The financial media has become so inured to the now almost ritual nature of Greece-Troika brinksmanship that a Bloomberg op-ed today called it Groundhog Day. But despite the deja vu of having Greece threaten default and somehow scrape together enough money to make its next payment date, or seeing Alex Tsipras say yet again that a deal is nigh while the creditors shake their heads, Greece looks unable to avoid crossing an event horizon by the end of June.
However, the current situation, as Lambert put it, is overly dynamic, so rather than go overly far into the weeds, let’s focus on the boundary conditions. The biggest change in dynamics is that the various participants in among the creditors aren’t fully aligned in what they are saying. Mind you, they appear more unified in the past in terms of taking a tough stance relative to Greece, but appear to be jockeying to avoid blame in the event of a Greek default.
Tsipras will not able to cross his “red lines” unless he forms a new coalition. Not only has the hard left of Syriza (about 1/3 of its representatives) made it clear that they won’t support Tsipras if he concedes to the Troika on issues like pension and labor market “reform,” but it also appears the hardliners are winning converts from party centrists. In a central committee vote over the weekend, Tsipras got 95 votes supporting his program, versus 75 for a plan from the so-called Left Platform that included leaving the Eurozone. Tsipras also said he would not accept “negative votes” from party members if he chinches a deal. That has a hollow sound if the Left Platform can argue that the particulars (like a compromise on pensions) is tantamount to crossing the famed red lines. And in the event that Tsipras were to come back with an agreement that the Left Plaform rejected, one can imagine that the Left Platform would seek a vote of no confidence. Since Tsipras’ continuing, not credible “a deal is nigh” talk is apparently meant to slow the ongoing bank run, one can imagine what a leadership crisis would do.
The IMF offering to give Greece a teeny bit of breathing room isn’t all that generous and may be about the blame game. Most media outlets are focusing on the €300 million payment due June 5. Varoufakis has cheerfully said that payment will be made, since Greece will have a deal done by then. All the creditors have taken exception to the latest barrage of statements by Greek officials that an agreement is at hand. And Varoufakis’ remark sounds an awful lot like an admission that Greece will default if it does not have the dough.
On the one hand, Merkel clearly and decisively backed that the IMF has to be satisfied before any funds are disbursed, making the agency the official enforcer. And Lagarde has been making tough noises, saying that the IMF is not about to do a quick an dirty deal, that if Greece defaults, it’s not eligible for further funding and even saying yesterday that a Grexit is possible, which is meant to signal that the IMF is not going to engage in heroics to prevent that outcome.
So what do we make of this seemingly generous offer by the IMF, as reported by the Financial Times?
The IMF confirmed on Thursday that Athens would be permitted to delay all its June repayments until the end of the month, removing the threat that Greece could default as soon as June 5, when €300m falls due.
At the same time, fund officials warned the G7 gathering that Athens was still far from a deal to secure much-needed rescue aid, as it had failed to deliver credible reform proposals….
William Murray, an IMF spokesman, said Greek officials had not asked for a “bundling” of its June payments, as permitted by a little-known rule introduced in the 1970s, but “they are entitled to do that if they want”.
Just what the market reaction to any such move by Greece would be is unclear. It has been invoked only once — by Zambia in the 1980s.
The idea of bundled payments was apparently mooted by Peterson Institute official Jacob Kirkegaard and has gotten some media play. And since there is an existing rule and precedent for its use, it would seem pretty much impossible for the IMF to deny Greece the use of this option. The fact that Greece has not asked suggests that Greece may not ask until the 11th hour, since despite Varoufakis’ coyness, it may yet again be able to scrape up the dough for this payment.
Note that Greece has a total of roughly €1.2 billion of payments that fall on June 12, 16, and 19. Thus those are the payments it seems almost certain to need to push back, even if it can get by on June 5.
In another Groundhog Day move, Tsipras is again trying to circumvent the Troika (most important, the IMF) and appeal to Merkel. From ekathimerini:
With negotiations between Greece and its creditors at a critical phase, Prime Minister Alexis Tsipras on Thursday sought the assistance of German Chancellor Angela Merkel and French President Francois Hollande in a teleconference call….
The desire in Athens to seek another intervention at the political level came as technical talks appear to be moving slowly despite claims by Greek officials on Wednesday that an agreement was all but in the bag….
Sources said that during a Euro Working Group teleconference on Thursday, Greece’s representative, Giorgos Houliarakis, was advised that unless Athens can reach an agreement with the institutions in the next few days there may not be enough time for eurozone parliaments to approve a deal before the end of June and ensure there is a disbursement. If Greece does not receive a new bailout tranche, it risks defaulting next month, when it has some 1.5 billion euros to pay back to the International Monetary Fund.
Notice that this timetable assumes that Greece asks the IMF for bundling. Also note we’ve assumed, as the February negotiations showed, that the timetable for parliamentary approvals can be compressed a bit, but there are still minimum times for tabling legislation (and some rounding up of votes may be required). Thus we’ve assumed the real drop-dead date falls in the week of June 15.
This call seems desperate given how decisively Merkel threw her support behind the IMF process. While Merkel is free to relent, the point of her message seemed to be to force Greece to make a better offer, and it has yet to supply one. The ekathimerini article effectively confirmed that Greece has not sent a new integrated proposal, and is going issue by issue:
Athens made a fresh proposal regarding new value-added tax rates at Thursday’s meeting of the Brussels Group with the aim of increasing revenues this year by 850 million euros, even though lenders are looking for a boost of 1.8 billion euros.
And remember, the VAT is one of the areas where the Greek government is touting progress.
The IMF appears to have thrown a spanner into the overall process. Recall that Lagarde has said that the IMF is not going to cut corners, and that they also expect a deal to include debt relief by the Eurozone lenders. The Eurozone does not seem to be at all on the same page. Per the Financial Times:
But the fund is also turning the screws on eurozone bailout lenders, saying they will need to offer some relief on existing rescue loans and provide new aid if any economic package is to be “sustainable”.
The G7 official said: “There has been no concrete discussion on the financing of the debt. There has been no other discussion other than acknowledging that this has to add up.”
Asked about possible future debt relief, Pierre Moscovici, European commissioner for economic affairs, indicated that he did not rule it out, once comprehensive reforms were in place, saying: “We’ll see later on what kind of further arrangements can be found.” He added: “We need to work day and night to find an agreement. No matter what the date we have little time. But an agreement is certainly possible.”
The Moscovici remark is tantamount to a rejection of the IMF position, that the debt reduction has to be agreed in concert with the IMF participating in the bailout. Moscovici is clearly saying that the reforms (the structural form package that is under discussion) comes first, and “later” as in separately, come “future arrangements” on the debt.
Realistically, there is no way the Eurozone lenders can agree to a debt reduction deal by the end of June even if one were tabled now. It’s complex and would be fraught if the IMF were to conclude that principal reductions were needed (as in further extensions of maturity and interest rate reductions wouldn’t give Greece enough relief). TGovernment accounting rules require principal writedowns to be recognized as losses. That is a third rail issue with taxpayers.
In reality, the IMF has been here before, as in demanded debt reduction and agreed to fund Greece without having a firm deal with the other lenders. So why is it raising the issue now?
One is to help shift blame for the obviously failed Greek program. But it may also be to assure its control of the negotiations by stymieing the idea of a partial bailout (that of the non-IMF lenders giving Greece funds for advancing a partial list of reforms).
The ECB and IMF don’t seem to be on the same page. The disconnect among the ECB, IMF and Eurogroup may reflect that they have yet to come to grips to how to deal with a Greek default. Notice how the ECB, or at least one ECB official, was leery of the idea of an impasse:
The European Central Bank warned that the Greek debt crisis could spread to other at-risk eurozone countries if Athens fails to reach a financing deal with its international creditors quickly, underscoring the high stakes involved in the negotiations.
Meanwhile, International Monetary Fund Director Christine Lagarde said in a German newspaper interview that a Greek exit from the euro is a possibility, contradicting comments earlier Thursday by ECB Vice President Vítor Constâncio that effectively ruled out such a scenario.
It’s not clear that Constâncio’s comments are definitive. Mario Draghi and other ECB governors have said they’d greatly prefer that Greece not default but they think they now have the tools to handle it. The ECB trying to increase pressure for a deal may be that the central bank is concerned that it will wind up being the heavy if the negotiations drag on. Greek banks are running out of eligible collateral for loans under the ELA. The run is sure to get worse if (as appears likely) the negotiations remain stalled as the IMF debt clock keeps ticking. Some estimates indicate suggest that Greek banks will run out of collateral as soon as mid-late July.
In a Blooomberg story today, Mohamed El-Erian describes how game theory predicts how a negotiation like this is certain to fail. The two parties already had a bad history with each other and are unable to get to a strategy of serial cooperation. Instead, when the counterparties oppose each other, a lose-lose outcome results. We’ll only see with the fullness of time who winds up being the bigger loser and what that price turns out to be.
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The ECB and IMF don’t seem to be on the sane page
Cute; you can say that again, and again, and again, till the groundhog dances.
Haha, fixed! Thanks.
they are not in the same page, and none of them is in a sane page… ☺ Nice typo, I love it. ☺
I liked it the first -Freudian Slip- time…
My understanding is that there is an automatic 30-day grace period in paying the IMF — just like renters have in paying their landlord, or mortgagees have with their bank.
So the IMF was simply acknowledging that yes, payments could be later than the nominal due date. At least, this is what the Greek negotiators believed. That probably is what has led them to avoid being pressured into a quick deal.
Re the “blame game,” I think the IMF knows that its economists protested the 2010 and 2012 bailouts, as they said even then that Greece couldn’t pay the sums demanded. But Strauss-Kahn gave in, because otherwise the IMF couldn’t have “been a player,” and also because he wanted to run for president of France, and most Greek bonds back then were owed to French banks.
So all this was to get Strauss-Kahn elected president of France! We live in a madhouse.
“We live in a madhouse.”
Welcome in my world, now we are two. Roughly seven billion to awake…. ;-)
Yes. For anyone interested, here is a good (but in an IMF-friendly ‘how-to-win-back-IMF’s-credibility-because-the-IMF-is-so-important’ way) recap of the background to the 2010 program for Greece with interviews and bibliography:
https://www.cigionline.org/sites/default/files/cigi_paper_no.61web.pdf
No, Lagarde said there is no grace period. This issue came up last month. However, a default with the IMF is not like a private sector default date, where the default is a hard line and leads immediately to bankruptcy (creditors have the right to accelerate all the debt payments due in the future). I believe it is a full month before Lagarde has to report the default to the IMF board, and certain events key off when she reports. However, Lagarde also stated last week that a default means no more funding from the IMF.
