The great majority of serious economic commentators know that the ‘bailout’ package just agreed between the EU and Greece is going to fail. That in the end Greece will be forced into partial default worsening the terms for its creditors. This will, of course, be politely termed ‘rescheduling’, ‘reprofiling’ or some similar phrase in order to attempt to camouflage reality. The camouflage may, however, be so transparent that the ratings agencies will still declare a default. The main discussion is whether it is better for Greece to default immediately or whether the bailout package is a good idea, not because it will work in the end, but because it will postpone the default.
It is therefore useful to understand that all three bailout packages agreed between the EU and its member countries struck by debt crisis are failing in their declared purpose of promoting economic recovery – that is not only in Greece but also in Ireland and Portugal. This is clear from Figure 1, which shows the trend in GDP for these three countries since its peak in the last business cycle.
As may be seen in none of these countries is serious recovery occurring. Attempts to claim it is, for example by making optimistic publicity about the latest quarter’s GDP figures from Ireland, consists of taking data out of context – Ireland’s GDP figures were better only in comparison to the precipitate collapse which had occurred in the previous quarter.
Taking the three countries which have made agreements with the EU the latest available data, for the 1st quarter of 2011, shows:
- Greece’s GDP is 9.9% below its peak with an insignificant recovery from the low of 10.0% below.
- Portugal had been recovering, but its GDP has turned down in the last two quarters and is now 2.7% below its peak.
- Ireland’s GDP is 11.5% below its peak and is the same level as in the 3rd quarter of 2009 – i.e. no net growth has taken place for the last year and a half of austerity packages.
In short no serious recovery has been created by any EU ‘bailout’.