Germany Has "Reached Its Limit" On Greek Aid

Tyler Durden's picture

While Frau Merkel remains beach-bound somewhere, hence the lack of 'Neins' recently, her deputy chancellor Michael Fuchs made it unequivocally clear this morning in a Handelsblatt interview that Germany had "reached the limit of its capacity" over additional EFSF payments to Greece and reiterated the double-whammy that the ESM should NOT receive a banking license and that the ECB should NOT act as "money printing press in disguise" by extending emergency loans and bypassing EFSF/ESM. A decision about whether Greece should be given the second tranche of its loan will not be made until October, after the Troika finalizes its first review of the second rescue program in September. However, BNP Paribas notes that there have been a couple of developments worth noting over the past week and more are likely in the coming weeks.


BNP Paribas: Greece, Trying To Catch Up

Some encouraging news...

On Sunday 5 August, the Greek government and Troika officials wrapped up the first round of talks during which “great progress” was made, according to IMF officials. The Troika team returns to Athens in early September and the cabinet needs to finalise the details of the EUR 11.5bn of spending cuts for 2013-14 agreed with the Troika, focus on the implementation of EUR 3bn of fiscal measures for this year and discuss an acceleration of privatisation and structural reforms until mid-September.

In the meantime, Greece has gained time by finding a solution to the upcoming EUR 3bn Greek government bond redemption, on 20 August. (These bonds are held by the ECB.) According to Greek officials, Greece will issue extra T-bills this month (note that under the second programme, the plan was Greece to actually decrease the outstanding amount of T-bills this year). An announcement on the amount and details of the issuance is expected on Friday 10 August, but the issuance should enable Greece to meet its funding needs through September.

However, the issue is where the demand for these additional T-bills will come from. In this respect, we see it as no coincidence that, reportedly, the ECB decided to raise the limit on the amount of T-bills the Bank of Greece can accept as collateral from Greek banks by EUR 4bn to EUR 7bn. This will enable Greek banks to receive additional liquidity from the central bank, which can then be used to buy the additional T-bills the government is to issue.

This is clearly an example of monetary financing of the government’s funding needs and is unsustainable. Nonetheless, as a temporary solution, it is a positive development as it will give time to the Troika, to finalise its first review of the programme, and to Greece, to focus on its efforts on catching up with the implementation of its programme to get a positive first review.

...But no reason to get carried away
Although Greek politicians generally seem to recognise that this is the last chance for the country to prove itself suitable to continue to receive funding from the EU/IMF, decision making has not been easy under the three-party coalition government. The Greek prime minister’s view that Greece has to deliver first before it can ask for a renegotiation of the programme is certainly the right attitude. But, Greece has already faced some difficulties in meeting its commitments. First, it took the cabinet longer than expected to agree to spending cuts for 2013-14 before it met the Troika, which delayed the Troika team’s departure from Athens. Second, disagreements among the three party leaders have made it hard to finalise details of EUR 11.5bn of spending cuts this week. According to the Greek finance minister, around EUR 4bn of measures out of EUR 11.5bn still needed to be detailed. One of the measures to fill this gap, the revival of a labour reserve scheme to reduce the public sector wage bill (the scheme, under which 30,000 public sector workers in total were to be placed in a pool, where they earn 60% of their annual salary, was adopted last year, but was soon abandoned), faced strong opposition from the Democratic Left party. Latest news, however, suggest that there is an agreement on the revival of this scheme at the end.

Overall, it seems to us that Greek political developments will be key to watch, as the government’s efforts to meet the demands of the Troika by mid-September still face challenges.

Underlying problems need to be tackled

The fact that the Greek government is trying to catch up with the implementation of the programme to impress the Troika is good news, but as Greece has already failed to meet the performance criteria to get a positive review assessment, the outcome of the review remains uncertain. In addition to Greece’s lack of implementation of the programme, a deeper-than-expected recession has increased the difficulty of fulfilling the programme.

Thus, the overly optimistic projections of the programme are already off track. This points to a need for some sort of additional help to Greece if the debt-to-GDP ratio is to be deemed sustainable under the IMF’s assessment. In other words, the underlying problems of the programme need to be tackled.

What does this imply? Given the high share of official-sector ownership of Greek debt after the PSI (around 70% of the total EUR 335bn of total public debt by end-2012 – assuming programme disbursements will be made – on our forecasts), we continue to believe that Greece needs some sort of relief from its debt to official creditors. As the IMF loans (EUR 22bn disbursed) have seniority, any potential relief from official sector debt could be on: (i) Bilateral loans from eurozone member states under the first programme (EUR 53bn); (ii) ECB holdings (around EUR 46bn left after redemptions so far); and/or (iii) EFSF loans (EUR 74bn disbursed).

