Two dismal economic plans for Greece

by Wolfgang Münchau

Financial Times
June 7, 2015

There are now two proposals on the table — one from the creditors and one from Greece. What they have in common is that neither of them will fix the Greek economy. They do not even pretend. Both deserve to be rejected flat-out.

Whenever European technocrats enter long negotiations, they get lost in the technical detail and become constitutionally incapable of seeing the bigger picture. They can spend weeks discussing whether the 2016 primary surplus, before payment of interest on debt, should be 1.5 per cent or 2 per cent — seemingly unaware that the error margins of any of their projections exceed that small gap by a large multiple. The economic diplomats have lost sight of what this is all about — allowing Greece to survive, and eventually to prosper, within the eurozone.

There is a less charitable explanation. They might simply not care. Some of the creditors are only interested in keeping the show on the road come what may. In particular, they refuse to recognise officially that their loans to Greece will never be repaid. They know they misled their electorates about Greece, and do not want to be exposed, at least not while they are in office.

The main goal for Alexis Tsipras, Greek prime minister, meanwhile, is to stay in power. An agreement of the extend-and-pretend variety, which is the likely outcome of these negotiations if they end in success, may suit him. And thus the probability of a lousy deal that suits the negotiators but that will not help the Greek economy is high.

More

Reform Is Not in Syriza’s Nature

by Takis Michas

Wall Street Journal
June 7, 2015

Greece’s negotiations with its creditors may finally come to a head this week. Last week Prime Minister Alexis Tsipras was presented with what creditors say is their best offer on revised terms for the bailout program, and Mr. Tsipras will soon meet with Germany’s Chancellor Angela Merkel and France’s President François Hollande. The hope is that Mr. Tsipras will face the reality that further concessions are unlikely to be forthcoming, and will accept somewhat lower targets for fiscal discipline in exchange for politically difficult pension reforms and other measures.

Mr. Tsipras may indeed be willing to strike such a bargain—for now. But no one should think that will be the end of the matter. Even if Greece’s governing Syriza party gives in to pressure and signs up for the demanded reforms, this doesn’t mean that they are going to be implemented.

The most likely outcome is that the reforms will be undermined by the ministers who are supposed to apply them. Then, after three or four months, the situation will once again reach crisis proportions, with Athens arguing that the program is not working and the creditors complaining that Syriza is not serious about implementing it.

More

Greece takes one more step towards euro exit

Financial Times
Editorial
June 5, 2015

When a western European country delays repaying a loan to the International Monetary Fund using a mechanism previously employed by Zambia, it is safe to conclude that its economic governance has gone awry.

Greece announced this week that it would bundle together reimbursements to the IMF at the end of the month rather than meet the deadline for a single payment on Friday, a tactic last used by the southern African country 30 years ago.

This is not catastrophic. It does not mean the country is in general default to all its creditors. But it does underline that, with each passing week, Greece is heading closer towards rupture.

At best this means the imposition of capital controls; at worst it entails an irrevocable exit from the euro. This is neither inevitable nor desirable. Greece’s departure from the euro would damage its economy and weaken the long-term credibility of the currency union. Yet this is the primrose path down which Athens is heading.

Greece’s excuses are running out. This week, its creditors — the eurogroup of the currency’s member countries, the IMF and the European Central Bank — presented a more unified front than previously. In a paper, they proposed that Greece should increase VAT to improve a slipping fiscal position, commit to maintain deregulation of labour markets and enact cuts to its bankrupt pension system.

More

Europe’s Last Act?

by Joseph E. Stiglitz

Project Syndicate
June 5, 2015

European Union leaders continue to play a game of brinkmanship with the Greek government. Greece has met its creditors’ demands far more than halfway. Yet Germany and Greece’s other creditors continue to demand that the country sign on to a program that has proven to be a failure, and that few economists ever thought could, would, or should be implemented.

The swing in Greece’s fiscal position from a large primary deficit to a surplus was almost unprecedented, but the demand that the country achieve a primary surplus of 4.5% of GDP was unconscionable. Unfortunately, at the time that the “troika” – the European Commission, the European Central Bank, and the International Monetary Fund – first included this irresponsible demand in the international financial program for Greece, the country’s authorities had no choice but to accede to it.

The folly of continuing to pursue this program is particularly acute now, given the 25% decline in GDP that Greece has endured since the beginning of the crisis. The troika badly misjudged the macroeconomic effects of the program that they imposed. According to their published forecasts, they believed that, by cutting wages and accepting other austerity measures, Greek exports would increase and the economy would quickly return to growth. They also believed that the first debt restructuring would lead to debt sustainability.

More

Running Out of Options on a Deal With Greece

by Yannis Palaiologos

Wall Street Journal
June 4, 2015

After numerous false pronouncements of an imminent deal, negotiations between Athens and its creditors are now in the final stretch. By the end of next week we should know if an agreement is possible.

This week has seen the first substantive progress in some time, as the European Central Bank, European Commission and International Monetary Fund reached a consensus among themselves on the conditions they would demand from Athens in exchange for unlocking the remaining €7.2 billion ($8.11 billion) of aid from Greece’s 2012 bailout. Athens needs the cash to meet debt repayments due this month—and it needs an accord with creditors so that the ECB will continue to offer liquidity assistance to its struggling banks.

The offer represents a serious blow to Prime Minister Alexis Tsipras and his left-wing Syriza party, which rode to power in January promising to recast Greece’s relationship with its creditors. The only (not insignificant) success Mr. Tsipras can claim at this point is a reduction in the fiscal targets under the bailout. Creditors are proposing a budget-surplus target, excluding debt service, of 1% of gross domestic product in 2015, 2% in 2016, 3% in 2017 and 3.5% in 2018. The targets of the old program were 3% for 2015, 4.5% in 2016-7 and 4.2% in 2018. Mr. Tsipras signalled in Brussels early Thursday that he viewed the creditors’ proposal as positive on this front—and it is indeed quite close to the Greek proposal, which also rises to 3.5% in 2018.

