In a “breakthrough” agreement to kick the can until after the next German elections, the IMF backed down on its demand for immediate debt relief for Greece now.
According to the agreement, Greece will have to maintain a primary budget surplus of 3.5% of GDP, a condition the IMF argued as impossible, just a few days ago.
Please consider Greece Reaches Debt Relief Breakthrough with Creditors.
Creditors have decided on measures to provide short, medium and long-term debt restructuring on Greece’s 180 per cent debt mountain, having been locked in eleven hours of negotiations in Brussels, ending at 2am local time, writes Mehreen Khan in Brussels.
As part of its measures, Greece will gain a short-term re-profiling of its loans, while more expensive debt could be “swapped” with cheaper loans to bring down the country’s overall financing costs.
A statement from finance ministers said:
“The Eurogroup agreed today on a package of debt measures which will be phased in progressively, as necessary to meet the agreed benchmark on gross financing needs and will be subject to the pre-defined conditionality of the ESM programme.”
“We achieved a major breakthrough on Greece which enables us to enter a new phase in the Greek financial assistance programme,” said Mr Dijsselbloem.
[Mish Translation: We called the IMF’s bluff and won. Hooray!]
Greece could also receive around €1.9bn in profits held by the European Central Bank to pay back its loans by mid-2018. Creditors also agreed on a “mechanism” to provide further long-term restructuring to keep the country’s financing costs below 20 per cent of GDP by 2060 – a key threshold demanded by the IMF.
[Mish translation: Well, we had to kick the IMF a bone to make it like we really did something. Besides, possible debt relief to the tune of €1.9bn in profits on a €300bn debt is very generous of us.]
EU member states did not however relent on their target of a 3.5 per cent primary surplus to be hit by the Greek economy by 2018 – a key issue of contention between EU member states and the IMF, who had called the target “unnecessary” before today’s talks. This target could however be revised after 2018, said Mr Dijsselbloem.
[Mish comment: Unnecessary?! WTF? I point out IMF Calls on Europe to Give Greece ‘Unconditional’ Debt Relief. The IMF did not use the word “unnecessary”. In a Leaked Lagarde Letter this is what Christine Largarde said in regards to maintaining a surplus of 3.5%: “let there be no doubt that meeting this higher target would not only be very difficult to reach, but possibly counterproductive.” The IMF proposed 1.5%. How the Financial Times got “unnecessary” out of that is a mystery.]
“This is a very important moment in a long and sometimes difficult story”, said Pierre Moscovici, European Commissioner for economic affairs.
[Mish translation: Hooray! We win!]
IMF representative Poul Thomsen said: “We have all shown flexibility” following months of institutional wrangling between the fund and its EU partners.
[Mish translation: Damn, Germany called our bluff.]
The debt relief measures were also “not quantified” by creditors said Mr Dijsselbloem but would be “made to fit” whatever criteria needed to ensure Greece’s debt sustainability.
[Mish translation: We know, Greece knows, and the IMF knows Greece’s debt is not sustainable. For the sake of the next German election, someone has to suffer, and it won’t be us.]
The IMF is set to issue a new set of calculations on debt sustainability before confirming its part in Greece’s third international bailout.
[Mish Comment: The IMF’s calculations will be revised to show what emphatically would not work yesterday, will emphatically work today.]
But Wednesday’s agreed measures fall short of the bold recommendations to reduce as much as 50 per cent of the net present value of Greek debt by 2060, which the IMF had called for a day before the meeting.
[Mish Comment: Things changed. That’s what happens when bluffs are called.]
“The language suggests creditors and the IMF have papered over cracks, but that this is going to require another revisit”, said Mujtaba Rahman at Eurasia Group. “The IMF was hoping to take politics out of the debt relief discussions going forward. This deal doesn’t do that.”
[Mish translation: The creditors and the IMF have papered over cracks. This is going to require another revisit. The IMF was hoping to take politics out of it, but decided to go along with Germany and screw Greece when its bluff failed.]
Bluff?
The only thing I am uncertain of here is whether or not the IMF was bluffing as opposed to flat out lying, pretending to be the “good cop” when all along it wanted to stab Greece in the back.
