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Thread: IMF Team Leaves Brussels After Making No Progress on Greek Deal

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    Re: IMF Team Leaves Brussels After Making No Progress on Greek Deal

    Quote Originally Posted by humbolt View Post
    Hopefully the default will be orderly, as you say. It appears to be unavoidable in the face of Greek resistance. Financial markets will need to move in concert, and I am doubtful that some won't look to exploit the weakness exposed by a default eventually in those countries most directly affected. That is, I think the real test may come somewhat further down the road for some.
    I agree, but Greece will have to play a role maximizing prospects of an orderly outcome. The current Greek government has already inflicted harm on Greece's economy and even an orderly default would lead to worse economic pain. A scenario where the Greek government is vindictive and seeks to inflict pain beyond its borders in retaliation for its terms not having been met cannot be dismissed. Mutual financial destruction to some extent is an approach it might attempt to pursue, especially if it believes the ECB will cease propping up its banking system.

    There's still time for a realistic deal (where Greece undertakes meaningful reforms), an agreed approach for an orderly default, a "punt" of sorts where cosmetic approaches take precedence over meaningful reforms in an intermediate stage aimed at buying time for a future approach (ranging from structural reform--possibly including partial debt write-offs to managed default), among other scenarios. But the punitive/retaliatory scenario is also something that is on the table, as well.

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    Re: IMF Team Leaves Brussels After Making No Progress on Greek Deal

    Quote Originally Posted by donsutherland1 View Post
    I agree, but Greece will have to play a role maximizing prospects of an orderly outcome. The current Greek government has already inflicted harm on Greece's economy and even an orderly default would lead to worse economic pain. A scenario where the Greek government is vindictive and seeks to inflict pain beyond its borders in retaliation for its terms not having been met cannot be dismissed. Mutual financial destruction to some extent is an approach it might attempt to pursue, especially if it believes the ECB will cease propping up its banking system.

    There's still time for a realistic deal (where Greece undertakes meaningful reforms), an agreed approach for an orderly default, a "punt" of sorts where cosmetic approaches take precedence over meaningful reforms in an intermediate stage aimed at buying time for a future approach (ranging from structural reform--possibly including partial debt write-offs to managed default), among other scenarios. But the punitive/retaliatory scenario is also something that is on the table, as well.
    In my view the strange thing is that I think with agreement for some structural reform - even in the future - the ECB won't let the banking system collapse. Surely the Greek government understands that such a collapse would be the worst outcome possible. There's no doubt I don't understand all of the in's and out's of this problem, but it looks for all the world to me like the Greeks have had a foot problem for a very long time now, and they've made the decision to cut off their legs as a cure.

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    Re: IMF Team Leaves Brussels After Making No Progress on Greek Deal

    Quote Originally Posted by humbolt View Post
    In my view the strange thing is that I think with agreement for some structural reform - even in the future - the ECB won't let the banking system collapse. Surely the Greek government understands that such a collapse would be the worst outcome possible. There's no doubt I don't understand all of the in's and out's of this problem, but it looks for all the world to me like the Greeks have had a foot problem for a very long time now, and they've made the decision to cut off their legs as a cure.
    I think the Greek people are very weary of the austerity they've been forced to live under, but they may have to live with benefits like pensions - that they were promised, BTW - being severely trimmed. There just isn't enough money to pay them. If they default and leave the EU, and go back to using the drachma instead of the euro, is their tourist trade and olive oil exports enough to sustain their economy? The banks that lent them money will take a haircut, and that seems to be the problem right now, which isn't the fault of the average Greek citizen, but rather decisions that have been made by their government. What a mess, but it makes me wonder if they're the "canary in the coal mine" for what may begin to happen to other debt-laden countries worldwide.

