Greece and The Coming (possible) Grexit From The EuroZone

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So we're getting down to the wire on the Grexit. I don't know if any of you have been keeping up with this but its a truly fascinating story. NC has a great post up today about what's going on.

Greek Talks Collapse, Default Looms | naked capitalism

Greek Talks Collapse, Default Looms
Posted on June 15, 2015 by Yves Smith

Both sides in the Greece/creditor negotiations have said they have reached the limits of what they are prepared to give.

Talks on Sunday fell apart after a mere 45 minutes. The immediate impasse is an inability to bridge the gap on what the IMF surgically calls “making the numbers work” or meeting the creditor’s primary surplus target of 1% for this year. Greece had proposed in its 47 page document a target of 0.6%, which it increased to 0.75%. The difference between the two sides the path by which Greece gets to a stringent primary surplus level of 3.5% a year by 2018 is a bit under a €2 billion per year gap. The lenders pushed for more cuts in pensions, higher taxes on energy, and VAT increases, and the Greek side would not budge.

The locus of decision-making is again at the political level. The key date is JUne 18, when the Eurogroup meets. However, ECB chief Mario Draghi is speaking at the EU parliament today at 13:00 GMT, and the ECB also has one of its regularly scheduled two week meetings this Wednesday at which they decide whether or not to increase the ELA.

Even though an IMF default is not a bright white line, June 30 is not just the date when Greece will default absent somehow cinching a deal, but it is also when the bailout will expire unless the Eurozone countries all agree to extend it. The sour mood on both sides makes that seem well-nigh impossible. More former supporters of Greece are siding with the Troika. For instance, Sigmar Gabriel, the head of Germany’s Social Democratic party, which has taken a more sympathetic stance towards Greece, took a much harsher tone in an op-ed in Bild over the weekend. A translation from the Financial Times:

“The game theorists of the Greek government are in the process of gambling away the future of their country…Europe and Germany will not let themselves be blackmailed. And we will not let the exaggerated electoral pledges of a partly-communist government be paid for by German workers and their families.“

The key creditors all appear to have reconciled themselves to loss recognition. One of the fallacies we’ve seen in both media and financial commentary is that a Greek default will trigger a loss. Assuming the creditors don’t have a way to finesse it, what it instead triggers is loss recognition and a wrangle over who absorbs how much of it.

Even though the financial media keeps citing the face amount of Greek debt, that’s not what is at issue. Like a house that someone bought at $200,000 but is now worth $90,000, everyone knows that Greek loans are less than their face amount. As we’ve stressed, they’ve already been cut in economic terms by extensions of maturities and reductions of interest rates. The creditors fully expected to take more economic losses; had Greece gotten through the bailout and gotten its €7.2 billion in bailout funds, it was set to roll right into a new negotiation over debt levels, which the lenders have called the third bailout (with the 2010 and 2012 rescues as the predecessors; confusingly to those without a scorecard, the €7.2 billion “bailout” at issue now is part of the previous deal).

As Tim Worstall explains at Forbes:

Good economics tells us that the Greek debt burden should have had a severe haircut three years ago at the latest. That’s not what happened and yes, that was a mistake. However, now that everyone’s been watching this for years there’s just no possible political manner in which this demand could be accommodated. Because the citizens in those other eurozone countries understand all to well that it is their tax money which has been lent to Greece. And if there’s a haircut then it’s their money that is being lost. Whether this is true or not doesn’t matter: but the Northern Europeans view the Greeks as work shy people who retire very early on indeed. And they simply will not put up with having to pay for that. Again, that’s it’s mostly not true simply does not matter: politics is about what people believe.

There are ways to do this and no one will complain. In fact, it’s already been done. By lowering the interest rate that Greece has to pay, offering capital repayment holidays, extending the terms (some of this debt need not be repaid for 50 years) the net present value of what is owed is rather smaller than the headline amount. Those eurozone citizsens have already lost ther money but it’s been lost to opportunity cost and inflation, not to a haircut that they can actually see. There’s undoubtedly another iteration of that which could be done to lighten the burden again upon Greece. But, Tspiras, for his own domestic political reasons, needs to have that headline cut. The very thing the other eurozone governments cannot give him if they are to keep their own holds on political power.

Now again, remember, the creditors were willing to provide more in the way of covert haircuts; indeed, they fully expected to do that. And many commentators’ assumption was that the political unpalatability of having to financially unsavvy voters know that all that Greek debt that their governments hold has been written down in a big way was a third rail issue. That in turn would mean Greece had a negotiating trump card without having to go the Grexit route (which is remains unpopular with Greek voters). A default would mean loss recognition which would put elected European officials in all sorts of hot water.

We had concrete evidence that ‘fessing up to Greek losses wasn’t the Eurozone leader political death threat Greece believed it to be in May. Remember that Tsipras said Greece would default in mid-May, only a few days later to have Greece borrow against an IMF reserve account to pay the IMF. The creditors did not offer any concessions then to forestall a default.

I thought at the time that the creditors holding their ground meant they had some sort of trick up their sleeve, that they might not have to recognize the losses (as in write them down) even if Greece defaulted on the IMF, which is the most senior creditor. But the willingness to tolerate a Greek default may be the result of something simpler. The creditors have succeeded in moving public opinion in most Eurozone countries even more to their side (witness the Bild op ed), so that if Greece defaults, the elected officials believe they can pin enough of the blame on Greece so as to limit any damage to them personally.*

A Greek default is not a “get out of paying” card. When countries default against mere private lenders, they don’t get away with not paying . The debt gets restructured, as in written down in economic terms to something that the borrower can hopefully meet, and the various lenders scrap among themselves. And remember, official creditors are in a much better position to extract what there is to be had than private lenders.

The ECB may lower the boom on Greece. The creditors, assuming they can reach agreement, may try a last “offer you can’t refuse before the Thursday Eurogroup meeting. The ECB would be the most likely enforcer. Mario Draghi is speaking later today, so he may show a bit of steel. Peter Spiegel of the Financial Times mentions one option we have discussed previously, that of a repeat of a brute force move used successfully against Ireland and more recently Cyprus, to remove the ELA:

…. eurozone negotiators may resort to the “take it or leave it” strategy used on Cyprus at a eurogroup meeting two years ago.

On that occasion, an ECB representative warned that without a deal, the central bank would be forced to cut all emergency funding to Cypriot banks — essentially laying waste the country’s financial system. There have been similar pressures on the ECB in the past week to take the same stance with Athens.

However, my guess is that the ECB will not do this immediately, although it might based on what Greece does in the coming weeks (as in they’d like to be able to pin the blame firmly on Greece). It may well depend on their reading of how much sway Varoufakis and like-minded members of Syriza have on Tsipras. Varoufakis has long been opposed to a Grexit, and has written forcefully that it’s not at all like an Argentina-style mere severing of a currency peg. The viability of the ECB playing the heavy is reinforced by the fact that….

The Left Platform is still pushing for a Grexit.I’m not sure It’s distressing to see the Left Platform, which has a far more acute grasp of the power dynamics of the negotiations that the Syriza mainstream has, to be so out of their depth as to what actions to take in response. While a default is less destructive to the Greek economy, the Ambrose Evans-Pritchard reports that the Left Platform has called for an “Iceland-style default”. Remember, Evans-Pritchard is a Euroskeptic and has regularly taken a Syriza-sympathetic position. Even so, he feels compelled to stress why Greece sin’t at all like Iceland:

Iceland’s internal banking system was rebuilt from scratch under state control with public funds equal to 30pc of GDP, and was shielded by capital controls. The boards were sacked. Some executives were prosecuted….

Iceland gradually recovered and has since racked up impressive growth. Contrary to apocalyptic warnings, a 50pc devaluation proved to be part of the cure. The krona has since strengthened slightly against the euro.

However, Iceland has a very different society and economic structure. Quick stabilisation was possible only because the IMF and the Nordic countries stepped in with a $5bn rescue package.
Greece has already exhausted its IMF quota in the two failed rescues of 2010 and 2012, and is now at daggers drawn with the Fund’s team in Athens.

To put none too fine a point on it, Iceland has a population of a bit over 300,000. A $5 billion rescue package is massive relative to the size of the economy. Iceland also had been through a sustained boom before its bust, so its citizens took a big hit from a starting point of prosperity and a well functioning government (albeit one that was lousy at bank supervision). And it already had its own currency, so it did not face the trauma and disruption of a having to scramble to implement a new one (we have a post coming up shortly on the operational issues of a Grexit**).

The resolution of the Greece/creditor deadlock may also mark Peak Neoliberalism. It’s possible, but only remotely so, that Greece and its creditor overlords will back off from their collision. But as we’ve said for years, Germany is wedded to incompatible goals, namely running large trade surpluses but not financing its trade partners. It is destined to burn them down if it fails to find a new course of action. Greece is also wedded to incompatible goals, namely getting a real break from austerity while staying in the Eurozone.

On the current trajectory, Greece will suffer horribly under a default or Grexit. The creditors have the incentive and the means to make either one more painful than continued austerity so as to force Greek citizens to capitulate and vote in a more compliant government. There is a bloody-minded faction that includes Finland, Latvia, Spain, as well as some ECB governors that is eager to punish Greece and sees that as necessary to preserve the Eurozone. We’ll see soon enough whether these austerity radicals that we call the ultras persuade enough key players to put their plans into action.

But even in a less punitive scenario, a default or Grexit will do very serious damage to an already fragile and deeply depressed economy. Those who assert that Greece will bounce back quickly don’t have an economy this close to being a failed state as a comparable.

Our view has been that the most likely scenario is a default in the Eurozone, and that the authorities have likely underestimated the damage if the impasse ultimately leads to a Grexit. Even if they are correct that financial contagion is contained, political contagion over the next few years is another matter entirely.

But on a bigger frame, no matter how badly things turn out for Greece, the institutions at the core of the European project will emerge with their image badly damaged. The dirty secret has long been that the program of European integration was designed to produce rule by technocrats. Those technocrats, by being captive to bad ideology, have failed to deliver on the basic obligation of government: to provide for the safety and well-being of their populace. In a capitalist society, that means producing enough decently remunerated jobs.

However, even if neoliberalism winds up receding as a result of the brutal Greek negotiations, it’s naive to assume that the exposure of the bankruptcy of neoliberalism means a return to the old European model of more social welfare and (at least in theory) democratic accountability. Ironically, the train wreck we are seeing now can be presented as a prime example of the dangers of democratic rule: a democratically elected government in Greece demanding better treatment from its jailer/creditors, when the most of the debt is held by democratically elected governments who are not willing to give Greece the breaks it wants. And as we’ve stressed from the outset, the fact that the two sides can’t come to agreement is that Syriza’s red line of pensions is also a red line to voters in the states that have provided funding to Greece.

