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Tuesday, May 19, 2015

A Quick-And-Dirty Solution Really Such A Bad Idea?

Gross government debt declined from 324 BEUR at year-end 2014 to 313 BEUR at March 31, 2015. That's a decline of about 11 BEUR.

That, actually, was never the idea. The idea was to, first, reach a primary surplus and, secondly, increase that surplus so that eventually all interest could be paid. There never was the idea that Greece would nominally reduce its debt in the foreseeable future (so far, Greece has never even had a primary surplus sufficient to pay all interest).

Now it turns out that Greece has not only paid all interest but, on top of it, reduced debt nominally by 11 BEUR. No wonder that liquidity has to be scraped up from all corners.

Given the fact that the official negotiations do not seem to lead anywhere, it might be an idea - instead of letting Greece default - to go for a "quick-and-dirty solution", the kind of solution which the IMF has recently rejected. Such a quick-and-dirty solution could be as follows:

1) Lend Greece 11 BEUR to replenish the unplanned nominal debt reduction;
2) Suspend all debt service (principal and interest) on official debt until the end of the current legislative period (private debt would have to be serviced);
3) Freeze ECB funding at current levels;
4) Prohibit any future borrowings by the state during the time of the suspension.

No other conditions (such as reforms) attached.

In short, Greece would be put into a situation where it could do whatever it pleased as long as it didn't take up new debt. The government would have sufficient time to show the world that they have far better ideas as to how to turn Greece around than anyone else.

And if they couldn't show that, they ought to be history.


  1. This scenario has appeared in greek websites in the last days.
    However, Tsipras said he will sign no agreement that doesn't include permanent solution to debt (debt restructuring).

  2. This reminds me of the fairy tale (yes, fairy tale): The Wolf and the Seven Young Kids...
    The proposal in the post belongs to the thoughts of one of the goats that was doubting whether to open the door (while mother said: Do not!) for the one who was knocking, and showing a white leg, while it was the wolf, who used flour to whiten his black hair.

    The Greek government is a wolf. White legs are of the flour, not because they have changed really.
    Wolves cannot be trusted. Not in fairy tales, not in Greece.

    Or..., are you, Herr Kastner, the wolf?
    I do not let you in the house.
    It is a bad idea.

  3. ..."The government would have sufficient time to show the world that they have far better ideas as to how to turn Greece around than anyone else."...

    Greeks had so many chances to demonstrate whatever they want . under much easier circumstances...
    Why lose even more precious time? To prove an apparent fact, again ?

    1. no we hadn't !
      SYRIZA and tsipras lied in order to get the votes.

      he wont be a prime minister again. thats for sure...
      The problem of Greece is that we don't have trust worthy politicians so the people are betwin a cliff and a fire thout any serious choise to place their vote .

      I am Writing from Greece. Crete.

    2. The politicians are only the problem? Pangalos was crude but realistic when he said "mazi ta fagame." Personally i hold the cross in my hand and must be the biggest *alaka in Greece but my conscience is clear.

      The only thing for sure is that a pentozali will be danced on our heads for a very long time. Exontes kai mh exontes.



  4. The very idea of an intelligent and pragmatic solution from the eurozone, at least with the Germans at the rudder, has me collapsing in laughter.

    Oh, and dear Antoinette, do feel free to take umbrage. I for one (along with all of Greece) am tired of reading your hate speech for Greece mixed with Germanophilia.

    1. Dear xenos,
      Germans are not the wisest on earth, agreed. You have to admit, however, that they have show some ability to get their act toghether from time to time. In their own specific manner (which certainly will not be appropriate for all countries/peolple) maybe, but have proven some abilities, nevertheless.
      Hence, I would really like to know what your reaction would be, should you have to expect an intelligent and pragmatic solution from ... Greece?!
      Can´t wait to read your description of that reaction.

      For my part: I am waiting some years now to hear ANY reasonable proposal/plan/strategy from Greece. My last and desperate hope was with the new government. Indeed, I can be hoplessly naive, sometimes.

    2. @Anonymous. I did not expect Syriza to turn Greece overnight from a basket case to a stalwart economy of the eurozone. Indeed, it is all of Greece's last and desperate hope that they can achieve something -- at least more than Samaras and his predecessors.

      As far as Germans are concerned, their last two hundred years of history is a very dubious mix of economic progress and military engagement with their European neighbours. Much of that progress has relied on skilled artisans working hard and passing on high standards from generation to generation. They were never economically innovative, and (with the bizarre exception of Hitler) rarely seemed capable of solving economic problems. The traditional idea of "save not spend" is currently in vogue -- with potentially disastrous consequences for a Europe either in or threatened by deflation. The German economy survives on exports, a low exchange rate (relative to their economy) and few imported goods. One might call it a miser's economy. This model will not work for Europe, and the Germans have to comprehend that.

  5. Syrizas List of Shame (growing) (upton):

    - seized EU subsidies destined for farmers
    - plundered pensions funds with 15-day repos
    - forced state companies to run up overdrafts and hand over the cash
    - arm-twisted Greek banks to overload with risky T-bills
    - GAO ceased paying suppliers from 7th March
    - defaulted supplier payments now €4.1bn
    - sequestered Athens Metro, OSE, Water Authority
    - local government decree to hand over cash
    - Farmers’ Compensation Organization (OGA) repo €50m
    - ETAA fund of the self-employed €100m repo
    - Seamen’s Fund (NAT) €50m repo
    - Civil Servants Fund €20m repo
    - doctor on-call payments 4 months overdue
    - hospital suppliers 6-12 months overdue
    - €35 billion has left the banking system
    - borrowed IMF SDR's to repay €770m to IMF
    - OPEKEPE defaulted on its payroll last week

  6. Mr. Kastner,

    All good posts as of late. Also it seems things are somehow going in a better direction, if we indeed conclude to a short term agreement, and god willing a refinancing. What i do not understand though if both agreements are made where is it necessary that greece another 55 bil new bailout as stated in some german media? I can not copy some debt repayments of greece but after september the number drop drastically. furthermore the next 3 years has even further reduced maturity of debt. While they are negotiating a 0,5, 1,5 , 2 and 3,5 surpluss in the next 4 years with a refinancing why would another bailout be needed?

