This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Cost of a Haircut: Greece, Eurozone, IMF

NEW YORK ( TheStreet) -- Earlier, I noted there were two parts to the International Monetary Fund Stand-By Program for Greece: austerity and increasing its competitiveness. However, by the beginning of 2012, the IMF had concluded that the austerity part of its plan for Greece had failed. Why?

Because:

  • the austerity measures were so extreme that initial efforts to implement them made things worse (slower growth, shrinking government revenues, and higher unemployment); and,
  • the measures were politically impossible to implement -- instead, governments fell and there were riots in the streets.
  • On July 4, the IMF estimated that GDP would decline by 4% in 2011 and by 1% in 2012. Six months later, the IMF concluded GDP would fall 6% in 2011 and another 4% in 2012.

    IMF estimates were wildly optimistic on unemployment as well. Last July, it projected unemployment at 16% in both 2011 and 2012. Six months later, the fund raised the projection to 18% in 2011 and 20% the following year.

    To its credit, the fund saw what was happening and gave up on austerity measures. Its Stand-By Program was ended early, and its new Extended Fund Facility Program emphasizes labor market reforms and other measures to make Greece "competitive."

    Germany continues to have a different perspective: more austerity. And to that end, it forced other euro countries to accept a European Union treaty amendment: Government deficits should be no more than 1% of GDP. Because the IMF (at least for now) has given up on austerity while Germany and other strong euro countries still promote it, a rift between the IMF staff and euro countries has developed. But while the euro countries are more supportive for Greece, the IMF remains in control of what gets done: it set the conditions for disbursements and it polices them.

    Old and New Programs

    The first bailout program for Greece was 110 billion euros, with the IMF Stand-By providing 30 billion euros (27%) and euro countries providing 80 billion euros (73%). Table 1 provides details on disbursements and cancellations.

    Table 1. -- Original Greek Bailout Funds
    (in billions of euros)

    1 of 3

    Check Out Our Best Services for Investors

    Action Alerts PLUS

    Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

    Product Features:
    • $2.5+ million portfolio
    • Large-cap and dividend focus
    • Intraday trade alerts from Cramer
    Quant Ratings

    Access the tool that DOMINATES the Russell 2000 and the S&P 500.

    Product Features:
    • Buy, hold, or sell recommendations for over 4,300 stocks
    • Unlimited research reports on your favorite stocks
    • A custom stock screener
    Stocks Under $10

    David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

    Product Features:
    • Model portfolio
    • Stocks trading below $10
    • Intraday trade alerts
    14-Days Free
    Only $9.95
    14-Days Free
    Dividend Stock Advisor

    David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

    Product Features:
    • Diversified model portfolio of dividend stocks
    • Updates with exact steps to take - BUY, HOLD, SELL
    Trifecta Stocks

    Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

    Product Features:
    • Model Portfolio
    • Intra Day Trade alerts
    • Access to Quant Ratings
    Options Profits

    Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

    Product Features:
    • Actionable options commentary and news
    • Real-time trading community
    SYM TRADE IT LAST %CHG
    AAPL $131.08 1.10%
    FB $79.91 0.72%
    GOOG $536.09 0.71%
    TSLA $245.94 -0.61%
    YHOO $42.80 -0.12%

    Markets

    DOW 18,134.19 +92.65 0.51%
    S&P 500 2,114.25 +10.05 0.48%
    NASDAQ 5,064.96 +32.2090 0.64%

    Partners Compare Online Brokers

    Free Reports

    Top Rated Stocks Top Rated Funds Top Rated ETFs