Happy New Year Germany: Greece Needs A New Bailout

Tyler Durden's picture

When it comes to the main sovereign story of 2011 and 2012, namely the endless bailout of Greece, now in its third iteration, the conventional wisdom is that courtesy of the near elimination of the country's private sovereign debt and the fact that its official foreign debt held by benevolent taxpayer funded globalist powers (IMF, ECB, EFSF) has been mostly converted into a zero-coupon, perpetual piece of paper, the country is fine. After all it has no debt interest expense to finance, and the only shortfall it has to plug is that created by its primary budget deficit (which as we showed earlier is "improving" on a year over year basis not because the economy is improving, but because the Greek government is simply refusing to pay its bills). So there is nothing more to do but sit back and wait while the economy slowly recovers, the unprecedented internal imbalance with Germany is gradually aligned, are the unemployment rate drops, (while hoping that the population does not die out first) right? Wrong.

What everyone is forgetting is that the heart of the Greek problem is not the Greek sovereign debt, and certainly not the rate of interest, but the fact that Greece's financial system, i.e. its banks, are utterly insolvent: and with the private banking system no longer creating money by handing out loans to a just as insolvent broader population (and the ECB certainly no longer injecting direct liquidity into the Greek economy) there is little that supports any form of economic growth (the Austrians out there will immediately recognize the problem: if money is not being created, the economy is not "growing", period). After all there is a reason why of the countless billions in Greek bailouts, of which the majority was used primarily to fund interest and maturity payments to other banks such as Deutsche Bank, the biggest portion that remained on the ground in Greece never made it to the actual people, but served to prop up the Greek banks, some €50 billion.

What was this money used for? Simply said, to plug capitalization shortfalls arising from one of two things: i) a gigantic outflow of deposits from the local banking system, as Greek lost all confidence their money was safe in the local banks, which meant Greek banks had to promptly find the money to pay their depositors lest a countrywide bank run developed which would then result in a Europe-wide financial panic, and ii) the soaring notional amount of non-performing "bad" loans, which remained as placeholders on the bank balance sheets, market at whatever mythical number the local accounts let the banks mark them at, but which generated zero inbound cash flows. Which, incidentally, would mean that deposits were undercollaterialized, and the realization that NPL levels are stratospheric and going higher, would lead to i) and the appropriate dire consequences.

Which brings us to the topic of today's post.

Moments ago Kathimerini reported that in 2012, the amount of non-performing loans has exploded by a laughable amount, rising some 50% from December 2011, when it was "only" 16% and stood at a gargantuan 24% last month (indicatively, in the US this would mean that some $1.7 trillion in loans was nonperforming). And therein lies the rub, because as Kathiermini prudently notes, the "bad loans come to a considerable 55 billion euros. This means that the sum of NPLs already exceeds the total funds set aside for the recapitalization of the local credit system, which amounts to €50 billion."


This means that not only every single euro allotted for the bailout of the Greek banking sector has been used up to plug a gaping NPL shortfall, but already Greece is €5 billion short.

Sure enough, the last thing Kathimerini would want to do is give people the impression that, once again, their deposits are effectively impaired with the soothing proclamation that "there has been a notable improvement in economic conditions that is reflected in the significant slowdown in the rate of creation of new bad loans."

So 16% to 24% is a slow down? Maybe the fact that Greek unemployment is rising at "just" 1% of total each month is also a "notable improvement."

No, we doubt Kathimerini would be so audacious to proclaim the above chart of Greek unemployment as "notably improving". But that's a problem, because the level of NPL, the level of unemployment, and the general state of the economy (whose Q3 GDP imploded by 7.2%, the worst quarterly drop following a 6.7% GDP decline in Q1, and 6.3% in Q2) are closely linked, and one can't improve without the other. And usually the catalyst the drives an overall bounce in the economy is some endo- or exogenous source of money demand and creation (usually for nations in depression it involves war).

Absent that, there can be no improvement.

Which, following the preceding optimism, is precisely what the Kathimerini author admits: "However, unless the growth of new NPLs is contained, banks may need yet another recapitalization process at the end of 2013, the same sources say."

