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.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

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

INTERVIEW: UN’s top official in North Korea foresees ‘surge’ in humanitarian aid

Marco Polo’s Dream

Trump ‘used’ G20 to side with Putin and split climate and trade packs

Privatisation and public health: a question of Human Rights

One Day in Beijing

What does global health translate into?

Nearly a third of the globe is now on Facebook – chart of the day

This incredibly detailed map of Africa could help aid and development

Resolving banks with depositors’ money?

How the gig economy can transform farms in the developing world

Coronavirus: First case confirmed in Gulf region, more than 6,000 worldwide

Long live Eurozone’s bank supervisor down with the EU budget supremo

What is a CSO and does every company need one?

‘Young people care about peace’: UN Youth Envoy delivers key message to Security Council

The Bank of China at European Business Summit 2015

Sign language protects ‘linguistic identity and cultural diversity’ of all users, says UN chief

Afghanistan: Bring ‘architects’ of latest ‘appalling’ suicide bombing to justice, says deputy UN mission chief

Do the EU policies on agro-food smell?

The Chinese solar panels suddenly became too cheap for Europe

The US banks drive the developing world to a catastrophe

Statement by Executive Vice-President Margrethe Vestager on State aid measures to address the economic impact of COVID-19

‘Bicycle Kingdom’ makes a comeback, as China seeks solutions to tackle air pollution crisis

Using CO2 as an industrial feedstock could change the world. Here’s how

This new solar technology can be printed or woven into fabric

Tsipras bewildered with Berlin’s humiliating demands; ECB expects political sign to refinance the Greek banks

10 ways cities are tackling the global affordable housing crisis

UN ‘prioritizing needs’, ramping up aid, as Hurricane Dorian continues to batter the Bahamas

EU-wide survey shows Europeans support the Conference on the Future of Europe

Pedro Sánchez: We must protect Europe, so Europe can protect its citizens

4 ways to build resilience to digital risks in the COVID-19 era

Abu Dhabi is investing $250 million in tech start-ups

Countries must rethink tariffs on bio-manufacturing

Plastic is a global problem. It’s also a global opportunity

“Prevention is better than cure”: the main goal of modern medicine

EU food watchdog: more transparency, better risk prevention

Global climate change: consequences for human health in Brazilian cities

Mobile Technology saving lives: changing healthcare systems with simple technology solutions

UN agency chiefs condemn Saudi-coalition led air strike that killed dozens in western Yemen

The cost of healthcare is rising in ASEAN. How can nations get the most for their money?

Activist Greta Thunberg gets preview of UNHQ ahead of climate summit

No better year for the EU’s weak chain links

Here’s how to rebut the climate doom-mongers

Understanding our own garden that we call mind

Cameron postpones speech in Holland

Cultural Intelligence: the importance of changing perspectives

European Parliament approves more transparency and efficiency in its internal rules

Wolfgang Schäuble: “Without European unification, there would be no German unity”

Economy and living standards of Gaza ‘eviscerated’ by crippling blockade – UN trade and development report

Guinea-Bissau needs ‘genuinely free and fair elections’ to break cycle of instability

COVID-19: EU co-finances the delivery of more protective equipment to China

Portugal wants its emigrants back – so it’s paying them to return

Team Europe increased Official Development Assistance to €66.8 billion as the world’s leading donor in 2020

Livelihoods of millions in East and Southeast Asia at risk from Swine Fever epidemic

Humanity ‘at a crossroads’ as damage to planet poses growing risk to health, UN environment agency warns

The secret weapon in the fight for sustainability? The humble barcode

11 ways to align global economic governance with green new deal

Illegal fishing: EU lifts Taiwan’s yellow card following reforms

Technological innovation can bolster trust and security at international borders. Here’s how

Financing fossil fuels risks a repeat of the 2008 crash. Here’s why

Real EU unemployment rate at 10.2%+4.1%+4.7%: Eurostat Update

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