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Goldman's Hotline To The IMF: Erik Nielsen Was Spot On With His Greek Bailout Number
Erik Nielsen said one week ago Greece would need €120 billion. Today the IMF announced it would provide €120 billion. Coincidence? Read all about it straight from the horse's mouth.
Greece: BIG number indeed
I guess you live and you learn:
Earlier this week I wrote to you from Washington to say that I thought the IMF and Europeans had decided to increase the Greek bail-out package to a size that would take commercial lenders out of the equation for an extended period (to give the authorities time to get the adjustment process under way), and I quoted my estimates of the money needed for that: EUR50-55bn for the next 12 months; some EUR75bn for the next 18 months and about EUR150bn for the next three years.
I also (unfortunately) volunteered the view that I thought the package would be in the middle range of those numbers; that EUR150bn would be sinly out of reach. And - unfortunately - yesterday I dismissed the rumours of a truly mega-package of close to the EUR120-130bn!Alas, today's papers report that IMF chief Strauss-Kahn indeed told German policymakers that they might need EUR120-130bn over three years, and the German press quickly calculated that the German contribution might then go up to EUR25bn.
Certainly, I don't know what the number will be - and I am not even sure they have decided yet - but reality is that once the EUR120-130bn number is out there from an authoritative source, they basically have to hit it, if not exceed it.
The problem is, however, that to the best of my knowledge, none of the European governments have amended their draft legislation yet to increase their numbers, so an announcement this weekend can only indicate political will when it comes to the European share beyond the already announced EUr30bn, rather than a firm commitment.
So here is what I think they'll say this weekend:
1 - They'll announce that the IMF staff has reached agreement with the Greek authorities on a 3-year program that will include draconian fiscal cuts (on the order of 10pc of GDP) and a series of structural measures aimed at driving nominal wages lower, fix the pension system and building better institutions. I don't think they'll give us many details until it has been approved by the IMF board a week or so later, but in my view, the details of the conditionality will be more important than the number per se.
2 - With regard to the number, they'll impress us with something like EUR150bn over the next three years (truly a number that blows away any previous record rescue as a share of quota - maybe its good after all that the Europeans have such a big say at the IMF!) with about EUR50bn for the first year. However, the full EUR150bn can only be indicative because some EUR90-100bn will have to come from the Europeans, and they are in the process of approving "only" EUR30bn. The political and legislative battles in Europe seem destined to continue for months.
3 - In other words, something like EUR30bn (which will cover the rest of this year) will be pretty firmly committed, although (apart from the first disbursement to get us through May) subject to quarterly performance criteria; ie legislative progress by the Greek authorities to fullfill those conditions. The rest will be more like a political pledge that if Greece continues to follow through on the reform program agreed with the IMF then another EUR100-120bn can be made available during the remainder of the three year program.
All in all: Message this weekend to the market: You don't need to worry about Greece for the next three years; you can mess around in the secondary market, but the Greek government will be fine - you are out of the equation! (And restructuring is indeed off the table SO LONG AS they stick with the conditionality - an aspect well worthwhile watching carefully going forward.) Implicitly, if Greek banks get in further trouble, the government will recapitalise them with the implicit help of the ECB.
Also implicit message: What we are doing for Greece we'll do for any other Euro-zone country, if needed.
Stay tuned
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Yes they all get the free money. Sad.
Erik Nielson is a mouthpiece for TPTB. He is their echo chamber. So, his number should be close if not dead-on.
I wouldn't be surprised a bit, if Goldman was the one who gave it, after all they have some experience in that regard.
120 billion is also nice, maybe not so round, number.
Greece should agree to the terms, take the money, not implement the terms, give everyone a pay raise, and then tell the Euro-zone you will need another payment soon.
Greece holds all the cards.
California should be giving everyone a raise and hiring people, I am not joking.
Yep. For Greece, what's the worst that can happen? Default? HA!
Ahnold should be getting on the phone today with Bennie Mae, and play that same default card.
Portugal and Spaing should be giving everyone raises... oh add Italy and don't forget France.
It;s over the people that realize it first will be in a better position once it all becomes reality.
Goldman Sachs must be pleased with the hearing and current events.
The "market" is back on full-throttle!
And where is all this 5% money to come from? The other Piigs have to borrow it to loan it to Greece. If you triple the amount they must borrow you reduce the chance they can borrow it all. Portugal's quota goes from €775 million to €2225. Ireland's from € 475 to almost € 1500 million. These countries can't afford that and still maintain any fiscal credibility especially as the loans they are making to Greece will not be senior.
so let me get this straight...have some bankrupt countries lend to another bankrupt country and that will solve the problem? sounds like a good plan to me.
Not to worry, sangell.
The remaining PIIGS will simply get a loan from the ECB to cover the loans they will make for the rescues. The ECB will just print enough credit to make it all work.
Gotta follow the daisy chain.
Of course, the next time Greece asks for more bailout money (and they will) they can threaten to default not only themselves-- but Portugal, Ireland, Italy, etc.-- and not just a collection of piddly Euro banks like they did the first time.
When you think about it that way (and many Germans have), the conclusion of telling where Greece can go becomes pretty obvious.
The Germans will refuse it.
The Greeks will refuse it.
