Dial Greece for Swindle: How disunity within the troika is straining their denial of Greece’s bankruptcy

You may have heard that Greece is facing official bankruptcy as a result of Europe’s failure to deliver the funds that would allow the Greek government to carry on pretending that it is not insolvent – by redeeming a bond which is about to mature while in the possession of the European Central Bank. The truth of the matter is that Greece has been insolvent for 3 years now. Since then, the Eurozone has been lending huge amounts to the Greek government to keep up the pretense that a (second[1]) default is preventable. Europe shifts money from one of its pockets to another and, while doing so, it claims to have averted Greece’s bankruptcy. Alas, they are now in danger of running out of pockets as the three parties making up the troika of Greece’s lenders (the IMF, the EU and the ECB) have fallen out with one another over what to do with Greece:

  • The IMF is saying to Europe: “Enough is enough! Come clean! Time to admit that Greece must default and a large part of its debt be written down.”
  • The ECB is telling Europe’s politicians (particularly in Berlin): “Give Greece its taxpayer-backed loan tranches because we, the ECB, are not prepared to print more money on its behalf – through the ELA.”
  • Europe’s politicians, in the meantime, resist the IMF’s proposal (clinging on to their denial of the bankruptcy of their plans for Greece) but cannot grant Greece more loans without the fig leaf of respectability that the IMF is providing. To prevent a default in the next few hours they will discover a new trick along the lines of ponzi austerity. Most likely, they will ask Athens to dip into the country’s bank recapitalization fund to repay the ECB in the next few days before (promising to allow Athens to replenish its bank recapitalization fund when the new loan tranches of 31.5 billion euros are released, once the IMF and Europe settle their differences).

Meanwhile, Greece’s social economy is sinking deeper and deeper under the austerity measures that are the condition for maintaining any hope for more tranches of these toxic loans. The rest is pure catastrophe; not even tragedy (since tragedies end with catharsis).


[1] Last February Greece defaulted to private investors, who had to accept a huge haircut of 75% is net present value terms. However, Europe ensured that this default (even though CDS contracts were activated) was not called a ‘default’. In an Orwellian twist, it was called PSI (‘private sector involvement)!

21 thoughts on “Dial Greece for Swindle: How disunity within the troika is straining their denial of Greece’s bankruptcy

  1. It blows my mind. The Eurocrats are willing to destroy Greece if they will thereby save their project of United Europe. Germany will keep Greece afloat in the way that a rich man supports a dissolute relative to defend his good name. And Germany can do it for ever. Greece is chump change for Germany. But in the turmoil China might get it’s foot in the door of the EU. It is obvious that Syriza was not up to the historic task. Now Golden Dawn will get a chance. What will Nato do when the Greeks start doing the goose step?

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  4. Greece Comes Up With Collateral Loophole, Has Enough Cash To Roll €5 Billion Bill Maturity

    Over the past several days there had been concerns that even if Greece managed to roll its maturing €5 billion in Bills with a new Bill issuance (which it did earlier today), it would be unable to actually obtain cash for this worthless paper, through a repo with the European Central Bank. The reason being that last week the ECB allowed a temporary extension in Greek ELA collateral eligibility to expire, enacted on August 2, which in turn reduced the amount of repoable T-Bills from €7 billion to just €3.5 billion, in the process reducing the amount of cash Greece can obtain in half from the Bill roll.

    And while there had been lots of speculation and rumors that the ECB would, as in the case of Spain, either make a “mistake” or extend the collateral pool exemption once more, this did not occur. Instead, as we have just learned, the ECB has allowed Greek banks to use “asset-backed” securities to plug the collateral gap. Needless to say, one can only conceive just what unencumbered assets still can be found on Greek bank balance sheets but it was largely expected that in the race to debase its currency, the ECB would once again admit that when it comes to perpetuating the Ponzi, especially at a marginal cost of a token €3.5 billion, anything goes (just don’t tell Germany).

    And so, Greece kicks the can once again.

    From Bloomberg:

    “Greek banks will keep receiving the same amount of emergency central bank aid despite a reduction in the amount of treasury bills they can offer in exchange, a euro- area central bank official said.

