The chart above from ZeroHedge helps to show what is really driving the Greek bailout deal. If you thought it was the welfare of the Greek people , then you have not been paying enough attention to the Eurocrisis.
In the chart above, GDP continues its descent until after German elections in the fall of 2013. Then, the number begins rising dramatically. This is no coincidence. The purpose of the this deal is to avoid problems for a few more months to enable Merkel’s reelection. The GDP numbers are realistically poor until the fall, because Germany needs them to be. Actual money is needed to plug funding holes until the election.
After the election, it makes no difference what happens, so unrealistic projections may be used instead of real money to plug financing holes. The next time Greece needs to be bailed out, Merkel will try to get a longer term deal to keep Greece in the euro. If the political calculus does not favor another bailout for Greece, she will allow it to default. It’s that simple.
While the deal expertly defers the Greek problem for another few months, it will do nothing to arrest the descent of the economy. The Greek people receive nothing for their suffering except malaria and more suicides. The Greek politicians receive money to hand out to their cronies at the banks.
The IMF did well. It conceded to allow the Eurozone to raise the sustainability goal to 124% Debt to GDP in exchange for an agreement to reduce Greece’s debt to under 110% by 2022. The only way to reduce the debt ratio that low by 2022 is for the Eurozone to forgive Greek loans. I am skeptical that this will happen, but we will have to wait until 2016 to see if I am correct. In politics, that is a lifetime, and Schaeuble’s language is vague enough so that he can claim that nothing was promised.
The German led Eurozone did very well in this deal. In exchange for maintaining the status quo for a few more months, they gave up peanuts:
- Lower interest rate on bilateral loans
- Relinquishing profits an ECB held debt
- Extending the maturity of the loans
- Deferring interest payments for 10 years
- Loaning the money to Greece to buy back its outstanding debt
The first two points actually help Greece, but the last three are mere window dressing. Extending the maturity of the loans and deferring interest payments for 10 years ensures that the Greeks will be debt slaves long after Samaras, Merkel and Juncker have retired to their summer homes.
The Greek buy back is actually bad for Greece, because it will not be able to obtain replacement financing on such generous terms:
At least it makes the numbers look good today.
While the whole deal is a scam whereby Petros is being robbed to pay Pavlos, the biggest lie comes to us courtesy of the biggest liar in the Eurozone. Ladies and gentlemen, Mr. Jean-Paul Juncker:
“This is not just about the money. This is the promise of a better future for the Greek people and for the euro area as a whole, a break from the era of missed targets and loose implementation towards a new paradigm of steadfast reform momentum, declining debt ratios and a return to growth,” he told a 2 a.m. new conference.
He’s right about one thing. It isn’t just about the money. It’s about German elections. See you at the next Greek bailout summit, J.P.