It would be politically difficult to impose a haircut on bilateral and EFSF loans, but the interest Greece pays on these could be lowered as a relief. In this respect, a potential haircut on the ECB holdings, together with the ECB foregoing the interest it receives on old GGB holdings, could be an option. The ECB’s August statement that the ECB is to address “concerns of private investors about seniority” regarding sovereign bond purchases provides some food for thought, in this respect, as it could potentially have implications for Greece.

Another option that could be considered to reduce the stock of debt is to allow the funds Greece has received and will receive from the EFSF for bank recapitalisation (from the total of around EUR 50bn earmarked for bank recapitalisations, Greece has received around EUR 25bn so far. Recoveries, through the sale of bank equity, estimated at EUR 16bn, put the net financial system support at around EUR 34bn) to not go through the government’s account, i.e. a similar treatment to Spain. This alone would lead to around a 17%-of-GDP decrease in the Greek debt-to-GDP ratio. However, any decision on this would need to wait for the ESM to come into effect and be allowed to recapitalise banks directly, after a single supervisory authority is in place.

On potential official sector involvement, the WSJ recently reported that the IMF is already pushing the eurozone governments to reduce the debt burden on Greece and even to consider a debt-to-GDP ratio of close to 100% of GDP by 2020, rather than the current target of 120%.

On the basis of our forecasts for the primary budget balance and real GDP, and using the IMF March forecasts from 2015 onwards (assuming privatisation targets under the programme are reached), the debt-to-GDP ratio should reach a peak of 179% in 2013 and be close to 140% by end-2020. If the new aim is to reduce the debt-to-GDP ratio to 100%, our forecasts show this would imply an overshoot of around 40% of GDP (around EUR 80bn), suggesting that a combination of the above options needs to be considered to reduce the stock of debt.


We continue to believe that a Greek exit from the eurozone would still have significant contagion effects near term, given that a plan for Spain and Italy is unlikely to be spelled out soon and the ECB has yet to work out the details of its potential unconventional policy action ahead. Thus, a decision on Greece will eventually be a political one. Against this backdrop, we stick to our view that, after a very tough renegotiation period, Greece is likely to be given the second tranche of the loan (with more conditionality attached to it) as long as the Greek coalition partners stick together to deliver the Troika’s demands.

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bob_dabolina's picture

So I guess the U.S taxpayer is up to bat.

Vampyroteuthis infernalis's picture

We foot the bill for everything else as unemployment remains high. What's changed?

LowProfile's picture


Never been a better time to let gold trade free of leverage, derivatives and taxation.

Fixed it.

engineertheeconomy's picture

Sorry the link to the chart of the deficit in Gold Supply chart was blocked by the internet gods. Gold will soon disappear from the shelves if they don't allow the market to determine  price. They can't manipulate the price downwards with their paper scam unless they can convince people to wait for their (Physical) Gold orders to be filled

derek_vineyard's picture

bob dab is trying so hard to get a bunch of green arrows up...... thats his only goal

this was actually a pretty decent ass kissing to ZH readers

French Frog's picture

"as long as the Greek coalition partners stick together to deliver the Troika’s demands"

The odds of Greece agreeing to the Troika's demands are 100%, exactly the same odds that say that they won't implement them once they have the money....

In the same way that most spanish banks will pass the banking stress tests in September with flying colours, only to ask to be bailed out soon after.

bank guy in Brussels's picture

John Ward's 'The Slog' - one of the most interesting sites on the European debt crisis in recent weeks, with some deeply placed sources - says quite the opposite of the above article

He says that a secret EU deal has been done to kick the can re Greece much longer -

Greece leaving the euro perhaps will hit Europe and Germany for a third of a trillion loss, not counting what extra damage will be done from contagion going right up to the German banks etc. ...

Elite Germans know this despite the superficial meme of 'we're not gonna pay any more' [and risk blowing up the German banks and insurers and pension funds, uh-huh]

‘Greece ... Deal has been done to pay off bondholders and forgive residue of debt ... big new containment plan for Greece’


boogerbently's picture

If they print, Germany will leave, THEN they'll be f'd.

The EU countries leaving will prompt a return to a gold standard....they will have no other basis for comparison.

Offthebeach's picture

German elite, banksters, political hacks, crony manufactures and union bosses are not going to take a beating. That's what Deutch Muppet Volk exist for. They must redouble their efforts for the new order.

dogbreath's picture

maybe.   how one gets from here to there can be by many differnt roads and duration but there is still there and the destination of the trip.

dogbreath's picture

deep sources  --->  leak   ---->  wishfull thinking  -----> black swan   

/\   entertainment

French Frog's picture

Hey 'bank guy in Brussels'

You should be careful about all the crap that you can find online about 'secret deals' and 'exclusives' especially if it comes from were the ones who 6 months ago had proof that it had all been agreed for Greece to default on 23rd March lol

BeetleBailey's picture

..whether they like it or not Bob. Also, whether they KNOW it or not.

