As most readers may know, Greece and the Eurogroup ministers agreed to a memorandum last week that would replace the bailout that expires on February 28 with a four-month deal that the memo stresses is in the same framework. The reactions to the memo have been a politico-economic Rorschach test, with readings strongly reflecting expectations of Syriza and the interpretations of the considerable, deliberate ambiguities in the text.
But as much as the memo language was agreed by the ministers, it is not yet a done deal. The Greek government is required to submit a list of reforms to the Troika by the end of day Monday. If it is not approved, the Eurogroup will meet on Tuesday. Further, bear in mind that memo is technically not operative until it has been approved by all the Eurozone governments. In Finland and Germany, that means yet-to-be-obtained parliamentary approvals. We’ve stressed that we think they’ll both approve it, but there is a tail risk scenario that one of them will not ratify the pact (a reader describes the negative reaction in Finland, for instance).
Another critical assumption made by most reading the memo was that it could be taken at face value, that the difficult, and as Jamie Galbraith contends, disorganized Eurogroup was ceding control of the process to the professional bureaucrats of the Troika. We had argued that the Eurogroup would nevertheless be kept in the loop informally, since they will approve any disbursement of funds.
If this story in El Pais is accurate (hat tip and rough translation Santiago), they are still in the loop as far as vetting the Monday proposal is concerned, as opposed to involved only if the Troika is not satisfied. From the Brussels reporter Claudi Perez:
Germany asked that the reform list was sent to all countries, not just the ECB, the IMF and the Commission on Monday. And Spain and Portugal asked for explanations: Luis de Guindos, according to sources in Brussels and Madrid, claimed that the preliminary examination of the ECB, the IMF and the Commission “pass also the filter by the Eurogroup”, which will meet by teleconference. “If there is any objection we will convene another Eurogroup,” said Spanish sources.
If this is the case, this confirms my suspicion, and then some, that any ambiguities in the memo are likely to be resolved against, as opposed to in favor, of Greece. This is an important detail because it undermines the notion that the Greeks scored a win by circumventing the Eurogroup this week. See, for instance, this section of the Guardian story, From Greek warriors to battered soldiers waving the white flag – in a week:
And there is an argument that putting faith in the “institutions” of the IMF, the ECB and the European commission, instead of euro ministers, to test Syriza’s plan, may weaken Germany’s power of veto.
Greece may not be out of that woods yet.
Given that Monday night was treated as a hard deadline for getting the Greek proposals in, Finance Minister Yanis Varoufakis prudently turned in a draft in a day early. I had assumed this was for bargaining purposes, that Varoufakis might want to test how far he could push on issues that Syriza had promised to voters but the Troika was likely to refuse, such as halting privatizations or rewriting the ground rules for them, and reforms aimed at raising wage levels.
Whatever Varoufakis’ motives, the Sunday submission appears to have been prudent for other reasons: the Troika does not seem to regard it as specific enough. From the Financial Times:
Eurozone officials have for weeks complained that Mr Varoufakis’s reform proposals were not sufficiently detailed and had not come with estimates of how much they would affect the economy and government budgeting. Officials who have seen the weekend submission from Athens have indicated it is similarly vague.
The reforms would be “mainly of a structural nature” and would not include details of projected revenue increases or spending cuts, a Greek government official said. Still, Athens intended to spell out measures to crack down on tax evasion and fuel and cigarette smuggling that could raise about €2bn-€2.5bn this year, the official added.
Agence France-Press, citing Bild, reports that the draft list isn’t quite as thin as the pink paper indicated:
Greece has drawn up a €7.3bn tax hit list aimed at the country’s oligarchs and lucrative smuggling industry, a German newspaper said, as part of reform proposals due to its creditors.
European finance ministers on Friday gave Athens just over three days to draw up a list acceptable to its international creditors in exchange for a four-month extension of its debt bailout.
The German tabloid Bild reported that the Greek government hopes to garner €2.5bn in tax receipts from the fortunes of powerful Greek tycoons, citing sources close to the hard-left Syriza government.
A similar amount would be drawn from back taxes owed to the state by individuals and businesses, Bild said.
The report said an additional crackdown on illegal smuggling of petrol and cigarettes would yield another €2.3bn for the government coffers.
In fairness, the Greek government has been put in an impossible position. As we’ve discussed before, it has been so busy negotiating that it has not taken effective control of the bureaucracy. Presumably any of the mid-level officials of the old regime are either gone or can’t be trusted. Even where to find the germane information in all the various non-published records is a time-consuming task, let alone make sense of them and try to make extrapolations. And that’s made even harder as a result of the fall in tax receipts and probable further slowdown as a result of the bank run and cash hoarding.
Thus while it may seem entirely logical for the Troika/Eurogoup minders to demand detail before signing off on the memo, it’s hard to see how the Greek government can provide anything better than seat-of-the-pants estimates.*
So how to square the foregoing with Varoufakis’ cheery remark late week, quoted in DW:
Greece’s cabinet convened in Athens late on Saturday, racing to submit economic reform plans to its international creditors by a Monday deadline.
“The list will be submitted and I am absolutely certain it will be approved,” Finance Minister Yanis Varoufakis said after the meeting. “We are drawing it up as we speak, it will be completed tomorrow.”
We’ve stressed that the ECB has been driving this process more than most observers realize, by increasing pressure on the Greek government by effectively ending its access to markets, and by various steps that served to intensify the already-in-progress bank run. Recall that the ECB last week gave Greece a much lower increase in the now-essential backstop to Greek banks, the ELA, of only €3.3 billion versus the €10 billion it had requested. Various media reports indicated that Greece is expected to reach the ELA limits when banks reopen after a three-day weekend. That puts the ECB in the position of either having to increase the ELA on Tuesday if the Eurogroup were to object to the draft and call a meeting. That is certain to rattle Greek depositors and potentially even the sacrosanct markets. Indeed, El Pais suggests that it was the ECB that forced the Eurogroup to reach closure (or at least as much closure as could be reached) on Friday by agreeing on a memorandum with critical tasks nevertheless kicked over to the next week. Again from Santiago’s translation:
Draghi unblocked the situation last Friday, when several delegations wanted to lock the agreement until next Tuesday, till the “institutions formerly known as troika” (my quotes) had expressed their opinions about the list of reforms that Greece needs to present. The central banker caused panic among the partners – and has been warning Athens during weeks – by giving concrete, hard cash figures about the plight of the Greek financial system, which since December has evaporated 20,000 million in deposits, capital flight that would have increased with a new failure of the Eurogroup . “The ECB and the Eurogroup President made it clear that Greek banks have access to liquidity lines, but only for emergencies, not as a permanent solution. Everyone is aware of the looming dark stage whether entities reopen next Tuesday [Monday is a bank holiday in Greece] without agreement, “said one attendee. ECB sources explained that capital flight “was fuly known by partners, so it was not necessary to emphasize that aspect.”
