Greece’s leftwing Prime Minister Alexis Tsipras wants more negotiations. Because, you know, Europe just hasn’t had enough of those over Greek debt.
Mr. Tsipras said Greece was “prepared to accept” a deal set out publicly over the weekend by the creditors, with small modifications to some of the central points of contention: pension cuts and tax increases.
In other words: Groundhog Day on the Aegean. Yet again.
More Greek crisis links:
Today is the day Greece defaults: “Greek Finance Minister Yanis Varoufakis confirms Greece will not pay the International Monetary Fund debt due today. The European part of Greece’s international bailout expires Tuesday and with it any possible access to the remaining rescue loans that it needs to pay its debts of about $1.9 billion to the IMF.”
And what happens after Greece defaults to the IMF? That’s when things get interesting. First, on Sunday, July 5, the Greek people vote on a badly worded referendum. If they agree to Europe’s terms, they’ll impose additional budget-cutting measures and pension reform, and presumably get a new loan to pay their IMF arrears.
And if they vote no? Then they’ll have no euros to keep paying for their welfare state, and presumably start printing drachmas. But their debt stays denominated in euros, and there’s no guarantee foreign companies will be willing to deal in drachmas instead of euros, or that European foreign exchanges will even allow drachmas to be traded until Greece comes to some sort of agreement with the European Central Bank and other creditors. (I am largely ignorant of European foreign exchange regulations.) Either way, expect a nice dose of hyperinflation to add to Greece’s myriad coming economic woes.
The Eurozone is far more likely to survive Greece’s exit than Greece is. Then again, Greece now has so much debt that it’s screwed no matter what happens. Deficit financing to prop up your bloated welfare state is a horrific idea that destroys economies, and Greece looks to follow Venezuela in providing this generation’s example.
Other Greek tidbits:
The economic collapse of Greece is unfolding pretty much exactly as observers predicted it would: “Greek banks have imposed an unofficial ceiling of €3,000 on walk-in withdrawals, the commercial banker added.”
More capital controls are most likely coming, especially since bank runs have meant that Greek banks “will soon exhaust eligible assets they can pledge to the Bank of Greece for cash under the Emergency Liquidity Assistance (ELA) scheme.” The ECB backstopping of Greeek banks has been extended for today only. And today’s Eurozone talks have already broken off.
Despite that, Greece’s feckless ruling Syriza Party is still insisting on ignoring reality: “I repeat: The deal will either be compatible with the basic lines of Syriza’s election manifesto, or there will be no deal.”
Translation: “Europe must continue to throw money down the rat-hole of our bankrupt welfare state, or else!” What the “or else” might be when the country is already too bankrupt to pay pensions and keeps the lights on remains a mystery. The problem with holding a gun to your own head is that eventually someone will call your bluff.
Greece is finally finished with the “gradually” phase of their bankruptcy and is now in the “suddenly” phase…
It’s appropriate that Zeno (the paradox Zeno) was Greek, since Greece appears to have entered Zeno’s Endgame. The country edges ever closer to default, without actually defaulting. Or without the Greek government actually ceasing to spend radically more money than it takes in, because the ruling left-wing Syriza Party would rather destroy the Greek economy than give up their bloated welfare state. Their latest plan is to raid pension funds to keep that welfare state going just a little longer. “This is the last bit of cash that the Greek state has.” “Honey, let’s cash in our 401K so we can buy some heroin!”
Sorry if this sounds like every other update on the Greek debt crisis over the last six years. It’s a vitally important story, which is why I keep covering it, but it’s also the story of a host of people making the same stupid, easily avoidable mistake again and again rather than making the hard choices necessary to deal with the problem.
A few other links of interest on the Greek debt endgame:
Tune in next week! Same bankrupt time! Same bankrupt channel!
Angela Merkel tamped down a party revolt to extend the Greek bailout terms by four months. And her reward for extending that lifeline? Greek Prime Minister Alexis Tsipras reviving demands that Germany pay World War II reparations to Greece.
Before Syriza came to power, the rest of the EU and the Troika seemed content to play along with the Greece farce (extending further loans in exchange for yet more empty promises of reform) at least a little while longer. However, Syriza’s virulently anti-EU and anti-Germany rhetoric seem to have finally exhausted their patience with the show. It seems even Europeans have limits to the abuse they’re willing to take from perpetual welfare recipients. It’s bad enough to underwrite a freeloader, but evidently having to put up with constant insults from them was too much.
At this point, everyone knows Greece will neither reform nor pay back their debts to the Troika (or anyone else). That’s why Europe has finally started taking a real hard line with them, insisting on inspectors on the ground to see reforms are actually implemented.
Either Tsipras has severely overplayed his hand (quite possible), or he is deliberately preparing to use Germany as the theoretical scapegoat for exiting the Euro.
To say that Tsipras and Syriza has no plan B to escape the crisis is misleading, since their cunning “insult our creditors into giving us more money” doesn’t even count as a plan A.
A bailout from Russia? It’s not like Putin is rolling in dough following a fall in oil prices and his continuing isolation over his invasion of Ukraine. Let Putin subsidize Greece all he wants. (And I doubt a Greek navel base would give him any advantage over what he has in Sevastopol.)
Greece could have avoided all this many years ago if their government had just stopped spending more money than they took in. Given their addiction to a bloated welfare state, this is the one thing they have proven singularly unwilling to do.
I doubt Syriza has thought through just how nasty a divorce from the Eurozone might turn out. Never mind asking they repay their debts, I’m thinking a complete halt to all bank transfers between the Eurozone and Greece, and international foreign exchanges refusing to list a newly floated drachma. People hate having their welfare benefits cut, but they really, really hate being unable to buy food…
Greece has finally reached the stage of socialism where they’re run out of other people’s money, and the results are not going to be pretty.
Experience is a dear teacher, but fools will learn from no other…
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.
Feeling less suicidal than usual, Greek voters have opted for the conservative (for Greece) New Democracy party in parliamentary elections, beating out the radical-left Syriza, which insisted Europe keep shoveling money into the black hole that is the Greek budget, but rejected even the fake austerity the Eurocrats demanded. New Democracy leader Antonis Samaras has his work cut out for him, convincing the Eurocrats that yes, this time, they really are implementing austerity. This time for sure!
Look for this to help forestall the inevitable “grexit” for, oh, maybe three months. Which is when I bet Greece will find out it can’t pay it’s bills again after the latest infusion of cash, the money Europe kicked in will have strangely disappeared without seeming to have been spent on any fundamental government services, and insiders will have managed to transfer another few months of funds into their out-of-country banks accounts in advance of the next crisis…
Are the Greeks already printing Drachmas? So says a completely unverified tweet from a random Twitter user. Really, what better source could you possibly ask for?
The Internet is alive with buzz on Greece exiting the Euro (see #grexit for a sip from the firehose). Sadly, there seems to be no buzz at all on reigning in the cradle-to-grave European welfare state that caused the crises in the first place.
More Grext/European debt crises news:
“Growth” to social democrats means growth in government’s size and reach, not growth in the real economy. This approach directly contributed to our current predicament; and more of the same will only exacerbate it.
