Cyprus and Greece Post author By Philip Lane Post date March 18, 2015 NYT review of Cyprus here. FT editorial on Grexit here ; op-ed by Greek cabinet ministers here. Categories In Uncategorized 53 Comments on Cyprus and Greece ← IBRC liquidation ‘Progress Report’ → Macroeconomic Data Revisions 53 replies on “Cyprus and Greece” Note similarity with Ukraine … IMF, and Oligarchs. … John Helmer: IMF Loan to Ukraine Props Up Failing Banks, Enriches Oligarchs Posted on March 18, 2015 by Yves Smith Yves here. One reason for our continued coverage of the IMF generosity to Ukraine isn’t simply to demonstrate how the institution is bending its rules to support US adventurism. It’s also to highlight the striking contrast with the treatment of Greece. While Greece has a class of oligarchs that specialize in tax-evasion, Ukraine is widely recognized as a spectacularly corrupt country, to the degree that it makes Greece look like a paragon of virtue. By John Helmer, the longest continuously serving foreign correspondent in Russia, and the only western journalist to direct his own bureau independent of single national or commercial ties. Helmer has also been a professor of political science, and an advisor to government heads in Greece, the United States, and Asia. He is the first and only member of a US presidential administration (Jimmy Carter) to establish himself in Russia. Originally published at Dances with Bears The International Monetary Fund (IMF) has decided to give the Ukrainian banks R&R&R – that’s rest from regulation and refinancing. Inspection of the foreign exchange book, unwinding related-party credits, recovery of non-performing loans, and obligatory recapitalization, which were all conditions of the Fund’s 2014 Ukraine loan, have been relaxed. The new loan terms announced by the IMF last week, postpone reform by the commercial banks until well into 2016. In the meantime, the IMF says it will allow about $4 billion of its loan cash to be diverted to the treasuries of the oligarch-owned banks. That is almost one dollar in four of the IMF loan to Ukraine. The biggest beneficiary of last year’s IMF financing is likely to repeat its good fortune, according to sources close to the National Bank of Ukraine (NBU). This is PrivatBank, controlled by Igor Kolomoisky (lead image), governor of Dniepropetrovsk region and financier of several units fighting on Kiev’s side in the civil war. Last Thursday, the IMF’s chief spokesman, Gerry Rice, claimed in a press conference that “the authorities [in Kiev] have demonstrated a strong commitment to reforms. They have implemented, as you have seen, last week a set of prior actions that in many respects breaks from the past and tackles issues that were once considered taboos.” The taboo against admitting failure is one the IMF hasn’t broken. http://www.nakedcapitalism.com/2015/03/john-helmer-imf-loan-to-ukraine-props-up-failing-banks-enriches-oligarchs.html speaking of ‘divided’ islands … Economic Fundamentals and a Unified Irish Economy March 16, 2015, Michael Burke, This article is based on a background paper which was delivered to a fringe meeting at the recent Sinn Féin Ard Fheis http://www.irishleftreview.org/2015/03/16/economic-fundamentals-unified-irish-economy/ Burke concludes: ‘The potential benefits of a unified Irish economy can only be realised with increased investment. The independence and reunification of the very diverse economies of India and China required investment to realise their potential. But German reunification provides a cautionary tale, as post-reunification growth is slower because investment was cut.[ix] The important question remains of how will the potential of a unified Irish economy be realised. In different degrees, the private sector in both parts of the Irish economy is not providing the investment necessary to lead to sustainable economic development. This requires a political answer to an economic question. Unifying the Irish economy will require a political leadership at governmental level, but also one willing to prioritise investment. Only in this way can the very substantial potential of a unified Irish economy and increased prosperity be realised.’ Some Grexit/Grexident/Graccident scenarios as worked on by the ECB. http://www.manager-magazin.de/politik/europa/bis-zu-95-prozent-abschreibungsbedarf-bei-grexit-a-1024206.html DOCM – its Germany which needs to ‘exit’ the Euro economic, fiscal and monetary straightjacket. Their economy has such a prominent export basis that they must preserve this as a national priority: they have many mouths to feed! Their own political and economic re-unification has been difficult and very costly. There is simply no situation where the German taxpayers would agree to financially prop up other European states. Now, they need to carefully contrive the means by which they can concede that although the Euro experiment was indeed succesful – whilst it lasted – unfortunately, those ‘bold persons’ in backward economic states have confirmed that the experiement will be unsustainable – in the longish run. Things seem to be moving along nicely. The duration depends on the outcomes of the ECB’s monetary