."
JUSTICE
On a recent morning in a crowded civil cases court in the northern city of Thessaloniki, frustration simmered. Plaintiffs, defendants and lawyers all waited for the inevitable — yet another postponement, yet another court date.
Greece's sclerotic justice system has been hit by a protracted strike that has left courts only functioning for an hour a day as judges and prosecutors protest salary cuts.
For Giorgos Vacharelis, it means his long quest for justice has grown longer. Vacharelis' younger brother was beaten to death in a fairground in 2003. The attacker was convicted of causing a fatal injury and jailed. The family felt the reasons behind the 24-year-old's death had never been fully explained, and filed a civil suit for damages. Nearly 10 years later, Vacharelis and his parents had hoped the case would finally be over.
But the court date they were given in late September got caught up the strike. Now they have a new date: Feb. 28, 2014.
"This means more costs for them, but above all more psychological damage because each time they go through the murder of their relative again," said Nikos Dialynas, the family's lawyer.
Vacharelis and his family are in despair.
"If a foreigner saw how the justice system works in Greece, he would say we're crazy," said the 35-year-old.
"Each time we come to court we get even more outraged," he said. "We see a theater of the absurd."
VIGILANTES
In September, gangs of men smashed immigrant street vendors' stalls at fairs and farmers' markets. Videos posted on the Internet showed the incident being carried out in the presence of lawmakers from the extreme right Golden Dawn party. Formerly a fringe group, Golden Dawn — which denies accusations it has carried out violent attacks against immigrants — made major inroads into mainstream politics. It won nearly 7 percent of the vote in June's election and 18 seats in the 300-member parliament. A recent opinion poll showed its support climbing to 12 percent.
Immigrant and human rights groups say there has been an alarming increase in violent attacks on migrants. Greece has been the EU's main gateway for hundreds of thousands of illegal migrants — and foreigners have fast become scapegoats for rising unemployment and crime.
While there are no official statistics, migrants tell of random beatings at the hands of thugs who stop to ask them where they are from, then attack them with wooden bats.
Assaults have been increasing since autumn 2010, said Spyros Rizakos, who heads Aitima, a human rights group focusing on refugees. Victims often avoid reporting beatings for fear of running afoul of the authorities if they are in the country illegally, while perpetrators are rarely caught or punished even if the attacks are reported.
"Haven't we learned anything from history? What we are seeing is a situation that is falling apart, the social fabric is falling apart," Rizakos said. "I'm very concerned about the situation in Greece. There are many desperate people ... All this creates an explosive cocktail."
In response to pressure for more security and a crackdown on illegal migration, the government launched a police sweep in Athens in early August. By late October, police had rounded up nearly 46,000 foreigners, of whom more than 3,600 were arrested for being in the country illegally.
Police say that in the first two months of the operation, there was also a 91 percent drop in the numbers of migrants entering the country illegally along the northeastern border withTurkey, with 1,338 migrants arrested in the border area compared to 14,724 arrested during the same two months in 2011.
HEALTHCARE
At a demonstration by the disabled in central Athens, tempers were rising.
Healthcare spending has been slashed as the country struggles to reduce its debt. Public hospitals complain of shortages of everything from gauzes to surgical equipment. Pharmacies regularly go on strike or refuse to fill subsidized social security prescriptions because government funds haven't paid them for the drugs already bought. Benefits have been slashed and hospital workers often go unpaid for months.
And it is the country's most vulnerable who suffer.
"When the pharmacies are closed and I can't get my insulin, which is my life for me, what do I do? ... How can we survive?" asked Voula Hasiotou, a member of an association of diabetics who turned out for the rally.
The disabled still receive benefits on a sliding scale according to the severity of their condition. But they are terrified they could face cuts, and are affected anyway by general spending cuts and the pharmacy problems.
"We are fighting hard to manage something, a dignified life," said Anastasia Mouzakiti, a paraplegic who came to the demonstration from the northern city of Thessaloniki with her husband, who is also handicapped.
With extra needs such as wheelchairs and home help for everyday tasks such as washing and dressing, many of Greece's disabled are struggling to make ends meet, Mouzakiti said.
"We need a wheelchair until we die. This wheelchair, if it breaks down, how do we pay for it? With what money?"
___________________________________________
Costas Kantouris in Thessaloniki, Greece contributed to this story.
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