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Monday, June 5, 2017

Greece's Creditors Waiting For 123 BEUR!

The story has been making the media rounds that if Greece's Eurozone creditors agreed to a debt relief in the form of interest deferral until 2048, they would be waiting until 2048 to receive 123 BEUR. This is allegedly based on a forecast by the German Finance Ministry. No details as to how that calculation was made were given.

After having recovered from the shock of this piece of news, one can justifiably ask the question: "What else is new?"

Interest deferral does not mean that interest is forgiven. Its payment continues to be due but, as the name suggests, instead of paying interest every year, all interest is deferred until payment at a later date in the future. Until 2048, for example. And, normally, interest on interest deferred is also added to the bill.

Suppose Greece owed 200 BEUR out of its total debt of about 320 BEUR to Eurozone creditors. At a rate of 2%, the annual interest amount to be deferred would be 4 BEUR. Multiply that by 26 (from 2022-2048), you come to 104 BEUR. Given the difference with the above 123 BEUR, the German Finance Ministry's forecast calculates either with a higher level of debt or a higher interest rate or high interest on deferred interest, or a combination of these.

So there isn't really any news in this shocking news because we are talking about 'debt reprofiling' and not 'debt relief'. Debt reprofiling means to reprofile the existing debt and interest maturities in such a way that they become more amenable to the borrower's cash flow. That's all. There is no relief in that whatsoever.

To express shock about having to wait until 2048 for payment would only be justified if one felt that the payment can eventually be made. I don't believe that there is any person in the world who still believes that Greece can service its debt (i. e. pay interest at market rates), today or in 2048. Thus, to calculate interest at market rates (which cannot be paid), defer it out to 2048 so that a huge bullet payment results and then clamor that 123 BEUR have to be written off, well, that reminds a bit of Paul Kazarian's accounting tricks.

The only thing which will work for Greece is a debt reprofiling combined with a reasonable debt relief. To avoid that governments of lending countries have to tell their tax payers that they had to forgive Greece debt, the relief should be played via the interest rate.

The simplest way would be to set the interest rate at zero percent and to build in certain 'kickers' stipulating that interest could be charged in the future under certain unforeseen developments. For example, if Greece were to discover the world's largest oil reserves and became very rich, that could be a situation where the 'kicker' kicks in.

In the present interest rate environment, this debt relief would not be too costly for the lending countries. They could fix their funding cost until 2048 at rather low rates and the resulting 'loss on Greece' would become an opportunity loss (not collecting interest) whose bookkeeping entry no outsider could find in the published fiscal statements (because there is no bookkeeping entry for opportunity losses).

Everything else is a bit of a farce.

32 comments:

  1. Unfortunately Schauble will not reprofile any of the Greek debt. This will cause the Syriza government to fall only for the Greeks to discover that the new government will not be treated any better. I am afraid the only solution left is a popular revolt. There is way too much talk in the streets about revolt to simply ignore it.

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    1. @Phoevos
      Quote: "I am afraid the only solution left is a popular revolt."

      LOL, year that helped in the past - oh wait. You can protest and revolt ’till the cows come home - that does not produce anything of value for your economy or society. And the other Europeans were quite unimpressed when you tried this strategy a few years ago, remember? And your uncle (the one with his black money in a Swiss bank account) will not be tempted to invest his money in riot ridden country.
      Urs

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    2. Revolt? Oh please.

      But let's say that Greeks wanted to revolt (which they don't). How are they going to revolt? With their kitchenware? In order to revolt you need guns, which urban Greeks don't have.

      Too much fantasy.

      Delete
  2. Let's openly admit that joining the eurozone was a tragic mistake. Our failed politicians called this an act of belonging to the "core of Europe". In reality it was more like an act of reckless nakedness, exposing ourselves voluntarily to severe exloitation and abuse by German trade surpluses. Our dim witted politicians thought they were joining a club of "equals" where in effect they were voluntarily entering a prison term whose barbarity, cruelty and total disregard for justice and fairness is already legendary. And to call yourself after such abuse a "committed European" is the equivalent of a rape victim trying to convince us that the experience was "good".

