Greece Granted €130Bn Bailout, Staves off Technical Default

Well the can has been kicked a little further down the road by the EMU by imposing harsh terms on Greece (which they will never be able to meet) to ensure that they don't default on €100bn worth of debt due for repayment in March.

The complete nature of the deal isn't entirely clear at the moment but we should be getting the full detail later tonight. PSI is around €100bn while the ECB takes no cuts.

In terms of what happens next, to be honest, no-one knows the full picture as of yet but the most likely things involve a recapitalisation of some of the banks (two French, one German, all Greek) put at risk by the €100bn euro debt write off that was part of this deal. After that it's reliant on Greece' ability to put the into effect the terms of the bailout. At our bank we see this not happenning but see those terms as purely political in nature anyway as way for Merkel to sell the bailout to the Bundestag and to save face for the CDU party.

The hope right now though is that this will have bought enough time for Eurozone governments and economies to recover their positions enough to support any further bailouts if they are needed (they will be).

As for Greece, well this is not going to be easy at all. Unemployment is over 19%, the Greek economy contracted by 7% in annualised terms in Q4 signalling a continuation of their deep depression. I don't see how there can be any economic recovery in Greece under the terms of this bail out.

edit: Yeah the Eurozone finance ministers have gone a bit batshit from all these all night meetings. These are the growth figures they expect for the foreseeable future; -4.3% in 2012, 0% in 2013, +2.3%-2.5% thereafter.

I don't know why the fuck the gave them the first bail out... I mean... what the fuck were they thinking then... Make cuts which will cost jobs in order to pay off debt... but also then increase debt with bail out.

In this fortnights edition of the private eye the editor cut short a section written by someone of the Greek bail out and he said "This is clearly a load of rubbish, can't you think of something better? ed." To which the guy who wrote it said "No, and neither can anyone else. HN."

I do not undersand why increasing the amount they need to pay by giving them money to bail themselves out of the mini situation is the solution...

Just tell them to balance their fucking budget and then give the money to the bloody banks directly. Situation solved. They have less outgoings and can keep more of the services going than they would be otherwise... BUT NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO.... thats too simple... and 6 months ago a lot cheaper...

I could not give a shit about Greece as they brought this on themselves... however why aren't we solving this for ourselves and making it a lot cheaper for ourselves where we pay off their debts and the Greeks then don't get anymore loans...

I wonder how long it will be before both sides realize they would be better off with Greece leaving the EU.

Greece needs to leave the euro.
the country's that have leant the money need to realise they are not getting it back.

Comando96:
I don't know why the fuck the gave them the first bail out... I mean... what the fuck were they thinking then... Make cuts which will cost jobs in order to pay off debt... but also then increase debt with bail out.

Letting Greece explode back then would be silly. The stock exchanges aren't a rational place. People who trade their are paranoid, stupid, nervous, group animals or a combination of those. It would've lowered the course of the euro by quite a lot, and keeping Greece alive is cheaper than devalueing everything we have.

Because one thing about this deal, is the banks have agreed to drop 53,50% of the total debths Greece owes them. The only thing they forgot is to give the hedgefunds the finger and make an EU directive that says 'If you're a hedgefund looking to profit from Greek debths, agree to forfeit 53,50% or you automatically forfeit 100%', because now, there's basically still a bunch of vultures circling around who want to profit from making Greece go bankrupt hard.

TheGuy(wantstobe):
€130Bn Bailout

Wait, okay, could you find a US dollar figure for that? I'd do it myself but I've heard a billion is a bit different in Europe when it comes to money and it's sort of made me confused as shit :-|

Lilani:

TheGuy(wantstobe):
€130Bn Bailout

Wait, okay, could you find a US dollar figure for that? I'd do it myself but I've heard a billion is a bit different in Europe when it comes to money and it's sort of made me confused as shit :-|

$172 billion at today's exchange rates. A pretty hefty chunk of change.

