EU, IMF, Greece agree on debt deal

posted at 9:41 am on November 27, 2012 by Ed Morrissey

Two potential catastrophes hung over the global economy as the end of the year approached.  The fiscal cliff in the US could end up killing consumer demand, which would put both the US and the West on a fast track to recession.  The debt crisis in Greece, however, could have kicked out the underpinnings of the entire European economy and created a much larger crisis.  For now, however, it looks as though that crisis has been averted, as the EU and IMF announced a deal for Greece’s bailout … again:

The Greek government and financial markets were cheered on Tuesday by an agreement between euro zone finance ministers and the International Monetary Fund to reduce Greece’s debt, paving the way for the release of urgently needed aid loans.

The deal, clinched at the third attempt after weeks of wrangling, removes the biggest risk of a sovereign default in the euro zone for now, ensuring the near-bankrupt country will stay afloat at least until after a 2013 German general election.

Why is that important?  The EU relies in large part on German fiscal responsibility to fund the bailouts of its less-responsible members — and that dynamic has not been lost on German voters.  So far the Germans have played along, but their generosity won’t last forever, and their self-interest in salvaging the Greek economy looks increasingly dim with every passing incident of Greek refusal to reform significantly enough to keep debt under control.

For the moment, though, the crisis has passed, but only really for the moment.  The write-down on debt amounts to €40 billion, which lowers Greek debt to 124% of GDP.  The deal appears to set up a decision point in 2016 about another massive write-off that would lower that to “significantly below” 110%.  All of this depends on the willingness of Greece to adopt the kind of budget reforms that will quit producing massive deficits.  But is that realistic?

German Finance Minister Wolfgang Schaeuble said Athens had to come close to achieving a primary surplus, where state income covers its expenditure, excluding the huge debt repayments.

“When Greece has achieved, or is about to achieve, a primary surplus and fulfilled all of its conditions, we will, if need be, consider further measures for the reduction of the total debt,” Schaeuble said.

The political momentum in Greece has appeared to go in the opposite direction of late, but perhaps this deal will marginalize the demands for “growth measures” instead of austerity — “growth measures” being a euphemism for “state spending.”  CNN reports that the Greeks seem pleased with the agreement:

Well, it’s always pleasing when deadlines for disaster get pushed off by someone else’s intervention.  If Greece can take the opportunity for real fiscal and political reform, then the bailout will be well spent.  If not, the crisis will arrive again well before 2016.


Related Posts:

Breaking on Hot Air

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

Trackbacks/Pings

Trackback URL

Comments

All of this depends on the willingness of Greece to adopt the kind of budget reforms that will quit producing massive deficits. But is that realistic?

No. Next question.

Doughboy on November 27, 2012 at 9:44 AM

Delaying the inevitable…

changer1701 on November 27, 2012 at 9:45 AM

This is the one billion attempt to save Greece… It is not going to be saved because the cancer of socialism took over Greece, it took over all of the EU, and it is growing strongly here in the US… Taking other people money will only lead to destruction…

mnjg on November 27, 2012 at 9:45 AM

The EU version of “kickin the can down the road”

‘Monopoly Money’ doesn’t fix a damn thing……..

Katfish on November 27, 2012 at 9:45 AM

Again? How many deals that don’t work do they need?

BetseyRoss on November 27, 2012 at 9:46 AM

Hey, great news! I’m gonna go buy a crap-ton of stocks.

forest on November 27, 2012 at 9:49 AM

GroundGreecehog day….

moo on November 27, 2012 at 9:49 AM

idiots……
Lucy and the football

cmsinaz on November 27, 2012 at 9:52 AM

Gives Germany more time to secretly build panzers.

Bishop on November 27, 2012 at 9:52 AM

Can has been kicked down the street for 6 months.

rbj on November 27, 2012 at 9:55 AM

Repo, reverse repo, rinse, repeat.

It is all farcical. They have enslaved the Germans.

tom daschle concerned on November 27, 2012 at 9:56 AM

Not to change the subject but has anyone asked for O’Jesuss’ help?

http://radio.foxnews.com/toddstarnes/top-stories/painting-depicts-obama-as-crucified-christ.html

So should we stop saying “Come Lord Jesus” and start saying “You’re here Lord O’Jesus?

Why doesn’t Merkel ask our American God for help solving this quandry in Greece?

Why not just break Greece and ALL the Countries in Europe into smaller provinces and let them be nations? That way some would be weak and some would be strong……oh wait, that didn’t end well.


mmmmm, sounds like Merkel should get on the blackberry and text Lord Baracka.

PappyD61 on November 27, 2012 at 9:58 AM

So how much did it cost us? Anyone know?

