……the unpitied calamity of being repeatedly caught in the same snare….

If an extend-and-pretend deal is done it will be the third Greek ‘rescue’. Without debt relief it will also be the third to break the IMF rule, adopted after the Argentina failure in 2001, to avoid financing countries with unsustainable debts.

In early 2010 the debt/GDP ratio in Greece was predicted at 115% (it turned out to be 130%), the deficit in double digits and GDP sinking fast. The Fund rewrote its rule-book to get involved in the Troika despite the unwillingness of IMF staff to sign off on debt sustainability. See the account from the CIGI think-tank

https://www.cigionline.org/sites/default/files/cigi_paper_no.61web.pdf

The 2012 deal repeated the procedure, this time with haircuts of private creditors.

The Greek economy is again contracting, the budget headed back into serious deficit, the debt ratio headed for 180%. Even with low interest rates and long duration of official debts, no sustainability analysis is likely to look healthy. The bond market, to which Greece must return, agrees.

The IMF cannot credibly repeat the routine of 2010 and 2012 – it does have non-European members after all, and its exposure to Europe is already unacceptable to them. Lagarde, as French Finance minister, opposed Greek debt restructuring in 2010 but there is no guarantee that the IMF board will participate again without haircuts, this time for its European ex-partners. The week could see no deal with Grexit, or Trexit, the end of the Troika.

Comments

comments

75 thoughts on “……the unpitied calamity of being repeatedly caught in the same snare….”

  1. 2010

    Financial investors placed ahead of EU Citizenry.

    Basics of ould capitalism ignored

    No-bail out clause ignored

    Responsibility: Merkel & Sarkozy + a misguided IMF

    Troika go home! Default and be damned … optimum move … if “allowed”. My few pfinnings are on an odious muddle through as in your piece today … which will simply add to the empirical evidence in support of Nietszsche’s Eternal Recurring …. and again, and again, and again … and again.

    @Westmeath

    Nice one! Pity you have to meet doze Dubs!

  2. Re: Question

    A question, which seems pertinent – to what extent, does it now appear that a repeating pattern in Europe, where the institutions are seen to be administering a dressing down (or worse), to a minor European Union member, that appears to be acting out of line – is not working any longer? One arrives at a stage, in any student and mentor relationship, or and command and servant relationship – where the it appears that ‘the teacher’ doesn’t hold the authority any longer – and the undergraduate becomes big, and bad, and grown up.

    In Europe, for a few years we’ve endeavored to avoid a situation, whereby the European states may eventually have to have an adult to adult conversation, with the Greek elected representatives. It was easier to (for whatever reason), simply to look at Greece as the feckless teenager, and the heads of European institutions as the parent, in the relationship who spelled out repercussions for breaking a curfew. This relationship, simply doesn’t seem to work either for Greece, or for the institutions and their officials. We’ve moved beyond that point.

    Ireland, as a country, went through a process, with the European institutions, and it would appear as though, the Irish did not demand of the European institutions, at the very least to be treated as adults, and as equal members. And probably, as many journalists at the time of Jean Claude Trichet’s recent visit to Ireland, we were treated to a very visual display of the same, whereby the banking inquiry committee were facilitated to sit around the great chair, of the great man the big bad version of Daddy Christmas, and ask what will you bring us? The Greeks at least, did not submit themselves to that. It may not count much at the end of the day, or in the greater scheme of things, but it does show that not everyone in the classroom is a kid who wants to believe a fairy tale. BOH.

  3. But Colm….Why is the Greekeconomy contracting since 3rd Quarter 14?

    Was not the recovery endangered by delays in structural reforms and political uncertainty?

    When Syriza came to power in February it declared the previous bailout terms to be cancelled.

    Greece is where it is due to monkey business, unable to compile trustworthy statistics for decades. Trying to applease left wing communists, running very high deficits, spending money on NATO weaponry. Just to mention a few. And of course getting away with it by currency devaluation.

    Greece has to grow up, stop portraying itself as the victim and take responsibility for running a balanced budget. They may be under huge national debt, 330 odd billion, but that is not the point….its the cost of servicing the debt which is important, and what country pays down its debt entirely anyway?

    Eaten bread is soon forgotten, especially when dealing with a coalition originally comprising a broad array of groups (thirteen in total) of independent politicians, including social democrats, democratic socialists, left-wing patriots, feminists, anti-capitalists, centrist and environmentalist groups, as well as Marxist–Leninist, Maoist, Trotskyist, Eurocommunist, Luxemburgist and also Eurosceptic componentsleft wing / socialist Marxists.

  4. Default and Grexit have got to be the most likely option. They allow everybody to move on. The Greeks get to blame everybody else and the rest get to blame Greece. It will leave Greece with 100% debt haircuts and a super competitive currency.
    Then we see how a govt of neo fascists, Marxists and university professors performs. Time will tell whether this is a road map to follow. My own guess is that the euro is here to stay albeit with fewer members & more political and fiscal integration. Countries like Ireland, Italy, Spain and Portugal and France will have to make a choice. The descent of Greece into an economic abyss may inform that choice.

  5. The IMF cannot credibly repeat the routine of 2010 and 2012 …..

    Perhaps not, but since when has credibility entered the equation.

    In any case the situation moved on when Syriza came into government.
    The primary objective is no longer to fix the Greek economy, it is getting Syriza out; regime change by whatever mean available, credible or not; with Ireland in the vanguard of the oppressing forces.

  6. The far more likely course of events is that the Greeks will finally wake up to the full implications of the situation into which Syriza has led them and will vote yes in the referendum in spite of the party urging them to vote no and, it seems, expecting to stay in power even if they do!

    Assuming that it can be established what the Greeks are voting on.

    http://ec.europa.eu/news/2015/06/20150628_en.htm

    Syriza did not allow adults into the room until they were forced to convene the meeting of the Financial Stability Council, despite rumours, denied by Stournaras, that he had threatened to resign if capital controls were not agreed. The referendum campaign may be expected to descend to the same level.

