The Bank of Greece submitted a required report on monetary policy to the Greek Parliament and the Cabinet this morning (hat tip Swedish Lex). The English language version of the press release shows that it says, in stark terms, that failure to reach a pact with Greece’s creditors will lead to a Grexit and likely a departure from the European Union. Here is the key section:
As the Bank of Greece had assessed in its Governor’s Report for the year 2014, the conclusion of a new agreement with our partners is of the utmost importance to fend off the immediate risks to the economy, reduce uncertainty and ensure a sustainable growth outlook for Greece.
Failure to reach an agreement would, on the contrary, mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country’s exit from the euro area and – most likely – from the European Union. A manageable debt crisis, as the one that we are currently addressing with the help of our partners, would snowball into an uncontrollable crisis, with great risks for the banking system and financial stability. An exit from the euro would only compound the already adverse environment, as the ensuing acute exchange rate crisis would send inflation soaring.
All this would imply deep recession, a dramatic decline in income levels, an exponential rise in unemployment and a collapse of all that the Greek economy has achieved over the years of its EU, and especially its euro area, membership. From its position as a core member of Europe, Greece would see itself relegated to the rank of a poor country in the European South.
This is why the Bank of Greece firmly believes that striking an agreement with our partners is a historical imperative that we cannot afford to ignore.
It does at least call for “milder fiscal consolidation” meaning less draconian fiscal surplus targets, but also puts in a firm word in favor of the structural reforms:
…ensuring fiscal discipline and the achievement of primary surpluses through interventions of a more structural nature rather than merely through revenue-raising measures. Emphasis should be placed on ensuring the viability of social security funds by eliminating the numerous exemptions from the general provisions. The various exemptions from direct and indirect taxes also need to be reviewed and should only remain in place if warranted by growth-enhancing and social considerations
As Nathan Tankus pointed out in his posts on the operational issues of a Grexit, the Bank of Greece is not under Greek government control but is effectively a node of the European Central Bank. And as we pointed out early in the power struggle between Greece and its creditors, the ECB was stoking the bank run as a means of applying pressure to the Greek government. We quoted former IMF staffer Peter Doyle in February:
…in an incredible reversal of practice during the global financial crisis—when central banks were at pains to conceal which institutions were receiving their emergency assistance for fear of compounding the adverse signals and therefore the crisis—the ECB has brazenly publicized exactly which Greek banks depend on its help and how much. And it has overtly warned it would withdraw that help. In this way, the central bank is overtly threatening to blow up the Greek banking system, in order to make the euro work. Walter Bagehot, the nineteenth-century father of lenders of last resorts, would be dumbfounded.
We’ve also pointed out the potential for the ECB to make same sort of “offer you can’t refuse” that it made to bring Ireland and Cyprus to heel: that bank support in the form of the ELA would be withdrawn (leading to a collapse of the banking system, and in Greece’s case, a disorderly Grexit of capital controls, nationalization of banks, and issuance of drachma to fill the banks’ balance sheet hole) unles the government took specific actions set forth by the ECB. Given the much greater size and visibility of the Greek crisis, we don’t expect the ECB to engage in this type of thuggery unless (or perhaps more accurately, until) it has plenty of political cover.
Nevertheless, this report looks to be an effort to pour gas on the ongoing fire of the bank run, particularly since Greek citizens are souring on the Syriza negotiating strategy. From a Bloomberg story last week:
Actually, most Greeks may be ready for Tsipras to bow to the creditors’ demands, according to a Marc poll of 1,001 people conducted this week for Alpha TV. In the survey, 50.2 percent of respondents said Greece should accept the creditors’ plan compared with 37.4 percent who said the prime minister should stand firm.
Not surprisingly, sources in Greece, like this freelance journalist, say that people are edgy:
Mood on the ground: public is spooked. #troika #greece #austerity #euro #eurocrisis #syriza
— Omaira Gill (@OmairaGill) June 17, 2015
The ECB governing council is meeting today. They are certain to approve an increase in the ELA. The meeting is an opportunity to make formal comments on the negotiating impasse, but the ECB may have decided that its local proxy was the better course for increasing pressure on the Greek government.
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Greeks were antagonistic towards the Troika, now a majority want to acquiesce. Sounds like a win for the oligarchs.
The irony is that the reason Merkel and the Troika set in motion the events that led to the ouster of the Samaras government was that they were unhappy that it had not done anything to improve tax collection and go after the oligarchs. There’s a long story in ekathimerini that I have to read more carefully a second time, but basically by a combination of inattention (a lot of key Eurocrats were leaving office) and an overly cursory look at Tsipras, they thought he’d be far more likely to deal with this unfinished business that they regarded as very important (as in if Syriza did win, that could be a plus for them). Oops.
It seems the EU wants to do a lot to support the existing situation in Greece. No cuts to the hideous wasteful defense budget, which is 8% of GDP, but cut pensions which are already at starvation levels. how does the troika justify his?
The polls seem somewhat dubious. Greeks are not marching in the streets to demand Syria accept a deal, they March for the opposite. The TV and newspapers are controlled by the oligarchs, for the most part. and they want the things that benefit them at the expense of the majority.
Even in the latest budget presented by the Greek government, after the Jucker offer of reducing the defense budget by 400 million euros was nixed by Lagarde, the plan took up the idea of cutting defense spending only to the extent of 200 million euros.
Greece defense-budget is approx. 2,3% of GDP(not 8%) which is one the highest in the western world behind the extremest US. budget. NATO demands 2% overtime but NATO-average is just below 2%.
Exept from tax-evasion defense-business is generally one of the most profitable areas for corruption world wide. Businesses have many deep pockets consisting of agent-layers between manufacturers and politicians and often well hidden from public transparancy.
There could be risks involving personal threats against a leftwing government if big cuts were to be made or proposed. Corruption is about ordnance, not in manpower which for the moment has been suggested(exept the submarines). And by the way. A few german ministers have been associated with big defence-contracts scandals over the years.
To Yves and Lambert.
http://www.nakedcapitalism.com/2015/06/did-the-media-and-greece-miss-a-meaningful-concession-by-the-creditors.html#comment-2457850
from ekathimerini
Schaeuble was of the opinion that it should remain open, because the Samaras government had, in his opinion, reached a dead end and could no longer pass, much less implement, any new measures.
According to European officials, the German finance minister took a SYRIZA win for granted, which meant, if the review was completed, that the new government would have the money to do whatever it liked and would ignore the creditors’ demands.
The IMF’s Poul Thomsen, meanwhile, insisted on the official Fund line not to be influenced by domestic political developments, but it was nevertheless clear to many of his interlocutors that he agreed with Schaeuble.
Which “events” did you mean? I thought it was broadly clear, given the chaos in Greece, that the Samaras government was done in 2014. Also, I’ve yet to see any evidence that the Troika was actually interested in structural reform in Greece beyond fiscal surpluses and wage deflation. Tax collection from oligarchs was clearly not the first issue in 2012 nor in 2015. However, it’s a useful cudgel (and the implied Greek instrangience, laziness and corruption) to bring out when you want to distract the German public from the disaster the Troika has created in Greece. Neo-fascists running the streets of Athens with actual cudgels does not play well on German TV. RIght now, if the Eurozone doesn’t collapse because of a Grexit, that’s going to be spun as a success rather than an abject failure of European politics.
