The Greece deal

Please find attached the latest IMF Greek sustainability report that I mentioned earlier today and the Euro Group statement on Greece from today’s summit.

Please take note of the following paragraph in the Euro Group statement.

It is understood that the disbursements for the PSI operation and the final decision to approve the guarantees for the second programme are subject to a successful PSI operation and confirmation, by the Eurogroup on the basis of an assessment by the Troika, of the legal implementation by Greece of the agreed prior actions. The official sector will decide on the precise amount of financial assistance to be provided in the context of the second Greek programme in early March, once the results of PSI are known and the prior actions have been implemented.

In other words… We’re not quite there yet.

Greek Sustainability Report

and the Euro Group statement.

Euro Group statement on Greece

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  1. Their downside forecasts for Greek debt is still >100% in 2030. The more realistic downside scenario shows >120% in 2030. Are these people serious? There are countless economic shocks that are likely during that time which make this debt totally unpayable.

    Yet even if one assumes nothing goes wrong, could even the military stop Greeks tearing their country apart with riots? They would need to live in austerity mode using all of their surpluses to pay off debt for well over 20, perhaps 30 years. That is insanity.

    But then if one considers the economic realities of Greece actually achieving sustainable growth with sustainable budget surpluses while staying with the Euro then pretending that this path can work is viciously criminal. I doubt Germany itself could achieve the growth they ask of Greece without budget deficits.

    Now repeat this for the rest of the PIIGS.

    It is nothing short of tyranny. And all just to protect banks and avoid the massive write-downs which could actually set us on a path of sustainable growth.

    The only thing I can say is that since nothing has been done to address the causes of this debt fueled crisis, then the world deserves every bit of drawn out depression it gets. Letting the market do its thing is useless if the world will just let it happen again.

  2. General Disarray

    I’m baffled why anyone would get excited about another Greek bailout. Look at the first one, how much money was spent, and the results. Is this time going to be any different? If so why?

    • Yeah, I also do not understand the logic, to be honest, this is more than likely going to trigger a credit event, which will probably unravel the CDS pyramid and make GFC Mk1 look like toddlers playing with pennies.

    • “Look at the first one, how much money was spent, and the results. Is this time going to be any different? If so why?’

      just as well mankind is alot more persevering than that or we would still be in caves. most people try and fail before they get it right. could have said the same thing after the first attempt at flight too.

      • General Disarray

        “just as well mankind is alot more persevering than that or we would still be in caves. most people try and fail before they get it right. could have said the same thing after the first attempt at flight too.”

        What a stupid comment.

      • “just as well mankind is alot more persevering than that or we would still be in caves. most people try and fail before they get it right. could have said the same thing after the first attempt at flight too.”

        If I am unsuccessful at my first suicide attempt, am I to be congratulated at successfully completing my second attempt? Greece is signing their death warrant.

        History is replete with multiple instances of sovereigns defaulting (see Those in recent memory include Russia, Iceland and Argentina. They seem to have recovered okay.

        It is hard to see long-term how the consequences of default and return to the drachma could possibly be worse than what is currently happening to the country in the long-term. Wow, 120% debt to GDP ratio by 2020 under the best case scenario. Thrilling stuff…

        • Further to my comment above, see article link below for some more info on historical defaults…


          Key quote: “Many economists expect catastrophic consequences if any country exits the euro. However, during the past century sixty-nine countries have exited currency areas with little downward economic volatility. The mechanics of currency breakups are complicated but feasible, and historical examples provide a roadmap for exit. The real problem in Europe is that EU peripheral countries face severe, unsustainable imbalances in real effective exchange rates and external debt levels that are higher than most previous emerging market crises. Orderly defaults and debt rescheduling coupled with devaluations are inevitable and even desirable. Exiting from the euro and devaluation would accelerate insolvencies, but would provide a powerful policy tool via flexible exchange rates. The European periphery could then grow again quickly with deleveraged balance sheets and more competitive exchange rates, much like many emerging markets after recent defaults and devaluations (Asia 1997, Russia 1998, and Argentina 2002).”

  3. So basically the same statement that was released, what, 6 months ago?

    “We announce that we are not there yet. But we promise we will be soon. Pinky Swear! kthxbye”

  4. Greece basically gets 19cents on each Euro of bailout money so you can easily see why this isnt exactly going to help Greece in any way. a default was priced in so why not let it go.

    I read also in interesting article on Zerohedge recently

    that the ECB basically changed the terms of their Greek bond holdings without any due process…. quite astounding that more hasnt been made of it in the wider press. Whos to say they wont do it for other holdings, if this doesnt cause a stampede to the exit doors then I dont know what will

  5. No-one in a universe where 2+2 still = 4 believes that Greece is ever going to return to positive growth while in the EU.

    So you have to ask yourself, what is REALLY going on?