policies – and when the next financial (debt) crisis erupts. Merkel slams the door! http://www.focus.de/politik/deutschland/debatte-im-bundestag-merkel-pocht-auf-reformzusagen-griechenlands_id_4555760.html From the Google Translate facility. “No meeting with a small group can or will replace the proposal from the institutions IMF, ECB and European Commission in the Euro group agreement,” she pointed out. If Tsirpas does not get the point after both the informal get-together (which will include Dijsselbloem) and the bilateral meeting with Merkel, it is hard to know what will make him do so short of the near death experience that the official quoted by Charlemagne spoke of. Merkel demonstrates once again her tactical political mastery by neatly balancing the imperative not to give further negotiating advantage to Tsirpas with the need to avoid alienating other member countries of the Euro Area in agreeing to the informal meeting in the first place. Not entirely, it would seem! http://www.lesoir.be/826252/article/actualite/union-europeenne/2015-03-19/mini-sommet-entre-grands-sur-grece-charles-michel-pas-d-accord If anything, the tactics of Tsirpas seem set to reduce his chances of any concessions. The lesson of Cyprus and Ireland: When a bail-in might cost Germany money, the only option is a bail-out. When a bail-out might cost Germany money, the only option is a bail-in. Guardian blog at 14.26 Thursday “Merkel: Don’t expect any solutions today Angela Merkel has dashed any lingering hopes of a breakthrough — telling reporters outside the summit that they shouldn’t expect a solution to the Greek crisis tonight.” Next time, Germany should just email the other EZ leaders, telling them what decision had been arrived at, and not to bother wasting money or time showing up. A totally on the ball editorial from the Economist. http://www.economist.com/news/leaders/21646748-references-reparations-and-threats-seize-german-assets-will-not-solve-greeces-economic Events, regrettably, have a habit of overwhelming politicians. http://www.nakedcapitalism.com/2015/03/negotiations-with-greece-close-to-breakdown-as-budget-strains-worsen.html “And Greece’s moves to proceed with its own reforms in light of the lack of an agreement with the Troika are also being rebuffed. From Paul Mason of Channel 4: At less than 24 hours’ notice the European Commission has vetoed a key law set to be passed by the Greek parliament tomorrow. The so-called “humanitarian crisis bill” was set to provide free electricity for some households, and address poverty among pensioners and homeless families. But in a communication seen by Channel 4 News, Declan Costello, director at the EC’s directorate for economic and financial affairs, has ordered the radical left-led coalition governemnt in Greece to stop. A planned law to allow tax arrears to be paid in instalments, set before the Greek parliament on Thursday, has also been vetoed. Notice that the letter does not bar the humanitarian reforms per se, but stresses that Greece can’t implement measures willy-nilly but needs to do so as part of an agreed, coherent program. But Mason adds: The European Commission had been seen as the most conciliatory of the bodies formerly known as the “troika”. Mr Costello’s letter effectively says that if the Greek parliament votes on the new law tomorrow, it is a violation of the compromise deal signed by finance minister Yanis Varoufakis on 20 February in Brussels.” What fantastic mettle being shown by the European side. Starving the Greek poor is now the latest modus operandi. No testicles on show, however, when dealing with Putin. But that is generally the way with bullies. The Europeans would clearly prefer to deal with the Greek generals, than to sit at the same table as the Greek left. The question is who would the Greek generals prefer to sit with. JR, Perhaps you could provide us a list of the taxes you want to raise I. Ireland along with the services you want to cut to provide our share of the fiscal transfer to allow Greek citizens to live beyond their means, not pay their taxes and retire at 50. @DOCM “A totally on the ball editorial from the Economist”. On a reading if the article, all the economist wants is for Tsipras to change his tone, fire the finance, dump his coalition partners, thereby firing the defence minister, roll over, shut up and forget about feeding the poor in Greece, unless the Euro powers allow him to. Greece should do a hard default, and not pay a single cent on its debts. The only critical issue Greece has to contend with is international payments, of which there will be very few post exit. But Russia is setting up a new system which is probably up and running by now, so that the ECB triple lock on the economy will not work. http://rt.com/business/217803-cbr-swift-alternative-system/ @ DOCM “Merkel demonstrates once again her tactical political mastery ” She always takes the easy option. Which is why over E2 trillion in bonds are now negative yield and deflation is settling in for a long stay. http://www.ft.com/intl/cms/s/0/86bd4a36-a60e-11e4-9bd3-00144feab7de.html “The trend of historically low interest rates may be the result of