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Greece’s Extortion Racket Maxed Out

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Wolf Richter   www.testosteronepit.com

Just how bad is the real economy in Greece after five years of recession, countless strikes, and 17.7% unemployment? Registrations of new and used vehicles plunged 30% in 2011, after having already plunged 37% in 2010. Only 107,737 vehicles were registered, the lowest level in over 20 years.

And yet, more cuts are coming. Mid January, inspectors from the Troika (EU Commission, IMF, and ECB) will once again head to Greece to inspect its books and come up with a budget deficit number for 2011—no one trusts Greek numbers anymore. And they will once again leave angry. Indications are that the deficit ranged from 9.5% to 10.7% of GDP, significantly higher than the already revised Troika-set limit of 9% that Greece had vowed to abide by.

So, new “structural reforms,” as they’re called, will have to be implemented, including cutting everything in sight ... auxiliary pensions, public sector salaries, social and welfare benefits, healthcare, defense, tax exemptions. Agencies will have to be closed and tens of thousands of civil servants will finally have to be laid off.

All to get the next bailout installment. Of the first bailout package of €110 billion, €73 billion have already been paid. The sixth installment, €5 billion, has been moved from December to March due to lack of progress, and the seventh installment, €10 billion, has been moved from March to June.

“If our mission in mid-January reaches the conclusion that there are delays, then we should revise the March installment,” announced Olivier Bailly, spokesperson for the EU Commission. Piling pressure on Greece is the name of the game.

Then there is the second bailout package of €130 billion put together last October. €89 billion are to be released in February. It will enable Greece to pay for €17.5 billion in maturing bonds due in March. But the Troika imposed conditions.

First, Greece needs to force the financial institutions that hold $206 billion of its bonds to accept a “voluntary” 50% haircut as demanded during the Eurozone summit in October. Negotiations have been dragging. But now word is that bondholders buckled under the threat of losing their entire principle if Greece tumbles into a disorderly default. And a deal has emerged: a 50% haircut with a hit to net present value not to exceed 60%. Their old bonds would be swapped for new bonds with a coupon of 5%. They would have the same status as loans Greece receives from the Eurozone and the IMF.

Second, Greece needs to implement "structural reforms" in the private sector to make it competitive. Among the targets: cutting salaries, reducing the minimum wage of €751 (in France it’s €1,398), scrapping the still existing 13th and 14th monthly salary, and eliminating automatic pay raises.

“So we can get the next loan installment,” Papademos explained at a meeting with the major labor unions. Employers and unions would have to come to an agreement this month to meet the Troika’s demands. And then the nuclear option: “Without an agreement with the troika and the ensuing funding, Greece faces the threat of a disorderly default in March.”

Disorderly default. Greek politicians muttered threats before, and each time, money materialized. But last October, the Troika said no. For how Greece solved that situation, read... Greece 'Finds' Treasure, Stays Solvent For Another Month.

But cutting wages didn’t sit well with the unions. At the forefront: Giannis Panagopoulos, president of the GSEE, the highest confederation of private-sector unions in Greece. His resistance was vehement. Salaries, he said, were not the reason for Greece's lack of competitiveness. Instead, companies should secure their jobs. Other union officials spoke up too. So, there won’t be any progress in implementing “structural changes.”

Hence, the Troika inspectors will once again leave angry. But Greek politicians have become expert at their extortion game—even with bond holders. They found that the Troika, after some huffing an puffing, will keep Greece afloat another month. And if the people with the money lose their fear of that threatened end of the world, accept their losses, and move on without Greece?

"True Hell," is how Giorgos Provopoulos, Governor of the Bank of Greece, described the possibility of life without the euro.

Even Beatrice Weder di Mauro, member of Germany’s Council of Economic Experts confirmed that a breakup of the euro in 2012 “cannot be excluded." For more on this, and why people hang on to leftover Deutschmarks, read....  Missing: 13.3 Billion Deutschmarks.

 

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Sat, 01/07/2012 - 17:20 | 2042637 littleenglander
littleenglander's picture

The terms you are mentioning look generous...

http://www.foxytradingclub.com/us-hidden/us/greece-debt-negotiations-move-toward-deal

Existing bonds swapped for new bonds valued at 35% of the old , + 15% in upfront cash!!

The new bonds having a rate of up to 8%.  The old bonds were at <4.5%  from what I can work out on the ECBs acceptable collateral db.

I'm guessing the 15%, is coming straight out the bailout, and propping up Eurozone banks!  Bailout is a loan which as I understand it is 0.5% fee + ongoing EURIBOR(3M) + 3%.

Oh well means the IMF can lend to banks now in another devious twist.

