Greece embarks on the Woolworths plan

For well over a year now, we’ve been told that nothing’s wrong – ‘Go ahead and buy Greek debt – it’s safe as houses’… That was during the first phase of denial. The guys at the top reassured us they could fix European debt issues with a simple $1trn bailout fund.
A year has come and gone since then, and now we’re heading into the dangerous second phase. That’s when the guys at the top admit there’s a serious problem. The Germans are calling for Greek debt to be ‘re-scheduled’, meaning bondholders should take a haircut. Mutterings about Greece leaving the euro grow louder… basically all the things that we’d been told could never happen are now being considered.
Meanwhile Greece is forced into using the same tactics employed by failing businesses. That is they sell off the best parts, cut costs to the bone and borrow as much money as they can get their hands on.
George Papandreou’s government plans to sell off 50bn euros-worth of state assets. They’re trying to push through a new & austere’er austerity bill (leading to the masses rioting in the streets) and they’re hoping to get their hands on a €12bn loan from the IMF pretty soon.
You could call this the Woolworths plan for recovery.
Of course, seasoned investors know the plan is flawed. Selling assets means giving up their future income. More loans land you with a higher interest bill. And last, but not least, cutting costs to the core is a dangerous gamble. There’s a chance that they’ll throttle the goose that lays the golden egg – if you cripple the economy, then tax income deteriorates even faster.
What Greece needs is a pre-pack administration. And at some point I expect it’ll get one. But as we wait for that.