Happy Talk from Italian Finance Chief

EU Should Reach Deal on Greek Aid Next Week, Grilli Says – Bloomberg.

Italy’s Grilli: Discussion on Greek Debt Reduction Not Excluding Any Options.

Italian Finance Minister Vittoria Grilli is a master of the obvious:

{He} is confident that euro-region finance chiefs will reach an agreement on aiding Greece when they meet next week.

Of course the Eurozone will negotiate a way to kick the can down the road a little bit further. No one wants a Greek default, which will lead to far greater disaster.

The problem is not with the finance minsters reaching a deal amongst themselves to keep Greece barely alive for the next few months. The IMF is against further can kicking and wants what amounts to another Greek restructuring so that its debt load is sustainable by 2020.

Even though a game of brinkmanship has begun within the troika, I still expect a compromise to be reached just in time to bail Greece out. In the meantime, the ECB will continue its backdoor with the ELA program.

Grilli was not the only one spewing happy talk in the Bloomberg article:

“With Greece, you have to be realistic on how much time they need,” Fitch Ratings Director Douglas Renwick told Francine Lacqua on Bloomberg Television’s “On the Move” in London today. “If you look at how much debt reduction they’ve done over the last three years, it’s actually been quite significant. They started from a very bad position.”

Let’s be clear about Greece’s debt reduction; there has not been any. Greece has actually grown its debt since the first and second bailouts by running higher than planned deficits. The private sector investors who took write-downs on their Greek bonds were the ones who reduced Greece’s debt.

In fact, the only way Greece’s debt will drop more is through another write-down, this time on the eurozone’s and ECB’s holdings of Greek debt. The term “haircut” is used to described this process. This term  is a euphemism for more taxpayer losses.

Some people have figured this out, which is why German CDU parliamentarians are balking at throwing more money at Greece.




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