More

Alexis Tsipras grounded by dissent from within Syriza

by Kerin Hope

Financial Times
June 4, 2015

After four hours of discussions with EU leaders in Brussels on Wednesday night, Alexis Tsipras was planning to return on Friday in hopes of at last sealing a bailout deal with creditors.

But the Greek prime minister has been grounded by a torrent of anger and resistance from his Syriza party. Instead of flying to Brussels, he will on Friday be appealing to a restive parliament in Athens with his government — and the country’s financial future — on the line.

“The overwhelming sentiment in the [Syriza] parliamentary group will be one of rejection,” Antonis Kamaras, a Greek political commentator, said of the bailout terms being offered by creditors. “It’s hard to see how the leadership can prevail.”

Mr Tsipras had called Wednesday’s talks “constructive and friendly.” But a senior Greek official said the International Monetary Fund, which was not represented at the meeting, had imposed new conditions that had not been tackled in earlier negotiations in Brussels.

Back in Athens, Mr Tsipras later told aides: “Extreme proposals are not acceptable to the Greek government. We must all understand how much people have suffered in the last five years and games must stop being played at their expense.”

More

An offer that Greece should not refuse

by Philip Stephens

Financial Times
June 4, 2015

Greece should take the deal. The country’s creditors have tabled what has all the appearances of a final offer. Alexis Tsipras’s government should accept it. Athens will not achieve better terms and the alternative of default and likely exit from the euro would be worse for the Greek people.

The signs are not encouraging. The creditors’ proposals were hammered out at a meeting hosted by Angela Merkel. For all the Greek brickbats hurled at Berlin, the German chancellor has been more anxious than many to keep it within the euro. She understands that the geopolitical consequences of its departure would reach well beyond the inevitable financial shock. A fair inference would say Ms Merkel has pushed the International Monetary Fund as far as it will go.

Greece’s immediate response has been that Mr Tsipras would be the one presenting what officials described as a “last, best offer”. A kind interpretation would be that the prime minister has to play the politics of managing anti-euro hardliners in his own party; a harsher one that he has still to realise it really is one minute to midnight.

When politicians promise the impossible, the odds are that they will be found out. That is what has happened to the Syriza government. It offered the voters a shortcut out of the country’s dire economic predicament. They could throw overboard fiscal retrenchment and tough economic reforms and keep the euro. Now it is evident Mr Tsipras cannot deliver. More than that: the pain is unavoidable with or without default, inside or outside the euro.

More

The economic consequences of austerity

by Amartya Sen

New Statesman
June 4, 2015

On 5 June 1919, John Maynard Keynes wrote to the prime minister of Britain, David Lloyd George, “I ought to let you know that on Saturday I am slipping away from this scene of nightmare. I can do no more good here.” Thus ended Keynes’s role as the official representative of the British Treasury at the Paris Peace Conference. It liberated Keynes from complicity in the Treaty of Versailles (to be signed later that month), which he detested.

Why did Keynes dislike a treaty that ended the state of war between Germany and the Allied Powers (surely a good thing)?

Keynes was not, of course, complaining about the end of the world war, nor about the need for a treaty to end it, but about the terms of the treaty – and in particular the suffering and the economic turmoil forced on the defeated enemy, the Germans, through imposed austerity. Austerity is a subject of much contemporary interest in Europe – I would like to add the word ­“unfortunately” somewhere in the sentence. Actually, the book that Keynes wrote attacking the treaty, The Economic Consequences of the Peace, was very substantially about the economic consequences of “imposed austerity”. Germany had lost the battle already, and the treaty was about what the defeated enemy would be required to do, including what it should have to pay to the victors. The terms of this Carthaginian peace, as Keynes saw it (recollecting the Roman treatment of the ­defeated Carthage following the Punic wars), included the imposition of an unrealistically huge burden of reparation on Germany – a task that Germany could not carry out without ruining its economy. As the terms also had the effect of fostering animosity between the victors and the vanquished and, in addition, would economically do no good to the rest of Europe, Keynes had nothing but contempt for the decision of the victorious four (Britain, France, Italy and the United States) to demand something from Germany that was hurtful for the vanquished and unhelpful for all.

More

Q&A: Greek pensions — deal or no deal

by Kerin Hope

Financial Times
June 4, 2015

After months of agonising bailout negotiations between Greece and its creditors, one issue has proven more fraught than the rest: pensions reform.

At the insistence of the International Monetary Fund, creditors are demanding that Athens tighten the screws on what they believe is an unaffordable system. Officials from Greece’s hard-left, Syriza-led government complain they have already made painful adjustments and are threatening to blow up the talks.

So how generous is the Greek pension plan? How does it compare to others in Europe?

Until the crisis struck, Greece’s pay-as-you-go state pension system offered some of the most generous benefits in the EU, with pensions in some sectors, such as banking, rising to more than 100 per cent of final salaries. Tales of public sector workers taking retirement as early as the age of 50 have angered citizens in Germany and other creditor countries.

Now, after eight cuts in four years, the situation looks very different. Main pensions have been slashed 44-48 per cent since 2010, reducing the average pension to €700 a month. Contributors to a supplementary scheme receive a top-up averaging €170 a month.

About 45 per cent of Greek pensioners receive less than €665 monthly — below the official poverty threshold.

More

Chronicle of a struggle

Economist
July 6, 2015

Since taking office in January Greece’s radical-left government has been a model of inconstancy and incoherence. Yet one of its messages has been admirably consistent: that Greece’s problems belong to the entire euro zone. Over the past four months Greece’s creditors have become wearily accustomed to batting away grandiose proclamations by Alexis Tsipras’s band of merry men. But as their talks with the Greeks approach a crunch, this is a proposition they should take seriously.

