Germany Rules Out Greek Debt Cut: "For That It Would Have To Exit The Currency Area"

Tyler Durden's picture

With the IMF and Germany again at each other's throats over the neverending drama that is Greece, German Finance Minister Wolfgang Schaeuble repeated the same line he has used since the third Greek bailout from the summer of 2015, and in response to the IMF's demands for a reduction in Greek debt and fiscal surplus, the German ruled out a debt cut for Athens "as a violation of European rules", adding that "the country would have to leave the euro area to do so."

“We can’t undertake a debt haircut for a member of the European single currency, it’s ruled out by the Lisbon Treaty,” Schaeuble told German broadcaster ARD. “For that, Greece would have to exit the currency area.”

The German minister added that Greece will be able to complete the current bailout program if the country meets the conditions set by creditors, who must keep up the pressure on the government in Athens. Greece’s main problem isn’t debt, but rather competitiveness, he said, which of course would mean thatthe Greek currency would need to devalue... if only said currency wasn't the euro, from whose clutches it can only escape if Greek citizens are willing to lose all their savings as the fireworks of 2015 showed.

“The pressure on Greece to undertake reforms must be maintained so that it becomes competitive, otherwise they can’t remain in the currency area,” Schaeuble told the German people. And since external competitiveness, i.e. devaluation, is impossible, Greece will have to achieve it by other means, namely even lower wages.

And speaking of the euro, Schauble reiterated his statement from the weekend, in which he agreed with Trump and again said that the "euro exchange rate is too low for Germany."

So while Germany and Trump may loathe each other, and disagree on virtually everything else, at least they both can agree that Mario Draghi is a major source of their trade-linked "problems."

But back to Greece, whose travails we have been following for the past week, and which as the WSJ reported overnight, may well be forced comply with Schauble's demand to "exit the currency" after the IMF said that Greece "once again risks a eurozone exit amid stalled bailout talks, sending the clearest signal yet the emergency lender isn’t likely to soon rejoin Europe’s failed efforts to fix the debt-weary nation."

Fund officials said Athens and its European creditors must agree to much deeper economic overhauls and substantial debt relief before the fund considers contributing another cent.

 

Two fund documents made public Tuesday reveal deep-seated skepticism that Europe’s latest financing program can fix the broken economy. Both the IMF’s annual review of Greece’s economy and a scathing assessment of its own second bailout to the deeply ailing economy underscore a third fund package is unlikely soon.

Which, arguably, means that all those "fake news" reports mocking the IMF's forecasts and tactics on how to "fix" Greece, of which we posted countless numbers, were actually right on the money, or lack thereof in Greece's case.  Ironically, even the IMF said as much:

In a separate document reviewing the fund’s handling of the second bailout, IMF staff detailed numerous lessons they said should guide future lending to Greece and other countries. Two top priorities are limiting the scale of the overhauls needed so as to make sure they are politically feasible, and securing stronger commitments from other creditors before joining in bailouts.

 

“Upfront commitments of debt relief which delivers debt sustainability based on a realistic target for the medium-term primary fiscal surplus are a prerequisite for program success in the circumstances faced by Greece,” IMF economists said in the second report. “The program’s chances of success could have been greater if the degree of ambition in its targets and the optimism in the macro framework had been tempered,” they said.

Unfortunately - due to the hubris of IMF and European economists - they weren't, and the result is a Greek outcome that is now far worse than the US Great Depression.

 

But at least Greece still has the euro, although if Schauble is to be believed, not for much longer as the combination of a joint currency and an "explosive" debt load (per the IMF) simply can not continue to coexist.

In short: it is shaping up as yet another "summer of Grexit", especially with just over €6 billion in Greek debt maturities set to hit in July.

The only difference from 2015 - when this whole scenario was played out most recently - is that this time nobody will care.

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Bill of Rights's picture

Ohhh thats A BINGO!...face is Greeks the EURO scum left have been using your debt load and country as a money printing Scheme.

BaBaBouy's picture

Fuck do it, get OUT If You Can ...