Lilani:

TheGuy(wantstobe):
€130Bn Bailout

Wait, okay, could you find a US dollar figure for that? I'd do it myself but I've heard a billion is a bit different in Europe when it comes to money and it's sort of made me confused as shit :-|

http://en.wikipedia.org/wiki/Long_and_short_scales

What we call a billion is what you call a trillion. To you, a billion is nine zeroes, to us it's twelve while nine is a miliard. Though, 130 of what you'd call billion in this case anyway. 1€ ia about $1.36 though.

TheGuy(wantstobe):

Lilani:

TheGuy(wantstobe):
€130Bn Bailout

Wait, okay, could you find a US dollar figure for that? I'd do it myself but I've heard a billion is a bit different in Europe when it comes to money and it's sort of made me confused as shit :-|

$172 billion at today's exchange rates. A pretty hefty chunk of change.

Good Lord, yes it is. Let's hope it actually gets where it needs to go, unlike most of the bailouts that have happened in the last few years.

Lilani:

TheGuy(wantstobe):

Lilani:

Wait, okay, could you find a US dollar figure for that? I'd do it myself but I've heard a billion is a bit different in Europe when it comes to money and it's sort of made me confused as shit :-|

$172 billion at today's exchange rates. A pretty hefty chunk of change.

Good Lord, yes it is. Let's hope it actually gets where it needs to go, unlike most of the bailouts that have happened in the last few years.

Roughly €100Bn is going into debt payments in early March to prevent Greece from defaulting along with easing the transfer of current Greek bonds into ones governed under "English" Law. This means that if(when) Greece defaults, leaves the euro and re-floats the drachma the bonds will still be denominated and paid back in Euros preventing Greece from Inflating away some/most of the debt burden.
The rest is going into a recapitalisation of the Greek banks that are taking around a 76% cut (when accounting for interest and maturity) on the Greek debt they've been forced to buy from Northern European banks over the past two years in "voluntary" exchanges.

None of the money is actually going to social spending or an attempt to make the Greek economy competitive with other European ones which is why this is at best a temporary fix that pushes the issue away for another 6-9 months.

People need to learn that a country can't really usually 'shrink' yourself out of a debt, especially when you still have physical needs.

Tightening the belt can help in the short term, but when you're at the point where you're bleeding yourself to get that belt to fit better.. well you're gonna end up needing to eat twice as much more to regain that lost blood later, aren't you. And by later I mean 'right now'.

And here we are, again.

Wow, thanks Captcha for telling me I inputted you wrong forcing me to double post.

Please disregard this post.

I wonder how long it's going to take those leaders to realize that you have to fix the jobs crisis first before you can deal with the debt...

Here's the quick-and-short rationale behind that: More people in decent jobs, fewer people who are on government welfare such as unemployment and rent assistance. Fewer people on welfare means lower expenditures, which means a smaller deficit that is more manageable.

A failure to invest in the short term (i.e. stimulus) results in a harder fight in both the short term and long term.

In my view - one I have held for months - Greece probably needs to exit the Euro, devalue their currency a shitload or declare bankruptcy, take a few years of deep pain, and get back to growth.

The EU obviously doesn't want to let it because the fallout, given the current economic situation, would be immense. Consequently, they're simply propping it up for a few years and they'll revisit it when the European banks have shored up their capital buffers and everyone's in growth again so they can let Greece fall without it unhinging anything else.

The Gentleman:
I wonder how long it's going to take those leaders to realize that you have to fix the jobs crisis first before you can deal with the debt...

If they use money to fix the job crisis first, they go bankrupt and a lot more people will lose their jobs. Besides, keynesianism doesn't work in open economies, so there's no direct way the Greek government can influence the number of jobs.

The ways available to Greece right now are pretty limited, and no matter what, it's going to be ugly.

Chances are next elections, the radical left that's now gaining a lot of support comes into power, does what they do best, violates deals and overspends, the EU and IMF pull the plug and a few years on, Greece goes bankrupt anyway.

...and probably gets a shitload of court cases from banks who agreed to drop debths now as part of the deal, and will want their money back if the deal is violated.

