So I haven’t done a Greek update in a while, since after Greece caved into the inevitable (Newsflash: broke people generally do not have leverage over those lending them money), it was all over but the shouting. Now that Greece and its creditors supposedly have a third bailout deal inked, and Greece settles into its clearly defined misery, let’s take a look at exceptionally bankrupt Greece these days, shall we?
Posts Tagged ‘Euro’
It looks like we have an actual, honest-to-God compromise, in that Greece, in exchange for not having their economy collapse and descend into anarchy and cannibalism, will pretend to implement real reforms, while the Troika, in exchange for those promises, and not being blamed for the impending global recession, will give Greece still more loans, write down some previous loans, and pretend this actually fixes the problem.
So expect to see another round of this dance in six months to a year.
Germany caved on debt relief. Greece?
A cursory look at the “new” Greek proposal to creditors suggests PM Alexis Tsipras may have sold out the referendum “no” vote in a final, desperate attempt to avert an economic catastrophe and the collapse of the country’s banks which will be cut off from ELA as of Monday morning in the event Brussels and Athens do not come to terms over the weekend.
And indeed, the austerity outlined in the latest proposal is more severe than the version voters rejected last Sunday. Among the proposals evidently agreed to: No retirement until age 67 or 40 years of paying into the system. Caveat: Pension reforms don’t actually kick in until October, so they’re still kicking the can down the road on that as well.
Also: “Greece will succeed in transferring bonds currently held by the ECB to the European Stability Mechanism.” If the ESM is truly the euro’s firewall, then they’re about to get an infusion of crappy Communist-era Soviet concrete…
Other Greek crisis tidbits:
Not in 100% agreement, but there’s a lot of bracing truth in there. But the problem, of course, is that Tsipras, as all Socialists do, does indeed want to have his cake and eat it too…
The problem with holding a gun to your own head is, sooner or later, someone is going to call your bluff.
EU leaders have given Greece until Sunday to “Reach a new bailout agreement with its creditors” or “face bankruptcy and expulsion from the euro currency system.”
The European Central Bank also hiked Greek ELA Haircuts. Translation: Hope you enjoy the scent of burning bridges, Greece, because now your banking system is even more screwed than before the referendum. (Note: Zero Hedge is down as of this posting. Maybe China got tired of him exposing their financial house of cards…)
And Greece’s leftist PM Alexis Tsipras is still playing his old tricks. “Screw all of you! You suck! Oh, and here’s a new proposal for a bailout that doesn’t meet any of your conditions! Please give us money! Pretty please! Screw all of you!”
“The Greek people spent part of the weekend in the streets celebrating their status as international deadbeat. They spent the rest of the weekend hoarding food, fuel, and medicine in preparation for the manmade disaster they have inflicted upon themselves.”
Also: “The Greeks may have burned their bridge to Europe, but the Germans are roasting marshmallows over the flames.”
The presence of Greece in the Eurozone is the result of a lie: The Greeks pretended to get their deficits and debt under control, and the Europeans pretended to believe them. That was the first act. In the second act, after the advent of the current crisis, the Greeks pretended to enact fiscal reforms, and the Europeans pretended to believe them. Political logic is, not coincidentally, lawyer logic — which is to say, it substitutes consensus for reality. If enough people (jurors, voters) are convinced that your position is the correct one, then you “win.” Maybe the election turns out your way, as with Tsipras and the referendum. Maybe political consensus prevents your opponents from enacting their favored policies, just as conservatives have for decades been frustrated in their efforts to enact entitlement reform by cheap and dishonest images of grandmothers being pushed over cliffs. Maybe O. J. Simpson walks.
Mark Steyn reiterates the fundamental problem:
Since Obama took office, it’s been fashionable to quote Mrs. Thatcher’s great line: “The problem with socialism is that eventually you run out of other people’s money.” But we’re way beyond that. That’s a droll quip when you’re on mid-20th-century European fertility rates, but we’ve advanced to the next stage: We’ve run out of other people, period. Hyper-rationalist technocrats introduced at remarkable speed a range of transformative innovations — welfare, feminism, mass college education, abortion — whose cumulative effect a few decades on is that the developed world has developed to breaking point: Not enough people do not enough work for not enough of their lives. In the course of so doing, they have fewer children later. And the few they do have leave childhood ever later — Obamacare’s much heralded “right” for a 26-year old to remain on his parents’ health insurance being merely a belated attempt to catch up with the Europeans, and one sure to be bid up further.
