Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Report on Business

Economy Lab

Delving into the forces that shape our living standards
Best Business Blog, EPPY awards, 2011 and 2012

Entry archive:

Economy Lab has moved

Only Globe Unlimited members will now have access to a wide range of insightful commentary
and analysis on the economy and markets previously offered on this page.


Globe Unlimited subscribers will be able to read these columns,
written by some of Canada’s most deeply respected economists,
such as Christopher Ragan, Sheryl King, Andrew Jackson, and Clement Gignac,
as part of our ROB INSIGHT section.


All of our readers will still be able to browse the Economy Lab archives and read our
broader coverage of economic data and news by accessing their 10 free articles a month.


Learn more about Globe Unlimited and how to subscribe.

A protester throws a stone at policemen during riots in Athens this month. (JOHN KOLESIDIS/John Kolesidis/Reuters)
A protester throws a stone at policemen during riots in Athens this month. (JOHN KOLESIDIS/John Kolesidis/Reuters)

Will the Greeks push back? Add to ...

Now that euro zone finance ministers have managed to punt the hot-debt football into Greece's end zone, the question is whether the insolvent Greeks will meekly yield to the harsher budget cuts and other conditions demanded in exchange for more bailout money. Or will they try to manoeuvre the ball back into the other end?



Most observers assume the flat-broke government has no choice but to accept the terms set by its euro zone partners, no matter how onerous or politically suicidal those may be. The consensus is that a slim parliamentary majority will enable the newly revamped government of Prime Minister George Papandreou to prevail in a crucial confidence vote Tuesday on the stiff austerity measures, which will pave the way for the euro cash and the next instalment from the International Monetary Fund.



"Our base case is that the confidence is retained and the medium-term fiscal plan is approved (possibly with some changes, brought about by the new finance minister)," Barclays Capital says in a report. "A cross-party agreement in the near term, which would be a clear positive, is more unlikely, though."



But Athens is not without a few defensive weapons of its own, no matter how the vote turns out. The beleaguered government or an interim replacement could use the mere threat of default and the wide repercussions that would follow to make the next phase of this interminable rescue a little more palatable to the Greek electorate and less damaging to the sinking economy.



The old banker's saw applies: Owe a small sum and it's your problem. Owe so much that a default could trigger another major financial crisis and it's your lenders' sizeable headache.



For the Europeans, it's a case of pay now and keep delaying the day of reckoning - and inevitable Greek restructuring - until French and German banks have written off considerably more of their Greek debt and have stronger balance sheets and Spain is in better economic shape - or put the entire euro zone at grave risk. And we won't even mention the potential for a global financial nightmare when vast amounts of credit default swaps on Greek debt have to be covered. Just ask Washington, which ignored the warnings of a global derivatives disaster when it pulled the plug on Lehman Brothers in 2008.





 

In the know

Most popular videos »

Highlights

More from The Globe and Mail

Most popular