This indicates that the ECB, having deliberately made matters worse, is implying that might not to increase the ELA if a deal is not done on by Tuesday morning. It could put all these concerns to rest by increasing the ELA or issuing a strong statement of support.
Thus it will presumably also press that the Eurogroup accept whatever Varoufakis submits, or if the Eurogroup is still not satisfied, perhaps add more detail as to what Greece is required to deliver when. Recall that Greece is still very much at the Troika’s and Eurogroup’s mercy, since no funds are disbursed until a final, presumably considerably more detailed list of proposed reforms are delivered and approved by the Troika and the Eurogroup.
As an aside, the ECB’s reluctance (or possible strategic feigned reluctance) to increase the ELA is separately appalling. As Marshall Auerback noted by e-mail:
While they stay in the Eurosystem, the ECB cannot deliberately let the banks go broke because it would be acting illegally. Its charter is to maintain financial stability and to provide sufficient standing facilities. Arguably, some of their actions did risk doing that.
Now it could be, as reported in FAZ, that the ECB believes that Greece is trying to engineer a Grexit but have it be the Eurocrats that push them out. Or it may be that Draghi isn’t completely sure that he can control the current rotation of the board, which has a particularly Greece-unfavorable mix of members entitled to vote. Or the move could be completely cynical (as in the ECB knows it will have to increase the ELA regardless but wants to do everything in its power to preserve the illusion, particularly with Greece, that it might not).
In any event, there is still the possibility that we could see a disorderly Grexit, or what one account called a “Grexident,” an exit triggered by mistakes rather than design.
However, with the ECB not afraid to invoke the Market Gods to beat the Eurogroup into line, the odds favor them using the same approach even if the Greek draft is not up to Troika working staff and/or Eurogroup standards, pushing them to sign off despite reservations.
But if that is how things play out, it would be a mistake to consider it a Greek win. Remember this is only the first step in an interim deal where Greece has to meet other Troika and Eurogroup targets, as well as work on the even more important task of negotiating what happens when other debt matures over the summer. The more that the Troika and Eurogroup continue to think that Syriza is not willing or capable of meeting its demands, the more any ambiguity in the memo will be resolved against Greece, except in those instances where a favorable resolution for Greece happens to coincide with what the Troika wants to do regardless. Similarly, the less smooth the process over the non-bailout baillout period, the less likely the creditors, which includes the Eurogroup, will be likely to be accommodating in negotiation over longer-term arrangements.
Reasonable or not, Greece has been put in the unfortunate position of having to appease its creditors to get any further breaks. They thus need to be good austerity designers and enforcers over the near term. That also means that remarks by Greek officials to the international media that look to be attacking the Troika or fomenting opposition to austerity in other debtor countries with governments that are making their citizens wear the austerity hairshirt would also be treated as demerits.
As a result, unless there is a serious procedural mishap on Monday and Tuesday, Varoufakis is very likely to be proven correct that his revised list of reforms on Monday will be accepted. But how bumpy that process turns out to be has significant implications for the long-term success of his effort to keep Greece in the Eurozone. The flip side is that there is the potential that even if this week is rocky, the Greek government could recover ground with its official minders once it does get control of the government, but it will need to be cognizant of how far it needs to go.
Thus no matter how you look at it, the new Greek government has a gauntlet to run between now and June. And as much as we’ve stressed that a Grexit is almost certainly an even worse outcome than acceding to the Troika’s demands, it is important to recognize that the best cases scenario for Greece is getting austerity lite as opposed to austerity regular. Even Varoufakis’ target of a primary surplus of 1.0% to 1.5% is still contractionary. Bill Mitchell estimates that Greece will need to run budget deficits of 10% of GDP to restore its economy to a semblance of normalcy. The US had unemployment levels in the Great Depression that were comparable to Greece’s now and have to run a much higher lever of deficit spending to pull the economy out of the ditch for good. T
All of these hard-fought efforts by the Greek government are to eke out gains that don’t even begin to reach the level of intervention that Greece needs. So it isn’t simply that last week’s memo is yet another example in a long series of the European elite’s fondness for “kick the can” solutions to pressing problems. It appears that if Greece is indeed the recipient of new and improved flavor of austerity, it’s a higher-order delaying tactic meant to buy years more of sullen acquiescence from long-suffering citizens in periphery countries.
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*Given how appallingly inaccurate IMF forecasts have been, Greece can hardly be expected to do better, but with the “Greece needs to build trust” barrage from its lenders, Greece not going to be cut slack the way Eurocrat members of the club are.
Update 8:00 AM. Checked Twitter and see no leaks yet. We do have these reports:
#Germany | CSU (Merkel's CDU Bavarian sister party) threatens to reject Greek deal http://t.co/KMU0vwTAdu /via @handelsblatt #Greece
— Yannis Koutsomitis (@YanniKouts) February 23, 2015
Am reliably informed that Greek reform list is 5 pages, including labour reform with ILO, and minimum wage (which will irk Berlin)
— A Evans-Pritchard (@AmbroseEP) February 23, 2015
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Glad you saw fit to title this the Troika rather than the Institutions.
Re “The Institutions.” I posted this yesterday, but late at night, so hardly anyone had a chance to read it. So please excuse me, but I can’t resist reposting it today. The ironies are just too rich to be overlooked:
From a summary of Aeschylus’ Eumenides (http://www.cliffsnotes.com/literature/a/agamemnon-the-choephori-and-the-eumenides/play-summary):
Having failed to slake their desire for bloody vengeance on Orestes over the murder of his mother, “The Furies angrily threaten vengeance on Athens, but Athene calms them by the offer of a position of honor in the cult of her city. They accept. The ancient Furies are transformed into benevolent spirits. Their name is changed to the Eumenides, or ‘kindly ones,’ to symbolize their new character.”
