We all know Einstein's definition of Insanity - "doing the same thing over and over again and expecting a different result each time". And more than a few people have applied that to the Eurozone sovereign debt debacle. Case in point - Greece and Spain. It didn't take more than a single day for the EU officials visiting Greece to figured out that the Troika's grand bailout, austerity and debt restructuring plans will fail even worse and even quicker than expected.
Reuters is reporting that, only a few months after the PSI debt restructuring in February, it has become clear that Greece's public creditors (ECB, EZ governments) will have to take haircuts on their bonds as well, which is something they are definitely not willing to do. The officials that are talking to Reuters say that the country is going to be "HUGELY off track" of prior estimates in debt sustainability reports.
Instead of the economy contracting by only 5% this year, it will contract by at least 7%, which will obviously make its debt to GDP ratio far worse than expected. Here is Luke Baker reporting for Reuters:
Greece is unlikely to be able to pay what it owes and further debt restructuring is likely to be necessary, three EU officials said on Tuesday, a cost that would have to fall on the European Central Bank and euro zone governments.
The officials said that twice bailed-out Greece would be found to be way off track by EU and International Monetary Fund officials who have been assessing the country.
Inspectors from the European Commission, the ECB and the IMF -- together known as the troika -- returned to Athens on Tuesday and will complete their debt-sustainability analysis next month, but the sources said the conclusions were already becoming clear.
It means Greece's official-sector creditors -- the ECB and euro zone governments -- will have to restructure some of the estimated 200 billion euros of Greek government debt they own if Athens is to be put back on a sustainable footing.
But there is no willingness among member states or the ECB to take such dramatic action at this stage.
"Greece is hugely off track," one of the officials told Reuters, speaking on condition of anonymity because of the sensitivity of the issue. "The debt-sustainability analysis will be pretty terrible."
Another official pointed to the latest growth estimates from Athens, which show the economy contracting by 7 percent this year rather than the 5 percent previously forecast, meaning that the debt burden is only increasing in relation to GDP.
"Nothing has been done in Greece for the past three or four months," said the official, referring to the delays caused by the two elections held since May.
"The situation just goes from bad to worse, and with it the debt ratio," said the official, a policymaker directly involved in trying to find solutions to the crisis.
And, as we learned from the Der Spiegel story broken by Ilargi on Sunday - The IMF plans to dump Greece, the IMF may literally BAIL OUT (as opposed to bailout) of any further supportive measures for Greece, which would leave the task entirely on the shoulders of the ECB and EZ national governments. Without international support, it is impossible for the Eurozone to continue carrying the dead weight of Greece's rapidly deteriorating economy.
As a result, the IMF could decide to pull out of the second bailout program, having already said that further missed targets would not be acceptable. That would leave euro zone member states and the ECB to bear the cost alone.
In that case, the only way to keep Greece afloat and in the euro zone would be for the ECB and member states to write off some of the Greek debt they own or change the terms to give Athens ever more time to pay back at lower interest rates.
"This has not been explored yet politically because no one wants to launch that discussion," the first official said. "The political feasibility of carrying out an official-sector restructuring is becoming more and more complicated."
Even though no formal discussions have begun over so-called official-sector involvement, two possibilities have been mentioned -- the ECB taking a writedown on the estimated 40 billion euros of Greek bonds it holds, or member states improving the terms on their loans to Athens.
But the officials Reuters spoke to listed six member states who are firmly opposed to extending Greece further lifelines, not only because of Athens's persistent missing of targets but because the costs will soon be born directly by taxpayers.
Basically, everyone has given up on Greece, and for good reason. The German economy minister, Philip Rosler, recently stated that he was "very skeptical" that European leaders will be able to rescue Greece. The fact is that there is really very little for the European core to gain from providing more official assistance to Greece, compared to what it will lose. With Moody's downgrade of sovereign ratings outlooks in Germany and the Netherlands, core countries are now experiencing the unacceptable price they must pay to keep the Eurozone periphery intact.
Yet, everyone is already talking about the Troika doing the exact same thing with Spain - i.e. a cycle of "temporary liquidity assistance", permanent bailout mechanisms and hard-hitting austerity for a rapidly contracting economy. As most of the autonomous regions of Spain are requesting financial assistance from the Spanish government, the Spanish government will be forced to ask for assistance from the ECB, EZ governments and then the international community. From El Economista (translated by Google):
"We are alone." It is the confession of a Spanish economist. But the general feeling that little by little, is making inroads in all economic and financial forums. Spain, the fourth largest power in the eurozone and one of the founding countries of the euro is increasingly helpless. Nor its European partners and the European Central Bank (ECB) stop the choking. Moreover, the feeling that not even try.
At stake, therefore, is to avoid an imminent financial collapse. Because this danger is real. Analysts are unanimous: If perseveres pressure on Spanish bonds and Treasury loses its access to market-that is, you could not stop, 'Spain can not cope with the massive debt maturity that awaits him in October, close to the 28,000 million. These be even greater if, in addition, the Treasury has to funnel money to the regions requesting the help of special liquidity fund created by the central executive.
Therefore, sources close to the government have admitted they are considering other alternatives. Like, for example, the negotiation of an overall rescue tender. That is, that Europe give Spain a temporary line of credit with which to address the maturity of its debt, and even financial assistance from the Autonomous Communities in 2012.
This option is based on a premise well known in the eurozone, of buying time. That money would serve to dampen fears today, waiting for the agreements reached at the June summit, as the implementation of a single banking supervisor, are in place and that the Stability Mechanism (Mede) is already in operation and available financial resources and instruments to find solutions.
It is very likely that the EZ governments and the IMF relent and shovel aid towards Spain, its regions and its banks for some time, as they find even more ways to have taxpayer funds looted and their own credibility smashed. How could any of these people possibly be that INSANE, you ask? Well, they're not really... they're just greedy as all get out. The people calling the shots at these institutions only know one thing - there is money, assets and resources to be taken from the populations of the EZ periphery before the entire experiment falls apart.
Perhaps some of the lower-level Knights, Bishops and Pawns are expecting different results than Greece, but I highly doubt any of the Kings or Queens are. They are simply following Einstein’s definition of Gluttony - "pursuing the same selfish desires over and over again, and expecting the same result each time". The result of these policies is that the elites will be able to kick the can down the road for at least one more day, create that one extra bond, siphon off that one extra euro, foreclose on that one extra asset and deceive that one extra politician.
It is a corrupt group of minority elites that is gorging itself on the money and the lives and the spirits of the majority, like a surprisingly skinny kid in a hot dog eating contest. Eventually, people living in France, Germany, the Netherlands, the U.K., the U.S., etc. will find themselves owning a bunch of Spanish bonds through the ECB, IMF and ESM. The Spanish economy will continue to contract, and they will be told that they need to take large haircuts on the value of those bonds if they want to keep Spain in the Eurozone. A very similar path will play out for Italy as well.
That is, of course, if the taxpaying citizens and financial investors choose to play along in the meantime. So far, most of these people have also followed their selfish impulses and clung to the European ideal of lasting stability and economic prosperity, even as their savings and investments quickly rot from the inside out, proving that such an ideal will never come to fruition. As long as they continue to care more about their bank and brokerage statements than the state of their communities and societies, though, the Gluttonous collapse cycle will continue.