Posts
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...
...
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."
More:
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.
A 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
BBC,
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."
Tension
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.
'Outraged'
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.
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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