Since there is no positive news coming from Greece, the politicians need to create some:
European finance ministers saluted Greece’s determination to trim its budget and reshape its recession-wracked economy, smoothing the way for German Chancellor Angela Merkel’s trip to Athens with a commitment to keeping the country in the euro.
The purpose of finance minister cheer leading is to smooth the way for more loans for Greece. Unfortunately for our Greek friends, the troika will continue its policy of giving Greece enough loans to remain afloat but not enough to extradite itself from this mess:
European officials paired the encouragement with a demand that Greece commit to a list of 89 policy steps before an Oct. 18-19 leaders’ summit, and left open whether the next 31 billion-euro ($40 billion) loan installment would be paid out in one go or dribbled out in smaller pieces.
It would be impossible for any nation, let alone Greece, to conform to the conditions of 89 policy steps. In the coming months, the troika will continue claiming that Greece is not meeting some of these 89 steps as cover to give it drips and drabs of aid rather than dispensing the whole amount.
This policy is dangerous. The longer Greece remains in a depression, the more likely it becomes that there is a change in government leading to a default on the bailout terms and a Grexit. When Merkel visits the country, we will see Greek rage.
As if it could not get more humiliating for Greece, Jean-Claude Juncker, who famously said that when it gets serious you have to lie, gave us this gem:
I’m impressed by the performance of the Greek government, by the willingness of the coalition parties in Greece to undertake whatever will have to be undertaken in order to respond to our wishes.
The best part of the quote is the last phrase “respond to our wishes.” Greece and its government are being treated like dogs by the troika. This only builds resentment, which will explode sooner or later.
Greece wishes to put off deficit reduction targets by two years, actually a wise course of action. From the observed pattern, budget cuts continue to push the country further into depression. Why not wait two years allowing the country to build economic strength before engaging in more cuts?
The next part of the plan is stupid. In order to fill the €12bn gap created by delaying the budget cuts, Greece wishes to continue the backdoor bailout from the ECB. Greece will sell T-bills to its banks who will pledge them to the ECB in return for cash that will be used to pay for the bills.
This action will only add to Greece’s budget deficit and the taxpayer’s bill when Greece defaults and leaves the ECB in the lurch for the pledged bills. It is now impossible for Greece to meet its budget deficit of 120% of GDP by 2020.
Now matter the political machinations, backdoor bailouts and cheer leading, the numbers guarantee an eventual Greek default unless they receive more money and in the form of grants not loans. Politicians lie, but the numbers do not.