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How a 165% debt gets a 50% haircut and becomes a 140% debt.

26/10 European deal and what it really means for Greece

Ok. Here is the deal:

There has been a huge misunderstanding being promoted by the media, in relation to the “50 % debt cut” that Greece has been “given”. The following facts aim to explain, why the Greek people do not treat this deal as a gift, but as one more dead end that only aims to serve Bank interests and not the euro, EU unity or Greece.

First, some history: Since May 2010 Greece was bankrupt. A default was inevitable. Because she is attached to the European chariot, she is not allowed to default or restructure the debt. At least not before the European banks that hold Greek bonds (mainly France’s  and Germany’s ) can get ride of them. This was achieved by buying time, forcing loans that paid interests directly (European taxpayers money, go straight to the banks and not Greece as the media keeps saying..) and that have today almost doubled the Greek debt . Also an “inside” restructure was implemented which resulted in deep recession through unemployment, extreme taxation and wages cuts.

Fast forward to now.  After the banks have gotten rid of their toxic bonds, suddenly a debt restructure is not only allowed but necessary!  Here is the basics of what their leaders decided:

  • private debt owners are invited to exchange their bonds with new ones of half the initial value and lower interest ( around 4.5%)
  • no restructure is taking place on any of the IMF/ECB loans Greece has been given the past two years (which have almost doubled the initial debt)
  • the ECB is not included in the bond-owning banks that need to accept any losses proposed, (in fact, since the bonds they own were bought in really low prices to begin with, they actually stand to make profit!)but at the same time
  • the Greek insurance funds are not considered a state organization, but classified as “private” so they are required to accept the losses proposed

Basically a 165% debt gets a 50% haircut and becomes a  140% debt. Nice math, isn’t it?

Here is an easy picture that shall help you understand how:

Greek public debt was 260 bill € at the end of 2008, at 110% of GDP. Three years later, public debt is close to 370 bill €, with an estimate of 175% of GDP, by the end of 2011.
The following chart shows a rough assessment of the amount of debt and who owns it, also by which percent that amounts wish to be reduced (it is voluntary after all…) and at the last column what remains to be repaid.

Lenders

Ammount

Percentage of cut

New ammount

ECB

60,00

./.

60,00

TROIKA(ECB/IMF/EC)

65,00

./.

65,00

Treasury bills

15,00

./.

15,00

Other loans

20,00

./.

20,00

Greek creditors*

110,00

50%

55,00

Foreign creditors

100,00

50%

50,00

Totals

370,00

29%

265,00

* About 30% of the total, including Greek banks, private owners, insurance funds etc.

What we can see is that if everybody agrees to this restructure, a total o 105 bill.€ will be replaced with new bonds of lower initial value by 50% and with a 4,5% interest. The interests would be repaid by a new loan of 130 bill.€, that Greece will have to take from the EFSF (which she is also required to fund!!).
So, nothing is been “written off” actually..

At the same time, out of the 105 bill.€ , the 55 bill.€ are owned by Greeks themselves. That will lead to the need of recapitalization of Greek banks and insurance funds which will cost the state an estimated 30 bill.€ .

On top of that,Greece’s interior budget gaps will need to cease to exist (exactly as in a bankruptcy), which can only be implemented through new taxation and many other destructive consequences I will not tire you with, here. Greece is asked to endure the losses of a bankruptcy without getting any of the gains.

At the same time, no development plans have been announced (except the “Sun” project which has been attached as a condition, with interestingly German-favoring terms). No development program means further diminishing of GDP, with the debt now coming to 132.5% plus the new deficits, coming to a 160% of GDP by the end of 2012, which is exactly where we started from.

Exactly? Not quite, so..For all these to happen, Greeks need also to agree to the following terms:

  • extreme poverty and unemployment
  • a market blackout for the next 10 years at least
  • selling off all public assets to humiliating prices including ports, road tolls and any future(!!) lucrative means of  increasing the GDP (Aegean gas/oil) that may arise (this has already been signed…)
  • plus handing over control of the country to unelected foreign bureaucrats.

Does it look like a good deal, now?

Special credit to  http://www.casss.gr where the mentioned above table comes from.

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