Tornado Alley (PROG)

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The Greek Stand-By Arrangement

January 25, 2015 9:09 pm January 25, 2015 9:09 pm

For tomorrow’s column I went back to the original, May 2010 stand-by arrangement .. http://www.imf.org/external/pubs/ft/scr/2010/cr10110.pdf ..
for Greece, to see what the troika was demanding and predicting at the beginning of the austerity push, and how it compares with what actually happened.

First of all, I quite often encounter people who claim that Greece never really did austerity. I guess this is based on national
stereotypes, or something, because the numbers are actually awesome. Here’s non-interest spending as projected in
the original agreement versus actual spending since 2010. Because the troika kept increasing its demands, Greek
spending has ended up far lower – austerity has been far more intense – than anything envisaged at the beginning.


International Monetary Fund

So how can Greece still be in debt trouble? The original agreement assumed a brief, fairly shallow recession followed by recovery – nothing like the reality of depression and deflation. Here’s nominal GDP as predicted versus actual outcome. Naturally, the collapse of GDP reduced revenue and raised the debt/GDP ratio.


International Monetary Fund

Oh, and unemployment was supposed to peak a bit under 15 percent, not hit 28.

How did they get it so wrong? In the spring of 2010 both the ECB and the European Commission bought fully into expansionary austerity; slashing spending wasn’t going to hurt the Greek economy, because the confidence fairy would come to the rescue. The IMF never went all the way there, but it used an unrealistically low multiplier, which it arrived at by looking at historical examples of austerity while ignoring the difference in monetary conditions.

The thing is, we now have essentially the same people who so totally misjudged the impacts of austerity lecturing the Greeks on the need to be realistic.
http://krugman.blogs.nytimes.com/2015/01/25/the-greek-stand-by-arrangement/

That one fits neatly to

"So the economic collapse – about which all Greeks, both right and leftwing, are bitter – is not just seen as a material collapse. It demonstrated complete myopia among the European policy elite. In all of drama and comedy there is no figure more laughable as a rich man who does not know what he is doing. For the past four years the troika – the European Commission, IMF and European Central Bank [ http://www.theguardian.com/business/2012/jul/24/greek-exit-from-euro-fears-heighten ] – has provided Greeks with just such a spectacle."

of that excellent writing of Paul Mason's .. so what now? .. well i didn't know this but looks to me some clearing has already begun ..

Bailout Exit

The government, trailing in polls to Syriza, and with a constitutional impasse over a new president likely to trigger snap elections early next year, is pushing to exit its unpopular bailout program at the end of 2014. Samaras has vowed to replace regular emergency loan disbursements with precautionary credit lines from the International Monetary Fund and the European Stability Mechanism, which will come with fewer strings attached than the current program, and will only be used if the country’s borrowing costs spike.

Greece first needs to agree with the troika of officials representing the country’s lenders - the European Commission, the European Central Bank and the IMF - on the measures required to complete the last review of the current program, paving the way for the disbursement of about 7 billion euros ($8.6 billion) in aid outstanding.

This review, which started in September, remains stalled, as the country’s creditors raise doubts about the projections of next year’s budget, and ask Greece to adopt more budget savings in order to ensure that it meets its targets. .. http://www.bloomberg.com/news/2014-12-07/greek-lawmakers-pass-budget-amid-troika-disagreements.html

so throw in a touch of debt dismissal and other



as .. “A technical extension is a possibility. We did the same for Portugal,” Dutch Finance Minister Jeroen Dijsselbloem
told lawmakers in The Hague last week. “This could be the case for Greece. But I can only say that if and when the
fifth review will be finalized” said Dijsselbloem, who also chairs meetings of euro-area finance ministers.
http://www.bloomberg.com/news/2014-12-07/greek-lawmakers-pass-budget-amid-troika-disagreements.html

and the Belgium finance guy is onside for some fiddling, too .. it could be easy with caring negotiation within the troika .. and with Tryzia .. should be Bob's your uncle ..

.. lol .. loved Paul Mason's second link, too .. the article is a beauty ..

Oops, meant to mention as you know there are troika disagreements, which to me suggests also openings for negotiation with Tryiza .. i didn't know they went back 3 years ..

Greece: Disagreement Everywhere, Rift in the Troika

Thursday, January 12, 2012 at 8:11PM .. with links ..

