Europe Update

As widely thought, EU Finance Ministers meeting on November 12 did not release the latest $40 billion installment of the Greek bailout loan.  The Greek parliament passed both another series of austerity measures on November 8, and the 2013 budget on November 11. These moves, however publicly lauded in Brussels, were regarded as necessary, but clearly not sufficient, conditions for unlocking more rescue funds for Greece. German Finance Minister Schaeuble in particular is waiting on the the latest audit report of Greek finances from the troika of international lenders (the EU, the European Central Bank and the IMF). Greek governments have consistently missed earlier budget and reform targets, and German cynicism persists. The Ministers, while agreeing to extend Greek fiscal targets from 2014 to 2016, will meet again on November 20 to re-assess the additional $40 billion loan installment.

But this could be another difficult meeting. Initial indications just coming out today from the troika report apparently point to an even deeper Greek recession than previously thought. Debt to GDP ratios may thus worsen further for several more years before any improvement can be reasonably expected.

For this writer, these developments suggest this - a program of Greek debt forgiveness, or at least re-scheduling, rather than more loans, is both realistic and, at some point, inevitable. Watch as Ms. Lagarde from the IMF becomes a strong advocate of writing off some of the debt.