So the vengeful Furies of the Troika have been transformed into the kindly “Institutions,” by virtue of a similarly artful compromise. In the play, that does seem to have done the trick, and they are mollified. In real life there seems to have been no transformation at all, just more lipstick on a pig.
What is it Marx said? the first time as tragedy, the second time as farce.
Both labels are abstractions. But it seems there is less stickiness with the Troika.
Remember as Schauble and Juncker said last week, Elections Change Nothing” & “There can be no Democratic choices against the EU Treaties.
Name’s change nothing. There can be no “demos” under the treaties of the Troika, or whatever they wish to call themselves. Imho, it would be best if the media did not adopt the new “institutions” moniker.
Surreal!
Personally I was wondering whether the “institutions formerly known as troika” (ifkat) were a “Schrödinger’s ifkat” – there and not there in a superimposed state.
But seriously speaking: it is a shame that all are so bloody-minded since the agreement was cleverly crafted.
I stopped reading when you quoted El Pais.You obviousle have not talked with Spanish informed people lately about the state of our press.
I am sorry but the blogging on this site on the Greek negotiations has been not up to the standard of the page.
Follow twitter of Ambrose E. P. or Sofia Coppola inmensely more informative and accurate.
It might help if you actually read a post rather than shooting from the hip. Moreover, your view of El Pais appears to be ill informed. While it is true that the paper is not what it used to be, its Brussels reporter, who I named in the post, is well regarded. I’ve seen that pattern at media outlets that are not well thought of here. For instance, the New York Post has a reporter, Catherine Curan, who has repeatedly done important original reporting on the mortgage beat.
As for the substance of the account, significant parts were confirmed in a Bloomberg story later in the day, including that it was Spain’s Eurogroup minister, Luis de Guindos, who insisted on and won the concession that the Eurogroup would review the reform proposals in a teleconference on Tuesday.
At some moment during the day Varoufakis will have to stand up and complain about the exigences for Greece, given the precision and accuracy of the plans historically submitted by other countries including Greece’s previous governments. De Guindos plans for Spain needed extra tax raises and cuts are not at all on track with previsions, for instance.
It’s great that Yves is giving us all these details. But this is the key passage:
The implications from this should always be considered in analyzing all these moves. All these negotiations are about how fast the ship sinks, not whether Greece will be saved from sinking. So, the entire theater is political. And of course, the Troika is closely monitoring whether the Greek government dares to criticize them politically. So, that job is going to be up to outsider politicians and the media as well as informed commentators.
But, of course, all these efforts are going to fail, just as Greece cannot possibly continue to meet these “targets” institute the required “reforms”, etc. At some point Grexit is inevitable. At some point it’s just time for Golden Dawn to step in and kick the Eurocrats out and introduce Nazism. The Germans refusal to accept or even understand how dangerous this is shows their complete and utter moral and intellectual bankruptcy. The chances of total disaster in 6 months or a year’s time are only climbing. At some point the Troika will need to eliminate their Austerity policy or there simply won’t be any Eurozone. The current death spiral is not sustainable.
So, while the details of what Varoufakis can negotiate with the Troika is important (lives matter), in the broader picture, it’s clearly irrelevant, since what they’re arguing about isn’t going to solve any of the problems, and you can’t simply starve people forever without a total explosion.
It might have been shocking to watch the utter indifference of the Germans but it was also entirely predictable. Much more of the same treatment of Southern Europe as Rwanda is clearly in store – i.e. seeing it as a place where “genetically and morally inferior” people suffer because of their inherent “backwardness” while the northern elites congratulate themselves on their moral probity. That won’t last long. Rwanda is a continent away and can safely be ignored. The heart of Europe cannot be ignored.
“Reasonable or not, Greece has been put in the unfortunate position of having to appease its creditors to get any further breaks. They thus need to be good austerity designers and enforcers over the near term.”
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According to a government spokesperson, Greece will gradually raise its minimum wage, and pensions will not be cut (The Guardian). So, Greece has not given up on re-designing “austerity”, i.e., replacing the most counterproductive policies with more progressive reforms.
We will see what is approved in the presumably revised reform package submitted today. The whole point of Varoufakis submitting early was to give him the opportunity to negotiate and revise.
I did state in an earlier post that if they got relief on pension cuts and privatizations, that would be a significant win. However, in his announcement on Friday, Varoufakis said the reforms he was going to submit on Monday would focus on areas that he and his creditors agreed on, which is improving tax collection, stamping out corruption, improving government efficiency, and humanitarian relief. Note that Varoufakis did not mention labor measures at all. So the tenor of his remarks on Friday is not consistent with the report you cited in the Guardian. Note that we’ve had shifting reports from both the Eurogroup and the Greek government, so the fog of negotiations appears to be heavy.
However, I noted in today’s post that given that the Greek government had asked for a long list of reforms (the 30% that Varoufakis has depicted as differering from the reforms the previous government agreed to) and from a bargaining perspective, it would be rational for him to put ones in his proposal that he thought had some odd of being accepted.
If the government does not get the reforms on its wish list accepted today, it may get some conciliatory language from the Troika that they’ll be considered later. But I strongly suspect what it gets later depends very much on what the Troika thinks about how the Greek government performs over the next few months. Remember, none of the Syriza leadership appears to have any meaningful experience running large or even medium-sized bureaucracies. As much as the “prove it to me” posture seems mean-spirited, it is not entirely irrational.
Finally, the creditors have not behaved in a good faith manner in dealing with Greece, so I would be take any statement from the Troika along the lines of “We’ll give you more if you meet our targets” with a fistful of salt. From a weekend post:
As Macropolis points out, the Troika has reneged on written commitments to Greece:
It is human nature to want to call a game before it is over and I am probably encouraging that with these detailed posts. But I think there is still merit in looking at the state of play, since you can make more informed judgments about the outcome (how significant was the loss if there was one, what are the right benchmarks, what does the play of the game suggest about future encounters). We’ll know a lot more not just based on the outcome today, but also possibly over the next few days as more information about how all the negotiations progressed leaks out.