Mimzey on November 27, 2012 at 10:07 AM

Crisis averted?

Until Greek politicians pander to the protesting Greek leeches who have been adamantly opposed to any deal so far.

NotCoach on November 27, 2012 at 10:09 AM

Every damn day Greece is getting “bailed out”

How many “Greek deals” do they need before they realize that they truly and completely F’ed.

You can’t just continue to spend money that 1) You don’t have or 2) Doesn’t exist without repercussions.

Wait, am I talking about the US or Greece here? (Because if you look at our debt/GDP ratio, its getting close to Greek levels)

Defenestratus on November 27, 2012 at 10:10 AM

Gives Germany more time to secretly build panzers.

Bishop on November 27, 2012 at 9:52 AM

Bishop:Lol:)
=============

The Panzer song from the Battle of Bulge
******************************************

http://www.youtube.com/watch?v=CripLDmoSCg

canopfor on November 27, 2012 at 10:10 AM

Ed Morrissey trumpeting the Keynesian line of reduction in aggregate demand. Even the so-called conservatives cant help but advocating for the One’s economic policies. Was that a Freudian Slip or do you actually believe the Keynesian theory that a reduction in “consumer spending” equates recession? The story that the “Fiscal cliff” will trigger a recession is rooted in the systemic Keynesian ideology in today’s political and economic class. Both the GOP and the democrats have pushed all of their chips into this failed economic dogma.

neightkelly on November 27, 2012 at 10:11 AM

The EU relies in large part on German fiscal responsibility to fund the bailouts of its less-responsible members — and that dynamic has not been lost on German voters. So far the Germans have played along, but their generosity won’t last forever, and their self-interest in salvaging the Greek economy looks increasingly dim with every passing incident of Greek refusal to reform significantly enough to keep debt under control.

The retirement age in Germany is 67 and a person gets 46% of his/her final salary as a pension. In Greece, people as young as 45 can retire with a pension of 97% of their final salary.

That’s not a nothingburger to the wutbürgers — rough translation = “rageniks” — in Germany that are being told that they have to work longer to pay for the early retirees in Greece and their spoiled children, who are rioting in the streets and calling them Nazis.

Resist We Much on November 27, 2012 at 10:22 AM

They have a flesh eating bacterial infection and they just put an extra large band aid on the lesion to hide it from view. It will eventually kill you but you certainly can keep the problem hidden with larger and larger band aids.

chemman on November 27, 2012 at 10:26 AM

The EU is such a farce and has been since inception. When will they finally realize that Greece will never change it’s ways? How many more of these “crisis averted” articles do we have to read? It’s over people, Greece will bring the whole EU down with it because they prey on the good nature of the strong nations within EU. Those nations will prop Greece up partly to save face regarding the massive failure of what EU is, but also because they seem to be incapable to understand that all Greece is doing is riding the gravy train to the end. THEY HAVE NO INTENTION TO CHANGE THEIR WAYS, NOR WILL THEY EVER SERIOUSLY CONSIDER ANY AUSTERITY MEASURES.

They’ll play the game pretending to wanna change for appearances sake but until they are truly cut off from the EU spigot they will never get serious.

Why is that so hard to understand Ms Merkel?

NapaConservative on November 27, 2012 at 10:32 AM

Agree with others that have said all this does is kick the can down the road.

I expect nothing more effective from our own government’s budget actions.

Are the financial markets really fooled by all this? I’ve avoided investing in the EU and the US for 5 years now.

Over50 on November 27, 2012 at 10:37 AM

All this ‘austerity’ and yet the actual spending never goes down.

In other words, this new debt they will get is just as trustworthy as the old, written down debt that they promised to pay off in full.

Why should Germans believe that Greece will actually lower spending when it has never, ever done that during this entire ‘crisis’? Especially since they swore, cross-their hearts and fingers, that they would do ‘austerity’… that never, ever came about. Just how stupid does the rest of Continental Europe think that Germans are, anyway?

ajacksonian on November 27, 2012 at 10:38 AM

Pols kicking the can down the road….again….and hoping they won’t be around when it all falls apart.

GarandFan on November 27, 2012 at 10:39 AM

Just how stupid does the rest of Continental Europe think that Germans are, anyway?

ajacksonian on November 27, 2012 at 10:38 AM

They are backstopping another bail out does that answer the question.

chemman on November 27, 2012 at 10:39 AM

TEATERMERICA……death spiral.

http://www.youtube.com/watch?v=6-3X5hIFXYU

PappyD61 on November 27, 2012 at 10:44 AM

If Greece can take the opportunity for real fiscal and political reform, then the bailout will be well spent. If not, the crisis will arrive again well before 2016.

