Greek Bailout Unveiled

So finally we see the terms of Greece’s impending bailout. €30 billion to be made available from EU countries (€500 million potentially from Ireland) at an interest rate of about 5%. Apparently, a further €15 billion is available from the IMF. To my mind, the interest rate is a bit lower than might be expected for an emergency bailout that should be acting as a serious incentive to get the Greek fiscal house in order. The operation certainly seems to be slanted towards carrot rather than stick.

What next? Peter Boone and Simon Johnson discuss this issue and are not confident that Greece can emerge from the crisis with access to private debt markets. They worry about Portugal being next. We worry about something else.

40 replies on “Greek Bailout Unveiled”

Exposed Euro banks and Athens’ borse on the rise immediately reports Italian finance paper il Sole 24ore. Barrosso is quoted as saying effectively that Italy is safe and sound.

@ Karl

“To my mind, the interest rate is a bit lower than might be expected for an emergency bailout that should be acting as a serious incentive to get the Greek fiscal house in order.”

Well its also a good bit higher than what the IMF would usually charge. And, at 400bps margin for longer term financing, this would cost them 6.4% on the five year, which isnt a million miles away from where they have been issuing to the actual markets of late. Its not cheap, but at least it guarantees them funding.

i think the best proposal I read over the weekend was to start with an interest rate of 6% and to successively lower the rate conditional on the Greek government getting its house in order step by step. A monthly reassessment followed by a reset of the interest rate. That would have avoided moral hazard which the present solution does not.

A 3y floating loan for EU bilateral loans works out around 3.8% with 3y fixed at about 5%, to which you need to add a one off 0.5% commission charge. IMF funding would be likely be much cheaper still. Subsidised, generous, etc… especially compared to the alternative of giving a variable rate, starting off at a punitive level, and reducing it as fiscal austerity progresses.
The above loans would (remember, still just a promise) of course be extended drip drip as reforms are implemented, so all is not lost. Luckily the IMF is there to play bad cop, with good cops all trying to be too good, without much of a care for moral hazard and the taypayer purse.
The prospect of public cash on offer has driving out private investment over the past few months. Clearly so. And the process it seems is not over.
I would have preferred to see the ECB and the EU save European taxpayers from spendthrift governments, to extend tough love to Greece & Co, as no sovereign is going to spend its way of this mess alive.
That was the sense in the ECB’s warnings in December on Greek banks and on Greek collateral. Those comments however opened a Pandora’s box. We have an unfortunate series of developments that have seen the ECB and the EC cave in on many occasions (EC Nama ruling another example) to national pressures, and weaken their authority. So much so that Mr Trichet was forced into an embarrassing volte face over the past weeks. At the same time, we have had to endure a spectacle that conjures up images of elephants in a porcelain shop, drunk on cheap and easy cash (except Greece that is).

I’d also like to resuscitate a post below which I’d been trying to post on the earlier Greek for over a day… I removed the links again (eds you can remind me what the rules are on links).

Here is an assignment I’d like to give you all… and I’d love to see your answers!
The Irish budget deficit is running a little lower that of Greece in cash terms over Q1
e.g. compare “Irish Budget plans still on track despite tax take shortfall”
to “Sharp drop in Greek budget deficit in Q1”
Are comparisons between these two figures be meaningful?
Are both sets of data equally trustworthy at this stage?
Should figures in nominal cash terms be informed by respective measures of future national income or size of the working force?
If national income, how would you estimate it and at what date?
Are differences in sovereign contingent liabilities between these two sovereigns significant?
And a final question for bonus points… Which quarterly figure should be lower come this time 2011, and again in 2012?

In formulating your answer, you might want to take a look at “S&P affirms Ireland AA rating”
where the relevant passage is
‘The government has begun implementing what we consider to be a wide-ranging expenditure-led fiscal consolidation program, with €4 billion (2.5% of GDP) of measures detailed in the 2010 budget and plans for a further €6 billion (3.8% of GDP) over the next two years.’
Good luck to everyone!

@Karl – “we worry about something else” – I think the focus is turning on the UK. They are in a similar position to ourselves but they have not faced up to that yet on account of the upcoming election. There is also a good reason why Barroso was so active in getting an agreement on a Greek bailout.