You are right Yves to be skeptical whether any actual reforms such as will be permitted. Having forced the Greeks into the position of humiliating retreat from their hopes of dealing rationally with the Troika, they smell blood in the water and the Germans and Finns in particular are going to insist on total victory, however Pyrrhic it might prove. I think the Greeks will be forced into further humiliating concessions and there will be no structural reforms that might alleviate the suffering. Indeed, anything that might be viewed as anti-Austerity concession is to be ruthlessly crushed. It’s going to be “You hit an iceberg? Nonsense! Full speed ahead!”
Of course Varoufakis has pointed out for years that this is self defeating. I simply don’t think that the Germans really believe that Golden Dawn will take control or that there will be any real problems if they do, or that the unfolding Greek tragedy will spread to the rest of Europe. Their ideologically motivated blindness about “containment” is quite equal to the Cheney Administration insisting that “we’ll be greeted as liberators” after the invasion of Iraq. Just a flat inability to grasp basic reality at any point and hoots of derision towards anybody who contradicts their ideological convictions.
If I were elected to govern Greece and could steamroll like a dictator making enough money to pay back all the debt incurred by previous odious governments I would quickly legalize all drugs and tax them; legalize all arms trades and tax them; legalize all lesser contraband and tax the crap out of it too; and legalize whatever else wasn’t nailed down and tax that too. In so doing it would be two birds with one stone because the Oligarch would probably be vanquished because their lucrative underworld got excavated, and Greece would be rich. It could take a noble turn if Greece legalized the “trade” of nuclear waste and other untouchables and did it up front and in your face and in so doing actually began to control it. Profit from taxing that control. And invest the proceeds in the science and technology we all need to clean up the planet. Ditto for plastic waste. And blahblabla. Legalize it and tax it. And if you have a thousand islands with hidden coves and harbors so much the better.
The Great Greek Amnesty. Doing whatever it takes for as long as it takes.
When Sweden had its crisis 20+ years ago, the Government ran 13% deficits, devalued massively and rushed through massive reforms to improve the economy (and also managed a banking crisis and in parallel negotiated for EU membership). Crazy times.
National debt doubled in the space of a few years.
The criris was deep but the road to recovery pretty fast since most mechanisms of the welfare society were allowed to continue (i.e. opposite of austerity) and since the economy enjoyed an instantanious improvment in competitiveness through devaluation.
The Finns did pretty much the same.
And now the Finns are telling the Greeks to “sweat it out” through more austerity and without the support of a devaluation.
Don’t try to look at it in an adversarial manner. Think of it as a mousetrap. Once you get differential wage costs across countries tied by a common currency across 30 years without significant fiscal transfers, what is going on is what one should expect. Both German and Finland governments are ransom of their pensioner electorates which need high-valued Euro and strong dividends.
The forces at play are well shown by Flassbeck in this video (it should start at 20:14 when a graph of Unit Labor Costs of some countries during the whole Euro era are drawn). So, no matter what Spain, Greece, Portugal or Italy do, they will be importing unemployment from Germany (he says so at some point of the video).
The good old double standard. Standards need to be standardized.
Sweden was smart enough to keep their own currency.
Sweden was “smart enough” to have an american expansionary economy that got the global economy going, GDP growth was almost entirely driven by export surpluses. Sweden was also “smart enough” to have a advanced industry structure way beyond Greece and even Germany, export per capita and export surpluses larger than Germany. latest time export net was negative was due to high oil price 1981, Not even with pegged high SEK during the crisis it was negative. Although current account was negative due to financial speculation in foreign real estate and arbitrage, interest payments in foreign currencies. What collapsed in Sweden during the crisis was the domestic economy with more than 60k companies bankrupt during 3 years of negative GDP. And it haven’t recovered yet. Strangely in the aftermath to the crisis the swed gov could borrow to lower rates internationally than in SEK. Go figure.
Maybe there is only one hope left: anger. As James Petras wrote:
I don’t think there is any difference between “Greece…getting austerity lite as opposed to austerity regular..” I agree with Petras:
Wrong.
Yanis Varoufakis received the most individual votes by a landslide in Greece’s largest constituency, Athens B. He is one of the best known and trusted persons in Greece through his own blog, through his continuous foreign media interviews, through his weekly Greek columns in Protagon, Lifo and other Greek sites and newspapers, through his teaching at the university. And of course, personally.
The Eurogroup’s tame media have been busy trying to get rid of him with a flood of “Yanis is the problem” articles, Le Monde going as far as to say that without Yanis Varoufakis Greece would have been given the ‘green light’ early on. Not!
Since I’m writing from Athens, a Greek, let me assure you that it escapes nobody that this whole charade is 100% political. And that it must be submitted to as a first step.
Thanks, Tsigantes. It’s it’s good to imagine there’s a longer game strategy here, that this is only check, not checkmate, because it sure looks like complete betrayal and unconditional surrender from here. A lot of people had high hopes for Syriza, but the experience with Obama has left some of us quite cynical when so many hard lines are crossed and obliterated and when key levers (exit, Russia, China) are conceded before the start. For Obama it’s been consistent deceit from the outset, with a disastrous policy record that is progressive only in getting worse.
The WSWS has been sharply critical of Syriza from the beginning and has now posted a “told-you-so” column pointing out how “well” ts predictions have borne out and how they can only be expected to get worse, not improve, as Syriza obeys its masters, not voters. This is an old movie.
http://www.wsws.org/en/articles/2015/02/23/pers-f23.html
From the Grexident article:
Varoufakis and others have explained why a Grexit looks so daunting at this point, but are these reasons the same for why the average Greek wants to stay on the currency?
Can someone offer a bit of historical context on who in Greece benefited from the clever accounting that went into their entry (Grentry?) into the Eurozone to begin with? Searching online has netted mostly articles from 2010-2011 and I wasn’t following economics news in any capacity until the past few years.
One word: borrowers. As shown in this chart of 10-year government bond yields, Greek yields in 1994 were as high as 22%. At rates this high, mortgage, business and consumer lending is severely constrained. The cash economy dominates.
http://tinyurl.com/ocs6dv4
In eight years from 1994 to 2001, Greek yields tumbled all the way down to just slightly above German rates. This bright side of the euro was an enormous, transformative benefit to Greek borrowers.
Now the dark side of the euro — inability to devalue during a depression — is apparent. But public perceptions lag, and not everyone understands the macroeconomic effect of a strong currency on a depressed economy.
