Wait... Wasn't the Greek Issue Solved Already?

Greece is in big trouble.


I realize that 99% of commentators have completely missed this fact. After all throughout 2011 the mainstream financial media published stories claiming that the Greek Crisis was solved.


However, the reality is that Greece remains in Crisis mode. The country has only 37 billion Euros left from its first bailout package. And the second bailout package is anything but guaranteed.


Indeed, as the below story reveals, the two financial backstops for Greece (the IMF and Germany) are in no place to pony up more cash.


Analysis: IMF funds for Greece not assured


IMF chief Christine Lagarde is warning Europe that Greece's economic prospects are deteriorating and the European Union will either have to pony up more money to rescue Athens or debt holders will have to stomach steeper losses.


Unless the private sector or the EU contribute more to Greece's rescue, the International Monetary Fund will view the nation's debt load as unsustainable and may be unwilling to deliver more funds, IMF sources told Reuters as Lagarde met with Germany's and France's leaders in Europe...


But talks aimed at getting private-sector creditors to shoulder a bigger part of a new Greek bailout are going badly, senior European bankers said on Wednesday, raising the prospect that euro-zone governments will have to increase their contribution.


If bondholders refuse to take larger losses and the EU does not agree to provide more aid, it is unlikely the IMF would come in to save the day, a senior diplomatic source said.


Already, concern is rising among IMF member countries about the Fund's growing exposure to Greece, with lending already at 2,400 percent of the nation's IMF quota -- by far the largest on record since 2003.


U.S. Republican lawmakers are already taking aim at Washington's support for the IMF, threatening to snatch back a loan approved for an IMF crisis fund in 2009. With a presidential election looming in November, the Obama administration has made clear it has no plans to provide further resources through the IMF to help Europe.




Let’s consider the IMF first. The IMF has already given Greece 2,400% more funds than its quota allows. Moreover, the IMF is essentially a US-backed organization. And what are the odds that Congress and Obama are going to “OK” hundreds of billions in funds to bailout Europe during an election year?


Next to none.


So the idea that the IMF will somehow save the day here is completely delusional. Indeed, you can even see this in the following paragraph:


Unless the private sector or the EU contribute more to Greece's rescue, the International Monetary Fund will view the nation's debt load as unsustainable and may be unwilling to deliver more funds, IMF sources told Reuters as Lagarde met with Germany's and France's leaders in Europe...


This is nothing more than a cop-out: the IMF knows private bondholders don’t want to eat more losses on their Greek debt holdings, so it’s using that as the reason why it cannot provide more funds. It’s actually pretty brilliant as it portrays the IMF as wanting to help, but blames others for the reason why it can’t.


Germany is pulling a similar stunt, promising to pony up more cash only if Greece meets certain conditions (conditions that Germany knows Greece won’t agree to).


Merkel warns Greece on second bailout


German Chancellor Angela Merkel has warned Greece it will not be able to receive further aid unless it makes rapid progress on its second rescue package, including reaching agreement with private bondholders over a voluntary write-down on Greek debt, Reuters has reported.


Speaking at a joint news conference in Berlin with French President Nicolas Sarkozy, Merkel told reporters,“The second Greek aid package including this restructuring, must be in place quickly. Otherwise it won’t be possible to pay out the next tranche for Greece.”


The scheme aims to cut Greece’s debt-to-GDP ratio from around 160 percent to 120 percent. However, last week European Central Bank (ECB) policymaker Athanasios Orphanides said the private sector deal should be scrapped, while on Saturday an adviser to Germany’s finance minister said a 50 percent “haircut” was insufficient to tackle Greece’s huge debt, Reuters reported.           




In plain terms, both the IMF and Germany have stated they will help Greece if and only if Greece agrees to various measures… which they KNOW Greece cannot agree to.


And so the Greek issue has become a kind of “hot potato” that no one wants to keep holding. Meanwhile, every day that this issues doesn’t get solved, the EU as a whole moves closer to systemic failure.


After all, the very same issues that are plaguing Greece (namely the inability to find additional bailout funds) are going to take down Spain, Italy, and the other PIIGS. And once they do, the EU in its current form will be broken up.


You can already see investors preparing for this as they flock to German bunds pushing yields negative there. On top of this, EU corporations and banks are so worried about the system that they are parking record amounts of cash with the ECB.


So if you’ve not already taken steps to prepare your portfolio for a Euro collapse, NOW is the time to do so. Because once the real fireworks start, it will be too late.


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Good Investing!


Graham Summers


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