The bailout for Greece is in
The EU-IMF package came in at 110 billion euros (80 from the EU and 30 from the IMF). It is designed to see Greece through to 2014 for the stability and growth pact 3% deficit hurdle, not 2012 as had been anticipated by many.
After news of the Greek bailout package came in, this blurb in a note from Brown Brother Harriman’s Win Thin caught my eye:
Going back again to 1980, we found that the best three-year fiscal adjustment was by Norway by 11.2 percentage points from 2004-2006. Ireland reduced its deficit from 1987-1989 to the tune of 9.9 percentage points, while New Zealand reduced its deficit by 7.3 percentage points from 1993-1995. What is noteworthy is that these incredible fiscal tightenings were done during periods of strong growth and moderately high inflation. Strong growth boosted revenues and limited outlays, while higher inflation boosted nominal GDP. Within the context of a recession, we simply cannot find any instance of such a large fiscal adjustment in the G-10 space. Looking at the Emerging Markets, we found that many of the countries hit by the Asian Crisis saw their fiscal deficits deteriorate from 1997-1999 as they plunged into recession. It was only after the combination of sharply weaker currencies and a booming world economy boosted these economies that the deficits began to improve from 2000. Bottom line: markets are right to be skeptical of the proposed fiscal adjustment measures.
Will the extra two years get Greece there? Given the deflationary path Greece is on, I doubt it.