DeadFred's picture

This stuff is not news. It's the other side of reality that has been swept under the carpet while the bullish muddle-through QE-will-save-us side fluffed the rally. Five days up for the S&P including several days banging against the underside of trend and approaching the multiyear highs. There's not enough volume to get through resistance this time so it's time for another trip down. MSM will be pumping the Doom-Doom-Doom drum for the next few days. Want to bet we get at least one more trip up on this BS joy ride? They'll be able to pop through to new highs in another week and a half. Of course vacation time ends right after that and everyone (including Angela) will be back from the beach. Go short at 1440.

sunaJ's picture

I agree with your analysis and like your style, thank you.  It's best, however, if it is so fraudulent, to not play the game at all.  You are just putting your money in a fraudulent system and outside of your control, stalked by fraudsters who must keep it going, leading them to earnestly look for manners in which to justify confiscation.  You are still in the casino at 1400, 1410, 1420, 1440, 1490, 1130, 1510, 980...

Nadaclue's picture

Well, even if they (the public) did find out, would it make much difference?

The American people would wave their arms, flap their gums, show righteous  indignation with a lot of "GODDAMMIT, THIS SHIT HAS GOT TO STOP!" at shrill levels and then, look at the clock and say, "Ohhhh Goody, American idol is coming on next. Better change the channel now".

I'm afraid I'm (like oh so many others), beyond the pale with apathy towards the American Public.

The Republic has been lost, usurped from within. It's mind boggling how close to Star Wars story this loss is, Our problem is there are no Jedi Masters or O'Be Won Kanobies to become our only hope.

The only flaw in the Constitution is that it doesn't impose strict term limits on the most corrupt in the land. The legislature.

All we can do now is muster and strengthen our defenses. Dig in for the long haul and prepare for the inevitable reset that will come.

Begin soon, the drone wars will.

/spastic rant

Nobody For President's picture

So this is how the republic ends: With thunderous applause.

boogerbently's picture

We'll bail them ALL out....for their gold. Then we'll let gold run to $5000/oz....or more !

Landrew's picture

Why bother EVERYONE with comments like that? We are being bailed out. Almost nothing you said makes sense. In some cases the MORONS at the U.K. sold their gold for nothing in a deal that is only now starting to be understood. Many central banks have almost no gold and all have zero silver.

Xibalba's picture

The US Taxpayer reached thier limits long ago.  This is now a ponzi wash and rinse cycle between the Fed and the Treasury.  I.e: "I'll trade you some pink notes for some blue ones"

sunaJ's picture

Fiat money.  The most powerful meme in human history.

derek_vineyard's picture

all talk, same action (print/debt)

printing and debt is a disease/illness; not a character flaw and all involved should be given more respect

remember, its ok to be an alcoholic. gambler, quad sexual, or lawyer lover..........this is the USA and you are fee to be you

Incubus's picture

America: Feedom and Dumbocracy for all

derek_vineyard's picture

hey self -------------> 'fee to be you' ?


was that a typo or not?

LMAOLORI's picture



bob_dabolina "So I guess the U.S taxpayer is up to bat."

U.S. Taxpayers have already been bailing out Greece or should I say the American Banks in Greece through the IMF  


We're bailing out Greece But US taxpayers shouldn't be

The second outrage is that, as in some of the US bailouts, our bailout money is JUNIOR to Greece's existing debt. That means that, over the next couple of years, the idiot banks that loaned bankrupt Greece money will get their money back. 


otto skorzeny's picture

gee-you think GS orchestrated this whole mess years ago?  they are sitting on a ton of CDSs

nmewn's picture

Where is your global patriotism sir!!!

Lets all break into a rousing chorus of kumbaya followed by we are the world...bonus season will soon be upon us!!!

Arius's picture

exactly ... its a mad mad mad world ... i always watch that movie whenever i can ...

Silver Bug's picture

Save yourself Germany! Stop wasting your money!

Cplus's picture

It's of little use for some in Germany to talk of limits at this point. The exponential growth of EU money supply and the ECB balance sheet in the past 4 years will produce unpleasant results in the next 2 years at least, whatever the limited restraint they may or may not apply this year. 

francis_sawyer's picture

francis_sawyer has reached his limit on 'KOOL-AID'

TrainWreck1's picture

No such animal as 'limit' when it comes to government bailouts & spending.


icanhasbailout's picture

Eez jus eh wafer-thin mint...

sangell's picture

Whenever serious cuts have to be made the Greek government coalition will fall apart and new elections will be required to have a government capable of carrying out the cuts. This how Greece keeps stalling the actual implementation of any agreement they sign with the Troika.

dudebum's picture

Stratfor had an article recently that seems to say Merkel _has to_ eventually knuckle under.



