Tuesday, July 9, 2013

Missing! - "Sources and Uses of Funds!"

I witnessed jubilation yesterday. Jubilation in Greece for having secured new funding from the Troika. Jubilation on the part of the Troika (and even Mme. Lagarde personally!) that "Greece was making substantial progress!" Komma. "But Greece is still lagging behind with the implementation of reforms!" A classic carrot-and-stick argument.

I am confused. I keep reading that Greece now has a primary surplus. If so, what does Greece need the funding for? Perhaps for the payment of arrears which have accumulated? That would be good news. But what else could Greece need a few BEUR for?

Ooops, I overlooked that Greece also has to pay interest and repay maturing debt in the next weeks/months. Now that seems like a real good application of the new funds received! Greece can hold on to the status of not being bankrupt and lenders get their money back (courtesy tax payers!).

What has been and still is missing when it comes to the new disbursement of funds is a so-called 'sources and uses of funds statement'. The only such statement I have seen todate was a graph hidden in an IMF-report which stated the following:

From 2010-12, Greece received 'rescue funding' of 247 BEUR, of which 206 BEUR was debt-related. Put differently, only 41 BEUR was left for Greece to finance its operating needs. Presumably, a similar ratio applied to the upcoming disbursements.

What is happening here is called 'delaying bankruptcy' under Austrian or German bankruptcy laws. That is a criminal offense. Managements, bankers or whoever else does it faces the risk of having to go to jail.

This is developing more and more into a farce. Early on in the process, European tax payers probably believed what they were told by their politicians, namely that hundreds of BEUR were being sent to Greece to save the country. By now, I fear that ever fewer tax payers are still that gullible.

Yes, the Greek rescue funding has been a tremendous success. Without it, many European banks would have had to be nationalized. No one can explain to me that the rescue funding todate had very much to do with a possible future turn-around of the Greek economy. To achieve that, new funding would have had to be channeled into new investments to compensate for the GDP downturn caused by austerity.

Sending more money to the Greek state may indeed not be the right answer, given the proven malpractices of the state when it comes to finances. However, Greece is more than the state. Greece has a real economy and I am not aware of any substantial new funding which went directly into the real economy for investment. Without that, Greece will not have an economic future for a very, very long time!