    As to the IMF, failure to meet tomorrow’d repayment will not be viewed as a credit event by rating agencies. In any case, it is a racing certainty that it will be repaid in full, whatever way the referendum goes, and Greece stays in or leaves the euro (which is what the referendum is about, a fact that even the populist talents of Syriza will find impossible to hide).

    The IMF may be expected to continue in some advisory role to save Merkel’s blushes but the troika has been effectively out of commission for some time.

    The markets are in for a rough ride, whatever way events turn out. The one constant is that Greece’s economic situation will have deteriorated further; and dramatically.

  7. Since it appears to take an average of 4 days for my comments to get through the moderation process, the game will probably have changed beyond all recognition before it appears – if it ever does appear. But here goes, anyway..

    Colm, I think we’re all agreed that the EMU had serious design faults, that Greece should never have been allowed to join and that all private sector holders of Greek sovereign debt should have experienced deep haircuts in 2010, but didn’t. For good reasons and bad all of these institutional and procedural failings occurred – and, in the usual grindingly slow manner, the EU’s governing politicians, officials, businesses, civil society bodies and citizens are seeking to remedy these failings.

    The contrast between Greece, on one side, and Portugal and Ireland, on the other, (and indeed between it and Spain and Italy) is that, for the latter, considerable progress has been made in repairing serious failings in the democratic and economic governance they exhibited – and to an extent continue to exhibit. (There is much more to be done, but that’s for another day.) Greece was, and continues to be, a failed state.

    No external force is capable of persuading Greek politicians and citizens to confront the extent of the failure of their state and to begin repairing it. The pressure the Troika exerted was ill-conceived, inappropriate and clumsily applied and was bound to prove counter-productive while Greek politicians failed to persuade a majority of citizens of the profound lomg term changes that are required so that Greece might eventually begin to function as a reasonably well-governed functioning democratic and economic polity.

  8. As expected / predicted..

    Greece in shock as banks shut after creditor talks break down
    ATHENS | BY KAROLINA TAGARIS AND MICHELE KAMBAS

    “The conservative-leaning Eleftheros Typos newspaper accused Tsipras of announcing the referendum as a ruse to tip the country into early elections in the hopes of winning them.

    “Mr Tsipras’s decision to call a referendum and a possible euro exit constitutes a premeditated crime,” it said in an editorial. “It is clear that Mr Tsipras has lost the trust of citizens. That’s obvious from the queues at ATMs and petrol stations, and it will become obvious at next Sunday’s ballot.”

    http://www.reuters.com/article/2015/06/29/us-eurozone-greece-idUSKBN0P40EO20150629

    The tide is turning against Red Betty and her sidekick, and good riddance too!

    I’m confident the referendum will be passed… and stock markets will ROCKET up on the 6th!!

    I would expect the motley crew of dysfunctional communists to take the writing on the wall and hump off… however I suspect they will have the audacity to hold onto power as long as they can.

  9. Junckers press conference starting to sound desperate – has the “non-adults” leading the Greeks made some headway. Notably he suggested EU were prepared to talk debt relief and were on the brink of doing that when Greeks walked out….fancy that!….sounds more like a bit of a capitulation in the offing while trying to save face.

    Also some bizzare stuff about suicide and death from Juncker. Suggested there was no request for pension reductions – WTF!!!! – and overall a pleading for a Yes vote from the “wonderful people of Greece”. Has the dog just been wagged?

  10. Merkel:

    “no one should interfere with Greek referendum….but they should know the consequences”.

    No comment required on that.

    What is obvious though is how side stepped the EU has been by Greece on this whole thing. Whatever way this all goes they have badly miscalculated the resolve of Tsipras….if they ever thought we’d get to this I find it hard to believe they would not have conceded more in negotiations. Its the risk of brinkmanship….going to the brink with a someone who has nothing to lose is a dangerous game, unless you think you can manage the consequences. Now is the time to show the ability to manage the consequences and keep the market vultures at bay. If the EU fail in this, the project will not only have failed but the creditor country negotiators will have failed spectacularly on a personal level.

  11. fyi a little ‘insider account’ – rare enough to get ‘insider accounts’

    Mr Mody He was stinging in his criticism of the Irish Government’s tough stance. “We had a generation of Irish politicians who in their hubris took Ireland down into a deep crisis. Ireland has come out of its crisis. But it seems that the hubris did not go away.

    […]

    “Greece has been going through that process for the past five years. We do not need any more evidence. The plan to get Greece to repay is economically illiterate.”

    http://www.irishexaminer.com/business/ashoka-mody-criticises-imf-decision-making-339617.html

    ‘economically illiterate’ … +1

    Wonder is ‘ ff/pd/fg/lp hibernian hubris’ correlated with ‘quislingesque’ …

    Methinks the empirics are strong ….statsig *****

  12. On the last day of the drachma, Dec 31, 2000, Greece had a public debt of 103% of GDP (Eurostat); 108% (OECD) and World Bank 119% – these variations arise because of revisions/ variations from the EU definition, but the excess over the 60% rule is the key issue and after a 2 -year delay Greece was admitted. Why not when Italy and Belgium had also.

    Has the government a credible growth plan? If it has, patience is needed. If it hasn’t, debt relief will not really matter.

    Yanis Varoufakis, Greek finance minister, in 2012 warned foreign economists including Paul Krugman, that emulating Argentina’s default in 2001 was no panacea for Greece but he did argue for default within the eurozone. “And use our readiness to default as a bargaining strategy.”

    Varoufakis highlighted the distinction between devaluing an existing currency and introducing a new currency while Greece did not remotely have the capacity that Argentina had to take advantage of what was then an emerging commodity boom.

    He may well get the option that he didn’t consider viable.

  13. fyi Joseph Stiglitz

    ‘[T]he 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% decline in the country’s GDP. I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece’s rate of youth unemployment, for example, now exceeds 60%. It is startling that the troika has refused to accept responsibility for any of this or admit how bad its forecasts and models have been. But what is even more surprising is that Europe’s leaders have not even learned.