To finally nail the Greeks to the cross the new bonds will be in English law, so when Greece finally has a leader they voted for it can't be reneged on.

 

 

Fri, 01/06/2012 - 11:15 | 2039155 juggalo1
juggalo1's picture

Why is it that Greece is still muddling and muddling and muddling?  What has it been?  2 years?  3 years?  If Greece had gone through their default and redrachmaization as proposed as the alternative years ago, wouldn't things be back to normal by now?  Instead we're still muddling, and Greece is enduring more and more pain until what?  When does the mainstream policy involve things getting better?

Fri, 01/06/2012 - 11:45 | 2039266 disabledvet
disabledvet's picture

As soon as every euro penny is...ahem..."accounted for"...then..."Greece"...will done. What you should be asking is "now knowing this...then what?" And I have an answer for that as well...

Fri, 01/06/2012 - 10:48 | 2039083 RockyRacoon
RockyRacoon's picture

Why does Greece remind me of N. Korea?   "Feed us or we'll blow up the world!"  Not much difference between the two types of WMDs.   Nuclear or monetary, pick your weapon.

Fri, 01/06/2012 - 10:19 | 2038985 NEOSERF
NEOSERF's picture

Now that the US is officially humming again, we clearly can save the world and thusly shall step in and provide the largesse needed in a neo-Marshall plan for the EU. 

Fri, 01/06/2012 - 11:48 | 2039280 disabledvet
disabledvet's picture

That's GENERAL Marshal and those folks can become REAL serfs. That's one type of rock farming you don't want to do.

Fri, 01/06/2012 - 10:18 | 2038976 Georgesblog
Georgesblog's picture

 

Friday, Jan. 6th, 2012 – These are the days of history repeating. In Europe, we are watching conquest working through to it’s end. The German position is that they are taking care of their own business, and the rest of the Eurozone can go hang. France plays the role of Vichy partner very well. They’re on the edge of default, and beggars can’t be choosers. The UK has a finger in the pie, because they’re the UK, with a hangover from the empire the sun never sets on. The much speculated new and improved Eurozone treaty will be the mirror image of the Treaty of Versailles. Germany, France and the UK will conquer Europe . We will then watch the never ending European stage play of betrayal and intrigue.

http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/

 

Fri, 01/06/2012 - 11:51 | 2039294 disabledvet
disabledvet's picture

The French are not beggars. They are fabulously wealthy Young Grasshopper. And they have a State to go with that...BEWARE!

Fri, 01/06/2012 - 10:38 | 2039059 Fuh Querada
Fuh Querada's picture

The treaties - old or new - aren't worth Jack Shit. They get violated like aging whores.

Fri, 01/06/2012 - 09:42 | 2038814 disabledvet
disabledvet's picture

ha! ha! i've upgrade my anti virus security! i'll take the slow performance phuckers! KAPERSKY ANTI-VIRUS ROCKS!

Fri, 01/06/2012 - 08:09 | 2038614 ebworthen
ebworthen's picture

Deutschmarks!

I can hear the Drachmas also, jingle, jingle.

Greece will have to default, and civil unrest may necessitate a return to their own currency.

I don't see the Euro surviving.

Fri, 01/06/2012 - 08:14 | 2038616 Ghordius
Ghordius's picture

"I don't see the Euro surviving"

I wish someone would explain this meme - why should the EUR not "survive"? Because Greece may (hopefully) exit it?

Or because the fiat-critics have the impression that the EUR supports the USD/FRN?

Or because there is this assumption that the debt levels of the EuroZone are worse than those of the DollarZone?

Seriously, I would just wish someone would have a serious argument...

Fri, 01/06/2012 - 16:13 | 2040374 ebworthen
ebworthen's picture

The Euro currency is based upon the European Union.

As poorer nations accumulate higher debt, their incentive for "taking it on the cheek" as it were for having less income in a high cost currency decreases reapidly.

The incentive to default on the debt becomes greater, and a means of revaluing debt, labor, and all other costs becomes attractive.

The advantages of staying in the European Union decrease.

Combine with that, a feeling among citizens that the Euro is a ball and chain rather than a boon, and the desire to have "your own" currency grows strength.

Why do people shop online to avoid state taxes and get free shipping to their door?

Why do people in underwater mortgages choose to stop paying?

The answer is not one of economics, but of passion.