Sorry, I read two articles on the same topic that came out the same day. It was in Politico:
http://www.politico.eu/article/how-merkel-may-have-bungled-greek-rescue/
So it looks likes the Theoharis resignation led the creditors to start rethinking Greek “progress” and demand they get to the last issues on the agenda that had been deferred, the pension and labor market “reforms”. I agree they probably would have dropped the boom on Greece on this issue at some point, leading to the impasse we see now, but the timing appears to have been driven by Greece relenting on its “progress” via not cleaning up its tax system. And perversely, if Greece HAD fixed its tax system and gone after the oligarchs, it would have had a much larger and more sustainable primary surplus, and would have been in a vastly better position, both morally (“why do we need to cut these items, we’re meeting our targets and that’s all that matters”) and practically (the ability to go it alone in the event of a voluntary default).
I’ve seen very little published on the effort to collect taxes from oligarchs except one item I kind of remember that went something like “how are they going to get the money from the other European tax havens?”
Good question. *Can* Greece actually collect, or are these tax evaders being *protected* from it by the troika?
IIRC, per IIRC Pancho, one oligarch — in the media — has been indicted (not sure of the proper term, but not convicted or jailed).
Indeed, oligarch Leonidas Bobolas, whose family owns Ellaktor and Pegasus Publications (Ethnos, MEGA, Imerisia…) was arrested in April.
Ex finance minister Giorgos Papakonstantinou was found guilty of having removed the names of three of his relatives from the Lagarde list, with further charges against him still pending.
While investigations continue, anti-corruption minister Panagiotis Nikoloudis, an impartial figure beyond any doubts, however spoke out that further investigation of the Lagarde list isn’t expected to lead to quick results without any support by Switzerland and the E.U.
Nonwithstanding the political situation, with unrelenting Nikoloudis and intransigent Zoi Konstantinopoulos finally the Greeks can trust the new government to support bringing big fish fraudsters to court.
And while that might take slightly longer than many would favor and will depend on strong evidence present, unrightful show trials however wouldn’t serve the country which finally is an advanced democracy and not, say, Egypt.
How could they not win? The European Union set up a system where nations surrendered their sovereignty to join a monetary union and trade union designed to fail. Once you rely so heavily on imports to run your economy, how can you possibly survive a currency crisis? Greece is not Russia and the Euro seems well designed to bring bad actors to heel.
And the most powerful members of the union create rules that only the weak must follow in order to cover up for misdeeds and mistakes by their own countries elites. It is a tragedy that the technocrats deal in stereotypes and defense of an indefensible system. People are suffering for it, and if they pull the plug on Greece, people will suffer even more.
The situation in Greece and the EU resembles a moral tyranny if what I understand about signs of a bank run is correct. I would think material and moral impoverishment has been an objective goal, in giving up national sovereignty for a common currency.
I, for myself, believe this is a good rule of thumb to keep myself in check. I realize this is an economic blog, yet, we are speaking about human persons’ in the context of specific economic situations with specific belief systems. Tom Merton wrote in his book titled No Man Is an Island:
Now, I believe the predominate faith system in Greece is Orthodox Christianity and we must respect the fact than even within an economic system there are belief systems that might cause contentions; one being the belief in a human soul.
Where is the EU’s thinking on respecting the Greeks predominate religious belief? This is not to say that the Greeks are not wrestling through their own governmental dysfunction. I think because of what we are experiencing in the States we can identify with the Greeks. Nevertheless, I think my adopted rule of thumb can apply the members of the EU as well. And, yes, I think moral tyranny is hurting the people of Greece at present. Thus, the Bloomberg report does not surprise me.
I think the Greek citizens should be cooperative but need not compromise their very soul. You (rhetorical) are free to disagree but that’s my position on the situation.
Ned, I couldn’t agree more. Who in their right mind would side with a government bent on legislated wealth destruction?
Syriza ****promised**** a deal to their people. They’ve delivered=nothing. I mean….literally….nothing. 5 months and…..nothing.
This is a magnanimous example of the Peter Principal. Get them out.
All this [failure to reach an agreement] would imply deep recession […] and a collapse of all that the Greek economy has achieved over the years of its EU, and especially its euro area, membership.
When making a Fear sandwich, spread it thick.
I think a lot of Greeks associate EU membership with having an elected government. Outside the EU, I think the chances of a military takeover increase.
But I could be out of date.
Anyone opine on whether the Greek “military” is interested in another coup/”takeover”/do-over? Egypt, I can follow — there’s wealth there, and foreign “gifts,” still to plunder, and the Pharaonic military owns a substantial part of the Egyptian economic assets. But Greece’s military? Just another parasite? What “defence” do they provide, except to their cushy gig? Will there ever come a time when people slaughter this faux sacred cow, so they have something to eat?
There’s this: Frank Slijper: “An insane level of military spending led Greece to massive debts for weapons it does not need”, http://www.analyzegreece.gr/interviews/item/145-frank-slijper-an-insane-level-of-military-spending-led-greece-to-massive-debts-for-weapons-does-not-need
Maybe it’s not even the case, any more,anywhere, that anyone has any interest in that silly beneficial-governance notion. Not that any of the military autocracies even make a pretext out of governing rather than ruling as a cover for looting…
Good thing for “our” imperial military that it is on a fiat-currency mainline, and “we” continue to be addicted to fattening it up…
I’ve wondered this myself…..
1. Samaras has been nakedly a scent in discussions the government leaders.
2. Samaras has made very direct contacts and communications with European leaders.
3. The defense minister, not a member of Syriza, has kept quiet and distanced himself from his previous support of their position.
You may be on to something. The U.S. And EU may feel Tsiprias’ overtures to Putin are too much. Too much of a threat to NATO.
If so….it will be a stealth fait accompli. Tsiprias would never know what hit him, and as he sulked in prison…dithering over his demise and what could have been….he’ll realize that his game theory missed the omnotence of the CIA and the NSA.
I’d be more worried about a US/NATO regime-change op a la Ukraine. First cut them off, then send in the NGOs and bring up the nazi thugs…
But Greece’s military? Just another parasite? What “defence” do they provide, except to their cushy gig? Will there ever come a time when people slaughter this faux sacred cow, so they have something to eat?
The reason Greece spends so much on the military is to keep up with Turkey. Turkey constantly violates Greek air space and territorial waters. Oil and Gas drilling is seen as casus belli. And there have been incidents of near war before. And then there is Cyprus. Greece has tried the small defense budget previously and paid a price for it.
Greece is not America were the Military hold such power. It is there for defense and provides it as best it can. Even with a depleted economy. What you can argue though is should it be buying from Germany and France etc and not cheaper alternatives.
What you advocate is a great if it were possible. And it would be more than welcomed in Greece. Certain countries have made billions selling arms to both countries. So the status quo is just fine for them.
A cIause in the first memorandum was an obligation by Greece to buy 5OOmI euro of German military equipment. Over the Ioud objections of the Greek military.
The budget item that bew up the nationaI debt and brought on the Greek crisis in the first pIace was a 15O bn order to German military manufacturers that included 2 submarines – the first submarine tiIted and was rejected by the Greeks, the second has never been delivered.