The Telegraph reported on April 15 that there was a “30 day grace period”. This was denied two days later by Lagarde herself:
http://www.worldbulletin.net/todays-news/157995/eu-no-grace-period-for-greek-debt-payments
I’m not sure I entirely buy the Strauss-Khan thesis. The IMF was asked to participate because the size of the bailouts all across Europe was large and the European authorities wanted/needed another deep pocket in the mix. The IMF was asked to come in. Given the US and EU membership on the board, I doubt he could have said no. He might also have seen pluses, agreed, but there were multiple forces at play.
Yves, Michael’s take is more accurate. For example, it was Papandreou who contacted the IMF at first, when nobody in the EZ wanted their involvement. Then, it was indeed Strauss-Khan who pressed for the IMF’s involvement while parts of the the EZ leadership remained skeptical at best and others outright hostile to this idea. This changed later because Merkel decided it would give them leverage in their dealings with the Greek government and the Commission but also because of the expertise the IMF would bring to the table in crafting the Program. I could post several links and there exists already a bibliography on this issue, but this pdf report by Paul Blustein is a very comprehensive account of the whys and hows with interviews and bibliography (warning: It is IMF friendly in a ‘How-the-IMF-can-win-back-its-credibility-to-play-its-important-role’ way):
https://www.cigionline.org/sites/default/files/cigi_paper_no.61web.pdf
Between a rock and a hard place, both sides; but Greece still has the better leverage – unfortunately. Tsipras’ mandate is limted to fleece the creditors, and he has done very well. ELA up to EUR 80 bn; Target at around EUR 115 bn, a cute additional 100-150 bn since Jan 2015. Increases the official sector debt to be written off in case of default to more than EUR 500 – 600bn (assuming we do not know all about what has been going on behind our backs). This is real money none of the Brussels rescue fanatics can admit to have lost (or the IMF), apart from the ramifications on the overly unstable global financial system, the geopolitical risks re Russia, but we’ve been there too often. There is no common ground other than “extend and pretend”, and this is increasingly hard to hide from the paying public.
But the real decision drivers, to my mind, are different; and more opaque: one is Angie’s first and only interest, her own power; the unhinged balance between Paris and Berlin (Paris is quiet because they are next in line for a bailout), the messy Washington Berlin balance, to name a few, the list is certainly not complete. And given the lack of transparceny, it is futile to speculate any more.
However, Welt summed it up quite nicely – Angie needs a face saving deal maintaining the delusion saving the Greeks is not a burden to the German taxpayer and Tsipras his millions.
However, [the second] – they are running ouf of patsy’s willing to write more cheques/present gifts’ to Athens.
Something’s gotta give. Soon.
My main concern – as both sides are deluded about reality, preparation will be at best patchy, and thus very probable to cause some very unintended consequences.
http://www.welt.de/wirtschaft/article141406419/Hohe-Rechnung-aus-Athen-tut-Merkel-richtig-weh.html
[google translate may do no justice to the article, the real meaning is hidden carefully – as not to annoy the chancellery – FAZ did this weeks ago and has/was all but shut up on the topic.]
@NoOne re. Tsipras “fleecing” the creditors …
I think you’ve got the blame pointing the wrong way here. Maybe you came into this movie after intermission, but as I understand it …
1. Greece qualified to enter the Eurozone only thanks to coaching in cooking the books from Goldman Sachs. Now try and tell me with a straight face that nobody but Goldman and the neo-liberal sell-out Greek oligarchy knew about this fiddle.
2. In 2010 or thereabout, when the first Greek repayment crisis hit the fan …
a. The sold-out Greek oligarchy agreed to roll their onerous debt over instead of — as long-established law would permit — impose haircuts or default on the onerous creditors.
b. The Eurozone governments generously transferred the onerous debts formerly owed their TBTF banks to their taxpayers, voluntarily granting the banks 100% of their imaginarily forecast profits and letting their “C-suite” malefactors walk free with the corresponding financial rewards (just like their counterparts across the Atlantic).
3. Now the real culprits in this game — the neoliberal Eurogroup bureaucrats, the Bundesbank’s idealogues, and all the other sold-out EU “statesmen” left and right who’ve substituted Euro-groupthink for proven monetary sovereignty alternatives — refuse to allow ANY effective stimulative monetary policy (e.g., “helicoptor money”), anywhere in the EU, guaranteeing stasis in the best-off nations, massive youth unemployment in most, and a worse-than-great-depression economy in Greece.
The only sin that Tsipris, Varoufakis, and SYRZIA have committed is a refusal (at least so far) to totally buy into the EU’s goose-stepping march into bottomless austerity for the 99%.
helicopter money is ok for NORTHERN europe only…an honest audit of the manner the landesbanks and other local controlled german institutions hand out money with grey collateral would make the chinese banking system look swiss…the german one is more like swiss cheese…
NO ONE ever qualified to properly enter the EU mechanism…mind you…hellenes have found a way to make a mess of what should be a thriving economy…and no, I do not see this magical debt as being a huge problem…default does not equal 100% in losses…and the idea that these “low rates” are a short term situation globally is nonsense…the high rates that were put into play by Volcker going from Carter to Reagan was to create the environment for multi state banking…if you didn’t get the memo, you need to move to a different zip code and get better offering documents.
The rate hike and destabilization it brought to the USA was no different than the wink and nod for libor…it is what it is…in hong kong, citbank is offering 2% interest rate on home loans with a CAP of 5% (meaning a 3% increase cap)…would that not be nice for american homeowners…
helping the greeks will become a burden only because this whole game is about talking down the euro…the german economy has saved half a TRILLION dollars these last 5 years, so the “German People” and taxpayers are currently at “A PROFIT” for all the torture the greek people have allowed to be hoisted upon them…if the German government TOTALLY wrote off the debt they hold(60 billion), they would be left with about a 400 billion dollar profit from the antics of these last 5 years…so this “oh my, poor german taxpayers” nonsense is just that…nonsense…and it is sad the german people do not see thru MUTI’s charade…
” they would be left with about a 400 billion dollar profit from the antics of these last 5 years”.
Do you have a source for that figure?
From what I have read and heard, (this is often being mentioned in the German media), Germany has been profiting from interest on its Greek loans to the tune of 600 million.
So where does the rest of the 399,4 billion profit that you mention come from?
Here is Bloomberg:
http://www.bloomberg.com/news/articles/2012-05-23/merkel-should-know-her-country-has-been-bailed-out-too
Trust the German media at your own peril.
“Trust the German media at your own peril.”
While you took the time to post this article, you end with a sentence that sounds again smug and condescending. I am of the opinion that everyone should clean their own house first, and have not found the US MSM , just different. As I mentioned a few days ago, most of editors/chief editors of middle to right German publications belong to transatlantic ‘by invitation only’ organizations, and these connections go back to the very beginning of the BRD. Marion Graefin Doenhoff, the well-respected publisher of the “Zeit”, put in place by the Americans. In the aftermath of the US banking crisis, it was really odd that the
better publications in Germany never criticize anything that comes from the US, at least not in depth. Ask yourself also how the US profits from keeping a thumb on its allies.
What is different in Germany is that there are many open panel discussions at prime time, where not everyone is a paid shill. One guest who is often present is member of parliament of the left party Ms. Wagenknecht. And she makes a distinction how the German federal household profited (about 600 million in interest from Greece loans so far), and how the private banks profited (through Merkel’s weasely shenanigans).
No one disputes that private “German” banks were bailed out. It was said that “Germany” profited to the tune of 400 bn. Seems some people use “Germany”, German private banks, German Federal household and Bundesbank interchangeably.
That was from me, don’t know why it appeared with a user name “undefined”.
My tone was in accordance with the tone in your question to alex morfesis:
Secondly, at the height of the credit bubble, the German banks’ exposure was about 37% of its GDP at the peak in Q1 2008. Interesting that you don’t seem to understand the sums the German government would have to pay to save the banking system, even though the Bloomberg article explains the situation pretty well, including the fact that all that risk is now on all European taxpayrs’ backs with Germany being liable for only 28% of it.
Thirdly, it wouldn’t be so difficult to make a google search yourself to find out how much Germany, the country, has benefited from the crisis in other ways too. There was a documentary from the ARD channel which I can’t find online which if I remember well calculated the profits at over 140 billion. But there is also the profit in interest payments on Germany’s government debt. That alone, according to the German finance ministry, means Germany had profited from the euro crisis to the tune of 41 billion euros until only 2013, and now we have had negative yields for a while so the number is definitely substantially higher:
http://www.spiegel.de/international/europe/germany-profiting-from-euro-crisis-through-low-interest-rates-a-917296.html
I speak German and have many German friends and it is very frustrating to deal with their cognitive dissonance. They don’t like the facts about the German banks and are quick to point out that the banks are not the German people but then they immediately default to the collective responsibility nonsense for all Greeks “because they voted in those governments”. If we are going to play the collective guilt card, as German media and politicians so happily do along with too many German citizens, then this is going to work both ways. Merkel’s game saving the banks stealthily after allowing them to run amok with lax oversight will, ultimately, be the failing of the German people who allowed successive governments they elected to do this and then pass the buck to all European taxpayers. Until I see you and my German friends march to Frankfurt for justice and also march outside propaganda megaphones like Bild for respect to the truth, this toxic nationalistic garbage will continue to poison Europe. Complaining about it when it hurts anyone’s feelings on either side will not change a thing, especially since the South – which has been painted with clearly racist stereotypes all along – will rightly point out that it wasn’t them who started this.
All this shows that the idea of a United Europe is nonsense. Greeks and Germans do not belong together. The less they have to do with one another the better they will get along.
Tsipras isn’t fleecing the Troika, he’s allowing private bondholders and the Greek wealthy to fleece the Troika. Greece isn’t getting anything right now and if it does it’ll just got to various creditors. For the most part a deal will just allow the Troika to extend-and-pretend on its Greek loans = the Troika money will be used to make payments on Troika debt. There will be some redistribution with the current proposals IIRC, with EU money paying the IMF.
Probably everybody knows that everybody is fucked. The game now is to try to escape blame and shift it to somebody else. Tsipras needs to be able to tell the Greek people that drachmatization is the fault of the Nazi Germans and Merkel needs to be able to tell the German taxpayers that they’re screwed because of the perfidious Greeks.
Whilst I have carefully avoided to assign blame – at least I thought so – you’ve dodged the facts nicely.
