The Greek Sustainability Report and Reaction & Analysis

Greek Sustainability Report

Greek debt sustainability analysis Report in full above--reaction and analysis of the Report below:

UPDATE 2-Greek debt could easily derail again - EU/IMF report | Reuters: "Greece's second bailout programme could easily go off the rails and send the nation's debt rocketing back to today's unmanageable levels, a confidential study by its international lenders shows. The 9-page debt sustainability analysis, on which euro zone finance ministers based their decision on Tuesday to approve a 130-billion-euro rescue programme, is anything but a vote of confidence in Athens' ability to put its public finances back on a sound footing. Indeed the report, dated Feb. 15 and first obtained by Reuters on Monday, describes in the disembodied prose of economic bureaucrats how uncertain Greece's recovery will remain for many years, and how Athens will likely need international aid for an indefinite period. Experts from the European Commission, the European Central Bank and the International Monetary Fund highlighted the risks and questioned the assumption that Greece will be able to return to capital markets in the coming years."

Eurozone finance ministers agree second bailout for Greece; Troika sustainability report says outlook is grim: "The FT says the troika report explains why European countries were so opposed to the new financing programme for Greece. In an article headlined "Greek debt nightmare laid bare", it said: A German-led group of creditor countries – including the Netherlands and Finland – has expressed extreme reluctance to go through with the deal since they received the report." 

Greek accounting cannot hide the urgency for growth - FT.com: "“The troika have had to do some arithmetic gymnastics in order to make the numbers add up but their optimistic assumptions are unlikely to hold,” said Sony Kapoor, managing director of Re-Define, an economic consultancy that has advised European officials. . . . the confidential debt sustainability report points out that even if Greece’s budget reaches a surplus of 2.5 per cent every year, not including debt interest payments, getting “stuck” at that level could prove disastrous: “Debt would be on an ever-increasing trajectory,” the report found. The urgency for growth comes even though European Union officials acknowledged on Tuesday that they would seek significant further austerity measures from Athens throughout the bail-out programme."

Eurozone's shocking prescription for Greece – Telegraph Blogs: "A "strictly confidential" 10-page debt sustainability report commissioned for yesterday's meeting of eurozone ministers concludes that the austerity measures being foisted on Greece as a quid pro quo for a second, €130bn bailout, are quite likely to prove self-defeating, in that the austerity, by further weakening the economy, may well cause the debt to GDP ratio to rise further. Furthermore, the debt "haircut" being required of private investors may prevent Greece from ever returning to private markets for borrowing, making the country indefinitely reliant on official support. After the bailouts, so much of Greek's debt will be held by official repositories, all of who will have preferential treatment as creditors, that no private sector investor would go anywhere near it, knowing he'd be last in the queue of creditors"

The Future Is Not What It Used To Be - NYTimes.com:
The Future Is Not What It Used To Be by Paul Krugman
I’ve been comparing the original IMF projections for Greece with the secret recent sustainability analysis that everyone has. . . . Of course, everyone thinks the latest is wildly overoptimistic."

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Greece: a return to the drachma?

Better title for article below: "Only a return to the drachma can save Greece as unemployment soars"--

Can a return to the drachma save Greece as unemployment soars? - Telegraph: ". . . . Mr Papademos warns that default and EMU-exit would lead to "uncontrollable economic chaos". But is that not already the case? No Greek bank has been able to issue a letter of credit accepted anywhere in the world since November. Large Greek companies are having to relocate their headquarters to Bulgaria in order to conduct basic trade. The "drachma risk" has already killed investment. Greece is suffering the anticipated consequences of EMU exit without the benefits, so it might as well lance the boil, impose capital controls, and create a new banking system (as Iceland did). Such catharsis might start to unlock €60bn of cash savings in gold, dollars, German euro notes (letter `X’, Greece `Y’), and such-like, sitting in the proverbial mattress. Foreign investors might start to nibble again, once the Greek exchange rate reflects reality at around seven Chinese yuan. . . . "

And yet, Greek leaders "fiddle" with a "sentimentality" for the euro (flawed currency that it is) while Greece continues to spiral down. And the French and Germans?

