Greeks Get Time but Not Money

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Yves here. This post by Delusional Economics continues with his cataloguing of the slide of the Eurozone into an economic and political abyss. What is striking is the contrast between his matter of fact tone (which at this point is fully warranted, these self destructive actions have become depressingly routine) and the horror of what is happening, that millions of people are faced with desperation and are prepared to take desperate measures in retaliation.

By Delusional Economics, who is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

So here we go again. Greece needs even more money, and once again the EU needs to decide what to do about it.

Eurozone governments will not agree to disburse more money to debt-ravaged Greece on Monday, despite the country approving a tough 2013 budget, because there is not yet a consensus on how to make its debts sustainable into the next decade.

Finance ministers gathered in Brussels should, however, give Athens two more years to make the budget deficit cuts demanded of it, a concession that will require funding of around 32 billion euros, according to a draft document prepared for the meeting.

Yes, I know it’s not a surprise, but it does present immediate problems because the European commission is stalling until the release of the final report , the Bundestag, amongst others, is yet to vote on the next tranche and Greece has a €5 billion bond redemption on Friday.

The latest news from the Eurogroup meeting is:

.. [the] Eurogroup ended with eurozone finance ministers agreeing to extend Greece’s fiscal adjustment period by two years but deciding to put off until next week final decisions on the disbursement of the next Greek bailout tranche and the method to make the country’s debt sustainable.

The ministers are due to meet again on Tuesday, November 20 to wrap up the loose ends regarding the Greek program.

Eurogroup chief Jean-Claude Juncker and European Monetary and Economic Affairs Commissioner Olli Rehn praised the Greek government for passing the latest package of fiscal and structural reforms but International Monetary Fund managing director Christine Lagarde suggested that some “chapters” remain to be settled.

I’m not sure how you can decide on more time without deciding how exactly it will be funded, but there you have it.

Greece will be allowed to issue more short-term debt to roll over Friday’s paper but there is much to decide. This is yet another “can kick” into the new year. Options available for such a kick are the aforementioned additional time and money, the lowering of the interest rate and/or lengthening of maturity on Greece’s €53bn bi-lateral loan and/or allowing Greece to buy back its own debt with a loan from the ESM. All technically doable but as we’ve seen from Europe many times before ideology and politics tend to create significant roadblocks for any course of action . As usual we just have to wait for the next instalment of the slow moving train wreck.

Also announced yesterday was the Greek bank recapitalisation plan:

Greek banks will use a mixture of common shares and convertible bonds in order to meet international capital adequacy requirements, according to a long-awaited plan to recapitalize the country’s troubled lenders.

The plan, released Monday, says the banks must use common shares to achieve a core Tier 1 ratio of 6%, but can use convertible bonds to top up their capital needs beyond that and in order to reach a minimum 9% level.

The shares, which will be offered in rights issues that are expected to take place early next year, will be offered at a 50% discount to their 50 day average market price. The bonds will carry a 7% annual coupon, that will rise by 50 basis points per year and which will be converted to shares at the end of five years.

Under the terms of the plan, Greece’s bank rescue fund, the Hellenic Financial Stability Fund, will underwrite the coming rights issues and effectively take control of the four big banks, which combined account for three quarters of the banking system’s assets.

Unsurprisingly Greek bankers don’t appear too happy with the plan, as Kathimerini reports:

Senior bank officials told Kathimerini that the terms do not allow for any optimism in terms of attracting private investors to participate in the recap process. Any banks that fail to collect at least 10 percent of the capital required from private investors will come under the full control of the state’s Hellenic Financial Stability Fund (HFSF). Therefore current shareholders will definitively lose their assets as they will have no right to pay back the state capital and regain control.

Actually given the state of the banking system and the economy anything short of full nationalisation seems pointless, but finding 10% private investors is likely to be difficult so that maybe the final outcome anyway.

In other news, Angela Merkel has visited Portugal amidst growing political disquiet and the Spanish government appears to have finally conceded to the EC that its estimates are far too optimistic:

Spain’s deficit targets need to take into account Europe’s recession, the country’s economy minister said on Monday.

“We need to take into account that Europe is in recession and in these circumstances we must look not just at nominal targets but at structural ones,” Luis de Guindos said in Brussels.

