On December 5 in Brussels, Free Debt Relief Programs in Washington greece reappear on the agenda of the finance ministers of the euro zone. It will again be a question of taking stock of the reforms implement by Prime Minister Alexis Tsipras but also of (re)talking about debt “measures”.
For months, Klaus Regling, director of the European Stability Mechanism (MES), this big kitty of 500 billion euros creat in 2012 to rescue the countries of the euro zone on the verge of bankruptcy, has been refining his copy. The mandate given to it by ministers last May in The Hague is simple: “Lighten the burden of debt” by postponing a few repayment dates and lowering certain interest rates. Next Monday, he will have to return his copy.
Vagueness and double talk reinforce the lie
There is no doubt that the presentation that will be made of this financial engineering exercise will be almost incomprehensible to the general public. It does not matter. It’s even much better like that, because this vagueness will make it possible to persist in the lie that has allow for years to reduce the Greek debt… while ensuring that its creditors do not lose a penny. The debtor owes less, but the creditor has lost nothing… A flagrant contradiction, which a five-year-old child would understand, Free Debt Advice in Washington and which here is authorize by the cohabitation between two discourses (and two accounting languages): financial, on the of the Fund and of the European Mechanism, policy on the side of the ministers. A contradiction also which has its political utility.
What is the point of pushing back deadlines? To lower the NPV
As much to say it: the lie is on the side of the politicians, in other words, the European ministers. Agreeing to be reimburse “at par”, that is to say, up to the nominal value of a debt, but later than expect, is quite simply agreeing to lose money, because it is ignoring inflation and the cost of money. Simple example: with an interest rate of 2%, the “net present value” (NPV) of 100 reimburse in 2022 is, in 2017, 90. It would indeed have been necessary to place 90 in 2017 to obtain 100 in 2022. If these 100 euros are repaid six years later, in 2028, the present value in 2017 falls to 80.
However, since 2012, European finance ministers have constantly lower the present value, in other words the “burden”, of the Greek debt. A first series of “measures” to lengthen maturities and lower rates was already decide in 2012 by finance ministers, on a much larger scale than those that will be present next week. The resulting drop in Greek debt is black and white in the 2015 European Stability Mechanism report. through the various relief measures lead to present value savings corresponding to 51% of Greek GDP in 2015”, or 100 billion euros. An admission which we know was debate at length between the ministers of the euro zone, who sit on the board of directors of the MES, at the time of closing the report.
“No cost for the European taxpayer”: really?
In financial terms, the Greek debt has therefore already been reduce by 100 billion euros, honestly notes the European Stability Mechanism. But he adds: “It does not imply any reduction in the face value and, therefore, no cost for the European taxpayer” … which on the other hand does not make any sense. The illusion of this “no cost” is due to the archaism of public accounting, which makes it possible to include a debt in the accounts of the State at its nominal value and not at its current value. Whether France owes 100 in 10 or 20 years makes no difference in the eyes of the budgetary authority. This is contrary to all financial logic: the value of its debt is practically more or less halve (depending on the interest rate apply) if it pushes back its repayment deadlines by 10 years.
The illusion of non-cancellation of the debt does not benefit Tsipras
This difference between nominal value and current value is well known to economists, in particular those of the IMF, who base their entire “DSA” (Debt Sustainability Analysis), their analysis of a country’s solvency, on actuarial calculations. “The nominal figure has no economic and financial meaning,” notes economist Nicolas Véron. “The lengthening of the duration of the loans, with a grace period, and the reduction of interest rates, effectively lower the Greek debt since its NPV decrease”, explains his colleague, Charles Wyplosz. And to add:
“This does not lead to any accounting loss for the ESM (European Stability Mechanism) as long as the nominal is maintain and the deadlines are respect, even if they are modify. Politically, Free Debt Relief Programs in Washington it’s good for the MES [because it maintains, for its shareholders except Greece, the countries of the euro zone, the illusion of a non-erasure of the debt, Editor’s note] and bad for the Greek government [for the same reasons, because the Greek government cannot say publicly that it has obtain a restructuring of its debt, Editor’s note], because politicians are wrongly concern with the nominal value, and not with the NPV…”
Make Europeans believe that Greece “costs” them nothing
The reason for the difficulty in posting a fall in the nominal value, which could very well lead to the same result as a fall in rates and an adjustment of maturities in terms of a fall in the net present value, Free Debt Relief Programs in Washington is purely political. Europeans must be made to believe that Greece “costs” them nothing.
In other words, the mission entrust to Klaus Regling is to maintain the illusion of non-remission of debt… while organizing it. He does not do this only at the request of Mr. Schäuble. Bercy is also very happy to assure the French that there is no debt forgiveness to Greece and that the taxpayer will be reimburse a hundredfold.
French taxpayers have already grant 20 billion in rebates
However, the ESM’s annual report is unambiguous: given the respective participation of France and Germany in the European Stability Mechanism, the debt relief already grant to Athens in 2012 by the French taxpayer is 20 billion, the French participation in the ESM being 20%, and by the German taxpayer 27 billion (for 27% of German participation).
The two-collateral damage of not speaking the truth
A less rosy scenario would see the measures present by Klaus Regling being deem insufficient, the Greek reforms unrealistic, the IMF unable to return. We will know on December 5 if in the end the desire to write a “success story”, which sees the first option win, Free Debt Relief Programs in Washington will be stronger than the desire to speak the truth.
The only bad news we can be sure of is that this sleight of hand will keep the Greeks thinking that they are victims of a debt whose burden is only a fraction of what it was , while it will maintain the other Europeans in a kind of optical illusion which is only the fruit of a financial illiteracy skilfully maintain by their leaders.
