The improbable Greece plan

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http://blogs.reuters.com/felix-salmon/2012/02/21/the-improbable-greece-plan/

Greece is now officially a ward of the international community. It has no real independence when it comes to fiscal policy any more, and if everything goes according to plan, it’s not going to have any independence for many, many years to come. Here, for instance, is a little of the official Eurogroup statement:

'We therefore invite the Commission to significantly strengthen its Task Force for Greece, in particular through an enhanced and permanent presence on the ground in Greece… The Eurogroup also welcomes the stronger on site-monitoring capacity by the Commission to work in close and continuous cooperation with the Greek government in order to assist the Troika in assessing the conformity of measures that will be taken by the Greek government, thereby ensuring the timely and full implementation of the programme. The Eurogroup also welcomes Greece’s intention to put in place a mechanism that allows better tracing and monitoring of the official borrowing and internally-generated funds destined to service Greece’s debt by, under monitoring of the troika, paying an amount corresponding to the coming quarter’s debt service directly to a segregated account of Greece’s paying agent.'

The problem, of course, is that all the observers and “segregated accounts” in the world can’t turn Greece’s economy around when it’s burdened with an overvalued currency and has no ability to implement any kind of stimulus. Quite the opposite: in order to get this deal done, Greece had to find yet another €325 million in “structural expenditure reductions”, and promise a huge amount of front-loaded austerity to boot.

The effect of all this fiscal tightening? Magic growth! A huge amount of heavy lifting, in terms of making the numbers work, is done by the debt sustainability analysis, and specifically the assumptions it makes. Greece is five years into a gruesome recession with the worst effects of austerity yet to hit. But somehow the Eurozone expects that Greece will bounce back to zero real GDP growth in 2013, and positive real GDP growth from 2014 onwards. Here’s the chart:



Note that the downside, here, still looks astonishingly optimistic: where’s all this economic growth meant to be coming from, in a country suffering from massive wage deflation? And under this pretty upbeat downside scenario, Greece gets nowhere near the required 120% debt-to-GDP level by 2020: instead, it only gets to 159%. And to make things worse for the Eurozone, the report explicitly says that under the terms of this deal, “any new debt will be junior to all existing debt” — in other words, there’s no way at all that Greece is going to be able to borrow on the private markets for the foreseeable future, so long as this plan is in place.

[CAPHAVOC]

1. The German Riviera?

Islands for sale. Cheap!

[dipsydoodle]

5. Wouldn't joke about that too much

All of their funding now is based on English law : not Greek law. That means its secured against State assets which include those islands.

[CAPHAVOC]

7. A real sight to behold

I also read that they are getting negative pay for work. They have to pay out of pocket to go to work. That makes no sense. Who would pay to work? Greeks should take a tip from Iceland. They told the Banksters to take a hike. How could the Greeks be stupid enough to buy in to this fraud? It must be the worlds dumbest country.

[dipsydoodle]

8. Its possibe there's a connection

between whether or not they chose to work and their pension.

[GeorgeGist]

2. Many here think Santorum is more important ...

than watching the real world implode.



K and R

[xchrom]

3. Indeed. Nt

[dipsydoodle]

4. Greek Deal Leaves Europe on the Road to Disaster: Clive Crook

If Europe’s new plan for Greece succeeds, nobody will be more surprised than the politicians who designed it. At best, the arrangement is a holding action, one that fails yet again to deal with the much larger confidence crisis facing the euro area.

The deal announced on Tuesday starts with private lenders. Their representatives agreed to accept even bigger losses on Greek government bonds than previously discussed. The bonds’ face value will be cut by 53.5 percent, and they’ll pay a low interest rate, starting at 2 percent then rising later. Altogether, this reduces their net present value by about 75 percent, far more than deemed necessary just weeks ago.

If enough private lenders go along, that triggers the inter-governmental side of the plan: new official loans to cover Greece’s ongoing budget deficit and replace debt coming due. The terms include a lower interest rate on bailout loans as well as various other kinds of European Union taxpayer subsidy, folded in with greater or lesser degrees of stealth. The European Central Bank and national central banks, for example, will pitch in by channeling back to Greece the “profits” they have made on Greek bonds bought at deep discounts to face value. The International Monetary Fund is going to take part, too. Exactly how still isn’t clear.

If too many private lenders opt out, it’s back to the drawing board. Ditto if voters in Greece force the government to renege on promises to cut the minimum wage, make advance debt- service payments into an externally monitored account, change the constitution to prioritize debt repayment, accept oversight of public accounts by an on-site team of EU officials, and more.

http://www.bloomberg.com/news/2012-02-23/greek-deal-leaves-europe-on-the-road-to-disaster-clive-crook.html

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6. +1