Yet another deadline day arrives and passes for Greece

The Greek saga has certainly seen inflation in the number of deadline days it faces! Nobody in authority in the Euro area seem to think through the consequences of this on economic expectations and prospects for the Greek economy. The effect can only be a bad one. Today’s has been driven by a piece of can-kicking which took place early in the Greek crisis. This was when under the “shock and awe” program so beloved of Christine Lagarde the European Central Bank was instructed to buy Greek government bonds. The plan if you can call it that was to stabilise the Greek bond market amongst others and then to sell the bonds back to private investors later. The program time span was supposed to be 3 years as according to the forecast Greece would be on the road to recovery rather than as it turned out the road to nowhere.

Back in June 2010 ECB Executive Board member Jose Manuel Gonzalez-Paramo told us this.

Even though the non-standard measures have served the economy well, we are fully aware that keeping them for longer than necessary would entail risks that should be avoided,

He even used one of the most popular words in my financial lexicon for these times “temporary”. Actually that does not sit quite so well on the day that one of the bonds bought by the ECB expires and it still owns it! That is about as permanent as you can get although as we will see in a moment actually we will get a new definition of permanent. Perhaps someone might like to ask him how this served the Greek economy well as 5 years later the Greek government does not have the money to repay it.


A rule of the Euro area crisis applied by the ECB has been that a Euro area country cannot default and hence all sovereign bonds will be repaid at par or 100. In its arcane world it was buying bonds at say 50 or 60 and then booking them at 100 and now is one of the occasions when it gets its 100 plus interest.  If Greece could repay it then you might say it was a job well done but of course that is not the case.

Step forwards the European Stability Mechanism (ESM)

The obvious solution to an expanding balance sheet at the ECB for a Eurocrat was to create a vehicle which was off-balance sheet. After all we don’t want to scare the taxpaying horses do we? So we ended up with a Special Purpose Vehicle or SPV which is rather different from the one usually driven by Captain Blue although it may have as many lives as Captain Scarlet. After a debacle called EFSF we now have the ESM and it has stepped forwards this morning.

The European Stability Mechanism (ESM) approved the first tranche of financial assistance for Greece of €26 billion.

Some of it is arriving as a banking faster payment.

The Board also decided to immediately disburse €13 billion to Greece. Today’s disbursement is the first part of a sub-tranche of €16 billion, to be used for budget financing and debt servicing needs.

Debt Monetisation

If we cut to the chase we see that The Euro area taxpayer backed ECB is being paid out by the Euro area taxpayer backed ESM. The only change is that the latter is an off-balance sheet although the attempt to stop it being recorded in national accounts was foiled by Eurostat. But there are problems here as there are clear Ponzi style elements to this and in fact debt monetisation especially if you believe that it will be an extremely long time before Greece is ever (if at all) able to repay this. From Hugo Dixon.

This loan will have a very long average maturity (32.5 years) and a very low interest rate which starts at 1%.

Thus the original 3 years became 5 plus and now we can add another 32.5 years to that in an “to infinity and beyond” type of way. I did argue at the beginning that these bonds would become perpetuals and for most if not all of those involved in the negotiations that is what they will be.

Care is needed with the interest-rate as it is not always a fixed rate but for now it is very cheap. With apologies to Middle of the Road the Eurogroup finance ministers view can be summed up by this.

Ooh we, chirpy, chirpy, cheap, cheap
Chirpy, chirpy, cheap, cheap, chirp

If we return to the issue of debt monetisation then the St.Louis Fed defines it thus.

a permanent source of financing for government spending

I will let readers decide for themselves whether what has been described above falls into that category.

Meanwhile the asset-stripping begins

From Keep Talking Greece.

A German company, airport operator FRAPORT won the bid to operate and maintain 14 regional airports, considered to be top of the top in Greece. With an offer of 1.23 billion euro, the consortium of Fraport -Slentel (a unit of Greek energy group Copelouzos) won the bid to lease the regional airports for 40+10 years.

