Sometimes, When You Kick the Can, You Break a Window

Focus: GLOBAL

Jim Jubak Image Jim Jubak Founder and Editor, JubakPicks.com

And then matters can get ugly fast. Thankfully, there are still solutions to the latest Greek debt crisis, but the statistical chance of success keeps shrinking, writes MoneyShow's Jim Jubak, also of Jubak's Picks.

Yesterday, November 8, I said that European leaders looked to be headed toward another round of “kick the can” on Monday, with more delay on approving the next €31.5 billion rescue fund payout to Greece.

Today, it’s clear that I was much, much, much too kind. We’re now looking at something I’d call a “train wreck.”

Not only does there appear to be almost no chance that European finance ministers will vote to approve the cash that Greece needs on Monday—Greece faces a €5 billion bond payment on Friday, November 16, and the country doesn’t have the money to make the payment—but also now it appears like any payout to Greece will have to wait on resolution of a bigger deal that will:

  • Require Eurozone countries to cough up another €15 billion to €30 billion (yes, that’s very popular in Berlin and Helsinki);
  • Or require a big writedown in the value of Greek bonds held by the European Central Bank (you can hear the screaming from Frankfurt);
  • Or quite possibly both.

The need for that bigger deal puts in doubt the consensus fallback timetable that pegged approval of the Greek cash payout to the European summit on November 22—on the rather questionable assumption that Greece would be able to dig up the cash it needed, somehow, until then.

The problem is that the International Monetary Fund, one of the members of the Troika that is to report on the condition of Greek finances for the November 12 meeting, is pressing the unpleasant truth that even with the latest austerity package, Greece is not on track to reduce its debt-to-GDP ratio to a sustainable level—defined as 120%—by the 2020 deadline.