Thus even if the Greek denouement does represent Peak Neoliberalism, that does not mean that social democracy will emerge victorious. It simply means we will grope towards a new political order. Only if citizens are vigilant and engaged do they have a hope of coming out as winners.

* Some observers are placing more stock in a blog post by Olivier Blanchard of the IMF that is warranted, in which he argued both sides need to make concessions. Blanchard is head of the research side, which has no role in the “program” decisions being negotiated with Greece. In fact, for years there has been a noteworthy disconnect between IMF research, which is often anti-austerity, and program design and implementation. While Blanchard does take up the IMF position, that Greece needs more writedowns, that’s not news since even the program team has been calling for that since at least April 24 (at the last Eurogroup meeting). Given a leak in Faz over the weekend, that Lagarde reversed herself on a proposal by Juncker to let Greece fund pensions for the poor by cutting military spending by €400 million, it seems that the IMF is holding fast to its hawkish position. And Blanchard reinforced the notion that Greece would have to cross red lines to get a deal done:

….the Greek government has to offer truly credible measures to reach the lower target budget surplus, and it has to show its commitment to the more limited set of reforms. We believe that even the lower new target cannot be credibly achieved without a comprehensive reform of the VAT – involving a widening of its base – and a further adjustment of pensions. Why insist on pensions? Pensions and wages account for about 75% of primary spending; the other 25% have already been cut to the bone. Pension expenditures account for over 16% of GDP, and transfers from the budget to the pension system are close to 10% of GDP. We believe a reduction of pension expenditures of 1% of GDP (out of 16%) is needed, and that it can be done while protecting the poorest pensioners.

So Blanchard is fully in line with the program team’s position. He’s just trying to put a nicer spin on it.

** I am sure some readers will point to a Wolfgang Munchau piece today, Greece has nothing to lose by saying no to creditors, in which he advocates a Grexit. Munchau is normally a sound columnists, but this article is a marked departure. I’ve pre-debunked some of its assumptions above, such as the notion that Greece can somehow pay private creditors but not official ones, and so they will face enormous losses. That’s not going to happen. Start with the fact that defaulting on the IMF means Greece loses access to trade finance. There are other implements of enforcement that official creditors that private ones don’t. And it ignores, as we and Worstall pointed out, that large losses have alrready been taken in previous restructurings. Moreover, its claim that Greece is “relatively closed” is technically accurate but substantively misleading. Nathan Tankus will discuss the issues regarding trade in his next post on Greece, but the short version is that Greece has a low ration of import value in its exports. One of the implications is that Greece really does use (and by implication, need) its imports in its domestic economy. Think of pharmaceuticals and machine parts as a proxy for Greek imports. When those go up radically in price as a result of a Grexit, it means many already strapped buyers (consumers and businesses) go without. That has knock-on effects (health risks, loss of revenues to already fragile business leading to increased failure rates).

We’ll have more nitty-gritty detail on the operational issues of a Grexit on Tuesday or Wednesday. Stay tuned.
This post on NC goes over what would happen should Greece need to create a new currency to replace the Euro

The Operational Issues of a Grexit Part Two: Organizational Capacity, Capital Controls and Bootstrapping a New Monetary System | naked capitalism

The Operational Issues of a Grexit Part Two: Organizational Capacity, Capital Controls and Bootstrapping a New Monetary System
Yves here. We thought it was important to focus on the operational issues of a Grexit because the commentary on this issue too often muddies multiple issues, which then leads to a poor understanding of what the costs and risks to Greek citizens might be.

The first, and most important, is a default does not mean a Grexit. Countries can and do default on their sovereign obligations, as Russia did in 1998 and Argentina did in 2001, without adopting new currencies. Moreover, default is not a “get out of paying free” card. Even with defaults with mere private lenders, Russia and Argentina restructured their debts, meaning they agreed to a program of payment of a reduced amount. It is also important to recognize that official creditors like the IMF and ECB have far more power relative to sovereign borrowers that private creditors. For instance, the IMF was the only lender to Argentina prior to its default to be repaid in full. That means even when dealing with a borrower of limited means who has defaulted, an official creditor is in a better position to extract what can be gotten than private ones.

Second, when most commentators discuss a Grexit, they focus on two elements: the forcing of a debt restructuring, and a sudden currency devaluation. Argentina again is a precedent of sorts, since when it defaulted, it also abandoned its currency peg with the dollar. Experts widely acknowledge that a rapid currency depreciation is painful even though the longer-term effects are positive. The reason is what economists call a J-curve effect: the trade deficit gets worse before it gets better. A county goes into a devaluation with an established pattern of trade. The immediate impact of a default is that import prices shoot up in the new, depreciated currency value terms while what the country receives on its now cheaper exports goes down. It is only after trade partners have shifted more of their sourcing of imports to buy from the country with the now-bargain-priced goods that the country gets the benefit of the depreciation. The immediate shock of the spike in import prices is an immediate slowdown, shortages, and business failures.

The conventional analyses generally ignore or wave off the element of a Grexit that Nathan Tankus focuses on here: the operational implications of a Grexit. Launching a new currency would be every bit as demanding as launching the Euro was in 1999, and arguably more so, since the Greek government will also have to contend with a large market of Euros circulating as currency and may come to find it necessary, at the outset or later, to offer dual currency payment processing services. We’ve attached a paper at the end that gives an idea of the amount of planning and lead times that were required for this to go smoothly. Now admittedly the Euro launch had an added factor of complexity, which was a large number of existing currencies involved. However, the Eurozone was also able to force citizens off the legacy currencies in 2002, three years after the launch of the Euro. By contrast, with the Euro the currency of Greece’s major trade partners and Greek bank customers already hoarded large amounts of Euros as cash, the Greek government will have a currency it does not control playing a significant role in its economy.

We believe that the impact of the one-two punch of a conventional currency depreciation combined with the disruption of the imposition of a bank holiday, capital controls, and the chaos accompanying an un or underplanned transition to a new currency on an already deeply depressed economy is greatly underestimated by most commentators.

By Nathan Tankus, a writer from New York City. Follow him on Twitter at @NathanTankus

My last post covered how the Euro payments system works. What happens when it doesn’t? In other words, what are the series of operational events that happen when Greece has a non-negotiated default or the ECB ends Emergency Liquidity Assistance?

Before we begin one point needs to be hammered home. Economics, law and politics are all crucial to the story of Greece, but in the moment of default or Grexit they take a back seat to something far more important: organizational capacity. To exploit every opportunity, to get a new monetary system up and running, to devise a way of continuing imports and exports, to decide what to do with the Bank of Greece and generally to decide how to deal with growing mass of consequences hurtling towards them, the government needs large amounts of organizational capacity.

Further, the longer they take getting the “new” system up and running, the more issues will pop up and the more organizational capacity they will need at a future date. (For more on organizational capacity, here’s something Nathaniel Cline and I wrote two years ago.)

This is a large part of why Yves has been so critical of Syriza. Being shut out from the payments system (on any level ranging from having ELA being cut off from the banking system to Iran or de facto Iran-style financial sanctions) and essentially forced to exit will need mobilization of the society on total war levels. The Greek ruling coalition has not prepared the population for the Troika holding firm and letting a non-negotiated default and/or Grexit happen. While we can’t know how much secret planning has happened, we can make inferences from what has already happened to organizations critical to the delivery of essential social services, like the hospitals, due to years of budgetary starvation, the poor state of tax collection and land records, and more immediately, evidence of strained organizational capacity in the negotiations with the Troika. This included poor setting of priorities (for instance, Yanis Varoufakis making himself highly accessible to the media to the point where Greek commentators were critical of time spent on messaging at the expense of negotiating), apparent limited sophistication in dealing with legal or quasi-legal documents (the treatment of the February Eurogroup memo as a success for Greece when it was very unfavorable to them), and possible shortcomings in basic blocking and tackling (creditor complaints about Greece’s delays in supplying requested information needed to evaluate Greek proposals). These may seem like minor things, but remember: What Syriza needs most is time to prepare contingencies for a default and/or a Grexit and build up their organizational capacity.

Keeping the Troika at the table without having to agree to third rails like pension gutting means showing up to the meetings on time, providing detailed proposals on all the smaller matters and dancing until you get to the big issues. In other words, use the same kind of tactics banks and other corporate interests use to gut regulatory rule-making in the United States. Hopefully, when you’re finally forced to choose whether or not to agree to the major reforms, you’ve pushed the process to the point where the demands aren’t so bad and if they still are, you’ve preserved enough of a veneer of civility that you can move the discussion to impasse alternatives that reduce the costs of negotiation failure to both sides. (Both pundits and financial analysts have mentioned idea like a “managed default” or a “managed Grexit.”) In other words, playing the game has the upside at a minimum of extending the timetable and also increases the odds of cooperation in mutual damage control. If that fails, more aggressive options are still open.

In addition, you’ve bought yourself time to plan for an exit and can reasonably claim — and perhaps leak portions of detailed and very technical plans showing this — that you can exit relatively smoothly as the final bargaining chip. Instead the attitude of Syriza leadership seems to be nicely summed up by this quote from Yanis Varoufakis: “[W]e’re dealing with a system of cronyism and corruption. That’s what we have to tackle. But, instead, we’re debating pharmacy opening times.”

To drive this point home, let’s go back to what Varoufakis dismissively refers to: pharmacy opening times. This is part of the negotiation of structural reforms, something that the Greek government agreed to when it signed the Eurogroup memorandum in February. And recall Varoufakis at that time mentioned how he and the so-called institutions agreed on 70% of those reforms.

Despite Varoufakis’ complaint, pharmacy hours are an important issue wrapped up in the Troika’s desire to “reform” the pharmaceutical retail industry. Greece sets prices of over-the-counter drugs while making it illegal for everyone but licensed retail pharmacies. They also regulate how these retail pharmacies function in all sorts of ways, including setting opening hours. Easing and eliminating these rules is about shrinking this industry and ultimately about eliminating jobs. This week pharmicists went on strike because Syriza conceded on supermarkets selling medications.

That means this set of issues is not beneath Varoufakis at all. In fact, negotiating over issues such as this is his job. Now, he does have a point that he should not be going into the weeds on every deal point, but someone on his team should be handling matters like this. If this is winding up on his desk because there’s no one else to handle it, that demonstrates how desperately overstretched his ministry is already, a poor sign for its ability to take on far more complex and urgent tasks. In other words, you can argue that criticizing Syriza for this is unfair since they were forced into negotiations without having the organizational capacity to conduct them, but then how would they have the organizational capacity to conduct a Grexit?

Let’s return to the most urgent tasks that a Greek government would face in the initial hours of a Grexit: the payments system. The misunderstanding I laid out last post surrounding the relationship between the Greek government and the Bank of Greece has convinced people that taking over the Bank of Greece is a trivial matter. I said then that taking over the Bank of Greece is a trap.

