Greek Parliament Passed Austerity Budget Agreeing to a Further €9.4bn of Cuts Including to All State Salaries and Pensions

If Greece’s default isn’t arranged by parliament, it will be enacted on the streets

November 12, 2012

UK Telegraph - The Greek parliament passed an austerity budget yesterday, agreeing to a further €9.4bn of cuts including to all state salaries and pensions. Next year will see the economy shrink for the sixth consecutive year according to government forecasts, declining a further 4.5pc. Unemployment is already at 25pc and, despite spending cuts, state debt will hit 189pc of GDP next year (and rise to 192pc the year in 2014/15 according to Fitch).

The news cycle in Britain may have moved on, but the rioters haven’t. A further 15,000 surrounded parliament yesterday. The country is so wracked by financial and social breakdown that it now resembles a hospital patient in a vegetative state, kept alive by measures which only heighten the pain experienced before the inevitable end.

There is no way that Greece can pay back the Troika. It is already trapped in a debt spiral. Greece has a €5bn debt payment due this Friday on a three month Treasury Bill. T-bills, which are short-term bonds designed to be paid off relatively quickly, are the only form of debt the Greeks are allowed by the Troika. This one only came into existence to fund a Greek repayment to the ECB earlier this year (conveniently debt ceilings tend to get overlooked in these cases).

The bills were meant to be paid off at expiry. Instead, they will be rolled over, with the same amount borrowed again. The excuse is that expected EU aid has not materialised. If the Troika had lent Greece some more money, it would have been able to honour its debts to… the Troika, who now hold 70pc of all Greek debt, according to Fitch. Private banks have been driven from the market not only because of the default risk, but because the price point has been so distorted by Troika intervention that T-bill pricing (around the 98p in the £ mark) bears no relationship the less distorted price of 10-year debt (30p in the £).

Friday's debt issue will be fully subscribed by Greek banks. These in turn will present their government bonds to the central bank who will treat them as collateral, allowing the banks to draw money from the reserve and stagger through another month.

This cycle no longer serves a purpose other than can kicking. Debt forgiveness is impossible for Greece's major creditors, because of the imperative which would exist to forgive the debt of half the Eurozone. The longer the charade continues, the greater the transfer of wealth from Greece to the Troika in interest payments on a debt which will never be redeemed.

A thread which frequently appears beneath discussions of the deprivations facing the Greeks is that it serves them right having borrowed so much. Physician, heal thyself. At home the Coalition continues to canter merrily into the abyss and will deliver the continued escalation of debt through the 80pc barrier over their term. America has just re-elected an incumbent who added an impressive 60pc ($6,000,000,000,000) to the US national debt in only four years. Both countries float on the outer rings of the whirlpool, and neither has the will to paddle away. Debt monetisation and money printing will stave off an outright default in Britain, but not the associated loss of wealth.

The Troika will wring every penny from Greece before it goes under, but go under it must, and if that default is not enacted eventually by parliament, it will be enacted on the streets with bloody consequences.