    We should be clear: almost none of the huge amount of money loaned to Greece has actually gone there. It has gone to pay out private-sector creditors – including German and French banks. Greece has gotten but a pittance, but it has paid a high price to preserve these countries’ banking systems. The IMF and the other “official” creditors do not need the money that is being demanded.

    http://www.socialeurope.eu/2015/06/europes-attack-on-greek-democracy/

  14. Why Angela Merkel Is Wrong On Greece

    by Jürgen Habermas

    The Greek election result is a vote against humiliating misery

    Because the federal German Chancellor opted as early as May 2010 to treat investor interests as more important than a haircut in restoring the Greek economy to health, we’re stuck in a crisis once more. This time it’s the hole left by another institutional deficit that emerges.

    The Greek election result is the vote of a nation that, with a significant majority, is standing up against the humiliating as well as oppressive misery of an austerity policy imposed upon their country. There can be no argument about the vote itself: The population rejects the continuation of a policy whose drastic failure is something they have experienced at first hand. Equipped with this democratic legitimacy, the Greek government is trying to bring about a change of policy in the Eurozone.’

    Amartya Sen last month in Firle, East Sussex, compared the austerity policy pushed through by the federal German government with a medicine that contains a toxic mixture of antibiotics and rat poison.

    It’s the citizens, not the banks, which must retain the final say in existential questions for Europe.

    As regards the post-democratic lulling to sleep of public opinion, the switching of the press into a therapeutic type of journalism is a contributory factor – as it marches arm in arm with the political class in caring for the wellbeing of customers, not citizens.

    http://www.socialeurope.eu/2015/06/why-angela-merkels-is-wrong-on-greece/

    Good on yer Jürgen!

  15. @SH
    “Tsipras has lost the trust of citizens. That’s obvious from the queues at ATMs and petrol stations, and it will become obvious at next Sunday’s ballot.”

    What a nonsensical statement. I don’t think any Greek including Tsipras’ supporters were under the illusion that he retained absolute control over the liquidity of greek banks – if he did there would never have been a crisis in the first place.

    You may well be right about the outcome of the referendum. I’ll be happy to remind you of the Rocket prediction if your wrong on that one – if your right i’m sure you’ll be content enough not to be reminded amid the glow of a saved euro, europe and the beginnings of an unprecedented boom across the region.

  16. @ Paul Hunt

    I agree. However, the dilemma for the other countries of the Euro Area is that they risk ending up, if they have not already done so, funding indefinitely the inability of Greek society to reform to the point that it can legitimately compare itself to even a minimum level of compliance with the norm expected. The effect of the wild actions of Tsipras/Varoufakis and their political allies is that this core issue has been brought to a head.

    @ All

    Martin Sandbu and Charles Wyplosz on the topic of capital controls.

    http://www.ft.com/intl/cms/s/3/8fe1efc6-1e3c-11e5-ab0f-6bb9974f25d0.html?siteedition=intl#axzz3eIJ6fJ5D

    http://www.voxeu.org/article/grexit-staggering-cost-central-bank-dependence

    Full marks for analysis and zero for political cop-on.

    “As Free Lunch explained in February, this is how Greece can stay in the eurozone after defaulting on sovereign obligations. It would have been better to do it pre-emptively, but it can still be done.”

    This is the one equation which is politically impossible for the political leaders of the other countries to accept.

    By way of a footnote, it is equally impossible to imagine that Juncker would use the language that he used were it not by now evident that Tsipras has also burnt his bridges with Merkel; and for the reasons enunciated more or less directly by Juncker.

  17. Greece need professional, dynamic and street savvy help to get through this – bring on Goldman Sachs asap – their tentacles are everywhere – and perhaps a touch of Tony Blair to help with the fudges……?

  18. There is an awful truth unfolding.
    Tsipiras honour is showing up the horrible rotten narcissistic heart of European power.
    This is not going to end here.

  19. Anybody understand the wording being put to the people on the ballot paper?

    Should the plan of agreement be accepted, which was submitted by the European Commission, the European Central Bank, and the International Monetary Fund in the Eurogroup of 25.06.2015 and comprises of two parts, which constitute their unified proposal? The first document is entitled ‘Reforms for the completion of the current program and beyond’ and the second ‘Preliminary debt sustainability analysis’.”

    Perhaps only junnior economists will be voting!

    Alexis Tsipras must have been reading too many books on Dr Ian Paisley!

    A prerecquisite for any further negotiations would be a change of govt in Greece.

    Given the amount of dirt he has thrown in the faces of his counterparts I cannot see his presence at the table as credible.

  20. “Maybe the closure of banks, first reports about petrol shortages and news that some pensions for self-employed can no longer be fully paid in euros are helping to get the radical left in touch with reality? Maybe Tsipras has finally noticed that Europe is not bluffing,” said economist Holger Schmieding from Berenberg.

    Eurogroup head Jeroen Dijsselbloem said that an extraordinary meeting would take place at 19:00 in Brussels to discuss the proposal. However, Germany Chancellor Angela Merkel was cited as saying that she would not consider Tsipras’s request until after Greece holds its referendum on Sunday.

    Game on Varoufakis!!

  21. Will the plebiscite actually meet the democratic standards required. Can you actually organise the logistics of a vote inside a week? I think not. Also vote touches on fiscal issues so is potentially illegal under Greek constitution . Finally, Syrizia seem determined to conceal fact that Golden Dawn are backing no vote and restrict air time to opposition. Apart from Syrizia, many reputations will be burnt on bonfire including those of many Irish acafemics.

  22. Greece crisis: How has Greece spent its money and who does it still owe €242.8bn to?

    ‘Almost all the money owed by Greece has been used to pay off its lenders, with only 10 per cent of it going to the Greek people, according to the Jubilee Debt Campaign.

