Germany’s Finance Minister Wolfgang Schaeuble has changed the meaning of the word sustainable to “six months”.
While “sustainable” never had a definitive time-frame, when it comes to economic recoveries I am quite certain the term has never before been used to mean anything as short as “six months”.
For a look at revised definitions, please consider German finance minister rules out Greek debt “haircut”
German Finance Minister Wolfgang Schaeuble ruled out public investors accepting a debt restructuring, or “haircut”, on their Greek bonds but said in an interview to be aired on Sunday that a debt repurchasing program could be considered.
“(A haircut) is a discussion that has little to do with the reality in the member states of the euro zone,” Schaeuble said in an interview with Deutschlandfunk radio.
Schaeuble said sovereign states could legally not write off billions of euros of losses on their official holdings of Greek government bonds.
Schaeuble reiterated no agreement had been made on how to help Greece implement austerity cuts after Stournaras said international lenders had given Athens more time and a package of austerity measures would be put to parliament next week.
Any agreement with near-bankrupt Greece would have to be sustainable – last longer than six months – and be trusted by financial markets.
A debt repurchasing program, in which Greece would get new loans in order to pay back old debt, could be an option, Schaeuble said.
“That is a consideration that one can make seriously. It has been put up for discussion by some members of the central bank board.”
Definition of Haircut
While investigating definitions, let’s also take a look at the meaning of “haircut” since there supposedly will not be one.
In the financial world, the word “haircut” typically means a reduction in the value of bonds held as collateral. As we have seen, haircuts can be voluntary or involuntary. However, and as we have also seen, the definition of “voluntary” has been stretched beyond reasonable imagination.
Whether voluntary or not, giving Greece more time to pay back loans would be a form of a haircut.
Giving Greece money to pay back existing loans then reissuing the debt on more favorable terms to Greece would certainly be a haircut from any reasonable point of view.
Both options are under serious discussion, but let’s not dare call them “haircuts”. Let’s instead call the process a “manicure”.
Mike “Mish” Shedlock