CLSA Greed and Fear

One week on and “oversold” markets want to celebrate the fact that Greece has been given a
one month reprieve to get its fiscal house in order. While it is natural that investors would like
to forget about the problem, in GREED & fear’s view it is clear that the real crisis over Greece
and the rest of the PIIGS lies in the future not the past.

The past week has made it clear that German public opinion, and therefore the German political
process, will not tolerate a crude bailout of Greece; even if it is via “subtle” off balance sheet
guarantees and the like. For example, why should Germans agree to a bailout of Greece with its
statutory pension age of 61 when Germans do not receive pensions until the age of 67?

Meanwhile, the level of fiscal austerity being demanded of Greece, namely a decline in the
projected fiscal deficit from 12.7% of GDP in 2009 to 2.8% of GDP in 2012, is in GREED &
fear’s view wholly incompatible with the reality of Greek democracy. In this respect the charge
by the Greek Prime Minister George Papandreou over the weekend that the country was being
treated as a “laboratory animal” by the European Commission is a reflection of the prevailing

“Club Med” mentality.
The reality is that this drama will come to a head sooner or later. And with Greece needing to
raise €20bn in the next three months it could be sooner, especially as some other “Club Med”
countries also face significant debt refunding schedules between March and May. Thus, Spain
and Portugal have €31bn and €11bn of government debt maturing in the next three months.
Christopher Wood

Greed Fear No Reprieve CLSA