As of this writing, we have news – as we predicted – that the Greek can has been kicked one more time, with European creditors preparing to hand over €11 billion. Greece will use the funds “to clear arrears and to cover debt servicing needs” – in short, more debt as the solution to old unpayable debt. €2.4 billion will immediately return to the European Central Bank as a debt service payment in July. The deal would carry Greece through November.
The Greek parliament continues to debate austerity measures that either won’t be implemented, or will depress Greek growth still further. The International Monetary Fund (IMF) continues to be a voice of sanity, referring to the European Commission’s projections of Greece’s future economic path as “far-fetched fantasies,” which of course they are. The IMF’s more sober analysis suggests that without debt relief (that is, haircuts) debt servicing would account for 60% of Greek government spending by 2060. According to the IMF, on the current path, it will take 44 years for Greek unemployment levels to normalize.
Behold, the madness of the current schizophrenic management of the euro. As we have said before, the day of reckoning will come… but today is not that day. Today is the occasion for a fizz of market euphoria on the latest kicking of the can. Perhaps the deal is being done with an eye firmly fixed on the UK’s upcoming vote to stay in the EU or to leave: after all, another spectacle of brinksmanship in Europe’s bankrupt periphery would likely tilt the vote the way the Eurocrats don't like.
Investment implications: As we predicted, “extend and pretend” is continuing in Greece. The European Commission is doubtless eager to avoid a spectacle that would dissuade British voters from choosing to remain in the EU. The whole of Europe’s bankrupt south will end as such debacles always end. But not today, and perhaps not for some time yet.