Greece is not old troubled borrowers

Business editor Robert Peston

• June 15, 2015
• Business-area
• Comments

What is very surprising - and this is important - the excruciating negotiations between Greece and its creditors is that no European leader has tried the party enemy with a call for European solidarity, or any emotional rhetoric about how these big bucks to link project prosperity and peace for all citizens of the euro zone.

In fact, this is not entirely true. Greek Finance maverick, Yanis Varoufakis, has repeatedly tried to play the card of "we are all in this together". But he was considered by his peers in the euro zone, as if he threw a fart in the negotiating room.

No big speeches vision of Angela Merkel and François Hollande or Jean-Claude Juncker, without take pain empathy with Greek lack of people whose income dropped by a quarter initially buckles since the start their belts to pay the demands of austerity Greece's initial rescue ,

Moreover, there are very important as maintaining the integrity and the integrity of the euro zone is a matter of passion transmitted principles.

Instead, the public and private debate has instead written in the language of national interests, the urgent need to keep the great European project called on the street.

Probably the most striking case was clear and insightful blog last night of IMF chief economist Olivier Blanchard.

This French technocrat has explained what the two separate parts is easy to understand and - seemingly - undeliverable in practice.

Creditor - nation euro zone, the European Central Bank and the IMF - have reduced the scale and pace of austerity measures in Greece are made to about 0 5% of GDP per year, but want even more cuts, equivalent the next three years, is Athens ready to deliver.

Hairstyles

And the reason, according to Blanchard, is simply that every step promised under the budget surplus Greece is a cut above the borrowed amount already to Greece would eventually be written off.

Here's how Blanchard says "a reduction in the primary surplus, now or later, but probably would haircuts". And what I mean, just think it is a short brutal back and sides of the government debt of Greece of € 320 billion, equivalent to 180% of GDP stagnated.

To be clear, all economists agree that further austerity measures, the viability of the existing debt to improve: Some will say that, in an economy that is in turn contract, further cuts will jeopardize the recovery and make the debt burden even harder to endure.

And some of them say that creditors are today giving by cracking debt gains and losses on Greece a chance of under the burden of massive debt write-offs in the rejection of self-harm out.

Above all this mess recognized when Blanchard said that "there is a limit for the amount of financing and debt relief from official creditors are willing and able, realistic, as they are to be considered their own taxpayers".

Or to put it differently, Merkel and Hollande have not that the game of its own citizens to see the Greeks before, what they have debts.

Regressive cuts

Now it is not only the amount of savings the Athens shares of its creditors, is also the method of execution. Therefore, the euro zone and the IMF want other pension cuts and an increase in VAT on electricity (in particular).

These measures are toxic to the Greek government Syriza, because they are regressive, they are hurting voted disproportionately poor Greeks, the Syriza.

So "Why do you insist on pensions?" Said Blanchard.

His answer is that pension expenditure in Greece 16% of GDP ", which transfers to the pension system are almost 10% of GDP."

Well, here in Britain we think that the public spending on pensions by almost one-tenth of GDP is very rich: the corresponding figure for the United Kingdom, and indeed for most English-speaking countries like the United States and Canada is much lower (about 6% of GDP in the UK, according to GDP).

But in the UK, USA and Canada, private pension savings is much higher than on the European continent. And the Greek public spending on pensions as a share of GDP, is very much in the step of passing the rest of the euro area based on the latest official figures from the OECD, which certainly five years, Greece has been less Italy, France and Austria on pensions and only slightly more than Germany.

And there's more: in 2009, the OECD estimated that actual spending by the Greek government on the old-age and survivors was 13% of GDP. If the corresponding value at 10% today, which is what Blanchard suggests, it involves spending on pensions has already been reduced by 40%, as the Greek GDP fell by a quarter.

That is, on the most recent data from Eurostat, which are for 2012, the costs of ancient Greece -. Including invalidity and disability payments - well above the average of the euro area

So the statistics disorders. But it is interesting to note that Greece has proportionately more seniors than the euro area average, and more than the poor (more than five years of crisis).

Grexit

In other words, it is obvious that there is surplus in the Greek pension system (and there is certainly nothing compared to the French house of Blanchard).

But back to my point, the impression that what is happening in Brussels, is qualitatively the same as the kind of prosaic discussions take place when a debt of large companies in difficulty, rather than a profound debate about the nature of economic and social relations between members of the euro zone.

If these negotiations fail, and the insolvency of Greece - and leaving the euro - which to a revolution in the perception that the euro is likely to lead.

At this point, the monetary union has proved a matter of economic expediency of its members, rather than deeply supranational goal.

The obvious, however, that seems to be lost on the leaders of the euro zone as soon as the Euro is not provided on an element, it is not always for all members.

And once clonking penny drops for international investors, the idea of the whole project will collapse - appear increasingly default - not tomorrow, but someday.