Friday, 20 February 2015

The Greek crisis - 02/19/2015

And so it goes on. Yesterday it looked as if the EU were going to compromise, then the Germans said ‘NEIN!’. Now this is the latest of the ongoing saga.

I hope the Greeks are negotiating with ‘Plan B’ partners.

Greece Update: Working Group Ends Without Result, However "Statement Drafted That May Be Basis For Compromise"

19 February, 2015

In typical European fashion, today's Greek negotiations have ended in a Schrodingerian fashion: on one hands reports are now trickling in that the Greek Eurogroup working group has concluded their meeting after 7 hours without a result...

Eurogroup-Working Group ended after 7 hrs without result, sources say

... while on the other, Market News is reporting that Eurozone deputies have "drafted a statement that could well serve as a basis for a compromise between Greece and the Eurozone, to be examined by finance ministers Friday."

The positions of Greece and the Eurozone over future financing for Athens moved much closer at a meeting of finance ministry deputies in Brussels, three sources with knowledge of the discussions told Euro Insight Thursday.
One source, a veteran Eurozone official, said, “positions seem to be reasonably close.”
Speaking on condition of anonymity, he added that Eurogroup deputies had drafted a statement that would serve as a basis for a compromise between Greece and the Eurozone, to be signed off subsequently by finance ministers.
The deputies are “close to an agreement but (it is) subject to political discussion,” a second source with knowledge of the talks said.
third source confirmed that Eurogroup ministers would meet Friday in Brussels for a political discussion and to check the text.
Everyone has to check with the boss,” he said. Germany’s reaction to the compromise from deputies will come under particular scrutiny Friday given its recent cool reaction to Greece’s recent stance on its future financing.

One can only wonder how much EURUSD or Greek government bonds exposure those unnamed sources with "knowledge" have. In any event according to the same sources, "the draft is "broadly" based on a Greek submission from earlier Thursday, the second source dded."

Of course this is the same draft that Germany threw up all over earlier, and in a leaked letter expressly stated the language that must be included for a compromise to be achieved - language which would crush any anti-Memorandum credibility the Greek government may have wanted to preserve:

... we need a clear and convincing commitment by Greece, which may just contain three short and well understandable sentences: “We apply for the extension of the current programme, making use of built-in flexibility. We will agree with the institutions any changes in measures from the existing MoU. And we aim at successfully concluding the programme”.
... Greece has to publicly confirm that it will refrain from unilateral national measures to roll back the current programme. The authorities will, with immediate effect, not take any initiative or implement any measure or policy which is inconsistent with existing commitments under the current programme or aggravate the fiscal situation. This includes refraining from announced labour market and social reforms to be voted in Parliament this week.

Which means that Tsipras will have to publicly undo all the promises he made on national TV on at least on occasion in the past several weeks: hardly a palatable outcome to the current elected on a mandate of "ending austerity."

Finally, this is not the first time MNI, or CNBC, or Reuters, or Bloomberg, have jumped the shark promising a deal is imminent only for absolutely nothing to materialize.

So is the Greek cat alive or dead? Find out tomorrow when it now appears that courtesy of Greece running out of state funding much earlier than expected, and as a result of the ongoing deposit run, is when the previous D-Day of February 28 has been "seasonally-adjusted" to.

How Germany Is Blowing Up The European Union

Raul Ilargi Meijer
19 February, 2015

As Germany is set to reject a Greek loan extension request (and no, international press, that is not the same as an extension of the bailout program), Steve Keen uses proprietary numbers issued by the OECD – which is supposed to be on Germany’s side?! – to show how dramatically austerity has failed in Europe- that is, if the recovery of the Greek and Spanish economies was ever the real target. It certainly failed the populations of the countries.

The problem is that nobody, not even the OECD can for Germany to answer to a report. But that does not make the case that is made, any less obvious, or bitter for that matter. Not many people remain ready to think that Greece will do what it has said it will, but I think they have been very consistent in their stated goals, and people get distracted too much by semantics at their own peril.