Plan a revisit in a year or less. Greece will not maintain a primary surplus of 3.5% of GDP.
Mike “Mish” Shedlock
Just as expected, and just as predicted. Obviously, the BUNDESBANK SETS THE RULES regarding the cute little Germany colony of Greece and told the IMF in no uncertain terms, “NEIN, NEIN, NEIN” to their extraordinarily stupid proposal for any “debt forgiveness” regarding their little Germany colony in the Aegean. The final solution will be reached when the people currently in Greece are put in boxcars and sent packing to re-education and work camps in Siberia under contract with Russia, and then Greece can properly be repopulated with intelligent, prudent, and fiscally responsible German folks!
Don’t the Germans already have … Germany ?
I think you must hate Germany and Germans and are trying to insult them and the current state of their country .
Probably something to do with migrants having passed through Greece or similar … but putting others down does not make oneself taller , or so they say .
Huh? I adore Deutschland, but it really need a warm resort area on the Mediterranean and what could possibly be better than that as a German colony. All of the issues of Greece will be rapidly resolved when the Fourth Reich gets serious and takes over and develops that entire area and turns it in a heavenly Germany On The Mediterranean! When fleets of BMW Rolls-Royce motor cars arrive and turn the area formerly known as “Greece” into something far more spectacular than the French Riviera you will know that real victory has been fully achieved.
Toute nation a le gouvernement qu’elle mérite.
Every nation has the government it deserves.
But no person has ever been so vile, as to deserve suffering under a government.
If you don’t laugh you will cry. The present value of the debt cannot change without changing the interest rate/discounting factor. Not paying the promised interest is a DEFAULT event. What is the matter with the private investors? ISDA should decalre the default and have done with it, invoking all the CDS protection that has been taken against such a DEFAULT event.
Honestly, who do they think they are kidding? Greece should DEFAULT and set its own terms for what it can afford. The answer is probaly around 40% of its GDP which means it can emerge from this with a write off, of 78% of its outstanding debt (180% down to 40% of GDP). The sticking point is that other European countries that are probably even worse of than Greece, like Spain, Italy, Portugal and Ireland (probably the UK, France and Cyprus as well) will be shown to be similarly in DEFAULT, by never being able to repay debt EVER.
Sovereigns need a new measure of DEFAULT – not repaying any principal for five consecutive years is my suggestion – otherwise the lying, cheating and stealing by the faceless bureaucacy and idiotic central banking that goes for central planning in Brussels will be seen for what it actually is, namely a trough for feeding pigs with no interest in democracy whatseoever.
Sigh. This is another case where bureaucrats with no brains perpetuate their own species and act like act like lawyers promising “no win, no fee” since they know they can never lose.
“Sovereigns need a new measure of DEFAULT” -Peter
Only one problem, Peter. Greece is no longer a Sovereign. Once you join the EU police/nanny state and give up your currency, you are no longer among the Sovereigns. Greece may have a seat in the UN, but it is more like a Soviet style state in a German-dominated EUSSR. Grexit would have worked after the referendum, had the Greeks been as smart as the Brits and kept their currency. Now, stuck in the euro, Greece cannot default or inflate away their debt. They are a slave state, having given away their power along with their sovereign currency.
Greeks are slaves, whether they know it or not; and when their government payments take a bigger haircut and their bank accounts are all fully bailed-in and their property collectivized by the state, they may finally get it. No options when you give up sovereignty and currency and become a slave state in a collective like the EU. With compound interest on the current debt, the Greek debt will continue growing faster than it can ever be paid off. Forget that GDP surplus nonsense. Paying off a high debt compounding ever higher is a mathematical impossibility for Greece; they are stuck in the euro, and unlike Germany’s Weimar Republic police state which kept the mark in the 1920s after the disastrous Versailles Treaty, the Greeks cannot inflate away their foreign debt. The Greeks are worse off than a sharecropper in perpetual debt to the landowner.