In other words, dear Germans, the country that you, and everyone else, though is now saved and needs no more bailouts, at least according to the current Finance Minister, not the previous one who now it appears was avoiding paying his taxes like the plague (ah yes, the Greek tax collections "issue" - a fun topic for another day), is already down €5 billion and in need of bailout Number 4.

Expect this news to be sprung on a witless Germany in the coming months, but most likely not before the Merkel reelection. After all the last thing Germany needs to understand is that the hundreds of billions "invested" to preserve the Eurozone have achieved precisely nothing, and the gaping black hole is bigger and blacker than ever before.

But at least the hedge funds who bought worthless Greek bonds at 15 cents on the euro and made three times their money in three month, are happy.

Everyone else, i.e. the Greek people, good luck. For the fourth time.

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dirtyfiles's picture

waiting for Newtown in global scale

w00dmann's picture

If only they had seen the wisdom of a reverse income mortgage, none of this would have happened!

foodstampbarry's picture

Yawn. Wake me when the guillotines come out

JackT's picture

This is getting ridiculous. When is everyone finally going to realize we just need to redefine math and it all goes away. Although at this rate they better hurry up

Water Is Wet's picture

What?  They already did that.  What do they need to hurry up for?  The RUT is at all-time-highs!

Clever Name's picture

2+2=5. Done.

I didnt think I'd ever get sick of these Greek stories, but...

Jack Burton's picture

Waterboard  the whole of congress. I bet we could uncover some terrorists there!

Non Passaran's picture

Take out the Pauls, throw in Piers Morgan!

asteroids's picture

The Troika has intentionally ignored the Greek people. The Greek people, in turn, are ignoring them by pulling out their money and not paying any taxes. What happens when Amerikans figure out the same?

Joebloinvestor's picture

As long as there are people who insist that Greece has to be part of the EU, there is gonna be an unfilled rat hole to throw money into.

Rustysilver's picture

Let me the first one to say it: I don't give a $hit about any European country that starts with a letter G.  They deserve each other.

Water Is Wet's picture

I can feel the empathy your emoting for non-G European countries bubbling beneath the surface of my internet viewing device!

Just Ice's picture

that's what the euro technocrats say too...they don't give a crap about any European countries, to wit the people...splintering of the countries and people's lives, livelihoods and savings be damned so long as a unified currency remains intact

steve from virginia's picture


Greece = busted:


They borrowed to buy fuel, they borrowed to buy cars ...


They borrowed to pay off old loans, then borrowed to service them ...


They borrowed to build roads, then borrowed to pay for insurance.


They borrowed to build places to drive besides gas stations.


They borrowed to build military infrastructure for a war they cannot afford to fight ... they would have to borrow.


They borrowed to put on empty spectacles for US TV and to line their beautiful beaches with ugly concrete boxes that provide inedible food and toxic 'beverages' to fat, angry Germans.


As long as there is a car running in Greece it will be downhill until people are starving to death in the middle of Athens ... coming soon. 


For Greece there remain the old things that served the Greeks well for centuries: agriculture, craft and artisanship, good food and wine, singing and dancing, poetry and theater. The rest is best left to rot, one way or the other it will be.


Light entertainment? Hang bankers and tycoons.

Notarocketscientist's picture

Fack - who can blame them?  If some stupid banker would lend me 500M knowing I could not pay it back - I'd take it too... and I'd go facking NUTS!!!!

kito's picture

Well it is the first time Greek problems have been mentioned this year, so it can't be that bad....

yogibear's picture

Japan is about to cash in it's US dollar holdings to support it's existence. 

How long can the US keep borrowing more money to pay it's obligations?

Sure it can print and it is printing.

How long before other countries begin to realize their throwing their money away by holding US dollars? The US is the elephant in the China shop.

fonzannoon's picture

yogi please support that statement about japan cashing in it's US dollar holding. I always wondered if that would happen but see no evidence of it.

Non Passaran's picture

That's, like, his opinion, dude.

