Greece and The Coming (possible) Grexit From The EuroZone

Varoufakis exit is not the game changer the EU needs

Many observers of the Greek debt crisis believed that after the referendum matters should return to the negotiating table in Brussels for a new round of painful arm-wrestling between Greece and the troika. Before the referendum, it was widely held that a yes vote would shift the balance towards the troika, while a no vote would increase Greece’s leverage in the negotiations.

The underlying assumption has been that it is perfectly rational for the troika and Greece to return to the negotiating table after the referendum. But within hours of the humiliating referendum outcome, the troika regrouped, stood up and delivered a new blow, resulting in the resignation of Greek Finance Minister Yanis Varoufakis.

It is tempting to believe the departure of Varoufakis is a paradigm changer. In reality it is a non sequitur. The eurozone is in real crisis and changing the finance minister of Greece is akin to shuffling the deckchairs on the Titanic.

The minister’s fate was not a shock to everyone - he failed to create sufficient ambiguity. Neither Varoufakis nor the troika has ever mastered the art of tightrope walking, so the negotiations between Greece and its creditors became fraught with deeper and deeper challenges as time wore on.

Just before the referendum took place, the IMF had started recanting its position on Greece, acknowledging Greece would need far more support, along with debt relief, to turn its economy around. This makes the negotiations in Brussels a wild goose chase and both parties know of their futility. Would it be fair to ask whether the negotiations were a hoax?

Rebuilding the flawed EU
It is an open secret today that the IMF’s policy stance on Greece was a victim of Dominique Strauss-Kahn. In his usual style, he brushed aside professional advice from his economists and objections from many developed nations and put the rock of austerity around the neck of Greece, leading to economic stagnation.

The troika sought to make Greece compete in an international swimming championship when Greece couldn’t even float with that rock tied to its neck.

Deep down, the European Union has fundamental flaws. Any attempt to put a fix on the Greek crisis without rectifying these fundamental flaws will inevitably fail regardless of who is the finance minister of Greece or Germany.

The EU is nothing but a dualistic system with a north-south divide in productivity: most of the southern economies can’t compete with the northern ones, which inevitably leads to trade imbalances between them. Since the entry of Greece into the EU, the north has maintained a trade surplus while the south has suffered from a trade deficit.

The desire of southern governments to create investment booms for increasing productivity led to their indebtedness, with little impacts on their relative productivity vis-à-vis northern EU nations, but with a rising gap in their cost of production due to increasing wages. This begs a question of how the EU can overcome such long-run problems.

More lessons from Germany
One possible model can be found in Germany’s constitution.

The German Basic Law (Germany’s constitution) is founded on the philosophy of ensuring each tier of government has adequate access to financial resources. It is graphic about the allocation of revenues from the major taxes among the Federation, Länder (German states) and municipal governments. All three tiers of government share the personal income tax while the Federation and the Länder share corporate taxes and the proceeds from the German value-added tax (VAT). Beyond this agreement, even if there is no constitutional mandate, a business tax is also shared among these three tiers of government. This fiscal equalisation ensures that the poorer Länder are equalised to at least 95% of the average revenues of all Länder.

In the absence of fiscal equalisation and the divergence in productivity, the current Greek negotiations will fail to overcome economic dualism in the EU.

The EU will move from one crisis to another if it relies solely on negotiations of debts without real reforms in the fiscal arena.
 
Someone needs to push that Schäuble dude over a cliff's edge.
He's basically a hand puppet of the big banks. He only stays in the cabinet because he knows where the actual and former chancellors "ihre Leichen im Keller haben"!
Whatever happens to or in Greece will likely not have an impact on Angela Merkel.
Mainstream print and TV media will take care of that by either not dealing with that subject at all or create a distraction in form of an otherwise silly scandal. Has worked in the past for both her and her mentor Helmut Kohl.
 
Rambo said:
Tentative Deal Strips Greece of Sovereignty, Makes Debt Relief Dependent on Compliance | naked capitalism
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I'm of two minds on this. One, Greece is clearly going to moribund for awhile, though I don't think it's going to be as bad as people are gnashing teeth over since they are damn near at rock bottom already. So this deal is fairly dumb. But on the other hand, Greece could probably use being a colony for awhile. It might be the only thing to reform their fucked up systems. Now we have established you and I are in the Patrick Henry Live Free or Die camp, and would probably be throwing molotov cocktails at parliament at this point, but as an impartial observer, having a little sovereignty go away might not be the worst thing for them.