This is clear since the beginning of Feb.: https://rwer.wordpress.com/2015/02/05/dear-greek-take-the-euronotes-and-run/
And the red lines were clear, too, since the beginning of Feb:https://rwer.wordpress.com/2015/02/16/chronicle-of-a-grexit-foretold/
There has been quite some procrastination (by the creditors).
The first thing to do in case of Greek Default is to fire the whole Board of the BOG for security reasons. They know it, and this is why they cry wolf. The truth is that the BOG is bankrupt, and has been for a long time. If the ECB wants to put its hands on BoG Assets (especially its gold), it will probably be challenged on the basis of fraudulent conveyance.
The Difference between Greece on one side and Cyprus and Ireland on the other is that Greeks had months to get some paper euros in exchange of ELA support. Maybe Syriza is counting on this to operate on a paper cash economy basis.
Huh? The Bank of Greece is NOT in any way, shape or from under the control of the Greek government. As Nathan Tankus wrote in a recent post:
http://www.nakedcapitalism.com/2015/06/nathan-tankus-the-operational-issues-of-a-grexit-part-one-understanding-the-payments-system.html
He discusses the issue a bit more in comments to the post.
CharIes 2, you speak truly.
Ambrose Evans Pritchard on the Bank of Greece AnnuaI Report that was presented before time and in haste yesterday, 17 June, [on USB sticks no Iess] to coincide with and disrupt the presentation to the Greek parIiament of the preliminary concIusions of the Debt Audit Commission –
Greek CentraI Bank is PIaying with PoIiticaI Fire
http://www.telegraph.co.uk/finance/comment/11679061/Greek-central-bank-is-playing-with-political-fire.html
The report got returned to the BoG, and Syriza’s Parliamentary Speaker asked the Governor for the verbatim copy of the minutes of all the ECB meetings, according to Paul Mason.
See YS above. Oops.
http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_13/06/2015_550990
“According to the European official, who declined to be named, then European Commission President Jose Manuel Barroso had never even spoken to Tsipras before that November. “Tsipras had written a couple of letters to him that were almost insulting,” said the official. The only time Tsipras had seen European Commissioner for Monetary Affairs Olli Rehn, meanwhile, was in Strasbourg. Tsipras “placed – if not threw – on the table a file titled ‘Black Bible of the Memorandum’ in Greek and said, ‘Here are the results of your policies on Greece,’” said the official. The folder contained data on the number of people being fed by soup kitchens, the number of poor, the number of suicides etc. Rehn asked the Greek politician, “Do you want to keep Greece in Europe or not?” The meeting between the two lasted just 18 minutes.”
Can’t see the relation, I was relaying Paul Mason talking about today’s BoG report in Athens, the comment you refer me too is about months ago.
I was just agreeing that the troika may have gotten more than they bargained for. The tone of the ekathimerini article was that they thought they could intensify austerity with the new govt under Tsipras.
There were early warnings this may not be the case and this seems to be continuing with what you relate as to how they are handling the BoG situation.
The Greek Debt Audit Commission had from the start requested BoG governor Stournaras to present minutes of aII meetings between the BoG and ECB for the relevant years.
Stournaras refused, citing bank secrecy.
Either way, I am so tired of this, I just wanted it to end already. I mean after this, no doubt we’ll have to go through the Portuguese, Italian, Spanish, etc version of the same crap.
One reason we will go through this crap with other euro countries is that you have bunch of ECB beauracats who actually believe that austerity works and will not stop until everybody suffering as much as possible.
Nazis proved in WWII that you could maintain rule through fear and today ECB rules by threatening to take away country’s access to money spiget.
“Tired, bored, so over it…” A lot of folks apparently feel this way. Seems like where there used to be some ability to see things in broad perspective, and plan for and work toward decency and comity over the long haul and on a large scale, that the people with any stick-to-it-ivity these days are named Koch and Norquist and Rove and Adelman and a bunch of Euro and Arab and Asian and African and other names that don’t float immediately to mind.
I would just want for “it” to end, too, but what is or are the “possible outcome(s)” of all this, of the situation of the people, the polis, of that bit of geography, in all their parts, with all their abilities and poetry and pride and now pain? Saddled with a “military” rider that is a grasping unfunctional sociopathic wonder? Cursed like all of us, everywhere, with having to bear and feed the insatiable appetites of that fraction of us humans that will find some little lever, real, or imaginary out of “Finance-space,” that lets them move the whole rest of the political economy, tip us on our sides so our wealth just floods out of our packets into the system of channels and sumps that they have built under us. Line up a week early for the next iRelease, right? and work on your credit score so you can “afford” it?
And as people get hungrier and more desperate, see their children and grandparents die or kill themselves, what do all the other squishy disciplines like “history” and “sociology,” and “anthropology” and “psychology,” indicate are the likely behavioral responses? There’s been quite a number of burn-it-down episodes in the past. One can see the attraction, if one has the martial skills and stamina, of what our rulers, from a grudging hidden sort of admiration, call a “terrarist” organization, ISIS — a “successful business model,” if you read the admiring articles in Business Insider and Forbes and even Bloomberg. Those folks have worked out a structure and ethos that sure seems to be “successful” by the measures that out rulers themselves employ — wealth concentration, a subjugated populace, lots of income streams from lots of “business opportunities,” vertically and horizontally integrated, in a strong growth mode — I wonder if the Enterprise that is ISIS will do and IPO? I’d buy that for a dollar…
Is there an aiming point for ordinary people to concentrate on? In the face of all the divide-and-conquerors and deceptions and demagogic invocations of our worst demons? Is anyone in all of this looking to see what can be done to make it even a little bit more likely that the most of us, who might actually be able to learn to live in a balanced set of relationships, might be able to pull that off? As opposed to all the thinking about just being “right” about the details of the failure mode, and who’s going to blink, or cut and run, or be replaced by the plebs, all of that? I recall some study that said there actually is “enough” of the stuff of life to go around to all 8 billion of us (but maybe not many more than that, though “we” all want the freedom to breed and our rulers want us to keep “growing”) at what might be a sustainable and tenable level of life. But no — “we” have to all have a “trade surplus” off somebody else’s pain and “primary surplus…”
And as noted, this is just the first bleeding, rotted carcass to be lobbed over the walls by the predators who besiege us.
Thanks for that JT. ProperIy said.
…..as if Iife is Grand Theft Auto or CaII of Duty, where – ignoring the gigantic, psychopathic odds stacked against them – the people machine-gunned down are sneered at contemptuousIy as “Iosers” …..
Given that it would appear that whatever the outcome, the Greek populace is in for a world of hurt, the key question would be what path, however painful and difficult, ensures that they never again are placed in this situation. Getting out from under the Euro ( and, if necessary, the Eu ) would appear to be that path. Yves has done a superb job in informing us of just how daunting, time consuming, and technically difficult that path would be; quite possibly for the current impasse abject surrender to the Troika may be a short term necessity, but all out preparation effort for currency independence should begin the next day.
