Greece is out of IMF & ECB aid (not really) - part 3

So, as we said in part 1 and part 2, it will be virtually impossible for Greece to maintain such a large primary surplus in the current period, after the 10-year recession, when country returned to only weak growth (1.4% in 2017). The greater the pursuit of the surplus, the more it will have to cut public expenditure and raise taxes, lower economic growth will be lower, and the faster the debt will increase in relation to GDP. This is a matter of ordinary arithmetic, basic accounting logic at macro level and is technically un-doable.

In other words, you can not claim a high budget surplus from a country that is in a deep economic crisis, where one-fifth of the working-age people are out of work and where half of young people (15-30 years) are unemployed, because this country can not even begin to seriously recover. If there is a shock in foreign demand, the Greek government has no room for growth and should not allow the operation of automatic stabilizers on the expenditure side (automatic increase in compensation for freelance and social assistance), but must be frozen or even diminished. Both of them, of course, automatically reduce aggregate demand and thereby ....GDP.

Such a country, from which they demand to have a "long-term fast", is condemned to a long-term deep stagnation. This situation is simply not sustainable.

Well, that's why the IMF asked the EU countries to write off half of the debt to Greece and reduce its primary surplus requirements. This would allow her to stand on her feet and even become able to repay her debt.

The Eurocratic euphoria is by no means in place. It's just about sweeping the problem under the carpet or shifting the problem to the future. This is what the charismatic former finance minister in Tsipras's government, Yanis Varoufakis, calls "extend and pretend" (extending to the future and pretending that everything is fine). In eight years and three record packages of "aid" to Greece, the partner countries in the euro area effectively socially massacred Greece with the assistance of the ECB and the IMF, and prevented Greece any further development.

Not to be mistaken .... for the beginning of the Greek crisis, the responsibility lays on the former Greek governments, who irresponsibly lived an extremely leisurely life and were socially too generous.

But they were helped by all major financial institutions. For example, Mario Draghi (almost 20 years ago, at the time of the creation of the euro area, vice president of Goldman Sachs in London), was in charge of helping Greece, to cut public debt, to help Greece achieving its Maastricht criteria - so Greece could take over and start using the Euro currency only two years after major European countries like Germany, France, Austria...

The French, German and Dutch banks competed until the beginning of the crisis in 2008, which will lend more money to the Greek government. At the beginning of the crisis in 2008, banks from these three countries to Greece were exposed as high as 130 billion dollars. That was mainly due to the fact that the Greek government bonds provided higher returns and, in accordance with the Basel rules, were completely safe (there was no need to provide additional coverage to banks for investment in government bonds).

Well, from all this, we can answer ourself to the key question. The question is why, in the aftermath of the Greek crisis in 2010, the EU did not allow Greece to go bankrupt and why they decided to "financially help" Greece at that time and additionally burden its citizens. The highest European eurocrats and country leaders, of course, still claim today that they have helped Greece solidly and have rescued the Euro zone from collapse. But of course, these are naturally flocculous and fairy tales for citizens. The real reasons for financial aid to Greece lie primarily in the settlement of the French and German banks, which were so strongly exposed to the Greek government bonds that, in the first two packages of "financial aid" to Greece, the Eurozone countries had to be dealt with under the pretext of settling Greece.

The aid to Greece in the first two packages was (at the time of granting loans) mainly to be carried out in such a way that the claims of the European banks to the Greek state (in the form of Greek bonds) were transferred to the European fund, the European Financial Stability Facility (EFSF), established for this purpose. In the first package of "aid" to Greece, German banks were first rescued, which were still exposed to $ 45 billion at the beginning of 2010 to Greece, and by the beginning of 2012 this exposure was reduced to only 5 billion. The second package dealt with French banks, which were exposed to more than $ 65 billion in early 2010 to Greece, and at the beginning of 2012 with a good fortune of $ 40 billion, while in the second package of "aid" Greece transferred their Greek bonds to the EFSF fund and reduced its exposure to only 3 billion dollars.

So, if the German and French taxpayers today are angry that they are being solidly exposed to Greece with € 92 billion (German taxpayers) and the French with € 70 billion, this is more or less unjustified. If the EU did not decide to "solve" Greece in 2010 and 2012, the French and German banks would rather settle for bad claims against Greece and should be solved by the French and German states. This would be for the French and German taxpayers. We would also see increased deficit and public debt of both countries.

Germany and France, as an architects of the "rescue" of Greece, therefore, had a Greek debt to their private banks, which was risky because of a possible Greek bankruptcy. It was merely transformed into a Greek debt to the Euro countries. At the same time, the needs for the rehabilitation of their own banks were solved, because... in other case their fiscal indicators would be deteriorated and the costs of borrowing would go sky-high. All the slurry from Germany and France is fused down to Greece.

In this Greek story, there are lot of dirty details that politicians do not want to talk about. It is much easier to blame irresponsible Greek governments and Greeks, and praise "solidarity" assistance, rather than acknowledge their own involvement and machinations.