No Greek deal

No Greek Deal; Talks Postponed Till Monday; Who Blinks First?

Mish's Global Economic Analysis,

21 November, 2012

A marathon nannycrat session ended with no deal as the IMF played hardball insisting Greece reduce debt to 120% of GDP by 2020.

Not to worry, Jean-Claude "Lie When It's Serious" Juncker says progress was made.

CNN Money says No deal for Greece as talks drag.

 European finance ministers concluded a marathon meeting Wednesday without finalizing the details of a debt-reduction package for Greece.

The absence of an agreement endangers the release of the next round of Greece's international bailout package, funding the country needs to remove the threat of bankruptcy and a messy exit from the eurozone. 

 Jean-Claude Juncker, the Eurogroup president, said in a statement that the discussion was "extensive" and that progress was made.

"The Eurogroup ... made progress in identifying a consistent package of credible initiatives aimed at making a further substantial contribution to the sustainability of Greek government debt," Juncker said.

Devil in Compromise 

I have no doubt the discussion was "extensive". Whether or not any progress was made is certainly debatable, and we certainly cannot believe Juncker on that score, or for that matter any score.

Please consider Greek debt can only become sustainable by 2022 if all steps taken

 Greek debt can fall to below 120 percent of output by 2020 only if euro zone countries accept losses on their loans to Athens, provide additional financing or force private creditors into selling Greek debt at a discount, according to a document prepared for a meeting of finance ministers on Tuesday.

The 15-page document shows that without a package of debt-reducing measures Greek debt will fall to 144 percent of GDP in 2020, 133 percent in 2022 and 111 percent of GDP in 2030, from a current level of around 170 percent.

"The package of options will not make it possible to arrive at a debt-to-GDP ratio of close to 120 percent in 2020 without taking recourse to measures that would entail capital losses or budgetary implications for euro area member states or envisage a more comprehensive DBB entailing the activation of collective action clauses," the document said.

Deferring interest payments by 10 years to 2022 on loans made through the euro zone's temporary rescue fund would cut Greek debt by 43.8 billion euros, or 16.9 percent of GDP.

If the European Central Bank (ECB) returned the profits it made on its Greek bond portfolio, Greece's debt would be fall by a further 4.6 percent in 2020, the document showed.

Buying back 10 billion euros worth of Greek bonds from private investors at 50 cents per euro would result in debt falling by 2.4 percent of GDP by 2020.

But the combined elements would still fail to reduce the overall debt-to-GDP ratio to 120 percent by 2020, the level the IMF has deemed as "sustainable". If that target cannot be reached, the IMF may withdraw from the Greek bailout programmes.

Who Blinks First?

 

As long as the IMF, ECB, and Germany remain firm, there could not possibly have been any progress made.

I certainly see no signs that any party is willing to budge. The ECB cannot accept losses by treaty, Merkel is highly unlikely to bend ahead of the German election, and the IMF has been adamant regarding the year 2020. 

These logjams have a way of breaking at the last second but either Germany or the IMF will have to budge.