To restate from my first post, the reason I’m skeptical of taking over the Bank of Greece is that it makes the Greek government responsible for the depreciation of asset values posted as collateral for ELA and paying Euro denominated interest when otherwise they are not financially responsible for the Bank of Greece. (The ECB is.) Further, this assumes that the ECB and European powers would be happy for the Greeks to take on this obligation. Even worse, this could be seen as an expropriation that may qualify (especially depending on how rabid other member states get) as a “clear risk of a serious breach by a Member State of the values referred to in Article 2 [human rights, democracy and the rule of law].” This would mean suspension from the European Union, which would have very serious consequences for them ranging from agricultural supports all the way to access to Target2. (Net spending by the EU in Greece, that is spending – taxes, was about 2.5% of GDP in the latest available figures.)

Now someone may argue that “Greece is taking over the Bank of Greece because they’re defaulting and exiting the Eurozone, all of this is illegal and none of their Euro debts matter at this point”. I disagree with this view.

First, what would force them out of the Euro in practice is the cutting off of ELA assistance. Legally however, a member state can’t be forced out of the Euro which is what the ECB action would amount to. The Greek position should be that they have been forced by the illegal actions of the European Union to build a new payments system and thus they aren’t liable. Further, they should state they would welcome the reintroduction of liquidity support so that a drachma in their payments system would equal to a Euro and effectively be a Euro. A way to back up this argument would be to declare that these new liabilities are legal tender only as long as ELA to Greece has stopped but that they are acceptable in payment of taxes and loans no matter what. In other words, legally treat them like Electronic Tax Anticipation Notes (ETAN).

Despite all the issues with taking over the BoG, the Greek government might need to do it simply because of the time it takes to program a new payments system. Even if they take over the IT system from the Bank of Greece, a lot of software will need reworking to separate from the Euro IT wise. In correspondence, Richard Smith (who worked on the IT transition to the Euro) made this quite clear:

Richard Smith: Sounds pretty horrible. The similarish reverse operation that set up all this bliss for Greece a decade and more ago, namely redenomination from Francs, DEM etc to EUR, at fixed rates, took several elapsed months of analysis, design coding, testing, planning and rehearsal, just on one well-maintained system. It worked fine but we were really glad we rehearsed it and had time. Nothing important that we were interfacing to fell over, either (a related risk).

Goodness knows what bringing the Drachma back at no notice and unplanned would actually be like for IT systems. I really don’t like the sound of it much, especially if somehow there would have to be two currencies in parallel and a floating rate

Nathan Tankus: Is there any way for them to secretly build this system on their own and roll it out to the banks over a two to three week bank holiday? What if they impose capital controls and for payment settlement purposes jerry rig it so that drachma equals 1.5 Euros or some such number?

Richard Smith: It sounds like a bit of a stretch. Not sure where you’d hide all the programmers and analysts. Even asking the questions that enabled you to work out which systems needed modding would attract attention and I’d have thought there would be hundreds or thousands of systems.

Simply going all-drachma [using the existing IT system of BoG and commercial banks] is comparatively unterrifying (more or less a rollback of what they did in 2001) but would still take a lot of highly visible lining up. Long bank holiday for sure, plus lots of Drachmas to distribute quietly to all sort of places in advance, with nobody ever, ever talking about it; cash economy for a bit. One of those times when you’d rather everything was on paper, still.

That entire discussion assumes that people will be there to run the IT system. Problems greatly compound if the ECB transfers all the staff out after cutting off ELA or even after the Greek Government comes in. To recap, let’s walk through what each option might look like.

Taking over the Bank of Greece

1. Seize the headquarters of the Bank of Greece.
2. Explain to the staff that the Bank is no longer following the directives of the ECB and salaries will be paid in physical Tax Anticipation Notes and that they can deposit them in the bank once a payment system has returned which requires their diligent effort.
3. Declare a bank holiday.
4. Assign relatively knowledgeable Government officials to meet with subdivisions of the Bank to lead discussions about what needs to be changed in the payment system to convert from Euros to ETAN in their sections.
5. Start dispatching Government officials to private banks after receiving information about the Bank of Greece side. Inspect their IT system and start preparing them for IT changes to introduce ETAN. In the meantime, bring in auditors to examine their books and monitor for transactions.
6. Compare the estimated timelines to what needs to be in place for trade to resume and production to continue. Possibly recruit IT people from private banks sympathetic to the cause to bolster the amount of people working around the clock.
7. Contact the ECB and let them know what is happening and that the Government hasn’t decided to repudiate Target balances. Request confirmation that paying interest on Target balances will be sufficient to maintain access to Target2.

Ignoring the Bank of Greece and Setting up a New Central Bank

1. Declare a bank holiday.
2. Find a building to place a number of IT systems that have been preprogrammed for this eventuality. Start hiring staff immediately.
3. Immediately send officials to outside the Bank of Greece, announce over the speakers what is going on and request any officials loyal to Greece or who at least care for the suffering of Greece to leave the building and join them to rebuild the Greek Payments system. Do this indefinitely until most staff have left Greece or joined up.
4. Send officials out to Recruit retired bank IT people and those at private banks.
5. Send officials to private banks to demand that they disconnect from the BoG payments system and start working out the logistics for switching to the new system. Inspect their IT system and start preparing them for IT changes needed to introduce ETANs. In the meantime bring in auditors to examine their books and monitor for transactions.

This isn’t anywhere near a comprehensive checklist of things they would need to start doing, nor is every strategy necessarily the right one for the particular conditions they emerge from (for example paying interest on Target2 balances or converting euro deposits to ETAN deposits). In particular ETAN have a lot of legal benefits for Greece and make a possible rejoining of the Eurozone simpler, but might have even more difficulty gaining acceptance on the foreign exchange market then drachma would. I’ll turn to the foreign exchange market issues of introducing a new currency in part 3.

Moreover, there is the issue of the large volume of Euro banknotes that have already been withdrawn and which will likely be hoarded and only used for emergency purchases like seeing the doctor or, in the worst case, food. This will strengthen the already relatively strong black market economy and undermine the imposition of drachma or ETAN tax liabilities, a necessary precondition for their widespread adoption. There is also the issue of contracts where in one case they need to all say drachma when they said Euro and in the other they need footnotes saying when the Euro payments system is broken ETAN are legal tender. That is an enormous job to say the least and it needs to be semi-functional by the time they reopen the banking system. What I think this exercise does illustrate, however, is how many discrete activities would need to take place to get the new system up and running, and how time consuming it would be. Further, I think one starts to get the sense of how much additional organizational effort watching the bank staff imposes.

Now one could try arguing that “All we need is actually to get enough drachma in circulation to have things start functioning.” See the Addendum at the bottom of the post on why that’s not trivial either, even assuming you’ve got the new currency ready to go. And remember, having the economy go into an even deeper freeze due to a protracted bank holiday and the imposition of capital controls (which will also hurt tourism during the peak season) will not merely reduce incomes all over the country, increasing distress, but will lead to business failures, so a meaningful portion of the damage will persist even after the money system starts functioning again.

Nearly a century ago the Bolsheviks faced almost an identical problem. In December of 1917 Lenin made this statement to the Central Executive Committee to justify nationalization of the banking system:

Among the employees of the banks were men who held the interests of the people close to heart, and so they said: ‘The bankers are deceiving you, make haste to stop their criminal activity which is aimed against you.” And so we made haste. We know that this is a complicated measure. None of us, not even those who have a training in economics, will undertake to prepare it. We shall employ experts, people who are skilled in such work, but only after we have the keys in our own hands. Then we can even employ as consultants ex-millionaires…

We wished to follow the path of conciliation with the bankers, we supplied them with credit for the purpose of financing business, but they resorted to a sabotage of unprecedented dimensions, and so experience compelled us to adopt different measures in order to insure control… If we do not affirm the decree right now the bankers will take all the necessary steps to shatter our economy [Banks, Credit, and Money in Soviet Russia, by Arthur Z. Arnold, with a foreword by H. Parker Willis. New York: Morningside Heights, Columbia. University Press, page 60]

In this context Arthur Arnold comments, “Apparently the bankers had no difficulty in evading the control set up by the communists, whose ranks included very few who knew anything about the banking, business, accounting or auditing. Especially weak was the control in the provincial towns where the banks had branches.” In other words, they didn’t have the operational capacity to prudentially regulate the banking system and preserve the integrity of the payments system so a nationalization was the only feasible option. The question of nationalizing the banking system is one I’ll return to.

Discussion of capital controls returns us to the argument Lenin makes above. The IT issues with restarting a banking system in ETAN (or Drachmas for that matter) and making sure this new system doesn’t undermine their attempts to survive the crisis might be so complex that the Greeks might have to nationalize the banking system. It may be that no other strategy could successfully transition to a non-Euro economy in the time frame required. Thus, at least temporarily, deposits would be accounts directly held with the central bank and the central bank would make direct decisions about industrial projects to finance. This doesn’t end the organizational capacity needed, it just minimizes it. While they’re rebuilding the payments system they need to make loans in physical cash or large denomination scrip (to pay suppliers), start figuring out which firms owe what to which banks, make it clear that the payments system freeze doesn’t mean they are in arrears or that the debts end. Direct financing of production and investment by Government many precedents but the one that strikes me the most (and one I’ve wanted to write about another time) is the Defense Plant Corporation, a subsidiary of the Reconstruction Finance Corporation set up in World War II that financed a lot of war production and the creation of new necessary industries (like artificial rubber).

Greece has this series of policy choices before it not because it is now run by “radical leftwingers”, but because during a crisis the most valuable resource a country has is its ability organize and reorganize society. Neither committed capitalists, committed socialists or committed fascists can afford to burn organizational effort holding onto bugaboos about private banks, the abolition of money, or any other pet policy.

It should not have to be said, but I feel compelled to explain why I’m spending so much time on the payments system. An orderly and efficient payment system is crucial to the continuance of economic transactions. It allows businesses to buy more inputs to production, enables retailers and shops to meet customer demands for goods and services, helps finance that demand, permits the speedy transfer of supplies around a geographic area, etc. When the payments system is disrupted, even for a short period of time, all of these vital activities cease or require special agreements at all levels to keep going at even a minimal, uneven level. Two years ago in Cyprus, an emergency bank holiday was declared and capital controls installed. The bank holiday only lasted for twelve days yet supply chains started drying up instantly. An ex-Cyprus central bank governor told the Guardian:

Supplies of food are being exhausted and there are cases of raw materials like iron and timber being held up in customs because importers don’t have the cash to pay for them … No one expected, myself included, that the EU, ECB md IMF, would behave like this. Cyprus has been treated very badly … Where is the solidarity principle that is supposed to underline Europe?