And like Portugal before it, public backlash on the social fallout from the economic retrenchment is forcing the hand of the government:

Spain’s largest banks said Monday they had agreed to a two-year freeze on evictions of homeowners “in extreme financial need,” amid a public uproar following the suicides of two homeowners facing expulsion.

The decision by the Spanish banking association AEB, for what it called “humanitarian reasons,” came as leaders of the governing Popular Party and the opposition Socialists were to begin working on a bipartisan deal to change Spain’s mortgage laws, some of which date back to the early 1900s.

And on it rolls ….

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  1. Eric Patton

    The Greek ruling class is fine with it. If they weren’t, the Greek government would be doing something different.

  2. The Dork of Cork.

    Irish girls are very naive.
    The 4 courts were never built for us.

    Modern Republics are banking creations………. however these banks have turned full circle and have assumed effective executive control.
    Its the final chapter in the post 1648 world.

  3. The Dork of Cork.

    The chief exec. Bank of Ireland (not the Irish CB) was recently grilled in a Parliamentary Committee.

    He repeated that it was all about the CASH FLOW of the customers and not the value of the present assets and he was right in the present context of banking units of account mixed up with goverments units of money account.

    This divine right of the King has been replaced by the banks divine right to speak gobbledygook to the masses……the entire 1648 thingy has turned in on itself.

    Its a absurdity

    Riche B. is correct within this current monetary framework

    “this is not a pawnbroking business”

    They are messing up the FIAT money supply to preserve their credit Kingdoms.

    “Of course the monetary base will still be subject to abuse by governments in places where, unlike the Eurozone, the government retains ultimate control of the central bank. But like I said above, I think you’ll find that the risk of fiat currency abuse is worth the innumerable benefits, especially once there is a systematic and foolproof way to protect yourself from the worst of it!

    And remember, this is why Wim Duisenberg so proudly stated that the euro “is the first currency that has not only severed its link to gold, but also its link to the nation-state.” I don’t really think the euro architects came up with this ground-breaking idea because they thought they were smarter central plannerz than the Superorganism!”

    But you have merely replaced one divine right for another…..ultimate power corrupts don’t you know.

    The banks can create infinite credit that cannot be paid off as there is no King to counter the banks and produce Greenback like currency.
    As the nation state system breaks down the bankers will win the game anyway as all wealth will flow to their Gold assets.

    But they won’t be able to spend it as there will be no tribal societies cohesive enough to sustain advanced life.
    Their claims on life & wealth will no longer hold any meaning – this is why Gold was buried in the 400 -500 AD period , it could not be spent.

  4. The Dork of Cork.

    Just to repeat as can be clearly seen in the above video –

    The banks assets are merely conduits for the fiat money rent collection – their paper value is of no consequence really.
    And in the Irish case have clearly no productive value.

    The truth is out for all to see.
    Each Euro country need a Fiat King to break these bankers rent collection business wide open.

    1. Wat Tyler

      Perhaps Thomas Hobbes was right – the power of the sovereign should be absolute. No competition from church,finance,media or other power structure. The sovereign (according to Hobbes) could be one (King), many (Aristocracy), or all (Democracy) but ,once in power, should have complete control otherwise there is a risk of civil war and a cold (for now) civil war is what we have now in the US.

      IMO, America has too many chiefs.


  5. Jim Haygood

    Excerpts from Bloomberg’s latest update:

    German Finance Minister Wolfgang Schaeuble … said Greece’s aid program can be re-engineered to plug a financing gap of as much as 32.6 billion euros ($41 billion) without costing creditors a cent.

    For now, Schaeuble said the terms of the Greek package can be rejiggered by cutting the rates on bailout loans or giving Greece extra time to pay them back, without requiring creditors to put up more loans or write off parts of Greece’s official debt.

    Greece’s loan rates have been cut and maturities extended twice before. Schaeuble characterized the resulting cost to creditors as a reduction in profit. He said other, as yet undisclosed, steps can be taken to make the Greek fiscal math add up. Bild newspaper reported that Germany favors speeding the delivery of previously approved payments to Greece, increasing the next installment to 44 billion euros from 31.5 billion euros.

