What happens when the Eurogroup decides to help Greece

From left to right: Mr Jean-Claude Juncker, Luxembourg Prime Minister and President of Eurogroup; Mr Olli Rehn, Vice President of the European Commission; Ms. Christine Lagarde, Managing Director of the IMF.

From left to right: Mr Jean-Claude Juncker, Luxembourg Prime Minister and President of Eurogroup; Mr Olli Rehn, Vice President of the European Commission; Ms. Christine Lagarde, Managing Director of the IMF.

Once more Eurozone and Greece made it. Using “creative accounting” they agreed that the over indebted country’s loan load will be drastically reduced after one…decade! Says the Eurogroup statement of 27 November 2012 on Greece: …in 2022 the debt to GDP (Gross Domestic Product) ratio will be substantially lower than 110%. But this is just a prediction. What about facts? Let’s follow them.

All along the last two and a half years Greece is under the “protection” of the troika of International Monetary Fund, the European Central Bank and the European Commission. Those three institutions theoretically are taking care of Greece’s financial problems, offer more loans and also dictate to the country’s government an economic policy mix of their choice including mainly draconian expenditure cuts. In this way ironically they managed to increase the country’s debt from 115% of the GDP in 2009, to 160% in November 2012. The reason was that the over the same period, Greece helped by troika, lost one quarter of its GDP. This is by far the largest ever recorded loss of income and product in a developed economy in peacetime.

In view of all that on Monday 26 November, IMF’s managing director Christine Lagarde, who thanks to Greece has gained de facto a permanent seat in the 17 ministers of Finance unit, the Eurogroup, stated bluntly that the Fund could not continue “helping” the country, by participating in the troika of auditors/lenders for the next four years, if the salvation programme didn’t foresee that the debt to GDP ratio would be around 120% in the year 2020.

For this target to be achieved however, the other 16 member states of Eurozone had to contribute more money. Hearing this Angela Merkel exorcised the prospect, visioning the face of the average German while voting in the next election.

What was left then to keep all sides happy was nothing else but “creative accounting”. And if this was to be proved not enough, they could also take recourse to “macroeconomics revisited”. Let’s see the details.

As everybody knows the debt to GDP ratio is a fraction. To reduce its value mathematically, there are only two ways. You either decrease the numerator or increase the denominator. In the numerator however there is only debt and so far Germany has also excluded the option of a haircut on official loans. The country’s voters wouldn’t like this either. Then, only the denominator is left to be “reshaped”, plus some minor parts of the numerator, like the interest rate and the grace period of loans, old and new. After all those tricks were tried the unholy debt to GDP ratio of Greece projected in the year 2020, obstinately remained above 120%. Dead end? Yes! But everybody sitting around the Eurogroup negotiation table in the early hours of Tuesday 27 November was sure, that if there was no decision for the Greek knot, next morning markets were about to crucify them all, Lagarde included.

So it took a bit more financial engineering and a lot of promises from Greece’s 16 Eurogroup partners, that they will do whatever it takes to reduce the country’s debt to GDP ratio to levels even below 110% before the year 2022. God be their witness. What was a surprise came to be that the IMF believed them and Lagarde stated happily that the Fund will continue “helping” Greece. If the hangman waits outside one admits everything. Remember Galileo Galilei? Reality however is always out there and nobody can avoid it. Wait and see what will happen, when the next instalment of aid to Athens will be due. The three troika guys will be biting their tongues. Why? Because if the kind of the new aid will be like the one the country received over the past two and a half years, it will be necessary the same discussion to be resumed again from point zero. And this towards the second quarter of 2013! Recession will again destroy any positive prospects.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

The world’s e-waste is a huge problem. It’s also a golden opportunity

Is it true that the G20 wants to arrest tax evasion of multinationals?

Climate change is a security threat. We must act now

Youth Entrepreneurship Issue of the month: JEN, organisers of JADE October Meeting, on why JEs should come together

Anti-vaccination scaremongering: What should we know about anti-vaccine argument?

