Update on Greece

Greece has to reduce its budget deficit from 12.7% GDP last year to 8.7% this year. Greece needs to borrow €53 billion in 2010 and to refinance €20 billion in April/May.

Because of misleading and false figures in the recent past, the IOUs (bonds) issued by the Greek government are now 3.1% higher than the base rate for Germany. This is unsustainable and unaffordable for Greece. It requires some financial guarantee from the Eurozone to get the interest rate down. This is a huge political problem for the German Chancellor Merkel because of not punishing moral hazard (bad behaviour) by Greece. The German public is very much opposed to financial bale outs in the Eurozone financed in essence by themselves.

The take-home message for IMPACT, SIPTU etc is – look out there and smell the roses because you have led your troops incompetently. The government has no option but to hold fast on most of the budget and pile on more misery next year. The 4% pay cut U-turn capitulation to higher civil service pressure shows the inherent unfairness in the public sector pay policy. But we are all in this mess together and the bond markets will force the hand of any and all governments here.