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    1. Phoevos,

      The repercussions of leaving now would render us worse off. Leaving the Euro would not mean we leave the system, nor how we dictate ourselves. Whether inside or out, we are powerless. Our leaders are only there to show the idea of local democracy. In reality, they have no power what so ever and the foreigners will be dictating to us what to do with our country. It is simply a new tourkokratia. Accept it and see what you can do from within to unshackle yourself. Leaving the system all completely means you automatically become North Korea.

      We are literally in-between a rock and a hard place and there is no politician explaining this. Unfortunately we are at the whim of this system which is run by Berlin.

      This all quite clear to me so, in actuality this blog should be renamed "Observing German's Greece."

      Sincerely,

      V

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    2. V:

      The subject of leaving now is a bit different from the subject of we should never hve entered in the first place. Obviously the best time to have left was in 2012 when we had all the negotiating cards in our hands and then we threw them away because we had a constitutional attorney by the name of Venizelos thinking he knew anything about economics and finance when in fact he didn't. The best thing we can do now is something along these lines: We have EU studies at our disposal showing the effect of Grexit to the eurozone estimated at 1.3 Trillion euros. So, a good negotiation (and by that I mean skilled) would be in exchange of staying in the eurozone we should ask for 600 Bil. euros (roughly half of the amount of the potential damage). With such funds we pay off the debt and we are left with roughly 300 Billion to invest in the economy and grow it at a healthy pace.

      I am not sure about the North Korea and Venezuela arguments; these are extremisms to scare off people.

      What we can not afford is to continue going as we do: aimless, attached to some vague promises and hoping for an anemic recovery. I don't think people would have the tolerance for such and pretty soon the camel's back will break. And when it does things will spin out of control both inside and outside Greek borders.

      Delete
    3. Quote: "Let's openly admit that joining the eurozone was a tragic mistake."

      The Eurozone itself was a tragic mistake.

      Quote: "Our failed politicians called this an act of belonging to the "core of Europe"."

      Come on, nobody in Greece felt for that nonsense. The real reason why greek politicians lied their way into the EZ were low (german) interest rates for greek sovereign debt. Remember: There is money enough.

      Quote: "In reality it was more like an act of reckless nakedness, exposing ourselves voluntarily to severe exloitation and abuse by German trade surpluses."

      Right, because the Germans forced the poor Greeks to buy their Mercedes and VW crap. What should the innocent Greeks do? Go by bussses they built themselves. Come on.

      Quote: "Our dim witted politicians thought they were joining a club of "equals" where in effect they were voluntarily entering a prison term whose barbarity, cruelty and total disregard for justice and fairness is already legendary."

      Economy is such a bitch. The poor Greeks misled by their illiterate politicians joined the wrong club. They joined a monetary union (not for the first time btw.) yet they thought it was a transfer union. Oh snap!

      Quote: "And to call yourself after such abuse a "committed European" is the equivalent of a rape victim trying to convince us that the experience was "good"."

      I would liken some commenters here more to an alcoholic who blames after 30 years of boozing the barkeepers for his deteriorated health.
      Urs

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    4. Not forced to buy Mercedes and VW , but the eurozone does/did blur the line between buying imports and buying domestic. When you are buying imports with foreign loans in a different currency and a different economy you can see you have to proceed carefully.

      Delete
    5. @Urs.

      We did not ask for a transfer union. We asked for a smart union or at least not a "sehr dumm" union.

      I understand your frustration about identifying deposited Greek wealth and being unable to collect it.

      Just remember:

      . Tax avoiders have lawyers too, in fact perhaps the smartest lawyers. Forget about your inborne statism for a second and ask this simple question: If the choice was to pay 40% of your income to the state vs. 20% of your income to your smart lawyer why would you even consider paying the state? For patriotism reasons? If you want to help your country you can decide of how to direct your wealth and where, not some bureaucrats who think the name of the game is shooting taxpayer fish in a barrel.

      . To be able to collect from individuals you have to move as an authority with great speed and not to pre-advertise where you think the treasure is hidden and pose the theoretical question of why the owners of the treasure don't want to share.

