The Merkel proposal for Greece to cede budget sovereignty to a European commissioner has finally been trashed. In its place is a Spaghetti-O loop proposal to give Greece money only if Greece earmarks the funds to immediately pay back bondholders.
Please consider Greece bail-out funds could be split
European officials are insisting any new Greek bail-out programme specifically earmark funds to pay off remaining holders of Greek debt, giving lenders the freedom to withhold aid to Athens without risking a messy default that could reignite panic in financial markets.
Under a new Franco-German plan that senior European officials said is likely to be included in a new Greek rescue, eurozone officials would create an escrow account to accept new bail-out funding instead of paying it all directly to Athens as in the past.
The new fund would then ensure bondholders are paid off, while additional cash to run the Greek government could still be withheld if Athens did not live up to tough new reform demands.
Eurozone officials said they believed the escrow account would give European Union and International Monetary Fund lenders strong control over Greece’s use of bail-out funds without stripping Athens of its budgetary sovereignty
“This is a better idea than the proposal of a debt commissar,” said the senior French official. “It is more acceptable.”
Although the idea originated in Berlin, Nicolas Sarkozy, the French president, embraced it during a news conference with his German counterpart, Angela Merkel, following a joint cabinet meeting between the two governments in Paris. Ms Merkel also signalled her support, saying it would ensure “this money will be reliably accessible”.
- They give money to an intermediary
- The intermediary gives it right back
The proposal is of course mathematical nonsense, at least in regards to the portion of money going straight back to the bondholders (most of it).
In regards to the portion that goes to Greece, I still have to wonder.
Creditors either give Greece the money or don’t. Once again, there is little reason for the middleman unless they want the IMF to be the judge as to whether or not Greece is living up to the agreements.
Essentially, the EMU is taking 130 billion out of their wallet, putting 110 billion (or whatever) right back in their wallet and calling it 130 billion in “new funding”.
The only thing that can be construed of as “new funding” is the additional amount that actually goes to Greece.
Why the Mathematical Farce?
I suspect the answer is to make it appear as if Greece is paying back debts, when it isn’t.
Weren’t dotcom and mortgage frauds based on the same methodology? In the case of dotcoms, intracompany arrangements were made to make it appear there were actual revenue flows when there weren’t. In the case of housing, such maneuvers could be used to make it appear someone was making payments on their mortgage when they really weren’t.
This setup is either mathematical ignorance or a scam to prevent triggering of credit default swaps. I lean towards the latter.
This post originally appeared on Mish’s Global Economic Trend Analysis.
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