Blablahb:
If they use money to fix the job crisis first, they go bankrupt and a lot more people will lose their jobs. Besides, keynesianism doesn't work in open economies, so there's no direct way the Greek government can influence the number of jobs.

Every time this sort of thread arrives, you persist in waffling this anti-Keynesian argument that is basically irrelevance and gibberish. This time, how about you actually read something to inform yourself, these from the blog of an Oxford University Prof and another economist:

http://mainlymacro.blogspot.com/2012/01/return-of-schools-of-thought-macro.html
http://mainlymacro.blogspot.com/2012/01/anti-keynesian-school.html
http://mainlymacro.blogspot.com/2012/02/more-on-schools-of-thought.html
http://mainlymacro.blogspot.com/2012/02/what-have-keynesians-learnt-since.html
http://notthetreasuryview.blogspot.com/2012/01/fiscal-policy-what-does-keynesian-mean.html

As a sports journalist, it bugs me that the Athens Olympics are what caused this mess. Greece overspent and overborrowed to cover the costs of creating the stadiums, promising funds from tourism that wound up well under expectations.

Proposed budget for the 2004 Olympics: 11.2 billion Euros
Final cost: 31.2 billion Euros

The economy spiraled from there. While not the only cause, it is the leading one.

NameIsRobertPaulson:
As a sports journalist, it bugs me that the Athens Olympics are what caused this mess. Greece overspent and overborrowed to cover the costs of creating the stadiums, promising funds from tourism that wound up well under expectations.

Proposed budget for the 2004 Olympics: 11.2 billion Euros
Final cost: 31.2 billion Euros

The economy spiraled from there. While not the only cause, it is the leading one.

Greece has a debt of about E600billion. The Olympic debt is therefore just 5% of that, and bear in mind the government will have received lots of revenue back in tax returns even if less than spent.

Hence proportionally the Olympics are not a big deal at all. They're not a cause either, but a symptom of general financial misgovernance.

Agema:
Every time this sort of thread arrives, you persist in waffling this anti-Keynesian argument that is basically irrelevance and gibberish.

Uhm, I'm basing myself, among others, on this book, which describes the crisis of keynesianism in detail in chapter four.

That, and all Brenner bases himself upon, the consensus that's been formed on it, more than beats some vague blog I'd say. And aside from that, nobody can argue Greece has no money for a big inefficient artificial job creation program, which would collapse again the moment the money ran out.

Agema:

NameIsRobertPaulson:
As a sports journalist, it bugs me that the Athens Olympics are what caused this mess. Greece overspent and overborrowed to cover the costs of creating the stadiums, promising funds from tourism that wound up well under expectations.

Proposed budget for the 2004 Olympics: 11.2 billion Euros
Final cost: 31.2 billion Euros

The economy spiraled from there. While not the only cause, it is the leading one.

Greece has a debt of about E600billion. The Olympic debt is therefore just 5% of that, and bear in mind the government will have received lots of revenue back in tax returns even if less than spent.

Hence proportionally the Olympics are not a big deal at all. They're not a cause either, but a symptom of general financial misgovernance.

The Greek government was expecting almost 100 billion in profits from tourism. They barely received 25 billion. When a financial move like that fails miserably, it creates greater economic turmoil.

Blablahb:
Uhm, I'm basing myself, among others, on this book, which describes the crisis of keynesianism in detail in chapter four.

That, and all Brenner bases himself upon, the consensus that's been formed on it, more than beats some vague blog I'd say. And aside from that, nobody can argue Greece has no money for a big inefficient artificial job creation program, which would collapse again the moment the money ran out.

Yes, Keynesianism had a crisis in the 1970s.

So we can presume then that you didn't read the blogs, because they say the same. If you hadn't been so willfully ignorant, you might have seen the point, which is:
a) modern economists are applying modern, mainstream economic theory, not 1970s theory.
b) that this modern theory is not Keynesianism, but so-called 'neoclassical synthesis'.

So therefore, in all these files when people essentially say "These policies suggested by modern neoclassical synthesis economic models might work better", you are countering with "No they won't because obsolete 1970s Keynesian economic models don't work".