The other misnomer I see going around is Germany wants to break up the eurozone, when all credible people who know Schäuble say he really thinks that ejecting Greece would bring the EU closer together, so that all the wailing about them imploding the union is just mischaracterization at best, histronics at worst.

And obviously France is still worried about German dominance.
 
Daily lolz.

If anyone wants a good read with generally accurate stats, lolgreece is a good follow. Greek expat in the UK's blog.


LOL GREECE

Being Greek right now is the equivalent of being the youngest son of a woman who was once a happy-go-lucky socialite with a love of wine. One who, after years of people turning a blind eye to her escalating binges, partly in order to avoid social embarrassment and partly in order to avoid losing a generous drinking partner, has finally tipped over into full-blown alcoholism. You're not a villain if you advocate treatment for her. You're not a villain if you discuss her condition with people outside the family, or if you say she needs professional help; you're not a villain if you advise people not to give her alcohol or give her drinking money. You're not a villain if you criticize her friends and your older siblings for not getting help earlier. You're also not a hypocrite if you claim the social workers on her case are inept, or if you want her off the programme and back home ASAP.
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Why Greece should leave the euro zone - The Washington Post

(In fairness to the creditors, many believe that Greece cannot successfully steward that sovereignty. Especially over the last few months, the nation that brought democracy to the world centuries ago makes democracy today look like middle-school student government distracted by summer vacation.)
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Greek Debt Crisis: Germany Flexes Its Muscles in Talks With Bailout Ultimatum - WSJ

Since his election in January, Mr. Tsipras has oscillated between his hard-line and pragmatic advisers, Greek officials say. The pragmatists urged him to sign a bailout deal early, even if it meant accepting politically hard-to-sell austerity measures, because the terms of any deal would get tougher as the months passed and Greece’s economy deteriorated.

Nonsense, argued others such as now-ousted finance minister Yanis Varoufakis: Greece would get the best bailout terms, including less austerity and more debt relief, if it waited until the last moment before debt default. Europe would get scared of the destabilizing fallout from a Greek euro exit, this camp argued.
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Algernon Crisp said:
Democracy is probably the worst form of government known to man, with the possible exceptions of communism and islamic theocracy.

Things would work better if decisions were taken by a load of monkeys throwing their own faeces at a decision board - whatever the monkey shit lands on, that's what we do. I'm 100% serious, that would work better than our current system of letting any fuckwit who can mist a mirror cast his vote for whichever lying fucking charlatan promises him the most "free" shit.
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Government, as an institution is non-functional. Too many competing interests, which, over time, become unresolvable. And nation states, as a structure are losing their ability to stay relevant. Wealth concentration within a few borders is causing hordes of unwanted immigration to the point where borders no longer matter in this quest for benefits and to escape the extremes of non-functional nation states.
 
Re: Varoufakis

"You can blame him as much as you want for his political plan, his statements, for his taste in shirts, for vacations in Aegina."

"But you cannot accuse him of stealing the money of Greek people or having a covert plan to take Greece to the precipice", said Mr Tsipras.
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:ahahahaha:
 
That's a vote of confidence. Why did he select him for Minister of Finance again?
 
What Would a ‘Grexit’ Mean for Luxury Fashion?
A Greek return to the drachma could seriously disrupt the luxury fashion industry.


LONDON, United Kingdom — It sounds like something straight out of a Sophocles tragedy. In the drama of Greece’s potential exit from the Eurozone, lines have been drawn, sides have been taken and the Greek prime minister Alexis Tsipras has called the Eurogroup’s tactics “blackmail” and “ultimatums,” earning him a harsh retort from Jean-Claude Juncker, president of the European Commission: “You shouldn’t commit suicide because you’re afraid of dying.”

In just a few days, negotiations to save Greece from insolvency have rapidly unravelled. The dramatics began to unfold across the continent last Friday, when Tsipras officially rejected a renewed proposition from creditors to extend his country's bailout package, before calling the proposal to be put to popular vote in a national referendum to be held this weekend. But leaders of the Eurogroup have made it clear that if Greece continues to refuse the austerity measures that come bundled with rescue offerings, it will be impossible for them to remain in the Eurozone. As Angela Merkel, the chancellor of Germany, bluntly said, next Sunday’s vote will boil down to a decision between “the euro and the drachma.”