The idea is ridiculous. There must be other buyers who can buy that stuff from Japan and if the willing buyer instead buys fewer new US-T's the rest will be bought by primary dealers who by law must buy all unsold US T's.
So even if Japan did that, it wouldn't matter at all (except that it would reinforce what we already know about the Ponzi nature of government bonds).

Notarocketscientist's picture

If they tried to do that the US worships would be in Tokyo harbour with their guns to the head of Abe.

I thought everyone knew that this was how things worked?  For instance, did we not all know that the oil sheiks are allowed to fuck blond slut/whores... take coke and E... buy Rolls Royces and live like absolute cocksuckers - AS LONG AS MOST OF THE OIL REVENUES THEY RECEIVE GO TO BUYING US DEBT/WAR PLANES/US BUILT SHOPPING MALLS/AIRPORTS ETC...

Really - I thought everyone knew that.

Now can you imagine if the sheiks said 'sorry we don't need anymore empty malls and we'd like to cash in our US notes'

They'd be Saddamed in short order

Bunga Bunga's picture

Adjusted for GDP that would be a $4.5 trln bank bailout in US.

Greece government said that they reduced debt by 20 bln EURO through the recent bond buyback, but now the greek banks, who took the haircut need suddenly 55 bln EURO. What a scam.

TWSceptic's picture

It's hard to say where things will first escalate in 2013 (or else in the coming years). It seems it can happen anywhere anytime. Economies are all interconnected, once the shit starts hitting the fan the whole globe will be covered in it.

Dr Benway's picture

Yeah timing is a bitch. The operative word in the article is cashflow. Mark-to-market is dead for every asset and will be forever. The time for the crash will be determined by cashflow.

Smuckers's picture

A squeaking Greece gets the weal. 


Dareconomics's picture

There will be some sort of backdoor bailout to get Greece through German elections.



Element's picture



Ever get the feeling you were part of an experimental test of some economic theory?


"… Unless some counteracting cause comes along to prevent the fall in the price level, such a depression as that of 1929-33 (namely when the more the debtors pay the more they owe) tends to continue, going deeper, in a vicious spiral, for many years. There is then no tendency of the boat to stop tipping until it has capsized. Ultimately, of course, but only after almost universal bankruptcy, the indebtedness must cease to grow greater and begin to grow less. Then comes recovery and a tendency for a new boom-depression sequence. This is the so-called "natural" way out of a depression, via needless and cruel bankruptcy, unemployment, and starvation.


On the other hand, if the foregoing analysis is correct, it is always economically possible to stop or prevent such a depression simply by reflating the price level up to the average level at which outstanding debts were contracted by existing debtors and assumed by existing creditors, and then maintaining that level unchanged. …"
- Irving Fisher, 1933


Is this where Berbanke really got the idea to re-inflate assets? Could we call the experiment falsified in Greece's case?

Or does the theory only apply to Sovereigns printing their own doe-ray-mie?

Oh, ... so that's the real solution? ... that Greece should print its own, to short circuit the spiral?

Because inquiring Greeks want to know?

Surely if MMT works so well (in theory), then leaving the Euro is a no-brainer here, right?

Right? ... all you keen printers out there in Central Bank fantasy-land? ... Right?




... and the band played on ...

Dr Benway's picture

OK that financial assets can be propped up indefinitely since they are now under total control of banksters. But when the ATMs stop dispensing cash and pensions are not paid out, or alternatively the money is dispensed but can't buy enough basic consumables, what happens then?

The next few years will see the following concepts gain importance:

Crossholdings, buybacks, cashflow

The first two allow the bubble to be inflated, and the last will be what pops it

AgAu_man's picture

Merkel, LM AA!
Inside joke in German, known as The Limburger Greeting. Having to do with licence plates.

Notarocketscientist's picture

Notice how comments are not allowed on this article on the NYT http://www.nytimes.com/2012/12/31/opinion/lets-give-up-on-the-constituti...

How to Build a Matrix - rule one - make sure the masses are unable to correspond and share ideas that might bust the Matrix.

Wonder when ZH will be blocked by the US as a 'financial terrorist propagator'

Poor Grogman's picture

Genie get back in bottle.

