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Greek Privatization Proceeds for Anti-Poverty Policies? Probably Not, But We’ll See

With negotiations between Greece and the troika over how to resolve the latest austerity-impasse still ongoing, a rather intriguing potential source of both conflict and compromise emerged between the Syriza-led Greek government trying to find a way out Greece’s austerity-trap and a “troika” that would strongly prefer Greece stays in the austerity-trap: Greece is offering to continue with the privatization of state assets that the troika demands but it would rather use the proceeds to set up a fund dedicated to tackling Greece’s humanitarian crises instead of immediately paying back Greece’s creditors. And while the troika has yet to formally rule out Greece’s proposal, European Commission president Jean-Claude Juncker made a fascinatingly uncharacteristic offer last week to let the 2 billion euros in unspent EU “development funds” in order to “support efforts to create growth and social cohesion in Greece”. Considering virtually all past attitudes by the troika regarding Greece’s “growth and social cohesion”, it was an oddly generous offer…except for the fact that the proceeds from the privatizations are projected to be potentially worth a lot more. So maybe it wasn’t so generous.

Still, it’s a fascinating proposal by the Greek government that puts the troika in a rather unusual position because when it comes to the troika:
Privatization = “Can’t get enough“.
Helping poor people = “Fine, as long as it doesn’t cost much, but they need to learn their lesson so maybe it’s not so good. And not if you’re too poor
Paying back creditors = “The most positive force in the universe

So by making this “privatization for humanitarian aid” proposal Greece appears to have done the seemingly impossible: Greece may have forced the troika to reconsider something and compromise in a way that’s actually helpful. Just a bit, which is still amazing.

That said, it’s still all quite ominous since the troika is still crazy.

—————————–

Well this should be interesting to watch: With the troika demanding more “reforms” from Greece during the latest round of troika-led negotiations over how much abuse and social degradation should take place as part of the Greek “bailout” and with the ECB restricting emergency access to credit lines for Greece’s banks, it’s pretty clear that the troika is intent on making it very clear to the Greeks that the screws can only get tighter.

Except now we get reports of German Chancellor Angela Merkel indicating “flexibility” for Greece as the Greek government scrambles to put together a set of “reforms” that meet its troika creditor demands. In addition, on Friday EU Commission President Jean-Claude Juncker made a rather surprising offer to the Greeks: the EU has a spare 2 billion euros lying around…and maybe it could use that money to help alleviate Greece’s humanitarian crisis. Given the troika’s past attitudes towards Greece’s humanitarian crises this was some uncharacteristically benevolent behavior:

Merkel sets strict terms for Greek aid, Juncker flags EU cash

By Renee Maltezou and Alastair Macdonald

BRUSSELS Fri Mar 20, 2015 3:42pm EDT

(Reuters) – European Union leaders welcomed a pledge on Friday from Greece to meet creditors’ demands for a broad package of economic reform proposals within days to unlock the cash Athens needs to avoid stumbling out of the euro zone.

After overnight crisis talks on the sidelines of an EU summit in Brussels, new Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel, the bloc’s main paymaster, offered somewhat divergent understandings of how much Athens must do and how quickly. But EU officials insisted there was a broad agreement to act now on an accord struck a month ago.

Merkel said Greece, which faces a cash crunch within weeks, would receive fresh funds only once its creditors approve the comprehensive list of reforms Tsipras promised to present soon.

But she signaled some flexibility on what reforms Tsipras would have to make — crucially giving his leftist-led coalition the chance to offer alternative savings strategies that will help it persuade its voters it is breaking with what Tsipras calls the failed austerity policies of his defeated predecessor.

And European Commission President Jean-Claude Juncker offered Tsipras a sweetener by saying 2 billion euros from the European Union’s modest collective budget were available to ease the humanitarian impact of five years of spending cuts.

Tsipras said he would fully respect a deal struck with euro zone finance ministers on Feb. 20 that extended an EU bailout deal until June. But he insisted that a condition in that pact requiring Athens to pass a final review of its efforts to bring its debts under control before receiving funds did not apply.

After two months of mounting frustration on both sides, marked by public squabbling, Tsipras held three hours of talks with the leaders of Germany, France and the main EU institutions to try to break an impasse that risks depriving Athens of the euros it needs to function fully within the currency area.

A joint statement by the EU institutions spoke of a “spirit of mutual trust”. But it remained uncertain Tsipras and Merkel were talking about the same reforms, and how far Greece would have to start implementing them before it receives any new cash.

DIVERGENT TAKES

The risk of a continued standoff, exactly a month after Greece secured a last-gasp four-month extension of an EU/IMF bailout, was highlighted by comments from Merkel and Tsipras.

“The agreement of Feb. 20 is still valid in its entirety. Every paragraph of the agreement counts,” Merkel told German journalists who questioned whether she was now offering cash for promises that many of her supporters have stopped believing in.

Tsipras appeared to differ. “It is clear that Greece is not obliged to implement recessionary measures,” he said. “Greece will submit its own structural reforms which it will implement.”

Merkel insisted only the completion of approved measures — in a final review by creditor institutions — would satisfy lenders including the Euro Group of euro zone finance ministers.

“The Greek government has the possibility of replacing individual reforms outstanding from Dec. 10 with other reforms, if these … have the same effect. The institutions and then the Euro Group must decide whether they do have the same effect,” she said, noting Ireland had made such changes with EU backing.

Tsipras, however, insisted that while his government would fully respect a deal struck with the euro zone on Feb. 20 it would not have to complete a final bailout review process begun by the last government to secure more aid: “We all have the same reading of the Feb. 20 accord… There is no such thing as a fifth review,” he told a news conference after the summit.

EU officials, keen to play up the prospects the talks had raised of preventing “Grexit”, or an inadvertent “Grexident” that pushed Greece out of the euro, said differences were merely ones of emphasis for audiences in their respective countries.

Sources aware of how the three hours of talks overnight had gone said Tsipras, aged 40 and only two months into his first ever government job, had quickly appeared to accept that he was facing a united front from creditors and would have no choice but to meet their impatient demands for cost-cutting measures.

“He has seen … that he cannot divide the Europeans,” one senior EU official said. “He can only work with them, not play them off against each other. He has also seen that there is goodwill if he sticks to his word and actually delivers.”

Another EU official said Tsipras, who will visit Merkel in Berlin on Monday after weeks of increasingly rancorous relations between ministers in their two cabinets, had indicated he could offer a full package of reforms within a week or 10 days.

Nonetheless, with some German leaders saying they might prefer Greece out of the euro zone, and Tsipras trying to satisfy a coalition of radicals unused to power, senior EU officials do not rule out a further collapse of the process.

Crucial for the Greek leader, EU officials believe, is being able to present his package as a break with his conservative predecessor — even if many of the measures are broadly similar.

Aha, well, as we can see, the offers of “flexibility” from Angela Merkel were actually very charactistic of the troika’s general attitude thus far:

Merkel insisted only the completion of approved measures — in a final review by creditor institutions — would satisfy lenders including the Euro Group of euro zone finance ministers.

“The Greek government has the possibility of replacing individual reforms outstanding from Dec. 10 with other reforms, if these … have the same effect. The institutions and then the Euro Group must decide whether they do have the same effect,” she said, noting Ireland had made such changes with EU backing.

How flexible! Greece is free to come up with its own reforms, as long as they have the same effect as the existing reforms. And what’s been the effect of those reforms thus far? A humanitarian crisis!

Still, that offer of two 2 billion euros was a nice change of pace. Normally it’s just assumed in the new EU that the only way to escape a humanitarian crisis is to somehow “reform” your way to riches via crisis-inducing austerity. So you have to wonder what prompted that change of attitude?

Reformed Cannibalism
Well, there is one possible motive for the EU’s 2 billion euro “humanitarian crisis” surprise, and it appeared just this week:

Greece already has a number of reforms to the troika’s “reforms” in mind (yes, reform reforms) and it’s already started implementing some of them. And they are exactly the kind of reform the troika is primed to hate. It’s a reform that centers around prioritizing Greece’s humanitarian crisis over paying back the troika that started the crisis in the first place:

Greece says to use asset sales for social welfare, not to cut debt

ATHENS Tue Mar 17, 2015 7:27am EDT

(Reuters) – Greece will shortly present a law to turn its privatisation agency into a wealth fund that will use proceeds to finance social welfare policies instead of reducing its public debt, the deputy finance minister said.

The move could further strain relations between Prime Minister Alexis Tsipras’ new left-wing government and Greece’s international creditors, who want Athens to use the revenues to cut its huge debtload.

“There will be a new Sovereign Wealth fund … and the revenue will be used to fund the government’s social policies and to support the social security system,” said Deputy Finance Minister Nadia Valavani.

Valavani told a parliamentary committee she would present legislation in the coming weeks to merge the privatisation agency (HRADF) with the country’s state property company, ETAD, to set up the new body.

The leftist government is opposed to some key asset sales but has been forced to moderate somewhat its stance as it negotiates with its European partners over a new aid package.

Privatizations for humanitarian crises? Yeah, it’s kind of hard to see how the troika is going to be enthusiastic about that idea. Using the proceeds from creditor-mandated state assets sales for social social welfare policies instead of paying back Greece’s creditors isn’t exactly the creditor’s paradise Europe’s elites have been working to hard to build. Helping the poor is an “Old Europe” thing. The new troika-led Europe is all about helping the creditors even if it means planned poverty for the masses. That’s the new normal

So was Juncker’s 2 billion euro offer a sort of indirect response to the Greek government’s proposal? That’s unclear. Alexis Tsipras declared that any spending on Greece’s humanitarian crisis wouldn’t impact the Greek budget back in February, but that might still imply changing the “bailout” repayment schedule to the troika. And there hasn’t really been an official troika response to the idea so far. Although there probably will be a response fairly soon since Greece’s parliament just turned that idea into law:

Greek parliament approves law to coax more tax payments

ATHENS, March 21 Fri Mar 20, 2015 6:56pm EDT

(Reuters) – Greece’s parliament on Saturday approved a bill that offers hefty cuts in fines and long repayment plans to citizens owing billions of euros in overdue taxes in a bid to boost depleted state coffers.

Shut out from debt markets and with remaining international bailout aid on hold, Athens risks running out of cash in the coming weeks and is scrambling to secure ways to finance itself and meet payment obligations.

The legislation, dubbed “regulations to kick-start the economy,” is part of the new left-wing government’s first batch of reforms.

It follows an anti-poverty law voted on earlier in the week, the first legislation the new government passed since coming to power in January. More bills are in the pipeline in hopes international creditors will release fresh aid after a loan review that needs to be wrapped up by April.

Greece is due to receive 7.2 billion euros in remaining European Union/International Monetary Fund bailout funds if it delivers on its reforms.

Under the new legislation, Greece’s privatisation agency will be turned into a wealth fund and will use proceeds to finance social welfare policies instead of paying down public debt.

Given that “more bills are in the pipeline in hopes international creditors will release fresh aid after a loan review that needs to be wrapped up by April,” the content of those upcoming bills is no doubt on the troika’s mind, as are the implications of showing any leniency to the rabble.

No one wants to be a ‘troikan’ protectorate. Especially ‘troikan’ protectorates
So some sort of response from the troika over this latest privatization agency move seems likely. Maybe Juncker’s offer was such a response or maybe not. But one thing is clear: When an outside force demands that your country sell off strategic assets to pay back that outside force the rabble tends to get restless:

Greek government ‘radically opposed’ to some privatizations as reforms talks underway
Associated Press March 11, 2015 | 10:40 a.m. EDT

By ELENA BECATOROS, Associated Press

ATHENS, Greece (AP) — Greece’s new government is “radically opposed” to the privatization of certain businesses, particularly in the energy and infrastructure sectors, a senior cabinet minister said Wednesday as reforms talks with creditors were due to begin.

Selling state-owned enterprises is one of the actions Greece has been asked to take to raise funds and reduce debt in exchange for rescue loans from the eurozone and International Monetary Fund.

Talks between Greece and its creditors began on a technical level in Brussels on Wednesday to cement a series of reforms Athens must implement in order to get the remaining bailout funds released and avoid bankruptcy.

“We are radically opposed to the privatization, particularly of the strategic sectors and businesses of our economy, and primarily in the sector of infrastructure and energy,” said Panagiotis Lafazanis, the energy and environment minister and a government hardliner, at a conference in Athens.

Lafazanis added that “honestly, I haven’t understood why for some schools of thought, privatizations have become synonymous with reforms.”

He argued that what he called the “neoliberal deregulation in the energy market, which occurred particularly during the recent (bailout) years with the insistence of the (European) Commission and the troika” had prolonged and exacerbated Greece’s financial crisis and energy poverty in the country.

“Troika” refers to the Commission, International Monetary Fund and European Central Bank, who together oversee the 240 billion euro rescue loans Greece began receiving in 2010.

The word “troika” got a bad name in Greece after mid-level officials from those institutions would visit Greece to carry out debt inspections. The new government has refused to deal with those officials, saying they are not welcome in Greece. On Wednesday, it said the team of lower-level technical experts with whom Greek officials would be negotiating on reforms would now be known as the ‘Brussels Group.’

Lafazanis has frequently repeated his opposition to privatizations. Last month, he said the privatization of the country’s power grid and power utility, DEH, would be halted as final binding bids had not yet been submitted.

In his speech Wednesday, Lafazanis said his country wanted diverse energy sources but would not be dependent on “any large power and of any coalition of countries.”

“Greece is too small a country to remain a type of dependent ‘troikan’ economic protectorate … with the status of an energy banana republic.”

As Greece’s energy and environment minister points out:

Greece is too small a country to remain a type of dependent ‘troikan’ economic protectorate … with the status of an energy banana republic.

And that’s certainly true, although it would also apply to large ‘troikan’ economic protectorates. Generally speaking, being a ‘troikan’ economic protectorate sucks regardless of size

Still, being a small ‘troikan’ economic protectorate is certainly a lot worse than being a smaller one. As the saying goes, “If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” And while a ‘Grexit’ certainly carries the risk of a financial or political ‘contagion’, it’s also the case that a ‘Grexit’ might be manageable for the rest of the EU in the sense that the financial costs would mostly hit national budgets and not private banks since most of Greece’s debt at this point is owed to the IMF, ECB, and EU governments (although private banks would still be weakened). If Greece was the size of, say, France, the manageability of a ‘Grexit’ wouldn’t even be in question. A ‘Francexit’ would be a complete and immediate disaster for all parties involved and no one would even be pondering the manageability of the event.

That’s part of what makes the contemporary Greek tragedy so gripping: At this point, tiny Greece is the only European country that has really put up a significant resistance to the Berlin-run troika-regime. The only one.

So given Greece’s overall ‘troikan’ situation the nations has to resist somehow and change the situation, but it can’t really resist alone. At least not very effectively. And before the great collective Greek beat down by the entire EU it was the rest of Southern Europe (plus Ireland) that was (and still largely is) basically in the same ‘troikan’ position of powerlessness in the face of of the EU’s new Ordoliberal ‘golden rule‘ paradigm. So when you see the rest of Europe fall into line with the “Lazy Greeks, let’s kick them out” meme (which is the dominant attitude across the EU today), that’s basically a manifestation of the acceptance of “dependent ‘troikan’ economic protectorate” status by the rest of EU periphery. It’s really quite shocking and sad.

Still, at least there’s one government left in Europe that isn’t casually accepting its ‘troikan’ protectorate status. Whether or not the resistance ends up being successful or largely symbolic remains to be seen, but given the mass capitulation across Europe to far-right dogma in recent years, any attempt to pull Europe back from the abyss of society-destroying economics is a lot better than nothing:

Greece appoints new management at privatisation agency

ATHENS, March 17
Mon Mar 16, 2015 7:07pm EDT

(Reuters) – Greece appointed early on Tuesday new management at the country’s privatisation agency (HRADF), which is expected to play a key role in implementing the leftist government’s plans to limit further state asset sell-offs.

Asterios Pitsiorlas, a businessman involved in the tourism sector, will become chairman of the agency while Antonis Leoussis, former chief executive at Greece’s fourth biggest lender Alpha Bank’s real estate arm, will be chief executive.

Pitsiorlas and Leoussis will replace Emmanuel Kondylis and Paschalis Bouchoris, appointed to the helm of the agency in July by the former conservative government.

During a parliamentary committee which ran over into the early hours of Tuesday, Valavani said she would present legislation to create a new body to manage state assets, reiterating a previous suggestion that the HRADF would eventually be replaced.

Syriza has long opposed sell-offs undertaken by the previous conservative-led government but has been forced to somewhat moderate its stance as Greece negotiates with its European partners over a new aid package.

Greek representatives started talks with official international creditors in Brussels last week in a bid to agree on a set of reforms and unlock much-needed funds.

Privatisations had been meant to raise billions for Greece’s depleted state coffers under its 240-billion-euro bailout with the European Union and the International Monetary Fund since 2010.

Proceeds have been disappointing so far, amounting to about 3 billion euros, a fraction of an initially targeted 22 billion euros.

Note that Greece replaced the head of the state privatization agency just days before Juncker’s “humanitarian assistance” offer. Could that have prompted Juncker’s humanitarian aid offer?

Also note how:

Privatisations had been meant to raise billions for Greece’s depleted state coffers under its 240-billion-euro bailout with the European Union and the International Monetary Fund since 2010.

Proceeds have been disappointing so far, amounting to about 3 billion euros, a fraction of an initially targeted 22 billion euros.

Yep, The whole privatization idea has basically been a bust so far anyways.

But with a large fraction of the troika’s desired privatizations yet to be done, there’s still quite a bit of potential privatizations still on the chopping block. So the troika may not take Greece’s “privatizations for the public good” proposals very lightly despite the lackluster privatization scheme thus far.

Still, on the surface the Greek government’s reformed privatization plans may not seem like something that should piss the troika off too much. After all, the empirical evidence that privatizations help alleviate fiscal crises isn’t really there.

So if the proceeds get spent on social welfare instead of paying back creditors quite as quickly and it keeps the rabble from totally rebelling, who cares as long as Greece basically stays under the thumb of the troika?

When is 2 billion euros for humanitarian aid not generous? When it’s in place of 4 billion euros for humanitarian aid. And maybe a lot more
Given that Juncker just made the 2 billion euro “humanitarian aid” offer day, one might be tempted to assume that this privatization proposal isn’t any different than just having Greece spending the privatizations proceeds on humanitarian aid instead of paying back its troika creditors. The numbers might not be quite the same, but still, if Greece pays back the troika through privatizations and recieves 2 billion in humanitarian aid, is that really all that different from Greece obtaining that humanitarian aid itself through privatizations and instead of paying back the troika entirely?

Well, the troika might care, in part because the 2 billion euros the European Commission offered to Greece for humanitarian aid is half the amount the troika is expecting privatizations to bring in this year alone:

Hard for Greece to avoid privatization, pension reform: EU officials

By Jan Strupczewski

BRUSSELS Mon Mar 23, 2015 1:27pm EDT

(Reuters) – Greece can choose its own reforms to unblock the flow of loans from international creditors and stave off bankruptcy, but it will have a hard time avoiding privatizations and a pension reform because of their budget impact, European officials said.

A new left-wing government and euro zone creditors agreed last week that Athens would present within days a list of its own reforms that must achieve similar fiscal results to the measures agreed by the previous conservative-led cabinet.

“The last government did not complete the ‘prior actions’ necessary for the final disbursement. Nothing has changed, the prior actions are the same. But the measures can be changed if they do not jeopardize debt sustainability,” one euro zone official said.

Which reforms to choose is politically sensitive because the Syriza party of Prime Minister Alexis Tsipras won a general election in January on a platform of ending the policies of its predecessors, including budget austerity and measures it regards as recessionary.

If the creditors agree the substitute plans will achieve an impact equivalent to the previously agreed measures, Greece would get more loans from the euro zone and the International Monetary Fund, averting bankruptcy and a possible euro exit.

The starting point for talks with the IMF, the European Central Bank and the European Commission — “the institutions” — is a long list agreed to by Tsipras’ predecessors.

“They need to persuade the institutions that some of the measures should not be undertaken – to be either dropped, or supplemented by others,” one senior euro zone official said.

Privatization is likely to be one of the major hurdles, officials said, because it was due to contribute 4 billion euros to the budget this year alone. The Tsipras government does not want to sell state assets, although it has agreed in principle not to stop sales that had been initiated already.

A reform of the pension system is another sticking point, where the EU is concerned about early retirement privileges and the need to link benefits to the size of contributions.

Once Athens agrees on the list with its creditors and starts implementing the changes, more loans could start flowing gradually.

“This is where there can be flexibility, they can do it step by step and get step by step money,” the senior official said.

Yes, the troika clearly isn’t keen on allowing Greece to waive the privatizations, with privatizations from this year alone expected to contribute 4 billion euros to Greece’s budget, a significant amount when you consider that only 3 billion euros has been raised by all the privatizations up to now.

Also now that the 4 billion euros the troika is expecting the privatizations to contribute to Greece’s coffers is also double the 2 billion euros that Jean-Claude Juncker pledged for Greece’s “humanitarian aid”? Double. Could that have been part of the motivation before the 2 billion euro offer? After all, if the troika can convince Greece to waive its “privatizations for humanitarian needs” plan and just take the 2 billion euros of aid instead, that potentially gets the troika 2 billion in extra proceeds this year since so much of what goes into Greece’s coffers goes right back out and into the troika’s coffers.

So, in that context, the EU’s 2 billion euro humanitarian aid offer is perhaps less a belatedly generous offer of 2 billion euros to the suffering Greece and more an attempt to spending 2 billion in humanitarian aid to prevent 4 billion euros from getting spent humanely. At least that seems like a possible explanation for the EU Commissions unusual behavior. And that’s just 4 billion euros projected to be raised this this year…recall that the original plan was for 22 billion euros to be raised through privatizations.

What’s the value of a really bad idea? More that 2 billion euros?
But it may not simply be about saving billions of euros for the troika. Look at it this way: At this point, it’s abundantly clear that intertwined economies of the EU, and especially in the eurozone, are acting as both the glue that holds Europe together and the cudgel that keeps member nations in line. And strict adherence to “the rules” and balancing ledgers and trade imbalances is clearly intended to be a top priority in order to allow the money-glue-cudgel to work its magic (“magic” being defined as getting the rabble to do what they’re told without fully realizing they’re being told what to do). Mammon and technocrats (and Berlin) run Europe now. Democracy is sort of old school.

That’s all one of the reasons why rolling back of social and economic programs that protect the vulnerable and make life better for everyone makes so much sense for Europe’s elites: The 20th century welfare state that middle classes around the world have come to rely on is also one of the greatest political tools for empowering the rabble ever created. Non-economically desperate people are political empowered people, and you can’t have a money-glue-cudgel if the rabble is politically empowered. And few things can more effective politically disempower a society than rolling back economic safeguards so much that no one has the time or financial security to truly. Pro-poverty policies are a no-brainer for the troika.

But it’s not just about disempowering the masses and taking away their socioeconomic protections. If you want to transition to a stable form of vassal state-technocracy you also need to fill people’s heads with the kind of garbage ideas that prevent them from ever presenting any meaningful form of resistance. And if you look at the ideas and justifications behind what the troika has been doing it’s pretty clear that hammering horrible economic ideas into the heads of Europe’s masses is a top priority.

And it’s that drive to teach the kinds of lessons that can be exploited over and over As part of the process of explaining why Europe is intentionally imploding its societies and aggressively dismantling the social safety-net. Ideas like:

“High debt is the primary root of evil”

have been coupled with ideas like:

“Just keep cutting expenses and paying back that debt and you will become free and strong”

Those two core concepts are now dominating not just EU policy-making but the hearts and minds of the European public. But the absolutely crucials complementary ideas like:

“Avoiding usury is a good idea”

and:

“If a nation simultaneously cuts back on spending it’s going to have a recession or worse. And if many nations simultaneously do this you might have a depression

were intentionally unpersoned!

Even worse, ideas like:

“Poverty is a destructive force that should not be tolerated”

is not only not present in the pan-European discourse but that anti-poverty idea would derail the entire troika agenda.

As a result of this mix of bad ideas (and omitted good ideas), the overriding meme that’s come to dominate the EU’s reasoning during this crisis is something like:

“High debt is bad. Poverty is ok. Therefore, inducing poverty as a means of alleviating bad debt is not only fine but our only option since all of the other (Keynesian) options involve temporarily taking on more debt

Bad ideas like that must reign supreme if the new creditor’s paradise is going to be sustained. The rabble needs to truly believe ideas like:

The whole of Europe can prosper if only they all become export powerhouses with massive trade surpluses just like Germany. That won’t screw up the world economy or anything. Nope.

Totally crazy ideas like that have become the politically correct official truisms for much of Europe.

But just imagine if 4 billion euros got spent on helping Greece’s neediest instead of going right back into the troika’s coffers? And just imagine if that 4 billion euros worked wonders in lives across Greece and everyone got to compare those wonders to a bunch of numbers on the troika’s ledgers. That probably wouldn’t be a troika-friendly comparison in many minds (on the other hand…). So if the troika lets Greece spend its privatization proceeds on humanitarian aid instead of paying back its creditors, and that aid is seen actually helping people (just imagine 4 billion euros in actual social welfare spending), the seemingly endless drive towards creating a new EU ‘creditor’s paradise‘ suddenly hits a speed bump. People might actually start asking themselves what the hell they’re doing to themselves.

A creditor’s paradise is a private paradise
So with Greece’s negotiations with the troika yet to be concluded, keep an eye on the privatization component of the negotiations because that new “social welfare sovereign wealth fund” proposal may not amount to very much in terms of the size of the fund relative to the needs of Greece’s society, but the very ideas behind it are antithetical to the pro-market-supremacy/Ordoliberal foundations that the new Europe is supposed to be based on. Humanitarian aid to your people comes after you’ve developed a strong export sector in the new EU. Especially the eurozone.

The new, permanently right-wing Europe needs a populace that thinks kitchen table economics makes for good nation-state economics because that’s a populace that could can be crushed over and over. What’s that? There’s a temporary fiscal crisis? Let’s slash public spending on useful social programs and deregulate business! Once business explodes we can bring back the useful programs. An economically confused, easily manipulated populace that is perpetually navigating a socioeconomic landscape it can’t possibly understand because that landscape doesn’t make any sense and the public discourse about it is a bunch of nonsense intended to keep the rabble confused and oblivious.

THAT’s the dream! That perfect, special dream where elites use garbage socioeconomic paradigms to somehow “prove” to the rubes that it’s really in their best interests to we give up on this whole “empowerment and non-poverty for the masses” thing and instead divide and conquer themselves and let the big boys run things unchecked again. A return to the historic norm. It’s a classic.

But it’s a dream so beautiful that something like a privatization fund intended for social programs would just spoil everything. Ok, not everything, but it would certainly go against Europe’s new unofficial right-wing neoliberal ideology.

Why? Because a privation fund for social programs isn’t part of the troika’s plan and the long-term plan for Europe is obviously to have a collection of ‘troikan’ protectorates that dutifully follow whatever plan Europe’s elites hand them, regardless of the consequences to their people. In other words, humanitarian aid from privatization proceeds isn’t just an attempt to alleviate a humanitarian crisis. It’s an act of defiance, albeit moderate defiance since the Greek government would prefer to not do any privatizations at all. And while there are certainly instances when member states in a union can defy a federal power in unjustifiable ways that warrant federal action (this of John F. Kennedy’s showdown with Governor Wallace), in Greece’s case we’re talking about an act of defiance that’s necessary to alleviate a humanitarian crisis directly caused by the actions of those ruling international institutions that are being defied. And you can’t have that elite ‘creditor’s paradise‘ dream if governments are allowed to engage in acts of defiance even when they’re trying save their own people. That’s just not going to work.

All in all, we’re in a very strange place in the ever-evolving new EU. It’s true that you have to have some sort of sharing of sovereignty for the EU to work and that’s significantly more true for the eurozone. And if member states are able just ignore past agreements that’s not going to work at all. But at the same time, you can’t just have a “rules”-based union that is completely divorced from reality, especially when those rules prioritize national finances and other macroeconomic metrics over basic human needs. This tension should sounds familiar at this point since it’s very similar to the tension between creditor and debtor member states that EU leaders and elites have been usuriously misunderstanding for years now.

And while that tension between the need for adherence to the rules and the need for sane, humane rules has always existed, what makes this situation so strange for Europe is that large swathes of the content seems to have collectively forgotten that if you expect people to follow your rules those rules need to be sane rules in the first place. This should be obvious, but it apparently isn’t. And, sadly, the only reason the EU is trying to resolve this tension at all is because a lone government has decided to point out that tension by openly challenging the inhumane rules and calling a bloody spade a bloody spade. Just one.

So we can expect to find out the troika’s official response to Greece’s ‘privatization for humanitarian aid’ proposal soon enough. But given everything we’ve seen so far, we can really expect it to be a reasonable or humane response. Privatizations are part of the elite vision for Europe and that vision will not be F***ed with, regardless of circumstance. If you’re going to build a ‘creditor’s paradise‘, blind adherence to the rules is the first rule.

Discussion

97 comments for “Greek Privatization Proceeds for Anti-Poverty Policies? Probably Not, But We’ll See”

  1. Here’s an article that does a great job of highlighting one of the key facts most frequently forgotten (or ignored) when examining the causes and possible solutions of the eurozone crisis: If the various crises were all due to profligate spending and fiscal irresponsibility, then why on earth does Spain have an over 23% unemployment rate? Might the manner in which the euro systematically prevents nations from dealing with fiscal crises in sane manner have something to do with it?

    CNN
    Greece the only villain in euro crisis? Don’t believe it!

    By Lisa Tripp

    Updated 12:05 PM ET, Tue March 24, 2015

    (CNN)Europe is in the midst of a political and economic crisis that threatens to unravel decades of European integration and derail the world’s recovery from the great recession. To understand this crisis, let’s compare two countries.

    Country A is a small nation with a long history of tax evasion, government debt defaults and a dysfunctional business and regulatory climate. It allows workers to retire in their 50s, and pays double pensions when they do. It lied about its budget to get into the eurozone.

    Country B is a large, historically powerful nation with a record of low government debt. Country B even ran budget surpluses, including a 2% surplus just before the financial crisis hit in 2008. It entered the eurozone with an honest accounting of its finances.

    If you guessed that country A is Greece, you are correct. If you believe Greece has caused the crisis in Europe because of its fiscal irresponsibility, then you are safely in the mainstream opinion about the matter.

    But what do we make of fiscally responsible country B? Its virtuousness must mean it is weathering the crisis. And it must be Germany, right?

    Wrong. Country B is not Germany. Country B is Spain. Far from prospering, Spain is doing terribly.

    Spain’s unemployment rate is 23.7%, down from a high of almost 27% in 2013. More than a fifth of its workers have been jobless for the last four years. More than half of its young people are out of work and have been for years. There is regularly talk of a lost generation in Spain and Greece. Like Greece, Spain’s investment bubble burst when the financial crisis hit and it had to seek a bailout (although a much smaller one) to prevent its domestic banks from collapsing. Spain’s economy also shrank during the crisis and its debt to GDP ratio has shot up dramatically.

    If Greece and Spain have such wildly different approaches to fiscal prudence, what can explain the crisis they both find themselves in?

    The answer is not fiscal virtue. Something else is going on. That something else, in large part, is the euro.

    Frenzied lending

    Joining the eurozone meant Spain and Greece gave up the power to create money, the power to devalue their currency to restore competitiveness, and the power to set interest rates. These are not trivial concessions, especially in a currency union like the euro where transfers between rich and poor sectors of the economy are limited, strict budget rules deny individual countries the flexibility to react to a crisis, and trade between euro-area nations is severely imbalanced.

    The inability to set interest rates in line with the economic conditions meant that in the early 2000s, Spain and Greece couldn’t raise interest rates to cool their over-heating economies. The over-heating was largely caused, by the way, by the frenzied (and ultimately reckless) lending in both countries by German and other core European banks. The European Central Bank set interest rates in line with economic conditions in Germany and France that proved too low for Spain and Greece (and Ireland).

    The over-heating of the Greek and Spanish economies led to inflation and investment bubbles. As those bubbles burst, the banks neared collapse, and their rescue led ultimately to a sovereign debt crisis. The inability of Spain and Greece to print money meant they had to borrow from their partners in Europe or default and be ignominiously tossed out of the EU.

    Strict budget rules of Eurozone membership also required Spain and Greece to impose austerity measures in the middle of the worst financial crisis since the Great Depression. They were required to raise taxes and cut spending even as unemployment reached astronomical levels. Austerity helped create a depression of historic magnitude in Greece and a severe recession in Spain. The policies also created runaway public debt. Greece’s debt is now 175% of GDP. Spain’s debt to GDP ratio is 100% — a level not seen in Spain in more than 100 years.

    Because Spain and Greece cannot devalue the euro, the only way they can become competitive is through internal devaluation. This means Greece and Spain are in for years of high unemployment, reduced living standards, falling wages and deflation. In other words, massive impoverization.

    “Austerity helped create a depression of historic magnitude in Greece and a severe recession in Spain. The policies also created runaway public debt. Greece’s debt is now 175% of GDP. Spain’s debt to GDP ratio is 100% — a level not seen in Spain in more than 100 years.” Sounds helpful.

    And here’s an article that does a good job of highlighting that it isn’t just the policy-straightjacket that comes with using the euro that turned what could have been a rough recession into a historic depression. The people pushing those policies played a pretty important role too. Executing a debacle on this scale requires leadership:

    CNBC
    Barroso: Greece should blame itself
    Mia Tahara-Stubbs | Leslie Shaffer
    Monday, 23 Mar 2015 | 6:26 AM ET

    Greece’s problems can be laid at its own door and the country needs to provide a clear commitment to reform to reach an agreement with its creditors, Jose Manuel Barroso, the former president of the European Commission, told investors in Hong Kong.

    “The Greek people went through extremely difficult moments, hardship. But these difficulties of Greece were not provoked by Europe,” Barroso said in an address at the Credit Suisse Asian Investment Conference in Hong Kong.

    “It was provoked by the irresponsible behavior of the Greek government.”

    “The situation of Greece is the result of unsustainable debt that was created by the Greek government, mismanagement of their public finances, huge problems with tax evasion and tax fraud [and] problems of the administration,” he said, noting that the country had also misled the European Union by filing false figures on its economy.

    Greece’s place in the euro zone has been hanging in the balance since the anti-austerity Syriza Party won elections this year.

    Athens’ new government has sought to renegotiate the austerity measures imposed on the country as part of its 240 billion euro bailout package. Recent talks over Greece’s debt and European Union imposed fiscal austerity have become increasingly tortured.

    Barroso was generally unsympathetic to the Greek stance.

    “There is nothing that condemns Greece to be in a difficult situation. There are reforms they can make and they are as able as any other country to do,” he said.

    “There is an ideological difficulty that exists in the Greek government to understand that the way for Greece to recover the confidence of the markets is in fact for to go on with structural reforms that Greece has committed to.”

    His remarks appear to match impatience seen in current leadership in the European Union.

    Following a euro zone finance ministers’ meeting about Greece in Brussels on March 9, an exasperated Eurogroup President Jeroen Dijsselbloem even told Athens to “stop wasting time.”

    Yes, former EU Commission president Manual Barroso is of the opinion that:

    “There is nothing that condemns Greece to be in a difficult situation. There are reforms they can make and they are as able as any other country to do,”

    “There is an ideological difficulty that exists in the Greek government to understand that the way for Greece to recover the confidence of the markets is in fact for to go on with structural reforms that Greece has committed to.”

    And once again from the first article:

    Austerity helped create a depression of historic magnitude in Greece and a severe recession in Spain. The policies also created runaway public debt. Greece’s debt is now 175% of GDP. Spain’s debt to GDP ratio is 100% — a level not seen in Spain in more than 100 years.

    As we can see, while the structural limitations of the the eurozone currency union certainly played a role, we can’t forget the human element. Especially the deranged human element.

    Posted by Pterrafractyl | March 26, 2015, 12:12 pm
  2. With Greece’s government in the middle of negotiations with the troika over the list of “reforms” (austerity) the Greece government agrees to do going forward, it sounds like the government has decided that not only is it going to sell Piraeus port, Greece’s largest port, but thanks to the looming cash crunch Greece is going to sell it urgently:

    In u-turn, Greece will sell Piraeus Port stake in weeks – Xinhua
    SHANGHAI/ATHENS, March 28

    (Reuters) – The Greek government will sell its majority stake in the port of Piraeus within weeks, the country’s deputy prime minister told China’s official Xinhua news agency, a flip-flop from the leftist government as it seeks funds from its creditors.

    The Syriza government of Alexis Tsipras took power in January on promises to end painful austerity, saying it would halt a string of privatisations including the sale of a 67 percent stake in the Piraeus Port Authority (OLP).

    China’s Cosco Group was among five preferred bidders shortlisted under a privatisation scheme agreed by the previous conservative-led government as part of a 240 billion euro ($261 billion) bailout programme which Tsipras is seeking to renegotiate.

    But the importance of raising capital appears to have proven more important to the debt-stricken country and the Xinhua report came as Greece submitted a new list of reforms to its EU-IMF lenders on Friday to unlock funds.

    Cosco and other bidders “can make a very competitive offer,” said Greek Deputy Prime Minister Yannis Dragasakis, according to Xinhua, during a visit by Greek ministers to China.

    The deal would be completed in weeks after being slightly delayed by the change in Greek government, Dragasakis said, who hinted that Cosco was a forerunner, according to Xinhua.

    Greece will run out of money by April 20 unless it receives fresh aid from its EU-IMF creditors, a source familiar with the matter told Reuters on Tuesday.

    It sort of sounds like one of the big reasons for the Greek government’s “flip-flip” on the privatization of Piraeus port is the fact that the government is about to run out of cash. But let’s not forget that the troika expects Greece to raise 4 billion euros in privatizations this year alone. after a ‘disappointing’ 3 billion in privatizations proceeds over the last few years out of a 22 billion initial troika privatization target.

    So between the troika’s existing demands and Greece’s growing cash crunch, it’s looking like more forced privatizations could be in order. Just to get an idea of what to expect, if the Piraeus port sells for the 500 million euros that the Greek government is projecting, that suggests there’s about 8 more “Piraeus ports” the troika expects to be privatized this year alone (to get to 4 billion euros) and 44 privatized “Piraeus ports” in total in the long run if Greece is to raise the 22 billion in privatizations the troika originally envisioned.

    So it’s worth keeping in mind that while a lot of attention has been paid to whether or not the Piraeus port itself is privatized, that’s just one 44th of the troika’s desired privatization portfolio.

    There’s more than one way for Greece to hit rock bottom.

    Posted by Pterrafractyl | March 29, 2015, 11:42 pm
  3. Surprise! After dismissing Greece’s proposed list of reforms on Friday the troika did it again on Tuesday:

    Reuters
    Greece fails to reach initial deal on reforms with lenders

    Tue Mar 31, 2015 2:27pm EDT
    ATHENS | By Renee Maltezou and Lefteris Papadimas

    (Reuters) – Greece failed to reach an initial deal with the European Union and the IMF to unlock aid after the creditors dismissed a package of reforms from Athens as ideas rather than a concrete plan, officials said on Tuesday.

    The lack of a deal further raises pressure on Athens, which faces the prospect of running out of money in a few weeks unless it can convince lenders to dole out more financial help.

    Athens put a brave face on the failure to reach an agreement with the “Brussels Group” of representatives from the EU and the IMF, saying it remained keen for a deal on the basis of its long-held demand that the measures it is asked to implement do not hurt economic growth. Lenders will intensify efforts to collect data in Athens, it said.

    One source close to the talks said the halt in negotiations was not a sign of a rupture but an indication of slow-moving progress in the discussions.

    Greece and its European partners have sought to show publicly that relations have improved in recent weeks after Tsipras held a series of talks with EU leaders, but both sides remain far apart on issues ranging from pension reform to debt relief.

    At issue now is a list of reforms that Greece presented to the Brussels Group representatives last week, in an effort to show lenders that it is committed to living up to pledges of financial discipline and is worthy of aid.

    But euro zone officials panned the list as inadequate. One EU official said the lenders had yet to receive the list they had been waiting for.

    A conference call of the Euro Working Group – euro zone deputy finance ministers – remains scheduled for Wednesday and will allow the bloc to take stock of developments so far, an official said.

    “We obviously look forward to receiving a list as soon as possible,” the official said. “That’s the aim of the ongoing discussions: to exchange information on detailed reform measures and intentions.”

    The Brussels Groups makes recommendations to the Euro Working Group which in turn informs the Eurogroup of euro zone finance ministers who make decisions to disburse aid.

    Tsipras appealed on Monday for an “honest compromise” with lenders but warned it would not be won at any cost. [ID:L6N0WW124]

    Calling for support from opposition parties, Tsipras reiterated that his government would implement a Feb. 20 deal struck with the euro zone.

    But he also stressed that the government had non-negotiable “red lines” such as avoiding wage and pension cuts and mass layoffs, and avoiding a fire sale of asset sales in favour of concessions that allows the state to retain control.

    Separately, Greek Finance Minister Yanis Varoufakis met on Tuesday with officials from major bond fund manager Pimco, which has large investments in euro zone peripheral debt. Pimco officials expressed interest in Greek Treasury bill auctions and bonds, a finance ministry official said.

    Pimco is interested in Greek Treasury Bill auctions and bonds? That’s somewhat newsworthy given that Pimco is owned by German insurance giant Allianz.

    Still, the lack of a deal between Greece and the troika isn’t unexpected and neither is the optimistic rhetoric that a deal will be reached in time. But it’s going to be kind of surprising if a deal is actually reached given the pledges by Alexis Tsipras that…

    …the government had non-negotiable “red lines” such as avoiding wage and pension cuts and mass layoffs, and avoiding a fire sale of asset sales in favour of concessions that allows the state to retain control.

    Yes, opposing pension cuts, mass layoffs, and a fire sale of state assets are certainly the kinds of policy changes that would improve the situation, but isn’t making a bad situation worse the troika’s raison d’être?

    Tsipras seeks ‘honest compromise’ as Greece wrangles with creditors

    Agence France-Presse

    on Mar 30, 2015 @ 11:40 PM

    Greek Prime Minister Alexis Tsipras said he wanted an “honest compromise” as the cash-strapped country wrangled with eurozone creditors over a new package of reforms needed to unlock vital bailout funds.

    Experts from the IMF and the EU are scrutinising a list of reforms that Athens has proposed in its bid to get the creditors to release 7.2-billion euros ($7.8-billion) in loans.

    Greece’s government says the reforms would help raise an extra three billion euros for its coffers without resorting to wage and pension cuts.

    But the European Union warned Monday that there was still no deal.

    “We’re not there yet,” European Commission spokesman Margaritis Schinas told reporters. “This is why the talks should benefit from further fact-finding in Athens that should continue.”

    Eurozone officials would likely hold a conference call this week, and then decide whether to call a full meeting of finance ministers later in April.

    More privately, European sources have accused Athens of hindering progress in the talks.

    In April, Athens needs to roll over 2.4 billion euros in short-term debt and repay another 820 million euros, including 460 million euros to the International Monetary Fund.

    Among reforms proposed by Tsipras’s government are proposals to levy higher taxes on the rich, as well as measures to tackle tax evasion and illegal fuel and cigarette smuggling.

    But a European source told news portal in.gr that Greece’s proposals still had to be fleshed out, and that “amateurism” by Greek officials was hindering progress.

    Junior finance minister Dimitris Mardas on Monday said the creditors were pushing for lower pensions and more mass layoffs — measures that the radical government has pledged to resist.

    However, Mardas said an agreement could still be reached.

    “The (creditors) have backed down on a number of issues, so I don’t see something insurmountable,” Mardas told To Vima radio.

    The creditors are also pushing the radical government elected in January to abandon its plans to block a number of key privatisations.

    But Mardas insisted that Athens would now no longer “sell its assets at humiliating prices”.

    While it’s possible that Greece’s junior finance minister was mischaracterizing the troika’s negotiating position when he said the creditors were pushing for lower pensions and more mass layoffs, that certainly sounds like exactly what the troika would be demanding right now since that’s exactly what they’ve been demanding all along. So how do you have an “honest compromise” with a group of creditors that appear to honestly want to turn your nation into a debtor’s prison colony?

    That’s all part of the reason why, despite the assurances that a compromise will be reached, we can’t exclude the possibility that the eventual “honest compromise” the troika agrees to isn’t a compromise between the Greek government’s demands for “anti-recessionary” reforms and the troika’s demands for increasing the recessionary policies but instead a compromise of keeping things exactly as bad as they are right now (which is basically the troika’s current demands…Greece has “flexibility” in crafting its reforms, so long as the overall austerity levels largely remain the same). National “internal devaluationas a the default strategy for collective personal growth doesn’t appear to be an area where the troika is honestly willing to compromise.

    So is the kind of “honest compromise” that Tsipras described even possible? If not, that basically means it’s a choice between the existing systemic abuse or a ‘Grexit’ scenario that will almost certainly involve the rest of Europe trying to ensure Greece does as poorly as possible so as not to give other nations any ‘-exit’ ideas of their own.

    And assuming we don’t end up seeing a last minute “compromise” (honest or not) and Greece actually does pull a ‘Grexit’, one of the many questions raised by such an event is how the precious, precious financial markets will react. Well, if Warren Buffett is representative of ‘the market’s’ view on implications of a ‘Grexit’, feelings might be mixed:

    Bloomberg Business
    Buffett Says Greek Exit From Euro ‘May Not Be a Bad Thing’
    by Noah Buhayar and Doni Bloomfield

    3:12 PM CDT
    March 31, 2015

    (Bloomberg) — Billionaire investor Warren Buffett said the euro region could withstand Greece’s departure from the currency union.

    “If it turns out the Greeks leave, that may not be a bad thing for the euro,” Buffett told CNBC in an interview Tuesday. “If everybody learns that the rules mean something and if they come to general agreement about fiscal policy among members, or something of the sort, that they mean business, that could be a good thing.”

    Europe’s most-indebted state is locked in negotiations with euro-area countries and the International Monetary Fund over the terms of its 240 billion-euro ($260 billion) rescue. The standoff, which has left Greece dependent upon European Central Bank loans, risks leading to a default within weeks and its potential exit from the euro area.

    “I’ve thought that the euro had structural problems right from the moment that it was put it in, which does not mean it will necessarily fail,” Buffett said on CNBC. “You can adapt to those structural problems, but maybe some countries won’t adapt and they won’t be in. It’s not ordained that the euro has to have exactly the members that it has today.”

    Munger’s View

    Charles Munger, vice chairman at Buffett’s Berkshire Hathaway Inc., criticized Greek citizens last week for trying to vote their way to prosperity The country’s politics were shaken up in January when Tsipras’s Syriza party won election on a pledge to ease austerity and negotiate a writedown of some of the country’s debt.

    Buffett told CNBC that, over time, the countries in the euro area would need to better coordinate their labor laws, fiscal deficits and general management of their economies.

    “It can’t continue with people going in dramatically different directions,” Buffett said. “The Germans are not going to fund the Greeks forever.”

    So, to summarize the view from Berkshire Hathaway, Warren Buffet doesn’t see a ‘Grexit’ as necessarily bad because…

    If everybody learns that the rules mean something and if they come to general agreement about fiscal policy among members, or something of the sort, that they mean business, that could be a good thing.

    Ah, rules: So flexible for non-proles. And non-flexible for the proles. Rules are important. Unless the rules involve the humane treatment of one of your borrowers, in which case the special bankers’ Golden Rule “he who has the gold, etckicks in.

    So that was the view on the fallout from a ‘Grexit’ as Warren Buffet sees it. But, of course, there’s the timeless rule that sometimes rules have to change. That’s something another financial giant, Pimco, recently observed regarding not just the crisis in Greece but the basic structure of the eurozone. Pimco’s utterances are generally newsworthy. That’s the case for any giant.

    But given that Pimco is owned by German insurance giant Allianz (the largest insurance company in Europe), and given the ongoing Greek/troika standoff, and given the apparent interest of Allianz in Greek treasury auctions), the recent utterances from Pimco about changing the rules of the eurozone were even more newsworthy than usual:

    The Telegraph
    Eurozone can’t survive in current form, says PIMCO
    Single currency area must become a “United States of Europe” in order to secure its future, says manager of world’s largest bond fund

    By Szu Ping Chan

    8:00PM GMT 28 Mar 2015

    The eurozone is “untenable” in its current form and cannot survive unless countries are prepared to cede sovereignty and become a “United States of Europe”, the manager of the world’s biggest bond fund has warned.

    The Pacific Investment Management Company (PIMCO) said that while the bloc was likely to stay together in the medium term, with Greece remaining in the eurozone, the single currency could not survive if countries did not move closer together.

    Persistently weak growth in the eurozone had led to voter unrest and the rise of populist parties such as Podemos in Spain, Syriza in Greece, and Front National in France, said PIMCO managing directors Andrew Bosomworth and Mike Amey.

    “The lesson from history is that the status quo we have now is not a tenable structure,” said Mr Bosomworth. “There’s no historical precedent that this sort of structure, which is centralised monetary policy, decentralised fiscal policy, can last over multiple decades.”

    PIMCO said the rise of populist parties demonstrated how uneasy some people had become about the euro.

    “[Persistently low growth] manifests itself in a lack of support in the common currency, so then it leads to the rise to power of political parties that want to end it,” said Mr Bosomworth.

    “That’s what we seen in the last few years. [Populist parties have] risen from zero to be a considerable force. In Greece’s case to form a government.

    ‘This means we’re in a critical situation, because you cannot just plaster over these people’s concerns, there needs to be a political response as well, which involves addressing the question: what is the ultimate future of the monetary union?”

    PIMCO used the example of the Latin and Scandinavian unions in the 19th century, which lasted an average of 50 years before breaking up, to illustrate how monetary unions were incompatible with sovereignty.

    “You need to reach some sort of political agreement about how to share fiscal resources around the zone. We’re a long, long, long way from designing that and getting the political backing for it,” he said.

    “So while you’re waiting for that and you’ve got low growth, and high unemployment, you run the risk of letting these anti-euro parties to the forefront.”

    “Will we get the United States of Europe? It’s not impossible, but Europe could also spend many decades in a hybrid form of a political and fiscal federation. While there might not be one government, one passport and one army, we could be moving closer towards that – but not yet.”

    Mario Monti, the former prime minister of Italy, said last week that France was Europe’s “big problem” because anti-EU sentiment there threatened to destroy the bloc’s Franco-German axis.

    PIMCO said France’s inflexible labour market meant it was “lagging behind” other countries such as Spain and Ireland, which had implemented structural reforms.

    Mr Bosomworth, who is head of portfolio management in Germany, said there was too much at stake for the eurozone to force Greece out. “It’s a bit like nuclear warfare. Actually doing it is so disastrous that you don’t,” he said.

    However, he said Berlin was becoming increasingly impatient with Athens.

    “The mood music in Germany is that people are fed up with the ongoing negotiations and the way that the new government comes across in them. This has reduced the solidarity that was there in 2010.”

    Mr Amey said the European Central Bank’s €60bn (£43.4bn) a month bond buying programme was likely to push the euro to parity against the dollar, possibly by the end of this year.

    Well that was some cheery prognosticating from Pimco:

    The Pacific Investment Management Company (PIMCO) said that while the bloc was likely to stay together in the medium term, with Greece remaining in the eurozone, the single currency could not survive if countries did not move closer together.

    “The lesson from history is that the status quo we have now is not a tenable structure,” said Mr Bosomworth. “There’s no historical precedent that this sort of structure, which is centralised monetary policy, decentralised fiscal policy, can last over multiple decades.”

    PIMCO said the rise of populist parties demonstrated how uneasy some people had become about the euro.

    “You need to reach some sort of political agreement about how to share fiscal resources around the zone. We’re a long, long, long way from designing that and getting the political backing for it,” he said.

    “So while you’re waiting for that and you’ve got low growth, and high unemployment, you run the risk of letting these anti-euro parties to the forefront.”

    “Will we get the United States of Europe? It’s not impossible, but Europe could also spend many decades in a hybrid form of a political and fiscal federation. While there might not be one government, one passport and one army, we could be moving closer towards that – but not yet.”

    Mr Bosomworth, who is head of portfolio management in Germany, said there was too much at stake for the eurozone to force Greece out. “It’s a bit like nuclear warfare. Actually doing it is so disastrous that you don’t,” he said.

    Translation: The eurozone situation is urgent. There’s only one solution, a “United States of Europe”, which will require “many decades in a hybrid form of a political and fiscal federation”. But the rabble won’t ever agee to it. So the eurozone should spend the 50 years or so slowly moving towards a “United States of Europe” while the rabble churns and a more amenable crop takes over. That appears to be the Pimco assessment.

    So from Warren Buffett we have a “if everone follows the rule that you follow the rules or find the exits everything will work out for the best” generic optimism from Warren Buffett. And a “let’s resolve the immediate crisis by resolving to solve our long term crises by resolving to create an ever closer union oh so slowly and ambiguously over decades”-approach advocated by Allianz with warning that a ‘Grexit’ is like nuclear war. And between Greece and the troika we have the the immovable object (the troika’s attitude towards Greece and austerity) vs the irresistable force (the negative impact of the troika’s austerity policies). And somehow Athens needs to come to a compromise soon with the immovable object while it gets the squeeze from the irresistible force that results as a consequence of the immovable object’s strange economic theories (and much scarier geopolitical theories and ambitions).

    Will Greece finally discover the mythical “sane compromise with the troika” and escapes its unstoppably irresistible squeeze play? That remains to be seen. There’s certainly a lot more grass roots support across Europe for a ‘Grexit’ than there was in 2012. But as Pimco’s warnings about the ‘nuclear’ nature of a ‘Grexit’ and its calls for a ‘United States of Europe’ reminded us, there do indeed exist long-term visions for Europe that might not be quite as insane as today’s eurozone structure in that there might actually be a reasonable fiscal transfer system some day for the kind of cost sharing that can really avoid a repeat of the Greek crisis and healthier overall eurozone economy. But the influential people with vision also envision it taking decades to accomplish, with Europe stuck with this weird semi-permanent muddle we call the eurozone in the mean time.

    So we’ll see what happens with the current negotiations but it’s probably going to hurt to watch. Unless that’s your thing.

    Posted by Pterrafractyl | April 1, 2015, 10:54 pm
  4. Why won’t EU/Brussels make an exception for Greece’s exports so they don’t starve to death?

    Is working with Putin the most expedient option for Greece?

    Russia ready to offer Greeks cash in return for assets

    Kremlin could provide cash-strapped Greeks a credit line and discounted energy supplies as Alexis Tsipras meets with Putin

    http://www.telegraph.co.uk/finance/economics/11519651/Russia-ready-to-offer-Greeks-cash-in-return-for-assets.html

    By Tom Parfitt, Moscow and Mehreen Khan
    2:36PM BST 07 Apr 2015

    Comments413 Comments

    Russia could offer debt-ridden Greece controversial loans and discounts on supplies of natural gas in exchange for the country’s “assets”, according to reports in Moscow.

    Alexis Tsipras, Greece’s prime minister, is due to arrive in the city on Tuesday and will meet Vladimir Putin, Russia’s president, on Wednesday.

    Athens overtures to Moscow have raised fears the Leftist government is pivoting east in search of alternatives sources of finance as it bids to avoid bankruptcy. Ahead of his visit, Mr Tsipras condemned economic sanctions on Moscow as “a road to nowhere”.

    Greece’s dalliance with the Kremlin has also attracted criticism for potentially undermining the EU’s united front against Russia’s military intervention in Ukraine.

    Martin Schulz, the president of the European Parliament, said on Saturday that it would be “unacceptable” if Mr Tsipras “jeopardised Europe’s common policy on Russia” in return for Kremlin aid.

    But Kommersant newspaper quoted an anonymous Russian government source on Tuesday saying that lines of credit were on the table.

    “We’re ready to consider the question of providing Greece discounts on gas: the price for it is tied to the cost of oil which has significantly fallen in recent months,” the source said.

    “We are also ready to discuss the possibility of granting Greece new loans. But here we, in turn, are interested in reciprocal moves – in particular, in Russia receiving particular assets in Greece.”

    The source did not identify the assets concerned, but Russian media said the Greek gas company DEPA could be among them. Stakes in train operator TrainOSE and sea ports in Athens and Thessaloniki are also potential targets.

    Moscow is Greece’s largest trading partner on account of its huge reliance on Russian natural gas.

    Athens’ energy minister has invited Russian companies to explore natural gas and oil reserves off the country’s eastern coast. In return, Greece has indicated it is willing to support the Kremlin’s new pipeline plan though Turkey, known as “Turkish Stream”.

    EU officials fear any Russian rescue loans or other sweeteners could persuade Athens to veto sanctions on the Kremlin over Ukraine, where Russia has supported separatists fighting Ukrainian government forces.

    Besides credit and gas discounts, the Kremlin could offer Greece a partial lifting of its EU food import ban in exchange for Athens pushing a pro-Russia line.

    Greece has been hit particularly hard by a fruit export ban in place since August. But the European Commission hinted at their opposition to any Greco-Russian food deal, saying all European countries should be treated equally.

    Mr Tsipras’s arrival in Moscow comes as his cash-starved government has threatened to default on a €450m bailout repayment to the International Monetary Fund on Thursday.

    But the possibility of Greece being in receipt of Russian largesse has receded as Moscow suffers precipitous declines in its foreign exchange reserves and faces its worst recession since 1999.

    Athens owes €330bn to its international creditors, and has seen progress on its bail-out extension stall after weeks of acrimonious talks with Brussels.

    The impasse means the probability of Greece defaulting on its creditors has risen to more than 50pc, according to analysts at UBS.

    “We think a default is usually never wished for by any involved party, but may be considered the lesser of two evils by the institutions,” said the Swiss bank.

    Greece’s April showdown
    April 8
    Alexis Tsipras meets Putin
    Greek PM is due in Russia to visit his counterpart, Vladimir Putin. Greece has been making overtures towards its eastern giant
    April 9
    IMF payment
    Greece is due to make a crucial €448m payment to the International Monetary Fund
    April 10-13
    Easter weekend
    Greece celebrates Orthodox Easter weekend
    April 14
    Public sector wages and pensions
    Estimated €1.7b in social security payments made by the state
    April 14
    Bond roll over
    Government faces €1.4 billion in refunding 6-month T-bills
    April 15
    ECB Governing Council meets
    Decision over providing emergency assistance (ELA) to Greek banks is reviewed
    April 17
    Bond rollover and interest payment
    Government faces €1bn in refunding of 3-month T-bills and €194m in interest payments to private bondholders
    April 20
    Interest payment to ECB
    Greece due to pay €80m interest bill on bonds held by the European Central Bank
    April 24
    Eurogroup meeting
    Finance ministers convene in Riga
    May 1
    IMF payment
    A €200m loan repayment to the IMF
    May 1
    Labour Day Bank Holiday

    Posted by participo | April 7, 2015, 9:14 am
  5. About this time last month the news out of Greece was something like this: If Greece can’t find a mutually acceptable compromise with the troika, Greece runs out of cash, things start unraveling, and early elections could get called as part of a new national referendum on how to move forward. That was according to Greek Finance Minister Yanis Varoufakis. It was pretty dramatic.

    And while calls by government officials for such a referendum if the showdown with the troika results in a non-compromise situation might seen like a risky move, keep in mind that Syriza enjoys tremendous popular support so suggestions of the possibility of early elections and referendums in case Greece and the troika can’t come to an agreement before the end of April may not have really be all the risky for the Greek government. Especially since the troika has been so unsympathetic and unyielding.

    Still, while the negotiations between Greece and the troika might have ambiguous political risks for the Greek government given their popular support, the economic risks associated with the negotiations are difficult to overstate because if a ‘Grexit’ takes place the troika would probably just stand by and let Greece implode as an object lesson to the rest of Europe. And then there’s the prospects of Greece being forced to issue IOUs and maybe even the Drachma if an agreement can’t be reached in coming weeks and who knows what the political or economic implications of that would be. So it’s a pretty urgent situation:

    Early Greek election, referendum possible if EU rejects debt plan: Varoufakis
    ROME | By Steve Scherer

    Sun Mar 8, 2015 2:30pm EDT

    (Reuters) – Greece could call a referendum or have early elections should its euro zone partners reject its debt and growth plans, Greek Finance Minister Yanis Varoufakis said in a newspaper interview on Sunday.

    The new Greek government, led by Alexis Tsipras, won an election in January promising to renegotiate a bailout agreed with the International Monetary Fund and its European Union partners that requires strict budget discipline and sweeping economic reforms.

    The government reached a temporarily deal with its lenders last month and Athens has until the end of April to specify the reforms it will make in exchange for further aid. Euro zone finance ministers are meeting on Monday in Brussels to discuss a letter of pledged reforms sent by Athens last week.

    Should Brussels ultimately reject Greece’s proposals, Varoufakis told Italian daily Corriere della Sera: “There could be problems. But, as my prime minister has said, we are not yet glued to our chairs. We can return to elections, call a referendum.”

    In a statement released later on Sunday, the Greek Finance Ministry said that Varoufakis was responding to a hypothetical question and that any referendum would “obviously regard the content of reforms and fiscal policy” and not whether to stay in the euro, as Corriere della Sera had suggested.

    Most Greeks want the country to keep the euro, but two-thirds also continue to back the government’s tough stance to renegotiate the bailout package.

    A referendum over a deal with lenders that keeps the country in the euro zone but falls short of Tsipras’s promises could give the government cover to accept a deal even though it was elected with a different mandate. But even floating the idea of a referendum is politically risky.

    In 2011, then-prime minister George Papandreou suggested calling a referendum over the bailout and was later forced to make way for a unity coalition led by a former central banker.

    With the Tsipras government’s popularity level above 40 percent, Varoufakis said “people understand” that the government is fighting the “establishment that said it was saving Greece while it put everything on the backs of the poor”.

    So that was last month. Flash forward month and the situation looks like pretty similar…similarly urgent as last month, but more so:

    Greece moves to quell default fears, pledges to meet ‘all obligations’
    WASHINGTON | By Anna Yukhananov

    (Reuters) – Greek Finance Minister Yanis Varoufakis said on Sunday that Greece “intends to meet all obligations to all its creditors, ad infinitum,” seeking to quell default fears ahead of a big loan payment Athens owes the IMF later this week.

    Following a meeting with the head of the International Monetary Fund, Varoufakis told reporters the government plans to “reform Greece deeply” and would seek to improve the “efficacy of negotiations” with its creditors.

    Greece has not received bailout funds since August last year and has resorted to measures such as borrowing from state entities to tide it over. It offered a new package of reforms last week in the hope of unlocking funds, but has yet to win agreement on the proposals with its EU and IMF lenders.

    Most urgently, Athens is on the hook for a roughly 450 million euro loan repayment to the IMF due this Thursday.

    The interior minister suggested last week the government would prioritize wages and pensions over the IMF payment, although the government later denied that was its stance.

    The euro zone country is fast running out of cash, but the bailout extended by the IMF, European Commission and European Central Bank has been frozen until the leftist-led government reaches agreement on a package of reforms.

