Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
S&P 500 Just 2% Below Record High, But There's More Stock Market Uncertainty - 19th Jul 18
Stock Market Technical Picture - 19th Jul 18
Gold Market Signal vs. Noise - 19th Jul 18
Don’t Get Too Bullish on Gold - 19th Jul 18
Bitcoin Price Rallies to Upper Channel – What Next? - 19th Jul 18
Trump Manchurian President Embarrasses Putin By Farcically Blowing his Russian Agent Cover - 19th Jul 18
The Fonzie–Ponzi Theory of Government Debt: An Update - 19th Jul 18
Will the Fed’s Interest Rate Tightening Trigger Another Financial Crisis? - 18th Jul 18
Stock Market Investor “Buy the Dip” Mentality is Still Strong, Which is Bullish for Stocks - 18th Jul 18
Stock Market Longer-Term Charts Show Incredible Potential - 18th Jul 18
A Better Yield Curve for Predicting the Stock Market is Bullish - 18th Jul 18
U.S. Stock Market Cycles Update - 18th Jul 18
Cayton Bay Hoseasons Caravan Park Holiday Summer 2018 Review - 18th Jul 18
What Did Crude Oil - Platinum Link Tell Us Last Week? - 17th Jul 18
Gold And The Elusive Chase For Profits - 17th Jul 18
Crude Oil May Not Find Support Above $60 This Time - 17th Jul 18
How Crazy It Is to Short Gold with RSI Close to 30 - 16th Jul 18
Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18
Stock Market Uptrend Continues, But... - 16th Jul 18
Emerging Markets Could Be Starting A Relief Rally - 16th Jul 18
(Only) a Near-term Stock Market Top? - 16th Jul 18
Trump Fee-Fi-Foe-Fum Declares European Union America's Enemy! - 16th Jul 18
US Stocks Set For Further Advances As Q2 Earnings Start - 15th Jul 18
Stock Market vs. Gold, Long-term Treasury Yields, 10yr-2yr Yield Curve 3 Amigo's Update - 15th Jul 18
China vs the US - The Road to War - 14th Jul 18
Uncle Sam’s Debt-Money System Is Immoral, Tantamount to Theft - 14th Jul 18
Staying in a Caravan - UK Summer Holidays 2018 - Cayton Bay Hoseasons Holiday Park - 14th Jul 18
Gold Stocks Summer Lows - 14th Jul 18
Trump US Trade War With China, Europe Consequences, Implications and Forecasts - 13th Jul 18
Gold Standard Requirements & Currency Crisis - 13th Jul 18
Focus on the Greenback, Will USD Fall Below Euro 1.6? - 13th Jul 18
Stock Market Outlook 2018 - Bullish or Bearish - 13th Jul 18
Rising Inflation is Not Bearish for Stocks - 13th Jul 18
Bitcoin Picture Less Than Pretty - 13th Jul 18
How International Observers Undervalue the Chinese Bond Market - 13th Jul 18
Stocks Trying to Break Higher Again, Will They? - 12th Jul 18
The Rise and Fall of Global Trade – Redux - 12th Jul 18
Corporate Earnings Q2 2018 Will Probably be Strong. What This Means for Stocks - 12th Jul 18
Is the Relative Strength in Gold Miners to Gold Price Significant? - 12th Jul 18
Live Cattle Commodity Trading Analysis - 12th Jul 18
Gold’s & Silver’s Reversals’ Reversal - 12th Jul 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

Here’s How Greece’s Bailout Falls Short

Politics / Eurozone Debt Crisis May 31, 2016 - 03:47 PM GMT

By: Rodney_Johnson

Politics

If you lent a guy money and he failed to pay you back, would you lend to him a second time? How about a third time?

That’s exactly what’s going on in Europe.

The European Central Bank (ECB), European Commission (EC), and the IMF – the three entities collectively known as the Troika – bailed out Greece in 2010… then again in 2012.


All told, Greece received 216 billion euros, and defaulted on a chunk of debt to private investors. Now the Greeks are back at the bailout door, hoping to finalize a deal before their next debt payment is due on July 1.

The ECB and EU have agreed to more austerity in Greece in exchange for just under 100 billion euros of bailout bucks, but the IMF is holding out. Officials at the international bank don’t think Greece can make good on the new promises. They want remaining creditors – like the ECB and central banks across Europe – to discount their Greek bonds instead of asking for budget cuts from the ailing country.

I’ve got a question. What difference does it make?

Even though Greek lawmakers agreed to more spending cuts and taxes over the weekend, it doesn’t change the facts on the ground.

Greece is insolvent.

The country generates a very small primary surplus, meaning it has a little bit of cash left over before it pays principal and interest on its debt. But the country owes more than 370 billion euros. That’s like saying you have a little bit of cash left over before you pay your mortgage or rent.

And why would the Greeks want more bailout bucks? Of the 216 billion euros they received from the first two rounds, a whopping 9.7 billion euros flowed to their coffers. A chunk of it, 90 billion, repaid old debt, and the rest flowed back to bondholders in the form of principal and interest payments.

So for 126 billion euros of net new debt, Greece received 9.7 billion of fiscal stimulus.

Brilliant!

The Troika, on the other hand, have no choice.

They must force another bailout, because they all own Greek bonds. Same with the central banks of Germany and other Northern European countries. They all need Greece to continue paying its debts, because they are the recipients of those principal and interest payments. If the Troika cuts Greece off, they’ll have a bankrupt nation on their hands that cannot continue to pay them.



No one in the Eurozone wants that.

As Charles recently noted, Brits will vote in late June on whether to stay in the European Community or cut their ties. The possibility of losing the financial capital of Europe is already sending tremors through the economic bloc. They don’t need another earthquake.

But Greece’s troubles aren’t going away. They’re just getting older.

A full 25% of the government’s budget goes toward pension payments. Since 2000, the government has spent over 175 billion euros on pensions, which is about half of its outstanding debt. If the country completely abandoned its current debt, it could just barely squeak by today.

But what about tomorrow? As more pensioners join the ranks, the problem will only get bigger.

As I’ve written many times, the country is already bankrupt. It’s just a matter of when everyone will acknowledge the fact and start working on real solutions.

Until then, expect more bailouts and Band-Aids as the Troika tries to keep Greece afloat so the Eurozone doesn’t splinter.

Rodney

Follow me on Twitter ;@RJHSDent

By Rodney Johnson, Senior Editor of Economy & Markets

http://economyandmarkets.com

Copyright © 2016 Rodney Johnson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Rodney Johnson Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules