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Goodbye European Monetary Union, Hello Uncle Sam Bail Out: Greece Cost To IMF (And Pro Rata US Taxpayers) - $27 Billion
First, we have this from Goldman's Erik Nielsen this morning:
According to the Reuters story below, Merkel said this morning as a government declaration in front of the German parliament (ahead of the EU summit) that help to Greece would only come as the very last resort, and that it (bilateral help) would come ONLY in combination with the IMF. Whether this was formally agreed yesterday by the Euro-zone heads of state remains uncertainly, but I think it is very likely. If so, its just a matter of rubber stamping it in the full EU summit today, since none of the non-Eurozone EU members would object to the IMF being involved.
Erik09:15 25Mar10 RTRS-MERKEL - ES WÄRE VERHÄNGNISVOLL, WENN DER STABILITÄTSPAKT AUFGEWEICHT WÜRDE
09:15 25Mar10 RTRS-MERKEL - RÜCKKEHR ZU SOLIDEN STAATSFINANZEN OHNE ALTERNATIVE
09:17 25Mar10 RTRS-MERKEL - UNTERLAUFEN DES STABILITÄTSPAKTES MUSS ZUKÜNFTIG UNTERBUNDEN WERDEN
09:17 25Mar10 RTRS-MERKEL - DEUTSCHLAND IST SICH SEINER HISTORISCHEN VERANTWORTUNG BEWUSST
09:18 25Mar10 RTRS-MERKEL - ZAHLUNGSUNFÄHIGKEIT EINES EURO-STAATES WÜRDE FÜR ALLE ANDEREN EURO-LÄNDER GRAVIERENDE RISIKEN BEDEUTEN
09:22 25Mar10 RTRS-MERKEL - MÜSSEN MECHANISMUS FESTLEGEN FÜR DEN FALL, DASS EURO-STAAT KEINEN ZUGRIFF AUF FINANZMÄRKTE MEHR HAT
09:23 25Mar10 RTRS-MERKEL - IM ÄUßERSTEN NOTFALL WÜRDEN WIR BILATERALE HILFEN IN KOMBINATION MIT IWF-GELDERN GEWÄHREN
09:42 25Mar10 RTRS-Merkel - Im Notfall Hilfe für Griechenland nur mit IWFBerlin, 25. Mär (Reuters) - Bundeskanzlerin Angela Merkel sperrt sich unmittelbar vor dem EU-Gipfel weiter gegen direkte Finanzhilfen der EU an das hochverschuldete Griechenland. Infrage kämen für die Bundesregierung im äußersten Notfall nur Hilfen des Internationalen Währungsfonds (IWF) in Kombination mit bilateralen Hilfen der Euro-Zone, sagte Merkel am Donnerstag in einer Regierungserklärung vor dem Bundestag in Berlin. Dies sei dann der Fall, wenn die Stabilität eines Landes gefährdet sei und es keinen Zugang mehr zu den internationalen Finanzmärkten gebe. "Aber ich sage nochmal: nur als Ultima Ratio", unterstrich die Kanzlerin. Sie werde beim Gipfel entschieden dafür eintreten, dass eine solche Lösung gelinge.
Merkel unterstrich, Griechenland sei bislang nicht zahlungsunfähig. Das Land habe sich selbst ein ambitioniertes Sparprogramm auferlegt und zuletzt erfolgreich seine Anleihe an den Märkten platziert.
Die Kanzlerin warnte, der europäische Stabilitäts- und Wachstumspakt dürfe nicht aufgeweicht werden. Deutschland sei sich seiner historischen Verantwortung bewusst. Die Zahlungsunfähigkeit eines einzelnen Landes stelle ein gravierendes Risiko für alle anderen Euro-Länder dar.
Der Streit über Finanzhilfen für Griechenland sorgt seit Tagen für heftigen Streit in der EU. Die EU-Kommission und viele Euro-Länder fordern, die Solidaritätserklärung an Griechenland vom Sondergipfel im Februar durch einen konkreten Hilfsplan der Euro-Länder mit Leben zu erfüllen. Die Bundesregierung ist nur zu Hilfen bereit, wenn Griechenland sich an den Internationalen Währungsfonds wendet.
(Reporter: Thorsten Severin; redigiert von Sören Amelang)
And then we have this from Erik from last night:
The much anticipated EU summit starts tomorrow and runs through Friday. The agenda consists of discussions of employment (specifically the new strategy for jobs and growth that is to replace the Lisbon strategy), the economy (specifically the divergence in competitiveness and current accounts inside the EU; hot topic these days, but expect no agreement on anything), and climate change (a follow-up to Copenhagen, probably mostly focused on how Europe got so marginalised.)
In addition, the Greek crisis was supposed to be discussed at the summit – i.e. until (1) Merkel (supported by the Netherlands and Finland) called earlier this week for a more prominent role for the IMF, if help is required – a position sharply opposed (at least until now) by several countries, including France, the Commission and the ECB; and (2) the EU presidency (Spain), encouraged by France, called a pre-summit meeting today of the Euro-zone heads of state to address the now serious intra-European tensions on how to deal with Greece. The point of today’s meeting was clearly to settle the issue of the IMF’s role ahead of the EU-wide summit, given that this would be the last opportunity for the leaders to discuss the matter before Greece might be running out of cash. The Greek head of their debt office has said that they might be down at EUR7bn by the end of March.
If I am right on this, then a decision on Greece would most likely have been reached today, which means that an announcement could come already tonight, or relatively early tomorrow, Thursday, ahead of the EU summit. And based on the news flows, one would have to expect that Merkel has gotten her way. If so, this would constitute quite a defeat for what I have called the “fiscal federalists”.
