Monday, January 12, 2015

Greek Sovereign Debt a Soap Opera?

A reader of my blog commented that Mr. Panagiotis Roumelioutis, Greece's former IMF representative, made the statements below. I don't know whether Mr. Roumelioutis indeed made these statements nor do I know when he made them.

"Up to 2020, Greece must pay 90 BEUR in interests. From 2020 to 2030, it must pay another 201 BEUR. Summing it all up, in 15 years, Greece must pay 291 BEUR or 160% of GDP. In interests. No country in such short time has ever paid such amounts of debt. So, pretending that the debt is sustainable, doesn't lead anywhere. Let me say some characteristic points: This year we have to pay about 22 BEUR. In interests. This is 27% of the state budget. This is not sustainable according to the international standards. After that, we have to pay for about 16-17% of the state budget up to 2020. If we go to 2021 and beyond, then things become i would say, insane. Because for instance, in 2022, we must pay 33 BEUR in interests. So, we must start from this discussion. The EU partners must understand that the main problem of Greece is debt."

From today's standpoint, this is pure nonsense! Greece pays VERY LITTLE interest! 5,7 BEUR for 2014 according to the state budget. Perhaps a little more when other entities are included. At the same time, Greece receives large amounts of interest rebates from the ECB and much of the interest due to the Troika is deferred for 10 years. Depending on how you do the math, one could even argue that Greece pays no interest at all. The point is: allocating less than 5% of GDP in interest is VERY moderate these days for a normal country, not to mention an 'overindebted' country.

This story about Greece's suffering from sovereign debt is turning into a soap opera. Creditors have forgiven debt, have lowered interest rates to below 2%, have deferred interest payments for 10 years, etc. How much more can one expect??? Well, creditors will undoubtedly be willing to lower the interest rates even more. Perhpas close to zero. What else is Greece going to demand afterwards?

SYRIZA wants debt to be forgiven without understanding that debt at zero interest (or close to it) is no longer debt but equity. Someone ought to explain to them that 100% of debt at zero interest rate is better than 50% of that debt at market rates because that would cost a lot more.

Greece's debt problem is a domestic one (70 BEUR in non-performers, arrears of the government, 70 BEUR in unpaid taxes, etc.). Here I would like to see proposed solutions which do not involve the need for more foreign capital.

I hope that sooner or later the eyes of commentators are opened so that they see that the Greek sovereign debt problem - once the maturities are extended to 50 years or more and once the interest rates are lowered to close to zero - is a soap opera. The proof would come if the Troika forgave 50% of the debt and put the other 50% on market rates. Then SYRIZA would learn what it means to be indebted.

Is Greek debt really unsustainable? (Social Europe)


  1. Mr. Kastner,

    I watched the video and the translation is accurate enough. It is of 2 days ago. Obviously Rumeliotis must have been confused (he is also former banker) and the numbers he gives are the value of bonds to roll over each year. It is true that this year there are about 24 beur of bonds, but clearly these are debt to be refinanced, can't possibly be interests or the bond value itself would be huge. He is actually being asked repeatedly by the journalists to clarify and he insists that these are interests, but the more they ask, the more he seems like if he had some things to say and he doesn't want to be interrupted and maybe he is just saying yes without thinking.
    For the little that my opinion may worth, i don't think that SYRIZA's economists don't understand what extension is and how it affects yearly payments. However, i think Tsipras is shrewed enough, to have identified a major weakness in Samaras' line of debt sustainability. And the weakness is rather obvious. Samaras has never undertaken a comunication campaign to explain better what you try to explain through the links that you post. Yes, some do understand such things or have searched on their own, but most understand better a figure as % of GDP and Tsipras promicing to "cut at least 50% of that". By following this line, Tsipras appears as champion of the just, while Samaras a coward that hides behind technicalities that one can't understand. It's a bit like when a German ordinary man, understands better "we gave 60 beur to Greece", rather than trying to discern between effective disbursements and warranties.
    In my mind, Tsipras will accept any debt deal, as long as it allows him some laxity for himself. He doesn't want to come back and simply say "and now we continue from where Samaras left it, prepare for new cuts". That's my idea of him, although it is hard to understand Tsipras. The debt is also something everyone understands as concept, so good point to build an electoral campaign around (and avoid questions about details on the economic program).

