Greece – What Happens Now?

Well, NOW we can say that the greek debt is on the knive’s edge. The haircut was a meagre 12%, a world record for small haircut while defaulting, peanuts really, but that’s the price of a “velvet” default where the bankers make part of the decision…

Greece will be on austerity for 30 years and if keeps budget surpluses, it could repay the debt… Theoretically. Probably in the meantime the eurobond will come along too, so judging this only with economic criteria and not political too would be wrong.

Now the “civil war” inside Greece will begin stronger between the leftists that continue their catastrophology and request to default whatsoever, the populist right wing opposition and the rest. Which ultimately comes down to 2 sides: Those that want Greece to reform and those that don’t. Unfortunately, the anti-reformist propaganda has been reinforced very much in the past year, because the country had to follow a program that was leading nowhere and was increasing the debt. This has also caused the pro-reformist to lose much credibility and political capital. The other unfortunate thing is that the 2 ruling parties have lost confidence of the voters. Right now each of them gets only 20% in polls. This means that in order to pass new austerity measures, none of the 2 can do it on its own. This plan should have happened last year, but Mrs Merkel was more worried about Bild magazine and saving her banks not thinking about long term solutions.

If Greece can return to growth and sustain it without deficits, this will work. If not, there will be bailout mk3 or default mk2. If the haircut was bigger, this would not be an issue. But Mrs Merkel chose to cut only the strictly necessary out of the debt, as to give a 50-50 chance to Greece.

Interestingly Varoufakis predicts more turmoil:

Europe’s Faustian Bargain
http://yanisvaroufakis.eu/2011/07/22/europes-faustian-bargain-on-the-latest-attempt-to-resolve-the-greek-debt-crisis-and-its-repercussions/

Also interesting notes:

1) The ECB will probably bend its rules once more and accept greek bonds as collaterals while Greece will be in “selective default” rating from the rating agencies.

2) Despite the best effort of rating agencies that will downgrade Greece, the ISDA will probably NOT accept that there was a credit event, making the CDS holders losing their bet and so mainly US and bit EU banks won’t have to pay for the CDS.

3) Varoufakis makes good points about why speculators will retreat shortly, but afterwards regroup and attack again. I believe that sooner or later, the eurobond will become the only option. Or at least, increase the funds of the EFSF so much as to be able to “burn” many attacks swiftly and massively.

4) The bigger part of the “private contribution” will come from the greek banks. 😀 But all in all, the total of the banks get to lose only 13 bln euros. Not much of a surprise considering that half of the bankers where in the EU meeting together with the politicians.

Good summary article:

The euro-zone crisis summit
Russian or Belgian roulette?

http://www.economist.com/blogs/charlemagne/2011/07/euro-zone-crisis-summit

Ah, a nice graphic that explains the situation:

Note: The greek state collects from taxes about 52 bln per year.

How do you pay 74 bln with 52 bln euros? Wages and pensions alone cost 22 bln euros. “On the knife’s edge”. Talk about ******** and understatement…

“”The Greek debt is sustainable but it is, as we say, on a knife’s edge.”, said IMF’s Harry Houdini. 😀 😀 😀

“The Main purpose of the program was to give time to the banks to cover their ****!” Say it, Harry!

Flouting EU regulations is what most members do. The UK, sad to say, plays just about everything by the rules – more fool us.

Yes, the problem is that EU regulations are made mainly on the lines of what Germany and France want and of course they can also bend them without anyone shouting scandal.

You are cornered by Germany today, exactly because you find yourselves isolated, while Germany is delimitating its playing field and the rules. It’s the Battle of Britain once more, only without aircrafts this time.

While you play by the rules, they play by their own:

http://www.propublica.org/special/the-world-wide-web-of-siemenss-corruption

A 1,6 bln $ fine is a joke in comparison to what Siemens gained. In Greece alone, they took the contract of renewing the entire greek telecoms network, the public phones, even if you were ordering a new telephone set from the pubblic phone company, they were bringing you Siemens. The traffic lights in Greece are Siemens. The electronic devices for the Olympic Games of 2004, were Siemens. They got contracts about army comms. The best part. After the greek state paid the money to Siemens to upgrade all the phone network (with optical fibers and all), then came Deutsche Telecom and bought the greek phone company. Basically we invested a fortune in a company that was sold right afterwards. 😀 Multiply this by the countries on the map…