As Steve shows, and Syriza proclaims, more of the same is not on the table, for good reason. It will and can only make matters worse for Greece. Germany – and the ECB – choose to entirely ignore the consequences of their theories, in particular the humanitarian crisis they have caused in Greece. And any political union that ignores the misery it unloads upon its citizens has a short shelf life.

I see a majority voices out there claiming that Syriza is busy capitulating, but I don’t think that. They’ve always said they are willing to go far to reach consensus with Brussels in order to stay in the EU and eurozone. And that’s what they’re showing. In the world of political dealing and scheming, the Greeks have been remarkable consistent; so much so that this is itself leads people to claim they are not.

But I still wouldn’t rule out the possibility that Varoufakis has long come to the conclusion that the eurozone must and will implode no matter what anybody does, and that he’s simply jockeying for the best position when the time comes to leave the eurozone.

Germany’s bullying- which is how its actions are being perceived by fast growing numbers of people – will come back to hurt it. The eurozone is made up of independent nations, most with their own specific culture and their own language. Trying to browbeat them all into submission, and yes, that is where Germany’s stance is leading, will only lead to much bigger trouble.

But first, it’s still ‘merely’ and economic issue, and it’s therefore the economic ideas behind EU policies that need to be discussed and revised. Unleashing misery on entire nations is indefensible not only from a humanitarian point of view, but also from a historical one. Who in the present context would know that better than Germany?

What Germany holds in its hands, but does not at all realize, is the survival of the European common currency. It must realize that the euro will fail if it tries only to dictate all policies to everyone at every turn. If Germany insists on applying the kind of dictatorship to Europe that it has been doing, the euro is dead. Both for political and historical reasons – nobody will accept being bullied by the Germans for long – and for economic reasons, because Germany’s economic ideas are simply too damaging for other eurozone nations.

Germany – and Holland – are so full of themselves at present – both the politicians and the people – that they are busy blowing up the EU, their cash cow, without realizing this even one moment.

If Greece gives in, Germany will have won, but its bully status will come to bite it in the face. European nations don’t accept bullying, and certainly not from Germany. It’ll be a Pyrrhic victory: the beginning of the end. If Greece however stands firm in its demands, it’s also curtains for the EU. If Greece leaves, it won’t leave alone.

Only the third option, Germany caving to Greek demands, can save the EU. But Merkel and Schäuble have prepped their people to such an extent with the wasteful lazy Greeks narrative that they would have a hard time explaining why they want to give in. The EU may thus fall victim to its own propaganda. That would be funny, no matter how tragic it is at the same time. But it would be an open invitation to the far right as well.

Steve Keen:

A quick quiz: which four countries do you think have done the most to reform their economies over the last seven years? OK, who said Greece, Portugal, Ireland and Spain? No one? Actually, someone did: the OECD. Yes, I kid you not, according to the OECD, the country that has done the most to reform its economy over the last seven years—that is, from before the 2008 economic crisis until well after it—is Greece. Followed at some distance by Portugal, Ireland and Spain.
I saw this in a tweet, and I simply had to go searching to see for myself. And there it was, on page 111 of the OECD’s publication Going For Growth 2015, released on February 9. The top economic reformers were the basket cases of Europe and the world in general. Unemployment in Greece is 27%; in Portugal it’s 15%, Ireland 12%, and Spain 25%. Those are very, very sick economies. And yet they are also the OECD’s top reformers.

You are, I hope, wondering “how come? Isn’t reform supposed to be good for you?” Well, that’s the fairy story—sorry, theory: reform your economies according to our recommendations, and—whatever else happens—your economy will grow more rapidly and be more stable to boot. Unfortunately for those purveying this fairytale, they also developed metrics by which the degree of reform could be measured, so that a decade later, we can compare the fairy story to the reality.
The EU program that Greece is currently refusing to continue implements part of what is known as the ”Stability and Growth Pact” or SGP—which a radio interviewer last week realized has (with just a slight rearrangement of the letters) a much more apt acronym of GASP. And the other countries that are also under the control of GASP include… Portugal, Ireland and Spain.
Greece is refusing to continue with this program, not because it is “refusing its medicine”, but because the medicine is actually poison. And Greece itself is not the proof of that: the other countries on this list are—especially Spain. Spain did everything that the GASP and mainstream economics recommended, not merely after the crisis but before it as well. The GASP required that member countries of the Eurozone have a government debt to GDP ratio of 60% or below, and run a maximum deficit of 3% or less of GDP.
Spain was doing both before the crisis. Its government debt ratio was below 60% from early 2000, and trending down—hitting a low of below 40% shortly after the crisis began.

