Euro Zone to Move Deck Chairs on Greece

Euro zone mulls new ways to cut Greek debt mountain | Reuters.

There is one simple way to assist Greece in attaining a “sustainable” 120% debt to GDP ratio by 2020. The Eurozone has about €67bn worth of Greek debt on its books from ECB purchases and the March bailout. It could simply forgive the debt and give Greece a major boost. Or, it could continue proposing more shenanigans. Guess which one option it is floating around the mainstream media?

Whenever the troika discusses plans to help Greece, these always involve the country taking on more loans. Nothing has changed. If Greece cannot pay today, rolling over today’s loans a few years into the future means that they won’t pay tomorrow.

The first scheme proposed in this article is laughable. The idea is to loan Greece money so that it can buy back its discounted loans from the market. This plan shows a basic lack of understanding of markets.

Greek bonds are trading at multi-year high right now. This is because investors are anticipating some sort of bond buying plan and are rushing into the market to front-run the trade. Just the act of discussing these plans have made them moot. Greece will not be able to save money buying back its own bonds because the prices have been bid up.

Another idea mentioned in the article is to allow the Greek bank recapitalization loans to be swapped for equity in the banks. This is actually not a bad idea. The problem with it is that swapping €48bn in debt for equity in worthless Greek banks may not be politically feasible before German elections. Any giveaways will have to be signed off by Germany.

The Greeks will supposedly receive €45bn in privatization proceeds from the sale of state assets. So far, they have received nothing from state sales, and I do not see a line of investors willing to hand over their cash for dubious assets in a country with a weak economy and weak property rights. Keep in mind that Greece is just an election away from a default and tearing up all the deals it has made since 2009.

The article points out the tried and tested way that Greece will meet a sustainable debt ration by 2020. They’ll just lie:

“The important thing is for the debt to be on a downward trajectory,” the finance ministry official told reporters in Athens on condition of anonymity. “The 120-percent number is not cast in stone, there’s nothing magical about it — it won’t be the end of the world if in the end, the number is 116, 118 or 125 percent”.

More likely it will be zero, because Greece will have defaulted by then, but not until a few more years of misery.

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