Even 6 months later after the banks had reopened and capital controls were loosened, businesses were still having trouble getting basic supplies. This happened because their working capital was largely frozen and/or written down in the bail-in, or they had made payments but their suppliers were frozen because their own working capital had been largely frozen and/or written down. It is important to emphasize that their nearly two-week bank holiday was only to resolve insolvent institutions, not to build or significantly modify the payments system. Cyprus experienced a storm. It is not an exaggeration to say that freezing the Greek payments system would be like a financial hurricane and this one certainly looks to be a category five.


On getting currency in circulation, hoisted from older comments by Naked Capitalism regular Clive who has worked with ATMs:

Way way a-back when dinosaurs roamed the Earth and I was a junior in my TBTF I worked in the ATM Operations unit. It was a big, big unit. The logistical effort is considerable in maintaining an ATM estate — and that is under BAU conditions. Cash is bulky. The security requirements are considerable. The ATM hoppers are designed for specifically sized notes (the specification is exacting — if the notes are not precisely the same height, width and, crucially, paper grade, the ATM will jam up quickly; this applies to note counters as well). You can’t just max out high denomination notes either — a functioning cash currency needs sufficient quantities of various notes and coinage in the right proportions. Physically stocking, balancing and making an ATM ready for service once depleted takes a finite amount of time and that time isn’t trivial. And most ATMs are “dual control” — you need two operators for fraud prevention. Like I say, for a single TBTF to maintain a network of ATMs takes several hundred head office staff and a lot more in-situ staff. Then you need armoured cars, guards, access to premises. That’s many hundreds more needing to be planned, rostered and actually turning up each day. It is a major undertaking — and this is under normal, day-to-day operational conditions. Factor in secrecy (which would be inevitable, certainly in the run-up until the last few days anyway) and it is even more difficult.

And then you have self-service tills in supermarkets, vending machines, ticket machines and so on. Again, the specification of the physical currency is critical. For stores, marking prices is a labour-intensive job.

If Varoufakis were here having a cup of tea with me, I’d tell him that, from first-hand experience, don’t fcuk with the currency unless you absolutely have no options left whatsoever. From what he’s pronounced — and as Yves has repeatedly said, this has been his consistent message — I think he gets that already….

Like I already said, the physical cash handling is just one aspect. And to take your example, okay, unloading the cash from the truck takes 10 minutes. But how does the cash get onto the truck ? Where are the regional distribution centres ? How much cash goes to which ATM ? In what denomination ? Who is the hand off to once the cash gets off the truck ? And when the new currency is loaded, the ATM has to be taken offline until the old currency to new currency switch over date — so the ATM network is progressively disabled as old currency is swapped out to the new currency.

Yes, there is infrastructure, processes and people in place to handle this task now (how else would the ATM network keep going). But it is sized for normal operating parameters! A typical ATM will run for between 3 to 10 days between replenishment (some really busy sites like stations or shopping malls after a weekend will run “dry” in a day, but these are the exception). So everything is geared up to service the ATM’s cash needs in a gradual, progressive fashion. I can tell you without any doubt at all there is not enough pre-existing capacity in the cash holding centres, the fleet of transport vehicles, trained people or the IT systems to cope with a currency swap out in a weekend or even a whole week.

And that is before you get to physical constraints like having to redesign the ATM hoppers. Creating a new currency with the same specification as the old one is a non-starter. It is called counterfeiting.

Put it this way — this has all happened before. The Euro countries swapped over from their previous national currencies to the new Euro. The planning and implementation took the best part of a decade to do in an orderly way. You’d be talking weeks or months — best case — for Greece to do the same.

The last thing Greece needs is more chaos.

Greece is doing an excellent job for itself. Every single day that the negations continue they make more money. ELA capital is leaving Greece or being stuffed in mattresses, and when Greece finally leaves the euro zone, the Greek collateral that banks have pledged will be worthless, while the euros that have left the country will still be worth enough for the Greeks to use them to buy goods/property. This means the ECB and the eurozone as whole is sitting on a massive loss, that will be realised as soon as Greece exits.

The Greeks know it's going to be a very painful situation regardless of what happens, so they're just trying to maximise their gains while they can. It has been estimated they've managed to get around 142bn from this whole situation. Very clever guys.
Greece is doing an excellent job for itself. Every single day that the negations continue they make more money. ELA capital is leaving Greece or being stuffed in mattresses, and when Greece finally leaves the euro zone, the Greek collateral that banks have pledged will be worthless, while the euros that have left the country will still be worth enough for the Greeks to use them to buy goods/property. This means the ECB and the eurozone as whole is sitting on a massive loss, that will be realised as soon as Greece exits.

The Greeks know it's going to be a very painful situation regardless of what happens, so they're just trying to maximise their gains while they can. It has been estimated they've managed to get around 142bn from this whole situation. Very clever guys.

The loss is much worse for Greece than the EU, I don't know where you get this idea they would somehow profit from it. They are basically already a failed state, full of absolute shit financial management with a population full of tax evaders and pensioners. Greeks are notorious for their idiotic decisions.

If Greece needs to re-issue a new currency, it will immediately start to become devalued and end up like the Drachma, the European version of the Zimbabwe dollar.
The loss is much worse for Greece than the EU, I don't know where you get this idea they would somehow profit from it. They are basically already a failed state, full of absolute shit financial management with a population full of tax evaders and pensioners. Greeks are notorious for their idiotic decisions.

If Greece needs to re-issue a new currency, it will immediately start to become devalued and end up like the Drachma, the European version of the Zimbabwe dollar.

No, the politicians have already realised they're going to lose anyways. Accept the creditors proposal and they'll be done politically and will need to be incredibly austere, default on their debt and exit the euro and no one will want to invest in Greece for the next decade.

So, they're basically minimising their losses by extending the negotiations. This gives Greek people time to withdraw Euros (that the Greek banks will never pay back to the ECB because their collateral will be worthless) and either store them safely abroad or hide them in their own houses.

Greeks have been incredibly short sighted in the past, but the current negotiation team is very smart. They're deliberately submitting unrealistic and very vague proposals, but not so bad that the negotiations end.

I have access to the world's best research and news sources, which would cost you upwards of 20k to access/impossible to access unless you have a couple 100mio to invest. You can hate investors and banks and whatnot, but when they're exposed to a situation like Greece they'll make damn sure they've researched the situation properly in order to minimise their own risk/make profit from it.
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No, the politicians have already realised they're going to lose anyways. Accept the creditors proposal and they'll be done politically and will need to be incredibly austere, default on their debt and exit the euro and no one will want to invest in Greece for the next decade.

So, they're basically minimising their losses by extending the negotiations. This gives Greek people time to withdraw Euros (that the Greek banks will never pay back to the ECB because their collateral will be worthless) and either store them safely abroad or hide them in their own houses.

Greeks have been incredibly short sighted in the past, but the current negotiation team is very smart. They're deliberately submitting unrealistic and very vague proposals, but not so bad that the negotiations end.

I have access to the world's best research and news sources, which would cost you upwards of 20k to access/impossible to access unless you have a couple 100mio to invest. You can hate investors and banks and whatnot, but when they're exposed to a situation like Greece they'll make damn sure they've researched the situation properly in order to minimise their own risk/make profit from it.

I don't doubt anything you are saying is true, but it doesn't negate anything I said. If you consider descending the country into relative chaos over siphoning a few Euros a win for Greece, then fine, but I hardly see how it can be characterized that way.
I don't doubt anything you are saying is true, but it doesn't negate anything I said. If you consider descending the country into relative chaos over siphoning a few Euros a win for Greece, then fine, but I hardly see how it can be characterized that way.

It's not a win, as they've lost already. I wasn't talking about the situation as whole, just about the negotiation process. They're just trying to maximise their gains during the end game. Every day the negotiations continue will cost the EU (and its taxpayers) a lot of money. They should've ended them two months ago. There's this common misconception that Varoufakis is an idiot, but he's playing us all.
It's not a win, as they've lost already. I wasn't talking about the situation as whole, just about the negotiation process. They're just trying to maximise their gains during the end game. Every day the negotiations continue will cost the EU (and its taxpayers) a lot of money. They should've ended them two months ago. There's this common misconception that Varoufakis is an idiot, but he's playing us all.

We're in general agreement.

The EU needs to cut bait with Greece. Show other countries they don't fuck around, and you better not pull this shit. It may be Portugal next to exit in this event. Unfortunately the EU sloshed money around when these countries joined and this is what you get.

The EU will suffer a short term problem, but long term they will prosper from it. Greece is the equivalent of red state America: countries that pay in less than they get.
The EU will suffer a short term problem, but long term they will prosper from it. Greece is the equivalent of red state America: countries that pay in less than they get.

I think you're generally mistaken about which Union color this situation refers to. The Welfare States are pure blue, man.
I think you're generally mistaken about which Union color this situation refers to. The Welfare States are pure blue, man.

I'm not mistaken, how dare you? :unhappy:

"Blue" states generate much more federal tax than "red" states do.

Red States Are Welfare Queens - Business Insider

So the comparison is that Greece generates very little for the EU as a whole, they just welch on their debts and demand free shit.
Red States Are Welfare Queens - Business Insider

So the comparison is that Greece generates very little for the EU as a whole, they just welch on their debts and demand free shit.

I'm fascinated at this because it seems counter-intuitive. Will have to study. I suppose the largest population centers and economic activity are all in Blue States as well, and thus they generate more than Alabama or Utah.
I'm fascinated at this because it seems counter-intuitive. Will have to study. I suppose the largest population centers and economic activity are all in Blue States as well, and thus they generate more than Alabama or Utah.

Exactly. And all the toothless white trash with 24 kids are in deep red states. They suck off the teet like nobody's business.
It Look Like Germany is Ready to Let Greece Collapse | Mother Jones

It Look Like Germany is Ready to Let Greece Collapse
—By Kevin Drum

Last ditch talks between Greece and the rest of Europe are scheduled to start today. Nobody is very optimistic:

There is little sign that either side is softening its position....In Germany especially, the fear is that providing new loans to Greece without extracting more spending cuts represents a fateful step toward a so-called transfer union, with wealthier nations providing handouts to Greece and other weaker countries. “If a small country can blackmail the other members into a transfer union without conditions and controls, the euro cannot survive,” said Adam Lerrick, a sovereign debt expert at the American Enterprise Institute, a research organization based in Washington.

....Both sides are girding for a euro exit.

The Greek central bank warned on Wednesday that the country’s economy would be devastated. And bankers say that in the last week, Greeks have pulled more than €1.5 billion from their deposit accounts. Within the European Stability Mechanism, Europe’s newly formed rescue vehicle, preparations are being made to bolster other weak countries in the event of a contagion panic.

While polls in Greece still show overwhelming support of the euro, a majority of Greeks are fed up with the harsh austerity measures that have been a condition for the €240 billion in loans that have been disbursed to the country.