    After a first set of planned measures failed to impress lenders, Athens offered a more detailed package on Wednesday.

    But it arrived too late to be discussed at a teleconference with euro zone deputy finance ministers.

    The government is hoping approval of its reform proposals will free up the remaining aid of 7.2 billion euros under its bailout and lead to the return of about 1.9 billion euros in profits made by the European Central Bank on Greek bonds.

    Greece now has its hopes set on another meeting of euro zone deputy finance ministers on April 8-9, although it is unlikely that a deal could be reached by then. The next meeting of euro zone finance ministers will take place on April 24.

    “It is necessary to restore the Greek economy’s funding flow,” Labor Minister Panos Skourletis told the Greek Ependysi newspaper on Saturday, accusing the country’s lenders of taking advantage of Greece’s funding limits to add pressure on Athens.

    “Whether the country will meet its external obligations depends on our lenders’ final political choices and stance,” he said, adding that pensions and wages were not at risk.

    Feel the urgency:

    After a first set of planned measures failed to impress lenders, Athens offered a more detailed package on Wednesday.

    But it arrived too late to be discussed at a teleconference with euro zone deputy finance ministers.

    The government is hoping approval of its reform proposals will free up the remaining aid of 7.2 billion euros under its bailout and lead to the return of about 1.9 billion euros in profits made by the European Central Bank on Greek bonds.

    Greece now has its hopes set on another meeting of euro zone deputy finance ministers on April 8-9, although it is unlikely that a deal could be reached by then. The next meeting of euro zone finance ministers will take place on April 24.

    “It is necessary to restore the Greek economy’s funding flow,” Labor Minister Panos Skourletis told the Greek Ependysi newspaper on Saturday, accusing the country’s lenders of taking advantage of Greece’s funding limits to add pressure on Athens.

    So last Wednesday Greece submits a revised reform package (after the previous version was rejected the previous day) but apparently not in time for the eurozone deputy finance ministers’ teleconference so it apparently had to wait until this week for the next meeting (because deputy minister teleconferences for emergency situations are apparently super hard to arrange). And if the eurozone finance ministers don’t agree to the revised list of reforms during the April 8-9 meeting the next meeting doesn’t take place until April 24th. And if there’s no agreement by the end of April we’re potentially back in super emergency crisis ‘Grexit’ mode since the agreement back in February that the ‘bailout’ was to arrive at a set of ‘reforms’ (that appears to require more wage and pension cuts than the prior proposed list) by the end of April.

    So even though the troika doesn’t seem to be acting with any degree of urgency, it’s looking like the only realistic point where an agreement is reached before the end of April is on the April 24 meeting. And how realistic is it that any agreement will be reached during the April 24 meeting unless Greece agrees to capitulate almost entirely since the troika’s stance all along has been “any mouth from you and it’s in the f####barrel you go!”? Keep in mind that there have been no indications that the euro countries are to yield in any meaningful way.

    So, at least based on the signals being sent, it isn’t looking like the troika is very interested in any meaningful compromise and while Syriza has been sending compromising signals from the beginning the one area for Syriza where there can be no compromise is rejecting the troika ‘no compromise’ stance. And that’s why the Greek government is increasingly forced to fend off speculation that snap elections and a cash crunch are just a matter of time:

    The Guardian
    Greek political unrest and deepening debt crisis fuel talk of snap election

    Yanis Varoufakis assures IMF’s Christine Lagarde that Athens will repay €450m loan on Thursday as pressure mounts over slow-moving negotiations

    Helena Smith in Athens and Jennifer Rankin

    Sunday 5 April 2015 14.05 EDT

    Greece has confirmed it will this week repay a €450m (£330m) International Monetary Fund, as the worsening greek debt crisis has reanimated talk within the ruling Syriza party of a snap general election if ongoing discussions with creditors fail.

    The Greek finance minister, Yanis Varoufakis, held informal talks with the IMF’s managing director, Christine Lagarde, in Washington DC on Sunday, and Lagarde said he confirmed that the repayment would be made on Thursday.

    Meanwhile, warnings of early elections underscored the political unrest in Athens. Varoufakis told the Naftemporiki newspaper on Monday that Greece must reach an outline funding agreement with its lenders at a meeting of euro zone finance ministers on 24 April.

    The slow pace of negotiations with creditors and worsening state of the Greek economy brought a warning from the far-left Syriza of snap polls being held before the summer – just months after winning power.

    “If we are not satisfied [with the outcome] we will go to the people,” Kostas Chrysogonos, a prominent Syriza MEP told local media at the weekend. “We have a popular mandate to bring about a better result,” he said of the talks aimed at concluding a reform-for-cash programme to keep the crisis-hit country afloat. “If, ultimately, creditors insist on following an inflexible line … then the electoral body will have to assume its responsibilities.”

    Varoufakis said following his unexpected meeting with Lagarde that Greece “intends to meet all obligations to all its creditors, ad infinitum”. He said the government also plans to “reform Greece deeply” and to try to improve the “efficacy of negotiations” with its creditors

    “I welcomed confirmation by the minister that payment owing to the fund would be forthcoming on 9 April,” Lagarde said in a statement.

    Senior government officials have recently had to repeat assurances that Greece is not about to to default on debt repayments. The deputy finance minister, Dimitris Mardas, said civil service wages would also be paid. “There is money for the payment of salaries, pensions and whatever else is needed in the next week.”

    The prospect of renewed political strife in Greece coincided with mounting dissent within Syriza over the extent to which it should roll back on pre-electoral reforms.

    The anti-austerity government led by Alexis Tsipras has found itself increasingly cornered with creditors – the so-called troika of the IMF, the European Union and the European Central Bank – refusing to endorse proposed reforms under an extension of its €240bn (£176bn) bailout. Militants led by energy minister Panagiotis Lafazanis have ratcheted up the pressure by rejecting any notion of making necessary concessions starting with privatisations.

    On Sunday, Lafazanis denounced Greece’s international creditors for treating the country with “unbelievable prejudice and as a colony”. Raising the prospect of a deal with Russia, he said: “A Greek-Russian agreement would help our country greatly in negotiations with lenders.”

    Investors have been getting increasingly nervous that Greece will default on the 9 April repayment, amid rumours that the Syriza-led government is running out of cash.

    Greek officials denied these rumours and criticised leaks from the EU institutions suggesting that Athens would be unable to meet its obligations to the IMF as a “deliberate rumour campaign”.

    Negotiations between Greece and its creditors over the next tranche of the country’s bailout – worth more than €7bn – have stalled over disagreement about Syriza’s economic reform plans. Greece has not received any bailout funds since August last year, and the Syriza-led government has so far failed to convince its eurozone partners to dole out remaining funds in the bailout pot.

    Eurozone deputy finance ministers will discuss Greece’s proposals on Wednesday and Thursday, but are not expected to reach an agreement.

    A teleconference between the same group last week ended in stalemate after Greece refused to implement reforms agreed by the previous government that would have broken pledges Syriza made when it was elected in January. Eurozone finance ministers, including Germany’s Wolfgang Schäuble, said Greece could only get the remainder of the funds if it agreed to reforms, such as cutting pensions. But Greece insists it can raise money through “non-recessionary” measures, such as a clampdown on tax avoidance.

    EU officials told Reuters that progress had been made, but more work was needed to reach a deal. Hopes of a breakthrough are now being pinned on the next meeting of eurozone finance ministers on 24 April.

    Overall, it’s pretty clear that time is of the essence if Greece is going to get these negotiations completed before the end of April deadline. And it’s also clear that snap elections are at least a distinct possibility if no negotiations are reached.

    So is the troika just holding out and flirting with a ‘Grexit’ in the hopes that snap elections will be called and they’ll be able to negotiation with a more capitulation-friendly government a few months from now? That seems like a distinct possibility. And while it’s certainly possible that the snap elections could actually result in a pro-austerity goverment, based on a recent poll that kind of of snap election out doesn’t seem very probable:

    Greek Reporter

    Opinion Poll: Greek PM Tsipras Popularity at Impressive 78%

    by Aggelos Skordas – Apr 6, 2015

    A recent opinion poll conducted by Public Issue for the daily newspaper Avgi shows that the Greek Prime Minister and SYRIZA leader Alexis Tsipras’ popularity has reached an impressive 78%, while 63% of those questioned are in support of the government’s negotiation strategy. At the same time, 55% of the Greeks are approving the Finance Minister Yanis Varoufakis, who has lately gained publicity both within Greece and abroad.

    Those disapproving the government’s handling in the negotiations with the country’s creditors consist of 28% of the public opinion, while 3% do not take sides and 6% have no opinion on the matter. Moreover, 82% of the respondents say the feeling the government’s negotiating stance gave them is “national pride,” although 39% believe the winners in this tie are the lenders. Similarly, 22% see the negotiations as a win-win case, 21% say no side has benefited and only 14% believe that Greece is coming out on top.

    So while it would be great for the Greek people (and, really, great for the rest of Europe’s non-oligarchs) if Greece and the troika can arrive at some sort of sane agreement by the end of April, given the troika’s apparent desire to yield basically nothing and make despair in the face of usury a permanent feature of eurozone perhaps we need to start asking what happens if snap elections are held in the coming months and Syriza is reelected by an even larger margin than what it won by back in January because, at least at this point, another Syriza victory seems like the probably outcome of any elections. And since the more the troika mistreats and humiliates Greece the more the populace seems to support Syriza, it’s really unclear what’s going to cause the collapse in Greece’s support for Syriza necessary to actually put someone else in power, especially a pro-austerity government.

    The eurozone may be morphing into a Clausewitzian nightmare, it’s not officially supposed to be one. Similarly, while the eurozone is becoming one of the most divisive forces Europe has ever seen, driving deep wedges across the continent and threatening the spirit of the European Project, the eurozone was supposed to be a unifying force. So things really aren’t turning out the way most were expecting. At the same time, the eurozone has yet to really deal with a member state the has widespread public backing for simultaneously staying in the eurozone while being potentially willing to walk if the terms of its membership aren’t altered to make membership worth it in the long-run. So what going to happen if Greece’s democracy gels in way where the public really and truly is willing to walk if the troika doesn’t compromise? It’s a big deal not just for Greece but for anyone living in the eurozone in the future because situations like this are inevitably going to crop up over and over given the garbage economic theories that are getting built into the structure of the whole enterprise.

    So today’s Greek tragedy might be forcing the eurozone governments to establish the kinds of precedents that could increasingly apply in the future as the fallout from the eurozone’s (and larger EU’s) far-right policies impacts the continent. And if Greece actually makes a ‘Grexit’/’Grexident’/’Grexodus’ and leaves entirely, the odds of that scenario repeating itself with another member in the future go up significantly. Sure, the Greece’s eurozone brethren could try to make an ‘example’ out if it if Greece leaves in order to scare the rest of the eurozone into future compliance, but that would just make the eurozone leadership seem even more psycho than it already seems.

    That’s all part of what makes this latest version of the Greek tragedy even more of a historic cliffhanger than normal: Greece’s government is obviously in a tight spot. But not just Greece. Whether you tend to view the eurozone leadership as well-meaning people trying to find a way out of a difficult situation or a bunch of Clausewitzian minions, it’s still not obvious what the troika should do next.

    In a way, the decisions of what to do next are almost easier for the Greek government since it’s the one with the metaphorical gun to its head and an offer from the troika to be shot willingly or unwillingly. Given that kind of offer, you do what you have to survive even if what that would be isn’t obvious. But for the troika, forcing Greece into a ‘Grexit’ or near capitulation is basically a crime of opportunity where the primary cost of not going through with the crime is that you might lose some street cred as the psycho no one wants to mess with. And yet that that “no one” is the troika, or at least the austerity-riddled “periphery” faction of the troika. What does the troika do? It’s a surprisingly complicated conundrum.

    Posted by Pterrafractyl | April 7, 2015, 9:32 pm
  6. @participo: While it doesn’t look like Greece is going to be getting any immediate cash assistance from Russia, there was an interesting proposal that’s still being bandied about: Advance Greece funds from future gas projects:

    UPDATE 2-Russia could give Greece advance funds for future gas project – sources

    By Renee Maltezou
    Wed Apr 8, 2015 4:47pm EDT

    (Reuters) – Russia is considering soon giving Greece funds based on future profits it could earn from shipping Russian gas to Europe as part of a pipeline extension, two Greek government sources said on Wednesday.

    The extension to the Turkish Stream pipeline, which would take Russian gas from Turkey to Europe via Greece but has yet to be finalised, might also mean Athens would pay less for Russian gas. But Moscow has yet to decide on any discount, the sources said.

    Greek Prime Minister Alexis Tsipras voiced interest in the project in talks with Russian President Vladimir Putin in Moscow on Wednesday.

    One of the Greek officials, both of whom spoke on condition of anonymity, said Greece would pay back the Russian prepayment after the pipeline started operating, without specifying a sum.

    The other source estimated Greece could earn around 500 million euros ($540 million) a year in profits from participating in the Turkish Stream extension, adding that the prepayment sum was up to Russia.

    Greece hopes its extension to Turkish Stream will start operating in 2019 and is seeking a discount of around 10 percent on Russian gas supplies, the source said.

    Putin told a news conference with Tsipras that the two leaders had reached no concrete agreements on Greece’s participation in Turkish Stream, which would depended on the government in Athens.

    The first official said the pipeline project would involve private financing and would comply with European Union rules.

    Tsipras’ visit to Moscow caused unease among some EU partners that Greece could break ranks over economic sanctions on Russia to secure aid or use the trip to pressure its EU allies to release financing.

    So it looks like it’s possible that we could see some sort of Russian cash infusion in the future, just probably not before the current showdown gets resolved.

    As for why the EU is taking such a hard line regarding Greece and the Russian sanctions, Ambrose Evans-Pritchard had a column that raised a number of things Brussel’s and Berlin must be taking into consideration regarding the possibility of Greece breaking the Russian sanctions, including the concerns raised at the end of the above article: that if Greece breaks ranks on the sanctions it might prompt other members like Slovakia and Hungary to follow suit.

    But Evens-Pritchard also points out some rather critical facts in this situation: Greece or any other EU member state could unilaterally cancel the sanctions if they choose to do so in July when the sanctions are to be renewed because the sanctions require unanimous support from all member states. And beyond that, Greece actually has a very significant option at its disposal: If it choose to ‘Grexit’, it can abolish the Bank of Greece overnight, set up a new Bank of Greece the next day, and all that Greek debt ends up as an EU liability:

    The Telegraph
    Europe’s manhandling of Greece is a strategic gift to Russia’s Vladimir Putin
    ‘Greece is a sovereign country with an unquestionable right to exploit its geopolitical role,’ says premier Alexis Tsipras in Moscow

    By Ambrose Evans-Pritchard

    9:56PM BST 08 Apr 2015

    The European Union has presented Vladimir Putin with an irresistible strategic prize, on a platter.

    By insisting rigidly that Greece’s radical-Left government repudiate its electoral pledges and submit to ritual fealty – even on demands of little economic merit, or that might be unwise in the particular anthropology of a post-Ottoman society – it has pushed the Greek premier into the arms of a revanchist Kremlin.

    The visit of Alexis Tsipras to Moscow has been a festival of fraternity. On Wednesday he laid a wreath at the Tomb of the Unknown Soldier and spoke of the joint struggle against Fascism, and the unstated foe. The squalid subject of money was of course avoided. “Greece is not a beggar,” he said.

    “The visit could not have come at a better time,” said Mr Putin, purring like the cat who ate the cream.

    EU sanctions against Russia will expire in June unless all 28 states agree to roll them over, and Mr Tsipras has already signalled his intent. “We need to leave behind this vicious cycle,” he said.

    “Greece is a sovereign country with an unquestionable right to implement a multi-dimensional foreign policy and exploit its geopolitical role,” he added, for good measure.

    A Greek veto on sanctions will embolden Hungary’s Viktor Orban to join the revolt, this time in earnest. His country has just secured a €10bn credit line from Russia to expand its Paks nuclear power plant, a deal described as a “purchase of political influence” by a leading critic.

    Slovakia is quietly slipping away from what was once a united (if fractious) EU front to deter further Kremlin moves into Ukraine. There is safety in numbers for this evolving constellation, what Mr Putin’s foes would call the EU’s internal “Fifth Column”. Brussels can bring one to heel, but not a clutch of rebels. It is becoming powerless.

    Needless to say, a failure to renew sanctions at a time when the Donbass is still under the control of Mr Putin’s proxy forces would drive a wedge between the US and Europe, further draining the life-blood from the Atlantic alliance and what remains of the Western security structure. But it does not stop there.

    The EU project is close to unravelling in the East. We thought we knew where we stood when the final decision was made in June of 2003 – in Athens of all places – to admit the former captive nations of the Soviet bloc, all clamouring to join what seemed to be an enlightened club of democracies under the rule of law.

    I was there for The Telegraph when Tony Blair stood at the Stoa of Attalos, near the colonnades of Socrates and Plato, and exalted in their newly-won freedom from “dictatorship and repression”.

    Now we have a government in Budapest that scoffs at press freedom and judicial independence, and a government in Athens that is desperately defending its own democracy against the EU itself. Mr Putin merely has to bide his time and the EU’s southeastern flank will fall apart.

    Europe’s creditor powers have warned Greece not to trifle with them, or to play off Brussels against Moscow, but seem strangely unaware that they too must make concessions to prevent matters spinning out of control, for them as well as for Greece.

    Their imperious reflex is instead to issue tone-deaf demands to Mr Tsipras, ordering him to ditch the Left Platform within his Syriza coalition and form an alliance with the discredited remnants of the old regime – the same oligarchy that plundered the country.

    One Greek official told me Athens is not even asking Russia and China for serious money at this stage, telling them it would be pointless. Syriza is already looking beyond, exploring who can help them rebuild after the inevitable default – whether inside EMU as they once hoped, or outside EMU as they now fear.

    Russia is not rich enough to rescue Greece. It is in a deep crisis of its own – facing economic contraction of 3pc this year – and risks Soviet-era stagnation if oil prices settle near $60 a barrel. Most of its $360bn foreign reserves are needed to plug holes and to help Russian companies roll over hard-currency debt. Yet it is not broke either.

    Mr Putin said he discussed “cooperation in various sectors of the economy, including the possibility of developing major energy projects” rather than any request for aid. That is how diplomacy is conducted at this level.

    The litmus test of what is really happening will be whether Russia buys Greek T-bills coming up for sale, relieving pressure as Greek banks are told to step back by the ECB. Athens must roll over €1.4bn on April 14 and €1bn on April 17, and this may be stressful. China has already bought €100m of T-bills as a show of moral support.

    Syriza has enough money to pay the International Monetary Fund €458m on Thursday, but this leaves it short of money to meet €1.7bn of pensions and salaries five days later. They have already scratched the cupboard bare, though small sums can perhaps be conjured from hospital funds or by raiding accounts at the central bank. We would not necessarily know whether Moscow has offered any sort of bridging loan – perhaps indirectly – to cover this immediate shortfall.

    The EMU authorities have signalled that they may be willing to disburse some funds once the IMF has been paid, preserving the formal niceties of the EU-IMF Troika. But as The Telegraph reported last week, Syriza fears a trap. “They are trying to put us in a position where we either have to default to our own people or sign up to a deal that is politically toxic for us,” said one official.

    The situation was so serious by then that finance minister Yanis Varoufakis flew to Washington on Easter Sunday to break the impasse with the IMF’s Christine Lagarde. Greece agreed to meet its IMF payment: the IMF in turn agreed to show “utmost flexibility” over Syriza’s reform plans. This looks like an IMF pledge that the Greeks will not be left high and dry on April 14.

    Syriza has wisely decided that it would be dangerous to default on the IMF, or even to fall into arrears. No developed country has ever taken this step. Peru’s Alan Garcia – the Tsipras of his age – did default in the 1980s and later said it was the worst mistake he ever made.

    If they have to default, they would rather pick their fight with EU creditors and above all the ECB, enemy number one after it took the pre-emptive political decision of cutting off a key lifeline for Greek banks within days of the Greek election.

    As it happens, Greece must pay the ECB €194m in interest on April 17. Even if Greece manages to cobble together enough money to meet rolling demands through the Spring, it cannot possibly cover €6.7bn in bond redemptions to the ECB in July and August unless there is a fresh bail-out programme.

    Nor does Syriza wish to pay, given that the ECB bought these bonds in 2010 to bail out German and French banks and to prevent an EMU-wide banking crisis, not to help Greece. The Greek parliament was never consulted. Nor too does Syriza see much advantage in delaying the agony. “If it is going to happen, what is the point of waiting?” said one minister.

    A former ECB official said the fear is that Greece will kick off with a selective default to Frankfurt, judging this the easiest political target. It would cover both bonds and €80bn of “Target2” liabilities to the rest of the ECB network that have built up automatically due to capital flight.

    “The crucial point is that Target2 liabilities are not backed by collateral. The Greeks can simply abolish the Bank of Greece on a Friday evening, and create a new central bank to be ready on the next Monday morning. There is no court in Europe that can enforce a payment against a Bank of Greece that no longer exists. This is their best chance of protecting the Greek people but it will not be pretty for the ECB,” he said.

    If Syriza pulls the pin on the Target2 system it will cause trauma for the ECB – and possibly a forced recapitalisation at the cost of member states – and set off a political storm in Germany.

    Hans-Werner Sinn, from the IFO Insitute, has long been warning that Germany and other creditor states are on the hook for huge amounts through Target2 that have never been acknowledged, or approved by the Bundestag. His jeremiads have prompted dismissive replies from the Bundesbank and the political authorities.

    Yet if these losses are crystallized in Greece, it is far from clear whether the German parliament would continue to allow Target2 to incubate much greater potential losses in the rest of southern Europe. Without Target2, the eurozone is finished as a functioning monetary union.

    Mr Putin must surely be smiling that he has won such an easy trick with such a weak hand. He watched in horror as the Soviet Union went into self-destruction a quarter century ago. This time he has the satisfaction of watching his much richer enemies tear themselves apart over mere money.

    Ok, so to summarize ominousness:


    EU sanctions against Russia will expire in June unless all 28 states agree to roll them over, and Mr Tsipras has already signalled his intent. “We need to leave behind this vicious cycle,” he said.

    A Greek veto on sanctions will embolden Hungary’s Viktor Orban to join the revolt, this time in earnest. His country has just secured a €10bn credit line from Russia to expand its Paks nuclear power plant, a deal described as a “purchase of political influence” by a leading critic.

    Slovakia is quietly slipping away from what was once a united (if fractious) EU front to deter further Kremlin moves into Ukraine. There is safety in numbers for this evolving constellation, what Mr Putin’s foes would call the EU’s internal “Fifth Column”. Brussels can bring one to heel, but not a clutch of rebels. It is becoming powerless.

    The EMU authorities have signalled that they may be willing to disburse some funds once the IMF has been paid, preserving the formal niceties of the EU-IMF Troika. But as The Telegraph reported last week, Syriza fears a trap. “They are trying to put us in a position where we either have to default to our own people or sign up to a deal that is politically toxic for us,” said one official.

    As it happens, Greece must pay the ECB €194m in interest on April 17. Even if Greece manages to cobble together enough money to meet rolling demands through the Spring, it cannot possibly cover €6.7bn in bond redemptions to the ECB in July and August unless there is a fresh bail-out programme.

    Nor does Syriza wish to pay, given that the ECB bought these bonds in 2010 to bail out German and French banks and to prevent an EMU-wide banking crisis, not to help Greece. The Greek parliament was never consulted. Nor too does Syriza see much advantage in delaying the agony. “If it is going to happen, what is the point of waiting?” said one minister.

    A former ECB official said the fear is that Greece will kick off with a selective default to Frankfurt, judging this the easiest political target. It would cover both bonds and €80bn of “Target2” liabilities to the rest of the ECB network that have built up automatically due to capital flight.

    “The crucial point is that Target2 liabilities are not backed by collateral. The Greeks can simply abolish the Bank of Greece on a Friday evening, and create a new central bank to be ready on the next Monday morning. There is no court in Europe that can enforce a payment against a Bank of Greece that no longer exists. This is their best chance of protecting the Greek people but it will not be pretty for the ECB,” he said.

    Yet if these losses are crystallized in Greece, it is far from clear whether the German parliament would continue to allow Target2 to incubate much greater potential losses in the rest of southern Europe. Without Target2, the eurozone is finished as a functioning monetary union.

    Wow, so Greece alone could thwart the renewal of the sanctions against Russia and the end of June, although Hungary and Slovakia just might do it too. And right now the Greek government is concerned that it’s being pushed into a trap where “They are trying to put us in a position where we either have to default to our own people or sign up to a deal that is politically toxic for us,” which is a very understandable concern given history of the crisis thus far.

    And if push comes to shove comes to ‘Grexit’, Greece has the option of effectively canceling its “Target2” debt to the ECB by simply abolishing the Bank of Greece and this would transfer all those liabilities to the rest of the eurozone, with Germany shouldering the biggest share. And if that happens, the shock and horror in Germany just might force changes to the rest of the Target2 liabilities in the eurozone that effectively destroy the eurozone as a functioning monetary union. And a ‘Grexit’ is probably going to be forced at the latest by August if no agreement is reached.

    So, given all that, the question of why the Brussels/Berlin won’t make an exception for Greece’s exports so they don’t starve to death is a great question but also an extremely difficult one to answer.

    On the one hand, a ‘Grexit’ that results in all those Greek liabilities falling on the ECB (and thus the rest of the eurozone member states) seems like one of those scenarios that the rest of the eurozone, and especially Germany, would want to avoid. Especially this also prompts calls from the eurozone creditor states to revamp the eurozone Target2 system in such a way that effectively breaks the eurozone as a functioning monetary union.

    On the other hand, wouldn’t a eurozone that limits the cross-border Target2 liabilites be some sort of dream system for Berlin and the rest of the eurozone creditor states? Sure, the eurozone might be a dysfunctional monetary union at that point, but it’s already a dysfunctional monetary union, at least from a macroeconomic perspective, and that dysfunction is clearly by design.

    So it’s partially a question of whether or not Target2 modifications that limit cross-border liabilities turn the eurozone into a terminally dysfunctional monetary union or just a more dysfunctional union than the current system but one that can still kind of muddle along. Because if the eurozone can still sort of function without a Target2 system that shares the liabilities of member state central banks, well, isn’t that exactly that kind of scenario Berlin has been pining for all along? A monetary union without any meaningful liabilities for the wealthiest members!

    That’s all part of why it’s going to be worth keeping in mind that maybe, just maybe, Berlin is trying to force a ‘Grexit’ specifically to create the kind of populist fervor across the eurozone that could force that epic change to Target2 and relieve Germany and the other creditor states of the massive potential liabilities that still exist should the rest of the ‘periphery’ decide to follow Greece out the door too.

    Also keep in mind that one of the primary criticisms of the new EU banking union is that the joint 50 billion euro bailout fund isn’t remotely large enough to withstand a serious financial crisis, with the additional liabilities falling on the individual member states and therefore does little to break the “vicious circle” between financial crises and sovereign debt.

    In other words, the EU has already made one it its key pillars of stability kind of a joke and a giant sovereign debt crisis waiting to happen. But if the Target2 cross-border liabilities can be neutralized then even if a future financial crisis spills over into a sovereign debt crisis the eurozone creditors states wouldn’t have to worry about being on the hook!

    So who knows, maybe ‘Grexit’ really is the plan because the cost of a ‘Grexit’ would fall on all the rest of the eurozone members, both creditor and debtor states, and just might create the political will across the eurozone required to make it a true “united we stand separately!” Clausewitzian dreamland. And under this scenario, anything that might make a ‘Grexit’ less likely, like allowing Greece to export to Russia, is something that just can’t be allowed. It would be too nice, and nice != ‘Grexit’.

    Anyways, that’s all a possibility. It’s also possible that Brussel’s/Berlin is just ‘standing on principle’.

    Posted by Pterrafractyl | April 9, 2015, 8:48 pm
  7. Oh look, the troika is once again taking a no compromise approach to the ‘negotiations’ with Greece while hinting that Greece would be so much better off with a more pro-austerity/pro-capitulation government. In the latest variation of that tactic, now we’re hearing from the troika that the troika was totally thinking about some sort of debt-relief for Greece last year, but that was before the Greeks got all rebellious and elected Syriza. Really! But now that’s just not an option because Syriza hurt the troika’s feelings. Uh huh:

    Greece may have blown best hope of debt deal
    BRUSSELS | By Paul Taylor
    Sun Apr 12, 2015 4:05am EDT
    Related: Greece

    (Reuters) – Even if it survives the next three months teetering on the brink of bankruptcy, Greece may have blown its best chance of a long-term debt deal by alienating its euro zone partners when it most needed their support.

    Prime Minister Alexis Tsipras’ leftist-led government has so thoroughly shattered creditors’ trust that solutions which might have been on offer a few weeks ago now seem out of reach.

    With a public debt equivalent to 175 percent of economic output and an economy struggling to pull out of a six-year depression, Athens needs all the goodwill it can summon to ease the burden. It owes 80 percent of that debt to official lenders after private bondholders took a hefty writedown in 2012.

    Since outright debt forgiveness is politically impossible, the next best solution would be for Greece to pay off its expensive IMF loans early, redeem bonds held by the European Central Bank and extend the maturity of loans from euro zone governments to secure lower interest rates for years to come.

    “This step would save Greece’s budget billions of euros, while reforming the Troika arrangement, eliminating the IMF’s and the ECB’s financial exposure to Greece,” said Jacob Funk Kirkegaard, senior fellow at the Peterson Institute for International Economics, who advocates such an arrangement.

    It would lower the effective interest rate on Greek debt to less than 2 percent, far less than Athens was paying before the euro zone debt crisis began in 2009, and radically reduce the principal amount to be repaid over the next decade, giving Greece fiscal breathing space to revive its economy.

    And unlike ideas floated by Greek Finance Minister Yanis Varoufakis to swap euro zone loans for GDP-linked bonds and ECB holdings with perpetual bonds, paying out the IMF and the ECB early would be legal and supported by precedent.

    But if the economics make sense for Greece, the politics no longer add up for its partners.

    A euro zone official said there had been exploratory talks with the previous conservative-led Greek government about such a plan last year, before then Prime Minister Antonis Samaras chose to bring forward an election he lost rather than complete a bitterly unpopular bailout program.

    “Now it’s a political non-starter,” said a euro zone official. “There’s just no appetite in the euro zone for a grand bargain to take over Greece’s debt to the IMF and the ECB.”

    LEVERAGE

    Tsipras’ denunciations of EU-prescribed austerity, demands for German war reparations and cosying up to Russian President Vladimir Putin, and Varoufakis’ foot-dragging on reform negotiations and initial calls for a “haircut” on Greek debt, have dried up the reservoir of sympathy for Athens.

    Creditors like Germany, the Netherlands and Finland are bent on keeping the IMF involved as an enforcer of economic reform and fiscal discipline because they don’t trust the Greeks to keep their word, nor the European Commission to hold them to it.

    “They would prefer to provide debt relief on an annual basis so they keep leverage on Greece to stick to the program,” said Miranda Xafa, senior scholar at the Centre for International Governance Innovation and a consultant on Greek debt.

    True, euro zone peers Ireland and Portugal, which received international bailouts after Greece, won EU agreement to pay off their costlier IMF loans faster, raising hopes in Athens.

    But Dublin and Lisbon were able to do so by borrowing more cheaply from private lenders after completing their bailout programs and regaining access to the capital markets.

    “Ireland and Portugal are governments in difficulty, but they are not difficult governments,” said Elena Daly, principal at EM Conseil, a Paris-based sovereign debt management adviser.

    Since Greece is stalling on its program and lacks market access, the only way it could pay off 24 billion euros owed to the IMF and redeem 27 billion euros of bonds held by the ECB would be for the euro zone’s rescue fund to lend it the money.

    That in turn would require euro zone governments to convince their parliaments to risk more taxpayers’ money than the roughly 170 billion euros they have already lent Greece in two bailouts totalling 240 billion euros.

    Many economists and euro zone officials believe Athens will anyway need a third bailout of around 30 billion euros this year, even though Tsipras insists Athens does not want that.

    Euro zone finance ministers promised in 2012 to “consider further measures and assistance” to ease Greece’s debt provided it stuck to the terms of its program, which it has not done.

    Both Xafa and Daly said Tsipras had put himself in a near impossible position by making election promises incompatible with keeping the confidence of Greece’s creditors.

    He needs to change the politics fast to have a chance of fixing the economics without resorting to capital controls, paying civil servants with IOUs or defaulting on foreign governments and being forced out of the euro zone, they argue.

    A referendum asking Greeks if they want to stay in the euro at the price of painful economic reforms, or a quick coalition change to bring in pro-reform centrists, may be his best options, even if they split his Syriza party.

    Greece’s official creditors meanwhile are torn between wanting to keep it in the euro zone to avoid the precedent of a country exiting, and fearing that if Tsipras manages to roll back austerity and secure debt relief, he could embolden like-minded political forces in Ireland, Portugal and Spain. “So they want Greece to prosper and stay in the euro while at the same time wanting the new administration to fall on its face and become an object lesson for other electorates who may be toying with the idea of rebellion,” Daly said.

    Ok, so apparently:


    A euro zone official said there had been exploratory talks with the previous conservative-led Greek government about such a plan last year, before then Prime Minister Antonis Samaras chose to bring forward an election he lost rather than complete a bitterly unpopular bailout program.

    “Now it’s a political non-starter,” said a euro zone official. “There’s just no appetite in the euro zone for a grand bargain to take over Greece’s debt to the IMF and the ECB.”

    but now that’s just not an option because:


    LEVERAGE

    Tsipras’ denunciations of EU-prescribed austerity, demands for German war reparations and cosying up to Russian President Vladimir Putin, and Varoufakis’ foot-dragging on reform negotiations and initial calls for a “haircut” on Greek debt, have dried up the reservoir of sympathy for Athens.

    If that’s true, isn’t that an admission of the gross incompetence of the eurozone officials conducting these negotiations? Oh no! They denounced the EU-prescribed austerity and “foot-dragged” on the reforms by not coming up with a list of reforms that included all of the austerity measures the EU was demanding even though negotiating a less destructive list of reforms is was the whole point of the negotiations. Oh, and Tripras brought up Germany’s war reparations issue and actually talked to Russia. NOOOO! Now we just can’t negotiate during one of the deepest crises yet to face the European Project. Because something something.

    Also, let’s ignore:


    Creditors like Germany, the Netherlands and Finland are bent on keeping the IMF involved as an enforcer of economic reform and fiscal discipline because they don’t trust the Greeks to keep their word, nor the European Commission to hold them to it.

    “They would prefer to provide debt relief on an annual basis so they keep leverage on Greece to stick to the program,” said Miranda Xafa, senior scholar at the Centre for International Governance Innovation and a consultant on Greek debt.

    and just assume that honest negotiations were ever part of the troika’s plan.

    Oh yeah, and about that awesome debt-relief plan they talking about last year before Syriza was elected. Strangely, while the IMF was pushing for some sort of debt relief, the EU negotiators didn’t seem to involve any actual debt relief. It was more an attempt at extending the austerity:

    The Wall Street Journal
    Greece’s Creditors Mull Debt-Relief-for-Reforms Plan
    Debt-Repayment Schedule Could Be Extended, Say Officials
    By Matina Stevis
    July 16, 2014 11:02 a.m. ET

    BRUSSELS—Greece’s international creditors are considering making debt relief for Athens conditional on reforms in a bid to keep a grip on the country’s economic policies after its bailout program finishes, according to several officials directly involved in the discussions.

    How to ease Greece’s debt—which stands at a heavy €320 billion ($434 billion), or roughly 174% of gross domestic product—is a question that has dogged euro-zone countries, the International Monetary Fund, the European Commission and European Central Bank since November 2012.

    That was when euro-zone countries, the main financers of the bailout, said they would find ways to bring Greece’s debt down to a “sustainable” level, in part to counter IMF concerns. Debt targets were set at 124% of GDP by 2020 and “substantially below” 110% of GDP by 2022.

    As of March 2013, some 66% of Greece’s debt stock is held by euro-zone governments and the IMF, which scrambled to stop the country from defaulting in 2010 and have been financing it ever since.

    The euro zone’s contribution to the bailout officially runs out at the end of this year, while the smaller IMF component will continue being disbursed until March 2016.

    Until now, creditors have put pressure on successive Greek governments, often reluctant to push for painful reforms, by withholding loan installments.

    But as Greece hopes to wean itself off the international assistance, with its prime minister, Antonis Samaras, insisting it won’t need a third bailout, the creditors’ grip on economic reforms looks set to loosen.

    That is why European creditors are eager to make debt-relief steps, in particular the extension of its debt-repayment schedule, conditional on Greece meeting policy milestones, officials said.

    The debt talks are expected to resume in earnest in the fall but preparatory work is already under way.

    Despite the IMF’s insistence that euro-zone countries forgive some of Greece’s debt outright, the European side is only prepared to make adjustments to repayment terms. These could slightly dent the debt stock over the long term and make the task of paying it back easier. The IMF has said it won’t change any of the repayment terms for its own component, as that would be a breach of its rules.

    Still, the proposals from the euro-zone side could fall short of the IMF’s expectations, says Mujtaba Rahman, Europe director at Eurasia.

    “Given that the odds of no third bailout are rising, it is likely debt relief will be tied to some reform milestones. But such minimal oversight by the Europeans is unlikely to be enough to keep IMF money flowing,” Mr. Rahman said.

    “The IMF’s experience in Greece will make them cautious, as even with serious conditionality, full Troika [Greece’s international creditors] oversight, and extensive peer pressure, the Greek government has only been in compliance with a fraction of its commitments.”

    Once again:


    Until now, creditors have put pressure on successive Greek governments, often reluctant to push for painful reforms, by withholding loan installments.

    But as Greece hopes to wean itself off the international assistance, with its prime minister, Antonis Samaras, insisting it won’t need a third bailout, the creditors’ grip on economic reforms looks set to loosen.

    That is why European creditors are eager to make debt-relief steps, in particular the extension of its debt-repayment schedule, conditional on Greece meeting policy milestones, officials said.

    The debt talks are expected to resume in earnest in the fall but preparatory work is already under way.

    Despite the IMF’s insistence that euro-zone countries forgive some of Greece’s debt outright, the European side is only prepared to make adjustments to repayment terms. These could slightly dent the debt stock over the long term and make the task of paying it back easier. The IMF has said it won’t change any of the repayment terms for its own component, as that would be a breach of its rules.

    “Despite the IMF’s insistence that euro-zone countries forgive some of Greece’s debt outright, the European side is only prepared to make adjustments to repayment terms”. Yes, extend the repayment in exchange for extending the austerity. Wow, how relieving.

    That was last July, although the topic didn’t go away. Last November there was still talk of ‘debt relief’, although not actually (of course). According to the eurozone officials quoted below, things were going so well for Greece so debt relief wasn’t really necessary:

    Euro zone ponders whether Greece needs more debt relief: sources
    Wed Nov 5, 2014 2:40pm EST

    (Reuters) – The euro zone is reconsidering whether Greece needs the additional debt relief it has been hoping for, because its economic reforms and improved prospects have changed the arithmetic, officials say.

    Describing a rethink by some of Greece’s partners, euro zone officials told Reuters that no decision would be taken until a new analysis of whether Athens can service its debts has been completed.

    “It has not been decided, but it has not been ruled out, either,” one euro zone official said.

    A provisional offer of further debt relief was made two years ago, when the euro zone extended maturities and cut interest on its bailout loans.

    Ministers agreed then that if Athens met certain conditions and more needed to be done make its debt sustainable, they would consider “further measures and assistance”.

    Athens has lobbied for its lenders to lower the interest rates on its loans further and give it more time for repayment. The government hopes to bolster support at home by negotiating an early exit from a bailout that Greeks resent for imposing strict foreign supervision of their economy.

    Greek Finance Minister Gikas Hardouvelis told Reuters on Wednesday talks about further debt relief would begin after a final review of Athens’ bailout program, scheduled for December.

    Greek government officials said Athens was not aware of any rethinking by the euro zone and said the country deserved to be given the relief as promised.

    “The agreement over the debt-relief measures was not an emergency solution, but a reward for a country that made it. In this context and since data shows that we are succeeding, the discussion over a debt relief must continue as agreed,” one official told Reuters.

    Athens achieved a primary budget surplus in 2013, a year ahead of schedule and is set to beat its primary surplus target this year as well.

    In return for those efforts, the euro zone has considered further cuts in the interest on a first package of bilateral loans to Greece and extending the average maturities of a second package from 32 years to around 50 years.

    But officials in Brussels say the changed economic situation of the euro zone and Greece must be taken into account.

    Athens now has a smaller relative budget deficit than France, Finland or Italy, and its economic growth prospects, after six years of a deep recession, are much improved. Greece also faces interest payments at around 1.5 percent, way below anything it could get on the market.

    “The reality on the ground has changed significantly from the parameters that formed the basis of the November 2012 pledge,” a second euro zone official said of the group’s offer to ease Greece’s terms.

    “With the arrangement now in place, it does not make much sense to say that Greek debt is not sustainable. It is very much sustainable.”

    TALKS STILL PENDING

    The euro officials said the issue of debt relief was not central to their negotiations with Athens on how to handle an exit from its bailout program. Talks on further debt relief would come only after those discussions.

    Two years ago, the promise of more debt relief, if needed, was necessary to get the International Monetary Fund on board.

    The IMF insisted on that because in November 2012 it seemed that without further action, Greece would struggle to cut its debt from an expected 175 percent of GDP in 2016.

    The latest European Commission forecasts show Greek debt will peak at 175.5 percent this year, dropping to 157.8 percent in 2016.

    “When you look at the debt-sustainability path, which was done when the current program was structured, the calculations are that now Greece is on its path of debt sustainability and will continue on it without additional measures,” a third euro zone official said.

    “There would not be a real reason to grant them any new concessions on length of loans or the interest rate.”

    The Greek government might complain that this amounts to punishing it for meeting its part of the bargain. A second Greek official said Athens needed debt relief “not because we can’t live without it, but because we deserve it as a reward for our success.”

    Withholding it could play into the hands of opposition party Syriza, which leads in polls with elections possible next year.

    Syriza is calling for an international conference to write off part of Greece’s official debt. It could seize on a rejection of further debt relief as evidence that Prime Minister Antonis Samaras is getting nothing from Western creditors.

    Yes, as we can see, the more Greece sticks to the ‘reform’ program, the less likely its European partners are to actually agree to debt any debt relief…even though Greece’s debt-to-GDP ratio had been climbing for years and the only reason its debt is projected to fall from 175.5% in 2014 to 157.8% in 2016 is due to a tripling of its primary surplus used to pay back the troik in 2015 from 1.5% of GDP to 4.5% that is only achievable through massively increased austerity

    So that was the degree of consideration Greece’s EU partner were giving to the ‘debt relief’ idea: In July it was a non-starter although a debt extension that extends the austerity would be just fine. And in November it was a non-issue because the future was looking so bright for Greece as long as it stuck to the insane debt-repayment scenario that would have called for a dramatic increase the austerity measures this year.

    And here we are with the troika lamenting that they don’t have a ‘debt relief’ partner in Syriza that they can trust. Wow.

    Posted by Pterrafractyl | April 12, 2015, 2:19 pm
  8. Greece’s showdown with the troika took another turn for the weird: Alexis Tsipras is scheduled to meet with President Obama on Thursday in the hopes that he’ll somehow be able to persuade the troika to demonstrate some humanity towards Greece while, at the same time, the IMF’s Europe director reportedly told his executive board that negotiations were “not working” and he could not envisage a successful conclusion to the country’s current bail-out.

    On top of that, Greece has been given an April 20th provisional deadline to refine its list of economic reforms ahead of the scheduled April 24th meeting of the eurozone finance ministers, but the EU’s vice president Valdis Dombroviskis just suggested that it was “unlikely” that the finance ministers would even discuss the Greek question during that meeting. And that April 24th meeting is basically the last chance to work out a deal according to the agreement between Greece and the troika made in February. So it looks like those IMF doubts are well grounded in the troika’s self-fulfilling prophecy unrelenting policy failures:

    The Telegraph
    Varoufakis sets up date with Obama to break Greece’s debt stalemate
    Finance Minister will meet with President Obama in Washington on Thursday as EU officials warn a release of bail-out cash remains far away

    By Mehreen Khan

    4:25PM BST 14 Apr 2015

    Greece’s finance minister Yanis Varoufakis is due to meet President Obama on Thursday, in a sign that Athens is willing to appeal to the highest level of political diplomacy to secure its future in the eurozone.

    President Obama has previously indicated his support for the Leftist government calling for a fast and equitable solution to the country’s debt crisis.

    You cannot keep on squeezing countries that are in the midst of depression,,” Mr Obama said in February following Syriza’s election.

    But in a sign of the growing stalmate between creditors and the Leftist government, officials at the International Monetary Fund voiced doubts about the viability of Greece’s membership of the eurozone.

    According to reports in Greek media,, Poul Thomsen, the IMF’s Europe director told his executive board that negotiations were “not working” and he could not envisage a successful conclusion to the country’s current bail-out.

    The concerns come as voices in Athens have repeated threats to stop paying back their international creditors if no new bail-out cash is released.

    A Greek official was quoted in the Financial Times saying:: “We have come to the end of the road?…If the Europeans won’t release bail-out cash, there is no alternative [to a default].”

    Mr Poulsen, who was part of the IMF delegation that met with Greece’s finance minister earlier this month, also issued a warning about Greece’s weak economic performance.

    Greece avoided defaulting to the IMF last week, successfully paying back a €450m loan. However, the cash-strapped government faces another €200m payment on May 1 and another for €745m 11 days later.

    Following the Orthodox Easter bank holiday, Athens has now been given a provisional April 20 deadline to polish up a list of economic reforms it will need to implement before it can secure an injection of rescue cash.

    However, the EU’s vice president Valdis Dombrovskis seemed to scupper any immediate hopes of a resolution, saying it was “unlikely” Europe’s finance ministers would discuss the Greek question when they meet on April 24.

    This has been seen as the last possible date Athens could be awarded the remainder of its €240bn bail-out cash without running out of cash to continue payings its social security bill.

    The IMF’s chief economist, Olivier Blanchard warned that any move to eject Greece from the euro would be “extremely costly.”

    Speaking at the Fund’s Spring meeting, Mr Blanchard said: “It will be extremely painful. But if it were to happen, the best way to reassure markets is to go further and make progress with creating a fiscal union.”

    Uh oh, it looks like the IMF doesn’t just envision an unsuccessful end to Greece’s bailout negotiations:

    The IMF’s chief economist, Olivier Blanchard warned that any move to eject Greece from the euro would be “extremely costly.”

    Speaking at the Fund’s Spring meeting, Mr Blanchard said: “It will be extremely painful. But if it were to happen, the best way to reassure markets is to go further and make progress with creating a fiscal union.

    Yes, let’s create a giant crisis that calls into question the viability of the European Project and respond by binding the remaining eurozone nations even more tightly together by “creating a fiscal union” in what will no doubt be a massive rush job that all governments are forced to implement without any meaningful debate. Because that’s how the New Europe rolls!

    Now, keep in mind that a ‘fiscal union’ isn’t inherently a bad thing and it’s probably required if Europe is ever going to create a viable “United States of Europe” because a fiscal union would greatly facilitate the one thing a unified Europe desparately needs for long-term stability: routine fiscal transfers from rich states to poor states without the rich states completely controlling the poor states. Sharing power and resources. THAT’s the key for Europe’s future if it’s going to avoid a vassal-state future.

    But also keep in mind that Angela Merkel was vowing to eventually create a fiscal union back in 2011 with the ‘fiscal compact’ treaty was being pushed through parliaments across the EU so this isn’t just the IMF’s wishful thinking. At the same time, she dismissed the idea of jointly issued “eurobonds” that would have pooled liabilities, so her idea of a fiscal union was pretty clearly just the enforcement mechanism component without actual burden sharing. In 2012, Merkel hinted at the possibility of a fiscal union with burden sharing, but only AFTER all of the eurozone crises is complete and ALL the other desired reforms have been put into place. In other words, there will never be burdern sharing under Merkel’s plan, but plenty of promising of burden sharing, as long as everyone behaves.

    So is a rush to create a fiscal union on the way post-‘Grexit’? It’s a possibility. After all, shocks like this don’t happen every year and major reforms at the height of a crisis has sort of become the EU’s signature move. So crisis-driven calls for a deeper fiscal union of some sort for the rest of the EU, or at least the eurozone, is something we might expect at this point…after all, the eurozone governments are basically forcing Greece out the door at this point so it’s almost as if they want a crisis.

    But don’t expect a sane fiscal union with reasonable burden sharing that avoids a vassal-state model of governments. At least, don’t expect that unless you expect a sane fiscal union to emerge from the same group of people that did this to Greece and are now theatening to kick them out the door for complaining about it:

    Bloomberg Business
    Why Greece Won’t Ever Be Able to Pay Off Its Debts With Austerity
    History shows the country is facing a wall few nations surmount

    by Brendan Greeley
    11:41 AM CST
    February 19, 2015

    The Greek negotiators who went to Brussels in mid-February to argue for more lenient terms from their lenders were especially concerned about one thing in any new deal: the target for achieving and keeping a primary surplus. A measure of austerity, it’s what a government earns in taxes each year, minus what it spends on everything except interest payments on its own debt. It’s usually expressed as a share of gross domestic product.

    Under its four-year-old bailout program, Greece has dragged itself from a primary deficit of 10 percent to a 3 percent surplus, at great cost in jobs lost. The terms of the bailout demand that Greece reach a surplus of 4.5 percent and hold it for the length of the program. There’s little reason to believe that’s possible.

    Since 1995 all the countries of the euro area reached an aggregate primary surplus of 3.6 percent only once, in 2000. That number is back below zero. (Even Germany, the Federal Republic of Austerity, reached its own peak of 3 percent only twice, in the last quarter of 2007 and the first of 2008.) In 2011 the Kiel Institute for the World Economy looked at the records of all Organisation for Economic Co-operation and Development countries from 1980 to 2010. It found that few countries could maintain a 3 percent surplus and almost none could keep a surplus above 5 percent. This suggested a limit to what countries can do, the report concluded. They could cross those thresholds briefly, but “over years and decades, this goal is almost entirely illusory.”

    Last year, Barry Eichengreen of the University of California at Berkeley and Ugo Panizza of the Graduate Institute in Geneva found that from 1974 to 2013, only three countries ran primary surpluses of 5 percent or more for a decade: Singapore is an island city-state run by a benevolent autocracy. Norway has oil wealth. For Belgium, the 1990s were a time of growth—Eichengreen and Panizza say countries that hold a primary surplus for many years are likely to be enjoying a good economy, which Greece doesn’t have.

    And 4.5 percent is not all that Greece’s lenders are asking. In theory, the country will pay off its debt through thrift and economic growth until it can reduce its debt to the euro zone standard of 60 percent of GDP. To do that, says the International Monetary Fund, Greece must sustain a primary surplus of 7.2 percent from 2020 to 2030. Only Norway has maintained a surplus that high for that long.

    The countries that pay off their debt, says Andrew Scott, “tend not to look like Greece.” Scott, a professor at the London Business School, studies the history of government debt. The U.S. and U.K., he says, have survived high levels of borrowing without having to renegotiate with creditors, because both have a history of not defaulting. This allows them to issue long-term debt with low rates. Democracies, Scott says, find it hard to pay off large debts through a primary surplus alone without restructuring. “It’s like a diet,” he says. “You get through January and you’re doing fine. February comes along and it looks like hard work.”

    Sane or insane fiscal union? What should we expect from the folk that brought us this? Hmmmmm….


    Last year, Barry Eichengreen of the University of California at Berkeley and Ugo Panizza of the Graduate Institute in Geneva found that from 1974 to 2013, only three countries ran primary surpluses of 5 percent or more for a decade: Singapore is an island city-state run by a benevolent autocracy. Norway has oil wealth. For Belgium, the 1990s were a time of growth—Eichengreen and Panizza say countries that hold a primary surplus for many years are likely to be enjoying a good economy, which Greece doesn’t have.

    And 4.5 percent is not all that Greece’s lenders are asking. In theory, the country will pay off its debt through thrift and economic growth until it can reduce its debt to the euro zone standard of 60 percent of GDP. To do that, says the International Monetary Fund, Greece must sustain a primary surplus of 7.2 percent from 2020 to 2030. Only Norway has maintained a surplus that high for that long.

    “To do that, says the International Monetary Fund, Greece must sustain a primary surplus of 7.2 percent from 2020 to 2030. Only Norway has maintained a surplus that high for that long.”
    Yes, Greece is about to get kicked out of Team Europe because it can’t pull off a Mission Impossible.

    Good luck persuading the troika, Obama!

    Posted by Pterrafractyl | April 14, 2015, 2:00 pm
  9. If Greece declared bankruptcy. Maybe Obama and the U.S. could offer Greece the chance to join our union as a state.

    Posted by GK | April 15, 2015, 3:09 am
  10. @GK: Greece as the 51st state? What a fun thought. It would be like adding a sunny Minnesota on the Mediterranean!

    Although, interestingly, the German Finance Ministry was forced to deny reports that Germany is drawing up plans for a Greek default without a ‘Grexit’. So if the reports are true, Plan “D” for Greece is not an escape plan:

    Bloomberg Business
    Schaeuble Criticizes Greece for Backsliding as Time Running Out

    by Marcus Bensasson, Rainer Buergin and Birgit Jennen
    3:33 AM CDT
    April 15, 2015

    German Finance Minister Wolfgang Schaeuble criticized Greece for backsliding on reforms, saying that “no one” expects a resolution next week of the standoff with Alexis Tsipras’s government over untapped bailout funds.

    Schaeuble, in his first comments on the matter since before the Easter holidays, said Tsipras’s government had “destroyed” progress made by previous administrations in overhauling the Greek economy.

    “It’s a tragedy,” he said Wednesday at the Council on Foreign Relations in New York, adding that the country needed to become competitive to stop being a “bottomless pit.”

    The comments by the finance chief of the region’s biggest economy underscored the rising concern in European capitals that Greece is running out of time to unfreeze the aid needed to keep the country afloat. Earlier, the German Finance Ministry denied a report in weekly newspaper Die Zeit that Germany is working on a proposal that would allow Greece to stay in the euro in the event of a sovereign default.

    Finance Ministry spokeswoman Friederike von Tiesenhausen said that she could “only shake my head” over reports that the country was making such preparations. “What the government is working on is that the euro region is kept together and strengthened,” she told reporters in Berlin.

    Schaeuble is among European officials who are skeptical that there’s enough time to work out a deal ahead of a meeting of euro-area finance ministers at the end of next week in Riga, Latvia, to assess whether Greece has made enough progress to warrant a disbursement from its 240 billion-euro ($254 billion) bailout fund. Leaders are pressuring Greece to submit specific reforms as the country runs out of cash and faces debt payments and monthly salary obligations in the coming weeks.

    No Progress

    Von Tiesenhausen said Wednesday that an aid payment to Greece won’t happen this month and that negotiations with creditors have failed to move forward.

    “I said last time that there has been progress, but that really there is still a considerable need for negotiations,” von Tiesenhausen said. “I checked back today and got the answer that things have not really changed.”

    Yields on Greek 10-year notes rose to as much as 12.25 percent today, the highest level in two years. Greek banks’ shares fell as much as 12.8 percent in Athens, reaching their lowest level in at least 20 years.

    Schaeuble said the potential fallout from the resurgent Greek crisis was containable and wouldn’t hurt the European or world economy. “You can’t see the contagion,” he said.

    First off, when you hear Wolfgang Schauble declare that Greece needed to become competitive to stop being a “bottomless pit.”, just imagine if the US took a “bottomless pit” attitude towards individual states. We would have a lot of “bottomless pits”. Now imagine if, instead of just committing to continually throwing more money down those pits indefinitely as part of our social contract, the US just let those “bottomless pit” states fall into the socioeconomic abyss while periodically shouting, “just pull your bootstraaaaaaps!” down the hole. Year after year, decade after decade. And if they don’t pull themselves up from the abyss on their own we eventually start tossing boulders down the hole to incentivize them. “The boulders will make you stroooonger!” Just imagine if that was the US’s model. Because if Greece defaults, while staying in the eurozone, that’s probably going to be the model going forward since the only way Germany is going to allow Greece to default while staying in the eurozone is with A LOT more austerity.

    But with the German Finance Ministry denying the reports that a Plan “D” is in the works at all, maybe this is all hearsay. Maybe. But keep in mind that if it is hearsay, it’s hearsay that is not only consistent with the German Finance Ministry’s public speculation that Greece and the troika won’t finish their negotiations this month which means Greece won’t get an of the aid payments that it needs to avoid a default, but it’s also consistent with what Bundesbank chief Jens Weidmann has long been pining for:

    Project Syndicate
    Inside Jens Weidmann’s Brain

    Christopher T. Mahoney
    Christopher T. Mahoney is a former Vice Chairman of Moody’s.

    JUL 8, 2013 1

    Jens Weidmann is the president of the Bundesbank and a member of the ECB Governing Council. He is seen as the leader of the Hawkish Group at the ECB. He holds views that are diametrically different from mine (not that he knows or cares). But it is crucial to understand how he thinks, because he holds an effective veto over ECB policy. That makes him one of the most important central bankers in the world. His views cannot be ignored.

    With respect to monetary policy, Weidmann adheres to a strict interpretation of the ECB Treaty which provides for a single mandate, price stability, and which excludes “monetary financing” or deficit monetization.

    Weidmann’s attitude is: EMU was founded on the explicit understanding that the ECB would be as Puritan as the Bundesbank in its focus on the single mandate. His view is that the ECB does not have a growth mandate and, more importantly, should not have one. He is a supply-sider: growth results from sound fiscal, structural and monetary policies, not from “artificial stimulus”.

    There is nothing radical or heterodox about Weidmann’s views. They are shared by a number of members of the FOMC. Indeed, his views are orthodox. I think that his true desire is a federal eurozone, modelled on the dollar zone. This would be a eurozone without national central banks and without national banking systems. South Dakota does not have a central bank, nor does it have a financial system. The Fed could not care less if South Dakota defaulted on its muni bonds.
    Here are his words:
    We need to make sure that in a system of national control and national responsibility [federalism] , sovereign default is possible without bringing down the financial system. Only then will we really do away with the implicit guarantee for sovereigns. To achieve this, we have to sever the excessively close links between banks and sovereigns. Currently, European banks hold too many of their own governments’ bonds.”

    Weidmann desires a eurozone where governments can default without collapsing their financial systems. He also desires a eurozone where banks can fail without becoming contingent liabilities of their governments:
    “Getting to grips with the implicit guarantee for sovereigns would be a big step towards eliminating the inherent tensions in the monetary union’s structure. Removing the implicit guarantee for banks would be another one. To make that happen, we have to ensure the resolvability of banks. Defining a clear hierarchy of creditors is crucial. Shareholders and creditors will have to be first in line when it comes to bearing banks’ losses – instead of taxpayers.”
    This is American federalism: states can go bankrupt without destroying their financial systems, and banks can fail without having any claim on their state. (Washington State did not shudder when WaMu failed.) We know that such a system could work because the dollar zone has worked for a couple of centuries.

    But next we come to the crux: eurozone monetary policy. As a monetarist, I adhere to the view that the quantity theory operates, and that real growth is a derivative of money growth. In a nutshell: you can’t have 4% real growth with 1% nominal growth, and you can’t have 6% nominal growth without at least 4% inflation. That’s Market Monetarism, although it is really both Fisherian and Keynesian.

    Here is Weidmann’s view: “The best contribution a central bank can make to a lasting resolution of the crisis is to fulfil its mandate: that of maintaining price stability.” In other words, there is no reason why the eurozone periphery cannot resume strong growth with 0% inflation and 0% nominal growth. I don’t mean to caricature his view, but it comes pretty close to that.

    Has Weidmann read Fisher lately (or Bernanke)? To my knowledge he has not refuted the necessity of reflation in ending a depression. Indeed, I think that he is a sincere liquidationist, who views depressions and defaults as prophylactic. He wants to remake Southern Europe in the image of Northern Europe. He believes that, in the long run, it is in their own interest.

    As we can see, if indeed there is a plan in the works for allowing Greece to default while staying in the eurozone, this plan would be exactly what the Bundesbank has wanted as part of the long-term goal of restructuring the eurozone into a “United States of Europe” model. But as we’ve also seen, from not just Weidmann but almost the entire crop of eurozone leaders, that vision for a “United States of Europe” excludes the rich-to-poor state fiscal transfers and Fed dual mandate that helps make state-level defaults such a rarity. It’s a model where “we’re all in this separately!” actually becomes the unifying rallying cry for the whole project. Where is the future in that?

    So, overall, a Greek default is definitely looking a possibility. If the “Liquidationist, Supply-Side ‘United’ States of Europe” that folks like Weidmann envision is ever going to come to fruition someone is going to probably have to go bankrupt at some point. At least financially bankrupt. The moral bankruptcy happened a while ago.

    Posted by Pterrafractyl | April 15, 2015, 1:42 pm
  11. @Pterrafractyl I am grateful we have Obama/Biden and Yellen and not Romney/Ryan nor the reincarnated F.H. Hayek as federal reserve chairmen, but with the presidential campaign under way any chance we can get someone in the Oval Office to more directly take on the forces you are discussing who have their boot on the throat of my Greek Kinfolk. I’d like to draft Krugman if I had my druthers.

    Posted by GK | April 15, 2015, 7:01 pm
  12. @GK: Could we see someone in the oval office that will directly take on the nightmare direction the EU and eurozone are heading in? That’s a great question in part because it frames the “what do we do about Greece?” situation in the much larger context of “what do we do about all of us?” question that looms over the global community these day. The rabble around the world may not really realize it yet, but what the Greeks are facing is really just a preview for what could be routine everywhere if the EU’s right-wing economic model for banding nations together becomes the template for the globe.

    Think of the calls in recent years by Olli Rehn who, speaking as the European Commissioner for Economic and Monetary Development, called for making the IMF the enforcer for a global monetary policy “coordinating” regime in both 2010 and 2013 that would basically ban central bank actions like quantitative easing. Treaties that accomplish something like that are a major prize for not just Europe’s right-wing but the right-wing pro-austerity movements all around the globe that are looking for having a perpetual external excuse for not acting in the public’s interest and that’s why we should expect something along those lines to be part of the global agenda, not just a European agenda.

    Such an international monetary policing regime would also mean no emergency devaluations in the event of a sovereign debt crisis which puts the country in the same situation Greece and the rest of the eurozone face. Just imagine what a prize that would be for the global oligarchy to get the G7 or G20 to sign on to something like that. Every financial or fiscal crisis, or even nasty recession, could turn into a troika-like opportunity with the international community extracting “structural reform” concessions in exchange for greater monetary policy leniency, especially if the treaties effectively ban meaningful fiscal stimulus programs too.