Fri, 01/06/2012 - 09:05 | 2038682 disabledvet
disabledvet's picture

only fools question the survival of the euro. the question is "what is this troika thing as a consequence"? it is obviously ridiculous to claim...as is claimed here...that the nation of "Greece" is "extorting" anything. Obviously they're in free fall and are wondering "where does it stop"? it stops of course when as you say either they "(hopefully)" are exited from the euro zone or more intelligently "they leave" and head down the path of even the most rudimentary road of self determination. So let me..."frame"...the word "serious" for you: this is an economic weapon of mass destruction and AGAIN it is being deployed against an entire nation. Not even the military could dream up such annihilation. (P.S. Another one has just gone off in the "country formerly known as Hungary"...and they're not even using the euro!)

Fri, 01/06/2012 - 09:25 | 2038731 Ghordius
Ghordius's picture

I disagree - fiat currencies are not financial WMDs, we had hundreds of them in history. they are born and then die after a few decades

financial WMDs? look at the derivatives that were forbidden between 1930 and 1960, there you have the financial WMDs

Hungary experienced the same hyperinflation as Austria and Germany, but look at them, their biggest problem is those damn CHF mortgages

Fri, 01/06/2012 - 11:55 | 2039314 disabledvet
disabledvet's picture

Sorry for the delay but the "front running Tylers" deleted before I could respond. "there is no difference between a currency market and a debt market when you monetize." love the conversation for tis Ghordian indeed.

Fri, 01/06/2012 - 08:40 | 2038638 agent default
agent default's picture

Because all the Euro has done is to shift speculation from the currency exchange rate to the sovereign debt of member states.

Fri, 01/06/2012 - 09:01 | 2038677 Ghordius
Ghordius's picture

weeeelll, yes, this is a good argument but it leaks: so the (rampant, huge) speculation (in itself a sign of too much liquidity, historically) has shifted from currency FX to the sovereign debt. Ok, let's see: what exactly really happens when a sovereign defaults? in FX? does trade stop? is the currency suddently too abundant?

Fri, 01/06/2012 - 12:57 | 2039601 agent default
agent default's picture

And what is the currency of a defaulted sovereign worth?

Fri, 01/06/2012 - 18:42 | 2040896 Ghordius
Ghordius's picture

in the case of a gold standard, the currency is completely detached from the default of the sovereign - in the case of a fiat currency, it depends from the (FX-) reserves, including gold if any.

Fri, 01/06/2012 - 09:10 | 2038690 disabledvet
disabledvet's picture

if by trading you mean "FX Trading" then the answer is...nooooooooo. "That trading never stops." Busted money is bad idea whose time always comes. If you are asking "does physical trade ever stop"...well "it depends on what the meaning of is...is." Shall we start with...intellectual property and work our way down?

Fri, 01/06/2012 - 09:16 | 2038703 Ghordius
Ghordius's picture

yes, I get your gist ;-) but the (rhetorical) question is: what exactly really happens (in FX) when a sovereign defaults?

Fri, 01/06/2012 - 09:31 | 2038746 disabledvet
disabledvet's picture

you may call this "question" rhetorical if you like. but this is THE MONEY YOU USE EVERYDAY too. What happens to FX when the sovereign defaults? "It get's really excited cuz it get's to blow up Hungary next!" Let me start by "reorienting you mind" for a moment: ALL FIAT IS WORTHLESS. This is "just the beginning" as they say...for this is your "null hypothesis" when designing your system of finance. Have no fear of the euro...it's gonna be JUST FINE. Of course the "yield hungry crazies"...and they are LEGION...are going to "blow up your country" cuz "this zero interest rate shit SUCKS and WE'RE RICH." Go long gold...and Army Divisions.

Fri, 01/06/2012 - 09:40 | 2038806 Ghordius
Ghordius's picture

I am long gold, and yes, all fiat eventually gets back to zero, and no, I'm not thinking that me and other EZ denizens (couple of hundred millions at the moment) will be able to buy the same amounts of goods and services for the same fistful of EURos.

my question is not answered ;-)

Fri, 01/06/2012 - 08:31 | 2038625 masterinchancery
masterinchancery's picture

Because the concept of a one size fits all currency doesn't work for countries that lack similar economies, productivity, innovation, etc.  The result, massive imbalances and debt in southern Europe.

Fri, 01/06/2012 - 08:51 | 2038662 Ghordius
Ghordius's picture

so the DollarZone is doomed and the St.Louis FED and others are going to print the non-NYFED Dollar soon? ;-)

and before you answer: it nearly happened in the Thirties

Fri, 01/06/2012 - 09:17 | 2038704 disabledvet
disabledvet's picture

YOU are in the 30's. RIGHT NOW. The USA...in the 30's...had oil...and something even bigger called "the Treasury market." Of course it didn't hurt that gold was 30 bucks an ounce and going nowhere. Ahhh, the good old days. Is that yet ANOTHER "finanical weapon of mass destruction" i hear being built? a..."gadget"?