A society of 25-year-old “children” whiling away the years till early middle age in desultory pseudo-education has no desire to fund its prolonged adolescence by any kind of physical labor, so huge numbers of unskilled Third World immigrants from the swollen favelas of Latin America or (in Europe) the shanty megalopolises of the Muslim world are imported to cook, clean, wash, build, do. On the Continent, the shifting rationale for mass immigration may not illuminate much about the immigrants but it certainly tells you something about the natives: Originally, European leaders said, we needed immigrants to work in the mills and factories. But the mills and factories closed. So the new rationale was that we needed young immigrants to keep the welfare state solvent. But in Germany the Turks retire even younger than the Krauts do, and in France 65 percent of imams are on the dole. So the surviving rationale is that a dependence on mass immigration is not a structural flaw but a sign of moral virtue. The evolving justification for post-war immigration policy — from manufacturing to welfare to moral narcissism — is itself a perfect shorthand for Western decay.
So welfare entitlement states create a sense of entitlement. Who knew?
“The European Union is dying before our eyes.” So there is an upside to the Greek crisis…
Looks like all of Greece’s creditors have finally decided it’s put up or shut up time for reform. “Greek Prime Minister Alexis Tsipras is expected to face demands for tough reforms of Greece’s pension system, labor laws and other areas, as well as creditors’ insistence on painful budget measures to ensure that Greece runs a fiscal surplus before interest.”
At this point Greece seems completely and utterly broke, unless there’s more upfront money in that still unsigned Russian pipeline deal than reports indicate (doubtful, given Russia’s own financial straits), or Tsipras finds yet another hidden money reserve to tap (“We can can pay pensions from the children’s bone marrow fund!”). So despite Tsipras’ insistence that they be allowed to keep spending other people’s money on their bankrupt welfare state, this time the jig may finally, finally, really, we mean it this time, for sure, be up.
Here’s a piece that explains in terms of game theory why Tsipras overplayed his weak hand:
Now, as long as the EU keeps Greece in the Eurozone then the Tsipras administration will find itself forced to either exit the Eurozone or apply the austerity it promised to end. Not only would such an outcome send a clear signal to other Eurozone nations that exiting was foolhardy, it would also indicate that radical, nationalist, anti-establishment and anti-austerity parties cannot deliver on their promises.
The EU won’t force Greece to exit the Eurozone but it won’t offer anything to keep Syriza in power, either. The EU simply needs to keep negotiating without offering anything but strict compliance with what was already agreed upon, which is continued austerity in return for loans. In effect, to use a sports analogy, the EU just needs to “run out the clock.” In the end, it appears that Tsipras will either be forced out of office or forced to break up his coalition and form a new government with the mainstream parties, the outcome that EU and Germany have been angling for all along.
(Though make no mistake: that “primary surplus” was always illusory.)
A few more Greek debt crisis links:
Greek Finance Minister Yanis Varoufakis has been demoted, evidently because the EuroCrats he was negotiating with hated his guts (a significant drawback when you’re trying to convince creditors to pour more money down the rathole that is the Greek economy).
Will it make any difference to debt negotiations? Maybe, maybe not. It depends on which of two reasons he was fired for:
Option 1.) Varoufakis was the designated Bad Cop in negotiations, and now he’s the symbolic sacrifice. “Golly, that Varoufakis guy was sure a jerk when he asked you to give us more loans without getting any reform in return! Now that I’m here as Mr. Good Cop instead, I’m sure you’ll give us give us more loans without getting any reform in return because we’re asking really, really nicely.”
