Mish's Global Economic Trend Analysis

German Vice Chancellor "Very Skeptical" Greece Can Be Rescued, Euro Exit has "Lost its Terror"; Will Defeat Be Snatched From the Jaws of Victory Once Again?

Posted: 22 Jul 2012 09:14 PM PDT

At long last, everyone is willing to wave the white flag on a Greece exit from the eurozone. Please consider German Vice Chancellor 'Very Skeptical' Greece Can Be Rescued.

German Vice Chancellor Philipp Roesler said he's "very skeptical" that European leaders will be able to rescue Greece and the prospect of the country's exit from the euro had "lost its terror."

Roesler, who is Germany's economy minister, told broadcaster ARD that Greece was unlikely to be able to meet its obligations under a euro-area bailout program as its international creditors hold talks this week in Athens. Should that be the case, the country won't receive more bailout payments, Roesler said.

"What's emerging is that Greece will probably not be able to fulfill its conditions," Roesler said today in an ARD summer interview. "What is clear: if Greece doesn't fulfill those conditions, then there can be no more payments."

Greece Behind on Asset Sales, Spending Cuts, Deficit Targets

Adding additional details to the above story, Bloomberg makes a nice understatement with
Greece Back at Center of Euro Crisis as Exit Talk Resurfaces

Greece retakes its position at the heart of the European debt crisis this week as its creditors assess how far off course the country is from bailout targets, raising again the specter of its exit from the euro.

Greece's troika of international creditors -- the European Commission, the European Central Bank and the International Monetary Fund -- will arrive in Athens tomorrow amid doubts the country will meet its commitments and reluctance among euro-area states to put up more funds should it fail.

Greek Prime Minister Antonis Samaras's three-way coalition, formed last month after a June 17 election ended a six-week political deadlock in the country, has scrambled to assemble budget cuts to convince troika officials.

Finance Minister Yannis Stournaras has identified about 8 billion euros of spending cuts and savings for the next two years out of 11.5 billion in additional cuts required.

The Greek government is also behind on state asset sales, having so far brought in 1.8 billion euros, a fraction of the 50 billion euros it aims to raise by 2020, half from sales in company stakes and half from real estate. The state is unlikely to generate more than 300 million euros this year, short of the about 3 billion euros targeted for 2012, according to the outgoing chief of the state's asset-sales fund, Costas Mitropoulos.

Once taboo, the possibility that Greece could exit 17- member monetary union has been voiced by European officials this year who consider the fallout from such a scenario would be the lesser evil against a seemingly perpetual crisis.

Roesler, who is Germany's economy minister as well as the Free Democratic chairman, told ARD that a curtailment of aid to Greece would lead to a sovereign default, which would in turn lead to "Greeks coming to the conclusion that it is probably wiser to leave the euro area."

Will Defeat Be Snatched From the Jaws of Victory Once Again?

The ducks for a Greece eurozone exit are lined up once again. Admittedly, every time the ducks had been lined up for default previously, defeat has been snatched from the jaws of victory.

I say that because Greece really does not belong in the euro. Of course, no other country belongs there either because the euro was fatally flawed from the beginning and the sooner this mess goes down the toilet the better off Europe will be.

Comparatively Speaking

I was asked earlier today if I thought Greece would recover if it returned to the Drachma. My answer was something along the lines of "At least it has a chance". For comparison purposes, Greece has no chance of a meaningful recovery in the euro.

In that regard, there is absolutely no point in any further delays, something I correctly said three years ago as well.

In the short-term Greece is likely doomed either way. In the long-term Greece has a chance once it rids itself of the shackles of the euro. Hyperinflation may be Greece's destiny, but if so, I see no point in delaying it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

IMF Seeks to Halt Aid to Greece; September Bankruptcy Awaits; Dominoes Will Fall

Posted: 22 Jul 2012 10:08 AM PDT

According to Der Spiegel, the IMF Wants to Stop Aid to Greece as soon as the ESM is up and running in September. At that time Greece would become bankrupt.

This is a Mish-modified translation from German:

The patience of the International Monetary Fund (IMF) with Greece comes to an end: According to to information obtained by SPIEGEL, senior IMF officials told EU leaders in Brussels that the IMF was no longer willing to provide additional funds for Greece.

The Troika estimates that Greece needs between ten and 50 billion € to meet targets, but many governments in the euro zone are no longer willing to shoulder new burdens. In addition, countries like the Netherlands and Finland, have linked their support because the IMF was involved.

The risk of withdrawal of Greece from the monetary union is now held in the countries of the Euro-zone control. To limit the risk of contagion to other countries, governments want to wait for the start of the new bailout ESM.

The judgment of the German Constitutional Court regarding the ESM on September 12th will come into play.

Dominoes Will Fall

I picked this story up from Roel at Automatic Earth. Here are some interesting point of view from Automatic Earth that I generally agree with.

It'll be a lot of fun seeing the IMF, and European leaders, try to deny the article and its implications. From what I understand, they want to wait until the ESM is effective, and then dump Greece. The article may trump any such intentions. Some things only work in secret, and once Pandora's box is open, they no longer do.

I still think it would be curious that the ESM, supposedly good for €700 billion or so (if not more), would be used to "save" Spain and perhaps Italy, but not Greece. For countries like Portugal and Ireland, dumping Greece would mean they need to get very nervous about being the next one thrown under the wheels and off the back end of the wagon.

The message might become that any and all reform and austerity measures demanded must be adhered to very strictly or else. Politicians in these other "borderline" countries might go along with it all, but will the people? Do the Irish really enjoy the idea of being strangled into submission? And will Spain really be "saved" once real debt numbers are known?

It seems far more likely that getting rid of Greece will be merely the first step in dissolving the entire eurozone. The rest of the dominoes can then fall in rapid succession.

There's more in the AE article including a discussion of the resignation of Peter Doyle, former division chief in the IMF's European Department, who, upon resigning, shared a few of his thoughts on the fund: "After twenty years of service, I am ashamed to have had any association with the Fund at all..."

Everyone Prepared to Pull the Plug

DW has a bit more information in IMF to provide no new funds to Greece

In an article published on its website, Spiegel cites unnamed senior European Union sources in Brussels who told the news magazine that the International Monetary Fund (IMF) had signaled it would not contribute to any further aid for Greece.

The report comes ahead of a planned visit to Athens by a team of auditors from the troika of the European Commission, the European Central Bank (ECB) and the IMF. They are to conduct another inspection of the new government's economic program to determine whether Greece is doing enough to comply with the terms of its second international bailout to merit receiving the next tranche of funds.

Just this past week, leading Greek politicians pushed back talks on how to cut almost 12 billion euros ($14.6 billion) from the budget after it became clear that they were far from reaching a comprehensive agreement.

On Friday, the ECB increased the pressure on Greece to comply with the terms of the bailout when it announced that it would stop accepting the country's bonds as collateral in return for ECB funding, at least until after a positive verdict from the troika.

In a further indication that patience may wearing thin among Greece's paymasters, German Foreign Minister Guido Westerwelle on Saturday ruled out the possibility of relaxing the conditions of Athens' second bailout.

Many signs suggest that everyone is finally ready to pull the plug on Greece. Hundreds of billions of euros have been wasted in the last three years attempting to stop the unstoppable.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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22.7.12

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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