Irreconcilable Positions
Greece owes the Troika over €11 billion in bailout repayments through the end of July. Greece is unable make those payments unless the Troika releases the funds.
Position 1: “We need a big debt restructuring, no more kicking the can,” says Greece’s Minister of State.
Position 2: Germany offers a possibility of unspecified debt relief, at a future point in time, only if necessary. First, Greece must make another round of budget cuts on top of the pension cuts its just made.
Greece has caved in every time, and in the most humiliating ways. Greece even caved in on pension cuts last week.
Why should anyone believe Greek demands now?
Please consider Greek Bailout Deal Must Have Concrete Debt Relief, State Minister Says.
Greece will not accept a bailout deal without a concrete agreement for debt relief from the country’s European creditors, a top aide to Prime Minister Alexis Tsipras said.
“We want real solutions, not interim solutions,” Nikos Pappas, Greece’s Minister of State, said in an interview Friday after several days of talks with senior U.S. officials. “No more kicking the can down the road.”
Without fresh bailout funds, Greece faces bankruptcy in July at the latest. That could revive risks across the eurozone, which is already grappling with a migration crisis, a movement in the U.K. to leave the European Union and the rise of populist parties across the continent.
European powerhouse Germany is pushing Greece and the IMF to accept another bailout agreement based on possible debt relief in the future. The fund, trying to regain credibility it lost in the first two failed Greek bailouts, is taking a firm stand on debt restructuring.
“There are disagreements between the IMF and our European partners,” Mr. Pappas said. “But we have made our position clear that we need a big debt restructuring.…There should be no delay.”
U.S. Treasury Secretary Jacob Lew said Friday he’s pushing Germany to accept some form of restructuring. “I have very much communicated to all the parties that debt relief is necessary,” he said.
But Mr. Lew signaled that the IMF and Greece would also need to compromise. The IMF is pressing for Greece to commit to wage and pension cuts if the country doesn’t meet its budget targets in the coming years. Athens has instead said it would approve across-the-board reductions in spending, a proposal the fund says isn’t credible.
Greek Threats Credible?
Greek threats are not credible. Greece has little say in this matter. Nor does U.S. Treasury Secretary Jacob Lew.
However, there is a major difference this time. The IMF wants debt haircuts or it threatens to back out of the deal.
Germany’s insistence all along is the IMF must remain a partner.
This is a battle between the IMF and Germany. No one else’s opinion counts.
Greece Short-Term Debt Timeline
Can Greece come up with €11,235,558,147 in June and July?
Of course not. That is not the way the “bailout” works.
In practice, the Troika gives Greece the money and Greece hands the money right back to the Troika plus a tiny bit extra from now until 2059.
The repayment calculation assumes Greece can maintain a budget surplus of 3.5% of GDP from 2017 until then, a ridiculous belief to say the least.
Greece Long-Term Debt Timeline
Total Debt Owed
- EFSF: €131 Billion
- Eurozone Governments: €53 Billion
- Private Investors: €36 Billion
- ESM: €25 Billion
- ECB: €20 Billion
- Treasury Bill Holders: €15 Billion
- IMF: €14 Billion
Synopsis
- Greece needs to come up with €11,235,558,147 thru the end of July.
- Under the current “bailout” scheme, Greece needs to repay nearly €300 billion between now and 2059.
- Starting 2017, Greece is supposed to run a primary account surplus of 3.5% through 2059.
- The IMF proposes a primary surplus of 1.5%. That proposal, stand-alone would stretch debt payments well beyond the already ridiculous 2059 date.
- In conjunction with a new primary surplus target of 1.5%, the IMF threatens to back out of the whole deal unless there is debt relief.
- Realistically, Greece is not going to maintain a primary surplus of 1.5% either.
- Germany does not want debt relief and its constitution does not allow transfer mechanisms.
- The ECB which is owed €20 billion, most of that due in the next three years, cannot allow debt relief on its portion.
- Merkel does not want another crisis on top of the Greek refugee crisis she has now.
- The EU does not want another crisis ahead of the Brexit vote.
Another Greek Bluff? An IMF Bluff?
On its own, Greek demands are meaningless, unless this isn’t a bluff.
Would Greece walk away this time after what we have seen in the past? Is Greece secretly printing Drachmas?
Regardless, something has to bend (or break), if the IMF genuinely sticks to its guns.
