This week, we achieved a new understanding of how methodically Greece is being locked into a cycle of decay. Tourism revenue declined by 15% YoY in 1Q12 – and that was before the things really started unraveling during 2Q12. In the ten days after the May elections, 50’000 bookings were canceled. There is now a clear chance that 2Q12 tourism revenue is going to drop by more than 20% YoY. And Greece is among the most tourism-dependent economies in Europe – it makes up 16% of GDP.
The second shocker of the week was the pace of tax revenue decline– suddenly dropping by -10% in May. The proportion of small and medium-sized companies losing money is in the process of vaulting from 20% in 2011 to 60% 2012.
This sort of deterioration is entirely inconsistent with the economic performance Greece committed to just months ago. More efficient tax-gathering was supposed to boost government revenue. Tourism revenue was supposed to stay flattish as lower prices in hotspots like Kos were expected to lure in new visitors.
It is now clear that the combination of political and economic drama has triggered a chain reaction that does not confirm to financial modeling of EU bureaucrats. Tourists are scared by demonstrations, signs of anti-German fervor and possibility of a string of summer strikes. Citizens are reacting to instability by not paying taxes. Corporate tax revenue will plunge as majority of Greek companies start bleeding cash over the course of the year.
In Germany, polls measuring the mood have taken a decisive turn for grim rejection of new Greek demands. More than 60% of Germans now oppose keeping Greece in the EU. That number is reaching a level that no politician will be able to ignore.
More than 80% of Germans now reject the Eurobond concept. The German public has caught on to what Eurobonds would mean in the long run – a decades-long raid of German wealth by Mediterranean countries. If Germany gets locked into sharing a debt market with Greece and Spain, there will never be fiscal discipline in the South. Club Med will bleed Frankfurt until there is no difference between the bonds of Greece and Germany. It is becoming obvious that Germany cannot bend this far, not even if the alternative is chaos.
Does the string of comments from European leaders this week insisting that Greece will remain within the monetary union mean anything? No. If EU officials are planning the Grexit, the final stretch will involve a combination of behind-the-scenes moves to prepare for the ejection – and public oaths of fealty. The key here is to maintain relative calm until the final weekend.
The illusion of saving Greece hinged on the idea that there will be no substantial new deterioration of its finances in 2012. The new tourism and tax receipt statistics are a killing blow to this fantasy. That is why euro started declining decisively this month – along with crude oil. Europe’s demand for raw materials next autumn may well be a whole lot lighter than anticipated.
The coming Greek cataclysm is likely to be very tough for the tech sector in particular. Infra names like Ericsson to Juniper have been signaling for months the possibility of a new CAPEX spending rough patch. AAPL and QCOM are the core holdings of European funds, who have jettisoned names like Nokia and RIMM over the past year. Raising liquidity is likely to happen via these two.
