It’s painful to watch the Greek ruling coalition unwittingly do the creditors’ work by wringing Greece dry of cash more aggressively than Pasok or New Democracy would have dared to.
In a desperate bid to buy more time to reach an agreement, the central government has borrowed pension cash and ordered local governments and universities to turn over their deposits to the central bank, ostensibly to serve as short-term borrowings to make IMF payments. But as anyone with an operating brain cell must recognize, if the Greek negotiators fail to come to terms with their creditors to unlock €7.2 billion in bailout funds, this begged and borrowed money will never be coming back. Greece will default in even more desperate straits than it would have otherwise.
As we’ve pointed out, the best strategy for the creditors was to keep Greece in the sweatbox. Syriza fails to realize that they are playing right into their counterparties hands.
Even the ruling coalition’s extreme measures appear to be buying only a few days of breathing room. The latest report is that Greece will be able to make a May 6 IMF payment, but the government’s body language is that it really, really, really needs the Eurogroup to approve the release of funds at its May 11 meeting, prior to the next IMF payment date of May 12.
But Eurogroup chief Jeoren Djisselbloem ruled that possibility out at the last Eurogroup meeting. And even if the Eurogroup ministers were to have a miraculous change of heart, the need for many of the member countries, particularly Germany, to obtain parliamentary approvals, separately would seem to make it impossible for Greece to get funds in time to make May 12 IMF payment.
Mind you, a default may not be quite as earthshaking as it seems. Rating agencies have indicated they would not lower Greece’s bond ratings to default levels even if Greece misses IMF and/or ECB payments. In theory, that gives the ECB the ability to keep the banking system life support of the ELA going, However, members of the ECB’s governing board have been bloodthirsty noises for some time. Indeed, the ECB has made a new threat, whether to increase the haircuts it makes on the collateral that Greek banks provide to obtain cash under the ELA. The ECB will make a decision on May 6. Given the central bank’s desire not to appear to be the one that decided to strike a fatal blow, it seems more likely that the ECB would instead find a way to tighten the choke chain further, say by issuing strict conditions that Greece would have to meet in order not to have the haircuts increase rather than raise them now and push Greece over the edge.
With this background, it’s hard to fathom the latest public pronouncements of Greek officials. For instance, consider this report from ekathimerini:
Greece is hoping that it will find enough common ground with its lenders to trigger an emergency Eurogroup before May 6, when the European Central Bank’s government board is due to meet next to decide on the provision of liquidity to Greek banks.
As we’ve written, there is no common ground on Syriza’s “red line” issues, such as pension and labor market “reforms” that were part of the old structural reform program that Syriza has made clear it wants to renounce. There’s no reason, given the Greek government’s obviously dire straits, for the Troika and Eurogroup to give an inch.
Even more peculiar and disconnected was the interview over the weekend by Yanis Varoufakis, in which he said that Greece would not need the bailout funds if the creditors would negotiate the debt. Huh? That is technically accurate but wildly remote from the realities on the ground. The creditors made clear months ago that Greece needed to come to a deal with them on structural reforms before they would entertain a discussion of debt reduction. To pretend otherwise at this juncture is a misdirection.
By contrast, Syriza member of Parliament Costas Lapavitsas, who is also a member of the party’s hard left wing, has a far more realistic assessment. In April [correction, March], he said that Syriza’s strategy had played itself out and had failed (emphasis original):
The Syriza strategy has been – and it remains – that a change in the political alignment of forces in Greece, in Europe, or generally, would act as a catalyst in the Eurozone. This strategy has now come to an end. The real question is how long it will be before people understand it.
I was always extremely skeptical of it. I always argued that it isn’t just about political alignment, there are institutional mechanisms and the logic of the monetary union. And those who believe that a simple change of politics is enough to transform this, were mistaken and I think this has been confirmed.
What we’ve seen is that the institutional framework of the Eurozone and the ideological machinery attached to it are not susceptible to arguments that come from electoral realignments. So the agreement of the 20th of February at the Eurogroup reflects that.
This is a terrific, if sobering interview, and I urge you to read it in full. Lapavitsas says that there is no middle way, meaning compromise, in the offing. Greece’s only choices are to submit to continued austerity or exit the Eurozone. Lapavitsas argues in favor of negotiating an orderly, managed exit, but he concedes that the government does not have a mandate for that option. He clearly believes the public could be persuaded to come around, but the runway appears to be too short for that to happen now.