Thatcher was smart enough to keep the pound currency, and so the Brits are still Sovereign and have more options than the Greeks. Unless the Brits go brain dead in June, they will be bailing out of the EU and its dysfunctional nannycrat state. Brexit can work where Grexit cannot, because the Brits understood what the Greeks did not (the importance to sovereignty of having your own currency). Compound interest on debt is a disaster, unless you have a sovereign currency to inflate away the debt (which is why FED has inflation targets to inflate away USA.gov debt). Outside of Europe, not many countries dumb enough to give up that option.
.
The Greeks once made very good slaves for the Romans and they will again make very good slaves after they are all rounded up and sent by boxcars to Siberia under contract by Russia for work and retraining camps before being properly auctioned off for the highest prices to prospective owners with the proceeds being sent to the Bundesbank.
The Bundesbank does not approve at all of your proposals and has clearly told its servants in the Greek government, “NEIN, NEIN, NEIN” which it has also clearly translated as “OXI, OXI, OXI” for those too dim to comprehend the German language. The Greek people are the ones totally responsible for this situation which is just the last straw in them doing the same thing for the past 200 years, but this time they have really JUMPED THE SHARK and will have to be excruciatingly punished and then removed from Greece which will, of course, totally solve the problem as German citizens turn Greece into a spectacularly and very fiscally responsible resort colony of Germany.
An interesting vision, but not exactly the cheapest way to obtain a warm water resort. And from what I hear, the Mediterranean is rather polluted. But, I’ll grant you, good German work habits and investment could clean up all the pollution in a decade or two. Maybe you should start now, have it ready in advance.
Let’s say all the Greeks are dispersed; no doubt some will prefer the Orient Express or hop a flight to London, as the EU sanctions on Russia will keep out EU boxcars. Sans Greeks, the debt of the Greek nation is still outstanding and the banks will still want payment. The Greek debt then becomes German debt. Just saying, there might be cheaper warm resort opportunities out there. Assuming all that Greek debt does not seem like something a financially prudent German would necessarily want to do. But if you have your heart set on Greece for your warm water resort… Personally I’d prefer Baden-Baden or the African coast. Probably some good deals on Libyan beachfront resorts.
Okay, I’ll grant that you have a good plan for hardworking Germans to pay off all the Greek debt. But you really have to explain how turning Greece into such a heavily armed military state fits into the plan. Much of the German loan money went to arm Greece with the latest weapons, and even the Turks respect the large Greek military. Also, the Greek military might decide it would rather partner with France, Spain, Italy or Turkey and the BMW Rolls Royce fleets might face tanks or ISIS style resistance in this landscape abandoned by the Greek populace who have taken up herding reindeer, forestry, oil drilling and gold and diamond mining in Siberia and are now grown rich and financing the Greek resistance who have a score to settle with Germany and might even be attacking the German homeland. Might be too busy working, paying off debt and fighting to enjoy the warm water resort.No doubt you’ve got a plan worked out for that?
‘Greece’s debt sustainability’ = Sustaining Greece in debt = Sustaining a source of revenue from , and leverage over, Greece .
It is thrilling and exhilarating to see the Fourth Reich working hard to make Greece a great country again – for the Germans!
Greece should quit the EU and form a free trade zone of equals with Nigeria, Zimbabwe, and Venezuela.
Wouldn’t it be much more polite to suggest EU quit Greece?
Problem?
Thought so.
Politically Correct is soooo establishment !
Of course, and so that should fit very nicely with EU … if you could actually find it.
NEIN, NEIN NEIN, you dummkopf!
Mish,
You could have wrote the whole article using just 3 words… “the IMF’s calculations”…
Christine’s brain – or what there was of one – has fried from far too much sunning in the French Riviera.
Greece is learning there are worse things than having your payment system fail. Hard to believe I know. Having your economy grind to a hault because all your transactions won’t clear through the banking system is rough.
Here’s the thing. There is something actually worse than that. It’s called debt slavery. The Greek people have not yet accepted that this is true, but they are getting close. If and when this realization occurs, and Greece leaves the failed EU experiment behind, they will have an important something called freedom and human dignity once again. All eyes should be on possible Grexit, not possible Brexit.
For what it’s worth I hope you do screw your German dominatrix Greece. They’re certainly asking for it.
Of course another option is for Greeks to go IRA on Germany and start blowing shit up. Also not a bad plan IMO.