You know why they let Greece in EU? Not because they were the small, naive Germans, that the cunning Greeks managed to fool. But because they were submerged by contracts and found easy way to their briberies. Even the EU cohesion funds, went largely to german companies. Out from the left pocket, in to the right one. Today, the german companies are even in the toll stations that collect the very salty tolls in greek roads. They manage several airports which they built, including the Athens one. Oh, they did leave a bridge to the French though, truth be told. So the French got the money for the bridge and now the tolls.

http://2.bp.blogspot.com/_fdTn4uR4rcU/TLiclGgDEpI/AAAAAAAADYw/KuGZhbdav7s/s1600/γεφυρα+ριου+αντιρριου.jpg

Pretty nice, isn’t it? Together with Carrefour supermarkets, that’s pretty much all the Germans have left for the French. 😀

The greek city buses are constructed in Greece on license by MAN. The greek army bought Mercedes and MAN trucks. Of course the army is full of german equipment. Greece is by all means a german province. Wouldn’t you want your province to your club???

That’s what the EU is about. Because you know how it is. Corruption is like whoring. For every whore, there is a client. The client may be protesting in disgust about prostitutes in the morning, but seeks them in the night, promoting prostitution.

Here’s another example of how much useful the PIGs are (note the last paragraph and also that the deal was signed by Barroso’s gov… It gives the answer to Ms Gomez).

http://euobserver.com/9/31297

Without pigs, who are they going to take over and bribe? The French? The Dutch? They have bridges already. You? You have your own subs…

Yes, you ‘re losing the war and this time USA has its own troubles…

Professor Varoufakis is more pessimistic about Thursday, although i don’t know on which point.

Missive from the Libyan Sea: Thursday’s meeting, if it takes place, will add to the litany of gross failures

18
Jul

Still on holidays, and still under-informed about the goings on (I just manage to read snippets of the news on my mobile phone, whenever a signal miraculously appears on its screen). And yet it seems certain that the Thursday EU summit (of which I got a brief whiff in a few tweets I stimbled upon), if Mrs Merkel chooses to honour it with her presence, will prove another flop. For from what (little) I read, the preparatory work that is being done (and whose success Mrs Merkel is treating as a prerequisite for attending), is moving steadfastly into the wrong direction: that of a debt buy-backs in the secondary markets. In short, our leaders are committed to the same-ol’ calamitous view that this is a debt crisis of the periphery to be dealt with in a manner fitting to a parent reluctantly paying for the prodical children’s sinful debts. Unable to write more on my mobile phone (without risking blindness and the combined wrath of my family), I shall end this missive thus: The more they persist with this fantasy, the closer we are edging toward the euro’s τέλος (end).

PS. Tragically, our holiday is ending on Thursday morning. Which means you can expect this blog to return with a vengeance that reflects not only anger at the EU’s unbounded idiocy but also frustration at having had to abandon southern Crete.

http://yanisvaroufakis.eu/2011/07/18/missive-from-the-libyan-sea-thursdays-meeting-if-it-takes-place-will-add-to-the-litany-of-gross-failures/

Varoufakis was right all along, even when he was predicting the spreading of the disease, because unlike Merkel’s wishful thinking, this wasn’t “greek” crisis only, but Greece was the weaker link of a chain with several other weak links. He has also underlined that it is also a banking crisis. But there is saying that EU will announce on Thursday that all banks will be helped if in trouble. So i wonder if his suspicion is about the more long term european future, to which i agree that can’t go on like this or whether he thinks that the haircut won’t be enough (in fact if Greece is left with 120% debt, it is still marginal). I want to HOPE that Mrs Merkel won’t allow only for a buy-back from the markets, because this is the more unsure way of reducing debt. Prolongation of bonds with a haircut is more certain. Well, in the worst case, we can always default again… This i think is the 6th default since 1830, we can safely say that we are good at defaulting, we know how to do it, how to restart and default again.

I’m happy to await the FACT of the judgement in September.

Being a citizen of a big country, you are less accustomed of how cynically big countries can behave. You will see. These bail outs are blatant violations of the “no bail out” clause. The ECB had also said that for 1 year they would accept bonds with lower grading than the usual “A”. Guess what. We ‘ve passed the year and now they even accept “junk rated” bonds of the PIG countries. A greek newspaper had a list of how many EU rules were actually violated in this story, i can’t find it, but it was hilarious.

