Sunday, September 23, 2012

Living without 31,2 billion Euro

I have raised the question how one can live without 31,2 BEUR before.

If I recall correctly, the disbursement of the 31,2 BEUR tranche was originally due in June of this year. Remember, that was 3 months ago!

It was then postponed until September but September is now almost over. The last thing we hear is that there will be no action on Greece until Barack Obama is firmly re-installed for a second term as US President. That should mean no disbursement of the 31,2 BEUR until some time in November. By the way, that would be 5 months are the original date.

How does one live without 31,2 BEUR for 5 months? Particularly since fears were spread in June that Greece would run out of money "in a few weeks" if the 31,2 BEUR were not disbursed?

I have no idea and this only underlines the lack of transparency which is being demonstrated from all sides. In a normal restructuring, there would be a "sources & uses of funds" statement. It would show where the 31,2 BEUR come from, what they would be used for and when. If the sources are postponed, some of the uses have to be postponed. Which uses have been postponed since June as a result of the fact that the sources have been postponed?

The budget deficit is apparently quite a bit better than targeted, the primary deficit is almost marginal by now and the current account was in surplus in July. That probably helped Greece's cash flow a bit but, please, not to the tune of 31,2 BEUR!

I presume that the bulk of the 31,2 BEUR is required to pay off maturing debt. That's ok, but please remember that when European tax payers hear that Greece needs the 31,2 BEUR urgently, they think that Greece needs to urgently pay out 31,2 BEUR in comfortable pensions and other social benefits. It is only natural that they might conclude that Greece should cut pensions and social benefits.

Now, I have to assume that all the information about sources and uses of funds is on hand in secret Troika documentation. If it weren't, that is to say if even the Troika didn't understand the situation, then that would be really irresponsible.

But why does one not go public with that information? Why does one not explain in detail what Greece needs the money for? How much is for operational needs? How much for debt service? How much for financing deposit flight? Etc., etc.

If it turned out that the bulk of the money is needed for debt service and financing deposit flight, then the priorities would be to restructure debt service and contain deposit flight (instead of cutting pensions and social benefits).

Whichever way one slices it, credibility is not increased through such developments. And that is not only Greece's but also the Troika's credibility. And without credibility, there will never be much confidence (and without confidence, there will never be much money).


  1. Dear Mr Kleingut,

    I can only fully agree with you. The lack of reliable information and the existence - I assume in this case as in others - of deliberate disinformation is a scandal within the general scandal of European government finances. If I remember correctly, this is not the first time that Greece declares it will be bankrupt if it does not get certain payments within a short time span, and then the payment comes much later and nothing happens. Mr Venizelos has made at least one similar declaration before, I think it was last year around this time.
    In any case, I have stopped to believe anything Greek governments or European institutions say. Mr Juncker has said publicly that when the situation is serious you have to lie; and there is no doubt that the situation is serious.

  2. Dear Klaus, Please don't repeat the insane Greek fantasy that they somehow matter to Barack Obama. There is no connection -- period. IMF procedures take time. Period. What we should be looking at is the growing resistance by the large number of developing country directors at the IMF to more money going into Greece when it isn't making progress on structural reform. At least there is significant progress on fiscal consolidation and the trade deficit, so the case can still be made that part of the program is working.

    1. Unfortunately, I don't believe that the (most impressive!) improvement in the current account is evidence that the program is working. I wish it would but I don't think it does. Greece had satisfied domestic demand to an incredible degree with imports. As that demand went down, so did imports. Until the domestic economy develops resources to satisfy more of the domestic demand, imports will go up again as soon as domestic demand goes up again.

      I have my own "early promising signals" when Greece is headed for a better future. That will happen when I sense:

      * an obsession with import substitution
      * an obsession with export expansion
      * an obsession with making tourism/shipping competitive
      * an obsession with private foreign investment; and, last but certainly not least:
      * an obsession with the EU Task Force to do everything possible to make Greece a governable state

  3. Generally we agree, but finally the rich (and the not so rich, but evading taxes to look rich) may have run out of cash for fancy toys.

    Not that Greece will do any of the things you mention voluntarily....especially the last. You saw how last Easter some public sector emplyees blockaded the new offices of the EU Task Force? That's a warm welcome....

    1. I,too, have wondered where particularly the not-so-rich get all the money from so retailers etc. can keep the prices up so high. Normally, prices should have tanked by now. When I see the unemployed youth living a good life in cafés etc. (instead of, perhaps, looking for a summer job in tourism...), I am always told that they get the money from their parents. Those parents must have a lot of reserves!

      I know that the Greek mindset in general is quite suspicious of everything that is foreign. But one of the reasons for that is that Greeks hear from no one in their leadership that not everything that is foreign is bad. They tend to hear the opposite.

      One might want to remember the following. When West Germany united with the East, they embarked on a crash effort to turn that country around and to change the mentality of the people. Apart from the nearly 2 TREUR they spent by now, the intitially sent about 100.000 "developers" to the East to do "development work" there. Still, today's result is very modest.

      I don't know how many dozens of people the EU Task Force employs but it is certainly not a few thousand. To get Greek public administration into shape, one will need a lot more than that. Above all, one will need the acceptance on the part of Greeks that this is a good thing for the country. Sadly, I know Greeks who consider the Task Force as another occupation force which needs to be resisted.

      I don't see any of my "early promising signals" yet!