This page has been archived and commenting is disabled.
Greece Needs A €130 Billion Debt Haircut: Citi
Over 4 years ago, following the first Greek bailout when the global propaganda was pushing the Troika's party line that Greek debt would magically become sustainable by 2022, we presented a far more skeptical analysis by Citigroup which accurately postulated that Greece would need a 76% debt haircut immediately if it hopes to reduce its debt/GDP to a credible 60%, a number which rose to 95% if Greece waited until, well, now.
Fast forward to today, when Citi's Guillaume Menuet repeats what Citi (and many others) said back then: without a debt haircut, Greece was doomed, is doomed, and explains "Why Greece's Third Bailout Will Probably Fail (Eventually.)"
The punchline of the analysis, as before, is that Greece desperately needs one simple thing to survive: a massive debt "haircut" and lots of it. In fact, far more than even the IMF (which now is also wearing its own tinfoil hat with honor) recommends and which eliminates between €110 and €130 billion (or 60%-72% of GDP) in debt.
Citi's thoughts:
The Euro Summit proposal does not include a clear commitment to debt restructuring, and essentially blames previous policy failures for Greece’s ‘insurmountable’ debt problems. It notes that “there are serious concerns regarding the sustainability of Greek debt. This is due to the easing of policies during the last twelve months, which resulted in the recent deterioration in the domestic macroeconomic and financial environment.” The proposal offers an agreement to consider ‘soft’ debt restructuring after the first positive assessment of the programme implementation, noting that “the Eurogroup stands ready to consider, if necessary, possible additional measures (possible longer grace and payment periods) aiming at ensuring that gross financing needs remain at a sustainable level”, and highlighting that “nominal haircuts on the debt cannot be undertaken”.
This position contrasts noticeably with that of the Greek government and the IMF. According to Greek PM Tsipras, the institutions had agreed to start discussing a reprofiling of Greek public liabilities this coming autumn, by ‘transferring’ to the ESM €27bn in ECB debt and €20bn in IMF debt. This process would have been conditional on full compliance with the bailout targets in the next few months (both in terms of budget and structural reforms). In an update of IMF staff’s preliminary debt sustainability analysis, the IMF concluded that an upfront debt relief agreement is needed because Greece’s public debt “has become highly unsustainable”. The IMF noted that Greek public debt is projected to peak close to 200% of GDP by 2017, and to remain elevated (170% of GDP) by 2022, while pointing to considerable downside risks to these projections. The IMF calls for debt relief on a scale that would need to go well beyond what has been considered to date, noting three main options: i) a “dramatic” extension with grace periods of, say, 30 years on the entire stock of European debt (including new assistance), ii) explicit annual transfers to the Greek budget, or iii) deep upfront haircuts.
The European Commission, in its assessment (dated July 10) of Greece’s request for a ESM bailout programme, is also recommending meaningful debt re-profiling, noting “serious concerns regarding the sustainability of Greece’s public debt”. The EU Commission recommends addressing these concerns either i) through a far reaching and credible reform programme (envisaging very strong ownership by the Greek government and debt-mitigating measures that would be granted only once reform commitments have been achieved), or ii) through “a very substantial reprofiling, such as a long extension of maturities of existing and new loans interest deferral, and financing at AAA rates”.
Based on our more conservative GDP and inflation baseline (and assuming no Grexit by 2022), and targeting a debt-to-GDP ratio of 120% by 2022, we estimate the size of the required ‘upfront’ (i.e. to be introduced in 2016) principal haircut to be €110bn (60% of annual Greek nominal GDP in 2014). Note that we do not see much difference in an alternative scenario based on a ‘tranched’ principal haircut framework (of around €15bn per year), also starting in 2016. However, a ‘backloaded’ (i.e. to be introduced in 2022) approach relying on a single haircut would be more expensive, amounting to €130bn (72% of annual Greek nominal GDP in 2014). All these scenarios illustrate how difficult, politically, principal debt reduction will be given the amount involved. The corresponding re-profiling (maturity extension, coupon reduction) would likely require grace periods extending into many decades.