Here we ‘re talking about major politican and economic issue. Germany has invested heavily on the EU and Merkel is in all effects the “PM of Europe” today. Everyone waits for Merkel. Merkel doesn’t want something? It doesn’t happen. Van Rompuy, Baroso, etc, can say all they like, but if Merkel doesn’t agree, it’s like talking about air. No Court will dare demolish that (well, unless the EU will be disintegrating before September because of Italy not healing).

I’m happy to await the FACT of the judgement in September.

When it comes to serious matters with high political risk, Germany IS Greece and you will see it. German courts will say it’s constitutional… We will both be here when they say so.

You should have seen how nice and gently german courts closed the bribery cases of many german weapons industries in a way that nothing is disclosed about who was paying whom. A fine and all forgotten.

Having money doesn’t mean that some things work in a different way. Do you know how OFFICIALLY german enterprises were writing down to their accounts their bribes? Something like “running expenses”. Everyone knew what they were, but didn’t do anything untill a scandal came up at around 2003.

They even refused to extradite the main greek contact who was bribing on behalf of Siemens the greek politicians, because he had dual citizenship (a greek really) and while the first degree german court agreed to extradiction, the appeal court saved him. This way all hush hush on who was bribing whom. Ironically, the father of that greek, was tried as collaborationast of the germans during WWII during the greek occupation (unbelievable but true) and acquitted because of “doubts”, thanks to the testimony of a minister who was later convicted for bribery himself. He now enjoys his life in Munich. He avoided the trial altogether. But the troubles with bribery and courts and germans run in the family apparently.

Interestingly, there is some EU regulation, according to which, if i remember correctly, companies caught in major bribering, should be ousted from european bids for some years. Mercedes was caught in USA for bribing, closed the deal with a fine. Ferrostaal was bribing for submarines from Greece to Portugal and abroads, MAN caught too, nobody thought to raise that issue. Nor politician, nor judge. A fine and hush hush.

We know alll too well the german courts:

Max Merten was Kriegverwaltungsrat (military administration counselor) of the Nazi German occupation forces in Thessaloniki. He was convicted in Greece and sentenced to a 25 year term as a war criminal in 1959. On 3 November of that year, Merten benefited from an amnesty for war criminals, and was set free and extradited to the Federal Republic of Germany, after political and economic pressure from West Germany (which, at the time, hosted thousands of Greek economic immigrants).[6] Merten’s arrest also enraged Queen Frederica, a woman with German ties,[7] who wondered whether “this is the way mister district attorney understands the development of German and Greek relations”. [8]

In Germany, Merten was eventually acquitted from all charges due to “lack of evidence.”

http://en.wikipedia.org/wiki/Konstantinos_Karamanlis

Go ask a greek Jew, what happened to the 65000 Jews of Salonika and he will tell you about the “lack of evidence”. If there is a lack is that of 65000 Jews, whose butcher was acquitted in German courts. And even the stones know that in Greece. He bulldozed even the jewish cemetary.

Ah, but you forget one crucial point, my friend – Germany is not Greece!!

As it has been for many weeks, but still the EU coughs up, as any thought of endangering the Euro is unthinkable.

On Thursday the charade should be over. Unless Merkel is crazy enough to go once more for half-way solutions. Which i doubt, because all european newspapers from Spain to Poland are shouting “time for decisive measures”.

I reckon the unthinkable will have to be thought by the end of the year.

The unthinkable will occur only if the contagion of Italy isn’t halted by the Thursday measures.

If the German Constitutional Court rules against further German support in September the project will be on very rocky ground, as it deserves to be.

The German Constitutional court will vote in favour of the support, at limit it will put a political limit of more parliament control for the future. Courts are made of people and these people do have links with the politicians although in theory they shouldn’t have… Just like the greek Constitutional Court rejected a case by the Athens’ lawyers branch that was asking to declare the bail out mk1 as not constitutional , like several constitutional professors were saying…

IMF says Greece is ‘on a knife edge’:

http://www.bbc.co.uk/news/business-14177208

My dear friend, Greece isn’t on a knife’s edge. It’s bankrupt since a year ago and if it wasn’t that the european banks were completely naked, Greece would have defaulted 1 year ago. The IMF, simply for “prestige” reasons, doesn’t want to admit the reality, that is, that the supposedly rescue plan didn’t work. Already after the first trimester, the inflation was off by about 3% compared to the IMF’s masterplan. Greece reduced the deficit by 5% instead of 5,5% which the plan predicted, but it was all a charade to give the time to the banks to brace themselves. For the same reason in the past year there have been 2 bank stress tests, the real purpose of which was to see how vulnerable the banks would be not taking into account a greek default (because the stress tests did not include sovereign bonds haircut, except a 15% for the greek banks).