Firstly, the Greek elites and the bailout fanatics have colluded from the beginning, and it always needed two to tango – hence the blame can be split evenly 50:50. So there is no gain from the blame game. Glad we are over this diversion.
Secondly, the Greek elites are living very nicely ( and Tsipras and Varoufakis are clearly a part of that, have you seen the Paris Match home story?) have fleeced their own people for ages, and expected the EU for gifts to disguise the failed state status of Greece – but as an European taxpayer, who is footing the bill, you understand I do no like to pay – indirectly for the good life of the Greek elites, don’t you? And many in the rest of Europe are much poorer than the average Greeks, never mind the elite? Why should they gift their hard-earned money? – and we are talking gifts.
Thirdly, I believe Keynes would spin in his grave if would need to listen for a second to the dribble of “helicopter money” proposed by Varoufakis and others. Sadly he is not around to voice his concerns. And “investment seed money” might help under the right conditions, but Greece – I am sorry to say – is too corrupt for this, there is no working land registry or property rights – no investment will work before the Aegean stable of rent-seeking oligarch is cleared for good. And as most of the populace is “aligned” with one or the other family, nothing will happen unless and until any outside gifts are stopped. Much easier to exisit on OPM – “other peoples money”, n’est-ce pas?
Fourthly, I have not seen any real reform initiative from Syriza that would deal with the issues above, other than crying for more euros – and the Greek populace knows why they wouldn’t trust Syriza or any other part of their “elites” to manage their own currency?
Fifthly, if Syriza would be as saintly as you try to portray them, they would be honest about the whole thing, default, and try to rebuild – but I only see “we want to keep our cake and eat it at the same time” – sorry – the sob story is too obvious even for cursory scrutiny.
The Greek elites are running an rent-seeking extortion racket on Greece/ the European taxpayer and Syriza is doing her very best to continue – or show me proof to the contrary.
I understand your argument, but I think dodging the “blame game” is where our reasoning first and decisively diverges. In a game of mutual fraud between a rich and powerful actor and a poor and ineffectual one, I suggest that the former (having more and more comfortable options) is the most culpable party and this mitigates the latter’s accountability for their mutual injuries.
The Eurozone knowingly created this mess, albeit with elite Greek collaboration, and the EU refuses to revise the (in)stability and (non)growth pact that blocks any recourse to the Keynesian solutions that the whole EU needs, including the German working class, post-Hartz IV. If the EU and the Eurozone want to avoid Graccident while maintaining the (in)stability and (non)growth pact unchanged, then they need to accommodate the various partial solutions tabled by Syriza, notwithstanding the latter’s apparently inept negotiation strategy(?). As the unsurpassed master of pretend and extend, Brussels can find some way apply lipstick to the resulting pig so as to keep the CDU/CSU from melting down.
Even if tackled with sincere vigor, the Greek failings you recite will take years (if ever) to remedy, and — aside from what I crucially take to be Greece’s lesser culpability — are probably the strongest argument that the Eurozone should engineer a graceful and humane Grexit. There’s no lasting way to work around these national flaws within a single monetary union.
As for Syriza and its leaders being part of the same extortionate oligarchy as their predecessors, I think that is a stretch, even if Yannis and Danae do indeed look fetching and worldly sitting on a Paris terrace. I can’t think of an effective modern national political leader of any persuasion (other than perhaps Lech Walesa) who does not have bourgeois roots.
Even if tackled with sincere vigor, the Greek failings you recite will take years (if ever) to remedy, and — aside from what I crucially take to be Greece’s lesser culpability — are probably the strongest argument that the Eurozone should engineer a graceful and humane Grexit. There’s no lasting way to work around these national flaws within a single monetary union.
I am surprised that you by these national flaws as true.
That should be
I am surprised that you see these national flaws as true.
@ BillC
1. My reply was to intended to BIllC, apologies for the confusion. I hit the reply button, and I hope this is appearing as a reply as well.
2. I still do not think any blame game will help – (it never has in the past) – and certainly French banks, mostly and Germans have been saved in the first Greek bailout as well as the then Greek government. But as you said, the Greek elites colluded, prefering more gifts to reforming their own country. And I do not see any difference why the 99% of Northern Europe need to finance the Greek extortion racket any longer. And thus I do not see any reason, based on Keynes or otherwise – for the rest of Europe to gift enormous amounts of money to Greece on an ongoing basis – as there is little to no willingness to reform. Never mind the fact, that ongoing gifts will be detrimental to any ongoing reform incentive.
3. I think the Greeks should never been led in, never mind the euro should have never been created, but that is not what we are dealing with. I agree Grexit is inevitable (because it will take rather decades than years to change Greece), and I think the will to change has to come from the Greek people themselves, not as an outside imposition. But as long as “aid” is available, any serious reform will be impossible. Unfortunately.
4. I am not privy to the extent internal CDU/CSU strife against further bailouts; the biggest risk at this very moment seems to be Gabriel trying to take advantage of the situation. However, my imagination fails me – my original point – on how to frame a package where “extend and pretend” – i.e. gifts without reform – continues without the German populace rebelling on the one side, and Spain, France etc. asking for similar loose conditions – Rajoy (el pais) made a pass requesting euro bonds beginning of the week. In the end, it is about the euro not working, whether for Greece or Germany, France or anybody else. It is just a question of how quickly we can out of it. What we are watching is the “musical chair” game – everybody is jockeying for position for the day after.
What “Greek extortion racket”? Your first post was shot down pretty quickly, now you admit it was the German and French banks that were saved (yet you add “the Greek government”, tell that to PASOK which went from 44% to 6%!) but you don’t think the blame game is helpful – only to default back to the “Greek extortion racket”?
It seems you need to do a little reading on cognitive dissonance. If you want to get mad, look no further than Frankfurt and the German political class protecting Frankfurt’s interests at the expense of e v e r y taxpayer in the EZ. Kicking the can down the road only meant that the costs for their recklessness would be paid a few years later, by all European taxpayers, with Greeks as scapegoats so that German and French banks could be made whole in the meantime. So what gifts to Greece are you talking about? Are you aware that 92% of the money received by Greece have gone immediately back to, you guessed it, first the banks and then back to the Public sector that gave money to Greece to make the banks whole in the first place?
Merkel played a smart but dangerous game while screwing all European taxpayers for Frankfurt’s sins. Too bad too many Northeners weren’t paying attention and would on the one hand rather avoid the blame game when it comes to their banks but on the other hand won’t hesitate to blame it all on an imaginary “Greek extortion racket” and imaginary gifts of “enormous amounts of money”.
So check this racket out, the one that actually did happen, as explained by Bloomberg:
Now you might want to consult this interesting article. Please accept this as a true and very necessary gift:
http://en.wikipedia.org/wiki/Cognitive_dissonance
Just being outvoted by the majority does not make you wrong! :-) And sometimes the medicine recommended to change your discussion partner’s mind is best taken yourself.
Greece was running a huge budget deficit before the curtain came down in 2010; yep – stupid banks of the Northern European kind lend the money, but the Greeks took it, well knowing they would never repay it. And the French banks were even more exposed than the Germans – and this puzzles me – why is the blame only allocated to “the Germans” – if there were so many others to fault. And who will pay the bill for the entire stupidity – and we all should defer till we know – is still unclear. Greece will default sooner, rather than later, or has already – on most of the EUR 500-600 bn euros outstanding – with a high haircut. And while there is a notional “liability” for all the losses incurred at the ECB, as in the case of Greece – where do you think will the Italians/French find the 40bn euros they would have to pay – other than Draghi printing? There ist too much uncollectible debt in the system, and more “helicopter money” will make it even worse – because – the kind the part Keynsian “more debt” policy caused the trouble in the first place.
However, the real issue is the euro has never worked, a currency union between this economically diverse areas could never have worked, never mind the design flaws.
We need a golden bridge to finish it, otherwise the euro’s real purposes ” peace and prosperity” are going to turn into the exact opposite, For everyone, regardless of the blame game.
How can any normal person keep track of all these Byzantine and opaque financial arrangements? At any rate there is zero trust between the Greeks and the Germans.
decades? – that’s wildly optimistic.
This looks like a major reading comprehension fail. Please tell show exactly where I depict Syriza or the Greeks as saintly. You’ll come up empty-handed. This is your projection and your bias, not mine.
I have clearly pointed out, repeatedly over my history of reporting on the Greek and Eurozone mess that Germany wants contradictory things, namely. to run large trade surpluses and not finance their trade partners. That will break the Eurozone if they don’t relent. However, criticizing Germany and the Northern bloc for running destructive, elite-serving economic policies and bailing out French and German banks via Greece and other periphery countries is not tantamount to making Greece into good guys. Most NC readers are upset with me for calling out how Syriza has played its weak hand in the negotiations badly and for failing to act as a cheerleader/promoter for the Greek position.
This is not about picking sides. This is about chronicling how a major political and economic power struggle is playing out and what the bigger implications are. Now Merkel may blink, since she’s worried about her legacy. But if the ECB and IMF can convince her that a Greek default won’t lead to a Grexit (and remember, Greece itself does not want a Grexit), the odds favor her staying her current hardline course.
Yves, I don’t think NoOne accused you of calling the Greeks “saintly.” Although his reply was top-level, i believe it was intended as a response to my first reply to him, the last paragraph of which could, with a bit of a stretch, be so described. And in that remark on “[Syrzia’s] only sin,” I managed to ignore several months of your unfavorable assessment of their negotiation (non?) strategy. Sorry.
Got it. Yes, that makes sense.
Can someone explain to me the Greek peoples sins?
They committed the worst sort of sin…they are deadbeat borrowers!
Of course, what gets airbrushed out of the picture is that lenders are culpable for making bad/stupid loans, Greece’s situation was made vastly worse by the banks’ “blow up the global economy for fun and profit” exercise, and that the 2010 and 2012 bailouts were to the benefits of lots of parties but not ordinary Greek citizens.
Yves
How could they ever pay debt when what caused them to take on debt to help things function was the very thing that had been destroying your economy i.e the E.U and Eurozone rules.
I don’t see how Greek people are sinning by this other than been ignorant about how those institutions worked and that they should not have joined under the current rules. Ignorance of political and economic issues been something that the majority of citizens in every country seem to suffer from.
It is not the Greeks who are punching down bleeding the northern bloc people of money, helping destroy their economies and causing death to its citizens in their countries all the while drawing them with disparaging and racists remarks. So I don’t see how someone would be against the Greek position if having to pick sides.
