“If it´s summer, this must be Greece”

And we´re on to the seventh chapter of the IMF-Greece-Germany Slapstick:

A truce between Greece’s creditors averts an immediate panic over Greek bankruptcy this summer, yet as officials and onlookers digested the deal, it became apparent that less was agreed than meets the eye.


The deal, struck in the small hours of Wednesday morning at the Eurogroup meeting of eurozone finance ministers in Brussels, broke an impasse between Germany and the International Monetary Fund that was holding up Greece’s bailout funding for this summer.

The main breakthrough, heralded by German Finance Minister Wolfgang Schäuble, is that the IMF agreed in principle to rejoin the Greek bailout effort this year with new loans. In return, Germany and other eurozone countries pledged to restructure Greece’s rescue loans in 2018 “if…needed.” That promise fell short of the IMF’s demand that Europe should decide now how it would relieve Greece’s debt in coming years.

But the IMF’s main negotiator at the talks, European department head Poul Thomsen, stressed at a news conference early Wednesday that the fund isn’t on board just yet. The eurozone still needs to tell the IMF what it is prepared to do in 2018, consenting to a menu of debt-relief measures for later use, he suggested. “We will need to assess the adequacy of the measures, and we will only go ahead if there is an assessment that they are adequate.”

Mr. Schäuble on Wednesday dismissed Mr. Thomsen’s caveats, insisting that new IMF loans were now assured. “He probably was tired then,” Mr. Schäuble told reporters.


Mr. Thomsen on Wednesday hailed the IMF’s main gain: a promise by German-led eurozone creditors to undertake a far-reaching restructuring of Greek debt in 2018. “We welcome that it is now recognized by all stakeholders that Greek debt is unsustainable, and…that Greece will need debt relief to make that debt sustainable,” he said.

However, Germany previously promised the IMF and Greece in 2012 that it would offer debt relief later if needed—only to reject such a move afterward, citing Greece’s failure to implement all of its promised economic overhauls.

The latest debt promise hinges once again on Greece’s ability to complete its side of a tough bailout plan that has proved beyond the political stamina of all Athens governments so far.

Germany´s trick is to make contingent promises, when it knows the conditions will be impossible to meet!

Meanwhile, Greece´s RGDP has acquired a Bell-shaped appearance, capped below at the 1999 level!

Greece_Bell Shaped

These shenanigans remind me of a post from 5 years ago:

The nature of these meetings is that the hallway chatter is always more interesting that the formal program. Part of the reason why is that, particularly when talking to journalists, the businesspeople or politicians tend to regard those conversations as off the record. So I’ll abide by that here. One of the German execs was a consultant, and the other headed what I’ll call a quasi-official German organization.

They were slightly irritated by the pessimism I’d expressed earlier in the day. “Don’t you realize,” one of them said, “that the cost to us (Germany) of bailing out Greece is far less than it cost us to reintegrate East Germany after the wall came down in 1989?”

I almost choked on my croissant. Yes, I replied, I am aware of that. I lived and worked in Berlin as a journalist in the mid 1990s, when that very painful (economically speaking) process was taking place in Germany. But doesn’t that, I said politely, rather beg the question: Germany integrating their brethren, who’d been isolated and impoverished during the cold war, was a dream come true, whatever the cost. Germans, on the other hand paying to bail out Greece is, to average German, rather the opposite of a dream come true, is it not?

He waved me off. No no, he said, it will be taken care of. The Germans, he said, understood how beneficial to them membership in the euro zone has been. Without it, the gentleman said, the value of the Deutschemark would be 50% or 75% higher than it is under the euro. “German industry would be wiped off the map.”
Why Germany needs the euro

Here was my ‘choking on my croissant’ moment number two. Most economists would agree with what my friend at the meeting had said; but he seemed either oblivious (not likely) or simply unconcerned (more likely) with the flip side of what he had just uttered. Italy, to take the third-largest economy in Europe, one with a sizeable and modern industrial base, is stuck with a currency — the euro — which is stronger than the old lira would be under current circumstances. But membership in the euro zone means Italy can’t devalue to bring some relief to its exporters.

I pushed back politely. Look, I said, it’s not Greece I’m worried about. It’s Italy. Third-biggest bond market in the world. Bond spreads this morning again heading over 7%(before the ECB intervened this to push them back down again.) Too big to fail, too big to save. Is the government, even one under a new Prime Minister, going to push through sufficient austerity to avoid a default?

Now the consultant perked up, speaking what he too believes to be the unvarnished truth. They have to, he said, because “to be blunt about it, we have them [both the Greeks and the Italians] by the balls.”

And make no mistake – that, in essence, is where the European crisis stands.

It seems it still does!

2 thoughts on ““If it´s summer, this must be Greece”

  1. Pingback: When effort and outcome is not the same thing – the case of Greece | The Market Monetarist

  2. Pingback: When Effort And Outcome Is Not The Same Thing – The Case Of Greece – Investor Maven

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