I have the advantage of living in California, where this is all a fairly academic debate. It's even interesting, in a way. Will both sides blink at the last second? If they don't, and Greece leaves the euro and then defaults on its loans and devalues its currency, will it work? How much pain will it cause? Will Greece recover fairly quickly?

Those are interesting questions for anyone who doesn't actually have to live with the answers. For the Greeks themselves, though, the result is going to be horrible either way. It's just a matter of which way is slightly less horrible. For the rest of Europe, it's possible that it will all be a big nothingburger. Then again, nobody thought the default of Creditanstalt would supercharge the Great Depression. So who knows?

What a mess. Both sides are right, and both sides are wrong. But so far Europe has done next to nothing for Greece. They've made lots of loans, but mainly so that Greece could pay back its debt to shaky European banks. It's been every bit as disingenuous and self-interested as all the cheap loans those banks made to Greece in the first place so that Germans and others could enjoy access to cheap Greek products during the aughts. They enjoyed the boom from those loans and supported it with monetary policy that favored Germany but overheated Greeece, and then when the economy went sour they set monetary policy continent-wide to favor Germany yet again, not the folks they'd been shoveling money too all those years. And when Greece's economy collapsed, they just sat back, talked about following the rules, and demanded that Greece let their economy collapse even further.

It's not as if Greece bears no blame for what happened. A lot of people share in that. But Germany has been the cynical manipulator of events all the way back to 2000, tacitly approving capital flows to Greece when it helped the German economy and then orchestrating billions in loans when German banks ended up in trouble. And now that German banks aren't in trouble anymore, bye bye loans. Time to pull up the ladder.

Whatever else happens, it's a good time to be German and it's a crappy time to be Greek. Welcome to the European "union."
Whatever else happens, it's a good time to be German and it's a crappy time to be Greek. Welcome to the European "union."

By definition, Unions only work when both/all sides offer their best effort, or essentially pull their own weight. No responsibility for Germany to float Greece.
The problem with trying to analyse the Greece / Euro situation is simple. Most people make the mistake of believing that the Euro is an economic project. It isn't, except in a purely incidental way. It is a political project. So economic analysis is useless.

Thus economics have nothing to do with when Greece exits or the Euro collapses, unless it is physically impossible to continue. It will end when the political cost is too high, because it is all about politics. The Euro is just another chain to bind the European nations together. The bastards in charge of the EU don't care what it costs as long as they can keep their little western Soviet Union going.
The Lesson of Greece Is that Europe Is Run by Functional Sociopaths or Psychopaths | Ian Welsh

The Lesson of Greece Is that Europe Is Run by Functional Sociopaths or Psychopaths
2015 June 24
tags: Greek Debt Crisis
by Ian Welsh
Syriza has made an offer which includes pension cuts and VAT tax increases, and “institutions” have refused to accept it, saying that (among other things) parametric measures aren’t acceptable (though they accepted them from Spain and Ireland). They will now counter-offer.

By “among other things” they mean:

Labour laws, collective bargaining, pension reform, public sector wages, opening up closed professions, investment as well as value-added tax and corporation tax.

You do not believe, in any case, that any of these things will be good for ordinary Greeks, do you?

Total Greek Debt is about 330 billion Euros. 246 billion of that is “bailout funds,” of which over 90 percent went to private banks. As I (and many others) noted back in 2010, Greece should have defaulted then. This “problem,” such as it is, is now almost entirely the creation of attempts to bail out private lenders who should have done their due diligence, and who deserved to lose their money.

I note that the ECB is doing 1.1 trillion of “unconventional monetary policy,” about a third of which is Greek debt–mostly debt they piled up after 2010. A hundred billion of that, piled into 100 year bonds at 1 percent interest would about deal with the problem; Greece could handle the remaining debt.

A hundred billion, in today’s world, is really not that much money.

But the issue has never been Greek debt, per se, the issue has always been making it clear that no one can default and get away with it, let alone leave the Euro. Greece has been used to make an example, and when they elected a government with a mandate to negotiate an end to austerity they had to be taught an extra lesson for thinking that democracy trumped the right of debtors to run the government of those who owe them money and can’t pay it back.

(This is not remotely an exaggeration, as the terms of the deals made include the Government having to run new policies past “institutions”).

Greeks do not want to leave the Euro. They cannot devalue their currency, which is what they need to do, without leaving the Euro. They do not, apparently, even want to default and stay in the Euro.

In other words, Syriza has no bargaining position based on a popular mandate. Its mandate was “end austerity, but do it without being able to make any credible threats.”

Based on its public mandate, Syriza has no BATNA–Best Alternative to a Negotiated Agreement. In essence, they must take anything that Europe offers.

Or Syriza can turn to the public and say, “there is no deal to be had.” But “institutions” never give them the time necessary to, say, run a referendum to get a mandate.

Greeks want to stay in the Euro, as commenter Mandos has often pointed out, because the Greek government is terribly run. They’d like to be run by the German government. The problem is, the Germans aren’t offering the government Germans get, they’re offering austerity run by the Greek government.

If Greeks want a good government, they’re going to have to create it themselves. The first stage requires giving a government a mandate allowing them to do what reason and reality both dictate must be done: seriously threaten to default and/or leave the Euro, and follow through with the threats if a good deal isn’t forthcoming.

Absent this, Syriza’s only choices are to buckle, or to do something for which they don’t have a mandate. Of course, sometimes doing the right thing goes against the wishes of the majority of the population–and these are big steps, so it is hard to blame the Greeks for being squeamish. And in hard electoral terms, if Syriza did the right thing, the economy would need to improve before the next election or they’d be out.

But, also in hard electoral terms, they may as well, because if they don’t, they’re going to lose the next election anyway. The Greeks voted them in to end austerity; they will have failed, and the Greeks will most likely try someone else.

Good luck to Greece, the Greeks, and Syriza. They’re going to need it. But luck tends to come to those who are thinking straight about the reality of their lives, and the Greeks aren’t.

As for the “institutions,” let this be your daily reminder that our leaders are functional sociopaths, at best, but act more like psychopaths. Austerity has meant immense suffering, but it is more important to them to bail out their rich donors and friends and help make them richer and more powerful, than it is to make tens to hundreds of millions of lives (far beyond Greece) less miserable.


When you’re trying to predict how European elites will operate, assume that they are sociopaths on a good day, psychopaths on any other day. The pain and suffering of those whom they do not personally know is not real to them, and they do not care how bad life is for anyone who doesn’t make their lives, personally, better.
Greece and the Emperor’s New Clothes | Ian Welsh

Greece and the Emperor’s New Clothes
2015 June 25
tags: Austerity, Greek Financial Crisis, Oliver Blanchard
by Ian Welsh
We are all familiar with the story of the Emperor’s new clothes, yes? The emperor is sold “clothes” which are imaginary, wanders around naked and everyone pretends he’s clothed till a child points out he’s naked?

Commenter MFI pointed out yesterday that Oliver Blanchard, the chief IMF economist, had the following assumptions for Greece in July of last year.

1. The Greek economy would grow by 3% both this year and every other year until 2020.
2. Inflation would average between 1% and 2% a year both this year and every other year until 2020.
3. The Greek government would run a primary budget surplus of 4% a year.

As MFI points out, at best, these assumptions are delusional. Greece is in forced austerity, they aren’t going to make these targets.

Edward Harrison has been on the same beat:

the IMF revised down its estimate for Greece’s 2014 gross domestic product by some 22 percent in the space of 18 months.


Greek GDP forecasts collated by Edward Harrison

As Edward and MFI note, these are damning.

But they are of a piece with estimates of the effects of austerity. Austerity is a reduction in demand. Reduction in demand leads to economic activity being lower than it otherwise would be. Governments who spend less money can less stuff, this is indisputable. Their spending is other people’s income, those people almost certainly buy less stuff.

Meanwhile, money has been given to rich people and corporations but they have mostly not spent it and when they do spend it, they spend it on luxury goods.

Austerity cannot but reduce GDP. This is what it is designed to do.

But it is sold as making economies better. You cannot, as a government or quasi-governmental agency like a central bank or the IMF, admit that austerity will make the economy and many of the people in it worse off.

The question then is the old one. “Evil, or stupid?” Is Blanchard, for example, such an ideologue that he believes the assumptions which allow him to forecast a better economy under austerity? Are the other economists who have made such forecasts this stupid? I mean, assuming moderate stupidity (normal), they might have believed it in 2008 or even 2010, but we’ve seen the effects of austerity since the financial crisis, and that’s going on 7 years.

These people are either very stupid or are doing what they feel they must to keep their jobs and their membership in a very lucrative club. If they were to say, “no, these policies don’t work”, would they keep their jobs?

It’s not that we don’t know austerity doesn’t work, if by “work” you mean “improve the economy more than not being in austerity would”, we do. It only ever worked in theory by making very dubious assumptions, and it has never worked in fact.

So, at this point, you’re either an extraordinarily blind ideologue if you believe it does; or you’re crooked, on the payroll and know what you’re doing.

Austerity is the policy that the IMF, most central authorities and all neo-liberal parties (which means almost all parties in power in the EU) believe in. It is a policy which works: it puts on sale public assets which would not otherwise be on sale, so that rich private investors can buy them up. Combined with “unconventional monetary policy” (the two are Siamese twins), it makes sure that the rich get richer, corporations are flush with cash they do not use to hire workers and that everyone who isn’t rich or part of the close retainer class, loses.

You really, really don’t want to fall out of that close retainer class. They are paid very well (Lagarde receives a six hundred thousand salary, entirely tax free), they are treated well, and their future job prospects are secure, as are those of their families.

The Emperor, in other words, is bloody well wearing clothes. If you want to remain the chief economist of the IMF, you had best remember that.

Austerity does what it was meant to do. I predicted the course of it in 2009, as did many others, and it has performed exactly as expected.

It is working: the people who want it done are benefiting from it. The people who enforce their will are benefiting from it and there is a sufficient constituency both at the elite level and the common level, to keep it going (remember, Cameron was re-elected in the UK, and Labour got many votes when its essential promise was “slightly kinder austerity.) A few countries (German, for example) are winning under this policy regime.

So austerity will continue: it is a successful policy which does what it is supposed to do and which has a sufficient constituency for its continuation. It must be sold by lies, to be sure, and many of those who sell those lies probably believe them, because they personally benefit from pushing austerity and people prefer to believe that they are honest and working for the good.

Others, I am certain, know it is being sold with lies. Who falls into which camp? Who knows? The end affect is the same.

The Emperor has no clothes and beatings will continue until morale improves.
Syriza will put bailout to a referendum | Ian Welsh

Syriza will put bailout to a referendum
2015 June 26
tags: Greek Bailout Referendum, Greek Debt Crisis
by Ian Welsh
This is a correct action.

In an unexpected move, Prime Minister Alexis Tsipras went on national television early Saturday to call for a referendum on July 5 so that Greek citizens can decide whether to accept or reject the terms of a bailout deal proposed by the country’s creditors.

