Another Greek WTF Showdown Moment Explained

Submitted by Michael Shedlock via MishTalk.com,

The IMF has once again threatened to pull out of the Troika following a warning that Eurogroup Loan Measures Not Enough for Greek Debt.

Greek debt yields had already been rising and spiked on the news.

Let’s take a look at what’s happening, culminating with an explanation of seemingly preposterous positions from all involved.

In the IMF’s baseline scenario, Greece’s government debt will reach 275 percent of its gross domestic product by 2060, when its financing needs will represent 62 percent of GDP, the report obtained by Bloomberg says. The government estimates public debt around 180 percent of GDP at present.

Europe Responds

The IMF board is set to discuss Greece’s ability to service its debt on Feb. 6. The fund has resisted pressure from countries including Germany and the Netherlands to contribute to the bailout program, seeing it as doomed unless Greece takes further steps to rein in spending or euro-area governments ease the terms of the loans.

Europe’s aid program for Greece is credible and backed by contingency measures to handle unforeseen events, a spokesman for the European Stability Mechanism, an EU agency that provides bailout loans to Greece, said in e-mailed statement Sunday.

IMF Proposals

As in the past, the IMF is proposing that Europe extend grace periods and maturity dates on the loans. The document also calls for further deferral of interest payments and to lock in interest rates.

Greek debt is “highly unsustainable” and “even with the full implementation of policies agreed under the European Stability Mechanism program, public debt and financing needs will become explosive in the long run,” the document says. A “substantial restructuring” of European loans to Greece is required to restore debt sustainability, it says.

The IMF agrees with Greece’s euro-area creditors on one point. Both want Greece to introduce a law triggering austerity measures if the country fails to maintain a budget surplus before interest payments of 3.5 percent of GDP. Greek Finance Minister Euclid Tsakalotos last week rejected that demand as “unacceptable.”

Greek Bond Yields Soar

Reuters reports Greek Bond Yields Soar on Worries about IMF role in Bailout.

Yields on short-dated bonds spiked 300 basis points, on track for their biggest one-day jump since July 2015, while 10-year bond yields rose to their highest in almost three months.

Germany said on Monday it believed the IMF would participate and that it was too early to start thinking about other possible scenarios.

But concerns were heightened after a leaked report that the Fund expects Greek debt to explode to 275 percent of GDP by 2060, analysts said.

“There’s a bit of disquiet regarding the IMF’s role…,” said Orlando Green, European fixed income strategist at Credit Agricole.

“The bottom line is that the IMF wants debt relief for Greece and the EU has taken baby steps towards this, but it is not what the IMF is looking for long-term. When there are divisions between the EU and IMF, that arouses concerns about Greece.”

He was answering a question about a report in the Bild newspaper that said Finance Minister Wolfgang Schaeuble would argue for a Greek exit from the euro zone should the IMF withdraw from the third bailout programme.

Short-dated government bond yields in Greece rose as far as 9.98 percent, their highest level in about seven months.

Five and 10-year Greek bond yields also rose sharply, with 10-year yields climbing 50 bps to around 7.76 percent – their highest since early November.

Perpetual Nonsense

The IMF argues correctly that Greek debt is unsustainable. Previously the IMF correctly argued Greece could not maintain a primary account surplus of 3.5 percent.

Yet the IMF now demands Greece automatically implement rules forcing it to have a primary account surplus of 3.5 percent of GDP as far as the eye can see.

Last week Eurointelligence reported that Greek officials were elated the much-despised IMF might exit the program. Although Greece hates the IMF, the IMF has at least been partially on Greece’s side, arguing for debt reductions.

Were the IMF to actually pull out to happen, Schaeuble wants Greece out of the Eurozone.

Meanwhile, Eurozone officials pretend the program is working when they know full well its not.

WTF Moments

This is one of those WTF moments where statements from Greece, from the IMF, and also the Eurozone make no apparent sense.

Yet, despite the obviously apparent nonsense, it’s possible to piece together what’s happening.

1. Neither Germany nor the Netherlands is willing to throw Greece the smallest of bones for fear of election consequences. It’s far easier for Eurozone nannycrats to pretend things are running smoothly.


2. Schaeuble has long wanted Greece out of the Eurozone. But Germany does not want to take the blame. Instead, Schaeuble wants the IMF or Greece to take the blame.


