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Juncker Echoes IMF Call For Greek Debt Re-Profiling

Tyler Durden's picture




 

Tuesday was all about debt relief for Greece. 

To recap, a new "secret" report on Greek debt sustainability leaked to Reuters on Tuesday morning suggested that the Fund believes the country requires "debt relief measures that go far beyond what Europe has been willing to consider so far." The report goes on to paint a rather bleak picture of Greece’s economic and financial situation:

Greece’s public debt has become highly unsustainable. This is due to the easing of policies during the last year, with the recent deterioration in the domestic macroeconomic and financial environment because of the closure of the banking system adding significantly to the adverse dynamics. The financing need through end-2018 is now estimated at Euro 85 billion and debt is expected to peak at close to 200 percent of GDP in the next two years. Debt would peak at close to 200 percent of GDP in the next two years. This contrasts with earlier projections that the peak in debt—at 177 percent of GDP in 2014—is already behind us. By 2022, debt is now projected to be at 170 percent of GDP, compared to an estimate of 142 percent of GDP projected in our published DSA. Borrowing at anything but AAA rates in the near term will bring about an unsustainable debt dynamic for the next several decades. Other options include explicit annual transfers to the Greek budget or deep upfront haircuts. The choice between the various options is for Greece and its European partners to decide.

The EMU leaders and finance ministers who gathered in Brussels last weekend were supposedly made aware of the IMF’s assessment on Sunday or early Monday, and indeed the timing of the report looks to be rather convenient, much like the timing of the original IMF Greek debt assessment which leaked just three days before the referendum and may well have bolstered the case for the “no” vote. It would appear that the US may be pulling the strings behind the scenes in order to pressure Germany on writedowns for Greece’s debt burden, or, as The Telegraph's Ambrose Evans-Pritchard put it, "the backdrop to this sudden shift in position is almost certainly political [and] follows an intense push for debt relief over recent days by the US Treasury, the dominant voice on the IMF Board in Washington." 

The report was billed by FT and others as the first suggestion that Christine Lagarde might take her ball and go home in the absence of debt relief for the Greeks, something the Fund has threatened in the past. 

On Wednesday, the European Commission published their own assessment of Greece’s debt sustainability which reveals (surprise!) that some manner of debt relief will like be necessary going forward. Here are the highlights from the document (dated July 10):

The economic and financial situation in Greece has strongly deteriorated following policy uncertainty, shortfall in government revenues, the authorities' decisions that made the bank holidays and the imposition of capital controls necessary, and the missed payments to the IMF and Bank of Greece.

 

The failure to complete the review, the missed debt service payments, the expiration of the EFSF programme and the introduction of capital controls have created new circumstances which have led to a further strong deterioration in debt sustainability. The following paragraphs present the different assumptions according to a baseline and an adverse scenario and give the respective numbers in these two scenarios:  

  • Growth estimates have been further revised downwards: preliminary revised projections point to a strong decline in economic activity in 2015. Real GDP growth expectations now range from -2% to -4.0% in 2015, compared with 0.5% in the Spring forecast. 2016 should also see negative growth -0.5% to -1.75% with growth picking up only in the course of 2017, assuming that political stability is restored soon and a gradual relaxation of the administrative measures on the banking sector. Long-term growth is assumed at 1.8% in the base line and at 1.5% in the adverse scenario.  
  • The expected primary surplus outcomes have been revised downwards. The fiscal programme, which had been on track until the third quarter of 2014, was de-railed in the last quarter of 2014. The weaker implementation of reforms in the second half of 2014 and the turn of the economic cycle led to a primary balance rather than a primary surplus. Moreover, the political uncertainties and the severe policy slippages of the first half of 2015 have led to a strong deterioration of economic growth and hence to weaker primary balance outcomes. Furthermore, the imposition of capital controls and the severe liquidity shortage in the Greek economy now require a further downward revision of the fiscal targets at least for 2015- 2017. It is now expected that primary balance outcomes would decrease substantially. A primary deficit of 0% to 1% is expected in 2015, a primary balance of 1% to 0.5% in 2016 and a primary surplus of 2.25 to 2% in 2017, before moving to 3.5% from 2018 onwards. The expected outcomes have been lowered in view of the developments of the Greek economy.  
  • Privatisation receipts are likely to be lower than envisage when the last review was completed. The strong deterioration in the banking sector outlook, heightened economic and political uncertainty, more challenging financing conditions for potential investors together with reduced prospects for the privatisation programme result in lower expected privatisation proceeds, though the government intends to proceeds with privatisation projects. We could expect until 2022 EUR 10 bn would materialise in the baseline scenario going down to EUR 4 bn in the adverse scenario (compared to EUR 22 bn before).  
  • Financing needs for the banking sector have increased considerably. The capital situation of Greek banks is coming under increasing pressure due to worsening asset quality that is related to the significantly weaker macro-economic development, high political uncertainty, the delayed NPL resolution process and the significant adverse impact of capital controls on economic activity and payment culture. In view of this banks will face substantial capital needs. As they will likely have no market access in the near future, an adequate capital backstop as part of a next financial assistance programme is needed. The estimated size of the required capital backstop amounts on a preliminary basis to EUR 25 bn. Further work on 8 the calibration and terms of such capital backstop is currently ongoing among the different institutions.