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    Re: IMF Team Leaves Brussels After Making No Progress on Greek Deal



    The IMF just corrupts. It's good that Greece kicked them out.
    "Don't care. I don't care about polar bears, and I don't care about people who think our policies should be dictated by the effects on polar bears. Polar bears are basically Ice Monsters. Like that thing in the second Star Wars movie. **** em. And anything with more than four legs." -Deuce

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    Re: IMF Team Leaves Brussels After Making No Progress on Greek Deal

    Quote Originally Posted by polgara View Post
    I think the Greek people are very weary of the austerity they've been forced to live under, but they may have to live with benefits like pensions - that they were promised, BTW - being severely trimmed. There just isn't enough money to pay them. If they default and leave the EU, and go back to using the drachma instead of the euro, is their tourist trade and olive oil exports enough to sustain their economy? The banks that lent them money will take a haircut, and that seems to be the problem right now, which isn't the fault of the average Greek citizen, but rather decisions that have been made by their government. What a mess, but it makes me wonder if they're the "canary in the coal mine" for what may begin to happen to other debt-laden countries worldwide.
    The world financial markets aren't at risk, but it's ominous. There will be more civil unrest, and it may not be confined to just Greece if things aren't well managed. Those holding a significant Greek paper should be very anxious. They are mentioned in the links here.

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    Re: IMF Team Leaves Brussels After Making No Progress on Greek Deal

    The latest from the Financial Times:

    A day after the International Monetary Fund pulled its officials out of talks and EU leaders said it was decision time for Greece, Athens said it had submitted a new plan that included debt restructuring but excluded cuts to pensions, elements rejected by bailout monitors earlier this week...

    In addition, the IMF has continued to insist that pension cuts totalling 1 per cent of gross domestic output be included in any deal, arguing that Greece’s pension system is unsustainable. While Athens has resisted such cuts, citing already-impoverished pensioners, creditors have asked Greek officials to find cuts elsewhere if it wants to avoid such pension reductions for the poor.


    http://www.ft.com/intl/cms/s/0/0c45e...#axzz3crN7N2Lj

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    Re: IMF Team Leaves Brussels After Making No Progress on Greek Deal

    From Reuters:

    Government spokesman Gabriel Sakellaridis gave more details on the negotiating stand, such as on the primary surplus - a budget balance that excludes debt repayments - and the creditors' demands for yet more of the austerity that has already radically reduced Greeks' living standards.

    "The government seeks a solution which will include a debt relief, low primary surpluses, no wage and pension cuts, an investment package and restarting the economy," he told Agora newspaper.


    Tsipras seeks debt relief as Greeks take offer to Brussels | Reuters

    If, indeed, this description is accurate, it means that Greece continues to try to evade making serious proposals. Instead, Greece is insisting on relief while offering no meaningful reforms to alleviate the structural drivers of its debt burden. My guess is that if this account is accurate, the EU, ECB, and IMF will reject what amounts to little more than a gimmick aimed at creating perceptions of Greek flexibility.

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    Re: IMF Team Leaves Brussels After Making No Progress on Greek Deal

    From Reuters:


    Talks on ending a deadlock between Greece and its international creditors broke up in failure on Sunday, with European leaders venting their frustration as Athens stumbled closer toward a debt default that threatens its future in the euro.

    European Union officials blamed the collapse on Athens, saying it had failed to offer anything new to secure the funding it needs to repay 1.6 billion euros ($1.8 billion) to the International Monetary Fund by the end of this month.


    Greece and creditors fail in 'last attempt' to reach deal | Reuters

    The article also noted that Greek officials vowed that they "will never give in to demands for more pension and wage cuts." Ironically, should Greece default, job losses and revenue losses from deeper economic contraction would likely accomplish both those ends. At the same time, Greece's leaders would have very little to show for their intransigent stand.

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    Re: IMF Team Leaves Brussels After Making No Progress on Greek Deal

    Quote Originally Posted by donsutherland1 View Post
    From Reuters:


    Talks on ending a deadlock between Greece and its international creditors broke up in failure on Sunday, with European leaders venting their frustration as Athens stumbled closer toward a debt default that threatens its future in the euro.

    European Union officials blamed the collapse on Athens, saying it had failed to offer anything new to secure the funding it needs to repay 1.6 billion euros ($1.8 billion) to the International Monetary Fund by the end of this month.