If the IMF does back out, would Germany enforce the terms of the deal as demanded by the third bailout?
There are a lot of questions here and no one really knows how far Germany will bend or how firm the IMF will be.
Another Can-Kicking Exercise?
Despite Greece’s demand “We need a big debt restructuring, no more kicking the can”, the most likely outcome is a trivial debt restructuring “can kicking” compromise to get past the Brexit vote.
“Likely” and “guaranteed” are not the same. There are other forces in play: the refugee crisis, Brexit, Merkel’s declining popularity.
Unless Greece is willing to return to the Drachma, this squabble is between Germany and the IMF.
After seeing one can kicking exercise after another, after another, for years on end, and after the amazing cave-in by the Greek government that lead to the third bailout, no one seems remotely concerned this effort will fail.
Perhaps this is the effort that fails or at least leads to a major position change by Germany. The outcome may come down to this question:
Is the IMF bluffing, or is it serious?
Mike “Mish” Shedlock
So Greece owes €11.2 by the end of July. It hasn’t got the money to pay and needs the people it owes the money to, to lend it the money to pay them. If the Greeks don’t get loaned the money they need to make the payment, they will default. But, if the people they owe the money to lend them the money to pay them back, it won’t be a default.
Is it just me or is that perfectly ridiculous?
No it not ridiculous. No different to USA
Tspiras you had your chance, now GTFOTW. Fool and traitor
Europe would be a much better place if totally controlled and run by Germany. All of the separate central banks and governments could be totally abolished savings trillions of dollars of waste. Corruption could be totally eliminated. All monetary policy could be set by the Bundesbank ensuring total and miraculous efficiency and efficacy. All tax revenues could flow to the Bundestag which could determine the proper spending for each and every province of Germany.
The Fourth Reich will soon be a vibrant reality and will save Europe from its all of its pathetic self-destructive proclivities.
What could possibly be more wonderful or more excellent?
Next up in the Greek “democratic process”: The Greek Parliament now has the opportunity to vote “NAI” or “OXI” to totally surrender to the Fourth Reich!
As a practical matter, the Fourth Reich is fully in charge, though it has been a bit costly overall and the bills keep rolling in. But on the bright side, Germany hasn’t had to roll a single tank this time around!
Great analysis. I wish I could write like you.
That being said, The only plausible outcome is “Kick The Can”. Any other expectation is ridiculous. Borrowing to make the payments and capitalizing the interest and principle due is the Eurozone way.
Watching Greece is like watching a fish being digested by a fly trap.
Greece has proven oil rights in the Mediterranean. Trade the oil rights for the $70 billion debt and be done with it.
At some point the payment system will break down. Banks use the redundancy of demand account saving balances serving as the vehicle for settlement of payments for goods and services with demand account credit creation by banks lending credit money into existence. At some tipping point providers of goods and services begin to doubt they will be paid for their wares. This is why credit crises invariably move credit markets to shorter and shorter duration. Once the credit market duration falls inside the float period of the payment system the jig is up because ordinary commerce makes no sense given that counter party risk has climbed so high even months of vendor credit duration are too risky . This collapse of the payment system can occur overnight as we are seeing in Latin America. Greece will agree to anything just to continue having access to the European payment system. It’s German (and other) providers of goods and services who will ultimately decide how much they trust the Greeks to pay private debts.
Governments have the power to cancel private debt but they use it too little and too late. Instead they use their power to create high level money to keep financiers and bankers happy. Better to have 50% youth unemployment or even a payment system collapse than to have one unhappy banker anywhere.
Jack has the solution. Value the oil rights equivalent to the debt and sign them over. In fact, value the oil rights at double the debt and the EU can use the profit to cut taxes. The Brits will stay in EU to share in the good times. I once traded a dog I valued at $100 to a friend for two cats he valued at $50 each. We both went home happy!
Or how to dump your pet at the pound with a clean conscience.
In the end, Greece will end up giving up their assets and will become renters of their homeland to Goldman Sachs et al.
In the end, Greece doesn’t matter. It has a GDP smaller than Atlanta. But Greece does make a nice diversion from economic events in the US, especially in light of the latest positive GDP Now forecast from the Atlanta Fed 😉
In the end, most of the Greeks will be gone from Greece to collect the dole elsewhere in the EU. Greece will be a tourist-based economy owned by whomever winds up holding the Greek debt and has the forces to collect the assets. Greece will be sacked.