Excluded from capital markets, Greece needs bail-out money to stay afloat. In exchange its creditors demand reforms and budget cuts designed, as they see it, to put Greece’s finances on an even keel. Elected to reject such austerity, the Syriza government began negotiations with smiles and good cheer. Yanis Varoufakis, the finance minister, toured Europe to explain that the euro zone would work for the benefit of all if only its leaders would abandon their self-defeating obsession with austerity. But as the mood has soured and talks have gone nowhere, the message has taken on a darker tone. In an opinion piece for Le Monde this week Mr Tsipras declared that the strategy adopted by Greece’s creditors risked “the split and division of the euro zone, and consequently of the EU”. Those who wish to maintain this approach, he suggested, should re-read Hemingway’s For Whom the Bell Tolls, a brutal account of the Spanish civil war.

It is understandable that the leader of a country staring into the abyss might be drawn to apocalyptic imagery. But Hemingway’s clipped sentences do not quite capture the absurdity that has marked the latest episode of the Greek saga. A better guide is surely Kafka. For the Greeks, the impenetrable “institutions” they have encountered, seemingly impervious to reason and answering only to their own mysterious laws, resemble the bureaucracy that breaks the spirit of Josef K in The Trial. Euclid Tsakalotos, a senior Greek negotiator who has a Marxist background, likens the creditors’ robotic insistence on demand-killing labour reform to the intransigence of Soviet pen-pushers.

More

How Greece can cut a goodish deal

by Hugo Dixon

Reuters
June 4, 2015

Athens’ creditors haven’t quite delivered an ultimatum. But the latest bout of high-stakes diplomacy has left Greece with little wiggle room if it wants to avoid a messy default that unleashes economic and political chaos.

Alexis Tsipras, the prime minister, has the chance to go through one more round of negotiations. If he plays his cards well, he can probably secure somewhat less austerity from the euro zone and the International Monetary Fund, as well as an indication that the country’s debt burden will be relieved so long as it plays ball.

Tsipras would probably struggle to keep his radical left Syriza party united. But he should still sign the best deal he can negotiate. The consequences both for him and the country of not doing so would be terrible.

More

Greece: Seeking a way forward

by Elias Papaioannou, Richard Portes & Lucrezia Reichlin

Vox
June 4, 2015

Greece seems to be on the verge of an agreement that would release much needed funds. This column argues that an agreement on completion of the second programme will not restore confidence, nor will it resolve the deep economic, financial and political uncertainties that confront Greece today. The focus should swiftly shift to the design of an efficient, realistic and truly reforming new programme.

Press reports suggest that Greece and the IMF, ECB, and European Commission (formerly known as the ‘troika’) may finally reach a tentative agreement on the completion of the final review of the current (second) economic adjustment programme. This would release funds that Greece needs to meet its obligations due over the next month. It would also allow the Greek government to make payments to suppliers that have been delayed over the past months.

While preferable to a descent into chaos, an agreement on completion of the second programme will not restore confidence, nor will it resolve the deep economic, financial and political uncertainties that confront Greece today. Policy mistakes and uncertainty have pushed the economy back into a recessionary spiral, with some evident increase in unemployment, deposit withdrawals, and a liquidity squeeze. Thus the focus should swiftly shift to the design of an efficient, realistic and truly reforming new programme.

Relations between Greece and its Eurozone partners and international lenders are fragile, marked by suspicion, distrust and polemical rhetoric. At the same time, within Greece there is rising polarisation of views on the country’s role in Europe. It is not helpful to assign blame for this situation, although there is quite enough to go around. Policymakers must look forward and must convince the citizens of Greece and its partners that the country has a viable future in the monetary union. Absent a credible long-term programme, even if only in outline form, whatever agreement may be reached now will not be fulfilled.

More

A Speech of Hope for Greece

by Yanis Varoufakis

Project Syndicate
June 4, 2015

On September 6, 1946 US Secretary of State James F. Byrnes traveled to Stuttgart to deliver his historic “Speech of Hope.” Byrnes’ address marked America’s post-war change of heart vis-à-vis Germany and gave a fallen nation a chance to imagine recovery, growth, and a return to normalcy. Seven decades later, it is my country, Greece, that needs such a chance.

Until Byrnes’ “Speech of Hope,” the Allies were committed to converting “…Germany into a country primarily agricultural and pastoral in character.” That was the express intention of the Morgenthau Plan, devised by US Treasury Secretary Henry Morgenthau Jr. and co-signed by the United States and Britain two years earlier, in September 1944.

Indeed, when the US, the Soviet Union, and the United Kingdom signed the Potsdam Agreement in August 1945, they agreed on the “reduction or destruction of all civilian heavy-industry with war potential” and on “restructuring the German economy toward agriculture and light industry.” By 1946, the Allies had reduced Germany’s steel output to 75% of its pre-war level. Car production plummeted to around 10% of pre-war output. By the end of the decade, 706 industrial plants were destroyed.

More

Greece seeking reparations

CBC
June 3, 2015

As Greece faces possible bankruptcy, it's demanding money from Germany for reparations for crimes committed by the Nazis.

Seeking compromise deal, Greece warns it might skip IMF payment

Reuters
June 3, 2015

Greece's international creditors signaled on Wednesday they were ready to compromise to avert a default even as a defiant Athens warned it might skip an IMF loan repayment due this week.

Prime Minister Alexis Tsipras agreed in a telephone call with German Chancellor Angela Merkel and French President Francois Hollande on the need for an immediate solution to the long-running debt negotiations involving a lower primary budget surplus target for Greece, a Greek official said.

Their third call in a week took place before Tsipras met European Commission President Jean-Claude Juncker in Brussels to hear the terms of a plan drawn up by the European Commission, the European Central Bank and the International Monetary Fund after a meeting of leaders chaired by Merkel on Monday.

More

Spoiler alert: Greece won’t default. Not this week, at least.

by Matthew Karnitschnig

Politico
June 1, 2015

As Athens faces a Friday deadline to repay €301 million to the International Monetary Fund, the world is again on tenterhooks, waiting to see whether Greece wins another reprieve.

The spoiler answer is “yes.” After five years of rescue operations and hundreds of billions in aid, Europe is simply too vested in Greece to pull the plug now.