As in the runup to World War I, accident, rigid timetables and miscommunication may well be what determine the outcome of these negotiations. Nevertheless, the more Syriza goes all in by extracting every Euro it can find to keep its creditors at bay, the more it commits itself to getting a deal done, no matter how terrible that deal is. If the new government had any thought of defaulting or trying to win an orderly exit, then it would have been much better served, as we’ve argued all along, to impose capital controls and conserve cash. In the wake of the crisis, mortgage borrowers in the US figured out that it was smarter to default with enough funds on hand to be able to put down a deposit on a rental and pay moving costs than to drain all their bank accounts in a futile effort to keep a house they were almost sure to lose, and then find them unable to contend with the consequences.
And even the quixotic effort to try to get the Troika and Eurogroup to relent has come at a high cost, independent of the raiding of any and every source of official funds. From the Guardian:
Following three months of fruitless talks to reach a cash-for-reform deal with creditors, public finances have never been worse. In an atmosphere of fear, the real economy has come to a grinding halt. Disquiet over whether prime minister Alexis Tsipras’s leftist-led coalition can keep up with state expenditure and meet debt repayment obligations – it must pay nearly €1bn to the IMF by 12 May – has added to the mood of mounting angst…
“We are not at the point of outright panic yet but people are clearly very worried,” said Mouriki, a sociologist. “Close to €30bn has been withdrawn by depositors and firms from bank accounts since December which is more that at the height of the crisis in mid 2012.”
But shades of panic have arrived and, indelibly, have begun to reveal themselves in other ways: from the government sequestering the funds of public bodies to help pay bills; to Greek borrowing costs soaring on fears of insolvency; to savers stuffing their freezers with cash and ever more parents encouraging their children to move abroad. “I have come round to accepting that my daughter’s generation is a lost generation,” lamented Panaghiota Mourtidou, sitting in the food pantry she helps run in central Athens. “At 30 there is no chance that she will have any of the certainties that we enjoyed but maybe my grandchildren will. That, now, is my great hope.”
The Greek government has remained hostage of its conflicted election promises: of negotiating an end to austerity while renouncing the possibility of leaving the Eurozone. While a happy ending was never in the cards, Syriza’s path is looking to be one of the worst it could have navigated. One can only hope the Greek people can endure the punishment the creditors seem determined to inflict upon them.
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Just about the only thing that can help Syriza survive intact now would be if Turkey were to try to take all of Cyprus. Considering the state of play inside Turkey now, that isn’t such a far fetched idea. (Someone could always claim that Israel wants Crete. [Judea, Samaria, and Crete, Solomons’ Kingdom as revealed by the Kabbala!])
On another note, I’m wondering what the recruitment figures for the far Right and far Left militias are now.
Seems like Syriza are bloody amateurs. I also wonder how real their comitment to the poor was from the start. A lot of their pronouncements reeked of good old clientilist policies. Seems like they are of the salon-communist variety who don´t seem to have fathomed that there is a real world out there. I believe they would have had a chance to impress the Eurogroup with professionalism and good governance (and thereby also constituted a credible threat). Now they are turning out to be neither able to constitute a credible threat nor be an example of good governance. One of the oldest and most important demands of the Euro group was that Greece finally gets a national real estate register. Any other older member of the EU has such a register. It is the basis for taxation, valuation for the functioning of any capitalist economy. Unless you opt for flat out Socialism you cannot proceed with out one. Samaras promised and promised but was never able to deliver.(Most likely as the richest part of the population owns the most property and therefore has the most to loose once finally the picture clears)
Same again for Syritza. That is one great disappointment, Even worse though is the promise of Tsypras when he got to power that he would hike the eviction limit from 35 000€ and 200 000€ evaluation of the house to 50 000€ and 300 000€. (Sorry, but 50 000€ is a mighty good salary and for 300 000€ you can get quite a nice house). On top the questionable pardon for tax dodgers and one starts to wonder. Not to forget all the nationslist rhetoric, the greatest army parades in many years on independence day and the coalition with a right wing party although there would have been an alternative)
one starts to wonder
Throw in:
– a failure to learn / switch course
Syriza’s strategy would either succeed quickly or fail miserably if talks drag on – they allowed the later to occur
– and much more.
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Nit-picking and Monday morning quarter-backing? See my comment below and decide for yourself.
It appears that politicians, and government officials, may sometimes have conflicting loyalties.
– via a supporter of the KKE (who posts some comments in English). Video from the panel discussion was posted on YouTube by 902.gr, the KKE’s Internet radio website.
Makis Papadopoulos, who made the allegations, is in charge of the Ideological Committee and of the Department of Finance of the Central Committee, for the KKE.
