KILL MEEE... KILL MEEEEE... PART 4

BACKGROUND:

Kill me no. 4 is the sequel to the original 'Kill Me' post available here, which in turn is the sequel the Dog Ate my homework v. 2 post and of course the original 'Dog Ate my Homework' post. All of these posts are reactions to the IMF staff reviews of Greece's standby arrangement and the subsequent letters of intent from the Greek Government. 

Together the two sets of documents could explain how the Greek Government is from Venus and the IMF is from Mars, except of course everyone knows where the Greeks are originally from. 

Anyway dear readers, I know you've been waiting for this so here goes. 


Here are the quickest possible highlights of the Fourth Review by the IMF with only a little play by play from me.

Open discussions of Greece’s financing challenge and euro-zone countries’ insistence on private sector involvement to resolve this have convinced markets that Greece will restructure its debt (pg. 4)

[Translation: The market expects a default.]

The fiscal position has stalled (pg. 6)

[Translation: Current austerity measures aren’t working]

Wholesale funding markets remain closed, and exceptional ECB liquidity support has grown (pg. 5)

Banks’ combined market value of €13 billion falls well-short of their reported Tier I capital of €30 billion (pg. 6).

[Translation: The market says that the stuff regulators say your banks are OK to hold as capital is actually crap. Nice job everyone.]

First quarter 2011 targets were met, with the help of temporary factors (pg. 7)

[Translation: Q1 2011 targets were ONLY met with the help of temporary factors. Your coach is about to turn into a pumpkin]

GDP is now projected to contract by 3¾ instead of 3 percent in 2011 (an outlook broadly in line with that of other forecasters). (pg. 9)

[Translation: Everyone else’s forecasts haven’t changed; we should have listened to them]

Risks remain skewed to the downside in the near term (p.g. 9)

[Translation: You are more likely to miss your targets than meet them for the next few quarters]

The scope for shortfalls in policy implementation or in macroeconomic outcomes is limited […] stress testing shows that full and timely program implementation is absolutely critical: incomplete fiscal adjustment, privatization shortfalls, or delays in structural reform implementation (producing a considerably slower economic recovery and fiscal adjustment) would see debt remain at very high and likely unsustainable levels through 2020 (p.g. 10)

[This point is repeated in various different ways throughout the report. Translation: You mess this up one more time and it’s Good Morning Harare!]

The discussions focused on Greece’s deeper medium-term policy needs and identifying ways to replace the expected market financing that is now likely no longer available (pg. 10)

[Translation: you can’t borrow from the markets anytime soon.]

At the end point, Greece would be targeting a primary surplus in the range of 6½ percent of GDP (pg. 11)

[Translation: The adjustment programme only works if you achieve an impossible primary deficit target]

there is a good motivation to switch the headline program targets to focus on primary balances, namely to insulate the fiscal assessment from the potential variability in interest payments (pg. 11)

[Translation: In addition to the markets we also expect a default, which is why we’re not counting interest payments anymore]

The government has prepared a medium-term fiscal strategy (MTFS), which would […] reduce the size of the Greek state: overall spending would decline from 49.5 in 2010 to 43.1 percent of GDP by 2015 (pg. 12)

[Translation: The nightmarish small state we have in mind for you is the same size as Canada’s.]

All administratively complex programmes are massively back-loaded (this is not verbatim, but see Pg. 13)

[Translation: We’ve given up on administrative reform]

[T]o begin implementing the strategic plan for medium-term reforms, the authorities will begin […] a number of major institutional changes (creating a central directorate for debt collection, a large taxpayers unit, as well closing and merging several uneconomic and inefficient local tax offices). (pg. 14)

[Translation: You don’t have a large taxpayers’ unit or a debt recovery unit? WTF?!]

[T]he system will remain heavily reliant on ECB support […] peak support could top €130 billion. Greek banks cannot by themselves rapidly reduce their existing level of ECB exposure (pg. 16)

The authorities also committed to encourage banks to seek foreign merger partners (pg. 17)

[Translation: Someone has to bail out your banks. We’d rather it was other banks from abroad.]

The BoG […] may appoint a commissioner with managerial powers to run a troubled bank; it may withdraw a bank license and then put the bank into liquidation; and it can impose a moratorium on a bank's claims. However, the Greek legal framework lacks specific bank resolution tools towards lowering the cost of resolving banks. [T]here are no techniques to allow the continuity of banking operations, including sustained depositor access (pg. 18)

Reforms are also needed to ensure that the deposit insurance fund can be used to fund such techniques, and to establish depositor preference over unsecured creditors. (pg. 18)

[Translation: If you default before you fix this shit, your citizens will not be able to get their deposits back.]

[UPDATE: Since people are asking, this doesn't mean people will lose the deposits necessarily, and it could just be a scare tactic. But what it does mean is that in the event of a default, restoring people's access to their deposits will take time and the Greek government will have to negotiate the status of depositors' claims. Unless of course we sort out the legal framework first.]

The supervisor has thus requested that undercapitalized banks meet regulatory requirements or find appropriate merger partners by end-September. (pg. 18)

[Translation: Your banks need to put a fire sale together pronto.]

Still, for the timetable to hold, market demand must exist. This is a significant risk which the authorities can manage by ensuring that foreign investors can participate, and by establishing a track record of even-handed and timely execution of transactions (to demonstrate to bidders they have a real chance to acquire the assets). (pg. 20)

[Translation: Even if you hold a fire sale, who is going to buy this crap? They don’t even trust you to honour your end of the bargain]

firm-level collective agreements, introduced in late 2010, would allow for wage reductions below sectoral minima (to the nationally-agreed floor) within the formal bargaining framework, thus overcoming this rigidity, but had been used little to date. (pg. 23)

[Translation: Businesses aren’t using the one good labour market reform you managed to push through. Someone isn’t playing ball.]

the end-March indicative target on the accumulation of new domestic arrears by the general government was again missed in March. A waiver of applicability is being requested for end-June performance criteria (except concerning external arrears). (pg. 27)

[Translation: you’ve missed your targets but we’ll look the other way.]

A tailored downside scenario exposes additional vulnerabilities. Debt would peak at 186

percent of GDP in 2015 and remain above 178 percent of GDP in 2020, a situation highly unlikely to allow continued market access. (pg. 70)

[Translation: You know how you keep missing targets? Well if you stay on that path you’re on track to owe fuckloads forever.]