Ed, don’t parade your economic ignorance like this. There is never a bailout that is “well spent.” The money and write offs are funded by someone, most likely the German taxpayers whether in direct taxes, or more likely, future taxes (deficit spending). Bailouts make a mockery of the free market system, and should NEVER be used. Greece has to exit the idiotic shared currency euro zone, issue their own currency, re-organize in bankruptcy, and can then worry about their plans going forward. Judging by the politics in Europe, they will then inflate / devalue their currency into a huge depression.

these market and political corrections NEED to happen. We’re just delaying the inevitible, while making the whole situation much worse by misallocating taxpayer capital (including future, yet to be earned capital) from the productive economy to never ending bailouts.

Timin203 on November 27, 2012 at 10:59 AM

Every time you hear about bailouts, just think about Bastiats broken window… The true “cost” of a bailout are horrific in opportunity costs to everyone force to work, for free, to pay off someone elses debts. I thought we, as a society, long ago decided that a son is not responsible for his parents’ debt.

Good thing we got rid of that notion, and decided that not only is the son responsible, but so are all of his neighbors and friends.

Timin203 on November 27, 2012 at 11:01 AM

SS/DD –> which at some point inevitably becomes –> NBS/NBD (Nothing But Sh!t, No Better Days)

Take heed, America …

ShainS on November 27, 2012 at 11:04 AM

Ed Morrissey trumpeting the Keynesian line of reduction in aggregate demand. Even the so-called conservatives cant help but advocating for the One’s economic policies. Was that a Freudian Slip or do you actually believe the Keynesian theory that a reduction in “consumer spending” equates recession? The story that the “Fiscal cliff” will trigger a recession is rooted in the systemic Keynesian ideology in today’s political and economic class. Both the GOP and the democrats have pushed all of their chips into this failed economic dogma.

neightkelly on November 27, 2012 at 10:11 AM

When I read articles like this, it scares me that people “on our side” don’t actually get IT. If they don’t get it, what’s their ideological reason for believing what they do?

THE PROBLEM IS NOT AGG DEMAND! The problem is the federal reserve setting interest rates too low, there being too much “free money,” which in turn creates a bubble, which in turn turns to bust as the market realizes the “free money” is simply inflation, not actual investments and they realize how much capital was misallocated…

Keynesians think the economy is some kind of math formula that can be tamed and controlled by boosting agg demand (c+i+g, duh!) and other monetary and fiscal trickery. It’s not, it’s just a reflection of free(ish) people making the decisions they think are best for themselves… The only REAL path to growth is through savings which in turn fund investments.
When you see savings going down and agg demand going up, you know there’s a real problem (AKA: financing all “growth” with debt)

Timin203 on November 27, 2012 at 11:08 AM

neightkelly on November 27, 2012 at 10:11 AM

Precisely, Ed you really need to put down the whole kool-aid meme being thrown around by the EU about this. It’s so not about Greece, or austerity – it’s about balance sheets at the ECB and banks that have this crap on their book BLOWING UP and having to take haircuts. No one, and I mean NO ONE, is willing to deal with the craptastic storm that will occur because of collateral held by the ECB going “poof”. Don’t believe me – Ed, go research how much of the money that supposedly went to Greece actually “went to Greece”? Try almost nothing, it went right back to the banks and ECB to keep them from having to write down there crap. The true cost of the “bailout” to those people is having a country that is being fleeced of their assets, to feed those that made dumb bets.

SkinnerVic on November 27, 2012 at 11:10 AM

All Greece has to do to solve the problem is raise taxes on the rich.Everybody knows that.

docflash on November 27, 2012 at 11:16 AM

The true cost of the “bailout” to those people is having a country that is being fleeced of their assets, to feed those that made dumb bets.

SkinnerVic on November 27, 2012 at 11:10 AM

Why can’t we, as conservatives / libertarians / whatever, get together and agree to stop pushing Keynesian economics and government cronyism? It’s so aggrivating to have to hear a bunch of economically illiterate people claim to have ‘the cure’ for the mess they created with their idiotic ideas about how the government can erase the business cycle and keep artifical booms inflated forever.

The amount of economic ignorance in this world, including on our side of the isle, is frightening. Republicans would do themselves a huge favor by EXPLAINING in economic terms WHY they oppose “tax hikes for the rich” and WHY they oppose Obama at every turn. Keynesianism has failed. The worst part is, I don’t think even the repubs know WHY they are against dem economic policies other then a dem came up with them.

Because put them in office, and what do we get? “Deficits don’t matter” Cheney explains… Absolutely sickening.