This puts Greek political leaders in a no-win bind, as one of the constraints (austerity or eurozone membership) has to break. Explaining this to the public is no easy task. In 1896, ol’ William Jennings Bryan framed it in the hyperbolic terms of being ‘crucified on a cross of gold.’ The American public responded by electing McKinley.
Yes, it’s not enough to get low interest rates, but you must be able to devalue the principal too.
Understanding economics is soooo important. Otherwise things would never run right!
Low interest rates without devaluing the principal is called ‘QEx.’
where ‘x’ is an integer that approaches infinity.
Infinity, or until we get “inflation” a central banker may notice. Whichever happens first.
Then there is the “stop inflation” button that central bankers have somewhere and can push. If they dare.
We really need to find a different world. This one is getting boring – if not outright inhospitable.
You’ll be sorry if you miss the Nasdaq 5000 bash … prolly the last good party this planet’s gonna throw.
But it is proven that in the past technology got way behind.
Actually, speaking from Greece, the public understands it very well.
Greeks have no love for the Eurozone, but they do understand what default will entail economically, let alone a no doubt punitive Grexit. Add this to 6 years of financial haemmhorage and serious humanitarian crisis: Greeks are already severely weakened and many barely hanging on. Yanis Varoufakis and Greeks are on the same page I assure you. Nevertheless, we are prepared for the alternatives…if it should come to that, with 20% favouring it.
@ Jim Haygood: Until the euro, by the way, there were no mortgages or consumer loans in Greece – these were introduced, along with credit cards, by foreign banks after 2000. There were plenty of sweetheart loans though, for government cronies – these still comprise the greater part of ‘red loans’ today. The mortgage take up was small since most Greeks own their own homes through antiparochi, self build or inheritance. Consumer lending was equally small. Before the euro Greece was almost 100% cash economy, with most salaries paid in cash, and all bills ditto. Cheques were issued by banks in special circumstances, and failure to honour a cheque resulted in prison. Very few people had credit cards or even bank accounts. The majority of Greeks had post office savings accounts.
Note that Varoufakis did not mention labor measures at all
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We really need to wait and see what’s on Syriza’s list. Reports vary. Eg., Evans-Pritchards: “Am reliably informed that Greek reform list is 5 pages, including labour reform with ILO, and minimum wage // Greek reform plan will include firm-level “smart” collective bargaining. Syriza’s Left Platform not happy, but won’t kibosh (apparently)” (The Guardian).
Thanks. Those are both on AEP’s Twitter and went up after the post went live. He is speaking to Varoufakis so I would regard that report as accurate. And as indicted in the post, but probably not flagged strongly enough, it is almost certain Varoufakis got his list in early to ask for some of the reforms he thought might or might not be rejected. His tone on Friday was he was going to focus on the ones that he was confident would be approved, since the consequences of not getting the reforms approved would be catastrophic (those were his remarks).
But submitting only what he was sure they Troika would buy is the equivalent of potentially leaving money on the table, as well as risking more political damage. So better to submit early, ask for more than you might get, and see what you can get.
But the flip side is that a five page memo does strike me as awfully thin relative to what the Troika was looking for. So that is consistent with the Financial Times account that the Troika wanted more detail and is a bit miffed.
‘a five page memo does strike me as awfully thin’
No kidding. I was projecting 20 pages.
Maybe he typed the 5-pager on his phone using his thumbs.
If so, we need to chip in and buy Jack a Bluetoof keyboard.
Paulson got a lot more with only one page (He must be a haiku lover).
Of course, he had to get down on one knee.
+10000000000000000
Brillant! Thanks for buttering the popcorn.
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It’s amusing to see how Varoufakis seems never to have given up, despite one humiliation after another. I think he is still hoping to somehow pull that rabbit out of a hat via an artfully ambiguous memo. Which of course, the Eumenides (aka “The Institutions”) will never accept. If Tzipras were smart, he’d be dumping Varoufakis and announcing the default he’s been promising all along. After which, the best recourse for both of them would be a hasty trip to the airport, incognito.
Seems clear, by the way, that Varoufakis is finished. Not just politically, but professionally. How can he stand in front of a classroom of intelligent students and spout theories that could not survive the light of day? Who’s going to want to read anything he has to write on economics or politics after he’s proven himself such an utter failure in both departments?
There’s an object lesson here for all of us who love to spout idealistic theories with little understanding of how things actually work in the real world.
Yeah, that will teach him to tell the truth!
But seriously, if you want to talk about economic failure, take a look at the policies of the Troika, or of the budget hawks in this country. The real question is why anyone listens to any of the people who have created this political and economic failure (that YV and others are valiantly trying put right). Failing to achieve a rational outcome when dealing with the insane is hardly a black mark on one’s record.
What would you have had YV do, keep his mouth shut and do what the foreigners tell him?
“What would you have had YV do, keep his mouth shut and do what the foreigners tell him?”
Clearly, yes.
If it is as bleak for Varoufakis as you think it is, and he faces total defeat, I hope he goes for one last handshake with Dieselboom and Shaueble, feigning defeat, and instead punches them really hard in the face. That would be a nice ‘real world’ wake up for them. Would he have diplomatic immunity?
I like your Eumenides = “the institutions” a lot. I’ll see if we can make that into a meme.
A man brings his torn trousers to the tailor. The tailor says “Euripides?” The man says “Yes, Eumenides?”
I think Varoufakis is wildly successful as playing the “game” as best he can. If your only choice is to lose, then give them a 5 page list of your :”reforms”. The institutions sole goal is to blow up Greece, so they should be the ones to pull the trigger, not the democratically elected government.
“it is important to recognize that the best cases scenario for Greece is getting austerity lite as opposed to austerity regular. Even Varoufakis’ target of a primary surplus of 1.0% to 1.5% is still contractionary. Bill Mitchell estimates that Greece will need to run budget deficits of 10% of GDP to restore its economy to a semblance of normalcy.”
While this is all utterly accurate, reducing the primary surplus from 4.5% to 1.0% to 1.5% is truly important, and will produce a significant amelioration in the lives of Greek citizens.
I wholeheartedly agree it’s not even close to being the “correct” solution, but still, it’s a welcome Keynesian measure that will have a positive real world impact on the ground.
(And the precedent set will have impact in the negotiations culminating four months hence.)
Um, if you are already in a depression, a primary surplus means things still will get worse. They just get worse more slowly. That is not the same as relief.