So the real question isn’t whether Greece gets a short-term lifeline this week, but what comes after. Athens may win enough money to get through June, but it will immediately need to secure a whole new bailout agreement to continue pay off its credit — far from a sure thing.

Europe’s heavyweights, in Berlin for a conference Monday, huddled at Angela Merkel’s chancellery late into the evening to craft a joint offer that could break the stalemate with Greek Prime Minister Alexis Tsipras. The group included French President François Hollande, ECB President Mario Draghi, IMF chief Christine Lagarde and European Commission President Jean-Claude Juncker. Lagarde and Draghi were surprise additions.

It “could well be that this is the most important evening in the last months,” a senior source said.

More

Why Greece Will Cave—and How

by George Tsebelis

Foreign Affairs
June 2, 2015

Since the January 2015 election of a coalition government made up of the left-wing SYRIZA party and the right-wing ANEL (Independent Greeks) party, Greece has been in constant negotiation with the EU about reformulating the Greek bailout. Although Athens has often (but not always) denied it, any new deal will come with serious restrictions on the Greek people.

The negotiations are secret, but there are plenty of leaks on both sides. They traffic not in facts but in the impressions of people participating in, or close to, the talks. It is clear that the Greek government is relentlessly optimistic—it has been expecting an agreement “any day now” ever since the removal of Yanis Varoufakis, the Greek finance minister, from the chief negotiating position last month—whereas the rest of the EU cannot see striking a deal anytime soon.

In other words, the leaks and conflicting daily statements from participants offer little clarity about the real state of affairs. Beneath them, though, lie structural issues that imply the EU has the upper hand. In the negotiating game, the deck is stacked in the EU’s favor. In the Greek domestic game, it favors Greek Prime Minister Alexis Tsipras, who wants a compromise.

More

How to Default on Sovereign Debt

by Odette Lienau

Project Syndicate
June 2, 2015

The financial brinkmanship over Greece’s debts has raised the question of whether (or when) the country will default. To be sure, it would be far better for Greece and its creditors to reach a negotiated solution. But that outcome is far from guaranteed. The Greek government barely managed to make a significant payment last month, and even larger payments fall due throughout the summer, starting in June with an installment of more than €1.5 billion on its liabilities to the International Monetary Fund.

As Greek officials consider their options, they would do well to bear in mind that there are better and worse ways to default on sovereign debt – especially given countries’ desire to reestablish their creditworthiness as soon as possible. In the coming weeks and months, the Greek government would be wise to consider three guidelines:

Don’t name-call: Default is painful, even if it does turn out to be the right choice in the long run. In the midst of all that pain, it is tempting to point fingers. But it is important to resist this urge. More likely than not, sovereign debtors will have to interact with the same creditors and international actors again. It is hard to know how much harm Argentina’s undiplomatic pronouncements during its default saga did to its efforts at navigating the United States’ legal system; what is clear is that its ill-considered official rhetoric did not help its case.

More

What Happens if Greece Defaults on IMF Payments?

by Alen Mattich

Wall Street Journal
June 2, 2015

Greece’s creditors have hammered out a rescue deal to present Prime Minister Alexis Tsipras. Whether it gives enough ground to be acceptable to his anti-austerity Syriza government is another matter.

The timing is crucial.

If the Greek government agrees, its creditors will release the funds it needs to cover this summer’s raft of loan repayments. If not, the taps remain turned off and Greece will run out of money, possibly as early as Friday, when a €304 million ($334.4 million) International Monetary Fund loan falls due.

There is, however, a certain amount of flexibility.

There’s flexibility around just when the IMF would declare the loan in default. The process is outlined in the IMF’s 2014 guide to its Financial Operations.

Once the deadline passed, the relevant IMF executive director responsible for Greece would make contact with the Syriza government to urge prompt payment. At the same time, Greece wouldn’t be permitted to use any IMF resources or would any request be considered until the obligation is cleared.

If after two weeks the debt still hasn’t been repaid, IMF’s management make a direct appeal to Greek finance minister Yanis Varoufakis or his alternate, Yannis Stoumaras, making it clear how serious the situation is.

More

Greece’s Creditors Reach Consensus on Deal Proposal to Athens

by Marcus Walker

Wall Street Journal
June 2, 2015

Greece’s creditors have reached a consensus on the terms of a proposed deal to put to the Greek government, according to two people familiar with the talks.

Officials representing European institutions and the International Monetary Fund on Tuesday morning completed the draft of an agreement to unlock bailout aid for Greece, after key European and IMF leaders met in Berlin late Monday to overcome differences between Greece’s creditors, they said.

Eurozone governments and the IMF have agreed to press Greece for far-reaching economic overhauls, while the IMF has softened its insistence that Europe offer explicit commitments to relieve some of Greece’s debt burden, the people said.

Greece’s high debt remains a contentious issue in the background between the IMF and European lenders, led by Germany, but isn't holding up the creditors’ proposal to Greece. IMF head Christine Lagarde warned at the Berlin meeting that debt restructuring will become necessary if Greece doesn’t enact thorough economic overhauls that improve its budget balance and lift its growth trajectory, these people said.

More

The Bell Tolls for Greece, Too, Mr. Tsipras

by Marc Champion

Bloomberg
June 2, 2015

Greece and its creditors are running out of road to prevent a default. So a "J'accuse"-style article by Prime Minister Alexis Tsipras, in which he tries to pin blame for the impasse on the country's creditors and demands that they rethink their approach, is worth a careful read. There seems a good chance that it contributed to the decision of euro-area leaders to hold a top-level emergency meeting on Monday night.

The Op-ed in the French daily Le Monde appears to be part of a last-minute campaign by Greece's government to change the general perception that it has been a feckless negotiating partner, offering unserious proposals for economic reform while making equally unserious demands for Nazi war reparations from Germany, a major creditor. Tsipras also argues that the "the bell tolls" for the euro region and the International Monetary Fund if they don't stop making "absurd" demands. That threat, though, cuts both ways.

