Τετάρτη, Νοεμβρίου 21, 2012

EUROBLOWN: Surprise surprise, Greece set to get debt rescheduling and forgiveness deal

Lagarde….big hair, fuzzy on the detail
Although everyone got fed up of using the ‘Greek tragedy’ line towards the end of last year, the actor-troupe analogy is still alive and well, because now we have the French farce taking shape. Veteran Sloggers will recall that last August, I quoted a French source thus:
“Brussels or Berlin…or both…or others…have given Samaras a big reassurance that if he sticks with the [austerity] programme, Greece will not be thrown out of the euro. Those same people have given similar assurances to the key players in the IMF and bondholder groups…that if they take another haircut, the EU will pay off the balance and give them their money back. The secrecy is to do with Merkel being flayed alive at home if they thought she was doing this, and Draghi ensuring that his central bank doesn’t become an open door for insolvent States and panicky bondholders.”
I suspect that this scenario (which in principle still holds good) has been bent out of shape by a combination of the Greek leadership somehow dropping the baton at various points, the Greek Left growing at a rate Brussels-am-Berlin never expected, the scandal about Big Dick Greeks salting money away among the Gnomes, and the speed at which parts of the Greek banking system have unravelled. The truth is that our leaders (and especially Brussels) overestimated the amount of time they had to fix stuff. This wasn’t a first.
But like I say, the guts of this deal are still there, and the person it is mainly designed to save is of course Angela Merkel, not Antonis Samaras. Partial confirmation of the deal’s survival came around 4pm this afternoon via the FT, which noted that the bigwigs ‘are inching towards a provisional deal to pay Greece up to €44bn of long-overdue aid. The deal would involve a political fix to reset Athens’ long-term debt target to after 2020….’
However, I understand that as well as this, some inching – or it is millimetering? – towards the IMF position also took place during last weekend. That is to say, there will be an element of debt forgiveness via the eurozone rescue funds, and the ECB quietly writing off some debt. This is, of course, our money not theirs.
The idea that help will not be forthcoming for Greece  – in the context of a Spanish bailout looking more and more certain, and the capitulation of Olli Rehn to Spanish terms last week – is potty. The game now is for Merkel to go back to Berlin with the least possible egg on her ample face.
The more serious game for Francois Hollande is to keep the pressure up on ensuring there is no accidental default in Greece – otherwise it will be game over for Paris. Mario Draghi is The Man in charge of this task, and so far he has quietly continued to give the Bank of Greed enough walking-around money to keep going.
All of this solves the public image and short-term banking problems of the major players, but obviously does nothing whatsoever to address the problem: the debt is unrepayable, and only creditor write-offs will avoid a default. Had this bullet been bitten hard during 2010, we wouldn’t be in the depth of doo-doo we are now.
Think on a few things in relation to that. As predicted here after the Brussels Accord of late last year, Greek debt has grown like topsy since the last bailout deal (in March this year) because the Berlin-created austerity depression has been catastrophic….and privatisation plans didn’t get off the drawing board. (Athenian civil servants have no intention of allowing them to.)
By the opening of 2014, Greek debt will be 190% of GDP. Or, put another way, for every euro the Greeks earn economically, they will need two to wipe the fiscal debt out. This contrasts somewhat sharply with the German statistic showing that for every euro it has put into bailouts since 2011, Berlin earned twelve via the export bounce of running a cheap currency. Things are never quite as black and white as Wolfgang Schäuble would have you believe.
But it is the European taxpayer who has lost out bigtime in this engorged display of vanity by the EU’s leadership. When Greece first announced it was in trouble, in May 2010 the other Eurozone countries, and the IMF, agreed to a rescue package which involved giving Greece an immediate €45 billion in bail-out loans, with more funds to follow, totaling €110 billion. This was to help it with a total debt of €270 billion. Had the EU negotiated then with the IIF and others – and used the bailout to forgive the debt still left after negotiation – Greece would’ve been solvent immediately.
But this reality evaded the Merkelian brain, and so what we got instead was much moralising from Berlin. The Greek debt shot up to €350bn by the end of 2011. During this year, actual amounts of money have become irrelevant because the Greek economy has been the subject of forced anorexia throughout the year: taxes have risen, but take has fallen…and naturally, the debt to GDP ratio has ballooned to a point where – best case scenario – it will be a gnats under 200% within fourteen months.
If some people find the profundity of this face-saving, bank-appeasing tableau of rank cowardice hard to grasp, let me just reassure you that stupidity has been evident too throughout. The key players in all this (with the exception of Mario Draghi) are light on two skill dimensions: commercial experience and fiscal management. Not only was Christine Lagarde given the top French economics job by Nicolas Sarkozy on the basis of a long career in American Law, she soon proceeded to earn a reputation for economic illiteracy. Perfectly groomed and obviously fragrant, Ms Lagarde arrived at today’s session to offer further evidence of her latin name, lagardum platitudinus, by saying:
We’re going to work very constructively to see if we can find a solution for Greece. That’s what really is our goal, our purpose and our mission.”
And later? A trip to the Siegfried Line, there to hang out some washing?
Chrissy Lagarde is beyond parody. She is an ex-parody. She may have beautiful plumage, but her potential as an object of parody is no more. It is dead, it has ceased to exist, it is no more, it has gone to meet the great parody in the sky.

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