This is now a democratic decision. I hope the Greeks say “no”, but it is their decision, and the consequences of either vote will now be theirs.

Meanwhile, this will apparently be the German newspaper Bild’s headline tomorrow.

Apparently democracy is now “blackmail.”. Apparently I was wrong about Europeans not being willing to be open in their contempt for popular sovereignty.

Blessings upon the Greeks. They will need them.
Tsipras' Bailout Referendum Sham | naked capitalism

Tsipras' Bailout Referendum Sham
At 1:00 AM in Athens on Saturday morning, Greek prime minister Alex Tsipras announced that Greece would hold a referendum on July 5 on whether to accept the terms provided by the creditors in order for Greece to obtain €7.2 billion in “bailout” funds as the final part of a loan package provided to Greece in 2012.

The bailout in fact expires on June 30. It would require the approval of each and every one of the 18 other countries in the Eurozone to extend the bailout beyond June 30. In some countries, most importantly Germany, extending the bailout requires parliamentary approval. The New York Times reported that German chancellor Angela Merkel told Tsipras that the latest offer was “extaordinarily generous.” It has also been widely reported that her stance towards Greece is more generous than that of the German Finance Minister, Wolfgang Schauble, and Schauble’s views on this issue carry more weight in the Bundestag that Merkel’s do.

Now of course, since Schauble taunted Tsirpas in early May that Greece should consider calling a “helpful” referendum, on can argue he can hardly reverse himself now. But his suggestion came in early May, which is an eternity ago, and when a referendum did not conflict with the bailout end. Thus to have this referendum at all requires a approval of Eurozone countries who for the most part are already unhappy with serial Greek brinksmanship, and may well see this as a stunt too far.*

Germany had already demanded that Greece pass legislation consistent with the bailout terms by the end of this weekend as a condition for approval by the Bundestag. It is thus hard to see, absent Schauble having a sudden conversion experience by virtue of a visit by The Ghost of Christmas Future, that a bailout extension would be approved. Other bailout extension offers made by the more Greece-sympathetic European Commission have also been conditioned on Greece agreeing to structural reforms, aka pension cuts and increases in tax collections (curiously, Greece may actually have won a concession of sorts from the creditors in that labor market “reforms” no longer seem to be a major bone of contention). In keeping, the Wall Street Journal reports that, “Some European Union officials in Brussels suggested it would be difficult to persuade other eurozone governments to extend Europe’s bailout program beyond June 30, the current expiration date.” And a morning tweet from the Financial Times’ Peter Spiegel echoes the skepticism:

Confirming our suspicions, the initial reactions from German MPs do not seem too positive:

The Bundestag’s high odds of rejecting a bailout extension alone makes the referendum seem more a desperate ploy than a real exercise of democracy. And let us not forget that some other Eurozone countries, such as Finland, Latvia, and Spain, are if anything more bloody minded on the subject of Greece than Germany. And as Yannis Koutsomitis also tweeted, the creditors could pull the referendum rug out from under Greece by withdrawing their bailout offer this weekend, although if I were them, I’d let the German parliament and like-minded governments do my dirty work.

Remember that Syriza promised to get relief from austerity when as we have discussed at length, it retreated from the promise early on when Yanis Varoufakis said that Greece would always run primary surpluses. It is now embarking on a path that makes an IMF arrearage certain, which likely means the IMF portion of the bailout funds, €3.6 billion, goes poof.

Thus a cold-blooded weighing of the odds means the “referendum” looks like democracy theater. It gives Tsipras and Syriza cover as they have effectively decided to go into arrearage with the IMF (IMF-speak for default, since the IMF is used to dealing with third-world countries) and are relying on the kindness of governments that are already none to pleased with them to not have the bailout expire. So take your pick: is Tsipras deluded, or is he cynically having his cake (leading Greece to a rejection of the bailout due to well-known creditor constraints) while trying to eat it too (packing the outcome as of now as a voter choice)? One measured assessment:

Key events between now and July 5:

¶ Greece goes into arrears on its €1.5 billion payment to the IMF due June 30. Once a country has gone into arrears, the IMF cannot lend new funds. The Telegraph had reported previously that Greece would lose access to certain types of trade finance in the event of an IMF “default.” As Open Europe pointed out:

The short term impact of not paying the IMF may not immediately be dire in economic and financial terms, though of course it would involve serious reputational damage and further widen the already mammoth gap between Greece and its creditors. It may take a month before cross default clauses could be triggered and even then it rests with decisions of highly political institutions such as the EFSF. Such decisions would likely be managed to achieve the least controversial ends, but equally could quickly spiral out of control.

¶ Month-end pension and government salary payment are due. Even when it withholds funds from the IMF, the government will be under great strain to these payments in full in euros. Analysts and even some Greek government officials have speculated that Greece will come up short, and that seems even more likely given the poor results for May tax collection. From Greek Reporter:

Meanwhile, despite the attempts to regulate Greece’s debt a significant revenue collapse was recorded in May, which preludes to the wild taxation that may be imposed during and after this summer.

The public revenue receipts shortage reached 1 billion euros, of which about 650 million come from unpaid taxes. A fact that partially contributed to this shortage was that the tax declarations for Greek citizens have not yet been submitted.

– See more at: would mean some or all of these payments would be made in scrip. In California, IOUs called “registered warrants” issued during its budget crisis that paid 3.75% in interest were not accepted by banks as cash and traded at discounts to face value. So the issuance of scrip in lieu of cash will, in economic terms, amount to a partial default on its wage and pension obligations

This is what is likely to happen between now and July 5:

¶ The creditors impose capital controls on Greece, if Greece does not do so itself. This move was already seen as a likely outcome if Greece rejected the bailout terms over the weekend. Greek citizens started draining ATMs immediately after the announcement of the referendum, which means they will probably be emptied by the end of the weekend.

Ekathimerini also provided anecdotes from Saturday morning indicating ATM visits were a priority among people just learning of the referendum.

Eurogroup ministers and European leaders had already been discussing imposing capital controls on Greece in the event it refused to accept the bailout terms, which would represent an unheard-of measure (governments are supposed to have the good sense to do this on their own). Since capital controls can be imposed in varying degrees of stringency (including having the ECB through the Bank of Greece require Greek banks to limit cash withdrawals), we expect that we’ll discuss this topic at greater length after the Saturday summit meetings give a clearer reading on how stringent an approach the ECB and other nations intend to take.

¶ Greek banks run out of liquidity. Given the intensification of the bank run, even with restrictions placed on cash transfers and redemptions, Greek banks could run out of physical cash.** That also raises the specter of if and when Greece is forced to impose a bank holiday. Jens Weidmann of the Bundesbank sent what many reads as a warning that if Greece turned down the bailout, the ECB would not be able to continue supporting Greek banks: “If a country were to decide not to fulfill the commitments attached to the aid, the basis for aid would disappear.” As we’ve stated, the referendum ploy is tantamount to a rejection of the bailout. The question remains open as to what the ECB board would regard as the proximate cause for refusing an increase to the ELA, which would amount to putting all the Greek banks into bankruptcy and forcing the imposition of a bank holiday. Observers overwhelmingly believe, as we’ve argued, that the ECB will not act unless it has political cover, despite the clear unhappiness of Weidmann and other national central bank presidents. However, as we have stressed, the ECB will find it very difficult to resist calls to be more stringent with Greece in the event of a default on a €3.5 billion bond payment due July 20. It is hard to see how the Greek banking system can tolerate any more tightening of the ECB choke chain.

Let us consider the standards by which Tsipras’ and Syriza’s conduct should be judged. Syriza knew that Merkel rejected a request by the the Samaras government to have more time to implement politically toxic (and economically damaging) pension and labor market “reforms”. Merkel saw them as unfinished business of the so-called second bailout of 2012. Syriza came into power as a result of this outtrade, promising to negotiate better treatment after the old government had failed while staying in the Eurozone.

The creditors are known thugs. They have engaged in harsh austerity, putting it in one of the very worst downturn in an economy not in a state of war , used Greece to launder bailouts to French and German banks, not given Greece credit for having implemented numerous “reforms” and broke the last government. Paul Mason is correctly very critical of how the creditors behaved last week. Even I was surprised that they’d press their advantage so far when Tsipras has already crossed a red line while desperately trying to pretend he hadn’t by claiming he wasn’t cutting pensions when actually doing so by requiring increased contributions from retirees.

But again, this goes back to the underlying and still apparently unresolvable gap between the creditor and Greek positions: many of the governments, all of which must approve a bailout, need to have Greece make what they see as meaningful pension cuts. Greece, as Samaras told Merkel in 2014, can’t go as quickly down that path as the creditors demand. And the IMF rejected the Greek finesse of tax increases because Greece has been told for years to fix its collection apparatus and has failed to do so. However, the brutal response should have been no surprise. Anyone who followed how Cyrpus was treated in its banking crisis would know how ruthless Eurozone institutions can be (in that case, the heavy was the ECB)

Among Sun Tsu’s rules of war are “Know your enemy” and “Know yourself”. Syriza appears to have not bothered understanding what they were up against They have seemed to be in denial for the last two months that the creditors were not afraid of a Greek default. Their assumption appears to have been that the national governments would find it too politically toxic to recognize losses on the debt they had extended to Greece through the EFSF and the Greek Bailout Fund. But maturities on these facilities have been extended and payments deferred. And the national governments do not have to mark to market. They will recognize losses only if and when Greece fails to make payments, which is years down the road. And even then, the pain is spread out over decades. That means Greece’s supposed nuclear weapon turns out to be a pop gun.

Thus the question is, will the course of action that Syriza has chosen make the lives of ordinary Greeks better? Are partial defaults on pensions and salaries good for the extended Greek families that Syriza professes to care about? Are capital controls and the likely failure of the Greek banking system, which includes depositors taking near-total losses on any funds they weren’t able to extract? Remember, the parties that are most likely to be stuck in that position are medium-sized businesses, meaning the impact will be seen in even more business failures and loss of jobs (remember, capital controls and bank holiday alone will go that, as the recent example of Cyrus attests).

And a big piece that I have yet to see commentators acknowledge: Greek defiance of its creditors will make it more, not less dependent on them in the next year. How badly things turn out for Greece will depend in significant degree on how much they do to ameliorate the impact of the implosion of the banking system, whether they take extreme measures to keep Greece in the Eurozone, and if Greece tumbles out, how much they provide in humanitarian aid and targeted trade financing (most important, for petroleum imports).

Let us look at the alternate scenario and assume that a large percentage of the Bundestag gets brain transplants in the next day. Greece miraculously gets its bailout extension and so the July 5 vote is not moot. Doesn’t that redeem Tsipras as a leader?