Paul Krugman does a terrific job contrasting the Eu handling of the Greek crisis to the U.S. Federal government handling of the Florida housing crash and especially the Texas Savings and Loan debacle. It’s in the second half of a 15 minute interview http://www.rooseveltinstitute.org/videos/paul-krugman-interview
We are all “in for a world of hurt” soon, as capitalism remains the hegemonic economic system backed by military force. The oligarchs and their army of minions will fight with all their power to maintain the status quo, which means constantly taking more for themselves. They have no concern for human suffering, let alone dignity, or even for sustainability of their own systems of extraction and oppression. Greece is just one of many existing examples of “dead zones” which exist — even within the United States. Studying the range of factors, it becomes clear there is no alternative to collapse of industrial civilization. Henceforth it will take all decent folks’ efforts to avoid/thwart war, to recover from disasters, to ‘adapt’ to accelerating climate change, to deal with mass die-offs of humans as well as other species, and to secure basic needs in an increasingly polluted and compromised environment.
@Gaylord
Great comment. You’ve hit the nail on the head. I’m slowly but surely losing my optimism. The big capital that pulls the strings have no humanity. I truly believe they’ll drive this thing to the destruction of the planet. Will there be anyplace to hide?
Syriza cannot afford to waver from their position of moral authority by capitulating – even temporarily. They would lose the faith of the people who support them. Cave in a little, cave in all the way. They could have made concessions if they could have gotten a deal from the Troika which reflected their goals, (return to growth, stop multiplying the punishment of Greece’s workers and middle classes for the sins of the ancien regime’s kleptarchs). There is no such deal to be made however, as has been repeatedly shown.
It doesn’t matter what I want in this situation, but I would hope Syriza’s leadership is now agreed and united over the need to default and prepare to return to the Drachma. As pointed out by Mark Weisbrot, the only kind of deal on offer from the creditor side in any case would be one that would freeze Greece in its slow motion catastrophe, and which would keep it alive just long enough to pressure it into the next set of creditor demands or into final abject capitulation. No real relief, no recovery, just prolonged agony – and as always the gun pressed to the head, cocked and ready. And, as Weisbrot points out, the kinds of demands being made such as pension cuts, appear intended to destroy Syriza’s political credibility and support. If it gives in a little now, by the next crisis point Syriza might not have the strength to resist at all, because its domestic support will have crashed. And suppose they managed to return the Eu’s good graces, what would their future really be like inside the union? The union functions as a pump sucking money from the periphery to the core financial/industrial member states. Greece would have struggled to achieve permanent status as an impoverished, disenfranchised, southern colony of Germany and France.
According to Raul Ilargi Meijer, who is now reporting from Athens, a special debt committee of the Greek parliament has released a report a report declaring its debts -to the IMF, to the ECB, to private creditors- to be “illegal”. So, it would seem the default is on. Can Tsipras negotiate to repay a debt that his parliament declares odious and illegal? Full parliamentary approval of the committee report is yet to be voted on, but I wonder if the committee would release this kind of report without prior coordination with Tsipras. Maybe this is only more stage craft intended to strengthen Tsipras’ hand in negotiations with the Troika; but declaring all the debt to be “illegal” would seem to be a rather hard position to climb down from. And on that preposition I will end.
They have already caved. That is why we have been so critical of them.
Varoufakis has repeatedly said Greece will always run primary surpluses, which means austerity will continue. Greece agreed to a draconian primary surplus of 3.5% starting in 2018. You can see that in the 47 page document on their position that they leaked about two weeks ago. And in the eight page document of their latest offer to the creditors, they agreed to the creditors’ interim targets.
All they are arguing about is how to inflict the austerity.
And on that day when Tsipras signs the Troika’s instrument of surrender, I will agree with you.
He already signed one in February. He agreed to negotiating under the terms of the memorandum. He also stripped the government coffers dry to pay the creditors, including exhausting all sorts of hidden reserves they didn’t have to. That puts the country in vastly worse position in the event of a default or Grexit.
Yves, this position about “capitulation” is true IF you believe they actually ever intended to live by their negotiating position of today, instead of re-negotiating it later. But, that is exactly what the EU is accusing them of doing! That is precisely why the talks broke down – a belief by Mario Draghi and company that Greece is NOT “serious” about reforms, that their proposals are “vague” and don’t add up, that they are not really “negotiating in good faith” which means that they are not (in the creditors’ view) really intending to meet the targets at all, not serious about submitting concrete alternative proposals for “reforms” that will cut the same amount of money, if they want to take pension cuts off the table, etc..
It was never about the differences between proposals, but rather the EU belief that Greece simply could not be trusted to live up to any deal. Was this not exactly what Draghi said this very week? And others have said similar things as well.
After 5 months it’s difficult not to see that the creditors are right about their complaints. The Greek negotiating position all along has clearly been to get past the first financial crisis and then re-negotiate everything later. Thus, the fuzzy proposals that probably don’t add up, the target figures that really amount to promises about meeting a surplus target that they will never meet and which the creditors are painfully aware they will never meet.
In short, after meeting with flat rejections of the Thessaloniki Programme the minute negotiations began, they have been trying to fudge things ever since in order to gain time for further negotiations always aimed at putting debt restructuring back on the table in some way.
You have seen over the last month, repeated attempts by Syriza and Tsipras (to the intense annoyance of the Germans and EU officials) to talk about debt restructuring or public pronouncements about it that only anger the creditors because they have already rejected such demands.
This kind of strategy is quite familiar to me as a consumer debt negotiator. Sometimes the creditor refuses to negotiate any debt relief that the debtor can afford, and is ruthless in pressing all their advantages, including wage garnishments, bank levies, etc. If for one reason or other the debtor cannot immediately seek bankruptcy relief, about the only remaining negotiation strategy is to agree to some payment arrangements merely to buy time, with zero intent by the debtor of actually fully carrying out the deal. In 6 months or a year’s time things might change, the debtor might find some assets, might qualify for bankruptcy, might be able to offer some other lump sum payment, etc.
In short, Syriza’s doesn’t really care what the surplus figures for 2016 or later are, because those will have to be re-negotiated later to conform with economic realities that (they know just as we know) will never permit Greece to meet those targets.
Meanwhile, to the creditors’ frustration, Greece has not offered the kinds of pension “reforms” or other cuts that would really free up some money NOW.
Of course all creditors see this as “bad faith” but it’s their own fault for leaving Greece no other options. The creditors simply left them no bargaining room at all, and demanded they implement the Memorandum as originally agreed. As you have often commented Yves, the February “negotiations” provided no relief whatever and constituted a blanket demand by the Troika for 100% compliance with the Memorandum.
The Greeks have been trying to get through the first wave of negotiations by “fudging” everything but have been called on their lack of “commitment to reform.” Thus, the talks broke down, not over the difference in numbers, but because the EU finally concluded that no matter what they negotiated, the Greeks intended to take the money now and then re-negotiate everything later based on “current economic realities”.
The one thing you cannot in good faith do is rely upon statements by Syriza officials talking about the necessity of completing an agreement to show they “capitulated.” It’s not a capitulation if you don’t intend to live up to your agreements and they clearly do not. The creditors are right about that.
You can argue that’s not an effective negotiating strategy. Sometimes its the ONLY negotiating strategy available. What else could they have done? The creditors refused to reach a good faith compromise that would have allowed the Greek economy to recover and Greece to pay its debts. They are being forced into default for political reasons.