Option 2.) A lightbulb (or at least a dim, flickering candle) has finally gone off above the heads of the ruling far-left Syrizia Party that they will, in fact, actually have to implement real reforms if they want to shake more dough out of Mean Aunt Angela, and that implementing reform will only mean they’re really boned, while defaulting and leaving the Euro would mean they would be completely and utterly boned.
Arguing for Option 2 is Reality and Logic, which have had very little to do with Syriza policy heretofore. Arguing against it is every single action of the Greek ruling class over the last five years. Best case, probably-too-optimistic scenario is that they’re going to try the God Cop Con first, then, when it fails (and it will), they may actually be dragged kicking and screaming to Option 2. Or at least appear to do so as part of the extend and pretend strategy that has characterized the entire Greek debt crisis since the beginning.
None of it changes the underlying problem: The Greek welfare state is unsustainable, they’ve run out of other people’s money to pay for it, and they refuse to reform it, even at the point of impending national bankruptcy.
It appears we may finally be reaching the endgame of the endgame on Greece.
Greece is suffering a bank run and owes just over $2 billion in debt payments due Friday, but shows no signs of having the money or meeting the Troika’s conditions for obtaining more. Quite the opposite. Greece’s left-wing Syriza government is increasingly acting like an erratic heroin addict refusing to check into rehab and howling through the streets at night in search of an angry fix, heedless that there’s an arrest warrant out in his name.
“The International Monetary Fund, one of Greece’s main three creditors, was reported to have called Greece ‘the most unhelpful client’ the Fund has dealt with in their 70-year history.”
“During the teleconference, the Greek representative said his government wasn’t prepared to talk about the country’s finances with technical experts and instead wanted European Union leaders to discuss the issue at a summit in Brussels, one of the European officials said.”
I’m sure telling your bank that you’re “not prepared to discuss my finances” when asking for your fifth bridge loan would go over really well.
Also this: “There was a general feeling that the Greek side is completely out of touch with reality.”
You think? How about the fact that Greek parliament just passed a raft of anti-austerity spending measure, which is rather like a man with stage 4 lung cancer lighting up a couple of stogies in route to the operating room.
Some are wondering if Syriza wants to see Greece kicked out of the Euro.
EU institutions seem far more ready for what lies ahead. “The European Central Bank (ECB) is preparing for a possible Greek exit from the euro zone.” Conversely, EU insiders have also floated the idea of imposing capital controls to prevent Greece from leaving the euro.
And the one person whose opinion matters the most? “German Chancellor Angela Merkel said Thursday that Greece has no choice but to carry out economic reforms if it wants to receive more financial aid, dashing any hopes Athens might have had for a softening in Berlin’s stance.”
Carrying out real reforms (like stop spending more money than the government takes in) is what Greece in general, and Syriza in specific, has steadfastly refused to do. And the reason they refused is that the European cradle-to-grave welfare state has become more sacred to voters than the capitalist economics and fiscal discipline necessary to support it.
This is not a recipe for happiness.
There’s a chance that all of this is posturing on both sides, and that a kabuki compromise involving small reforms in exchange for still more loan extensions may yet kick the can a few more feet down the road. But there is every sign that EU institutions have finally tired of Greece’s show, and are willing to see the final curtain drop. And the Greeks are about to learn that the vengeance of the gods of the copybook headings cannot be delayed indefinitely…
Newly installed Greek Prime Minister Alexis Tsipras gave a speech in which he basically declared “Screw your stupid economic reality! We’re still giving everyone a free unicorn!”
Remember that Greece is not just broke, but deeply in debt, has a declining economy, only a few weeks of money left, and the specter of a possible bank run for of people wanting to get ahead of a Euro-exit.
So naturally Tsipras is promising Greeks a T-bone in every pot.
“Syriza’s pledges to the electorate include a freeze on pension cuts, a property tax overhaul, free electricity to those who have been cut off, reinstating jobs and raising the minimum wage.”
“‘The (bailout deal) has been abolished by popular mandate,’ Tsipras said. I’d love to see someone try that “abolished by popular mandate” as a reason to stop making their car payments.
“We will not negotiate this people’s pride and dignity.” Yes, because spendthrift wastrels can have all the pride and dignity they can eat.