Why doesn’t Greece issue an IOU to the IMF. It seems to be working for Chicago.
What is really absurd is, after all these years of “Collapse is Imminent” mantra from the fringe bloggesphere, Krugman’s maniacal “debt doesn’t matter” machinations are still valid. Curious, that.
All that’s under discussion is how many decades of looting the Greeks are in for.
The proverbial and much kicked can has the label “DEFAULT” on its much dented side.
It is so apparent that Greece has gone beyond the line of “socialize defaults/losses” that is laughable to assume that any other outcome than DEFAULT is remotely possible. The IMF should have no say either, it and its present and past heads, have zero credibility for being able to manage anything other than fraud, ponzi schemes and the occasional hotel worker.
The ECB will have to get the equity injection from other European governments – the IMF gets its money from the European governments;not even the dimmest dimwit can think the IMF has any power whatsoever, unless Lew “ponies up” with several years of late contributions from the US.
The ECB can print money to itself, thus exposing it for the complete charade that it is, but perhaps it can come up with another acronym and hide behind that. Something like PIIGS Money for the Stupid 2″ – PMS2 – any reference to the wrong time of the month is purely coincidental.
The Greek government should quietly begin to prepare the population, now. “Suggest” that people withdraw bank deposits. Prepare for several years in which imports will be unaffordable. Secretly print drachma and establish a starting conversion rate…one which will probably slide of course. And announce that there is NO way to “avoid austerity”, either locked into the Euro or not…
Greeks know there is no avoiding austerity , but they do know the difference between being sapped and unemployable , and earning less but keeping it to spend at their lower local prices . In fact they voted for exit (no negotiation with Troika), the politicians didn’t follow through.
You understand capital controls still exist in Greece , it has gone from late 2015 to mid 2016 to late 2016
http://sputniknews.com/europe/20160301/1035570481/tsipras-greece-capital-controls-lifterd-late-2016.html
http://www.ekathimerini.com/208607/article/ekathimerini/business/greece-capital-controls-have-silver-lining-more-tax-revenues
But some look on any new accord as impossible :
“The latest measures – worth €5.4bn (£4.3m) in budget savings – mark a new era. After nine months of wrangling with the international creditors keeping the country afloat, Athens must apply policies that until now had been abstract concepts for a populace who have suffered as unemployment and poverty rates have soared.
For many, their arrival marks a new juncture, a psychological cut-off point whose consequences are yet untold. “For a long time, people had a cushion. There was fat in the system but that has now gone,” says Vassilis Korkidis, who heads the National Confederation of Hellenic Commerce.
One by one, Korkidis rattles off the figures: Greece’s internal debt amounts to €220bn of which €119bn are non-performing loans; its external debt is close to €330bn; about 230,000 enterprises have shut since the start of the crisis including 10,000 this year alone. “Soon people will have to deal with tax declarations and Enfia and, by September, everything will have piled up. An explosion is possible. September is going to be a very decisive month.”
Taxi Driver Giorgos Balabanis, puts it another way. “And what I am hearing every day is that until we leave the euro, until we return to the drachma, until we have a currency that is not so strong, things will never be right,” he says. “Remember me because it’s going to happen. There will be an explosion and Grexit and the drachma will come back.” ”
http://www.drachma.com/drachma/greeks-foresee-grexit-and-drachmas-reintroduction/
So I don’t think there is much need to tell people .
Indeed, and many of the thieving greedy Greeks now have their panties in quite a bit of a bunch over those realities.
‘Everyone’s outraged’: angry Greeks foresee Grexit and drachma’s revival
Now the man who was swept to power on a platform to eradicate austerity has passed the toughest reforms to date – overhauling the pension system, raising taxes and increasing social security fund contributions as the price of emergency bailout aid.
http://www.theguardian.com/world/2016/may/10/greece-austerity-grexit-drachma
If Greece’s playbook is unchanged, they will fight the Troika until the Troika (arrogantly) makes a ridiculous proposal for the needed money. Then Tsipras will approve of the deal… with the “can” effectively kicked down the road.
Tsipras was the winner of the last negotiation via acceptance of 300+ billion Euros in bailout with terms that were never a concern anyway. Tsipras knows Greece will never repay, so his only option is to just keep money flowing in as long as possible… no matter what the silly terms are from the Troika.
Tsipras should be getting much more respect as a good negotiator.
