Mathematicians use “imaginary numbers” for abstract concepts like the square root of -1. The European Union seems to be using a similar trick in constructing a bailout for Greece. Unfortunately, the magic that works for arithmetic seems likely to doom rescue efforts in Europe. Here’s a selection of the numbers that could add up to disaster for Greece.
50 Billion Euros
The bailout plan will ring-fence about $55 billion worth of Greek assets, ranging from ports to airports. They will be put into a special fund and sold to repay debt, recapitalize the banks and make investments to boost growth in the future.
But the proceeds from the Greek privatizations are set to raise a skimpy 4 billion euros. Moreover, the market capitalization of one of the best assets, the Piraeus Port Authority, is about 333 million euros – down 23 percent in the past two years. “I don’t think we will proceed,” Greek Economy Minister George Stathakis told Bloomberg Television, adding that the holdings required “obviously do not exist.”
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In the next two years, Greece’s debt will peak at 200 percent of its gross domestic product, the International Monetary Fund said in a report published overnight. A fortnight ago, the IMF’s prediction was just 170 percent. Both figures are miles away from the 60 percent ratio that the original Maastricht Treaty set as the target for any country to be economically worthy of euro membership.
The issue of debt rescheduling is slowly coming to the fore. The truth is, Greece’s economy is so trashed that no one really knows just how indebted the nation will end up being.
That’s how long capital controls lasted in Cyprus, after it went bankrupt. Greece’s banks are still shuttered, and its people are still restricted to withdrawing 60 euros per day. Meanwhile, the banks are running out of the collateral they need to borrow from the European Central Bank, and will need an infusion from the European Stability Mechanism. According to the European Commission:
In the absence of support by the ESM, financial stability risks for Greece will not be manageable and the banking sector will inevitably collapse.
Greek banks have been closed since the end of June, and it’s still anybody’s guess when they'll be able to reopen. But, as Cyprus showed, once capital controls are in place, it’s very hard to loosen them without every last remaining euro trying to escape.
3.5 Billion Euros
That’s how much Greece is scheduled to repay the ECB on Monday. A month ago, if you’d asked anyone the repercussions of Greece failing to pay, they’d have said exiting the euro. Today, it’s just another imaginary number. Greece has missed so many deadlines that blowing past another one will hardly matter.
Mark Gilbert is a columnist for Bloomberg View.