    So, assuming the pro-austerity crowd continues to rule Europe for the foreseeable future, it seems like it’s just a matter of time before some sort of international treaty is put on the table that artificially strips away the ability of central banks to do what they do (like quantitative easing and/or just issuing a bunch of your currency) at a G7 or G20 level. When Ollie Rhen made those calls for internationally binding treaties back in 2010 and 2013 he was doing that as an EU Commissioner of Economic and Monetary Development, so he presumably was expressing the establishment view on these matters.

    Similarly, when ALL Senate Republicans backed a balanced budget amendment in 2013, we can be pretty confident that the GOP is very interesting in imposing the kinds of fiscal and monetary shackles on the US that we see at work in the eurozone. And then there’s the fact that top Republican lawmakers pushed in 2010 and 2013 for ending the Federal Reserve’s dual mandate (of focusing on both controlling inflation and maintaining unemployment) with single mandate of focusing solely in controlling inflation. These are both very big hints that making the Federal Reserve operate with the ECB’s defanged powers is something very much on the GOP’s long-term agenda as is straightjacketing the US Federal government’s legally ability to deficit spend. The New Deal and all the social programs the GOP has been trying to overturn for years would be perpetually at risk of getting ‘drown in the bathtub‘.

    That’s why, if we get a right-wing EU governmental aligned with a Republican administration is the US (or a Democratic one willing to go along with such a scheme), we shouldn’t be surprised if we see the fate of Greece, or Spain or Ireland or any of Europe’s austerity-riddled economies become the default systematic response to future financial crises as international treaties effectively ban any other response. At least, that seems like the type of “surprise!” from the corporatocracy that we should expect one of these years.

    Of course, given the widespread lack of sympathy for the Greeks within the eurozone’s other austerity-impact countries, it’s entirely possible that once it becomes clear that getting ‘Greeces’ is a possibility for everyone we still won’t see our common challenges. But increased sympathies for the Greeks in the US could happen for a variety of reasons, although it would require Democratic White House.

    So if things don’t change significantly in the Democratic primary dynamics between now and the 2016 election, the question of what the odds are of seeing someone in the Oval Office that’s willing to stand up for Greece is mostly a question of whether or not the Democratic base can somehow push Hillary Clinton into adopting and championing a worldview of international trade and relations that replacing the prevailing neoliberal paradigm with one that effectively bans, through international treaties, the kind of treatment Greece is getting.

    That may sounds like a very unlikely scenario, but keep in mind that with major trade agreements like the Trans Pacific Partnership or Trans Atlantic Union under proposal these kinds of globally unifying issues are going to be increasingly in focus. Developing an anti-austerity paradigm that the whole world can rally behind is going to be growing priority for the US left going forward because the US can’t change its economy on its own, at least not nearly as easily as could if it could get the rest of the world to join in the effort. If the US public wants to see the GOP-style policies ended, it doesn’t just need to stop the GOP, it needs to oppose the European right-wing pushing “poverty as the impetus for prosperity”-policies too.

    One of the most compelling arguments that advocates of the TPP have is that we need to have some sort of agreement so the US might as well lead the way. And that’s true. The world could certainly use improved standards that we all live by. Standards like ending poverty globally (let’s make that the top priority instead of profit maximization) and and shifting to clean technologies and sustainable lifestyles. Building that kind of a world will require a very different kind of approach to money and monetary policy than the GOP or Bundesbank-style worldviews and, given the urgent need to address eco-collapse everywhere, the US left has every reason to start developing a framework where tackling poverty while setting up sustainable economies on a global scale becomes a top US priority. In other words, humanity needs to fight a Cold War on the cause of global warming and suffering in general so if treaties can be part of that effort all the better. We just don’t want to sign anything that makes a bad situation worse. But just imagine the economic stimulus that could be unleashed if, instead of the TPP or Trans Atlantic Union, all of those nations instead pledged to engage in a massive anti-poverty/pro-education program where the poorest were just given money and assistance and long-term commitments to financing public services were made available everywhere. We need international agreements of some sort so why not something like that? Wouldn’t a giant round of anti-poverty programs intended for people displaced by globalization with massive pledges of international assistance be far more useful for the world than something like the TPP?

    So, putting aside the basic decency argument for having sympathy for Greece, identifying with the Greeks as a populace that’s just normal people trapped in a screwed up political environment just what makes sense for the US public going into 2016. It really is in our best interests to have a Greek sympathizer in the Oval Office because what Greece is going through right now will probably happen to the US if the GOP gets complete control of the Federal government in 2016 (the Supreme Court will be insane for decades). And there’s no reason to assume that Berlin and Brussels aren’t still interested in monetary ‘harmonization’ treaties or something much more deeply binding in the future. If the status quo policies being applied to Greece become the global norm in the future, Greece is a preview.

    Part of what’s darkly amusing about the whole situation is that the stereotype of Greece as a place where where everyone is lazily laying around all day at the beach is probably the best model for humanity going forward, at least assuming we get past the current “might collapse the biosphere“-phase intact. We desperately need a low resource consumption, high quality lifestyle if we’re going to make it through this population boom/eco-collapse bottleneck intact. In a future where automation/robotics/AI price large swathes of the workforce out of the market, what could be better than having a bunch of people sitting at the beach reading books or the news or whatever all day long and just being really engaged citizens? Lots of unemployed people sitting on the beach on the public dole. Or maybe taking care of ill relatives. Or doing whatever the need to do to live that people don’t have time to do these days. In a future economy where large swathes of the what is done by non-humans, we could just give most people a comfortable standard of living basically for free. It’s mostly the robots doing the work to support everyone and if you work you’ll get paid way more than you would today.

    Why not try to work towards world of minimal official work and maximal free-time, self-education and enrichment? And why not make ending poverty and transitioning towards sustainable economies and different low-resource/high fun lifestyles the absolute top priority? Do we really have an alternative? And not only could all these changes be quite pleasant for nearly everyone (if you still worked you would get a massive raise), but they might be necessary for just keeping our societies functioning with the simultaneous challenges of mass automation, robotics, and AI supplanting the work force while the population booms and the environment collapses.

    So in addition to there being all sorts of reasons for the US public to be very sympathetic to the Greeks, we should really be looking at the mythical lifestyle of the the lazy Greek as a long-term national goal.

    Ich bin eih lazy Athenian und so bist du.

    Posted by Pterrafractyl | April 20, 2015, 12:07 am
  13. Here’s the latest “I beat you because I love you” signal sent from the troika:
    ECB vice president Vitor Constancio reiterated the idea on Monday that a Greek default wouldn’t necessarily result in a ‘Grexit’:

    UPDATE 2-ECB’s Constancio – default no reason to quit euro as Greece cash pinch worsens

    * Greece facing increasingly difficult cash squeeze

    * Constancio says any capital controls must be temporary

    * Says ECB still convinced Greece will stay in euro (Adds detail, comments)

    By John O’Donnell and Jonathan Gould
    Bonds | Mon Apr 20, 2015 12:13pm EDT

    FRANKFURT, April 20 (Reuters) – A country that defaults would not have to leave the euro, the European Central Bank’s vice president said on Monday, in frank remarks about Greece that also touched on possible capital controls and showed how acute Athens’ problems have become.

    Speaking as Greece ordered public sector entities to transfer idle reserves to the central bank to help with a cash squeeze, Vitor Constancio discussed the possibility of a debt default and controls on the movement of money, saying neither necessarily meant a departure from the currency bloc.

    “If a default will happen … the legislation does not allow that a country that has a default … can be expelled from the euro,” he told the European Parliament, saying that Greek banks had been told not to increase their exposure to the state to avoid “a possible credit event regarding the state”.

    The comments from the typically reserved Constancio underscore the seriousness of Greece’s predicament and are the most open yet from the ECB, which is providing 110 billion euros of liquidity to the country and its banks.

    Constancio also touched on the possibility of capital controls.

    “Capital controls can only be introduced if the Greek government requests,” he said, adding that they should be temporary and exceptional. “As you saw in the case of Cyprus, capital controls did not imply getting out of the euro.”

    Constancio underscored ECB support for Greece, telling lawmakers he was sure it would stay in the currency bloc.

    “We are convinced at the ECB that there will be no Greek exit,” he said. “The (European Union) treaty does not foresee that a country can be formally, legally expelled from the euro. We think it should not happen.”

    As it stands, the central bank is approving an ever growing amount of emergency funding for Greece’s lenders. While Constancio said this could not continue regardless of the circumstances, he hinted that the ECB would be loath to pull the plug.

    “If the state defaults, that has no automatic implications regarding the banks, if the banks have not defaulted, if the banks are solvent and if the banks have collateral that is accepted,” Constancio said.

    Well, that was at least vaguely nonthreatening, which is a nice change of pace from the ECB. Well, except for this part…:

    As it stands, the central bank is approving an ever growing amount of emergency funding for Greece’s lenders. While Constancio said this could not continue regardless of the circumstances, he hinted that the ECB would be loath to pull the plug.

    So the ECB would apparently be loath to “pull the plug” on the ECB’s emergency funding for the Greek banks, which is certainly nice. But the plug pulling might still happen since the emergency lending can’t continue “regardless of circumstances”.

    So one of the big looming questions now is what those circumstances are that would trigger a pulling of the emergency lending. It’s an especially big question at the moment since it sounds like a growing number of ECB governing council members feel that the circumstances that require pulling the plug on the Greek banks exist right now:

    Bloomberg Business
    ECB Is Studying Curbs on Greek Bank Support

    by Jeff Black, Nikos Chrysoloras, and Stefan Riecher
    1:41 AM CDT
    April 21, 2015

    The European Central Bank is studying measures to rein in emergency funding for Greek banks as resistance to further aiding the country’s stricken lenders grows among policy makers, people with knowledge of the discussions said.

    ECB staff have proposed increasing the discounts imposed on the securities banks post as collateral when borrowing from the Bank of Greece, the people said, asking not to be named as the matter is private. While adjusting these so-called haircuts hasn’t been formally discussed by the Governing Council, it may be considered if Greece’s leaders fail to quickly convince euro-area finance ministers they can reform their economy and secure bailout funds, one of the people said. Greek bank stocks slid.

    Greek lenders are mostly locked out of regular ECB cash tenders while the government, which holds talks with euro-area partners in Riga this week, tussles with its creditors over the much-needed aid payments. Instead, the banks currently have access to about 74 billion euros ($79 billion) of Emergency Liquidity Assistance from their own central bank — an amount that has been rising and which will be reviewed this week.

    There’s “no doubt” that the ECB is losing patience with Greece, said Frederik Ducrozet, an economist at Credit Agricole CIB in Paris. “Greek banks will need more funding before long, so in a way larger haircuts or a lower ELA cap are equivalent.”

    The FTSE/Athex Banks Index slumped 5.4 percent at 3:54 p.m. Athens time. The euro fell 0.3 percent to $1.0707.

    Seeking Deal

    The ECB staff proposal outlines three routes for reducing the amount of cash lenders can receive for a given amount of collateral, one of the people said. The haircuts set under ELA operations aren’t public.

    CNBC reported that haircuts could be returned to the level of late last year, before the ECB eased its Greek collateral requirements; set at 75 percent; or set at 90 percent. The latter two options could be applied if Greece is in an “orderly default” under a formal ECB program or a “disorderly default,” CNBC said, without further elaboration.

    An ECB spokesman declined to comment.

    Euro-area officials are striving to find a way to persuade Greece to make reforms in exchange for aid, and so to keep the country in the 19-nation currency bloc. Major creditors including Germany aren’t ready to let Greece leave as long as Prime Minister Alexis Tsipras shows willingness to meet at least some key demands, according to people familiar with the talks.

    Cash Raid

    Running out of options to keep his country afloat, Tsipras told local governments on Monday to move funds totaling about 1.5 billion euros to the national central bank. While that may be enough to last until the end of May, including meeting an International Monetary Fund loan repayment due on May 12, it will also probably increase banks’ need for replacement funding.

    The Frankfurt-based ECB has insisted on tight control of the operations, on concern banks will use the cash to directly fund the government in contravention of European Union law.

    Even so, ECB President Mario Draghi has signaled he isn’t yet convinced of the need to squeeze Greek lenders further. Speaking to reporters on April 15, he said haircuts were “mentioned, not discussed” by governors at their monetary-policy meeting. “We will come back on this issue in due time,” he said.

    Temporary Measure

    To restrict or veto ELA funding, which is provided at the Greek central bank’s own risk, a two-thirds majority of the Governing Council is necessary. A growing minority is opposed to continuing to provide the assistance indefinitely, one of the people said.

    “The situation in Greece means that we should have a limit until summer for ELA,” Governing Council member Vitas Vasiliauskas said in an interview in Washington on April 18. “Everyone understands what ELA means; it’s a temporary measure to give the banks liquidity.”

    Those comments echo concern over the risks inherent in ELA funding voiced repeatedly by Jens Weidmann, the head of Germany’s Bundesbank. Christian Noyer, Governor of the Banque de France, said in Washington last week that emergency assistance can’t last indefinitely.

    Ok, so it sounds like one of the primary triggers for pulling the plug on Greece’s banks is if Greece fails to “quickly convince euro-area finance ministers they can reform their economy and secure bailout funds”:


    While adjusting these so-called haircuts hasn’t been formally discussed by the Governing Council, it may be considered if Greece’s leaders fail to quickly convince euro-area finance ministers they can reform their economy and secure bailout funds, one of the people said.

    And, of course, the only way Greece’s government can do that is to completely capitulate to all existing demands and/or make up their own austerity program that is just as awful as the existing one.

    But that’s just the opinion of the ECB ‘good cops’. Then there’s the ‘bad cops’ like Lithuania’s central banker Vitas Vasiliauskas that appears to want to limit the emergency bank funding now “until summer”. Keep in mind that summer technically starts on June 21, and the original four month agreement to renegotiate the “bailout” conditions between Greece and the troika was signed on Feb 20. So if the EAL is frozen “until Summer”, that’s basically a call for turning the screws even more on Greece’s economy and financial sector as a bargaining chip or it’s in anticipation of a Greek default with the idea of limiting eurozone area liabilities and leaving the Greek people just completely bankrupted at not just a national level but personal level too.

    So we have the vice president of the ECB once again hinting that a Greek default doesn’t necessarily lead to a ‘Grexit’ and emphasizing that the ECB would be loath to pull the plug on Greece’s banks while the ECB reportedly begins studying what would happen if it pulls the plug and a growing number of ECB council members lean towards pulling the plug now.

    Given all that, it’s looking more and more that what we’re seeing is an attempt to inflict so much pain on Greece that snap elections are held and a new poodle government gets installed. After all, if Greece defaults but doesn’t leave the euro, isn’t that pretty much a guarantee that there’s going to be a snap election in short order?

    Sure, Syriza would almost certainly win elections today even with falling support, but what if the troika can keep steadily turning those screws over the next couple of months and making life worse and worse by guaranteeing that any sort of ‘Grexit’ will be as painful as possible for the Greek people because all of their savings were already spent trying to hold the country together during the negotiations? Would imposing enough pain on the Greeks successfully induce some sort of multiple personality disorder just in time for the poodle personality to take control before the elections and vote in a compliant government? Chronic beat downs can do that, and it certainly seems like the kind of the thing the troika would do…at least when one of its destructive personalities is in control (which is all of them).

    Posted by Pterrafractyl | April 21, 2015, 9:45 am
  14. Well, it looks like the ECB has made a decision on whether or not to discount the value of the collateral Greek banks exchanges for emergency funding: The ECB is going to double down on the liquidity crunch, literally, by demanding that Greek banks see their value of the collateral potentially cut in half:

    The New York Times
    E.C.B. Tightens Flow of Money to Greek Banks

    By LANDON THOMAS Jr.
    APRIL 21, 2015

    As Greece scrambles to secure a financing deal with Europe before running out of cash, the European Central Bank is tightening the vise on the country’s ailing banks by curtailing access to desperately needed emergency loans.

    The E.C.B. is now demanding that the value of the collateral that Greek banks post at their own central bank to secure these loans be reduced by as much as 50 percent, according to people who have been briefed on these discussions but who were not authorized to discuss them publicly.

    And, these people say, if the Greek government and Europe remain at an impasse on an agreement about austerity reforms, these so-called haircuts could increase further.

    The move highlights the hard-line approach taken by the E.C.B. toward Greece as it puts pressure on the new government to reach an agreement with its creditors.

    With the value of the collateral being reduced so drastically, banks will be hard pressed to obtain the money they need to survive.

    For more than three months, Greece’s largest banks have been forced to borrow short-term, higher-interest money from their own central bank — a process called emergency liquidity assistance — because Frankfurt deemed it to risky to extend credit to the banks itself.

    The banks, in turn, have to provide adequate collateral to obtain these loans, which now stand at 74 billion euros, or more than half the amount of Greek domestic deposits.

    But with deposits fleeing the banking system and with nonperforming loans — which had stabilized before the radical Syriza government came to power — now back on the rise, it has been difficult for banks in Greece to come up with acceptable assets to underpin their borrowing.

    Mr. Varoufakis has often complained that the E.C.B. is “asphyxiating” Greece by limiting the amount of bills that the banks can buy from the government and keeping a tight leash on last-ditch loans.

    At the same time, Mario Draghi, the president of the E.C.B., has made it clear that if Greece does not strike a deal with Europe he will eventually stop backing the Greek banks — a step that would inevitably lead to capital controls and eventual default.

    Moreover, these haircuts exceed those imposed on Greek banks in June 2012, when emergency loans had soared to €125 billion on worries that Greece would be forced to leave the eurozone.

    A spokesman for the E.C.B. in Frankfurt declined to comment.

    Under E.C.B. rules, the central bank of Greece assumes full responsibility for the credit risk when it issues these emergency loans. But the E.C.B. carefully monitors them, setting limits and scrutinizing the collateral.

    During the Cyprus crisis, Jens Weidmann, the powerful German member of the E.C.B.’s governing council, bluntly criticized the head of the Cyprus central bank for inflating the value of collateral to allow desperate Cypriot banks to borrow more money.

    By requiring such drastic discounts, the E.C.B. is making sure that the same thing does not happen in Greece.

    Note that when you read

    Under E.C.B. rules, the central bank of Greece assumes full responsibility for the credit risk when it issues these emergency loans. But the E.C.B. carefully monitors them, setting limits and scrutinizing the collateral.

    the assumption of full responsibility for these emergency loans by the central bank of Greece all assumes that the central bank of Greece doesn’t end up getting canceled in the event of a ‘Grexit’, at which point all of those liabilities are going to fall of the rest of the eurozone. So when you hear Jens Weidmann suggesting that the ECB is just doing this as a precautionary measure, keep in mind that it’s a precautionary measure that potentially reduces the eurozone’s exposure to a full scale Greek default but also makes that default more likely by strangling Greece’s economy and this kind of move is happening in broad daylight for all the markets to see.

    So, with that in mind, let’s take a look at Yves Smith’s take on the situation two months ago when the ECB first started its ELA cutback surprise:

    Naked Capitalism
    ECB Could Pressure Greece by Refusing to Increase ELA (Update: Small Increase Approved)

    Yves Smith
    Posted on February 18, 2015 by Yves Smith

    As we indicated, we’ve thought the ECB was unlikely to end the ELA as a way to force Greece to capitulate, since it would be too obvious a move to take down the Greek banking system, and would also have the effect of telling depositors in any European debtor state that their money was not safe in a domestic bank. That over time is a way to precipitate bank runs.

    But we also pointed out that the board, which rotates at the ECB, had a particularly Greece-unfavorable mix this time. And while more extreme measures, like imposing conditions on the ELA, requires a 2/3 vote, the decision to increase or not increase the size of the facility take a mere majority vote.

    So if the bloody-minded board members refuse to honor Greecee’s request to increase the backstop during the board meeting today, it would constitute a serious step to try to force Greece to capitulate. However, most experts believe this would be such a radical step as to be unlikely. And the board mix for each of the two ECB sessions in March is much Greece-friendly.

    Update: The ECB increased the ELA, but as modestly as possible. From CNBC:

    The European Central Bank has approved a €68 billion ($78 billion), two-week extension on emergency liquidity for Greek banks, Reuters reported, citing a source.
    The ECB had already raised the Emergency Liquidity Assistance (ELA) cap to about €65 billion last Thursday. The Greek central bank had requested an extension of about €10 billion, the source told Reuters.

    Yep, back in February, market commentators saw a total ELA cutoff as a highly unlikely event because it would be too obvious a move to take down the Greek banking system that would force a ‘Grexit’. And here we are two months later, with the negotiations stalled and the ECB about to cut that ELA funding basically in half while we continue to get daily assurances for eurozone officials that a ‘Grexit’ and/or default is some sort of unthinkable outcome but are also told that a default doesn’t necessarily mean a ‘Grexit’ is inevitable.

    If only this was all just a really, really, really awful joke. If only…

    Posted by Pterrafractyl | April 21, 2015, 6:52 pm
  15. Good news for Greece! Sorta! Contrary to recent reports that the ECB was planning on cutting the value of the collateral Greek banks can use to obtain Emergence Liquidity Assistance (ELA) loans to keep the Greek banking system running, the ECB announces today that it’s raising the ceiling on emergency lending by Greece’s central bank by ~2 percent. In addition, both Greece and the troika have concluded that Greece should be able to scrape together enough cash to pay off its creditors…through June. So all those fears of an imminent Greek default can melt away for another two months:

    Greek cash seen lasting into June, no EU deal imminent

    ATHENS/BRUSSELS | By Angeliki Koutantou and Jan Strupczewski
    Markets | Wed Apr 22, 2015 2:17pm EDT

    (Reuters) – Greece can scrape together enough cash to meet its payment obligations into June, euro zone and Greek officials said on Wednesday, playing down fears of an imminent default as hopes receded of a deal with its creditors to release fresh aid.

    The European Central Bank raised its ceiling on emergency lending by the Greek central bank to Greek banks by 1.5 billion euros to 75.4 billion euros, giving them a bigger buffer to cope with deposit withdrawals, a banking source said.

    Three sources familiar with ECB thinking denied a report that the Frankfurt-based bank had tightened the screws on Greek banks by slashing the value of the collateral they must present to receive emergency liquidity to stay afloat.

    Greece has received two international bailouts worth 240 billion euros since 2010 but its economy has shrunk by some 25 percent, unemployment has soared and a leftist-led government elected in January has refused to complete a reform program that includes measures it says worsen the economic slump.

    The head of the Eurogroup Working Group, which prepares decisions for euro zone finance ministers, said Athens would not present a new list of economic reforms required to unlock further EU funds when the ministers meet in Latvia on Friday, but Greece should be able to stay solvent till June.

    “The liquidity situation in Greece is already a little tight, but it should be sufficient into June,” EWG chairman Thomas Wieser told Austrian broadcaster ORF.

    Greek Deputy Finance Minister Dimitris Mardas said the government aimed to have a 2.5 billion euro ($2.7 billion) cash buffer by forcing state entities to lend to the state in order to cover payments until the end of May.

    Shut out of bond markets and running out of money to pay civil servants, pensioners and suppliers and service its debt, the government issued a decree on Monday ordering public bodies to transfer their spare cash to the central bank.

    “I want this 2.5 billion euros to cover any needs that may occur, I repeat, taking into account the worst case scenarios and the needs for May,” Mardas told Star TV, adding he was confident that Greece and its lenders would reach a deal.

    Mardas said initially the state was still short 350-400 million euros to cover wage, pension and other needs in April but later said the problem had been solved because a pension fund had come forward to lend it the money.

    He dismissed a report that Athens was considering a parallel currency or IOUs to make payments, saying he was confident a deal would be struck with creditors to avoid a default.

    “CLOCK TICKING”

    Greece has to make two repayments to the IMF totaling about 950 million euros by May 12. It has another 1.45 billion euro payment due to the IMF in June, but the biggest looming payments are bond redemptions to the ECB of 4.18 billion euros in July and 3.38 billion euros in August.

    Prime Minister Alexis Tsipras will meet German Chancellor Angela Merkel in Brussels on Thursday. EU officials said his government continued to seek a political deal to ease austerity rather than a detailed technical agreement on reforms.

    State Minister Nikos Pappas, a close aide of Tsipras, said the government would continue to reject EU/IMF demands for pension cuts and an increase in value added tax on Greek tourist islands. Athens wanted a deal with its lenders but “not just any agreement”, he told a parliamentary committee.

    EU officials said euro zone governments had rarely been so united in refusing to yield to what they perceive as Greek brinkmanship and hints of default.

    “We all know that in Riga nothing will be achieved. But having the outcome of Riga as a disaster or as a stepping stone to something else makes a difference,” said one senior EU aide with five years’ negotiating experience with Athens.

    “Everyone is putting as much pressure as possible on Greece to make some last-minute effort before the meeting,” he said, adding: “I’m concerned that everyone comes out at Riga saying there was nothing. Then we are even closer to the abyss.”

    Three people familiar with ECB policy denied a New York Times report that the ECB had raised the average “haircut” on Greek banks’ collateral to 50 percent from around 33 percent, forcing them to deposit more assets in return for Emergency Liquidity Assistance (ELA) from the Greek central bank.

    The ECB’s Governing Council took no such decision in its weekly teleconference on Greek ELA on Wednesday, a source said.

    Well, ok, it could be worse! Unless, of course, default is inevitable if Greece doesn’t completely capitulate (which is basically what the troika is demanding), in which case it’s sort of ambiguous as to whether or not extending the process is actually helpful.

    Still, by raising the Greek central bank’s emergency credit line, the ECB did buy some time for the negotiating parties to work towards some sort of compromise resolution. And that means we’re pretty much in the same situation we’ve been in for the past couple: the troika applies pressure on Greece to agree to “some last-minute effort”, and Greece points out that those “last-minute efforts” are the equivalent of a murder-suicide pact, which isn’t really a viable solution for the folks on then suicide-side of the murder-suicide pact:

    Greek government refuses to back down on pension cuts, tax hikes
    Markets | Wed Apr 22, 2015 8:01am EDT

    (Reuters) – Greece will continue to reject creditors’ demands for pension cuts and a hike in the value-added-tax (VAT) on islands frequented by tourists, State Minister Nikos Pappas said on Wednesday, in a setback for hopes that a deal could be struck soon.

    The comments are the latest indication that Prime Minister Alexis Tsipras’s government is standing its ground in a battle with European Union and IMF lenders despite a deepening cash crunch that threatens to tip Athens into bankruptcy.

    “The negotiations have their difficulties and the lenders have tabled requests which have not been accepted so far,” Pappas told parliamentary committee.

    “And they will not be accepted because they are the red lines of the government … accepting VAT hikes on islands and pension cuts.”

    Measures like pension cuts would not solve the country’s problems, he said.

    “The government seeks … and will achieve a solution. Not just any agreement,” he said.

    Because, despite all the assurances that an agreement is just around the corner, the Greek government actually seem interested in actual solutions to Greece’s problems and not just another agreement, which is very understandable since the problems Greece needs to find solutions for include all the problems caused by the past ‘bailout’/blackmail ‘agreements.

    In other words, the solution Greece is looking for is the same kind of solution anyone would be looking for if a murderous loan shark was hunting them down in order to ‘help’ them via permanent injury:

    Green Left Weekly
    Europe’s elite seek to destroy Greek economy

    Monday, April 13, 2015
    By Mark Weisbrot

    There is a tense stand-off right now between Greece’s government and the so-called troika — the European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF). ECB President Mario Draghi recently went so far as to deny that his institution was trying to blackmail Greece’s left-wing anti-austerity government.

    But blackmail is actually an understatement. It has become increasingly clear that the troika is trying to harm the Greek economy in order to raise pressure on the new Greek government to agree to its demands.

    The first sign of the European authorities’ strategy came on February 4 — just 10 days after Greece’s Coalition of the Radical Left (SYRIZA) government was elected — when the ECB cut off the main source of financing for Greek banks.

    This move was clearly made in bad faith, since there was no bureaucratic or other reason to do this. It came more than three weeks before the deadline for the decision.

    Predictably, the cut-off spurred a huge outflow of capital from the Greek banking system, destabilising the economy and sending financial markets plummeting. More intimidation followed, including a slightly veiled threat that emergency liquidity assistance, Greece’s last credit lifeline from the ECB, could also be cut.

    The European authorities appeared to be hoping that a shock-and-awe assault on the Greek economy would force the new government to immediately capitulate.

    It did not work out that way. SYRIZA had a mandate from Greek voters to improve their living standards after six years of troika-induced depression and more than 25% unemployment. The new Greek government backed off its demand for a debt “haircut” and made other compromises, but refused to surrender as if there had been no election.

    The European authorities finally blinked on February 20 and agreed to grant a four-month extension, through June, of the prior “bailout” agreement.

    The quote marks are needed because most Greeks have not been bailed out, but thrown overboard — having lost more than 25% of their national income since 2008. It could hardly be more obvious that recent ECB actions are not about money or fiscal sustainability but about politics.

    According to conditions in the February 20 agreement, the Greek government would present a list of reforms that it would undertake, which it did, and which European officials approved.

    Remaining issues were to be negotiated by April 20, so that the final instalment of IMF money — some €7.2 billion — could be released. One might assume that the February 20 agreement would allow these negotiations to take place without European officials causing further immediate and unnecessary damage to the Greek economy.

    One would be wrong: A gun to the head of SYRIZA was not enough for these “benefactors”. They wanted fingers in a vice too.

    And they got it. The ECB refused to renew the Greek banks’ access to its main, cheapest source of credit that they had before the January 25 elections. And it refused to lift the cap on the amount that Greek banks could lend to the Greek government — something that it did not do to the previous government.

    As a result, a serious cash flow problem has struck Greece’s government and banks. Because of the ECB’s credit squeeze, the government could soon find itself in a situation that the 2012 government faced when it delayed payments to hospitals and other contractors in order to make debt payments. It could even face default at the end of April.

    The amounts of money involved are quite trivial for the ECB. The government has to come up with approximately €2 billion of debt payments in April. The ECB recently shelled out €26.3 billion to buy eurozone governments’ bonds as part of its €850 billion quantitative easing program over the next year and a half.

    The ECB’s excuses for causing this cash crunch in Greece ring hollow. For example, it argues that banks under the previous government did not require the limit that the ECB is imposing on banks now because the prior government committed to a reform program that would fix its finances. But so has this one.

    It could hardly be more obvious that this is not about money or fiscal sustainability, but about politics. This is a government that European authorities did not want, and they wish to show who is boss.

    They really don’t want this government to succeed, which would encourage Spanish voters to opt for a democratic alternative — Podemos — later this year.

    The IMF projected the Greek economy to grow by 2.9% this year. Until the last month or so, there was good reason to believe that — after years of gross overestimates — its forecast would be on target.

    This growth would likely have kept SYRIZA’s approval ratings high, together with its measures to provide food and electricity to needy households and other progressive changes. The ECB’s actions, by destabilising the economy and discouraging investment and consumption, will almost certainly slow Greece’s recovery and could be expected to undermine support for the government.

    “The quote marks are needed because most Greeks have not been bailed out, but thrown overboard — having lost more than 25% of their national income since 2008. It could hardly be more obvious that recent ECB actions are not about money or fiscal sustainability but about politics.”

    That’s the ‘agreement’ the troika is demanding Greece agrees to if its going to avoid a default: Greece needs to agree the the same ‘bailout’ conditions that continues to asphyxiate the country without any meaningful changes regardless of the damage already done to Greece’s economy because…politics. Or obedience or something.

    Whatever the reasons for the troika’s calculated insanity, this whole situation raises a rather unsettling question: How do you come to a compromise with someone that appears to want you dead on principle?

    The answer isn’t obvious but it looks like Greece has about two more months to figure out. May the Force be with Greece.

    Posted by Pterrafractyl | April 22, 2015, 8:19 pm
  16. From the “let’s hope this was a joke even though they didn’t appear to be joking”: So here’s a pretty typical Reuters article about the crisis in Greece that includes plenty of comments from various EU officials – some anonymous, some not – about how they’re all so concerned about the possibility of a Greek default or Greece leaving the eurozone but it’s really all up to Greece to get serious about reforms. Again, typical. But then it includes this line that stands out even by topsy-turvy standards of the contemporary EU:

    For weeks Greek officials have been telling their euro zone counterparts they have run out of money, only to find spare cash to make the next debt payment. “They have cried wolf so often that when they are really going bust, no one will believe them,” one EU negotiator said on condition of anonymity.

    Are EU officials actually questioning whether or not Greece is running out of cash? Because that’s like questioning whether or not the person you’re choking to death is really being straight with you when they say they can’t breath. That’s scary talk. On so many levels:

    If Greece falls, no one wants their prints on the murder weapon

    BRUSSELS | By Paul Taylor
    Sun Apr 26, 2015 8:29am EDT

    (Reuters) – “We’re going bust.” “No, you’re not.” “You’re strangling us.” “No we’re not.” “You owe us for World War Two.” “We gave already.”

    The game of chicken between Greece and its international creditors is turning into a vicious blame game as Athens lurches closer to bankruptcy with no cash-for-reform agreement in sight.

    Europe’s political leaders and central bankers and Greek politicians agree on only one thing: if Greece goes down, they don’t want their fingerprints on the murder weapon.

    If Athens runs out of cash and defaults in the coming weeks, as seems increasingly possible, no one wants to be accused of having pushed it over the edge or failed to try to save it.

    Greece’s leftist government has already identified its culprit of choice – Germany, Europe’s main paymaster, accused of having inflicted toxic austerity policies on Greeks, causing a “humanitarian crisis”.

    Euro zone governments are preparing the ground to blame the novice government of Prime Minister Alexis Tsipras for having blustered, obstructed, failed to meet commitments and evaded hard choices while Athens burned.

    “We are doing everything we can to save Greece from itself, but in the end, it’s up to them,” is the message pouring out of Berlin, Brussels and IMF headquarters in Washington.

    German Chancellor Angela Merkel has been careful to express goodwill and tried to build a relationship of trust with Tsipras while insisting Greece must meet its lenders’ reform conditions, which include fiercely resisted pension cuts and labor reforms.

    “Everything must be done to prevent” Greece running out of money, she said after talks with Tsipras last week. “On the German side, we are prepared to provide all the support that is asked of us. But of course reforms must be done,” she added.

    Investors briefly hoped her pledge might be a turning point, similar to European Central Bank President Mario Draghi’s 2012 vow to do “whatever it takes to preserve the euro”.

    But Merkel’s comments could also be interpreted as an exercise in pre-emptive blame avoidance. Unlike Draghi, she did not say who should do everything to stop Greece going bust.

    Her finance minister, Wolfgang Schaeuble, is openly sceptical of whether Athens can avoid crashing out of the euro zone.

    Angry euro zone finance ministers made clear they were far from a deal with Greece, rejected Varoufakis’ plea for early cash in return for partial reform and told him they would not even discuss longer-term funding and debt relief until Greece signed and implemented a full reform plan.

    While Greece’s leaders insist Europe must heed and respect the democratic will of the Greek people, its creditors reply that they too have democratic mandates from their voters.

    In Varoufakis’ narrative, euro zone countries did not lend all that money to save Greece in the first place but to protect their own banks, which had imprudently lent Athens billions.

    Nonsense, say euro zone officials. Those banks took losses in 2012 when Greek debt to private bondholders was restructured.

    Varoufakis has widened the circle of blame to the ECB, accusing it of “asphyxiating” Greece by starving its banks of liquidity and severely limiting their short-term lending to the government.

    That prompted an indignant response from ECB President Mario Draghi, who told the European Parliament the central bank’s support for Greece amounted to some 110 billion euros, but it was barred by treaty from monetary funding of governments.

    For weeks Greek officials have been telling their euro zone counterparts they have run out of money, only to find spare cash to make the next debt payment. “They have cried wolf so often that when they are really going bust, no one will believe them,” one EU negotiator said on condition of anonymity.

    Insiders say the ECB is determined that the central bank will not be the institution that pulls the plug. If it considers support for Greek banks is no longer tenable, it will seek a political decision by European Union governments.

    “This is not something unelected central bankers should decide,” a source in the Eurosystem of central banks said.

    European Commission President Jean-Claude Juncker is eager to hold Tsipras’ hand until the last minute in the hope that he will impose an unpalatable economic reform deal on left-wingers in his Syriza party before it is too late.

    For Juncker, one of the fathers of Europe’s single currency, the departure of a single member from the 19-nation euro zone would be a grievous blow to the bloc’s global standing and could set a dangerous precedent, encouraging investors to speculate against other member states in future crises.

    Even if it stayed in the euro zone, a Greek default on other European governments or the ECB would be one of the most acrimonious moments in the history of the European Union.

    Amid mutual recrimination over ruined Greek savers and cheated European taxpayers, some fear demonstrations by Greek pensioners or hospital patients and violence in Athens.

    If it happens, there will be plenty of blame to go around, but no one to take responsibility.

    Greece and being murdered and no one cares! Scary! Like ‘Sixth Sense Munchausen Mom’ scary.

    But it’s ironically the Munchausen-like nature of the situation that make a ‘Grexit’ so risky for the stability of eurozone. Because the risk of a ‘Grexit’ is normally seen as the short term risk of financial contagion manifesting in the European debt markets that somehow takes down the eurozone in some sort of ‘bond-vigilante’-style bond market collapse/bank run. But that isn’t really an issue at this point.

    No, what makes a ‘Grexit’ so terrifying for the architects of the EU, and especially eurozone, is that, as time goes on, more and more attention is going to be paid towards rehashing and relearning the history of the eurozone crisis and the shock of a ‘Grexit’ is going to significantly accelerate that pace of that rehashing which, in turn, accelerates the rate at which Europeans realize that the emerging European Union and eurozone are increasingly undemocratic with a growing number of right-wing policy frameworks getting enshrined as constitutional law. Grover Norquist’s goal of drowning government in the bathtub is happen. In Europe. One poor country at a time.

    And as the article above indicates, policy makers across Europe are trying to keep their fingerprints off the Greek murder weapon, but it’s unclear how that’s going to be feasible as time goes on since that murder weapon was obviously the jar of poison they keep publicly force feeding Greece. There’s no hiding that. It’s only not been discovered because no one has bothered looking. And the jar includes things like intentionally inducing deep depressions in not just Greece but countries all over the eurozone ‘periphery’ out of a belief that deep societal reform can be best achieved by intentionally breaking the economy while simultaneously arguing that your policies had nothing to do with it but are totally necessary and cannot be altered. It’s like Munchausens by proxy with a pro-Munchausen ideology to justify it. That’s official policy across Europe now and.

    For instance, think of all the times over the past five years that we’ve heard from folks like Jens Weidmann about how easing up on the austerity shouldn’t happen because that would reduce the incentives to make the ‘structural reforms’ that would make a bad situation even worse. That’s still his view in general and even with Greece on the brink of default we’re hearing this, “As you know I have concerns about granting emergency liquidity on account of the fact that the banks are not doing everything to improve their liquidity situation”:

    Bundesbank chief concerned about emergency funding for Greek banks
    Sat Apr 25, 2015 6:52am EDT

    (Reuters) – The head of Germany’s Bundesbank said on Saturday he had misgivings about granting emergency funding to Greece as the liquidity situation at the country’s banks has not improved.

    Jens Weidmann was speaking at a press event with German Finance Minister Wolfgang Schaeuble after a meeting of euro zone finance ministers in Riga.

    “As you know I have concerns about granting emergency liquidity on account of the fact that the banks are not doing everything to improve their liquidity situation,” Weidmann said.

    Yes, why aren’t the Greek banks doing more to improve their liquidity situation while the troika strangles the economy and threatens to push the nation off a cliff. Because that’s that kind of “situation” that’s just great for bank liquidity.

    This is the kind of madness Europe’s policy-makers have been publicly spouting for years and the only reason they haven’t been identified as mad yet is that public isn’t really paying attention and a huge segment of the press and punditocracy suffer from the same delusions. But, over time, the story of the Greek eurotragedy is going to told and retold and eventually the ghost of eurogreece is going to come back to haunt the emerging European ‘creditor’s paradise.

    And that’s why keeping their hands off the jar of poisonous policies that’s murdering Greece is going to be so important and yet so difficult. Really, at this point, the biggest thing protecting all of the policy makers from having their Munchausen’s policy malpractice discovered is the sheer volume of fingerprints on that jar of poison since nearly every eurozone country’s government has been complicit in endorsing the austerity. Plus the mass confusion endemic to the public for almost all issues of thed day.

    But mass confusion and an abundance of murder suspects may not be much help when the ghost of eurogreece finally returns to haunt a eurozone public that increasingly finds itself living in a Clausewitzian nightmare. At some point it’s going to become very clear that something very wrong happened and Greece died as a result. The real question is whether or not the European public discovers the truth about who killed Greece before or after they’re all ghosts too.

    There’s going to be quite a few cold of winds blowing through Europe for years to come as a result of the eurozone disaster. At least metaphorically speaking. Europe is due for some especially cold winds in real life too, but that’s due to other angry ghosts.

    Posted by Pterrafractyl | April 27, 2015, 12:12 am
  17. Pterrafractyl: Well, not quite everybody. The Globe and Mail’s business editor,for instance, takes issue with these policies in his ‘Blame Germany for Greece’s Uphill Struggle’ article of April the 25th, in particular, Germany’s aversion to inflation and obsession with retaining strong export markets.

    Posted by Brad | April 27, 2015, 2:17 am
  18. @Brad: Great catch! And the point made near the article is really quite poignant in this era of mega-trade agreements:
    One of the biggest reasons we may see the troika bend over backwards to keep Greece in the eurozone no matter what is that if Greece leaves it will finally be able to impose tariffs against German imports. And given that the German economic “miracle” is based on a predator export model, anything that might encourage Greece or any of its European neighbors to leave the eurozone and impose tariffs on imports must be avoided at all costs:

    The Globe and Mail
    Blame Germany for Greece’s uphill euro zone struggle

    ERIC REGULY – EUROPEAN BUREAU CHIEF

    ROME — The Globe and Mail

    Published Friday, Apr. 24 2015, 5:56 PM EDT

    Last updated Friday, Apr. 24 2015, 6:27 PM EDT

    Greece is running out of cash and is raiding municipal funds to pay its bills, enraging mayors throughout the country. Given Greece’s increasingly dire financial state, you would presume that the game has finally ended. It seems inevitable that Greece will default, crash out of the euro zone, reprint the drachma and, after a suitable period of economic mayhem, pull its act together, as Argentina did after it defaulted more than a decade ago.

    Forget it. Greece will get a deal of some sort that will keep it within the euro zone, preserving the notion that the euro is “irreversible,” to use the description beloved by European Central Bank president Mario Draghi. But would that be good news for Greece? On the contrary, it might well doom it to an eternity of misery and hard work that goes nowhere, like Sisyphus, rolling his boulder to the top of the hill, only to have it roll down again.

    Blame Germany, Europe’s self-perpetuating economic miracle. Germany is a juggernaut of endless current-account and trade surpluses, which are making it impossible for the euro zone to achieve any balance and symmetry. Those gorgeous (to the Germans) surpluses are making the euro zone’s weaklings – Greece, Spain, Portugal, Italy, even France – do most of the structural and fiscal adjustments. They grind away, getting nowhere, while Germany goes from strength to strength.

    There is no doubt that Germany’s love affair with the euro is deep and passionate. Since the common currency was launched as an accounting currency in 1999 (the notes and coins came three years later), German exports, the trade surplus and the current account surplus – the positive difference between a country’s savings and investment – have soared. In 2014, the current account surplus stood at a record 7.4 per cent of gross domestic product, up from 6.7 per cent in 2013, which itself was extremely high.

    There’s more. Germany derived 46 per cent of GDP in 2013 from exports. That makes it the global export champion among the industrialized countries. The equivalent figure in China is 26 per cent. In the United States, it’s a mere 13 per cent. As the euro sinks, German exports will grow. A euro valued at $1.60 (U.S.) or more might reflect the true strength of the German economy. Luckily for Germany, the euro now trades a $1.07. If that weren’t gift enough, German sovereign bonds have been the prime beneficiaries of the flight to safety. This week, the yield on German 10-year bonds was 0.1 per cent, down 1.4 percentage points in a year. That’s money for nothing. At the rate the bonds are trending, it won’t be long before the yields turn negative, meaning investors will be paying the German treasury for the privilege of owning its paper.

    For the health of the euro zone, Germany would, ideally, save less, invest more, raise wages and let inflation take off. That would stoke up domestic demand and suck in imports from the rest of Europe, poor little Greece included. But that’s not the German style, never has been, never will be. Germans are allergic to inflation. The country spends relatively little on infrastructure. It is only now, begrudgingly, raising wages after a long period of austerity after the reunification of East and West Germany, in which time wage growth went nowhere.

    The entire German machine seems geared to surpluses. In a Stratfor note published on April 21, George Friedman, who has written a book on the European crisis called Flashpoints, said: “Comparative advantage assumes [Germany] will want to export those things that it produces most efficiently. It is instead exporting any product that it can export competitively regardless of the relative internal advantage … whatever problem [Greece] has in maximizing its own exports, doing so in an environment where Germany is pursuing all export possibilities that have any advantage decreases Greece’s opportunity to export, thereby creating long-term dysfunction in Greece.

    The negotiations will go to the wire, as they always do, and some “extend and pretend” compromise will be found that will allow Greece to stumble along inside the euro zone, this time with even more debt and austerity. Germany will not allow Greece to leave, even though Germany in no way believes that little, uncompetitive, tax-evading Greece deserves euro zone membership. As Mr. Friedman pointed out, Germany fears a Greek exit because Greece, on its own, would no doubt install tariffs and other barriers designed to shield its economy from ruthless exporters. Germany needs to protect its surplus model, which depends on European free trade. Never mind that guaranteeing the German success model means turning Greece into Sisyphus.

    “As Mr. Friedman pointed out, Germany fears a Greek exit because Greece, on its own, would no doubt install tariffs and other barriers designed to shield its economy from ruthless exporters. Germany needs to protect its surplus model, which depends on European free trade. Never mind that guaranteeing the German success model means turning Greece into Sisyphus.” Yep!

    As the article reminds us, it’s basically impossible for the rest of Europe to follow the German model:


    There’s more. Germany derived 46 per cent of GDP in 2013 from exports. That makes it the global export champion among the industrialized countries. The equivalent figure in China is 26 per cent. In the United States, it’s a mere 13 per cent. As the euro sinks, German exports will grow. A euro valued at $1.60 (U.S.) or more might reflect the true strength of the German economy. Luckily for Germany, the euro now trades a $1.07. If that weren’t gift enough, German sovereign bonds have been the prime beneficiaries of the flight to safety. This week, the yield on German 10-year bonds was 0.1 per cent, down 1.4 percentage points in a year. That’s money for nothing. At the rate the bonds are trending, it won’t be long before the yields turn negative, meaning investors will be paying the German treasury for the privilege of owning its paper.

    Is the rest of Europe going to become a global export powerhouse that gets 46 percent of its GDP from exports? Is the rest of the world supposed to run an even greater trade deficit at that point? Permanently? With no tarrifs? Of course not, but it’s entirely possible that if Europe’s domestic demand continues to systematically destroyed by austerity policies and then permanently suppressed thereafter, Europe’s imports could be so low in its poorer member states that we could see a European economy with a signifcant net trade surplus in the future that still threatens to throw the whole world economy out of balance even if the rest of Europe doesn’t end up become mega-exporters like Germany.

    And here’s one more indication that the troika might be considering keeping Greece in the eurozone no matter what: Bundesbank chief Jens Weidmann just reiterated the view that a default doesn’t mean a ‘Grexit’:

    Bundesbank head says euro state insolvency possible without system collapse
    FRANKFURT,
    Tue Apr 28, 2015 1:30pm EDT

    (Reuters) – The head of Germany’s Bundesbank criticised Greece’s government on Tuesday for failing to implement reforms and said it was possible for a country within the currency union to become insolvent.

    “Member states must take responsibility for the consequences of their political decisions,” Jens Weidmann, also a member of the European Central Bank’s Governing Council, told an audience in Essen. “There must be a match between control and liability.”

    “Ultimately, this requires the possibility of a state insolvency, without the financial system collapsing,” he said in the text of his speech.

    Weidmann’s comments in Germany’s industrial heartland highlight misgivings among the country’s policymakers about Greece’s deteriorating finances and the unorthodox policies adopted by its leftist government.

    “It is decisive that a functioning administration is established in Greece to move the economy and the state’s finances onto a sustainable course and, most importantly, that trust is built in a reliable course of reform,” Weidmann said.

    The government of Alexis Tsipras “has again thwarted early hopes that this will happen,” Weidmann said.

    Keep in mind that when you read Jens Weidmann proclaiming that state insolvency should be possible without the financial system collapsing, this is the same guy that seems to be trying to collapse the Greek banking system. So it’s pretty clear that whatever Weidmann has in mind for Greece, it doesn’t involve Greece’s situation getting much better. Or maybe it’ll get better for a little while, then worse, then better, then worse, and eventually everyone realizes no progress is ever made and they’re all stuck in some sort of hell. But it’s Weidmann we’re talking about so it’s really just downhill for Greece from here. If Greece defaults but doesn’t exit, you know there’s going to be additional austerity and the take away lesson from the whole Greek tragedy is going to be very clear and very unpleasant.

    Also keep in mind that a Greek default that doesn’t result in a ‘Grexit’ really could give Germany a massive opportunity to call for a limit to the cross-border liabilities between member states so that if a default happens in the future, a much larger share of that liability falls on the populace in the defaulting member state instead of getting spread around the union.

    So there are growing signs that a ‘Grexit’ just might be avoided. Still, it’s not a done deal because, as as Weidmann suggested, :

    “Member states must take responsibility for the consequences of their political decisions…There must be a match between control and liability.”

    and with the negotiations will going between Greece and the troika, extracting a “political price” (in the form of policies that harm the Greek public) is now one of the explicit troika objectives

    Greece prepares reform bill, lenders seek concessions
    ATHENS/BRUSSELS | By Renee Maltezou and Jan Strupczewski
    Wed Apr 29, 2015 6:39pm EDT

    (Reuters) – Euro zone officials sought to wring policy concessions from Greece on Wednesday to unlock urgently needed aid after Athens said it would present a list of reforms for legislation to show it is serious about implementing its promises.

    The draft bill was not expected to include major novelties beyond measures already discussed with EU and IMF lenders, but Athens is hoping it will speed up slow-moving talks and permit at least an initial deal to ease its searing cash crunch.

    The reforms, including some privatizations and tax steps, were to be outlined to senior euro zone finance ministry officials in Brussels on Wednesday. They will be assessed in more detail when technical-level teams from Greece and the lenders meet on Thursday, Greek government officials said.

    Despite lenders’ scepticism, Greece’s government is hoping an interim deal can be struck before a May 12 payment of 750 million euros to the IMF that Greek officials have suggested could be difficult to make without more aid.

    However, a senior euro zone official involved in the talks said that to secure any deal, Greece would have to make a substantial concession on at least one of three disputed issues – pensions, labor market reform and taxation.

    “We need to see a very significant policy move on the Greek side this week to recreate confidence the process,” the official said, speaking on condition of anonymity.

    “It could be pensions, it could be the labor market but … they have to pay the political cost. The Eurogroup wants to see that political cost being paid.”

    The lenders have said a partial disbursement of frozen aid is not possible until Greece has presented and implemented a full list of reforms. Athens is hoping an initial deal will prompt the European Central Bank to loosen restrictions that prevent Greek banks from buying more Treasury bills.

    “We are now aiming at a ‘minimum’, let’s say, agreement in which we combine some things that we will agree to implement immediately with the relaxation of the ECB restrictions,” Deputy Prime Minister Yannis Dragasakis told Sto Kokkino radio.

    “We need to see a very significant policy move on the Greek side this week to recreate confidence the process…It could be pensions, it could be the labor market but … they have to pay the political cost. The Eurogroup wants to see that political cost being paid.”
    So that’s where we are now: as the the first article pointed out, there are some very compelling reasons for the the eurozone’s paymaster, Germany, to keep Greece in the union at all costs, even in the event of a default. But at the same time, the Eurogroup appears to view as non-negotiable the that Greece must pay a political price to ‘recreate confidence in the process’. And that confidence-building political price is apparently to come in the form of some sort of horrible austerity policies that will leave the Greek public feeling betrayed by its own government. And it will involve either pension cuts (starving people), “labor market reform” (firing people), or tax reform (potentially quite reasonable).

    So what’s the “price” going to be for Greece to stay in the Sisyphus-zone? Well, given that Alexis Tripras has already pledged to “implement the greatest institutional reform ever in the country, aiming to declare war against corruption and tax inequality” it would seem that making some sort of concession to the troika over taxes is an obvious choice. But considering that Angela Merkel was reportedly “skeptical about Tsipras’s claims that he can raise revenue by cutting corruption and increasing taxes on the rich”, it doesn’t seem like the obvious choice – a crackdown on corruption and tax cheats – is actually a choice at all.

    So other than a ‘Grexit’, what options are left in the event of a default?

    Oh yeah. None. And when the Greek government and public fully embraces that there are no other options the political price the troika desires will have finally been paid. At least that’s the posturing of the troika. It’s still very possible that the troika will be ready to fold in an instant if it really does look like a ‘Grexit’ is inevitable. As the first article points out, the ‘Grexit’ as a precedent-setting event that brings tariffs back in vogue really could hold the potential of severely disrupting the German economic ‘miracle’.

    So, somewhat amusingly, if Greece is going to avoid a Sisyphean fate but still stay in the eurozone, its going to be Greece’s willingness to choose a Greek Odyssey outside of the eurozone over a Sisyphean fate within it that exposes the troika’s Achilles’ heel. Because of Greece leaves, others are bound to follow, or at least thing about it. Especially if the overall eurozone situation keeps seeming less like a family of democracies and more like a collection of technocratically managed vassal states. It could happen over and over, and that’s something Greece and the troika are going to have to keep in mind as negotiations continue. Seemingly Sisyphean fates aren’t limited to Greece.

    Posted by Pterrafractyl | April 29, 2015, 8:01 pm
  19. Here’s the latest twist in the Greek Tragedy: the IMF now appears to be assuming the role of “good cop” and “bad cop”: the IMF is demanding that Greece stick to a strict austerity program, as expected, but because Greece’s primary surplus is now turning into a deficit which makes repayment of Greece’s debts untenable, the IMF is also demanding that Greece’s European creditors write down its debt, something the Europegroup has been adamantly opposed to thus far. And since the IMF is a major component of the troika, it’s looking like we could see that scenario where Greece is forced into basically agreeing to the same horribly damaging austerity but it could also get some of its debt written down. Of course, since the ongoing austerity is going to continue eroding Greece’s GDP and lead to another ‘lost generation’, the write-down of that debt with austerity-strings attached may not lead to lower debt-to-GDP ratios (was has already been the cause for not just Greece but the other austerity-riddled countries). Still, with a write-down and unrelenting austerity both part of the IMF’s demands, it looks like it’s now up to the Eurogroup and Greece to decide if they can accept the terms of the IMF’s bad cop compromise:

    Financial Times
    IMF takes hard line on aid as Greek surplus turns to deficit

    Peter Spiegel in Brussels
    Last updated: May 4, 2015 6:46 pm

    Greece is so far off course on its €172bn bailout programme that it faces losing vital International Monetary Fund support unless European lenders write off significant amounts of its sovereign debt, the fund has warned Athens’ eurozone creditors.

    The warning, delivered to eurozone finance ministers by Poul Thomsen, head of the IMF’s European department, raises the prospect that it may hold back its portion of a €7.2bn tranche of bailout aid that Greece is desperately attempting to secure to avoid bankruptcy.

    Half of the €7.2bn, which is the subject of intense negotiations between Athens and its creditors in Brussels-based talks that resumed on Monday, is due to come from the IMF. Without the funds, Greece is expected to run out of cash this month.

    Eurozone creditors, who hold the vast bulk of Greek debt, are adamantly opposed to debt relief. But IMF support is crucial both for its funds and to sustain political backing for the Greece bailout, particularly in Germany.

    According to two officials present at a contentious meeting of eurozone finance ministers in Riga last month, Mr Thomsen said initial data the IMF had received from Greek authorities showed Athens was on track to run a primary budget deficit of as much as 1.5 per cent of gross domestic product this year.

    Under existing bailout targets, Athens was supposed to run a primary surplus — government receipts net of spending, excluding interest payments on sovereign debt — of 3 per cent of GDP in 2015.

    With the large surplus now turning into a sizeable deficit, Greece’s debt levels would begin to spike again. This would force either Athens to take drastic austerity measures or eurozone bailout lenders to agree to debt write-offs to get Athens’ debt back on a sustainable path, the IMF believes. Officials said Mr Thomsen specifically mentioned the need for debt relief during the three-hour meeting.

    “The IMF thinks the gap between the two realities is very large right now,” said one senior official involved in the talks. He noted that both Athens, which was resisting new economic reforms, and eurozone creditors would probably fight the IMF on the issue.

    A stand-off between the IMF and eurozone creditors over Greece is not unprecedented. Three years ago, the IMF refused to disburse its portion of the aid tranche because of similar fears Greek debt was not falling fast enough.

    The IMF only signed off after eurozone ministers agreed to consider, but never implemented, writing down their bailout loans to reduce Greece’s debt to “substantially lower” than 110 per cent of GDP by 2022. It currently stands at 176 per cent.

    The forecast of a rising Greek deficit after achieving a 1.7 per cent surplus last year — and overly optimistic projections of similar surpluses into the future — would also increase the size of a third Greek bailout, which most officials believe is necessary once the €7.2bn left in the current programme is paid out. Senior officials have initially projected a new programme at €30bn-€50bn, but rising deficits could change that calculation.

    Deep differences between Greece and its creditors remain on nearly all substantive issues, but officials said the current talks were now more productive than they had been before during the three-month stand-off.

    Oh what a tangle troika we weave:

    Eurozone creditors, who hold the vast bulk of Greek debt, are adamantly opposed to debt relief. But IMF support is crucial both for its funds and to sustain political backing for the Greece bailout, particularly in Germany.

    Under existing bailout targets, Athens was supposed to run a primary surplus — government receipts net of spending, excluding interest payments on sovereign debt — of 3 per cent of GDP in 2015.

    With the large surplus now turning into a sizeable deficit, Greece’s debt levels would begin to spike again. This would force either Athens to take drastic austerity measures or eurozone bailout lenders to agree to debt write-offs to get Athens’ debt back on a sustainable path, the IMF believes. Officials said Mr Thomsen specifically mentioned the need for debt relief during the three-hour meeting.

    “The IMF thinks the gap between the two realities is very large right now,” said one senior official involved in the talks. He noted that both Athens, which was resisting new economic reforms, and eurozone creditors would probably fight the IMF on the issue.

    So, at least on the surface, it’s looking like the IMF is spoiling for a fight with both Greece and the Eurogroup. But also keep in mind the possibility that when you read:

    But IMF support is crucial both for its funds and to sustain political backing for the Greece bailout, particularly in Germany.

    that the IMF’s demands might actually be providing critical support for a policy of writing down Greece’s debt that even the Eurogroup ministers must know are going to be required if they’re going to keep Greece strapped into its austerity vice. In other words, the eurozone demands that Greece just stick with “the program” is so delusional that the eurozone governments obviously recognize this but they can never admit it to the clueless rabble that’s been told austerity is the path to prosperity. So, by making the write-down of Greece’s debt a politically palatable event for Europe’s politicians while maintaining the big lie that Ordoliberal economics/export-maximizing policies coupled with and austerity can work for all nations (and not just wealthy exporters).

    So it’s very possible that the IMF is basically swooping in to save the eurozone from the pain of having to face its own delusions because you can be sure the public protestations against such a write-down are going to be intense, with plenty of arguments about how it’s totally unnecessary and how Greece just needs to be incentivized through austerity to pull itself up from the bootstraps. And don’t forget that if we see another Greek “bailout” (which is really just a bailout of European banks), that just might be the kind of event that can trigger another frantic overhaul of how the eurozone functions, with some sort of further restrictions on shared liabilities. Plus, the IMF’s demands create a kind of “compromise” that still involves no let up of the austerity that is schedule to increase dramatically in coming years.

    Given all that, it will be very interesting to see how much actual resistance we see emerging from the Eurogroup over the IMF’s write-down demands vs a bunch of angry bluster because the IMF is absolutely right that a sputtering Greek economy is going to warrant a debt write-down since the current payoff schedule assumes Greece runs a 3% primary surplus this year and an even higher surplus going forward. Sure, the IMF is wrong to demand additional austerity at all, but within the austerian-worldview bubble that assumes poverty inspires prosperity, the IMF is correct about the sustainability of Greece’s debt repayment schedule and there’s no way the eurozone finance ministers don’t know this.

    So there’s going to be strong force pushing the Eurogroup to accept the IMF’s demands, that force being reality. And by accepting the IMF’s demands, Europe’s governments can continue playing dumb (blind, deaf and dumb) and claim that they really would prefer the sound economic policies of driving Greece into a ditch without any help at all – and would prefer to follow that course in the future – but they don’t have that option now so they’re just have to bitterly accept the IMF’s “bailout” demands. This time.

    Of course, it’s also possible that the Eurogroup with make a counter-offer and agree to consider a debt write-off…and then just do what they did last time which is nothing:


    A stand-off between the IMF and eurozone creditors over Greece is not unprecedented. Three years ago, the IMF refused to disburse its portion of the aid tranche because of similar fears Greek debt was not falling fast enough.

    The IMF only signed off after eurozone ministers agreed to consider, but never implemented, writing down their bailout loans to reduce Greece’s debt to “substantially lower” than 110 per cent of GDP by 2022. It currently stands at 176 per cent.

    So that’s also an option for the Eurogroup. Just promise to think about it and then don’t. But it’s a rather risky option since, again, the IMF really is correct that the Eurogroup’s expectations that Greece stick to the schedule is totally usury-level insane because the only way for Greece to run the expected primary surpluses going forward is for an even greater rise in the levels of austerity than are currently scheduled which will shrink the GDP even. If the Greeks were inching close to the brink before, what kind of a mood are they going to be in when, after all this strife and acrimony, the austerity levels rise and the economy shrinks even more? The biggest risk the austerians in Europe have is seeing their New Vassal State Order see its “tough love” branding in the minds of the European public veer into “abusive parent” territory. But, as the IMF is warned the Eurogroup, there’s no way to stick to the planned repayment scheduled without changing the rest of the plan to either include a debt write-off or increased austerity.

    That’s all part of why it’s going to be quite interesting to see how the Eurogroup responds because Europe really is faced with a stark choice: public hugs for Greece while the scheduled beatings continue or no hugs and even more severe public beatings than the ones currently scheduled. Since the austerian paradigm that Greece is being forced to follow is a farce that doesn’t actually improve economies, the economics of the situation if going to demand hugs or even more brutal beatings. Europe’s New Vassal State Order is clearly intended to following a “the beatings will continue until everyone pulls themselves up from their bootstraps” socioeconomic model, but if it doesn’t choose the “hugs”, that socioeconomic model actually shifts towards a “the beatings will increase in intensity until everyone pulls themselves up from the bootstraps” model and something is going to have to be done to ensure that the increasingly intense public beatings don’t become Europe’s metaphorical equivalent of a police brutally video that shocks the public out of their right-wing spell. That might seem far fetched at this point given the appalling lack of public support of Greece, but witnessing brutality has a way of jostling worldviews in unpredictable ways and a worsening situation in Greece is increasingly brutal.

