Euro crises deepens, Greece to miss EU/IMF targets

darkman2

Exclusive: Greece will need more debt restructuring - EU officials



By Luke Baker
BRUSSELS | Tue Jul 24, 2012 11:46am EDT


(Reuters) - Greece is unlikely to be able to pay what it owes and further debt restructuring is likely to be necessary, three EU officials said on Tuesday, a cost that would have to fall on the European Central Bank and euro zone governments.

The officials said that twice bailed-out Greece would be found to be way off track by EU and International Monetary Fund officials who have been assessing the country.

Inspectors from the European Commission, the ECB and the IMF -- together known as the troika -- returned to Athens on Tuesday and will complete their debt-sustainability analysis next month, but the sources said the conclusions were already becoming clear.

It means Greece's official-sector creditors -- the ECB and euro zone governments -- will have to restructure some of the estimated 200 billion euros of Greek government debt they own if Athens is to be put back on a sustainable footing.

But there is no willingness among member states or the ECB to take such dramatic action at this stage.

"Greece is hugely off track," one of the officials told Reuters, speaking on condition of anonymity because of the sensitivity of the issue. "The debt-sustainability analysis will be pretty terrible."

Another official pointed to the latest growth estimates from Athens, which show the economy contracting by 7 percent this year rather than the 5 percent previously forecast, meaning that the debt burden is only increasing in relation to GDP.

"Nothing has been done in Greece for the past three or four months," said the official, referring to the delays caused by the two elections held since May.

"The situation just goes from bad to worse, and with it the debt ratio," said the official, a policymaker directly involved in trying to find solutions to the crisis.

DIMINISHING OPTIONS

Under the terms of the second bailout agreement struck with the EU and IMF in February, Greece committed itself to further spending cuts and tax increases in exchange for a 100-billion-euro reduction in its debts.

The restructuring involved private-sector owners of Greek government bonds accepting losses of up to 70 percent on their holdings with the aim of reducing the debt ratio from around 160 percent of GDP to below 120 percent by 2020 - a level the IMF has deemed sustainable in the long-term.

But Greece is significantly far off reaching that 2020 goal, the officials said. One estimated that the overshoot could be up to 10 percentage points, equivalent to around 30 billion euros.

As a result, the IMF could decide to pull out of the second bailout program, having already said that further missed targets would not be acceptable. That would leave euro zone member states and the ECB to bear the cost alone.

In that case, the only way to keep Greece afloat and in the euro zone would be for the ECB and member states to write off some of the Greek debt they own or change the terms to give Athens ever more time to pay back at lower interest rates.

"This has not been explored yet politically because no one wants to launch that discussion," the first official said. "The political feasibility of carrying out an official-sector restructuring is becoming more and more complicated."

Even though no formal discussions have begun over so-called official-sector involvement, two possibilities have been mentioned -- the ECB taking a writedown on the estimated 40 billion euros of Greek bonds it holds, or member states improving the terms on their loans to Athens.

But the officials Reuters spoke to listed six member states who are firmly opposed to extending Greece further lifelines, not only because of Athens's persistent missing of targets but because the costs will soon be born directly by taxpayers.

"The political dynamics are really going against the economic dynamics," one source said. "The economic arguments may be clear - we need to restructure Greece's debt if it is to be sustainable - but politically there's no willingness."

That returns the debate to whether Greece, after 2-1/2 years of crisis and two attempts to overhaul its economy with multi-billion-euro rescues, will stay in the euro zone in the long term.

http://www.reuters.com/article/2012/07/24/us-eurozone-greece-idUSBRE86N11D20120724



What do you make of this? The economic implications for eurozone member states? The political consequences at the mere thought that the ECB and eurozone governments could themselves now have to take a partial or full default from Greece?


I think with events in Spain, Italy and Belgium and now Greece once again we are very near the end game. The intimation in recent days from the IMF has been they are now ready to cut Greece lose if it missed it's targets. German politicians and commentators have also been flying the Greek exit kite. Things could be about to get rough.

coolshannagh28

Why aren't the other PIIGS rowing in behind Greece, all their economy's are shot to a greater or lessor extent . The Germans are playing divide and conquer to minimise their potential exposure . If this is s genuine fiscal union all states must stand united and insist on transfers instead of fiddling around the edges of the problem .

Sand

Its okay - sovereigns don't ever pay back debt. They just roll it over.

But seriously, Greece is essentially a failed state. They should have defaulted in 2010 with EU support being limited to clean up *after* the losses had been apportioned - i.e. recapitalization of banks, plus reformation of the Greek system of government: which would have been forced on them by the market as a clear default would have very clearly ensured the Greeks would have to face realistic borrowing costs in line with their own fiscal/economic profile. The political atmosphere would also be a lot less poisonous. As the article notes, its clear what needs to be done but the core states cant abide the idea of helping Greece at this point so its not clear they will.