In a word, no. What the did Greek government know as of this weekend that it did not know earlier to justify delaying a referendum so long that it it will probably be moot? As Costas Lapavitsas of Syriza’s central committee pointed out in early March, it was evident that the Troika and Eurogroup were not willing to negotiate a new deal, in both senses of the word, with Greece. Tsipras’ strategy had failed and it was time to change course.

Given Syriza’s now clearly contradictory campaign promises, the party could have done extensive, rigorous polling or held a referendum to determine what to do. Tsipras was clearly aware of that as an option; he kept bringing it up in talks with creditors, apparently thinking it was a threat. But Tsipras already had a fresh election and strong popular approval and yet the creditors were not moved. It did not appear to occur to him that they had an easy defense: that Greece may be a democracy, but so to are the 18 other nations that have to agree to a bailout. As misguided as the beliefs of their electorates might be, they have as much of a right to a say as Greece. But Syriza remained fixated on its domestic needs and never even made a decent argument for why there were some legitimate reasons its pension spending was so high, giving it the appearance of having more generous pensions than those of the countries being asked to fund them. The Wall Street Journal made a better case, for instance, than I ever saw from Greek officials.

If the ruling coalition had any doubt that the creditors would not relent in this game of chicken, they should have been settled as of mid-May. In early May, as we mentioned, Schauble taunted the Greek government, suggesting they have a referendum, a clear statement that Germany was indifferent to a Greek default or exit. In mid-May, Tsipras told Merkel and Hollande that Greece would not be able to make an IMF payment due May 11. He claimed later not to know that the government could do what it did, borrow from an IMF reserve as an emergency source of funds. From Merkel’s and Hollande’s vantage, the default threat was no doubt real and they did not blink.

Similarly, Tsipras should have held a referendum long before he stripped the Greek government of funds to keep paying the creditors, since a default is better managed with some cash on hand.

So the only conceivable excuse for waiting this long is for Tsipras to attempt to save himself. If he were to reject the bailout, the decision is unquestionably his and that of his allies. That it precisely the sort of decision that government leaders are expected to make. Or he could just as well accept the bailout, recognizing that as bad as things are, that the country would be plunged into an even deeper economic sinkhole, putting the survival of even more citizens at risk. It would take forming a new coalition with To Potami and New Democracy, and that would mean that his and Syriza’s position would become far more tenuous and he would be fiercely denounced by many if mot most Syriza MPs.

Thus the referendum ruse looks to be about trying to spare Tsipras and Syriza the worst consequences of his having underestimated the creditors and not preparing for worst-case scenarios, which is another responsibility of leadership that he and his party have neglected.

Greece and Germany are operating from deep cultural impulses. One of Greece’s greatest achievements is creating different dramatic types, among them, the tragedy. No matter how the bailout power struggle winds up, Greece is unlikely to obtain any relief. But the country has yet to experience its moment of tragic recognition. By contrast, one of Germany’s cultural touchstones is Wagner’s Gotterdammerung. In it, Brunnhilde loses her divine status and to remove the curse of the ring at the center of the plot, creates a bonfire in which she immolates herself. The fire she has created burns down the gods themselves. We’ve said that Germany’s refusal to relent on its contradictory policies, that of running sustained trade surpluses, not being willing to finance its trade partners, and not supporting more European integration, most of all Federal-level fiscal spending, will burn down Germany’s export markets and eventually engulf Germany itself. Will Merkel be cut down to size in the estimation of history from her current revered status? Gotterdammerung has a much longer running time than any of the great Greek tragedies, so it will take some time to see if the Germans play true to form.

* And that’s aside from the fact that the referendum appears to violate the Greek constitution (not that that is a matter to be decided by the creditors, mind you, that’s internal to Greece, but it allows for more unfavorable messaging in the press). Per the Financial Times:

The referendum also raises legal questions. Patroklos Koudounis, head of the Athens-based Adequate group risk consultancy, said the Greek constitution stipulated that referendums were not allowed on fiscal issues. “In the way that Mr Tsipras described the question, it appears that question falls within the category of fiscal issues,” he said.

** As Nathan Tankus notes by e-mail:

There would be an argument that the Bank of Greece should print Euro banknotes because the ECB is supposed to preserve the integrity of the payments system above all other goals. I say would because the Bank of Greece can’t legally take any direction from politicians so Syriza can’t make that case at all. In realpolitik terms, if ELA was cut off Bank of Greece officials would be told (officially or unofficially) to not print any more banknotes. If Syriza took over the Bank of Greece and started delivering Euros to the banking system I would not be surprised if proceedings to suspend Greece from the EU began very quickly (under the pretense that there was significant threat to the “rule of law”). Once they were suspended the other member states would have great leeway to punish Greece for their transgressions.

Remember we do not see this sort of raw power play as imminent. The ECB has kept itself out of the headlines as much as possible and no doubt would prefer to keep it that way. It would only go to these lengths if the Eurozone members were of the view that Greece had breached Eurozone rules in a serious way.
I feel awful for the Greek people. They are truly fucked.

If this whole escapade doesn't show why one needs professional governance and not idiotic amateur ideologues running your country, then one will never get it.
Exactly. And all the toothless white trash with 24 kids are in deep red states. They suck off the teet like nobody's business.

Maybe not.....states receiving the most federal funding per tax dollar paid (from those right-wingers at Mother Jones)

1. New Mexico: $2.63 -
2. West Virginia: $2.57 -
3. Mississippi: $2.47
4. District of Colombia: $2.41 -
5. Hawaii: $2.38

Two of those states are more than 50% white, with Mississippi at 62%. I'll give you West Virginia though, sweet Jesus. Amazing that a state with so many backwards whites actually seceded from Virginia over slavery.
How Eurocrats, Greeks, Germans, and Eastern Europeans View the Greek Crisis | Ian Welsh

How Eurocrats, Greeks, Germans, and Eastern Europeans View the Greek Crisis
2015 June 28
tags: Greek Debt Crisis
by Mandos
The Syriza government in Greece just made the move of proposing a referendum on the creditors’ last (unacceptable) offer, so the Greek people can now choose a destiny from a set of unpleasant destinies to which history has brought them. From the creditor’s perspective, this pushes them into precisely the situation they have spent the last seven years (at least) avoiding at all costs–the holding of a democratic dialogue on any part of the bailout. Even their threats to remove the proposal and to cut off ELA are acts of participation in this utterly unwanted dialogue. If Syriza proceeds with this, it will have turned the “sea lion” strategy around and on its head.

The bank bailouts were a “metacrime,” a moral monstrosity by which the productive economy was sacrificed to save what should be merely the money conduit system, rather than sacrificing the finance industry to save the productive economy, and all to conceal crimes and failures inside the money conduit system. However, while the immediate precipitation of the ongoing European/Greek crisis can be attributed to this, the route to such an unstable situation is rather more complex.

Ian asked me to put together some thoughts on the matter of the attitudes, aspirations, and motives of the participants at a “cultural” and interest group level, which I believe are non-trivial drivers of this conflict. For me, at least, when people do wrong things and get themselves into bad situations, I feel it is not enough to turn them into cartoon villains; often outwardly (or “functionally”) sociopathic behaviour has an aetiology in more conventional human failings. Humans often climb up ideological trees from which it is difficult to talk them down. That doesn’t mean I necessarily take a position of pure relativism; being unable to come down from that tree is itself a moral failing.

Before I begin, a disclaimer: I’m going to be painting with a broad brush here. A few years of living in Europe have taught me how impossible it is to live without a certain quota of “pragmatic” stereotyping—whereas it is genuinely easier, in my experience, to act as though one can avoid mentally assigning group characteristics in the USA and Canada. This, I acknowledge, is very dangerous; there are, for example, many Germans who see through what it is their elites have wrought in Greece. Secondly, that I try to write with a layer of sympathy doesn’t mean that I agree with the positions–for some reason, I always have to emphasize this.

EUians and Eurocrats

The first group I’ll discuss isn’t really a “national” grouping at all, but rather a stratum of mostly continental Europeans who view themselves as first and foremost “Europeans” as in citizens of the European Union. I am going to dub them “EUians” from this point on. On the extreme end, I have met EUians who explicitly believe that European countries should abandon their national languages and just adopt a lingua franca (i.e., English). All in all, they believe that Europeans need to “grow up” and accept that the era of the culturally-defined nation state is “over” and that it is a monkey on the back of Europa herself.

Some of you may see this as a pathetic self-abnegation, and maybe it is. But Europe spent the Cold War and maybe before that as a kind of chessboard on which great powers, including powers within Europe, play their games. The only way to evade this fate is to convert Europe into a single, possibly diverse nation on its own — and the only game in town is the EU.

In this worldview, it is only progress that national politics become increasingly devoid of content, and it is only necessary to build European-level democracy when the Europeans have finally, ironically, swallowed the medicine of their own mission civilisatrice. A case in point that is unfolding right now is the drama over refugees, specifically, how to settle them. Brussels had a perfectly reasonable and fair idea that refugees be allocated to countries in proportion to countries’ relative economic weight. This was met with absolute rejection, particularly by newer EU countries in Eastern Europe, who explicitly do not want even a small increase in the proportion of brown people who live there. Behind these countries hid some of the older, larger countries, whose national politics are already burdened by immigration-fatigue.

To EUians, this can only be confirmation that, at the national-political level, Europeans are only a hair’s breadth away from poking each other with sharp sticks in order to maintain ethnoreligious homogeneity. And they may be. But is it a sustainable solution to gradually dilute their democratic rights? To EUians, it is the only answer.

And that bring us to the inner cadre of EUians: the Eurocracy, the elite bureaucrats whose job it is to ^manage^ European economic and political convergence. One of the principal political functions of the Eurocracy is precisely to circumvent national politics. Eurocrats are to act as would-be philosopher-kings, coming up with reasonable solutions based on scientific principles. Oh, they’re human and can be corrupt and venal, but so can elected politicians. Whence the repeated referenda, and then adopting the Lisbon treaty anyway? Well, if the people say “no,” it’s not like the philosopher-kings are going to come up with a better answer–they already emitted the best answer! That’s why they’re Eurocrats.

Now consider the position of Greece at Syriza’s election. Yes, some Eurocrats might have been willing to admit that IMF predictions of Greek GDP growth were just the teensiest bit awry. But there is a procedure for these things, and that is definitely not the demand for changes to existing political agreements, which must then go through the process of national democracy. And Greek leftists just aren’t popular enough to withstand that in the rest of Europe, quite the contrary–by making explicitly left-wing demands, they have asked other populations that are not left-wing to support what they believe is a long-discredited experiment.