markets’ waning confidence in central bankers’ ability to pump up economies through the traditional policy prescription of rate cuts. What has alarmed central banks on both sides of the Atlantic are sharp falls in future long-term inflation rates being priced into markets. “People are losing their faith in central banks’ ability to push inflation higher. A big acid test looms for central bankers who believe in the Phillips curve, or the idea that lower unemployment leads to wage inflation,” says William O’Donnell, strategist at RBS Securities.” Huge problem building up under extend and pretend. “Anything it takes” seems to mean deflation. Two links that set out the opposing arguments with regard to Greece. A comment corresponding largely to the Syriza view. http://www.globalresearch.ca/the-greek-economic-crisis-the-social-impacts-of-austerity-debunking-the-myths/5431010 The alternative view. http://www.greekcrisis.net/2012/09/greece-as-precautionary-tale-of-welfare.html The country’s creditors are clearly persuaded of the latter and are agreed on the steps that need to be taken i.e. that release the productive potential of the Greek economy to enable it to maintain a level of welfare that is both affordable and acceptable across society. This can only be achieved by removing the highly damaging rent-seeking elements that have developed in the past decades. Whether Tsirpas has grasped the nettle or not remains to be seen. The flow of deposits from the Greek banks continues apace and the introduction of capital controls on the Cypriot model may be unavoidable. This would puncture any remaining illusions in the Greek electorate about the competence of their new PM and his government. fyi [austerians may take a break ….. Rob Parenteau: “Goebbelnomics – Austerian Duplicity and the Dispensing of Greece Posted on March 19, 2015 by Yves Smith By Rob Parenteau, CFA, sole proprietor of MacroStrategy Edge and a research associate of The Levy Economics Institute It would not be impossible to prove with sufficient repetition and a psychological understanding of the people concerned that a square is in fact a circle. They are mere words, and words can be molded until they clothe ideas and disguise. ― Joseph Goebbels, Reich Minister of Propaganda 1933-45 Austerians possess a well-honed psychological understanding of their target markets. They are also quite adept at proving, with sufficient repetition of course, that national governments in the Eurozone cannot afford to pursue pro-LIFE (Low Inflation Full Employment) economic policies. Austerians are very good at Goebbelnomics, indeed. You see, fiscal deficits are a sin, especially if they are larger than an arbitrary 3% of GDP. “Monetized” fiscal deficits are a mortal sin punishable by the inevitably of hyperinflation – a state of ever accelerating inflation which Austerians love to hyperventilate about, even as more and more nations sink into outright price deflation. Austerians hyperventilate about monetized fiscal deficits even though all fiscal expenditures in countries with sovereign currencies have to be “monetized”, because there is no other way for the private sector to get the money needed to pay taxes and buy government bonds. Households and nonbank firms cannot create money – that is called counterfeiting, and punishable by law. And government debt to GDP ratios always and everywhere need to be kept below an arbitrary 100% of GDP ceiling. Or better yet, as long as we are pulling numbers out of our asses, below 60% of GDP. Why, you may ask? Because beyond one of those ceilings lies, as Reinhart and Rogoff argued with empirical and historical precision (plus a somewhat faulty spreadsheet formula), very explosive debt dynamic dragons. Big debt dragons. Debt dragons that breathe fire and sink ships.’ […] Make no mistake – this is an exercise in class discipline, writ large. It is unfolding right before our eyes, yet no one dares call it by its true name, Goebbelnomics. There is no longer even a superficial effort to hide the duplicity of the Austerians. Just repeat after them: the square is a circle. We have no more money, at least not for dispensable nations. But if you are a bondholder, well, step right up, because we just happen to have enough money to bid your bonds higher – though let’s be clear, that will not, and cannot possibly distort market price discovery signals. Even if it is 60b euros per month the ECB will be spending. For eighteen months. And meanwhile, we are told the eurozone has run out of money, so Greece must become a failed nation state.. That square, you see – it is a circle, after all. Read on: http://www.nakedcapitalism.com/2015/03/rob-parenteau-goebbelnomics-austerian-duplicity-dispensing-greece.html Varoufakis certainly has not; grasped the nettle that is. Indeed, it is doubtful whether he even recognises its existence. http://yanisvaroufakis.eu/2015/03/20/of-greeks-and-germans-re-imagining-our-shared-future/#comments The situation now is surreal. It is impossible his colleagues in the Eurogroup engaging with him given his approach. @ JR Quite a few Greek citizens are not waiting around for the do or die gamble that you are suggesting