Photo: Ed Yourdon on flickr
Markets haven’t been paying much attention to Greece lately, as multiple sets of negotiations drag on between the Greek government, representatives of its private creditors, troika officials, and even the European Central Bank.In case you hadn’t noticed, they’re not going anywhere. After more than three months of bickering about the scale of a Greek debt restructuring, officials still keep pushing back the date at which they expect to have a deal.
According to sources cited by Bloomberg, a deal to impose more than a 70 per cent haircut on privately held Greek bonds and to expand the €130 billion ($171 billion) in loans from the EU/ECB/IMF troika is on the table right now.
That expansion in funding might be caused by a new €15 billion ($19.8 billion) debt hole that inspectors have found in Greece’s finances, according to the Irish Independent. At the same time, creditors are said to have drastically toned down their demands, requesting only a 3.6 per cent coupon on new bonds issued as part of the swap.
The main issue with the deal, however, appears to be that representatives of the banking sector won’t come to an agreement with the Greek government without assurance that the ECB will take losses on its €50 billion ($65.8 billion) holdings of Greek bonds. At the same time, the ECB—which appears to be considering haircuts now despite previous rejections—won’t come to any sort of decision on their losses until the private sector has made a deal.
What a catch-22.
Even so, the deal probably won’t work anyway. Not to mention the fact that rampant poverty is just starting to set in. The Daily Mail reports that an increasing number of children are being abandoned by parents who can’t afford them.
Meanwhile, the organisation for Economic Cooperation and Development (OECD) just published a white paper arguing that EU leaders need to augment their euro-wide bailout fund (EFSF). The organisation wrote that the fund’s current €440 billion ($579 billion) firepower will be insufficient to support the lending needs of indebted countries, particularly since the fund “has not found it easy to raise funds with low yields” (via the Telegraph).
In fact, the OECD even went so far as to argue that “the only plausible mechanisms” for controlling the crisis were to give the EFSF a banking licence (so that it could borrow from the ECB), to allow the ECB to lend to the IMF, or to see if “sovereign wealth funds could be cajoled with appropriate guarantees [possibly via the IMF] to provide the funds.”
EU leaders, led by Germany’s Angela Merkel, have repeatedly rejected such ideas.
So whether or not the markets are jumping on every headline, it would seem that Greece and Europe are back to the same old debate: where does all the money come from to save Europe?