Deal for Greece still not sustainable

The second Greek bailout does not bring the needed adjustments to ensure that we will not deal with this issue in the following months again. Here is the official communique from the Eurogroup.

I find the new deal relative to the previous one very weak and unchanged where it mattered.
First of all the nominal haircut has been increased fro 50% to 53.5% which by any measure will not be enough.
Second of all the debt to GDP ratio for 2020 has remained unchanged at 120%. A good exercise here would be to take the GDP estimates that give you the 120% ratio and lowered them by only 0.5% every year. Would the ratio still remain at 120%? Definitely not.
Third, the Troika still pushes on austerity measures. Here are few examples:
“…additional structural expenditure reductions of € 325 million to close the fiscal gap in 2012…” or “…further major efforts by the Greek society are needed…” or “…Greece must achieve the ambitious but realistic fiscal consolidation targets so as to return to a primary surplus as from 2013…”. This is not the way to bring Greece to growth in a recessionary environment. It might work in boom times but not now.

For me it is hard to imagine how you justify another 7 years of hardship for the Greek economy only to achieve 120% debt to GDP ratio in the best case scenario. This deal as it is structures is not sustainable and irrespective of the short term market reaction I expect new talks about Greece soon.

But until we will revisit Greece get ready for Portugal to be invited at the negotiation table.

P.S. If Greece is not defaulting why does it need a bailout (or two for that matter)?

Zero hedge has a nice find supporting my view.

15 thoughts on “Deal for Greece still not sustainable

  1. A: Greece didn’t receive an official default statement yet, so the credit default swaps will not be issued. Continued CDS issuance is necessary to support the illusion of a market for sovereign debt. Default for Greece equals end of CDS market and possible monetary system issues. Until this shock is completely understood and minimized, we will see further “haircuts”.

  2. “For me it is hard to imagine how you justify another 7 years of hardship for the Greek economy only to achieve 120% debt to GDP ratio in the best case scenario.”
    Look at the 2020 projected debt levels for other developed countries. They dwarf 120%. So they probably believe that Greece is going to be among the less indebted countries by 2020 at 120%.

    I personally don’t think that these projected debt levels are sustainable long term.

    “If Greece is not defaulting why does it need a bailout (or two for that matter)?”
    Are there still people from the elite that own Greek debt? I’m not sure if all the debt Greek has been transferred to taxpayers from other countries from the banking “elites”.

    1. http://www.bfmbusiness.com/toute-linfo-eco/europe-international/jour-j-pour-un-nouveau-plan-daide-%C3%A0-la-gr%C3%A8ce-134169

      daca grecia iese din euro atunci ii trebuie 30 de ani ca sa revina la normal,spun unii economisti,asa ca poporul grec nu prea are de ales.
      nu stiu daca e adevarat dar francezii spuneau ca 80% din datoria grecilor e in bancile grecesti.
      daca vor reusi sa faca functional sistemul de colectare a taxelor si sa scoata cele 50% din economia netaxata la suprafata ,poate se schimba ceva.

      1. @Gabriela
        “daca grecia iese din euro atunci ii trebuie 30 de ani ca sa revina la normal,spun unii economisti,asa ca poporul grec nu prea are de ales.”
        1. Care normal? Nivelul de prosperitate pe care il au acum sau pe care l-au avut in ultimele decenii nu a fost nivelul lor normal. A fost influentat de capacitatea lor de imprumut.
        2. Daca Grecii scapa de deficit + fac default + raman in zona euro atunci economia incepe sa isi revina de maine. O perioada de timp ceilalti o sa le vanda produse(petrol, mancare .etc) mai scumpe din cauza riscului insa pe urma preturile o sa vina la normal.

        Imo, solutia 2 nu cred sa se intample. Nu e cea mai buna solutie, insa e mai buna pt. greci decat ce fac acum.

  3. @Adrian
    Eu sunt convinsa ca intre timp se vor mai imtampla schimbari importante in configuratia UE.Deocandata grecia le-a aratat aratat cat de falsa a fost constructia doar pe euro, care insa in acest moment pare un drum fara intoarcere deorece nu cred ca cinva poate face vreun stiudiu de imparct aproape de realitate despre ce s-ar intampla daca s-ar renunta la euro, sau s-ar cominiza datoria.deci pana economistii vor mai face socoteli ,se castiga timp si ma ingrozesc cand ma gandesc ca toate problemele lui 2012 s-au impins in 2013 care nu stim cum va fi.
    eu cred ca solutia nu e nici la politicieni nici la economisti,cred ca cineva,culianu ii spunea marele manipulator ,sau poate un Tozgrec macat ar trebui sa arunce in mana unui mare economist necumoscut solutia magica precum a fost aruncat marul in mana lui Newton cand a descoperit gravitatia.
    tu nu vezi ca muritorii astia de rand prea se screm si nu nasc nimic?????

    1. Pai singura solutie pe termen lung e ca lumea in general si fiecare in particular sa produca mai mult decat consuma.

      Nu Euro e principala problema. Ci faptul ca ai datorii si ca nu produci mai mult decat consumi. Consumul nu poate sa fie mai mult decat productia pe termen lung. Deoarece cineva trebuie sa produca ceea ce consumi.