    “Greece is right not to pay the IMF. The IMF should never have lent the money in the first place, with over 90% of it being used to bail out European financial institutions,” Sarah-Jayne Clifton, Director of the Jubilee Debt Campaign

    Clifton said that in 2010 when the IMF loans were agreed, developing countries on the IMF Board argued that banks should share in the costs of the crisis they had helped to create.

    http://www.independent.co.uk/news/business/news/greece-crisis-how-has-greece-spent-its-money-and-who-does-it-still-owe-2428bn-to-10355847.html

    Did The Guv’nor mention 100 ONE HUNDRED BILLION …. re Irish Bail-IN?

  23. In case anyone was in any doubt about German respect for the democratic will of the Untermenschen:

    Greece will not get a cent in new eurozone bailout loans while Alexis Tsipras and Yanis Varoufakis remain in power, because Germany will block any such deal, one of Europe’s most influential politicians has told The Times.

    “Today there is the question of do we trust Tsipras and Varoufakis? The answer is clear to all parties, no,” the senior German conservative said.

    He also lifted the lid on a European Union attempt to push Mr Tsipras’s left-wing Syriza out of power regardless of the outcome of the vote on July 5.

    If Greece’s prime minister and finance minister remained in office, even after a “yes” vote in Sunday’s referendum, then Athens would stand no chance of a new bailout, he indicated.

    Under the rules of the European Stability Mechanism, the euro’s bailout fund, the German parliament, or Bundestag, has a veto or blocking vote over any new program such as that requested by Greece at the 11th hour.

    The senior German conservative said that Angela Merkel’s ruling Christian Democrat Union (CDU) and its Bavarian allies the Christian Social Union (CSU) would block any request made while the pair, described as “communists”, remained in power.

    They never change.

    http://www.theaustralian.com.au/news/world/greek-default-no-new-bailout-unless-tsipras-goes/story-fnb64oi6-1227422961480

  24. Regardless of the outcome to the referendum and whether Greece capitulate to creditor demands there has been irreparable damage done to the European project.

    On a personal level a lot of the European in me (a serial “yes” voter to the plethora of european referenda) died during the betrayal of Ireland by its “partners” at the height of our crisis. What is happening with Greece probably trumps the treatment of Ireland in terms of disregard for the founding principle of the union. The breach of core principles underpinning the foundation of the union and the eurozone has been rampant – but consistent at all times insofar as being broken only to favour idiotic creditors, at all times with a shocking disregard for the citizenry those least responsible for what has happened – just think the 60% youth unemployed in Greece.

    When Hamlet noted “there is something rotten in the state of Denmark”…the ensuing catharsis left plenty of collateral damage…with any luck institutions of Europe, which lie well beyond the reach of democracy now and the ordinary citizens, will find itself among the debris of the cleansing of this failed and sickly project.

  25. Anyone who thinks that the events of the last few days came as a surprise to the Greek government must be quite lacking in imagination. Their approach to relationships has prioritised keeping their domestic stakeholders onside, and they have been deliberately confrontational with their international interlocutors. Knowing that they will only get movement in a crisis, they delayed doing anything much until the existing programme was about to end and default on official loans was imminent. They then intentionally complicated the situation with a flurry of new proposals, and added to the sense of crisis by announcing a referendum.

    It seems to me that they have been completely clear in public about their objectives, but less transparent about their strategies for achieving them. They have clearly decided to behave as if default and euro-exit are an acceptable alternative to a negotiated agreement. Whatever their underlying views on this outcome, the appearance of credible willingness to accept it in the midst of crisis is a necessary and unavoidable component of the strategy they have adopted.

    The appearance of willingness to negotiate, and the appearance of an interest in remaining within the euro, are also necessary components of the strategy whatever the government’s preferred ultimate outcome, as they are needed to keep significant parts of their coalition of stakeholders onside.

    Whether folks like it or not, the Greek government clearly has a well thought through strategy, and it seems to be implementing it as planned.

  26. Why Angela Merkel Is Wrong On Greece

    by Jürgen Habermas

    The Greek election result is a vote against humiliating misery

    Because the federal German Chancellor opted as early as May 2010 to treat investor interests as more important than a haircut in restoring the Greek economy to health, we’re stuck in a crisis once more. This time it’s the hole left by another institutional deficit that emerges.

    The Greek election result is the vote of a nation that, with a significant majority, is standing up against the humiliating as well as oppressive misery of an austerity policy imposed upon their country. There can be no argument about the vote itself: The population rejects the continuation of a policy whose drastic failure is something they have experienced at first hand. Equipped with this democratic legitimacy, the Greek government is trying to bring about a change of policy in the Eurozone.’

    Amartya Sen last month in Firle, East Sussex, compared the austerity policy pushed through by the federal German government with a medicine that contains a toxic mixture of antibiotics and rat poison.

    It’s the citizens, not the banks, which must retain the final say in existential questions for Europe.

    As regards the post-democratic lulling to sleep of public opinion, the switching of the press into a therapeutic type of journalism is a contributory factor – as it marches arm in arm with the political class in caring for the wellbeing of customers, not citizens.

    http://www.socialeurope.eu/2015/06/why-angela-merkels-is-wrong-on-greece/

  27. @ DOD

    The majority of existing government debt of any country has been used to pay off lenders. That’s the way government financing works – constantly rolling over the national debt.

    Of course the real question is who spent the money in the first place – and this unquestionably was the Greek people. The government are mere intermediaries in this process. They borrow money to spend on its people. The people then spend it – in Greece’s case rather too much on foreign imports which they weren’t earning an entitlement to through exports.

  28. re ESM

    Any decision to grant ESM funds has to be unanimously approved by the Board of Governors, which is made up of the Finance Ministers of the member states. A German Constitutional Court ruling in 2012 limits the Federal Republic’s capital contribution to the existing figure of €190bn while re-affirming that the German parliament has to acquiesce to any major ESM decision. It was also envisaged that the IMF would be involved in drawing up an MOU with debtors.

    Note also if Greece is deemed to have defaulted on its IMF loans it triggers cross-default clauses on existing EFSF loans ( €131bn) although that may have no practical impact as the payments do not start till 2023.

  29. @ Nocense,

    So what is the solution then?