And if Varoufakis gets that is still an if. All he has gotten is some vague language about the 2015 target (which goes from 1.5% to 3.0% but I have not seen when the effective date of the change is) allows for current conditions, as in the Troika might grant some relief.
As for the ongoing level, as we’ve said before, most commentators had expected a break from 4.5% regardless. I recall even the merciless Schabule saying 4.0%. But I also saw commentators taking the “split the difference” approach of 2.5% to 3.0% as a good number when that is still insanely high.
There seems to be a lot of confusion about “better” and “worse” without providing any context. If you’re bleeding to death, and need emergency surgery to repair a severed artery, then arguing about the size of the bandage you’re permitted to apply is pretty much irrelevant.
Wrong metaphor.
This is not about stopping the bleeding. This is an argument about the rate at which the bleeding from the severed artery is permitted to continue.
Of course he ‘gets’ that. But that is NOT on offer. Even 1.5% is utterly outrageous and unheard of to Eurogroup.
None of this is about economics. Its about Eurozone banks.
What if V game was to drive the Greeks to a point of resistance so he can act decisively?
Could someone explain what happens if the Greeks simply default and refuse to pay the euro denominated bonds?
That would be nice. The problem is that resistance, while essential, cannot be counted on to do what is necessary, which is (in the long run) some sort of post-capitalism.
Really a great answer. Post-Capitalism needs to take into account all the environmental damage as well as the economic damage and inequality. Big Project.
It seems that the sumtotal of this entire “negotiation” cum farce will be 80% of austerity fitfully intact, and Greece degrading only a tad less quickly. Politically a big win for Schauble, and a big loss for Syriza. Which allows the EU to pretend their Austerity programme was a great idea from the start, probably the biggest loss for everyone. Zombie dogma.
But in four months… My guess is we Grexit, and Greece manages to secure financing from some 3rd party “cough China cough”, and has two years of completely rebuilding from scratch. Thinking, of course, that had they done this in 2009, Greece would be already well on it’s way to independent recovery but… obviously… in 2009 there was nowhere to get 3rd party financing.
Goldcap: It seems that the sum total of this entire “negotiation” cum farce will be 80% of austerity fitfully intact, and Greece degrading only a tad less quickly. Politically a big win for Schauble, and a big loss for Syriza…
I disagree. A twenty percent (minimum) reduction in counterproductive “austerity” just in the first round of a fifteen round fight. Not bad for a party whose goal is to move away from “austerity” while remaining in the eurozone.
It may be a mistake to see this as a win/lose dynamic, and I may be guilty of that too.
You can have lose/lose payoffs.
Schauble really hurt himself, and maybe Germany, by blowing up over the Greek Thursday memo without consulting with the rest of the Eurogroup. Even though Germany technically has a veto (as did every Eurogroup nation) the unnecessary show of force looks to have really backfired.
Greece really overpromised and had to retreat in a big way. Now a lot of Greek voters expected a famed somersault, so it may not hurt them domestically all that much, although Syriza’s political opponents, and even the members of the harder left contingent in Syriza will try to whip up opposition. So we won’t know the full impact for weeks. But as we said, this is still probably as good as Greece could have done given their utter lack of negotiating leverage. So how you score this is very much a function of what you see as the benchmarks and what your time frame is for measuring results. And we have months of wrangling in the offing. Both Greece and the austerians can improve their game or make serious own goals. Varoufakis is trying to move to a win/win dynamic, but that seems like an incredibly uphill battle given how many prominent politicians and bureaucrats have made deep career investments in failed policies that they feel compelled to defend.
“Greece really overpromised and had to retreat in a big way…”
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That’s certainly a valid way of looking at it.
Alternately, you could say that Greece staked out a maximal negotiating position, intending to retreat from it to achieve a realistic compromise. Which they did. Maybe.
Haha, lots of “maybe” going around :)
While you might be right about the negotiations being more fruitful, and believe me I hope you’re right, I find it hard to see the endgame for Greece. The brutal fact (writ large, all apoligies…) is that their economic assembly is unsustainable, and Germany (and the ECB) are refusing to allow them to change that fact…
It’s hard to know exactly why? Because “They drank the Austerity koolaid”? Because “Greeks are lazy”? Because “Deutchebank got us elected”? But in the end, without GDP growth, a safety net, and ANY fungible assets not sold to the lowest bidder, they haven’t really moved at all, IMHO.
But again, point taken, and I hate to pour icewater on the embers of “progress”…
Maybe one move.
I understand taxation destroys money, but they should tax the heck out of those Greek oligarchs.
And nationalize the oligarchs’ corporations, thus having access to their revenues as current government revenue, and pay for the purchase prices in a few decades.
But, after destroying the money, in a completely different move, the government MUST spend it into existence – otherwise the whole thing doesn’t work!
The thing is, for reforms to be real, they are going to have to hurt and when they do, Syriza’s popularity (whatever is left) is going to take a hit.
Interesting to note that both Merkel and LeGarde have endorsed Varoufakis et.al. Merkel said “compromise was possible” and LeGarde said the “Greeks were very competent.” Go girls.
In the next sentence after “compromise is possible” Merkel said something along the lines of “but a deal is a deal.”
“Um, if you are already in a depression, a primary surplus means things still will get worse. They just get worse more slowly. That is not the same as relief.”
As stated, I agree. It’s not even close to being correct correct policy. But, again, it really will provide real world benefit to Greek citizens, which should not be sneezed at, considering the utter ongoing humanitarian disaster.
And, again, it sets a positive precedent for what happens four months hence.
Or put metaphorically, the difference in your home in the middle of winter being heated to 30 versus 40 degrees matters. They’re both wrong and dangerous, but the difference really does matter to the folks in that home.
Or put non-metaphorically, if all of Europe came to its senses and suspended debt repayment for several years, (or came even more to its senses and gave debt forgiveness), thus letting Greece run a deficit of 3%, it still wouldn’t be enough to get out of the horrific depression they’re in within a reasonable amount of time.
Assuming the next 48 hours go relatively smoothly, (which is no sure assumption), Syriza has delivered a pretty amazing first installment for their citizens, and put themselves in position to do even better in the next round.
Small typo in the last paragraph: “hus all of these hard-fought efforts.” The missing “T” is at the end of the preceding paragraph.