Austerity measures are taking their daily toll on Greece. Suicides and attempted suicides have jumped by 22.5% since 2009. The unemployment rate rose to 18.2%. RTL, the largest radio network in Europe, lost 50% of its advertising revenues in Greece since the start of the crisis—and decided to leave. And now pharmacies are having difficulties obtaining medications.

The pharmacy problem is an unintended consequence of the austerity measures that the bailout Troika (EU, IMF, and ECB) is imposing on Greece. To cut its healthcare budget, the government has reduced the prices that the industry can charge state-owned insurers. So wholesalers are selling their limited supply outside Greece. And state-owned insurers, whose budgets are squeezed as well, delay payments to pharmacies, which then can’t pay their wholesalers for the medications they do get. Thus, wholesalers are even less likely to sell to pharmacies—and the system breaks down. A microcosm of the current state of the Greek economy.

Yet more cuts are coming. To impose them, Prime Minister Lucas Papademos even threatened private sector unions (and everyone else) with the nuclear option—disorderly default. For that whole debacle, read.... Greece’s Extortion Racket Maxed Out.

But now the Troika itself is in disarray. It surfaced today at an IMF press briefing in Washington: the IMF no longer supports austerity as a guiding principle. Athens News quoted a senior IMF source, who was speaking on condition of anonymity. Frustration was practically palpable:

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Horizontal austerity measures are constantly being adopted that are leading nowhere, whilst further wage and pension cuts are unjustified because the only way to improve competitiveness is through growth-creating market liberalization, the opening of closed professions, and productive investments.
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The three Troika inspectors—Poul Thomsen from the IMF, Mathias Morse from the EU, and Klaus Mazouch from the ECB—are supposed to head to Greece next week to inspect its books; the budget deficit is once again higher than the revised limit that Greece had vowed to abide by. And they’re supposed to negotiate additional “structural reforms.” But there probably won’t be three inspectors, according to senior IMF sources. Missing: Poul Thomsen. The IMF has had enough.

Already, according to more leaks, IMF Managing Director Christine Lagarde had warned German Chancellor Angela Merkel and French President Nicolas Sarkozy that the fiscal and economic situation in Greece had deteriorated. Hence, the “voluntary” haircut on Greek bonds held by private sector investors should be increased to more than 50% to maintain the goal of bringing Greece’s debt load down to 120% of GDP. And the second €130 billion bailout package, agreed upon on October 26, should be enlarged by "tens of billions of euros."

The German reaction was immediate. “There has to be a line somewhere,” said Michael Fuchs, deputy leader of Merkel’s party, the CDU. “This cannot be a bottomless barrel." Even if Merkel were amenable to committing more taxpayer money to bail out Greece, she’d face a wall of opposition in her own party. And he wasn’t brimming with optimism: "I don't think that Greece, in its current condition, can be saved," he said.

Lagarde’s demand for a larger haircut smacked into an onslaught of leaks from the bond-swap negotiations between the government and private sector bond holders. First, there were rumors that the banks had largely agreed on a deal. Then there were rumors that hedge funds that had acquired some of these bonds at a discount were refusing to go along with anything. They were betting that they could profit from a default because it would trigger CDS payouts. And if the majority agreed to the haircut, they would also profit because Greece would eventually redeem the bonds.

Now, there are rumors that the government wants to compel these hedge funds to join the bailout majority. Tool: retroactive “collective-action clauses”—if a majority of bondholders agrees to the deal, the recalcitrant minority could be forced to go along.

“Frankly, a disaster,” is how David Riley, head of global sovereign ratings at Fitch, described the negotiations.

Mid March, Greece will either default or receive the next bailout tranche. Its economy is in shambles, its society in turmoil, and its finances ruined. There are no easy solutions. Every move is painful. And someone has to pay. It may be too difficult to keep Greece in the Eurozone, but allowing it to exit would be even more difficult, at least in the short term. And not only for Greece. It would be a shock to the Eurozone economy, which is already fragile. Even Germany, economic superstar with unemployment at a 20-year low and exports at an all-time high, has smacked into a wall. Read.... Germany’s Export Debacle.
http://www.testosteronepit.com/home/2012/1/12/greece-disagreement-everywhere-rift-in-the-troika.html