    Should Greece be allowed to carry on with whatever financial manner they chose? With a annual bailout from Europe of 30 billion for free?

    From my perspective… I see Greece thus..

    1) Corruption,
    2) Beaurocracy,
    3) Inefficiency,

    Leading to a unwillingness of the population to be tax compliant.

    4) A strong communist vein in the national psyche,
    5) Unable to compile correct and proper national statistics
    6) A culture of spending to applease the communist mob.

    When it comes to the problem of paying the loans back… the solution is to devalue….. Devaluation.

    All very simple then is’nt it?

    Everything was going quiet well… until Greece wanted to get into the straight jacket of the Euro program.

    So instead of devaluing… Syriza just wants to write the debts off…. just like that!

    Yes perhaps.. prior to paying off private creditors… the Euro group should have imposed a haircut before taking on board the Greek debt, because it would be burning somebody else’s money.

    But it is not that simple… we live in a global financial world with numerous interconnections. Like the financial crisis of 2008, when Lehmann Bros went down…. AIG was about to topple next… there were very concerned pensioners in Singapore standing outside the offices of AIG. We are all interconnected somehow… someway.

    If Greece owed 54 Billion to Ireland… instead of to Germany…. I doubt there would be a single voice in Ireland saying…

    “ahhh … Just write off the debt… the poor Greeks… they need it more than us Irish.”

  30. I think we are seeing the unraveling of Euro and then the EU. Basically having survived the Cyprus spat by confiscating Russian and other deposits the EU also socialised the Greek debt by paying off the uber-rich and replacing them with national governments, the ECB and the IMF. They thought that solved the problem as they thought the same about the Anglo Irish Banks. The basic message is if you are uber-rich your billions will just grow and grow. If you make a poor investment decision national governments will immediately make good your losses with national resources and/or printed cash. Capitalism is dead. In order to facilitate the steady transfer of resources from Mr. Joe Average austerity is required so the marginal tax rate on Mr. Average is massively increased by heavily regressive taxes such VAT, alcohol duties, travel tax etc. while marginal taxes on the uber-rich are reduced to zero and below by huge subsidies. The uber-rich tend to bank their huge gains in tax havens so this cash is not available for investment. Public services are cut and reduced so “we do not have to burden future generations” with increased sovereign debt and interest rates are reduced to zero by buying any bond with printed cash. This has been going for almost two decades in the “advanced” economies as manufacturing is transferred to China and services to tax havens and India.

    Any common currency requires fiscal transfers to work. Rather than giving money to the Ukraine cash should be given to Greece to help them out of the austerity trap otherwise the trends including a steady decline in median wages, reduction in critical government services such as education and health, privatisation in the name of competition, (when there is little or no competition witness the large growth in corporate profits, in a competitive capitalist economy large growths in corporate profits would immediately be followed by new entrants at reduced prices into the sector), asset bubbles and crashes etc.

  31. This is an appropriate description of Troika behavior:
    “Insanity: doing the same thing over and over again and expecting different results.”
    Albert Einstein

  32. Shane Coleman on the crisis.

    http://www.independent.ie/opinion/columnists/shane-coleman/now-we-know-what-happens-when-the-minnows-play-hardball-with-the-big-boys-31342913.html

    The core argument i.e. that it has been a question of the small countries versus the big, like many advanced by those unwilling to look facts in the face, does not stand up to a moment’s examination. It has been Greece, or rather Syriza under the fatal direction of the duo Tsipras/Varoufakis, versus all the rest, that has run into a brick wall having failed to divide and conquer in an excess of misplaced hubris, dishonesty and incompetence.

    To sum up, as just reported.

    “This government has done nothing since it came into office,” Schaeuble said in a speech in the lower house of parliament.

    “It has only reversed measures. It reneged on previously agreed commitments. It negotiated and negotiated. We don’t know if the Greek government is going to hold a referendum or not, whether it is for or against it. You can’t in all honesty expect us to talk with them in a situation like this. We need to wait to see what happens in Greece.”

  33. Four lectures about democracy from a man who deceived people with wild promises & called referendum with 8 days’ notice are getting tedious
    — Hugo Dixon (@Hugodixon) July 1, 2015

    This may be my favourite quote of the day. Hugo (Reuters) has no dog in this fight.

  34. @ Eureka: “Tsipiras honour is showing up the horrible rotten narcissistic heart of European power.”

    Tsipras honour? Is this a f***ing joke? He’s coming close to destroying the modern Greek economy and you’re talking about his honour? This sort of insanity makes me very angry.

    @ Ernie

    “In case anyone was in any doubt about German respect for the democratic will of the Untermenschen:”

    Does Germany get to participate in this democracy thing too? 91% of German voters do not want to give Tsipras & Varoufakis another pfennig according to recent polls. Their democratic rights are apparently worthless to you.

  35. I was with other mums waiting to collect our children from summer camp today, and the subject of Greece and the euro came up. One mother said, “If I wanted to live in Germany, I’d move to Germany.”

  36. This is what I think is needed
    1) A period of real reform
    -Improve tax collection
    -Minimal tax increases
    -Reduce certain fiscal spending
    -Economic liberalisation
    -Reduce early retirement

    then and only then

    2) Debt forgiveness
    I’d propose this only be on the table after c 2 years of real reforms

    d

  37. Bottom lines:
    1: Bailout is untenable
    2: Regardless of this distraction there is a decision to be made – debt write down vs no debt write down – both mean Germany loses

    Germany will do very well to salvage anything out of thid

  38. @Ernie

    You repeatedly, and casually, liken the German government to the Nazi regime. This is pretty grotesque.

    @David O’Donnell
    The Jubilee Debt Campaign (along with Paul Murphy TD and others) repeat the line about “only 10% of the bailout going to the Greek people”. This deliberately obscures the fact that the bailout repaid existing loans which benefitted the Greek people. And it ignores the fact that private sector creditors were haircut to the tune of 50%, so there has already been write downs and re-structuring.

    All that said, I think Greece needs a sustainable solution, which means a big further write down, and repayments linked to growth rates.