    The European Central Bank’s Governing Council last week allowed a temporary increase in the amount of T-bills Greek banks can pledge for so-called Emergency Liquidity Assistance to lapse, reducing it to 3.5 billion euros ($4.4 billion) from 7 billion euros, said the official, who was briefed on the decision. However, other acceptable collateral including asset- backed securities on banks’ balance sheets have increased in value enough to make up the difference, he said.”

    This is where Jean-Claude Juncker solemnly says “I was not joking”

    It goes on:

    “Spokespeople for the ECB and the Greek central bank declined to comment.

    Greece today sold a total of 4 billion euros of four-week and 13-week T-bills before a redemption of 5 billion euros of similar securities on Nov. 16. After the ECB’s decision to reduce the total amount of T-bills acceptable as collateral, banks could have faced funding difficulties unless they were able to find other acceptable collateral. Overall, Greece is trying to plug a financing gap of as much as 32.6 billion euros.

    German newspaper Die Welt reported yesterday that the ECB would widen the pool of acceptable collateral to help Greek banks over the financing hump. The ECB later issued a statement denying the report, saying the collateral list hasn’t changed.
    Bottom line: good enough to avert a default. The problem is that soon Greece will find itself needing to fund far greater bond maturities, in addition to rolling short-term debt, at which point the hilarious excuse that Greek “assets” have gone up in value will no longer cut it. And the worst news for Greece is that Europe’s AAA club, in this case mostly the Netherlands (because Germany will kick and scream but in the end never jeopardize the ultimate beneficiary of the endless Greek bailout – Deutsche Bank) just said that not one additional penny of money will be given to Greece as there is a “big risk Greece will cost us extra money.”

    Of course it will.

    The question, however, now is – just what creative shadow banking accounting gimmicks will Greece and the ECB use to literally hand over to Greece money for which there is no eligible collateral pledge, unless of course going forward the ECB demands a strip lien on Greek real estate, thereby starting to “sequester” Greek sovereign territory in exchange for payments that ultimately go to pay off debt held primarily by the… ECB.

    One can also only hope that the Greek population never understands the true insidious nature of this creeping “bailout” which for three years now does absolutely NOTHING for Greek society as not one new penny enters the Greek economy, but all the money is merely recycled back into banker pockets with ever more liens being imposed on whatever Greek assets are still available.

    http://www.zerohedge.com/news/2012-11-13/greece-comes-collateral-loophole-has-enough-cash-roll-€5-billion-bill-maturity

  5. In today’s greek gov auctions 5 billions were collected from the primary dealers (1) . I found some reports (2) that only the greek banks will cover the 5 billions. But in the announcement (3) it doesnt exlcude foreign primary dealers. So whats the truth?. Cause from 22 primary dealers only 5 are greek. And i’m not sure that foreign banks need ELA money access.
    Also in the intro paragraph you speak aboun the redemption of an ECB ‘s greek bond, but i read that the 5billions taken today will repay another 13w bill of 16/8 .

    (1)http://www.bankofgreece.gr/Pages/el/Markets/HDAT/members.aspx
    (2) http://www.ft.com/intl/cms/s/0/2f9fbcbe-2d81-11e2-9b88-00144feabdc0.html#axzz2C7rjfWAC

  6. One does not know what to say. If one was full of hope still, one would think now ALL would wake up and admit the failures.

    Here is what we heard in Germany about Greece…(quoted from “Junge Welt”, Lucas Zeise, out of memory, the exact figures matter not today)

    - – - – - – -

    Merkel, IMF and others made us to believe about Greece…

    2010: after the “Spar”maßnahmen (cut from the poor, give the banks and close your eyes and look away-politics) a small recession was to be expected, said Merkel and friends: – 1,5%

    2011 a whopping +1,1

    2012 + 2,1%

    Reality was such:

    2010: – 4,5%
    2011: – 6,9%
    2012: – 6,5% (expected)

    Other figures I read sound worse.

    Yet the majority of Europe went and still goes on to defend or even praise these austerity-politics of the market-radicals. Nobody with a bit of reason and knowledge (one has to admit, many of us, like me, had no solid background of economics before 2008) would have believed what Troika, Schäuble, Lagarde, Hollande, Baroso, Merkel and who ever said. And as it seems, all of this will go by without any consequences for Merkel and all who favour such politics… Years passed, people believed those lies were “reasonable economics”. Now it seems like a nightmare. What do they want? A society with 50% rich to very rich and 50% really poor, formerly called the “2/3-society”, around the world?