    So there’s a rather tough choice for the Eurogroup now that the IMF made its case. For Greece the situation hasn’t really changed all that much since both the IMF and the Eurogroup are demand no letting up on the austerity and that’s what constitute a “Red Line” for Greece’s negotiators. But that IMF ultimatum does potentially change the situation quite a bit for the Eurogroup.

    Of course, this all assumes the IMF will stick to its guns as the negotiations continue and not suddenly get amnesia and drop the whole idea and go along with whatever the Eurogroup demands. It’s a big assumption.

    Posted by Pterrafractyl | May 5, 2015, 1:27 pm
  20. In another interesting twist in the Greek Tragedy: On the eve of the UK’s election, European Commission President Jean-Claude Juncker warned the EU that if Greece leaves the eurozone “the Anglo-Saxon world would do everything to try to decompose, at a regular rhythm, by (the) sale, apartment by apartment, of the eurozone”. And he appears to have been completely serious:

    Euractive
    Juncker: If Greece leaves, Anglo-Saxons will try to break up eurozone
    Published: 05/05/2015 – 08:32 | Updated: 05/05/2015 – 14:46

    Commission President Jean Claude Juncker said that if Greece left the single currency area, the “Anglo-Saxon world” would try everything to break it up.

    Speaking at the KUL, the Catholic University of Leuven on Monday (4 May) on the occasion of the launch of the Wilfred Martens Fund, Juncker made it clear that a ‘Grexit’ was not an option, because it would be an existential threat to the 19-member economic and monetary union.

    Juncker, who chose French to deliver his 40-minute speech at the Flemish university, said:

    “The world wants to know which way we are going. We should make sure that everyone understands that the economic and monetary union is irreversible, that the euro is a currency that is here to stay, which is not going to be abolished or suspended. “

    Juncker added that he had discussed the issue the same day with former Greek Prime Minister Antonis Samaras, who was also present at the event.

    “Grexit is not an option. If Greece would accept it, if the others would accept it, that the country would exit the zone of security and prosperity constituted by the eurozone, we would be exposed to huge danger, because the Anglo-Saxon world would do everything to try to decompose, at a regular rhythm, by (the) sale, apartment by apartment, of the eurozone,” he said.

    So that was curiously alarming! But note that Juncker’s office clarified his remarks later. What he meant to say was actually more bafflingly stunning than what it initially sounded like:

    The Telegraph
    ‘Anglo-Saxons’ would rip Europe apart after a Grexit, says Juncker
    Commission president says Grexit exposes the euro to huge danger as capitalist forces would try to dismantle the EU “piece by piece”

    By Mehreen Khan

    8:00PM BST 05 May 2015

    The president of the European Commission has risked angering Britain after comments warning that the “Anglo-Saxon world” would seek to dismantle the European project if Greece was ever allowed to leave the single currency.

    Speaking to an audience at the Catholic University of Leuven in Belgium, Jean-Claude Juncker said a “Grexit” would leave the euro prey to forces who “would do everything to try to decompose” what remained of the monetary union.

    “Grexit is not an option,” said Mr Juncker.

    “If we were to accept, if Greece were to accept, if others were to accept that Greece could leave the area of solidarity and prosperity that is the eurozone, we would put ourselves at risk because some, notably in the Anglo Saxon world, would try everything to deconstruct the euro area piece by piece, little by little.”

    A spokeswoman for Mr Juncker said the reference to the Anglo-Saxon world could be “understood in the sense of the markets and speculators,” rather than a reference to Britain specifically.

    Greece has been struggling to meet conditions laid out by its paymasters in order to unlock vital funds it needs to stave-off bankruptcy. But with the country edging ever closer to a default on its creditors, fears have mounted that that it will soon become the first state to be forced out of the euro.

    Analysts have warned that a Greek ejection would effectively turn the eurozone into a de facto exchange rate system, rather than the full-blown monetary union first envisaged by its founders.

    Mr Juncker’s comments reflect anxiety that financial markets could then turn on other weaker member states, pushing up borrowing costs, provoking political crises, and forcing countries to return to their national currencies.

    So right before the UK elections, after a barrage of assurances that the eurozone can totally handle a ‘Grexit’, and right in the middle of the troika’s increasingly perilous negotiations with Greece Jean Claude Juncker gives an interview where he tells the public that a ‘Grexit’ could lead to the ‘Anglo Saxon’ world tearing the eurozone apart. And then later and his office clarifies that he didn’t specifically mean the UK but instead “the markets and speculators” would tear the eurozone apart. So he miscommunicated something he never should have communicated in the first place and then had his office clarify it. And after basically telling Greece that a ‘Grexit’ would be devastating for the rest of Europe he warns Greece that it has a lot further to go in compromising with the troika.

    Jean-Claude must have had an awesome breakfast.

    Posted by Pterrafractyl | May 5, 2015, 10:49 pm
  21. As the saying goes, when all you have is a hammer everything looks like a nail. But the real sign of madness is when you just keep hammering the same old nail. Over and over. And the nail is actually a bunch of innocent people:

    Bloomberg Business
    Greece’s Creditors Said to Seek 3 Billion-Euro Budget Cuts

    3:30 AM CDT
    May 13, 2015

    Greece’s anti-austerity government needs to raise at least three billion euros ($3.4 billion) through additional fiscal measures by the end of this year to meet the minimum budget targets acceptable by creditors, an official with knowledge of the discussions said.

    The reductions would bring the primary budget surplus in 2015 to just over 1 percent of gross domestic product, a target Greek Interior Minister Nikos Voutsis said today is acceptable. Without any change in fiscal policy, Greece would end 2015 with a budget deficit of about 0.5 percent of GDP, the official said. The so-called primary budget balance doesn’t include interest payments.

    Greece, whose debt-to-GDP ratio is the highest in Europe, is locked in talks with euro region governments and the International Monetary Fund over the terms attached to its 240 billion-euro bailout. Uncertainty over whether it will do enough to receive more money has triggered a liquidity squeeze, prompting the European Commission to revise down deficit and debt forecasts last week.

    The commission now predicts the country’s debt will be 174 percent of GDP next year, 15 percentage points above the level projected in February. And that assumes Prime Minister Alexis Tsipras reaches a deal to get previously agreed aid flowing by June. The commission predicts that as defined in the bailout program there will be almost no surplus.

    Budget cuts aren’t the only thorny issue in the negotiations over the disbursement of the next emergency loans tranche for the cash-strapped economy. Disagreements remain over the retirement age, pension cuts, privatizations and the government’s intention to reinstate collective bargaining restrictions in the labor market, the official said.

    So Greece’s surplus falls into a deficit and the troika’s response? Just keep cutting until it’s a surplus again!


    The reductions would bring the primary budget surplus in 2015 to just over 1 percent of gross domestic product, a target Greek Interior Minister Nikos Voutsis said today is acceptable. Without any change in fiscal policy, Greece would end 2015 with a budget deficit of about 0.5 percent of GDP, the official said. The so-called primary budget balance doesn’t include interest payments.

    Yes, Greece is projected to run a deficit of 0.5 percent of GDP this year instead of the scheduled 1.5 percent and so what’s the troika’s response? Just keep cutting your way to prosperity! And for Greece’s creditor that appears to mean cutting another 1.5 percent of the GDP to get it back up to a 1 percent surplus.

    But keep in mind that it’s actually going to be much worse than a 1.5 percent hit to Greece’s GDP because, as Paul Krugman reminded us back in January, when you’re talking about the relationship between changes in government spending and the impact on deficits you can’t ignore the fact that money multipliers matter:

    The New York Times
    The Conscience of a Liberal
    Greece: Think Flows, Not Stocks

    Paul Krugman
    January 26, 2015 7:26 pm

    How should we think about the bargaining that may or may not now take place between the new Greek government and the troika? (No bargaining if the troika basically says no concessions.) Most discussion is framed in terms of what happens to the debt. But as both Daniel Davies and James Galbraith point out — with very different de facto value judgments, but never mind for now — at this point Greek debt, measured as a stock, is not a very meaningful number. After all, the great bulk of the debt is now officially held, the interest rate bears little relationship to market prices, and the interest payments come in part out of funds lent by the creditors. In a sense the debt is an accounting fiction; it’s whatever the governments trying to dictate terms to Greece decide to say it is.

    OK, I know it’s not quite that simple — debt as a number has political and psychological importance. But I think it helps clear things up to put all of that aside for a bit and focus on the aspect of the situation that isn’t a matter of definitions: Greece’s primary surplus, the difference between what it takes in via taxes and what it spends on things other than interest. This surplus — which is a flow, not a stock — represents the amount Greece is actually paying, in the form of real resources, to its creditors, as opposed to borrowing funds to pay interest.

    Greece has been running a primary surplus since 2013, and according to its agreements with the troika it’s supposed to run a surplus of 4.5 percent of GDP for many years to come. What would it mean to relax that target?

    It would not mean demanding that creditors throw good money after bad; everyone has already implicitly acknowledged that the debt will never be fully paid at market rates, but Greece is making a transfer to its creditors by running a primary surplus, and we’re just arguing now about how big that transfer will be.

    So let’s think of a maximalist case, in which Greece stopped running a primary surplus at all (this is not a proposal). You might think that this would let the Greeks spend an additional 4.5 percent of GDP — but the benefits to Greece would actually be much bigger than that. Remember, the main reason austerity has been so harsh is that cutting spending leads to economic contraction, which leads to lower revenues, which forces further cuts to hit the budget target. A relaxation of austerity would run this process in reverse; the extra spending would mean a stronger economy, which means more revenue, which means that the primary surplus wouldn’t fall as much.

    Suppose that the multiplier is 1.3 — which is what IMF estimates seem to suggest — and that Greece can collect 40 percent of a rise in GDP in revenue (roughly matching its average revenue/GDP). Then an additional billion euros in spending should generate around 0.5 billion euros in revenue, reducing the primary surplus by only 0.5 billion euros.

    And if you follow that through, you find that dropping the requirement that Greece run a primary surplus of 4.5 percent of GDP would allow spending to rise by 9 percent of GDP — twice as much — and that this would raise GDP by 12 percent relative to what it would have been otherwise. Unemployment would fall by around 10 percentage points relative to no relief.

    OK, this is not going to happen — even in the best of circumstances, Syriza is going to be able to get a relaxation of the primary surplus requirement, not complete abrogation. But even a partial move in the direction I’ve described could have quite significant positive effects on Greek welfare.

    So, given all the socioeconomic awesomeness that could have occurred if Greece’s primary surpluses were allowed to be converted into government stimulus packages, just what is cutting 1.5 percent of GDP in government spending going to do to Greece’s economy or its debt-to-GDP ratio that has troika is so fixated on? We’ll find out! Again.

    Posted by Pterrafractyl | May 13, 2015, 2:37 pm
  22. The latest reports on the progress of the negotiations between Greece and the troika describe an interesting juxtaposition of mood between different parties. Greece’s government has been projecting an upbeat message. the troika? Eh…

    The Independent
    Greece bailout: IMF chief Christine Lagarde sees progress in talks with EU

    Ben Chu Author Biography

    Deputy Business editor

    Wednesday 20 May 2015

    The head of the International Monetary Fund, Christine Lagarde, has become the latest participant in the gruelling Greek economic stand-off to sound an optimistic note about the prospects of a resolution.

    Ms Lagarde said the IMF was making “some progress” in its negotiations with Athens. Her comments came after the Greek finance minister, Yanis Varoufakis, told Greek TV that a deal would be reached “in a week” and that leaving the single European currency was “not in our thoughts”.

    The reports helped send Greece’s two-year sovereign interest rates down 123 basis points to 22.26 per cent, and 10-year yields fell 24 basis points to 10.9 per cent.

    But Greece is fast running out of money and managed to make a €750m repayment to the IMF last week only by using money raided from its own account with the fund – which will shortly have to be replaced. Another €300m repayment from Athens to the IMF is due on 5 June, and Greece is running out of money to pay its own public sector workers. Unless its eurozone creditors agree to release a €7.2bn bailout tranche within the coming weeks, a default is likely.

    The Greek crisis will be under discussion at the EU summit in the Latvian capital Riga on Friday. The two sides have been deadlocked over the issue of domestic economic reform, with the Syriza-led government resisting cuts to pensions and further structural labour market reforms.

    However, the European Commission spokeswoman Margaritis Schinas sought to play down hopes of an imminent breakthrough in the talks. “More time and effort is needed to bridge the gaps on the remaining open issues,” she said. “We consider that progress is being made, albeit at a slow pace.”

    Jeroen Dijsselbloem, the head of the Eurogroup of eurozone finance ministers, which must sign off on aid disbursements, said it was unlikely a deal on Greece would be struck in Riga.

    “It’s not on the agenda for Friday” he told the Dutch broadcaster RTL. “I think it is unlikely.”

    Wasn’t that cheery.

    Well, in a way, it sort of was cheery, at least assuming the sceptically cautious rhetoric coming out of the troika was a reflection of disappointment in their hopes of just bowling over Greece and with little to no concessions. And that just might be the case if the following report on the revolt taking place in Angela Merkel’s CDU is accurate. Might:

    Bloomberg News
    Merkel Said to Plan Address for Greece If Deal Reached

    by Arne Delfs, Brian Parkin, and Birgit Jennen

    4:17 AM CDT
    May 19, 2015

    German Chancellor Angela Merkel is considering delivering a keynote address to make the case for aiding Greece as she faces down a potential revolt from as much as a third of her bloc’s lawmakers.

    Merkel would hold the speech after Greece and its creditors agree on a deal with conditions she deems strong enough to sell to parliament and the German public, according to two government officials. She would argue that a Greek exit from the euro area would risk causing geopolitical instability in the region, said the officials, who asked not to be identified because the discussions are private.

    Merkel’s desire to keep Greece in the euro is fraught with political risk given the level of exasperation in Germany with Prime Minister Alexis Tsipras after four months of brinkmanship. While some German policy makers have hardened their stance against helping Greece, others are hinting at more flexibility to avert a financial collapse.

    “Should we seriously go and prescribe in detail what the Greeks are allowed to spend and what revenue they can have?” Deputy Finance Minister Thomas Steffen said in an interview. “I say no. It’s the rough framework that has to be clear.

    Caucus leaders of Merkel’s party are working on the objectors, telling them they may be asked to approve further aid to ward off a default even if Greece refuses to implement all changes demanded by creditors, according to three other party officials. Merkel has been calling small groups of dissenters to the chancellery to tell them that, one of the people said. All the officials asked not to be identified because the discussions are private.

    Scaling Back

    Merkel’s bid to rally her party bloc behind further aid reflects her view that giving up on Greece would be a broader setback for European unity and influence. While she has backed bailouts since Europe’s debt crisis spread from Greece in 2010, this may be her biggest test of persuasion yet.

    As European officials warn that time is running out for Greece’s finances, Merkel and French President Francois Hollande met in Berlin on Tuesday and pressed Tsipras to agree by May 31 on the conditions to unlock financial aid. A deal with Greece may comprise as little as a third of the country’s previous commitments for economic policy changes, said another German government official who asked not to be identified.

    Greece’s government still hasn’t recognized what it needs to do to end the impasse, a party official quoted German Finance Minister Wolfgang Schaeuble as telling lawmakers from Merkel’s Christian Democrat-led bloc at their weekly closed caucus meeting in Berlin on Tuesday.

    Any substantial changes to the conditions for Greece’s 240 billion-euro ($271 billion) aid program need approval by the full German lower house, or Bundestag. As many as 100 of Merkel’s 311 lawmakers may still be holdouts, one of the officials said. Even so, Merkel has won Bundestag backing for all bailouts since Europe’s debt crisis spread from Greece in 2010, partly with the support of coalition partners and the opposition Greens. Her coalition controls 504 of the Bundestag’s 631 seats.

    So it looks like Merkel’s government is vaguely signaling the troika’s plans for either a temporary credit extension to Greece in the event that Greece’s cash crunch results in a default:


    Caucus leaders of Merkel’s party are working on the objectors, telling them they may be asked to approve further aid to ward off a default even if Greece refuses to implement all changes demanded by creditors, according to three other party officials. Merkel has been calling small groups of dissenters to the chancellery to tell them that, one of the people said. All the officials asked not to be identified because the discussions are private.

    or else Merkel’s team is suggested a more lasting deal, but one where Greece ends up implement “a third” of it’s “previous commitments for economic policy change”:


    A deal with Greece may comprise as little as a third of the country’s previous commitments for economic policy changes, said another German government official who asked not to be identified.

    It’s not really clear what’s being hinted at in this report but it would probably be the former if Merkel can at all help it. And that’s certainly possible…that there’s a near-term temporary cash lifeline while negotiations are ongoing. The three areas the troika has demands is “labor market reform”(making it easier to do mass layoffs), “pension reform”(gutting pensions), and “tax reform” (raising taxes). And Greece is willing to raise taxes, but not gut the pensions or give a green light to the troika’s requested mass layoffs.

    But also keep in mind that the austerity is scheduled to get much worse in coming years. And it’s getting worse so Greece can pay back its creditors even more. But Greece has to actually run an austerity-riddled economy that can generated those 4.5% surpluses (up from this year’s mandate 1.5% surplus) in order to actually pay them back (or cut more to make up the gap). And if the troika’s pay back schedule happens to be, oh, say, totally insane in an usurious manner, that means a future “bailout” for Greece inevitable. Usury does that.

    So even if the compromise that the troika reaches with Greece is largely a continuation of the current draconian measures, there’s still an incentive for the troika to use the current crisis to give Greece a third “bailout” simply because the troika knows its policies are so unworkable due to the breaking of Greece’s economy and society that another “bailout” is going to be required at some point anyways even if Greece totally sticks with the plan.

    The possibility that we’re looking a quasi-default coupled with a “bailout“, but no ‘Grexit’, seems increasingly likely over a ‘Grexit’. It’s unclear if it’s going to be a humane “bailout”, but it’s entirely possible that Greece’s willingness to walk, and the socioeconomic damage that would do to the eurozone, is exactly why:


    Yanis Varoufakis, told Greek TV that a deal would be reached “in a week” and that leaving the single European currency was “not in our thoughts”.

    Greece’s government runs out of cash soon and the troika knows it. The markets know it too, which is probably a big reason why the troika also cares (since it doesn’t normally seem to care about Greece’s welfare).

    The closely related Greek banking cash crunch that the troika created by strangling Greece’s credit supply in recent months must also be weighing on their minds unless bringing Greece’s financial system to the point where a “bailout” is necessitated was somehow desired.

    So, since ongoing usury has always seemed to sort of be the troikan plan, another bailout just might be what the troika ordered because that’s the only way the usury can continue.

    But it’s also worth keeping mind that it’s entirely possible that, despite the troika’s repeated assertions about how a ‘Grexit’ is “manageable”, Greece’s equally adamant assertions that it’s not going to compromise on the “Red line” areas (gutting pensions and mass layoffs)might actually be winning the diplomatic game of ‘chicken’ simply because a full scale ‘Grexit’ could be pretty risky for the whole “European Project”.

    And if Merkel’s team is warning that only “a third” of Greece’s “previous commitments” might be met in an future deal, that sounds like only one of the three key “reforms” that the troika has been demanding all along (raising taxes, gutting pensions, and making it easier to do mass layoffs in the near future) might actually be met as part of what is hopefully a real bailout and not a “bailout“.

    Who knows, maybe a not-totally-horrible deal is possible. That’s the bar now, BTW, given recent history…something not totally unfairly horrible for Greece. That would be a big improvement. If a deal is worked out, hopefully it will be significantly better than totally unfairly horrible. And that could happen because even though a ‘Grexit’ is officially “not in our thoughts” for Greece, according to Greece’s finance minister Yanis Yaroufakis, default for Greece via a cash crunch is clearly on the table since both Greece and the troika are unable to overcome the pension-gutting/mass-layoffs issue. And that means Greece’s government could run out of money very soon and an uncontrollable default happens. And if that happens, take a guess as to how enthusiastic Angela Merkel’s CDU base is going to be with Angela Merkel and her handling of the situation.

    With the Greek cash crunch looming, a strange new phase of the game of chicken between Greece and the troika is looming too and it’s a phase where Greece will have a lot more leverage than it did in the past because it’s going to have nothing to lose. And that time is getting closer.

    You don’t want to play ‘chicken’ with dinner.

    Posted by Pterrafractyl | May 19, 2015, 10:58 pm
  23. Yanis Varoufakis has a line in a new interview with Die Zeit that really needs to become a meme: “It is frustrating that we are not able to speak with each other in a context where arguments count more than relative power”:

    Reuters
    Varoufakis says Germany’s Schaeuble makes mistakes on Greece

    Wed May 20, 2015 5:05am EDT

    May 20 Greek Finance Minister Yanis Varoufakis, who has clashed with Germany’s Wolfgang Schaeuble repeatedly over negotiations on his country’s debt and economic reforms, has told a German weekly that Schaeuble makes mistakes in his analysis of Greece.

    The left-wing economist, asked by Die Zeit in excerpts of an interview to be published on Thursday whether the conservative finance German minister commits such mistakes, answered: “Yes, he does.”

    “It is frustrating that we are not able to speak with each other in a context where arguments count more than relative power,” said Varoufakis.

    Take a moment and think about all the different situations where that sentiment would be appropriate. Doesn’t that more or less summarize the human condition? And not just humans. That’s got to be like a universal sentiment of life everywhere across space and time.

    Woah. That’s deep.

    Let the memeing commence.

    Posted by Pterrafractyl | May 20, 2015, 7:24 am
  24. Spain’s ruling conservative party just had its worst electoral showing in more than two decades. Imagine that:

    Irish Examiner
    Spanish Prime Minister’s plans in doubt after poll battering

    Julien Toyer, Madrid
    Tuesday, May 26, 2015

    To anyone who doubted his re-election strategy, Spanish Prime Minister Mariano Rajoy has had a simple answer: “Trust me”.

    Now, a battering in local polls has cast doubt on his plan that an economic recovery will secure him a second term later this year.

    In six months’ time, when the next general election is due, the Spanish economy will be growing at 3% and half a million jobs will have been created. This was Rajoy’s message as he campaigned across Spain for his conservative People’s Party (PP) before the municipal and regional polls.

    But many voters have hardly felt the recovery and, following a string of corruption scandals that have touched the ruling party, they turned on Sunday to new forces such as the anti-austerity Podemos (‘We Can’) and market-friendly Ciudadanos (‘Citizens’).

    “It’s time to reflect. The party is badly hit… For sure, we’re going the wrong way. We are the party that won the most votes but voters sent us a message of anger,” said a senior PP member, who declined to be named.

    “We haven’t seriously done self-criticism … Something is not working and we have to properly diagnose what,” he said before a meeting of the PP’s executive committee.

    While the PP got more votes than any other party in the municipal polls as well as in nine of the 13 regions that voted over the weekend, it suffered its worst electoral result in more than two decades.

    It lost about 2.5 million votes from the last local elections four years ago and close to 5 million from its landslide victory in the 2011 general election.

    Even loyal PP voters believe their party is heading for more trouble unless it changes. “They need to find a way to give jobs to the young. The message that the economy is rebounding doesn’t reach people,” said Salvador Soriano, a retired cook from Valencia. “They promised a lot, but they’re falling short,” he said.

    Spanish unemployment is almost 24% and more than double that for the young. Even under the government’s forecasts, the overall jobless rate will still be 17.7% in 2017. At a local level, the PP faces a new era of coalition and compromise for which it is ill-prepared.

    Rajoy – whose party must form pacts with some of the new groups if it is to retain power in a number of regions, including the Madrid community – has campaigned hard against them. Earlier this month he said they were “gangs” and a threat to Spain’s political and economic stability.

    Political analysts say left-wing blocs could push the PP out of power in half a dozen regions. On top of this, the center-right upstart Ciudadanos, initially seen as a coalition partner for the PP, may avoid helping Rajoy for now.

    Huh. It’s almost as if a population where “unemployment is almost 24% and more than double that for the young…Even under the government’s forecasts, the overall jobless rate will still be 17.7% in 2017,” had a hard time basking in the glory of Spain’s austerity successes. It’s almost as if people are too soft to accept a ‘lost generation’ in stride these days. What’s the matter with the kids today?

    So Spain is increasingly flirting with Greece-style anti-austerity coalition, and unless Spain’s austerity policies can somehow do a lot better than a project 17.7% unemployment rate in 2017 (which will presumably be double that for youths), it’s really unclear what’s going to end the trend because even when things seem to start getting a little better after years of austerity, it’s very unclear why people shouldn’t feel like things are still permanently worse than they used to be since the whole idea behind austerity is that dismantling helpful government services and making average people more vulnerable to the brutalities of market-dynamics and employer monopsonies will somehow create a functional, harmonized economy and a sustainably better tomorrow. It’s not really a very confidence-inducing sales-patch, and yet one of the austerity selling points is supposed to be that austerity will please the market’s ‘Confidence Fairies’.

    It’s one of the paradoxes of the austerity scheme: Business interests are supposed to be swelling with confidence from the very same policies that fill average people with despair. But regardless of these internal contradictions, that’s the plan:

    Bloomberg Business
    Schaeuble Expects Conflict at Dresden G-7 Over Austerity Policy

    by Brian Parkin
    9:55 AM CDT May 23, 2015

    German Finance Minister Wolfgang Schaeuble expects a political tussle with his partners over austerity policy when G-7 finance ministers meet on May 27-May 29 in Dresden.

    Germany’s advocacy of budget cuts to heal euro-zone woes will come under attack at the meeting, Schaeuble said in a pamphlet distributed Saturday. The German government will face “demand-side” opponents of its policy in Dresden, he said without mentioning France or Italy or the U.S.

    “’Demand-side’ advocates will make clear in Dresden that cutting public spending leads to weaker demand for goods and services,” the minister said in a pamphlet distributed in the Dresden newspaper Saechsische Zeitung. Germany’s position is that “solid public finance” boosts investment and growth, he said.

    Risks to Europe’s economic outlook stemming from the unresolved Greek crisis as well concern over the U.S. trade gap may fuse an alliance of France, Italy and the U.S. in Dresden. All three states fret that Germany’s rigorous advocacy of budget austerity may be holding back economic growth in Europe.

    U.S. Treasury Secretary Jacob J. Lew urged Germany to boost public investment to spur imports from Europe and spark a cycle of economic growth that would also benefit the U.S. The U.S. trade gap widened in March to the biggest in more than six years while Germany in 2014 again reported a record surplus.

    The U.S. has also called for a quicker fix of Greece’s problems in a sign that it views Germany’s unmoving insistence that Greece fulfill bailout terms as a risk. Lew said Friday that failure to reach a deal quickly would create hardship for Greece, uncertainties for Europe and the global economy.

    Schaeuble remains adamant that Germany’s stance on sound budgeting is the right one, if unpopular.

    “Further convincing needs to be done” at Dresden, he said in his pamphlet.

    Note German Finance Minister Wolfgang Schaeuble’s words of confidence in the ‘Confidence Fairy’ form of faith healing:

    Germany’s advocacy of budget cuts to heal euro-zone woes will come under attack at the meeting, Schaeuble said in a pamphlet distributed Saturday. The German government will face “demand-side” opponents of its policy in Dresden, he said without mentioning France or Italy or the U.S

    “’Demand-side’ advocates will make clear in Dresden that cutting public spending leads to weaker demand for goods and services,” the minister said in a pamphlet distributed in the Dresden newspaper Saechsische Zeitung. Germany’s position is that “solid public finance” boosts investment and growth, he said.

    That’s the line in the sand for the eurozone and larger EU: Confidence in the ‘Confidence Fairy’ must not be questioned. It’s an article of faith. But with the rabble growing increasingly restless, it’s very unclear how much confidence we should have in Berlin’s ability to hold the ‘Confidence Fairy’ line. It’s kind of epic considering the eurozone has becoming a Trojan Horse for the return of old school far right economic thought.

    So, given all that, you have to wonder how much confidence the ‘Confidence Fairy’ backers have in their abilities to keep confidence in the austerity scheme in the event of a ‘Grexit’. Because the ‘Confidence Fairy’ takes a LONG time to work(because it doesn’t), and that means Greece could end up ‘Grexiting’ and bouncing back
    while the rest of Europe is still waiting for the ‘Confidence Fairy’ to work its fairy magic:

    The New York Times
    The Conscience of a Liberal
    Grexit and the Morning After

    by Paul Krugman
    May 25 9:24 am

    We just had another electoral earthquake in the euro area: Podemos-backed candidates have won local elections in Madrid and Barcelona. And I hope that the IFKAT — the institutions formerly known as the troika — are paying attention.

    The essence of the Greek situation is that the actual parameters of a short-run deal are clear and unavoidable: Greece can’t run a primary budget deficit, because nobody will lend it new money, and it won’t (and basically can’t) run a large primary surplus, because you can’t squeeze even more blood from that stone. So you would think that an agreement for Greece to run a modest primary surplus over the next few years would be easy to reach — that is what will happen, so why not make it official?

    But now the IMF is playing bad cop, declaring that it cannot release funds until Syriza toes the line on pensions and labor market reform. The latter is dubious economics — the IMF’s own research doesn’t support enthusiasm about structural reforms, especially in the labor market. The former probably recognizes a real problem — Greece probably can’t deliver what it has promised pensioners — but why should this be an issue over and above the general question of the primary surplus.

    What I would urge everyone to do is ask what happens if Greece is in fact pushed out of the euro. (Yes, Grexit — ugly word, but we’re stuck with it.)

    It would surely be ugly in Greece, at least at first. Right now the core euro countries believe that the rest of the euro area can handle it, which might be true. Bear in mind, however, that the supposed firewall of ECB support has never actually been tested. If markets lose faith and the time for ECB purchases of Spanish or Italian bonds arises, will it really happen?

    But the bigger question is what happens a year or two after Grexit, where the real risk to the euro is not that Greece will fail but that it will succeed. Suppose that a greatly devalued new drachma brings a flood of British beer-drinkers to the Ionian Sea, and Greece starts to recover. This would greatly encourage challengers to austerity and internal devaluation elsewhere.

    Think about it. Just the other day the Very Serious Europeans were hailing Spain as a great success story, a vindication of the whole program. Evidently the Spanish people don’t agree. And if the anti-establishment forces have a recovering Greece to point to, the discrediting of the establishment will accelerate.

    One conclusion, I guess, is that Germany should try to sabotage Greece post-exit. But I hope that will be considered unacceptable.

    So think about it, IFKATs: are you really sure you want to start going down this road?

    “So think about it, IFKATs: are you really sure you want to start going down this road?”
    Paul Krugman asks an important that’s only getting more important each day we get closer a Greek default and, possibly, a ‘Grexit’. As we saw above, the rabble just keeps getting more and more restless and one of these years we just might see a European populace with a very different perspective on how things should be run. And if Greece ends up ‘Grexiting’ and bounces back in a couple years, that really is a threat to the status quo of default right-wing economic policies that treat poverty as a solution to life’s problems. Austerity-o-nomics is potentially at risk if Greece doesn’t fall into a socioeconomic black hole.

    And that’s why it’s so chilling that the follwing has to be said (and it does need to be said):

    One conclusion, I guess, is that Germany should try to sabotage Greece post-exit. But I hope that will be considered unacceptable.

    Yes, let’s all hope that sabotaging Greece post-‘Grexit’ will be considered unacceptable.

    But given that the troika appears to be willing to play ‘chicken’ in such an uncompromising manner(in sharp contrast to the many concessions Greece’s government has made and continues to offer) would it actually be seen as unacceptable if the rest of Europe (and maybe the IMF) were just total jerks to Greece and basically tried to make a bad situation worse? If so, why? Making a bad situation worse for Greece has been seen as the medicine Greece needs all along and that’s been seen as pretty acceptable so far.

    So we still have to wait and see if a ‘Grexit’ happens at all but it’s certainly coming down to the wire. And if it does happen, given the risks a successful post-‘Grexit’ Greece poses to the prevailing right-wing pro-austerity economic theories that now control most of Europe, it’s going to be very important to remember that countries that want to see an easing of austerity policiesshould really support Greece post ‘Grexit’ and not allow it to be sabotaged. That shouldn’t really have to be said, but here we are.

    And should Greece ‘Grexit’ and the rest of Europe’s governments sabotage Greece so the rabble doesn’t get the wrong idea about austerity, keep mind that it will probably be pretty obvious that sabotage is what’s happening (like so much of the contemporary troikan treachery). And if the rabble becomes aware that that’s happening, there’s a whole new ‘Confidence Fairy’ that gets to works its magic over not just the Greeks but average people across the EU that don’t want to live under a permanent right-wing economic regime. If you can’t ‘-exit’ without the beatings continuing, the ‘Despair Fairy’ makes a visit. Despair is a form of ‘confidence’ too and, unlike austerity policies, it actually works.

    “So think about it, IFKATs: are you really sure you want to start going down this road?”

    Posted by Pterrafractyl | May 25, 2015, 9:33 pm
  25. When you’re trying to squeeze blood from a stone, asphyxiating it presumably isn’t a concern. But in the case of the troikan squeeze play against Greece’s financial system, you’d think getting your fingerprints all over the neck of Greek banking system would be something the troika wants to avoid. The troika apparently doesn’t care about that either:

    UPDATE 1-ECB does not raise emergency funding cap for Greek banks -source

    May 27 (Reuters) – The European Central Bank on Wednesday did not raise a ceiling on emergency funding for Greek banks in a weekly review for the first time since February, a banking source said, adding financial pressure as the country scrambles to stay solvent.

    Greek banks have survived on the emergency liquidity assistance (ELA) since largely losing access to capital markets and the ECB’s main funding window.

    The ECB has been raising the cap on ELA in increments, but there has been opposition from within the bank to doing so each week on concerns it helps finance the Greek government.

    The banking source said the ceiling was unchanged because deposit outflows had slowed to low levels, leaving an untapped liquidity cushion.

    “This leaves an unused liquidity buffer of 3 billion euros,” the banking source said. “The reason for not raising the ceiling was that deposit outflows stabilised at very low levels.”

    But Greek newspaper Kathimerini reported on Wednesday that deposit outflows had picked up in the last days on worries over the possibility of capital controls. Official data on deposit outflows in April will be released on Thursday.

    The ECB declined to comment.

    While propping up the banking system, the incremental hikes in ELA each week have also kept pressure on Athens to strike a deal with its euro zone and International Monetary Fund creditors over economic reforms required to unlock remaining bailout aid.

    The head of Germany’s Bundesbank criticised the European Central Bank earlier this month, saying emergency funding for Greek banks broke the taboo of financing governments and it was not up to central banks to decide who was or wasn’t in the euro zone.

    Hawks on the ECB’s Governing Council have also pushed for raising the haircut – or valuation discount – on the collateral Greek lenders submit to draw ELA funding but there was no decision taken at Wednesday’s teleconference, the source said.

    Increasing the haircut would effectively reduce the value of security that Greek banks can offer and consequently the amount of ELA they can draw down.

    A potential default by Athens on IMF loan repayments next month could be a trigger for the ECB to raise the haircut as it would signal a deterioration in creditworthiness.

    So…


    The ECB has been raising the cap on ELA in increments, but there has been opposition from within the bank to doing so each week on concerns it helps finance the Greek government.

    Hawks on the ECB’s Governing Council have also pushed for raising the haircut – or valuation discount – on the collateral Greek lenders submit to draw ELA funding but there was no decision taken at Wednesday’s teleconference, the source said.

    Increasing the haircut would effectively reduce the value of security that Greek banks can offer and consequently the amount of ELA they can draw down.

    A potential default by Athens on IMF loan repayments next month could be a trigger for the ECB to raise the haircut as it would signal a deterioration in creditworthiness.

    Yes, the emergency credit that’s keeping Greece’s banks afloat need to be curtailed out of fears that this could provide indirect financing to Greece’s government. But access to the emergency funding may need to be curtailed the closer Greece’s government gets to default.

    Also, too much is not enough. Of course.

    Posted by Pterrafractyl | May 27, 2015, 11:51 am
  26. With 1.6 billion euros in payments owed to the IMF in June, and even more owed to creditors in July, Greece keeps inching closer and closer to, if not a ‘Grexit’, at least default of some sort. Only an agreement with the troika that results in a release of more ‘bailout’ funds (which mostly go to creditors like the IMF) can avoid it. And that all why, with each day of negotiations that seem to be going no where, we’re probably going to see more and more articles where everyone but Greece blames Greece for the lack of progress while simultaneously pointing out that the no concessions with Greece are under any serious consideration by the troika. For whom does the bell toll in the eurozone? A bunch of blind, deaf, and dumb elites and the rest of the rabble:

    Bloomberg News
    Greece’s Endgame Nears as Tsipras Warns Bell May Toll for Europe

    by Nikos Chrysoloras
    4:01 PM CDT May 31, 2015

    Greece faces a week of tough decisions as negotiations over a financial lifeline edged closer toward endgame with creditors showing no signs of budging over what it will take for them to release more money.

    As another of the government’s self-imposed deadlines for securing a deal on its finances slipped away, disagreements between the two sides on budget targets persisted, a person familiar with the matter said. Greece must make four payments totaling almost 1.6 billion euros ($1.78 billion) to the International Monetary Fund this month and its bailout package backed by the euro region expires at the end of June.

    While Prime Minister Alexis Tsipras wrote in French newspaper Le Monde that any intransigence wasn’t the fault of his four-month-old administration, a senior German lawmaker said it was down to Greece to adhere to reforms agreed to before Tsipras took power. An international official who asked not to be identified said creditors were discussing a deal to be presented to Greece as a way of ending the impasse.

    “The lack of an agreement so far is not due to the supposed intransigent, uncompromising and incomprehensible Greek stance,” Tsipras wrote in the article published on Sunday. “It is due to the insistence of certain institutional actors on submitting absurd proposals and displaying a total indifference to the recent democratic choice of the Greek people.”

    With technical talks yielding no breakthrough, Tsipras is seeking the intervention of German Chancellor Angela Merkel and French President Francois Hollande. The three leaders held a call on Sunday to discuss what happens next, with a German government official calling them “constructive.” Merkel and Hollande are scheduled to meet in Berlin on Monday.

    Sticking Points

    With negotiations now in their fifth month, creditor institutions are seeking concrete action in areas including the pension system, labor market and sales tax.

    Tsipras said in his article that Greek plans for collective bargaining by unions adhere to norms in the euro region while reforms for retirees mandated by the country’s bailout agreement aren’t fit for a civilized country.

    The biggest hurdle is their insistence on additional fiscal measures of as much as 3 billion euros, a Greek official with knowledge of the matter said. The official asked not to be named, as negotiations are private and ongoing.

    While Greece’s partners are aiming to do their utmost to keep the country in the euro, “the ball is in Greece’s court” to fulfill the pledges made in the current aid package, Volker Kauder, the parliamentary chief of Merkel’s Christian Democrat-led bloc told ARD TV on Sunday.

    One Message

    Officials representing creditor institutions spent the weekend working to converge among themselves on all key issues related to the Greek bailout review, a person familiar with the matter said. The common position may be communicated to Tsipras by European political leaders, the person said, asking not to be named, as he wasn’t authorized to speak publicly on the matter.

    Merkel will likely be more involved as time runs out between this week and a meeting of euro-region finance ministers on June 18 in Luxembourg, the person said. According to the official, the agreement may be delivered by leaders, but it will have been put together by the IMF, the European Central Bank and the European Commission.

    Greece’s anti-austerity government has repeatedly expressed confidence that an agreement to unlock bailout funds and avert default is within reach, only to be rebuffed by officials representing the creditors. The standoff over the terms attached to emergency loans has triggered a liquidity squeeze and record deposit withdrawals, tipping the economy back into recession.

    Government spokesman Gabriel Sakellaridis had told reporters in Athens on May 28 that a deal with creditors could be reached by Sunday. That day, like many previous dates in recent weeks, came and went.

    Failure to strike an agreement risks leaving Europe’s most indebted state unable to meet its debt obligations.

    As the clock ticks, finance ministry officials have told Greece there’s not time to get a disbursement approved by the currency bloc’s parliaments unless they reach at least a technical agreement by the beginning of June.

    Economy Minister George Stathakis said in an interview with Italy’s Corriere della Sera that he expects a “technical solution” with Greece’s creditors “in a few days.” The accord would be followed by a meeting of euro-area finance ministers to free up resources. Stathakis reiterated that there will be no problem with the first payment due to the IMF on June 5.

    In his Le Monde article, Tsipras said coming up with a solution is vital for all of Europe.

    “If some, however, think or want to believe that this decision concerns only Greece, they are making a grave mistake,” he wrote. “I would suggest that they re-read Hemingway’s masterpiece, ‘For Whom the Bell Tolls’.”

    So Tsipras “is seeking the intervention of German Chancellor Angela Merkel and French President Francois Hollande” to help find a compromise. Soon. And Volker Kauder, the parliamentary chief of Merkel’s Christian Democrat-led bloc told ARD TV on Sunday“the ball is in Greece’s court” to fulfill the pledges made in the current aid package, which is another way of saying that no compromise will be made:

    While Prime Minister Alexis Tsipras wrote in French newspaper Le Monde that any intransigence wasn’t the fault of his four-month-old administration, a senior German lawmaker said it was down to Greece to adhere to reforms agreed to before Tsipras took power. An international official who asked not to be identified said creditors were discussing a deal to be presented to Greece as a way of ending the impasse.

    “The lack of an agreement so far is not due to the supposed intransigent, uncompromising and incomprehensible Greek stance,” Tsipras wrote in the article published on Sunday. “It is due to the insistence of certain institutional actors on submitting absurd proposals and displaying a total indifference to the recent democratic choice of the Greek people.”

    With technical talks yielding no breakthrough, Tsipras is seeking the intervention of German Chancellor Angela Merkel and French President Francois Hollande. The three leaders held a call on Sunday to discuss what happens next, with a German government official calling them “constructive.” Merkel and Hollande are scheduled to meet in Berlin on Monday.

    The biggest hurdle is their insistence on additional fiscal measures of as much as 3 billion euros, a Greek official with knowledge of the matter said. The official asked not to be named, as negotiations are private and ongoing.

    While Greece’s partners are aiming to do their utmost to keep the country in the euro, “the ball is in Greece’s court” to fulfill the pledges made in the current aid package, Volker Kauder, the parliamentary chief of Merkel’s Christian Democrat-led bloc told ARD TV on Sunday.

    One Message

    Officials representing creditor institutions spent the weekend working to converge among themselves on all key issues related to the Greek bailout review, a person familiar with the matter said. The common position may be communicated to Tsipras by European political leaders, the person said, asking not to be named, as he wasn’t authorized to speak publicly on the matter.

    Merkel will likely be more involved as time runs out between this week and a meeting of euro-region finance ministers on June 18 in Luxembourg, the person said. According to the official, the agreement may be delivered by leaders, but it will have been put together by the IMF, the European Central Bank and the European Commission.

    “Merkel will likely be more involved as time runs out between this week and a meeting of euro-region finance ministers on June 18 in Luxembourg, the person said.” Yep. That’s pretty much how the eurozone crisis works. Merkel “gets involved”, and decisions are made. And as we can see from the continued insistence by Merkel and her part on no meaningful concessions at all, it’s looking more and more like that troika’s decisions for how it would negotiate with Greece during the four month negotiation period that the Greece and the troika agreed to back in February, were made by Angela back in February:

    The Guardian
    Germany refuses Greece an honourable surrender over austerity

    Athens’ decision to accept a eurozone loan extension shows the troika did not really want to negotiate with Syriza – it wanted capitulation

    Larry Elliott

    Thursday 19 February 2015 07.24 EST

    There is a phrase for what Germany is seeking to do to Greece: a Carthaginian peace. It dates back to the Punic wars when Rome emerged victorious in its long struggle with Carthage but refused to allow its opponent the chance of an honourable surrender. Instead, it enforced a brutal settlement, burning Carthage to the ground and enslaving those inhabitants it did not massacre.

    A Carthaginian peace is what is being offered to Alexis Tsipras. On Thursday, the Greek prime minister made it clear that he was willing to see the white flag of surrender flutter over Athens. He accepted that he would have to swallow most of the conditions demanded of him by Greece’s eurozone partners but asked for a few concessions to sugar the pill.

    Wolfgang Schaeuble, Germany’s finance minister, immediately slapped Tsipras down. What Greece was proposing was unacceptable, Schaeuble said. Unless the Germans are bluffing, and there’s nothing to suggest that they are, it leaves Greece with a binary choice: abject surrender or going nuclear.

    Abject surrender means that Tsipras would have to explain to the Greek people why he was abandoning the policies on which he won the election less than a month ago. Going nuclear would involve capital controls, fresh elections on a “who governs Greece” basis and possible exit from the single currency.

    Tsipras occupies both the moral and intellectual high ground going into Friday’s talks in Brussels.

    In its pitch to the other 18 eurozone members, Greece has formally asked for a six-month extension to its bailout agreement. There is no longer the pretence that the bailout should be replaced by a loan agreement with no strings attached. The hated troika of the European Central Bank (ECB), the European Union and the International Monetary Fund will be monitoring Greece’s economy for the next six months, something that has been anathema until now.

    Greek government has modest demands of its own. It wants to negotiate a new growth deal for the four years until 2019. It is asking for debt relief under the terms of the November 2012 bailout agreement, and it wants to be able to take steps to deal with the humanitarian crisis caused by the 25% collapse in the size of the economy over the past five years.

    None of these demands are unreasonable. Indeed, they are all entirely sensible. As Dhaval Joshi of BCA Research has noted, for every euro the Greek government has saved through spending cuts or tax increases, the economy has contracted by €1.20. Austerity has resulted in Greece’s debt to GDP ratio going up, not down. A change of tack is overdue. But Germany’s response to Greece was simple: stick to the existing programme no matter what the voters want.

    Yes, back in February, the message from Merkel was “stick to the existing programme no matter what the voters want.” Flash forward to today and the message coming from Berlin is that the “ball is in Greece’s court”. All Greece needs to do is fulfill the pledges made in the current aid package.

    At that point, everyone can pat themselves on the back for a job well done, relax and bask in the calming silence.

    Posted by Pterrafractyl | May 31, 2015, 10:36 pm
  27. It’s getting down to the wire in Greece’s showdown with the Troika. And that means it’s time for frantic negotiations and dueling proposals:

    BBC
    Greek PM Tsipras has ‘realistic’ debt deal proposal

    June 2, 2015

    Greek Prime Minister Alexis Tsipras says he has issued “a realistic proposal” to the country’s international creditors in an attempt to secure a deal over its debts.

    “We have submitted a realistic plan for Greece to exit the crisis,” he said.

    Mr Tsipras said the plan included “concessions that will be difficult”.

    He is due to meet European Commission President Jean-Claude Juncker in Brussels on Wednesday to discuss the Greek proposals.

    Mr Tsipras’ statement follows talks in Berlin late on Monday attended by the heads of both the International Monetary Fund and the European Central Bank.

    International Monetary Fund chief Christine Lagarde and ECB president Mario Draghi’s presence at the meeting between German Chancellor Angela Merkel and France’s Francois Hollande underlined the seriousness of the talks.

    Reports suggest the meeting was aimed at coming up with a “final proposal” to issue to Athens.

    But Mr Tsipras, who was not included at that meeting, said he had not yet been contacted by the IMF and European officials.

    “We are not waiting for them to submit a proposal, Greece is submitting a plan – it is now clear that the decision on whether they want to adjust to realism… the decision rests with the political leadership of Europe,” he added.

    A €300m (£216m) payment from Greece to the IMF is due on Friday.

    European lenders as well as the IMF are pushing for greater austerity reforms in return for the cash, which the Greek government has so far refused to make.

    Germany’s Vice-Chancellor, Sigmar Gabriel, said he supported efforts by the French and German governments to reach a deal in negotiations about Athens’ massive debts, warning Greece’s exit from the eurozone would have “gigantic consequences”.

    “The political consequences of a Greek bankruptcy in the eurozone would of course be gigantic. I think a lot of people have the impression that we’re better off without Greece in the eurozone.

    “The truth is that if we break the first piece out of the European house, Europe would be in a different state.”

    But Syriza parliamentary spokesman Nikos Filis reiterated that the government would not sign an agreement that was incompatible with its anti-austerity programme.

    “If we’re talking about an ultimatum… which is not within the framework of the popular mandate, it is obvious that the government cannot co-sign and accept it,” Mr Filis told Antenna TV.

    So Greece submitted a plan that involves “concessions that will be difficult”,” which probably means Greece is willing to accept either the gutting of pensions, mass civil service layoffs, or some sort of privatizations.

    So what’s the troika’s “final proposal” counter-offer going to look like? Oh, that’s right, it will look like the same offer the troika has been offering Greece all along: no meaningful compromises:

    Reuters

    Greece’s creditors draft deal to unlock aid, Athens resists

    BRUSSELS/ATHENS | By Jan Strupczewski and Renee Maltezou
    Tue Jun 2, 2015 5:18pm EDT

    Greece’s creditors on Tuesday drafted the broad lines of an agreement to put to the leftist government in Athens in a bid to conclude four months of acrimonious negotiations and release aid before the cash-strapped country runs out of money.

    The joint effort by the European Commission, the European Central Bank and the International Monetary Fund to set out the terms for a cash-for-reforms deal came after the leaders of Germany and France held emergency talks with those institutions in Berlin on Monday night to press the lenders to bridge their own differences and find a solution.

    “It covers all key policy areas and reflects the discussions of recent weeks. It will be discussed with (Greek Prime Minister Alexis) Tsipras tomorrow,” a senior EU official said.

    Tsipras, who has vowed not to surrender to more austerity, tried to pre-empt a take-it-or-leave-it offer by the creditors, sending what he called a comprehensive reform proposal to Brussels on Monday before they could complete their version.

    Euro zone officials branded the Greek text insufficient and said it was not formally on the table.

    The Greek leader faces a backlash from his own supporters if he has to accept cuts in pensions and job protection to avert a default and keep Greece in the euro zone.

    Despite defiant rhetoric and face-saving efforts, he seems likely to have to swallow painful pension and labor reforms, facing the choice between putting them to parliament at the risk of a revolt in his Syriza party, or calling a snap referendum.

    Starved of aid and access to bond markets, Athens is precipitously close to running out of money. It has threatened to default on an IMF payment this week without a deal, though it also says it will reject any ultimatums.

    Failure to reach agreement this month could trigger a Greek default and lead to the imposition of capital controls and a potential exit from the euro zone, dealing a serious blow to Europe’s supposedly irreversible single currency.

    The euro zone source said the Greek document contained no significant concessions on the main outstanding issues of pension and labor market reform, fiscal targets and the size of the civil service.

    The European Union’s economics chief said earlier Athens had put forward first proposals for pension reform as the talks reach a crunch point this week with Greek funds drying up.

    The chairman of euro zone finance ministers, Jeroen Dijsselbloem, who was not at the Berlin meeting, said there were growing indications that Greece wanted a deal, but that required the Greek government to tell its voters the truth, that it will not be able to deliver on all its election promises.

    “There are signs that Greece and Tsipras are motivated to achieve a breakthrough,” Dijsselbloem told RTL Nieuws. “We aren’t far enough along and time is pressing.”

    “The bottom line is that we are not going to meet them halfway,” he said. “The package as a whole must make sense in budgetary terms.”

    “REAL INTENSITY”

    The Berlin meeting showed that national and international leaders have taken the battle to keep Greece in the euro zone into their own hands after months of insisting it was a matter for technical negotiations among experts.

    A Greek government official said Athens would make a 300 million euro ($329.58 million) repayment to the IMF on Friday as due if there was an agreement with the creditors, hinting it might otherwise withhold the money without saying so explicitly.

    “If we judge that a deal has been sealed, then we will make the June 5 payment normally,” the official said, adding that the money would be transferred even if a preliminary agreement had not yet been approved by Eurogroup finance ministers.

    Greece’s central bank governor, Yannis Stournaras, who served as finance minister in a previous conservative-led government, urged the government to respect the “sacrifices” its people had made to stay in the euro, citing a 35 percent drop in living standards since the crisis began in 2009.

    EU Economy Commissioner Pierre Moscovici deflected Greek demands for official debt relief, saying the issue of making Greek debt sustainable in the longer term would only be addressed once Athens had accepted a reform deal to release some 7.2 billion euros in frozen aid.

    That program expires at the end of June unless there is an agreement.

    The ECB’s top banking supervisor, Daniele Nouy, stressed on Tuesday that Greece’s banks remain solvent despite deposit outflows and the government’s cash squeeze – a key condition for the central bank continuing to provide emergency liquidity.

    Greek officials say the IMF has been toughest in demanding pension cuts and opposing any restoration of collective wage bargaining, while some euro zone governments have privately accused Juncker and Moscovici of being too soft on Athens.

    Greece has received two EU/IMF bailouts totaling 240 billion euros since 2010, when it lost access to capital markets after admitting it had issued erroneous figures for years concealing the true scale of its budget deficit.

    Ok, so according to the chairman of euro zone finance ministers, Jeroen Dijsselbloem:


    “There are signs that Greece and Tsipras are motivated to achieve a breakthrough,” Dijsselbloem told RTL Nieuws. “We aren’t far enough along and time is pressing.”

    “The bottom line is that we are not going to meet them halfway,” he said. “The package as a whole must make sense in budgetary terms.”

    That doesn’t sound very compromising. And you have to wonder just how harsh the terms of the troika’s “final offer” are going to be given Dijsselbloem’s assertion that any package “as a whole must make sense in budgetary terms” and the fact that the debt relief is being effectively ruled out, and a number of governments were apparently accusing the EU Commission of “being too soft on Athens”:

    EU Economy Commissioner Pierre Moscovici deflected Greek demands for official debt relief, saying the issue of making Greek debt sustainable in the longer term would only be addressed once Athens had accepted a reform deal to release some 7.2 billion euros in frozen aid.

    Greek officials say the IMF has been toughest in demanding pension cuts and opposing any restoration of collective wage bargaining, while some euro zone governments have privately accused Juncker and Moscovici of being too soft on Athens.

    No, compromise from the troika doesn’t sound likely. But that doesn’t mean no compromise has taken place. For instance, Greece wasn’t the only negotiating partner arguing for some sort of debt relief. The IMF has been making that case too. And then the IMF compromised. Or, rather, capitulated:

    Greece’s Creditors Agree on Bailout Proposal to Athens
    By Dow Jones Business News, June 02, 2015, 07:35:00 AM EDT

    Greece’s Creditors Set to Throw Down Gauntlet

    ATHENS—Greece’s international creditors are poised to present the country with the outlines of a bailout deal that amounts to a take-it-or-leave-it offer, in a move aimed at breaking a monthslong stalemate but which risks a political backlash and even a government collapse in Athens.

    The move marks a sharp shift in tactics by Germany, the IMF and other Greek creditors, who have lost patience with what they see as months of fruitless dialogue with the Athens government. Lenders drafted the proposed deal after key leaders, including German Chancellor Angela Merkel, met in Berlin late Monday to overcome their own divisions on how to keep Greece from bankruptcy and an exit from the euro.

    The creditors’ proposal, which European officials say Greece will now be asked to accept with at most minor changes, would unlock badly needed emergency financing to avoid a Greek debt default in coming weeks, in return for Greece’s adherence to a set of tough economic-policy overhauls.

    Those policy conditions, including fiscal austerity, privatizations, and overhauls of pensions and labor law, could prove extremely challenging for the government of Greek Prime Minister Alexis Tsipras to swallow. The premier’s left- wing Syriza party won election in January on a promise to halt and reverse austerity and market-oriented overhauls. Some Syriza lawmakers are already calling for new elections rather than what they see as surrender to creditors’ terms.

    European policy makers are trying hard to avoid the appearance of an ultimatum to Greece, knowing that this would make an already-difficult deal even harder for Athens to swallow. Most European officials were tight-lipped about the lenders’ latest initiative. But some officials admitted Tuesday that the move amounts to a “take it or leave it” offer to Greece.

    Led by the German chancellery, creditors have been moving toward this tactic over the past two weeks, after growing frustrated with the lack of progress in negotiations with Greek officials aimed at a compromise.

    Lenders now hope that Mr. Tsipras can be pressed to accept the creditors’ outline of a deal by the end of this week—allowing lower-level officials to complete the details next week, European officials say. That would allow the European Central Bank to make more liquidity available to Greek banks, allowing them to buy more short-term debt from the Greek government and relieving some of the immediate financial pressure.

    Greece is facing a €300 million ($327 million) payment to the IMF on Friday. The country is believed to have enough cash left to repay that, but European officials say Athens probably can’t meet further IMF repayments in June totaling about €1.25 billion unless it gets fresh financing in some form. Without a large subsequent cash injection from lenders, Greece faces a debt default in late July that could ultimately push the country out of the euro.

    Mr. Tsipras faces particularly tough days and weeks ahead since Monday night’s summit in Berlin resulted in a consensus among creditors that leaves Greece will little scope to fulfill Syriza’s election promises. In Berlin, the IMF and the eurozone bridged their differences over Greece by agreeing that Athens must be made to enact comprehensive economic overhauls, as the IMF wanted—but that there will be no explicit commitment, for now, to forgive some of Greece’s debt. Germany and other eurozone governments have strongly resisted IMF pressure to offer Greece debt relief that would impose losses on other European taxpayers.

    The combination of tough economic measures and a delay to any potential debt relief could test the unity of Mr. Tsipras’s governing coalition. With a majority of only 12 in Greece’s 300-seat parliament, even a small rebellion by some of Syriza’s hard-line left factions could deprive Mr. Tsipras of crucial support, forcing him to rely on opposition votes and potentially triggering elections or a referendum.

    “In terms of packaging this deal, Tsipras doesn’t have any easy way to sell it to his party,” said Wolf Piccoli, director of research at political risk consultancy Teneo Intelligence. “If Tsipras feels he might lose his parliamentary majority, he might pass the vote to the public.”

    The proposed deal would complete Greece’s current bailout program with its eurozone partners, a process that some officials say could extend over this summer. By fall, officials say, Greece will need a new bailout package that keeps the country afloat until it is able to access international bond markets again—which many economists say could take years.

    Ms. Merkel and other eurozone leaders are eager to avoid a default by Greece on its debt that could lead to the country tumbling out of the euro. But Ms. Merkel needs Mr. Tsipras to accept tough fiscal discipline and broader economic overhauls if she is to sell further aid loans for Greece to a German parliament and public that is increasingly skeptical about Greece’s willingness to make its economy as lean and competitive as euro membership requires.

    Ever since Greece’s international bailout began in 2010, Ms. Merkel has made the IMF the arbiter of whether Greece is enacting enough austerity and overhauls to deserve aid loans. The IMF remains Germany’s ally on Greek overhauls, in the face of reluctance elsewhere in Europe—including at the Brussels-based European Commission—to impose drastic and politically difficult policy overhauls on Athens. But the Washington-based fund has clashed with Berlin over Greek’s huge debt.

    The IMF insists Greece can be rendered solvent only through either far-reaching economic overhauls, or through debt forgiveness. Germany has so far staunchly rejected writing off its aid loans to Greece.

    Late on Monday, the creditors bridged their differences by agreeing that Greece must enact comprehensive overhauls to earn fresh financing, while the IMF softened its insistence that Europe offer explicit commitments on debt relief.

    Greece’s high debt remains a contentious issue in the background between the IMF and Europe, but isn’t holding up the creditors’ proposal to Greece. IMF head Christine Lagarde warned in Berlin that debt restructuring will become necessary if Greece doesn’t enact thorough economic overhauls that improve its budget balance and lift its growth trajectory, people familiar with the meeting said.

    Well isn’t compromise grand!

    …In Berlin, the IMF and the eurozone bridged their differences over Greece by agreeing that Athens must be made to enact comprehensive economic overhauls, as the IMF wanted—but that there will be no explicit commitment, for now, to forgive some of Greece’s debt. Germany and other eurozone governments have strongly resisted IMF pressure to offer Greece debt relief that would impose losses on other European taxpayers.

    The IMF insists Greece can be rendered solvent only through either far-reaching economic overhauls, or through debt forgiveness. Germany has so far staunchly rejected writing off its aid loans to Greece.

    Late on Monday, the creditors bridged their differences by agreeing that Greece must enact comprehensive overhauls to earn fresh financing, while the IMF softened its insistence that Europe offer explicit commitments on debt relief.

    And now that we have a “compromise” within the troika, it’s apparently up to Greece to “to it for leave it”, where “it” is complete capitulation.

    So we’re just going to have to wait and see how Greece accepts its “poverty or exile” offer. But notice just how hopeless the long-term situation really is for not just Greece but the rest of the eurozone if Europe continues down this path. The public really seems to have no idea what it’s demanding:

    Ms. Merkel and other eurozone leaders are eager to avoid a default by Greece on its debt that could lead to the country tumbling out of the euro. But Ms. Merkel needs Mr. Tsipras to accept tough fiscal discipline and broader economic overhauls if she is to sell further aid loans for Greece to a German parliament and public that is increasingly skeptical about Greece’s willingness to make its economy as lean and competitive as euro membership requires.

    The German public still doesn’t appear to have a clue about just how much the German economy’s relative “competitiveness” is a direct result of the lack of competitiveness in Greece and elsewhere in the eurozone that’s dragging down the value of the euro. No clue! The electorates in Germany and elsewhere appear to have fully embraced the idea that Europe, as a continent, can run massive surplus with the rest of the planet indefinitely and, somehow, the euro isn’t going to skyrocket in value and the rest of the world isn’t going to revolt.

    So let’s say Greece does bite the bullet, sticks with the eurozone, embraces some sort of neoliberal nightmare program, and ends up turning itself into the low-wage export powerhouse the rest of Europe seems to have in mind. And lets say the rest of the P.I.I.G.S. largely do the same. What is that going to do to the value of the euro when the entire continent is an export powerhouse? What’s the public response going to be, say, a decade from now, if the eurozone sticks with austerity policies, make a whole bunch of really “competitive” economies (that mostly became competitive by suppressing wage and boosting profits) but the public basically never sees any of the benefits of this strategy because all their extreme “competitiveness”, low debt and deficits, and massive surpluses are effectively canceled out by a rising euro? Won’t the whole world really want to invest in the eurozone if it really doesn’t all become super-competitive and won’t that that effectively undermine that very same “competitiveness”? And who’s going to get blamed when the middle classes everywhere are basically eviscerated because every nation engaged in austerity simultaneously and all of the gains go to the wealthy owners of the export sectors? Especially once those sectors become even more roboticized and well paying manufacturing jobs just disappear. Is blaming Greece going to work for politicians in need of a scapegoat a decade from now?

    In other words, isn’t the troika’s nightmare package for Greece, and the junk economic assumptions behind it, just one part of a larger unworkable dream that Europe’s elites are selling to the public? A dream that promises future payouts for present pain but is basically guaranteed to end in despair for almost everyone involved? A dream that’s basically Europe’s version of “supply-side economics”? How is committing itself to a joke dream of basically promising to conquer the world economically (because that’s what will happen if Europe runs German-style trade surpluses) going to work out for Europe in the long-run?