That may be a bit unfair. Varoufakis did speak at a INET event in Paris, but it was televised and got over 50 million viewers, and so looks to have been a reasonable appearance to make. Soros is a significant but not majority funder of INET. I’m not aware of Varoufakis ever being an INET grantee nor am I aware of Soros targeting political investments to Greece (unlike Eastern Europe).
The hard left wing was far more realistic but represents only 1/3 of the Syriza MPs. The hard core leftists have more in the way of experience and connections with the few remaining seriously left wing groups around the world and understand how fierce and bloody the battles to wrest power from entrenched interests are. By contrast, as we said early on, the majority of the Syriza MPs are solidly bourgeois, more like classic (as on old school) European social democrats. They don’t come out of a radical tradition of having been oppressed and having to engage in protracted, costly battles to win rights and dignity.
As Lapavitsas said in his interview, his more moderate colleagues really believed that prevailing with the Eurozone was a matter of persuasion, and not a bare-knuckle fight.
Tectonic plates. Greece is the epicenter. Which seems to be the German’s rationale for disciplining them. Oh dear god. In my view, the Greeks should be welcomed, accomdated, restructured as necessary and rejuvenated. The restructuring is the sticking point. And for what? This much forgiveness and this much negative interest is the tweaking of the situation – but the situation is that we need to change. The tweaking is virtually without a purpose – except that it is vitally necessary. (Because we have defined everything in currency, ,and etc.)
welcomed, accomdated, restructured as necessary and rejuvenated
Well, they do need reform. Unfortunately, AFAICT, in Europe, country-level elites essentially collude with Euro-level elites/bureaucrats.
Lapavitsas’ makes complete sense and it’s a pity that he is cast as a member of the hard left because he seems to hold more economic logic than any other Greek politician who has been on the wires, including the New Democracy crowd. Even if Tsipras and Varoof do not agree they owe it to the Greek people to have that debate. The debate could trigger a bank run but then a run seems unavoidable as the government cannot avoid having to choose between paying wages and pensions or paying external creditors, possibly within the next few weeks. Why can’t Tsipras appoint a decent minister of finance?
Elsewhere a commenter opines that Syriza not having a mandate to leave the EU may hinge upon the public sector bureaucrats and their unions (>50% percent of the employed in Greece?) having their income and pensions denominated in Euros, versus the severe devaluation that would come with the replacement Drachma.
About 17%. One of the smallest public sectors in Europe. The larger point has some merit. Despite 25% unemployment the remaining 75%’s short-term interests seem best-served by remaining in the Euro given the likelihood of a big devaluation. I think that goes a long way to explaining the political difficulty of getting out of a currency peg. No matter how high unemployment goes, there’s probably still an electoral majority whose short-term financial interests are served by remaining in the peg.
Wouldn’t that be contract breaking when
1. they joined the Euro and pensions changed to payable in Euros (perhaps except the pensioners gave consent) and
2. if they leave the Euro, with pensions reverting back to payable in Drachmas (maybe they won’t consent this time, and challenge it in court)?
unwittingly do[ing] the creditors’ work … a desperate bid to buy more time … fails to realize that they are playing right into their counterparties hands … hostage of (sic) its conflicted election promises
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I think you are being kind to a fault in your description, Yves.
You and Lapavitsas were not alone in raising questions about the strategy. The Troika’s intransigence was not some complex, arcane thing.
The election strategy, the negotiation strategy (partnering with “the Institutions”?), and even the personalities (Yanis the marxist!), seem designed to captivate, confuse, and disarm. At a time when failure was not an option, Syriza mysteriously failed.
Alternative courses of action would’ve meant that Syriza take a populist approach. But inflaming class conflict is anathema to The Powers That Be TPTB). Solidarity. Must. Be. Avoided. Instead, Syriza chose an approach that was technocratic and demagog. Perfect to bring the (manufactured) crisis to a TINA(*) conclusion.
How can anyone miss the parrallels with Obama’s 2008 election strategy (tell ’em what they want to hear), subsequent betrayals 11-dimensional chess “bi-partisanship”, and his disarming personage (community organizer! first black president! nobel peace-prize winner!).
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* There Is No Alternative (TINA)
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H O P
I misread this situation. I’m not well versed in the economic aspect of this topic. Hell I do not know much about Greek and the EU but politics is essentially the same everywhere. You either serve your local constituents or you serve the Oligarchs. I thought Syriza broke from the oligarchs and had a real chance to challenge the system.
