Susan Easton: Lenders numb to Greece's pleas for help

Opinion

Failure to produce growth is spooking eurozone investors, says Susan Easton, senior equity analyst at Gareth Morgan Investments.

It's starting to sound like a cracked record - the inability of certain European countries to access debt markets, talk of debt defaults and haircuts, ratings downgrades, and political stoushes between the European Central Bank (ECB) and European politicians.

We've been stuck in that groove for the past 18 months. First it was Greece asking for a bail-out with Ireland not far behind. Surprisingly, markets barely batted an eyelid when it was Portugal's turn several months ago.

Now Greece has hit the headlines again, this time looking for additional funds from whatever source they can. Despite being the recipient of €110 billion ($192 billion) this time last year, it just hasn't been enough to do the job.

The thinking behind the initial bail-out was that a large up-front sum would be enough to fund the country through 2010 and 2011. Come 2012 it was hoped Greece would be making some headway with fiscal adjustments and be on a more stable footing enabling it to re-enter debt markets and start raising funds for itself.

That doesn't look like it's going to happen and so the Greeks are back cap in hand. But investors are already fretting enough about their existing exposure to Greek debt and whether or not they will be repaid let alone thinking about increasing it.

With Greek Government debt nearing 150 per cent of GDP and a fiscal deficit at 10.5 per cent of GDP you start to get an inkling why bond investors don't want to part with any more cash.

Markets are understandably mistrustful of Greece. That's not just because of the frightening headline statistics and junk bond status of their sovereign debt.

There are plenty of concerns as to how credible the official numbers are given some evidence of the moving of expenditure off the books and other assorted statistical manipulation that may have taken place to get Greece into the European Monetary Union in the first place.

Further, there are real question marks about the structural nature of the country's fiscal deficit and whether they actually have a hope in hell of balancing the books any time soon. The public sector remains bloated with the average government wage reportedly paying three times the average private sector wage and a railway that runs at a colossal loss.

Widespread tax evasion doesn't help with revenue gathering and judging by riots and protests, politicians are going to find it hard yakka to reduce entitlements.

The latest plan to appease other members of the EMU such as France and Germany is to embark on a privatisation plan, selling state assets such as the telecom, ports and water companies in a last-ditch effort to get the forecast deficit back to 1 per cent of GDP by 2015. Yeah, right.

The hope is that with the books under control, all will be forgiven and Athens will get its dosh from someone. That may or may not be the case as the ECB and other European politicians continue to squabble over whether debt restructuring (losses for bondholders) should occur.

Europe should be able to solve its issues through a combination of austerity, debt restructurings, and some measure of ongoing funding but European leaders seem to be reluctant or unable to take the steps required.

The more wealthy members of the eurozone (France and Germany) reluctantly approved the first round of support measures and it's understandable they don't want to be on the hook for the delinquents' debt woes indefinitely and with no conditions attached.

The side-show in Greece is just one of the more extreme versions of what is happening to a lesser degree through a number of European countries including those who have received bail-outs and those who haven't.

Several southern European countries remain in a precarious position with massive deficits that will require many years of belt-tightening to reduce their debt burdens. This has obvious consequences for European growth (lower growth being the outcome for any highly indebted nation be it in Europe or not).

There are no easy answers and the crisis is being left to limp on. Debt markets would certainly appreciate the certainty of knowing whether there will be any restructuring, although most believe it is inevitable.

It's just a question of timing. Do it now or further down the track when economies and financial institutions have had a further chance to heal and build up their safety buffers.

Those left holding the baby will want restructuring put off as long as possible. Given the interdependence of European debt with banks and governments owing each other billions of euros, any default would have obvious knock-on consequences for the banking system and funding markets.

The fact is the debt crisis that triggered the global financial crisis is far from over. Many larger economies than Greece have high and rising debt loads, which, if growth doesn't come to the rescue soon, will spook investors.