Spain and Portugal will be preparing their requests.
The endless drama will continue.
The melt-up will proceed.
If Portugal's 3 year rate is over 5% this really isnt going to be a good deal for them..... they will end up needing a bailout bailout.
You could call it a bailout squared and sell it to German state banks
All in all: Message this weekend to the market: You don't need to worry about Greece for the next three years; you can mess around in the secondary market, but the Greek government will be fine - you are out of the equation! (And restructuring is indeed off the table SO LONG AS they stick with the conditionality - an aspect well worthwhile watching carefully going forward.) Implicitly, if Greek banks get in further trouble, the government will recapitalise them with the implicit help of the ECB.
Also implicit message: What we are doing for Greece we'll do for any other Euro-zone country, if needed.
-This is obviously the message the market is hearing today. It's as I said yesterday, don't fight the Fed, don't fight the IMF. For the foreseeable future, they will do whatever it takes to juice the economy. I'll continue to follow along for the ride. Technically, SPX is readying for its next move higher to new highs.
Before responding to the virtually ubiquitous ZH poster "HarryWanger", please be aware of just whom and what you are dealing with in this person:
http://www.minyanville.com/businessmarkets/articles/AAPL-apple-gm-psycho...
His real name is James Kostohryz, and he is here posing as a troll in dishonesty and in disregard for the fundamental purposes of this forum. He is NOT posting here in good faith, but is purposely antagonizing those with independent, anti-establishment views and opinions for his own selfish and cynical purposes, as part of a study on "the psychology of permabears".
He believes that anyone who opposes the current widespread fraud, corruption and rampant lies within our societies and governments are "utopian" and unrealistic, "pollyannish dreamers".
And for those ZeroHedgers who are advocates of sound money backed by gold, this bankster shill is already out there with one of the most disingenuous, dishonest, historically ignorant pieces of pro-establishment propaganda on the topic, expounding on how such monetary and financial integrity is "impossible", and merely "the rants of an ideological fringe":
http://finance.yahoo.com/news/The-Gold-Standard-Solid-as-minyanville-285...
Please do NOT respond to this reprehensible troll, here or anywhere else on ZeroHedge. He is NOT here in good faith, and should be shunned!
I dunno...
After reading some of James Kostohryz's articles, I find him to write in a rather pretentious, disconnected, and rambling style void of any understanding of the real world and market operations.
"HarryWanger" seems to be a simpleton who merely parrots the CNBS view of the markets, yet has better writing style than Kostohryz.
I'm pretty sure that they are two different people...
akak, I respectfully disagree with your analysis above. I don't think the gentleman above is the same as Mr. Kostohryz. Harry frequents The Big Picture blog, as well. He is, if I remember correctly, and based on his own words, based in Minnesota. He runs a high end retail business and has a finger on the pulse of the consumer, or so he claimed. He was extremely bullish last year, for which he was ridiculed in TBP; then late last year, to everyone's surprise, he turned extremely bearish on the economy and the market. His observation was that consumers weren't spending at all and all his contacts in the retail business would go belly up before the end on the year. He has only recently turned bullish again.
I don't care whether he is a delusional permabull or not, but he has been on the right side of the trade, thus far. And, at least, to me he does not seem like a permabull at all. He has consistently stated that he will ride this wave up, unless it falls by 10% or more, whereby he will short. That doesn't seem like a buy and hold, head in the sand investing to me.
So, allow him to contribute. He has his point of view, the rest of us have ours. And we are all entitled to opine. And if we don't like somebody's opinion, we can always ignore that individual. Or we can disagree with that individual by stating pertinent facts and leaving it at that.
Couldn't you had picked a more mature name?
As recently as March 9. 2010, Mr. Strauss-Khan had suggested, flying in the face of all available evidence, that Greece "would resolve it's debt crisis without an IMF bailout". The stark disingenuous of this comment is revealed by the fact that a 2008 IMF report had predicted the Greek deficit to be 6.7% in 2010 when the actual figure was a little less than double that figure at a startling 13.4% On the basis of this fraudulent analysis the IMF actually predicted a recovery in late 2010. Papandreou himself stated in December of last year that "salaried workers will not pay for this situation; we will not proceed with wage freezes or cuts. We did not come to power to tear down the socialist state". Some few months later the government instituted a general public sector pay freeze, specific public sector pay cuts, increased the Value Added Tax by 2% and sharply increased taxes on alcohol, tobacco, fuel and luxury items in addition to a crackdown on endemic tax evasion. Oddly enough these were some of the very conditions which the IMF had demanded in its Article IV consultations as early as May 25, 2007. It is not difficult to discern a distinct "quid pro quo" arrangement between the Greek government and its IMF counterparts perhaps to preempt as much as possible any public perception of the Fund's past and future involvement.
Anyone have rates on greek bonds? To the bloomberg terminal.!
Nielsen and these guys at the IMF are talking out of their a**holes saying "don't worry". All it took was 4X what everyone thought it was going to take only a month ago. Even if the German voters roll over for this one at some point in time, reality is going to bite these guys in the butt and it ain't gonna be pretty. What was that about giving up the 13th and the 14th checks "not being acceptable" to the Greeks. This thing is going to fall apart faster than a cheap suit.