Yves repeatedly mentioned that Syriza is a moderate party. I always assumed that the moderates were essentially Greek oriented and would not sell out their country. I was mistaken. The moderates seem to be your typical boot licking corporate lackeys that hide behind rhetoric.
In the US you’ll read/hear Democratic leaders or progressive leaders talk about change until you find out who pays them or what policies they support. In the end its almost always whatever some corporate hack at a think tank wrote for them.
I thought there was a slight chance Syriza.
I am starting to wonder if the oligarchs are right: there are masters and then there are slaves. Ireland? – slaves. Greece? – I had hoped for better but they seem like slaves too. It’s like their brain can’t think in any other way. It’s not genetic, but god I don’t know.
Change is a dangerous word.
Doubling rent extraction is change.
“Like it better now?”
forgive me if this question has already been answered, but what exactly would a better deal have looked like IF Syriza and/or V. had been more “skillful” in it’s negotiations?
As I read the situation the Troika and the ECB wasn’t inclined to give any ground whatsoever, maintaining from day one a stance of “take it or leave it” — where “it” is basically the same deal they offered/demanded from the former Greek govt.
So if Syriza looks to be heading to the worst of all possible “deals” . . . what would the best, REALISTIC, deal have looked like?
If this question has been answered before, again with apologies, could someone kindly point me to it.
“We’re leaving. Thanks for all the fish.”
Exactly sd. If their plan was always to take Greece out of the Euro……they should have just said that up front. Day 1. Europe would have helped them make a roughly-smooth transition or begged them to stay. Either way the bonus would have been…they could have stopped making debt payments almost immediately.
Instead their entire plan rested upon the narcicistic whims of a fickle, prickly, and amateurish professor. Varoufakis major accomplishment, besides establishing economics as a fashionable profession, was to single handedly bring his country to the brink of collapse. How does he still have a job?
Many have noted that Greece’s problem is insolvency, not a liquidity. Any deal should therefore involves some measure of debt forgiveness. The form and extent of that forgiveness is an open question.
Inherent in your question is this one: how could Greece have gotten a better deal? Many people, used to the asymmetric power of their personal dealings with banks and other institutions can not fathom how Greece could hope to prevail and obtain anything other than what the Troika wants.
Syriza choose not to:
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By failing so completely, Syriza has set up a TINA conclusion that will be essentially dictated by “the Institutions”. However, because it is in the interest of “the Institutions” to keep a compliant government in place, it is likely that “the Institutions” make a few small concessions that allow Syriza to declare victory.
No deal. Greece would have told them to stuff it. Default, end and rollback the privatization looting and deal with the consequences. The only good thing Greece could have gotten out of joining the eurozone would have been help with the country’s corruption, but the zone didn’t seem to care about that – much less the union as a whole.
The interview with Lapavitsas is over a month old, not from last week:
http://www.thepressproject.net/article/74530/Costas-Lapavitsas-The-Syriza-strategy-has-come-to-an-end
I don’t know what is Naked Capitalism’s agenda in playing to the tune of European CorruptoPress in this issue and pounding on Syriza, but the juvenile mistakes doing in your reporting since this whole issue started have crushed the high steem I had for the site.
Please, stop reporting on this issue and destroying your reputation.
You are shooting the messenger. As we said from the very beginning, based on the obvious negotiating positions of the two parties and their bargaining positions, it was highly unlikely that Syriza would succeed. They have made their bad situation worse via throwing away their only bargaining chip, the threat of a Grexit (which they could have soft-pedaled but made clear was an option, most important by imposing capital controls immediately, which was easily justified by the severity of the bank run), and by irresponsibly not having a Plan B. This is misleadership on multiple levels. Just because you are personally attached to Syriza’s goals, and we are very sympathetic to them, does not mean one should blind oneself to how they made a difficult situation worse.
I must note that all you’ve done is shoot at a relatively minor issue and failed to address the thrust of the argument. Are you seriously saying Lapavitas’ call is less accurate by virtue of having been made early? It is even more obvious that the ruling coalition is cornered and flailing about? You don’t address our argument, that by wringing Greece dry to hand cash over to the creditors the ruling coalition is making matters worse for Greek citizens given the almost-certain outcomes of default or capitualtion. Finally, we are hardly serving international banking/media interests. We don’t have any influence in Europe, so to use that as a basis for taking issue with our reading is quite a stretch, particularly since we’ve called the trajectory of the negotiations more accurately than virtually any other site.
Syriza is serving the creditors even better that Pasok or New Democracy ever would have dared to. You need to look at actions, not words and intentions.
Yves coverage of Greece has been roundly applauded.
Thanks for reminding us of why we appreciate her.