      Secondly, what has happen to Greece already reinforces the "hide and seek" behavior rather than ensuring compliance. One has to be exceptionally stupid to listen to what Schauble says and then go to the tax office the next day for a voluntary one half of his body weight blood donation.

      The way you went about curing the problem in Greece has created a permanent aversion to following Brussels advice/guidance. In fact it has created a hardened class of citizens who will go to the ends of the earth not to cooperate with the new regime.

      What you have managed to create in Greece is an aging society of professional pensioners which will be constantly increasing and you will have the permanent obligation to fund it.

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    6. Quote: "I understand your frustration about identifying deposited Greek wealth and being unable to collect it."

      Why on earth should I be frustrated about greek tax dodgers? Tell me? Or better yet tell me why on earth you are not?

      Should anyone ever be tempted to fall for your laments about the remorseless germans he or she should read your piece on the virtues of tax dodging. Thanks Phoevos.

      Urs

      Urs

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    7. "he or she should read your piece on the virtues of tax dodging"
      Said a Swiss!

      Delete
    8. Quote: "Said a Swiss!"

      True, so what is your argument, Sir?
      Urs

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    9. Urs:

      As a friendly remark, I think you are far more effective when you are stoic and dismiss your opponents as disgusting insects on the basis of troll behavior and ignorance.

      Your last 2 comments indicate that you might be losing a little your otherwise winning composure.

      If you know anything about Greece and the Greek people there is a definite hard line between the state and those governed in Greece. Our attitude (which I consider to be uber healthy and correct) is that the purpose of the state is to serve the people and not the other way around. In matters of tax dodging or tax avoidance, the last thing you want to do is to reward an inefficient and bureaucratic state with more tax revenue which mathematically is going to be wasted.

      Instead of allowing the state to collapse under its debts, the Germans in order to maintain the trade free zone called the eurozone have supported instead a sick organization with an added responsibility of Greek citizens to feed such monstrosity. We don't want to do this and we should not do it.

      Instead of allowing us to fix our economy and put our lives back together, outsiders like you are constantly breathing down our necks about hidden treasures we keep away from public view, taxes we don't pay and acts of disloyalty towards a government which long ago has ceased to be sovereign.

      Let me put this way: It's not our job to save the effing eurozone so that some oppressive Germans continue to sell us more than they buy from us. If you want to save the eurozone then you should do it, in other words, those who profit the most from the eurozone should do the rescuing. And rescuing does not mean further austerity because if you go down this path then saving Greece will become a permanent obligation of yours and those thinking like you.

      Be smart and let the Greek economy roar. Restore real estate values, restore confidence and at minimum go and eff yourselves about your constant petty demands of further "reforms", in other words, irrelevant window dressing and beauty contests so that you can claim among your co-conspirators than you did something in Greece and finally reformed the resistance fighters. This will never happen, I can assure you.

      Reforms under duress will breed violence that will hit you back in the face. Mark my words. And then you can kiss goodbye your gold bars, the actions of the Swiss Central bank and whatever else you think is standing in the way of your financial happiness.

      Delete
  3. What do you expect? Kicking the can down the road. How many times have we seen this already?

    Tsipras totally betrayed; AGAIN.

    https://global.handelsblatt.com/finance/imf-head-offers-more-time-in-greece-debt-talks-776604

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  4. What do you guys think of this project @ Delphi?

    https://www.youtube.com/watch?v=PI8cPtF4eo0

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  5. Another blackmail. It did not work last time. If you don't give us 600 billion we will blow up Europe, we may even shoot ourselves. Well be my guest. With the skills of this government they may even pull the trigger before they light the fuse.
    Lennard

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    Replies
    1. o.k. Let's icrease it to a cool 1 Trillion and credit your diplomatic language for such accomplishment.

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    2. @Lennard:

      That’s not a proper attempt to blackmail the other EZ members. That’s just a joke. Even Phoebos can not be so deluded to think that this bluff (that had been called several times) will work now. He is a troll through and through and just couldn’t resist to post his wettest dream.
      Urs

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    3. Urs:

      At least Phoevos is still capable of producing wet material.