Of course, none of what is said above is impossible.
In fact, Angela Merkel already said it can be done however Greece would first need to exit the Eurozone (in this way the ECB will not suffer a default by a current Eurozone member thus impairing Europe's "political capital").
Will it be allowed back? Probably - perhaps a better question is whether it will ever want to go back. But for the Greek government, the path forward could not be clearer - default, exit the Eurozone, introduce your own currency, write down the debt, and emerge with a clean balance sheet. Only then can Greece be viable: either as a country inside the Eurozone, or on its own.
We truly hope Tsipras has finally learned his harsh lesson and is doing two things: i) preparing for the "Varoufakis endgame", namely the reintroduction of the drachma and ii) arranging a Debtor In Possession loan with the AIIB (as we semi-jokingly suggested weeks ago). Once those two are in place, then and only then, does Greece have some hope to continue its existence as anything more than a European vassal state in perpetuity.
»
- 8880 reads
- Printer-friendly version
- Send to friend
- advertisements -
Has Merkel offered a 10 euro haircut yet?
Merkel Rules Out Greek Debt Write-Off, But Open To Other ReliefChancellor Angela Merkel on Sunday suggested that Germany would show flexibility in negotiating how Greece deals with its massive debt, but again ruled out writing off part of the money.
Speaking on ARD television's Bericht aus Berlin program, Merkel said that "a classic haircut of 30, 40 percent of debt cannot happen in a currency union."
http://www.huffingtonpost.com/entry/merkel-greek-debt_55abd25ae4b0caf721...
Greek debt would still be over $40,000 per taxpayer after a 130 billion euro debt haircut
What you have now is Europe pre-American civil war. They need Greece to fail and fail hard (and other "states" as well) in order to bring in the Europe Post american civil war. That is to bring about the "Federal Gov't of Europe" and make the "States" of Europe subservant to it. They are attempting to do it through economic upheaval instead of a "civil war".
no not a haircut for 10 euro just topless relief OMG
You can burn it to the ground actually.
That's what was spray painted everywhere when I went to College.
"Burn Baby Burn."
Don't even recognize the place today it's been cleaned up and buoy oit so much.
True of other places as well.
So, yeah..."long The Greek Fire Department."
Gotta a good stock I can recommend while I'm on that particular subject: OshKosh Trucks.
Never e finer fire truck built anywhere by anybody.
"Just in case we have Haircut Failure" of course.
Dr Strangelove and his Evil Demon bride sat Nein nein nein nein.... Ve hast yet to buy ours Griik islandks
Dr Strangelove is a movie that I keep saying I need to watch and never get to it. Any good?
Im still waiting on the article or plan that will explain how the Greeks will repay all their debt in 30 years.
Over the past month or so, I've attempted to refrain from commenting on the Greece situation as the sheer stupidity of the various parties involved in this process, from the so called European leaders (i.e., Germany) to the Greek population to the puppet politicians in Greece to these so called analysts (really, you're just figuring out now that Greece's debt needs to be reduced by at least 50%) to you name it is nothing short of a complete and total embarrasment to anyone with 1/2 an IQ point in basic economics/finance. It is really hard to believe that TPTB have reached this point and is now directing Greece into its final abyss as follows:
- First, the new austerity meassures will finish off what's left of the stated Greece economy, once and for all. Reduced spending via cuts in pensions, government programs, etc. will alone hammer the economy but just to add salt to an open wound, the increases in VAT will destroy the "stated" economy and lead to new, underground economy that is based on barter, cash, alternative currencies, etc., all to avoid paying excessive taxes. Everyone knows that when tax rates are increased, the risk reward trade-off to avoid taxes increases (in favor of the risks) thus the taxable economy shrinks as commerce moves of the radar/grid. I have no idea what the European leaders could actually be thinking with the tax increase, especially with a country like Greece that is known for tax avoidance.