    1. 60% of GDP would amount to about 110 BEUR. That would be the amount of debt which Greece should easily be able to shoulder according to Maastricht. Now what do you want to take as a market rate? I suppose that a market rate for a Greece with only 60% debt would be much lower than the 6-9% which are going rates at the moment. But it ain't going to be zero. Let's assume it would be 3%. Then your interest burden on the Maastricht debt level would be 3,3 BEUR. A lot of money when you might have the chance to get away with no or very little interest.

    2. Mr. Kastner,

      You are of course correct and this is, i think, why various SYRIZA economists have also spoken of moratorium or for growth linked clause. Because they want to have something left for their "stimulous" program (if one can call it so). The problem is, that each SYRIZA economist has said his own theory. At the end, you don't know who to believe.

      Professor Lapavitsas, is SYRIZA's latest "acquisition". He was always, since the beginning, pro-drachma and he was proposed to be candidate for these elections, by the more radical wing of SYRIZA. Here's a recent article:

      Note: I won't tire you with greek text, but in a greek article, he wrote that "SYRIZA's program is 20 beur short and should always have drachma as plan B".

      When a SYRIZA candidate for the parliament says that his program is 20 beur short, what's more to say...

  2. It doesn't add up. He must be talking about interest + maturities. In that aspect, 2015 is a particularly tough year. The Greek government must repay over 25 billion euros in IMF loans, ECB bonds and T-bills.

    As for Greece's domestic debts. Impossible to solve without foreign capital for as long as Greece doesn't have a national currency.

    Oh, and it's not accurate to state that Greece receives interest rebates from the ECB. *Some* Eurozone central-banks do that, others don't (on the basis that it's illegal government financing).

    1. Someone explained to me on twitter that it is indeed interest + principal (i. e. annuities). Just proves the point that principal maturities need to be scheduled out way into the future (minimum 50 years) and interest needs to be brought close to zero.

      Regarding the ECB. there are conflicting opinions. One 'expert' told me that, yes, Greece will receive over 2 BEUR for 2014 but, no, it has not received much of that yet. According to that person, the rebates will be paid if and when the program is put into place again.

  3. Zugzwang!*

    So chancellor Merkel, it's your move. What's it going to be?


    1. Pablo Iglesias' - Podemos leader - message to greek voters (but i think also to Merkel):

  4. Mr. Kastner,

    Yesterday night, Alexis Tsipras had a 1 to 1 interview with a greek journalist. He wants "haircut at least 50% + moratorium + growth clause". When the journalist cornered him, whether he would accept instead of a haircut, an extension of maturities/interest reduction, he replied that he can't reveal his strategy, because others outside Greece are also watching.

    What this means. Given SYRIZA's past history of denying that a debt extension is a viable solution (they were shooting at Samaras every time he was mentioning it), it means that Tsipras will accept debt extension, in my humble opinion.

    1. I heard that interview and immediately said to my wife: "He is now opening the door for a compromise!"

  5. Mr. Kastner,

    Another interesting thing Tsipras said in his interview, is that he won't accept to form goverment with ND, PASOK or River. Meaning, either he is trying to polarize the climate in his attempt to gain absolute majority or he is really intending to go to repeated elections until he gets absolute majority. If this happens though, the negotiations with the troika, will have to be postponed.

  6. Mr. Kastner,

    There is an open letter to the german public from Alexis Tsipras today in Handelsblatt. Unfortunately i can't give you a link in german, i only read it in greek. But it is clear that this is prof. Varoufakis' doing. So, it is now a rather safe bet to read prof. Varoufakis' articles to get an idea of what Tsipras will do.

  7. Equity? The loan conditions are such, that we should claim our right to participate in the next AGM 25 January and cast our vote for the next Board of Directors.

  8. @Berliner
    In many companies you would not have to vote at the Annual General Meeting if you had equities of that size. You would have a right to NOMINATE one or more directors to the board. Funny thought, the High Commissioner in a new guise?