I know I’m a little late with this. Yves and I have had a difference of opinion as to the importance of the agreement Greece signed with its creditors last Friday. She saying that it was Greece that had negotiated away promises given its people and I said that the important change was with respect to the reduced influence of the Germans – meaning more specifically, the German mercantilists, Schäuble et. al. – going forward. We’ll have to wait to see how much either of us have missed.
There’s been a lot of discussion over the weekend, and probably a lot of mis-information.
Here’s a post that I found on Sunday evening that corroborates my initial feeling and I link to it not because it proves my point, but because it expresses that view better than I can myself. And Lambert will like it too. However, even this has to be taken in the context of what I had written here upon Syriza’s election; that agreement would come over the protests of the Germans (again German mercantilists.) And that strategy required a wedge be driven between them and the French to separate and remove them from their monopolistic control of EU policy.
There would be lots of room to disagree with that assessment.
Have any of you ever cut stone? It’s not done by brute force. Stone is extremely strong in compression. But extremely weak in tension. So, a stone mason looks over the stone to see the natural cleavage lines. Every stone has them. Then with a small chisel, it’s like a diamond point chisel and it’s called a stone point, he pecks away until he’s created a small pocket along that line of cleavage. And he places a small wedge in that pocket and taps it tight. Just tight. That’s all it takes. A little bit of tension. And every few hours he returns to tighten it again. Slowly. Too fast and it shatters. An old Italian taught me that. Mr. Mantini. Che zio. No stone is too big, too monolithic.
Syriza’s election and their rhetoric over the last months opened that pocket. Friday, Yanis Varoufakis set the wedge. Che zio. Concentrating on what Greece has obtained or lost in these negotiations is the wrong perspective. Germany has lost their monopoly control of EU policy. That’s big. The rest will follow in Europe’s own way. Slowly. Does it mean that Greece is out of the woods? Don’t be silly. And as Tsipras said the real work is yet to be done. After the stumbling bloc is removed a new coalition must be built. It may appear that Syriza continues to back-track as that is done.
But remember, Greeks are demonstrating in the streets in support of their government. Germans are much more divided. German unionists must be ready to abandon ship. Though that’s only a guess. I don’t have any contact with them. And all of the rest of Europe is more moderate; natural cleavage lines. Greece is European. If a European Union is to mean anything Greece must be part of it. I’m convinced now that the mercantilists meant to drive Greece out. If so, they failed. And now, finally, somebody else in Europe has an incentive to get Greece back on her feet and make it work.
There was a you-tube video of a press conference with Varoufakis and Schäuble. After a meeting in Brussels, I think. I would look up the link, but I’m sure most of you saw it. A girl I follow on twitter compared it to a Molière farce. When you get that you’ll understand how ruined the mercantilist position is.
Thank you for a great comment. Being a sculptor, the analogy was perfect.
It seems the great tragedy of modern life is the need for everything to be resolved quickly.
I know it’s hard to watch suffering.
I tried the stone and wedge analogy a couple of days ago because it seemed fitting. You look at a big two ton block of stone and a little steel (or even wooden!) wedge and you can’t help but think that the wedge has no hope of splitting the stone. Obviously. Don’t be ridiculous.
But it can if wielded correctly and with patience.
Great comment. Exactly agree with the line by line analysis in the link and like the analogy.
If one compares the likely outcome of this phase of the negotiation against
a) What the Germans were saying (give us three sentences confirming you subscribe to the old memorandum (pension cuts, fire sales etc, increased GDP surpluses) without changes.
b) What YV was saying in the past few weeks
The likely final agreement, based on the memo, is *much* closer to b), and represents an embarrassing defeat to Scheuble, as well as being a strategic victory in a longer battle, as @MarcoPolo points out.
The real challenge will be what happens in the next few months, because if they’re once again in primary deficit at the end of that, then they lose credibility and negotiating leverage. So the extra condition that the Troika will be costing policy changes is probably a welcome constraint.
This is the companion piece by the author of your link. It analyzes what Schauble got: http://www.norberthaering.de/index.php/de/newsblog2/27-german/news/275-worth-it-schaeuble#1-weiterlesen
Lambert put the first link up under Grexit yesterday in the links.
This reply ended up in the wrong place when I put it up.
This is the companion piece by the author of your link. It analyzes what Schauble got: http://www.norberthaering.de/index.php/de/newsblog2/27-german/news/275-worth-it-schaeuble#1-weiterlesen
Lambert put the first link up under Grexit yesterday in the links.
The concern is that Greece is also a stone, with cleavage lines and pockets, like that national hero who hoisted the flag during WWII, and other parties.
More worrisome is the possibility that Germany is jade, likely jadeite, a hardstone, with a Mohr’s hardness nunmber of 6 or higher, while Syriza is marble, a soft stone.
I hope it is not so, but only time will tell.
Soft stone is harder to fracture, it gives, deforms a little, but remains whole. The harder the stone, the easier it is to cleave if you can identify the fracture plane, but the more initial resistance it gives. Ideologies are similar to stone in this sense. Hard line ideologies, unable to bend, can only fail catastrophically.
That’s a good point.
Yin over yang, and bone china is preferred over porcelain for its ductility.
Jade, though, has a reputation for resisting weathering, freezing and thawing.
“And if Varoufakis gets that is still an if. All he has gotten is some vague language about the 2015 target … As for the ongoing level, as we’ve said before, most commentators had expected a break from 4.5% regardless. I recall even the merciless Schabule saying 4.0%. But I also saw commentators taking the “split the difference” approach of 2.5% to 3.0% as a good number when that is still insanely high.”
There is no doubt that it’s all vague. All that happened on Friday was an agreement to defer an agreement for 3 or 4 days that would, in turn, defer an agreement for four months.
But my (incredibly unsure) reading is that precise reason the primary surplus figure was left vague was to get the agreement past the German and Finn reactionaries, at which point more sane Eurocrats would deal with reality without having to fear those two veto points.
“…that agreement would come over the protests of the Germans (again German mercantilists.) And that strategy required a wedge be driven between them and the French to separate and remove them from their monopolistic control of EU policy.”
Exactamundo. That’s why I thought the whole Moscovici interlude was so significant.
And on your broader thesis, the Italian FinMin publicly endorsing the Varoufakis proposal on Friday fits in.