Fri, 01/06/2012 - 09:30 | 2038734 Ghordius
Ghordius's picture

same answer as below:

financial WMDs?

look at the derivatives that were forbidden between 1930 and 1960, there you have the financial WMDs

in the 1930's (and I researched it only because one of the Tylers made a small comment in this direction) there was a crisis where some of the FEDs seriously thought about not accepting the other's notes anymore.

they were bitching (hear, hear) about one of them printing too much - the NY-FED did win, and the rest is history...

the publications of the St.Louis FED are just a small remnant of this fight

Fri, 01/06/2012 - 08:22 | 2038618 BigJim
BigJim's picture

I'll have a stab at it.

First - if Greece (and the rest of the PIIGS, natch) exit the euro, the euro won't really be the euro any more.

Second - when people say that the euro won't survive, they are not saying they think the dollar is going to survive.

Third - oh look, I just answered your post.

Fri, 01/06/2012 - 08:40 | 2038626 GeneMarchbanks
GeneMarchbanks's picture

€ denominated debt is converted into local currencies. Local currency is recalibrated/devalued and old debt is settled. The dra[ch]ma is contained within the national economy and the EMU lives to see another day. Will there be unintended consequences? Of course.

Western media is blowing it all way out of proportion for a couple of reasons, but mostly to deflect attention away from their own domestic issues.

Fri, 01/06/2012 - 08:57 | 2038658 Ghordius
Ghordius's picture

"debt is converted into local currencies" how? by then it's easier to default (as usual), see Argentina, Brazil, etc. which had quite consistent debt levels in USD, GBP and their local currencies

the scenario of a default is not that new - we are just living the illusion that in the First World this can't happen - since our dear megabanks have derivatives betting trillions on it...

Fri, 01/06/2012 - 09:02 | 2038679 GeneMarchbanks
GeneMarchbanks's picture

LOL. That's the point, after you default you convert.

Fri, 01/06/2012 - 09:42 | 2038711 Ghordius
Ghordius's picture

ok, so you are Greece, and you realize that you have to default first - and then convert?

and how do you stop your citizens in the export and tourism trades to accept EUR?

if you can default - why would you want to have a new currency at all? because the Greeks themselves would prefer to hold Drachmas to EUR? LOL, just ask them!

Fri, 01/06/2012 - 10:38 | 2039051 Oracle of Kypseli
Oracle of Kypseli's picture

Simple, the euro will still be in the hands of the people but not the governments hands. The gov will pay its Greek obligations salaries etc. in Drachmas. Gold, silver, dollar, euro will also be circulating. Gresham's law will be in effect.

 The tourists will pay in euros and get change in drachmas.

The gov then becomes efficient because it can print all it needs and it has neither debt nor interest payments to make.

Which means that the French banks will have to eat the losses and they themselves need to be saved, but by whom? Goldman sacks?

That's what the bankers are dreading. Domino.

Fri, 01/06/2012 - 13:21 | 2039715 Ghordius
Ghordius's picture

+100 for citing Gresham's law

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Fri, 01/06/2012 - 07:10 | 2038585 StychoKiller
StychoKiller's picture

Tyler, deys a babblin' bot on the loose!

Fri, 01/06/2012 - 07:43 | 2038599 bank guy in Brussels
bank guy in Brussels's picture

Lot of posts, too, for five weeks and five days on ZeroHedge ... link marketing on ZH might be working pretty well for them. I doubt if they're cutting Tyler in, though.

Fri, 01/06/2012 - 08:16 | 2038617 BigJim
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Could be time for a 'report spam' button.

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Fri, 01/06/2012 - 03:23 | 2038310 Coldfire
Coldfire's picture

First, Greece needs to force the financial institutions that hold $206 billion of its bonds to accept a “voluntary” 50% haircut as demanded during the Eurozone summit in October.

Forcing a "voluntary" haircut is kinda like fucking for virginity.

Fri, 01/06/2012 - 10:22 | 2038991 falak pema
falak pema's picture

 

Its voluntary cos the banks are even more bankrupt than the sovereigns. They'll take any punishment that can keep them kicking the can a few more years. If the FED/ECB offers them swap lines to develerage, have liquidity,  and save themselves in the long run, they will accept 50% on Greece but not on the others. This is forced on them by ALL THREE actors : Euro sovereigns (aka Germany/France), Central banks (ECB/FED), and IMF. This is concerted squeeze to get the private banks to play ball with 'controlled deleveraging'. All part of the central bank 'concerted control' strategy. As per TD article...


Top Three Central Banks Account For Up To 25% Of Developed World GDP

 

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