What Is The Point of staying In ????????????

mtl4's picture

Sorry Schauble, you can't just talk the dollar down or the Euro up........markets are alot smarter than that and they know where the Euro is really headed.

Jim Sampson's picture

I wish they would actually let them leave.

Jim in MN's picture

Want to know something funny?

 

The only thing standing between Russian forces in the Black Sea/Crimea and Greece proper is.....Bulgaria.

 

Isn't that funny.

 

Perhaps a better deal awaits Greece in rubles than euros?

 

Oh and something else funny:  A Russian approach to Greece would cut off Turkey from NATO.  Maybe a better deal for them, too.....funny funny stuff.

 

People have such small minds.

Haus-Targaryen's picture

As Schäuble has illustrated time and time again, the treaties matter not when shit really hits the fan. 

If the Greeks gave Schäuble an ultimatum "You cut our debt by 95% or I walk out the door and tell the world press the Euro as a currency was just dissolved and Greece is now debt free as the value of any outstanding Greek debt is now zero.  We're not gonna pay." I imagine things would start happening very quickly. 

Nick13_ro's picture

Ugh...  noo. That's not at all how that would go. In fact it's the exact opposite. If they let the greeks off the hook for the debt the euro would swiftly collapse because everybody would wonder who's gonna default next now that it's allowed and painless. You have to remember that European banks hold euro debt as collateral. If that debt is questionable nobody will want to hold euros and certainly nobody would want to hold it in European banks. It would be the end.

The stake with Greece is not to make them pay their debt. Everybody knows they're not gonna. It's just to keep rolling it over and holding it over the Greeks' heads to force reforms out of them. That's just in case they wish to keep the euro, otherwise nobody gives a shit what happens the next day after they leave just as Schauble says. The choice is the euro and wage cuts + reforms or no euro and wage cuts via devaluation but without the reforms to make sure the idiots don't mismanage their country anymore like getting rid of all the state enterprises where they're in the habit of hiding huge debts for future generations.

itstippy's picture

The unfortunate fact is that "The Greeks" don't exist as a unified voice.  The majority of the Greek people do not want to exit the Euro.  Any Greek politician who actually does make steps in that direction faces extreme opposition and is run out of office.

I feel sorry for the Greek people who did not participate in the mad, temporary prosperity that flowed into Greece when they joined the European Union and the easy credit fueled an epic bubble.  Somewhere a Greek fisherman who's boat was paid off long ago is sitting in a Greek tavern talking to the owner who's tavern was paid off years ago and the two of them are toasting the old days pre-Euro. 

BabaLooey's picture

Schaeuble's face looks like he is trying to grunt out a "greeeeasy one" - right on the stage.

HEY WOLFIE - use the loo to poo - you statist douche!

Raffie's picture

Maybe Germany can send some of their muzzies to Greece to work for free and smooth things out.

cowdiddly's picture

Fuck You, Pay me.    Gutfellas

scv's picture

they always fucking with other countries trying to collapse shit

Bill of Rights's picture

This is what the Left does best, destroy all things, and to think we have let them do it all these years. How they even have a voice at this stage is amusing to say the least.

techpriest's picture

They have a voice because they cater to the common man's greed: "Everything wrong in your life isn't your fault, it's [insert enemy of the day here]'s fault. Just give us power, and we will GET THEM and give you their money."

Creative_Destruct's picture

The politics of identity, victimology and irresponsibility. At it's extremes, it becomes Bolshevist, leading to extreme socialism or communism.

That being said, Greece's only realistic outcome is to exit the Euro, re-adopt the Drachma, and let the natural dynamics of trade rebalance the debt over time.

There are no angels to side with here. Both the Northen European export regime of Germany et al and the Southern European regime of the PIGS have been driven by their own demons of greed and instant gratification.

And this was all caused by the flawed premise of currency union without fiscal union, which isn't realistic because fiscal union would require renunciation of national sovereignty and cultural identity, which is the Globalist's ultimate goal, and which free people naturally resist.

Sweet Chicken's picture

Sounds like a dare. Do it Greece, take back your country!!!!