- Second, Greece will be sold off piece by piece, with all of the proceeds funneling back to the banksters and not the Greece. As noted today, the modern day pirates (i.e., yes you Mr. Buffet) have already started the rape, pillage, and plundering of Greece. First to be taken will be the low hanging fruit (the Greek Islands) then some real assets will be sold off and before you know it, Greece will be stripped of any and all productive assets. Without question we're watching a train wreck in process that is only going to pick-up more speed.
- Third, everyone with half a clue knows that the new deal with Greece will fail within 6 to 12 months as debts mount higher and the economy tanks further. But why would we expect anything different as the old saying goes you would never hire an accountant to write software code. So why would anyone possibly think that Greece's issues would be solved when you hire politicians to execute a massive BK/turnaround/restructuring project. Guaranteed failure!
- Finally, this will end in the worst possible scenario for the population as Greece splinters into a bitter internal dispute and potentially war as it watches the country implode. Resentment will spread against different European groups and cultures which will most likely require the Greece Military to step in and take control (once the innept politicians are run out of the country).
The only thing I can say at this stage is for the sake of the world, I hope that France, Italy, Spain, and Portugal wake-up now, and I mean immediately, and begin to develop and implement plans to exit this mess before they too end up being whored out by their pimps in Germany (and most likely the US).
The most important thing to remember when executing a successful BK is to plan well ahead, when resources are available and multiple options open. The huge mistake Greece made was it didn't plan ahead and basically entered BK with absolutely no liquidity/resources available. Thus, game, set, and match to Europe.
Does "the population" of any territory really need to be blamed in equal measure to the individuals actually doing the harm? It is a common rhetorical device to try to assign blame to everyone involved, but it serves to obscure the truth and let the villains of the hook. Does the victim share equal blame with the perpetrator?
There is no such thing as group guilt, especially when a group is so large they couldn't possibly be conspiring.
You missed the point. The population voted for 40 years on the morons who got the country in this mess. And the same population loved the crumbs.
The phrase "Caveat Emptor" comes to mind here.
All people everywhere are aware that lying sack of shit politicians will promise anything and everything in order to get elected. All people everywhere also know that the lying sack of shit politicians would NEVER get re-elected if they made us pay for the shit they promise.
Greece just shows us all what the end game of "It sounds to good to be true" looks like.
Expect to this shit show played in your neighborhood in the near future.
You missed the point. The population voted for 40 years on the morons who got the country in this mess. And the same population loved the crumbs.
You missed the point that voting has never mattered.
So let me get this straight... When this whole Greek tragedy first blew up back a few years ago, their debt was about 100 billion Euros. Now, after all the 'bail-outs' it's balooned to almost 300 billion Euros.
So, applying a little math: 300 billion - 130 billion = 170 billion.
They will still have a debt load 70% larger than when all this began. This is bizarro world. I'd ask the Greeks whether they really wouldn't rather have defaulted 5 years ago than go though this bullshit, but I know their government has already waved the white flag and stopped taking responsibility for governing their own country.
Rather than put up the interest rate, that would effect the US government, the Fed would rather have inflationary forces from outside be the cause if inflation. It seems to me that the top .1% of the US nation is where inflation needs to be to get this ball rolling. The US Congress also has to get on the band wagon and up user taxes, fuel to be the start, increassing it for the still needed infrastructure and then converting it to a percentage over the base. Other taxes will have to follow before the Fed can really increase their base rate.
they will need another 100billion.
They will egta haircut of 110-130 billion.
This is a bad math.
......and we (the U.S.) are at 102.5%. We should be pointing fingers?
https://research.stlouisfed.org/fred2/series/GFDEGDQ188S
This €130 billion haircut is in addition to €106 billion haircut in 2012.