I wish they’d done this sooner but the carroty end of the scale was correct.
After all, we were musing about the possible end to democratic government in Greece not so long ago. If that doesn’t indicate a need for the carrot then I don’t know what would.

What’s all the fuss about. Sure ye all know – if ye are prepared to admit it- that repayment of these ‘loans’ are not possible. The expected income is a mirage. Just give the loans – and do not expect repayment; charity. Say to the Greek people, “that’s it”, you are on your own now. Or let the human beings of Greece become destitute! Nice choice!

If you think hard enough about this dreadful mess you will realise that Greece is merely the first of … … and where is IRL? Our national debt is, allegedly, even greater than the Greek one!

We could, and we should, apply a -50% graduating down to 0% salary/wage cut to ALL. No exceptions: and a 100% income tax to residual salaries that exceed E200,000. Its going to come down to a choice between a significantly lower standard-of-living, or severe social/political unrest – which will eventually pull down SoL anyway. Debt cramdowns are essential.

Very unpalatable choices, but the maths of debt repayment and the diminishing national income are real – not imaginary. You can obfuscate for a while, but reality will intrude.

B Peter

@Oliver Vandt

Yes – the colonels, I assume, are not impressed.

@Brian Woods

The Ferengi Brief, in brief, argues that there is simply too much debt in the global economy, and succinctly suggests wiping out 60% of it on a pro-rata basis globally. Referred to as the 5th Protocol in the corridors of power, its mere mention strikes fear into the hearts of all … and joy in the hearts of many, who have yet to hear of it. Paddy the Sovereign must have the inside track because he is covering everything in sight 100% at the moment – how else can we explain such actions? Paddy must have The Brief!

@ DO’D: Thanks for the info. Will follow the ‘Ferengi trail’. Should Ireland be re-named Easter? At least those silly dopes left us a few stones to Ooh! Aah! about. Would the Spire qualify?

B Peter.

@Karl Whelan

Do you have an opinion
about what is going to happen to AIB when 280 million preference share dividend falls in May ( only 3 weeks away). At current share price of 1.50 and EU forcing government to be paid in ordinary shares, surely this is BAD news for AIB shareholders- or am I wrong.

I do hope that if the dominos start to fall, we won’t have been shown to have wasted our resources dealing with questions of Anglo etc, and other micro concerns!
It might be the pound rather than the punt that we go back to!


Yes Al, one of your great moments. A reverse takeover of the United Kingdom – what a coup! We’ll get a few bob from 2_of_7 at Anglo and get the ball rolling! And we’ll get that bit of Fermanagh thrown in as well …

Seriously, there are still a lot of fragile dominos around – within the EZ, eastern Europe, the Baltics, the ex-soviets, the US, the UK, and so on.

Long ways from EZ-street yet. I expect a good bit of summer madness …

@Brian Woods – “that repayment of these ‘loans’ are not possible” – even if it was possible I would think it unlikely that they are paid. I also think we will see the same thing happen again, if not in Greece then somehwere else.

@David O’Donnell – “there is simply too much debt in the global economy, and succinctly suggests wiping out 60% of it on a pro-rata basis globally” – I doubt that those who hold the debt would find this such an attractive option. It might be interesting to look at who ultimately holds the debt.

Greek T-bill auction result….



Very high bid/cover ratio (actually, seems a little bit TOO high – did they really get bids totalling 7.5bn a day after they almost went bust?) but the rates are pretty ugly.

B Peter Woods


Lifestyle changes or migration.

Food disruption? Analyse what is needed for 90 days that cannot be sourced locally, in abundance.

Fuel disruption? Instal a secret tank or two. Fill them.

Pray. Get to know your neighbours real well.

Holding the debt is no longer a good idea. As this was all predicted, expect that every available mutual fund and pension fund have been stuffed full of credity goodness. Exprct this process to continue, bearing in mind that every loan has arrangement fees, those receiving them are getting the greedy and lazy to pay for the debt. Fewer bankers share fewer fees. Trebles all round!

And Ireland is contributing 480m towards this Greek bailout? According to Cowen, this is a money making scheme for Ireland!