    Ohright.

    In other news…

    Posted by Pterrafractyl | June 2, 2015, 7:20 pm
  28. We finally got some details on the “take it or leave it” troika proposal to Greece. Let’s just say, if someone mistook the following article as some sort of unorthodox marketing campaign for the upcoming ‘Saw 8’ movie, it would be a very understandable mistake since the “take it or leave it” plans appears to revolve around more promises that self-mutilation will give Greece a new lease on life:

    Reuters
    UPDATE 1-EU/IMF lenders demand asset sales, pension cuts in Greek proposal

    * EU/IMF demand pension, labour reform not be rolled back

    * Axing low-income pensioners’ benefit to save 800 mln euros/yr

    * Deal would unlock nearly 11 bln euros of aid (Adds detail)

    By Renee Maltezou
    Thu Jun 4, 2015 9:25am EDT

    ATHENS, June 4 (Reuters) – Greece’s EU/IMF lenders have asked Athens to commit to sell off state assets, enforce pension cuts and press on with labour reforms, two sources familiar with the plan said on Thursday, demands that would cross the Greek government’s “red lines”.

    If Greece were to accept the plan, lenders would aim to unlock 10.9 billion euros in unused bank bailout funds that were returned to the European Financial Stability Fund. This would enable Greece to cover its financial needs through July and August, the sources said.

    In a five-page proposal presented to Greek Prime Alexis Tsipras in Brussels on Wednesday, EU/IMF lenders asked Athens to reduce spending on pensions by 1 percent of gross domestic product and promise not to reverse any legislated reforms, the sources said.

    They also demanded Athens raise 1.8 billion euros – or 1 percent of GDP – by increasing value-added tax to 11 percent for items including drugs and 23 percent for items including electricity, the sources told Reuters.

    They want Greece to scrap a benefit for low income pensioners, called EKAS, to save 800 million euros by 2016 – a move that if accepted, would force Tsipras to violate his pledge to avoid any new pension cuts.

    The proposal also calls for a hike in healthcare contributions by Greeks and a cut in the fuel subsidy.

    The lenders have also demanded Tsipras not make any unilateral move to restore collective bargaining rights and raise minimum wage level to pre-crisis levels – pledges he made before coming to power in January.

    The proposal also asks Athens to commit to privatising Grid operator ADMIE, Greece’s major ports in Piraeus and Thessaloniki, the former airport complex of Hellenikon, Greece’s biggest oil refinery Hellenic Petroleum and Greek telecoms operator OTE.

    The proposal does not make any mention of offering debt relief to Athens, the sources said, which was one of the government’s major demands though the two sides have suggested it could be dealt with at a later stage.

    Well that’s probably not going to go over well in Greece.

    And guess what, it didn’t:

    Reuters
    Creditors’ offer prompts anger, dismay in Greece
    ATHENS | By Karolina Tagaris and Deepa Babington

    Thu Jun 4, 2015 10:51am EDT

    Lawmakers from Greece’s ruling Syriza party reacted with dismay and fury on Thursday to a package of reforms creditors offered Prime Minister Alexis Tsipras in return for cash, with one senior party official calling it a “murderous” proposal.

    Opposition to the plan was voiced by lawmakers on both the hardline left as well as more moderate voices in the party, like Labour Minister Panos Skourletis, who said Greeks could be sure that no agreement that adds burdens on them would be signed.

    The starkly negative reaction points to a growing risk of an outright revolt within the radical leftist party, which could prompt Prime Minister Alexis Tsipras to resort to early elections to overcome divisions should he accept the deal.

    Avgi, the Syriza party newspaper, headlined its Thursday edition: “A continuation of austerity? No, thanks!”, while the top-selling centre-left daily Ta Nea splashed: “Death toll required for an agreement.”

    Details of the plan drawn up by European and IMF creditors were leaked by sources on Thursday. They show demands for pension cuts, tax hikes and asset sales that clearly cross what Tsipras has said are his non-negotiable “red lines”.

    Tsipras was outlined the plan at late-night talks in Brussels with European Commission President Jean-Claude Juncker, and said afterwards he thought a deal was “within sight”. But some of his senior party members took a different line.

    “(Juncker) took on the dirty work and conveyed the most vulgar, most murderous, toughest plan when everyone hoped that the deal was closing,” Alexis Mitropoulos, a deputy parliament speaker and senior official within Syriza told Mega TV. “And that at a time when we were finally moving towards an agreement we all want because we rule out a rift leading to tragedy.”

    Deputy Shipping Minister Thodoris Dritsas said the proposal was below expectations “in every way”, adding: “If reports are confirmed, obviously we cannot accept them.”

    Lawmakers were incensed in particular by a proposal to scrap a benefit for low-income pensioners of 30 to 230 euros ($34 to $259) per month and a value-added tax change that Tsipras said would raise the levy on electricity by 10 percentage points.

    Such measures are anathema to Syriza, which in January became the first radical leftist party to assume power in modern Greek history on a pledge to end austerity and raise living standards for Greeks battered by five years of hardship.

    STOCKS FALL

    On the streets of Athens, the creditors’ proposal was met with a mix of anger and resignation. “The program they have proposed won’t work unless they want to drive Greece to poverty,” said 70-year-old pensioner Zois Seferli.

    Speaking in parliament, Deputy Labour Minister Dimitris Stratoulis said Athens would reject the “disgraceful and shameful” proposal by lenders who want “to subdue, to crush any resistance from the leftist government”.

    The angry reactions piled pressure on Tsipras, who has to balance efforts to keep his party together with the simultaneous need to seal a deal with creditors to get aid flowing into Greek state coffers before cash runs out in the coming days or weeks.

    In a sign of the limited options facing the government, one Syriza official said any deal with lenders would win approval from lawmakers after both sides made concessions.

    “A solution … requires realism and mutual concessions, without ultimatums,” tweeted Dimitris Papadimoulis, vice-president of the European Parliament and a Syriza party member. Backing Tsipras was “a patriotic duty,” he said.

    “(Juncker) took on the dirty work and conveyed the most vulgar, most murderous, toughest plan when everyone hoped that the deal was closing…And that at a time when we were finally moving towards an agreement we all want because we rule out a rift leading to tragedy.” That pretty much summarizes the situation.

    So what’s next? That’s hard to say. But we do know, at this point, what isn’t next after getting another ‘Saw’ offer like that: Greece isn’t paying the IMF the 300 million euros due Friday. At least, Greece isn’t paying that money on Friday. It turns out there’s a loophole in the IMF rules that allows nations to defer payments for a period, and Greece is using it:

    Bloomberg Business
    Greece Defers IMF Payment as Merkel Says Resolution Far Away

    by Nikos Chrysoloras and Andrew Mayeda
    June 4, 2015 — 1:07 PM CDT
    Updated on June 4, 2015 — 4:19 PM CDT

    Greece became the first country to defer a payment to the International Monetary Fund since the 1980s as its game of brinkmanship with creditors goes down to the wire.

    With Prime Minister Alexis Tsipras getting ready to address parliament on Friday after receiving a list of creditors’ demands, the step underscores the state of the country’s shriveling finances. While international officials have reported some progress in recent days, German Chancellor Angela Merkel said “we’re still far from reaching a conclusion.”

    The current phase of Greece’s crisis is nearing its conclusion as the country runs out of money after four months of deadlock. Stocks and bonds have whipsawed this week amid a flurry of political activity starting with a late-night meeting in Berlin between European leaders and the IMF on Monday.

    “The delay in the payment to the IMF is an escalation of the confrontation,” Nicholas Economides, an economics professor at New York University’s Stern School of Business. “It increases the risk of bankruptcy and Grexit.”

    Tsipras was to hold a call with Merkel and French President Francois Hollande at 11:30 p.m. Athens time on Thursday, a Greek government official who asked not to be named said in a text message.

    Greece rejected the latest proposal from its international creditors, with the Finance Ministry saying the plan “can’t solve the riddle” and an agreement requires “immediate convergence of the institutions to more realistic” proposals.

    The euro fell 0.3 percent against the dollar to to $1.1238 at 3:50 p.m. New York time, after rising to $1.1318 following a report that Greece requested the IMF payment delay.

    1970s Policy

    Greece on Thursday told the IMF it would delay a debt payment of about $339 million (301 million euros) due Friday, submitting a request to the fund to bundle payments totaling about $1.7 billion due this month into one lump-sum payment.

    “The Greek authorities have informed the fund today that they plan to bundle the country’s four June payments into one, which is now due on June 30,” IMF spokesman Gerry Rice said in an e-mailed statement. Under an Executive Board decision adopted in the late 1970s, country members can ask to bundle together multiple principal payments falling due in a calendar month.”

    Only one country, Zambia, has used the procedure to bundle payments, which happened in the mid-1980s, another IMF spokesman, William Murray, said last week.

    Working Group

    The Euro Working Group of euro-area finance ministry officials expects Greece to respond to an European Union proposal to conclude the country’s bailout by June 8, according to a person familiar with the talks. The group, which met Thursday in Brussels, hasn’t set a target date to conclude discussions with Greece, said two people who requested anonymity, citing a lack of authorization to speak publicly.

    Tsipras, who met European Commission President Jean-Claude Juncker in Brussels Wednesday, will address the Greek parliament at 6 p.m. local time on Friday, a Greek official said, with the euro region pressing for an agreement to be wrapped up by June 14. A European official said Greece will study the offer from its creditors and respond on Monday.

    The payment delay probably means the Greek government believes it can get an agreement through parliament by the time liquidity is released, said Jacob Funk Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington. Alternatively, it could indicate that the government is “desperate” and clinging to the “false hope” that the IMF and U.S. will put pressure on euro-area officials, he said.

    So Greece decided to the leave the “take it or leave it” offer, and now we’ve now seen the first IMF payment deferral in decades. And yet the “Eurogroup” of eurozone finance ministers apparently “expects Greece to respond to an European Union proposal to conclude the country’s bailout by June 8, according to a person familiar with the talks”, while the eurozone governments in general seem to be hoping for a June 14 conclusion to the four month showdown.

    Also, the scheduled talks that were supposed to take place on Friday have been cancelled because, according one EU official, “there will be no meeting tomorrow. The Greeks last night agreed to send a compromise on how to solve the few outstanding issues. They did not. So tomorrow no meeting is possible.”

    Yep, according to the negotiating team that just offered Greece another ‘Saw’ offer after it rebelled over the previous ‘Saw’ offers, the breakdown in the talks is apparently due to Greece’s unwillingness to compromise:

    Reuters
    Greek PM Tsipras won’t come to Brussels Friday, talks becoming difficult

    Thu Jun 4, 2015 3:35pm EDT

    Greek Prime Minister Alexis Tsipras will not come to Brussels on Friday to continue talks with the country’s creditors, an EU official said, complicating an agreement in the cash-for-reforms negotiations.

    To speed up talks, Tsipras flew into Brussels on Wednesday evening to meet European Commission President Jean-Claude Juncker but the meeting ended without an agreement although some progress was made, Juncker said.

    More talks were to tale place on Friday evening, officials said.

    “There will be no meeting tomorrow. The Greeks last night agreed to send a compromise on how to solve the few outstanding issues. They did not. So tomorrow no meeting is possible,” the official said.

    Greece was supposed to repay a 300 million euro an instalment of loan from the International Monetary Fund on Friday, the first of four instalments due in June, but told the IMF it would pay everything at the end of the month.

    “The bundling of payments is not a good sign, it will be difficult from here on,” the EU official said.

    Yikes. So the basic offer to Greece remains the same: self-mutilate for a new lease on life and a brighter tomorrow. Take it or leave it.

    We’ve definitely seen this movie before.

    Posted by Pterrafractyl | June 4, 2015, 9:57 pm
  29. @Pterrafractyl–

    Von Clausewitzian economics, the continuation of war by other means.

    Make no mistake about it–this is low-intensity Nazism, low-intensity T-4 program.

    The goal is to kill off the folks too old to work and to poor to live off their investments.

    Newer listeners should check out FTR #788: http://spitfirelist.com/for-the-record/ftr-788-greek-tragedy-part-2-clausewitzian-economics-the-continuation-of-war-by-other-means/

    Best,

    Dave

    Posted by Dave Emory | June 5, 2015, 10:55 am
  30. @Dave: Joseph Stiglitz recently wrote a column that highlights just how dire the situation is not just for Greece but for people all across the ‘periphery’: While the eurozone was supposedly intended to not just unite Europe politically but also bring about economic convergence. But as we’ve seen (and as economic theory predicted), the structure of the eurozone actually encourages economic divergence.

    Systematically encouraging economic divergence is a big problem, but not an insurmountable one, if the eurozone would just do what the US does and systematically transfer wealth from the richest to poorest states. But since the eurozone appears to be based on a philosophy of “social programs are fine, as long as your country can afford them on its own without any assistance from the wealthier members (and let’s all ignore the myriad of ways the eurozone harms the weakest members and helps the strongest)”, that suggests what’s happening in Greece is inevitably going to keep happening to the rest of the economically weaker eurozone states too.

    Especially if a ‘Grexit’ occurs because, at that point, the whole world knows that when things get bad for a eurozone member state, the rest of the eurozone will just force policieis that make the bad situation worse and then eventually kick them out anyways. And that’s the kind of lesson for “the markets” that doubles as a self-fulfilling prophecy:

    Project-Syndicate
    Europe’s Last Act?

    Joseph E. Stiglitz
    JUN 5, 2015

    NEW YORK – European Union leaders continue to play a game of brinkmanship with the Greek government. Greece has met its creditors’ demands far more than halfway. Yet Germany and Greece’s other creditors continue to demand that the country sign on to a program that has proven to be a failure, and that few economists ever thought could, would, or should be implemented.

    The swing in Greece’s fiscal position from a large primary deficit to a surplus was almost unprecedented, but the demand that the country achieve a primary surplus of 4.5% of GDP was unconscionable. Unfortunately, at the time that the “troika” – the European Commission, the European Central Bank, and the International Monetary Fund – first included this irresponsible demand in the international financial program for Greece, the country’s authorities had no choice but to accede to it.

    The folly of continuing to pursue this program is particularly acute now, given the 25% decline in GDP that Greece has endured since the beginning of the crisis. The troika badly misjudged the macroeconomic effects of the program that they imposed. According to their published forecasts, they believed that, by cutting wages and accepting other austerity measures, Greek exports would increase and the economy would quickly return to growth. They also believed that the first debt restructuring would lead to debt sustainability.

    The troika’s forecasts have been wrong, and repeatedly so. And not by a little, but by an enormous amount. Greece’s voters were right to demand a change in course, and their government is right to refuse to sign on to a deeply flawed program.

    Having said that, there is room for a deal: Greece has made clear its willingness to engage in continued reforms, and has welcomed Europe’s help in implementing some of them. A dose of reality on the part of Greece’s creditors – about what is achievable, and about the macroeconomic consequences of different fiscal and structural reforms – could provide the basis of an agreement that would be good not only for Greece, but for all of Europe.

    Some in Europe, especially in Germany, seem nonchalant about a Greek exit from the eurozone. The market has, they claim, already “priced in” such a rupture. Some even suggest that it would be good for the monetary union.

    I believe that such views significantly underestimate both the current and future risks involved. A similar degree of complacency was evident in the United States before the collapse of Lehman Brothers in September 2008. The fragility of America’s banks had been known for a long time – at least since the bankruptcy of Bear Stearns the previous March. Yet, given the lack of transparency (owing in part to weak regulation), both markets and policymakers did not fully appreciate the linkages among financial institutions.

    Indeed, the world’s financial system is still feeling the aftershocks of the Lehman collapse. And banks remain non-transparent, and thus at risk. We still don’t know the full extent of linkages among financial institutions, including those arising from non-transparent derivatives and credit default swaps.

    In Europe, we can already see some of the consequences of inadequate regulation and the flawed design of the eurozone itself. We know that the structure of the eurozone encourages divergence, not convergence: as capital and talented people leave crisis-hit economies, these countries become less able to repay their debts. As markets grasp that a vicious downward spiral is structurally embedded in the euro, the consequences for the next crisis become profound. And another crisis in inevitable: it is in the very nature of capitalism.

    ECB President Mario Draghi’s confidence trick, in the form of his declaration in 2012 that the monetary authorities would do “whatever it takes” to preserve the euro, has worked so far. But the knowledge that the euro is not a binding commitment among its members will make it far less likely to work the next time. Bond yields could spike, and no amount of reassurance by the ECB and Europe’s leaders would suffice to bring them down from stratospheric levels, because the world now knows that they will not do “whatever it takes.” As the example of Greece has shown, they will do only what short-sighted electoral politics demands.

    The most important consequence, I fear, is the weakening of European solidarity. The euro was supposed to strengthen it. Instead, it has had the opposite effect.

    Europe’s leaders viewed themselves as visionaries when they created the euro. They thought they were looking beyond the short-term demands that usually preoccupy political leaders.

    Unfortunately, their understanding of economics fell short of their ambition; and the politics of the moment did not permit the creation of the institutional framework that might have enabled the euro to work as intended. Although the single currency was supposed to bring unprecedented prosperity, it is difficult to detect a significant positive effect for the eurozone as a whole in the period before the crisis. In the period since, the adverse effects have been enormous.

    The future of Europe and the euro now depends on whether the eurozone’s political leaders can combine a modicum of economic understanding with a visionary sense of, and concern for, European solidarity. We are likely to begin finding out the answer to that existential question in the next few weeks.

    As Stiglitz puts it, this is basically the future that the eurozone is flirting with:


    ECB President Mario Draghi’s confidence trick, in the form of his declaration in 2012 that the monetary authorities would do “whatever it takes” to preserve the euro, has worked so far. But the knowledge that the euro is not a binding commitment among its members will make it far less likely to work the next time. Bond yields could spike, and no amount of reassurance by the ECB and Europe’s leaders would suffice to bring them down from stratospheric levels, because the world now knows that they will not do “whatever it takes.” As the example of Greece has shown, they will do only what short-sighted electoral politics demands.

    And that’s what’s Europe is flirting with: teaching the world that short-sighted electoral politics, the kind that celebrate a ‘take no prisoners’ attitude towards Greece while masquerading as sound economics, is exactly what to expect in the future.

    And it all raises a disturbing question: is teaching that lesson to the exactly what Europe’s right-wing elites want? Because it’s still not clear that Greece will leave the eurozone even if it defaults. And it could very well stay in the EU even if it does leave the eurozone. And thanks to the ‘Fiscal Compact’ that nearly all of the EU has signed onto, we could see eurozone member states get kicked out of the eurozone, but stay in the EU and still under the thumb of a fiscal straight-jacket that even eurozone economist tend to see as harmful.

    So who knows, maybe setting up the ‘Grexit’ as a self-fulfilling prophecy is actually seen as desirable? In the next crisis, the remaining countries, maybe Italy or Spain next, could find themselves first undergo even more severe austerity than they did during this crisis (because the ECB won’t have the credibility to step in and calm the markets), and then, after the social safety-net is shredded and the people are clamoring for change, the eurozone can just kick them out of the eurozone and into the kinder, gentler austerity of the Fiscal Compact. Rebuilding the government programs that were destroyed and getting the economy back on track will still be impossible but it will still seem much, much better than before because they’ll be able to spend more than they could under the eurozone straight-jacket.

    Of course, the more weak members that get kicked out, the worse the euro is for the export powerhouses like Germany that benefit the most from having an artifically weaker currency as a result of sharing the euro with weaker nations. But there’s plenty of poor nations in Eastern Europe that aren’t members yet!

    And raises another risk to the ‘Grexit’: the worse Greece is treated as a eruozone member, the less the rest of the non-eurozone public is going to want to join. The eurozone generates an endless stream of bad news because that’s what its policies produce: bad news.

    Poland’s right-wing Prime Minister, Donald Tusk, declared in April of last year that Poland should join the eurozone, but in a few years citing a lack of popular support for thd idea. He also noted that, while Warsaw needed to make sure it was economically safe to join, Poland should join anyways because “it is not only an economic project. It is also a geopolitical project”. Yikes:

    Reuters
    Poland will join the euro but not for ‘several years’: PM Tusk

    Wed Apr 9, 2014 12:22pm EDT

    Poland will join the euro in the future because adoption of Europe’s common currency would raise its status among the Western nations and increase its security, Prime Minister Donald Tusk said on Wednesday.

    Tusk, who has led Poland’s government since 2007, said, however, that Warsaw would not be targeting euro entry in the next “several years”.

    “Entering the euro zone would be, in a strategic take, another anchor that would maintain Poland in the group of the most important Western nations and increase our security,” Tusk told polityka.pl website in an interview.

    This is the first time Tusk has talked about Warsaw’s strategic goal of entering the euro zone in the context of security.

    Other policymakers, including the central bank Governor Marek Belka, have said Warsaw should consider faster euro adoption for geopolitical and safety reasons in the wake of the military conflict between Russia and Ukraine.

    “Let’s not have any illusions. The (financial) crisis has forced a deep integration of the euro zone. Poland will not be joining it in the next several years for both political and economic reasons,” he said.

    Tusk said there was not a sufficient majority backing a necessary change in the constitution, which says only the National Bank of Poland can issue money used in Poland.

    Entering the euro zone would automatically transfer that responsibility to the European Central Bank.

    He pointed to economic factors and said that Warsaw needed to make sure that euro adoption was safe for the economy.

    “We should not stop aiming at euro membership as a target because it is not only an economic project. It is also a geopolitical project,” Tusk said.

    So Poland’s Prime Minister wants the country to join the thing that chews up weak countries and takes over their policy-making…for status and geolitical power. Wow.

    Fortunately, the rest of Poland isn’t so starry-eyed with the lure of status, with 76% rejecting the idea of joining the eurozone in an October poll. Still, opinions can be swayed, especially once the Greek crisis is resolved in a manner that isn’t totally brutal.

    So, all in all, when faced with the inexplicably uncompromising behavior of the troika this whole time and the clear Clausiwitzian direction that Europe keeps heading, it worth considering the possibility that exiting the eurozone is a desired precedent to set because a system where nations get kicked out of the eurozone but stays in the EU with its Fiscal Compact would be a great way to gaurantee the eurozone can stay crazy forever. When the weaker nations find that the rigged nature of the system against the weaker nations and permanent right-wing-ish economic, fiscal, and regulatory policies are too much to bare they can leave, stay in the EU, and letting the rest of the eurzone take an uncompromising stance without really having to unrig the system against weaker states. As long as the financial fallout can be contained, will the rest of the eurozone care if that’s the way it works? (Maybe later)

    Stiglitz warned that future crises are inevitable because that’s reality. And if a ‘Grexit’ happens those future crises are going to be worse, despite all the rhetoric from about creating confidence by enforcing austerity and usury. And if they can kick out Greece while keeping under an EU thumb, maybe that’s the desired outcome.

    In tangentially related news, a number of GOP members of congress are facing the dilemma of what to do if the GOP’s pet King vs Burwell lawsuit that would eliminate the subsidies for the poor in states without state-run exchanges actually wins. Which could happen. And in a number of states that will be impacted it looks like the elected officials’ responses are going to be to do nothing and say “who cares about the poor. No one I know.” It sounds like that’s basically the plan for one camp of the GOPers in congress.

    As you’re well aware, the amerizone crisis hasn’t been fun either.

    Posted by Pterrafractyl | June 6, 2015, 8:07 pm
  31. Here’s an article that does a great job of summarizing the status of the Greek negotiations with the troika: First, EU Commission President Jean-Claude Juncker is publicly whining about Alexis Tripras characterization of the troika’s offer late last week as a “take it or leave it offer.” Juncker emphasized that some things, like cuts to income support for pensioners, are still up for negotiation.

    Presumably Juncker was referring to negotiations with Greece that assumes fewer cuts to pensions means more cuts elsewhere since that’s been the stance the troika has taken thus far. Also, EU Parliament president Martin Schulz warned Greece of dire consequences if it didn’t come to an agreement with the troika and suggested that Greece should get kicked out of the EU, and not just the eurozone, if Greece defaults. And German Vice Chancellor Sigmar Gabriel warned that Europe is as its limits with Greece.

    So the troika is showing Greece flexibility (Greece gets to choose where it slits its own throat), but Greece is also warned that it faces dire consequences if it can’t come to an agreement with the troika. Also, Europe has reached its limits according to Germany’s Vice Chancellor. And Juncker, not Tsipras, is the one that’s acting all personally wounded:

    The Telegraph
    Greece told to strike a deal or face ‘dramatic consequences’
    Time is running out for Syriza and Greece’s lenders to find common ground, European leaders warn

    By Marion Dakers

    11:56 AM BST 07 Jun 2015

    Greece’s creditors are losing patience with the country’s uncompromising stance on its debt obligations, with the heads of the European Parliament and Commission calling on Alexis Tsipras’s government to find common ground for a deal or face “dramatic consequences”.

    Jean-Claude Juncker, President of the Commission, has vented his frustration at Mr Tsipras for rejecting the lenders’ proposals last week without telling his parliament that sticking points such as income support for pensioners had been put on the table for negotiations.

    “He didn’t tell parliament that we did address that subject already,” said Mr Juncker, adding that he is yet to receive a revised proposal from the Greek leadership following Mr Tsipras’ “disappointing” comments.

    “I don’t have a personal problem with Alexis Tsipras, quite the contrary. He was my friend, he is my friend. But friendship, in order to maintain it, has to have some minimum rules,” he said at the G7 summit in Germany.

    Meanwhile, the President of the European Parliament has put further pressure on Greece to agree a deal with its international creditors and unlock rescue funding, warning of “dramatic consequences” if the indebted country resists compromise.

    Martin Schulz told the Welt am Sonntag newspaper that the anti-austerity ruling party Syriza has a responsibility towards the rest of the European Union, not simply its own voters.

    Mr Tsipras took a defiant stance on Friday by postponing a €300m payment to the International Monetary Fund and describing the latest reforms and funding proposal from the troika of lenders as an “unpleasant surprise” and “absurd”.

    Mr Schulz echoed Mr Tsipras’s foreboding tone about how quickly Europe needs to come to an agreement. “Time is running out and the consequences would be dramatic,” he said, warning Greece against “turning down the outstretched hand again”.

    He has also suggested over the weekend that if Greece were to depart from the eurozone, it would spell “automatic exit from the EU”..

    Greece’s finance minister Vanis Varoufakis has made a fresh push for debt relief as part of the revised package. “As finance minister, I’ll refuse to put my signature on a deal” like the one currently on the table, Mr Varoufakis told Proto Thema newspaper. “We will not sign a deal that extends this self-feeding crisis of the last five years.”

    Mr Varoufakis likened Greece’s situation to post-war Germany in a blog post on Sunday. “As I write these lines, the Greek government is presenting the European Union with a set of proposals for deep reforms, debt management, and an investment plan to kick-start the economy. Greece is indeed ready and willing to enter into a compact with Europe that will eliminate the deformities that caused it to be the first domino to fall in 2010.

    “But, if Greece is to implement these reforms successfully, its citizens need a missing ingredient: Hope. A ‘Speech of Hope’ for Greece would make all the difference now – not only for us, but also for our creditors, as our renaissance would terminate the default risk.”

    The bickering over the weekend comes ahead of a planned meeting between Mr Tsipras and other European leaders this week to discuss the increasingly urgent funding requirements for Greece.

    Angela Merkel, the German Chancellor, and the French President Francois Hollande are expected to meet with Mr Tsipras on Wednesday, having spent the weekend monitoring the situation from Bavaria, where Germany is hosting the latest G7 summit.

    Officials have said a fresh bail-out deal must be done by mid-June, in time to get political approval for the next tranche of financial support before Greece’s €240bn package runs out at the end of the month. The country has invoked a rule created by the IMF in the 1970s that allows it to bundle all of its €1.6bn payments due this month into one.

    German Vice-Chancellor Sigmar Gabriel, a member of the Social Democratic party, said on Saturday that a deal “depends solely on the Greek government. Europe has gone to its limits.” However, he added that the help will continue as Greece remains part of the EU..

    Yes, Greece has been shown fexibility and options. Options like agreeing to the prior offer without additional relief since, as Sigmar Gabriel warned, “Europe has gone to its limits”. And Sigmar Gabiel was speaking for a growing number of Angela Merkel’s coalition members:

    Financial Times
    Germany’s ruling coalition closes ranks on Greek crisis

    Stefan Wagstyl in Garmisch-Partenkirchen
    June 7, 2015 6:55 pm

    German chancellor Angela Merkel is under growing domestic pressure to maintain a tough line in the Greek crisis, as frustration mounts at the failure to reach a bailout deal with Athens.

    Leaders of the ruling conservative-social democrat coalition — including SDP politicians who have been more sympathetic to Greece than their conservative allies — are becoming increasingly blunt in blaming the Greek government for the crisis.

    Any bailout deal Ms Merkel presents to parliament could now face an unprecedented level of opposition without dramatic last-minute concessions from Athens.

    “Europe had exhausted its possibilities” in offering compromises to Athens, Social democrat leader Sigmar Gabriel said this weekend, adding his voice to those accusing the Syriza government of intransigence.

    Alexis Tsipras, the Greek premier, “is not ready to approach the things that he himself must resolve,” Mr Gabriel said in a newspaper interview.

    Martin Schulz, the German social democrat European Parliament president, told another German newspaper: “The wrongheadedness of the Greek government is irritating.” He said the EU had come “very, very far” in accommodating Greek demands and Athens should “now move in the direction of the compromise” presented by the bailout monitors.

    The tougher line on the left of Ms Merkel’s coalition comes after MPs in the chancellor’s own CDU/CSU bloc have made clear that they may oppose any new aid for Greece without comprehensive reforms.
    In depth

    German MPs’ views are critically important because parliament must approve any deal that involves lending Athens more money.

    Peter Ramsauer, CSU chairman of parliament’s economic affairs committee, summed up the frustration on the right when he said in a weekend interview: “Germany cannot afford another dirty compromise.”

    “After the undignified Mediterranean haggling over Greece’s reform promises” the Bundestag had to vote both on changes in the current aid package and on any future new programme, he added.

    Ms Merkel comfortably won a February parliamentary vote on extending the current aid programme for Greece to allow time for negotiations. But 29 of the 32 votes cast against the proposal came from the CDU/CSU. Since then 135 of the conservatives’ 311 MPs (in the 630-seat assembly), have aired reservations.

    With the opposition Green and far-left Linke parties still backing more aid for Greece, Ms Merkel would almost certainly win a parliamentary vote on assisting Athens further. But a failure to keep her own troops in order would embarrass the chancellor.

    Detlef Seif, A CDU member of the EU affairs committee, told the FT he would vote against any new aid programme. Mr Seif said that even the proposals now put forward by the bailout monitors were “unsustainable” because Athens could not reasonably repay its debt.

    “The EU is not a transfer union.”

    Bild, the tabloid newspaper, caused a stir by highlighting finance minister Wolfgang Schäuble’s absence from last week’s the emergency Greece summit hosted by Ms Merkel. Although suggestions of a split between Ms Merkel and Mr Schäuble have been played down, the difference between the finance minister’s tough rhetoric and the chancellor’s more conciliatory tone has grown in recent days.

    A CDU MP said that, despite Mr Schäuble’s apparent misgivings, if Ms Merkel presented parliament with a coherent rescue programme she would win over most CDU/CSU critics. But he admitted the job was getting harder by the day.

    Ok, so…:

    Any bailout deal Ms Merkel presents to parliament could now face an unprecedented level of opposition without dramatic last-minute concessions from Athens.

    German MPs’ views are critically important because parliament must approve any deal that involves lending Athens more money.

    But also note the expectation that Angela Merkel should be able to push through any deal she needs eve if it includes more aide for Greece, but it could come at a price:

    With the opposition Green and far-left Linke parties still backing more aid for Greece, Ms Merkel would almost certainly win a parliamentary vote on assisting Athens further. But a failure to keep her own troops in order would embarrass the chancellor.

    So if Greece apparently faces dire consequences unless it can negotiate a deal with the troika which, as everyone knows, takes its marching orders from Germany. And Angela Merkel should be able to push through the kind of compromise package Tsipras needs to fulfill his electoral mandate, but would do so at her own grave political peril, with the leaders from both the CDU and SPD piling onto the ‘Greece gets nothing’ bandwagon.

    The flexibility facing Greece in the the remaining negotiations is going to be intense.

    Posted by Pterrafractyl | June 7, 2015, 11:50 pm
  32. It’s been quite a week for Greece and its troikan tormenters. First, the IMF walked out on the talks citing frustration with…well, everyone. Everyone else also cited frustration with everyone:

    Reuters
    IMF angry at Greeks but frustrated at euro zone too
    When the International Monetary Fund announced it had ordered its team home from stalled debt talks with Greece, the gesture of frustration was aimed chiefly at Athens but also at euro zone governments, sources familiar with the talks say.

    June 12, 2015 10:51 pm

    When the International Monetary Fund announced it had ordered its team home from stalled debt talks with Greece, the gesture of frustration was aimed chiefly at Athens but also at euro zone governments, sources familiar with the talks say.

    The pullback partly reflected exasperation at the chaotic way in which the talks have been conducted, with technical experts denied access to Athens’ public accounts, kept cooped up in hotels and latterly forced to cool their heels while talks moved to a political level involving government leaders.

    “The IMF wanted to pass messages to both sides,” one Brussels source familiar with the IMF’s position said.

    IMF spokesman Gerry Rice cited “major differences” over pensions, taxation and financing when he announced on Thursday that the global lender’s representatives had returned to Washington in the absence of progress in the negotiations.

    The leftist Greek government has rejected proposals by the creditors to scrap an income top-up for poorer pensioners and reduce state subsidies of pension funds, and refused to raise value added tax on electricity and other household necessities.

    But by mentioning financing, the IMF also wanted to signal is exasperation at European governments’ refusal to discuss debt relief for Greece, without which IMF officials say the country’s finances simply won’t be sustainable.

    In the Fund’s eyes, if Greece is allowed to make less of a fiscal adjustment than originally sought, someone else has to put in extra money or reduce debt costs to make the numbers add up. And that someone can only be European governments.

    “The more distant the measures and targets from the original commitment made in 2012, the higher the need for additional financing and indeed debt relief to make Greece’s debt sustainable,” Rice told reporters.

    A person familiar with the talks said the IMF has been telling euro zone creditors and the European Central Bank for months that a combination of restructuring existing loans and bonds and providing additional lending will be necessary to enable Greece to put its finances on a sound footing and stay in the euro zone.

    “When we talk about debt relief, the Europeans just don’t want to listen,” the person said.

    TRUTH-TELLER

    German Finance Minister Wolfgang Schaeuble has taken the lead in refusing to discuss any easing of Greece’s debt load until it has fully implemented the reforms promised by previous governments and completed the bailout programme.

    German public opinion is so negative about bailing out Greece that Schaeuble fears any mention of fresh money or write-offs for Athens could make it impossible to get the disbursement of the remaining bailout funds through the German parliament.

    But behind the curtain, informal discussion of debt relief is taking place, one person familiar with the talks said.

    “There is a conversation,” he said, without giving details.

    The Fund sees its role as a truth-teller, ensuring that a borrowing country’s public finances are sustainable. That calculation combines loan maturities, interest rates, economic growth, productivity and the fiscal balance.

    But unlike in dozens of bailouts around the world, the IMF is not in control in the euro zone, where it plays second fiddle to European governments, with the European Central Bank an uneasy third partner in trying to enforce the programme.

    And having lent substantially more to Greece than in any previous bailout in its history, the IMF is unlikely to contribute money to any third programme, although it has not formally ruled that out. European creditors would insist that it continue to provide expertise and help monitor compliance.

    In the case of Greece, which has a debt mountain equal to 185 percent of gross domestic product, sustainability requires running a significant budget surplus before interest payments.

    But with the economy back in recession and the government determined to avoid harsher austerity measures, the creditors are talking about reducing the primary surplus target.

    Rice noted that pensions and wages account for 80 percent of Greece’s total primary government spending.

    “So it’s not possible for Greece to achieve its medium-term fiscal targets, without reforms and especially of pensions. I think it’s been acknowledged by all sides that the Greek pension system is unsustainable,” he said.

    According to the IMF, the government spends 10 percent of GDP subsidising pensions, compared to a 2.5 percent average in the euro zone. The average pension in Greece is only slightly lower than in Germany, although Greeks retire on average six years younger and Greek GDP-per-capita is half that of Germany.

    On taxes, Rice said Greece’s policy of imposing ever higher tax rates on a narrow tax base was unsustainable, so it was essential to broaden the tax system.

    “Greece has among the largest gaps in the European Union on VAT revenues that are actually collected versus VAT that should be collected, given the rates,” he said.

    So no one is happy with anyone, and Germany is getting extra-pissed, with German Finance Minister Wolfgang Schaeuble taking the lead for the “no concessions”-camp of Berlin’s policy-makers. At the same time, talk of Greek debt-relief is apparently still taking place. Informally:

    German Finance Minister Wolfgang Schaeuble has taken the lead in refusing to discuss any easing of Greece’s debt load until it has fully implemented the reforms promised by previous governments and completed the bailout programme.

    German public opinion is so negative about bailing out Greece that Schaeuble fears any mention of fresh money or write-offs for Athens could make it impossible to get the disbursement of the remaining bailout funds through the German parliament.

    But behind the curtain, informal discussion of debt relief is taking place, one person familiar with the talks said.

    “There is a conversation,” he said, without giving details.

    And if the picture painted in the article below is correct, if Wolfgang Schaeuble decides to mount a revolt in the German parliament over how Merkel decides to handle the Greek negotiations, Wolfgang will get that revolt:

    Der Spiegel

    Brewing Conflict over Greece: Germany’s Finance Minister Mulls Taking on Merkel

    By Peter Müller, René Pfister and Christian Reiermann

    June 12, 2015 – 05:55 PM

    It was a dramatic week. One in which the rumors did the rounds that Finance Minister Wolfgang Schäuble was basically as good as gone; that he had fallen out with Chancellor Merkel and was planning a coup. Then, at the end of this turbulent week, Schäuble made a joke.

    Schäuble is extremely good at shrugging off conflict with gallows humor — a gift that has served him well throughout his lengthy career. He is well aware that a handful of Social Democrats aren’t the only ones talking about the widening rift in the government. Insiders who know Merkel well are saying the same. The chancellor has to answer one of the hardest questions she’s had to face since assuming office, namely, should Greece be allowed to remain in the euro, or should the whole drama be brought to a spectacular close with a Grexit.

    Merkel would like Greece to remain in the euro. Not necessarily at any cost, but she’s prepared to pay a high price. Schäuble is not. He is of the opinion that a Greek withdrawal from the euro zone is in Europe’s best interests. Which of them is the more intransigent? Merkel, whose popularity serves as the backbone of the EU? Or Schäuble, for whom there is considerable good will among members of parliament, fed up as they are with having to approve one bailout package after another?

    Schäuble is convinced that Europe can only succeed if everyone abides by the rules and Greece is prepared to accept what he calls “conditionaity,” in other words, that credit depends on Greece respecting the terms of its creditors. Merkel basically agrees. But a Grexit could upset the financial markets, and then what? She is reluctant to risk looking like she prioritized national interests and undermined the founding principles of the EU.

    His Own Man

    It’s an emotionally-charged disagreement that reflects the complex relationship between two politicians who do not completely trust one another.

    Schäuble is something of an éminence grise in the German government: He became a member of parliament in 1972, when Merkel was preparing to graduate from high school in Templin. In 1998, as head of the CDU/CSU parliamentary group in the Bundestag, he made Merkel his secretary general, but then became enmeshed in the CDU donations scandal. Merkel succeeded him in 2000.

    Although she’s the one in charge, he intermittently makes it clear that he remains his own man; that he doesn’t kowtow to anyone. Appointed finance minister in 2009, Schäuble remarked that Merkel likes to surround herself with people who were uncomplicated, but that he himself was not uncomplicated. He tends to be a little derisory about Merkel, admiring her hunger for power but deeming her too hesitant when the chips are down.

    The euro crisis first drove a wedge between them in 2010, when they disagreed on the International Monetary Fund’s contribution to the Greek rescue fund. Schäuble was against it, on the grounds that Europe should sort out its problems by itself. Merkel, however, was keen to enlist the help of a body that has clear criteria when it comes to offering aid, and which would therefore prevent the Europeans from making one concession after another. Merkel prevailed.

    But they’ve now traded positions. Schäuble believes that enough concessions have been made to Greece and he’s bolstered by the frustration currently rife in his parliamentary group over Merkel’s strategy. It will be hard for Merkel to secure majority support if he opposes her, so her fate is effectively in his hands.

    Both of them understand the stakes, which is why they are both at pains to keep their disagreement under wraps. Whenever he’s asked if he has fallen out with Merkel, Schäuble likes to pull a shocked expression, respond with a barrage of insults and throw out terms such as “amateur economist” — although this isn’t necessarily as bad as it sounds, given that Schäuble describes himself as a “middling economist,” at least in comparison to the “great economist” Yanis Varoufakis.

    Turning to Euphemisms

    When it got out that Schäuble had not been invited to a recent summit at the Chancellery of the Troika, made up of the IMF, the European Commission and the European Central Bank, his spokesman Martin Jäger played down the snub. Government spokesman Steffen Seibert, meanwhile, insisted that “the Chancellor and the Finance Minister have an excellent working relationship that is both friendly and trusting.”

    As it happened, Schäuble had engineered the summit himself at an earlier meeting of the G7 finance ministers in Dresden. Which isn’t to say that he approved of it. His displeasure was noted at the Chancellery but met with bemusement — after all, it is the Troika’s job to reach consensus on dealing with Greece, a fact it feared the Finance Ministry had forgotten.

    The conflict is not about differences in their respective assessments of the situation. Merkel’s people can calculate the extent of Greece’s problems exactly. It’s a country that in 2012 had to spend over 17 percent of its GDP on pension payments — a figure unsurpassed anywhere else in Europe. But Athens nonetheless refuses to makes cuts. Neither Merkel nor Schäuble believe that the privatization process is making any headway and are concerned that the Greek government’s erratic policies are scaring off investors. The EU Commission has revised growth predictions for this year downwards from 2.5 percent to 0.5 percent.

    Where they differ is when it comes to the consequences. Schäuble is well aware that he’s the embodiment of the despicable German to most Greeks, and makes an effort to curb his trademark gruffness. When he was visited in Berlin last week by Varoufakis he began their meeting by presenting him with a gift of chocolate euros that he himself had been given by a reporter from a children’s TV show. “Yanis, have this nourishment for the nerves,” he said. “You’re going to need it.”

    Refusing to be Blackmailed

    But once the courtesies had been dealt with, it was down to business. Varoufakis listed his objections to the Troika’s proposals for what felt like the zillionth time: No, pensions can’t be cut; no, value-added tax cannot be raised as Greece’s creditors are demanding — oh, and Greece would like debt relief. Rather than agreeing to cuts to the tune of €5 billion, Varoufakis asked for a new round of aid, which Schäuble’s experts calculated at some €30 billion. “We have a responsibility to Europe,Wolfgang,” he told his host.

    For his part, Schäuble listened patiently. But he essentially has no desire left to talk to Varoufakis. He’s told his people that he feels too old to keep flogging the same dead horses. Moreover, Varoufakis no longer has much say in Athens now that Prime Minister Alexis Tsipras has begun negotiating with creditors himself.

    There is nothing Schäuble hates more than being superfluous to discussions. So he told Varoufakis that he had no mandate to negotiate, nor did the chancellor. The Greeks could only talk to the Troika, he stressed, and a political decision could only be made if the Troika accepts the Greek proposals.

    However, as far as Schäuble can tell, the Greeks show no signs of progress — at least not to the extent he deems necessary. He believes that the Greek rescue only makes sense if there is a realistic chance that the country can get back on its feet. Schäuble is eager to rescue the euro, but not to rescue a country that has opted to live at the expense of others and thereby to jeopardize the currency.

    Nor will he allow himself to be blackmailed, and in his eyes, that’s exactly what Varoufakis’ tireless reiteration of Germany’s responsibility for keeping the EU together amounts to. After his meeting with Schäuble, Varoufakis gave a talk at the French Cathedral in the heart of Berlin, and called upon Merkel to make what he termed a “speech of hope” to the Greek people. To Schäuble’s ears, the appeal sounded suspiciously like a call to pay up, already!

    So far, Merkel has never been overly bothered about going down in the history books. But if she does end up hounding Greece out of the euro, the development will certainly be more than a footnote. Which is one possible reason for her hesitancy. She, not Schäuble, will be the one who has to deal with the inevitable criticism and attacks.

    A Sinister Agenda?

    That’s why she’s so annoyed with Schäuble. And he is suspected of having more sinister motives. Could he be out to destroy Kohl’s legacy because he has been denied the opportunity to build on it himself? It’s a stretch, to be sure, but the fact that many in the CDU are thinking in such Shakespearean terms suggests that they are keeping a close eye on Schäuble.

    If he wanted to, Schäuble could easily drum up support for a rebellion against Merkel. In February, when the Bundestag voted to extend financial aid to Greece, over 100 members of parliament stressed it was for the last time — and only voted in favor of the extension because Schäuble had made his position on Greece clear. Were he to give it the thumbs down, Merkel will have a tough time persuading her party otherwise.

    Merkel could see the effect of Schäuble’s comment and chose not to respond with her own version of events. But she can only hope that he refrains from starting a rebellion. She knows how stubborn he is, but ultimately, he has always ended up toeing the line. He owes his longevity to his resilience. He put up with forever being Kohl’s crown prince, and he put up with Merkel passing him over and appointing Horst Köhler president. The expectation in Merkel’s circles is that he will now put up with her decision on Greece — reluctantly, perhaps, but he will be loyal nonetheless.

    There is much to back up this theory. “The finance minister needs to accept that the chancellor might not always agree with him,” he said in the fall of 2009, shortly after he assumed office. But now that he will be turning 73 this September, he might no longer feel he needs to be as agreeable. Being obstinate, after all, is the prerogative of the elderly.

    Ok, so something “Shakespearian” is going on between Merkel and Schaeuble right now:

    That’s why she’s so annoyed with Schäuble. And he is suspected of having more sinister motives. Could he be out to destroy Kohl’s legacy because he has been denied the opportunity to build on it himself? It’s a stretch, to be sure, but the fact that many in the CDU are thinking in such Shakespearean terms suggests that they are keeping a close eye on Schäuble.

    If he wanted to, Schäuble could easily drum up support for a rebellion against Merkel. In February, when the Bundestag voted to extend financial aid to Greece, over 100 members of parliament stressed it was for the last time — and only voted in favor of the extension because Schäuble had made his position on Greece clear. Were he to give it the thumbs down, Merkel will have a tough time persuading her party otherwise.

    So there’s apparently a belief that Germany’s Finance Minister is secretly plotting on undermining the eurozone as some sort of revenge on Helmut Kohl’s legacy and many in the CDU share that belief. And the ball is in Greece’s court, apparently.

    And look at that. The talks collapsed again, with Germany’s SPD Vice Chancellor Sigmar Gabriel announcing that “We will not let the German workers and their families pay for the overblown election promises of a partially communist government”:

    Bloomberg Business

    Greece Enters Fateful Week After Brussels Talks End Fruitlessly

    by Jonathan Stearns and Marcus Bensasson

    June 14, 2015 — 12:15 PM CDT
    Updated on June 14, 2015 — 5:02 PM CDT

    Greece enters what could be a defining week after last-ditch negotiations between representatives of the Greek government and its creditors collapsed on Sunday.

    The euro dropped as the European Commission said the talks in Brussels had broken up after just 45 minutes with the divide between what creditors asked of Greece and what its government was prepared to do unbridged. The focus now shifts to a June 18 meeting in Luxembourg of euro-area finance ministers, known collectively as the Eurogroup, that may become a make-or-break session deciding Greece’s ability to avert default and its continued membership in the 19-nation euro area.1
    “While some progress was made, the talks did not succeed as there remains a significant gap,” the commission said in a text message. “On this basis, further discussion will now have to take place in the Eurogroup.”

    The latest failed attempt to find a formula to unlock as much as 7.2 billion euros ($8.1 billion) in aid for the anti-austerity government of Prime Minister Alexis Tsipras brings Greece closer to the abyss. With two weeks until its euro-area bailout expires and no future financing arrangement in place, creditors had set June 14 as a deadline to allow enough time for national parliaments to approve an accord.

    The euro dropped 0.4 percent to $1.1219 in early trading on Monday in New Zealand on news of the breakdown. Greek bank stocks led the decline at the end of last week as the Athens Stock Exchange Index posted its biggest drop in four months.

    Ever Nearer

    Failure to reach a deal in Luxembourg wouldn’t necessarily spell the end of the road for Greece. Assuming the government has enough cash tucked away, its finances could survive until July, when it owes about 3.5 billion euros in redemptions on bonds held by the European Central Bank. Thursday’s meeting is still key to any resolution, with incalculable consequences for Greece and the euro region if the sides remain deadlocked
    “The shadow of a Greek exit from the euro zone is becoming increasingly perceptible,” German Vice Chancellor and Economy Minister Sigmar Gabriel wrote in an op-ed to be published in Bild on Monday. “Greece’s game theorists are gambling the future of their country. And Europe’s too.”

    Pensions, Taxes

    More than four months after he was swept into office on a wave of public discontent about budget cuts that deepened a six-year Greek recession, Tsipras has refused to meet the demands of the euro area and the International Monetary Fund. The core points of contention are pension cuts, tax rises and targets for a budget surplus before interest payments, known as a primary surplus.

    “The Greek proposals remain incomplete,” the commission said after Sunday’s session. The gap between the parties on fiscal measures needed is “in the order” of 2 billion euros annually, according to the commission.

    The Greek government blamed the euro area and the IMF, which together finance Greece’s 240 billion-euro rescue program first drawn up in 2010, for sticking with demands that it says are economically senseless and politically unacceptable.

    German Warnings

    Greece’s creditors insisted that the difference between the two sides on the size of the primary surplus needed to be covered entirely by pension cuts and increases in value-added tax, Greek Deputy Prime Minister Yannis Dragasakis said in an e-mailed statement on Sunday. He was part of the Greek delegation in Brussels.

    As those deliberations were taking place, lawmakers from across the political divide in Germany, the biggest country contributor to Greece’s aid, united to issue the most explicit warnings yet that Greece is at risk of exiting the euro.

    “A Grexit must be factored in if the Greek government doesn’t do what it’s long been called upon to do,” Michael Grosse-Broemer, the parliamentary whip for Chancellor Angela Merkel’s Christian Democratic-led bloc, said in a ZDF television interview on Sunday.

    Gabriel, the leader of Merkel’s Social Democratic Party coalition partner, who in February urged patience and dialogue with Greece, was more direct.

    “We will not let the German workers and their families pay for the overblown election promises of a partially communist government,” he said.

    It’s looking like, if there is an agreement, it’s going to be found at the absolute last minute because the way the situation is being described Greece and the troika are still far apart on the demand to gut Greece pensions. Greece’s
    not very generous pensions:

    Associated Press

    Greece’s Pension System Isn’t That Generous After All

    By Matthew Dalton

    Feb 27, 2015, 12:50 pm ET

    Greece’s pension system has become a flash point in the new government’s talks with its international creditors. Prime Minister Alexis Tsipras has vowed to fight more cuts to the system, while Greece’s creditors say more cuts are probably necessary to ensure the government can pay its bills.

    Before dealing with that question, they’ll need some facts about Greece’s baroque pension system. At first glance, it might seem too generous. But dig a little deeper, and the picture becomes more complicated.

    First, how much does Greece spend as percentage of GDP on pensions? The data from Eurostat looks like this as of 2012, with Greece expenditure easily highest in the eurozone as a percentage of GDP:

    [see Pensions Spending, % of GDP, 2012]

    But part of that is due to the collapse in GDP suffered by Greece during the crisis. Suppose you look at pension expenditure as a percentage of potential GDP, the level of economic output were eurozone economies running at full capacity:

    [see Pensions Spending, % of Potential GDP, 2012]

    Greece is still near the top, though it’s not so far from the eurozone average. Moreover, Greece’s high spending is largely the result of bad demographics: 20% of Greeks are over age 65, one of the highest percentages in the eurozone. What if instead you attempt to adjust for that by looking at pension spending per person over 65 (see note below):

    [see Pensions Spending, per 65+]
    Adjusting for the fact that Greece has a lot of older people, its pension spending is below the eurozone average. In fairness to Germany and other scolds of Greece, this only happened after major cuts imposed on the pension system by the European Commission, the International Monetary Fund and the European Central Bank — the troika representing its international creditors. But it’s also worth remembering that 15% of older Greeks were at risk of poverty in 2013, above the eurozone average of 13% and a figure that has almost certainly risen over the last year.

    As we can see, Greece’s adjusted pension costs may be below the eurozone average, and a collapsing economony and bad demographics may be making Greece’s pension unavoidably pricey, but, as we saw above, that’s not going to stop the troika from making another ground of major pension cuts an absolute demand to avoid a ‘Grexit’. And another round of pension guttings is one of Syriza’s “red lines”.

    So that’s the state of the Greece/troika negotiations: the IMF walked out because Greece isn’t crazy enough to go along with its austerity demands and the European Commission and Berlin are too crazy. And there were reports that many In Merkel’s own party wonder if Wolfgang Schaeuble might be trying to bring down the eurozone out of some sort of Shakesperian revenge thing directed at Helmut Kohl.

    It’s been quite a week.

    Posted by Pterrafractyl | June 14, 2015, 11:52 pm
  33. Isn’t this cute: Volker Kauder, a CDU parliamentary leader and close Merkel ally, announced that there’s just no way for the German parliament to back any new agreement for Greece because the IMF has backed out of the talks. As Kauder put it, “We all know what’s at stake. No one else in Europe is carrying the responsibility for this except Greece itself”:

    Reuters

    Without IMF, German parliament won’t back any Greece deal -Kauder
    BERLIN, June 15
    Bonds | Mon Jun 15, 2015 2:23am EDT

    The German parliament will not back any agreement to rescue Greece if the International Monetary Fund (IMF) is not taking part, the parliamentary leader of Chancellor Angela Merkel’s conservative Christian Democrats (CDU) said on Monday.

    Volker Kauder, a close Merkel ally, also said that Merkel clearly wants Greece to remain in the euro zone. He said that Greece leaving the euro zone would definitely not be a cheaper alternative to its staying in the currency bloc.

    “I couldn’t vote for a further payment if the IMF says it won’t work,” Kauder told ARD TV. “We’re pleased that the IMF is with us but if it says it won’t work then our parliamentary group will also say we can’t pay out further (loan) tranches.”

    “We all know what’s at stake. No one else in Europe is carrying the responsibility for this except Greece itself.

    “Not only Angela Merkel (wants to keep Greece in the euro), a lot of people want that….We’re saying Greece should remain. But it won’t work that Greece sets the terms and says ‘everyone else has to dance to our tune’. Greece needs to get back to reality.

    Yes, Greece needs to “get back to reality” because “No one else in Europe is carrying the responsibility for this except Greece itself”. Interestingly, the part of reality that involves the IMF also walking out of the negotiations over frustrations with the European Commission and ECB over their refusal to forgive some of Greece’s debt appears to be left out of Kauder’s assessment of who all is “carrying the responsibility” for the situation.

    It also seems to be leaving out this interesting report: Europe apparently offered to let Greece defer pension cuts, in exchange for military cuts instead. And the IMF vetoed it:

    Huffington Post
    Europe Offered Greece A Deal To Meet Its Obligations By Cutting Military Spending. The IMF Said No Way.

    Daniel Marans
    Posted: 06/15/2015 5:16 pm EDT

    While European leaders and International Monetary Fund representatives continue to blame Greece for the impasse in negotiations over the terms of Greece’s bailout, a Saturday report by the German newspaper Frankfurter Algemeiner Sonntagszeitung reveals the IMF vetoed a compromise that cut military spending proposed by the European Commission.

    European officials involved in the negotiations told the Frankfurter Allgemeine Sonntagszeitung that the vetoed proposal, put forward by European Commission President Jean-Claude Juncker, would have allowed Greece to defer 400 million euros in pension cuts, as long as it cut an equivalent amount from its military budget. The German newspaper reported that German Chancellor Angela Merkel and French President François Holland had signed off on Juncker’s compromise plan.

    The IMF denied the accounts of the officials who spoke to the Frankfurter Allgemeine Sonntagszeitung.

    If the report is correct, ideology is playing just as much of a role as arithmetic in preventing a resolution. The IMF’s refusal to consider a plan that would lessen pension cuts is consistent with its historically neoliberal political philosophy.

    The report also belies claims by Greece’s troika of creditors — the IMF, European Commission and European Central Bank — that they remain unified in their firm negotiating stance. In addition, it appears to confirm that the IMF is the most hawkish of the three creditor parties.

    Greece owes the IMF a 1.6 billion euro repayment by the end of June, but in order to make the repayment, it needs access to the final 7.2 billion tranche of bailout money that the troika is withholding. The troika has made release of the last bailout installment conditional on hard budget surplus targets and reforms. Greece’s left-wing government wants more flexible terms to allow its economy to recover and restore funding to its social programs.

    Talks between Greece and European creditors fell apart on Sunday after negotiators met briefly and were unable to bridge differences. European Commission negotiators said talks broke up over Greece refusal to agree to 2 billion euros in permanent budget savings. Greece said it wanted to continue negotiating, but the creditors refused to do so.

    Key sticking points between the two sides include the size of Greece’s primary surplus requirement, a proposed value-added tax increase and cuts to Greece’s pension. Greece also wants a cancellation of a significant portion of its debt, which the troika has said it will not allow to become part of negotiations over the release of the 7.2 billion euro bailout installment.

    So the IMF wants the eurozone to agree to cancel some of Greece’s debt, which is being refused. And the eurozone wants Greece to cut its military spending in place of pension cuts (although it sounds like the cuts are just deferred) and IMF refused. And the German parliament refuses to approve of any new packages unless the IMF signs off on it.

    And yet…

    “We all know what’s at stake. No one else in Europe is carrying the responsibility for this except Greece itself.”

    Posted by Pterrafractyl | June 15, 2015, 2:39 pm
  34. One of the major sticking points in Greek discussions is military spending
    http://news.forexlive.com/!/one-of-the-major-sticking-points-in-greek-discussions-is-military-spending-20150616

    For all the austerity, Greece has a very well-funded military

    In debate and debate about global austerity, one thing we’ve learned time and time again is that military spending is sacred. When there is talk about budget savings, it’s almost never in the discussion.

    You can draw your own conclusions why but this might be instructive.

    In Greece, they’ve cut everything but the military budget is still high. The most-recent numbers I can find show Greece spent 2.5% of GDP on the military in 2014 and that ratio has likely risen since. In comparison, Germany spends just 1.3%, Italy 1.5% and even nuclear power France only 2.2%.

    German newspaper Frankfurter Allgemeine Sonntagszeitung reported yesterday that the EU’s Juncker put forward a proposal that would have allowed Greece to defer 400 million euros in pension cuts if it cut the same amount from military spending.

    What happened? The IMF vetoed it.

    Evidently, the EU hasn’t given up on the idea and a report from MNI, citing unnamed sources, says the Juncker proposal is still on the table and that Greece can still submit counter proposals to get a deal, including ones that increase cuts in military spending.

    Posted by Doug the Idiot | June 16, 2015, 2:47 pm
  35. @Doug: Note that Juncker’s offer was merely to defer the pension cuts in exchange for the military spending cuts, so it wasn’t exactly a great offer. Still, anything that helps plug up a giant military hardware procurement money-hole is something worth considering.

    But you also have to wonder how serious this proposal was and how much of it was just theatrics, the IMF playing the role of “bad cop” this time around. Because it’s not like the issue of Greek military cuts hasn’t happened before, with similar results:

    Greek Reporter
    Greece Waits for EU’s Answer: Pensions Cut, Military Spared

    economy
    Politics

    by Andy Dabilis – Feb 17, 2012

    ATHENS – We’ve done our part, now you do yours, Greece has told leaders of the Eurozone and Troika who will decide whether the country gets a second bailout of $169 billion to complement a first ongoing series of $152 billion in rescue loans to keep the country from defaulting and being unable to pay workers and pensioners. European Union leaders were supposed to decide on Feb. 15 whether to release the money after Greece’s coalition government rammed through new austerity measures in the face of violent protests, but has kept Greece twisting in the wind, saying it may make up its mind in a meeting in Brussels on Feb. 20 – or maybe March 2, and even floating the idea that it may not decide until after Greece’s elections, tentatively set for some time in April or May.

    All that delay has undermined the urgency to pass new cuts of up to 32 percent in the minimum wage and deprive private sector workers of bargaining fights, pushed through Parliament in one day by interim Prime Minister Lucas Papademos, who said Greece would have collapsed into chaos otherwise, and after Finance Minister Evangelos Venizelos said he wouldn’t have enough time to finish a deal to write down as much as 70 percent of Greece’s debt otherwise. Those deadlines have passed.

    Leaders of the Troika of the EU-International Monetary Fund-European Central Bank said they wanted written assurances from the coalition, now compromised of holdover ministers of the former ruling PASOK Socialists and their bitter rival New Democracy conservatives to uphold the reform measures, and got them. Then they said they wanted Greece to show how it would make $426 million more in cuts in the 2012 budget and got it when PASOK leader George Papandreou, the former Prime Minister hounded out of office late last year in the wake of two years of protests, riots and strikes against austerity measures and New Democracy leader Antonis Samaras reneged on their promises not to allow cuts in pensions in return for cutting the minimum wage.

    The newspaper Kathimerini reported that other cuts will come in special salaries, which include public sector wages for doctors, judges, diplomatic staff and the police. The cuts are expected to reach 10 percent and in some cases 20 percent of salaries and are set to come into effect on July 1, as opposed to September 1 as originally planned, and designed to save $118-$131 million, while another $65 million in cuts will be made in the health sector. Pensioners who thought they had been spared by pledges from Papandreou and Samaras will see their benefits cut a reported 15 percent while defense spending was exempted after the Troika rejected military cuts.

    Government spokesman Pantelis Kapsis said Greece had no more loose ends. “The process for the new program and the cuts have been concluded,” he said. “There are no more economic issues outstanding.” He denied that some Eurozone finance ministers had suggested obtaining from Greece’s smaller parties a commitment to the package of austerity measures and structural reforms Parliament passed. He wouldn’t’ respond to a suggestion from German Finance Minister Wolfgang Schaeuble that Greece should postpone elections planned for April and install a technocratic government instead. “It is absolutely up to Greece when to hold elections,” Kapsis said. Dutch Finance Minister Jan Kees de Jager added to the pressure on Greece. “We’re back at square one,” he told Dutch MPs. “Greece is in a much worse state than had been anticipated at the time.” When Eurozone leaders agreed on more help for Greece in October, 2011 the country’s debt was expected to fall to 120 percent of GDP by 2020, which was taken to be the maximum threshold. The new level is now expected to be closer to 129 percent, according to the latest study by the IMF.