@WhelanKarl but the opposite view implies that democracies can’t sign binding agreements rich is surely crazier

— Dan Davies (@dsquareddigest) June 23, 2015

No, the from the Eurocracy’s point of view, the correct way to go about solving this problem is by the baking of fudge. If Syriza had agreed in February to support something memorandum shaped — taken the short-term pain of adopting a kolotoumba — the Eurocracy could have given it a little quid pro quo through the back doors of Brussels. But for EUians and Eurocrats, the bad signs started off very early — choosing ANEL over To Potami as a partner. Readers here probably think of To Potami as a Quisling, capitulationist part, but for the Eurocracy, an alliance with To Potami would have signalled that Syriza could be mollified ultimately through fudging an agreement and was not itself a dangerous populist party. But Syriza chose the spear-carrying nationalist Greeks instead.

So from their perspective, Syriza wanted to play populist politics on the open field of democracy and is reaping what it sowed. Europe does not, cannot, should not have room for a populist left, regardless of whether or not the policy proposed makes sense. European politics is about giving cover, and rational, professorial arguments embedded in a dangerous “democratic mandate” framework is just not on. Even this referendum, which the now apparently non-existent proposal might actually win, is a simply unacceptable exercise that, if repeated elsewhere, will destroy the European project, which is an inherent good that cannot survive the popular sovereignty of barbarian peoples.

The poster children

This is sometimes an overlooked aspect of the discussion, but the views of Baltic and East European states do matter. Some of the Baltic states took very painful medicine recently, and not medicine that different in character from what Greece was being asked to take, but has either refused (under Syriza) or only fudged (under ND, etc). And a lot of these countries have populations that are already poorer than Greeks are now.

Now many of you will retort that these countries, instead of joining in solidarity with the creditors, should likewise have the higher ideological standards that Greeks seem to have. But from their perspective, they embraced austerity and social pain as a manner of slicing off their own forearm in order to escape from the bear that has it by the wrist. Yes, I’m talking about Russia. I know that a good number of readers here think of Russia and Vladimir Putin as a kind of last-stand resistor against “AngloZionist” world domination, but for these countries, what they want to know is how soon the West can bring them that sweet, sweet AngloZionism.

So in a sense, Greece’s apparent cozying up to Putin is in some ways a worse affront than its apparent sense of entitlement. Greece is playing with existential fire for these countries, instead of thanking its lucky stars that’s it’s under the AngloZionist umbrella and putting their grandmothers on ice floes of austerity in gratitude.

(As I said above, I am painting with a broad brush. I have an Estonian colleague who is at least neutral on the matter of Greece, but it is clear to me that in terms of European politics, the existential threat of Russia is not far from his mind in any discussion, and Russia for him is his people’s most recent colonial dominator, not the EU.)

Germany (and Northern Europe)

Germany and German politics have been conceived as the other pole in a kind of Athens-Berlin conflict, as Germany is the Eurozone’s largest economy and its most successful. A lot of things have been said about the German role, and some of the criticisms are correct. And it’s true that to some extent, popular tabloid German media is all about the lazy Greeks, lolling about in the sun with one hand in the pocket of the hardworking German. It’s become a cliché.

But one thing to emphasize is that the debate about economic reason itself is quite different in Germany. Outside of Germany, many people can agree that Yanis Varoufakis’ proposals are economically reasonable and possibly even mainstream while criticizing him for his political approach. But within Germany, the proposals themselves—and the logic of anti-austerity thinking—are widely seen as coming from another planet. That’s because popular discussion on economics within present-day Germany does not really emphasize the notion of flows and balances. What does it matter that everyone can’t simultaneously be an export superpower? It’s everyone’s duty to try and find something they can offer to the world, and in terms of nations, that is expressed in terms of their export power. The US import “power” is viewed by many Germans as an unsustainable boondoggle…but the German export power is not. Germany even exports to the exporters.

From this perspective, the proper domain of economic policymaking isn’t to be playing some kind of Rube Goldberg game of who should be paid what when to make the balances work out, but instead it is about removing the obstacles to economic agility and to everyone reaching a Platonic state of optimal social contribution. The German mainstream isn’t like English-language conservatism — you can believe in principle in a generous welfare state along most of the German political spectrum, but it needs to be a welfare state designed around facilitating life transitions. And that sometimes means giving employers a little flexibility.

It’s on this basis that left-wing government in the rest of Europe provokes little sympathy in Germany, particularly in the case of Syriza (but not even French dirigisme gets any quarter). From the German perspective, far from Syriza having been forced to retract its programme, the last proposal of the creditors was actually quite generous and full of compromises on the things that Germans think matters. Syriza’s Red Lines are exactly the things that show that Syriza isn’t seriously different from any other clientelistic party of Greece, and therefore it deserves no sympathy, leftist or otherwise. Germany is willing to open its pocketbook to Greece — through the back door, of course, via Eurofudge — to ensure that Greece looks like a success story. But only if things like pension reform, privatization, labour reform, take place, and not just in a recalcitrant way, but in a way that shows that the Greek government believes in a reasonable “soziale Marktwirtshaft.”

But, from a German perspective, Alexis Tsipras wants to run non-surpluses without figuring out what Greece’s contribution to the world will be as it is, and neither the Eurozone nor the EU itself needs that. In fact, Tsipras wants to propagate this ideology in Europe elsewhere, and to them, that’s neither right nor tolerable.

Finally, Greece

Even with the proposals offically off the table (the fact that a referendum on them is a dealbreaker is in itself very telling!), the referendum is a useful exercise, especially if the “real” question in people’s minds is formulated correctly. It’s important to know “for real” if the kind of thing that the creditors were asking on Thursday would be acceptable to the average Greek, at least in its broad outline — not just some deal, but that deal, even if it is hypothetical.

But a lot of readers here may be disappointed to know that many Greeks would vote for such a deal anyway, even if it meant that Greece became a “debt colony” of the EU. Why would a people voluntarily choose such abjection, even if the Grexit path is hard?

The truth is that Greece sits in a perfect storm of historical factors and cultural memes that primes it specifically to be a chief candidate for a crisis like this. And the form that Greek nationalism has taken up to now doesn’t help at all. At the point at which Greece is “finally” free to take up its place in heart of the Europe whose mother it is, how is it conceivable that it could be facing ejection from what was supposed to be Europe’s cornerstone? How could it be possible that Greece could actually always have been, effectively, an Orthodox Turkey, when it suffered so much under the Ottomans? And how likely is it that, left to their own devices, the Greek elite would actually themselves choose to turn the corner and build a state administration as good as Germany’s? Isn’t it more likely that outside the Euro, Greece will just follow it’s old trajectory, and not become the devalued competitive powerhouse that Grexit-boosters believe it can be?

These are the questions that Greek citizens are going to be asking themselves over the next week, the real issues of the referendum, and it may be that a lot of participants on Ian’s blog won’t like the answers they come up with. Because a “No” most likely means a Grexit forced by the creditors, and while I believe the Greek government is technically correct in not making this explicit, everyone knows what it means. But it is nevertheless important to have had this exercise, because whatever the outcome of the proposed referendum, it will be contingent on and subordinate to the democratic choice of a people, exactly what the Eurocracy has been avoiding, unsustainably in my opinion.

(Brief Ian notes:

1) I asked Mandos to write this because I think it’s important.

2) Greece has now imposed capital controls. Five years later than it should have been done, but a good step.)
Interesting take on the Greece/Russia angle. A snippet:

Eastring vs. Balkan Stream: The Battle For Greece | The Vineyard of the Saker

A (Greek) Fork In The Road

Although the debt crisis was long an issue since before Balkan Stream was even conceptualized, it’s now become intimately intertwined in the New Cold War energy drama unfolding in the Balkans. The Troika wants to force Tsipras to capitulate to an unpopular debt deal that would surely lead to the rapid end of his premiership. Right now, the main factor tying Balkan Stream to Greece is the Tsipras government, and it’s in Russia and the multipolar world’s best interests to see him remain in power until the pipeline can physically be constructed. Any sudden or unexpected change of leadership in Greece could easily endanger the political viability of Balkan Stream and force Russia into relying on Eastring, and it’s for these reasons why the Troika wants to force Tsipras into an inextricable dilemma.

If he accepts the current debt conditions, then he’ll lose the support of his base and likely usher in early elections or fall victim to a revolt from within his own party. On the other hand, if he rejects the proposal and allows Greece to default, then the resultant economic catastrophe could kill all grassroots support for him and prematurely end his political career. That’s why the decision to hold a national referendum on the debt deal was such a genius move, because it ensures that Tsipras has a chance of surviving the forthcoming political-economic firestorm over its democratically obtained results (which look to foretell a debt rejection and imminent default ). With the people on his side (no matter how narrowly), Tsipras could continue presiding over Greece as it crawls into an uncertain and troubling forthcoming period. Additionally, his continued stewardship of the country and the personal chemistry that he has with the BRICS leaders ( especially Vladimir Putin ) could lead to them extending some form of economic assistance (probably through the $100 billion BRICS New Development Bank or equally large currency reserve pool ) to Greece after their upcoming summit in Ufa in early July, provided that he can hang on to leadership until then.

Thus, the future of Balkan energy geopolitics currently comes down to whatever happens in Greece in the near future. While it’s possible that a Greek Prime Minister other than Tsipras could continue moving forward with Balkan Stream, the likelihood is significantly less than if Tsipras stayed put in office. Creating the conditions for his removal is the indirect way in which the US and EU prefer to influence the course of Russia’s future energy shipments through the Balkans, hence why such pressure is being applied on Tsipras at this moment. His referendum proposal clearly took them all by surprise, since real democracy is practically unheard of in Europe nowadays, and nobody expected him to directly refer to his constituents prior to making one of the country’s most pivotal decisions in decades. Through these means, he can escape the Catch-22 trap that the Troika set for him, and in doing so, also save the future of Balkan Stream.
Maybe not.....states receiving the most federal funding per tax dollar paid (from those right-wingers at Mother Jones)

1. New Mexico: $2.63 -
2. West Virginia: $2.57 -
3. Mississippi: $2.47
4. District of Colombia: $2.41 -
5. Hawaii: $2.38

Two of those states are more than 50% white, with Mississippi at 62%. I'll give you West Virginia though, sweet Jesus. Amazing that a state with so many backwards whites actually seceded from Virginia over slavery.

I said red, not white.
If this whole escapade doesn't show why one needs professional governance and not idiotic amateur ideologues running your country, then one will never get it.
If by professional governance, you mean monarchy, then I agree. Democracy is always a fleeting state. The more powerless and temporary the stewards, the better.
You also said white. I even highlighted the part where you did so to help you avoid having to make this sort of reply.

As does every other form of government, and usually with greater regularity.

In about 20 years we'll have AI that's smart enough to govern the whole world and allocate resources efficiently to every inhabitant of planet earth. Until then, democracy will have to do.
As does every other form of government, and usually with greater regularity.

I don't think so, I think it's usually due to other factors. The point about democracy is that it has a massive and inevitably fatal inherent flaw.

If America, for example, had remained a republic like she was meant to be instead of becoming a democracy, she'd be an awful lot better off.

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