For now, the country’s banks will remain shuttered, while the euro, which is already at a seven-year low against the pound, continues to slip. With discussions about the debt crisis going nowhere, a Greek exit is becoming more likely. What would this mean for the luxury fashion industry?

Should Greece decide to revert to the drachma, luxury fashion won’t feel that much pain from the turmoil of the country itself, given its relative unimportance to the industry. Greece has neither much involvement with the production of luxury fashion goods, nor does it make up a significant portion of the industry’s sales. The country’s disposable income has been falling steadily since its economy went into tailspin in 2009 and was further cut by the severe austerity measures that have been in place since 2012.

“A Greek exit in and of itself is not particularly relevant,” explains Luca Solca, managing director of luxury goods at BNP Exane Paribas, who says that Greece is not a significant market for the luxury fashion industry. “What is going to be relevant for luxury goods are the potential broader implications that this could have in terms of the equity market correction.”

Indeed, a Greek exit from the Eurozone will have an unavoidable impact on the continent’s stock market and leading currency. Potential blow back from Greece’s refusal to accept a bail out was already felt on Monday, when global stock markets slumped in response to the weekend’s events. The fate of Greece will not unfold in isolation. Other markets would be susceptible to contagion; something that the luxury fashion industry would be unable to escape.

Financial opinions are generally in agreement that Greece’s effect on the global economy has been muted so far. “The markets are still holding to the idea that the Greek’s may decide not to get out and, as a consequence, this is still a bit of a storm in a tea cup,” says Solca. However, he thinks that if Greek citizens do vote ‘no’ next Sunday, opting to refuse the bailout offers of the Eurogroup and, presumably, crash out of the Eurozone, the impact on the value of the currency and stock markets around the world is likely to be much more extreme and would be felt by the luxury fashion industry.

The extent to which the fashion industry feels from Greece’s exit would depend on how well European leaders are able to control the fall out, according to Solca. “What happens to the luxury goods industry is very much a function of how severe the market dislocation is,” he explains. However, many months of discussions and endless back and forth between the country and its creditors should mean that Europe is at least prepared for a 'Grexit'. David Cameron, the British prime minister, has already confirmed that he is putting together contingency plans for such a situation, while Solca says he would expect that the European Central Bank and its partners might attempt to create some kind of firewall that could protect other countries from contagion if Greece leaves.

But even with measures to dampen the damage to the rest of Europe, the luxury fashion industry would still expect to see a drop in sales. Times of economic instability have always correlated with a downturn in discretionary spending. “The business of luxury is a business that is linked to economic growth,” says Mario Ortelli, a senior luxury goods analyst at Sanford C. Berstein, who explains the importance of the “business of happiness” to the luxury fashion industry, which thrives when people feel in a position to buy goods they don’t actually need. “If the financial market enters into a crisis and things are unstable, then luxury goods are not at the top of the list of things that you want to buy.”

The luxury fashion industry wouldn’t just see a drop in sales from its European clients either. A Greek exit would have ripples that extend around the globe, says Solca, with the effects predominantly transmitted through stock markets. The US, for example, would expect to see a significant downward correction in its equity market, as their stock market is very closely connected to the European one. This would then signal a downturn in American discretionary spending and a drop off of luxury fashion sales from that region as well.

The industry would also see a drop in sales in China, Solca says, although this would take longer to come into effect. Initially, as the Chinese market is less interconnected with the European and US equity markets, the country and its discretionary spending would be protected. But as two of the country’s major customers see their growth weaken, China would feel a subsequent impact.

Mario Ortelli says the impact of a euro downturn would have a second major consequence for the luxury fashion industry in the form of pricing. Luxury fashion brands are overwhelming based within the Eurozone and conduct their business in Euros, but the majority of the clients come from elsewhere in the world. “Any big swing in the Euro valuation in comparison to other countries will activate a change of the price differential among currencies,” says Ortelli.

Companies would be left facing huge imbalances between the prices of their items in different countries. They would have to quickly make a decision whether to raise prices in Europe or reduce them elsewhere, explains Ortelli. Particularly for clients in Asia, products priced in euros — if brands do nothing to adjust discrepancies between currencies — would become incredibly appealing. With their market’s more limited reaction to a Greek exit, luxury fashion companies could see an increase in sales within Europe from clients outside of the Eurozone. “You don’t go and buy your can of coke in Germany because it costs less there than it does in pounds, but if you’re prepared to buy €3,000 of bags from Chanel, you can think to spend a weekend shopping in Paris,” says Ortelli.
 
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