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Greece: ‘We don’t need no stinkin’ restructuring’

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  • Sat, May 01, 2010 - 12:35pm

    #1

    machinehead

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    Greece: ‘We don’t need no stinkin’ restructuring’

After S&P said last week that they might receive only 30 to 50 cents on the dollar, Greek bondholders might be relieved by the latest news about the bailout. But should they be?

Amadeu Altafaj, a spokesman for Olli Rehn, the European Union’s monetary affairs commissioner, said European officials were engaged in what he described as “fire brigading” to ensure stability “on the Greek front.” There would be “no restructuring of the debt,” he said. That’s “not even part of the debate in Athens.”

He insisted that no discussions were taking place about whether other euro zone countries could have access to similar financial aid if needed. In recent days debt markets have come under pressure in Portugal and Spain.

http://www.nytimes.com/2010/05/01/business/global/01euro.html?hpw

Oh boy, talk about hubris (ancient Greek ὕβρις) — no restructuring! And no aid for Portugal and Spain, already downgraded and under market attack! Hear no evil, see no evil, speak no evil! Once again, the EU seems to be a day late and a euro short, getting a grip on a previous iteration of the crisis after it has already escalated to a new and more virulent stage.

Here is what Mr. Amadeu Altafaj may be unable to sweep under the EU’s capacious rug:

In Athens, where the prospect of a rescue has been greeted with a mix of relief and wounded pride, central bank data showed that business and household deposits at Greek banks fell for a third month in March, bringing total losses in the first quarter to 10.6 billion euros. Moody’s downgraded its credit ratings on nine Greek banks on Friday.

Platon Monokroussos, an economist at EFG Eurobank, the nation’s second-largest bank after the National Bank of Greece said speculation that austerity measures would include new taxes on savings had caused some wealthy Greeks to move their funds to foreign banks and Cypriot units of Greek banks. But he said he expected the rescue package to calm fears and prevent a flight of funds.

Earlier in the week, the finance minister, George Papaconstantinou, told Mega TV that the Greek government had pledged to guarantee deposits at banks. But some businesspeople said the credit squeeze was growing worse.

Konstantinos Michalos, president of the Athens Chamber of Commerce and the owner of a company exporting latex products, said businesses were being deprived of much-needed liquidity. He said his group’s members were complaining that some foreign banks were refusing to accept credit guarantees from Greek banks, citing the economic instability. As more Greeks in rural areas took their deposits out of banks and put their savings under their mattresses, he said, home burglaries were on the rise.

The ugly fact is that without a haircut on existing debt, a bailout will only push Greece deeper into a hole. Slamming on the fiscal brakes with tax hikes and spending cuts will push the Greek economy into deep recession, increasing the financial stress. Something has to give. Greece is saying the euro currency peg is solid. The EU says it will keep funding Greece’s hopelessly indebted state at ‘reasonable’ interest rates. But a bank run can move a lot faster than Europe’s bumbling, arrogant authorities.

I’m going out on a limb here, but I think that without grasping the bull by the horns and restructuring Greece’s debt, the current bailout proposal is Dead on Arrival. Markets are going to sabotage the arrogant, deluded fantasy of Europe’s mandarins by pulling the plug on Greek bank deposits, share prices and the market price of Greek debt.

Restructure us now, or restructure us later! (Got gold?)

 

 

  • Sat, May 01, 2010 - 01:07pm

    #2
    Peak Prosperity Admin

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    Re: Greece: ‘We don’t need no stinkin’ restructuring’

Hmmm buy Greek government bonds and get 25% return!!!!  Sounds better than my money market 1%…..NOT!! but they will sucker some seasoned citizen widows on fixed incomes in on that return.

  • Sat, May 01, 2010 - 01:19pm

    #3
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    Re: Greece: ‘We don’t need no stinkin’ restructuring’

Thick limb! I think the European banks are laden with Greek trash. Should be quite a show.

  • Sat, May 01, 2010 - 04:03pm

    #4
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    Re: Greece: ‘We don’t need no stinkin’ restructuring’

Shariah law indicates that a woman who is raped has two options:  marry her rapist or submit to death for having sex outside of marriage.

This is the choice being given to Greece.  

  • Sat, May 01, 2010 - 04:49pm

    #5
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    Re: Greece: ‘We don’t need no stinkin’ restructuring’

As Ellen Brown would say…”caught in the web of debt.”  The exponential growth of interest debt is a killer.  Nothing new here, third world countries have been looted the same way for decades. 

This is a very old scam run by the international banking cartel.  Get nations into perpetual debt and then take their assets and resources in a big payday.  Greece, like Portugal, Spain, the UK, etc., will be told to take severe austerity measures that reduce wages, health care benefits, education, retirement expectations while increasing taxes.

Hopefully one or more of these countries will tell the IMF and their masters to go to hell and issue their own debt free money. 