DEMIZEN's picture

Here i agree wiz zhe germans.

NoDebt's picture

They have no choice but to hold a hard line and hope at least some of the money gets repaid.  The alternative is getting paid back in full.... but in Drachmas that have been devalued by about 95%.

Here's the truth of it:  there are no "good guys" in this.  The Greeks lied their asses off to get all those loans (with a little help from The Squid).  The Germans put their fingers in their ears, covered their eyes and pretended they didn't know it was all a lie.  At the time it seemed like a great idea.

Here's what I want to see- somebody flat-out default.  Pretty much anybody.  Until we start to see debt written off in pretty big clumps and bunches NOTHING is going to change.

Sh3epdog's picture

Whatever "side" has played dirtier, it's sad that all this fiat currency debt has made slaves of a whole country, crippled it's ability to function/self correct and function autonomously and most of all brought so much suffering to a population. Italy is also on the ropes, would have been a different story if it's trajectory pre-euro adoption had of been maintained. Countries and the citizens are starting to realize thier being taken advantage of by the Eurozone. 

DEMIZEN's picture

Everybody knew the name of the game in europe '92. Personally i dont care about money lost. I think greece is a trojan horse and potential threat to emu, so this probably just a nice german way to tell greece a final off.

Rainman's picture

 ' Greece’s main problem isn’t debt, but rather competitiveness '..

      That's some funny shit there.

NoDebt's picture

"the country would have to leave the euro area to do so."

OK.  Challenge accepted.  <----- what my response would be

OK.  We'll spread our cheeks even wider.  <----- what Greece's response will be

 

wmbz's picture

 "Greece’s main problem isn’t debt, but rather competitiveness"

Oh it's the debt! Dickhead

DutchMadness's picture

The neighbour countries of Greece have a average montly salary income of aprox 200 Euro. Greece aprox 1000 Euro. They have been spoiled and have spend hundreds of billions from other member EU countries. Now they are crying. They should go back riding their donkeys and sell their Porches.

 

GoldenDonuts's picture

Look at the picture of that MFker.  Greece should leave just to kick that ass in the teeth.

kindasketchy's picture

Why doesn't Greece just propose to send Germany a bunch of migrants in exchange for debt relief? I'm sure that the kind of plan that Herr Merkel would go for.

insanelysane's picture

The problem is Germany.  Now with the UK leaving, Germany is the only rich country.  Germany should exit the Union and go back to the German Mark.  The Mark's value would rise.  The rest of the countries in the EU would see the Euro fall and things would be better, at least for a while.

Bemused Observer's picture

For some reason, this threat sounds like "I will not let you slap me in the face unless you kick me in the balls too".

I think a Grexit at this point would be a WHOLE lot better for Greece than it would be for Germany. Just sayin'...

Grandad Grumps's picture

Drachma?

Britain never succumbed to the Euro lie and their economy is doing better than when it was part of the Eurozone. Maybe Greece should learn something.

lakecity55's picture

Vlad? Greece here. Want to rent some army and navy bases?

I will get back to you soon.

 

GreatUncle's picture

That option was possible 3-4 years ago ... not so sure now.

siktir-lan's picture

Greece should declare bankruptcy and default on their loans and go back to the Drachma.

Spectre's picture

Russia needs to perform a very complicated LBO, it will involve guaranteeing Greek loans and Russia taking over 50% of their Naval & Air bases amongst a few other little perks.  :)

Vigilante's picture

Greece is in NATO...Russia cannot move in w/o MAJOR repercussions for Greece

These repercussions also apply in the case of GR repudiating the debt.

In other words, Turkey is waiting in the wings to pounce in the Aegean.

They only await the signal from the Western powers.

GR is no Iceland...a million miles from nowhere and no enemies.

Ze Chermans will use their buddy Turkey as a hammer in case GR fucks with them

Now you know why GR is so timid.

 

DEMIZEN's picture

proly very close. I am not sure if nato will last another 5 years. Without nato in place, turkey would snatch cyprus in no time. syria is coming to get the golan heights back as soon as they are done with isis. Russians are pushing their adriatic sea agenda without success so far but not giving up easily.there could be some realignment in balkans soon again. I am not sure if ze chermans keah about ze balkans after the syria blunder. their pipedream is now headed east.