I think you missed my irony.
True, the post was intended as a reply. And I am not sure what “the Germans” want at this stage. Please remember, the euro was a French idea and plan – yep, Kohl agreed to it to get unification – but there is rumor the French blackmailed him – I think even M. Feldstein said so in an old project syndicate post.
And the Greeks are not getting vendor-financing, they are getting gifts. Period.
The eurozone should be broken, sooner rather than later, and Germany leaving first seems the best way to me – because the euro impoverishes everybody. I think it is irresponsible to waste an entire generation of young people in the periph, as it is currently happening.
However, the losses to be admitted and allocated ! are so huge, no politician will do it voluntarily. Thus Merkel will blink this time, but the price will be (too?) high.
The whole thing reminds me of this famous scene in “Downfall”, where Hitler is moving armies he no longer has……
Given your historical take on the Euro crisis, you might find Bill Mitchell’s latest book (available as an e-book) of interest. I’ve only read the free preview of Chapter 1 and am not qualified to judge its completeness or accuracy, but his treatment appears to be thorough and his analysis convincing. OTOH, with me (and probably most of the NC commentariat), he’s preaching to the choir.
Thanks for the link, I read most of the introduction; his thinking seems to be very similar to what Varoufakis is proclaiming; did they possibly work together in the past?
However, coming from a completely different – and alien to the Keynes dominated anglo-saxon thinking – background – I have the following, quick comment:
1. The groupthink idea appears to be very close to how I see what is happening – and despair about, however:
2. I do not think that more debt/gifts will change anything in the periph or elsewhere, unless the “right” institutional framework – what we roughly call ordoliberalism – is created first. Basically, this assumes markets do fail – and should be allowed to, within reason. The thinking behind created the post-war economic “miracle” in Germany, and seems to an element to the prosperity in the Nordic countries as well.
3. Being taught that – at least – the basic Keynesian approach does not work – as to, oversimplify for brevity, it assumes that the indivials ignore inflation at their detriment – which we all know, does not happen in the real world, I do not see how all the post-Keynes theory is to work better. [but I know to little about it to judge]
4. From my point of view – the crucial issue – and I do not profess to have a working solution – is the intersection between the need of ever changing relative prices – and the time delays/processing/ new relative price finding – roughly transaction cost, but probably more – and the functionality of fixed currency units, which would need to change their – relative – value as well. None of the current frameworks allows this, quite the opposite, and that is without looking at the difficulty to do this in a mulliperiod model on a value preserving basis – i.e. how does is the value determined of ressource transfer into future periods. To complicate matter, humans react irrational more often than rational – Kahneman et. al – and it gets really confusing.
5. And again, instead of the blame game we all should concentrate how to get a) out of the mess and b) how to create an incentive bases system that allows the necessary price adjustments – without destroying property rights, democracy and all privacy (e.g abolishion of cash to more central control).
6. Because that is were I agree with Mitchell’s outline – the current TINA approach will not lead to peace and prosperity, quite the opposite. But uncontrolled “deficit spending” – without the reversal – didn’t Keynes say something about “saving in good times”, which never seems to happen in reality? – will not help either.
New thinking is required – on all sides.
To your last point, Keynes said that when the UK was under the gold standard. Different conditions that necessitated running balanced budgets over time.
And the Greeks are not getting vendor-financing, they are getting gifts. Period.
Just not true. If one wants to characterize it as a Greece/Germany thing, since the Greeks spend what they get, the Germans get what they spend. No reason that this cannot be a stable, sustainable, “good Euro”, mutually beneficial “vendor financing” scheme. That is how individual countries are run internally, normally – and this is not a “gift” or “fiscal transfer” of the rich to the poor.
Today’s Euro does impoverish everyone, and you are right about the Euro’s history and France foisting it on a dissatisfied Germany. Since Germany imposes the greatest stresses on the Euro (by violating trade rules), its departure would be the most immediately beneficial to the continent. But the fundamental problem is the architecture of the Euro, which would wreak havoc wherever such a design were imposed, no matter if it were a single homogeneous country or a diverse continent.
92% of the bailout money was to first make the Northern banks whole and then to pay back the Official sector for bailing out their banks stealthily, again with European taxpayer money.
The only actual “gifts” Greece received were fantastical extend and pretend programs that broke several world records:
1) Recession (25%)
2) Years in recession (6+)
3) Unemployment (27%)
4) Youth unemployment (over 60%).
So while we are at it and as seeing that you like to play the German victimhood card, care to tell us how much Germany has benefited from the crisis, the Euro and her illegal surpluses?
The national balance sheet has benefited, but not Germany as such, because not just the Kiel Kanal is crumbling. Good link. My beef with the German media is that the lack of spending by the government is never acknowledged, and Schaeuble’s fetish of the “black zero” is never questioned – everyone averts the eyes from the elephant under the rug.
Yves could you comment on the article by Hans-Werner Sinn, who serves on the German economy ministry’s Advisory Council, in Project Syndicate. He seems to believe that Varoufakis has been playing a very smart strategic game
Thanks
Sinn’s analysis is based on the assumption that the alternative is a deal v. Grexit.
Greece does not want a Grexit. The only party that could force one is the ECB, and in the past (Ireland and Cyprus), when they played the heavy (as in threatened to blow up the banking system), the government caved.
Thus Greece is not threatening a Grexit with a deal failure, it is threatening a default, which looks to be a more manageable outcome. The ECB has said a default will not change its view of the solvency of Greek banks, since they don’t hold much Greek government debt. So a default alone will not trigger recognition of Target2 losses.
Also see this game theory analysis of how this game deviates from the classic game of chicken:
http://karlstrobl.com/2015/05/28/varoufakis-and-game-theory/
but Greece – I am sorry to say – is too corrupt for this, there is no working land registry or property rights – no investment will work before the Aegean stable of rent-seeking oligarch is cleared for good. And as most of the populace is “aligned” with one or the other family, nothing will happen unless and until any outside gifts are stopped. Much easier to exisit on OPM – “other peoples money”, n’est-ce pas?
Seriously No one in particular, German native speaker whatever you call your self today.
You are simply a racists pure and simple
You know nothing of the Greek people or of Greece. You have been told repeated times that Greece does have a land registry and property rights other wise how would I and any other Greek in or out of the country know what they own. Yet you still want to arrogantly pontificate and generalize Greece and Greeks like you know how they live and what it is like to be one.
And as most of the populace is “aligned” with one or the other family
I can only simply laugh at how you came up with this.
I have not written this paragraph, and I have not used the name “No one in particular”. Could you please withdraw or change this comment.
https://www.project-syndicate.org/commentary/varoufakis-ecb-grexit-threat-by-hans-werner-sinn-2015-05
Another way to see things…..:-)
Hans-Werner Sinn says:
Most of these euros are owned by Greek companies or Greek citizens. They are now safe abroad and may thus become a very useful prop for the exchange rate of a “new drachma” in case Greece is forced out of the eurozone. How? Well, the Greek authorities could then “encourage” the repatriation of said euros by threatening to tax heavily its owners unless they repatriate the funds.
Sinn´s analysis is thus correct when he says that encouraging massive capital flight (instead of trying to block it with self-defeating capital controls) is the correct strategy for any Greek government that takes into due account the possibility that the country may one cease to be a member of the eurozone.
globaleconomicanalysis.blogspot.de/2015/05/april-greek-capital-flight-5-billion.html?
this source says EUR 115 bn…. not sure what is right….
Greece does not want to leave the Eurozone and no one wants to force it out. A default in the Eurozone is the outcome if Greece and the creditors do not reach a deal.
See this comment on the Target2 issue:
http://www.nakedcapitalism.com/2015/05/greece-an-endgame-finally-in-sight.html#comment-2450080
[Lambert and Yves, apologies for the long post but it is essential reading to dispel the same old myths that persist on some readers’ minds]
The only way to see things is the way they happened. Since the propaganda machine has been running amok in Germany and elsewhere for years now, try to get your facts straight first.
1) What happened and who was bailed out (hint: it wasn’t Greece but Frankfurt and Paris):
http://www.bloomberg.com/news/articles/2012-05-23/merkel-should-know-her-country-has-been-bailed-out-too
2) More detail on the above with the actual peaks (higher than Bloomberg’s numbers) and lots of astonishing graphs:
http://seekingalpha.com/article/1072841-exit-of-the-periphery-from-the-eurozone-is-inevitable
3) The IMF internal report linked to the WSJ (2013). Lots of juicy stuff, here is a taste:
4) Another leak to the WSJ with “excerpts from confidential International Monetary Fund documents, including board meeting minutes, staff briefs and board-member comments [that] reveal considerable disagreement at the May 9, 2010 meeting at which the IMF board approved Greece’s first bailout.”:
http://blogs.wsj.com/economics/2013/10/07/imf-document-excerpts-disagreements-revealed/
My sympathies.
Point 3 should read:
3) The IMF internal report leaked to the WSJ (2013)
I also forgot to post the link:
http://www.wsj.com/articles/SB10001424127887324299104578527202781667088
Apologies.
Sinn says that Varoufakis is threatening a Grexit. That is inaccurate. Varoufakis has REPEATEDLY and forcefully said he regards that as a disaster. And Tsipras has no mandate to go there either. His plan that he got approved by the Syriza central committee over the weekend was for Greece to stay in the Eurozone. Most Greek polls show the public still prefers to stay in the Eurozone.
Also Sinn ignores that the fight is over structural reforms, and the biggest outtrade is over pensions. ekathimerini reported that Greece was preparing a plan to offer some token reforms, as in tightening up on early retirement, presumably in the hope that this would give the Eurzone countries enough of a fig leaf. But Greece is perceived to have more generous pensions than the rest of the Eurozone. They do have the highest % of pension spending relative to GDP of any Eurozone member. But that is in big part due to the collapse of GDP plus Greece having an aged population. But the “Greeks have lavish pensions” myth is fed by some features that critics can point to, like Greece having a retirement age of 65 while Germany has moved to 67. It will be very hard for European pols to sign up for another Greek bailout if Greece does not give on pensions, and as indicated above and in other posts, the Left Platform won’t let Syriza do that. This looks to me to be an insurmountable impasse, despite the big reasons for the Eurozone creditors to want to avoid Target2 losses.
Also I don’t buy that not imposing capital controls was part of Greece’s strategy to make matters worse for the ECB. In fact, the ECB early on was stoking the bank run, as we chronicled.