And yes you're right, 1970s Keynesianism is broken. But so what? That's not the source of proposed policy. You're countering nothing at all. Logical non-sequitur. Talking at cross-purposes. Irrelevance. Nonsense.

Agema:

Blablahb:
Uhm, I'm basing myself, among others, on this book, which describes the crisis of keynesianism in detail in chapter four.

That, and all Brenner bases himself upon, the consensus that's been formed on it, more than beats some vague blog I'd say. And aside from that, nobody can argue Greece has no money for a big inefficient artificial job creation program, which would collapse again the moment the money ran out.

Yes, Keynesianism had a crisis in the 1970s.

So we can presume then that you didn't read the blogs, because they say the same. If you hadn't been so willfully ignorant, you might have seen the point, which is:
a) modern economists are applying modern, mainstream economic theory, not 1970s theory.
b) that this modern theory is not Keynesianism, but so-called 'neoclassical synthesis'.

So therefore, in all these files when people essentially say "These policies suggested by modern neoclassical synthesis economic models might work better", you are countering with "No they won't because obsolete 1970s Keynesian economic models don't work".

And yes you're right, 1970s Keynesianism is broken. But so what? That's not the source of proposed policy. You're countering nothing at all. Logical non-sequitur. Talking at cross-purposes. Irrelevance. Nonsense.

I would had just thought it common sense that the only way to realistically get out of an escalating debt is to make more money. And I don't mean like 'print' more money, but earn more. And the only way a government can really do so (without conquest or some other violence) because they don't exactly have a 'product' to sell is to make their own people more productive, and the only way to do that is to spend money.

The reason I don't think they can shrink out of a debt, or really anyone with needs can, is because if you require 30 dollars a month or whatever to survive, you can only shrink down to 30 dollars a month. And if that ain't enough to cover your debt (and it likely ain't gonna be), then you're back to square one.

And if you require 30 dollars a month minimal to survive then decide "Well, I'll shrink myself even lower into an unhealthy situation where my people wasting away", then you're basically spending twice as much later to get yourself back in shape, assuming that your people don't flip out and break shit that you have to repair later.

I mean, isn't growing their way out of this problem their only choice outside of war, or just totally abandoning the concept of economy, or something similarly drastic that 'nobody' really wants?

Damien Granz:

I mean, isn't growing their way out of this problem their only choice outside of war, or just totally abandoning the concept of economy, or something similarly drastic that 'nobody' really wants?

Austerity certainly is counterproductive for growth. Realistically, eventually it would all bottom out and growth would return one way or the other, but when, and how bad would it be? But the Greek government can't spend its way out either: effectively, no-one can or will extend it the necessary credit to do so because its debt is already so huge.

I think we have to accept that Greece growing its way out of disaster alone isn't realistic at all, at minimum it will take such a long time that Greece is going to be stuck in the mire for literally decades.

As the title implies, Greece is effectively bankrupt and so the EU/IMF are running a controlled bankruptcy. Greece has to sort its debt burden out, and so lots of its creditors are accepting a 50% (IIRC) debt write-off. That gets rid of a chunk. Meanwhile, the EU/IMF is loaning money borrowed by other countries (thus with much lower interest rates) to replace Greece's debt that would be repaid at Greece's horribly high interest rates. But its still a horrendous drag on Greece's economy.

Greece could perhaps resolve the problem best by declaring actual bankruptcy. Short term very painful, long term probably most fruitful. But no-one wants to let them because of the fallout elsewhere.

Finally, they leave the Eurozone. Outside the Euro, if the government ran a neutral budget it could devalue its currency, turn on the printing presses, whatever to reduce its debt. 5-10% inflation - hardly excessive - for a decade would whittle down that debt very effectively. Still not going to be a happy decade for Greece, but ultimately advantageous.

Agema:
Austerity certainly is counterproductive for growth. Realistically, eventually it would all bottom out and growth would return one way or the other, but when, and how bad would it be?

Be that as it may, it's the only possible course of action. They were heavily overspending for an economy their size. The only way to ever get back on track is to cut back to a realistic level of services, and a lot underneath that level at first.