The European project is splitting apart at the very core - Telegraph: " . . . . On one hand, the defenders of the orthodoxy, led by the Commission and supported by France (which is exposed to a Greek default more than any other country), is battling to hold the line with another massive bail-out. . . On the other hand, it becomes increasingly clear that Germany, supported by Holland and Finland, has had enough. They see no point in throwing colossal sums of money into what Germany’s finance minister, Wolfgang Schäuble, calls “the bottomless pit” of Greek debt. It is they who have wanted to pile ever more impossible demands on Greece to hurry on a default. If other debtor countries such as Portugal, Italy and Spain follow suit and leave the euro that they should never have been allowed to join – so be it. . . .   However the chips fall in coming days and months, the eurozone will disintegrate. The European dream has entered a nightmare stage from which there is no rational escape and the consequences will be horrendous, for Europe and the world."

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Germany's plan for Greece to leave the euro

Thankfully, Wolfgang Schäuble, Germany's Finance Minister, has taken the lead to try to solve the Greek problem and help them get a "fresh start:"

Germany drawing up plans for Greece to leave the euro - Telegraph: "The German finance ministry is actively pushing for Greece to declare itself bankrupt and to agree a "haircut" on the bulk of its debts held by banks, a move that would be classed as a default by financial markets. . . . the severe austerity measures being demanded have caused such fury in Greece, and the cuts required are so deep, that Wolfgang Schäuble, the German finance minister, does not believe that any government would be able to implement them." His pessimism has been tipped into despair with a secret European Commission, Central and IMF report that even if Greece made good on its promises, it would not be enough to reach the target of bringing total debt to 120 per cent of GDP by 2020. . . . the Greek government should officially declare itself bankrupt and begin negotiating an even bigger cut with its creditors. For Schäuble, it is more a question of when, not if. . . .  it has support from Austria and Finland - holding the prospect that a eurozone meeting tomorrow will fail to agree the next set of EU-IMF payments for Greece. . . . Rumours are already circulating in Wall Street that banks are preparing for a "credit event" - a technical term used by credit agencies to mean a default - in the days immediately following March 20, as Greece looks likely to be unable to meet its debts. . . . Mr Schäuble maintains that since Greece is already regarded by the financial world as bankrupt, a formal bankruptcy would have no negative consequences for other euro members."

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Greek Drama

Greek rhetoric turns into battle of wills - FT.com: "There were signs a group of triple A-rated governments, including Germany, Finland and the Netherlands, were hardening their stance towards Athens. During a conference call among eurozone finance minsters, the three countries suggested they may want additional letters from other smaller Greek parties and openly discussed the possibility of postponing Greek elections. Ahead of the call, Wolfgang Schäuble, the German finance minister, said in a radio interview Greece might delay its polls and install a technocratic government that does not include politicians like Mr Venizelos and Mr Samaras, similar to the model currently in place in Italy.

"Karolos Papoulias, the Greek president, fired back during a visit to military chiefs at the defence ministry: “We are all obliged to work hard to get through this crisis, but we cannot accept insults from Mr Schäuble. Who is Mr Schäuble to insult Greece? “Who are these Dutchmen, who are these Finns? We have always defended not only the freedom of our own country, but the freedom of Europe,” Mr Papoulias added."

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Greece: the euro has always been a flawed currency

Greece and the return of the economic 'death spiral' | David Blanchflower | Comment is free | guardian.co.uk: " . . . For all the deals being signed in Athens and Brussels, the Greek people have worked out that they have no hope; protest and social unrest now looks a rational option to the ordinary people who are bearing the cost to bail out European banks. Cuts in the minimum wage right now are probably not very smart politics. Greece does still have a card to play – which is "one down, all down". An exit from the euro would result in a depreciated drachma, which would potentially give a much needed boost to tourism. And that sounds better than all other alternatives currently on offer. There is still time for Germany's Angela Merkel to get out her cheque book; but otherwise, it's all over – and quite possibly very quickly. This really is what a death spiral looks like. . . . "