  39. @ Bond
    Good to see you back
    Steps to the destruction of the modern Greek economy:
    One of them has to be Golfman cooking the books and another has to be banks lending without doing any due diligence.
    Tsipiras is way downstream of what started as a banking problem

  40. Mary Feely,
    Thank God u are living in a country where u can access ATM to pay for your kids to go to Summer Camp. Not really an option in Greece.
    This vote looks like it is going to be a shambles so that the loser will claim rigging.
    How much is it going to cost to bring the Greek economy back from the dead. Start with 20bn to recap the banks plus 2x to cover the primary deficits and funding needs for 2-3 years. No way is that bill going thru the North European Parliaments.
    Is Greece already gone from the EU. Is the best option a no vote & a cut out with some humanitarian aid.
    I assume Veroufakis will get some nice sinecure in a US college & give speeches @ 50k per pop while Tsipiras will be put up on Dictators Row on the French riviera.

  41. @SH
    “If Greece owed 54 Billion to Ireland… instead of to Germany…. I doubt there would be a single voice in Ireland saying…

    “ahhh … Just write off the debt… the poor Greeks… they need it more than us Irish.”

    …I disagree – our government would fold like a a house of cards.

    I have to agree with the sentiments of Eureka i.e. that Germany will do well to get anything out of this whatever way the cards fall. It is more and more starting to look like that and I think that is what particularly irks them. I have little doubt it irks them so much they are willing to take on the pre 2000s persona of the IMF to bleed the place dry for every last cent….but there’s little left to get….. And in some ways there is a beautiful irony to it all.

    I have quoted Keynes on this site previously but I think this very basic tenet is worth repeating for how blindingly obvious it is and for how blind Germany, in particular, want to be to it…at Bretton Woods in 1944 he argued that if financial crises were to be avoided in the future, countries that ran significant trade surpluses would need to reinvest in deficit countries.

    It appears that the German export juggernaut that has trundled along throughout the financial crisis of the last several years, supported by an artificially low Duetsch Euro (and make no mistake there is such a thing just as there is a Drachma Euro as the greeks are learning) will ultimately fall foul to Keynes doctrine. Its not by will of course but by the sheer force of economic nature.

    Profligate creditors with the bulging coffers of their surpluses lending irresponsibly to deficit countries….and eventually they can’t get it back….As I said its a beautiful irony.

  42. @ Tullmcadoo
    Thank God u are living in a country where u can access ATM to pay for your kids to go to Summer Camp. Not really an option in Greece.

    Don’t be silly. I don’t pay for summer camps with cash.

  43. Varoufakis to resign if Yes vote wins.

    Wait for the torrent:

    “Typical – makes it all about him. Good riddance. More reasons than ever to vote Yes….Fall of the Rockstar….blah blah blah.”

    If he didn’t resign following yes vote – from same cohort:

    “This mans ego knows no bounds – he has no mandate and still struts his stuff….has this man no integrity…blah, blah….”

  44. @ Nocense,

    So your perspective is that if the Irish Nation was owed 54 billion… we would let it pass us by! I don’t agree… I think the people who are currently lying on trollys for over a week in hospitals would have a different opinion, but fair enough if that is your perspective.

    Looking forward…..

    “Bretton Woods in 1944 he argued that if financial crises were to be avoided in the future, countries that ran significant trade surpluses would need to reinvest in deficit countries.”

    You seem to be suggesting that Greece should be bailed out from now until infinity because it cannot / or unable to balance it’s own books.

    Is that sustainable for the rest of Europe? Should other European countries bail out Greece every year to the tune of 30 or 40 billion forever?

    I don’t think it is sustainable… due to the fact that it is rewarding bad ( or unsustainable) financial behaviour. If Greece is bailed out for free… then there is no inventive to reform, to tend towards good financial / prudent behaviour. In fact it may actually encourage reckless financial management in other countries, as there is no deterrant.

    Your comment…

    “Profligate creditors with the bulging coffers of their surpluses lending irresponsibly to deficit countries….and eventually they can’t get it back”

    What would be your opinion on Honor? Your word is your Bond? Honesty?
    Does a nation have any honor? Or should Greece be looked upon as a scoundrel? Anybody who lends to Greece deserves to get burnt?

    If the clock was wound back 100 years, there would be European Armies mustering at the Greek border getting ready to invade, plunder and take what booty it can as recompense. Thankfully Europe is a better place these days.

    WRT your point about redistribution of monies for the purpose of investment…. I definetly believe you have a valid point there.

    Europe is a very very strange place for investment, American Investment Capital is much easier to obtain than European money. MP3 was invented in Europe… yet it was the Americans who made it a marketable success. A recent start up is Ormonde Mining.. who had to take a significant dilution in a project so as to obtain funding from an American company (Oaktree). There was no European funding investment house interested in funding a European Company in a European mine for European Jobs for European revenue.

    WRT investment in Europe… Europe is a disappointment.

  45. Germany has a persistent merchandise trade surplus as does corporate tax havens in the EU: Netherlands, Ireland and Luxembourg.

    Expecting others to engage in solidarity while stealing their tax base is usually conveniently overlooked — it’s interesting that the moves towards reform that have triggered Amazon for example to move its European hq back to the UK and book its British sales there and not in Luxembourg, were prompted by pressure from individual countries not the EU as a group.

    In 2014 41% of Germany’s goods surplus was with the US and UK and 30% with the Euro Area — more than half was with France.

    It’s very difficult to change this situation as a big factor is firm structure — compared with France, Italy and Spain, Germany has a greater number of big and medium size firms that are a key factor in successful exporting.

    The relative number of exporting firms is also very important as are the capital goods such as machinery in demand in emerging markets .

    Destatis, the German federal statistics office, said in 2014 that 340,000 firms exported goods in 2013; France says it has 120,000 exporting companies: two thirds less than Germany, and half as many as Italy has compared with Germany.

    Ireland has 4,000 exporters while Denmark has 30,000 and 40 big US firms account for about two-thirds of Ireland’s headline exports.