I am going to address this general matter, longer form, of Syriza’s political and negotiating mistakes. One of the biggest, and this is simply irresponsible, is not taking seriously what happens when negotiations fail and how bad the downside is. The hole in the Greek banking system is so large that if the ECB goes the Cyprus route of cutting off the ELA and forcing a bail-in, the deposit haircut will be very large, an instant wipeout of a large amount of the wealth of ordinary citizens. And in fact, one blogger asserts the ECB will be required to do that (I need to confirm.)
If they never intended to negotiate, then why did they strip the government coffers bare to keep paying the creditors? A default was inevitable and they put themselves in a much worse position when that happens.
And if your reading is correct, there is no possibility of the creditors negotiating a debt restructuring, which they actually WERE willing to do (that was the third bailout). I’ve been told for months by a contact who is close to one of the key figures in the Greek government for months that there would be a deal. I was regularly told of news in Germany or other behind the scenes developments that meant that they thought a deal was near, even though I discounted it as pinning way too much on thin information and hopes. So my intel is that for some months, the Greeks thought they could get a deal. In fact, this source was STILL telling me that as of a week ago! So this does not square at all with your thesis.
By contrast, even in the event of a default, a party that cannot/will not negotiate a restructuring will be subject to the wrath of the creditor, if he has the tools and means to inflict pain. The ECB and EU both have them if things go that far. But their first course of action would be to let things play out, that a forced bail in and/or a few months of Syriza paying pensioners and government employees in scrip will bring about the ouster of the current coalition.
I don’t know if this system still has me marked as a spammer because for some very strange reason only my brief and irrelevant comments go through. But supposing it has forgotten about me:
if you read what Varoufakis wrote about the Greek primary surplus last year (he dismissed it as a “mirage”, in his words), it is not so surprising that Greece answered “Whatever!” to any primary surplus the creditors would insist on. That number didn’t matter much, because it was not real, as opposed to salaries and pensions that not only are real but are what matters to voters.
Why the determined resistance to a Greek workers state at this site? While default and exit are the obvious near-term solutions, its what follows that will provide the safeguards for Greece and its peace-loving people. A capitalist Greece will fold with its tail between its legs in two weeks.
Greece has no ability to manage itself. It doesn’t even have good property records. Plus Syriza despite its rhetoric is solidly bourgeois and has no intent of creating a non-capitaliist regime. It’s only aim and only plan was to get a better deal from the creditors.
And see today’s video in Links from Real News Network. Its from leftists who have strong contacts with Syriza and are clearly sympathetic. They say Syriza has no Plan B and they concur with our analysis that a Grexit would be a disaster for Greece and would create a failed state.
Do you think an abject failure upon a default or Grexit is a plus for the left or for workers? It’s an unmitigated disaster and will set the left back for ten years.
Greece has no ability to manage itself.
What did you read to form this opinion?
It doesn’t even have good property records.
In what way are they not good?
The observations of that nature come from Greeks. You are shooting the messenger. A regular commentator, alex morfeis, a dual US/Greek citizen who has spent a lot of time in Greece, has made the case repeatedly, that Greece has the physical resources to go it alone, but not the human/organizational capacity. On the real estate matter, some details from him:
http://www.nakedcapitalism.com/2015/02/greece-capitulates-bailout-reaches-four-month-deal.html#comment-2408065
The court system is a disaster:
https://martindale.cc.lehigh.edu/sites/martindale.cc.lehigh.edu/files/Innefficiencies.pdf
This is from a Greek economist associated with CEPR, hence left-leaning:
http://greekeconomistsforreform.com/wp-content/uploads/injustice_Papaioannou.pdf
Sorry Yves but Alex is not an expert on Greece. He has
expressed negative things that I only see among some Greek diaspora that are wrong. Been a Greek and a dual citizen is not hard to get.
What he says about property records is simply untrue. My family has property all over Greece. In city and rural areas. On the mainland and the islands What people own is set in stone and can’t be taken away like that. The country knows exactly who owns what.
What you can say if I remember correctly been told is that Greece has a bad I.T infrastructure.
I am not shooting you. I am simply asking why you buy certain accounts from people who are not experts. I have spoken to Greeks in the know and they don’t say things like this been said.
As for the other things you mention. Greece did Just fine ‘managing itself’ from independence in the 1800s up until E.U membership in 1981 navigating issues other European countries didn’t face and did just fine. Is there plenty to be improved? Sure. But it is something they can do on their own and if the need foreign experts they can hire them.
But this ‘can’t manage themselves’ is highly insulting and was not told to you by someone that has a vast knowledge of Greece’s history politically or economically or spent most of their life there.
Fully agree with John here.
The court system may well be too slow but I fail to understand how that would mean the country “can’t manage itself.” This is indeed highly insulting, Yves, and I keep wondering which point you’re trying to make. On one hand you’re criticizing the Greek gov’t for having conceded too much to its obnoxious creditors. At the same time you’re saying that the country had no chance at all outside the Eurozone. Now it’s of course your right to criticize w/o offering solutions, but I’d still be very interested in whatyou would have done in the place of Mr. Tsipras.
German right-wing mainstream keeps mulling that beyond liquidation there were no solution at all for what they consider an already failed-state. Now you certainly don’t share their antidemocratic worldview and their stinking and once again all too German feeling of superiority.
But in the end, There’s no solution equals There’s no solution. And that’s outright absurd and inacceptable. So what should Greece do from your point of view? Be more conciliatory, less conciliatory or, somehow, both at the same time?
The Greek courts presentIy take between 4 to 7 years to process a case depending on its seriousness. The BeIgian courts take between 11 and 13 years, as I Iearned the hard way. Neither is an outer. Thus arbitration and mediation have become increasingly popular.
This is a genera European problem and one reason why Europeans are reIuctant to sue and avoid IegaI cases when possible.
AIex Morfosis talks through his hat most of the time. He dispIays the friendIy contempt shown by 2nd, 3rd and 4th generation Greek-Americans toward Greece itself….ie good for a holiday, not a serious pIace. And he’s most often wrong.
For exampIe Iand registry is not done through KEP but at the KtimatoIogieo. It is not a matter of “dropping by” for most Greeks since the penalty for unregistered property is seizure by the government. True, a few regions in Greece have not cIosed their registration – the reason for this are government searches for owners of abandoned pIots, due to emigration and death abroad. Seizure is not automatic in these cases since their owners’ rights are protected by the Constitution. Many smaII pIots of this type stood uncIaimed for a century.
MeanwhiIe property tax pIus the emergency property tax [“haratzi”] provided a good portion of our fake “primary surpIus”. Stournaras at that time aIso emptied the accounts of the KtimatoIogeio, since every IittIe bit counted. The present property tax, ENFIA, coIIates into one biII aII properties of an owner – pIus the haratzi, the temporary becoming the permanent – from its computer records and charges tax in 6 payments. Where is the Backward in that?
There is some truth in your statements Yves, but overall they are highly misleading. I’m living in Greece and know about the system of property records. Yes there are huge holes in it (mainly pertaining to agricultural and forest lands), but for urban and surrounding lands it is pretty good. The main problem with the system of property records are the oligarchs (plus Church) and the hereditary nature of Notaries.