Don't feel bad Greece, the euro has always been a flawed currency--

Euro doomed from start, says Jacques Delors - Telegraph: "In an interview with The Daily Telegraph, Jacques Delors, the former president of the European Commission, claims that errors made when the euro was created had effectively doomed the single currency to the current debt crisis. He also accuses today’s leaders of doing “too little, too late,” to support the single currency. . . . Mr Delors claims that the current crisis stems from “a fault in execution” by the political leaders who oversaw the euro in its early days. Leaders chose to turn a blind eye to the fundamental weaknesses and imbalances of member states’ economies, he says. “The finance ministers did not want to see anything disagreeable which they would be forced to deal with,” he says. The euro came into existence without strong central powers to stop members running up unsustainable debts, an omission that led to the current crisis. Now that the excessive borrowing of countries such as Greece and Italy has brought the eurozone to the brink of disaster, Mr Delors insists that all European countries must share the blame for the crisis. “Everyone must examine their consciences,” he says.". . . Mr Delors says that he shares some of the concerns that were expressed by British politicians and economists about the euro before its creation. When “Anglo-Saxons” said that a single central bank and currency without a single state would be inherently unstable, “they had a point”, he admits. . . ."

In other words, the sooner everyone in the Eurozone gets honest, the better. And the sooner Greece can leave the euro and start rebuilding, the better for the Greeks.

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Greece faces death by a thousand cuts

More on Greece, and its unnecessary and now prolonged suffering:

Greece faces death by a thousand cuts unless it leaves the euro - Telegraph: "Repeated rounds of austerity are proving self defeating, which makes it virtually certain that Greece will eventually have to come back for more. What are Europe's paymasters to demand then? . . . What is more, experience in Argentina and other countries that have both devalued and defaulted suggest that the economic shock of exiting a fixed exchange rate is relatively short lived. Once competitiveness has been restored by devaluation and default, growth prospects improve dramatically. The short sharp shock of exit is very likely better than the death by a thousand cuts implied by continued membership. . . . Consider now what this grim choice of death by a thousand cuts involves. What Greece has in essence committed itself to is an internal devaluation lasting years, if not decades into the future. There is no discernible end to the austerity; year after year, it grinds remorselessly on. Even if everything goes according to plan, which seems deeply unlikely on the record so far, it takes until 2020 to reduce the national debt to 120pc of GDP, a level still far too high to be remotely sustainable. In addition to having to run big primary surpluses into the indefinite future, Greece also faces a massive hit to nominal wages and living standards . . . There is not a hope of Greece growing its way back to debt sustainability while still in the euro. As things stand, capital is leaving the country by whatever means available . . . ."

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Greek Default is not End of the World

Climax nears in Greek drama | Reuters: "Tortuous negotiations over a second bailout for Greece are set to come to a head on Wednesday, putting fragile market confidence to the test on the same day data is tipped to show the euro zone is entering a mild recession." 

While the crazy Europeans continue their state of denial, let's pause for a little reality check. Greece is in default--it is insolvent and cannot pay its creditors. The question is whether the Greeks will continue to agree to the Eurozone's (Germany et al) funding of Greece's payments to its creditors (Eurozone banks et al) and in return submit to further punishment ("austerity") of the Greek people. Hopefully, the Greeks will soon come to their senses--

Krugman Says Greece Will Default on Its Debt, May Leave Euro - Bloomberg: "Greece will default on its debt and will probably quit the European monetary union, Nobel economics laureate Paul Krugman said. “The Greek situation is essentially impossible,” Krugman said at a conference in Moscow today. “They will default on their debt. In fact they already have. The question is whether they will also leave the euro, which I think at this point is more likely than not.”"

Note: leaving the euro doesn't mean leaving the European Union, just the Eurozone.

And the sooner Greece defaults and leaves the euro, the better off the Greeks will be in the long term.

A euro exit is the only way out for Greece - FT.com: "The Greeks will have to leave the euro, recreate the drachma and re-enter the still-existing exchange rate mechanism of the European Monetary System, the so-called ERM-II, which they departed in 2001."

Oh, and who owns the Greek debt? Go here and here. Biggest losers outside of Greece: Germany and France--surprised?

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