The Greek Deal is Pointless… European Banks Need TRILLIONS in New Capital
by Phoenix Capital Research
The markets are exploding higher this morning on news of the expanded Euro Bailout. The numbers at the moment are
1. A 50% haircut for private Greek bondholders
2. European banks have eight months to raise about $147 billion in capital
3. An expansion of the European Financial Stability facility to $1.3 trillion.
First off, let’s call this for what it is: a default on the part of Greece. Moreover it’s a default that isn’t big enough as a 50% haircut on private debt holders only lowers Greece’s total debt level by 22% or so.
Secondly, even after the haircut, Greece still has Debt to GDP levels north of 130%. And it’s expected to bring these levels to 120% by 2020.
And the IMF is giving Greece another $137 billion in loans.
So… Greece defaults… but gets $137 billion in new money (roughly what the default will wipe out) and is expected to still be insolvent in 2020.
Forgetting that any and all official estimates for Greece’s financial condition have been off by a mile, not to mention that Greece still hasn’t paid back its first round of bailout funds, this move is nothing short of moronic.