Merkel was not making decisions; she was acting out a script that had been written into the structure of the European Union and the German economy. Merkel would create crises that would shore up her domestic position, posture for the best conceivable deal without forcing withdrawal, and in the end either craft a deal that was not enforced or simply capitulate, putting the problem off until the next meeting of whatever group.


In the end, the Germans would have to absorb the cost of the crisis. Merkel, of course, knew that. She attempted to extract a new European structure in return for Germany's inevitable capitulation to Europe. Merkel understood that Europe, and one of the foundations of European prosperity, was cracking. Her solution was to propose a new structure in which European countries accepted Brussels' oversight of their domestic budgets as part of a systemic solution by the Germans. Some countries outright rejected this proposal, while others agreed, knowing it would never be implemented. Merkel's attempt to recoup by creating an even more powerful European apparatus was bound to fail for two reasons. First and most important, giving up sovereignty is not something nations do easily -- especially not European nations and not to what was effectively a German structure. Second, the rest of Europe knew that it didn't have to give in because in the end Germany would either underwrite the solution (by far the most likely outcome) or the free trade zone would shatter.


If we understand the obvious, then Merkel's actions were completely understandable. Germany needed the European Union more than any other country because of its trade dependency. Germany could not allow the union to devolve into disconnected nations. Therefore, Germany would constantly bluff and back off. The entire Greek drama was the exemplar of this. It was Merkel who was trapped and, being trapped, she was predictable.

Read more: Financial Markets, Politics and the New Reality | Stratfor
Ghordius's picture

+1 the article is not bad, though it accuses Germany of mercantilism

123dobryden's picture

Germany needed the European Union more than any other country because of its trade dependency..


Cant believe anyone with a piece of meat called brain can believe this. Stop spreading bullshit, Germany btw people WAS best run country in EU before EURO, they were the most productive economy before EU, this shit called integration sucked them to pay other people's bills. Guess what, ....there will be a crisis in Germany and some halfjew will come again and he will tell his people the truth again and again he will win election, its all a matter of time, it is a sure thing!!!


btw, cant realy believe people get paid for spreading idiocy, stratfor, rating aganies, banks, sometimes i really feel alone in this world, seems to me not God, but reason is DEAD.

JR's picture

Goodbye used to be God be with ye and a blessing: in this banker world it’s become Goldman be with ye and a curse.

JR's picture

Stratfor is the mouthpiece for Goldman. When you read what Stratfor has to say you’re reading what Goldman Sachs wants you to see.

Quote: “Before the implementation Germany exported 42% to the EU countries.
Now, the quote is barely 35%. The EU is a sheer nightmare and everything but the basis of a german empire.
The imperialists are sitting in the City of London.” --flight77 ZH

The eurozone is a bankerzone, an invention of the banks, not an invention of Germany. And it’s frightening the extent the financial tyrants will go to in using political states such as Germany for their own ends. And, in this case, bringing in Stratfor to suggest that Chancellor Merkel’s moves were known in advance. Translation: Her decisions must constantly be channeled to fit the designs of the Troika.

Here’s one of the S/GS connections (actual released email shown in article):

MASSiVE insider SeCReT dealing scheme with STRATFOR and G Sachs, maybe |

Posted by Paul Murphy on Feb 27 2012

“The first thing in the files on Wikileaks that catches our eye, among the purported emails and reported highlights:

“…The emails show that in 2009 then-Goldman Sachs Managing Director Shea Morenz and Stratfor CEO George Friedman hatched an idea to “utilise the intelligence” it was pulling in from its insider network to start up a captive strategic investment fund. CEO George Friedman explained in a confidential August 2011 document, marked DO NOT SHARE OR DISCUSS : “What StratCap will do is use our Stratfor’s intelligence and analysis to trade in a range of geopolitical instruments, particularly government bonds, currencies and the like”. The emails show that in 2011 Goldman Sach’s Morenz invested “substantially” more than $4million and joined Stratfor’s board of directors. Throughout 2011, a complex offshore share structure extending as far as South Africa was erected, designed to make StratCap appear to be legally independent. But, confidentially, Friedman told StratFor staff : “Do not think of StratCap as an outside organisation. It will be integral… It will be useful to you if, for the sake of convenience, you think of it as another aspect of Stratfor and Shea as another executive in Stratfor… we are already working on mock portfolios and trades”. StratCap is due to launch in 2012.

“Er, bet it doesn’t launch in 2012.”