Connectivity and collaboration in the ICT industry: the key to socio-economic development

We can’t rid Asia of natural disasters. But we can prepare for them

A bad marriage can be as unhealthy as smoking and drinking

Multiculturalism, social diversity and tolerance

France and Germany can’t reach consensus regarding EU’s top jobs

This is why mountains matter more than you think

Why is the World Health Organisation so much needed?

Syrian Government’s ‘different understanding’ of UN role, a ‘very serious challenge’ – Special Envoy

Human rights: breaches in Russia, the Rakhine State and Bahrain

3 ways to fight stress at work

What UK and EU risk if Brexit “wins” these elections

Human rights breaches in Hong Kong, Russia and at the US-Mexican border

UN, world leaders, condemn Sri Lanka terrorist attacks targeting churches, hotels, which leave more than 200 dead

Monday’s Daily Brief: Independent UN experts on Myanmar, UN chief renounces attacks in US, Libyan airport violence, UN spokesperson on Kashmir, and FAO and Italy on development

Artificial Intelligence and Machine Learning: “Am I a real Boy?”

Cleantech innovation is being stifled. Here’s how to unlock it

Tunisia wants to change inheritance rules to boost gender equality

Resisting EU budget cuts

Italy solves the enigma of growth with fiscal consolidation: The Banking Union

Norway initiates WTO dispute complaint against US steel, aluminium duties

This is what Belgium’s traffic-choked capital is doing about emissions

ILO: Unemployment to increase by 8.1 million in 2013-2014

Tuesday’s Daily Brief: hate speech, dementia, Libya and Yemen, human rights in Brazil and Lebanon

Implementation of tax transparency initiative delivering concrete and impressive results

The next talent opportunity for the digital workplace? Neurodiversity

MWC 2016 LIVE: Industry looks to reduce mobile gender gap

What cryptocurrencies will do to the integrity of politics

How to create responsible supply chains in the age of globalization 4.0

G20 LIVE: “Our response needs to be robust…otherwise we will only find the fire we are trying to put out”, UN Secretary General Ban Ki-moon just lit up G20 in Antalya Turkey

Member States agree to Commission proposal to support Irish beef producers impacted by market uncertainty

Darfur: Inter-communal tensions still high despite improved security, Mission head tells Security Council

5 facts you should know about the world’s refugees

UN must bring more women police officers into the fold to be effective – UN peacekeeping official

Antitrust: Commission imposes binding obligations on Gazprom to enable free flow of gas at competitive prices in Central and Eastern European gas markets

This Japanese TV show about work-life balance is a big hit – here’s why

The new North America trade deal USMCA punishes German cars

It’s time for financial services to embrace the Fourth Industrial Revolution. Here’s why

Traditional knowledge at ‘core’ of indigenous heritage, and ‘must be protected’, says UN Forum

UN rushes to deliver aid as key Yemeni port city is ‘shelled and bombarded’

NEC @ European Business Summit 2014: The Digitally Enabled Grid

INTERVIEW: Poverty, education and inclusion top new General Assembly President’s priority list

Eurozone: How can 200 banks find €400 billion?

A sterilised EMU may lead to a break up of Eurozone

More ‘political commitment’ needed urgently for HIV prevention: UNAIDS chief

Overseas investment falling, developing countries largely unscathed: UN trade agency

INTERVIEW: ‘Defend the people, not the States’, says outgoing UN human rights chief

Ebola fight ongoing amid evidence of ‘several massacres’ in DR Congo’s Ituri province

Four lessons for a successful switch to value-based healthcare

Data capture, not disclosure, is the way to meet our climate goals

Ahead of State of the Union the European Youth Forum highlights lack of action on youth employment

How populist and xenophobic movements in the EU tear apart European businesses and startups

On Google antitrust case: “Let’s face it, some companies want to hurt Google and it goes as simple as that”

This is the state of the world’s health, in numbers

UN court increases sentence of former Bosnian-Serb leader to life imprisonment

EU makes key TTIP document public as protests get louder

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s