Based on the developments above, the debt-to-GDP ratio is expected to reach 165% in 2020, 150% in 2022 and 111% in 2030 in the baseline scenario. The respective debt/GDP ratios in the adverse scenario are: 187% in 2020, 176% in 2022 and 142% in 2030..

 

The high debt to GDP and the gross financing needs resulting from this analysis point to serious concerns regarding the sustainability of Greece's public debt. The concerns could be addressed through a far reaching and credible reform programme, very strong ownership of the Greek authorities for such a programme and, after full restoration of the loans agreements, debt-mitigating measures that would be granted only once the commitments to reform from the Greek authorities has been demonstrated. A very substantial re-profiling, such as a long extension of maturities of existing and new loans, interest deferral, and financing at AAA rates would allow to cater for these concerns from a gross financing requirements perspective, though they would still leave Greece with very high debt-to-GDP levels for an extended period. 

So in short, Greece's debt is unsustainable. The IMF knows it, and Europe knows it.

The difference appears to be in how each side believes the situation should be mitigated. The IMF uses language that is absolutely abhorrent to Germany. The idea of "deep upfront haircuts" or perhaps worse "explicit annual transfers to the Greek budget," would not only be politically unpopular in the Bundestag, but would send the "wrong" message to sypathetic debtor states and periphery countries where political parties with ideological parallels to Syriza enjoy strong support.

Nevertheless, something will clearly have to give if Europe expects the third program for Greece to be less blackhole-ish than two bailouts that came before.

So once Tsipras forces Greek lawmakers to legislate away their sovereignty, discussions of "re-profiling" will need to begin. The only question is whether the IMF (and tacitly, the US) will succeed to forcing Germany to "mark it zero." 

2015-07-10 Greece Art 13 Eligibility Assessment Esm En

 

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Wed, 07/15/2015 - 07:14 | 6314421 Haus-Targaryen
Haus-Targaryen's picture

Juncker is such a piece of crap.  

After the deal is done he pretends to be a humanitarian.  Fuck him.  

Wed, 07/15/2015 - 07:16 | 6314427 Haus-Targaryen
Haus-Targaryen's picture

#2 in Greek Finance Ministry just resigned. 

http://www.focus.de/finanzen/news/aufstand-gegen-tsipras-kann-nicht-mehr...

 

Wed, 07/15/2015 - 07:20 | 6314432 Racer
Racer's picture

He should have voted OXI and not resigned

Wed, 07/15/2015 - 07:23 | 6314447 Troy Ounce
Troy Ounce's picture

 

 

These are my principles! And if you do not like them, I have others. - Juncker

Wed, 07/15/2015 - 07:38 | 6314482 SafelyGraze
SafelyGraze's picture

repayment over infinite time-frame.

only pay the interest every year.

never pay off the capital.

there is a word for that arrangement.

https://en.wikipedia.org/wiki/Suzerainty

 

Wed, 07/15/2015 - 07:43 | 6314495 XAU XAG
XAU XAG's picture

@SafelyGraze

 

Sounds like all Government debt LOL

 

Suzerainty............you learn somthing new every day.

Wed, 07/15/2015 - 07:49 | 6314504 Ghordius
Ghordius's picture

it is, indeed, an interesting concept of old. it describes unwilling tributary vassallage, with emphasis on tributary and unwilling

Wed, 07/15/2015 - 08:15 | 6314589 Whoa Dammit
Whoa Dammit's picture

They've gone full 1000 year Reich debt.

Wed, 07/15/2015 - 08:49 | 6314713 the phantom
the phantom's picture

It's a trap!

