October 24, 2012
I can remember being asked by a friend back in June what was going to happen with the euro for the rest of this year. That is the kind of question that I normally try and fend off, but I was feeling a little vulnerable that day and so I just blurted out an answer.
“Towards the end of the year, around November time, Greece will need more money. To get it, they will have had to have made even more budget cuts that will be virtually impossible to make. If they haven’t made them, they will run out of money. And Germany has just announced that they won’t get any more time. Bankruptcy and a euro exit seem virtually assured.”
Well, it seems that yesterday, an extension to Greek reforms was granted and they now have until 2016 – not 2014 – to make the cutbacks required of them. The can has been kicked further down the road.
Once again, this is very last minute. Once again, catastrophe has been either averted or postponed. Once again, a firm position has been fudged. Once again, the previous official statements now amount to nothing. Once again, I am proved wrong.
Trying to figure out what might or might not happen is virtually impossible. How can markets, banks, businesses and the general public make any sort of long-term financial decision when there is such uncertainty?
It seems that the expected budget gap for 2013 that could not be filled amounts to something north of 15bn euros. And that the expected receipts from privatisations by 2015 will be around 8bn and not the 19bn originally hoped for (really, who’d pay top dollar for state assets in Greece now, knowing what we know?). Will two years be enough?