Property in Greece is big money (due to the touristy nature of the country), and the oligarchs are used to “bending” the whole system for their advantage. The most common scam that they were perpetrating was to take huge loans to buy/invest in new land. The loans were promptly moved to banks outside the country and the “investment” was never realized. As the oligarchs controlled both the banks and politicians, these scams were never exposed/investigated.
Concerning Greek bureaucracy. I have experience with both Greece’s and German’s bureaucracies. When i was first exposed to German bureaucracy i was expecting a “civilized”/western bureaucracy compared to what i was used in Greece. What i got was Greece’s bureaucracy 15 years ago. A lot of things that nowdays i can do through a web browser in Greece, in Germany you still have to move paperwork around.
The main difference is that in Germany the common people are very law abiding believing that everyone is on the same level, whereas in Greece people feel that there is no moral ground from the state to demand tax money, because it’ll just pass it to the oligarchs. This might mean two things, either German oligarchs are a lot more subtle than the Greek ones, or that the level of state capture that the oligarchs have in Greece is massively bigger than in Germany. Personally, i think the first explanation (subtleness) is the most probable.
AIex Morphosis seems unaware that the system for buying property is more or Iess the same aII over Europe due to shared Canon [NapoIeonic] Iaw. EngIand has a sIightIy different system but, as on the continent, property conveyance takes between 3-6 months. Part of the unAmerican inconvenience are titIe searches, due to it being an “oId continent”.
This is reaIIy an absurd statement.
The problems of most conveyancy is not a question of undeclared swimming pooIs but the grandchild of a 3rd cousin who has a 3% share in the property and who is currentIy untraceable, but may have chiIdren and grandchildren who must be found, and their part bought out, or deeded, if they are wiIIing…There is aIso the problem of rights on the properties, the right to graze. or cross it, or use the weII, and these rights might be centuries oId – both in the UK and on the continent.
Yves, I’ve really been trying to get up to speed on this and it’s well within the realm of possibility that I have been misreading your contributor’s very informative contributions and the excellent links which you and Lambert provide.
The absence of a Plan B and the very real ( though not readily apparent to Armchair Strategists ) hurdles to a rapid return to the Drachma have been amply demonstrated.
Ironically enough the closest historical analogy that comes to mind is the hopelessness of the German delegation at the Versailles Peace Conference in 1919; having disarmed to obtain the Armistice of Nov. 1918, they had no alternative ( any negotiation having been flatly refused by the Victors ) but to submit to the “Versailles Diktat” and to play musical chairs to avoid being the one’s who actually signed off on it. I have to wonder if this has also occurred to anyone in Germany ?
In any case the EU as currently constituted is a Blood Bank for Vampires and the Greeks are going to suffer horrendously; at least the severe pain of departure, difficult and prolonged as it may be, offers Hope of eventual Freedom- if not for themselves, then at least for their children or grandchildren.
Where am I wrong here ?
Regarding the video from Real News Network with Dimitri Lascaris and Leo Panitch, it bears pointing out the first-mentioned fellow nonetheless advocates Grexit. And he does so despite the fact that he has plainly found the articles by Nathan Tankus to be persuasive concerning the grave difficulties of carrying out a Grexit (especialy given the lack of preparedness in connection with organizational capacity). Indeed, it was Lascaris who brought up the Tankus articles up in the discussion with Panitch and Sharmini Peries. (Actually, I don’t recall that he mentioned either the name of Yves Smith or that of Nathan Tankus, but it was abundantly clear all the same what he was referring to.)
Thus, notwithstanding Lascaris’s forthright acknowledgement of — and apparent agreement with — that assertions made by Smith and Tankus regarding the operational difficulties of a Grexit, Lascaris continues to advocate Grexit. He has made his embrace of this position clear before; furthermore, it’s also clear — from what he said in this latest discussion with Panitch and Peries — that he retains this position and hasn’t been dissuaded from it by the Tankus articles.
All right, what’s going on here? Is Lascaris just being incoherent? Is he simply setting out flagrantly contradictory views? Not necessarily, (Of course, his views may be perfectly well be wrong, but they need not be contradictory or incoherent for that.) Needless to say I’m not able to puzzle out his views altogether from the discussion in question, but as best I can figure out, he put great stress on a future worsening of conditions under Troika-sponsored austerity. In particular, if I recall correctly, he claimed that the primary surpluses planned in any concretely available deal with the Troika (i.e., any deal to which the Troika will ever consent) are slated to be unbelievably contractionary in the 2018-2022 period. I don’t believe he spelled out the details here, but it seems pretty clear from this that he sees conditions for the Greek population in the future as being far far worse than they already are at present — whether the Greek government cuts a deal with the Troika or whether it opts (as he evidently advocates) for “radical default and exit” along the lines championed by Costas Lapavitsas.
As Lascaris sees it, then, the choice is between (a) living conditions for the mass of the Greek population which are far far worse than they already are at present under intensified Troika-sponsored austerity, and (b) living conditions for the mass of the Greek population which are far far worse than they already are at present under a Grexit. And he sees (b) as better (or least less horribly bad), because he believes it opens up the possibility of eventual recovery (notwithstanding some extremely serious transitional costs, especially in the absence of any apparent preparation of the requisite organizational capacities — an absence he deplores). By contrast, option (a) offers no escape for decades to come — only grinding austerity that just gets worse and worse and worse.
Well, I hope I’ve represented his position correctly. (Naturally, I can’t be altogether sure.) And such a position strikes me as perfectly coherent. It might well be wrong, but it seems perfectly coherent all the same. Whatever problems it might have, internal contradictoriness would not appear to be one of them.
Thank you, Mr. Mayers. That’s also how I understood the Real News Network video.
Of course, one might argue that a Lapavitsas-style Plan B (let’s call it “Plan L-B”) will ultimately be the best way to go, but not just now. Well, that’s certainly a possible approach. (Indeed, about fifty-three different ways of approaching this tragic mess will probably turn up eventually, if we look at the matter sufficiently closely.) Perhaps, that is to say, it’ll be best to follow Plan L-B in time, but only after the Greek population has been prepared and the requisite organizational capacities have been developed. If such preparations are made, then the transition out of either the eurozone (and who knows? — perhaps even out of the EU itself) may end up being a lot less nasty. In the meantime, the Greek government should sign on the dotted line. Bite hard and hold your nose, and survive to fight another day, Brest-Litovsk and all that. The time for rebellion and rupture will come later.
The main problem with this idea, as far as I can see, is that the preparations in question can’t be made secretly. Well, maybe some of them can. Perhaps some of the technical mechanisms for overcoming (or at least minimizing) the operational difficulties identified by Tankus can be done secretly — in basements and abandoned warehouses and underground bunkers and the like. Preparing the mass of the population, however, can be done in secret. There won’t be any other way to discuss such future plans with hundreds of thousands or millions of people, except by discussing them openly and publicly with them. And if that happens the Troika will get wind of it, and then cut off any disbursements to which it might have agreed. And the bank runs will resume, and the whole economic storm will break loose — and all this before the government has even come anywhere close to actually carrying out a Grexit.