It's got to hurt, but then again, the Greeks are free to get the money back from the people who overspent and spent it on in the first place. A lot of the time, that's them themselves though, with rampant tax evasion and all that.

It used to be common here for students to study 7-10 years from pretty big study benefits, all for free. Nowadays that benefit isn't even enough to pay the tuition fee and you get fines for every year you fall behind, and after a 50% extension it stops altogether and you have to borrow everything. A friend of mine is studying for his ninth year, and has incurred over € 50.000 in debths, whereas in the 70's or 80's, he wouldn't have debths at all because studying was pretty much for free.

That sucks, especially as the oldies got all the benefits and their current benefits aren't getting cut at all. Then again, the old education system was unaffordable, so the measures for the most part inavoidable.

The only thing that can be blamed about that is the generation gap: the babyboom generation is systematically getting other generations to pay their bills for them, and that's unfair. I would support a Greek movement to cut back pensions to bare existance for instance, and ramping up the pension age to something more acceptable right now, like 65 years or 67, that's generally placing the bill with the people who benefitted from the overspending.

Agema:
I think we have to accept that Greece growing its way out of disaster alone isn't realistic at all, at minimum it will take such a long time that Greece is going to be stuck in the mire for literally decades.

The debths were accumulated over a period longer than that, so that makes sense.

Agema:
Finally, they leave the Eurozone. Outside the Euro, if the government ran a neutral budget it could devalue its currency, turn on the printing presses, whatever to reduce its debt. 5-10% inflation - hardly excessive - for a decade would whittle down that debt very effectively. Still not going to be a happy decade for Greece, but ultimately advantageous.

All Greek debths are in euros and thus can't be influenced by devalueing currency. Also, causing inflation causes people's savings to vapourise, and urges debtors to either charge higher rents for new bonds, or close bonds in a different currency.

Agema:

Finally, they leave the Eurozone. Outside the Euro, if the government ran a neutral budget it could devalue its currency, turn on the printing presses, whatever to reduce its debt. 5-10% inflation - hardly excessive - for a decade would whittle down that debt very effectively. Still not going to be a happy decade for Greece, but ultimately advantageous.

This is what should have happened already. Well either this or the ECB becoming the lender of last resort for the Eurozone and the socialisation of all Eurozone debt. Either one of those things would have solved this particular problem 18 months ago.

The problem, now, is that the bond transfers currently taking place as part of the second bailout agreement prevent Greece from re-denominating debt from Euros to another currency (Drachma) in the event they leave the currency union, as the new bonds are governed under "English" law and not national law. This means that they have to pay them back in Euros and will be unable to inflate away some of the debt burden each year. This effectively means the option of Greece leaving the currency union and not being hamstrung for the best part of the first part f this century is off the table while the Northern European governments and banks who own these Greek debts have little to fear about the value of them.

Blablahb:
All Greek debths are in euros and thus can't be influenced by devalueing currency. Also, causing inflation causes people's savings to vapourise, and urges debtors to either charge higher rents for new bonds, or close bonds in a different currency.

Before the current bond exchanges all Greek debts were covered under Greek national law and so would be re-denominated into whatever currency Greece was using and everyone would have to just take it when they inflated away some of the debt burden.

Also it's debts, there is no h.

TheGuy(wantstobe):
Also it's debts, there is no h.

But will here be G? ;-)

TheGuy(wantstobe):
Before the current bond exchanges all Greek debts were covered under Greek national law and so would be re-denominated into whatever currency Greece was using and everyone would have to just take it when they inflated away some of the debt burden.

But one problem with that, is that the capital markets aren't governed by national law, but by economical choice. Not only are there legal difficulties to a one-sided redrawing of terms and conditions that pretty much forbid such a move, but even if there aren't, the capital market would 'punish' Greece for that, because suddenly their invests have become uncertain.

If laws like that are passed, who is to say if they'll steal the money you loan them or pay it back?