The EU is is not amused. How can they, when Syriza’s policies seem completely disconnected from reality?
In a lengthy list of policy actions, Tsipras also said the government plans to restore the tax-free threshold for individual workers to 12,000 euros a year and gradually raise the minimum wage to 751 euros a month through 2016. Both measures would breach the conditions of the bailout.
Tsipras said he’s committed to maintaining balanced budgets and wants to negotiate terms that will make Greece’s debt sustainable.
That’s like saying “I’m absolutely committed to eating eating a 72 oz steak every day, and to losing weight!”
Oh, and he’s also demanding reparations from Germany for World War II. Good luck with that.
Is Tsipras really that disconnected from reality? Well, he is a far-leftist (which in the context of Europe and Greece means that he probably makes Obama look like Dick Cheney). But a little further down in that Bloomberg piece, you get this:
Behind the public rhetoric, the Greek government has shifted to a more cooperative tone in recent conversations with the troika, according to an official representing the creditors. Greece has been told it needs to ask for a formal extension of its existing bailout deal in order to receive financing, said the official, who asked not to be named because the discussions are private.
It’s probably your classic “Clevon Little holding a gun to his own head” bluff. I’m sure Syriza would love to implement their pie-in-the-sky big spending socialism, but their real goal is to lie to the Greek people long enough for the EU to write at least one more check, and lie to the EU about implementing reform long enough to cash it. Since Syriza only recently came to power, they probably want keep the farce rolling long enough to feather their own nests with Euros before engineering a grexit. After all, center-right parties got their turns at the public graft trough; why not the far left?
Will the EU call their bluff? The whole purpose of the bailout regime was for insiders and bankers to dump their exposure to Greek default onto the taxpayer, something that’s largely been accomplished. These days I suspect very few of Europe’s banks hold much Greek debt (some of whcih may have ended up in various pension funds, where unrealistic promises and chronic underfunding may force managers to chase extremely risky bonds for the high yields). A grexit would put an economic hurt on Europe, but probably not one that would last terribly deep or long. A Greek economic collapse following leaving the Euro would be terrible for Greece, but would probably prod the other PIIGS into continuing to get their economic houses into something resembling order.
How bad would a grexit be for Greece? Really, really, really bad. The modern European cradle-to-grave welfare state is unsustainable, and attempts to keep the goodies flowing even after the state is bankrupt will ruin more than one nation. It’s just that Greece managed to get there first.
The farce is going to end very, very badly for average Greeks, but it always was. The only question is just how many bodies will be on the floor at the end of the final act…
Greece’s left-wing Syriza party was swept into power by promising voters they could have their cake and eat it too. The problem is that not only is there no cake to eat, but Greek already owes more money than it can repay on all the cake they’ve already eaten.
The European Central Bank announced that it will no longer accept junk-rated Greek bonds as collateral. That may be why Greece’s new finance minister is already backtracking on election promises:
His party, Syriza, told voters it would demand a debt reduction; now Mr. [Yanis] Varoufakis says it will settle for a debt restructuring. Syriza said it would end austerity; Mr. Varoufakis now says he will run a primary budget surplus even if that means dropping other commitments in the party’s campaign manifesto.
Will Syriza keep promises made to the EU and the ECB any more than they kept their promises to Greek voters? Of course not. Greece is addicted to excessive government spending the way a junkie is addicted to heroin. In this sense, Syriza’s willingness to shamelessly lie to both voters and Eurocrats is what makes them the embodiment of modern Greece.
Running an actual budget surplus, as Varoufakis is almost pledging, would go a long way toward solving Greece’s problems. (My understanding is that he means Greece will have a budget surplus before debt payments are taken into account, which means they’ve really slowed down the rate at which they’re digging their own grave…) But neither Greece’s voters nor its ruling class want the nation to live within its means. As I have noted time and time again, Greece has never practiced real austerity, which is cutting government outlays to match receipts. Greece’s budget deficit was 12.2% of GDP in 2014. (If it seems like I repeat a lot of this information in many of my updates on Greece’s debt crisis, it’s because I do, mainly because MSM reports seem to omit mention of these centrally crucial facts…)
Greece’s participation in the Euro has harmed it by distorting its economy and making its export uncompetitive. That’s a problem, but that’s not Greece’s central problem, which is a dogged unwillingness to live within its means. It’s that addiction to deficit spending that has Syriza talking of defaulting on its debts. And it’s addicted to deficit spending because the modern European cradle-to-grave welfare state is unsustainable.
