First Merkel flew to Greece pledging solidarity, now the IMF chief Christine Lagarde seeks Two More Years For Greece.
IMF chief Christine Lagarde’s declaration this morning that Greece should be given two more years to hit tough budget targets embedded in its €174bn bailout programme – coming fast on the heels of German chancellor Angela Merkel’s highly symbolic trip to Athens – are the clearest public signs yet of what EU officials have been acknowledging privately for weeks: Greece is going to get the extra time it wants.Time is Still Money
But what is equally clear after this week’s pre-Tokyo meeting of EU finance ministers in Luxembourg is there is no agreement on how to pay for those two additional years, and eurozone leaders are beginning to worry that the politics of the Greek bailout are once again about to get very ugly.
The mantra from eurozone ministers has been that Greece will get more time but not more money.
Quite frankly it is impossible to give Greece more time but not more money. The time value of interest payments is proof enough.
Ever late to the party, the IMF recently changed its 2013 Greek GDP projection from flat to negative 4%.
In my estimation, more downward revisions are coming, including Germany and France.
Battle of Bailouts
With every down-tick in GDP assume lower tax revenues. Will Greece ever get to a sustainable debt to GDP numbers?
Once again the answer is no, and this was perfectly obvious years ago.
Yet the IMF and ECB have stated they will not take write-downs. Peter Tchir discussed this in detail in his T-Report on Greece.
Here are some details from the report, with my additions in braces [] ...
Official Greek Debt is €288 billion. I don’t think this includes every bilateral loan made by the EU and certainly doesn’t deal with any national central bank loans.The Good Path
It does include the entire Public Sector debt. The PSI bonds total just over €62 billion. There is about €4 billion of Greek legacy bonds documented under non-domestic law. So of the €288 billion, at most, €66 billion is held outside of the official sector.
[If Greece wiped out €66 billion] it would reduce debt from €288 billion to about €222 billion. From a practical standpoint it accomplishes next to nothing. It will save Greece about €1.25 billion annually in interest for the next 10 years. The annual savings for 10 years would be €1.25 billion for a total of €12.5 billion over the period. Who really believes Greece will make it 10 more years if all they get is a measly €1.25 billion [per year] in current savings.
While crushing the PSI bonds would do next to nothing for Greece’s ability to survive in the near term, it would send shockwaves through the bond markets [especially Spain and Italy].
But what happens if the EU or the ECB or the EFSF actually have to take losses?
The ECB is highly levered. It cannot afford real losses without making capital calls. I cannot imagine the ECB making capital calls at the same time it embarks on OMT for Spain.
Hollande is passing implementing some bizarre budget of his own, but last thing he needs to do is cover a few billion of losses on existing loans to Greece. It is the only way to help Greece, but it will make the anti-bailout crowd more vocal.
Across Europe, the reluctance to participate in the bailouts has been increasing. Leaders may finally be realizing they have done too little, but their population (i.e., voters) has been growing more disillusioned and taking actual losses will add to that resistance.
So I see Greece as once again being a focal point for the crisis and think that just like their eventual default last year, there is no good path.
What Peter really means is there is no acceptable path to the Troika. An excellent path (for Greece) would be for Greece to default, tell the Troika to go to hell, wipe out all of the debt, return to the Drachma (backed by silver or gold), and institute badly-deeded work-rule reforms.
Since the Greek leaders are shills for the Troika while simultaneously attempting to appease public unions, what's needed is downright impossible as long as this set of politicians is in office.
In the meantime, debt escalates, unemployment soars, and Greece rots away.
Coca Cola, Greece's Biggest Company, Leaves
The idiots in Brussels and the IMF, hell-bent on "saving Greece" have helped destroy the country. On Thursday we learned Greece's Biggest Company Quits Country.
Greece's biggest company is leaving the country, drinks bottler Coca Cola Hellenic (CCH) said on Thursday in announcing it will move to Switzerland and list its shares in London, dealing a blow to the debt-crippled Greek economy.One of the Troika demands was higher taxes. Did it work?
"This transaction makes clear business sense," chief executive Dimitris Lois told analysts in a conference call. An overwhelming majority of shareholders have already accepted moving a company which has long complained about Greek taxes.
Unemployment Tops 25%
On Thursday, we also learned Greek unemployment rate hits 25.1 percent in July as recession heads for sixth year.
Youth unemployment is 54% and jobs are vanishing at a rate of 1,000 per day for the last year. So now the IMF wants to give Greece more time, but not more money.
As explained above, that is impossible. More importantly, how could it possibly matter even if it was possible?
The bankers and the IMF helped destroy Greece. There is nothing left but ruins. And in the end, Greece is going to default on all the debt and exit the eurozone anyway.
Expect European taxpayers to foot the bill.
This is what happens when countries take money under onerous terms from the IMF. Spain should be paying attention, but it isn't.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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