The core of Tsipras's argument is that, contrary to claims by Greece's negotiating partners that it routinely comes to the table "intransigent and without proposals," the Greek government has put forward a broad package of concrete reforms that has simply been ignored. So who is right? More importantly, who needs to do what if this slow-motion disaster is to be averted?

More

Greek bailout monitors hold emergency summit

Financial Times
June 1, 2015

German chancellor Angela Merkel was on Monday evening hosting an emergency summit in Berlin over the Greek crisis to thrash out differences between the debt-laden country’s bailout monitors and to accelerate efforts to reach a deal with Athens.

Christine Lagarde, the managing director of the International Monetary Fund, and Mario Draghi, head of the European Central Bank, arrived secretly in Berlin on Monday to join France’s President François Hollande and European Commission president Jean-Claude Juncker, who were already in Berlin for a pre-arranged meeting with the German chancellor.

The hastily-called gathering comes amid mounting uncertainty about Greece’s capacity to keep paying its bills and tensions between the creditor organisations which are under intense pressure to release a desperately needed €7.2bn so that Greece can avoid a possible default and a rapid exit from the eurozone.

The long negotiations have seen differences emerging between the bailout monitors, and this summit was called to try and settle matters. The IMF has been holding to a tough line, out of respect for its own lending rules and regard for pressure from countries in other parts of the world, which say Athens has already enjoyed very favourable treatment.

More

Greek ultimatum is a bad idea

by Hugo Dixon

Reuters
June 1, 2015

Should Greece’s creditors give the country an ultimatum? No. Not only is such a thing probably unnecessary, it could also play into the hands of Greek nationalists who would argue that foreigners were again bullying Athens. Besides, negotiations between Greece and its creditors are making progress, albeit still too slowly. Dictating to the Greeks would make any bust-up between the two sides particularly bitter.

Some take the opposing view. The Wall Street Journal’s Simon Nixon, for example, argued last week that talks between Athens and its lenders were going nowhere; so the euro zone and International Monetary Fund should present Greece with a take-it-or-leave-it offer, set a deadline, and say they would cut off its banks if it didn’t agree.

Even if such tactics made Athens come to heel in the short run, the government would have no ownership of the programme meaning there could be little confidence that it would implement it properly. Delivering on what is agreed is even more important than reaching a deal in the first place.

More

Tsipras drops envoy to IMF amid pressure from Syriza hardliners

by Kerin Hope

Financial Times
June 1, 2015

Alexis Tsipras has cancelled the appointment of a controversial Athens economist as the country’s representative to the International Monetary Fund following pressure from hardline MPs in his increasingly restive Syriza party.

The Greek prime minister’s decision on Elena Panaritis, a former Panhellenic Socialist Movement (Pasok ) MP, social entrepreneur and World Bank analyst, signalled a heightening of political tension after Athens missed Sunday’s self-imposed deadline for a bailout agreement amid reports of creditors pushing for cuts in pensions and sharp rises in value-added tax, both rejected earlier by Mr Tsipras as “red lines” for the government.

If Greece fails to wrap up a deal this week to unlock €7.2bn of aid, it could run out of time to legislate and implement reforms before the bailout expires at the end of the month. In an article published in Le Monde on Monday, the premier claimed the EU and IMF had shrugged off substantial concessions made by Greek negotiators.

More than 40 Syriza lawmakers signed an open letter at the weekend demanding the immediate withdrawal of Ms Panaritis on the grounds she was not qualified to represent an anti-austerity government at the IMF.

“Her political background is completely at odds with the values, perceptions and policies which Syriza represents . . . This a wrong decision,” the letter said.

More

Could a Parallel Currency Help Save Greece From Drowning?

by Peter Coy

Bloomberg
June 1, 2015

As Greece's financial plight worsens, an odd idea keeps popping up: a parallel currency alongside the euro that would circulate inside Greece and be used to pay for anything from taxes to food and clothing. Even German Finance Minister Wolfgang Schaeuble has said that Greece may need a parallel currency if talks with creditors fail, people familiar with his views told Bloomberg.

One version of the idea calls the second currency a TAN, for tax anticipation note. Another calls it a grec, for government reimbursement exchange credit. There's also the TCC, for tax credit certificate. In 2014, before becoming Greece's finance minister, Yanis Varoufakis pitched European governments on the FT-coin, where FT stands for future taxes and coin refers to bitcoin.

Details differ quite a bit, but the big idea is to free up euros to pay foreign debts and to juice economic growth by spreading more money around domestically. The money would be an IOU issued by the Greek government that could be passed from one person to another. The government could print a bunch of the new currency (or create electronic ledger entries if the currency is virtual) and spend it on whatever governments buy, including civil servants' salaries. People would in theory be willing to accept the money because it could be used to pay taxes.

More

Greece: a clod of earth worth saving?

by Paul Mason

Channel 4
June 1, 2015

When prime ministers write articles they tend to be, like Tony Blair’s old speeches, full of soundbites designed to obfuscate meaning. But Alexis Tsipras is fighting for his political future.

Last week the Greeks thought they were tacitly offered a deal whereby, in return for some further concessions on austerity, they would get a much bigger long-term debt restructuring: a single deal placing common conditions on both the urgent and the long-term lending conditions. But they now fear that offer is unravelling.

The radical left government now faces being offered simply another extension of negotiations over the summer months, during which its banks will be drained of even more deposits and its weary population will lose faith some more.

So Tsipras has penned in the pages of Le Monde a detailed status update on the technical talks in Brussels between that hold the key to Greece avoiding default on Friday. Plus some Hemingway thrown in.

More

Greece's endgame nears... really

Financial Times
June 1, 2015

On and on goes the Greek soap opera. Yet again, short-term bonds are swooning, and analysts are warning that we are reaching the end game. No, really this time.

Greek prime minister Alexis Tsipras and the monitors formerly known as the troika are clearly still not firm friends, judging from Mr Tsipras' latest in Le Monde.

The country's two-year bonds now yield 23.45 per cent, up by over a percentage point Monday. (Higher yields, of course, reflect lower prices.)

Bank analysts are sounding increasingly gloomy.