The problem which nobody wanted to acknowledge back in 2010 was that we had solvency problems - leadership would only accept it was a liquidity problem, so the idea of "buying time" was attractive. This ignored the reality that an awful lot of people had lost an awful lot of money. It was well known at the time that the bailout was a choice to rescue private investors and lump taxpayers with the bill. Now the bill is coming due. It shouldn't be surprising at all that official lenders and governments are going to take losses on their "investments" in Greece. The people who *should* have taken the losses are all paid out. It's a little rich for the Germans to be so concerned about moral hazard now.

Its not all Greece's fault. The EU/ECB/IMF tried to help an alcoholic by buying him cheap booze and they did so out of self interested motivations only, which has affected their judgement. There was an awful lot of nonsense about a Greek CDS deathstar. Greece has been under Troika administration for years now, with the Greeks essentially being bullied on the euro exit referendum kite and the "wrong" election result earlier this year. The core seem to get their way on those points but cant manage to exert any leverage on adherence to the bailout itself? The whole strategy which the Troika launched was wrongheaded from the start, made things much worse and we're still at a point where Greece is facing into a default at a time of great financial fragility except all available goodwill and resources are now exhausted.

As an aside - I'm not clear on the value of the Troikas reports: as far as Ireland's program goes its increasingly clear that every checkup will say things are going great, and yet the program will still end in failure. Win every battle, lose the war type stuff.

Its pretty clear that core states like Germany want to keep the Euro. Its also pretty clear that peripheral states want to keep the Euro. Its also very, very clear that the ECB wants to keep the Euro. The problem is they arent willing to do what it takes to keep the Euro. Germany isn't willing to do more than extend and pretend. The periphery isnt willing to seriously address their fiscal problems (notice the squalling over the IMFs entirely sensible observation of social welfare benefits in this country, preceded by bawling over the prospect of public sector pay rises being delayed). And the ECB is desperately trying to recover some credibility after the disastrous influence of Trichet on the crisis.

There's no appetite at all to make hard decisions, and the worry is that the Eurozone wont react until they're forced to - and that's a subjective point. By the time all stakeholders are utterly convinced of the need to act decisively and immediately, it may well be far too late.

McDave

coolshannagh28 wrote: »

Why aren't the other PIIGS rowing in behind Greece, all their economy's are shot to a greater or lessor extent . The Germans are playing divide and conquer to minimise their potential exposure . If this is s genuine fiscal union all states must stand united and insist on transfers instead of fiddling around the edges of the problem .

Even though those of us who live in glasshouses shouldn't throw stones, Greece is so economically ruined and politically inept, no-one is going to row in behind them. After all they are state, and they have the apparatus to take decisions to fundamentally alter their society. No-one else is going to do that for them. If they can't help themselves, perhaps they should be left to their own devices.

As of now we have no fiscal union. Any such union will require confidence to be built up between its participants before net contributors are prepared to sign up to it. Greece is not building confidence in any real sense. It's a two-way street, and Greece just aren't playing ball.

Scofflaw

coolshannagh28 wrote: »

Why aren't the other PIIGS rowing in behind Greece, all their economy's are shot to a greater or lessor extent . The Germans are playing divide and conquer to minimise their potential exposure . If this is s genuine fiscal union all states must stand united and insist on transfers instead of fiddling around the edges of the problem .

AKA the Germans should just stop arguing and pay for everybody's silver bullet. Currently illegal, but I dare say we'd vote for that Treaty change - not sure the Germans would, though. They might prefer to take the large but temporary hit of losing the euro rather than the open-ended hit of being responsible for the debt of states like Greece, if the choice were presented to them starkly enough.

After all, part of the the reason for kicking the can down the road is that Germany will try every half-solution in the book before being forced to make that decision - which may not make sense from the point of view of us beneficiaries, but seems to sit well enough with Hans and Gertrude Publik.

And having said that, I wouldn't be happy with a transfer union anyway.

cordially,
Scofflaw

Mr.Micro

McDave wrote: »

Even though those of us who live in glasshouses shouldn't throw stones, Greece is so economically ruined and politically inept, no-one is going to row in behind them. After all they are state, and they have the apparatus to take decisions to fundamentally alter their society. No-one else is going to do that for them. If they can't help themselves, perhaps they should be left to their own devices.

As of now we have no fiscal union. Any such union will require confidence to be built up between its participants before net contributors are prepared to sign up to it. Greece is not building confidence in any real sense. It's a two-way street, and Greece just aren't playing ball.