I suspect this is why Lascaris and Lapavitsas argue that the pain of a Grexit should be suffered sooner rather than later. If I’m correct in my surmise here, they think most preparations for a Grexit and for minimizing the costs associated therewith will be in vain, because the very act of preparation will negate any possible gains, thus defeating the purpose of the exercise. According to these two gentlemen, then, the future is going to be staggeringly horrible in any case — even more staggeringly horrible (a lot more staggeringly horrible) than it is now already — and that’ll be the case whether the Greek government signs on the dotted line or whether instead it embarks upon Plan L-B as indicated above. And to top off all this other joy, little or nothing in the way of preparations or damage control (beforehand) can be undertaken. Therefore, they argue, it’s better to get the pain of a (necessarily messy) Grexit over with, sooner rather than later. At least that way a recovery can get underway eventually. The alternative will just be endless, inescapable, and forever intensifying doom.
If the concretely available options are like that, then the desperate choice set out quite eloquently by Oldeguy just above would seem to be the best (or at least the least desperately bad) of the choice available. A nasty set of options, no? Well, that shouldn’t deter the writers on this website, who seem to have made a specialty of gazing unblinkingly into the void. (Not that they have to accept Plan L-B, of course — since after all they might identify the options differently.)
Who said anything about “managing itself”? The workers’ state I mentioned will be run by the party on behalf of the workers. This will be a fresh start, not just a reworking of the same sad old themes. One should expect chaos for a while in such circumstances. There might even be civil war. But a Greece free of capitalist depredations? That is undeniably the best possible outcome for both Greece and the left.
Syriza has NO plans of this sort. This is your invention. Syriza agreed to privatizations, for instance. Their objection was the creditor plan was leading to fire sales. They are willing to continue with privatizations provided the buyers make real investments and the Greek government shares in the upside.
I think there’s a clearer explanation of the Greek crisis at this link than anything I’ve seen on this blog.
http://www.counterpunch.org/2015/06/17/greek-default/
It may be clearly written but clear writing is no aid to understanding if it presents incorrect information.. For instance, it incorrectly states that Greece is seeking a primary surplus target of 0.8% and the creditors want over 3%.
In fact, Syriza and the creditors have ALREADY agreed on the draconian primary surpluses of 3.5% of GDP from 2018 onward. That was in the 47 page Greek proposal published in Tagesspiegel two weeks ago. We embedded the entire document and screenshot the section of the Greek proposal showing the primary surplus levels they offered to meet.
http://www.nakedcapitalism.com/2015/06/syriza-commits-to-deep-austerity-in-its-proposal-to-creditors.html
The disagreement was over the intervening years. The creditors had proposed a target of 1% for 2015 versus 0.6% from Syriza as of two weeks ago, which you can also see in the image in that post. Syriza then increased their offer to .75%.
You can see the latest Greek proposal here. It was submitted over the weekend. This is from its second paragraph: “…the proposal adopts a headline primary surplus target of 1% for 2105 and 2% for 2016.”
http://blogs.ft.com/brusselsblog/files/2015/06/GreekWeekendSub.pdf
This was leaked on the 15th: http://blogs.ft.com/brusselsblog/2015/06/15/greeces-new-plan-leaked-weekend-counterproposal/
This article ran after that and the author is basically winging it and worse, presenting precise figures, which implies factual accuracy which is absent. The ELA (the banking support) is designed to be a short term facility for solvent banks. That is why it has to be reapproved every two weeks. The ECB has actually bent its rules massively to continue to support Greek banks. They are deeply insolvent and should have been resolved long ago. That under current rules, BTW, would mean a depositor bail-in which would strip Greek citizens and business of what they have left in savings.
It also snarks that the creditors could extend the bailout beyond June 30 at a date closer to the deadline. This also reflects a failure to do homework. Extending the bailout requires approval of ALL 18 Eurozone countries besides Greece. In some like Germany, it requires Parliamentary approval. That not only requires minimum lead times for tabling legislation. it would also require a LOT of arm twisting, and putting a bill to votes without doing that assures defeat (a no vote is likely in the cards regardless, but it is guaranteed if it is posed too close to the deadline).
The German parliament has a recess next week and there is presently no plan to hold an emergency session. In addition, quite a few countries have expressed opposition to either making the bailout or extending if if Greece does not agree to cut pensions. In Germany’s case, it’s basically anti-Greek bigotry, but in some like Slovenia, the pensions are lower than in Greece, and it’s unacceptable to those voters to fund pensions in Greece that are better than the ones they receive.
The article also misses that the economic value of debt is considerably lower than the face amount due to the creditors having lowered interest rates, pushed maturities way out, and deferred interest payments. They were expecting to do more of that over the summer in the anticipated so-called third bailout. The actual value of the debt to GDP in real terms is about 70% of GDP. That would be manageable if Greece were not a deeply depressed economy. The issue is that austerity is killing growth, not the debt levels per se. And Syriza effectively agreed to continued austerity, but not to the particular terms the creditors want (large cuts in pensions).
But Syriza has made huge concessions as well as huge mistakes. To portray them as anti austeriy when they OFFERED to run primary supluses “always” as Varoufakis said early on and reaffirmed in May, and to continue with privatizations, as he also said they’d do (his beef, which is entirely reasonable, is that they are being done at fire sale prices, and he wants them done so Greece gets a better deal and a share of the upside.).
As terrible a toll as austerity has already inflicted on Greece, Syriza boosters miss that the course that Syriza is on has good odds of subjecting the Greek people to even more misery. And we don’t mean in the short term. Greece is not far away from being a failed state and a default, or a bail in, or a Grexit, could push it over that line. We have discussed at some length that even a default will put Greece in the creditors’ sweatbox, with the government unable to pay pensions and salaries of government officials in cash. The use of scrip instead of cash is certain to have negative political and economic repercussions. And it will be frankly foolish of Syriza to default AFTER stripping all government pockets bare of funds. It would have been far wiser to default before taking such extreme measures, so the government could use those hidden reserves to make payments for the benefit of the Greek people.
Hi Yves,
I didn’t mean for you to expend all the time that you did on this but I am grateful for your detailed analysis,
Best!
> Syriza effectively agreed to continued austerity, but not to the particular terms the creditors want
Indeed, it did, on the premises of an agreement with the creditors, of course. And indeed, this is not pleasant or enjoyable.
BUT: Even if the terms of such an agreement are fully obeyed, the agreement doesn’t last forever, so it’s pretty much irrelevant what level of austerity the government holds out for, say, 2020. Secondly, it is widely acknowledged that following a full-scale rupture with the creditors, namely a Grexit, at least for a while the same amount or even more austerity would have to be imposed, until the capital market readmits Greece.
So while the case against austerity remains to be made, what the Greek gov’t currently tries to make is ad least the case against excessive austerity. Unfortunately, as austerity measures in Greece have been far beyond everything at least Europe has seen before, the Greece example is completely inapplicable to assessing the outcomes of limited austerity.
So while it remains to be seen if limited recovery from the current depressed level is possible with continued 1 or 2% austerity, making a good-effort compromise remains one of the few halfway bearable options Greece has, and – please don’t forget that – the only one the Greek public would have supported back then in February.
Now while I’m appreciating Syriza’s efforts in making a point beyond just slightly tweaking Greece’s current situation being held hostage, one cannot and must not expect from Syriza to be the one player that kills austerity Europewide. Once Syriza has succeeded in delegitimizing extreme austerity (and it looks like at least this case has been sufficiently established), others in a better position can build on that making the more general case against austerity per se.
