David Stockman on Greece

David Stockman on the troika’s negotiating position,

(…) Secondly, the troika cannot give honest debt relief anyway. That’s because officialdom is now petrified of their own taxpayers—-whom they have betrayed and baldly lied to from the very beginning. Thus, the IMF has now loaned Greece $35 billion in gross violation of its own credit standards and long-standing rules. Were it ever to take the huge write-offs that are objectively warranted by the actual facts of Greece’s economic and fiscal situation, it would be eaten alive in the legislative chambers of its member governments.

Indeed, in the case of the $6 billion share of the loss attributable to the US quota, the Republican congress would have a field day investigating the incompetence and misdirection underlying the IMF’s role in the Greek bailout. The IMF would never again achieve a congressional majority for a subscription funding increase—effectively putting it out of business.

And that’s nothing compared to the political explosion that would be unleashed in the national parliaments of the Eurozone itself—– were proper debt relief to be granted. As shown below, the Germans are on the hook for $56 billion of the direct fiscal debt, but that’s not the whole of it by any means. Through the backdoor of the ECB, German taxpayers have also loaned Greece another $36 billion in the guise of liquefying the collateral of the Greek banking system.

“Liquefying” my eye!

The Greek banking system is hopelessly insolvent; the so-called “Eurosystem” obligations shown below are nothing more than fiscal transfers. Accordingly, what the clueless Angela Merkel actually accomplished during five years of weekend Gong Shows was to bury her taxpayers under $92 billion of liabilities—–nearly all of which are off-budget and unacknowledged.

Her desperate and mindless temporizing in order to remain in power thus constitutes a monumental political lie and betrayal. Were this to be exposed by a major write-down of the Greek debt,it would lead to an instant fall of her government.

The same is true for the rest of the Eurozone—only the facts are even more egregious.

France’s share of the fiscal debt is $42 billion and its total obligation including the ECB exposure is $70 billion. But France has not had a balanced budget in 40 years; is suffering from record unemployment and a decaying economy that has been suffocated by socialist taxes and regulatory dirigisme; and will soon join the triple digit club on its public debt. Accordingly, its government is petrified by even mention of Greek debt relief.

Then you have Italy buried under a 130% debt-to-GDP ratio and an economy that is 10% smaller in real terms than it was 7 years ago. So it is not surprising that its paralyzed, caretaker government does not wish to contemplate even the prospect of a write-down on the $37 billion of fiscal debt owed by Greece or the $60 billion of total exposure.

Then there is the crook and fiscal phony running Spain. No wonder Mr.Rajoy has practically threatened to take out a contract on Alexis Tsipras’ life. Spain’s economy is still grinding away 15% below its boom time peak and its government is faking its fiscal accounts to a fare-the-well. Still, its public debt continues to rise toward 100% of GDP (…)

Could not agree more. It’s not only the Greeks who find themselves between a rock and a hard place…

I am curious how they will try to come out of this. They will probably have to suspend the GDP/ central bank accounting rules!



  1. The easiest way to get out of this would be to reschedule for very long tenors at very low rates. Suppose the official debt were rescheduled out to 50 years (bullet) with an interest rate of zero. That would mean for Germany a 92 BEUR (according to Stockman) non-interest bearing asset. Suppose Germany’s funding cost is 1%. That would mean a funding loss of 920 MEUR annually (this figure, of course, jumps if interest rates were to jump).

    The 920 MEUR would no be a line item. It would be buried somehwere within interest income/expense. No tax payer would ever find it and no tax payer would really feel it.

    In the meantime, growth and inflation will have reduced the 320 BEUR sovereign debt of Greece so some insignificant percentage of GDP. And if 50 years is not long enough, do it for 100 years.

  2. Good point Klaus,
    agree-this is the most likely option.
    Still, it is not a no-brainer as it would set a precedent: why only Greece? Why not extend infinitely to others as well? Isn’t this unfair?
    I can alrady hear the leftist newspapers ask…

    Also do not forget that it is important to keep power and influence which is why you have strict terms and covenants on these loans in the first place (it is certainly not because it protects the taxpayer) A programe without power is worthless from the viewpoint of the average Eurocrat (a rare coincidence wher economic and political values correlate)

    I can’t help it: the choices our “elites” face are really terrible (from their point of view)…

    Further do not forget that strictly speaking under IFRS you would have to value the new loan (i.e. an extension) at “fair value” at the time of change of contract. And the discount rate clearly cannot be 0 percent in this case (although I doubt any auditor would truly enforce this rule)…

    Also in GDP accounting a no maturity 0 percent loan usually goes under foreign aid, i.e. it is not an asset financed with debt I would say, but not sure…

  3. BTW, and much to my surprise, I just saw a tweet showing US financial institutions as the largest creditors of Greeks banks with 11,8 BUSD. UK institutions follow with 8,4 BUSD. Germany with 5 BUSD. All others are peanuts. What do you think is behind those numbers?

    1. Klaus, I am surprised there are any foreign institutions left after 90bn in ELA… Are u sure the numbers are right? If yes, it tells you a lot about risk management there…

  4. I do not think it is hedge funds, but it could be some supranational banks (World Bank, etc.)…
    It could also be that they are looking at the consolidated balance sheet. The exposure could be toward foreign subsidiaries of Greek banks (that are considered ring-fenced by the local regulator)…

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