The term of that seems rather permanent too doesn’t it?

What about Currency Wars?

Regular readers will be aware that I have argued that a devaluation and presumably a departure from the Euro was needed in Greece’s situation. In recent times the ECB has moved in that direction as its QE program has pushed the Euro lower. But the world is moving on including a neighbour and competitor with Greece for tourism business. From AFP.

Turkey’s embattled lira Thursday hit a new historic low in value against the U.S. dollar, breaking the ceiling of three lira to the dollar for the first time.

Also the Currency Wars drumbeat is being hammered out in Kazakhstan. From Bloomberg.

Kazakhstan’s tenge plunged a record 23 percent after the country relinquished control of its exchange rate,

Even the Swiss Finance Minister has popped up with a call for the Swiss Franc to return to 1.22 versus the Euro. As Snoopy would say “Good luck with that one!”

Fishing for a solution

The Wall Street Journal has looked at this.

And Greeks have earned a living from fish for eons. It is the country’s second-largest agricultural export, behind fruit and nuts but ahead of olive oil and cheese.

But sadly the news is grim.

A collapse in household buying power has demolished demand for fish, and with it fishermen’s income. Aquaculture companies, once a shining star in the marine economy, are drowning in debts. Fish processors are struggling with high costs for finance and relentless price pressure among strapped shoppers.

What especially caught my eye was the “high costs for finance” because if you look earlier in this article in official terms it is ever cheaper. Or if you like another example of my theme of the large gap between the finance sector and the real economy.

After five years of a supposed rescue that is about as big an indictment as you can get of what has gone on here.


The situation in Greece is one that can be described under the banner of round-tripping with most of it being corresponding debits and credits at different accounts backed by Euro area taxpayers. Whilst the statement below has been issued the fact is that the ESM in Luxembourg has paid the ECB in Frankfurt so some of the money has not really touched Greece at all!

gov’t pays on time €3.4bn bond held by the . (@YanniKouts )

Another 7.1 billion Euros repays the EFSM taking UK and other non-Euro members off the hook. You get the idea.

Meanwhile as Greece continues its economic depression and the refugees there live in squalor we have a let them eat cake style announcement.

has made sure programme is socially fair & protects most vulnerable throughout. ( European Commissioner for Employment, Social Affairs, Skills and Labour Mobility Marianne Thyssen).

The International Herald Tribune is right.


13 thoughts on “Yet another deadline day arrives and passes for Greece

  1. Hi Shaun

    As you say yet another milestone on the Road to Oblivion.

    To my mind the travails of the Euro with respect to Greece is not actually about economics or finance but a laboratory confirmation of the Stanford Prison Experiment.

    You may recall that this was an experiment carried out at Stanford in the early 70s in which students were arbitrarily assigned the role of guard or prisoner. The experiment was halted because of the escalating brutality of the “guards” and the acquiescence of the “prisoners”. It seems that there are no bounds to the humiliation and suffering that is to be inflicted on the Greek people and no bounds to the absurdity of the economic and monetary policy of Euroland.

    Oddly enough I think the citizens of Europe missed a trick when the UK refused to join. If we had joined we would have been under such strain we would have had to depart, as we did the ERM, and this would probably have brought the whole Euro edifice down and the reset would have been much better for most countries in the EU.

    • Naw , more of a

      Stockholm syndrome, or capture-bonding, is a psychological phenomenon in which hostages express empathy and sympathy and have positive feelings toward their captors, sometimes to the point of defending and identifying with the captors.


      PS: the EU : once in we would not be allowed to leave – at all , ever…..

      • “PS: the EU : once in we would not be allowed to leave – at all , ever…”

        And where Shaun likes topical records, we know a song about that! Hotel California by The Eagles

    • Hi Bob J

      I recall a similar style of operation in a medical history documentary on BBC 4. Back in the 60s all sorts of experiments went on with people inflicting others with electric shocks and the results were equally disturbing and would now be considered to be sadistic. All in the name of science….

