ROHR COMMENTARY Excerpt for MyTradingBuddy
Thursday, July 16, 2015
It is probably not much of a surprise that Mario Draghi set a confident tone in his response to multiple questions on the EU/ECB/IMF-Greek Debt Dilemma. And the latest twist is a real ‘doozy’: the IMF seriously questioning the rationale for the entire new three year bailout package. Yet the adroit Signore Draghi even had an incontestable (at least in the short run) answer to all of that.
On the primary topic of whether even the latest round of major bailout funding for Greece will succeed in making its debt ‘sustainable’ (the major IMF point of contention), the ECB President noted that this agreement was different from others. That is insofar as the implementation of specific reforms is embodied in the agreement, instead of only setting the general budget targets that were part of previous bailout plans.
And there is something to be said for the degree to which Greek governments have not aggressively implemented previous reforms to achieve the budget targets. Whether any of that would have actually brought its Debt-to-GDP Ratio down to anywhere near sustainable levels remains a speculation.
The previous spending cuts and tax hikes actually shrunk the Greek economy to levels that would not support the necessary levels of tax collection (see the February 1, 2015 www.rohr-blog.com post on that.) As such, it is doubtful the additional ‘reforms’ would have accomplished the hoped for sustainable debt levels.
Yet within the continuing Euro-zone ‘extend and pretend’ approach to all of the weaker economies’ fiscal imbalances, this is what we have in the wake of the Greek government and creditor approval of the new bailout package. We will have more to say on that soon. Yet for now the ECB President’s performance was impressive in its supportive rhetoric.
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