Your illogic has prompted me to read that interview. Thanks!
I fully share your disappointment in the Syriza leadership, Yves. But it was apparent from the start that they really had no bargaining position unless they were willing to take a truly revolutionary stance. And as you’ve pointed out, they are neither revolutionaries nor even “leftists” in any but the weakest sense, not much farther to the left than Pasok.
Nevertheless. If we can put our disappointment on the back burner and pull back to consider the big picture what we see is a humanitarian crisis in the making. And it’s very upsetting to see how cold and unresponsive the Germans have been to this dire and in fact extreme situation. After Germany had been crushed in the wake of WWII, it was in far worse shape. Moreover, it had brought this disaster on itself, and was also fully responsible for a great many other disasters all over the world. Instead of leaving Germany to its much deserved fate, an enlightened program called the Marshall Plan came to its rescue — and changed history. In its wake, Germany became a stable democracy and also a pacifist state and has remained so for a very long time. And most of all, what remained of the German people managed not only to survive, but thrive.
Very clearly, this is the sort of support the Greek people need at this point in history. NOT yet another “bailout,” most of which won’t help them anyhow, and will only be yet another loan they won’t ever be able to pay back anyhow. And the fact that neither Germany nor any of the other European powers can see beyond the ridiculous terms that have been imposed on a nation clearly unable to meet them is beyond disheartening. It’s disgusting. Imagine if a Germany in ruins had been expected to pay “just reparations” to all the allied nations in the wake of WWII. The situation with Greece today is really not that different. The only difference is that Germany would have deserved what it got and Greece does not.
While we are now living through is not just the financialization of the economy, but the financialization of humanity itself. Time for a shift of gears!
I know this is wishful thinking, but could there be any sense in draining the country of Euros before initiating a parallel currency?
I asked the commentariat about the use of capital controls last week and how would that be useful at this stage of the game. A Greek reader pointed out that all of the big money is long gone. What’s left at this point is just for cash flow. Which must be why Syriza wants to raid the pensions.
I suppose Syriza could be lying and wants to use the money as a base to set up transitional debit cards for its citizens. (Were recent articles on cashless societies prescient….?) I think we are watching Obama’s 11 dimensional chess. And no, that is not a compliment.
“Nevertheless, the more Syriza goes all in by extracting every Euro it can find to keep its creditors at bay, the more it commits itself to getting a deal done, no matter how terrible that deal is. If the new government had any thought of defaulting or trying to win an orderly exit, then it would have been much better served, as we’ve argued all along, to impose capital controls and conserve cash.”
+1 billion (drachmas alas). Giscard d’Estaing makes sense:
http://www.tovima.gr/en/article/?aid=678598
I wonder if the cash sweep is actually a public protection of funds since the upcoming failure of Greek banks may involve a Cyprus like charge back against all depositors.
Bourgeois leftists oif the worst sort. Living in kuckoo land to boot. A hard communist party of days gone by would have done without all the melodrama but taken a cold hard look at things and started to act accordingly. Syritza did have not such a bad hand to start with. Whatever else Varoufakis was right in assuming that the Eurogroup would be prepared to cut Greece some slack if they reall thought that there was the possibility of a Grexit. But for that you need to prepare and to show that you are really determined to head that way. And not issue empty threats. Witness the pathetic whining of Varoufakis in Riga. Now they are getting the worst of both worlds. Their partners are incensed and gloating on top. Grexit is a road not possible anymore and now they will get the bill for all the empty rhetoric. What a disappointment. I had really thought that Syritza would be tough and worldy enough to drive a hard bargain. But they lost all credibilty. On top there are these rather strange policies like keeping people from being evicted that earn up to 50 000€ a year. (Instead of 35 000€ as it was under Samaras) Evidently that is what the upper echelons of Syritza consider to be “needy”. But there is real and aweful poverty in Greece. No need to cuddle people who have the wherewithal to rent instead of owning.
Yes, so much for the brilliant game theory lauded by sympathetic spectators. Syriza looks like rank amateurs, or worse, as Jackrabbit suggests: pretenders intent on bait-and-switch treachery worthy of the Obama regime. The latter is plausible, given how badly Syriza played it’s hand.
Mandates win elections. Listening to the people wins power.
I do not understand Syriza’s Christ-like zeal for these red lines when no one in Greece cares any longer.
Yves Smith: “This is a terrific, if sobering interview, and I urge you to read it in full. Lapavitsas says that there is no middle way, meaning compromise, in the offing. Greece’s only choices are to submit to continued austerity or exit the Eurozone…”
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And 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…”