Greece appeared to believe at the outset it could negotiate in good faith with its creditors. Imposing capital controls would arguably be a hostile move, as in signaling a willingness to exit, and would probably have rattled voters. Syriza’s strategy appears to have been to try to cultivate as much domestic support as possible (approval ratings skyrocketed early on) out of the belief that domestic support would help them in the negotiations,. It turns out the creditors were not moved.
The Greek pension “red line” is not about retirement age which the majority of Greek workers have no problem extending, particularly now.
The red line concerns the demand that pensions be reduced by 30% immediately. The average greek pension is – (after 11 previous reductions, including the elimination of all second and third pensions, and supplementary pensions, i.e. disability etc.) – 600 euros/month, i.e. half of the EU poverty level. This average is distorted by the 20% of extremely high pensions, with the true average in population terms being 300-400 EUR/month and some as low as 150 EUR/month. Thus a 30% reduction would mean that the average would drop to 410 EUR/month, the norm to 210-280 EUR/month and the smallest (150 EUR) to 105 EUR/month.
This would be bad enough in terms of living costs per person, since living costs are higher than Germany’s, and Greece – unlike Germany – has no welfare system. However, after 6 years of Troika dictated economic collapse, 42% of Greek families (as many as 4 generations) are presently supported by ONE old age pension. Cut that pension and you have catastrophe. THIS is the red line: social collapse.
The funny thing is that in Spain they are also delaying retirement age, but with unemployments on top of 20% it is virtually impossible to find a job with more than, say, 45 years, so those losing a job when mature are subject to a long period of instability, trying to pay money to the system to secure a minimally reasonable pension for whatever means you can get some money. At the same time, young people arrive to their 40s without having paid to the Social Security, which makes it almost impossible that they will ever get a pension… It does not look like a very intelligent idea. They should instead reduce unemployment so that money flows again into the Social Security system, and delaying retirement while the youth unemployment soars will not cut it.
What a mainstream interpretation of events. In reality we’re about to see a massive economic experiment in Greece with currency proposals that have been floated on this very site. This will probably provide a blueprint for the gradual dissolution of the toxic monetary union and should return the Greek people to employment. Meanwhile the Greeks can get to work negotiating with the ECB for an eventual managed exit with the backing of the German Finance Ministry.
Or you could just listen to Bloomberg and the Financial Times and assume that the euro is a holy institution and this new beginning will end in tears. Yawn. The world is changing. Despite what the financial press would have you believe (because it interferes with their readers’ ability to make portfolio decisions), sometimes change is a good thing.
Revolutions leave ordinary people worse off. I see no point in romanticizing them. And we’ve said repeatedly that Greece has only bad choices. They continue under austerity (even if they do get a deal, they’ll be required to meet primary surplus targets, even Varoufakis is willing to agree to that) or they’ll take another big leg down in the event of a default or Grexit. Do you seriously think an society that is already in the midst of a depression and seeing all of its talented youth leave can take another body blow? The hospitals are already on the verge of collapse and Greece has over a billion euros pst due in payments to pharmaceutical companies. What happens in the event of a Grexit when Greece can’t get medicines? It already has shortages.
Moreover, as we also have discussed, Greece is not going to get the export benefit you assume it will get. Greece has already cut labor costs by 15%, which is tantamount to a devaluation. Yet it didn’t get anything approaching the export gains the economic models said it should have. Other analyses have looked at Greece’s export mix and have similarly concluded depreciating its currency won’t do as much as you’d assume because it had a poor mix of exports.
Greece’s debt is now almost entirely English law debt so the Greek government cannot redenominate it to drachma.
See these articles debunking the idea that currency devaluation is a magic bullet for Greece:
http://www.voxeu.org/article/why-devaluation-isn-t-viable-option-greece-insights-small-open-economy
http://www.voxeu.org/article/internal-devaluations-eurozone-mismeasured-and-misguided-argument
http://www.cnbc.com/id/102474866
We have said, repeatedly, that the Eurozone won’t survive if Germany won’t change course. But having the Eurozone break up, as much as that looks inevitable, is not going to be a good thing. Among the many reasons is that economic stress leads people to prefer more right wing leaders. The fascists and their close cousins would get a big tailwind from a Eurozone dissolution.
Revolutions usually are bad for almost everybody, but sometimes they do benefit common people. The French Revolution was followed by a substantial shift of income from landowners to workers and peasants which was largely reversed in the Bourbon Restoration. Greece, with the insane treaty obligations and all the off-the-books elite wealth, is probably a good candidate for a net-benefit revolution.
To be fair, I don’t see a revolt in Greece’s future because the revolutionary positions have political representation in the left front within Syriza. If things get to the point where a revolution is possible they will be able to win power in an election.
Yes, revolutions OFTEN benefit common people because the cake is as result more evenly divided, so even if the cake gets smaller, those who only got crumbs or nothing get something after it.
However what we are seeing these last decades is rather “revolutionary transitions” where possible, namely the Bolivarians. Ecuador for example is doing very well (even after being classed as CCC by lenders) and is even financing the return of emigrants, but even in those less outstanding countries like Venezuela, Nicaragua, Bolivia or several Caricom states affiliated with Bolivarian schemes, the situation can generally be described as greatly improved at least for the working class masses.
I presume that, if Greece declares bankruptcy and follows a path of sovereign socialism, it will also do reasonably well (for the masses, of course), as long as the NATO/IMF unavoidable siege is not too violent.
The French Revolution ushered in escalation violence in Paris for years until the country wanted a strong man, Napoleon. The Bourbons came back (the Restoration) and the governments kept turning over every 20 years or so (Second Empire) until the Third Republic in 1870. It took France nearly 100 years to get to a stable democracy.
And read up on the daily life during the French Revolution, as well as the domestic costs of Napoleon’s conquest. It’s hard to see much evidence that the lot of the average person improved during the Revolution or the Empire:
http://www.h-france.net/rude/rude%20volume%20ii/McPhee%20Final%20Version.pdf
Revolutions have their cycles, it’d be naive to believe that they solve things once and forever. However France and all Europe was radically changed by the French Revolution and it’d be equally naive to believe otherwise. I’m not sure how it works in the Anglo world but this side of the Channel, the Contemporary Age, our Age, begins in 1789. We could well even use the French Revolutionary calendar, much the same we do with the French Revolutionary weights and measures (now called International System or “metric”), but the reaction ended that part. Similarly we have stopped wearing culottes and began using pantaloons instead, even the bourgeois tie is French Revolutionary fashion development. Nobody can dare to minimize the importance of the French or even the Russian revolution in our reality (or do you think that the welfare state and Keynesianism have any other reason to exist than act as a balance against the USSR by imitating some of its conquests in a controlled manner?), even if they have later gone through reactionary counter-tides.
The reality is always chaotic and revolutions are unavoidable inflexion points between a zone of stability and another. The only way to avoid revolutions, if at all, is making reform revolutionary, that the system goes ahead of the ineluctable demands of the revolution itself. That’s rare at best. What is much more common is that systems become stagnated and decadent until they reach rupture point, i.e. revolution, one way or the other.
“For the people who inhabited France’s country towns and villages, was life in 1799 essentially the same as in 1789”.
Not at all. The agrarian reform in France changed everything in most regions. The French countryside never ever returned to feudalism. The French “yeoman” was born, in most regions at least, with the Revolution. Also taxation, the trigger of the Revolution itself, became much more balanced: even after Restoration (which didn’t last anyhow), the aristocracy was never restored to its former parasitic “glory”.
In some places like the Basque Country, where such liberties and more balanced property structure existed since long before, the Revolution surely had some more clear negative impacts, but overall it was a blessing for most of France without doubt.
And the revolutionary extension to other parts of Europe, largely under Napoleon, whom we can consider a Stalin of sorts (part revolutionary part reactionary), also had important effects in the long run, even if less clear cut than in France.
Anyway, I know that, in the Anglo world (and in general conservative settings), the French revolution is often misperceived because of the deeply rooted anti-revolutionary British pro-aristocratic propaganda. After all winners write history… or sometimes they do not, because that’s not the version history I’m most familiar with in fact. For all I know: from fascists to marxists, going through the centrists and social-democrats, all drink in the springs of the French Revolution. Some emphasize Napoleon, others the Sans Coulottes, some prefer Robespierre, others the Girondines, but nobody, absolutely nobody anymore likes Marie Antoniette and her disgraceful occurrence about cake.
Today we are facing the same kind of situation: a deep stagnation of a decadent oligarchic system that may last for decades, as happened with the crisis of the Ancien Régime, but that, for that very reason, only has one way forward: revolution of some sort.
I am saying that a revolution seldom makes things better for the public. They may lead to better conditions in a generation or two, but the immediate effects to ordinary people are mainly negative.
I don’t know what you understand from revolution, Yves. But, revolution word in Europe have positive connotations in Europe. The other breakthrough’s like Nazi’s putsch to the German Parliament is called not revolution but a counter-revolution.
Revolutions are deemed positive clearly because they usually resulted in a better life for the commons. French revolution in particular is largely agreed to be as a good thing, even by today’s elite. Russian people are now living an infinitely better life if they were to keep their parasitic aristocrats. Look what happened under Yeltsin’s rule and what is happening in Ukraine today.
And, I did not even mention the great positive impact of enlightenment.
K.
In the early years of the twentieth century there were futurists just as there are now. At that time they all predicted that the Russian Empire would be by far the richest and most powerful country on the globe in the twentieth century. They would be astonished by how things turned out for Russia and by its present situation.
The stuff about Marie Antoniette is propagandist nonsense. The peasantry in France prior to the Revolution were actually benefiting from the inflation since the price of their produce was rising and also because their taxes (other than labor) were fixed and not indexed to inflation. The urban workers (less than 10% of the population) were getting hammered because the price of food was rising faster than their wages.
In history collapse is often essentially inevitable for systems like the Ancien Regime but collapse does not usher in utopia but instead something like hell on earth.
Thanks for this. I’d say a few things. First, I think that revolutions in the Anglo-Sphere (we might say) really are different. We might remember that the first English republic was Cromwell’s, and that Charles I was beheaded before the American Revolution. The 500 years of a single dynasty, the Bourbons, followed by an enormous rupture, the Revolution (followed by Napoleon) seem to be cut from a somewhat different pattern. When we consider America, we must also consider that any rupture must have a continental scope; the scale is enormous compared to Paris vs. the Vendée, say.
Second, I don’t think there is ever “only one way forward.” I believe that accident and chance play a significant role (Archduke Ferdinand’s car getting stuck in the cul de sac where Gavrilo Princep was standing; Louis XVI’s weak character). In fact, that’s why history is a branch of the humanities, and not the sciences (thank the FSM).