Its deficit was even better—not only was it below 3% of GDP at the introduction of the Euro, by 2001 it was in surplus—hitting a peak of 2.5% of GDP in 2007.

Before the crisis hit, Spain was being lauded as a success story for the GASP, and superficially for good reason: not only was it following the GASP program by running surpluses, and reducing its government debt, its economy was booming. Unemployment, which had always been high, trended down from 12.5% at the start of the Euro to 8% by 2007. And then it all went pear-shaped.

This raises two questions, the answers to which cement the case that the EU’s austerity program should end everywhere—and not just in Greece. Firstly, how did Spain appear to be doing so well, and then collapse so badly? And did the EU’s policies contribute to Spain’s problems?
The answer to the first question involves what happened to the debt that GASP ignores (as do conventional economists everywhere): private debt. While the GASP imposed strict controls on government debt, it ignored the blowout in private debt on the erroneous argument that private debt is economically unimportant. Private debt rose from about 120% of GDP in early 2000 to over 200% by the time the crisis began, and peaked at 225% of GDP when the GASP’s austerity program kicked in, as Figure 5 shows.

The growth in private debt gave the economy an enormous boost as it financed Spain’s housing bubble, and the tax revenue from this bubble was the main reason that the government was in surplus from 2000 until the crisis hit. The rise in private debt dwarfed the decline in government debt, and the huge stimulus from private sector borrowing more than compensated for the drag on the economy from the government surplus. As the government was “salting away pennies”, the private sector was wallowing in new debt-financed spending.

But to do so, the private non-bank sector had to get more indebted to the banks—as Figure 5 shows. When growth in private debt turned around, the housing bubble collapsed and private sector borrowing went into free-fall. Then, and only then, did government debt rise—as increased government spending slightly compensated for the plunge in private debt-financed spending. Ultimately, by 2010, the stimulus from rising government spending slowed down the decline in private borrowing. But then austerity kicked in and the government stimulus stalled. Consequently the private sector went from mild deleveraging into heavy deleveraging—reducing its debt by as much as 20% of GDP per year.
Don’t get me wrong here: I am a critic of private debt financed spending when it finances Ponzi Schemes like Spain’s housing bubble, and I believe that sustained recovery will not happen until private debt levels are drastically reduced. But when a private debt bubble bursts, government spending attenuates the downturn. To limit the growth in the government deficit makes the crisis worse, without doing much to reduce private debt compared to GDP because GDP collapses along with the falling private debt.
So these crises—in the OECD’s pin-up countries of Greece, Spain, Italy and Portugal—are the product of the EU’s policies. The only way out of the crisis is to end the policies themselves, as Greece is demanding now.
And if Syriza gives in and the EU’s policies are maintained? Then this will go from being an economic and social tragedy to a political one as well. If Syriza caves in, then the Greeks who voted for a left anti-austerity party will switch allegiance to a right anti-austerity party—the fascist Golden Dawn—because they will claim that only they have the balls to actually do in office what they promise in opposition.

Greek Deposit Run Accelerates Ahead Of Monday's Bank Holiday

19 February, 2015

Official Greek deposit data began tumbling in December (outflows around EUR3bn), and accelerated in January in the run up to the Syriza election (proxied by JPMorgan at over EUR 12bn). During the last two weeks, however, the absence of ATM lines and visible bank runs has been curiously lacking as, at least on the surface, there appears to be no panic. However, as Dody Tsiantar reports, sources in the Greek banking sector have told Greek newspapers that as much as EUR 25bn euros have left Greek banks since the end of December with outflows surging this week. Perhaps they are getting anxious that authorities will take Cypriot advantage of the Bank Holiday that is planned in Greece on Monday.