More

Default and political survival in networked democracies since 1870

by Jeffrey Chwieroth, Cohen R. Simpson & Andrew Walter

Vox
June 1, 2015

Many fear that a Greek default would lead voters elsewhere in Europe to favour default over austerity. This column argues that it is more likely to have the opposite effect. Network interdependencies among countries affect the domestic politics of default because defaults are both rare and vivid. Foreign default increases the propensity for voters to punish their governments for failing to repay external private creditors.

Governments in Ireland, Portugal, and Spain have adopted a conspicuously hard line stance in negotiations with the new Greek government, partly out of concern that a Greek default would strengthen anti-austerity parties at home (Wyplosz 2015).1 How do we know if a default would have such an effect? Since most of the academic literature on the politics of debt default overlooks political and economic interdependence, it is not of much help in answering this question (Jackson et al. 2015). Our new research starts with the simple premise that interdependencies among different countries in economic networks are likely to have a profound impact on the politics of default (Chwieroth et al. 2015). Specifically, we provide evidence that foreign defaults tend to increase the propensity of voters to punish their own governments for failing to repay external private creditors.

Ultimately, our results suggest that a Greek default would be more likely to lower rather than to raise the political incentives for other European governments to default, contrary to the expectations of many commentators and political leaders.

More

Last Exit Before Chaos

by Paul Krugman

New York Times
May 30, 2015

There’s an odd summer-of-1914 feel to the current state of the Greek crisis. While some of the main players are, rightly, desperate to find a way to head off Grexit and all it entails, others – on the creditor as well as the debtor side — seem not just resigned to collapse but almost as if they’re welcoming the prospect, the way, a century ago, far too many Europeans actually seemed to welcome the end of messy, frustrating diplomacy and the coming of open war.

Is there still a way out? There should be. As I and others have been saying for a while, the arithmetic is actually quite clear: Greece cannot run a primary deficit, it cannot be forced to run a large primary surplus, so a small primary surplus is the obvious solution and better for all concerned than euro exit.

There is, one must admit, a new problem caused by the current confrontation itself: uncertainty has pushed Greece back into recession, and the primary surplus achieved last year has vanished. But given a deal it should be possible to arrange some temporary financing while a modest recovery puts the primary balance back into the black.

More

Greece, Argentina, and the Middle-Income Trap

by Andrés Velasco

Project Syndicate
May 30, 2015

Aside from an established tradition of bad macroeconomics, what do Greece and Argentina have in common? One answer is that they were the world’s longest-held captives of the so-called middle-income trap – and remain within its reach to this day. With countries in Asia, Eastern Europe, and Latin American fearing that, having reached the international middle class, they could be stuck there, Greece and Argentina shed light on how that might happen.

A recent paper by economists from Bard College and the Asian Development Bank categorizes the world economy according to four groups – with the top two categories occupied by upper-middle-income and high-income countries – and tracks countries’ movements in and out of these groups. Which countries were stuck for the longest period in the upper-middle-income category before moving to high income? You guessed it: Greece and Argentina.

Correcting for variations in the cost of living across countries, the paper concludes that $10,750 of purchasing power in the year 1990 is the threshold for per capita income beyond which a country is high income, while $7,250 makes it upper-middle income. (These thresholds may sound low, but the World Bank uses similar cutoffs.)

More

Varoufakis’s Great Game

by Hans-Werner Sinn

Project Syndicate
May 29, 2015

Game theorists know that a Plan A is never enough. One must also develop and put forward a credible Plan B – the implied threat that drives forward negotiations on Plan A. Greece’s finance minister, Yanis Varoufakis, knows this very well. As the Greek government’s anointed “heavy,” he is working Plan B (a potential exit from the eurozone), while Prime Minister Alexis Tsipras makes himself available for Plan A (an extension on Greece’s loan agreement, and a renegotiation of the terms of its bailout). In a sense, they are playing the classic game of “good cop/bad cop” – and, so far, to great effect.

Plan B comprises two key elements. First, there is simple provocation, aimed at riling up Greek citizens and thus escalating tensions between the country and its creditors. Greece’s citizens must believe that they are escaping grave injustice if they are to continue to trust their government during the difficult period that would follow an exit from the eurozone.

Second, the Greek government is driving up the costs of Plan B for the other side, by allowing capital flight by its citizens. If it so chose, the government could contain this trend with a more conciliatory approach, or stop it outright with the introduction of capital controls. But doing so would weaken its negotiating position, and that is not an option.

More

Market calm on Grexit an eerie recall of pre-Lehman bets

by Jamie McGeever

Reuters
May 28, 2015

Relative calm on global markets during the latest Greek debt standoff more closely reflects the low probability assigned to a euro exit than how contained such a shock could be.

As Greece has returned to the precipice of another default and the outsize chance of Grexit - Greece being forced out of the euro zone - world markets have barely flinched.

Unlike the previous Greek crisis in 2012, the assumption is that banking and private sector exposure has been cut to near zero, financial firewalls have been put in place in the euro zone, and world prices have the Grexit risk factored in.

But no one really knows the true consequences of such an unprecedented move. What's more, investors' ability to discount low-probability but high-impact events - what are called tail risks - has been found wanting in the past, most spectacularly before the Lehman Brothers bankruptcy in 2008.

More

Time Politicians Handed Greece an Ultimatum

by Simon Nixon

Wall Street Journal
May 27, 2015

The Greek government has spent the past four months demanding a “political solution” to its debt crisis. The time may have come for the eurozone to offer it one.

Until now, Europe’s political leaders have been reluctant to be drawn into the process, preferring to hide behind the officials in the institutions formerly known as the Troika: the European Central Bank, the International Monetary Fund and the European Commission. Partly, that reflects practical and legal reality: elected politicians do not have the capacity or capability to negotiate the details of bailout programs.

But it also reflected a political reality: no one wanted to be seen to be sitting in judgment on a fellow eurozone member state’s budget. They preferred to stay one step removed, providing time and space for an inexperienced government to reach its own agreement with the creditors, reflecting its own political choices while respecting eurozone rules.