Dippy Tsippy is an ignorant stupid sellout jackass.
Mish, I admit to being no expert on world economics. But I fuzzily recall the EU concept was supposed to improve something… for someone… and that was the point of it. Yet all I hear about is the ongoing economic crisis and destruction of EU countries. In the end did that grouping actually help anybody who really needed it?
The EU and EZ (EuroZone) were never about “helping” deadbeats at all. Where did you come up with that nutty notion?
Bankers did foolish things, and now they want to be bailed out. Bankers took the deposits entrusted to them, gambled wantonly on absurd loans for Keynesian pyramid construction, and casino like derivatives. That’s what happens when unrealistic ivory tower theories are used to centrally plan the economy. Much of Europe has been turned into a banana republic.
A return to the drachma? Bankers are likely to print 720% inflation like in Venezuela, and create the chaos extant there. In the real world, bankers tend to use the printing press to create chaos, not to help the people.
No, the foolish and unethical piece of Greece did foolish – not to mention fraudulent things – by having their government borrow vastly more than they could pay back and then spending it on all sorts of nonsense including government salaries and pensions. The Greeks have created their own banana republic all by themselves, and now they’re going to have to live with that situation with vastly greater austerity and much higher taxes.
Declare bankruptcy. Dissolve the central government. Allow each major city to form a city state and allow the city states form a lose national association.
And what exactly would that achieve? No country can ever “declare bankruptcy” to get away from its sovereign debts due to its creditors.
Greece is the grand social experiment for the financiers. The experiment on people to see how much they will tolerate before they finally call it quits. The fleecing of Greece is enable by its corruption and voters. Even now they want to remain in the Euro. The new God is ink and paper. Once complete the financiers can most to the next country. The experiment is not yet complete.
The Greeks did indeed bring this on themselves, but there comes a time when humanity is worth more then ink and paper.
Greeks were the first to create sovereign bankruptcy about 2000 years ago and since then they have defaulted on government debt about 7 or 8 times in an attempt to screw the people who have loaned them money to run their country, but that game which the Greeks think is so funny is about to come to an abrupt halt.
No need to worry in the slightest about Greece. It will soon become a German colony and all the Greeks will be deported to work camps in Siberia on contract with Russia and then all assets will be transferred to Germany and the country will be run by Germans with financial integrity and work ethics and all will soon become totally performing and normal again in Greece.
The Never-Ending Story: Europe’s Banks Face a Frightening Future
If you had to pick the moment when European banking reached the point of no return, which would you choose? The July day in 2012 when Bob Diamond resigned as Barclays’s chief executive officer amid the Libor rigging scandal? Or the fall morning later that year when UBS announced it was pulling out of fixed income and firing 10,000 employees? How about Sept. 12, 2010, when Basel III’s raft of costly capital requirements started upending the economics of global finance?
All signature events, to be sure. But try May 21, 2015. That’s when Deutsche Bank stockholders filed into the dome-shaped Festhalle arena in Frankfurt to take part in one of the most venerated and, let’s be honest, boring rituals in corporate life: casting a vote on management’s strategy and performance. It wasn’t dull this time. Almost 40 percent of the bank’s investors gave co-CEOs Anshu Jain and Jürgen Fitschen a big thumbs down. While winning six out of 10 votes is a landslide in politics, it’s a crushing blow at a publicly traded company. By the end of June, Jain was out and Fitschen had agreed to leave the company by May of this year.
Investors are running out of patience with European bank chieftains, and no wonder. Since the fall of Lehman Brothers in September 2008, eight of Europe’s biggest banks have announced layoffs adding up to about 100,000 employees, paid $63 billion in legal penalties, and lost $420 billion in market value. In 2015, Deutsche Bank lost a record €6.8 billion ($7.6 billion). In mid-February the industry suffered an epic selloff as subzero interest rates, China’s slowdown, the oil crash, and looming regulatory and litigation costs triggered an outbreak of fear not seen since the fall of 2008. Just last year new CEOs took over at Barclays, Credit Suisse, Deutsche Bank, and Standard Chartered. Now they have to find a way to prosper in a marketplace that’s being reshaped simultaneously by strict new capital regulations and myriad financial technology startups that don’t have to abide by them.
http://www.bloomberg.com/news/features/2016-02-16/european-bank-nightmare-far-from-over-as-fines-and-fintech-loom