This whole euro crisis is squeezing us all, prolonging the uncertainty and nobody is prepared to grasp the nettle once and for all. Is there going to be a Euro or not? In the meantime we will continue this charade of unity knowing full well that Greece should have been shown the door two years ago along with 1 or 2 others. I think in reality they really do not know what to do and continue to pretend that the terminal patients will recover. It becoming a bit repetitive.

rightwingdub

Greece should be allowed go bang and thrown back into the dar ages economically, they are a corrupt race and it was recently shown that they have done nothing to reduce their overbloated public sector.

Farmer Pudsey

The reality is that the greek debtors should never have been paid. The problem was that it was French banks by and large that the money was owed to. Now greeks biggest problem is that wealty greeks have removed all there savings out of greece and into GB, germany and the USA. They are waiting for Greece to default and leave the Euro before the put there money back into greece.

This has made worse an already bad situtation. Now the retired Civil servants paid in euro's are hoping the charade will continue however it cannot.

In last Sundays Independant buisness section Paul Sommerville wrote an article say that now the PIIGS were undermined the next target of the speculators would be France.

This could all end in the morning if the Germans allowed quanative easing in the money supply as GB and the USA did. However the Germans fear a little inflation and expect that they can get the rest of Europe to work 60 hour weeks like they did when Germany was unified. I cannot see this happening so in the next few months either we have

Quanative easing of the money supply ( unlikly)
The Germans say they will help with some of the bill (maybe)
or the Euro breaks up (most likly)

McDave

Mr.Micro wrote: »

This whole euro crisis is squeezing us all, prolonging the uncertainty and nobody is prepared to grasp the nettle once and for all. Is there going to be a Euro or not? In the meantime we will continue this charade of unity knowing full well that Greece should have been shown the door two years ago along with 1 or 2 others. I think in reality they really do not know what to do and continue to pretend that the terminal patients will recover. It becoming a bit repetitive.

Limiting the argument to Ireland, after 10 years of inflationary boom, we were always going to have to face a protracted bust once the bubble burst. We would have been squeezed inside or outside the Euro.

I think there's going to be a Euro. But the nettle won't be fully grasped until the fiscal union gloves are on. I think the countries at the core of the Euro have a fair idea where they want the single currency to be in the end. My guess is with as many of the present membership on board as is possible.

Unfortunately though, a swift resolution is still not on the cards. I'd expect the framework to become clearer once a new German government has a mandate. That suggests towards the end of 2013.

Mr.Micro

McDave wrote: »

Limiting the argument to Ireland, after 10 years of inflationary boom, we were always going to have to face a protracted bust once the bubble burst. We would have been squeezed inside or outside the Euro.

I think there's going to be a Euro. But the nettle won't be fully grasped until the fiscal union gloves are on. I think the countries at the core of the Euro have a fair idea where they want the single currency to be in the end. My guess is with as many of the present membership on board as is possible.

Unfortunately though, a swift resolution is still not on the cards. I'd expect the framework to become clearer once a new German government has a mandate. That suggests towards the end of 2013.

In the meantime then its more uncertainty and the value of the euro will probably decline further. If there is a restructuring or a new framework, it may well be a tiered one. Ireland might not even make the cut.

coolshannagh28

I still don't get this antipathy towards Greece surely we have more in common with them than the core . We are essentially a failed state still refusing to reform our economy and on the path to bankruptcy or another bailout . We socialised private debt as did the Greeks and so will the other PIIGS ,when instead we should have liquidated it as capitalism allows .it follows that having done this the only solution is transfers or a euro breakup .
The PIIGS are all in the same corner and must force a solution, transfers or breakup

McDave

Mr.Micro wrote: »

In the meantime then its more uncertainty and the value of the euro will probably decline further. If there is a restructuring or a new framework, it may well be a tiered one. Ireland might not even make the cut.

Pretty much. Uncertainty keeps up the pressure to reform.

As for the Euro, its launch value against the dollar was $1.17. At one point in the early 2000s it almost went down to 80c. I wouldn't be worried if the exchange rate went down to dollar parity. EZ exports would be heavily boosted, although energy costs would shoot up.

As for Ireland, I think our economic sustainability is pretty much dependent on getting a major deal on the banking debt/promissory notes. If we get one, IMO we're home and dry economically, and a slam dunk for continued EZ membership.

McDave

coolshannagh28 wrote: »

I still don't get this antipathy towards Greece surely we have more in common with them than the core . We are essentially a failed state still refusing to reform our economy and on the path to bankruptcy or another bailout . We socialised private debt as did the Greeks and so will the other PIIGS ,when instead we should have liquidated it as capitalism allows .it follows that having done this the only solution is transfers or a euro breakup .
The PIIGS are all in the same corner and must force a solution, transfers or breakup

I think there's more than antipathy towards Greece. They have institutionalised tax-dodging and have systematically cooked their statistics. And whatever sympathy people might have for the straitened circumstances of individual Greeks is tempered by their political hubris.