3. The IMF does not want the blame either, so it takes a preposterous stance that the debt is not sustainable but a 3.5% primary account surplus for as far as the eye can see is sustainable. The IMF takes this view despite having argued many times that 3.5% is not sustainable.


4. By pretending to now be in favor of 3.5% perpetually, the IMF can argue it is not one-sided to Greece.


5. Despite the fact the IMF is more on Greece’s side than Germany or the Eurozone nannycrats, Greece hates the IMF so much that its position of not wanting the IMF involved overrides common sense.


6. As an alternative to point 5, consider the possibility that Greece wants outs of the Eurozone, but none of the politicians want to take the blame. Instead, the politicians want to blame the IMF or Germany and are just itching for the IMF to get the hell out so they could do what they wanted to years ago (exit the eurozone). In this possibility, Greece looks to place the blame elsewhere and is waiting for the right moment.

Troika Blame Game Theory

Points 1-4 are certain. Points 5-6 are pick one. Despite the apparent absurdity of conflicting views and the IMF’s changing stance, blame game theory explains all you need to know. Here is a shorter synopsis.

1. Greece wants to blame the IMF and Germany


2. Germany wants to blame Greece and the IMF


3. The IMF wants to blame Greece and Germany

GREEK DRAMA RETURNS: IMF Schism With Greece May Jeopardize Bailout

This is all very well and good. The IMF have made demands to their puppets in Greece, which if not met, will result in the entire EU bailout to crumble to pieces. Most assuredly, this would result in markets reeling from the shock -- plunging freely towards the pits of hell.
 
The condensed version of the aforementioned crisis, which is definitely beginning to loom, has to do with lack of progress by the Greek government to balance a budget.
 
Should the IMF pullout, Germany has stated that a new deal would need to be voted on by national parliaments. The world is a much different place now, than when the last bailout was forged. With nationalism running high across Europe, there"s no guarantee that a new Greek bailout will pass now, at least not without drama.
 
The result of this chicanery is a notable divergence between German bonds and the PIGS (Portuguese, Italian, Spaniard, Greek).
 

 
The spread between Portuguese and German bunds is now 372bps.
 
Source: BBG

Almost two-thirds of the actions creditors have demanded for the disbursement of the next tranche of emergency loans have yet to be completed, the government conceded in a memo discussed between Finance Minister Euclid Tsakalotos and bailout auditors last week in Brussels, a person familiar with the matter said.
 
Even though the memo laid out a series of commitments to ensure the work will be completed, creditors said the proposals weren’t good enough, a separate official said. The people asked not to be named as the contents of the memo haven’t been made public.
 
Europe’s most indebted state is locked in talks with officials representing the European Stability Mechanism, the European Commission, the European Central Bank and the IMF over the terms attached to the loans keeping it afloat since 2010.
 
IMF staff said in a draft report obtained by Bloomberg that the current structure of Greek public finances is “fundamentally inefficient, unfair, and ultimately socially unsustainable,” adding to doubts about whether the Fund will eventually re-join the Greek bailout. Euro area governments -- notably Germany -- have said failure to get the IMF on board would require a new agreement, which needs to be approved by national parliaments.
 
In addition to asking for a lower income tax threshold and pension cuts for current retirees, a demand the Greek government doesn’t accept so far, the IMF is also pushing for the European creditors to off more debt-relief measures.
 
“We believe that Greece’s debt burden can be manageable if the agreed reforms are fully implemented,” a spokesman for the euro area’s crisis fund said Sunday.
 
A European official told reporters in Brussels last week that Greece must resolve the standoff by the next meeting of euro area finance ministers on Feb. 20, before as many as five European nations hold elections that will make negotiations politically difficult.

 
Greek stocks plunged today by more than 3.5%.
 

Content originally generated at iBankCoin.com

Totally Out Of Touch: Nicolas Sarkozy Seeks "Marshall Plan" For Africa

Submitted by Michael Shedlock via MishTalk.com,

It’s easy to get an op-ed in the Financial Times, Wall Street Journal, Washington Post, or the New York Times.

Well sort of. All you need is a high profile stature. No matter how inane the post by Paul Krugman, Larry Summers, or in this case former French President Nicolas Sarkozy, a major media outlet will publish it, without rebuttal, and without any serious comments.