      Delete
    4. ROFL.

      You guys have been quite entertaining as of late. Thank you. Keep it up. much nicer atmosphere.

      V

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    5. I agree with you. The conversations have moved from acerbic to entertaining! I like it!

      Delete
  6. Slight improvement in Greek trade balance, certainly below its historical average. Crude petroleum imports still a problem:

    https://tradingeconomics.com/greece/balance-of-trade

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  7. Exports from Greece rose by 9.7 percent from the previous year to €2.32 billion in April 2017, as sales to countries outside the EU advanced 18.9 percent and those to the EU grew 3.1 percent.

    In plain words: EU trade sucks. All future export growth for Greece to be found outside the EU.

    https://tradingeconomics.com/greece/exports

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  8. So Greece in April scores 5 times its historical FDI average:

    https://tradingeconomics.com/greece/foreign-direct-investment

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  9. So here some observations from Greek trade:

    1. Italy the #1 export market for Greece.
    2. USA+U.K trade bigger than Germany
    3. Cyprus+Bulgaria trade bigger than Germany
    3. Lebanon+Egypt trade equals German trade
    4. Turkey+Bulgaria much higher trade than Germany

    Now all we have to do is isolate Germany and exponge it (wipe it off the Greek trade map). No exports to Germany and ceratinly no effing imports from the sewer of Europe. Case closed. Greece free again.

    https://tradingeconomics.com/greece/exports-by-country

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    1. What is interesting is imports of 2016. Of the 37 beur in imports - 10 for the petrol goods we are left with 27. of that 27 10 bil euro go to equipment machinery infrastructure, ships and other. It is what i have been saying many time in the past, what is Greece importing exactly. For me this number, even though our trade balance is off, is quite important as we are investing into our economy regardless of what is bestowed upon us.

      From my POV, product manipulation and re packaging, will play a big role in our future exports.

      Couple with the cosco/trainose piggy back idea we will certainly be on our way.

      V.

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    2. V:

      Things are not that bad as the opposition wishes them to be.

      Delete
  10. This guy has it 1000% right. Greece has only ONE tru ally: The United States of America. Eff the EU.

    http://www.kathimerini.gr/913054/article/epikairothta/politikh/kammenos-o-monos-pragmatikos-symmaxos-ths-elladas-einai-oi-hpa

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    Replies
    1. He is a bit of a kolotoumas though...but point taken....

      Sincerely,
      V

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    2. Kammenos is not an ideal leader for Greek concervatives. If he were then I would throw my full support behind him. He and his party though play a very important role in the present government. The Independent Greek party controls the Defence Department which otherwise might be very volatile in the face of a Leftist government and the very important Tourism ministry which is the roaring engine of growth for Greece. Tsipras does not control everything, in fact some true conservatives are controlling the substance of Greece and are equally opposed to Berlin and its nonsense. Tsipras gets all the hits while the conservatives behind the scenes are truly the ones governing Greece. That's why the New Democracy party is both redundant and useless.

      Delete
  11. The results of yesterday's British elections deserve some commentary here because they highlight how stupid and naive the Germans truly are.

    Secretly, the losers of Europe, were hoping for a Jeremy Corbyn win (in fact the sewer newspaper Handelsblatt had an article of "fingers crossed for a Corbyn win") thinking that Corbyn would nullify Brexit somehow.

    What they got instead is this:

    1. A clear message from Corbyn that Labour is now committed to Brexit in an undisputed way.

    2. A new Tory government with some N.Ireland ulta uninonist party support which is also clearly committed to Brexit.

    In other words, the entire Britain transformed from a 50/50 split country between Brexiteers and Remainders to a united pro-Brexit crowd with the Scotland opposition desolved (the other naive hope of Berlin hoping to blackmail ritain with the Scottish Question).

    The British people have spoken and no ones likes the EU and certainly no one likes Berlin. I just wished the Greek people were also united in their resolve to oppose the dark forces of depsotism which clearly reside in Berlin which by the way must be destroyed for the good of the human race. And will be destroyed, I can assure you because it is just a matter of time.

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  12. Kammenos is the embodiment of the modern Greek.

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