  2. re: “The International Herald Tribune is right.”

    no , the caption is wrong , its not “more Greek debt ” but “more Euro Debt ”

    the difference is great , come the end of August isnt the IMF fully paid off , then its all Euro Debt ?


    • Hi Forbin

      One of the triumphs ( so to speak ) of this whole procedure is that the debt is now counted against both Greece and the creditor nation. So the Greek debt mounts and mounts as does that of the lender. For example Italy which has its own national debt issues finds an extra 2.3% of GDP added as of Q3 2014 due to bailouts of other Euro countries.

  3. “What especially caught my eye was the “high costs for finance” because if you look earlier in this article in official terms it is ever cheaper. Or if you like another example of my theme of the large gap between the finance sector and the real economy.”

    and why is this a surprise to anyone ?

    We see the same here – ultra low cost for the Banks and if Mr & Mrs Pleb want any of it … KER-CHING !! , loans at 10 time or more the rate we get the money for

    See who is your master !

    You owe them a living off you !

    The Banks are bust , Shaun , still bust , after all this QE and jiggery-pokery smoke and mirrors fluff that MSM faithfully re-prints with out reading ….

    As for asset stripping , well we have the same here , you know. Its a sign of a people who cant pay their way …… ( or at least a sign of corrupted political class who want their trotters in the trough)


    PS: Greece – The Empire Strikes Back ….

    • The only money I have borrowed is that on which I can earn greater interest.
      So, I borrow £5,000 at 0% (1.5% charges) for 30 months and stick it in my Club Lloyds current account at 4%.
      Over 2.5 years I pay £75 and receive just over £500.
      Not a huge amount, but a profit.
      What is happening is that the banks etc. are borrowing money at ridiculously low cost, but only passing that money onto ultra-safe customers at slightly higher rates, whilst those who actually need credit are, with the banks’ margins, basically sharked.
      That’s because, not only do financial institutions not want to lend to business, which is always risky, they don’t even want to lend privately to people who need it, as they represent a risk too.
      This, to me, is just further confirmation that the banks are insolvent, as they cannot afford any non-performing loans.

      Winning a Greek election is a poisoned chalice.

    • Hi Forbin

      As to the banks wasn’t the Co-op supposed to be fixed? From the BBC.

      “The troubled Co-operative Bank says it will not make a profit for another two years as it reports another loss.
      Pre-tax losses for the first six months of the year were £204.2m, compared with losses of £77m a year earlier. The figure was slightly better than expected.”

      Expected by whom and when?

  4. I’m not sure how long this current bailout will last, where in today’s MSM the Dutch have accused the Greek government of creating ‘complete chaos’ and ‘instigating economic ruination’ in Greece. The IMF have already stated that they are not prepared to lend anymore money. With the latest bailout the EU funds are in theory tied to reforms, but in practice I’m not sure that ultimately the EU will want to rock the boat if ‘progress’ is being made, but it is also not going to be a bottomless pit.

    I’m sure, where many things when you analyse them, they don’t add up, that there is currently much more going on with background Machiavellian political maneuverings than meets the eye?

    • Hi Rods

      I think that everyone is kicking the poor battered can forwards whilst keeping their eyes peeled for an opportunity to blame the other side for a break down of it all. After Tsipras called a general election today perhaps the worst punishment for him would be to win it!

  5. Shaun,
    What do think will make the EU finally say enough is enough with Greece? They have tried everything and the situation is getting worse, not better, despite what they say. Almost everything that has been promised has not happen, by now the bailiffs should have been sent in, if Greece was an ordinary business. Is it to create such a mess that further monetary and political union cannot be avoided?

    • “Is it to create such a mess that further monetary and political union cannot be avoided?”

      I’d posit that was the game plan all along …..


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