    So back in February 2012, “Pensioners who thought they had been spared by pledges from Papandreou and Samaras will see their benefits cut a reported 15 percent while defense spending was exempted after the Troika rejected military cuts.” And around this same time, the troika was slow-footing the release of a second “bailout” release and even suggesting that it might wait until after the upcoming elections in April before it made a decision while German Finance Minister Wolfgang Schaeuble was floating the idea that Greece should just skip the whole democracy thing and install a technocratic government instead (like what happened to Italy). So it doesn’t sound like the troika was too keen on those cuts back in 2012. Unsurprisingly

    TheTyee.ca
    Europe’s Own Arms Dealers and Loan Peddlers Took Down Greece

    Profit-hungry bankers, weapons makers pushed EU member over brink.

    By Mitchell Anderson, 5 Oct 2011

    The eyes of the world are on Greece as the beleaguered country lurches toward bankruptcy, threatening to drag the global economy into another recession. There has been much finger wagging from Germany about the need for Greek fiscal restraint and discipline, but what role have the German arms industry and predatory European banks played in creating this crisis?

    Over the last decade, Greece has been the largest importer of conventional military hardware in the European Union. Greek military spending as a percentage of GDP is more than any other EU member and tops even nations such as Pakistan, which is engaged in a variety of ongoing conflicts.

    Greece now has more than 1,200 battle tanks, 1,700 armoured personnel carriers, 300 fighter jets (including 156 F-16s), eight submarines and more than 40 frigates, gunboats and miscellaneous missile carriers. The bloated Greek military now has an air force similar in size to Germany’s — a front line member of NATO with an economy 10 times larger than Greece and eight times as many people.

    And what country is so threatening to Greece that could possibly justify this level spending by such a dangerously indebted country? Apparently their NATO partner, Turkey. Richer still is speculation from the CIA that the greatest peril to the Greek government is not a confrontation with Turkey, but a domestic military coup stemming from draconian cuts to the Greek public service and the predictable civic unrest that has ensued.

    Pushed to human limits

    So severe are Greek austerity measures that the United Nations has warned that basic human rights of Greek citizens are being violated. The Greek suicide rate has doubled since the bank-imposed austerity measures. Unemployment is over 16 per cent. Cutting more or faster without threatening revolution would likely be impossible since the Greek population has been pushed precisely to the limits of human tolerance.

    It is no small irony that military spending, ostensibly aimed at making the world a safer place, could well trigger a banking contagion that might unhinge the global economy. The majority of Greek military equipment was also manufactured in Germany, France, Britain and the United States, creating an interesting conflict of interest.

    While the EU has repeatedly criticized Greece for their lack of fiscal restraint, some of the loudest voices, including Germany and France, have profited massively by loading up the sagging Greek economy with billions of dollars in their military exports. These purchases by Greece fully accounted for 15 per cent of German arms sales between 2006 and 2010.

    Troubling questions are also raised by loan guarantees provided by banks operating in the EU. The risk to European banks and arms manufacturers in providing reckless loans to Greece has been very low since these loans are guaranteed by the European Financial Stability Facility. In the short term, bankers might even reap windfall profits from the initial collapse of the Greek economy as interest rates on Greek bonds balloon to the stratosphere. That is, unless the whole house of cards comes crashing down.

    Banks worldwide, however, seem unable to restrain their collective greed, even as it unravels their own industry. The IMF warned that the EU debt situation has cost their banking sector almost $275 billion since 2009, threatening another global credit crisis.

    Meanwhile, the enthusiastic German arms industry is further demonstrating their fixation on profits over principles by selling 200 Leopard battle tanks to the repressive regime in Saudi Arabia. The Saudis helped crush a popular uprising this year in neighbouring Bahrain as the Arab Spring spread throughout the Middle East.

    We should also remember that Greece was saddled with massive debt earlier this decade, partially due to exorbitant spending dictated by the International Olympic Committee (IOC) — an organization ranked as the least accountable on the planet.

    The narrative most of us have been told of the lazy irresponsible Greeks threatening global stability ignores some obvious facts. European banks, the arms industry and even the IOC have profited handsomely from contributing to this mess.

    As we can see, Greece has been one of the EU defense sector’s best clients over the last decade, with Greece accounting for 15 percent of Germany’s defense exports between 2006 and 2010. That includes being the first to purchase a line of new German subs. Glitchy German subs:

    The Telegraph
    Greece sues for 7 billion euros over German submarines that have never sailed
    Exclusive: Military deal which became symbolic of financial crisis now at centre of international legal case over Greece’s geo-political reputation

    By Holly Watt, Whitehall Editor

    2:35PM BST 12 Jun 2014

    Greece has launched a multi-billion euro claim against one of Germany’s biggest defence firms who sold the financially-beleaguered country four submarines in a complicated deal which has become symbolic of the country’s economic woes.

    The controversial deal has threatened Greece’s position in Nato, according to well-placed sources, led to the criminal prosecution of the country’s defence minister and the resignation of a senior Naval figure.

    The Telegraph today publishes photographs of the four submarines, which are still unfinished in a Greek shipyard almost 15 years after they were first ordered.

    It can now be disclosed that the Greek Government has launched a seven-billion euro compensation claim against ThyssenKrupp Marine Systems and Abu Dhabi Mar – the defence firm and shipyard now responsible for the order.

    A 200-page document sent to the ICC International Court of Arbitration states that Greece’s international position was compromised by the failure to supply the submarines and its position in Nato was undermined.

    “The issue is so sensitive that we could claim even higher economic compensation from the Arabs and the Germans because the submarines are connected with the geostrategic role of the country, its place within NATO, and the fact that the country is awaiting the finalisation of the Exclusive Economic Zone which has brought several investors who want to invest in its natural resources,” said a well-placed source.

    Following years of delay, the Greek Government has recently insisted that the submarines are finally due to start full sea trials imminently, although no date has been set. When one of the Greek submarines first went to sea, it was found to list heavily in certain sea conditions.

    Greece’s spending on defence systems before the economic meltdown has attracted controversy, with the four submarines coming to symbolise the waste. The country was Europe’s largest importer of weapons, spending four percent of GDP on armaments. It had 1,300 tanks – more than twice as many as Britain.

    Greek politicians claimed that Germany encouraged Greece to spend vast sums on weaponry and then criticised the country for profligacy. However, a 3 billion euro deal to buy the four submarines – vessels the country does not even need – have become a tipping point and the new Greek administration now appears determined to seek compensation.

    The ICC appeal is likely to be part of Greece’s attempts to shift the blame for its massive overspending onto other European countries. The International Court of Arbitration resolves international commercial disputes.

    “If there is one country that has benefited from the huge amounts Greece spends on defence it is Germany,” said Dimitris Papadimoulis, an MP with the Coalition of the Radical Left party, said previously.

    Last year, the former defence minister Akis Tsochadzopoulos was jailed after being found guilty of receiving an €8m bribe from Ferrostaal, one of the German companies involved in the deal. Ferrostaal agreed to pay a €140m fine.

    Stelios Fenekos, a 52-year-old vice admiral of the 22,000-man strong Greek Navy, also resigned his position in the wake of a row over the vessels. He said he did so in protest at the Greek defence minister’s decision to purchase the submarines, as well as other decisions taken that Mr Fenekos considers “politically motivated”.

    “How can you say to people we are buying more subs at the same time we want you to cut your salaries and pensions?” said Admiral Fenekos.

    The four Class 214 submarines have been mothballed in the Skaramangas shipyard near Athens in Greece for over two years, having been ordered over 15 years ago.

    Workers left the shipyard in April 2012, but were recently told they would be rehired on wages 35 per cent lower than their previous salaries.

    In total the submarine deal has cost at least three billion euros – three times more than the EU demanded that the Greek administration save from the country’s budget by cutting workers’ pensions, a move that sparked violent unrest in Athens.

    Although the economy of the country is now slowing improving, Greece has received international financial bailouts which total 215 billion euros. In return for the bailout, Greek was ordered to adopt extreme austerity measures.

    The four boats that are currently in Skaramangas were finally handed over to the Greek navy in March, although the deal was first signed in 2000. At that time, the Greeks ordered three Class 214 submarines with an option on a fourth.

    ThyssenKrupp Marine bought the shipyard, which was responsible for building the submarines in 2002 and subsequently sold on a large shareholding to Abu Dhabi Mar.

    “In total the submarine deal has cost at least three billion euros – three times more than the EU demanded that the Greek administration save from the country’s budget by cutting workers’ pensions, a move that sparked violent unrest in Athens.” Yikes.

    So there’s all sorts of reasons for the troika not wanting to see Greece cut its military spending too much. But who knows, maybe this time around we’ll see some big defense cuts for Greece. Although, as the article below suggests, those cuts probably aren’t going to come in the form of cuts to wasteful, expensive military hardware. No, the EU Commission and ECB want to see Greece shift to a less manpower-intensive force structure, which means the troika’s proposed defense cuts probably don’t involve things like cancelling the sub contracts but instead laying off troops:

    Financial Times
    Leaked paper: Should Greece cut defence spending?
    Peter Spiegel

    Jun 16 10:45

    One of the oddities of Greece’s bailout programme has been that, despite five years of punishing austerity, its military budget remains amongst the highest in the EU.

    And according to a document obtained by Brussels Blog and posted here, the issue has come up again during the current standoff between Athens and its international creditors as a way to breach the fiscal gap the two sides are currently wrestling over.

    To recap, Greece’s bailout monitors have pushed Athens to make up a €1bn-€2bn annual budget shortfall by cutting public sector pensions and raising value-added taxes on some items like electricity, which Tsipras has resisted. Creditors have insisted they are open to other ideas, but argue Athens has not come back with credible alternatives

    The three-page document, circulated among creditors, shows that two of Greece’s bailout monitors – the European Commission and European Central Bank – think defence cuts would be one way to make up the difference and have suggested changes (particularly moving to a less manpower-intensive force structure, a decision several Nato allies like the US have already taken) in talks with Greek negotiators:

    In discussions with authorities, both the Commission and the ECB have been indicating the scope for savings in military spending, while strengthening the defence capacity of the country. It should be possible to generate savings in the order of €200 million in 2016 by putting lower ceilings to the expenditure of the Ministry of Defence.

    Defence spending is a highly sensitive subject in any country, and the document notes that the third Greek bailout monitor, the International Monetary Fund, is prohibited in its rules from requiring military cuts as part of a bailout programme.

    In addition, officials involved in the talks said the suggestion could be particularly difficult for Mr Tsipras, whose leftist Syriza party is in coalition with the nationalist Independent Greeks party, viewed by many as a defender of the country’s military. The group’s head and founder, Panos Kammenos, is currently the government’s defence minister.

    Still, the paper notes that even with cuts undertaken over the course of the bailout programme, as of 2013 Greece was still spending more as a percentage of gross domestic product than any other Nato ally save the US or Britain, and is “by far” the country with the largest share of military personnel to population in the EU.

    Greece could move to a more professional army and further reduce military expenditure. Shortening the conscription period, better procurement rationalising the military equipment acquisition plans, and the use of new means should be pursued to achieve savings.

    “Defence spending is a highly sensitive subject in any country, and the document notes that the third Greek bailout monitor, the International Monetary Fund, is prohibited in its rules from requiring military cuts as part of a bailout programme.” So there’s our explanation for the IMF’s refusal to endorse a cut to defense spending: the IMF can’t demand military cuts according to its own bailout rules. Double yikes.

    So we’ll see if Greece somehow ends up cutting its military spending and whether or not those cuts involve troop reductions or actual cuts to overpriced, non-working military hardware. But when you consider the fact that the EU asked the IMF to become part of the “bailout” process and there was never a requirement that the IMF play a role at all, you have to wonder if the IMF’s systemic refusal to endorse military cuts as part of a “bailout” program as actually a desired “feature” by the European creditor states (that also happened to be Europe’s defense exporting states). It seems possible.

    Posted by Pterrafractyl | June 16, 2015, 6:43 pm
  36. The eurozone sent in one of its more sympathetic leaders, the center-left Chancellor of Austria, to meet with Greek Prime Minister Alexis Tsipras and find a way to avoid a looming ‘Grexit’. Specifically, a way to avoid a looming ‘Grexit’ that involves Greece further gutting the pensions for low earners.

    It doesn’t sound like there’s been much progress from the talks, but on the plus side the meeting made it quite clear that cuts to low earners is exactly what the troika is calling for as a price to avoid a ‘Grexit’. You’d think there were be a more high-minded sticking point for something that puts the whole European project at risk, but no. Cuts to low earning pensioners is a particular pound of flesh the troika demands:

    Reuters
    Austria seeks Greek deal, Tsipras says no to pension cuts

    Wed Jun 17, 2015 10:06am EDT

    Greek Prime Minister Alexis Tsipras maintained his refusal to consider further pension cuts to unlock financial aid after meeting Austria’s Chancellor, who traveled to Athens seeking an eleventh-hour solution to keeping Greece in the euro zone.

    Werner Faymann – one of the European leaders most sympathetic to the Greek government’s demands for an end to austerity – met with Tsipras for nearly two hours on Wednesday at the prime minister’s office in Athens.

    But there was little sign of movement from Tsipras who sees further pension cuts to low earners, a core component of demands for more economic reforms from Greece’s international lenders., as a red line his leftist Syriza party will not cross.

    “The margins for new cuts in pensions have been exhausted.

    We can’t understand the obsession of the lenders with pension cuts,” Tsipras told reporters after the meeting.

    “…If we don’t have an honorable compromise and an economically viable solution, we will take the responsibility to say no to the continuation of a catastrophic policy.”

    Faymann coordinated his visit with European Commission President Jean-Claude Juncker.

    It comes a day before a meeting of euro zone finance ministers, seen as possibly the last chance to stop Greece sliding into a default that would push it towards the euro exit door.

    “I can’t see a solution lying before me but I see that if we are convinced we want one, we have a good chance,” the center-left Austrian leader said.

    He said he could not imagine a prosperous and peaceful future for Europe if Greece left the euro zone, and said he knew that Juncker wanted to find a compromise.

    “So it is a joint task for Europe, including the euro zone, to look forward to the future together,” he said.

    After days of barbs and finger-pointing between Athens, Brussels and Berlin over the failure of talks at the weekend, Faymann struck a conciliatory tone, saying the two sides had to talk as equals, without “gloating or Schadenfreude”.

    “I personally think it is sensible not to impose further cuts on pensions, particularly low-income pensions,” he said.

    “But I think you have to offer something in exchange in negotiations,” he said. “I have had some signs that the prime minister and the government are working on these counterproposals.”

    So that was a bit ominous:


    “I can’t see a solution lying before me but I see that if we are convinced we want one, we have a good chance,” the center-left Austrian leader said.

    He said he could not imagine a prosperous and peaceful future for Europe if Greece left the euro zone, and said he knew that Juncker wanted to find a compromise.

    Now, prosperity is pretty obviously at risk for Europe whether or not Greece ‘Grexits’ given the insane economic policies and structural problems the eurozone that its leaders refuse to address. But is peace at risk too? That seems a little over the top, at least when referring to Europe as a who.

    But concerns about an increasingly radicalized Greek populace emerging from the short-term economic devastation resulting from a ‘Grexit’ do seem rather reasonable. The European public, in general, appears to despise the Greeks, so it’s unclear how the social turmoil that consumes Greece is going to be much more than an opportunity to point and laugh for the rest of Europe. But a lack of peace and prosperity for Greece doesn’t appear to be out of the question with or without a ‘Grexit’. That’s what happens when you artificially and pointlessly create a ‘lost’ generation:

    Bloomberg Business
    It’s So Bad in Greece, People Are Moving Back in With Their Parents
    Youth joblessness is still alarmingly high, while fertility has cratered
    by Flavia Krause-Jackson and Giovanni Salzano
    June 16, 2015 — 1:46 PM CDT

    Moving out of the house you grew up in is a rite of passage. Moving back in with your parents is a cry for help.

    The number of people too broke to afford their own place has ballooned since 2010, when the Mediterranean nation’s economic woes began. The share of momma’s boys (and girls) between the ages of 18 and 34 has grown to 63.5 percent, according to Eurostat, the European Union’s statistics agency. More than half of those between 25 and 34 live at home.

    The only country that can hold a torch to Greece is Italy, where it’s a cliché how much kids love their mothers. Yet the reasons why so many adult children live with their parents is very much grounded in hard economic facts. Two factors are critical:

    Zero job prospects

    Looking at Greece’s youth unemployment numbers, where more than half of people under 25 are out of work, it’s hardly surprising many of them settle for free home-cooked meals and their childhood rooms.

    Declining fertility

    People in Greece just aren’t making babies. And who can blame them? Raising a family is expensive. What that means is that the population just keeps getting older, which leaves a shrinking workforce bearing the brunt of higher pension costs as more people retire.

    For now, the parents are sustaining their adult children, but pretty soon it’s going to be the other way around. And then what?

    “For now, the parents are sustaining their adult children, but pretty soon it’s going to be the other way around. And then what?”
    That’s a good question. What exactly is going to happen when those parents are forced to rely on their adult children for support?

    Oh, that’s right, they’ll just be incredible poor and even more stressed out and filled with despair. Unless they’re one of the lucky Greeks living off of one of those awesome government pension plans we hear so much about. The gold-plated pensions plans that are apparently bankrupting the Greek state. At least if Greece’s elderly have one of those plans they won’t be dependent on their currently-unemployed adult child living in the basement. No, they’ll be free to live in poverty with dignity on their own:

    Reuters
    A Greek paradox: many elderly are broke despite costly pensions
    ATHENS | By Lefteris Papadimas and Angeliki Koutantou

    Tue Jun 16, 2015 12:28pm EDT

    The plight of 79-year-old Athenian Zina Razi and thousands like her strikes at the heart of why talks between Greece and its creditors have collapsed. She lives off a pension system that helps to consume a huge proportion of state spending and can appear overly indulgent – but still she’s broke.

    Razi barely keeps up with her power and water bills, and since her middle-aged son lost his job, supports him as well. “I am always in debt,” she said. “I can’t even imagine going to the cinema or the theater like I did in the past.”

    This paradox goes a long way to explain why the leftist-led government and its creditors at the European Union and IMF have failed to bridge their differences over a cash-for-reform deal, leading to Sunday’s breakdown of talks.

    Five years of austerity policies imposed at the creditors’ behest have helped to turn a recession into a full-blown depression, and still they want more. Athens has flatly refused to achieve further savings by raising value-added tax on essential items or, crucially, slashing pension benefits.

    As it inches closer to default and a potentially calamitous exit from the euro zone, the government has dismissed such demands as “absurd” or designed to pummel Greeks’ morale.

    To the lenders, the pension system is still too generous compared with what the country can afford. Greece spent 17.5 percent of its economic output on pension payments, more than any other EU country, according to the latest available Eurostat figures from 2012.

    With existing cuts, this figure has since fallen to 16 percent.

    However, one person familiar with the talks said wages and pensions together still eat up 80 percent of primary state spending, before debt servicing costs. “The remaining 20 percent is already cut to the bone, indeed too far,” he said. “Civil servants have no pencils to write with, buildings in need of maintenance are crumbling. It’s not possible to make public finances sustainable without working on wages and pensions.”

    Despite years of reforms, many Greeks can still retire early, especially workers in the public sector and professions classified as hazardous such as the army.

    One high profile example is Fofi Gennimata, who became the leader of the opposition PASOK party last weekend. She is a former bank clerk with three children who applied for a pension last year aged just 51. Her office says she has stopped taking the pension payment since becoming a member of parliament.

    Greece’s state spending on pensions is three times’ higher as a proportion than Germany’s, and critics accuse Greece of wanting a soft life at somebody else’s expense.

    UNHELPFUL DEMOGRAPHICS

    Demographics haven’t helped Greece. The number of pensioners has been rising since 2009. That’s either because the state has offered incentives to workers to retire as part of efforts to cut wage costs, or because workers themselves rushed to do so before the government raised the retirement age.

    To many Greeks, not least the Syriza party that stormed to power in January promising to push the clock back on austerity, the creditors’ demands are yet another way to clobber vulnerable people needlessly.

    The lenders have denied asking for specific pension cuts. But the Greek side said among their suggestions was slashing a top-up payment that supports some of the poorest pensioners. For Razi, that would mean losing 180 euros ($203) out of her 650-euro monthly pension.

    The average Greek pension is 833 euros a month. That’s down from 1,350 euros in 2009, according INE-GSEE, the institute of the country’s largest labor union. Moreover, 45 percent of pensioners receive monthly payments below the poverty line of 665 euros, the government says. With more than a quarter of Greek workers jobless, many rely on parents and grandparents for financial support.

    CHRISTMAS BONUS

    Pension reform is a vexed issue for many European countries with aging populations that can no longer support a generous entitlement system. Italy raised the retirement age under unpopular reforms in 2012.

    With pension spending equivalent to 14 percent of economic output, France’s pensions advisory council estimates the system will run a deficit of 9.2 billion euros by 2020 despite reforms decided already. Attempts by Greece’s EU neighbor Bulgaria, where some public sector workers can retire in their forties, to raise the pension age recently provoked protests.

    Both sides have agreed on a budget surplus Greece should target but not on how to achieve it. The lenders want Greece to make savings on pensions equivalent to about 2 billion euros a year. Greece offered cuts of only 71 million, the lenders said.

    Giving ground on pensions would force Prime Minister Alexis Tsipras into a U-turn that could prompt calls for new elections or a referendum. One of Tsipras’s campaign promises was restoring a Christmas bonus for low-income pensioners, although that plan may be postponed.

    Previous governments have tackled the problem. Pensions have been cut by an average of 27 percent between 2010-2014 and by 50 percent for the highest earners. The average retirement age was raised by two years in 2013 and Greece has said it is willing to curb early retirement benefits further.

    On average Greek men now retire at 63 and women at 59, according to government data. In Germany, the average retirement age for those receiving an old age pension in 2014 was 64 years. But that figure goes down to 61.3 years once those taking early retirement on health grounds is taken into account, according to 2013 data.

    Yes, the troika apparently denied asking for specific pension cuts…they merely want two billion euros cuts from the pensions somehow. But for some strange reason the Greeks have this idea that the troika is demanding a cut pensions, especially for the poorest pensioners:


    The lenders have denied asking for specific pension cuts. But the Greek side said among their suggestions was slashing a top-up payment that supports some of the poorest pensioners. For Razi, that would mean losing 180 euros ($203) out of her 650-euro monthly pension.

    The average Greek pension is 833 euros a month. That’s down from 1,350 euros in 2009, according INE-GSEE, the institute of the country’s largest labor union. Moreover, 45 percent of pensioners receive monthly payments below the poverty line of 665 euros, the government says. With more than a quarter of Greek workers jobless, many rely on parents and grandparents for financial support.

    Both sides have agreed on a budget surplus Greece should target but not on how to achieve it. The lenders want Greece to make savings on pensions equivalent to about 2 billion euros a year. Greece offered cuts of only 71 million, the lenders said.

    Now where did the Greeks get that ‘troika wants to kick the poors’ idea?

    Oh well. But a far bigger question looms closer by the day: Will peace and prosperity reign as long as Europe stays united in its quest to beat itself into socioeconomic submission? Hmmm….

    Posted by Pterrafractyl | June 17, 2015, 2:35 pm
  37. With the eurozone Doomsday Clock continue to tick down to midnight, Der Spiegel has an interview of EU Commission President Jean-Claude Juncker that explores the various frustrations Juncker feels are hindering the necessary formation of common ground between Greece and the troika. One of the biggest sources of frustration felt by Juncker is directed at Greek Prime Minister Alexis Tripras, with Juncker arguing that Tsipras publicly mischaracterizes the European Commission’s negotiating stances. In particular, Juncker is pissed that Tsipras isn’t telling the world about Juncker’s awesome offer (it’s not that great but better than what’s currently being offered). It’s an offer of 35 billion euro stimulus offer that would be put into effect until 2020 assuming Greece accepts all the austerity demands. But, to Juncker’s credit, he does make a rather critical point that your rarely hear expressed by the eurozone or EU officials: “I reject the idea that the Greeks are lying around doing nothing. Pensions have been slashed, salaries reduced and public spending reined in. Germans, in particular, have the impression that the Greeks have done nothing to free themselves from their plight. That impression is incorrect”:

    Der Spiegel
    EU Commission President Juncker: ‘I Don’t Understand Tsipras’

    EU Commission President Jean-Claude Juncker remains committed to preventing a Grexit. But he tells SPIEGEL that his patience is wearing thin: “I don’t believe the Greek government’s response has been sufficient.”

    Interview conducted by Peter Müller, Michael Sauga and Christoph Schult

    June 19, 2015 – 06:35 PM

    SPIEGEL: Mr. Juncker, we would like to speak with you about friendship.

    Juncker: A vast topic. Go ahead.

    SPIEGEL: It says in the dictionary that friendship is a relationship defined by mutual affection and trust. If you use that as a guide, would you describe Greek Prime Minister Alexis Tsipras as a friend of yours?

    Juncker: There are two types of friendship. The first is rooted in goodwill, of the kind I feel for Mr. Tsipras. The second — true friendship — is much rarer, because it must first overcome obstacles and grow.

    SPIEGEL: You began referring to Tsipras as a friend soon after he took office. More recently, though, you have begun complaining that he is incorrectly depicting the offers you have made in Athens. Were your friendly overtures to him somewhat premature?

    Juncker: No, my relationship to Mr. Tsipras is, for the time being, a friendship in accordance with the word’s first definition. Only later will it become clear if real friendship will grow out of that. I will, however, acknowledge that the trust I placed in him is not always returned in equal measure.

    SPIEGEL: You have made concessions to Mr. Tsipras on several issues, but he is still accusing you and the other creditors of wanting to pillage Greece. Are you disappointed in him?

    Juncker: One should never take personally the relationships between representatives and institutions. We are here to work for the people. On the other hand, politics cannot function without reliable personal relationships. With all due respect to the new Greek government, one has to point out that some of its representatives came into office without being adequately prepared for the tasks awaiting them.

    SPIEGEL: For five years now, international creditors have been trying to stave off Greek insolvency with vast aid packages worth hundreds of billions of euros. But unemployment in the country remains at 25 percent and gross domestic product has plunged by a quarter. Don’t you have to admit that Europe’s attempts to save Greece have failed?

    Juncker: You are failing to mention the successes we have achieved. Although Greece’s GDP has fallen dramatically, the government has presented a budget in which revenues are significantly higher than expenditures. I reject the idea that the Greeks are lying around doing nothing. Pensions have been slashed, salaries reduced and public spending reined in. Germans, in particular, have the impression that the Greeks have done nothing to free themselves from their plight. That impression is incorrect.

    SPIEGEL: But the Greeks no longer want austerity. People hate the Troika and the government is cheered when it blasts the parameters laid down by the International Monetary Fund as “criminal.” How can the bailout project be continued on such a foundation?

    Juncker: It bothers me that the Tsipras government acts as though we in the European Commission are austerity fanatics who are crushing the dignity of the Greek people underfoot. I am upset that the Greek government acts as though the Commission is seeking a higher sales tax on electricity, to mention one example. I have told Mr. Tsipras many times that I am open to other suggestions if they result in the same revenues. Instead of complaining about the Commission, Mr. Tsipras could one day tell Greeks that I have offered a €35 billion investment program for the years 2015 to 2020 to stimulate growth in his country. I haven’t heard anything about that.

    SPIEGEL: Do you have an explanation?

    Juncker: I don’t see myself as being in a position to psychoanalyze another European government. I sometimes even find it difficult to analyze myself. But jokes aside: I don’t believe the Greek government’s response has been sufficient. If I were the Greek prime minister, I would sell that as an achievement and say: I pushed through the €35 billion package in Brussels. I don’t understand Tsipras. In one of the positive moments during our negotiations, I once told him during a coffee break: If I had campaigned on your platform, I would have won 80 percent of the vote. But he only got 36 percent.

    SPIEGEL: If Tsipras continues to reject additional spending cuts, he would only be doing what he promised to do during the campaign. Do you fault him for that?

    Juncker: I, too, am of the opinion that, following an election, a politician should do what he or she promised before the vote. For that reason, politicians have to think carefully, before the election, whether they will be able to fulfill their campaign promises. European countries make up a community of destiny — one which only works if the members can depend on each other. Unfortunately, prior to taking over the government, Mr. Tsipras adopted positions, which, in part, are in conflict with the rules governing this union. That is why his campaign promises cannot be 100 percent implemented. Mr. Tsipras should have known that.

    SPIEGEL: Do you understand why another friend of yours, German Finance Minister Wolfgang Schäuble, now believes that a Grexit is the better alternative?

    Juncker: I am not aware of any sentence uttered by Wolfgang Schäuble that would lead you to draw such a conclusion. The German finance minister is a devoted European who, in his person, unites both the past and the future. As such, everyone — and the Greeks in particular — would be well advised to listen closely to this man.

    SPIEGEL: Schäuble is concerned that the case of Greece could send the wrong message. If creditors are too lenient and the Greek gamble is successful, other euro-zone member states could seek to emulate Athens’ chutzpah.

    Juncker: That is a danger I see as well. I know that many, particularly in Germany, see me as a naive proponent of Greece. But I am very clear that solidarity and solidity belong together. While I have understanding for a temporary inability to adhere to the rules, we cannot have a situation where the one who breaks the rules is rewarded. That is why the Greek government must make clear that it is prepared to adhere to the rules.

    Well, Greece may be careening towards a ‘Grexit’ with basically no progress on the talks and even less time to work it out. But at least Juncker and Alexis Tsipras are still sort of friends.

    The 35 billion euro proposal that Juncker apparently proposed to Tsipras is certainly a noteworthy proposal given the almost complete lack of any other proposals of that nature emerging from the troika, although it doesn’t sound like it would involve any sort of renewed focus on the ongoing humanitarian crisis. Still, it does raise the question of why Alexis Tsipras hasn’t been telling the world about that potentially significant concession extracted from Jean-Claude Juncker. Of course, that question is merely a sub-question in the much larger question of why almost no one other than Jean-Claude Juncker has mentioned the 35 billion euro offer. None of the other negotiators and almost none of the press reports have ever mentioned the plan. But some of the press did. For instance, Greek Reporter had a brief report on the offer:

    Greek Reporter
    EC President: Greece Can Get €35 Bln Until 2020 if Reforms are Implemented

    by Philip Chrysopoulos – Jun 4, 2015

    European Commission President Jean-Claude Juncker said on Thursday that he is prepared to make new concessions on the deal proposal for Greece. Furthermore, he said that Greece can get 35 billion euros for its real economy if Athens is willing to implement reforms.
    “We made some progress last night, not sufficient,” Juncker told a seminar of the European Political Strategy Centre.

    Juncker spoke to German news agency MNI saying that he is worried about Greece and its financial woes. He said he loves Greece and especially the less privileged Greeks who have suffered from the austerity measures that had to be implemented.

    The EC president denied that the European Union tries to impose more austerity in Greece, adding that there are 35 billion euros available for economic development in Greece, provided that the Greek government is willing to implement successful economic policies. Specifically, he said that there is a development program for Greece that will provide 35 billion euros for the real economy until 2020. Juncker said that he would like to see the Greek government do what is necessary to take advantage of the funds.

    That was one of the early reports on Juncker’s 35 billion offer. One of the only ones too, at least in English language press.

    But, a few days later, The Economist did briefly mention it, while also pointing out that Juncker is widely viewed as one of the only ‘allies’ Greece has in the bailout negotiations:

    The Economist
    Dancing on a volcano
    Alexis Tsipras’s manoeuvres to placate his radicals while dealing with Greece’s creditors look increasingly risky
    Jun 8th 2015 | ATHENS | Europe

    ALEXIS TSIPRAS, Greece’s prime minister, knows that time is running short for his country to reach a deal with its creditors. This makes it all the more remarkable that, on June 5th, he made a speech in parliament denouncing the creditors’ latest set of proposals. Mr Tsipras stated that “there isn’t a specific deadline for an agreement”. The country’s bail-out monitors (the European Commission , the International Monetary Fund and the European Central Bank) are growing impatient with the Greek government’s delaying tactics—most recently postponing a €300m ($337m) debt payment to the IMF, then missing a deadline for presenting a revised set of negotiating proposals to Jean-Claude Juncker, the Commission president. It may be politically necessary for Mr Tsipras to demonstrate his independence from Greece’s creditors and postpone a deal until the last minute, but he is taking his country frighteningly close to the edge.

    Mr Juncker was long seen in Athens as Greece’s only ally among the bail-out monitors, nudging Mr Tsipras towards a deal with promises of a €35 billion aid package over the next seven years. But by now he, too, has grown annoyed with Greek stonewalling. He turned down Mr Tsipras’s request for a telephone conversation at the weekend, then complained publicly at the summit of the Group of Seven (G7) economic powers that the premier had misled the Greek parliament over a draft proposal submitted by the creditors. Mr Tsipras called the suggested measures “absurd”, implying the document was a final offer, when it was in fact not.

    So at least the 35 billion euro offer was mentioned that report! Someone was talking about it.

    And then, a week later, Deutche Welle had a report on the offer. It was actually a report about Jean-Claude Juncker complaining about how Alexis Tripras wasn’t telling the world about his offer, but, as such, it also mentioned the offer, so that sort of counts as a report that actually mentioned the existence of the offer. As the report also points out, Juncker’s 35 billion offer
    isn’t actually supported by the rest of the IMF or ECB so, technically, so only 1/3 of the Troika support Juncker’s offer:

    Deutsche Welle
    Tsipras misleading Greece, says EU commission chief Juncker

    European Commission chief Jean-Claude Juncker has accused Greek Prime Minister Alexis Tsipras of misinforming his people. Athens’ voters were not being told the truth about the commission’s proposals, he alleges.

    Date 16.06.2015

    The European Commission’s President Jean-Claude Juncker targeted Greek Prime Minister Alexis Tsipras with his criticism, saying the leader wasn’t giving his citizens correct information about the EU’s proposals.

    “I don’t care about the Greek government…I do care about the Greek people, mainly the poorest part,” Juncker said at a news briefing in Brussels.

    “The debate in Greece and outside Greece would be easier if the Greek government would tell exactly what the commission is really proposing,” the commission chief added, referring to lenders’ proposals which would pave the way for Athens to receive its 7.2 billion euro (8.1 billion dollars) installment – the last of the 240-billion-euro economic recovery package to the country.

    Juncker spoke about Greece in a news briefing with NATO chief Jens Stoltenberg

    Greece’s creditors, which include the European Central Bank (ECB) and the International Monetary Fund (IMF) proposed a 10 percentage point increase in value added tax (VAT) on electricity. However, Juncker said he himself opposed the proposal: “I’m not in favor, and the prime minister knows that, I’m not in favor of increasing VAT on medicaments or electricity.”

    He said the commission had instead proposed a 35-billion-euro program to support investments in Greece and floated the idea of a “modest cut in the Greek defense budget,” which constitutes two percent of the country’s gross domestic product.

    So as of last week, two thirds of the troika, the ECB and IMF, want a 10 percent increase in the VAT on electricity, something Juncker opposed. And, instead of that tax, Juncker proposed the 35 billion investment program? That seems strikingly at odds for a troika that’s been dedicated to yielding no meaningful ground thus far. At a minimum, this indicates a rather deep troikan divide, or at least a desire to publicly indicate that such a divide exists. Which all raises a question: Does Jean-Claude Juncker think his 35 billion proposal is serious? Because it’s not just Alexis Tsipras that doesn’t appear to be taking it seriously. Since the idea was first floated about three weeks ago, pretty much no one other than Jean-Claude Juncker, including his troikan partners, has ever mentioned the 35 billion proposal in any press reports.

    And that’s the state of the negotiations: The troika continues to make the same unreasonable demands its always made, but with just a week to go before the end of June deadline, one third of the troika is complaining that Greece won’t take seriously a proposal that the rest of the troika doesn’t take seriously either. And this seemingly delusion third of the troika is actually less detached from reality than the rest of the troika when it comes to the real sacrifices Greece has already made. Compared to the IMF and ECB, Juncker is the ‘good cop’, relatively speaking, in this situation.

    You know you’re in a bad situation when the ‘good cop’ is the crazy guy no one listens to.

    Posted by Pterrafractyl | June 21, 2015, 11:21 pm
  38. Believe it or not, at the beginning of this week, things were sort of looking up for Greece. At least in terms of coming to an agreement with Greece’s troikan tormentors. The actual proposal by Greece that triggered the optimism wasn’t exactly a blueprint of optimism for the Greek people’s future. But in terms of moving past the negotiation stage and on to the endless pain phase, things were sort of looking up:

    Reuters
    WRAPUP 7-Greece offers new proposals to avert default, creditors see hope

    Mon Jun 22, 2015 6:43pm EDT

    (Adds Tsipras comment)

    * Eurogroup chairman says proposal is a basis for talks

    * Merkel warns that summit cannot make a decision

    * Greek stock market surges 9 percent on hopes of deal

    * ECB increases emergency liquidity for Greek banks

    By Renee Maltezou and Jan Strupczewski

    BRUSSELS, June 22 – Greece took a step back from the abyss on Monday with the presentation of new budget proposals that euro zone leaders welcomed as a basis for a possible agreement in the coming days to unlock frozen aid and avert a looming default.

    European Council President Donald Tusk, who chaired an emergency summit of leaders of the 19-nation currency bloc, called the Greek proposals “a positive step forward”. He said the aim was to have the Eurogroup finance ministers approve a cash-for-reform package on Wednesday evening and put it to euro zone leaders for final endorsement on Thursday morning.

    However, there must first be a detailed agreement with representatives of European governments, the European Central Bank and the International Monetary Fund to ensure the numbers add up, he said.

    European stock markets and Greek assets surged on Monday on hopes of a last-minute deal to ease a crisis that is threatening to drive Greece out of the euro and weaken the foundations of the European Union’s single currency.

    “I am convinced that we will come to a final agreement in the course of this week,” European Commission President Jean-Claude Juncker told a late-night news conference.

    German Chancellor Angela Merkel, whose country is Greece’s biggest creditor, was more cautious. “I can’t give any guarantee that that will happen,” she said of a final agreement. “There’s still a lot of work to be done.”

    The Greek proposals included higher taxes and welfare charges and steps to curtail early retirement, but not the nominal pension and wage cuts first sought by lenders. Leftist Prime Minister Alexis Tsipras, elected in January on a promise to end austerity measures, also appeared to have avoided raising value added tax on electricity or loosening job protection laws.

    Tsipras said the ball was back in the creditors’ court and they should provide a deal that would make Greece’s huge debts affordable. “We are seeking a comprehensive and viable solution that will be followed by a strong growth package and at the same time render the Greek economy viable,” he told reporters.

    The cash-starved country must repay the IMF 1.6 billion euros by June 30 or be declared in default, potentially triggering a bank run and capital controls.

    Jeroen Dijsselbloem, chairman of the euro zone finance ministers, known as the Eurogroup, described the new Greek document as comprehensive and “a basis to really restart the talks”. He said negotiations in the coming days would show whether the numbers added up.

    He left the summit saying only that there would be “hard work for the next few hours”.

    German Finance Minister Wolfgang Schaeuble was the most negative, telling reporters earlier in the day he had seen nothing really new from Greece.

    Participants said Schaeuble questioned in the Eurogroup meeting whether the European Central Bank should continue emergency lending to Greek banks if there was no deal this week and whether it should not be accompanied by capital controls.

    A Greek official said ECB chief Mario Draghi had reassured Tsipras in a private meeting that the central bank would continue to support Greek banks as long as Athens remained in a bailout programme. An ECB source said there was no direct link between the emergency liquidity assistance and the programme.

    Participants said IMF chief Christine Lagarde cast doubt in the meeting on whether the proposals were sufficient to make Greece’s public finances sustainable.

    “We have a huge amount of work to do in the next 48 hours. We are not at all at the end of the route,” Lagarde said on leaving the summit.

    Tsipras had demanded a promise of debt relief as a condition for a deal, but both Merkel and Juncker said now was not the time to discuss it. An EU diplomat said Tsipras struck a very cooperative tone in the summit and promised to work further on the proposals to ensure a deal this week.

    Juncker said he had proposed a 35 billion euro programme for growth-enhancing measures in Greece up to 2020. The money appeared to be a restatement of existing EU budget funds earmarked for Athens.

    TAX AND PENSION REFORMS

    In its proposal, Greece offered to raise the retirement age gradually to 67 and curb early retirement. It also offered to reform the value-added-tax system to set the main rate at 23 percent, and promised additional taxes on business and the wealthy.

    Economics Minister George Stathakis told the BBC that Athens had avoided crossing “red lines” set by Syriza, since it would not cut pensions or wages or raise the VAT rate on electricity.

    In an example of the anger that Athens has caused in northern Europe, Hans-Peter Friedrich, deputy parliamentary floor leader for Merkel’s conservatives, said there was no point in “dragging out a bankruptcy for political reasons”.

    “We do the greatest harm to Europe if we lie to ourselves”, he said, adding that he was sceptical that the Greek government would provide adequate assurances to win German parliamentary support for further aid.

    Several thousand pro-European Greeks staged a demonstration in favour of staying in the euro on Monday in central Athens, a day after thousands of leftists had rallied to protest against a new round of cuts.

    First, note this little gem:

    Juncker said he had proposed a 35 billion euro programme for growth-enhancing measures in Greece up to 2020. The money appeared to be a restatement of existing EU budget funds earmarked for Athens.

    Huh. So all that huffing and puffing Jean-Claude Juncker has been doing all month about how hurt he is over Alexis Tsipras’s refusal to tell the world about his awesome 35 billion euro stimulus (if you drink all the poison) offer was merely referring to money in the existing EU budget already earmarked for Athens. Was Juncker basically offering not to rescind money that was already slated for Greece or was he engaging in pure puffery? Who knows, but that’s the kind of negotiating partner Greece gets to deal with.

    Still, as of Monday, things were looking up. At least from the negotiators’ perspective. Greece submitted a proposal that raises the retirement age, raises the VAT tax, and everyone except Germany’s officials struck an optimistic tone (imagine that).

    Of course, since this is the eurozone we’re talking about, when the situation is looking up, it’s probably heading down. That’s how it works when trickle-down austerians run your world: Unless you’re already on top, you have yet to hit rock bottom:

    The Guardian
    Greece debt crisis talks end in renewed deadlock

    Negotiations in Brussels between Athens and its creditors break down again as optimism over new Syriza proposals evaporates

    Ian Traynor in Brussels

    Wednesday 24 June 2015 15.50 EDT

    Gruelling negotiations between Greece and its creditors broke up without agreement on Wednesday evening as lenders warned the country that it must accept more austerity if it is to avoid defaulting on its debts.

    A third meeting of eurozone finance ministers in less than a week was called to a halt amid fresh deadlock over an agreement on greater spending cuts in Athens in exchange for rescue funds.

    The finance ministers will reassemble on Thursday in a bid to achieve an elusive breakthrough, as Greece strives to meet next Tuesday’s deadline for a €1.6bn (£1.1bn) payment to the International Monetary Fund. A deal could not be reached at the finance minister’s gathering despite six hours of talks earlier in the day between Tsipras and the heads of the IMF, European Central Bank and European Commission. Tsipras met the creditors again on Wednesday night. The meeting ended in the early hours of Thursday with Greece “remaining firm on its position” according to a Greek government official.

    Tsipras was dressed down at the creditors’ meeting on Wednesday morning, despite having presented new budget proposals on Monday that were generally welcomed as constructive. However, by the time he met the creditors on Wednesday he was being asked to toughen his plans.

    Tsipras sounded bitter and wounded after the creditors, led by Christine Lagarde of the International Monetary Fund, raised a host of problems with the 11-page policy document he had tabled. A revised version of the Greek proposals, littered with corrections entered in red type by the creditors, was soon leaked to the media.

    “The repeated rejection of equivalent measures by certain institutions never occurred before, neither in [bailout countries] Ireland nor Portugal,” said Tsipras. “This odd stance seems to indicate that either there is no interest in an agreement or that special interests are being backed.”

    Both sides are in a race to cut a deal before five years of bailouts worth €240bn (£171bn) lapse next Tuesday, the same day that Greece must repay the IMF.

    The Tuesday deadline is doubly pressing because the ECB, which is keeping the Greek banking system on life support, has indicated that it will not support banks if the bailout programme expires without a new agreement in place. Without ECB’s support Greek banks are expected to buckle, which would force the Tsipras government to impose capital controls and threaten the country’s exit from the eurozone.

    Earlier in the week the Europeans had been unanimous in describing Tsipras’s offer on Monday as the first serious proposal he has delivered since he was elected in January. Senior sources in Brussels had intimated that a lifeline deal was in the offing, which would involve extending Greece’s bailout by six months, doling out €18bn to see it through this year and working on a follow-up package likely to include a form of debt restructuring – Athens’s central demand.

    But by Wednesday the optimism was fading fast, as the IMF started picking holes in the Greek figures while also concluding that stopgap measures such as VAT hikes and increased pension contributions would not shift the Greek economy into recovery mode, and could worsen a debt burden that the IMF already views as unsustainable.

    Athens has proposed raising more money from VAT, making more changes to the pension system, ending early retirement and raising corporate taxes.

    Tsipras’s proposals would have delivered almost €8bn in reduced government spending. According to Greek state television on Wednesday, the heavily revised IMF version raised that figure to €11bn.

    Most economists have already dismissed the deal being discussed as ruinous and reckless. But all the signs were that the negotiations could go almost right down to next Tuesday’s deadline. Senior German officials warned that the talks could last beyond the full two-day summit of leaders on Thursday and Friday.

    The leaders instructed Jeroen Dijsselbloem, who chairs the “eurogroup” of eurozone finance ministers, to work non-stop if necessary in order to secure a deal that could be presented to eurozone leaders. “[The leaders’] expectation is not to negotiate. Their expectation is to welcome an agreement in the eurogroup,” said a senior EU source.

    The IMF has told Tsipras and his team that the Greek plan is too reliant on tax increases, which have failed to deliver anticipated revenue streams in the past. The fund has also criticised what it sees as only half-hearted measures to reform the Greek economy by tearing down hundreds of regulatory barriers.

    Greece’s creditors are also demanding faster and more sweeping reforms to the Greek pension system. Tsipras, who has vowed not to cut wages and pensions, is now under pressure to bring forward plans to raise the statutory retirement age to 67 and scale back pensioner benefits further. Pensions is one of the most fraught areas for the Greek negotiators, who are already under fire for offering more limited concessions.

    One step forward, three steps back, and a dressing down by one of the least credible groups of creditors on the planet. That must have been fun. And note the passing commentary on the troika’s demands: “Most economists have already dismissed the deal being discussed as ruinous and reckless”. And the troika wants to make it even worse:

    But by Wednesday the optimism was fading fast, as the IMF started picking holes in the Greek figures while also concluding that stopgap measures such as VAT hikes and increased pension contributions would not shift the Greek economy into recovery mode, and could worsen a debt burden that the IMF already views as unsustainable.

    Athens has proposed raising more money from VAT, making more changes to the pension system, ending early retirement and raising corporate taxes.

    Tsipras’s proposals would have delivered almost €8bn in reduced government spending. According to Greek state television on Wednesday, the heavily revised IMF version raised that figure to €11bn.

    Most economists have already dismissed the deal being discussed as ruinous and reckless. But all the signs were that the negotiations could go almost right down to next Tuesday’s deadline. Senior German officials warned that the talks could last beyond the full two-day summit of leaders on Thursday and Friday.

    So we’re back to square one. And, somewhat strangely, now the fight appears to be over whether or not Greece should raise taxes on business, or gut the pensions even more. Athens clearly would prefer a tax hike over further pensioner poverty, but as we saw from the IMF’s comments, trickle-down austerians might spend lots of time talking about debts and deficits. But when the topic of raising taxes on business comes up, it’s two thumbs down

    The Washington Post
    Europe is destroying Greece’s economy for no reason at all

    By Matt O’Brien June 23

    This story has been updated.

    History repeats itself, first as tragedy, then as farce, and finally as trolling. That, at least, appears to be the case in Greece, where its lenders want it to cut its pensions rather than hike its business taxes, because they’re afraid those increases would, as the Financial Times’s Peter Spiegel reports, “crimp economic growth.”

    There is a certain irony to Europe starting to worry that austerity is hurting Greece’s economy. For years, Europe’s leaders have insisted Greece cut deficits in exchange for concessions. Greece’s economy has already shrunk 25 percent, and it is having trouble honoring its obligations in part because it has had so much austerity.

    Now, the latest Greek drama isn’t over, but it is in its last act. A deal should—admittedly one of the more dangerous words in the English language—be imminent. The problem, as it has been for the past five years, is that Europe and Greece haven’t been able to agree on what austerity the latter will do in return for money from the former. This time, Europe has wanted Greece to cut its pensions more than the 40 percent they already have, but Greece hasn’t. And that was that. Both sides thought the other would cave the closer they got to the deadline, so there was a lot of talk about “red lines” and “final offers” but not much actual negotiation.

    That’s changed now. Why? Well, Greece has discovered it has much less leverage than it thought. Part of it is that panic about Greece has stayed in Greece because the European Central Bank has both begun to buy other countries’ bonds and promised to buy as many as it takes to keep their borrowing costs down. And the rest is that Greece’s banks aren’t so much an Achilles heel as an Achilles whole. In other words, they’re pretty easy to pressure. Greece’s banks not only need emergency loans from the European Central Bank to stay afloat, but are also sitting on a pile of Greek government bonds and deferred tax assets that would presumably be worth a lot less if there isn’t a deal and Athens defaults.

    So all Europe has to do is say it isn’t sure Greece’s banks have enough cash to stay open, and people will pull their money out even faster than before. That’s what happened when European officials apparently leaked that they weren’t sure Greece’s banks could make it past Monday, and followed it up by saying they might have to stop people from moving their money out of the country. That’s like yelling run in a crowded bank. And it worked. Greek depositors pulled out three times as much as normal the past few days, and that’s left their banks even more at the mercy of the ECB — which has forced the government to either leave the euro or accept Europe’s terms.

    Greece gave in. Well, mostly. It’s proposing to cut its pensions about half as much as Europe wants — raising contributions and retirement ages, as well as cutting back on early retirement — and then raising taxes to make up for the rest. Specifically, it would levy a new tax on corporate profits and increase its value-added tax, basically a national sales tax, to 23 percent on all but a handful of items. In all, this would be a fiscal tightening of 1.5 percent of gross domestic product this year and 2.9 percent the next.

    The only thing holding up a deal is that Europe thinks this is the wrong kind of austerity. Spending cuts don’t seem to be as bad for the economy as tax hikes, so that’s what Europe wants Greece to do. On the one hand, this is sound economic advice. But on the other, it might be impossibly hard for the Greeks to accept. In the eyes of the Greeks, it’s as though Europe is telling them to kill their own economy — and then disapproving of the way they’ll do it.

    A real question for many economists, however, is why Europe is forcing Greece to do any more austerity at all. It’s already done so much that, before this latest showdown, it actually had a budget surplus before interest payments. And, in this view, that’s all it should shoot for, really: the point at which it doesn’t need any more bailouts from Europe. Anything more than that, though, could just inflict unnecessary harm to the economy. When interest rates are zero, like they are now, budget cuts of 3 percent of gross domestic product would, by Paul Krugman’s calculation, make the economy shrink something like 7.5 percent. So even though you have less debt, your debt burden isn’t much better since you have less money to pay it back.

    In the end, there seems to be only one reason to make Greece do more austerity, and it’s hard to see how it makes any sense. That’s to try to make it pay back what it owes. Indeed, one European official said that the entire point of this was that they “want to get our money back some day.” The problem, though, is it’s inconceivable Greece will ever do that. Many feel its debt should have been written down in 2010, but it wasn’t because it was “bailed out” to the extent that it was given money to then give to French and German banks. The longer Europe demands this new debt be paid back, the longer Greece’s depression will go on. Now, it’s true that Europe has lowered the interest rates and extended the maturities on Greece’s debt so far out that, for now at least, it’s like a lot of it doesn’t exist. But eventually it will, and at that point they’ll either need to extend some more or hope that Greece has returned to growth.

    First, note that when you read:


    Greece gave in. Well, mostly. It’s proposing to cut its pensions about half as much as Europe wants — raising contributions and retirement ages, as well as cutting back on early retirement — and then raising taxes to make up for the rest. Specifically, it would levy a new tax on corporate profits and increase its value-added tax, basically a national sales tax, to 23 percent on all but a handful of items. In all, this would be a fiscal tightening of 1.5 percent of gross domestic product this year and 2.9 percent the next.

    The only thing holding up a deal is that Europe thinks this is the wrong kind of austerity. Spending cuts don’t seem to be as bad for the economy as tax hikes, so that’s what Europe wants Greece to do. On the one hand, this is sound economic advice. But on the other, it might be impossibly hard for the Greeks to accept. In the eyes of the Greeks, it’s as though Europe is telling them to kill their own economy — and then disapproving of the way they’ll do it.

    The study that claims that tax hikes are more damaging than spending cutswas co-authored by Alberto Alesina, one of the economists that was recently pushing the idea that spending cuts are expansionary (due to Confidence Fairy magic). So, for that reason alone, we might want to take that nugget of wisdom with a grain of salt.

    But, of course, there’s an even larger reason we should be skeptical of the troika’s ‘cuts instead of taxes’ demand: everything the troika has done since 2010 to Greece has been a harmful failure. As Matt O’Brien puts it:

    There is a certain irony to Europe starting to worry that austerity is hurting Greece’s economy. For years, Europe’s leaders have insisted Greece cut deficits in exchange for concessions. Greece’s economy has already shrunk 25 percent, and it is having trouble honoring its obligations in part because it has had so much austerity.

    Yep, it’s pretty ironic. And yet here we are, less than a week before the June 30 deadline and two days after Greece makes the kind of proposal that could trigger a rebellion in the parliament, and the troika wants more cuts and poorer Greeks. But when you finally have a leftist government that might actually try to seriously tackle Greece’s long-standing tax-evasion problems for the first time in decades, the troika says no, do more cuts instead and the wealth will follow. So while the troika’s alleged concern about the Greek economy and the lives of the Greek people is indeed ironic, especially since that ‘concern’ is manifesting as calls for more pension cuts, it’s got to to be amusing too. For some.

    Posted by Pterrafractyl | June 24, 2015, 7:55 pm
  39. Paul Krugman has more on the growing prospects of a ‘Grexit’ next week and makes a rather critical point that isn’t said enough: not only are the troika’s demands, like opposition to raising taxes on business while demanding pushing pension cuts, basically supply-side demands. They’re supply-side demands for an economy that’s already running at 20 percent below its capacity. In other words, while there are many problems with the current situation in Greece (like a heartless troika….that’s a problem), a lack of “supply” isn’t one those problems even though that’s all the Troika seems to care about:

    The New York Times
    The Conscience of a Liberal

    Breaking Greece

    Paul Krugman
    Jun 25 7:22 am

    I’ve been staying fairly quiet on Greece, not wanting to shout Grexit in a crowded theater. But given reports from the negotiations in Brussels, something must be said — namely, what do the creditors, and in particular the IMF, think they’re doing?

    This ought to be a negotiation about targets for the primary surplus, and then about debt relief that heads off endless future crises. And the Greek government has agreed to what are actually fairly high surplus targets, especially given the fact that the budget would be in huge primary surplus if the economy weren’t so depressed. But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we’re still in the business of dictating domestic policy.

    The supposed reason for the rejection of a tax-based response is that it will hurt growth. The obvious response is, are you kidding us? The people who utterly failed to see the damage austerity would do — see the chart, which compares the projections in the 2010 standby agreement with reality — are now lecturing others on growth? Furthermore, the growth concerns are all supply-side, in an economy surely operating at least 20 percent below capacity.

    Talk to IMF people and they will go on about the impossibility of dealing with Syriza, their annoyance at the grandstanding, and so on. But we’re not in high school here. And right now it’s the creditors, much more than the Greeks, who keep moving the goalposts. So what is happening? Is the goal to break Syriza? Is it to force Greece into a presumably disastrous default, to encourage the others?

    At this point it’s time to stop talking about “Graccident”; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen.

    “At this point it’s time to stop talking about “Graccident”; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen..” Yep. And, boy oh boy, does the troika want to see it happen:

    Washington Post
    Europe strikes back: It seems to be trying to push Greece out of the euro

    By Matt O’Brien
    June 25 at 3:38 PM

    Europe is altering the deal, and Greece better pray it doesn’t alter it any further.

    That, at least, was the message Europe sent with it latest bailout proposal that was really just a restatement of its original one. If Greece wants to stay in the euro, it will have to accept austerity on Europe’s terms and not its own. There will be no negotiation, not anymore.

    The sticking point is Greece’s pensions. Europe wants Greece to cut them even more than they already have—which, in some cases, has been 40 percent—while Greece only wants to cut them half as much and make up the rest with higher taxes on businesses. The two sides seemed close enough that a compromise was coming, but apparently not. Europe sent a red-ink filled letter that your high school English teacher would be proud of—even, at one point, correcting the capitalization of a word—that rejected almost all of Greece’s counter-proposals. Europe wants Greece to raise its retirement age to 67 by 2022, not 2025; to phase out a bonus for poor retirees in 2017, not 2018; and to cut back on early retirement starting now, not next January. In other words, to do what it was told the first time. Not only that, but Europe insists that Greece not tax its businesses more, since—this is funny in a sad kind of way—that would hurt the economy too much, and tax its consumers more instead. About the only concession is that electricity prices would be exempt from these new consumer taxes. If it seems strange that Europe would make demands, say yours are a “good basis for progress,” but then refuse to really negotiate, it is.

    So now the question is whether Greece will accede to these terms. If it doesn’t, Europe won’t unlock the bailout money Greece needs to make its €1.5 billion debt payment at the end of the month, and it will default. That’s even worse than it sounds, though, since Greece’s banks are sitting on a pile of Greek bonds and deferred tax assets that would presumably be worth a lot less in the case of nonpayment. The problem is the banks need those bonds as collateral for the European Central Bank-approved emergency loans keeping them afloat, so they’d probably be cut off without them—and the banks would collapse. Greece would have to stop people from moving their money out of the country, and decide whether it wanted to take money from depositors to bail in the banks or leave the euro so it could print money to bail out the banks. Europe knows this, of course, so it’s been leaking stories about how shaky Greece’s financial system is—not so much shouting run in a crowded bank as starting one—to put more pressure on the government to agree to a deal and agree to it now.

    Europe is making life so difficult for Greece with such specific demands for austerity that it almost seems like Europe is trying to get Greece to leave the euro now. Before this latest showdown, Greece had actually cut so much that it had a budget surplus before interest payments. That was enough that it wouldn’t have needed any more bailouts—if Europe would forgive its debt, like many economists think Europe should. That is what former IMF official Ashoka Moody thinks the Fund’s own research says it should do. The problem is that raising taxes and cutting spending during a recession hurts the economy more than it saves money. By Paul Krugman’s calculation, budget cuts of 3 percent of gross domestic product, as Greece has proposed, would actually make its GDP shrink something like 7.5 percent, because of the spillover effects. So even though you have less debt, your debt burden isn’t any better—and might be worse—since you have less money to pay it back. It can be self-defeating. That’s why the IMF usually recommends that overindebted countries write down their debt enough that they don’t have to do as much austerity.

    But Europe isn’t interested in that. It’s interested in making Greece run bigger and bigger budget surpluses, without much regard for the economic consequences. Not only that, but Greece has to run surpluses the way Europe wants them to. Never mind that Greece has already cut its spending a lot, already cut its pensions a lot, and already reformed its labor markets a lot. There are always new cuts and new reforms that Europe says will make Greece grow at some point in the future.

    If this is how it’s going to be, why should Greece stay in the euro? It sure seems like Europe is trying to force Syriza to do what Syriza said it wouldn’t just to prove a point: don’t underestimate the power of the ECB. It’s a not-so-subtle message to the anti-austerity parties in Spain and Portugal that they have nothing to gain and everything to lose from challenging the budget-cutting status quo.

    Europe has struck back, and for the first time in a long time, it looks like Greece really could leave the euro.

    Yes, the troika has compromised its compromising rhetoric from earlier this week, and now we’re back to no compromises. Just raw austerity and obedience. And as Matt O’Brien points out, not only is all of this troikan abuse raising a number of questions regarding why exactly should Greece stay in euro, but it’s apparently intended give an answer to others in the eurozone that might be asking whether or not they should bother trying to change the ongoing supply-side austerity in their own nations. And the answer is apparently ‘if you want to see an end to the supply-side austerity, you’re going to have to leave the eurozone too’:


    If this is how it’s going to be, why should Greece stay in the euro? It sure seems like Europe is trying to force Syriza to do what Syriza said it wouldn’t just to prove a point: don’t underestimate the power of the ECB. It’s a not-so-subtle message to the anti-austerity parties in Spain and Portugal that they have nothing to gain and everything to lose from challenging the budget-cutting status quo.

    So that’s the message getting sent to the electorates in places like Spain or Portugal: don’t even think about challenging the austerity. You’ll just have done to you what’s being done to Greece and you will lose. That’s the message! It’s pretty clear at this point that fear of fueling further anti-austerity movements is a big priority and using Greece as an example to others is certainly one way to send that message.

    But even though that message getting sent to the rest of the eurozone is getting increasingly loud and clear with each chapter of the troika’s abuse, it’s very unclear how such a message will be received. After all, if you’re one of the one-in-four unemployed adults in Spain or one of the many recently employed that only got a temporary, low-wage job, and the troika unambiguously tells you to not bother voting for one of the anti-austerity parties because Spain will just get ‘Greeced’ as a result, is that really going to cause you withhold support for the anti-austerity parties in the upcoming elections?

    In the eyes of Spain’s business elites and political establishment, yes, fear of getting ‘Greeced’ will cause voters to reject Podemos. At least, that’s the hope. And the plan:

    Financial Times
    Two-party system latest victim of Spain’s financial crisis

    Tobias Buck
    June 25, 2015 5:29 am

    The almost countless casualties in Spain who have suffered as a result of the global financial crisis include the millions of workers now out of work, the families who lost their homes, the shops that were shuttered and the businesses that went under. Many old certainties were also swept away at the same time: that every generation will live better than the last one, for example, or that buying a house is never a mistake.

    However, the latest — and perhaps the final — victim of the crisis is only now coming into view: Spain’s decades-old two-party regime. With every month that passes and every poll that is published, it becomes clearer that the country is heading for an important political shift. No matter who emerges victorious from the general election later this year, Spain’s next government and parliament are likely to look radically different from the ones the country has now.

    On the face of it, the fact that Spanish politics is undergoing wrenching change now — and not at the height of the crisis three years ago — is puzzling. The recession officially came to an end in mid-2013 and growth rates have improved steadily ever since.

    According to the latest forecast by the International Monetary Fund, the Spanish economy will grow by no less than 3.1 per cent this year, which is one of the fastest growth rates in Europe. Unemployment is falling (albeit from an appallingly high level) and surveys show Spaniards are starting to feel more optimistic about their futures.