and shifting their money as fast as they can. Indeed, Varoufakis seems to think that it is again the fault of the EU that they can do so. Incidentally, in the second paper linked to above, there is a neat description of an economic policy that actually works; ordo-liberalism! “Prosperity, whether called wealth, economic development, or growth, is positively related to the number of voluntary transactions that take place. The role of the government in this mechanism is to protect rights, on which voluntary exchanges are based, and to allow people to create wealth. The government can help this mechanism by securing property rights and enforcing contracts (thus making markets “regular,” which is the original meaning of “regulation”) and perhaps also by intervening carefully when there is a market failure, but without distorting the market and causing yet greater and more disastrous government failure.” Of course, Tsirpas and Varoufakis, and their admirers. could be right. But the evidence of another country actually having grasping the nettle of fiscal imbalance would suggest otherwise. http://www.ft.com/intl/cms/s/0/5b3322ce-ce26-11e4-9712-00144feab7de.html#axzz3UuZ30MrX (The words “to see” are missing after “impossible” in my previous post). No comment! http://rt.com/business/242489-bank-greece-donation-account/ Hard to take you seriously, DOCM, when you still haven’t learnt how to spell Tsipras. @tull: hey nobody asked me when they took my money and lent it to the Greeks. I am not pissed off at the Greeks but at the Irish governments of 2010 and 2012 for giving away my money without asking. And most of that money went to pay French and German banks and not to let Greeks retire at 50. @David O’Donnell – I find it too hard to be bothered reading (ref your post of 5.39pm) any article which invokes/salutes/justifies Godwin’s Law in its title. Was their anything of substance in it? *eep* I naturally meant “there”. It is possible that the key insightful point in the Economist article is the following: “Although opinion polls consistently show that a majority of Greeks want to remain in the euro, there is no better way to change their minds than to tell them that their EU partners treat them with injustice and contempt.” Perhaps that’s the strategy. Not necessarily to actually leave, but at least to make the threat of leaving more credible. If there is a resolution of the crisis in Greece’s favour it is more likely to come about as an exercise in raw geopolitics than a consequence of reverting to the suck-up strategies of others among the PIIGS. This study by a German institute carried out by two Greek researchers demonstrates unequivocally that the Greeks have not shared the burden of adjustment equitably. http://www.boeckler.de/pdf/p_imk_study_38_2015.pdf It takes a remarkable degree of insouciance to assume that the taxpayers of other countries will make up for this and supply the solidarity which the Greeks themselves were unwilling to provide. As to what will happen next, either Tsirpas is incapable of facing down the hard left elements in Syriza or he intends to continue to play hardball. The fact that he has brought forward his meeting with Putin suggests the latter. This Forbes blog post by Tim Worstall is incisive. http://www.forbes.com/sites/timworstall/2015/03/21/greece-continues-that-slide-towards-grexident/ The one possibility that he overlooks IMHO is the likelihood of a moment occurring where Syriza literally runs out of money and this coincides with a run on Greek banks; resulting in a deal done in extremis over a weekend to restore ECB support but requiring that emergency legislation be adopted to introduce capital controls. The break-up of the current Syriza coalition would be an inevitable consequence. But such is the logical conclusion to be drawn from the polls which show that over 70% of Greeks wish to retain the euro. It is not possible to have one’s cake and eat it. According to the FAZ, a rather reliable source, and on the basis of Commission figures, only two weekends are left. http://www.faz.net/aktuell/politik/europaeische-union/eu-kommission-athen-hat-noch-geld-bis-zum-8-april-13497760.html Maybe Tsirpas will decide that softball may be a more productive approach. If so, a clear instruction has to permeate all levels of the new government that cooperation with the EU institutions is now the order of the day. Grand-standing in the parliament and a continuation of the hitherto duplicitous behaviour of his government, the publicly stated view of some of his interlocutors. will not serve. @Tull re: Greek Retirement age: re: Greek pension reform facts. Of interest to the 50%+ of private sector people who have no pension entitlement other than a poverty line state pension. Here is how Greece is doing it. “The Public Sector also changes and civil servants who are hired after 2010 will be insured in the same fund as the Private Sector employees.” 1. 2010: Greek pension retirement age increased to 65 for both men and women. 2. 2012. Retirement age increased to 67. 3. 2010. Changed to career average earnings, previously average of last five years. 4. 2010. Full pension requires 40 years contributions. 