IMF, Juncker, et al... riding in at the last minute to support Greek debt write downs and towing the line with the Germans. LOLOL   What a farce.  More likely they want to make sure the Greeks think they have a friend in their corner once they sign off on the deal to get better terms.  Once it gets through Greek Parliament, those "friends" will be replaced by tumbleweed.  Greece had the Turks for 400 years, now the EU slavery begins for the next 400.

 

Wed, 07/15/2015 - 07:52 | 6314514 Ghordius
Ghordius's picture

SafelyGraze, there are only two ways to pay off the principal (your "capital")

the first is very hard: a balanced budget where part of it is used to pay off the principal

the second is hard: a balanced budget over a longer time, where the principal becomes less and less grievious over time

anything else is just a form of default, either through devaluation or straight

Wed, 07/15/2015 - 08:05 | 6314551 SafelyGraze
SafelyGraze's picture

third way:

take someone else's capital from them

use it as payment

Wed, 07/15/2015 - 08:15 | 6314592 NoVa
NoVa's picture

public, socialized losses at the expense of:

private gains

 

I'm just stating reality. 

Wed, 07/15/2015 - 08:21 | 6314617 NoVa
NoVa's picture

+1000 for the knowledge shared

 

NoVa

Wed, 07/15/2015 - 07:24 | 6314452 i_call_you_my_base
i_call_you_my_base's picture

She.

Wed, 07/15/2015 - 07:33 | 6314473 Anglo Hondo
Anglo Hondo's picture

That was a "she" that resigned, I believe.

Wed, 07/15/2015 - 07:22 | 6314437 VinceFostersGhost
VinceFostersGhost's picture

 

 

Debt Re-Profiling

 

Sounds fancy.....I'll take two.

Wed, 07/15/2015 - 07:28 | 6314461 XAU XAG
XAU XAG's picture

 

 

 

Yea

 

"We Re-Profiled some folks"                   WTF are they talking about thier FUCKFACE ACCOUNTS! LOL

 

RESTRUCTURE SOME DEBT .........a longer time frame

 

This is endless.....................Democracy Re-Profiling!

 

 

Debt Re-Profiling to reach Deficit escape velocity LOL

Wed, 07/15/2015 - 07:22 | 6314440 XAU XAG
XAU XAG's picture

The whole Greek government should resign

 

Greece needs to get out of the hell hole now!

 

PS YANIS.....................comming back?

Wed, 07/15/2015 - 07:49 | 6314502 two hoots
two hoots's picture

Lagarde, Junker, Lew: Germany's working class, like in the US, will be equalized, by redistribution of working wealth, to those of lower means (and abilities) across the EU, later the world. Equality at last, equality at last.

The working persons enemies are the global financial institutions and the voices supporting their agenda.

Wed, 07/15/2015 - 07:19 | 6314423 XAU XAG
XAU XAG's picture

Holly Carp

 

"So in short, Greece's debt is unsustainable. The IMF knows it, and Europe knows it."

 

EVERYBODY KNOWS IT BUT WILL THEY ACCEPT IT.................THEY HAVE NOT BEFORE

 

IE BAIL OUT 1 AND BAILOUT 2

Wed, 07/15/2015 - 07:23 | 6314445 VinceFostersGhost
VinceFostersGhost's picture

 

 

So you can never pay me back?

 

OK....well here's some more then.

Wed, 07/15/2015 - 07:35 | 6314476 XAU XAG
XAU XAG's picture

 "though they would still leave Greece with very high debt-to-GDP levels for an extended period."

 

 

Debt to GDP.............should not exceed 60%..............EU rules

 

Put that in your pipe Germany and smoke it.

Wed, 07/15/2015 - 07:42 | 6314490 ArkansasAngie
ArkansasAngie's picture

The premise of the status quo (PTB) that bankruptcy is bad is wrong ...incorrect.  

The fact is ... seperating insolvent owners from their assents is the only reasonable thing to do.

In the case of debt, it is the bond holders.

Pretending that they aren't insolvent is stupid.

 

 

 

Wed, 07/15/2015 - 07:48 | 6314503 ArkansasAngie
ArkansasAngie's picture

How about we treat basic banking functions as natural monopolies.  They are public highways if you will.

If we are in fact going electronic ... then the cartel must be seperated from their supposed stranglehold.  The portion that cannot fail needs to be seperated from that which can in fact fail.

