Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24
Bitcoin Trend Forecast, Crypto's Exit Strategy - 31st May 24
Zimbabwe Officials Already Looking to Inflate New Gold-Backed Currency - 31st May 24
India Silver Imports Have Already Topped 2023 Total - 31st May 24
Gold Has Done Its Job – Isn’t That Enough? - 31st May 24
Gold Stocks Catching Up - 31st May 24
Time to take the RED Pill - 28th May 24
US Economy Slowing Slipping into Recession, But Not There Yet - 28th May 24
Gold vs. Silver – Very Important Medium-term Signal - 28th May 24
Is Gold Price Heading to $2,275 - 2,280? - 28th May 24
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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

© 2005-2022 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