5. Pensions in retirement cut from 2% to 15%. and most importantly, a lesson for Ireland and Messrs Noonan and Kenny: Source: world pensions summit, Amsterdam 2013. Georgios Symeonidis. Steering away fron the tip of the iceberg. http://www.worldpensionsummit.com/Portals/6/The%20Greek%20Pension%20Reform%20Strategy%202010%20-%202013%20Steering%20away%20from%20the%20tip%20or%20the%20iceberg.pdf Greece has gone from a shambolic unsustainable pension system, to a pension system that could be sustainable, if the Troika had not destroyed the country. The revised system, following the collapse in employment and therefore in contributors, will run into difficulties as early as 2016. Greece, like most countries, needs growth and particularly employment in order to sustain its economy and society. But the changes they have already made in Greece relating to pensions, are far more radical and equitable than those of Ireland, whose response to the crisis was to rob private sector pension funds, so that public sector politicians and personnel (including AIB and other bust bank staff) could have their defined benefit pensions secured. JR, You still have not answered the question. What tax increases and service cuts do you want to implement on Irish workers so that Greece can live beyond its means, avoid paying tax and retire earlier than most other Europeans? These two original Ekathimerini (Garo will check the spelling!) news items give a flavour of the political atmosphere in Greece this weekend. http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_22/03/2015_548446 http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_22/03/2015_548447 How refusing to privatise inefficient and overmanned state enterprises and re-hiring public servants can rescue the Greek economy is not clear, despite the efforts made with regard to pension reform under the previous government. (These contain the nucleus, as JR points out, of a reform that should have been adopted in Ireland. Unlike Greece, however, the economic tide did not go out as far and is returning more rapidly, lifting all boats, whether they deserve to be or not). Chaos (khaos) would be the word that seems best suited as a description of the current government of Greece. Hopefully, paying public servants, whether working or retired, in IOUs is not an idea that catches on! Cash (in euros) is, apparently, king in Greece since the rise of Syriza. Safer than IOU’s! http://www.bloomberg.com/news/articles/2015-03-20/it-really-looks-like-greeks-are-hiding-cash-under-the-mattress @Tull You must be forgetting that we have put more than one billion into the ESM, a fund that neither our country nor ‘our’ banks will get a cent from. But if you really must have a tax increase or a service cut, here are a few thoughts. 1. An FTT, long overdue and easily afforded by investors who are being bailed out by the ECB to the tune of one trillion, the largest European welfare cheque in history. 2. If one could get the DOF to put a costing on the tax concessions that they gave to the landholders (some of whom are farmers) in the last budget, I would throw that in for Greece. But most of all, I would allow the new Greek left government to finally tax the better off, especially oligarchs, in Greece; something the previous conservative and kleptocratic governments in Greece had no intention of doing. Secondly. I would encourage the Greek government to sequester 100% of Greek funds located outside Greece that were not returned to Greece in 30 days, taking only a 25% repatriation tax in that case. Believe me, I am on your side! @tull: And you still haven’t answered why Irish taxpayers are on the hook for Greeks. Nobody asked me before they bailed them out. And it is a bit churlish to complain about 350 million when 64 billion was put into our own banks. A bit of perspective is required. @aiman Spose we shouldn’t eat meat on Fridays either! I find the very revealing correlation identified between two versions of the ‘german ideology’ in different times by a respected scholar to add some substance of an understanding to our present subjugation as serfs in the EZ. @Tull And of course I should add that in relation to the ESM, Ireland has only got to put in another 10 billion!!!!. That would be 11 billion in total for Ireland. And yet the Euro mullahs want to risk the whole kit and caboodle for the sake of a 7 billion sub to a country in economic depression for the past six years. Peter Spiegel on the stand-off! http://blogs.ft.com/brusselsblog/2015/03/22/tsipras-letter-to-merkel-the-annotated-text/ Tsipras continues to suffer from the delusion that, because he leads a new government in Athens, it is not bound by the international commitments of previous government(s). Considering that the entire system of international relations would be turned on its head were this true, it is quite a delusion. He can possibly offset changes that he requires against others, as in Ireland’s case, but the overall financial result has to remain the same. What he is asking for is not in Merkel’s gift or that of the other leaders to which his letter was addressed. Spain has made sure that this is copper-fastened by the trenchant utterances of the Spanish finance minister, including his dismissal of the attempts by Tsipras to divide and conquer. JR 1. FTT would be paid by consumers not investors. 