Utilies can be divorced from ancillary services 

Wed, 07/15/2015 - 07:21 | 6314435 Irishcyclist
Irishcyclist's picture

Someone must have threatened to remove the drunken cunt's drink supply.

Wed, 07/15/2015 - 07:23 | 6314448 i_call_you_my_base
i_call_you_my_base's picture

They are throwing this back on the northern euros who can't get it past their parliaments. Now the germans will have to vote greece out.

Wed, 07/15/2015 - 07:25 | 6314453 Troy Ounce
Troy Ounce's picture

 

 

They should abolish reality and go to work with models. At least that makes sense.

Wed, 07/15/2015 - 07:27 | 6314457 wmbz
wmbz's picture

There can not be one living soul that does not know that Greece can not re-pay it's debt. No reason to keep beating this poor 'ol dead horse.

They just keep chasing their tail.

 

Wed, 07/15/2015 - 07:30 | 6314466 cpnscarlet
cpnscarlet's picture

The meme among the psychopaths -

We will be willing to rework your terms of slavery as long as you remain slaves - any form of freedom or release is out of the question. AND We will never admit defeat; we are always right.

Wed, 07/15/2015 - 07:35 | 6314475 VinceFostersGhost
VinceFostersGhost's picture

 

 

among the psychopaths

 

You're giving them to much credit....maybe they're just crazy.

Wed, 07/15/2015 - 07:34 | 6314474 cpnscarlet
cpnscarlet's picture

OK, I'll let you in on my little secret -  get a little deep this AM -

Any ideas about "forgiveness", "grace", "redemption",....etc. must be destroyed. You are my slaves and NOTHING can change that. Play along with me and your slavery will be a little less painful. The notion of a "savior" or "vicarious" sacrifice is an unreal vapor.  You owe and can never repay. Deal with it.

With love and affection,

SATAN

Wed, 07/15/2015 - 07:45 | 6314491 Kina
Kina's picture

Why don't they just sit down and work out how much Germany has benefited from having the euro instead of DM, and how much Greece hurt because of not having the drachma. Then Germany transfer the appropriate portion of their unfair benefit/advantage to Greece, say around $400bn

Wed, 07/15/2015 - 07:52 | 6314513 orangegeek
orangegeek's picture

Drama, Drama, Drama.

 

If this were ever solved, these useless gummamant turds would be unemployed.

Wed, 07/15/2015 - 07:53 | 6314518 sagitarius
sagitarius's picture

Juncker wants a new job at IMF?

Moron kisses every naked ass he spots.

Wed, 07/15/2015 - 07:55 | 6314522 Brazen Heist
Brazen Heist's picture

It took the EU 8 years to start QE, 6 years to realize that Greece might have to leave the EZ. Imagine how long it will take them to realize that debt haircuts are actually needed.

Wed, 07/15/2015 - 08:06 | 6314556 XAU XAG
XAU XAG's picture

Going by your timeline ....................4 years

Wed, 07/15/2015 - 08:05 | 6314550 Dekyus
Dekyus's picture

wait during 6 months the Troika didn't want to restructure/re-profile/cancel the debt and now the president of the European Commission says the opposite.

Wed, 07/15/2015 - 08:54 | 6314726 Marco
Marco's picture

Slightly easier when you're rich and you don't have to tell a constituancy that you will have to make more budget cuts because they have to bail out Greece ... again. I have a suggestion for the EU/IMF fuckers who are so eager to solve this with European tax payer money ... transfer all Greek debt (including EFSF) to the ECB and turn it into a 30 year 0% interest loan.

Of course central bank bailouts are only allowed to blow up real estate and stock market bubbles, whereas most greek debt is held by national banks and the EFSF. Bailouts for the rich can come from the printer, bailouts for the poor have to come from taxpayers ... fuck that.

Wed, 07/15/2015 - 08:10 | 6314568 shovelhead
shovelhead's picture

The High Command is pulling back the First Amored Wheelchair Panzer Division.

It seems that they're getting flanked on both sides and may be cut off from the main forces.

Wed, 07/15/2015 - 08:23 | 6314625 Brazen Heist
Brazen Heist's picture

More than half of Syriza won't support the bailout

http://www.telegraph.co.uk/finance/economics/11738150/Greece-news-live-B...

Who would have thought

Wed, 07/15/2015 - 09:13 | 6314787 curbyourrisk
curbyourrisk's picture

Sounds like a SLAM DUNK vote to me!

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