But the reality is that the bailout talks have gone—and appear to be going—nowhere. Despite daily assurances from Athens that a deal is imminent, eurozone officials say that the two sides remain “miles apart.”

More

Tsipras trapped; Ominous signals for Greek depositors

by Christian Schulz

Intelligent News
May 27, 2015

While the Greek economy and its financial system are increasingly at peril of a major collapse, Syriza has achieved virtually nothing in the negotiations with the troika. The key conditions for remaining €7.2bn disbursement from the second bail-out remain the same. Worse, a follow-on package is inevitable come July, and with Eurozone and IMF trust shattered, the conditions will have to be tough and the monitoring of the implementation is going to be very tight. Compared to what a hypothetically re-elected Samaras would probably have achieved, Tsipras has been an unequivocal disaster.

Are things coming to a head now? On Wednesday, May 28, the ECB apparently left the ELA limit unchanged at €80.2bn. This was only the second time since February that it did so and it comes as a surprise. Deposit outflows have re-accelerated according to some Greek media reports to €300m per day from €100m as recently as last week. This may not threaten the immediate liquidity position of Greek banks, who last week were said to have an ELA buffer of €3bn.

But there are two reasons for concern.

(1) The minority in the ECB who are openly worried about the impact of the deepening Greek recession on Greek banks solvency seems to be growing and putting pressure on the majority to limit the risks to the institution.

(2) With no clear data about banks’ liquidity position available, the unchanged ELA limit could trigger more concerns by Greek households and companies about potential capital controls and thus trigger accelerated withdrawals.

More

How four Greek businesses are coping amid default crisis

by Kerin Hope

Financial Times
May 27, 2015

Greece’s business climate has worsened as bailout talks between the leftwing Syriza-led government and the country’s creditors drag on, prompting fears of a Greek debt default and, possibly, a Grexit from the euro.

But life — and commerce — go on. The profiles below illustrate how four businesses are coping with the uncertainty surrounding Greece’s future in the eurozone.

The oil explorer

Day-to-day activity at Energean, a privately owned Greek oil producer which pumps 1,800 barrels a day from a platform in the north Aegean Sea, carries on as if nothing had changed in Athens.

A recently acquired drilling rig, refurbished at a Greek shipyard, is due to start exploring next month for new oil deposits in Energean’s offshore concession.

But the company’s plans for strategic partnerships with international oil companies are on hold because of political constraints, according to Matthaios Rigas, the chief executive.

More

Meet One of the Most Hated Men in Greece

Bloomberg
May 27, 2015

When the IMF’s point man on Greece, Poul Thomsen, rebuffed the nation’s proposal in December to unlock more bailout funding, he wound up making his job even tougher.

The Greek government’s failure then to secure an agreement with its creditors helped pave the way for its defeat in January by the anti-austerity Syriza party. Instead of negotiating with Greece’s establishment, Thomsen finds himself facing a novice group whose leaders have likened the lenders’ conditions to “fiscal waterboarding.”

Now the 60-year-old Danish economist is holding his ground against Syriza economic plans that fail to meet International Monetary Fund criteria for putting Greece’s debt on a sustainable path. And this time, the nation’s membership in the euro and the IMF’s credibility hang in the balance as Greece runs low on cash and European leaders look to the fund’s blessing before disbursing more bailout money.

The situation has Thomsen, whose thesis adviser was an architect of the euro, in the role of helping decide the currency’s fate. Thomsen has been closely involved with the Greek bailout since its inception in 2010, and often represents the fund at meetings of euro-area finance ministers, where officials from the European Commission and European Central Bank also typically attend. Those two institutions and the IMF form the so-called troika of Greek creditors.

More

Time running out for Greece, ESM head Regling says

Reuters
May 25, 2015

Time is running out for Greece to reach an agreement on reforms with lenders and there will be no further funds for Athens without it, the head of the European Stability Mechanism Klaus Regling told Germany's Bild newspaper on Tuesday.

"There is little time left," Regling told the best-selling newspaper. "That's why we're working day and night for an agreement. Without an agreement with the creditors, Greece will not get any new loans. Then there's a threat of insolvency. There are a lot of risks contained in that," he added.

"Even missing a payment to the IMF would be dangerous. That would have an effect on other lenders like us. On the other hand, the rescue fund can only extend loans when reforms are implemented. That is also the case now and that's the only way Greece will be able to restore its economy's fiscal health," he said.

More

Greece’s Governing Syriza Party Divided Over Debt Terms

by Stelios Bouras

Wall Street Journal
May 25, 2015

As financial pressure mounts on Greece to sign a deal with its foreign lenders, Prime Minister Alexis Tsipras is facing what may be his biggest problem yet: the struggle within the ruling Syriza party over whether to swallow creditors’ tough terms or default.

Dissent is spreading within left-wing Syriza against the economic policies Greece is likely to have to enact in return for fresh bailout funding from other eurozone governments and the International Monetary Fund.

The Syriza-led coalition government holds only a thin majority of 12 seats in Greece’s 300-seat Parliament, so a rebellion against a deal could easily cost Mr. Tsipras his governing majority.

Greece’s lenders are particularly worried about vocal threats by Syriza’s Left Platform, a hard-line leftist faction within the party, to reject any deal that crosses ideological “red lines” by cutting pensions or workers’ rights.

More

With Money Drying Up, Greece Is All but Bankrupt

by Landon Thomas Jr.

New York Times
May 25, 2015

Bulldozers lie abandoned on city streets. Exhausted surgeons operate through the night. And the wealthy bail out broke police departments.

A nearly bankrupt Greece is taking desperate measures to preserve cash. Absent a last-minute deal with its creditors, the nation will run out of money early next month.

Two weeks ago, Greece nearly defaulted on a debt payment of 750 million euros, or about $825 million, to the International Monetary Fund.

For the rest of this month, Greece should be able to cover daily cash deficits of around 100 million euros, government ministers say. Starting June 5, however, these shortfalls will rise sharply, to around 400 million euros as another I.M.F. obligation comes due. They will then double in size on June 8 and 9.