With that bit of a rant out of the way,  please consider Remake the Union to Heal Europe’s Rifts by Nicolas Sarkozy.

On June 23, the British people decided to leave the EU. I am sorry they did because I believe the UK belongs in Europe. But I respect their choice. I can think of nothing worse than suggesting their decision might be disregarded.

The approaching political talks will be tough and the associated technicalities complex. Article 50, the mechanism for departing the EU, provides a two-year timeframe to reach an agreement, and failure to do so will result in automatic exit. The question is whether the UK and its 27 partner nations will have enough time to reach a mutually satisfactory agreement enshrining most of the bond they already share, or be forced into a much harsher break-up. Nobody knows the answer yet.

The Europe of the euro needs to deepen its integration, under sound economic governance, once and for all. The foundation for this was built during the crisis in 2010-11, when the European Stability Mechanism was created and eurozone summits began. This Europe needs to take a few steps further, providing more permanent leadership for its eurozone summits, setting up a central secretariat to serve as Europe’s treasury, and turning the ESM into a fully fledged European monetary fund.

This enlarged Europe also needs to review the commission’s prerogatives, to prevent it from bypassing European and national lawmakers, and unilaterally stifling our entrepreneurs and our citizens with the technical constraints it inflicts on them.

Lastly, Europe needs a new immigration policy. It needs a new Schengen, shared immigration and asylum policies, and consistent employment laws regarding foreigners to end social dumping. Foreigners should not receive non-contributory benefits until they have completed five years’ residence. We need to protect Europe’s borders effectively. We need to join forces to send those who have entered illegally back to their country of origin. We need to rank co-operation aimed at stemming illegal immigration among our foreign policy priorities.

Countries that re­fuse to co-operate should be denied EU aid. This must be combined with a European “Marshall plan” for Africa.

In the meantime, I believe we should put accessions on hold, even in the case of countries that have grounds for joining, such as the Balkan states. And, as I have said before, I categorically oppose Turkey’s accession.

Once Europe emerges from its overhaul, it will be up to British leaders to decide whether to ask their people about joining the union again. The choice will be the British people’s to make, and theirs alone. Europe must not reform because it hopes to bring the UK back to the fold: it must embrace reform because its future and its survival depend on it; because reform is as urgent as it is vital.

Sarkozy’s Fantasyland Proposal

As is sometimes the case in these high-profile op-eds, the writer gets something correct while missing the big picture.

Sarkozy has one valid idea: immigration reform. But he totally blows it with a European “Marshall plan” for Africa idea.

Good grief. Does the average unemployed youth in Greece, Italy, or Spain give a rat’s ass about a Marshall plan for Africa?

Hell no! They want a Marshall Plan for Greece, for Italy, and Spain.

Sarkozy’s Marshall Plan for Africa idea shows how much out of touch these politically correct buffoons are.

Beppe Grillo in Italy, Marine le Pen in France, and AfD in Germany feed off nonsense such as Sarkozy proposed.

Mob Rule Irony

That is not the only point Sarkozy missed in his nannycrat rant for more Europe.

Sarkozy says “The question is whether the UK and its 27 partner nations will have enough time to reach a mutually satisfactory agreement enshrining most of the bond they already share, or be forced into a much harsher break-up. Nobody knows the answer yet.”

Got that? It takes 27 nations to agree on when and how a nation can leave the gang. That’s not quite mafia material, but it’s close.

Quite literally, 27 nations have to agree to do damn near anything in the EU.

One nation can handcuff the others, as does France with its inane agricultural tariff policy. A majority of nations are fed up with France but nothing can be done. France has a veto. In fact, every country has a veto.

As for his “Marshall Plan” idea, all 27 nations have to agree. Sanctions on Russia? In this case (and thankfully), all it takes is for one nation to say no, and the sanctions are off.

Pleading for more Europe, Eurobonds, or treaty changes requires unanimous approval.

If Sarkozy had an ounce of sense he would be calling for a complete overhaul of EU rules and Eurozone rules as well.

A couple of people are doing just that: Marine le Pen and Beppe Grillo. Inane ideas such as a Marshall Plan for the Africa further their cause.