Greece Bailout Reads

Well, the time has come to put the money on the table. The problem is that the amount promised has to probably be multiplied by a factor of 3 to be enough to finance Greek budget deficit and refinance Greek public debt, to only subsequently result in an wasted time and money. Again, only principal reduction can help (save) Greece. Just a remainder, Argentina was also “bailed out” before it defaulted on its debt.

Interesting, interest rate at which the loans will be granted is IMF benchmark plus 300 bps charge. The charge will serve as an incentive for Greece to borrow in the markets and it was demanded by Germany. Like they can.

EMU members are scared of banking crisis spurred by defaulted sovereign (PIGS) debt and they are only calming the markets to save their own skin.

Telegraph: The Greek people are being punished for Europe’s errors. MUST READ!

As I write, it appears that EU experts have agreed on a package of €20bn to €25bn at 350 points above the IMF tariff, or 5pc. This achieves nothing. Such wishful thinking has plagued the Greek/EMU crisis from the start. Simon Johnson, the IMF’s former chief economist, said Greece needs €110bn to have any hope of pulling itself out of a tail-spin, given that the twin cures of default and devaluation are blocked. Even that may not work. Greece must squeeze a further 13pc of GDP from the budget to stabilise debt costs by 2012, and do so during a slump when every euro of tightening leads to €1.5 to €2 in lost demand. “The risk is of a viscious downward cycle,” Mr Johnson wrote in the Huffington Post.

Yet let us be honest. This is not a bail-out for Greece. It is a bail-out for European creditors that account for most of Greece’s €391bn external debt (163pc of GDP). As such it is the first line of defence against greater sums at risk across Club Med. The EU rescue shifts the debacle onto taxpayers in order to prevent a systemic crisis, just like the bank bail-outs after the Lehman failure. The question is whether German Landesbanken with wafer-thin capital ratios can withstand a second crisis after losing so much already on US subprime debt.

Reuters: Euro zone readies giant rescue package for Greece.

Bloomberg: Greece Wins EU45 Billion Aid Pledge to Blunt Crisis.

The 30 billion euros from the EU “will not fully cover the Greek government’s financing needs for the next 12 months, let alone for 3 years, so Greece will still rely on commercial money beyond the April-May payments, and whether such money will become available will very much depend on how credible the policy framework is and what investors think will happen beyond the program period,” he said. “Unfortunately, this thing is unlikely to go to bed any time soon.”

Bloomberg: PIGS Exposure Explains ‘Shotgun Greek Wedding’: Chart of Day.

Overall, European banks have $253 billion in Greece and $2.1 trillion in the so-called PIGS.

Chart 1. PIGS Debt Holders

Source: BIS

Wall Street Journal: Euro Zone Plans €30 Billion for Greece.

Still undisclosed is precisely what set of circumstances would be enough to trigger the bailout. Mr. Juncker said it would come “if needed”; reluctant German officials have said Greece needs to try, and fail, to borrow on financial markets before it gets help.

Wall Street Journal: How the Euro Zone Will Manage Once the Greek Fiasco Is Resolved.

Greece will ask for and get a bailout. Chris Pryce, senior Greece analyst for rating agency Fitch, tells Reuters, “It is now up to the Greek government to go publicly to the European Union and International Monetary Fund and ask for the cash and the support.” Laurent Bilke at Nomura agrees. He considers it “increasingly likely that the Greek government will be forced to … ask for a rescue.” And European Central Bank president Jean-Claude Trichet assures us, “default is not an issue for Greece,” implying withdrawal of his objections to an IMF role in any bailout. But restructuring is a possibility: even a €20 billion-€30 billion ($27 billion-$40 billion) loan package would leave Greece with an unmanageable debt burden.

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This entry was posted on Sunday, April 11th, 2010 at 4:03 pm and is filed under Markets. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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