I ‘ve been saying it for over 6 months in this forum that the debt restructuring was unavaoidable, since we started with 120% debt, but the since the IMF’s program brought so deep recession (again, more than the plan’s expectations), the debt is now at 150% and next year will be at 172%. It has long ago reached “escape velocity”. The reduction of deficit when done so abruptly, kills the economy and the debt grows. That’s why countries don’t attempt to reduce their deficits by say 10% in a year. And all this is called “on knife’s edge”. Because,, in its first attempt to save a euro-zone country, the IMF can’t say “we failed”, can it?

In Greece the people have known since last year that the debt was unsustainable. That’s also why a good part of them was protesting, with economists saying on TV “we should default now, we won’t avoid default”. One can follow this blog for example:

http://yanisvaroufakis.eu/

FINALLY, now that Italy’s pants are on fire (today the italian spreads closed at 330 bp, the highest ever since Italy joined the EU) and the banks have unloaded most of their debt on the ECB or have been paid for it, on Thursday, Merkel will allow for what should have been done when the greek debt was 120%. That is, DEBT RESTRUCTURING AKA a more gentle word of saying “DEFAULT”.

– Some bonds will be prolonged, i HOPE with a haircut.
– Some bonds will be bought back from the secondary market , where the greek bonds are traded at 50% of their value right now. I hope though that this will happen in organized fashion with the bond holders, or else they will raise their prices.
– Some bonds that are in the ECB will be bought back. ECB had bought them at around 70% of their value, so doesn’t lose anything by selling them back to Greece at 30% discount. In fact, right now the ECB is the single bank with the most greek debt, at about 55 bln.
– The EFSF will loan Greece the money to do the above.
– The ECB theoretically can’t accept anymore as warrancies bonds from a state while in SD, so it will either have to bend the rules or let 110 bln or warrancies to fall and let the Bank of Greece use the Emergency Liquidity Assistance fund to finance the greek banks for as long the SD rating holds (everyone hopes it won’t last long).
– The rating agencies will lower Greece to “SD” (selective default) scale.

Mrs Merkel is deciding (we ‘re probably the first country in the world history where we can’t decide on our own default).

All this could have happened 1 year ago, it would have costed less to everyone, but Merkel can only see a fire when it starts burning her pants (in this case, Italy).

I hope that Greece in total will write off at least 30% of its debt, which will bring it to about 120%. Any less of a write off will IMHO require a trial of the greek politicians for damaging the public interest.

Summary of what happened waiting for 1 year before making the debt restructuring:

– The banks have successfully unloaded about 2/3 of the greek debt onto states before Mrs Merkel “remembered” that “privates must also share a part of the burdon”. If Greece had defaulted abruptly, they would have have had at least 50% of the greek debt as damage (assuming 50% haircut).
– Greece reduced the deficit by 5% at the cost of 30% more debt, but at the same time avoided an abrupt default in favour of a more “velvet” one. The bad news is that by defaulting immediately Greece could have defaulted on more debt starting at 120% instead of less debt starting at 150%. The good news is also that this for the time being allowed Greece to stay in the euro, since changing currency is something that requires preparation and doing it while defaulting causes many short term problems.
– Mrs Merkel has managed to satisfy the bankers by saving them and now will also try to satisfy her voters by making the bankers lose something like 30 bln (i guess) of what are toxic bonds anyway. It’s not too bad for the bankers, if one thinks that 1 year ago, if Greece had defaulted their losses would have been far, far greater and many banks would have collapsed.
– The sistemic crisis with contagion towards Italy should stop.
– The rating agencies, that are for-profit organizations and all american, will have their chance to try activate the CDS so that hedge funds that have bet 6 bln on Greece’s default, can be paid back with a profit of 30 bln. In case someone was wondering about WHY the rating agencies have pushed so hard downgrading Ireland, Portugal and lately Greece in July, it’s because after 15 July, the first greek CDS were expiring, so there were pressure by their holders for causing greek default. And the rating agencies, whose customers are also these investors, tried to help their clients…
– Thanks to the crisis Germany took the advantage of passing a new regulation that all member states should bring their debt to 60%. *
– The greek case will be guideline for later debt restructuring for the irish and maybe portuguese.