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  8. “Most likely, they will ask Athens to dip into the country’s bank recapitalization fund to repay the ECB in the next few days before (promising to allow Athens to replenish its bank recapitalization fund when the new loan tranches of 31.5 billion euros are released, once the IMF and Europe settle their differences).”

    Do you mean that these 5bn that Greece will pay this week will be reduced from the money that was meant for the Greek economy (31.5bn – bank recapitalization)?

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    • Richard:

      I was going to let Yanis and your mistake slide. But since you are asking for an embarrassing correction here it is:

      “Part of that deal was a PSI agreement, whereby private investors were asked to accept to write off 53.5% of the face value of Greek governmental bonds they’re holding, the equivalent to an overall loss of around 75%.

      If not enough private-sector bondholders had agreed to participate in the bond swap, per the PSI requirement, the Greek government had threatened to retroactively introduce a collective action clause to enforce participation. Eventually, private sector participation reached 83,5% of Greek bond holders.”

      Bottom line: the PSI haircut was almost 84%. The OSI has to be as much. Period. It’s not negotiable. Do it and let the German financial illiterate nonsense aside. Enough with German stupidity. I’ve had it.

      http://en.wikipedia.org/wiki/Private_sector_involvement

    • Dean – You’ve had it? Then dont reply! Let me break it down for you using your own figures. http://en.wikipedia.org/wiki/Private_sector_involvement

      Greek debt 340 billion Euros http://en.wikipedia.org/wiki/Greek_government-debt_crisis

      Bailout loan 100 billion Euros, per your source

      Total debt 440 billion Euros

      Assuming all 204 billion Euros were wrote down by 75% leaves 50 billion = 150 billion Euro of debt less

      Before deal debt was 340 billlion

      After haircut debt is 340 (original debt) + 100 (bail out) – 150 (write down/haircut) = 300 billion left

      Approximate figures but you get the idea.

      Tell me where I went wrong. And when you answer please explain why Greek government debt is still around 170% of GDP.

    • @ Richard

      What exactly happened to the debt reduction by the PSI? I mean, if the debt was reduced (by 75bn?) to 316bn? thanks to the PSI, why is it again already at 340? bn or so in total? To me, the figures of the PSI just don’t add up.

    • VSS – I dont have the answers Im just pointing out that something the media said that was supposed to be sooooo wonderful was not that wonderful.

    • Richard:

      You are mixing apples and oranges (not to mention you are double counting).

      The undisputed fact is that the private holders’ PSI resulted in an 84% haircut.

      The financial aid to Greece (what you call a bailout) is more than euro 210 Bil. over a number of years.

      What you fail to understand is that this aid does nothing to lower the debt. The only think it does is replace old debt as it matures with new replacement debt (bailout source). So the bailout is not a bailout at all. It’s debt replacement. Therefore the “bailout” as you call it does nothing to lower the overall debt level. The only thing it does is keep it at the same level and also increase it a bit. Why increase it? Because Greece finances budget gaps with new loans, plus interest on these loans plus the new recapitalization bank loan (which is the equivalent of taking 85 Bil. (55 from Greek banks and 30 from social security)from one of Greece’s pockets (haircut) and then giving back 50 Bil. in the form of a loan to strengthen banks which where demolished by the euro 85 Bil. theft).

      You are now asking how come the debt to GDP is going to 179% and perhaps 190% before it begins to lower. Because even though the debt level (despite the theatrical haircut) is pretty much where we started in 2009 (+ funding of small primary deficits) the GDP has plunged by 30+%. So when the Debt stays the same (or almost the same as in 2009) but the GDP plunges, the debt to GDP ratio goes from 118% in 2009 to 190% in 2014-2016. This is the austerity nonsense we are talking about.

      In essence what Germany is doing is stealing Greek assets and from the Greek taxpayers to maintain the exact same of debt level as before, while pretending that it is doing something about it when in fact all is doing is debt replacement. Germany and others are the new lender collecting the same or more interest while pretending that they are saving Greece.

      The German objective is not to save Greece or help her in anyway. The German objective is to shorten the period of direct lending to Greece and at some point replace on the reverse all loans made to Greece with new ones from the open markets. Once they have full repayment plus their interest it’s bye, bye plus all the structural damage left behind.

      The whole exercise is nothing more than an accounting trick.

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