    Based on the revelations in the last few years about bankers and the political “elite” (read: incompetent), you can only suspect that most of that bail-out money is going to pay off the financial institutions that took a risk loaning money to Greece, and in this new age of risk-free-capitalism-as-long-as-you-know-the-right-people, it’ll be fat bonuses all round for the connected few, and poverty and social upheaval for the Greeks.

      • @Janet I’m sure. My friends with kids get a bit annoyed with me when I suggest they start reading “A Brave New World’ and “1984” to their kids at bedtime, but the last few years have made me realise that Kim Jong Il wasn’t so different from the people running the world now as i thought…

  6. Oh and can I just say… I suspect it’s the unknown CDS market that went from $60 billion in 2000 to over $300 Trillion today, that is the kicker. Paying 30 billion Euros of the bailout money to the bondholders so they ‘voluntarily’ take a 70%+ haircut smacks of a bribe to me.

    Someone knows something we don’t…

  7. Doomed. DOOMED.

    How awesomely cruisy and cheap will Greece be when it finally exits the EU (voluntarily or otherwise)?

  8. So this is a game where you keep one alive so the others don’t get the idea that the ISDA is weak or lost control?

    • all OTC derivatives are essentialy worthless (ask MF global clients, the same lesson aussie CFD gamblers will also learn one day). just depends wether or not the counterparty decides to or can afford to pay out or not. But buying CDS over soveign debt has to be one of the stupidest trades ever. can undestand buying CDS on corporates as they do go broke. but sovereigns? with all the policy levers available to them, laws they can change at the stroke of a pen and backed by central banks? might as well give your money to charity. but yes ISDA is a joke, but so are OTC deriviative so they suit each other, and the people that trade them, well

  9. The Greek bailout situation is done for now, but watch now how the focus quickly shifts to the next EU state to ask for a bailout. Portugal … maybe.

  10. There is a very simple reality to the Greek situation which the Greek Parliament, the ECB, the EU Parliament and the banks are totally failing to consider – and that is the Greeks.

    These people are incredibly proud and incredibly socialist – borderline communist. The idea that they must all toil away for 30 years for nothing, while foreign banks reap rewards, and the Greeks live in abject poverty simply, and UTTERLY will not fly.

    Two things are going to happen – the first one is that Athens will burn – Greece will burn.

    The second one is they will elect a far left wing (really left wing) radical peoples party, throw out all agreements and declare independence in April with the elections –

    This means absolutely ZERO – there is simply NOTHING that the EU can do to stop the Greeks from turning this on its head – the Greeks would rather the drachma went to nothing, and it will, than accept this.

    If I have ever been sure of anything – it is that Greece will not be part of the EU come April. No way.

  11. This isn’t a Greece bailout it’s another banker bailout. Another transfer of wealth from the taxpayer to the banker. Iceland has shown the way – tell the bankers to go to hell and default.

    If anything is too big to fail it is too big to exist and should be dismantled. Instead, governments around the world are throwing trillions of dollars at these failed businesses, making them even bigger, for fear of what might happen if they fail.

  12. At this point the economic situation has become almost a moot point. The situation on the ground in Greece is deteorating rapidly in every concieveable way.

    Hospitals are now unable to provide enough medication to patients, Hospitals now refuse to give out birth certificates until they are paid for their services, Children are going without vaccinations because their parents can’t afford it. If basic medical care is suffering what about the rest of the public sector?

    At this point it is about the Greek individual, how much are they going to put up with and for how long, until they finally say no more and just default. At this point staring down the barrel of decades of austerity default looks like the preferable option.

    Far left and Far right parties are gaining massive traction in polls while the traditional large Greek political parties flounder in single digit poll results. None of these extreme parties plan to pay off the debt if elected, that is the plan to get elected in the first place, campaigning on sticking it to the Germans in particular.

  13. I’m struggling with this whole Euro concept. What was the reason for entering the Euro? Do the Euro participants actually understand what is happenning? Is it really good for Euro that Germany is so dominant? What happens to Germany if Euro collapes? What would actually be so dreadful for Greece to say get ?>”<ed! The Greeks may have fudged the entrance numbers & have an issue with tax collection & an issue with actually working but should they really let the Germans tell them to suck eggs? I don't think so. The Greeks have troubled waters ahead. And by the way as nothing has been said for days I presume everything is now totally fixed in Italy, Spain, Portugal, UK, France, etc etc? I don't think so. Trouble ahead?

    • I’d say that up till now central countries like germany profitted handsomly from having an artificially low currency (thanks to the weak southern countries) mking exports more competitive. All the while these southern countries have suffered from a high currency. As far as I see it the euro is a great way to get a free ride for the central countries at the expense of the outer ones.

    • We have to remember as well the Greeks, Spaniards and the Irish all got to benefit from lower cost capital initially when the Euro came into being, and in reality had the advantage due to the combined economic strenght of Germany, France etc, however the key thing is now the risk/cost of credit should be high right accross Europe, given that Germany/France has to bailout the Greeks who owe the money to French banks.It does my head in.