    Greece and creditors fail in 'last attempt' to reach deal | Reuters

    The article also noted that Greek officials vowed that they "will never give in to demands for more pension and wage cuts." Ironically, should Greece default, job losses and revenue losses from deeper economic contraction would likely accomplish both those ends. At the same time, Greece's leaders would have very little to show for their intransigent stand.


    How is all this affected by CDOs and default . It seems that the last default was negated by naming the default something else and ergo denying payment. Now, I don't think it is Greece that loses on the Credit Default obligations, but likely Western bankers. Is that in play this time?

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    Re: IMF Team Leaves Brussels After Making No Progress on Greek Deal

    Quote Originally Posted by DaveFagan View Post
    How is all this affected by CDOs and default . It seems that the last default was negated by naming the default something else and ergo denying payment. Now, I don't think it is Greece that loses on the Credit Default obligations, but likely Western bankers. Is that in play this time?
    Right now, there's no discussion about debt restructuring. That's something that could occur at some point in time in exchange for meaningful structural reforms. Almost certainly, both public and private investors will need to share in the write-offs. The notion against "privatizing profit and socializing loss" runs much stronger in Europe than the U.S. There's very little chance that Europe's public officials would choose to incur all the costs of write-offs while leaving private investors harmless.

    Cyprus offers a lesson about the unwillingness of policy makers to hold private investors harmless. There, in exchange for the rescue of that country's banking system, certain depositors incurred some degree of losses. The losses were incurred on deposits in excess of insured amounts, approximately a 47% haircut on each account in excess of 100,000 Euros. The haircut was aimed at the speculative sector.

    Personally, I don't think the concept of haircuts was a bad idea, though I'm not sure what an optimal amount should have been. First, many of those large deposits targeted by the haircut had represented nothing more than speculative capital inflows in the absence of due diligence--a sort of "get rich quick" scheme with no regard for underlying fundamentals or rational economic calculation; the kind of mania that is economically destructive. Those cash flows helped destabilize Cyprus' financial system.

    Investment has probabilities for profit and for loss. There's no compelling market reason that profits should be permitted, but losses not permitted, except in extraordinary circumstances. Such circumstances did not appear present in Cyprus. Indeed, the moral hazard associated with such an approach would create incentives for the kind of recklessness that precipitated that country's financial system crisis. Clearly, this was an unpopular decision and dire warnings of Depression, an unsalvageable banking system, and permanent loss of access to global financial markets were issued, but it was a market-oriented one: Bad investments would not be shielded from loss.

    Where do things currently stand? This is still a work in progress. The banking system has been saved, the economy is in recession, but the doom-and-gloom scenarios peddled largely by those opposing the haircuts were never realized. Clearly, I understand their desire to be held harmless to their recklessness, but public policy should be based on sound principles. The haircut was designed to focus on the speculative sector responsible for the pile-up in leverage that precipitated that country's financial crisis, not ordinary savers. To be sure, some innocent parties were caught in the mix, but by and large, businesses that exercised prudent and diversified cash management were not unduly exposed to the haircut (accounts were spread through multiple institutions, including strong international ones, they were structured around insured limits, etc.). That the speculative accounts didn't exercise prudent cash management should not be surprising. Speculation, by its nature, ignores risk and the need for risk management. It is premised on unrealistic assumptions concerning profits in all circumstances and losses in none.

    From the IMF in July 2014 (an update will be forthcoming later this year):

    Following the recapitalization of the banking sector, the authorities removed all domestic payment restrictions. These achievements, together with better-than-expected economic and fiscal performance, allowed Cyprus to re-access international markets earlier this year...

    Output contracted by 5 percentage points in 2013, as consumption and investment declined abruptly following the crisis. Still, the recession was less severe than initially expected, with the fall in financial sector activity and construction cushioned in part by resilient tourism. The recession is projected to continue this year, with a modest recovery expected to take hold in 2015, and a gradual increase in growth toward 2 percent over the medium term.


    So, no Greek-style loss of access to global financial markets has occurred. The banking system was salvaged. Risks remain, but the country has a chance to resume economic growth.

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