    And yet, recovery is becoming more solid, the country’s political scene is in meltdown. Take the plight of Spain’s established parties, the ruling Popular party on the right and the opposition Socialists on the left. Since 1982, the two have alternated in government, invariably endowed with comfortable or even absolute majorities. At the 2011 general election, which saw a landslide victory for the PP’s Mariano Rajoy, their combined share was still more than 70 per cent. When Spanish voters return to the polls later this year, it is forecast to be closer to 40 per cent.

    One important reason for their decline lies in a string of political corruption scandals unearthed in recent years. But there is also a sense that Spain’s recovery, impressive as it may appear on paper, has not yet made a large enough difference to a big enough number of people.

    “We have an economic recovery, but there is still a sense of disillusionment among voters, especially those who have lost their jobs and see few prospects for themselves despite the recovery,” says Jordi Canals, the dean of Iese business school, which has campuses in Barcelona and Madrid. “The idea that the economic improvement will simply trickle down — people are still waiting for that to happen.”.

    The established parties’ loss has been the gain of two upstart political forces. One is the anti-austerity Podemos movement, led by the charismatic Pablo Iglesias. The other is Ciudadanos, a centrist party headed by Albert Rivera, a youthful Catalan lawyer.

    Both new parties have seen dramatic swings in their poll numbers in recent months, but have at different times scored 20 per cent or more. Unless they go through a total collapse in the next six months, the support of one or the other (or both) will be needed to form the next Spanish government.

    There are some who argue that this political fragmentation comes with far more opportunities than risks. They say, for example, that governments at all levels will face more checks and balances than before; that nepotism and corruption will become harder to hide; and public institutions, from the bureaucracy to state-backed media, will be forced to become more balanced.

    Business leaders and investors, however, mostly do not see it that way. They want a Spanish government that is both stable and capable of pushing through further reforms of the Spanish state and of the economy. And they worry that a left-of-centre government, either with Podemos or under pressure from it, would unravel some of the structural reforms that have been pushed through by Mr Rajoy.

    “The fear is not just that there will be instability,” says Lorenzo Bernaldo de Quirós, the chairman of Freemarket, a Madrid-based consultancy. “The fear is also that this instability will be managed by the left.”

    Mr Rajoy and his ministers clearly hope that Spain’s economic recovery, coupled with fear of political instability, will ultimately persuade voters to give the PP another mandate.

    Based on current polling, the PP indeed looks likely to emerge as the biggest party once again. However, it will be the biggest of four small parties rather than the bigger of two. What is more, it is far from obvious where it can find the allies it needs to secure a working majority for the centre-right once again.

    Let’s see…as the traditional two parties fragment and the anti-austerity Podemos continues to surge, large number of Spanish voters appear to be filled with despair over the prospects of ever seeing any of those long-awaited economic gains trickle down, while the Spain’s political and business elites appear to desire political stability more than anything else so they can push through more supply-side austerity:


    One important reason for their decline lies in a string of political corruption scandals unearthed in recent years. But there is also a sense that Spain’s recovery, impressive as it may appear on paper, has not yet made a large enough difference to a big enough number of people.

    “We have an economic recovery, but there is still a sense of disillusionment among voters, especially those who have lost their jobs and see few prospects for themselves despite the recovery,” says Jordi Canals, the dean of Iese business school, which has campuses in Barcelona and Madrid. “The idea that the economic improvement will simply trickle down — people are still waiting for that to happen.”.

    Business leaders and investors, however, mostly do not see it that way. They want a Spanish government that is both stable and capable of pushing through further reforms of the Spanish state and of the economy. And they worry that a left-of-centre government, either with Podemos or under pressure from it, would unravel some of the structural reforms that have been pushed through by Mr Rajoy.

    “The fear is not just that there will be instability,” says Lorenzo Bernaldo de Quirós, the chairman of Freemarket, a Madrid-based consultancy. “The fear is also that this instability will be managed by the left.”

    Mr Rajoy and his ministers clearly hope that Spain’s economic recovery, coupled with fear of political instability, will ultimately persuade voters to give the PP another mandate.

    So the big plan for Spain’s elites is to scare austerity-weary voters that if they reject the party that wants to impose even more austerity life will get much worse. But if they don’t reject the austerity, they get the privilege of staying in a ‘union’ that’s willing to devour one of its own in order to teach the rest the importance of unquestioning obedience in the face of abusive ideological insanity.

    That’s all part of the reason why the looming risk of a ‘Grexit’ to the rest of the eurozone goes so much further than the risk of a financial contagion spreading across Europe. Europe’s institutions might be capable of warding off a bank run. But that voice in the back of your head, the one that yells “Run for your life!” in the face danger, won’t be so easy to contain. The fight or flight response is like that and when “flight” is effectively taken off the table (barring a ‘Spexit’), “fight” is all that’s left.

    Sure, scaring the poor into submission isn’t guaranteed to fail. But it’s not exactly a low risk strategy either. And since the only thing we should realistically expect from a supply-side Europe is that rich get richer and everyone else languishes at the bottom waiting for the prosperity to trickle down, the risks of scaring the poor into submission are only getting riskier.

    Posted by Pterrafractyl | June 25, 2015, 10:16 pm
  40. So it turns out Greece is on the verge of not just a ‘Grexit’, but also a bank run! Yep. Following a breakdown in Greece’s ‘negotiations‘ with the troika, Alexis Tsipras did something folks like Wolfgang Schaeuble have floated in the past: He called for a July 5th public referendum so the people of Greece can vote on whether or not that want to accept the same troikan ‘bailout’ terms that the Greek people projected when they voted Syriza into power back in January.

    And, of course, the troika is acting all hurt and shocked that Greek government didn’t do what it was explicitly voted not to do without asking the people if that was ok:

    Bloomberg Business
    Door Closing to Greece as Finance Chiefs Scorn Referendum

    by Corina RuheMark Deen
    June 27, 2015 — 6:10 AM CDT
    Updated on June 27, 2015 — 7:47 AM CDT

    Euro-area finance chiefs poured scorn on the Greek government’s decision to call a referendum on the terms of the country’s bailout and said the door was closing to any further discussion on resolving a standoff over aid.

    Finance chiefs from 18 euro nations said they would grill their Greek counterpart, Yanis Varoufakis, on what his government proposed after the sudden announcement of a referendum upended their work on the way forward for Greece. They are meeting in Brussels on Saturday hours after Prime Minister Alexis Tsipras called a July 5 ballot on whether Greece should accept the demands of the country’s creditors.

    “It’s a very sad decision for Greece because it’s closed the door to further talks, a door that was still open in my mind,” Jeroen Dijsselbloem, the Dutch finance minister who chairs the meetings, told reporters as he arrived. “We will hear from the Greek minister today and then decide on the future consequences.”

    Ministers who had thought the fifth so-called Eurogroup meeting in little more than a week would hammer out the final pieces of a deal on aid must now take stock of one of the most dramatic moves yet in a debt crisis that began more than five years ago. The referendum throws into doubt future financing for Greece after its current bailout ends on Tuesday.

    Plan B

    German Finance Minister Wolfgang Schaeuble said the Greek government appeared to have “unilaterally” pulled out of any further negotiation with its plan to a ballot on a common proposal put forward by creditors.

    “We no longer have a basis for negotiation,” he told reporters as he arrived for the meeting.

    The talks will focus on questions of the creditors’ bailout offer, whether to extend the bailout and contingency plans in the event of a breakdown, a euro-area official said. The meeting is predicted to be a long one, the official said, asking not to be named because the talks.

    “Plan B is fast unravelling and becoming Plan A,” said Alexander Stubb of Finland. There’s a “clear consensus” among ministers that a bailout extension is “out of the question.” Ministers are facing “potentially a very sad day,” he said.

    The outcome of the talks in Brussels will help determine a series of events over the coming hours before markets — and Greek banks — open on Monday morning. With evidence that some ATMs in suburbs of Athens had run out of cash Saturday, Greek lawmakers began to debate the government’s referendum plan, including the proposed question to be put to the people.

    ‘Common Decency’

    The turn of events was sparked after midnight in Athens, when Tsipras returned from weeklong negotiations in Brussels and announced the referendum. In a nationally televised address, he excoriated a take-it-or-leave it offer as a violation of European Union rules and “common decency.”

    The snap plebiscite was announced five months after Tsipras was swept into office on a wave of discontent about budget cuts that deepened a six-year recession. Some members of his Syriza party advocate defaulting rather than backing down from their anti-austerity policies and Greek ministers, including the defense chief, urged the country of 11 million people to vote “no.”

    “Our partners unfortunately resorted to a proposal-ultimatum to the Greek people,” Tsipras said. “I call on the Greek people to rule on the blackmailing ultimatum asking us to accept a strict and humiliating austerity without end and without prospect.”

    `Bizarre Move’

    Belgian Finance Minister Johan Van Overtveldt expressed bemusement at the referendum. “I find it quite a bizarre move to ask the people what they think of something and say at the same time the government is opposed to it,” said

    A “no” vote could ultimately draw the curtain on Greece’s membership of the euro. Faced by a rejection of its demands and those of other creditors, the European Central Bank could feel obliged to cut off the emergency funds that the country’s banks rely on for survival. On the other hand, a ‘yes’ vote would spell defeat for Tsipras and may force him into early elections.

    “It looks as if we will have capital controls as of Monday,” Guntram Wolff, director of the Brussels-based Bruegel group, said in an e-mail. “The ECB will unlikely continue to provide ELA and capital controls therefore become imperative.”

    Yes, what a ‘bizarre move’ for the Greek government to hold a referendum on whether or not Greece should accept terms that the voters already rejected in January. Especially after, back in May, Wolfgang Schaeuble, who arguably has more power than just about anyone else in Europe due to his stronger backing within the CDU than even Angela Merkel, publicly backed the idea of Greece holding a public referendum. A referendum not just on the austerity demands, but on membership in the eurozone itself. One of his deputy also suggested at the time that the only way Greece could actually be ejected from the euro was via a public referendum. Schaeuble didn’t seem to be particularly perturbed about either of the possible vote outcomes at the time since he mused, “Maybe it would even be the right measure to let the Greek people decide whether they’re ready to accept what needs to be done.”:

    Bloomberg Business
    Schaeuble Backs Greek Referendum to Break Bailout Impasse

    by Birgit Jennen and Rainer Buergin
    May 13, 2015 — 8:41 AM CDT
    Updated on May 13, 2015 — 10:59 AM CDT

    German Finance Minister Wolfgang Schaeuble favors a Greek referendum on the country’s euro membership as a way to break the months-long stalemate with Prime Minister Alexis Tsipras’s government.

    “Greece can’t be thrown out of the euro,” Thomas Steffen, one of Schaeuble’s deputies, said during a panel discussion in Berlin. “The only thing remaining in the end would be if Greece said itself that it wants to leave the euro voluntarily.”

    The German Finance Ministry is supporting the idea of a vote by Greek citizens to either accept the economic reforms being sought by creditors to receive a payout from the country’s bailout program or ultimately opt to leave the euro.

    A referendum could bring the conflict to a head after months of inconclusive talks between Greece and its creditors that have exasperated Germany and other euro-area countries. Public support for economic reforms might lead Greece toward a deal, while rejection could set the country on a path to leaving the euro.

    “If the Greek government thinks it should hold a referendum, it should hold a referendum,” Schaeuble told reporters in Brussels on Monday. “Maybe it would even be the right measure to let the Greek people decide whether they’re ready to accept what needs to be done.”

    Not 2011

    Schaeuble’s stance on a Greek plebiscite is a departure from Germany’s position in 2011. Back then, Prime Minister George Papandreou dropped his plan for a referendum after Chancellor Angela Merkel and French President Nicolas Sarkozy urged him not to hold the vote. A financial backstop for the euro region and policy changes in former crisis countries since then have made contagion risks “marginal,” Schaeuble has said.

    Tsipras says he’s not considering leaving the currency bloc and is focused on getting the aid he needs to avoid a default, while Merkel says her “political goal” is to keep Greece in the euro. His government must still submit a comprehensive program of economic reforms, win approval from creditor institutions, secure the endorsement of euro-region finance ministers and then get past parliaments in Berlin and elsewhere before any payment will be made.

    “The Greek government is increasingly facing the dilemma that it can’t deliver on its own election promises and this is something the German government of course is also aware of,” Tanja Boerzel, a political scientist at Berlin’s Free University, said by phone. “Then it’s easier to let the Greek people decide in the hope that they vote to stay in the euro.”

    “The German Finance Ministry is supporting the idea of a vote by Greek citizens to either accept the economic reforms being sought by creditors to receive a payout from the country’s bailout program or ultimately opt to leave the euro.” That was last month.

    And as the article pointed out, The German Finance Ministry’s backing of the referendum in May was a sharp departure from Germany’s staunch resistance to a Greek referendum that almost happened back in 2011 when the Greek austerity was already becoming unbearable. This was right around the time Silvio Berlusconi was driven from office and Mario Monti’s technocratic government was installed in Italy and Greece’s Prime Minister George Papandreou was driven from office by his own cabinet following his failed efforts to back the referendum (and eventually replaced with the center-right pro-austerity Antonis Samaris following an inconclusive election). It was back in 2011, when it was becoming increasingly clear that the austerity madness was here to stay, regardless of who was in opposition including the markets. It was also back when Angela Merkel’s response to the Greek Prime Minister’s referendum proposal, “the real question is ‘Do you want to be in the euro, or not?'” and the taboo of talk of kicking out a eurozone member was first broken:

    The Wall Street Journal
    Deepening Crisis Over Euro Pits Leader Against Leader

    By Marcus Walker in Berlin,
    Charles Forelle in Brussels and
    Stacy Meichtry in Rome
    December 30, 2011

    BERLIN—On a chilly October evening in her austere chancellery, Angela Merkel placed a confidential call to Rome to help save the euro.

    Two years after the European debt crisis erupted in little Greece, the unthinkable had happened: Investors were fleeing the government debt of Italy—one of the world’s biggest economies. If the selloff couldn’t be stopped, Italy would go down, taking with it Europe’s shared currency.

    Her phone call that night to the 16th-century Quirinale Palace, once a residence of popes, now home to Italy’s octogenarian head of state, President Giorgio Napolitano, trod on delicate ground for a German chancellor. Europe’s leaders have an unwritten rule not to intervene in one another’s domestic politics. But Ms. Merkel was gently prodding Italy to change its prime minister, if the incumbent—Silvio Berlusconi—couldn’t change Italy.

    Details of Ms. Merkel’s diplomatic channel to Rome haven’t previously been reported.

    Her impatience shows the extent to which Italy’s woes undid Europe’s strategy to fight the crisis. Until then, Europe had followed a simple formula to preserve the euro: The financially strong would save the weak. But Italy, with nearly €2 trillion, or about $2.6 trillion, in national debt, was simply too big to save.

    As well as nudging Mr. Berlusconi off the stage, Ms. Merkel had to smooth out her volatile relationship with France’s president, Nicolas Sarkozy. The Franco-German couple eventually overcame many of their differences—and Mr. Berlusconi—only to be blindsided by fresh political chaos in Greece.

    Europe’s crisis is rooted in deep worries about government debt and economic imbalances inside the euro zone. Those concerns have scared bond investors away from Europe’s weaker states, leaving some, like Greece, without access to money with which to refinance or repay their debts. The great danger is that Italy might join them.

    Greece and others were small enough to rescue with international bailouts. But an Italian default could severely hurt Europe’s, and the world’s, financial system, perhaps triggering a worse global slump than the 2008 failure of Lehman Brothers did.

    The scramble to shore up investor confidence in Italy led to simmering arguments over how to pay for a financial safety net. Europe’s leaders were reluctantly realizing that living with a common currency meant surrendering more of their national independence than they had bargained for.

    France and others urged drawing on the virtually unlimited firepower of the European Central Bank. But German strictures and the central bank’s own reluctance to bail out governments—for fear of igniting inflation or rewarding profligacy—frustrated that idea.

    And while German pressure helped bring about a new, reform-minded government in Italy, today Europe is still fighting to save the euro. The battle ahead looks daunting.

    The euro zone, which accounts for nearly 20% of global economic activity, is sliding into recession. France and other countries are struggling to save their credit ratings. And Italy must borrow some €400 billion in 2012.

    But the calm didn’t last. Late on Oct. 31, Greek Prime Minister George Papandreou threw a wrench into the works by saying he would call a referendum on the bailout.

    Europe was horrified. A “no” vote would sink the bailout and push Greece into the biggest sovereign bankruptcy in history.

    Bond markets tanked. Euro-zone leaders summoned Mr. Papandreou to Cannes, France, on Nov. 2, ahead of the Group of 20 summit of world leaders.

    Penetrating rain dulled the Riviera resort, which in fairer months welcomes movie stars and oligarchs with a palette of sparkling azure. “The real question” for the referendum, Ms. Merkel told Mr. Papandreou there, “is ‘Do you want to be in the euro, or not?'”

    A taboo had been broken. For the first time, Europe’s leaders were openly suggesting that the euro’s weakest members could be cast out.

    In the end, Mr. Papandreou’s own party colleagues rebelled against his idea for a plebiscite. He was forced out of office. The Greek bailout remained in place.

    The Cannes conclave turned to Mr. Berlusconi. Italy, Europe’s leaders told him, was close to being shut out of bond markets. During lengthy discussions, Mr. Berlusconi fell asleep until aides nudged him awake.

    Just days earlier, Mr. Napolitano had released a cryptic statement. He considered it his duty, he said, “to verify the conditions” of Italy’s “social and political forces.” It was code for speaking more openly with parliament’s main groups about forming a new Italian government.

    On Nov. 8, Mr. Berlusconi, a dominant figure in Italian politics for 17 years, lost his parliamentary majority. Soon he resigned. Mr. Napolitano, with broad assent in parliament, named the respected economist Mario Monti as Italy’s new premier.

    As 2011 drew to a close, Ms. Merkel’s pressure had helped to install the reform-oriented leaders in southern Europe that she wanted, albeit ones that voters hadn’t elected. She and Mr. Sarkozy have also steered the euro zone as a whole toward German-style fiscal rigor aimed at balancing budgets and cutting public debt.

    But while Germany touts pan-European austerity as the key to stabilizing the region, investors remain doubtful. Italy’s bond yields are still at a worryingly high level. And Europe is still looking for money.

    “A taboo had been broken. For the first time, Europe’s leaders were openly suggesting that the euro’s weakest members could be cast out.” That was the status of Greece’s “negotiations” with the troika back in 2011.

    And here we are today, almost four years later, and Greece is once again being told that it had better accept endless austerity else get ready to leave the eurozone (the was the message of the German Finance Ministry in May), while the troika expresses scorn and outrage that Greece’s government would choose to hold a referendum on the troika’s demands (even though the German Finance Ministry recommended doing exactly that back May too).

    What’s next for Greece? Well, before the June 30th deadline or July 5th referendum, there going to be a bank holiday, which the ECB recommends as it caps its emergency funding to Greece’s banks at the current leves in response to the referendum:

    Bloomberg Business
    ECB Said to See Greek Bank Holiday Needed as ELA Dries Up

    by Angela Cullen

    June 28, 2015 — 9:00 AM CDT

    The European Central Bank is of the opinion that Greece will need to impose a bank holiday to stem deposit outflows as liquidity dries up, according to a person familiar with the ECB’s thinking.

    The level of Emergency Liquidity Assistance available to the Greek banking system is insufficient to cover lenders’ needs, the person said, asking not to be identified as the information isn’t public. An ECB spokesman declined to comment. The decision to impose a bank holiday is the responsibility of the Greek government or the country’s central bank.

    The ECB decided on Sunday to cap ELA at current levels after Prime Minister Alexis Tsipras’s government quit talks with international creditors to resolve the country’s debt crisis on Friday and called a referendum on the terms of the bailout program. The gambit risks putting the country on the path to a debt default, capital controls and potentially an exit from European monetary union.

    The ECB’s Governing Council is currently capping the amount of emergency cash available to Greek banks at just below 89 billion euros ($99 billion).

    While the cash has helped keep Greek banks alive, the ECB needs to protect itself should the government default on its debt. The banks’ capital levels and collateral values rely heavily on state guarantees on their assets, meaning the risk of a default automatically casts a shadow over their creditworthiness.

    So the ECB pretty much settled it: a bank holiday is going to be required for Greece in response to the referendum. And while this banking holiday is going on, Greece’s populace has about a week to decide how to vote in the upcoming referendum next week: ‘yes’ or ‘no’:

    The New York Times
    The Conscience of a Liberal

    Grisis

    Paul Krugman
    Jun 28 5:37 pm Jun 28 5:37 pm 97

    OK, this is real: Greek banks closed, capital controls imposed. Grexit isn’t a hard stretch from here — the much feared mother of all bank runs has already happened, which means that the cost-benefit analysis starting from here is much more favorable to euro exit than it ever was before.

    Clearly, though, some decisions now have to wait on the referendum.

    I would vote no, for two reasons. First, much as the prospect of euro exit frightens everyone — me included — the troika is now effectively demanding that the policy regime of the past five years be continued indefinitely. Where is the hope in that? Maybe, just maybe, the willingness to leave will inspire a rethink, although probably not. But even so, devaluation couldn’t create that much more chaos than already exists, and would pave the way for eventual recovery, just as it has in many other times and places. Greece is not that different.

    Second, the political implications of a yes vote would be deeply troubling. The troika clearly did a reverse Corleone — they made Tsipras an offer he can’t accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don’t like Syriza, that has to be disturbing for anyone who believes in European ideals.

    As Krugman points out, a ‘yes’ vote in favor of the troika’s offer is a vote for indefinite austerity and hopelessness. That’s what’s on the ballot next week: austerity and despair. Should Greece vote for the chaos and despair it knows or take a risk, leave the eurozone, and deal with the chaos doesn’t know because at least that’s not a situation involving chaos and despair?

    So in one week there’s a big vote: chaos and despair, or just chaos. Either way, the European Project loses.

    Posted by Pterrafractyl | June 28, 2015, 11:22 pm
  41. Joseph Stiglitz has a piece on Greece’s options in the face of default, drawing a number of parallels between the IMF’s treatment of Argentina in the lead up to its default in 2001 and the troika’s treatment of Greece. As Stiglitz points out, there are far worse things that could happen to a country than a default, especially in the face of what appears to be endless austerity systemic humiliation of the Greeks.

    And as he also points out, “Somehow, one expected something better of Greece’s Eurozone ‘partner.’ But the demands were every bit as intrusive, and the policies and models were every bit as flawed.” In other words, based on the behavior of the troika thus far, is appears that the European Monetary “Union” is bound together by a similar level of solidarity that, say, Argentina might find from the IMF. That’s not exactly a union you want to join. Or remain a member of:

    Huffington Post

    Argentina Shows Greece There May Be Life After Default

    Joseph E. Stiglitz
    Professor at Columbia University and a Nobel Laureate in Economics

    Martin Guzman
    Postdoctoral Research Fellow Columbia University GSB

    Posted: 06/30/2015 1:51 pm EDT

    When, five years ago, Greece’s crisis began, Europe extended a helping hand. But it was far different from the kind of help that one would have wanted, far different from what one might have expected if there was even a bit of humanity, of European solidarity.

    The initial proposals had Germany and other “rescuers” actually making a profit out of Greece’s distress, charging a far, far higher interest rate than their cost of capital. Worse, they imposed conditions on Greece — changes in its macro- and micro-policies — that would have to be made in return for the money.

    Such conditionality was a standard part of the lending practices of the IMF and the World Bank. Typically, when they imposed these conditions, they had little knowledge of the real workings of the economy; and frequently, there was more than a little politics in the demands. There was sometimes an element of neo-colonialism: the old White Europeans once again telling their former colonies what to do. More often than not, the policies didn’t work as they were supposed to. There were huge discrepancies between what the Western experts expected and what actually happened.

    Somehow, one expected something better of Greece’s Eurozone “partner.” But the demands were every bit as intrusive, and the policies and models were every bit as flawed. The disparity between what the Troika thought would happen and what has emerged has been striking — and not because Greece didn’t do what it was supposed to, but because it did, and the models were very, very flawed.

    At last, after years of blackmailing Greece and demanding ever more austerity that led to a catastrophic economic depression, the Troika has finally pushed the country into the brink of default.

    The situation has some important similarities with Argentina’s 2001 default — and some differences as well. In both countries, recessions turned into depressions as a consequence of austerity policies — making the debt even more unsustainable. In both cases, the policies were demanded as a condition for assistance. Both countries had rigid currency arrangements that gave them no possibility for running expansionary monetary policies during the recession. In both countries, the IMF got it wrong, providing alarmingly flawed forecasts of the consequences of the imposed policies. Unemployment and poverty soared, and GDP plummeted. Indeed, there is even a striking similarity in the magnitude of the fall in GDP and the increase in the unemployment rate.

    In Argentina, youth unemployment in particular skyrocketed and stayed high for several years. The lack of opportunities destroyed motivations and was an immense waste of the talent of millions of young people. With youth unemployment at about 50 percent in Greece, a similar saga is going on.

    Defaults are difficult. But even more so is austerity. The good news for Greece is that, as Argentina showed, there may be life after debt and default.

    The saga that led to the Greek default reminds us time and again of important lessons for the management of sovereign debt crises that we should have learned from earlier such events. The first one is that there is no improvement in the capacity of debt repayment without economic recovery. At the same time, there is no economic recovery without a restoration of debt sustainability.

    Both in Argentina and Greece, restoring debt sustainability required a deep sovereign debt restructuring. In both cases, finalizing a “good” debt restructuring, a timely and sufficiently deep restructuring conducive to economic recovery with access to international credit markets, has proven to be quixotic. This is not due to any fault on the part of the countries, but to deficiencies in the frameworks in which negotiations were carried on.

    In both cases, creditor institutions pretended that sustainability could be regained through “structural adjustments.” Under intense pressure, the programs that were foisted on them were accepted and implemented — but they obviously didn’t work. Exchanging “bailout” funds — funds that were mostly used to repay the very same creditors that were providing them — for adjustments (and promises of even bigger adjustments) spiraled into economies that got ever weaker. In the case of Argentina, after years of suffering, the people went into the streets.

    In both cases, runs on the banking system ended up with a partial freezing of bank deposits, which in the case of Argentina, triggered a full-fledged banking crisis and a subsequent conversion of deposits denominated in a foreign currency into domestic currency that led to a restructuring of domestic liabilities — at a high cost for small domestic savers. In Greece, the consequences still remain to be seen.

    Debt restructurings are a necessary part of the lender-borrower relationship. They have occurred hundreds of times, and they will continue occurring. The way in which they are resolved determines the size of the losses. Bad management of debt crises, such as demanding austerity policies during recessions — in spite of theory and empirical evidence showing that austerity in recessions only makes recessions deeper — inevitably leads to larger losses and more suffering.

    Those who get saved by the bailouts (as the German and French banks in the case of Greece) usually give moral hazard as the reason to avoid debt restructuring. They claim that it would create perverse incentives; other debtors would be more inclined to “abuse” borrowing by not repaying. But the moral hazard argument is a fairy tale. Both Argentina and Greece had already paid a very high price for their debt problems by the time of default. No country in the world would be happy to follow the same road.

    Greece’s experience also teaches us what should not be done in a debt restructuring. The country “restructured” its debt in 2012, but it did it wrong. It was not only insufficiently deep for economic recovery, but it also led to a change in the composition of debt — from private creditors to official creditors — making further restructurings more difficult.

    To some extent, Greece faces a more complex situation than Argentina did in 2001. Argentina’s default was accompanied by a large currency devaluation that made the country more competitive and that, together with the debt restructuring, provided the conditions for a sustained economic recovery. In the case of Greece, default and Grexit would require the re-implementation of a domestic currency. It’s not the same to devalue an existing currency than to create a new currency in the midst of a crisis. This additional layer of uncertainty has enhanced the Troika’s capacity for pressuring Tsipras’s government.

    When debt is unsustainable, there needs to be a fresh start. This is a basic, well-recognized principle. So far, the Troika is depriving Greece from this possibility. And there can’t be a fresh start with austerity.

    This Sunday, Greek citizens will debate two alternatives: austerity and depression without end, or the possibility of deciding their own destiny in a context of huge uncertainty. None of the options are nice. Both could lead to even worse social disruptions. But while with one of them there is some hope, with the other there is not.

    So Joseph Stiglitz joins another Nobel winning economist, Paul Krugman, in recommending that Greece choose a future outside of Europe’s IMF-zone. And we’ll find out whether or not that’s a future the Greek people have a stomach for on Sunday.

    It’s a big decision, and not a lot of time is left to make it for anyone in Greece still on the fence. But it will probably be a lot easier to decide how to vote the more the rest of Europe’s leaders demonstrate how little they think of the Greek people

    Bloomberg Business

    Merkel Says Germany Won’t Back Greek Aid at Any Price

    by Patrick Donahue and Rainer Buergin

    July 1, 2015 — 6:32 AM CDT
    Updated on July 1, 2015 — 8:02 AM CDT

    Chancellor Angela Merkel said Germany remains open to resuming negotiations with Greece on financial assistance, though she won’t agree to a deal at any price.

    “The door for talks with Greece was always open and always remains open,” Merkel said in a speech to lawmakers in the lower house of parliament in Berlin on Wednesday. “We owe that to the people and we owe it to Europe.”

    At the same time, Merkel and Vice Chancellor Sigmar Gabriel sent a message to Greek Prime Minister Alexis Tsipras that he has to meet conditions to win the release of further aid and that Greece doesn’t have the power to cause an “economic catastrophe” in Europe.

    “Yes, these are turbulent days and indeed a lot is at stake,” Merkel said. “The world is looking at us. But the future of Europe is not at stake. The future of Europe would be at stake if we forgot who we are and what makes us strong: A union based on the rule of law and responsibility. If we were to forget that, the euro would fail and Europe with it.”

    “I want Europe to emerge from this crisis stronger than at the start so we can be strong in competition with China, India, South America,” she said. “That’s what it’s about, not whether a dispute over 400 million or 1.5 or 2 billion euros can be resolved or not.”

    Echoing Merkel

    Gabriel, whose Social Democratic Party is Merkel’s junior coalition ally, said the euro “isn’t under threat” from the Greek crisis. Tsipras can’t expect aid without an agreement on economic-policy changes, he said.

    While Greece has the right to hold its planned referendum on July 5, the other 18 euro-area member states have the right to take positions that reflect their interests, Merkel said.

    “Being a good European doesn’t mean seeking an agreement at any price,” she said.

    No new negotiations can take place before the referendum, since Germany’s lower house, or Bundestag, must vote on opening any aid talks according to the rules of the European Stability Mechanism, Merkel said.

    Yes, Angela Merkel wants Greece to know that “The door for talks with Greece was always open and always remains open” while…:


    At the same time, Merkel and Vice Chancellor Sigmar Gabriel sent a message to Greek Prime Minister Alexis Tsipras that he has to meet conditions to win the release of further aid and that Greece doesn’t have the power to cause an “economic catastrophe” in Europe.

    The door is also open for negotiations, but Greece has to “meet conditions to win the release of further aid”. So the door for negotiations is always open, they just might not be negotiations over the things you actually wanted to talk about. Also, no new negotiations can take place before the referendum. But the door is always open.

    As Merkel says:

    “The world is looking at us. But the future of Europe is not at stake. The future of Europe would be at stake if we forgot who we are and what makes us strong: A union based on the rule of law and responsibility. If we were to forget that, the euro would fail and Europe with it.”

    Yes, the eurozone is a union based on “rule of law” and “responsibility” and everything that’s happened to Greece thus far apparently falls under the those two banner principles. And that means the IMF’s headspace is apparently the permanent headspace of the new Europe. It’s something Greece’s voters had better not forget.

    They also might want to keep in mind another piece of Merkel’s advice:
    “Being a good European doesn’t mean seeking an agreement at any price.”

    Posted by Pterrafractyl | July 1, 2015, 11:00 am
  42. From one bankster to another: According to Tim Geithner, this was the thinking of German Finance Minister Wolfgang Schaeuble back in July 2012 on what should be done about the crisis in Greece: “He told me there were many in Europe who still thought kicking the Greeks out of the eurozone was a plausible — even desirable — strategy…The idea was that with Greece out, Germany would be more likely to provide the financial support the eurozone needed because the German people would no longer perceive aid to Europe as a bailout for the Greeks…At the same time, a Grexit would be traumatic enough that it would help scare the rest of Europe into giving up more sovereignty to a stronger banking and fiscal union…The argument was that letting Greece burn would make it easier to build a stronger Europe with a more credible firewall.

    The New York Times
    The Hard Line on Greece

    Andrew Ross Sorkin
    JUNE 29, 2015

    In July 2012, Timothy F. Geithner, the United States Treasury secretary at the time, traveled to Sylt, an island off Germany in the North Sea.

    Mr. Geithner was there for a meeting with Wolfgang Schäuble, Germany’s finance minister, who would spend his summers at his vacation home on the tiny island.

    The topic was Greece.

    In the home’s library, the two men spoke about Greece’s prospects and begun discussing ways for the European Union to keep the country in the eurozone.

    To Mr. Geithner’s dismay, however, Mr. Schäuble took the conversation in a different direction.

    “He told me there were many in Europe who still thought kicking the Greeks out of the eurozone was a plausible — even desirable — strategy,” Mr. Geithner later recounted in his memoir, “Stress Test: Reflections on Financial Crises.” “The idea was that with Greece out, Germany would be more likely to provide the financial support the eurozone needed because the German people would no longer perceive aid to Europe as a bailout for the Greeks,” he says in the memoir.

    “At the same time, a Grexit would be traumatic enough that it would help scare the rest of Europe into giving up more sovereignty to a stronger banking and fiscal union,” Mr. Geithner wrote. “The argument was that letting Greece burn would make it easier to build a stronger Europe with a more credible firewall.”

    Fast-forward three years. What Mr. Schäuble articulated that summer afternoon to Mr. Geithner is finally taking shape.

    Greece is in a harrowing last-minute standoff with the European Union over whether it will remain part of the eurozone, and Greek citizens are set to make the decision in a referendum vote on Sunday. That vote is happening against a backdrop of bank runs; citizens are camped outside of banks, where capital controls now restrict the amount of money that can be removed.

    Politicians and investors have been trying to “war game” the outcome. Who is bluffing? The Greeks or the European Union.

    The conversation between Mr. Geithner and Mr. Schäuble gives a strong indication. As Mr. Geithner said of another conversation he had with Mr. Schäuble: “He has a clear view: Greece had binged, so it needed to go on a strict diet.”

    Jean-Claude Juncker, the head of the European Union’s executive branch, said on Monday that “the door is still open” and that he was hoping to bring Greece back to the negotiating table. But that was as far as he would go.

    He was no doubt sincere in his hopes that Greece would agree to the latest proposed bailout arrangement. But this time, the Europeans have nothing left to give Greece, and any concession will only undermine the strength of those left in the eurozone — possibly inspiring other countries like Portugal, Spain and Italy to ask for even better loan terms.

    A crucial decision made over the weekend had largely gone unremarked upon but is telling. The European Central Bank decided to halt an expansion of its emergency lending facility to Greek banks. That facility could have allowed the banks to continue operating without as much panic and helped avoid some of the capital controls by providing additional liquidity.

    No central bank likes lending into a bank run in which it expects it will lose money, so the decision may make sense on the merits. But it also serves another purpose, one that is political.

    By closing the cash spigot, the E.C.B. managed to instill additional fear and panic into the day-to-day lives of the Greek people, ahead of the vote on the referendum.

    That panic could cut two ways. The Greeks could look at the lines around the banks as a warning of what’s about to come, which would undoubtedly be worse in the short term, and vote in favor of the latest bailout agreement.

    Of course, they could also view the lines as further evidence of their subjugation to the eurozone and the continued austerity they would experience under the bailout, pushing them to vote against it.

    The E.C.B.’s decision also has another important purpose outside of Greece: It might be a warning to countries like Spain and Italy, should they ever consider following Greece out of the eurozone — if that comes to pass.

    It may seem counterintuitive, but rather than make a Greece exit easy and seamless to avoid dislocations in financial markets, the E.C.B. has the perverse incentive to make it messy and difficult to deter others.

    “The economics behind the program that the ‘troika’ (the European Commission, the European Central Bank, and the International Monetary Fund) foisted on Greece five years ago has been abysmal, resulting in a 25 percent decline in the country’s G.D.P.,” Joseph Stiglitz, an economist and professor at Columbia University, wrote on Monday. “I can think of no depression, ever, that has been so deliberate.”

    In his book, Mr. Geithner reflected on his conversations with European leaders about the measures they sought to take. “The desire to impose losses on reckless borrowers and lenders is completely understandable, but it is terribly counterproductive in a financial crisis,” Mr. Geithner said.

    At one point, he told Mr. Schäuble: “You know you sound a bit like Herbert Hoover in the 1930s. You need to be thinking about growth.”

    So at least we’ve reached the point where it can be openly discussed in mainstream publications like the New York Times how the troika is waging a planned campaign of socioeconomic terrorism. It’s progress! Or, at least, it would be progress if the world actually cared and didn’t revel in Greece’s pain. But since so much of the world either doesn’t care or has apparently decided that the joys of hating on the Greeks is worth the cost of reversing decades of contemporary economic experience and knowledge, it’s not really clear reports like this actually count as progress.

    But who knows, as more and more insider accounts make it increasingly unambiguous that the troika’s leadership view the rabble as burnable effigies, maybe someday stories about major global powers intentionally traumatizing a populace for years in order to scare other populations into compliance will be reported on and the world will actually care. Someday, but not today.

    Posted by Pterrafractyl | July 3, 2015, 1:59 pm
  43. Goebbels would be proud of this magazine’s lampoon cover of Greece’s Prime Minister holding a gun to his own head and threatening to shoot himself (a direct rip-off of Mel Brooks and Richard Pryor’s script for the movie Blazing Saddles with Cleavon Little doing the same ‘self-threat’ as the new black sheriff about to be lynched by the white towns-folk) the germ-men have much experience ridiculing and ripping off those they viciously conquer – one way or another

    http://www.bloomberg.com/news/articles/2015-07-03/greece-lampooned-by-german-media-as-voters-split-on-euro-future

    Greece Lampooned by German Media as Voters Split on Euro Future

    by Angela Cullen
    July 3, 2015 — 3:54 AM PDT
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    The Greek Bailout: Deal or no Deal?

    The gloves are off in German media coverage of Greece’s spiraling debt crisis as the war of words between Europe’s renegade and its biggest stalwart escalates in the countdown to Sunday’s referendum.
    Handelsblatt, a business and finance newspaper, transposed an image of Greek Prime Minister Alexis Tsipras holding a pistol to his head on its front page on Friday with the headline “Hand over the money or I’ll shoot.”

    Inside, it carried a 12-page spread on Greece and Europe, attesting that the Greek government is blackmailing its European Union partners with demands for debt relief and Tsipras’s decision to call the July 5 vote.
    Public broadcaster ARD, in its Morgenmagazin breakfast show, lampooned the tit-for-tat battle that has ensued between German Finance Minister Wolfgang Schaeuble and Greek counterpart Yanis Varoufakis, 54, in a video clip based on the 2011 French film The Intouchables, depicting the unlikely friendship between a wealthy quadriplegic and his African carer. Schaeuble, 72, has been confined to a wheelchair since he was shot by a deranged man in 1990.
    Germany’s mainstream media is turning to satire as a poll showed Germans blame the Greek government for escalating the crisis that has catapulted the Mediterranean country to the brink of default and a potential collapse of its banking system, putting the future of the euro at risk.
    Sixty-eight percent of 1,001 people surveyed in an ARD-DeutschlandTrend poll conducted by Infratest Dimap on June 29 and June 30 held the Greek government responsible, while 4 percent blamed the European Union. Both sides are to blame, according to 24 percent of those surveyed.
    Tsipras Demands
    Schaeuble’s refusal to give in to Tsipras’s demands spurred the minister to his highest ever approval rating in the poll by the German public broadcaster as 70 percent said they were satisfied with his work. That put Schaeuble ahead of Chancellor Angela Merkel, who scored 67 percent. Foreign Minister Frank-Walter Steinmeier topped the ranking with 73 percent.
    Schaeuble has been the German government’s fiercest critic of Greece’s unwillingness to reform and fulfill its debt obligations. Greece has provided “no basis for talking about any serious measures” to break the deadlock, he said on July 1 after the country failed to make a June 30 payment to the International Monetary Fund.
    Varoufakis vowed to quit if Greek voters don’t support the government in Sunday’s plebiscite. With banks shut and the economy hobbled by capital controls, Varoufakis said in a Bloomberg Television interview in Athens that he would “rather cut my arm off” than sign a deal that fails to restructure Greece’s debt.
    Germans are split on whether Greece should remain in the euro. In the ARD poll, 45 percent said they want Greece to stay in the euro, the same number as said the country should leave. That compares with 51 percent in favor of Greece staying and 41 percent against in a February survey.

    Posted by participo | July 4, 2015, 12:29 am
  44. @Participo: One of the questions raised by that kind high-profile mockery of a totally screwed populace is just who the euro-elites running the show, as opposed to the clueless euro-rabble, are really mocking when they think no one is listening. After, who would a euro-elite bully respect more: the rabble that are actually demonstrating some meaningful resistance or the rabble that’s already fully domesticated, exhibiting symptoms of Stockholm syndrome, and doesn’t seem to realize it yet:

    Eschaton Blog
    What’s It All About Then

    Atrios
    Saturday, July 04, 2015 at 13:00

    Greece’s Euro “membership” isn’t about using the currency, it’s about having access to various loan facilities and support from the ECB, which it already doesn’t have..

    Bloomberg reports that Bulgaria, which is not a Euro member but backs its currency with Euro reserves, has just been allowed to borrow from the ECB at the same rate as Euro members, thus enabling it to firewall its banks from Greek contagion. This is a privilege normally only accorded to Euro members – and it has been WITHDRAWN from Greece. If this is true, then Bulgaria (non-Euro member) can obtain Euros from the ECB while Greece (Euro member) cannot. It is hard to see what benefit Greece’s Euro membership confers, apart from redistribution of seigniorage receipts.

    And finally someone gets the logical endpoint of central bank “independence.”

    For the central bank of a currency union to deliberately restrict the money supply in regions within the currency union is bizarre. No other currency union central bank on earth does this. It would, for example, be unthinkable for the Bank of England to deny liquidity to Scotland’s banks. But the ECB has denied liquidity to Greece’s banks, not because they are insolvent (which is a reasonable reason to deny liquidity to banks) but because the sovereign won’t toe the fiscal line. It has taken on a political role that it should not have.

    Of course, the ECB’s shareholders are the member state governments. But those governments have bound themselves by laws and treaties that prevent them interfering with or in any way controlling the ECB. So the Eurozone is in reality a financial dictatorship run by bankers. I struggle to see why anyone would voluntarily join it, let alone want to stay in it. But that’s democracy for you.

    Whatever it is, it ain’t democracy. It’s banksterocracy. The concept of central bank independence was, once upon a time, thought to be necessary to prevent irresponsible governments from doing, or being perceived as doing, irresponsible things with the money supply. Now the point of central bank independence is to hand immense power to a bunch of unelected unaccountable people engaged in revolving door careers with the banking system. Let’s continue laughing at the silly Greeks and their silly corruption.

    Yes, let’s continue laughing at the silly Greeks and their silly corruption. But let’s end the laughing there. Laughter is contagious, after all, and when the joke’s on everyone, that can make laughter somewhat dangerous.

    So let’s hope July 5th becomes Greece new Independence (from banksterism) Day. And let’s hope the rest of the euro-rabble (and global-rabble) that mock the plight of Greece someday finally “get” the Big Joke. Because if the fate of the eurozone is that of an ever closer banksterocracy, we’re going to need a lot less laughing and a lot more new independence days.

    Posted by Pterrafractyl | July 4, 2015, 1:26 pm
  45. And Greece rejects the ‘bailout’ with 60 percent voting “No”! Wow. The trouble in Europe’s bankster paradise just got a lot more troublesome because democracy won and, in doing so, democracy taught capitalism a number of lessons capitalism hates to learn. Lessons about usury and the limits to the logic of unmerciful behavior:

    Business Insider
    GREECE JUST TAUGHT CAPITALISTS A LESSON ABOUT WHAT CAPITALISM REALLY MEANS

    Jim Edwards

    Jul. 5, 2015, 6:48 PM

    Greece has effectively voted to default on its debt to the IMF and the EU, and it is a massive defeat for Germany’s Angela Merkel and the troika she led, which insisted there was no way out for Greece but to pay back its massive debts.

    The vote is huge lesson for conservatives and anyone else who thinks this is about a dilettante government of left-wing idealists who think they can flout the law while staging some kind of Che Guevara-esque dream:

    Wrong.

    This is what capitalism is really about.

    From the beginning, Merkel and the EU have operated from the position that because Greece took on debt, Greece now needs to pay it back. That position assumed — bizarrely, in hindsight — that debt only works one way: if you lend someone money, then they pay it back.

    But that is NOT how free markets work.

    Debt is not a guarante of future payments in full. Rather, it is a risk that creditors take, in hopes of maybe being paid tomorrow.

    The key word there is “risk.”

    If you’re willing to take the risk, you’ll get a premium — in the form of interest.

    But the downside of that risk is that you lose your money. And Greece just called Germany’s bluff.

    The IMF loaned Greece 1.5 billion euros, due back in June, and Greece isn’t paying it back. Greece has another 3.5 billion due to the ECB in July, and that looks really doubtful right now.

    This is how capitalism works. The fact that it took a democratically elected government whose own offices are adorned with posters of Lenin, Engels and Guevara to teach this lesson to Germany is astonishing.

    More astonishing still is that Merkel et al knew Greece could not pay back this debt before these negotiations started. The IMF’s own assessment of Greek debt, published just a few days ago, states: “Coming on top of the very high existing debt, these new financing needs render the debt dynamics unsustainable …”

    “Unsustainable”! Germany’s own bankers knew Greece couldn’t pay this back. And yet Merkel persisted.

    Take a look at Greek GDP. In order to pay back debt, you have to have a growing economy. That’s a basic law of economics. It’s how credit cards work. It’s how mortgages work. And it is how sovereign/central bank debt works. But Greece’s economy was never in a position to benefit from debt, because it has been shrinking for years:

    There is another key fact that the Greeks are keenly aware of (but which everyone else has forgotten). This debt was initially owed to private investment banks, like Goldman Sachs. But the IMF and the ECB made the suicidal decision to let those private banks transfer that debt to EU insitutions and the IMF to “rescue” Greece. As Business Insider reported back in April, former ECB president Jean-Claude Trichet insisted that the debt transfer take place:

    The ECB president “blew up,” according to one attendee. “Trichet said, ‘We are an economic and monetary union, and there must be no debt restructuring!’” this person recalled. “He was shouting.”

    The result was that the ECB made this catastrophically stupid deal with Greece, according to our April report:

    And so there was no restructuring agreed for Greece. The country paid off its immediate debts to the private financial sector — investment banks, basically — and replacement debt was laid onto European taxpayers. The government agreed to a package of harsh government spending cuts and structural reforms in exchange for loans totalling €110 billion over three years.

    Trichet made a colossal, elementary mistake. The right place for risky debt by definition is in the private markets, like Goldman. The entire point of private debt investment is that those creditors are prepared for a haircut. The risk absolutely should not be borne by central banks who rely on taxpayer money for bailouts.

    In fact, had Trichet made the opposite decision — and left the Greek debt with Goldman et al — then today’s vote would be a footnote rather than a headline in history. “Goldman Sachs takes a bath on Greek debt.” Who cares? Goldman shareholders and clients, surely. But it would not have triggered a crisis at the heart of the EU.

    Now, before we all start singing “The Red Flag” and breaking out old videos of "The Young Ones" in celebration, let’s inject a note of realism. Greece isn’t actually a country full of crazy socialists who don’t understand how the FX markets work. In fact, a huge chunk of its tax collection problems stem from the fact that there are two and a half times more self-employed and small business people in Greece than there are in the average country. And small businesses are expert at avoiding tax, Greece’s former tax collector told Business Insider’s Mike Bird recently.
    m
    Conservatives who hate paying taxes and who urge small businesses to pursue tax avoidance strategies take note: Your dream just came true in Greece.

    If Greece was more socialist — more like Germany, with its giant corporations that have massive unionised workforces paying taxes off their payrolls — then tax collection would be a lot higher in Greece.

    Greece is now likely an international pariah on the debt markets. It may have to start printing its own devalued drachma currency. It will have no access to credit. Sure, olive oil, feta and raki will suddenly become incredibly cheap commodities on the export markets. Tourism in Greece is about to become awesome. But mostly it will be awful. Unemployment will increase as Greece’s economy implodes.

    But the awfulness will be Greece’s alone. Greece is now on its own path. It is deciding its own fate.

    There is something admirable about that.

    There’s a lot to digest there given that it sounds like Greece is teaching the rest of Europe (and most of the world) about the basics of how capitalism works and the nature of lending and its associated creditor risks, but keep in mind this key point made in the article: Tourism in Greece is about to become awesome.

    If this is it for Greece and it’s really going to be on its own, it’s very easy for people around the world to help Greece continue teaching the world basic lessons in capitalism and economics. Just take a trip to Greece. Vacationing there is about to become awesomely cheap and the foreign currency that comes with tourism is going to be exactly what Greece needs. So it’s almost time to make that trip to the cradle of democracy you’ve been procrastinating on all these years.

    But before you buy those tickets to Athens, note the profoundly depressing reality laid out above: by voting “No” on the troika’s “bailout” offer (of unending and intensifying austerity), Greece was merely abiding by the long-standing rules of capitalism that everyone knows but almost everyone has suddenly forgotten or decided to ignore. Rules of capitalism that mostly involve preventing usury.
    For whatever reason, those rules against usury that help keep capitalism functioning were suddenly forgotten by Europe once the financial crisis hit. Private creditors (of public and private debt) got bailed out by the public, generally by public bailouts of private banks or, in the case of Greece, public bailouts of private bondholders of public debt. The IMF forgot and remembered some of those rules of usury at various points over the last five years, but for the EU and especially the eurozone, the hardest line possible was the norm in any given austerity debate since the crisis began.

    And as the piece above points out, by rejecting its usurious terms and presumably defaulting on all of its troikan debt (although that’s no guarantee), Greece is reminding Europe’s elite’s and their forgetful IMF allies that basic laws of economics and debt arithmetic can’t be overcome by a collective political will when that will defies the laws of economics and math.

    Even when faced with the threat of economic exile, 60 percent of Greek voters voted “No” because that was their best option despite the endless threats of ruin from Europe’s leadership. Because Karl Rove’s mockery of the “reality-based community” isn’t actually a good economic policy, especially for a monetary union in crisis when the new reality the elite’s are trying to will into existence is a world where flawed old economic models that were abandoned decades ago actually work. When forced to choose between the increasingly unreal reality of the status quo or risking life outside the Rovian-Reality Union, voting “No” and accepting the risks of an economic and fiscal shock suddenly makes sense and is possibly a lower-risk path than remaining in the Rovian-Reality Union.

    Rovian-Reality Unions are that level of bad news and the Greeks may have escaped it. But beyond that, the Greeks may have saved Europe from its own tragic turn towards the kind of junk economics that have trashed the US’s economy since Reagan. Because if anything is going to trigger a rethink of Europe’s austerity-onomics, it’s going to be seeing a member state and find life gets better. If Greece gave another stamp of public approval to the eurozone’s increasingly unworkable austerity mess, Europe really could be facing years of self-inflicted right-wing economic rule.

    It’s not going to stop as long as voters keep supporting austerity policies, especially when countries in Greece’s situation do so. And now everyone, most especially eurocrat policy-makers, know that there is a limit to the madness with Europe’s voters, and they just might become ex-voters.And attempts to get the voters to elect more compliant governments won’t succeed either.

    In other words, for a continental union with an elite bully problem, Greece did the eurozone one of the biggest favors it could have: it stood up to an out of control troikan bully and lived to tell the tale:

    The New York Times
    Op-ed

    Ending Greece’s Bleeding

    Paul Krugman
    JULY 5, 2015

    Europe dodged a bullet on Sunday. Confounding many predictions, Greek voters strongly supported their government’s rejection of creditor demands. And even the most ardent supporters of European union should be breathing a sigh of relief.

    Of course, that’s not the way the creditors would have you see it. Their story, echoed by many in the business press, is that the failure of their attempt to bully Greece into acquiescence was a triumph of irrationality and irresponsibility over sound technocratic advice.

    But the campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.

    What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic,, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the “no” side offers at least a chance for an escape from this trap.

    But how can such an escape be managed? Is there any way for Greece to remain in the euro? And is this desirable in any case?

    The most immediate question involves Greek banks. In advance of the referendum, the European Central Bank cut off their access to additional funds, helping to precipitate panic and force the government to impose a bank holiday and capital controls. The central bank now faces an awkward choice: if it resumes normal financing it will as much as admit that the previous freeze was political, but if it doesn’t it will effectively force Greece into introducing a new currency.

    In the failed negotiations that led up to Sunday’s referendum, the central sticking point was Greece’s demand for permanent debt relief, to remove the cloud hanging over its economy. The troika — the institutions representing creditor interests — refused, even though we now know that one member of the troika, the International Monetary Fund, had concluded independently that Greece’s debt cannot be paid. But will they reconsider now that the attempt to drive the governing leftist coalition from office has failed?

    I have no idea — and in any case there is now a strong argument that Greek exit from the euro is the best of bad options.

    Imagine, for a moment, that Greece had never adopted the euro, that it had merely fixed the value of the drachma in terms of euros. What would basic economic analysis say it should do now? The answer, overwhelmingly, would be that it should devalue — let the drachma’s value drop, both to encourage exports and to break out of the cycle of deflation.

    Of course, Greece no longer has its own currency, and many analysts used to claim that adopting the euro was an irreversible move — after all, any hint of euro exit would set off devastating bank runs and a financial crisis. But at this point that financial crisis has already happened, so that the biggest costs of euro exit have been paid. Why, then, not go for the benefits?

    Would Greek exit from the euro work as well as Iceland’s highly successful devaluation in 2008-09, or Argentina’s abandonment of its one-peso-one-dollar policy in 2001-02? Maybe not — but consider the alternatives. Unless Greece receives really major debt relief, and possibly even then, leaving the euro offers the only plausible escape route from its endless economic nightmare.

    And let’s be clear: if Greece ends up leaving the euro, it won’t mean that the Greeks are bad Europeans. Greece’s debt problem reflected irresponsible lending as well as irresponsible borrowing, and in any case the Greeks have paid for their government’s sins many times over. If they can’t make a go of Europe’s common currency, it’s because that common currency offers no respite for countries in trouble. The important thing now is to do whatever it takes to end the bleeding.

    As Paul Krugman puts it:


    And let’s be clear: if Greece ends up leaving the euro, it won’t mean that the Greeks are bad Europeans. Greece’s debt problem reflected irresponsible lending as well as irresponsible borrowing, and in any case the Greeks have paid for their government’s sins many times over. If they can’t make a go of Europe’s common currency, it’s because that common currency offers no respite for countries in trouble. The important thing now is to do whatever it takes to end the bleeding.

    Yes, not only are the Greeks not bad Europeans if they end up leaving the eurozone, the Greek vote is quite possibly going to go down in history as the beginning of the end of Europe’s contemporary experiment with vassal state debt bondage politics. Whether or not that happens all depends on what the rest of the eurozone does next, which isn’t at all clear.

    But one thing is clear: in terms of living up to the ideals that the European project is supposed to stand for, Greece is doing its part. After all, when democracy itself it at risk of being lost, dissent becomes the most valuable coin in the realm. And that’s why, despite the fact that Greece’s path forward might include another of additional financial up and downs, but Sunday’s vote made everyone richer.

    Posted by Pterrafractyl | July 5, 2015, 11:43 pm
  46. The EU appears to be issuing an ultimatum of sorts: Greece has until Sunday to work out a deal to avoid bankruptcy. Also, negotiations with the troika can’t happen at the moment because Greece’s new finance minister didn’t have a detailed enough proposal. And since any proposal Greece makes will almost certainly be deemed inadequate by the Europe’s elites, it looks like we have another few days of troikan theatrics before we find out whether or not the European Project is truly about creating a deep, meaningful union of the European people under a “we don’t allow each other to suffer in this family” social contract, or if it’s really just a shallow monetary union union and nothing more. We’ll find out in a few days, but based on the bluster and outrage of the last few days, deep thoughts about the nature of “Europe” don’t appear to be on the agenda:

    Washington Post
    Europe gives Greece 5 days to avoid bankruptcy

    By Griff Witte and Michael Birnbaum July 7 at 7:10 PM

    ATHENS — An emergency summit of European leaders called to salvage Greece’s financial rescue broke up acrimoniously late Tuesday night, with officials saying the country now has just five days to avoid bankruptcy.

    Following a day’s worth of talks aimed at finding a way out of months of bitter deadlock, European leaders were scathing in their assessments of Greece’s proposals, calling them inadequate and demanding the Greek government return with a detailed plan by Thursday.

    The leaders of all 28 European Union members will then meet Sunday in what officials said will be the final chance to save Greece from economic oblivion — or the moment the country is ejected from the euro zone.

    “The stark reality is that we only have five days to find the ultimate agreement,” said a visibly irritated Donald Tusk, the European Council president. “Until now I have avoided talking about deadlines. But tonight I have to say it loud and clear — the final deadline ends this week.”

    Standing at his side at E.U. headquarters in Brussels, European Commission President Jean-Claude Juncker pounded the lectern as he announced that Europe has detailed plans for Greece’s exit from the euro zone — known as “Grexit” — and for delivering humanitarian aid to Athens.

    “I’m strongly against Grexit,” he said. “But I can’t prevent it if the Greek government is not doing what we expect the Greek government to do.”

    Greek Prime Minister Alexis Tsipras had a starkly different account of the meetings, saying that they were “positive” and that he had outlined proposals for a “socially just and economically viable agreement.”

    The wildly different accounts suggest how difficult it will be to reach a deal in time to pull Greece back from the edge of an abyss that both sides have said for months they are desperate to avoid.

    Greece’s radical leftist government had been widely expected to present a new, detailed plan to finance ministers at a meeting Tuesday, just two days after a referendum in which Greek voters emphatically rejected Europe’s latest proposed cuts-for-cash deal. Before the vote, Tsipras promised he could strike an agreement with Europe “within 48 hours” if voters backed him — as they did.

    But instead of a formal blueprint, Greece’s new finance minister, Euclid Tsakalotos, spoke from handwritten notes about his country’s intentions to rein in costs and prop up its creaky fiscal underpinnings while avoiding some of the tough austerity measures that Greek creditors have demanded.

    European officials were incredulous that Greece had not come better prepared, especially with the country’s banking system subsisting from day to day and likely needing a fresh infusion of cash from the European Central Bank on Wednesday just to stay in business.

    Jeroen Dijsselbloem, president of euro-zone finance ministers, said it was not clear what the Greeks were offering or whether it would meet the standards Europe has set for authorizing a new multibillion-euro bailout.

    “In the eyes of the euro group, the problems in Greece do really need credible reforms,” he said. “And, therefore, we need to hear from the Greek government whether they have such reforms in mind.”

    Hours later, after the leaders had dined on cod and chocolate mousse and Tsipras had made his own presentation, German Chancellor Angela Merkel said there still was not sufficient detail to formally restart negotiations.

    “We respect the results of the referendum of one country, but we have 18 other countries where political decisions are also discussed,” Merkel said after the meeting. “We have only a few days left to find a solution.”

    Greece — with a debt mountain of more than 180 percent of its gross domestic product — owes 3.5 billion euros to the European Central Bank on July 20 but has no money with which to pay. Last week, the country became the first developed nation to miss a repayment to the International Monetary Fund.

    European officials say they believe the impact of a Greek exit from the euro could be contained. But no one knows how it could play out, because in the 16-year history of the euro, no member has ever left.

    With so much at stake in Europe, President Obama on Tuesday escalated his involvement, speaking in separate conversations to Merkel and to Tsipras. The White House said Obama and Merkel discussed the need “to reach a durable agreement that will allow Greece to resume reforms, return to growth, and achieve debt sustainability within the Eurozone.”

    But that prodding appeared to do little to bridge a divide that has only widened as Greece’s crisis has deepened.

    Tuesday was supposed to be the day when Greece and Europe forged a better path following the resignation Monday of Greek Finance Minister Yanis Varoufakis, whose abrasive style had alienated his negotiating partners.

    No specific details of Tsakalotos’s presentation were made public. But a photo gave a clue of the tone. Tsakalotos held notes, written on hotel stationery, that included the words “no triumphalism” — an apparent reminder not to gloat after the Sunday referendum.

    Dijsselbloem said Tuesday afternoon that he expected a detailed Greek proposal by Wednesday morning, when Tsipras is also due to address the European Parliament. . Juncker later said the deadline for a Greek proposal was Friday morning, while an official statement said it was Thursday — discrepancies that reflected the confused and fluid nature of the situation.

    Even as several European officials expressed grave disappointment with Tuesday’s talks, others held out hope that the worst outcomes can still be avoided. French President François Hollande said France will do “everything to save all those who wanted this Europe.”

    Italian Prime Minister Matteo Renzi said he was optimistic that “we can achieve an agreement on Sunday.”

    Analysts, too, said there remained reason to think the two sides can reach a last-minute deal — but only because the dire circumstances in Greece have left no doubt about the potential consequences.

    “The cost of a Grexit is quite awful for everyone, but especially for Greece,” said George Pagoulatos, a University of Athens economist. “And now it’s very clear: It’s an agreement or Grexit.”

    That’s the situation: Five days until…well, something happens. Some form of bankruptcy probably, and perhaps a ‘Grexit’ too, although that will presumably take a while longer and is no guarantee. But unless one side of the negotiations or another gets a set of brain transplants soon, it’s looking like a Greek bankruptcy is on the way in under a week.

    What impact a Greek bankruptcy has on the overall ‘Grexit’ question is hard to say, but assuming the markets don’t send signals of financial “contagion” to the rest of the European bond markets, it’s very possible that we’ve reached that point where common ground between the two sides is no longer there and can’t feasibly be built. After all, for the Greeks, the situation was clearly one about ending the damage done to actual people’s lives. Whereas for the troika, and especially for the key decision-makers in Berlin, Greek lives and real-time suffering were obviously a tertiary concern and it’s not at all clear how to find common ground between people that care about people and people that care about
    discredited pseudo-economic theories about the evils of government debt and endless utility of austerity:

    The Washington Post
    Meet Germany’s hard-line finance minister who won’t budge on Greece

    By Chico Harlan July 7 at 7:17 PM

    Wolfgang Schäuble is a wheelchair-bound 72-year-old who’s spent much of his career calling for a harmonious, integrated Europe. He is also an austerity advocate whose inflexibility in the face of Greece’s economic misery has come to symbolize Europe’s tough prescriptions for the nation.

    “He’s been sucking your blood for five years,” said a poster bearing Schäuble’s dour image that popped up across Athens last week. “Now tell him NO.”