Timin203 on November 27, 2012 at 11:21 AM

The Greek government and financial markets were cheered on Tuesday by an agreement between euro zone finance ministers and the International Monetary Fund to reduce Greece’s debt, paving the way for the release of urgently needed aid loans.

Wait..what? They agreed to reduce Greece’s debt so they can borrow more money, lol?

xblade on November 27, 2012 at 11:22 AM

THE PROBLEM IS NOT AGG DEMAND! The problem is the federal reserve setting interest rates too low, there being too much “free money,” which in turn creates a bubble…

Timin203 on November 27, 2012 at 11:08 AM

Hey, great news! I’m gonna go buy a crap-ton of stocks.

forest on November 27, 2012 at 9:49 AM

forest on November 27, 2012 at 11:22 AM

They are backstopping another bail out does that answer the question.

chemman on November 27, 2012 at 10:39 AM

Sadly, yes.

Mind you even there, the electoral politics are not that supportive of this… the bill gets paid one way or another, and this is just another stupid politician trick to try and get more heads on the chopping block. Won’t save them, just postpones the inevitable a few more weeks.

ajacksonian on November 27, 2012 at 11:22 AM

Timin203 on November 27, 2012 at 11:21 AM

It’s very simple – while they all wear different jerseys (Red/Blue) and put on a good political show, they head back to the locker room to hang out with the same owner. I’ve been a long time around here, (like since Allah’s in the house days) but I just lurk anymore until I see something really stupid. People want to know why the Red team lost this last go around – it’s your point. Until some of us put players in the game that will stop the real problem (Read: Stop following the team owner, and run on a platform that MAKES SENSE to the average joe, like prosecuting all the theft, corruption and stopping all the overspending/looting), the R will continue to lose. More people that I know that understand this figured out in this cycle that if the wheels are going to come off the bus no matter who’s in there, let the D’s own it. Sorry, the US is going to do the same if not worse than Greece because WE ARE GREECE^2. The only difference is we have a reserve currency and a lot more arrogance.

SkinnerVic on November 27, 2012 at 11:37 AM

From Ed’s piece above:

Two potential catastrophes hung over the global economy as the end of the year approached. The fiscal cliff in the US could end up killing consumer demand, which would put both the US and the West on a fast track to recession. The debt crisis in Greece, however, could have kicked out the underpinnings of the entire European economy and created a much larger crisis. For now, however, it looks as though that crisis has been averted, as the EU and IMF announced a deal for Greece’s bailout … again:

.

Direct quote from today’s “agreement”:

“Euro area Member States will consider further measures and assistance, including inter alia lower co-financing in structural funds and/or further interest rate reduction of the Greek Loan Facility, if necessary, for achieving a further credible and sustainable reduction of Greek debt-to-GDP ratio, when Greece reaches an annual primary surplus, as envisaged in the current MoU, conditional on full implementation of all conditions contained in the programme, in order to ensure that by the end of the IMF programme in 2016, Greece can reach a debt-to-GDP ratio in that year of 175% and in 2020 of 124% of GDP, and in 2022 a debt-to-GDP ratio substantially lower than 110%.”

.
Hmmmmmm, so WHEN Greece does what it has so far completely failed to do – actually perform to its previous agreements – THEN the EU and IMF will consider providing more assistance.
.
How did ED come to his conclusion about the crisis being averted?

I have NO IDEA.

As a tangential comment …

… anyone displaying the same level of “financial knowledge” as currently being displayed by the EU, IMF, MSM and, now – apparently, supposed conservative commenters …

… would be declared “non compos mentis” and have control of their finances turned over to a court appointed trustee for their own protection.

Or, in simpler terms, the EU crisis is now being managed and reported on by people with the same financial skill sets as Britney Spears.

How’s that for a comforting thought?

PolAgnostic on November 27, 2012 at 11:43 AM

CNN reports that the Greeks seem pleased with the agreement:

For the cycle of eat, spend, and be merry continues unabated.

Steve Eggleston on November 27, 2012 at 12:12 PM

I think the problem is that the Greece citizens do not understand the seriousness of all this, while German citizens are the ones expected to sacrifice for others.

I say for the next deal that Germany requires that any “loans” be underwritten by tangible property… maybe the Acropolis or a few islands in the Aegean. It only seems fair that either German has an opportunity to recoup what is sacrificed, or at least provide retirement beach property to the German people…

It only seems fair…

dominigan on November 27, 2012 at 12:23 PM

But is that realistic?

Nope. They will only give up the OPM cold turkey.

dogsoldier on November 27, 2012 at 12:33 PM

EU, IMF, Greece agree on debt deal

…A G A I N…!!!!

KOOLAID2 on November 27, 2012 at 10:01 PM