If you wanted to try to be optimistic you could argue that there is a sense of reality dawning in Europe, and indeed, in Ireland. It was refreshing to hear Jean-Claude Juncker speak last week about the prospect of a soft restructuring, or a reprofiling, of Greece's debt. Olli Rehn seemed to agree with Juncker. Presumably they, and elected European finance ministers, agree that the alternative to a soft default for Greece right now is a real default sooner or later.
The markets are currently pricing in a 66 per cent chance of a Greek default in the next five years -- in other words they believe it is a twice as likely to happen as not to happen. Eighty-five per cent of investment managers surveyed by Bloomberg believe Greece is going to default.
It should be said that the markets regard re-profiling or rescheduling or soft default or whatever they're calling it today, which involves moving out Greece's debt maturity dates, as being a de-facto default, because, as far as they are concerned, it lowers the current monetary value of the debt. So, for example, €50bn you're going to pay off next week is worth more to a bondholder than €50bn with a maturity date in 20 years, even though you will keep paying the same interest over the extended period and you will ultimately pay off the principal. But there seems to be a feeling among some European politicians that a soft default would not trigger a so-called credit event, which is, one gathers, a Lehman's type meltdown.
So Juncker and Rehn and the finance ministers clearly feel that Greece's situation could become more doable with a soft default, and this would not trigger credit default swaps and banking crises and so forth.
What is interesting too is what Juncker said about the conditions under which Greece should be allowed the soft restructuring: "If Greece makes these unpleasant efforts then we'll have to see whether we can't proceed with a soft restructuring." So, what unpleasant efforts was he talking about? What would Greece have to do to deserve this prize? Certainly the planned €50bn privatisation would be one thing. But mainly, Juncker was talking about Greece making some proper moves toward tax collection and cutting spending. Seriously, that's what he's talking about. Basically the imminent progress report on Greece's bailout will show that they are gone way off the programme agreed a year ago, and it seems that if they get back on it a bit by living up to their spending and revenue commitments, they are to be rewarded!
Because you see Greeks have no culture really of paying taxes. If I remember correctly, Michael Lewis's Vanity Fair piece on Greece estimated that 30 to 40 per cent of the economy was black/undeclared and largely done in cash, from property sales to doctors' fees. And while the Greeks are not good at collecting money, they are great, as we know, at giving it out, and they are reluctant to give up that gravy train too.
So clearly, the Greeks need a bit more inducement to have
a bit of the kind of old fashioned economic law and order that we have in this country.
We, on the other hand, got a glowing report from the IMF recently. We are sticking to the programme and we have taken huge pain, or what Juncker would call "unpleasant efforts". What kinds of unpleasantness? Well, we have no money left to look after our old people. And many parents of disabled children have to wait until June at least to see if their children can go to the schools they were supposed to go to this year because it is only then that they will know if they can get a special needs assistant to keep their child safe. Because no new special needs assistants are allowed into the system, these parents will be depending on other disabled children presumably leaving school, or getting better, or dying or something, so that spare SNAs come up. That's the level of the barbaric unpleasantness around here -- we can't look after the old and the disabled anymore.
So where's our soft restructure? If European politicians can countenance Greece doing it without the world ending, then why can't we?
Of course Michael Noonan and Lucinda Creighton have both been at pains to point out in the last week that we don't want any comparisons between us and Greece. Not good for us apparently. We shouldn't even be mentioned in the same conversation.
You'd have to imagine that given how good the comparisons are for us, and given how badly we are doing compared to Greece on interest rates and potential concessions, that in fact we should be comparing, and we should be telling Europe that we'd like the same deal as Greece is getting and the same inducements to behave.
In fairness to Michael Noonan it has to be said that he was talking a bit tougher to Europe last week. In fact, Noonan seems to have been shamelessly lifting from the same sources we shamelessly lifted from last week. Gary O'Callaghan of Dubrovnik International University, a former IMF staffer, asked three pertinent questions about the bailout programmes in the Indo two weeks ago -- Why is Europe giving us bailouts? Do they want them to work? And how important is it to them that they work?
The answers are that Europe is giving us bailouts to save the core of the eurozone from meltdown, they want them to succeed, and it is crucial to them that they succeed. From this O'Callaghan concluded that the Europeans should start working with us on our bailout and should stop trying to attach punitive conditions that will impede the success of the programmes, conditions like increased interest rates. Noonan echoed all this last week in his veiled threats to Europe about them needing our bailout to work as much as we do.
Indeed, Noonan went further than he has before in terms of the interest rate, suggesting that we should enjoy the same cheap rates that EU accession countries get, which are about half the current rate we are paying.
But perhaps Noonan needs to go further and start making some comparisons between us and Greece and maybe he needs to start asking what our incentives for complying with the programme are.
Despite the fact that there were even noises from the Germans that they would be pragmatic about Greece's soft default, the unelected but hugely powerful quango that is the ECB was straight in ruling out any kind of soft default for Greece. And we can give a fair guess why. Seventy per cent of Greek debt is held abroad by the Germans, the French, the Americans and the ECB and they clearly won't countenance any moves on when those debts get paid back, no matter how possible or impossible it seems. You can see where they are coming from, but you can also see how anyone stupid enough to loan to Greece should not be entitled to get every penny back on time.
Most people do due diligence before they loan people money. And any cursory due diligence on Greece would have told bondholders the country was a basket case. The Greeks don't even trust each other to pay back debts. Before Greece went into the eurozone they were borrowing at 10 per cent over German rates. Having massaged their deficit and inflation figures to get into the eurozone, they went overnight, again according to Lewis in Vanity Fair, from 18 per cent interest rates to five per cent interest rates. If the people who started loaning Greece all this money with such gusto did not know what was going on and thought it was a safe bet, then they don't deserve their money back. And of course there is a likelihood they won't get it back.
But still good old Ireland behaves itself and commits to paying back every penny, despite the fact that we didn't con anyone out of the money they way the Greeks did. Sure, we made a mess of things but we never lied about our finances. When people lent us money they knew exactly what they were letting themselves in for.
Now that our nearest neighbour and friend is cosying up to us, and we're feeling newly confident and even slightly independent of Europe, perhaps it's time that we talked some serious turkey with Europe. We could still blow up the whole house, and they can't afford for us to do it. So maybe they need to help us a little bit more. And maybe the way to do that is to point out clearly, as the Greeks once did about us, that we are not the Greeks, but we could be more like them if someone isn't nice to us.