Debt default in Greece? Unlikely

Authors:
José Alberto López Rafaschieri and Luis Alberto López Rafaschieri
www.morochos.net

Greece is a relatively small economy, easy to bailout for giants such as Germany, France, Italy or Spain. And it's convenient for them to help it, because since the financial problems in Greece were aggravated in early 2010, Europe's currency, as well as its stocks and bonds, have recorded heavy losses, due also to rising fears that other countries in the region will experience something similar.

Greece is part of the Euro zone, so, if credit conditions get worse in the Hellenic country, falling into default, the other EU members would feel multiplied consequences.

But this is not only an issue of convenience, even if we review the macroeconomic situation, we note that although Greece's fiscal deficit is one of the highest in the developed world -13.6% of GDP-, it's not far from other countries that are not at risk of insolvency, as U.S. -whose budget deficit is 10.6%- or England -12%-.

And if we talk about public debt, certainly Greece maintains an excessive level of indebtedness -estimated at 120% of GDP by the end of the year-. Quite high, but not distant from the ratios that that country has been administering over the past decade. From 2000 to the present, Greece's public debt relative to GDP has generally been above 100%, notwithstanding, the country has been paying its obligations.

In the medium term, the default of Greece is unlikely, in our view. And the chances would be lower if we refer to Italy, Spain, Portugal or Ireland, as some experts have also predicted, because these other countries have better macroeconomic fundamentals than Greece.

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Expectation for Colombia's presidential election

Authors:
José Alberto López Rafaschieri and Luis Alberto López Rafaschieri
www.morochos.net

Juan Manuel Santos comes from being one of the key players of the most successful government that Colombia has had in the past 20 years. The terms of Alvaro Uribe can be criticized because of employment and public health policies, but on the main issue of this time in Colombia, security, Uribe's achievements are unquestionable. Santos has the edge in this, since his election would ensure the continuity of policies that gave Uribe his high levels of popularity.

In addition, the Partido de la U's candidate is a hard-liner when it comes to addressing issues related to national security, topics that in our view will decide this election. Mockus has recently tried to present himself as a leader that will not cede power to the guerrillas and Colombia's enemies, but he has failed to match the strong image that Santos demonstrates in these matters.

Therefore, if we had to choose a favorite for this election, we would say that Santos has a better chance of winning the presidency of Colombia in the second round, although for now the major polling firms are predicting Mockus' victory.

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Chavez on Twitter: devil and capitalism

Authors:
Luis Alberto López Rafaschieri and José Alberto López Rafaschieri
www.morochos.net

Devil:

The Venezuelan president says he was once at a summit of Heads of State, and Fidel Castro passed him a note telling him, "Chavez, I feel like I’m not the only devil at these meetings." So who knows, maybe the inspiration came from there.

According to the dictionary of the Spanish Royal Academy, the word Candanga is a Latin American name with three meanings: the first is the Devil, the second is annoying, and the third is mess.

Thus, in any of the cases, what Chavez express with his Twitter ID -@chavezcandanga- is something negative. If we translate his username, he well could be called @chavezdevil, @chavezannoying, or @chavezmess, and it would be almost the same.

Capitalism:

However, besides the name, the Chavez's Twitter account leads us to other considerations:

Twitter is a private company that represents capitalism, operated and managed by US citizens, and located in the country that Latin American Communists hate more than anything on the Earth. Ergo, an anti-capitalist who has an account on Twitter symbolizes a contradiction. Chavez should use socialist Internet services, with servers located in Cuba, for example, if that exists.

But even the most intransigent enemies of the free market cannot resist the progress created by the private sector in capitalism, and ironically, by making tweets, Chavez attracts thousands of socialist followers, expanding in this way the company's customer base, and thereby contributing to the rise of capitalism.

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Greece: A deeper crisis to clean up the budget

Authors:
José Alberto López Rafaschieri and Luis Alberto López Rafaschieri
www.morochos.net

Greece is experiencing a serious problem of public finances. The government deficit reached 14% of GDP and national debt closed 2009 at 1.13 times the size of the economy. The issue is so dramatic that the Greek government has gone to the IMF and the European Union to seek financial support and save the country from a catastrophe. After negotiations, the plan agreed between the IMF and the Hellenic executive consist in a loan of one hundred and ten billion euros to Greece, in exchange for reducing the deficit to 3% by 2014 by implementing stringent budgetary measures, which include huge public spending cuts, suspension of year-end bonuses, wage freeze for four years, and tax hikes.

The problem with the IMF's measures for Greece is that they will plunge the nation into a major recession in order to overcome a public finances crisis, because such guidelines will depress even more the economy of a country that grew -2% in 2009 and whose unemployment round 10%.

Similarly, the political implications of the package in question cannot be overlooked. Greece has experienced since 2008 one of the worst governance crisis of the past thirty years, witnessing widespread protests across the country. In this climate, implementing the IMF's rigorous cost-cutting demands will promote instability in the political system.

In sum, what will be the benefit for Greece? to end the year with a small deficit but with a recession of -4%, an unemployment rate over 14 percentage points, and exacerbated political unrest?

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