2. No problem about cutting a subsidy for any Irish citizens but I object to the premise that funds be given to the Greeks. The Greek govt can tax their own people in any manner that they see fit. By all means go ahead. Not sure how you can sequester assets that are beyond your territory. Garo, Since Greece has rarely run a budget surplus in my life time and since it has no intention of ever running one, the money to live beyond their means has got to come from someone else. That includes us. 1. DOCM Says: December 12th, 2014 at 7:53 pm “A Syriza moment can, it is to be hoped, avoided”. It wasn’t. But the EZ was never about democracy, one of the reasons things are such a mess now. http://davidstockmanscontracorner.com/yellenomics-the-folly-of-free-money/ “Europe’s 500 million citizens will simply endure stoically and indefinitely the endless stream of phony fixes and self-serving lies emanating from their overlords in Brussels.” Good man, DOCM @docm “Merkel demonstrates once again her tactical political mastery by neatly balancing the imperative not to give further negotiating advantage to Tsirpas with the need to avoid alienating other member countries of the Euro Area in agreeing to the informal meeting in the first place.” This is like commending Mcillroy for beating the Bohola golf pro over 18 holes for the right to call black, white. But it still ain’t! The latest monthly report of the Bundesbank and that of the ECB (now the Economic Bulletin) have interesting material. http://www.bundesbank.de/Redaktion/EN/Pressemitteilungen/BBK/2015/2015_03_23_summary_monthly_report.html https://www.ecb.europa.eu/pub/pdf/ecbu/eb201502.en.pdf??e44060f7e885dbaaec776ea88d795d5d What both demonstrate is how out of step the new Greek government is with regard to developments in relation to the euro. It now seems, however, that some agreement has been reached, at least with the main creditor, which would (i) result in an interim deal this weekend which would see some release of cash on the basis of (ii) a longer term deal in a few weeks, the broad outline of which has already been trashed out but with two essential qualifications, one for the Greeks (no “recessionary” steps) and one for the creditors (staying within the financial parameters agreed with the previous government). @ Kerchav Are you sure? http://fortune.com/2015/03/23/merkel-tsipras-put-on-a-brave-face-for-the-camera-but-no-deals/ The real discussions between the German and Greek sides took place over a lengthy dinner discussion and some meeting of minds has clearly occurred. Tsipras is today talking of a different “policy mix”. The noises coming from authoritative German sources (Schulz, President of EP and Steinmeier, Foreign Minister) are also setting a positive tone. There has not been a peep out of Varoufakis, which must also be put on the positive side of the ledger. Bearing in mind that the institutions have been over the bailout menu set for Greece innumerable times, there can be little lack of information. Even if some of the dishes are now to be changed, that may not be such a problem for the institutions as long as the total bill remains the same. It could, however, prove to be a big political headache for Tsipras with the more radical elements of his party. Merkel is also clearly trying to give hims some cover for his u-turn. Varoufakis has still to deliver. His best bet would be to leave it to those with the necessary credibility (not to be found in the ranks of those officials recently appointed, it seems, from among failed Syriza candidates!). http://www.wsj.com/articles/yannis-palaiologos-only-technocrats-can-save-greece-now-1427044646 DOCM, Effectively the deal that is on offer to Tsipiras is cash to get over April in return for agreeing to a) implement “ze structrual reforms” b) monitoring by TIFKAT c) a lower primary surplus & d) In the future he will probably get maturity extensions and QE by the ECB. The trap for Tsipiras is that what he promised the electorate was a) roll back reforms b) no monitoring c) loads and loads of OPM and d) debt write offs. Somebody will have to pay for this. Clearly it will be Veroufakis. He will be exiled to an American university, go on speaking tours for 50k a pop and probably buy a 2nd villa to rent for 5k per month. One of the – almost certainly unintended – results of the insistence by Syriza on the end of the troika as a concept and its replacement by the reference to “institutions” is that this has greatly clarified and almost certainly strengthened the role of the latter; with the possible exception of the IMF (whose involvement both Ireland and Portugal are hastening to end as fast as possible insofar as they are concerned). Among the many errors of appreciation by Tsipras was to assume that the ECB was just another among several bodies. This error is now being corrected. http://www.ft.com/intl/fastft/297773/ecb-greek-t-bills The looming insolvency of the Greek state within the Euro Area is a