    The euro rate is a help but without the other key factors, it wouldn’t be of much help.

    German manufacturing wages are the highest among the world’s main manufacturing nations.

    A 10 % increase of German exports leads to a 9 % increase of intermediate goods imports to Germany from other EU-Member-States according to an German economics institute (IW Cologne).

  46. @SH

    1. If you want to compare apples with apples a €54bn debt to Germany is the equivalent of about €2.5bn to Ireland or approxiamately less than 1 third of the interest payments the Irish state made last year to service the debt of private creditor bets by German and French banks. Are Irish people happy about those ANNUAL payments…they appear to be – so not sure why they would be so exorcised about 2.5bn more!

    2. The €54bn debt did not have its genesis in being provided by the german people….this was a decision its government took to prop up its own (German) banking systems. Its own bankers made bad bets on a bad horse called Greece and when Greece wasn’t able to make good on that the German government stepped into “loan” Greece the money so it that it could pay back these private creditors. So if the German people should be angry with anyone it is their own government for “bailing in” its citizenry to those bad bets.

    3. If the Irish government took the decision to lend €2.5bn of our taxpayers money to bail out Irish banks in like fashion we would rightly be looking for it back but who should we be more p*ssed with the people who simply can’t pay it back or the clowns who gave it to them in the first place – oh wait, this did happen in Ireland under FF/FG and Labour and it was for a hell of alot more than €2.5bn.

    4. Honour/bond/honesty….these are naive things to bring into the debate – this stuff is best left to hollywood. Europe has adopted a “free market capitalist” philosophy (supposedly!)…debts go bad some times – thats life…do you think there is honour in torturing a debtor until they pay up, do you think there is honour in bringing a people to their knees when there government screwed up and when the private creditors screwed up givning them the money in the first place. The EU and Germany in particular (!) would have a hell of a nerve raising the stakes to “honour” in this game.

    “If the clock was wound back 100 years, there would be European Armies mustering at the Greek border getting ready to invade, plunder and take what booty it can as recompense. Thankfully Europe is a better place these days”

    I respond only to that by quoting an Irish celebrity economist on one of his better coined phrases…”germany is trying to do with banks in the 21st century what it tried to do with tanks in the 20th century”….Europe hasn’t changed that much…the tools in pursuit of dominion is all that has changed. Maastricht principles my arse!

  47. @MH
    “The euro rate is a help but without the other key factors, it wouldn’t be of much help.”

    You forgive me if I call this pure supposition – but that is fair enough and we all do it.

    In any case the key factor is not that the euro rate is weak vis-a-vis non-euro currencies, the real gravy for Germany is that it maintains a rate of parity with its EZ trading partners. There is never a balancing mechanism to quell the surplus – which fuels its banks – which caused those banks to make bad bets in countries that bought german goods.

  48. fyi

    Tsipras Accepts Most Creditor Terms as Merkel Insists on Referendum
    Posted on July 1, 2015 by Yves Smith

    Post-bailout expiration dynamics are likely to produce even worse outcomes for Greece than it had on offer from the creditors last month. It isn’t just that the bailout funds of €7.2 billion are gone; it’s that Greece has gone over an event horizon with stringent capital controls on and the ECB ready and able to push the Greek banking system over the brink.

    Greece’s weak negotiating position is even weaker now. Even with a boost via a “no” vote on the referendum this Sunday, if the Greek government were to take a firmer stance, the creditors have the means and the incentives to keep crushing the economy via financial strangulation. The ruling coalition would not be able to hold on to power for more than a month or two as the economy continued to decay at an accelerating rate.

    This is a ruthless, brutal power play in progress.

    http://www.nakedcapitalism.com/2015/07/tsipras-accepts-most-terms-as-merkel-insists-on-referendum.html

    The neocons ‘regime change bug’ has mutat€d.

  49. fyi

    Why we recommend a NO in the referendum – in 6 short bullet points
    Posted on July 1, 2015 by yanisv

    Negotiations have stalled because Greece’s creditors (a) refused to reduce our un-payable public debt and (b) insisted that it should be repaid ‘parametrically’ by the weakest members of our society, their children and their grandchildren
    The IMF, the United States’ government, many other governments around the globe, and most independent economists believe — along with us — that the debt must be restructured.
    The Eurogroup had previously (November 2012) conceded that the debt ought to be restructured but is refusing to commit to a debt restructure
    Since the announcement of the referendum, official Europe has sent signals that they are ready to discuss debt restructuring. These signals show that official Europe too would vote NO on its own ‘final’ offer.
    Greece will stay in the euro. Deposits in Greece’s banks are safe. Creditors have chosen the strategy of blackmail based on bank closures. The current impasse is due to this choice by the creditors and not by the Greek government discontinuing the negotiations or any Greek thoughts of Grexit and devaluation. Greece’s place in the Eurozone and in the European Union is non-negotiable.
    The future demands a proud Greece within the Eurozone and at the heart of Europe. This future demands that Greeks say a big NO on Sunday, that we stay in the Euro Area, and that, with the power vested upon us by that NO, we renegotiate Greece’s public debt as well as the distribution of burdens between the haves and the have nots.

    http://yanisvaroufakis.eu/2015/07/01/why-we-recommend-a-no-in-the-referendum-in-6-short-bullet-points/

    OXI

  50. @ Nocense,

    That is the system we are currently in. Western Captalist, liberal (in the personal sense) and market orientated.

    Numerous countries have stepped in and bailed out their banks, Royal Bank of Scotand being one of the biggest bail outs in UK history.

    I don’t agree with your point No 4. Trust is a central issue in commerce. If we were to follow your logic in this regard, cheque books would be irrelevant, only cash would work. I assume you do 4 weeks of work and at the end of it you trust your employer to pay your salary. I do.

    If there were to be no trust, then we would all be paid on a daily basis, nobody would have a bank account or a CC.

    Greece has not been able to demonstrate financial viability since the 1970’s.

    It has to make a decision, either become irrelevant or become finacially viable as a nation.