    “Our assumption is that the program is working so that in the end, it’s a matter of guarantees and not benefits for Greece,” Schaeuble said.

    “Debt sustainability of Greece has to be measured in 2020 [not 2022],” said Lagarde.

    Hahaha — he said ‘profit’!

    Financial math says that the EU can ‘extend and pretend’ with rate cuts and payment deferments, but the net present value of the loan just keeps shrinking.

    And if you believe as I do that a third Greek haircut on the official debt is coming, then even the latest ice-cream-in-the-hot-sun NPV is but a hologrammatic fiction.

    Meanwhile technocrat Lagarde has seized on the trivial point of ‘2020 or 2022,’ despite the fact that economists can no more forecast fiscal deficits eight or ten years out than they can predict the price of yak burgers in Ulan Bator a decade hence.

    Not since John Law’s reign of error in France have European officials (including sober-sided Germany) been reduced to telling porkies on this scale. The battle to save the euro is like the battle to democratize Afghanistan: both were lost before they began because the concept was all wrong.

  6. charles sereno

    Without benefit of good information, I get the feeling that successive postponements of the “train wreck” are cover to allow more money to trickle out of Greece (and Spain) and give more time to large German and French banks to cut their losses.

    1. Susan the other

      So Germany has changed its position once again and is all in favor of Greece nationalizing its banks. Nationalizing, as in owned by a sovereign government. As in, The more sovereign debt the merrier. This is just fine and Germany will front them another 44Bn to make ends meet, because national debt interest that goes around comes around to German and French banks, right after it takes a brief detour to China, gets a magic discount, and returns via the ECB. They are going to do this for 3 years? It might work financially except, as DoC points out, all the various sovereignties will dissolve into slime mold in the process. None of this money will go to benefit any social order.

      Because the banks have actually severed their relationship to the nation state. Well not nominally, but in reality. So anything that looks like nationalizing banks and taking on sovereign debt is just a farce. And in the meantime these “banks” (need a new word for this rapidly evolving institution) can create credit without regulation. I’m confused.

  7. docg

    “The table was a large one, but the three were all crowded together at one corner of it: `No room! No room!’ they cried out when they saw Alice coming. `There’s plenty of room!’ said Alice indignantly, and she sat down in a large arm-chair at one end of the table.”

    So, there, in a nutshell, you have it: the Euro-crisis. AND its solution. Two sentences. Don’t let anybody ever tell you majoring in English is a waste of time. Of course, it needs a bit of updating, so let’s give it a try:

    “The economy was a large and prosperous one, but a small group of oligarchs with inordinate political influence were hogging just about all of it: `No money! No money!’ they cried out when they saw Greece, Spain and Italy coming. `There’s plenty of money!’ said Greece, Spain and Italy indignantly, and they called for a general strike of all European workers until the politicians figured out a way to disentangle themselves from the oligarchs and confiscate their wealth for the good of all.

    1. Aussie F

      Agreed, but surely you meant to quote this? It just about sums up the relationship between the the Troika and Greece.

      “When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”
      “The question is,” said Alice, “whether you can make words mean so many different things.”
      “The question is,” said Humpty Dumpty, “which is to be master that’s all.”

    2. Wat Tyler

      What happens when the politicians ARE the oligarchs as has been the case in most Southern towns (like mine) for at least a century?

      This arrangement (plutocracy?) is more stable than given credit.


  8. mac

    No matter how complex and covered by meaningless words, there is not enough wealth in Greece to make any of this work.

  9. The Dork of Cork.

    These banking cuckoos are agents of massive destruction.

    They want a Euro 2.0 it seems……
    This after the total destruction of Irish society post 1987 during the Euro 1.0 phase.
    And another previous massive jolt to our social cohesion in the 1970s

    These guys will never stop destroying ……….

    But at least we had that famous “price stability” which means I euro would typically buy a selected basket of goods at 2 % even if it takes massive wage defaltion to do this.

    I.E. Wage deflation is just as real a form of inflation – it just affects different wage earning people.

    This deflation of wages is a result of banking credit creation in their precious perfect banking currency.

    These banking bastards have total control over the coin of the realm

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