Nevermind that at national debt levels above 80% of GDP a debt trap tends to follow, and the ESRI is not worried about the cost of the bank bailout adding to national debt. Strange country Ireland.

@Edgar Morgenroth

Bit of tongue-in-cheek on the 60% – imho Financialization globally out of control for over 20yrs since the first derivatives equation written ……….. capital delinked from capitalism …….. The Matrix is the metaphor that comes nearest …. look around at the mo … Check out The Frankfurt School ……..


German Economist to Challenge Greek Plan

Joachim Starbatty, a professor at Tuebingen University and prominent euro sceptic, was quoted by the Rheinische Post paper as saying the aid package breached the EU’s Maastricht Treaty. “We will file a suit at the Constitutional Court against the credit from euro states,” Mr Starbatty told the paper. Several other academics and constitutional lawyer Wilhelm Hankel, who failed to prevent the introduction of the euro in 1998 at the Constitutional Court, are working with Starbatty. […] Ms Merkel and other top conservatives were reluctant to agree on aid before a vote in the state of North Rhine-Westphalia on May 9th which could see her centre-right coalition lose power there and rob it of a majority in the federal upper house. […] Handelsblatt attacked politicians for hypocrisy in failing to describe the deal as a bailout.

“The founders of the European currency excluded the possibility that the euro zone members would take on each others debt. Bailouts are banned. But that isn’t stopping the euro zone. They are simply avoiding the term. The deception of the public continues,” the paper said in an editorial.

@David O’Donnell – “German Economist to Challenge Greek Plan” – I had predicted that.

“Satyajit Das on Greece – sounds very German today” – does he read this blog?

@Greg – “Who is really getting bailed out?” – this has always been the big question. It would appear that (from the behaviour of the German government) that German banks are not holding too much of it or have protected themselves – who holds the CDSs?

I have always thought that French banks have a higher exposure.

There is also talk of Switzerland – no tears lost for Swiss banks in Germany as the German government has been trying to get the Swiss banks to reveal information about German tax dodgers – they have even paid for CDs with the names and account details in order to pursue tax dodgers!!!

@ Edgar.Morgenroth

“who holds the CDSs?”

Indeed. And is the unknown unknown of who is holding the CDS baby the real reason why no bank is allowed to fail.

Why has the IMF got NAB additional committments of a half a trillion dollars. Up from $50bn. Very odd.

@ Edgar, Greg

The Derivatives Dealers Club

Robert Litan of Brookings wrote a paper on the derivatives dealers’ club — the small group of large banks that control most of the market for certain types of derivatives, notably credit default swaps. It’s a blunt analysis of how these banks can and will impede derivatives reform in order to maintain their dominant market position and the rents that flow from it.

Might find a few of them here – includes the link to Litan’s Brookings Paper … 5 Big Banks … re Buffet;s ‘financial weapons of mass destruction’ links to the PDF

The Derivatives Dealers’ Club and Derivatives Markets Reform: A Guide for Policy Makers, Citizens and Other Interested Parties, Robert Litan (April 7, 2010)

The IMF expansion is due to impending events. As predicted. I suspect the middle classes will have to tighten their belts.

In extremis, one can eat leather, according to Hollywood. Hang on tight!

@Edgar, Greg, All

AN EU perspective – again just off the press – more ‘regulatory capture’
Chalie McCreevy, Financial Warmongers and Speculating on Greece; & NAKED CDSs! PDF available from link below ….

It’s interesting then to read Corporate Europe Observatory’s report Financial Warmongers Set EU Agenda out today which analyses the influence of significant lobby groups from the US and European Financial Services Industry on the EU’s new financial regulation policy.

“In a sense, Greece is paying the price for the traditional work style of the former Commissioner for the Single Market, Charlie McCreevy, who was known for his close cooperation with the financial corporations. In the very beginning, however, McCreevy sounded reassuring. When hell broke loose in the global financial markets in September 2008 (after a prologue in the USA in autumn 2007), he promised a careful and systematic look at the rules governing the derivatives trade in the European Union and to make a break from the previous “light-handed” regulation.