Third, I don’t believe revolutions are an unqualified good. Consider the way the French Revolution plays out: After the Revolution, we got Napoleon. Napoleon as Emperor subdued Europe. That awakened German nationalism and due course we got a united Germany, with various knock-on effects in the 20th Century. Now, maybe if we’d gotten lucky, the 20th Century wouldn’t have been the graveyard it was. But we didn’t.
However, I couldn’t agree more with you that we are in a stagnation that feels similar to the Ancien Régime — and I can’t, I admit, think of an Anglo-Sphere parallel to the current decadence… But perhaps we will be luckier and more skilful than they. And if not, and we move the decimal point for our own Terror a couple of notches to the right, and then don’t even end up with an Augustus but with a mediocrity like Franco, or Stalin, what then?
The violence in Paris was minor in comparison with the violence in the rest of France. The Napoleonic Wars were great for the artificial limb industry.
Treatment of the Greek standoff as solely a commercial negotiation is bound to result in a view that the Tsipras and Varoufakis are incompetent or worse.
Mohamed El-Erian’s game theory analysis makes this mistake in a way that is both glaring and forgiving. Glaring in that he takes no account of both the political dimension and knock-on effects of a GRexit and forgiving in that his flawed analysis releases the Troika from culpability. Nothing to see here, just economics at work.
This is not just a commercial negotiation. There are many political dimensions that make a GRexit more costly for the EU than it would appear. We have a hint at that in what the ECB says (in post, above):
The value of the political dimension may be debatable, but doesn’t ignoring it altogether show a bias toward the Troika? And knock-on effects (both political and economic) – which are admittedly difficult to judge – also increase the cost to the EU. Would the US Treasury have let Lehman fail if it had a full understanding of the effect on world markets?
For example, lets take the game theory analysis a little further. A few years after GRexit:
Two of these scenarios incur major political blows to the EU and result in substantial economic loss.
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H O P
A Greek default does not mean a Grexit.
Syriza has repeatedly rejected a Grexit and the Eurozone does not want one either. If Greece defaults, the odds favor it being kept in the sweatbox to force Syriza to capitulate.
But both Lagarde and Draghi have said that while they’d greatly prefer to avoid a Grexit, they think the Eurozone can handle it.
Both sides agree that a GRexit is sub-optimal. Both sides will say that if it comes to that (because the other side is unreasonable), they can handle it. Its a negotiation. There’s bound to be some bluster.
Logically, it makes no sense for Syriza to remain in the Eurozone after a default if the Troika is going to impose a “sweatbox” that erodes Syriza’s position over time such that the Troika wins in the end.
Syriza is unlikely to sit on their hands and simply accept what the Troika/ECB imposes after a default and Greek public opinion seems likely to change as the “end game” plays out.
You are missing, as I have said repeatedly, that a Grexit is not going to help Greece. They take a huge economic leg down, they do not get to redenominate debt, critical imports like pharmaceuticals become way less affordable, and Greece will not get much export benefit. I’ve cited studies that are specific to Greece that confirm that. And on top of THAT, Greece’s main export markets are in the EU. Being outside ALONE makes them a less attractive trade partner (more hassles in dealing with border/currency issues). And they lose EU trade subsidies (Varoufakis has confirmed that), so their ag sector, one of their export sectors, becomes uncompetitive.
You keep going on based on pre-conceived notions and refuse to consider specific evidence that I have repeatedly provided.
You are missing, as I have said repeatedly, that a Grexit is not going to help Greece.
Many economists strongly disagree with this statement, and have provided logic and Greek-specific evidence to support their case. And I and others have cited them here. They (& I) would say that Naked Capitalism and other pessimists are “missing things”. If they are Greek they might even consider such pessimism irresponsible. Remarkably, Varoufakis is slightly less pessimistic, less opposed to Grexit than NC is.
IMHO, the case of the Grexit optimists is overwhelming, while the case of pessimism is very weak. If there is a historical analog, a cautionary example of Grexitesque catastrophe, nobody has brought it up. Probably the weakest point of the pessimistic case is non-Greece-specific, true. It is the basic economic logic of pessimism – “no logical argument” is the main thread of Warren Mosler’s criticism of Varoufakis’s criticism of Mark Weisbrot. IMHO the pessimists’ errors include non sequiturs, double counting of negative effects and circular reasoning, but above all, the “basic economic error” (FDR) of denying the obvious, the primary benefit of and reason for exiting a monetary sadism zone: That you can decide to have no unemployment – “a permanent quasi-boom” (Keynes) and this is always good, always entirely and universally beneficial.
With sensible economic management, critical imports do not become unaffordable. Why should they? – Greece now is paying for imports with exports. The most usual error in economics is succumbing to “the barter illusion”, denying the existence and importance of money. But sometimes in international trade, as here, the problem actually is the rare “money illusion”. Greece is bartering to get pharmaceuticals now. No reason it can’t after Grexit. Its world class shipping & tourism sectors are quite likely to benefit from leaving the Euro, and they are more important to Greece than exports of goods. Greece’s problem was never that it had nothing to sell, but simply that it bought too much abroad. This is something that having your own currency can solve easily and painlessly.
There really isn’t anything to change to Mark Weisbrot’s overall assessment a few months ago. Next to Lapavitsas & Flassbeck’s recent book, I believe he has the most extensive (and imho slightly superior to L & F) “optimist” analyses:
“A robust recovery is by no means guaranteed – it would require good economic management – but for a number of reasons it is the most likely outcome of leaving the euro.”
Greece Has a Real Choice
@ Calgacus
I tend to agree with your assessment. There is an additional dimension that is mostly lost in discussions, namely the resolution of a hopeless situation which does not negate the possibility of some further hardship but the light at the end of the tunnel will provide new hope for the young generation. It is probably time that new policies focus on a real future for the young people instead of simply trying to maintain the status quo that enables the old farts (incl. mainly the bureaucrats and financial elite) to maintain their comfortable situation. Wellbeing is not simply depending on the present economic situation but is very much connected to the hope for a better future and to a rule of law that deserves its expression.
One economist is not “many economists” The overwhelming majority, INCLUDING VAROUFAKIS, who is a heterodox economist, think Greece will be much worse off.
You keep making stuff up. I have called you out on it repeatedly. I am losing tolerance. One more time and you go in moderation.
[Yves and/or Lambert, I sincerely apologise again for a very long post but there was no other way to present the counterargument convincingly.]
Yves, sincerely and with all due respect, why the hostility? There are indeed many world-class economists who don’t think that Grexit would be a catastrophe for Greece, or who believe that there will be pain initially but a robust recovery immediately thereafter. And the ‘light at the end of the tunnel’ is extremely important. I live in Greece and i can tell you, this is a nation that has gone through a lot through the ages and they can withstand pain but only as long as there is some hope for the future, which I don’t think anyone who tells them to stay in the EZ offers them, either in the short or medium or long term (unless there is true unification, good luck to anyone in the EU waiting for that). For purposes of reference, here is a quick sample:
1) Krugman. He used to advocate Grexit, then a few months ago he wrote that after all the pain Greece has already gone through Grexit should be avoided, yet a few days ago he posted this in his blog:
So he prefers a deal but he doesn’t consider Grexit a sure catastrophe, on the contrary. Same with
2) Michael Pettis in this comment:
3) Then there is Bill Mitchell debunking what he calls the “catastrophe hypothesis” (scroll down for his arguments on this issue specifically).
4) Stiglitz. The latest, which is this Bloomberg video interview, has him saying again that if the EZ leadership refuses to reverse policy then Greece will have no alternative but to leave. He wouldn’t be saying that for years if he considered staying in the EZ at any cost a better alternative than Grexit.
5) Finally, and this is huge, a recent study of 70 Currency Union Breakups by Oxford Economics suggests Greece would do just fine after some initial pain. From Bloomberg:
On this report on the study, there is also a great chart showing the countries studied. Readers will notice that most of those countries have and had much weaker economies than Greece and were far behind in development, a lot of them third world countries. The chart is very sobering. This report has a little more detail on the consequences of a Grexit as seen by the author:
There are more economists making the case that a Grexit either would be or could be very beneficial to Greece and certainly not a catastrophe, but as much as I hate arguing with you because you have been a fair commentator on Greece, I think this quick sample would suffice to show that even on this issue, things are not as clearcut as they usually appear in the financial press.
None of these analyses have looked at the fact that Greece’s MAIN export market is the EU, an integrated bloc with no customs/border issues, and many are also in the Eurozone, which uses a single currency. There have been very few legal analyses of a Eurozone exit, but most say that a Eurozone exit necessitates an EU exit. That creates addition frictions to trade, namely the use of a different currency (FX risk) and border control hassles, which Greece’s immediate trade “competitors” do not face. Moreover, as Varoufakis has pointed out, Greece will lose EU trade subsidies, making its ag sector uncompetitive. None of the economists you have cited appear to have looked into those issues at all. The economists I cited have all done granular work on Greece’s export mix. Varoufakis’ views are also based on a more granular look at the tradeoffs. Vrofakis debunks Krugman on exports:
http://yanisvaroufakis.eu/2012/05/16/weisbrot-and-krugman-are-wrong-greece-cannot-pull-off-an-argentina/.
Varoufakia also points out that Krumgan stunningly made NO allowance for the high transition cost of adopting a new currency (Argentina did have its own currency but wAa running a dollar peg, which it abandoned)> This is classic economist hand-waving without considering the particulars of the case at hand.
Most economists who have actually modeled the impact on Greece (as opposed to giving 50,000 foot views) say the immediate hit to GDP would be on the order of 20%. How does an economy that is already in distress, where Golden Dawn is playing an important role in feeding people, sustain a blow like that?
Lets say Greece loses 20%. Is that the first year? What of later years? Couldn’t they expect improved performance in later years? Also, wouldn’t Russia try to help Greece, if only to entice other EU countries out of the fold? (They have already started to do so, though there hasn’t yet been any concrete results.)
And what of the ‘hit’ to the EU? A drop in the value of the Euro (due to less confidence in EU/EZ) would increase the price of imports and aggravate the core-periphery divide further (core countries export more to the rest of the world). That might be further exacerbated by anti-Euro movements on the left and right that use Greece as an example (of unfairness, harsh treatment, and possibly successful post-GRexit).
And the ill effects don’t stop there. There are numerous other problems and costs that GRexit would entail (like possible immigration concerns).