    As for tax evaders, i know someone who was brought in for 3 million debt to the governement. He paid a chunk and financed the rest. Finally yesterday i saw the government release the a request for a 400 tax auditors. good step in the right direction.

    Also media and people are strongly against the new VAT plan. especially for small cheap purchases. They say for 1 euro purchase you will use a card for 3% return. I am all for this as it is in these cheap low pruchases where tax evasion is huge.

    PS: The racist, rudeness, and nastiness of comments of the last articles is really getting out of control. It discgusts me to see such comments against any country or people. i am for freedom of expression but it proves how a far we are from being united as europeans.



  7. "Given the fact that the official negotiations do not seem to lead anywhere, "

    Mr. Kastner,

    I am sure you were never a big poker player in your life. There will be an agreement of the last minute. Greece would have defaulted on May 12, if it wasn't for IMF hinting to Tsipras to use an account which is a "last emergency reserve" for payments to IMF. Varoufakis was totally unaware of this account. He was tipped from the IMF itself.

    What does this mean? That the creditors don't want Tsipras to default. Tsipras' main problem is that the greek left, can't do income cuts. If you search the history of any greek left party since 1980, you will not find a single instance where they support a measure that would be unpopular. They only give money, never take and they never vote any law that does so, even if later they don't abolish it (like prof. Varoufakis said, he agrees with 67% of the memorandum. But what percentage of memorandum laws did Syriza vote in support of? 0%).

    The creditors by now have realized that Tsipras isn't Samaras. So if they chose to "rescue" him on May's payment, it means they plan on making a compromise. On his part, Tsipras is showing also signs of compromise by taking back some of his promices (today for example, they said that at least for now, low pensioners must forget about the 13th pension promiced. Before that, same happened to the increase in minimum salaries. Same for VAT).

    There will be an agreement... But Tsipras can't sign a deal that will be like the one Samaras had. That's the point. The Left can't make cuts. This is also why in SYRIZA they prefer indirect taxes over direct taxes. With indirect taxes, the population doesn't see the bleeding as easily. So it is more viable politically to raise VAT than to cut pensions.

    Tsipras doesn't want to default, unless he has no other choice. The no other choice, means be given a deal that will be like the one Samaras had. The good fortune of Tsipras, is that Samaras did all the legwork for him to bring the budget to sane conditions. So he doesn't abolish the fiscal measures taken by Samaras before him, as he had claimed, as these measures allow him to remain in surplus, while not losing any popularity by taking them himself. The real problem with SYRIZA, will be to actually move further, into growth, because they are heavily leaning towards state financed growth and they are the less likely to make serious effort for the evaluation of public sector's employees, which is the root of the problem of the public sector. Because ever since 1981, the evaluation was abolished. When you abolish any type of control, combined with the impossibility to get fired (as per constitution), the worker no longer cares about this performance. The law introduced by ND was a good step forward, but was axed by Syriza.

  8. Dear Mr. Kastner,

    your proposal seems to be apt to calm down the problem of state financing. This kind of moratorium would help to alleviate the day to day business of state expenses. I think the public sector is the minor problem for a recovering of the greek economy because this is a money-in / money-out event when the most part of this spending is for internal payments.

    But there is a much harder problem with capital flight of the private sector which is aware, that the banking system of Greece is not stable because of a large number of prospectively nonperforming assets. Commentator V. wrote a nice episode about tax evasion when a tax liability is financed. Maybe the interest payments will be deducted in the next tax declaration - I would bet for it. For this and other reasons in my post I argued in favor of a suspension of interest deduction, aiming at reversing the leveraging of the return on equity with the target to reduce the overexposition of bank assets. As long as this leverage is possible no equity will return to Greece.

    But maybe you have a different idea how to overcome the problem of capital flight of the private sector. In any circumstance this problem must be adressed because it will not be solved by an improvement of the public finances but by a rising credit rating of greek banks. Take it like a logical fallacy where those who move first will expect to lose but when all are moving everyone will be safe. It would be highly interesting to know what kind of ideas you have to solve the problem of private capital flight / deteriorating greek bank rating.



    1. I obviously gave only the general outline; there would be lots of details. In principle, the idea would be to ringfence Greece in terms of Euros, both the public and private sectors. The Euros which are already within the borders stay there (except for ordinary commercial transactions). After an initial 'alimony' of 11 BEUR, Greece the state and Greece the country would be on their own; no more new funding from abroad. If the state generates more revenues than it has expenses, it can do with it want it wants to. If it has more expenses than revenues, expenses have to be cut. Plan and simple.

      There is only one answer to the capital flight problem: capital controls such as maximum daily withdrawals and Central Bank approval for all foreign transfers (and high fines for those who get caught with cash at the border). Foreign transfers allowed only for commercial transactions.

      Again, the details would be manifold but the general message would be: You wanted to be on your own? Now your are! Not a dime more from us!

  9. How do we know anything for sure?

    Greek stats have been faked over decades. There must be a reason why the Greek government does not permit Troika personnel to perform on-site due diligence. They are hiding something. Hence Troika does not approve money support.

    Greek government credibility is ZERO.