Larry

  • Sat, May 01, 2010 - 05:06pm

    #6
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    Re: Greece: ‘We don’t need no stinkin’ restructuring’

What if, by some miracle, the EU and IMF are able to prop up the Greek state for three years by brute force, without restructuring? After the brutal recession induced by the austerity program, Greek GDP might be 10% smaller in 2013 than today. But its debt likely will be 30% higher — a hopeless burden.

How could debt keep expanding, when Greece is pledging to slash its deficit by up to 10% of GDP? Frankly, such drastic cuts are unlikely to materialise. As the economy plunges and unemployment soars, emergency social aid will offset much of the spending cuts. And if it doesn’t, riots in the streets would install a new government which will implement such social aid.

But here’s a more direct way in which the deficit cuts may be illusory. The IMF estimated that the UK spent 20% of GDP bailing out its banking sector. Greek banks are already experiencing rating downgrades and deposit outflows. Economic recession will accelerate their losses and writeoffs. A bailout of the Greek banking sector could easily consume all of the projected fiscal savings.

European authorities face an exquisite dilemma. Staving off restructuring now only means a bigger, uglier default down the road. But, admitting the obvious and haircutting debt now sets a precedent, creates a moral hazard, and undermines the very foundation of the euro currency. That is, a Greek default opens a Pandora’s box.

As Simon and Garfunkle used to sing, ‘Any way you look at it, you lose.’ Well, unless you own gold, Mrs. Robinson. Wink

  • Sat, May 01, 2010 - 06:20pm

    #7
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    Re: Greece: ‘We don’t need no stinkin’ restructuring’

[quote=land2341]

Shariah law indicates that a woman who is raped has two options:  marry her rapist or submit to death for having sex outside of marriage.

This is the choice being given to Greece.  

[/quote]

It’s more like statuatory rape, with the added qualifier that Greece flirted with disaster, beforehand.

  • Sun, May 02, 2010 - 01:27pm

    #8
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    Re: Greece: ‘We don’t need no stinkin’ restructuring’

Greece’s Finance Minister essentially confirms my speculation above, that Greece’s economy could shrink up to 10 percent:

Indicating that the steps would undermine economic growth, Mr. Papaconstantinou forecast a deeper than expected recession of 4 per cent for 2010, and 2.6 percent in 2011, before the economy returned to growth of 1.1 percent in 2012. “We will be in recession for the next few years which means that we have to run faster to reduce the deficit,” he said.

He said that Greece would make budget cuts of €30 billion, or $40 billion, to reduce the budget deficit to below 3 per cent by 2014 [from 13.6 percent in 2009].

Just now I prepared a simple spreadsheet using Mr. Papaconstantinou’s projections, and assuming that the deficit (as a percent of GDP) declines linearly from 2009 to 2014. If anything, these are quite optimistic assumptions.

The result: by 2014, Greece’s economy is actually slightly smaller than today, by a fraction of a percent. But the debt has escalated from €300 billion to €425 billion, an increase of 42 percent.

If Greece can’t manage its debt now, how is it going to make payments on a debt that’s 42 percent larger, weighing on a weak economy that hasn’t grown?

Meanwhile, the ‘experts’ quoted in the article above deny that restructuring is a possibility. Sooner or later, I say, it’s not a possibility, but rather a dead-on CERTAINTY.

What we have here is a classical face-saving fudge, euro-continental-style. But these numbers do not compute. They fought the law [of compounding], and THE LAW WON !!!

 

 

  • Sun, May 02, 2010 - 04:37pm

    #9
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    Re: Greece: ‘We don’t need no stinkin’ restructuring’

In a Sunday afternoon announcement, the Greek finance minister confirms the conclusion of my spreadsheet:

Papaconstantinou said Greece’s public debt would soar to nearly 150 percent of GDP — a higher peak than forecast earlier — but start falling from 2014. Athens would return to commercial borrowing when “appropriate,” he added.

http://www.nytimes.com/reuters/2010/05/02/business/business-us-eurozone.html?_r=1

I repeat my silly question: if Greece can’t service its debt now, how is the same size economy going to service a 40% larger debt in 2014? I sure won’t be buying any 10-year Greek debt! The question is, what will other investors do? There’s a delicate timing issue here:

Diplomats said they expected the emergency funding to be unblocked by the second half of the following week, beginning May 10. Athens has to repay 8.5 billion euros of debt on May 19.A fund backed by the IMF and EU would be set up to help Greek banks.

Moreover, the required unanimous approvals by European governments aren’t even certain, with opposition to the bailout still strong among the German public. And the fund to help Greek banks — will it be available, like, tomorrow?

I could be all wrong, but I don’t think the market is going to like this deal, despite its larger size. And I doubt that it assuages the growing unease about Spain and Portugal.

 

 

  • Mon, May 03, 2010 - 12:41am

    #10
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    Re: Greece: ‘We don’t need no stinkin’ restructuring’

I’m sure if it came to a direct vote, the results would be similar to Iceland’s vote.  That would put a huge nail in the coffin of the banksters, so I don’t see their government letting that happen.

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