Plan to Spoon-Feed Greece to Death; Greece to Receive Another $124 Billion in Small Bites, Details Postponed; 33% Chance of Italy Debt Downgrade

The cost to keep Greece afloat keeps rising. The latest deal, not yet finalized says Greece to Receive Up to $124 Billion in New Aid

Greece may receive as much as 85 billion euros ($124 billion) in new financing, including a contribution from private investors, in a second bailout aimed at preventing default and ending the euro-region’s debt crisis, according to an Austrian Finance Ministry official.

Euro-area nations and private investors will contribute 70 percent of that aid, with the International Monetary Fund offering the rest, Thomas Wieser, head of the ministry’s economic policy and financial markets department, said at a briefing late yesterday in Vienna. European Union finance chiefs also hold a conference call tomorrow to free up a 12 billion- euro payment overdue from the original rescue.

The new bailout program, which should run from mid-2011 for three years, has to be “imagined as a cash-on-delivery agreement,” Wieser said, adding that the dates of paying out installments haven’t yet been set.

“Before every payment there will be a discussion of the finance ministers to see if the program is on track and whether the Greeks are still doing their part,” Wieser said.

The first payment under the new program will probably take place in September, and may be of a similar size to the 12 billion-euro July installment, he said.

Plan to Spoon-Feed Greece to Death

The original bailout was 110 billion Euros, now it takes another $85 billion (and counting). When the fire sale of Greek assets does not bring in enough money, the banks and IMF will place even harsher terms on Greece.

Notice the plan to spoon-feed payments to Greece in 12 billion-euro bites while demanding "progress". This will ensure Greece is sucked dry (at fire sale prices) of any government assets worth owning by the time the "bailout" is over.

Portugal, and Ireland should make note of the process. The same "bailout" plan will be used on them unless they tell the IMF and EU to go to hell.

33% Chance of Italian Debt Downgrade

CNBC reports Italy still faces debt risk despite austerity

Risks remain to Italy's plans to reduce its massive public debt despite new austerity measures, mainly due to weak economic growth prospects, ratings agency Standard & Poor's said on Friday.

Italy's cabinet on Thursday approved an austerity package worth some 47 billion euros ($66.55 billion) that is aimed at shielding the country from the Greek debt crisis and eliminating the budget deficit in 2014.

Ratings agencies S&P and Moody's have warned they may cut Italy's credit rating because of its inability to pass reforms to bring down its debt mountain. S&P has an A-plus long-term rating on Italy and the country is rated Aa2 by Moody's.

Following the unveiling of the government's austerity package, S&P said it maintained its view that there is a roughly one in three chance that its ratings on Italy could be lowered within the next 24 months.

Italy remains vulnerable due to its massive public debt of around 120 percent of gross domestic product (GDP) and its chronically weak economic growth -- the most sluggish in the euro zone over the last decade

Eurozone Delays Decision on New Greek Bailout

The New York Times reports Eurozone Delays Decision on New Greek Bailout

Eurozone finance ministers have canceled a crisis meeting planned for Sunday because they need more time — as much as two more months — to nail down the details of a second bailout for Greece, officials said Friday.

They will, however, hold a video conference on Saturday to sign off on a new loan installment that will keep Greece from bankruptcy over the summer.

"It would have been too ambitious to get the deal (on a second package of rescue loans) done by Sunday," said a eurozone official. Several key aspects of a new bailout, such as the contribution of banks and other investment funds, are still up in the air — although eurozone leaders said last week that there will be new financing for the struggling country.

Plan to Suck Greece Dry Will Backfire

The plan is to suck Greece dry, not to bailout Greece, but rather to bailout the banks that to lent Greece. That plan is still not finalized.

However, the plan will backfire. Greece will default anyway, and the ultimate cost will be higher to Greece and the banks that lent to Greece. European taxpayers will be asked to foot the bill.

Notice how silly this has gotten. Had Greece simply defaulted a year ago, the cost may have been haircuts of $50 billion or so. Now $282 billion (and counting) has been invested to "save Greece".

Does Greece look or feel saved?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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