Greece’s PSI is Dead on Arrival: An error in search of a rationale but also a failure that may prove a harbinger for the Modest Proposal

A brief history of Greece’s PSI

In the beginning there was Wholesale Denial. Then the Denial began to subside under the weight of circumstances. It did so slowly, agonizingly so, with the result that, in the process, Greece lost any capacity it might have had to rebound. It also caused the Crisis to spread like a bushfire throughout the eurozone, turning liquidity problems into unyielding insolvencies first in Ireland, then in Portugal. Still, to this day, Denial is in the air. But it cannot remain intact, without the whole eurosystem crashing and burning. The Greek PSI may be the harbinger of denial’s end. If not, it is hard to see what will stop the juggernaut of the Crisis from destroying the few chances the euro has of survival.

Taking things from the top, the Wholesale Denial began life two years ago when imploding Greece was

A miserable failure of the IMF prescription

THE FIGURES disclosed by the Hellenic Statistical Authority last month show the complete failure of the International Monetary Fund (IMF) prescription for Greece, resulting in a rapid increase in inflation, but also a reduction in the revenues.

So, annual inflation in July rose to 5.5 percent from 5.2 percent in June 2010 and 0.6 percent in July 2009, now returning to 1997 levels! In addition, state revenues in July decreased by 10 percent overall and Value-Added Tax (VAT) returns by 5 percent, despite the fact that all indirect taxes have increased.

It has now become evident to the government and the IMF