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by Al Martin

Will Greece Repudiate Its “Odious Debt

(6-19-15) In a ZeroHedge article called “Greek Debt Committee Just Declared All Debt To The Troika “Illegal, Illegitimate, And Odious,’” we read that “…two months ago Zoi Konstantopulou, speaker of the Greek parliament and a SYRIZA member, said she had established a new Truth Committee on Public Debt whose purposes was to "investigate how much of the debt is illegal with a view to writing it off."

      “…The conclusion from the full report… All the evidence we present in this report shows that Greece not only does not have the ability to pay this debt, but also should not pay this debt first and foremost because the debt emerging from the Troika’s arrangements is a direct infringement on the fundamental human rights of the residents of Greece. Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate, and odious.”

      “Odious debt” is defined by Investopedia as “Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious debt when government leaders use borrowed funds in ways that don't benefit or even oppress citizens. Some legal scholars argue that successor governments should not be held accountable for odious debt incurred by earlier regimes, but there is no consensus on how odious debt should actually be treated. In practice, countries often end up repaying it to uphold their ability to borrow at favorable interest rates.”

      As far as I’m concerned this is just a continuing political ploy by Greece in order to extract better terms from the European Commission, the European Central Bank and the International Monetary Fund – but ultimately it isn’t going to work because the Europeans are now preparing an exit strategy which should be cast in stone pretty soon.

      Here’s the way it’s going to play out. The Germans and the IMF are coming out with a deal that will be effectively a final offer for Greece and they will not negotiate beyond this final offer. This will be the final terms that the Bundesbank is willing to accept. Germany will give Greece a little around the edges but they’re not going to give in on any of the fundamental reform issues.

      This is simply a strategy to get Greece out of the European Union since the Germans have reached their limit – which the Greek communists aka SYRIZA simply cannot accept. The key sticking point is pension reform meaning to bring Greek pensions back in line with Greece’s own GDP. The Europeans are saying they will not extend credit to Greece any further simply to pay your pensions with. According to the Europeans some reform has to occur along these lines. Otherwise the ECB and the rest of the European Union would have to lend Greece about $17 billion per annum in order to finance their pension scheme – forever.

      The Greeks certainly must understand by now that their 2000 Euro a month pension checks can not be sustained. When Greece entered the European Union and began to borrow a lot of money from the European Union and the IMF, Greece wanted to live a lifestyle that the French and the Germans led. The Greeks weren’t forced to borrow the money. What they tried to put on since the 1970s was an unsustainable social welfare state which their own economy could not sustain. That’s why they tried to become EU members so early – so they could borrow money in order to finance a social welfare state.

      You could say that Greece’s previous government leaders were responsible for this “odious debt” but I would say that these obligations are binding on the successor regime. The current government simply can’t repudiate the obligations of the prior government.

      Every country that repudiates debt or some sort of financial contract and then winds up in default becomes a burned out third world nation-state like Argentina. This is what Greece’s future may be.

      Also all of the Sub-Saharan African governments are burned-out nation-states even though their leaders skimmed the money they received from lenders. This is the conundrum of government since it doesn’t make any difference if a dictator seizes power. But this is a consequence of governments which repudiate their debt.

      Argentina repudiated their debt repeatedly -- from the IMF, from the World Bank, from private banks. This concept in the South when you’re in government, you skim out as much assets as possible and get yourself out of the country and let the next government deal with the problem. Mexico has been doing it for years.

      On the other hand, in the United States, the fraud is much more organized and institutionalized than it is in the Latin, African or Asian countries, where it’s just out and out theft.

      The reason why the United States can stay in business is because the fraud that gets committed in Washington is sustainable fraud. Approximately one quarter of the United States budget is defrauded but that is a figure that is sustainable – as long as people keep buying US Treasury Bonds.

      The reason why it works is because everyone else on the planet has a vested interest in keep the United States in business. That’s why China, Saudi Arabia, Japan etc. keep on buying US Treasuries. Because they have to.