But here’s the kicker: Neither leaving the Euro nor defaulting solves Greece’s central problem, or even provides temporary relief.
Leaving the Euro doesn’t solve the problem, because Greece’s debts will still be denominated in Euros. Creditors who hold Greek debt won’t be content to be paid in devalued drachmas, so Greece will still be on the hook for what they’ve already spent.
Defaulting will only make their predicament worse, because then no one will be willing to lend Greece money to continue their ruinous deficit spending.
Doing both and printing drachmas to continue spending will only result in hyperinflation. The Greeks can ask Venezuela how that’s working out for them.
If any Greek political party pledged to undertake real reform, reign in the Greek welfare state and end deficit spending, it’s escaped my attention. I suspect Greeks will have to experience a lot more economic pain, and no small measure of ruin, before undertaking the only obvious path to fiscal stability.
Just because the European Debt Crisis hasn’t been in the headlines much as of late doesn’t mean it’s gone away.
Greece’s government has fallen again and they’ll be holding general elections next month. “Opinion polls point to a victory by the radical leftist Syriza party, which wants to wipe out a big part of Greece’s debt, and cancel the terms of a bailout from the European Union and International Monetary Fund that Greece still needs to pay its bills.”
The problem is that Greece wants to continue spending other people’s money to prop up a bankrupt welfare state, and the rest of Europe has decided they would really prefer to stop pouring money down that particular rathole. Syriza is against “austerity,” which is to say they oppose the Greek government even pretending to practice fiscal restraint. Because pretending is all they’ve done.
Remember, real austerity is reducing outlays until they match receipts. All those “austerity” street protests were over lowering Greece’s budget deficit from 9% of GDP to 7.5% of GDP. The rest of Europe didn’t ask them to stop digging their own grave, they just asked them to dig more slower. And this year, Greece’s budget deficit stood at 12.2% of GDP. Evidently even fake austerity is too much to ask of them; even the illusion of fiscal restraint is intolerable. This is why all news that Greece has “balanced” next year’s budget should be taken with several grains of salt.
So we’ll see another election, and if Syriza wins we’ll see another round of demands for more bailouts and debt writedowns, with Greece threatening yet again to exit the Euro. We’ve seen this movie before. The most likely outcome is that another cabal of EU-phillic insiders in the Greek government will engineer a last-minute cave-in to demands from Brussels and Frankfurt, ram another toothless austerity measure through parliament in exchange for still more credit (and perhaps even a small symbolic measure of debt forgiveness), dissolve the government again following the inevitable public outrage, then have the Greek bureaucracy ignore even those woefully inadequate reforms, setting the stage for the farce to repeat itself in another 12-18 months, or until mean old Aunt Angela finally cuts up the credit card.
Europe has had several years to acclimate itself to the fact the Greece might exit the Euro, and the possibility of a “grexit” has been priced into the markets for some time now. I do not pretend to understand the intricacies of the European banking system, but my impression is that much of the “stress testing” of European banks this year was to prepare for one or more of the PIIGS leaving the Euro. I suspect that the European elite have minimized their own exposure to a Greek default (which is really all they care about), and that the EU and the European Central Bank has found new, sneaky ways to put taxpayers on the hook for any possible sovereign defaults, strengthening the banking system without addressing Europe’s long-term economic problems (unsustainable levels of debt to support cradle-to-grave welfare states for shrinking populations).
It would be great if Greece actually undertook real structural reforms of their bloated, dysfunctional government, but I see precious little evidence that they’ve actual done so. Expect more pain ahead, and at least one more bailout…
Have another Pat Condell rant, this one on why Europe needs a revolution against the anti-democratic EU: