Thread: 8 Reasons Why The Greek Debt Deal May Not Stop A Chaotic Greek Debt Default

8 Reasons Why The Greek Debt Deal May Not Stop A Chaotic Greek Debt Default

February 21st, 2012
15 comments


The global financial system is not a game of checkers. It is a game of chess. All over the world today, news headlines are proclaiming that this new Greek debt deal has completely eliminated the possibility of a chaotic Greek debt default.

Unfortunately, that is simply not the case. Rather, the truth is that this new deal actually "sets the table" for a Greek debt default. When I was studying and working in the legal arena, I learned that sometimes you make an agreement so that you can get the other side to break it. That may sound very strange to the average person on the street, but this is how the game is played at the highest levels. It is all about strategy. And in this case, the new debt deal imposes such strict conditions on Greece that it is almost inevitable that Greece will fail to meet some of them. When Greece does fail, Germany and the other northern European nations may try to claim that they "did everything that they could" but that Greece just did not "live up to its obligations". So does this mean that we will definitely see a chaotic Greek debt default? No. What this does mean is that the chess pieces are being moved into position for one.

The following are 8 reasons why the Greek debt deal may not stop a chaotic Greek debt default....

#1 Greece Is Being Set Up To Fail

The terms of this new debt deal impose some incredibly harsh austerity measures on Greece and from now on the Greek government will be subject to "permanent monitoring" by EU officials.

In other words, they will be under a microscope.

Any violation of the terms of the debt deal could be used as a pretext to bring down the hammer and cut off bailout funds. Potentially, this could even happen just a few weeks from now.

It has become obvious that there are many politicians in Europe that would very much like to kick Greece out of the euro. In a recent column, the International Business Editor of The Telegraph summed up the situation this way....

It is clear that Berlin, Helsinki, and the Hague have taken the decision to eject Greece from the euro whatever the country now does. Even if Greece complies to the letter with the impossible terms of the EU-IMF Troika, it will not make any difference. A fresh pretext will be found.

#2 The Next Greek Election Could Bring An End To The Bailout Deal Overnight

The next national Greek elections are scheduled for April. Political parties opposed to the bailout have been surging in recent polls. It is becoming increasingly likely that the next Greek government will abandon this new deal entirely.

The following is what hedge fund manager Dennis Gartman told CNBC about what is likely to happen after the next elections....

"A new government is going to come to power following elections that shall take place sometime this spring, and if anyone anywhere believes that the next Greek government shall do anything other than abrogate all the agreements made with the ‘troika,’ then we have a bridge we’d like to sell them at a very high price"

With each passing day anger and frustration inside Greece continue to rise, and those that are currently holding power in Greece are becoming very unpopular.

One current member of Greek Parliament recently talked about what he thinks will happen in the aftermath of the next election....

"If we achieve a Left-dominated government, we will politely tell the Troika to leave the country, and we may need to discuss an orderly return to the Drachma"

#3 This Bailout Deal Is Going To Make Economic Conditions In Greece Even Worse

In a previous article, I listed some of the new austerity measures that are being imposed on Greece by this new agreement....

The EU and the IMF are demanding that Greece fire 15,000 more government workers immediately and a total of 150,000 government workers by 2015.

The EU and the IMF are demanding that wages for government workers be cut by another 20 percent.

The EU and the IMF are demanding that the minimum wage be slashed by more than 20 percent.

The EU and the IMF are also demanding significant reductions in unemployment benefits and pension benefits.

The austerity measures that have already been implemented over the past few years have already pushed Greece into an economic depression.
These new austerity measures will deepen that depression.


At the moment, the Greek national debt is sitting at about 160 percent of GDP.

We are being told that these new austerity measures will reduce that ratio to 120 percent by 2020, but already there are many in the financial world that are calling such a goal "comical".

Even with this new deal, the Greek national debt is still completely and total unsustainable. A "confidential report" produced by analysts from the European Central Bank, the European Commission, and the International Monetary Fund says the following about what this new debt deal is likely to accomplish....

There are notable risks. Given the high prospective level and share of senior debt, the prospects for Greece to be able to return to the market in the years following the end of the new program are uncertain and require more analysis. Prolonged financial support on appropriate terms by the official sector may be necessary. Moreover, there is a fundamental tension between the program objectives of reducing debt and improving competitiveness, in that the internal devaluation needed to restore Greece competitiveness will inevitably lead to a higher debt to GDP ratio in the near term. In this context, a scenario of particular concern involves internal devaluation through deeper recession (due to continued delays with structural reforms and with fiscal policy and privatization implementation). This would result in a much higher debt trajectory, leaving debt as high as 160 percent of GDP in 2020. Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it.

The GDP of Greece fell by 6.8 percent during 2011.

2012 was already expected to be even worse, and all of these new austerity measures certainly are not going to help things.

And every time the Greek economy contracts that makes a chaotic debt default even more likely.

#4 The Greek Parliament Must Still Vote On This Bailout Deal

It is anticipated that the Greek Parliament will vote on this new agreement on Wednesday.

It is expected to pass.

But when it comes to Greece these days, there are no guarantees.

#5 The Greek Constitution Must Still Be Modified

Under the terms of this new agreement, Greece is being required to change its constitution.

The following is how an article in The Economist describes this requirement....

Over the next two months Greece has promised to adopt legislation “ensuring that priority is granted to debt-servicing payments”, with a view to enshrining this in the constitution “as soon as possible”. These arrangements may not amount to the budget “commissar” once threatened by some creditors, but the effect may be pretty much the same.

So will this actually get done?

We will see.

Forcing a sovereign country to modify its constitution is a very serious thing. If I was a Greek citizen, I would be highly insulted by this.

#6 Several European Parliaments Still Need To Approve This Deal

The German Parliament still must approve this new agreement. This is also the case for the Netherlands and Finland as well.

Many politicians in all three nations have been highly critical of the Greek bailouts.

It is expected that all of these parliaments will approve this deal, but you just never know.

#7 Private Investors Still Have To Agree To This New Deal

Private investors are being asked to take a massive "haircut" on Greek debt. The following is how the size of the "haircut" was described by a USA Today article....

Banks, pension funds and other private investors are being asked to forgive some €107 billion ($142 billion) of the total €206 billion ($273 billion) in devalued Greek government bonds they hold.

There is absolutely no guarantee that a solid majority of private investors will agree to this.

In the end, probably the only thing that is guaranteed is that litigation regarding this "haircut" is likely to stretch on for many years to come.

#8 The Global Financial Community Still Expects Greece To Default

Almost all of the analysts that were projecting a chaotic Greek debt default are still projecting one today. Yes, many of them believe that "the can has been kicked down the road" for a few months, but most of them are still convinced that a default by Greece is inevitable.

The following comes from a Bloomberg article that was released after the Greek debt deal was announced....

“The danger of Greece saving itself into economic depression and having to default and exit the common currency zone remains substantial,” said Christian Schulz, an economist at Berenberg Bank in London. Jennifer McKeown of Capital Economics Ltd. repeated her forecast that Greece will quit the euro by the end of the year.

The odds that this agreement will survive for very long are not great.

It will be nearly impossible for Greece to meet all of the conditions being imposed upon it by this new deal. All of the politicians in northern Europe that are just itching to cut off aid to Greece will soon have the excuse that they need for doing so.

And the Greek people could decide to bring all of this to an end very quickly. If they elect a new government in April that does not support this bailout agreement, the game will be over.

So don't be fooled by all the headlines.

A chaotic Greek debt default has not been averted.

The truth is that a chaotic Greek debt default is now closer than ever.




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8 Reasons Why The Greek Debt Deal May Not Stop A Chaotic Greek Debt Default

Is Germany Secretly Maneuvering To Kick Greece Out Of The Euro?

February 20th, 2012
11 comments


What in the world is going on in Europe? Each day things just seem to get stranger and stranger. We are being told that a "deal" for a second Greek bailout has been reached and that Greece will not default in March.

But behind the scenes it seems clear that many politicians in Germany (and in the other northern European countries as well) would like to kick Greece out of the euro. So what exactly is happening here? Well, it is complicated. The United States, along with other members of the international community, put a tremendous amount of pressure on Germany to bail out Greece one more time. Germany does not want to look like the bad guy, so they are going along with this bailout but they are also imposing conditions on Greece this time that will be almost impossible to meet. And when Greece fails to meet its "obligations", that will give the northern Europeans the excuse that they need to kick Greece out of the euro. At this point, many politicians in northern Europe are convinced that Greece is a "lost cause" and that it is not fair to ask northern European nations to pay the price for the financial mistakes of Greece. Greece is basically completely and totally bankrupt, and the nations of northern Europe don't want to have a "financial dependent" on their books forever. They are looking for a "way out", and this new agreement lays the foundation for that.

Right now, Greece is experiencing depression-like conditions. The following description of what life is like in Athens these days is from a recent Daily Mail article....

What is so shockingly evident as you walk around Athens are the awful parallels between that war-time era and today. The soup kitchens, the beggars, the pensioners picking up discarded vegetables after street markets close, the homeless scavenging for food in bins. These are the signs that can be seen.

Less noticeable is the quiet desperation of dignified people who turn off heating despite the cold and share dwindling savings with jobless relatives. Or the workers unable to afford fares home and the children fainting in school from hunger.

Greece is an economic basket case at this juncture, and many northern Europeans are not keen on the idea of endlessly supporting Greece financially.

The way that the other nations of Europe have been torturing Greece makes it clear that their patience is running out. The outrageous austerity demands that the EU and the IMF made on Greece this time were so oppressive that many believed that Greece would never agree to them. It was thought that Greece might finally be forced out of the euro.
But the current Greek government desperately wants to stay in the eurozone and the Greek Parliament did agree to them.

Unfortunately for the Greek government, they are going to be watched much more closely this time. In essence, they will be under the microscope. If they slip up, and they almost certainly will, that will give those that wish to abandon Greece the ammunition that they need.

The decision seems to have been made that Greece is going to be made to exit the eurozone one way or another. Esteemed financial journalist Ambrose Evans-Pritchard penned the following in one of his recent columns....

It is clear that Berlin, Helsinki, and the Hague have taken the decision to eject Greece from the euro whatever the country now does. Even if Greece complies to the letter with the impossible terms of the EU-IMF Troika, it will not make any difference. A fresh pretext will be found.

The tension in Europe is so thick right now that you could almost cut it with a knife. Some northern European politicians have clearly had enough....

-Luxembourg Finance Minister Luc Frieden is trying to make it sound like Greece is kicking itself out of the eurozone....

"If a member state says, 'we prefer not to take money from other states and return to a national currency without making structural reforms,' then that state has chosen to exclude itself"

-German Finance Minister Wolfgang Schäuble is openly proclaiming that he does not believe that it is even possible for the Greek government to comply with all of the demands that the EU and the IMF will now be imposing upon it.

-Bavaria’s finance minister Markus Söder is very clear about what he thinks should be done....

"It would be better if Greece stepped out of the euro"

But it is not just politicians that think it would be best for Greece to exit the euro. According to one recent poll, 57 percent of all German business leaders want Greece to leave the eurozone.

The upcoming national elections in Greece that are scheduled in April could end up being a significant turning point.

There is a lot of fear in northern Europe that the next Greek election will be dominated by the far left and that will result in a complete breakdown of the austerity process and all the money spent trying to keep Greece in the eurozone will have been wasted. One member of Greek Parliament recently said what he believes may happen after the upcoming election....

"If we achieve a Left-dominated government, we will politely tell the Troika to leave the country, and we may need to discuss an orderly return to the Drachma"

There have been persistent rumors that some European countries have been planning for the worst. For example, a recent article in The Telegraph actually claimed that Germany is currently drawing up contingency plans for the exit of Greece from the eurozone....

Plans for Greece to default, potentially leaving the euro, have been drafted in Germany as the European Union begins to face up to the fact that Greek debt is spiralling out of control - with or without a second bailout.

A number of politicians in Greece realize what is going on and have lashed out angrily. Greek Finance Minister Evangelos Venizelos is absolutely convinced that there are forces in Europe that are trying to push his nation out of the eurozone. He recently made the following statement....

“In the euro area, there are plenty who don’t want us anymore. There are some playing with fire, domestically and abroad. Some are playing with torches and some are playing with matches. But the risk is equally great.”

One member of the Greek Parliament, Kostas Kiltidis, is warning of dire consequences for those trying to kick Greece out of the euro....

"We are the cradle of European civilization and nobody can take us out of our own home. There is no legal mechanism for this. If they try, others are going to die economically with us."

All over the financial world, there is a growing feeling that a Greek default is inevitable at this point. Just check out the following quote from a recent report put out by Credit Suisse....

Overall, we are left with a sense that the probability of delivering the largest default loss in history in a disorderly way on or before 20 March has increased relative to doing so in an orderly way. (Our view remains that, in any case, the chance of a disorderly outcome after 20 March is high, so to that extent the immediate events are not really central to our view, but of course are fascinating).

The Greek government is drowning in debt and is going to great lengths to try to stay afloat. In Greece today, it seems like almost everything that the government owns is for sale. The following is from a recent article in The Independent....

The Greek government is trying to raise a staggering €50bn from the sale or rental of national assets including Athens International Airport (and 38 other airports), state oil and gas companies, ports in Thessaloniki and Piraeus, the Hellenic Post Bank, the motorways, the state-run horseracing organisation, and 35 large government-owned buildings. Hellenikon – a strip of coastline three times larger than Monaco which was once home to an international airport – is up for grabs, as is a 44-acre chunk of Corfu and, reportedly, numerous other stretches of scenic coastline.

But no matter what the Greek government does, it is only delaying the inevitable.

This new deal is not going to "save" Greece. Government debt will remain at unsustainable levels and the country will be facing depression-like conditions for years and years to come.

Many Greek citizens are planning for the worst. The following comes from a recent article in The Guardian....

"I'm really worried. I think there is a risk that we will go bankrupt and I've thought a lot about being prepared," said Dimitra Partheniou, 61, in Athens. "I've gone through all the scenarios: of there being no food, of people being attacked as they go to the supermarket, of banks being looted. And I've decided that if that happens we're moving to Poros [an island] because there, at least, we've got enough land to cultivate tomatoes and corn."

When people become desperate they do desperate things. For example, it was recently discovered that thieves have stolen dozens of priceless antiquities from the Ancient Olympia Museum. As the economy continues to crumble, things in Greece are going to get even worse.

And northern Europe does not intend to be financially responsible for this Greek tragedy.

So don't be fooled by this new deal.

This deal is not about rescuing Greece.

Rather, it is about setting the stage for the exit of Greece from the euro.

And if Greece does end up getting kicked out of the eurozone, that is going to be a signal to the financial world that others may be asked to leave the eurozone at some point as well.

Investors would be left wondering which country will be the next to go.

Portugal?

Italy?

Spain?

The economic problems that Europe is facing right now are not going to end with Greece.

Some European officials seem to think that if they "amputate" by cutting off Greece right now that the rest of the eurozone can be salvaged.

That simply is not going to happen.

In the end, Europe is either going to totally break apart or it is going to integrate on a level never seen before in modern times.

It will be fascinating to see what happens.



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Is Germany Secretly Maneuvering To Kick Greece Out Of The Euro?