    Until that realisation is made… debt can be written off time and time again from now until infinity and we would still all be back at square 1 with Greece.

    Your point..

    “do you think there is honour in torturing a debtor until they pay up, do you think there is honour in bringing a people to their knees when there ”

    Debtors do go to jail…. sometimes! As for torture, just because you go through a rough few years does not mean you will be undergoing torture for life. Anyway if you want to see real torture… look at Syria and Iraq.

    With Greece falling out of the TARGET2 system… is that due to torture or trust?

    We can both go around the houses quoting various economists… here’s two from me

    http://www.socialeurope.eu/wp-content/uploads/2015/01/OP6.pdf

    http://www.telegraph.co.uk/finance/economics/11372369/Three-myths-about-Greeces-enormous-debt-mountain.html

    Greece requires inflation and growth and for 1 ..less spending on fancy F16 fighter jets and other expensive NATO weapons.

    The fact that Greece has a strong communist shadow in their psyche, and that they elected a party which has destroyed trust in a lot of areas… implies that they are responsible for the affairs of their own nation… and it’s consequnces, not the Germans or the French.

    By the way… that IMF link you posted….. certainly puts a cat among the pidgeons… but is it a independent form of thinking…. or the USA stirring things again as it considers Greece’s NATO membership?

    Time will tell…. and my money is still on Greece voting for Euro membership and Syriza out by end of July.

  51. @SH
    Not quite 100 years ago but just 63 a host of creditor nations choose not to line it’s tanks on the borders of the German Republic but rather sat down with them over a number of months in London. When they walked away German carried with it the catalyst for the economic powerhouse it is today and 51% write down on debt. Not only that but repayments would be suspended in any year it did not record a trade surplus and and would never exceed 3.5% of export earnings thereby creating the economic incentive to support an export culture.

    In Germany it is against the law to even utter a denial of the Jewish holocaust. It’s sense of history however appears to manifest itself through contrition for the horrors it befell and through gratitude of the hasty forgiveness from those
    it offended. In being contrite they retain some level of control of what they concede to others, in being gracious they are passing a baton of control that clearly does not sit well with their psyche.

    Rubbish – maybe. But one must seek some explanation when dealing such striking levels of double standards. Herr schauble was 11 years old when his country concluded the 1953 London deal that no doubt profoundly altered the prospects for the life that has brought him to where he is now.

  52. Correction typo

    “Rather than through gratitude” ,….as opposed to “and through gratitude”

  53. @Bond. Eoin Bond.

    Your argument (“Don’t the Germans have a right to have a say?”) is one I often hear made. It’s a non sequitur. The Germans have the right to elect whatever government they want. So do the Greeks. What neither has the right to do is to decide that the sovereign will of their people extends so far as to choose the government of the other country in the way that the anonymous official (whose name no doubt begins with S and has an umlaut in it) suggests. Still less do they have the right to suborn European institutions to this aim.

    If you don’t see what’s wrong with this, can I assume that you also thought the Iraq war (or, better, Reagan’s attack on Grenada) were mere expressions of “the democratic will” of the American people? There is nothing democratic about regime change, even where the regime is not itself democratic. And in the case at hand, the Germans are talking about nothing less than a bloodless coup in a democratic state.

    @ninap

    We agree that something is grotesque. I think what’s grotesque is the behaviour of the German hegemon that the EU was meant to contain (how’s that working out?). You think what’s grotesque is calling the hegemon a “hegemon” rather than “our German brothers and sisters.”

  54. @SH
    “With Greece falling out of the TARGET2 system… is that due to torture or trust?”

    you have touched on the fundamental flaw with the entire monetary union…and that is, that in fact it is not a union at all. You cannot “fail” out of target 2 if it operates as its supposed to….Texas cannot fail out of the target 2 equivalent in the United States – that is because the US is a proper monetary union.

    “Numerous countries have stepped in and bailed out their banks, Royal Bank of Scotand being one of the biggest bail outs in UK history.”

    I find it incredible that you state this as a precedent that should guide anyones thinking in relation to Greeks plight. So to square the circle, it is perfectly okay (nay even proper) that when banks fail, private enterprises in pursuit of profit that take risks in that pursuit, the citizenry should bail them out. That is the world we live in and that is fine – its happened before and we have learned to accept it. But when a country that is on its knees suggests these same banks ought to be bailed into their plight to take some of the flak for that countries failures it is simply non-negotiatable. Failed bank – state bail in. Failed State – no bank bail in. Please tell me you see the complete double standard in that??? If you do and still want to argue your position I am happy to take that on….but if you don’t, I’m afraid I will leave you to it.

  55. Ernie,
    Spot on for once. EZ calling for regime change is wrong & dangerous to boot. Greece is a sovereign state. It’s electorate can elect who they see fit & to pursue the policies they see fit. However the need not complain if other states decline to finance these policies.
    Greece is a failing state & the EZ is trying to fix it. The odds are against that. For every Serbia you have an Iraq & a Syria. What is needed is a total disengagement by the EZ from Greece to allow it the space to do what ot sees fit.

  56. @ Nocense,

    Indeed double standards…. a lot of Greeks survive on tourism during the summer season… and social welfare during the off season.

    Double standard or not… it is simply unsustainable.

    You repeatedly say ” a country on it’s knees”. Yet you fail to see the progress which was made in 2014. Greece was producing a small surplus in it’s finances.

    With political instability….. things fell apart in the 4th quarter. Since the election of a party things have gone well down hill.

    The IMF are saying things are now unsustainable…because Growth has disappeared.

    We can argue perspectives this way and that… however if you wish to donate your personal pension fund to Greece for zero return… then you know what to do.

  57. @ Tull
    If only it were that simple.
    The steps are as follows:
    1: Greece never well managed
    2: Goldmann cook the books to pretend it was
    3: Bankers lend it loads of money without doing due diligence
    That’s why we are where we are
    4:

  58. @SH

    The 300m Greece owe Ireland ain’t gonna put a dent in my pension. The 64bn our government allowed to be siezed from this state sure as hell might though.

Comments are closed.