In summary, I now expect a formal announcement by the EU - probably ahead of the formal EU summit tomorrow, Thursday - that if an Euro-zone member needs financial help, then the IMF will be asked to take the lead, both in terms of financing and with respect to policy conditionality. Other EU countries might provide some co-financing like they have done to EU countries outside the Euro-zone, but this would be secondary.
It is not clear when Greece will formally approach the IMF, but it might happen within weeks, and very likely during the next few months. I think negotiations – when they get under way – will focus on a program of about EUR20bn over 18 months. Stay tuned.
Erik F. Nielsen
Chief European Economist
Goldman Sachs
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http://www.bloomberg.com/apps/news?pid=20601087&sid=aNZ2PLONhTMc
Who is suprised? This is exactly the type of behavior one must expect from governments during a decline. Laws are downgraded to policies (without a vote), then easily become promises, and then finally they become faded memories.
Re: the Greece money gambit: this from bloomberg:
"Mark Schofield, head of fixed-income strategy at Citigroup Global Markets Ltd. in London. “There’s a structural desire to stabilize the fiscal environment.”
Quote of the week IMO.
repeat post from today but well worth it.
Can someone give me a real reason why taking aid from the IMF means "goodbye EMU"?
I will give it a shot. The point of the EMU was to compete against the USD. That competitiveness is directly linked to credibility, as with all currency. When you must rely on your competitor to survive, you are no longer in competition.
Alright, I follow, but that's more abstract. I'm not sure it's really going to serve as a catalyst for an EMU breakup, or even Greece to leave the EZ. It's probably going to piss off some at the ECB, but that'll pass.
There is nothing abstract about a currency losing credibility, if you are long that currency. Just ask the Giant Squid.
Greece should've been kicked out and then left up to the IMF. Hmmm,,, California??
If the EMU can't deal with a pissant economy on the verge of default, a la Greece, how on earth are they going to deal with larger economies like Italy and Spain when they shit the bed?
They have shown complete incompetence, confusion, non-cohesion, and outright bullshit through this whole saga. They seem to only have credibility with the equity markets, which when underwritten by Shalom Bernanke, this is not a difficult entity to gain credibility with.
The EMU after this, in my opinion, is stuffed.
'Can someone give me a real reason why taking aid from the IMF means "goodbye EMU"'
All the other replies below are true enough, but IMO the underlying reason is the visceral compulsion of the French ruling classes (ie government whatever its political colour, and in sharp contrast to the average French person) to resent any country truly more powerful than they and which they therefore cannot patronise and look down upon with any credibility.
Remember, the post war deal on the EU was that the French ran it and the German's paid for it. That situation is now breaking down. The Franch ruling classes wanted the Euro (ie German economic credibility) in order to maintain their 'prestige'.
Remember where you heard it first: the Fench will fall out with the Germans as soon as it becomes clear that (a) the Germans will no longer pay for the EU and (b) the Germans will not play second fiddle to the French politically in the EU.
The days of German anst over WWII are fast disappearing, and with it the ability of the old anti-German powers to put Germany on the spot.
The average taxpayer probably doesn't know (or even care) that they will pay for an IMF bailout.
The bond market will though
You are right. The average American has no clue what the IMF is. Most likely think it is some sort of European entity or a relation to the United Nations. That is, if they think at all...
Joe Avg: IMF??... whassat...nah, screw it, who cares. American Idol is on the tube.
You mean to say that it will only take pocket change to bailout Greece? $27 billion is all?
I got a (very) little change in my pocket going jingle lingle ling. http://www.mnec.gr/en/ministry/index.html
Want to call you on the telephone baby I give you a ring: http://img2.photographersdirect.com/img/19309/wm/pd1492790.jpg.
But each time we talk I get the same old thing.
Always no huggin no kissin until I give the IMF a ring.
My honey my baby don't put my love upon no shelf.
She said don't give me no lines and keep your (Greek) hands to yourself.
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LOL! Brilliant!
The market has effectively rallied on every ounce of bullshit rumor since this saga began. It's probably tacked on 1,000 pts in rumor, so why shouldn't it rally again on (what is still very unlikely) fact?
Unemployment down.
Best Buy sales up.
It's all coming together. Keynes wins again.
Dow 36K by 2011.
Buy a house before it's too late!!!!
Yeah, things are looking great, so let's repeal MTM accounting...oh wait...nevermind...
I thought it was just the rate of unemployment going up that was going down.
No matter, this is the day, we're on our way to DOW 11000!
If that happens will it energize investors or terrify them?
$27B ... Bernanke can fart that out sideways.
If it just 27 billion why the heck won't the rest of the EU bailout Greece? they have the bigger stick. EU to Greece, " Reform and actually tax your citizens or you are out" There, that was not that hard.
1. It sets a bad precedent
2. Governments are in precarious situations with their citizens right now, post crisis. Zee German peoples were livid about their government even considering bailing out Greece.
Sigh...hey wait! This is a GS guy saying that!
This IMF bailout might be a pretty good deal.
Greece could be our newest land based aircraft carrier and/or forward deployed military logistics node (a la Diego Garcia, Guam). The situation is still dicey in the Middle East, after all.
$27Bil is chump change for the Pentagon. And them Greek boyz will just love the old US of A and our military presence once we hire them as Local Nationals to take care of the troops, clean our facilities, and sell stuff in the commissary / PX.
Plus our guys already like Greek cuisine. Souvlaki and Galaktoboureko anyone?
AYBABTU
Ouzo. Or however you spell it
Is this the 10th or 20th Greek bailout that has pumped up the market?
I forget.
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