Internal Bundesbank Report Predicts New Greek Bailout In Early 2014, More Headaches For Merkel

An internal Bundesbank document discovered by Der Spiegel states, in opposition to the comments by Germany’s electioneering Chancellor Merkel, that Europe “will certainly agree to a new aid program for Greece” by early 2014 at the latest. As Reuters reports, Frau Merkel has repeatedly played down suggestions Greece will require more aid (or debt relief) in light of German voters major skepticism over moar of their money being flushed into the Mediterranean. The document notes that the risks of the current aid package for Greece are “extremely high” and that recent approval of the tranche payments were politically motivated – directly contradicting Merkel’s ‘praise’ for Greek efforts as the report concludes Athens’ performance as “hardly satisfactory.” Opposition parties suggest Merkel is throwing “sand in the eyes” of the electorate as the Bundesbank warns “there is no private buffer left that could protect the European taxpayer.”


Via Reuters,

German opposition parties accused Chancellor Angela Merkel on Sunday of lying before elections next month about the risks of a new bailout for Greece, after a magazine reported the Bundesbank expects it will need more European aid in early 2014.


Der Spiegel quoted an internal document prepared by the German central bank as saying that Europe “will certainly agree a new aid program for Greece” by early next year at the latest.


The Bundesbank, which declined comment, also described the risks associated with the existing aid package for Greece as “extremely high”, according to the report, and said the approval last month of a 5.8 billion euro ($7.7 billion) aid installment to Athens had been “politically motivated”.



Aware that German voters are skeptical about more bailouts, she has repeatedly played down suggestions Greece may require extra aid, or debt relief, despite conflicting views from experts, including at the International Monetary Fund (IMF).



“There will be a rude awakening after the election,” [Opposition spokespersons] said in a statement. “By disputing the need for additional aid for Greece, the Chancellor is lying to people before the election.”


The finance ministry declined comment on the report.



Bernd Lucke, the head of a new anti-euro party called the “Alternative for Germany”, accused Merkel’s center-right government of “throwing sand in the eyes” of voters by refusing to admit the truth about Greece before the September 22 election.



There is no private ‘buffer’ left at this point that could protect the European taxpayer from the consequences of a deterioration of the crisis,” the paper says.


In recent months European leaders, including Merkel, have praised the work of the Greek government in delivering on the reforms that are a condition of its bailout. But the Bundesbank, according to Der Spiegel, described Athens’ performance as “hardly satisfactory”.


This should come as no surprise since we first discussed the inevitable fact that Greece would need another bailout back in January – and that Germany would be forced to foot the bill…

What everyone is forgetting is that the heart of the Greek problem is not the Greek sovereign debt, and certainly not the rate of interest, but the fact that Greece’s financial system, i.e. its banks, are utterly insolvent: and with the private banking system no longer creating money by handing out loans to a just as insolvent broader population (and the ECB certainly no longer injecting direct liquidity into the Greek economy) there is little that supports any form of economic growth (the Austrians out there will immediately recognize the problem: if money is not being created, the economy is not “growing”, period). After all there is a reason why of the countless billions in Greek bailouts, of which the majority was used primarily to fund interest and maturity payments to other banks such as Deutsche Bank, the biggest portion that remained on the ground in Greece never made it to the actual people, but served to prop up the Greek banks, some €50 billion.


What was this money used for? Simply said, to plug capitalization shortfalls arising from one of two things: i) a gigantic outflow of deposits from the local banking system, as Greek lost all confidence their money was safe in the local banks, which meant Greek banks had to promptly find the money to pay their depositors lest a countrywide bank run developed which would then result in a Europe-wide financial panic, and ii) the soaring notional amount of non-performing “bad” loans, which remained as placeholders on the bank balance sheets, market at whatever mythical number the local accounts let the banks mark them at, but which generated zero inbound cash flows. Which, incidentally, would mean that deposits were undercollaterialized, and the realization that NPL levels are stratospheric and going higher, would lead to i) and the appropriate dire consequences.


Which brings us to the topic of today’s post.


Moments ago Kathimerini reported that in 2012, the amount of non-performing loans has exploded by a laughable amount, rising some 50% from December 2011, when it was “only” 16% and stood at a gargantuan 24% last month (indicatively, in the US this would mean that some $1.7 trillion in loans was nonperforming). And therein lies the rub, because as Kathiermini prudently notes, the “bad loans come to a considerable 55 billion euros. This means that the sum of NPLs already exceeds the total funds set aside for the recapitalization of the local credit system, which amounts to €50 billion.




This means that not only every single euro allotted for the bailout of the Greek banking sector has been used up to plug a gaping NPL shortfall, but already Greece is €5 billion short.

But in the meantime – just keep buying those 9.6% yielding GGBs…


And we suspect, given this news and the ‘template’ provided by Cyprus, that the modest trend in the chart below will be rapidly reverted lower…

What could go wrong?


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