The Fly In The Greek Ointment

 |  Includes: EU, FXE
by: Karl Denninger

From Bloomberg:

Seven months of negotiations ended in the pre-dawn hours in Brussels with Greece winning 130 billion euros ($172 billion) in aid it needs to avoid a March bankruptcy. Any respite may prove temporary after it signed up to a program of austerity and economic reform aimed at slashing debt to 120.5 percent of gross domestic product by 2020 from about 160 percent last year.

Yeah yeah. We've heard that for two years.

The problem is here, in a story that sources to AP and is all over the net this morning.

Greece will also have to pass within the next two months a new law that gives paying off the debt legal priority over funding government services. In the meantime, Athens has to set up an escrow account, managed separately from its main budget, that will at all times have to contain enough money to service its debts for the coming three months.

That appears to be a retroactive change to existing terms!

This is an amusing turn of affairs, but is not unexpected. After all, when you're begging you hardly to dictate terms.

Believing that this will both be promised and delivered upon, however, is a losing bet.

In Athens, the reaction to the news was a mixture of relief the country has avoided financial catastrophe and fear of a dark future.

"I don't see (the agreement) with any joy because again we're being burdened with loans, loans, loans, with no end in sight," architect Valia Rokou said in the Greek capital.

You can't fix a debt problem with more loans -- that is, more debt.

There's a 10-page report out that details the problems, which are really no surprise or anything different than what I've talked about repeatedly -- simply put, you can't keep loading debt upon debt and expect a positive outcome. It doesn't work that way and mathematically when you cut government deficit spending you're guaranteed to get at least one dollar of GDP decrease for every dollar of deficit spending you slash. In truth you get more as the goods and services not bought don't have to be produced, and so on.

The Greek Bailout is thus just another in a long line of attempts to avoid recognition of losses that occurred when the bad loans were made. As I have repeatedly pointed out losses happen when bad loans are initiated and funded -- we can later change who eats them, but the loss itself has already occurred.

I suspect the "use by" date on this little "package" is a month or less -- and perhaps much less.