Greece has far bigger issues than doing anything about the blessed and wonderful patronage of Deutschland keeping it alive, dude.
The entire legal system in Greece has now completely broken down.
Criminal trials put back until 2032, NO divorces and NOBODY able to claim an inheritance in Greece as lawyers strike over tax hikes
Lawyers have been striking in Greece in outrage over the enormous backlog of legal cases which are preventing divorce and inheritance cases from being on trial.
http://www.dailymail.co.uk/news/article-3606226/Criminal-trials-2032-NO-divorces-able-claim-inheritance-Greece-lawyers-strike-tax-hikes.html
Isn’t ‘reform’ great.
Sarc.
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It is always highly amusing to look at Yanis Variousfakit’s take on the current situation with Greece:
https://yanisvaroufakis.eu/
The Fourth Reich has won. Let’s make Greece great again!
http://i.dailymail.co.uk/i/pix/2016/05/23/article-urn:publicid:ap.org:1f78d26501674096b547a28131e82527-4zws8ModGHab6857bf49ad5cf75c-961_634x421.jpg
Germany is a victim of the bankers too. Bankers took foolish risks with the deposits entrusted to them. Now bankers demand to be bailed out.
German retirees just want to peacefully enjoy their retirement. Bankers want to inflate away their meager pensions and savings. Greek retirees also want to peacefully enjoy their retirement, but bankers want to confiscate their pensions to bail themselves out. Both the Greek and German people are victims of irresponsible bankers. As is the rest of Europe.
What we need is banks that don’t need to be bailed out every few years. Bankers who prudently and wisely take care of deposits entrusted to them.
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The creditors allowed for even less money than Greece is supposed to give them back in the very near future:
Disbursement to Greece, about 10 billion euros. Payments due by Greece in the next 8 weeks, 11 billion.
http://www.ft.com/ig/sites/2015/greek-debt-monitor/
It seems Greece could create a special negotiable “tax payment currency” fully acceptable as payment for Greek taxes. This currency could be used to pay off Greek debt. Holders of this “tax payment currency” could then use it as trade for goods and services from people in Greece that owe taxes. The process is totally under control of the Greek state. Euro could continue to be used in Greece as well and no switch to general Greek currency is needed.
A currency that can be used to pay for fiscal obligations against the state and to buy goods and services is the very definition of legal tender. I this case, it would be a parallel currency.
The very second you start talking about a parallel currency, the whole population starts a bank run because the only sensible reason to introduce it is for that to then replace the euro and devalue it to restart the economy thro increased export and tourism, possibly renominating the massive public debt to it in order to diminish it by devaluation (and following inflation).
And here is the conundrum: leaving the euro and devaluing is the only way Greece can revive its comatose economy, and yet the bank run will kill the comatose patient before it can be revived.
I don’t see why there couldn’t be parallel currencies. The Greek tax payment currency floating against the euro depending on how aggressive the Greeks are at collecting taxes. Very aggressive collections float to 1:1 and sloppy weak collections go to many Greek to 1 euro. Everyone outside govt. tax collectors uses euros in their daily business as usual.
Because, as I said, at the mere mention of a parallel currency you’d have the mother of all bank runs, suspension of payments, stop of the deliveries, block of investments and eventually the collapse of (what is left of) the economy. Everyone would know that the parallel currency would become soon the only currency, in its devalued form.
That, and it would essentially be the end of the euro participation of Greece, which is not wanted by anyone in power in the eurozone as it would destroy the myth of the irreversibility of euro, dooming the currency.
In shorts, it is theoretically possible, but unfeasible, on an economics point of view and impossible politically. Like much of teh whole Greek crisis, after all.
The problem is not the money. A large part of the Greek debt could have been repaid from money the wealthy had removed from the economy and stashed outside of the country rather than relinquish it to taxes. The ECB can easily conjure up the money to wipe out the Greek debt — every three months they counterfeit the same amount to provide welfare to the wealthy (holders of securities that they are buying up with QE).
The only problem is the example — letting Greece off the hook would:
(1) infect other countries and parties that are suffering and mar the “sancrosanct” status of debt; and
(2) would undermine the perception of all Euro denominated debt, even that of Germany.