Lastly, it make a lot of sense for Greece to remain in EZ and even more sense for it to remain in EU post default (we all recognize these facts). But I think it becomes difficult for the ECB to support Greek banks after a default just as it is already impossible for the IMF to continue to be part of bailouts. If EuroGroup tries to put Greece into a “sweatbox” the Greek government could claim that that is tantamount to being pushed out.
The issue of a possible Russian aid to Greece post-exit would be a whole different ballgame because this would be seen as a major geopolitical threat by the US and NATO. It is one thing to discuss a possible energy deal while Greece is strapped to the EU and the EZ and quite another to have Russia move in post-exit (assuming Russia would really want to commit the resources required, which I seriously doubt). All sorts of bad things could happen, and this is obvious to people who follow geopolitics closely and have no illusions as to the length great powers will go to to avoid such game changers.
All political parties in Greece and Cyprus have elderly and wise experts who have seen it all during the Cold War – including Syriza. Occasional attempts to safely play one pole against the other (and thus always up to a point) should not be confused with such a pivot. So this, no, it won’t happen, period They all know better.
I’m not suggesting a ‘pivot’. Just some increased trade from Russia + friends. Enough to make Greece successful so that an exit appeals to other EU countries.
Apologies, I misunderstood. That is of course possible. I was thinking along the lines of a 20-30 billion loan with serious strings attached.
Yves Smith: “There have been very few legal analyses of a Eurozone exit, but most say that a Eurozone exit necessitates an EU exit. ”
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Well, according to an oft-cited ECB legal paper, “…there is no treaty provision at present for a Member State to be expelled from the EU or EMU.”
https://www.ecb.europa.eu/pub/pdf/scplps/ecblwp10.pdf
And if there is no treaty provision by which Greece could be expelled from the EU, how exactly does a Eurozone exit legally necessitate an EU exit?
If you read the paper, that very paper says one necessitates the other.
No one is discussing Greek expulsion. No one.
The way it would come about is by Greece taking action. The Left Forum has urged Grexit but does not have the votes. The other way it happens is by Greece losing access to needed ELA funds. That could come about by the ECB refusing to increase the ELA or by tightening collateral requirements (this has been discussed at the ECB) or by the Greek banks running out of eligible collateral, which is expected to occur in the next 2-3 months at the current deposit flight rate.
If the ECB no longer makes up for deposit flight, Greece will be forced to impose capital controls, nationalize it banks, and print drachma. That is a defacto Grexit. How the officialdom cleans it up de jure is not clear. However, Varoufakis himself has recognized that a Grexit means an EU exit. He has stressed that one of the negatives of a Grexit would be the loss of EU agricultural subsidies.
Yves Smith: If you read the paper, that very paper says one necessitates the other.
No, it does not say that. Recall, that you refer to “legal analyses” implying a legal necessity to exit the EU if exiting the Eurozone.
Nobody is saying that Greece could not voluntarily exit the EU. No one.
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Yves Smith: “The way it would come about is by Greece taking action. The Left Forum has urged Grexit but does not have the votes. ”
As I said, Greece can voluntarily exit, but that is a far cry from a legally necessitated exit.
Notably, Greek economist and politician Lapavitsas points out that exiting the EZ does NOT necessarily mean exiting the EU:
“If Greece leaves the euro, it doesn’t have to leave the EU at the same time. If the Greek people want to leave the EU, let them leave the EU. But that’s a separate question.
This conflation has been deadly and it’s been used ideologically” (emphasis added)
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Yves Smith: The other way it happens is by Greece losing access to needed ELA funds. […]If the ECB no longer makes up for deposit flight, Greece will be forced to impose capital controls, nationalize it banks, and print drachma. That is a defacto Grexit. “
A defacto Grexit from the Eurozone, not the EU. Conflating the two “Grexits” is exactly what Lapavitsas warns against.
@ Alan
Most slaves enjoyed most probably a much safer and more secure situation when accepting the status quo (Depending on their masters demeanor). When looking at Greece, I feel a certain parallel exists in that the temporary feeling of relative comfort is bought with giving up the hope of a self-determined and potentially successful future.
A depreciated currency (in the range of 50%) will certainly produce some unforeseen positive consequences. E.g. in Europe, there exists a high propensity to travel south in the summer in order to let your body turn into a red lobster. With Italy and Spain (main competitors; Turkey has another cultural background) remaining in the EURO-Zone, many northern Europeans will select Greece for that purpose (incl. retirees). A strongly depreciated currency will compensate for many negative aspects mentioned as well (e.g. agriculture). This does not mean that it will be a walk in the park (I certainly agree with Yves in this regard) but the chances for a successful outcome are, in my opinion, way above 50%, whereas the status quo guarantees misery for probably the next 20 years. It does not really help to overly analyze all facets in detail as the complexity is simply too high to reach a definitive conclusion on that basis. My principle thought process is based on the understanding that the worldwide increasing centralization of power creates its own centrifugal counterforce which is increasingly expressed by the way people vote, particularly in Europe (do we really want to promote extremist parties?). Decision making processes have to return to a lower hierarchical level as otherwise people will start to “revolt” at the ballot box. TPP and similar “trade agreements” try to undermine the possibility that individual populations maintain a certain degree of self determination and freedom. This is the reason that I value enormously Yves’ great effort against those agreements.
Additionally, on a personal level, I would appreciate that all those bureaucrats that serve the financial elite are put in their place and their rather questionable game is increasingly exposed for what it is, namely an elegant form of corruption.
Alan: Of course I have much to say in reply and will asap. Unfortunately it is needless to say, in nearly complete disagreement with Yves. I haven’t because of the press of real life leading to nearly complete exhaustion, physical and mental. But I felt it would be churlish to not thank you now for your comments and your list, with several names to add to my own.
Yves:You keep making stuff up. I have called you out on it repeatedly. I am losing tolerance. One more time and you go in moderation.
I plead not guilty to “making stuff up” ever here. I daresay I provide proper citations for my comments more than most here. I am aware of you only once, recently, perhaps challenging me. I adequately defended myself of that charge IMHO then. It was on the most important matter of all here – the relevant law. See below.
As for Varoufakis, I have criticized his pessimism. But he has said many things like “We are prepared for an austere existence, which is something different from austerity” (see my comments & citations in the Wolf Richter post below), and I cited his old assessment of the probability of Grexit as >50% in the Water Cooler a few days ago.
In Wolf Richter: The Greek People Just Destroyed Syriza’s Strategy you said:
Yves: You argue with me about EU governing treaties without having done basic homework, and tout “international law”. The EU governing treaties EXPLICTlY required states that joined to renounce all other laws save those of the EU, and their only of member states to seek redress was in the EU legal system and courts. Your “international law” is not applicable. Greece renounced that years ago when it joined the EU.
The quandary I am in is not of making things up, but the opposite. I daresay I provide proper citations for my comments more than most here.
For the EU governing treaties say no such thing. They explicitly, repeatedly contradict this renunciation in many ways. Greece did not renounce international law, above all the UN Charter – the quasi-constitution of modern international law. The modern international legal order took two World Wars to erect. It would take something like another one to make the claimed changes, not a mere treaty. I have presented many authoritative citations to many authorities on this, including the treaties. Here are more:
UN Charter – The “Supremacy Clause”. Of course I should have cited this first!:
Article 103
In the event of a conflict between the obligations of the Members of the United Nations under the present Charter and their obligations under any other international agreement, their obligations under the present Charter shall prevail.
Various articles from the Treaty on European Union:
Art 4.2. The Union shall respect the equality of Member States before the Treaties as well as their national identities … It shall respect their essential State functions, including ensuring the territorial integrity of the State …
5.1. The limits of Union competences are governed by the principle of conferral…
5.2. Under the principle of conferral, the Union shall act only within the limits of the competences conferred upon it by the Member States in the Treaties to attain the objectives set out therein. Competences not conferred upon the Union in the Treaties remain with the Member States.
But, Yves, you haven’t provided a single citation to any source that Greece renounced international law, that anyone thinks EU law overrides fundamental international law. So I contend that my position is not that of a mere overwhelming majority, but of absolute unanimity. No such citation exists. If you have one, I request you post it.
I think you just made an honest mistake on the law and the treaties. I am not sure how you were deceived into it, but I have some guesses. Some seem to write, suggestively, impressionistically, but without ever saying it, as if this “renunciation” were true. My suspicious, paranoid side speculates that they are hoping to deniably foster the horrifyingly wrong impressions I have been trying to dispel.
What about pharmaceuticals from Russia? And trade with Russia? and that pipeline deal? The latter two which Greece has rejected. Is that waiting in the wings?
Greece hasn’t rejected the pipeline deal and there are several trade deals with Russia underway. The BRICS have also invited Greece to join them and discussions will start in June.
Russian bailout…..
Greece: we can’t pay back our ruble debt…we’d like to renegotiate our agreement.
Russia: no response.
1 week later: unmarked troops, armor, and planes occupy Athens and all major Greek military camps.
It will be years before Greece sees a dime from any deal with Russia.
As Mark Ames says, “You never want to depend on Moscow for your survival. Just ask Serbia how well that worked out.”
I might have been too hard on El-Erian. In his analysis he talks about “fear” as an impetus to changing the uncooperative game to a cooperative one:
But if the fear of repercussion has indeed dissipated, why is that?
I suspect that it dissipated only because the bailouts were agreed to. And have remained dissipated because Syriza and Greece prefers to remain in the EZ. But these fears are likely to be still on the minds of the negotiators when they consider the possibility of default/GRexit.
For the sake of clarity:
Although El-Erian mentions the “fear” of the consequences of a GRexit, he dismisses that by pointing to irrelevant history.
Unless a Greek government is ready to go to the mat and risk default/GRexit, talk of consequences is inconsequential in any negotiation. IMO, only now, in the end-game does it come into play.
At least the Syriza internal votes give us some idea of the internal dynamics, with the “moderates” willing to submit to the Troika a majority but not an overwhelming one. I had guessed the hard left was a majority in the party but obviously I was wrong. It is looking like Tsipras is with the “moderates” although I’m sure he’ll switch sides if it becomes politically convenient.
I am surprised Tsipras is so willing to go down to the last penny in the coffers to pay the Troika, though. It’s pretty clear that default and/or Grexit are real possibilities, involuntarily if nothing else. Greece had better have some cash if that happens.
Oh, no, Syriza is a largely bourgeois party. They are consistently called “radical left” in the media, which gives the impression they are more leftist than they are. But in fairness, the name in Greek translates as “Coalition of the Radical Left”.