Theres a good chap, please..

Jon Bong Jovi's picture

Brothels, Drug decriminalization, Gaming...all things that will help the economy in greece. Maybe some olives with a x pill in it, you know get greek with it. Sex Tourism is pretty big and Riga is getting pretty played out. I think Greece should be the new hot spot. I always wanted to get some Greek in Greece.

q99x2's picture

Can California somehow get the Germans to pay for day to day living. They seem like nice people.

No Euros please we&#039;re British's picture

They already donated 1536 tons of gold to the US, how much more do you need?

liszt's picture

Of course it's endless, what do you think ?

"Bailout" is the law of the prophets

falak pema's picture


Happy New Year Germany: Greece Needs A New Bailout...

For anybody to make such a slanted, machiavellian heading for his post here at ZH would be an insult to our intelligence. So the gist of the article is tongue in cheek; second degree humour-noir. Otherwise this would not be ZH.

Its NOT Greece that needs a further bail out, its the Banksta cabal that is using Greece sovereign melt down as a roach motel to fleece Eurozone's remaining riches; using their surrogate banking networks all over the world. 

All the money handed out by the Troika to Greece ends up in the pockets of the Banksta cabal; we all KNOW that; 90% of it at least, the rest is used to pay the government deficit to maintain Greece's population literally in bare back survival mode. Slave labour now coming to CLub Med world. 

And then to rest of first world as part of the great neo-feudalista reset of Oligarchy world. 

Don't cry for me Argentina, I belong to the Squid harem of fiat bonfire of vanities.

So sings Greece and so cry all of us. 


stuckonarock's picture

An American investment banker was taking a much-needed vacation in a small coastal Mexican village when a small boat with just one fisherman docked. The boat had several large, fresh fish in it.

The investment banker was impressed by the quality of the fish and asked the Mexican how long it took to catch them. The Mexican replied, “Only a little while.” The banker then asked why he didn’t stay out longer and catch more fish?

The Mexican fisherman replied he had enough to support his family’s immediate needs.

The American then asked “But what do you do with the rest of your time?”

The Mexican fisherman replied, “I sleep late, fish a little, play with my children, take siesta with my wife, stroll into the village each evening where I sip wine and play guitar with my amigos: I have a full and busy life, senor.”

The investment banker scoffed, “I am an Ivy League MBA, and I could help you. You could spend more time fishing and with the proceeds buy a bigger boat, and with the proceeds from the bigger boat you could buy several boats until eventually you would have a whole fleet of fishing boats. Instead of selling your catch to the middleman you could sell directly to the processor, eventually opening your own cannery. You could control the product, processing and distribution.”

Then he added, “Of course, you would need to leave this small coastal fishing village and move to Mexico City where you would run your growing enterprise.”

The Mexican fisherman asked, “But senor, how long will this all take?”

To which the American replied, “15-20 years.”

“But what then?” asked the Mexican.

The American laughed and said, “That’s the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich. You could make millions.”

“Millions, senor? Then what?”

To which the investment banker replied, “Then you would retire. You could move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos.”


replace Mexican with Greek or Spanish,  I used to go there on holiday 30 years ago, happy people, simple wholesome lives...........then greedy fucked up head fucked money printing bankster cunts got involved and sold them a bullshit dream based on pretend money............now its time to go back to the start......i hope they have learnt a big lesson......good luck Greece  XXX

No Euros please we&#039;re British's picture

Meh. We're all friends in Europe now, so who's counting. /s

BrigstockBoy's picture

Look no further than the U.S. to find a shitload of structurally insolvent banks. Have bank failures here really subsided? No. There are still a ton of banks with NPAs in excess of 100% of tier 1 capital. And scads of them with NPAs in excess of 50% of tier 1. They can do nothing but hemorrhage. Why are these zombie banks not shuttered? For the same reason that bread lines no longer exist...

pashley1411's picture

The problem is not money, its philosophy.     Politicos the world over spend every dime they can get their hands on, whether its by taxes, regulatory confiscation, ZIRP/NIRP, or politically-connected lending, until its gone.   Every dime.