In the midst of the dramatic showdown in Brussels between the new Greek government and its European creditors, many Greek depositors―spooked by the prospect of a Greek default or, worse, an exit from the euro zone and a possible return to the drachma―have been pulling euros out of the nation's banks in record amounts over the last few days.
The Bank of Greece and the European Central Bank won't report official cash outflows for January until the end of the month. Butsources in the Greek banking sector have told Greek newspapers that as much as 25 billion euros (US $28.4 billion) have left Greek banks since the end of December. According to the same sources, an estimated 900 million euros flowed out of Greek banks on Tuesday alone, the day after the talks broke up in Brussels, sparking fears that measures will be taken to stem the outflow. On Thursday, by mid-afternoon, deposits had shrunk by about 680 million euros (US $77.3 million).
"If outflows reach 1 billion euros, capital controls might need to be imposed," said Thanasis Koukakis, a financial editor for Estia a conservative daily, and To Vima, an influential Sunday newspaper.

*  *  *
Of course the surge in ELA funding needs somewhat confirms the much larger than expected deposit outflows.
*  *  *
One wonders if the seeming standoff between Schaeuble and Varoufakis is making depositors anxious given the planned Bank Holiday in Greece on Monday...

This is the latest from the BBC

Germany rejects Greek loan request
Germany has rejected a Greek request for a six-month extension to its eurozone loan programme.

19 February, 2015
The rejection came despite the European Commission calling the Greek request "positive" only minutes earlier.
Greece had sought a new six-month assistance package, rather than a renewal of the existing deal that comes with tough austerity conditions.
However, a German finance ministry spokesman said the new plea was "not a substantial proposal for a solution".
Later on Thursday, Greek prime minister Alexis Tsipras and German chancellor Angela Merkel spoke by telephone, according to the Reuters news agency.
One Greek government official described the 50-minute call as "constructive", adding: "The conversation was held in a positive climate, geared towards finding a mutually beneficial solution for Greece and the eurozone."
Meanwhile, Italian prime minister Matteo Renzi spoke to Mr Tsipras and European Commission President Jean-Claude Juncker in a further effort to strike a deal, an Italian government source said, according to Reuters.
Greece formally requested a six-month extension to its eurozone loan agreement on Thursday, offering major concessions as it raced to avoid running out of cash within weeks, but the German finance ministry abruptly dismissed the proposal.
The BBC's Mark Lowen in Athens says Germany's rejection of the Greek proposal suggested "a rift between Brussels and Berlin at the very highest level".
"It's not yet clear which side will prevail, and which side will give ground, but clearly the hopes that Greece was moving towards a deal... have been thrown into doubt once again."
BBC Europe editor Gavin Hewitt says the situation underlines the tension between Brussels and Berlin and mistrust between Berlin and Athens.
A top European official said the stand-off had come down to a clash of personalities between German finance minister Wolfgang Schaeuble, who objected to the negotiating style of his Greek counterpart, Yanis Varoufakis.
"There is a real problem of personalities and I understand that. Schaeuble is outraged by comments made by Varoufakis," the official said.
Wolfgang Schauble German Finance Minister Wolfgang Schauble
The Greek request letter includes a pledge to maintain "fiscal balance" for a six-month period, while it negotiates with eurozone partners over long-term growth and debt reduction.
The Greek government was also reported as saying that its extension proposal was in order to give Athens enough time, without the threat of "blackmail and time deficits", to draw up a new agreement with Europe for growth over the next four years.
The German finance ministry spokesman said the Greek request was an attempt at "bridge financing, without meeting the requirements of the programme. The letter does not meet the criteria agreed upon in the Eurogroup on Monday."
'Positive sign'
But shortly before the German rejection of the proposal, a European Commission spokesman said that Mr Juncker regarded the letter as a "positive sign, which, in his assessment, could pave the way for a reasonable compromise in the interest of the financial stability in the euro area as a whole".
"The detailed assessment of the [Greek loan] letter and the response is now up to the Eurogroup," the spokesman added, referring to the discussions due to take place on Friday when European finance ministers meet in Brussels.
In comments aimed at Germany, a Greek government source said the Eurogroup had "just two choices: to accept or reject the Greek request. We will now discover who wants to find a solution, and who does not".

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