In fairness, I don't think Ireland can be compared to Greece. We have a functioning if flawed private sector and public service. We raise revenue. We have reasonable (although not outstanding infrastructures). We have a productive and educated population. Our economy interconnects extensively with other countries.

I think you're right about one thing though. We haven't reformed anywhere near enough. I'm personally giving the current government the benefit of the doubt for now. But by the time they get to mid-term, they'll need to have racked up more tangible results. That's another year maximum. So the clock is ticking.

Scofflaw

coolshannagh28 wrote: »

I still don't get this antipathy towards Greece surely we have more in common with them than the core . We are essentially a failed state still refusing to reform our economy and on the path to bankruptcy or another bailout . We socialised private debt as did the Greeks and so will the other PIIGS ,when instead we should have liquidated it as capitalism allows .it follows that having done this the only solution is transfers or a euro breakup .
The PIIGS are all in the same corner and must force a solution, transfers or breakup

I don't think we're comparable at all. The differences in our economies are very large - we export $122bn to their $21bn, are #27 in the world by GDP/capita to their #46 (assuming their figures are reliable), the third highest positive trade balance in the EU (absolutely, not per capita), we have diversified high-tech economy with a little bit of tourism and agriculture, whereas they have primarily tourism, agriculture, and mining. We spend 0.6% of GDP on our military, they spend 3.5%. They're fundamentally very different economically.

Politically, same story - we have a verbally fractious political class who are quite capable of consensus in crisis conditions (much to the disgust of some), relatively low levels of corruption (outside planning, that is) and tax evasion, a small and efficient civil service, a very efficient and business-friendly legal and tax framework and a very cohesive population who don't riot when the bill arrives (again, much to the disgust of some). Greece, on the other hand, has a genuinely fractious political class who have difficulty cobbling together any semblance of a working coalition under stress, high levels of corruption and tax evasion, a bloated and inefficient civil service, a business-unfriendly legal and tax framework, and a fractious population some of whom are very happy to riot.

We have met or exceeded every target in our troika programme, they have met virtually none of theirs. They don't even appear to be trying - they seem, on the contrary, to be hoping that they'll be bailed out forever, or that the whole thing will somehow just blow over.

Really not the same at all. We may not be Germany, but we're quite like Finland.

cordially,
Scofflaw

NIMAN

Can't understand why people think we should back Greece.

I'm no economics expert, but they appear to be absolutely useless when it comes to running themselves. OK so we weren't much better, but at least we are now trying to make things better, and suffering pain.

As mentioned above, they seem to just be burying their heads in the sand and hoping that they can continue on as they have done, and that someone else will sort things out for them. They probably hope that all their debt will just be written off. Even if it was, I'd guess they would just run it all up again.

Any country that paid you a bonus for coming to work on time is doomed.

coolshannagh28

If the contribution of American multinationals was taken out of our trade figures we start to look very like Greece . Our Tax status which encourages this will be a bargaining chip against us when we run out of road .
Judging by the developments of the last couple of days there are plenty of issues regarding corruption . We have fulfilled our bailout criteria but in a very unfair way . This is a store of social division , we may be feeling smug at the minute but our place is with the PIIGS and we forget this at our peril ,we would be better backing them up than piggybacking them ( pardon pun)

ardmacha

Judging by the developments of the last couple of days there are plenty of issues regarding corruption .

Court cases are evidence of corruption, but also of some effort to address it.

We have fulfilled our bailout criteria but in a very unfair way .

Unfair in what sense?

coolshannagh28

ardmacha wrote: »

Judging by the developments of the last couple of days there are plenty of issues regarding corruption .

Court cases are evidence of corruption, but also of some effort to address it.

We have fulfilled our bailout criteria but in a very unfair way .

Unfair in what sense?

Austerity instead of structural reform

Sand

coolshannagh28 wrote: »

Austerity instead of structural reform

Well austerity isnt an exact description for what has happened in Ireland over the past few years (spending is actually *up*), but you're right: where there has been any attempt to make savings its been through cruel, petty, blunt and very damaging cuts to services rather than any meaningful reform or change in how business is done.

This is perhaps best highlighted by the report on the HSE which indicated its cost cutting measures were put together by unqualified people under poor governance and which ultimately were targeted at cutting services first and foremost, putting peoples lives at risk. They petty objections of the trade unions to minor, minor reforms under Croke Park such as the removal of half days to cash non-existent cheques is another example.

Where-ever Insider Ireland has had a choice between cutting services or accepting reform, they've relentlessly chosen to cut services. They are clearly hoping to ride out the storm while holding onto the mercs and perks.