The Economy Guy

Europe is Heating Up…….

Here is the latest from Europe and the Greek debacle.

First, the Greeks have not come to any agreement with the troika (EU/IMF/ECB) on those austerity measures that they must implement to meet the troika requirements to receive the 130B Euro loan – and the necessity of this loan is growing as we approach the mandatory debt payment date in March.  The problem being approached is that Europe insists that not only the Greek Government, but also ALL the Greek parties agree to the austerity measures.  The Europeans don’t want a new Greek government (in April) to renounce the deal being struck now.  Well, that’s a problem.  There will be an election in April in Greece, and all parties are positioning themselves to look “good” in the eyes of the Greek electorate.  So, mass agreement is hard to come by.  Only the threat of a massive default – and a removal of the Euro as Greece’s currency (and replaced by the old Drachma) – could cause all parties to agree.

Second, the Greeks have not come to terms with the existing bond holders on the details of the default – which rumor says will be about 70% of the value of the bonds held.  The additional 15B Euros needed has yet to be identified, but movement by the ECB to take less than full face value of Greek bonds plus interest due is being discussed – and this will set another precedent in Europe with unintended consequences yet to be assessed.

Third, the European Union Finance Ministers announced today that they will be meeting tomorrow in Brussels to approve the Greek bailout deal – and this is without any Greek attendance or agreement.  In other words, the EU is agreeing the deal they have on the table for the Greeks.  The additional 15B Euros could easily be on the Finance Minister’s agenda too.

Fourth, the Irish Prime Minister said today (as I promised you in previous Economyguy’s he would say) that if Greece is bailed out, then Ireland wants the same bailout.  This is a massive nightmare for the European Union – as not only Ireland, but also Portugal – and then possibly Italy and Spain – would want to take advantage of the precedent being established with Greece.  In other words, the “firewall” established by the Europeans has FAILED.

My thoughts……

I believe that the Greeks are negotiating with the EU on the conditions for their 130B Euro bailout.  They want to change the list of mandatory austerity measures to be more acceptable to all Greeks – especially those trying to be re-elected in April.

The EU Finance Ministers are spiking the Greek re-negotiation tactic by “approving” the mandatory list of austerity – so this would remove any re-negotiation from the Greek arsenal of weapons.  This move by the EU Finance Ministers has been interpreted by the world’s markets that the Greeks have finally agreed, and this is the next step in the bailout.  If the Greeks have already agreed, then the markets are right – however, wouldn’t we all know by now?  However, if the Greeks have not agreed yet, it could force the Greek’s to rethink their strategy, and actually consider bankruptcy and leaving the Euro – something the markets has not discounted AT ALL.  The danger here is that the world’s markets could be in for the shock of their lives in the near future.  Only time will tell – so we must wait patiently.

The Irish request for the same deal that Greece is getting – is a new headache for Europe.  It’s nice to see the Irish standing up for themselves.  I agree they should get the same deal.  In fact, they have earned it much more than the Greek’s who cheated all the way through their problems.  The Irish have quietly accepted their austerity requirements – and are meeting them.  Yes, it’s hard for the Irish people, but they deserve the same, fair treatment as the Greek’s – don’t they?

This is so much fun.