World View: Europe Announces €44 Billion Bailout for Greece

World View: Europe Announces €44 Billion Bailout for Greece

This morning’s key headlines from

  • Europe declares victory with another hopeless bailout payment for Greece
  • After Greece’s deal, Ireland looks for a better deal
  • Huge anti-Morsi demonstrations fill Cairo’s Tahrir Square
  • Hamas chief Khalid Mashaal says he supports Thursday’s Palestine U.N. bid

Europe declares victory with another hopeless bailout payment for Greece

IMF chief Christine Lagarde at Tuesday 2 am press conference
IMF chief Christine Lagarde at Tuesday 2 am press conference

Over a year ago, I proposed the “Kick the Can Theory,” which says thatif you want to predict what Europe is going to do, just assume thatthey’ll the bare minimum possible to get through the current crisis,but leave the basic underlying problems unchanged, so that the nextcrisis will be much worse — in other words, “kick the can down theroad,” and lie about it.

Around 2 am, Tuesday morning, after a 12 hour meeting, the Europeansdeclared victory, giving Greece a new 44 billion euro bailout loan,enough to meet commitments through the end of the year. According toGreece’s prime minister Antonis Samaras:

“A very grey, a very dark period for Greece officiallyended yesterday and it has ended for good. We Greeks were made fortough times, and when the going gets tough, it brings out the bestin us.”

And here’s the statement of Jean-Claude Jüncker, chairman ofthe Eurogroup finance ministers:

“This is not just about money. This is the promise ofa better future for the Greek people and for the euro area as awhole, a break from the era of missed targets and looseimplementation towards a new paradigm of steadfast reformmomentum, declining debt ratios and a return togrowth.”

Wow! I’m surprised he could mouth all those long words at 2 am. Asusual, I have to remind readers that when reporters caught Jüncker ina series of lies in May, 2001, in the same Greek debt crisis, hereplied, “When it becomes serious, you have to lie.” Well, thissituation is pretty serious, so we can assume that Jüncker has to lie.

Actually, this “new paradigm” is no different than the previoustemporary bailouts. It depends on two things:

  • During the next month, Greece will have to initiate a “bond buyback” program, where they’ll ask private investors holding Greek bonds to sell them back to Greece at 28 to 30 cents on the dollar — a 70%-72% haircut. Recall that we went through this a year ago and it was a nightmare, with investors taking a 74% haircut, where most of the investors were banks that governments could force to go along. A lot of private investors didn’t go along with the plan and refused to sell at a 74% loss, and now we’re going through it again.
  • The entire plan assumes that Greece will soon emerge from recession and start growing rapidly. Politicians have been assuming for five years that the financial crisis would end “next quarter,” and that we’d return to the credit and real estate bubble of the mid-2000s decade. That is literally impossible. The credit and real estate bubbles still have far to go before they’ll be fully deflated. Growth will not begin again until well into the 2020s.

The interesting character in all this is Christine Lagarde, head ofthe International Monetary Fund (IMF). Last week she had a raucousopen confrontation with Jean-Claude Jüncker, when she refused to goalong with his plan to allow Greece two extra years to meet theirausterity commitments. At first I thought that Lagarde had completelycaved in during last night’s negotiations, but apparently she did onlypartially. The IMF will not release its share of the 40 billion eurobailout loan until the bond buyback plan is completed.

And sooooooooooooooo, Dear Reader, if you’ve waded through all theabove, then you know that even with the bailout payment, Greece willbe in more serious trouble before long, but in fact the bailoutpayment itself is not even firm.

As one analyst put it:

“The latest Greek rescue deal will buy the country abit more time. But unless the economy stages a miraculousrecovery, the rest of the euro-zone will soon be forced to makemuch more difficult decisions over just how far it is prepared togo to keep Greece inside the euro.”

Kathimerini and EurActiv and WSJ

After Greece’s deal, Ireland looks for a better deal

Now that Greece has been given extra time to meet its austeritycommitments, as well as other sweeteners, Ireland is thinking aboutasking for a better deal as well. Part of the package announced lastnight was that the interest on Greece’s loans from the EuropeanCentral Bank (ECB) will be reduced and partially deferred. It lookslike Ireland’s Minister for Finance Michael Noonan will be asking forsimilar treatment. Irish Times

Huge anti-Morsi demonstrations fill Cairo’s Tahrir Square

A major political confrontation is growing in Egypt, as over 100,000defiant protests filled Cairo’s Tahrir Square on Tuesday, demandingthe cancellation of president Mohamed Morsi’s constitution decree lastThursday, when he gave himself dictatorial powers. Thousands alsotook to the streets in mostly peaceful rallies in major cities acrossEgypt. Morsi still has strong support among members of the MuslimBrotherhood, of which he was a former leader. The Brotherhood hadoriginally planned to hold counter-demonstrations on Tuesday, butcanceled them to avoid violence with with anti-Morsi protesters.Morsi has stated that he will not yield to demands to cancel thedecree. There are unconfirmed reports that Morsi is consideringmeasures that might be taken to appease the protesters, but none hasbeen announced so far. Al-Ahram

Hamas chief Khalid Mashaal says he supports Thursday’s Palestine U.N. bid

Hamas chief Khalid Mashaal has notified Palestinian Authoritypresident Mahmoud Abbas that he intends to support the latter’s bidfor recognition of a Palestinian state by the United Nations GeneralAssembly, to be presented later this week. This is a completeturnaround, as Hamas has previously strongly opposed Abbas’s plan,because the recognition of a Palestinian state could imply officiallygiving up the “right of return” for Palestinians to the homes inIsrael that their ancestors owned prior to the 1948 partitioning ofPalestine and the creation of the state of Israel. Ma’an News Agency (Bethlehem)

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