Mission Control has been notified that the operation was a success, the can has been safely kicked for the next four months. I will say that at least Syzira gives the impression of wanting to be good Euro citizens and do the right thing. So who blinked in today’s sessions? Germany did, at least one eye. For Greece, the eye was only half shut. I believe Snable got head faked by Varoukaris. Essentially Greece got one of the most important pieces of the deal, time. The EFSF money for the banks continues under the direction of the MFFA (you may wish to consult Wikipedia) and the banks have to wait for their money to be handed to them, they don’t get to skim off the top. Germany now has four months to see what kind of red haired step child it has fathered. Time is of the essence for several reasons, the chief being that Greece needs to see what tax revenue it can collect and it is it enough to keep the current accounts positive. Normally a current account refers to the currency accounts that a country uses in importing and exporting with other countries. But we are talking about the existing trade within the EU zone and a balance of accounts of Greek exports going to other EU countries and imports coming from those countries. Call it cash flow, if you will. When one is out of cash and credit, one can neither buy not pay for what one has contracted.
Does this mean that there is no money in Greece? Actually, no, for the simple reason that there are still funds in the accounts of businesses and payrolls will be met even if there had been no agreement. And since Greece has stopped importing as many goods as it had been doing, that current account has been actually growing. Why is this really important? Because the government, in order to make the interest payments on the bonds and buy back the matured bonds needs to take a large slice out of the economy. Think of it this way. In order for you to pay your credit card debt, you need to forego a certain amount of spending each month. You receive X-amount in your paycheck and Y-Z is the amount you can spend on your own needs. That Z-amount is what you pay the credit card companies.
So what was all the trouble about? That Z-amount Greece was paying was felt by Varouhakis as being much too large to the point that it was hurting Greece’s ability to grow as an economy and generate employment and tax payments to the government. He felt that Germany and the others were pursuing too harsh a wage garnishment against Greece. Normally a bankruptcy judge would agree or disagree but the matter was not put before any courts. On the other hand the Germans are like those folks in the JG Wentworth commercial, they want their money and they want it now. If Germany hadn’t agreed to the four month extension then Greece would have walked, there was no other choice. If the leadership caved in to the Germans then there would have been a new round of elections and another set of problems. Varouhakis knows it is a time-value of money problem and in the next four months he must convince Germany to back off on their demands for instant fulfilment. At the end of four months there will be more more extensions. And either the repayment schedule will be revised or Greece will have to take a long walk off a short pier.
What are the other dangers in the next few months to come? Spain is close to switching over to the Podemos Political party and seeing their leaders push for a revision of their debt schedules and amounts and terms. Italy may not be that close right now, it is a difficult call to make. The Five Star Movement started out strong but it has lost some of its strength. The reason is that its leader, Beppe Greppo has stumbled last year and mistakes are costly for very young political parties. But as economic conditions worsen, and they will, the end of the Euro in its present form isn’t far, perhaps two, three years max. So there go my plays to see the Euro at Dollar parity this year.