Troika's Forecasts

For those who still believe in forecasts!
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Cyprus crisis getting ugly!

Cyprus' banks are in worse condition than imagined, and the bailout amounts has jumped again.
How can a tiny country get in so much trouble in such a short time?
The real-estate and construction bubble, fed by corruption and abetted by banks, burst two years ago. Home sales and prices have collapsed. Some 130,000 homeowners (in a country of 840,000 souls) are tangled up in a nationwide title-deed scandal.
It is estimated that 50,000 homes would be dumped on the market—though only 4,876 homes were sold during the first nine months of the year! Losses have gutted banks. Unemployment has reached record levels. And the construction industry, once a major employer, is being annihilated.
The index of building contracts, after a two-year downhill slide, has reached the lowest point in its history, and “activity is expected to continue dropping,” lamented the Federation of Associations of Building Contractors (OSEOK).
Contractors are going out of business. Over the last four months, the crisis has deepened. And now there are only enough pending construction projects for seven months, and after that, there are no projects.
Locked out from the financial markets since early summer 2011, Cyprus was bailed out by Russia last November with a €2.5 billion loan. In June, as the banks began to topple under a mountain of Greek debt and rotting mortgages, Cyprus asked for a bailout.
The Troika took a look and figured €6 billion for the banks and €4 billion for the government. €10 billion in total.
But in August, Central Bank Governor Panicos Demetriades told parliament that the banks alone would need €12 billion!
Then Russian Finance Minister Anton Siluanov told last week: Cyprus would indeed seek a €15 billion bailout from the Troika, and an additional €5 billion from Russia, for a total of €20 billion.
A vertigo-inducing 107% of GDP.
But he cautioned that Russia and the Troika would need to coordinate the loans—thus throwing a monkey wrench into Christofias’ efforts to use the negotiations with Russia as a lever against the Troika to get a better deal and more lenient conditions.
Conditions that the Troika had already spelled out in a memorandum.
In short,  a privatization of state-owned enterprises, a 15% cut in the public payroll by the end of 2013, a 10% cut in benefits, elimination of the automatic Cost of Living Adjustments (CoLA) that index salaries to inflation, and an increase of contributions to pension plans.
The CoLA elimination would also hit private sector employees, as would the elimination of the 13th month salary.
“You cannot tell someone they won’t receive a 13th salary. It automatically means you paralyze the market” declared communist President Christofias during a TV interview.
He would, however, try to cooperate with the Troika. “We aren’t just saying ‘no’ to them,” he added. “We are giving them counterproposals.” They focus apparently on a VAT increase, a luxury car tax, taxes on cigarettes and alcohol, disincentives for public sector workers to take early retirement, and a 5% wage cut for those earning over €1,500.

Greece rescue comedy: third stage coming!

Der Spiegel announced a third rescue being necessary for Greece.

Billions from the second bailout have not yet arrived in Greece and international inspectors already claim a third payment is required. The Troika believes that another 50 billion euro are needed.

The financial controllers of the EU Commission, European Central Bank and the International Monetary Fund believe a third rescue package for Greece will be necessary. They quantify the amount up to 50 billion €.

It is not guaranteed that the country as planned as early as 2015 could again get their own loans, it said in a recent draft of the Troika report on the situation in Greece. Therefore, the country from 2015 to 2020 may need an "external financing need of up to 50 billion euros."

EU Meeting Update

The release of the Troika report seemed to bring events this weekend in Europe to an early halt, according to SudDeutsche.

The Telegraph reports on some choice turns-of-phrase among the leading players, our favorite being:

"It was grim. The worst mood I have ever seen, a complete mess," said one eurozone finance minister.

SudDeutsche reports was in the Troika debt sustainability report (via Google Translate).

The numbers that the Troika on Friday evening on the debt situation in Greece is presented, have altered the agenda of the Euro-Finance completely. Really wanted the department heads to advise [if] they need to convince the country's private creditors to agree on a bigger discount on the bonds held by them, than the previously planned 21 percent.

But the "if" was suddenly a "how high?". Because the inspectors of the Greek lender describe in their "debt sustainability report," a scenario that far surpasses any fears. The country needs even under "normal" conditions, so if everything goes as planned with the reforming and saving, at least 252 billion euros , by 2020 to get back on its feet.

If the economy collapses further, state enterprises can not be privatized as hoped, nor do the reforms [produce the] € 444 billion needed to [please] the inspectors. So it is suddenly clear: the euro rescue fund EFSF is hardly sufficient for more countries to save, and his successor, the latest from 2013 operational ESM also not good.

Furthermore:


"It is clear that a substantial debt cut is necessary," however, said Swedish Finance Minister Anders Borg....

The Exchequer George Osborne sharply criticized the actions of the euro partners: "The crisis in the euro-zone causes major damage in many European economies, including Britain," he shouted in Brussels, adding: "We have had enough of short-term measures, it is enough ... with measures that bring us through the next few weeks. " Europe must tackle the causes of the crisis.

... The Luxembourg Foreign Minister Jean Asselborn announced immediately to resist. "What we need now is rest and no whip," he said.

A stronger economic cooperation is also possible on the basis of existing treaties. "It is important that we do not open another front," said Asselborn. "It can not be that domestic political considerations of even the greatest country outweigh everything."

It was clear that the reality of the size of loan required to 'solve' Greece alone will likely leave the cupboard bare:

Jan Kees de Jager, the Dutch finance minister, told colleagues: "We've got to get real. People are talking about new defences but with one gulp the whole €440 billion could be gone, leaving the eurozone with no protection at all."

Schaeuble-to-Everyone:

According to insiders, Wolfgang Schaeuble, Germany's finance minister, could not resist taking an "I told you so" approach - he had been, after all, the first to call for an "orderly" default for Greece 18 months ago, at a time when the cost of such a move was less than one third of the price today.
"Schaeuble is a man who does not mince his words, whose reputation for harshness and arrogance is well earned. He was, frankly, unbearable," said one diplomat.

And Baroin (France) to IMF swiftly followed by Lagarde (France/IMF)'s slapdown:

Francois Baroin, the young and inexperienced French finance minister,
attempted to hit back, complaining that the IMF's default medicine would hit
France the hardest; the country's banks are highly exposed and could
threaten its "untouchable" AAA rating.

But Mrs Lagarde, who had held his post until taking up the IMF job this
summer, "shut him up" by brandishing the report and pointing to it
its detailed figures. "She really slapped him down - and in perfect
English too, a language he cannot speak," said a diplomat.

We suspect many of the attendees (finance ministers) have not actually spoken to one another, read any serious research, or even attempted to comprehend the whole-versus-the-single sub-optimal decisions they face (until very recently) as their voluminous outbursts were incredible:

"Their shouting could be heard down the corridor in the concert hall where an orchestra was about to play the EU's anthem, Ode to Joy," said an incredulous EU official.

It did not stop there as the pointlessness of the meeting was highlighted as it became increasingly clear that the good old Franco-German comradeship may be fraying at the core and at the edges and without them.

Finance ministers - including George Osborne, the Chancellor - expressed frustration on Saturday that their emergency meeting could take no decisions of substance until Mrs Merkel and Mr Sarkozy had buried the hatchet.

"This Ecofin meeting has been reduced to an academic seminar, an exercise with absolutely no purpose," complained one finance minister.