Just a few months later however, he chose the usual suspects as key partners in his work on reforming the derivatives market. The first meeting of the Working Party on Derivatives took place in November 2008, with the Working Party made up of “stakeholders”, by which McCreevy meant the key EU agencies plus all major financial lobby groups including the Alternative Investment Management Association (AIMA), European Banking Federation (EBF), and the International Swaps and Derivatives Association (ISDA).

Not looking good.

From Evans-Pritchard in the Telegraph.

“The brief respite on Greek debt markets has already given way to fresh capital flight. Yields on 10-year Greek bonds surged yesterday to 7.11pc, higher than a week ago. Portuguese bonds began to wobble after Brussels called for more austerity.”

“This court hearing is going to be very dangerous,” said Hans Redeker, currency chief at BNP Paribas. “It could lead to Germany itself being catapulted out of the currency union. Once investors begin to fear this, there will not be single euro in further financing for the EMU periphery.

Dr Wilhelm Hankel, professor of economics at Frankfurt University ….

“In the end, the only way to save the euro is to shrink the eurozone. There are other candidates”.

Ouch. Who could he possibly mean?

@ David O’Donnell

“In a sense, Greece is paying the price for the traditional work style of the former Commissioner for the Single Market, Charlie McCreevy, who was known for his close cooperation with the financial corporations.”

Now that Charlie McCreevy has retired maybe he could go into the export business. There seems to be a great need for “Green Jersey’s” in Europe.


Yes – I suppose not surprising to see Charlie McG popping up here – true to form.

On derivatives/CDS both Brookings paper and the EU report on similar wavelength ……. bit of reading between lines and one can ‘identify’ who ‘owns’ those CDSs ….. think Wall Street & Big European …. and the battle that Obams will probably lose looking at the power of trillions of dollars in the Derivatives Dealers Club ……… they picked off McGreevy very handily …….. Minister Lagarde seems to be leading here …….. & EU decision on Hedgies will affect IFSC ………. what do the serfs care? I’m thinking of reforming the Munster Soviet … just in case.

On Greece – Future of EU on the line here from its beginning (and riddled with these CDS’derivative) ………. but I’m more optimistic on EU than on PaddySerf-Land at the mo – although that guy in Trinity last nite thinks we should all just retire and die. Not yet … !

@ David O’Donnell

“I’m thinking of reforming the Munster Soviet”.

‘Twas far from Soviets I was raised. But at this stage it’s difficult to imagine that anything could be worse than the kleptocrats’ paradise that is this “Republic”.

“that guy in Trinity last nite thinks we should all just retire and die”?

This guy?

Will have a gander at your links.


Ulrich Beck not too impressed with his Chancellor – Le Monde [were Beck an economist, as distinct from a sociologist, he would walk the Nobel Prize for his work on Global Risk – these disciplinary boundaries are a bit of a nuisance anyway and a source of this risk ……. a complex world is interdisciplinary]

“Angela Merkel n’est pas Angela Kohl ou Angela Brandt. Le chancelier Kohl avait déclaré dans son programme de gouvernement pour les années 1991-1994 : “L’Allemagne est notre patrie, l’Europe notre futur.” Willy Brandt avait dit lors de la première session du Bundestag de l’Allemagne réunifiée : “Etre allemand et être européen, désormais, cela va ensemble et, espérons-le, à jamais.” La torsion à laquelle la chancelière Merkel a soumis cette profession de foi froisse un nerf sensible, et pas seulement chez les voisins européens.

Elle n’est pas non plus Maggie Merkel, soumettant d’une main de fer l’Europe à la logique du marché. Elle est Angela Bush.” OUCH!

& More on Greece and others not too pleased with Chancellor Merkel ……….

But Barry Eichengreen thinks all OK. So all OK …

Greece matters – Europe Matters: After the Sheeply Shopping spree in the Dail on Black Tuesday I’m going all-in on EU. No big Switzerlands or little Chinas a la Beck’s description of present German policy.


an’ keep the Munster Soviet as a wild card …… we learned a few lessons from the last one – there won’t be a kleptocrat in sight during the next one ……. this is the universal nature of the serf-kleptocrat relation.


Looks like him. Does he not know that empires come and empires go – trick is to learn from them …….. China is more than due, as is India – so lets do business …

(other links in moderation; are we rationing links now? (-;)

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