* This may eventually lead towards higher intergration of the EU, with eurobonds in the future and central economy control, because:

1) The weaker countries joined the euro so that their banks can draw cheap money from the ECB and have low yield bonds. Now the bond yields won’t be as low as they were before.
2) In order to reduce the debt to 60%, all countries above that limit and especially the more indebted ones will have to follow long austerity plans while trying to stimulate growth at the same time. This is close to impossible. Unless one of 2 things happen:
a) eurobonds that will allow cheap lending for everyone up to the 60% of the debt.
b) an internal mechanism of recycling part of the surplus of the richer countries towards the poorer countries through investments, pretty much like the US goverment does.

Otherwise, the social unrest to the periphery will grow to a degree that the EU will disintegrate. Always IMHO. 😀

Overall, it could have been done much earlier and at less cost, but the EU is always slow in taking decisions.

As it has been for many weeks, but still the EU coughs up, as any thought of endangering the Euro is unthinkable. I reckon the unthinkable will have to be thought by the end of the year. If the German Constitutional Court rules against further German support in September the project will be on very rocky ground, as it deserves to be.

IMF says Greece is ‘on a knife edge’:

http://www.bbc.co.uk/news/business-14177208

Such is the way of the average GD thread.:eek:

Seems like this is going in ever decreasing circles.:eek:

Jim.

Lincoln .7

Flouting EU regulations is what most members do. The UK, sad to say, plays just about everything by the rules – more fool us.

The Euro-domino effect. Yes, indeed. But if there had been no Euro…….ah, life is full of “ifs”.

All I meant was that had it not been a member of the EU it is unlikely that it would have reached this parlous state.

Maybe not, although if Greece had not been allowed to flout EU regulation it probably wouldn’t be in this state either; just keeping your head above water during the good times is asking for trouble when a storm comes!

In or out of the EU a default by Greece is going to have a serious knock-on effect for other countries, the UK (and UK banks) are not that exposed to Greece (unlike France and Germany) but if a Greek default puts Ireland in risk of default the UK (and UK banks) are heavily exposed.

Globalisation to a great extent overrides national or political demarcation.

All I meant was that had it not been a member of the EU it is unlikely that it would have reached this parlous state.

The payments in and out were based on historical criteria and are probably wholly irrelevant now and at each new country’s accession the terms of membership are debated and wrangled over to all parties’ satisfaction. That’s another way of saying that like everything else about the EU – it’s a stitch up!!;):dev2:

There is no denying your last two sentences!

Greece’s debt crisis is inextricably bound to its EU membership…

Why do you say that? Greece is in debt to many institutions, most of them independent banks, there are some governmental loans but excepting the EU bail-out package most debt is owned by banks, many of them Greek (and they will go under if Greece defaults). The main problem seems to be that Greece hasn’t been living within its means (in common with many countries) but I suppose the ‘backing’ of the EU allowed Greece to get into more debt than it would otherwise have managed to do.

In terms of overall cost of the EU there is an interesting chart in the link below. Yes, the UK does pay a lot more into the EU than it takes out, yes, Greece takes out more than it puts in but Poland takes out much more than anybody else in the EU and we’re not talking about the Polish debt crisis.

http://en.wikipedia.org/wiki/Budget_of_the_European_Union#State_by_state_analysis

(You can manipulate the chart to show who pays (or takes) what – I think we’ll hear the sound of blood boiling before long! :diablo:)

In overall terms, and bearing in mind that the figures above were compiled by a eurosceptic organisation the net amount paid into the EU by the UK between 2007 and 2013 will be about fifty-seven billion euros, a large sum of money but relatively small in comparison to other domestic UK expenditure.

Greece benefitted (will benefit?) from the EU to the tune of twenty-five billion euros over the same five-year period; five billion euros a year yet Greece’s total debt is currently put at three-hundred-and-forty billion euros!

As has been said, I do not see Greece ever being able (or willing) to pay this back…

…and the Greek people are already ‘sick’ of austerity after only a year! :rolleyes:

Bob – indeed, yes. And Cameron has said exactly that so let’s see if he means it.

Couln’t agree more Bob.;)

Jim.

Lincoln .7

Seems to me they are up the Greek without a paddl€….

No more money to bail out this sinking boat or any other in the €U – Cameron needs to find the backbone he was issued with and tell the “EU” to go and sit on a rollock…