The hard left is only about 1/3 of the Syriza representative which has been hostile to the Tsipras negotiating strategy. So the fact that Tsipras got a 95 votes, with 75 supporting the Left Platform says he is losing ground among his ow MPs.
You don’t have to be a hard leftist to think that Greece will have to default and deal with the consequences, which might include a Grexit imposed by Brussels (not really in Greece’s control). The debt really is too large and there will be a default at some point; the only question is when and under what circumstances. Most likely at some point they’ll have to leave the EMU as well. It’s perfectly plausible to think it’s better to suffer under a few more years of austerity to allow default/EMU exit with a more cooperative EU, but Tsipras and Varoufakis don’t seem to be preparing for the eventual inevitable outcomes.
The name of the party is Coalition of the Radical Left (sic), they are the “eurocommunist” branch of the old KKE, the other (the “pro-soviet” one) retains the name. Nobody can accuse Syriza of being a “bourgeois party” and be right, Yves. I doubt there are many people of bourgeois class in Syriza, let alone in its leadership.
By the way, “radical” is not the same as “extremist”, certainly not in Marxist terminology. Radical means going to the root of the problems as opposed to taking shallow stances that solve nothing, in other words: serious, profound, fearless.
It is true that the “hard left” is about 1/3 of the party’s decision organs (and hence the parliament’s bench, roughly) but that doesn’t mean that the other 2/3 are liberal bourgeois. In fact it’s rather like 1/3 or 1/2 are “centrist” (in a Marxist-Leninist sense of the term: eclectic and trying to stay close to what the people demands) and another 1/3 or 1/4 are social-democrats. None of those categories can be described as “bourgeois”.
But indeed: that Tsipras almost lost an internal vote 60:40, only indicates that he’s leaning too much to the social-democratic right and that is alienating more and more people in the “center”, who surely feel the growing and surely unavoidable need to slam the door and do the right thing regardless of Brussels.
Thanks Maju, for the obviously much needed terminology explanation.
A majority of SYRIZA members are university educated – this is a common denominator – while their backgrounds range from working class to wealthy.
It should be noted that the northern type of class analysis doesn’t really hold up in Greece, which is by temperment, tradition and history a rather class-free society. The fact is that 85% of the population are from humble backgrounds 2 generations back – or Greek refugees from Asia Minor, having lost everything and forced to rebuild from nothing. At the same time, the 10% historical grand bourgeois were often philanthropists and often anything but “grinding the faces of the poor” – ex: Capodistrias, Venizelos (Eleftherios), Syngros, Benaki to name a few.
Meanwhile ALL oligarchs have come from **nothing** in their lifetimes.
More important than personal finance in Greek social organization is political belief. This was entrenched historically by the post-war American criminalization, extreme punishment and 27 year banishment of the communists, and the hysterical clampdown (finally by coup d’etat in the military junta of 1967-74) on anything remotely socialist. The post-junta era revealed a country whose political centre is centre-left-to-left, given popular expression by PASOK for 40 years.
Meanwhile a communist plumber will always make more money than a person from an ‘historic family’ eking out a living translating Zeno. And historically in Greece many bourgeois adopted & stuck with communism from conviction. None are ‘class enemies’ if united by political beliefs/actions. Financial position is no indicator: the steelworker’s son may be a doctor or CEO but he is foremost a communist doctor/CEO.
I don’t think anybody in Europe confuses education with class. University education is widespread enough thanks to a public education system that has made until about now university affordable for nearly everybody. Logically political leaders and leaders in every other sector tend to come from the people who have better preparation, with more law degrees than electrician work experience but also than engineering or biology degrees. I probably do not like that tendency too much but has no direct relation with class anyhow. Not just plumbers and electricians are working class: everybody who works for a salary or as self-employed is.
It seems to me that “the endgame” has been in plain view for years. The Greeks don’t have the capacity to pay so default is inevitable. What happens after that is the only thing in doubt IMHO.
Merkel may still blink and the Greeks may get yet another extend and pretend bailout. But as of now, it does not look like events are favoring that outcome.
If the Greeks can’t pay – and the evidence is that they can’t – then they won’t. As I said, default is inevitable. The question isn’t if, but when.
So if that is true then how do you play your cards as Europe so that you receive the greatest benefit? Outright default by Greece gives you less leverage in restructuring…than if you willingly write down what you will. One is another “negotiation” while the other is a choice you control to keep Greece under the Euro thumb.
If it was me I’d have had the creditors face the music and take a haircut a while ago rather than throw good money after bad but it ain’t me. Common sense seems to be in short supply while greed and hubris exist in abundance.
Thank you for your analysis, Yves. Do you have any thoughts as to why Tsipris seems so adamant about refusing help form the BRICS Bank?
Begging Merkel and Hollande seemed preferable to inquiring into a BRICS deal?
Merkel / Hollande and the EU/ECB/IMF negotiations are one thing, BRICS another.
The last thing Greece wants or needs is more loans. It needs investment.
SYRIZA is busy now with negotiations, parliament and new laws, our own reforms, the debt audit. Talking with BRICS will come in June. The government has only been in for 4 month and under fire the entire time.
Strange that a “far left” government would need investment. Are they or are they not socialists? And if not then what does “far left” mean anymore?
I don’t think that anybody takes the word “socialism” seriously in the 19th or early 20th century meaning. It’s just a word that sounds good to some people.
A game-theorist might have come to the conclusion that the game was “Divide & Conquer” so by dividing the opposition a victory would be possible.
And maybe a good game theorist would come to the conclusion that if every single one of the opposition on their own is stronger than his own side then the best possible outcome is had by not playing ‘divide and conquer’ to win but to play for an honourable loss.
The likely outcome might be that the default will be allowed to happen after the tourist season is over. If default happens during the tourist season then it happens in the worst possible time.
The problem with that theory is that Greece is an outsider (and Syriza even more so) while all the major players have long-stanidng personal and institutional relationships. Preserving them is very important to all the incumbents, and they also trust each other, at least up to a point, and know each other’s hot buttons and limits. Greece lacks sufficient knowledge of the parties and the negotiating runway to play that game well.
Just how is Greece an outsider Yves? SYRIZA yes, Greece no.
It was in the 2nd intake of the Common Market 1971, i.e. part of the original 12 EEC and is over-represented traditionally in Brussels and Frankfurt. It joined IMF shortly after IMF’s foundation. It joined NATO in 1952 (40 years before Germany), and is one of only 4 countries “the 4 pillars” observing the 2% GDP NATO rule with a standing army – and a proven co-combatant from the Korean war onwards.
There are 15 new countries in the EU – they are the unknown quantities the old-timers are still adjusting to.
Greece joined the EU in 1981 in the second enlargement. Only Denmark, Ireland and the UK joined in 1972, the first enlargement.
Isn’t the outcome of this rooted in the self interest of the Greeks? Polls consistently demonstrate the pragmatic nature of the people. Preservation of purchasing power and real wealth preservation trump dogmatic visions and red line calls for freedom. What everyone really wants is to have the good times back. Even Europe wants this. People are tired of the redundant battles over austerity. What Greeks saw in Syriza was a party that might have an answer, a genius idea to change their course. But instead Syriza’s only real solution is stumbling to the exit hoping, secretly, that no one will recognize their thespian plays of blame as they trip upon the rock of Grexident. The Greek people are not fooled.
Equally annoying, but less artistic, are the Austerity-Ian’s endless calls for more work and a faster pace. You can almost see them giggle when they say it. There is no amount of work or speed that will satisfy them. It’s impossible to cross a line that keeps moving, and that is their game. But, again no one is fooled.
Those in the middle are. Silent and cool headed….much like the people. Won’t their will eventually prevail? Isn’t that usually how democracies work?
One last thought: what do the markets say? It is easy to get lost in the ad-to-page-view driven headlines that excite purposely to the extreme in the quest for revenue. But, do Greek 10yr yields suggest we are back to 2010? What about options on Greek equities? Are they pricing for reconciliation or disaster? The markets, like polls, offer a glimpse into real sentiment and potentially future direction.
After Greece gets it’s “bailout” (and it will, trust me), the distraction will be over and the deeper truth will sink in: the country will be bankrupt, it will have no financial resources whatsoever. So even if Tsipras is able to get his loan without making austerity concessions, it won’t matter, because there will be no money to pay the pensions, hire back the govt workers, provide medical care, negotiate with the unions, or even collect taxes. Tsipras has been so distracted by this farcical “negotiation” process that desperately needed measures to turn the economy around and provide humanitarian assistance are being neglected.
Greece needs to become self sufficient. Either that or it needs to court Russia and/or China. In any case SOMETHING meaningful needs to be done, but the Syriza government seems to be in a kind of trance, mesmerized by the ongoing “negotiations” and the endless series of pointless deadlines.
http://www.capital.gr/story/3024094/el-mundo-parembasi-merkel-gia-na-kleisei-i-elliniki-sumfonia
Some very interesting journalism coming out of Spain this weekend.
French far-right calls for EU referendum
This can only help Greece. As I explained above, few are considering the wider political ramifications of a GRexit. IMO a default puts GRexit on the table(though not inevitable). Oh maybe not via public threats – that would make it difficult for Greece to say they were pushed – but certainly in private discussions.
Serious talk of a French referendum should mean that the political ramifications are now considered by analysts. This is a complex Game of Chicken that I have described as between a car and a tractor-trailer. It differs from the simple Game of Chicken in that there are unevenly matched vehicles (injury to Troika/trucker is much less than the car driver) and a two-stage ‘payoff’: first at the crash/non-crash and secondly at a future point (where damages to the trucker’s cargo is accounted for – for example the trucker’s estate could be sued for damages).
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Marine Le Pen has consistently said she would have France leave the Eurozone if elected, so this is not news. FN does not have the votes to get a referendum unless she is elected, and France’s two-round system works agains FN (even though FN looks certain to be in the second round, FN wins ONLY if the establishment parties in the first round don’t agree on throwing their votes behind the non-FN second round party. Le Pen is regarded as anathema by the French elites and mainstream). She has not spoken up much relative to Syriza. The Tory papers, as we’ve noted, are actually talking down Brexit, which is amusing to watch. So this is all too little, too late relative to the negotiating dynamics for Greece, which come to a head this month. France was already the country most friendly to Greece and even they’e cooled, if you read Michel Sapin’s remarks over time.
Yes. No one would expect Marie LePen or any rightist to talk positively about a leftist government.
But the issues that have been raised by the Greek government (sovereignty and fairness) will resonate even more, raising the stakes for the Troika.