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.
"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.
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:
-- 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. --
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
As it stands, Greece's debt-to-GDP ratio is the highest in the currency bloc. It has been steadily rising as the country has undergone painful austerity and experienced a severe contraction in economic output.
So what does Greece’s €317bn debt really mean for the country and its creditors? And can it ever be paid back?
[IMAGE]
Myth 1: They can never pay it back. Ever.
Never say never. On the issue of repaying back its liabilities, it's more a question of time, rather than money.
Greece has already been the beneficiary of a number of debt extensions, and in 2012, underwent the biggest private sector debt restructuring in history.
The average maturity on Greek government debt currently stands at 16.5 years. The sustainability, or otherwise, of the country’s burden relies more on the timetable for repayment rather than the overall stock of the debt, argue many economists.
The chart below shows the repayment schedule on the country's €245bn rescue package and extends all the way out to 2054.
Although the question of cancelling any portion of the principal owed to Greece's creditors seems to be a firm no-go area, the idea of further debt extensions could be an option.
Not really. Greece has managed to negotiate favourable terms on which it can service the cost of its loans and the interest paid by the country is far below that of Spain, Ireland, and Portugal (see chart below).
[IMAGE]
Think-tank Bruegel calculates that Greece paid a sum equal to around 2.6pc of its GDP (rather than the widely quoted figure of around 4pc) to service its loans last year.
This is because Greece will actually receive back the interest it pays to the ECB should it continue to meet its bail-out conditions.
Quote:Given that interest rates have fallen significantly from 2014, actual interest expenditures of Greece will be likely below 2pc of GDP in 2015, if Greece will meet the conditions of the bail-out programme.
Myth 3: "Greece won't recover without debt forgiveness"
Wrong again. For all the fixation on the outstanding stock of Greek debt, kickstarting growth in the country is more likely to happen through a relaxation of budget rules rather than a debt cancellation.
With the coffers looking sparse, the Syriza-led government is also asking for a renegotiation of the surplus rules imposed on the country.
Greece is currently required to run a primary surplus of 4.5pc of its GDP. Before taking account of its debt interest payments, it is likely to achieve a primary budget surplus of around 3pc of its national output this year.
This severely limits the new government's room for fiscal manoeuvre. It also makes it almost impossible for Syriza to fulfil its pre-election promises to raise the minimum wage and create public sector jobs.
According to calculations from Paul Krugman:
QuoteDropping the requirement that Greece run a primary surplus of 4.5pc of GDP would allow spending to rise by 9pc of GDP, and that this would raise GDP by 12pc relative to what it would have been otherwise. Unemployment would fall by around 10pc relative to no relief.
None of this is to deny that Greece would hugely benefit from a significant debt cancellation. But the politics of the eurozone means that this is virtually impossible.
However, there do seem to be other ways that Greece could start tackling its enormous debt mountain.
Despite deadlock, Greek PM sees solution to debt crisis
Fri Jun 19, 2015 3:19am EDT
ATHENS | By George Georgiopoulos and Angeliki Koutantou
A man reads a newspaper front page bearing a picture of Greek Prime Minister Alexis Tsipras in Athens June 18, 2015. Reuters/Alkis Konstantinidis
There will be a solution to the Greek debt crisis that will allow the country to return to growth while staying in the euro zone, Prime Minister Alexis Tsipras said on Friday, as the country moved closer to the brink of default.
Tsipras's tone was strikingly upbeat given that talks over a cash-for-reforms deal for Greece remained deadlocked after a meeting of euro zone finance ministers, and bank withdrawals from Greek lenders have accelerated in the past week.
The leftist leader, who has refused to make concessions over tax hikes and pension reforms demanded by Greece's creditors, welcomed a planned euro zone emergency summit on Monday and dismissed those predicting catastrophe.
"The leaders summit on Monday is a positive development on the road toward a deal," Tsipras's office said in a statement. "All those who are betting on crisis and terror scenarios will be proven wrong."
"There will be a solution based on respecting EU rules and democracy which would allow Greece to return to growth in the euro."
Time is running out for Greece to strike a deal and avoid defaulting on a 1.6 billion euro loan to the International Monetary Fund by the end of June - the first in a series of looming payments for the cash-strapped country.
The IMF chief raised the stakes on Thursday by telling Greece there would be no grace period or delay permissible in repaying the money.
The ECB's governing council will hold a telephone conference on Friday to discuss extending emergency liquidity for the lenders, sources said.
With the health of Greek lenders increasingly in peril, one executive board member of the European Central Bank questioned on Thursday whether Greek banks would be able to open next week.
European Council President Donald Tusk has convened Monday's emergency euro zone summit to discuss Greece "at the highest political level".
Greek savers pulled out some 2 billion euros between Monday and Wednesday after weekend negotiations collapsed in Brussels, senior banking sources told Reuters. That is double the amount that the ECB granted Greek banks in extra emergency liquidity assistance (ELA) only on Wednesday.
If deposit flight continues to outpace ELA, it could force Greece to impose capital controls, as Cyprus did in 2013, to ration cash withdrawals.
(Writing by Matthias Williams; Editing by Hugh Lawson)
i respect Stiglitz's position (haven't heard any even touching on it in Australian 'analysis), that Germany is benefiting most from the euro, and that austerity stuff has contributed to Greece's position, and that ordinary Greeks have suffered enough, that Germany will once more bend just enough to prove Tsipras right.
1950 Donald Duck, Chip N Dale Out on a Limb [ please note 1:20 :) ]
YUP, though the laugh was cool i was backing the little guys there, too. LOL
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