Greece Pushed Further into Economic Contraction by New Bail Out

greekdominoesYet another deal, yet more austerity. The Financial Times has the most detailed terms of the latest Greek bail out. We've dug out some details as well.

  • Bail out is €130 billion
  • Greek bondholders hair cut is now voluntary
  • If Greece sovereign debt holders volunteer to take a hair cut, it's up from 50% to 53.5%
  • Greece gets to go into more debt with lowered interest rates
  • Greek is supposed to get their debt to GDP ratio to 120.5% by 2020
  • The ECB is going to distribute profits on €40 billion of Greek bond holdings
  • More austerity cuts of 5% GDP by 2014
  • More privatization of €19 billion by 2015

Here's the money shot. Greece's GDP is expected to shrink by 17% when comparing economic output from 2009 to 2013. That is not a recession. Greece is in a depression.

Gez, why not just invade, rampage and pillage the nation? Must all war be economic these days?

There was a leaked internal document which says Greece will never get out of this debt and shrinking GDP means....more bail outs.

The next sentence is where things get really dire. The analysis suggests that the medicine being fed to Greece – trying to drive down wages and costs through austerity measures to make the Greek economy more competitive internationally – will lead to higher debt levels in the near term that may never be overcome.

Just astounding. While bondholders and Wall Street cheer for a Greek bail out redux, there is actual real data which shows Greece is being pummeled into oblivion.

Meanwhile, Iceland, who thumbed heir noses at Europe, is recovering and now set to investment grade by Fitch. Iceland, wrote off much of their debt from the financial crisis.

How long can this possibly go on, austerity, bail outs, ruining any prayer's chance of Greece ever recovering? I guess it can go on until the entire country is owned, lock, stock and barrel by the banks and Germany.

Some are implying this is simply a stalling tactic, to try to stop contagion spreading to other Euro zone countries like Portugal, Spain and Italy.

What's strange is some are reporting the 53.5% Greek debt forgiveness, debt hair cut, is voluntary. Others are reporting the 53.5% Greek bond hair cut by banks is gonna happen, based on contagion risk:

“It’s better for banks to fork up a little bit more money than risk the contagion of an uncontrolled Greek default,” said Georg Kanders, a Dusseldorf, Germany-based analyst at WestLB AG. “Most investors will accept the deal. Banks have already written down the value of their Greek debt, so the impact should be limited.”

Maybe the never ending piecemeal destruction of the Greece economy is not the contagion Europe and the IMF should be worried about. Something springs to mind when people get pushed to financial ruin, destitution and despair and it's not banks and bondholders.

For more information on Greek bailouts, see Delightful News for Bankers and Greece on Fire.



DOW cracks 1300

You're right, this is all about the banks and Wall Street. Greece has another broken down main street.

Krugman on Greece this morning

Pointing out what this post amplifies, literally austerity is digging Greece into a hole so deep they just won't recover and the vicious cycle will continue, Greece will need another bail out.

Wall Street and even letting some DOW level dictate policy is beyond pathetic.

and another

Krugman is hammering on the basics about Greece. We don't blame him. This is ridiculous, it's like the neocons want to rewrite 100 years of economic statistics and theory. Don't like something? Why pretend it doesn't exist! Seriously, this economic fiction is beyond frightening, the implications into other areas of more hard science are becoming extreme. When one just replaces science with "belief", or glorified religious philosophy, we go back to the stone age. Or maybe the gilded age.

Some nations are suffering Great Depression-level pain: Greece and Ireland have had double-digit declines in output, Spain has 23 percent unemployment, Britain’s slump has now gone on longer than its slump in the 1930s.

Worse yet, European leaders — and quite a few influential players here — are still wedded to the economic doctrine responsible for this disaster.

Felix Simon cranks some numbers, reaffirms our conclusion

Reuters' Felix Simon cranked a few numbers, plus graphed up Greece's supposed GDP under this deal:

under this pretty upbeat downside scenario, Greece gets nowhere near the required 120% debt-to-GDP level by 2020: instead, it only gets to 159%. And to make things worse for the Eurozone, the report explicitly says that under the terms of this deal, “any new debt will be junior to all existing debt” — in other words, there’s no way at all that Greece is going to be able to borrow on the private markets for the foreseeable future, so long as this plan is in place.

We didn't crank the numbers but Simon too concludes Greece is being bombed and buried into a debt hole, never to get out of it.

Post WWI Germany, here we come.

Fitch downgrades Greece 1 notch above default

No surprise, Fitch just downgraded Greece to one credit rating above "default".

A wonderful precedent is

A wonderful precedent is being set. I bet the people of Italy, Spain, Portugal. . . and the US will love it when their turn comes around.