Would a Greek recovery in spite of 1 or 2% austerity help making that case? Certainly not, at least not in the eye of the obstinate German taxpayer. But then again, the duty of care your colleague Lambert repeatedly stressed, didn’t allow Syriza to push even harder without coming towards the creditors at all.
Would a default have been better in early February? Certainly it would. But then, every month was needed to unfold the creditors’ bad faith. If today the Greek government has not just a formal mandate but popular support to abandon the negotiations if the Troika’s dictate otherwise can’t be broken, then it is only because the course of events has proved the creditors to be interested in continued subjugation rather than in an honorable compromise. If today the Greek government can draw contingency plans and present a Plan B, it couldn’t back then in February.
So your complaint is more than just expecting a decision to be taken back then yet with today’s knowledge. Rather you’re expecting a decision to be taken months ago when it realistically had not yet been available.
P.S. Somehow my first comment on this seems to have disappeared in your spam system’s black box. Maybe you can make it reappear?
There is no difference between “scrip” and “cash”. The distinction is an obsolete gold-standard distinction.
You know where Greece prints euro notes? Athens.
Yes, there is. When California issued IOUs that paid interest, they traded at 70 cents on the dollar. They most assuredly were not treated the same as “cash”.
> Syriza effectively agreed to continued austerity, but not to the particular terms the creditors want
Indeed, it did, on the premises of an agreement with the creditors, of course. And indeed, this is not pleasant or enjoyable.
BUT: Even if the terms of such an agreement are fully obeyed, the agreement doesn’t last forever, so it’s pretty much irrelevant what level of austerity the government holds out for, say, 2020. Secondly, it is widely acknowledged that following a full-scale rupture with the creditors, namely a Grexit, at least for a while the same amount or even more austerity would have to be imposed, until the capital market readmits Greece.
So while the case against austerity remains to be made, what the Greek gov’t currently tries to make is ad least the case against excessive austerity. Unfortunately, as austerity measures in Greece have been far beyond everything at least Europe has seen before, the Greece example is completely inapplicable to assessing the outcomes of limited austerity.
So while it remains to be seen if limited recovery from the current depressed level is possible with continued 1 or 2% austerity, making a good-effort compromise remains one of the few halfway bearable options Greece has, and – please don’t forget that – the only one the Greek public would have supported back then in February.
Now while I’m appreciating Syriza’s efforts in making a point beyond just slightly tweaking Greece’s current situation being held hostage, one cannot and must not expect from Syriza to be the one player that kills austerity Europewide. Once Syriza has succeeded in delegitimizing extreme austerity (and it looks like at least this case has been sufficiently established), others in a better position can build on that making the more general case against austerity per se.
Would a Greek recovery in spite of 1 or 2% austerity help making that case? Certainly not, at least not in the eye of the obstinate German taxpayer. But then again, the duty of care your colleague Lambert repeatedly stressed, didn’t allow Syriza to push even harder without coming towards the creditors at all.
Would a default have been better in early February? Certainly it would. But then, every month was needed to unfold the creditors’ bad faith. If today the Greek government has not just a formal mandate but popular support to abandon the negotiations if the Troika’s dictate otherwise can’t be broken, then it is only because the course of events has proved the creditors to be interested in continued subjugation rather than in an honorable compromise. If today the Greek government can draw contingency plans and present a Plan B, it couldn’t back then in February.
So your complaint is more than just expecting a decision to be taken back then yet with today’s knowledge. Rather you’re expecting a decision to be taken months ago when it realistically had not yet been available.
P.S. Somehow my first comment on this seems to have disappeared in your spam system’s black box. Maybe you can make it reappear?
Keep in mind that the Bank of Greece is at this time a New Democracy fiefdom.
Greek-style politics being what it is, and what it is being a zero sum game, the Bank may want to see Syriza fall (and show Brussels that they are loyal muppets) even if it means driving the country out of the EU.
Notice that Brussels’ anger is directed at Syriza and not the governments that got Greece in this mess in the first place? Fraud is one thing, but disobedience is severely published.
Somewhat of an aside, but I do have some long standing (couple of months) short positions on European equities (specifically EZU and EUFN). I got an email from my broker this evening that my short position in EZU is being “canceled”. Basically the “Lender” of the securities I borrowed called them back (to sell them presumably) and my broker can’t find any other sources to borrow from. If they can’t find another lender by tomorrow 9am, my position will be forcibly closed. According to my brokers website, this is a highly unusual situation.
Back in Feb 2008, I had some securities called ARPS (don’t ask) that went illiquid, as in unsellable. It was a (very) early warning of what was to come with Bear, Lehman, etc. that year. I was eventually able to sell them at par in Nov of 08 (actually Citi was forced to buy them back), but I was one of the luckier ones (some folks are still stuck with them).
Just hoping history doesn’t repeat itself, and passing on the info.
According to the Portuguese press, in February Portugal had asked permission to anticipate the payment of 14 billion euros to the IMF but it is now on a “wait end see” mode. A while ago the Fin Min was much criticized because she said “our coffers are full” (presumably, as opposed to the pockets of the citizens), but it is quite obvious that she will avoid by all means borrowing in the present circumstances for as long as possible. And the PM announced that much this very week:
http://www.bloomberg.com/news/articles/2015-06-17/portugal-says-it-has-reserves-to-face-financing-restrictions
Would a GREXIT be more likely if a non-Western super-power (like a Russia or a China) offered Athens access to oil, pipelines, other necessities, etc.?
(I remember the Greek Prime Minister speaking quite affectionately of the Turkish Prime Minister when the Turkish Prime Minister surprised many and visited Athens last November.)
And could anyone see a GREXIT as an opportunity that would be used as such to advantage a Russia, a China, or even as an opportunity to advantage the U.S.?
And if Greece exited the Euro–due to its feeling that its debt is odious–would some of the other smaller nations in the Euro likely follow suit? Or would this likely be confined to Greece?
(Sorry–have not been Greece/Grexit attentive enough as of late.)
WeII PearI, a non-NATO power, Russia, is offering Greece pipelines and gas – and exceptions to Russia’s sanctions against the EU [in retaIiation to EU’s sanctions against Russia] have been made for Greek agriculture products. On top of that BRICS have invited Greece to be its sixth member, in much the same way Greece and Turkey were the first countries inducted into NATO after the founding members.
Though counter-intuitive, my feeIing is that this wiII be a factor in preventing Grexit [which is not synonymous with Ieaving the EU]. Keep in mind too that Grexit would hurt the EU and American CDS insurance more than Greece. Most definitely Greece has no pIans to Ieave the EU. Moreover a Greece outside of the EU is Iess attractive or usefuI to Russia than Greece inside. The EU and Russia are stiII hoping to get back to friendIy terms, and to trade, but NATO is nixing that. I should say EU as it is today, dysfunctionaI as it is, i.e. pre-TISA, pre-TTiP, and with some fading hope of seIf-reform.
The question is who are occupying the actual nuts-and-bolts positions at the Bank of Greece — manning the computers and the printing presses and the vaults.
Once you have studied history you realize that paper barriers are not barriers.