(And FWIW, it’s obviously in the interest of both France and the French government to break German monopolistic control of EU policy. Same with Italy. I include the bolded “and” there because France differs in that way from Spain, Portugal, and Ireland, where the interests of the nation and the current government differ.)
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“Germans are much more divided. German unionists must be ready to abandon ship. Though that’s only a guess. I don’t have any contact with them.”
The reaction of the German SPD to the Varoufakis proposal last week was fascinating. Initially, they expressed support for the proposal. Then they shifted to neither agreeing nor disagreeing with the proposal. Then they shifted to being opposed to the proposal. That total turnaround took less than 24 hours.
So yes, Germany has divisions, but only weak and tentative divisions so far.
I wrote the other day in comments that Greece has won the PR battle thus far. Here is another way to put that:
http://uk.businessinsider.com/zizek-heres-the-worst-part-about-eu-demands-on-greece-2015-2?r=US
I don’t think Varoufakis plans to run a primary surplus. I think he wants a green light on his reforms so he can run a deficit and show a reduction in the debt-to-GDP.
If he does that, then he will have shown real progress, which will make it harder for the euronuts to shut him down.
That’s why he’s angling for “constructive ambiguity”, so he has the cover he needs to do what he needs to do his thing without being constantly pestered by the failed economists in the troika.
just saying….
Maybe Varoufakis just wants some immediate cash from the European Common Bank ATM so that he can keep things going for a bit, and he expects the next big conflict to result in a default?
I also got the scary thinking that the Greek government is delaying the delivery of the list so that it is done when the Greek banks are open, because they want the Greek people to empty the Greek banks to extract those ELA funds and there are plenty of cash in the streets for the bank holiday coming… I dismissed it using Occam razor, there are plenty of simpler explanations.
http://www.wsj.com/articles/u-s-units-of-deutsche-bank-santander-likely-to-fail-fed-stress-test-1424467951?mod=WSJ_hpp_sections_markets
“U.S. Units of Deutsche Bank, Santander Expected to Fail Fed’s Stress Test.
Shortcomings seen in how banks measure and predict potential losses and risks”
Could this be the Fed expressing its displeasure with the ECB’s intransigence?
High probability.
The timing and the banks country of origin are definitely interesting. Wonder what the effect on Greek bonds will be?
Meanwhile maybe SYRIZA might disintegrate at some point, out of dissent against the austerity which we’ll probably see in the coming months:
http://www.nytimes.com/2015/02/23/business/international/greek-leaders-face-revolt-at-home-as-they-try-to-appease-creditors.html?_r=1
And then you have Richard Seymour’s thoughts about that proposed 1.5% budget surplus:
http://www.leninology.co.uk/2015/02/syrizas-mauling-at-eu-negotiations.html
“There are no grounds for thinking that Syriza’s bargaining position will be better in four months time than it is now. It has already weakened its stance, while its political position, after four months of continued austerity, will probably be worse.”
So yeah, this says something about Varoufakis’ emphasis on how a Grexit would be so painful. Is it clear that there’s not going to be a Grexit this year, or that a future Grexit would be less painful than having one start now?
That’s the Greece-is-a-soft-stone concern I mentioned above.
Moreover:
http://www.thepressproject.net/article/73424/Europe-trashed-democracy
“Following the marathon governmental ministerial council meeting today, it has become clear that completing this list will be very difficult and painful for the government given that the extension of the loan agreement effectively includes control over the legislative work of the government, raising insurmountable obstacles to the implementation of SYRIZA’s reform programme.”
So here’s my question for the advocates of SYRIZA’s “buying time” strategy: how much of “buying time” is really going to work at all, and how much of it is counterproductive (i.e. Greece ought to get it over with and leave the Eurozone now)?
In the event of a Grexit, where tax liabilities were revalued in Drachmas**, would there not be an incentive for anyone with euro denominated savings to delay settlement? And if so, what sort of success can be realistically expected with respect to recovery of delinquent taxes?
**acknowledging this is not a given, but where would Greece get its dollars to dollarize, roubles to roubliize, etc.?
I think it is important to think about the longer game here. Unless Syriza collapses as a government (always possible – I do not know how robust their coalition is), it is going to be around for a while as the Greek government. That means they can keep trying to change the terms of the agreement with their creditors (assuming one emerges this evening) as opportunity presents itself. An agreement, if reached this week, is not necessarily going to be good for a long period. What happens if the EU want a decision which needs unanimity (some EU decisions require that)? Greece can make further changes to its financial agreement a precondition for waiving its veto. Changes in circumstances both in Greece and other member states of the EU will have a bearing.There is plenty to play for still, and some of that will depend on future contingencies which by their very nature will be unpredictable.
I readily admit I don’t follow all this but, out of ignorance, I still have a few observations or questions.
1 How are the oligarchs or anyone able to avoid paying taxes? That makes them seem a failed state and then why loan them anything at all? Same question on smuggling.
2. If they were to leave the euro, can they even feed themselves? Who would want their currency? If they have nothing to sell or not much, where will they get foreign exchange?
3. They negotiate like fools and they continue to enslave their people. Why are they not actively talking to Russia? They have nice warm water ports whether or not they leave the euro. One must presume some fascist or communist party will take power and do that. Maybe they are getting all they deserve.
4 No doubt Mitchell is right. But where shall I put that piece of advice?
The newspeak-like renaming is reminiscent of Obama’s ‘Third Way’ BS (“YES we can!” bend over). It is not consistent with Syriza mandate and rhetoric (no can-kicking / respect for Greek democracy). Glezos says it best (http://www.keeptalkinggreece.com/2015/02/22/syriza-mep-manolis-glezos-sharply-criticizes-greek-govt-for-negotiations-handling/):
This renaming causes me to see YV negotiations in a new light. Now they look more like Obama’s 11-th dimensional chess with the Republicans. Deliberate failure dressed up as “bi-partisanship” (for YV, replace this quixotic ideal with “benefit to all europeans”). It doesn’t change the fact that the Troika is still in control, and willing to allow only just enough lee-way so that Greece doesn’t exit and does’t fall apart. In short – maximizing their financial return. TINA!
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Rebranding is an EU special weapon, if people vote wrong in referendums rebrand it and let em vote until they vote “right”, e.g. the unpopular constitution was rebranded a treaty.