problem for the states collectively to resolve, not their central bank. @Tull, The defenestration of VF is neither here nor there. The Eurogroup, the other EU institutions and the IMF are being totally unrealistic if they expect Syriza to provide in less than three months convincing evidence of something that has not been seen in Greece since the establishment of a dysfunctional form of democracy in 1974 – the provision of competent and sensible democratic governance. Greece’s official creditors will simply have to park any servicing of the existing debt for a period of, say 5 years, to allow Greek citizens to decide whether or not they wish to have competent, sensible governance. @ PW The one thing that might jolt the citizens in question to do so would be to see access to their bank accounts restricted and the action excused as a better alternative than having large portions of them sequestered. It may yet come to this if the latest reports of continued inaction on the Greek side are confirmed. As an aside, one of the questions that has been entering my mind is how such an unnatural coalition of forces as the present coalition in Greece can come into existence. This article helped better than other to explain the phenomenon to me. It is part of Greek history. (The Irish equivalent would probably lie in trying to explain to an overseas visitor the difference between FF and FG). http://www.thedailybeast.com/articles/2015/03/21/how-greece-became-a-basket-case.html PH, Greek debt service costs on a gross and net basis are low single digit % of GDP so going to zero from here provides no benefit of any real magnitude that would change the game. What is completely lacking in Greece is an understanding of what is required to run a first world country i.e a dispassionate way of collecting taxes, a compliant tax payer base and a reasonably rational way of spending the money. Syrizia seem to think that they can go on spending in excess of revenue indefinitely. @DOCM, The Greeks have had two legislative elections since the first genuine post-blowout one in May 2012. The first was a re-run in June 2012 since the May vote didn’t generate a governing majority. The second was the vote on 25 Jan. this year. In Ireland, we’re waiting for the first since the post-blowout vote in Feb 2011. The Jun. 2012 and the Jan. 2015 Greek elections exhibited huge shifts in voting allegiance, but two features stand out. First, Syriza seems pregressively to have captured most of the traditional PASOK support and, second, apart from a slump in May 2012, the New Democracy share of the popular vote has held up quite well and is less than 5% off its share of 32.5% in 2009. In Feb. 2011 it appears that a majority of Irish voters were so determined to give FF and the Greens the electoral kicking they fully deserved that they handed FG and Labour a huge majority of seats almost by default. The local and Euro elections and consistent polling evidence suggest that many voters regret handing them such a large majority and that they see Fg and Labour as governing in a manner almost identical to that which FF and the Greens would have governed had they been returned. But, unlike Greece, where Syriza secured the support of a large share of the disgruntled voters, correspondingly disgruntled voters in Ireland appear to be spreading their allegiance across FF, SF, left-wing factions and ‘independents’. SF may have Syriza-like ambitions, but that’s all they’re likley to be. The Taoiseach is determined, by hook or by crook, to do something none of his FG predecessors achieved – the re-election of an FG-dominated government. If the economic recovery is sustained it will be possible to do some bribing of voters with their own money and to keep favoured special interest groups sweet and, depending on whatever handfuls of TDs Deputies Ross and Creighton manage to return, some sort of FG-dominated inter-party government (a la 1948) appears to be on the cards. None of the systemic failings of democratic governance will be addressed and we’ll sail onwards unruffled towards the next blow-out. The difference between Ireland and Greece is that Ireland is a state with systemic failings of democratic governance but with redeeming features that comprise a fundamental constitutional stability and an abiding popular commitment to the democratic process; Greece is a failed state. That’s why I believe it would be in the interests of the EU’s institutions to give Greek citizens the space to decide whether or not they wish to address this failure. @all http://www.counterpunch.org/2015/03/24/greece-fascists-at-the-gate/ @ PH I agree in general with your analysis but not with your conclusion. The Greeks have run out of road in terms of being indulged by their creditors. http://www.ft.com/intl/cms/s/0/c0ded586-d2eb-11e4-b7a8-00144feab7de.html#axzz3UuZ30MrX What is evidently missing is a clear direction from Tsipras to his crew to go about. If he does not give it, Greece is clearly heading for the rocks. As I suggested some time ago, a possible scenario would be a crisis weekend when ELA limits set by the ECB can no longer be increased and a decision has to be taken in