Mike Masr's picture

Don't worry Greece!

Twenty years from now Germany will be a third world nation. It's majority language will be Arabic and majority religion will be Islam.

Germans better learn now how to properly obey Sharia Law.  If Germans wear a cross they best keep it buttoned inside their shirts and NOT visable. They better learn how to swear by the beard and cook good halal meals for their Islamic overlords. If your LGBTQ be ready and willing to be tossed off a tall building. German women better cover up. They should go online and find some hijabs to wear and forget about voting and driving cars. German men will be required to hand over their women and children to maggot perverts and they must be ready to pay Jizya taxes on time with a big smile on their faces as obedient infidels in Germany will be required to do. And don't ever forget what Merkel and the Western MSM taught you about Islam. It's peaceful, loving and above all tolerant!

androkles's picture

I guess your right, mainly because ordinary Germans don't know this. It is so sad.

HRH Feant's picture
HRH Feant (not verified) Feb 8, 2017 6:09 PM

Greece will never be free until they kick the Euro to the curb and go back to the Drachma.

MEFOBILLS's picture

If you refinance a debt instrument with new a new debt instrument, then it goes exponential.  The interest on the first debt, becomes principle on the second.

So, you are grinding interest on top of interest through an interest math function, it then has an exponential output.  Paying back exponentials is usury - what used to be considered a mortal sin (equal to murder).

 Greek sovereign debts ended up being held in a German private bank, and the Euro's they beget, ended up in a German bank. (Mercantile nations like Germany grab money in trade imbalance.) 

As Varoufakis said, the "lawyers" couldn't understand the economics.   They wanted Austerity.

Sh3epdog's picture

Like most debt when it comes to "money" or "value" whipped out of thin air and then the bankers/gov's have the audacity to loan it out - it isn't about how large or if the debt can even be payed back, that's just used to entrap slaves and to have more power over them : ( The bankers care mostly about those interest payments, the ol something for nothing. 

Herodotus's picture

Greece needs to put high tariffs on German goods.

SmittyinLA's picture

If Greece had any balls thed respond by cutting off all free services fo immigrants and refugees, then boot and foreclose.

Strand the Germans with bad mortgage debt and no migrants to dump their bad debt .

I bet Greek mortgage debt is NOT guaranteed by the state either.

 

 

 

CHoward's picture

Hey Greece - do the right thing.  Tell the Krauts to go fuck themselves - don't pay another cent - have them kick you out of the EU and reestablish the Drachma.  Fuck this shit - you're better then they are.

androkles's picture

mhm, the ÜberKrauts like to make the Greeks suffer, and export their fraudulent Mercedeses and Bmw's as if they are made in Greece. In the mean time they import africans and despise the Greeks.

 

I'm out of it, I'm fully in USD and wait till the decay shows the truth.

 

 

Stan Smith's picture

I dont know how the EU survives long term.    Good or bad,  it cant continue the way it's going now.    I think things will get even worse when folks see the UK prospering even more.   Yes, the UK wasn't in the Euro,  but it wont matter.    It boggles the mind to think all these countries are going to put up with this.   At some point a full and total default has to happen.

androkles's picture

UK was (is) in the european union (EU), but not in the euro (EMU). I expect EMU and EU will collapse, but it could start anywhere (France, Italy, Nethrlands...)

 

Kaeako's picture

"It boggles the mind to think all these countries are going to put up with this."

Well, it makes sense considering the currency the Greeks would return to would be used toilet paper. In addition to all the current pain it would have more difficult battles raising necessary debt to pay for welfare and the public sector, and then there's always the cost of imports. Add to that the political cost and it's not an easy decision.

chisler's picture

It' s ano-brainerr. it's a Greexit.

chosen's picture

Greece, for the zillionth time, get the fuck out of the EU!  Return to the drachma.  Quit trying to be a first world country.  Face the fact that you peaked 2,500 years ago.