Tuesday, August 7, 2012

How to live without 31,2 billion Euro

The Financial Times reports that: "Greece faces a looming cash crunch in September as a €31.2bn loan tranche due to be disbursed in June has been delayed until European Union and International Monetary Fund officials are satisfied the proposed spending cuts are viable".

Well, this has been said so often in recent weeks that one hardly pays attention to it any more. However, what the article does not explain is that September comes 3 months after June and if one needed 31,2 BEUR in June in order to stay in business, how could one stay in business for 3 months without those 31,2 BEUR?

31,2 BEUR is a rather large chunk of money. Suppose Greece had received the 31,2 BEUR in June, what would it have done with it?

Regrettably, and from the start, it was never publicly explained (at least not in detail) how much in new loans Greece needed to repay maturing loans/interest and how much for the financing of its ongoing operations (primary deficit). That was smart on the part of the Troika because, that way, there was little transparency about the fact that the needs for ongoing operations were small compared with the needs for refinancing maturing debt/interest.

The Ekathimerini reported yesterday that "Greece's primary deficit, which excludes interest expenses, shrank to 490 million euros in the January-June period from 4 billion the same period a year earlier".

Excuse me, please! A primary deficit of less than half a billion Euros for six months would suggest that the primary deficit for the whole year can't be in the multi-billion Euro range. Certainly not 31,2 BEUR! So Greece needs to repay 3,2 BEUR to the ECB on August 20, but doesn't have the money. Greece will thus sell T-bills which are expected to be bought by Greek banks. Where will the Greek banks get the money from? From the ECB, perhaps?

I have said over and over again: one cannot draw water from a dried-out well unless one first dumps that water into it. The latter does not seem to be a very smart excercise. In the process of dumping water into the well so that it can be drawn out again, people tend to see only the dumping-in part and wonder how the well can need so much water. They conclude that it is good water being thrown after bad.

My point is: if a primary deficit could be reduced from 4 BEUR to 490 MEUR within one year, one would have every reason in the world to be hopeful. Instead of focusing so much on the huge amounts of new loans which Greece needs to repay huge amounts of maturing loans/interest, one should focus much more on the operating results of the government's policies.

There was one other sentence in the FT-article which caused me to smile. It quoted a senior finance ministry official as saying: “We have exhausted all the fat that remains in the public sector . . . There is no alternative to reducing wages and pensions".

Well, excellent news! No more fat in the public sector. Which raises the question, of course, what fat Mr. Samaras had meant earlier this year when, during the election campaign, he stated that, simply by cutting waste (fat) out of the public sector, he would quickly raise 30 BEUR.


  1. The position of Greece is not so bad i think.
    They already have an unlimited credit card from ecb (call it blackmail)


    1. You are right with the unlimited credit card. In a way, the EZ's cash management system (Target-2) has, in my opinion, become one huge self-destructive mechanism which basically eliminates the need for countries to adjust their economies. Read this.


    2. my prelimiary conlusion about all this mess is simply, that we european are too stupid to solve this problem.

      what is your opinion on sahra wagenknechts proposal to solve all this mess?


    3. Well, I would have never thought that the day would come where I would find my views better represented by someone from the Far Left than by anyone else...

      I read her recent interview in Sueddeutsche (hard copy edition only). Her original answers are better than when quote in Der Spiegel. Quite a few of her statements are totally spon-on! Instead of a haircut, I propose Evergreen Bonds and nationalized banks can only be a temporary solution. I think for all but global players, the decentralized structure like Sparkassen or Raiffeisen, where the ownership is bottom-up and not to-down, is a very interesting alternative to a public listing. In that structure, shareholders are also stakeholders.

      She must have been reading my blog...