by Karl Denninger
“This is absolutely astounding: “Staff teams from the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) have concluded a mission to Greece to discuss recent economic developments and policies needed to keep the country’s economic program on track. The mission has reached staff-level agreement with the authorities on a set of economic and financial policies needed to meet program objectives.”
We knew you wouldn't do it, but... “Strict implementation of these will help to restore fiscal sustainability, safeguard financial sector stability, and boost competitiveness to create the conditions for sustained growth and employment.”
“However, reinvigoration of fiscal and broader structural reforms is necessary to further reduce the deficit and achieve the critical mass of reforms needed to improve the business climate and pave the way for sustainable economic recovery.”
Translation: You must shoot the citizens who dissent. It's the only way. We must have our money, no matter what has to be done to obtain it. (We're serious, by the way)
“In the fiscal area, further sustained deficit reduction will require comprehensive fiscal structural reforms. The government has committed to an ambitious medium-term fiscal strategy that will enable it to maintain its 2011 and medium-term fiscal targets. This strategy includes a significant downsizing of public sector employment, restructuring or closure of public entities, and rationalization in entitlements, while protecting vulnerable groups. On the revenue side, the government will reduce tax exemptions, raise property taxation, and step up efforts to fight tax evasion.”
Got that? Fire people from government jobs, close public services, reduce entitlements and raise taxes. There's a problem with this of course. GDP = C (consumption) + I (net investment) + G (government spending) + (X - I) (exports net of imports). So if you reduce "G" then GDP decreases dollar for dollar.
This is what I've talked about here in the US. The US Government is running a 12% of GDP deficit. Eliminating that will cause at least a 12% reduction in GDP. It does not matter if you eliminate it through spending cuts or tax increases; a tax increase reduces either "C" or "I" (pick one) by the exact identical amount, since it's money that a person or entity can no longer spend or invest. If you just drop spending then "G" decreases. All of these changes are dollar-for-dollar.
Ah, here we are. What the EU/ECB demanded (and apparently got) is for the government to sell public assets (the things that all Greeks own collectively) and use that money to pay the banksters. This is a direct financial rape of the Greek people and should be met with immediate refusal - not acceptance - by the Greek population.
Look, the budget has to be slashed. This is unavoidable and simply must happen. The GDP hit will be real, it will be large, and it is unavoidable. It must be accepted, because there is no other choice. The same dynamic, incidentally, holds true here in the United States.
But - and this is very important - neither Greece or the US should sell anything to pay these banksters. They knew damn well what the revenue and tax picture looked like when they loaned the money. Sovereigns never borrow "secured", and allowing this precedent to be set is ruinous. In fact, there's an argument to be made that this sort of move by the government of a nation amounts to treason.
We'll see how this all works out; I suspect this is yet more can-kicking without a prayer in Hell of success. Not only do I expect the Greek people to reject the asset sales, I also expect them to reject the "FSA" cutoff. But for today it's sending the Euro soaring and the dollar crashing through the floor.”