extremis to introduce capital controls. Greek citizens would then have a defined space to decide whether they could continue with their present system of governance i.e. between their introduction and the point that sufficient changes had been made and confidence had been restored to allow them to be lifted. Such controls have a long, if not very distinguished history, and the Greeks have an example within the Euro Area close to hand; Cyprus. Update on the Ukrainian Oligarchs …. squabbling over the cake before the IMF dosh is distributed … to themselves …. http://turcopolier.typepad.com/sic_semper_tyrannis/2015/03/too-many-rats-not-enough-cheese-ttg.html @Tull, “What is completely lacking in Greece is an understanding of what is required to run a first world country…” I agree. But that understanding won’t penetrate and, crucially, its implications won’t secure the consent of a majority of Greek voters within the days, weeks and short number of months’ timescale the ‘institutions’ are seeking to impose. I also accept your point about debt service, but there is still an immediate and serious problem: http://www.economist.com/blogs/graphicdetail/2015/03/daily-chart-12 I can understand why the Eurogroup and the EU’s institutions have no wish to be suckered in to facilitate the fantasies of Syriza, but exerting the current pressure and even ratcheting it up will require an even more complete capitulation by Syriza than they’ve already been forced to concede. This is very bad politics and is almost certain to lead to very damaging unintended consequences. The failure of the Greek state is profound and it will require quite some time in intensive care until Greek citizens decide whether or not they wish to consent to the implementation of the policies and the enforcement of the processes that are required to remedy this failure. It would be in everyone’s interest for the ‘institutions’ to draft a package that would set out key features of a functioning sensibly governed state and give Greek citizens the time and space to grant their consent. @DOCM, I agree that Greece’s creditors’ patience is rapidly running out, but I would still argue for some extension of structured forebearance. Rightly or wrongly there is a popular perception in Greece that the Greek authorities never really owned the packages of reforms accompnaying the successive bail-outs. This may be contrasted with the Irish situation where the Government made a virtue of necessity and sought to exercise to the full any discretion it had within the parameters set by the Troika. This discretion was relatively limited in the fiscal and banking areas, but it is informative to examine the extent to which it whittled down the set of non-financial structural reforms in the first version of the MOU in Nov. 2010 to almost nothing of any substance by the time Ireland exited the programme. The exercise of discretion in the fiscal area ensured a grudging, but sufficient, popular consent. But the excessive exercise of discretion has given us the costly follies of energy and climate change policies, the economy and consumer-damaging evisceration of economic regulation generally and the total shambles with water charges – plus continued pandering of other special interests in the sheltered private, semi-state and public sectors at the exapnse of ordinary citizens. It appears that the Troika was prepared to indulge the Government’s economically damaging exercise of discretion in these areas while it held the line in terms of fiscal adjustments and reforms of the banking and financial sectors. Even though I don’t believe that it should be allowed the excessive discretion the Irish Government was allowed to whittle down non-financial structural reforms, I do believe that Syriza should be given some time and space, but not without binding conditions, to develop its approach to governance in terms of a more sophisticated engagement with the Troika. If it is not capable of doing this it is up to the Greek people to elect governing politicians who will. A thoroughly confused article from Bloomberg but indicative, nevertheless, of a rising temperature. http://www.bloomberg.com/news/articles/2015-03-25/a-murky-sloppy-muddle-how-greece-s-exit-from-euro-could-happen The purpose of the introduction of capital controls, as I understand it, is to allow banks to stay open, not to send them on a prolonged bank holiday. They would, however, have to stay closed for a period longer that a weekend while the necessary – national – legislation is passed. A less confusing one! (H/t Guardian blogs). http://www.bloomberg.com/professional/kc-post/dates-watch-greece/ Samaras has now come out of his foxhole and has held a press conference on his party’s release of the February 20 agreement – with the signature of Varoufakis made prominent – and which Syriza did not dare put before parliament. @ PH We are way beyond the point of comparisons with Ireland; if such comparisons were ever valid. http://www.wsj.com/articles/greek-rescue-needs-to-be-long-term-1427316445 The Greeks have elected a government on a false prospectus. The either amend the prospectus or fire the board. Comments are closed.