European Deathwish Exposed: Greek Bailout Package Delayed By Three Months
Looks like Europe plans (and we use the term very loosely) on pushing its fate literally to the wire. Yesterday we explained why for Greece March is D(eadline)-Day, and as Greece itself stated, absent bailout cash coming in, it is game over: for Greece, for the Eurozone, and for Europe as the serial chain of defaults and exits begins. Which is why we read with great surprise minutes ago that according to the European Commission, the entire Greek bailout package has been delayed by three months because of delays in payouts of the 2011 tranche! Naturally this is supposed to have the optics of punishing Greece for doing absolutely nothing to fix its fiscal situation but all it will do is send the market (the European one that is - America is still stuck in some idiotic limbo where it fools itself that it can exist in isolation from the world's biggest economy) even more into Risk Off mode, as the world will be forced to wait until the 11th hour and 59th minute to find out if the Euro and Eurozone will survive for a few more months. In the meantime, Mario Monti is off to Brussels to satisfy an unscheduled craving for Belgian beer and chocolate, or something.
The next 5 billion euro tranche for Greece that was originally scheduled to be paid in December 2011 is now to be paid out in March 2012, Commission spokesman Olivier Bailly said.
A further 10 billion euros that Greece was originally to receive in March this year, will now be paid only in June and all of those sums can also be delayed if inspectors judge Athens is failing to deliver promised fiscal reforms.
"That cannot be changed," Bailly said, referring to the three month rhythm in paying out tranches of the first Greek rescue programme.
Last year, Athens repeatedly said it faced the risk of defaulting if the EU and IMF did not pay out scheduled tranches. Europe's political leaders have made it clear that as long as Greece meets criteria on reforms, it will be financed as necessary by the EU and IMF, but investors with money in Greek bonds are watching its cashflow closely.
The payouts are part of the aid that Athens has been promised under a 110 billion joint EU/IMF financing programme in 2010 in exchange for fiscal austerity and structural reforms that are to make public finances of the highly indebted country sustainable.
Out of the total, 73 billion euros have already been paid, and 37 billion remain to be disbursed.
The delay in the payout of the money last year, which meant 8 billion euros from September were only paid out in December, was caused by Greece's failure to keep up with its commitments to implement austerity and structural reforms.
Bailly said that if Greece fails to meet the aid conditions again, more delays in pay-outs would follow. A team of EU and IMF inspectors will visit Greece on January 14-16 to verify reform progress.
"If our mission in mid-January concludes that there is a delay in progress, we would have to review March (payment due then)," Bailly said.
Euro zone leaders agreed on a second, 130 billion euro financing programme for Greece in October to maintain the country's access to emergency financing for longer after initial expectations that Athens would be able to return to markets in March 2012 proved optimistic.
But details of the second programme, which includes a 50 percent haircut on Greek bonds held by private investors, are still under negotiation.
Sure enough, the EURUSD is now firmly under 1.28 as the printers are starting their warm up sequence.