      Si nici populatia nu conteaza per ansablu. E adevarat ca daca ai mai multi care se nasc atunci sistemele actuale devin mai sanatoase. Deoarece ele au fost concepute cand cei tineri erau mai multi.

      Daca fiecare membru al societatii produce/contribuie mai mult decat consuma de maine, atunci toate problemele astea o sa se rezolve in timp si in mod predictibil. E o matematica simpla:
      valoare adaugata medie per capita * populatie = valoare adaugata pozitiva. Iar datoriile sunt valori adaugate negative.

      Cu suficiente forte pozitive, problemele negative se rezolva pas cu pas. Si asta se intampla indiferenta de tara, cultura, conditie economica .etc Pur si simplu un sistem de asta functioneaza matematic.

      Nu banii sunt problema, banii sunt o unitate de masura, nu un lucru in sine. Banii practic nu exista. Banii reprezinta ceva ce exista.

      De ex: Daca ai o datorie de 50.000 euro, atunci poti masura datoria in orice unitate de masura ca tot acolo e.

      E adevarat ca daca treci la drahma pe urma devalorizezi, insa iar, platesti devalorizarea prin inflatie. Diferenta e ca aceeasi datorie nu e in vazul lumii, iar populatia nu stie ce se intampla. Si accepta conditiile mai grele pentru ca nu e constienta de existenta lor.

  4. If there is one last hope for Greece, other than getting rid of all the corrupted politicians, that hope is not to have that deal. Anyway that deal serves the bankers and enslaves Greek people so its sure that it will be done.

    1. @NozNews
      I was just on a TV show in Romania with a Greek business man. He was very excited about the new plan for Greece. No me though, as you can see from my post. There are only two solutions in my mind: one ECB bails out EUROPE and two some countries might consider that there are plenty of benefits in the long run outside the euro area.

  5. From the official communique: “Finally, the Eurogroup in this context welcomes the intention of the Greek authorities to introduce over the next two months in the Greek legal framework a provision ensuring that
    priority is granted to debt servicing payments. This provision will be introduced in the Greek constitution as soon as possible.”

    If a referendum is held I find it hard to believe that the Greek people would vote for such a constitutional amendament because these constraints may not be in their long-term interest.

    1. Dle Citu v-am vazut la tv cu dna aceea care radea ca ….nevinovata.ce cavaler ati fost cu ea,doar o data v-a enervat nestiinta ei, dar a gasit ea o replica.domnule si eu cred ca fondurile europene sunt o frectie la un picior de lemn,dar numai cu taxe mici, disciplina fiscala si scaderea evaziunii nu te scoti.alte idei nu vreti sa dati ca sa ma simt si eu mai optimista? eu cred de exemplu ca tehnologizarea agriculturii , sau macar cateva tractoare si o industrie prelucratoare in acest sens ,la cele 9 milioane de hectare bune de lucrat pe care le avem nu merita puse in paranteza.
      daca am vorbi serios despre reorganizare teritoriala si descentralizare cam ce ar putea sa faca o regiune sa creasca economic ?

      1. @Gabriela
        Eu nu cred ca am solutie pentru toate problemem din economie.De fapt nu credca exista cineva care sa sustina acest lucru. O economie se dezvolta pe bazadeciziilor luate de milioane de indivizi in fiecare secunda. Ce pot eu sa prpopun este cadrul in care acestia actioneaza. Iar din punctul meu de vedere acest cadru implica un stat cat mai mic si un sector privat cat mai mare. Astfel prin reducerea de taxe lasam maimulti bani corporatiilor si persoanelor fizice care decid cum ii cheltuies/investesc/economisesc. Daca acestia cred ca merita sa retehnologizam agricultura foarte bine.

        POliticile eocnomice sunt bune doar la nivel macro. La nivel mmicro guvernul trebuie sa elimine, insider trading, conflict of interests, oligopolies, predatorry tactics etc. Cu alte cuvinte la nivel micro guvernul trebuie sa ganateze proprietatea sau altfel spus sa se asigure ca fiecare piata oricat de mica este una compettiva.

      2. dle Citu, pana la criza aceasta si eu credeam ca solutia e statul minimal, paznic de noapte si atat si am si facut politca la liberali incercand sa promovez oameni care gandesc in acelasi mod.
        dar aceasta criza cred ca a schimbat cu totul reperele.incerc sa gandesc la ce am mai scris parca aici la dvs pe blog.parteneriatul public privat marea provocare cu care Sarkozy se propune ca primul presedinte al acestui mileniu.iar despre reducerea taxelor,francezii spun ca taxarea care a produs cea mai multa b unastare a fost aceea in care proprietatea a fost taxata la acelasi nivel cu munca, adica juma -juma.
        numai politca fiscala cu taxare minima nu rezolva problema clasei mijlocii care se subtiaza pe zi ce trece, vezi avertismentul fukuyama

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