    In the greatest test yet of Europe’s single-currency experiment, Schäuble, Germany’s finance minister, is both a pioneer and a public enemy. Few on the continent hold a more impassioned view about the importance of economic integration. But for Schäuble (pronounced SHOY-bleh), membership in the euro zone comes at a price: Money borrowed in bailouts must be paid back, no matter how crushing the burden of that debt.

    The five-year debate over how — or whether — to rescue Greece has come to a potential breaking point in Brussels, where Athens and its European creditors have been sparring over new bailout terms. Though Schäuble is just one in a roomful of politicians with a say in the matter, he has helped craft the austerity terms of European creditors, following a code of fiscal prudence that is near-sacred among Germans of his generation. His support is likely to be necessary for any new deal that restores emergency funding to Greece.

    In his years dealing with the euro crisis, Schäuble has become one of the most vivid players in the saga — someone who survived an assassination attempt, resuscitated his career after scandal and occasionally tries to undercut his reputation as a humorless negotiator. (Several months ago, he offered Greece’s finance minister a box of chocolate euros, saying that he’d need “nourishment for the nerves.”)

    After the shooting, Schäuble was one of Germany’s most visible politicians, often mentioned as a future chancellor. But he was forced to step down as party chairman in 2000 because of a wide donations scandal in which he accepted $50,000 from an arms lobbyist. He was replaced by Angela Merkel, who is now chancellor.

    Since 2009, Schäuble and Merkel have managed the euro crisis for Germany, Greece’s largest creditor. Merkel is widely considered the more conciliatory of the two, while Schäuble has become known for a controversial doctrine that countries — even those in crisis — should cut spending rather than rack up debt to stimulate growth.

    During a visit to Washington in April, Schäuble, speaking at the Brookings Institution, pointed to debt as the toxin in almost every global financial ill over the past 20 years. He crowed about balancing Germany’s budget and shrugged off a suggestion that his country, which can borrow on favorable terms, should be doing more to invest in education and other assets. “One of the major problems of the world economy is a high level of indebtedness,” he said. “To increase this indebtedness is not a good solution.”

    The Greek prime minister, Alexis Tsipras, has been emboldened by a referendum Sunday in which voters signaled that they want a more generous package from Europe — and are willing to crash out of the euro zone if they can’t get it. But viewpoints have also hardened among fiscal conservatives in creditor nations who are wary of granting leniency to a government they see as reckless. According to political scientists and German media accounts, Schäuble believes that Europe could survive a Greek exit and might emerge better off without its weakest link.

    “He views Greece as a threat to his particular vision for where Europe should be going,” said Jacob Funk Kirkegaard, a senior fellow and Europe specialist at the Peterson Institute for International Economics. “And he’d be willing to sacrifice Greece. Maybe you have to break a few eggs to make that omelet.”

    In large part because of his ideals, Greece has especially frustrated Schäuble. In his view, the plan to rehabilitate the Greek economy was working until earlier this year, when frustrated voters ushered in a leftist party that pledged a big step back from austerity. At Brookings, Schäuble mentioned that Greece until recently was seeing nascent growth. He didn’t mention that its economy has shrunk 25 percent over the past five years.

    “Greece has been on a promising way,” he said, giving a little shrug. “Then they campaigned; it’s a sovereign decision of the Greek people. And now we have a new government, and they want to change things.”

    Merkel and Schäuble remain tight allies, though some question whether their differing opinions on Greece have caused friction. In dealing with Athens, Schäuble is a “counterweight to Merkel’s conciliatory stance,” said Herfried Münkler, a political scientist at Berlin’s Humboldt University. “He has a much clearer, straightforward line.”

    The International Monetary Fund said recently that Greece’s debt is unsustainable and will require another significant “haircut.” But Schäuble in April said he thought Greece could repay its debt without any restructuring, and he pointed to what he said were uncorrected structural problems, including a bloated public sector and an excessive minimum wage.

    “Those are the real challenges of Greece,” he said, “not to blame the Europeans.”

    As the fellow from the pro-asterity Peterson Institute puts it, Germany’s Finance Minister Wolfgang Schaeuble, who is arguably more powerful than anyone else in Europe given his sway with the CDU, has a particular vision for Europe, it’s a vision that’s failed spectacularly thus far, and if a Greek government gets in the way by making a point of that spectacular failure and demanding signs of humanity from its European partners, Wolfgang just might be willing “sacrifice Greece”:


    “He views Greece as a threat to his particular vision for where Europe should be going,” said Jacob Funk Kirkegaard, a senior fellow and Europe specialist at the Peterson Institute for International Economics. “And he’d be willing to sacrifice Greece. Maybe you have to break a few eggs to make that omelet.”

    And why would we be surprised? The entire austerity ideology is about sacrificing the poor and middle class so the gods of capitalism will swoop in and save everyone. That’s his “vision” for Europe: A continent where sacrificing the poor to the rich is the only allowed response to a crisis. When something that insane is your vision, pretty much anything that deviates from it is unbearable and must be squashed at all costs. That’s how cults work and the contemporary euro-debt cult is no exception. When you look at just how insane Schaeuble’s economic theories are, where “expansionary austerity” is always but one more cut away, only cult-like thinking can justify the troika’s demands. What’s a few more sacrifices when you’ve already casually sacrificed a generation.

    So it’s looking like Europe has collectively is about to strike a major blow for Wolfgang’s “particular vision” (a permanent embrace of right-wing economic policies) by ‘cracking’ the Greek ‘egg’ so Europe’s experimental supply-side ‘omelet’ can come into being. The fact that this omelet is demonstrably poisonous is demonstrably beside the point by now. We’ve been here before…not this particular point, with a ‘Grexit’ knocking at the door, but we’ve definitely seen this general situation. Despite the varied chatter that we get from Europe’s eurocrats in daily reports, when it comes down to the real negotiations, Europe has spoken with a nearly unanimous voice time and again regarding Greece or any of its other unfortunate brethren and that voice could be channeling Wolfgang Schaeuble on almost all occasions. Europe’s elites are obviously either sharing with Wolfgang’s vision for the future or at least totally cowed into submission and it’s been apparent for years now.

    But if there’s any bright point in this entire affair, it’s that the “troika” part of it might finally be over soon. At least for the Greeks. Yes, rebooting their economy is going to be painful (although it doesn’t have to be super painful), especially since the Europe Wolfgang envisions will probably sabotage Greece on principle unless they adopt right-wing policies. Still, if Greece goes it alone, no more troika. And that means no more lectures about how slitting the Greek economy’s wrists with no blood transfusion is actually a really good idea. And mandatory. Because Europe cares about Greece. No more of that.

    Yes, ‘going it alone’ again will be scary at first for Greece, and its overall situation certainly puts it in somewhat unknown territory. But if you’re currently a member of a club that engages in irresponsible experiments on its members, up to the point of ‘sacrificing’ them, there are certainly worse things than going it alone. It’s a situation that can’t help but remind one of the classic nursery rhyme, Humpty Dumpty. The similarities are certainly eery:

    Humpty Dumpty sat on a wall,

    Humpty Dumpty had a great fall.

    All the king’s horses and all the king’s men

    Couldn’t put Humpty together again

    because they kept telling him to remove his shell so his yoke would be forced to toughen up.

    And when that didn’t work they boiled his remains while chanting about the need for more sacrifices.

    They also told Humpty they loved him. That hurt most of all. Especially when they told him they love him but he had better sign an agreement to be fried on grill and if he doesn’t agree they’ll kick him out of their weird cult.

    Whether or not Humpty leaves his cult remains to be seen, but if you’re a crackable egg, avoid that wall.

    You don’t want reality to resemble that rhyme, but it is what it is.

    Posted by Pterrafractyl | July 7, 2015, 9:08 pm
  47. Isn’t this adorable: The troika is dealing with the looming reality that its precious eurozone is about to lose some of its irreversibility luster by reiterating its demands that Greece had better immediately come up with a detailed plan that meets the troika’s society-gutting standards or Greece is going bankrupt on Sunday. Also, it really wants Greece to stay in eurozone. Also, whatever plan Greece comes up with had better be even more austere than the plan that was rejected in the July 5th referendum because the economy has gotten so much worse in the last 10 days. And let’s forget the fact that the ECB froze its emergency crtedit supply just over 10 days ago). And let’s also forget the fact that the IMF just reiterated the need for Greece to get a debt write-off, which Berlin continues to resist.

    That all needs be forgotten and/or happen by Saturday night the eurozone ministers who can get together and recommend an emergency loan. A loan that will allow the fun of the eurozone experience to chug along until the next race to avert collapse:

    Reuters
    Greece seeks new EU loan deal in race to avert collapse
    STRASBOURG/BRUSSELS | By Barbara Lewis and Alastair Macdonald

    Wed Jul 8, 2015 11:36pm EDT

    A race to save Greece from bankruptcy and keep it in the euro gathered pace on Wednesday when Athens formally applied for a three-year loan and European authorities launched an accelerated review of the request.

    Greek Prime Minister Alexis Tsipras called in a speech to the European Parliament for a fair deal, acknowledging Greece’s historic responsibility for its plight, after EU leaders gave him five days to come up with convincing reforms.

    The government submitted a request to the European Stability Mechanism bailout fund to lend an unspecified amount “to meet Greece’s debt obligations and to ensure stability of the financial system”. It promised to begin implementing tax and pension measures sought by creditors as early as Monday.

    With its banks closed, cash withdrawals rationed and the economy in freefall, Greece has never been closer to a state bankruptcy that would probably force it to leave the euro and print an alternative currency.

    The head of the Eurogroup of finance ministers of the 19-nation currency area, Jeroen Dijsselbloem, asked the European Commission and the European Central Bank to evaluate the loan request, assess Greek debt sustainability and study whether Greece poses a risk to the financial stability of the euro zone.

    IMF chief Christine Lagarde reiterated that Greece’s massive debt would need restructuring, something Germany is resisting. “Greece is in a situation of acute crisis, which needs to be addressed seriously and promptly,” she said at the Brookings Institution think-tank in Washington.

    EMERGENCY FINANCE

    The aim is for Eurogroup ministers meeting on Saturday to be in a position to recommend a loan, and some emergency bridging finance, which a full summit of the 28 EU leaders would approve on Sunday if they are satisfied with Greek reform commitments.

    That is a big ‘if’, both due to Athens’ chequered record and because many of the liberalization measures required run counter to the leftist ideology of Tsipras’ Syriza party.

    The prime minister promised to deliver detailed reform plans on Thursday and avoided the angry rhetoric that has alienated many European partners. He did however criticize attempts to “terrorize” Greeks into voting for “never-ending austerity”.

    The European Central Bank kept Greece’s banks on a tight leash, holding a freeze on emergency funding that means they could soon run out of cash. The Greek government said banks would remain closed until July 13, with an ATM withdrawal limit unchanged at 60 euros per day.

    European Council President Donald Tusk reiterated that the final deadline for Greece to submit convincing reform plans and start implementing them was this week.

    “Our inability to find an agreement may lead to the bankruptcy of Greece and the insolvency of its banking system,” Tusk told EU lawmakers.

    In the turbulent chamber, some lawmakers held up “Oxi” (No) signs to back Greek voters’ rejection of more austerity, while far-right speakers praised the radical leftist government for standing up to what several called the European “oligarchy”.

    Euro zone officials want Greece to rush a first wave of measures through parliament before Sunday to prove its serious intent. German Chancellor Angela Merkel has said she would ask parliament in Berlin to authorize the opening of loan negotiations if the Greek measures are deemed satisfactory.

    Merkel made clear earlier that she was “not exaggeratedly optimistic” that a deal could be found to save Greece by Sunday.

    Euro zone sources said one key question was whether the package will be more ambitious than the spending cuts, tax increases and modest reforms that Greek voters rejected on Sunday in a referendum on a previous bailout plan.

    “The numbers have to add up, and the numbers have become vastly more unfavorable since the banks were shut and the economy seized up in the last 10 days,” one euro zone finance official said.

    “ADMISSION OF IMPOTENCE”

    France, which has tried to mediate between Athens and Berlin, nailed its colors to the mast on Wednesday, warning of the perils of a “Grexit”.

    Socialist Prime Minister Manuel Valls told parliament in Paris: “Keeping Greece in the euro and therefore in the heart of Europe and the EU is something of the utmost geostrategic and geopolitical importance.” To let Greece go would be “an admission of impotence”, he added.

    Despite the last-minute efforts to conjure up a deal, a Reuters poll of economists found the probability of Greece leaving the euro zone had risen to 55 percent from 45 percent last week, the first time it was deemed more likely than not.

    Tsipras admitted that after winning power on a promise to end austerity, his government had “spent more time negotiating than governing” but he disappointed those who had hoped to hear concrete immediate measures to transform the shattered economy.

    And once again:

    IMF chief Christine Lagarde reiterated that Greece’s massive debt would need restructuring, something Germany is resisting. “Greece is in a situation of acute crisis, which needs to be addressed seriously and promptly,” she said at the Brookings Institution think-tank in Washington.

    The European Central Bank kept Greece’s banks on a tight leash, holding a freeze on emergency funding that means they could soon run out of cash. The Greek government said banks would remain closed until July 13, with an ATM withdrawal limit unchanged at 60 euros per day.

    Merkel made clear earlier that she was “not exaggeratedly optimistic” that a deal could be found to save Greece by Sunday.

    Euro zone sources said one key question was whether the package will be more ambitious than the spending cuts, tax increases and modest reforms that Greek voters rejected on Sunday in a referendum on a previous bailout plan.

    “The numbers have to add up, and the numbers have become vastly more unfavorable since the banks were shut and the economy seized up in the last 10 days,” one euro zone finance official said.

    Credit where credit’s due: No one does in-your-face usury quite like the troika.

    Posted by Pterrafractyl | July 8, 2015, 9:29 pm
  48. It’s looking like the latest installment of the Great Greek Cliffhanger isn’t going to disappoint…at least in terms of being a cliffhanger. It’s definitely disappointing from a collective sanity standpoint, as tales from the eurozone’s halls of power tend to be:

    First, check out the zeitgeist as of Thursday. It was, strangely, somewhat optimistic. Maybe, just maybe, Berlin was going to be open something Greece has been demanding all along and even the IMF has kind of sort of (but not really) demanded for its approval on any new deal: debt-relief for Greece. Now, even the European Commission, a third of the troika, is calling for debt-relief. And while Angela Merkel continues to refuse any sort of outright debt-forgiveness for Greece, she’s apparently now open to extending the existing debt maturities. In other words, Greece won’t necessarily get a “bailout”, but it might be allowed to pay back its existing debt a little more slowly assuming it agrees to all the austerity demands that are killing the economy with or without debt relief:

    The Telegraph
    Greek deal in sight as Germany bows to huge global pressure for debt relief
    Angela Merkel faces a defining moment in her political career as chorus of voices push for Greek debt relief

    By Ambrose Evans-Pritchard, Mehreen Khan

    7:40PM BST 09 Jul 2015

    Germany is at last bowing to pressure as a chorus of countries and key institutions demand debt relief for Greece, a shift that could break the five-month stalemate and avert a potentially disastrous rupture of monetary union at this Sunday’s last-ditch summit.

    In a highly significant move, the European Council has called on both sides to make major concessions, insisting that the creditor powers must do their part as the radical Syriza government puts forward a new raft of proposals on economic reforms before a deadline expires tonight.

    “The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors,” said Donald Tusk, the European Council president.

    This is the first time Europe’s institutions have acknowledged clearly that Greece’s public debt – 180pc of GDP – can never be repaid and that no lasting solution can be found until the boil is lanced.

    Any such deal would give Greek premier Alexis Tspiras a prize to take back to the Greek people after they voted by 61pc to 39pc to reject austerity demands in a landslide referendum last weekend.

    While he would still have to deliver on tough reforms and breach key red lines, a debt restructuring of sufficient scale would probably be enough to clinch a deal, and allow him to return to Athens as a conquering hero..

    The Greek parliament is due to vote to ratify the measures on Friday.

    German Chancellor Angela Merkel said “a classic haircut” is out of the question, but tacitly opened the door to other forms debt restructuring, conceding that it had already been done in 2012 by stretching out maturities.

    The contours of a deal on Sunday are starting to emerge.

    Syriza has requested a three-year package of loans from the eurozone bail-out fund (ESM) – perhaps worth as much as €60bn – and is reportedly ready give ground on tax rises and pension cuts.

    Germany’s subtle shift in position comes as the United States, France, and Italy joined in a united call for debt relief, buttressed by a crescendo of emphatic statements by Christine Lagarde, the head of the International Monetary Fund.

    “Greece is clearly in a situation of acute crisis, which needs to be addressed seriously and promptly. We remain fully engaged in order to find a solution to restore stability, growth and debt sustainability,” said Ms Lagarde.

    A report by the IMF said a debt haircut of 30pc of GDP “would be required” to meet the original debt targets agreed in 2012. This could be achieved be stretching out the maturities of bonds to forty years and lowering the interest rate, sparing EMU governments the political pain of having to crystalize direct losses for their taxpayers.

    The US has clearly lost patience with the Europeans is now bringing its huge diplomatic power to bear, fearing that mistakes in Greece could lead to a geostrategic fiasco and serious damage to the Nato alliance.

    “Greece’s debt is not sustainable,” said Jacob Lew, the US Treasury Secretary. “I think it’s a mistake for the European economy, the global economy, to take the risks that are involved with an uncontrolled crisis in Greece,” he said.

    For Berlin, the Greek crisis threatens to mushroom into a much bigger crisis in international diplomacy and Franco-German relations as Paris digs in its heels.

    “France refuses to allow Greece’s exit from the euro,” said Manuel Valls, the French prime minister.

    “Keeping Greece in the euro and therefore in the heart of Europe and the EU is something of the utmost geostrategic and geopolitical importance. Allowing Greece to leave would be an admission of impotence,” he said.

    Yet even if Europe’s leaders to agree to a comprehensive package for Greece on Sunday, any bail-out still has to be ratified by the German Bundestag as well as by the parliaments of Finland, Slovenia, Portugal, and Estonia.

    Up to a hundred MPs from Angela Merkel’s Christian Democrat family (CDU/CSU) have already threatened to vote against fresh money for Greece.

    This is quickly turning into a make-or-break moment for her own political career.

    So that was the mood Thursday: Cautious optimism based on the following:

    In a highly significant move, the European Council has called on both sides to make major concessions, insisting that the creditor powers must do their part as the radical Syriza government puts forward a new raft of proposals on economic reforms before a deadline expires tonight.

    “The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors,” said Donald Tusk, the European Council president.

    German Chancellor Angela Merkel said “a classic haircut” is out of the question, but tacitly opened the door to other forms debt restructuring, conceding that it had already been done in 2012 by stretching out maturities.

    This is the first time Europe’s institutions have acknowledged clearly that Greece’s public debt – 180pc of GDP – can never be repaid and that no lasting solution can be found until the boil is lanced.


    A report by the IMF said a debt haircut of 30pc of GDP “would be required” to meet the original debt targets agreed in 2012. This could be achieved be stretching out the maturities of bonds to forty years and lowering the interest rate, sparing EMU governments the political pain of having to crystalize direct losses for their taxpayers.

    The door to indirect debt-relief is tacitly open! All Greece needs to do is sign on the dotted austerity line!

    And then Friday happened and things got weirder: Greece’s government offered to pretty much do exactly what was being proposed Thursday. It made an offer to impose even more austerity than the troika demanded before cross the various “red lines” that the Greek electorate had explicitly and overwhelmingly rejected in the July 5th referendum. In return, the Greek government requested a +50 billion euro loan. All in all, it was a move that left many shocked and puzzled. But it also made a deal that would avoid a Greek bankruptcy on Monday a lot more likely:

    Washington Post
    In Greece, defiance dissipates into capitulation

    By Ylan Q. Mui and Anthony Faiola July 10 at 7:50 PM

    ATHENS — Less than a week ago, Greece stood defiant.

    Thousands of people flooded the square outside Parliament, draping themselves in blue-and-white flags to celebrate the country’s sweeping rejection of the tough austerity measures demanded by its European creditors, which Greece’s fiery young leader had likened to “blackmail.”

    But by Friday, the euphoria had faded as Prime Minister Alexis Tsipras’s vows to stand up to ­Europe caved to the harsh realization that the birthplace of democracy stood just 48 hours away from financial ruin — and Greeks were poised to swallow what amounted to the same dose of austerity they had refused in a vote Sunday.

    “Each one of us shall be confronted with his stature and his history. Between a bad choice and a catastrophic one, we are forced to opt for the first one,” Tsipras said in a speech before his party’s lawmakers, according to local media. “It is as if one asks you for your money or your life.”

    Friday, Tsipras presented members of Parliament with an ­eleventh-hour plea to creditors for more than 50 billion euros in emergency funding, which could carry Greece through the next three years. The money would pave the way for shuttered banks to reopen, return some semblance of normality to beleaguered citizens and affirm this Mediterranean nation’s identity as an integral part of Europe. European leaders will consider the plan Sunday.

    The proposed deal amounts to an acknowledgment that while the austerity Tsipras so disdained may be painful — and may deepen the financial crisis in Greece — severing ties with the 19-member euro zone and its common currency would undoubtedly be worse.

    “The revolutionary moment has fizzled,” said Mark Medish, who served as a top official in the Treasury Department and the National Security Council under President Bill Clinton. “In effect, the no vote would be turning into a yes.”

    Parliament is scheduled to vote on the plan in the early hours of Saturday.

    As lawmakers debated the proposal Friday, even some members of the far left of Tsipras’s ruling Syriza party conceded that the brinksmanship had gone far enough.

    Parliament Vice President Alexis Mitropoulos, a Syriza member, called the bailout a “political mutation” but said that Greece had no options.

    “We cannot cause our people even greater harm,” he said.

    In return for a bailout, Tsipras offered to undertake a massive restructuring of the national budget that has eluded his predecessors but that analysts say may be unavoidable if Greece is to stabilize its foundering economy. The package of spending cuts and tax increases is estimated to total 12 billion to 13 billion euros — even more than previous Greek proposals had offered. It includes abolishing key tax breaks for islands that are popular tourist destinations, phasing out a subsidy for poor pensioners and privatizing sprawling state industries..

    “This could be called the education of Alexis Tsipras,” said Aristotle Tziampiris, associate professor of international relations at the University of Piraeus. “The overwhelming majority of the Greek people were united in fact in their desire to stay in the euro zone.”

    The apparent capitulation by Greece, though, still needed the backing of its creditors, some of whom remained decidedly unamused by the antics in Athens.

    Greece’s troika of lenders — the European Commission, the European Central Bank and the International Monetary Fund — discussed Greece’s request for a bailout in a conference call Friday afternoon. Euro-zone finance ministers will review the proposal Saturday before sending it to heads of state in the European Union for consideration Sunday.

    A commitment of fresh money could open the door for the ECB to lift its cap on emergency aid for Greece’s banks, which have been shut for two weeks. The central bank is slated to meet Monday.

    French officials, who sent advisers to help Greece craft its proposal, lobbied for leniency, with President François Hollande describing the offer as “serious and credible.”

    But Germany, the single largest creditor nation, is likely to be a decisive voice, and hard questions were still being asked in Berlin. German officials were calling for signs of follow-through by the Greeks, and a strong endorsement of the proposal by the Greek Parliament — which is expected to vote in favor of it — might help.

    This is the third bailout that Athens has asked for in five years. Greece had sought an extension of its previous program, but now it is to start a wholly new one.

    “The situation of the expired old program does not exist anymore,” German government spokesman Steffen Seibert told reporters in Berlin. “Therefore, what we need is a new, multi-year program which in its requirements and commitments by far exceeds what was discussed at the end of June.”

    Yet there seemed to be a slight opening by the Germans on the thorny but pivotal issue of easing Greece’s crippling debt, even if slightly. German Finance Ministry spokesman Martin Jäger said a major debt-slashing was out of the question. But he left open the possibility of a debt restructuring that eases Greece’s terms, saying the intent was not to “significantly reduce the cash value of the debt.”

    Yes, as of Friday, Greece’s government basically gave in to, well, if not all of the troika, at least 2/3rds of it (the IMF and EU Commission). And this was just days after an historic referendum where the Greek people totally rejected a less austere plan. Not only that, but the Greek parliament overwhelmingly backed the proposal.

    So, while things were still most certainly looking down for the Greek people, who appeared heading towards a fate of endless austerity and despair, if you’re a fan of the troika and turning Europe into a creditor’s paradise, things were indeed looking up. Even German Finance Minister Wolfgang Schaeuble appeared to be on board with the debt “reprofiling” plan. At least, he agreed that, while a “haircut” was completely unacceptable and could not take place, a debt “reprofiling”, like extending maturities, might be acceptable.

    And then he pointed out that, without an actual “haircut”, Greece’s debts would still be unsustainable. In other words, the man who is arguably the most powerful person in the eurozone and the man who has resisted a “haircut” for Greece probably more than anyone else, just argued that Greece does indeed need a “haircut” but can’t have one anyways because that would break the rules:

    Reuters
    Greece sends reform plan to EU, sets parliament vote
    ATHENS/FRANKFURT | By Renee Maltezou and John O’Donnell

    Thu Jul 9, 2015 6:35pm EDT

    The Greek government sent a package of reform proposals to its euro zone creditors on Thursday in a race to win new funds to avert bankruptcy and will seek a parliamentary vote on Friday to endorse immediate actions.

    The chairman of Eurogroup finance ministers, Jeroen Dijsselbloem, confirmed receiving the documents and said through a spokesman that he would not comment until they had been assessed by experts from the European Commission, European Central Bank and International Monetary Fund.

    Germany, Athens biggest creditor, meanwhile made a small concession by acknowledging that Greece will need some debt restructuring as part of the new program to make its public finances viable in the medium-term.

    The admission by hardline German Finance Minister Wolfgang Schaeuble came hours before the midnight deadline for Athens to submit its reform plan.

    Schaeuble, who makes no secret of his doubts about Greece’s fitness to remain in the currency area, told a conference in Frankfurt: “Debt sustainability is not feasible without a haircut and I think the IMF is correct in saying that.

    But he added: “There cannot be a haircut because it would infringe the system of the European Union.”

    He offered no solution to the conundrum, which implied that Greece’s debt problem might not be soluble within the euro zone.

    But he did say there was limited scope for “reprofiling” Greek debt by extending loan maturities, shaving interest rates and lengthening a moratorium on debt service payments.

    Schaeuble also complained that he had not seen any sign of “prior actions” by the Greek government. Friday’s vote should go some way towards disarming such criticism, although a further vote will be required to turn the “prior actions” into law next week if an agreement is reached, the Greek official said.

    German Bundesbank chief Jens Weidmann said capital controls should remain in force in Greece until there was any deal, and that the ECB should not increase its liquidity assistance for Greek banks, without which they may collapse next week.

    So, according to Schaeuble…:


    Schaeuble, who makes no secret of his doubts about Greece’s fitness to remain in the currency area, told a conference in Frankfurt: “Debt sustainability is not feasible without a haircut and I think the IMF is correct in saying that.

    But he added: “There cannot be a haircut because it would infringe the system of the European Union.”

    He offered no solution to the conundrum, which implied that Greece’s debt problem might not be soluble within the euro zone.

    But he did say there was limited scope for “reprofiling” Greek debt by extending loan maturities, shaving interest rates and lengthening a moratorium on debt service payments.

    Let’s attemtp to parse that: So Schaeuble agrees that a “haircut” is needed but can’t happen. But debt “reprofiling”, that the kind the IMF and EU Commission appear to be advocating, might be acceptable but only in a limited scope, which means any indirect “haircuts” that Schaeuble might agree to won’t give the level of debt relief that even Wolfgang Schaeuble now admits Greece needs.

    So one of the primary figures demanding austerity without debt relief for Greece all these years is now, at this late hour, using the argument that Greece actually needs more debt relief than he is willing to allow as an argument for kicking Greece out of the eurozone. Wow.

    And, adding to the weirdness, Wolfgang Schaeuble might actually be doing a Greece a favor because he’s probably correct. Simply extending Greece debt while continuing to strangle the economy with insane austerity measures really is a recipe for doom.

    Still, following Schaeuble’s comments it was still up to the eurogroup of eurozone finance ministers to meet Saturday and make a decision. And they met. And they decided…to meet again Sunday since it sounds like Germany and some of the other hardline governments want to temporarily kick Greece out of the eurozone for five years instead of accepting the incredibly painful concessions Greece just made:

    Bloomberg Business
    Greece Talks Spill Into 2nd Day as Finance Chiefs Deadlock
    by Karl Stagno Navarra, Radoslav Tomek, and Ott Ummelas
    July 11, 2015 — 9:08 AM CDT
    Updated on July 11, 2015 — 6:13 PM CDT

    European finance ministers deadlocked over how to keep Greece in the euro, forcing emergency talks to continue Sunday and threatening to delay the infusion Prime Minister Alexis Tsipras desperately needs.

    With Greece running out of money and its banks shut for the past two weeks, the hardline group led by Germany signaled that the country’s debt was too great, Tsipras’s reform proposals were inadequate and, in any event, the Greeks couldn’t be trusted to keep their word. Finance ministry aides will work through the night, allowing finance chiefs to reconvene at 11 a.m. in Brussels before a leaders’ summit.

    “It’s still very difficult, but work is still in progress,” Dutch Finance Minister Jeroen Dijsselbloem, the head of the Eurogroup, told reporters after nine hours of talks that ended at midnight. “The issue of credibility and trust was discussed and also, of course, the financial issues.”

    The skepticism expressed by the policy makers came hours after Tsipras won overwhelming support in the Greek Parliament for a package of spending cuts, pension savings and tax increases intended to win financial aid of at least 74 billion euros ($83 billion). Among its shortcomings, the proposals failed to reflect the economic deterioration since talks collapsed and capital controls were imposed two weeks ago, according to Dijsselbloem.

    Their concerns were reflected by the media back home. Germany’s Frankfurter Allgemeine Sonntagszeitung reported a finance ministry proposal to suspend Greece from the euro area for five years. The idea was dismissed as illegal and nonsense by a European Union official who asked not to be named because the talks are private.

    Finnish media reported the Helsinki government flatly opposed the bailout.

    Finland’s Opposition

    “I don’t believe that we are at this point authorising any kind of additional loan to Greece,” Finland’s Alexander Stubb said. “About half of members had the same stance as us and maybe a few had another view.”

    The finance chiefs also rebuffed any talk of debt relief, a step that the IMF has backed.

    “Debt relief is impossible,” Germany’s Wolfgang Schaeuble said on his way into Saturday’s meeting.

    The country’s three creditor institutions — the IMF, the European Commission and the European Central Bank — earlier assessed the program positively as a basis for the bailout, according to a euro-area official who spoke on condition of anonymity.

    Moscovici’s Hope.

    “There’s always hope,” European Union Economic Affairs Commissioner Pierre Moscovici told reporters.

    The schedule for the summits of both the euro-area and European Union leaders will be determined by EU President Donald Tusk after meeting Dijsselbloem Sunday morning.

    The creditors still view the country’s reform proposals as insufficient to meet fiscal targets, Frankfurter Allgemeine Sonntagszeitung said, citing an assessment paper provided to euro-area finance ministers.

    Tsipras faces political antagonists not just in Berlin and Brussels but within his own party. More than a dozen Syriza members refused to back the plan, with some of them denouncing the harsh measures it prescribes less than a week after Tsipras won an anti-austerity referendum. The prime minister said after the vote that his priority would be to complete negotiations with the creditors on a bailout deal.

    “The creditors still view the country’s reform proposals as insufficient to meet fiscal targets, Frankfurter Allgemeine Sonntagszeitung said, citing an assessment paper provided to euro-area finance ministers.” Greece just upped its concessions and the demands got upped again.

    So Greece basically gave the troika everything it wants even though everything the troika wants is still an unsustainable mess of intensifying austerity (with inadequate debt relief). And Berlin and its fellow far right hardliners appear to be on the verge of rejecting the offer because what the troika wants is more debt relief than the the supply-side-austerity-wing of the eurozone governments are willing to allow even though the debt relief that troika is demanding is probably not enough to sustainable given the crushing degree of austerity demands and almost complete lack of any stimulus programs.

    It raises an interesting question: Did the Greek government suddenly capitulate to the troika on all of the austerity measures voters just rejected as part of a gamble that Berlin and its far right allies are even crazier than the troika and would refuse what amounts to almost complete capitulation by Greece, thereby making it clear to the world that the eurozone has always been a dysfunctional mess that damned Greece from the beginning of the crisis? If so, bravo, because it appears to have worked.

    Either way, it appears that a number of bluffs are about to be called. And either way, austerity for the masses due to high-level malfeasance wins the day. Someone is very pleased.

    Posted by Pterrafractyl | July 11, 2015, 7:30 pm
  49. Say hello to the new meme that symbolizes the state of affairs for one of the most important democratic projects in history: #ThisIsACoup:

    The Huffington Post

    German-Led Eurogroup Launching Coup Against Greek Government

    Ryan Grim
    Posted: 07/12/2015 9:38 pm EDT

    After the fall of the Berlin Wall and the collapse of the Soviet Union, Francis Fukuyama famously declared an end to history. Things, of course, would continue to happen, he said, but the clash of rival ideologies was over with the “unabashed victory of economic and political liberalism.”

    It was 1992, and it was a time to celebrate. “What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of postwar history, but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government,” he wrote in his landmark essay-turned-book.

    With Germany and its Eurozone squeezing the life out of Greece on Sunday night — and the hashtag #ThisIsACoup trending — it became clearer than ever that only one half of that bargain — the economics — remained alive.

    Within just a few years of Fukuyama’s pronouncement, protesters in Western nations, and governments and people in the global South, began suggesting that the new democratic system was, in the end, perhaps not so democratic. The International Monetary Fund and other global creditors began writing laws, mostly for Third World countries, enforcing what they called “structural adjustment” — which was bloodless bureaucratic language referring to the pillaging of a nation’s assets and resources, coupled with the gutting of its social services, pensions and other advances that came in the 20th Century. The first major protest to capture global attention was in Seattle, Washington, in 1999, at a World Trade Organization meeting. The movement spread around the globe, with protests hitting capital after capital, wherever economic leaders gathered, until the attacks of September 11, 2001. A planned protest in Washington, D.C., against the IMF and World Bank was supplanted by a peace march.

    The world’s rich nations assumed that what institutions like the IMF did in the South wouldn’t hit the North. Capital, however, marched on. And on Sunday night, it marched into Athens with an offer to Greece that would end the idea that capitalism and democracy can survive together there. Reads the offer, provided by a source close to the talks, from the European financial elite, which call themselves the institutions: “The [Greek] government needs to consult and agree with the institutions on all draft legislation in relevant areas with adequate time before submitting it for public consultation or to Parliament.” It would be a government in name only. Not only would the Greek people be forced to accept the kind of deal they rejected overwhelmingly at the polls just a week earlier, but they’d be blocked from implementing any future policies Germany disapproved of.

    “The triumph of the West, of the Western idea, is evident first of all in the total exhaustion of viable systematic alternatives to Western liberalism,” Fukuyama wrote. But, instead, the absence of a viable alternative emboldened capital: with the threat of socialism gone, there is less need for either half of what’s known in Europe as social democracy. In a previous interview with HuffPost, French economist Thomas Piketty highlighted the interaction. “The existence of a counter model was one of the reasons that a number of reforms or policies were accepted,” he said,, arguing that people in capitalist countries fared better thanks to the threat of communism. “In France, it’s very striking to see that in 1920, the political majorities adopted steeply progressive taxation. Exactly the same people refused the income tax in 1914 with a 2 percent tax rate. And in between, the Bolshevik revolution made them feel, after all, that progressive taxation is not so dangerous as revolution.”

    During negotiations over the future of Greece, the Greek Syriza government repeatedly offered such progressive taxation as a way of achieving some of the budget surpluses the institutions were demanding. The offer was rejected, however, with the institutions arguing that higher taxes on the rich might slow growth. With no fear of revolution, the interest in progressive taxation is gone.

    Paul Krugman, under the headline “Killing the European Project,” put the blame squarely on Germany::

    The trending hashtag ThisIsACoup is exactly right. This goes beyond harsh into pure vindictiveness, complete destruction of national sovereignty, and no hope of relief. It is, presumably, meant to be an offer Greece can’t accept; but even so, it’s a grotesque betrayal of everything the European project was supposed to stand for.

    Rena Dourou, a member of Syriza, wrote for HuffPost Greece that the next few days and hours “will either meet the goals of its founders — Democracy and Solidarity for the prosperity of the people of Europe — or enter on a path of decay.”

    Yanis Varoufakis, the economist who was until recently Greece’s finance minister, said in a blog post Sunday that his German counterpart, Wolfgang Schäuble, flat-out told him that his end goal was to ease Greece out of the Eurozone in order to teach a lesson to other nations that might want to pursue political paths at odds with his vision. Fox Business reported Sunday that the IMF was demanding Greek Prime Minister Alexis Tsipras resign, a claim the bank later denied...

    Italy’s Prime Minister, meanwhile, begged Germany to call off the dogs. “Now common sense must prevail and an agreement must be reached. Italy does not want Greece to exit the euro and to Germany I say: enough is enough,” Italian Prime Minister Matteo Renzi said. “Now that Tsipras has made proposals in line with the European demands, we must absolutely sign a deal. Humiliating a European partner after Greece has given up on just about everything is unthinkable.”

    The United States has done precious little to support Greece or the principle of democracy in Europe. The Soviet Union may be gone, but the U.S. reluctance to intervene comes largely from the desire to keep Germany as a strong ally while the U.S. wages a proxy war against Russia in the Ukraine.

    If European history is any guide, the too-clever calculations and the petty vindictiveness will backfire in a bad way.

    Yes, the Western World is now force-feeding a taste of the ‘capitalism or democracy’ treatment the IMF has been dishing out to the rest of the world to a place like the eurozone. If Greece takes the offer to stay in the eurozone, it also has to put +50 billion euros in top assets under troikan control while new government policies are subject to troikan review:

    The world’s rich nations assumed that what institutions like the IMF did in the South wouldn’t hit the North. Capital, however, marched on. And on Sunday night, it marched into Athens with an offer to Greece that would end the idea that capitalism and democracy can survive together there. Reads the offer, provided by a source close to the talks, from the European financial elite, which call themselves the institutions: “The [Greek] government needs to consult and agree with the institutions on all draft legislation in relevant areas with adequate time before submitting it for public consultation or to Parliament.” It would be a government in name only. Not only would the Greek people be forced to accept the kind of deal they rejected overwhelmingly at the polls just a week earlier, but they’d be blocked from implementing any future policies Germany disapproved of.

    So that’s where we are. The new terms for keeping Greece in the eurozone is a troikan takeover of “all draft legislation in relevant areas with adequate time before submitting it for public consultation or to Parliament”. Or Greece gets some sort of ambiguous five-year “time out” from the eurozone. That the direction it appears the troika is going (despite all the disagreement with the eurozone)

    And yes, according to Greece’s recently departed finance minister Yanis Varoufakis, Wolfang Schaeuble told him that kicking Greece out to teach the rest of Europe not to oppose his vision was the goal

    Yanis Varoufakis, the economist who was until recently Greece’s finance minister, said in a blog post Sunday that his German counterpart, Wolfgang Schäuble, flat-out told him that his end goal was to ease Greece out of the Eurozone in order to teach a lesson to other nations that might want to pursue political paths at odds with his vision.

    Now that we’ve seen Berlin and its right-wing austerity-allies issue an ultimatum only a fascist could love, Varoufakis is asserting that the ‘Grexit’ was a foregone conclusion because Wolfgang told Varoufakis that Schaeuble needs to make sure that everyone knows he means business:

    Yanis Varoufakis
    thoughts for the post-2008 world

    Dr Schäuble’s Plan for Europe: Do Europeans approve? – Article to appear in Die Zeit on Thursday 16th July 2015

    Posted on July 13, 2015 by yanisv
    Pre-publication summary: Five months of intense negotiations between Greece and the Eurogroup never had a chance of success. Condemned to lead to impasse, their purpose was to pave the ground for what Dr Schäuble had decided was ‘optimal’ well before our government was even elected: That Greece should be eased out of the Eurozone in order to discipline member-states resisting his very specific plan for re-structuring the Eurozone.

    * This is no theory.
    * How do I know Grexit is an important part of Dr Schäuble’s plan for Europe?
    * Because he told me so!

    I wrote this article not as a Greek politician critical of the German press’ denigration of our sensible proposals, of Berlin’s refusal seriously to consider our moderate debt re-profiling plan, of the European Central Bank’s highly political decision to asphyxiate our government, of the Eurogroup’s decision to give the ECB the green light to shut down our banks.

    I wrote this article as a European observing the unfolding of a particular Plan for Europe – Dr Schäuble’s Plan.

    And I am asking a simple question of Die Zeit’s informed readers:

    Is this a Plan that you approve of?
    Do you consider this Plan good for Europe?

    “I wrote this article as a European observing the unfolding of a particular Plan for Europe – Dr Schäuble’s Plan.”

    And it’s certainly looking like Wolfgang Schaeuble’s plan will indeed end up being the plan guiding the fate of the European project during the critical juncture although it remains to be seen. But what we’ve seen so far doesn’t make Greece time in the eurozone seem like it can go on for much longer because, as Matt O’Brien points out, the offer Germany wants to impose on Greece is so bad for Greece that it’s an offer it can’t possibly accept:

    The Washington Post
    Germany doesn’t want to save Greece. It seems to want to humiliate Greece.
    By Matt O’Brien July 12 at 7:08 AM

    Greece has offered an almost unconditional surrender on its bailout, but Germany might not accept anything less than a Carthaginian peace. In other words, a deal that not only forces Athens to submit, but also humiliates it in the process.

    This latest melodrama, playing out in Brussels as European finance ministers meet to discuss whether or not to approve a new Greek bailout, appears so nonsensical that it can be hard to believe these people are deciding the future of Europe. Although you wouldn’t know it from the headlines, the truth is that Greece and Europe have been close to a deal for awhile now. Both sides agreed about how much austerity Athens should do, but disagreed about how Athens should do it—at least until last Thursday. That’s when Greece came up with an offer that was not only nearly identical to Europe’s, but also to the one its people had just rejected in a referendum. French President François Hollande, whose government helped put the proposal togehter, called it a “serious” and “credible” one. At the very least, it seemed like the basis for new negotiations.

    But maybe not. The problem is that Greece’s economy is in so much worse shape now than it was even a few weeks ago that the tax hikes and spending cuts, which would have produced a 1 percent budget surplus before, won’t anymore. That’s what happens , after all, when the European Central Bank pulls enough of the plug on your banks that they have to close their doors for now to avoid having to close their doors for good. Businesses can’t get the credit they need to, well, stay in business, and will then default on the banks that are about to go out of business themselves. The entire economy, in other words, shuts down. And that’s why Europe estimates that Greece would actually need an 82 billion euro bailout—with 25 billion of that going to its banks—instead of the 53.5 billion euros Athens is asking for. So Greece would have to do more austerity than Europe wanted before to get more money than Europe was offering before.

    If, that is, Europe is even offering Greece any money anymore. It might not be. The simple story is that Germany and the other hardline countries don’t trust Greece’s anti-austerity Syriza party to actually implement, well, austerity. And so rather than coughing up another 60 or 70 or 80 billion euros, they seem to want to push to kick Greece out of the common currency instead. That, at least, was the plan that leaked on Saturday. And now it’s part of the actual plan on Sunday. Indeed, it’s tentatively been included in the European finance ministers’ latest joint statement. This isn’t just what Germany is considering. It’s what Germany is trying to get the rest of Europe to go along with.

    Under the plan, the only way Germany would let Greece stay in the euro now is if it sells 50 billion euros of “very valuable Greek assets,” allows international observers to monitor its bailout, and puts automatic spending cuts in place in case it misses its deficit targets. Otherwise, Germany wants Greece to take at least a five year “timeout” from the euro, during which time its debts could be restructured and it could receive humanitarian aid. The entire proposal was less than a page long.

    In case there was any doubt, this is an offer Greece can’t accept. Sure, selling assets would lower Greece’s debt today, but it would make the rest of Greece’s debt harder to pay back tomorrow—which, according to the International Monetary Fund, is already unpayable. It’s the kind of thing you ask for if you want Athens to say no.

    But does that mean Germany really wants to get rid of Greece or is this just a ploy to get more concessions out of Greece? Yes. The problem is it’s hard to know what Chancellor Angela Merkel really wants. Up till now, she’s been willing to do whatever the least is to keep Greece in the euro, but her finance minister Wolfgang Schäuble has been pushing her to give them the boot. That’s let them play a pretty effective good-cop, bad-cop to get the most out of Athens, but this time that’s turned into bad-cop, worse-cop. Schäuble’s plan—and it is his plan—for Greece to “temporarily” exit the euro reportedly has Merkel’s backing. There are even rumors it has Finland, the Netherlands, Estonia, Lithuania, Slovakia, and Slovenia’s support as well.

    If Greece does leave the euro, though, it will only be temporary in the sense that all life is temporary. Bringing back the drachma would either be such a boon to Greece’s economy that it’d never want to go back to the euro, or be such a disaster that Europe would never want to invite it back. But in either case, Greece and Europe’s trial separation would turn into a divorce. That might actually be better for Greece now that it’s already gone through a lot of the pain of ditching the euro—like a financial crisis—but it could be a catastrophe for Europe. It wouldn’t just show that countries can leave the euro, but maybe that countries have to leave the euro to recover. So the next time an anti-austerity party wins power, it might decide to do the same, at which point the euro zone would be more like a northern euro zone, if that. Especially if France decides that this makes the euro not worth saving anymore.

    Yes, Berlin just intervened in Greece’s act of falling on its sword and accepting all of the bailout terms in order to troll Greece with an offer it can’t possibly accept:


    Under the plan, the only way Germany would let Greece stay in the euro now is if it sells 50 billion euros of “very valuable Greek assets,” allows international observers to monitor its bailout, and puts automatic spending cuts in place in case it misses its deficit targets. Otherwise, Germany wants Greece to take at least a five year “timeout” from the euro, during which time its debts could be restructured and it could receive humanitarian aid. The entire proposal was less than a page long.

    In case there was any doubt, this is an offer Greece can’t accept. Sure, selling assets would lower Greece’s debt today, but it would make the rest of Greece’s debt harder to pay back tomorrow—which, according to the International Monetary Fund, is already unpayable. It’s the kind of thing you ask for if you want Athens to say no.

    And the best part of the trolling is that if Greece says “No” to the 50 billion asset stripping/sovereignty stripping proposal, it gets to spend the next five years being told that if the nation doesn’t cut more social spending it won’t be allowed back into the club that’s currently trying to troll it into quitting as an example to others. And this is all while Greece is deal without the fallout of switching back to the Drachma.

    It all raises the questions: does the ‘5 year exit’ offer extend to the rest of the eurozone members? And do they need to wait for a financial crisis to take the offer? Because if Greece is getting kicked out in order to send the message to the rest of the eurozone not to mess with Wolfgang’s right-wing vision, isn’t Berlin simultaneously trolling the rest of the eurozone about how they now live under permanent right-wing rule too? And doesn’t that mean Europe is basically trolling itself at this point? It sure seems like it.

    The European project has taken a turn for the worse in recent years.

    Posted by Pterrafractyl | July 12, 2015, 11:21 pm
  50. Big news for Europe and the world today: The eurozone lost a member state but gained a brand new vassal state! Yes, instead of heading out the ‘Grexit’, the Greek government chose to accept a set of terms that were not only much worse than the austerity package Greek voters rejected last week, but basically end the notion of Greece as a nation. But the deal has been reached! Greece gets to stay in the eurozone. All it needs to do is give up it’s sovereignty and let its new troikan technocrats impose an unstoppable austerity regime that’s worse than anything the Greeks have experienced thus far. That’s seriously the deal:

    The Telegraph
    Greece is being treated like a hostile occupied state
    A new deal for Athens is the worst of all worlds and solves nothing

    By Ambrose Evans-Pritchard

    5:39PM BST 13 Jul 2015

    Like the Neapolitan Bourbons – benign by comparison – the leaders of the eurozone have learned nothing, and forgotten nothing.

    The cruel capitulation forced upon Greece after 31 hours on the diplomatic rack offers no conceivable way out the country’s perpetual crisis. The terms are harsher by a full order of magnitude than those rejected by Greek voters in a landslide referendum a week ago, and therefore can never command democratic assent.

    They must be carried through by a Greek parliament still dominated by MPs from Left and Right who loathe every line of the summit statement, the infamous SN 4070/15, and have only agreed – if they have agreed – with a knife to their throats.

    EMU inspectors can veto legislation. The emasculation of the Greek parliament has been slipped into the text. All that is missing is a unit of EMU gendarmes.

    Such terms are unenforceable. The creditors have sought to nail down the new memorandum by transferring €50bn of Greek assets to “an independent fund that will monetise the assets through privatisations and other means”. It will be used in part to pay off debts.

    This fund will be under EU “supervision”. The cosmetic niceties of sovereignty will be preserved by letting the Greek authorities manage its day to day affairs. Nobody is fooled.

    In other words, they are seizing Greece’s few remaining jewels at source. This is not really different from the International Committee for Greek Debt Management in 1898 imposed on Greece after the country went bankrupt following a disastrous Balkan war.

    A six-power league of bondholders, led by British bankers, impounded customs duties in the Port of Piraeus, and seized revenues from stamp duty, tobacco, salt, kerosene, all the way down to playing cards. But at least there was no humbug about solidarity and helping Greece on that occasion.

    “It is the Versailles Treaty for the present age,” said Mr Varoufakis this morning, talking to me from from his island home in Aegina.

    Under the new terms, Greece must tighten fiscal policy by roughly 2pc of GDP by next year, pushing the country further into a debt-deflation spiral and into the next downwards leg of its six-year depression.

    This will cause the government to miss the budget targets yet again – probably by a large margin – in an exact repeat of the self-defeating policy that caused Greek debt dynamics to spin out of control in the last two Troika loan packages.

    As the International Monetary Fund acknowledged in its famous mea culpa, if you misjudge the fiscal multiplier and force austerity beyond the therapeutic dose, you make matters worse. The debt to GDP ratio rises despite the cuts.

    EMU leaders have an answer to this. Like Canute’s courtiers, they will simply command the waves to retreat. The text states that on top of pension cuts and tax increases there should be “quasi-automatic spending cuts in case of deviations from ambitious primary surplus targets”,.

    In other words, they will be forced to implement pro-cyclical contractionary policies. The fiscal slippage that acted as a slight cushion over the last five years will be not be tolerated this time.

    And let us not forget that these primary surpluses never made any sense in the first place. They were not drawn up on the basis of macro-economic analysis. They were written into prior agreements because that is what would be needed – ceteris paribus – to pretend that debt is sustainable, and therefore that the IMF could sign off on the accords. What a charade.

    Nobel economist Paul Krugman says the EMU demands are “madness” on every level. “What we’ve learned these past couple of weeks is that being a member of the eurozone means that the creditors can destroy your economy if you step out of line. This has no bearing at all on the underlying economics of austerity,” he said.

    “This goes beyond harsh into pure vindictiveness, complete destruction of national sovereignty, and no hope of relief. It is, presumably, meant to be an offer Greece can’t accept; but even so, it’s a grotesque betrayal of everything the European project was supposed to stand for,” he said.

    Yes, Syriza has blinked, though there are many chapters in this sorry saga yet to come.

    The Greek banks are on the verge of collapse. There is not enough cash left to cover ATM withdrawals of €60bn each day through this week, or to cover weekly payments of €120 to pensioners and the unemployed – that is the to say, the tiny fraction of the jobless who receive anything at all.

    Capital controls have led to an economic stand-still. Almost nothing is coming into the country. Firms are running down their last stocks of raw materials and vital imports. Hundreds of factories, mills, and processing plants have already cut shifts and are preparing to shut down operations as soon as this week.

    Late tourist bookings have crashed by 30pc. Syriza faced a serious risk that the country would run out of imported food stocks by end of this month, with calamitous consequences at the peak of the tourist season. So yes, faced with the full horror of what is happening, they recoiled.

    There is no doubt that Syriza sold the Greek people a false prospectus with its incompatible promises both to tear up the Troika Memorandum and to keep Greece in the euro. They have learned a horrible lesson.

    Yet that is only half the story. We have also watched the EMU creditor powers bring a country to knees by cutting off the emergency liquidity (ELA) to the banking system.

    Let there be no doubt, it was the decision by the European Central Bank to freeze ELA at €89bn two weeks ago that precipitated the final crisis and broke Syriza’s will to resist. The lines of authority on this episode are blurred. Personally, I do not blame the ECB’s Mario Draghi for this abuse of power. It was in essence a political decision by the Eurogroup.

    But however you dress it up, the fact remains that the ECB is by its acts dictating a political settlement, and serving as the enforcement arm of the creditors rather than upholding EU treaty law.

    It took a stand that further destabilised the financial system of an EMU member state that was already in grave trouble, and arguably did so in breach of its primary treaty duty to uphold financial stability. It is a watershed moment.

    What we have all seen with great clarity is that the EMU creditor powers can subjugate an unruly state – provided it is small – by shutting down its banking system. We have seen too that a small country has no defences whatsoever. This is monetary power run amok.

    To make matters worse Greek premier Alexis Tsipras cannot make a plausible case to his own people that he has secured debt relief, the one prize that could have saved him. Germany blocked even this.

    It did so despite massive pressure from the Obama White House and the IMF, and even though France, Italy, and the leaders of the EU Commission and Council accept that a haircut of some sort is necessary.

    The IMF says debt relief must be at least 30pc of GDP. Even this is too low. Given the damage done by six years of economic implosion, a lost decade of investment, chronic hysteresis, youth unemployment of 50pc or higher, a brain drain of the educated, and a ruined banking system, it would still be inadequate even if the entire debt was written off. That is what this EMU experiment has done to the country.

    Yet all the Greeks get is vague talk of a “possible” extension of maturities, at some point in the future, once they have jumped through umpteen hoops and passed their exams. This is what they were promised in 2012. It never happened.

    “If the specifics of debt relief are not written clearly into the overall package, this is not worth anything,” said Mr Varoufakis.

    The summit document asserts with self-serving dishonesty that Greece’s debt has come off the rails due to the failure of Greek governments to stick to the Memorandum over the last year. Had this not occurred, the debt would still be sustainable.

    This is a lie. Public debt ballooned to 180pc late last year – long before Syriza was elected – and even though the New Democracy government had complied with most Troika demands.

    The truth is that Greece was already bankrupt in 2010. EMU creditors refused to allow a normal debt restructuring to take place because it would have led to instant contagion to Portugal, Spain, and Italy at a time when the eurozone had no lender-of-last resort or defences.

    Leaked documents from the IMF leave no doubt that the rescue was intended to save the euro and European banks, not Greece. More debt was shoveled onto the Greek taxpayers in order to buy time, both in 2010 and again in 2012, storing up the crisis that Europe faces today.

    In an odd way, the only European politician who was really offering Greece a way out of the impasse was Wolfgang Schauble, the German finance minister, even if his offer was made in a graceless fashion, almost in the form of diktat.

    His plan for a five-year velvet withdrawal from EMU – a euphemism, since he really meant Grexit – with Paris Club debt relief, humanitarian help, and a package of growth measures, might allow Greece to regain competitiveness under the drachma in an orderly way.

    Such a formula would imply intervention by the ECB to stabilise the drachma, preventing an overshoot and dangerous downward spiral. It would certainly have been better than the atrocious document that Mr Tsipras must now take back to Athens.

    The crushed Syriza leader must sell a settlement that leaves Greece in a permanent debt trap, under neo-colonial control, and so economically fragile that it is almost guaranteed to crash into a fresh crisis in the next global downturn or European recession.

    At that point, everybody will blame the Greeks again, unfairly, and we will go through yet another round of bitter negotiations, until something finally breaks this grim cycle of failure and recrimination.

    For the eurozone this “deal” is the worst of all worlds. They have solved nothing. Germany and its allies have for the first time attempted to eject a country from the euro, and by doing so have violated the sanctity of monetary union.

    I will return to the behaviour of Germany and the diplomatic disaster that has unfolded over coming days. For now let me just quote the verdict of historian Simon Schama.

    “If Tsipras was wearing the crown of King Pyrrhus this time last week, Merkel is wearing it now. Her ultimatum the beginning of the end of the EU,” he said. Exactly.

    Note this key point in the new terms that make Greece new troikan-straighjacket so much more dangerous than the one it’s currently wearing: Under the new terms, if Greece’s mandatory surprluses ever fall behind and prevent it from fully making the scheduled debt repayments, a quasi-automatic mechanism will step in to force additional spending cuts…and since those repayment shortfalls are most likely to happen during an economic downturn, those auto-cuts are likely going to just lead to more auto-cuts!

    Under the new terms, Greece must tighten fiscal policy by roughly 2pc of GDP by next year, pushing the country further into a debt-deflation spiral and into the next downwards leg of its six-year depression.

    This will cause the government to miss the budget targets yet again – probably by a large margin – in an exact repeat of the self-defeating policy that caused Greek debt dynamics to spin out of control in the last two Troika loan packages.

    As the International Monetary Fund acknowledged in its famous mea culpa, if you misjudge the fiscal multiplier and force austerity beyond the therapeutic dose, you make matters worse. The debt to GDP ratio rises despite the cuts.

    EMU leaders have an answer to this. Like Canute’s courtiers, they will simply command the waves to retreat. The text states that on top of pension cuts and tax increases there should be “quasi-automatic spending cuts in case of deviations from ambitious primary surplus targets”,.

    In other words, they will be forced to implement pro-cyclical contractionary policies. The fiscal slippage that acted as a slight cushion over the last five years will be not be tolerated this time.

    Yes, the troika isn’t just imposing terms that are even harsher than the existing austerity-mandates and actively taking possession of 50 billion euros worth of Greece’s crown jewels. The troika is also adding new rules that ensure the damage inflicted by those policies are even worse than before by ensure that the austerity is doled out at the worst possible time.

    And this is after the troika already made this exact same mistake with not only Greece but the rest of the austerity-riddle nations that are still suffering massive unemployment and lost generations. The IMF, one third of the troika, even published a mea culpa paper on that exact topic. A mea culpa published just two years ago. It turns out time really does heal all wounds. Including wounds like feelings of guilt and remorse, apparently:

    Reuters
    For hard-hit Greeks, IMF mea culpa comes too late
    ATHENS | By Lefteris Papadimas and Renee Maltezou

    Thu Jun 6, 2013 1:35pm EDT

    Greeks reacted with an air of vindication and outrage at the International Monetary Fund’s admission it erred in its handling of the country’s bailout, berating an apology that comes too late to salvage an economy and countless lives in ruins.

    Anger was palpable on the streets of Athens, where the EU-IMF austerity recipe that the Washington-based fund says it sharply misjudged has left rows of shuttered stores and many scrounging for scraps of food in trash cans.

    “Really? Thanks for letting us know but we can’t forgive you,” said Apostolos Trikalinos, a 59-year old garbage collector and a father of two.

    “Let’s not fool ourselves. They’ll never give us anything back. I’m sorry for all the people who killed themselves because of austerity. How are we going to bring them back? How?”

    The IMF acknowledged on Wednesday that it underestimated the damage done to Greece’s economy from spending cuts and tax hikes imposed in a bailout, which was accompanied by one of the worst economic collapses ever experienced by a country in peacetime.

    A report looking back on the bailout said the Fund veered from its own standards to overestimate how much debt Greece could bear, and should have pushed harder and sooner for private lenders to take a “haircut” to reduce Greece’s debt burden.

    Prime Minister Antonis Samaras told reporters the acknowledgment justified his positions. He had criticized from the outset “what the IMF has called mistakes”.

    “And we have been correcting those mistakes over the past year,” Samaras told reporters during a visit to Helsinki.

    Greeks have seen their incomes plunge by about a third since the debt crisis erupted in 2009 and prompted Greece to seek two bailouts from the EU and the IMF. The unemployment rate has hit nearly 27 percent and suicide rates have soared. Worst hit have been the youth, nearly 60 percent of whom are unemployed.

    “The IMF admits to the crime,” the leftist Avgi newspaper declared on its front page. Top selling newspaper Ta Nea branded it an “admission of failure”.

    In the corridors of power, some officials suggested the admission could strengthen their hand in future talks with the IMF, European Union and European Central Bank, collectively known as the troika, on debt relief or new austerity measures.

    “It is positive that the report recognizes that there were mistakes in Greece’s program in the past and we hope that they will not be repeated in the future and then create the need for corrective action,” a senior government official told Reuters.

    Again, this “oopsy!” report from the IMF is barely more than two years old and it was explicitly about how much worse the austerity for countries like Greece was than they predicted. And now we have the IMF basically agreeing to a new “bailout” that includes NO debt relief (it’s all loans to Greece) and a take-over of Greece’s government so automatic-spending cuts can be imposed should Greece’s economy implode exactly like it did last time the troika did this.

    And as Ambrose Evans-Pritchard points out, what all this probably means is that it’s just a matter of time before we’re right back in this same situation, with a crushed Greece clamoring for escape from what can only be fairly characterized as a usurious, inescapable debt trap:


    The crushed Syriza leader must sell a settlement that leaves Greece in a permanent debt trap, under neo-colonial control, and so economically fragile that it is almost guaranteed to crash into a fresh crisis in the next global downturn or European recession.

    At that point, everybody will blame the Greeks again, unfairly, and we will go through yet another round of bitter negotiations, until something finally breaks this grim cycle of failure and recrimination.

    For the eurozone this “deal” is the worst of all worlds. They have solved nothing. Germany and its allies have for the first time attempted to eject a country from the euro, and by doing so have violated the sanctity of monetary union.

    The worst of all worlds. That’s the direction of the Europe project. It raises the question of what the troika’s plan is for blaming the Greeks during the next crisis…assuming such questions will actually be asked. After all, if there’s one take away lesson from the entire troikan experience up to this point it’s that the wisdom of the troika’s economic policies shall never be questioned. Even when one of the members of the troika write a paper explaining how its policies were a harmful mistake, those policies may never seriously be questioned.

    But given the blatant attempts to extract as much humiliation from Greece as much as possible (keep in mind that Greece could potentially be forced to sell off islands and ruins), it also raises the question of whether or not Berlin really was actually trying to get Greece to leave and was thwarted in the process or if merely terrorizing Greece into complete capitulation was enough. In other words, is a ‘Grexit’ still a possible strategic objective by Wolfgang Schaeuble and others?

    Recall the assertion by former Greek finance minister Yanis Varoufakis that Wolfgang Schaeuble explicitly told Varoufakis that he wanted to force a ‘Grexit’ in order to scare the rest of the eurozone members into line. So…is everyone adequately terrorized yet? France, are you terrorized into permanent submission? Italy, you aren’t feeling frisky again, are you? It’s sad, but given everything we’ve seen, we actually have to ask the question of whether or not Greece’s nightmare “bailout” conditions adequately terrorized the rest of eurozone.

    That’s our new world thanks to this “bailout”. Scared yet? You should be. That was the point.

    Posted by Pterrafractyl | July 13, 2015, 7:29 pm

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