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Posted: 11 Jul 2015 12:09 PM PDT First Hurdle Cleared In an emergency Saturday meeting, eurozone finance ministers have concluded that "under certain conditions", the latest Greek bailout proposal "may provide" a basis for negotiation. Greece requested another €53.5 billion, but the IMF said that would not be enough. An additional €30 billion or so would be needed to recapitalize Greek banks. Should the offer go through without haircuts, Greece would then have to pay back over €400 billion counting Target2 liabilities. Germany and other hard-liners including Ireland remain skeptical. Nonetheless, Greece Clears First Hurdle to Avoid Grexit. Greece has cleared the first hurdle in its attempt to stay in the eurozone after the bloc's bailout monitors gave the go-ahead for negotiations over a future rescue programme.The Doubters
The Haircut Greece cannot pay back the €326+- billion or so that it owes right now, so how the hell can it pay back €400 billion without a major haircut? The answer of course, is that it cannot and will not. Yet, the amazing propensity to kick the can further appears insatiable. The Temptation With every bailout, the default stakes rise. Once again, if and when Greece goes into a primary account surplus, the temptation to flat out default would be extremely strong. In a primary account surplus situation, defined as having enough revenue to cover bills except for debt payments and interest, nothing could force Greece out of the eurozone were Greece to default. Right now, Greece does not have a primary account surplus, and Greek banks are not strong enough to default and stay in the eurozone. The clear temptation will be to "take the money and run". The Troika will attempt to place controls to prevent such an action, but once Greece is strong enough, and has a big enough primary account surplus, nothing can stop Greece should it choose that action. Ironically, one of the unspecified conditions will no doubt be that Greece runs a primary account surplus. Greece needs that surplus to pay back creditors. But once it has that surplus, Greece may very well decide to spend the money on itself. Merkel's Choice German chancellor Angela Merkel has a no-win, unpleasant choice.
OK chancellor, which is it? Addendum As soon as I penned the above, it seems we have a better definition of "certain conditions". Germany wants Greece to put up €50 billion in collateral, likely state owned businesses and islands, no doubt at discount prices. Ministers Demand More Reuters reports Eurozone Ministers Demand More From Greece for Loan Talks. Skeptical euro zone finance ministers demanded on Saturday that Greece go beyond painful austerity measures accepted by Prime Minister Alexis Tsipras if he wants them to open negotiations on a third bailout for his bankrupt country to keep it in the euro.It Only Takes One Eurozone rules demand unanimity. One nation alone can defeat an agreement. If Germany, Finland, or the Netherlands refuse to go along, or if hard-liners insist on collateral or other terms unsuitable to Greece, this deal is dead. Germany may easily decide to concoct with Finland and the Netherlands, conditions that it knows will be unacceptable to Greece. Schaeuble will likely push for that outcome, further enhancing the difficulty of Merkel's choice. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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