An example of that is in Venezuela's foreign direct investment figures after Chavez seizing power and embarking on a campaign of randomly seizing people's assets to use for his socialist economy. It immediatly bottomed out despite there being heavy resource interests in Venezuela that normally would guarantee a rock-solid investment position.

There's few things a country can pull that angers investors more, than just stealing their money.

In the case of Greece, chances are nobody would lend them anything anymore.

Blablahb:
But one problem with that, is that the capital markets aren't governed by national law, but by economical choice. Not only are there legal difficulties to a one-sided redrawing of terms and conditions that pretty much forbid such a move, but even if there aren't, the capital market would 'punish' Greece for that, because suddenly their invests have become uncertain.

If laws like that are passed, who is to say if they'll steal the money you loan them or pay it back?

An example of that is in Venezuela's foreign direct investment figures after Chavez seizing power and embarking on a campaign of randomly seizing people's assets to use for his socialist economy. It immediatly bottomed out despite there being heavy resource interests in Venezuela that normally would guarantee a rock-solid investment position.

There's few things a country can pull that angers investors more, than just stealing their money.

In the case of Greece, chances are nobody would lend them anything anymore.

For it to have happened in the first place Greece would have had to have gone through a default event which would leave it frozen out of the money markets in the first place for a number of years. You're talking about the issuance of new debt which would not be happening in the first place for a number of years afterwards.

It works exactly as I laid out though, every law agrees with it and all :P. It was one of the scenarios we'd drawn up in the bank as a possible end-game to the Greek crisis, it is no longer possible due to the terms of the second bailout.

TheGuy(wantstobe):
For it to have happened in the first place Greece would have had to have gone through a default event which would leave it frozen out of the money markets in the first place for a number of years. You're talking about the issuance of new debt which would not be happening in the first place for a number of years afterwards.

True, but obviously a default has the same effects. That's why the entire bailout and radical cutbacks. It's basically a bankruptcy without a bankruptcy. But a bankruptcy is a legal exception case, which does allow one-sided re-arranging of terms and conditions. In that case there's no other course of action because of external circumstance (= money's out), meaning it's a case of force majeure (assuming I translated the legal principle correctly).

With this renegotiation however, there is no force majeure factor present in the legal sense, complicating things as you can't just go 'well, no more repayments for you, because it strikes our fancy'. Big chances Greek courts would be forced to enforce the original terms and conditions of state bonds of which the conditions are changed one-sidedly.

Basically it's the difference between
"There's no more money. We have to go see what we could still repay you" of a bankruptcy, and
"Would you like to renegotiate how much money you'll be getting from us, for if you demand everything, there may not be enough money" of the current more or less voluntary renegotiation.

The only possible problem there is Greece as a state being guilty of misfeasance because previous governments knowingly forged figures and presented their economic and financial situation better than it actually was. That could undo the factor of force majeure.

Then again, I'm more than a little rusty of how different that works for countries, as opposed to private businesses.

But that bailout making the renegotiation impossible to force on people, that's the whole reason behind hedgefunds suddenly buying up Greek state bonds from banks: They're buying cheap because banks think they're worthless, and hoping that they can force Greece to uphold the original terms, or at least terms that result in a payout bigger than the sum they paid to purchase the bond.

If they buy 30% value from a bank, and in the end Greece pays back 50%, the hedgefund profits. And banks are all too happy to ditch interests in Greece. Most individual banks here reduced their interests by milliards. All that stuff must've been sold to someone.

Blablahb:

The only possible problem there is Greece as a state being guilty of misfeasance because previous governments knowingly forged figures and presented their economic and financial situation better than it actually was. That could undo the factor of force majeure.

Then again, I'm more than a little rusty of how different that works for countries, as opposed to private businesses.

The bottom line is that if a country doesn't feel like paying its debts, having sovereign control of their own realm, anyone who wants anything back is going to need major international diplomacy, sanctions, or invasion to persuade them otherwise.

Creditors might be able to use laws to use the debt to seize assets owned by that state abroad, of course.

In practice, few countries will entirely wipe out their debts due to the likely ill-will and damage to reputation. They'll probably partially repay, and/or suspend repayments for a number of years, and so on.

 

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