      Why? Because if the United States goes down, so does the rest of the planet. That is the great advantage the United States has. You can think of it this way. The United States economy is the hub and the rest of the world are the spokes. The rest of the world doesn’t work without the United States – and the rest of the world knows this.

      Also it’s a symbiotic relationship between the United States and China – and it depends on China’s ability to buy US Treasury Bonds. It is the half dozen or so countries which are the buyers of US debt. China can’t stay in business without the United States since the United States is the largest purchaser of Chinese exports. Japan and Saudi Arabia – the same situation although that’s beginning to change as the US is producing more oil.

      So what about the so-called petro-dollar? Is this arrangement falling apart?

      The fundamental situation between the United States and Saudi Arabia and the Emirates is that the relationship was built by the Bushonian Cabal who refer to themselves as “neo-cons.” That relationship is now breaking down as the United States will become energy self-sufficient.

      Now many of the shale oil fracking companies are going out of business but these are the ones who are on the margin and need $65 – 70 per barrel oil to stay in business. They’re gone. The companies that are going to survive are the ones which largely have partnered with the major oil companies.

      In terms of the majors, Conoco is the largest player in fracking and Exxon is the second biggest. Now they have such a low cost because they have built a fracking infrastructure before anyone else did which they have already been able to expense out.

      Oil fracking production has been occurring in North Dakota in the Bakken field, which is where it started, since the 1980s. The problem was that the technology wasn’t there to make it profitable, but now the technology is. The Bakken field has produced oil for a century but it was all surface oil which is now gone. Now they have to frack into what’s called substrata or deeper oil which is what fracking is. You’re moving below the portion which represents the nearest crust, the hard layer in between about 10,000 feet. The oil above 10,000 feet is gone. That was the impetus to develop fracking technology. Anyone who’s got a production cost of less than $55 a barrel is going to stay in business. And despite the environmental concerns they’re going to stay in business.

      To get back to Greece, there are all these never-ending so-called "drop dates." Make the payment OR ELSE.

      June 30 is a real drop date because it’s when the so-called principal agreement between the European Union and the IMF with Greece expires. The money then stops altogether including the money that’s keeping the Greek banks in business because the Greeks have already tapped out the original $80 billion that the Bundesbank would lend to the Greek banks to keep them solvent. These were direct loans that were used to finance the Greeks’ ability to withdraw money from their own banks. It was the same situation in Cyprus.

      The Bundesbank has been making direct loans at a rate of about $1 billion a week at about 4% interest rate. Originally it was less but as the Greeks kept drawing out money because they couldn’t keep their own banks in business otherwise since the Greeks were smart enough to get their Euros out of the banks. Anybody with any brains or money is already out.

      In conclusion, the reason the markets haven’t reacted as violently as you might have thought they would is that there is still a majority belief in the markets that the Greeks won’t walk away. Otherwise the Euros would already be trading under par against the dollar.

      Greek Prime Minister Alexis Tsipras might even hold an election, so the fallout doesn’t land on his doorstep. The Greeks are going to bite the bullet and knuckle under to stay in the European Union in order to keep the flow of money going -- and they’re going to have to give in.

      That’s the odds on betting in markets…

    * AL MARTIN is an independent economic-political analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. As a former contributor to the Presidential Council of Economic Advisors, Al Martin is considered to be a source of independent analysis for financially sophisticated and market savvy investors.

After working as a broker on Wall Street, Al Martin was involved in the so-called "Iran Contra" Affair as a fundraiser for the Bush Cabal from the covert side of government aka the US Shadow Government.

His memoir, "The Conspirators: Secrets of an Iran Contra Insider," ( provides an unprecedented look at the frauds of the Bush Cabal during the Iran Contra era. His weekly column, "Behind the Scenes in the Beltway," is published weekly on Al Martin, which also publishes a bimonthly newsletter called "Whistleblower Gazette."

Al Martin's new website "Insider Intelligence" ( will provide a long term macro-view of world markets and how they are affected by backroom realpolitik.


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