“At that point it is all over,” said a senior Greek finance official who spoke on the condition of anonymity.

More

Tsipras wins backing over bailout talks

by Kerin Hope

Financial Times
May 25, 2015

Alexis Tsipras, the Greek prime minister, won backing from his radical Syriza party to conclude a bailout deal in the face of opposition from an extreme left faction that warned against giving in to “blackmail” by the country’s creditors.

Greece was in the final stretch of negotiations and would accept a viable “but not a humiliating” agreement, the premier told a meeting of Syriza’s 350-strong central committee, without giving details of the talks with the EU and International Monetary Fund.

Government officials in Athens claim a deal could be struck by the end of this week. But European partners say the two sides are still far apart on issues Mr Tsipras calls “red lines we cannot cross”, including pension reforms and increases in value-added tax, according to several people with knowledge of the negotiations.

The two-day meeting, which was staged to review the Syriza-led government’s first 100 days in power, endorsed the leadership’s stance that if the government’s cash crunch escalated “to an extreme point”, paying pensions and public sector wages would take priority over meeting repayments of bailout loans.

“Our commitment above all is to protect workers and pensioners who have been the victim of austerity,” said one participant.

More

Austerity Is the Only Deal-Breaker

by Yanis Varoufakis

Project Syndicate
May 25, 2015

A common fallacy pervades coverage by the world’s media of the negotiations between the Greek government and its creditors. The fallacy, exemplified in a recent commentary by Philip Stephens of the Financial Times, is that, “Athens is unable or unwilling – or both – to implement an economic reform program.” Once this fallacy is presented as fact, it is only natural that coverage highlights how our government is, in Stephens’s words, “squandering the trust and goodwill of its eurozone partners.”

But the reality of the talks is very different. Our government is keen to implement an agenda that includes all of the economic reforms emphasized by European economic think tanks. Moreover, we are uniquely able to maintain the Greek public’s support for a sound economic program.

Consider what that means: an independent tax agency; reasonable primary fiscal surpluses forever; a sensible and ambitious privatization program, combined with a development agency that harnesses public assets to create investment flows; genuine pension reform that ensures the social-security system’s long-term sustainability; liberalization of markets for goods and services, etc.

So, if our government is willing to embrace the reforms that our partners expect, why have the negotiations not produced an agreement? Where is the sticking point?

More

Greece Could Bundle Its Next IMF Payments to Buy Even More Time. But at What Cost?

by Ian Talley

Wall Street Journal
May 25, 2015

As Greece roots around for cash to cover upcoming bills amid stalled bailout talks, one option it could consider is bundling next month’s payments to the International Monetary Fund.

The Greek leadership, at this point, doesn’t appear to be considering the option and doesn’t see it as advantageous given concerns about the signals it could send, according to people familiar with the government’s thinking.

Obscure IMF rules allow Greece to clump its principal payments into one deposit that the government could ostensibly pay later in the month, without falling into arrears. Athens owes the IMF four principal payments totaling $1.7 billion in June. Should Greece seek to take advantage of the opportunity, bundling its IMF payments would buy Greece’s government more time for negotiations in the deadlocked bailout talks.

An IMF spokeswoman declined to say whether Greece had made such a request or even inquired about the option.

More

Key to a Greek Deal Lies With the People

by Hugo Dixon

New York Times
May 24, 2015

Most scenarios facing Greece are bleak. The country could default, introduce capital controls, forcibly convert savers’ deposits into bank capital, quit the euro and so forth.

But there is still a chance that things will end up relatively O.K. All those who care about Greece, starting with Prime Minister Alexis Tsipras, need to work hard on the least bad path forward.

This will require Mr. Tsipras not only to eat his words, but also to call a new election. The timing is tough, given a series of payments Athens needs to make to the International Monetary Fund and the European Central Bank in the next three months — but just doable.

The essential first step is for Greece to agree on a short-term deal with its creditors: to unlock 7.2 billion euros, or about $7.9 billion, worth of loans and avoid a bankruptcy that will probably otherwise occur next month. Given that the two sides are still far apart, this won’t be easy. On the other hand, Mr. Tsipras says he is hopeful about a deal — so maybe that indicates he is finally ready to make concessions.

More

Interior minister warns Greece will default on June IMF repayment

by Kerin Hope

Financial Times
May 24, 2015

Greece has again threatened to default on loan repayments due to the International Monetary Fund, saying it will be unable to meet pension and wage bills in June and also reimburse €1.6bn owed to the IMF without a bailout deal with creditors.

“The money won’t be given . . . It isn’t there to be given,” Nikos Voutsis, the interior minister, told the Greek television station Mega. He claimed the EU and IMF were pressing Greece to make unacceptable concessions in the bailout talks in return for unlocking €7.2bn of aid frozen since last year.

The warning by Mr Voutsis, one of prime minister Alexis Tsipras’s oldest political allies, comes just two weeks after Mr Tsipras made a similar threat in writing to Christine Lagarde, the IMF managing director.

Mr Tsipras had said Greece would miss a €750m payment in May. That payment was ultimately met, though only through tapping an emergency account held by the IMF. Athens in effect borrowed IMF assets to repay the Fund.

Predicting when Athens will run out of cash has proven a fraught affair for eurozone officials, who have been bracing for default since March.

More

Greece's radicals: The wild ones

Economist
May 25, 2015

"Would [a Greek exit from the euro] be such a catastrophe?" asked Panagiotis Lafazanis, Greece's industry, energy and environment minister, at a two-day meeting of the governing Syriza party over the weekend. Mr Lafazanis is the leader of Syriza's Left Platform, the radical faction of an already radical left-wing party. At the meeting of the party's central committee, Left Platform argued for an alternative plan to Greece's ongoing efforts to negotiate an agreement with its creditors: the government should break off the bail-out talks, default on its loans from the International Monetary Fund and prepare the country for Grexit. A strong minority of the central committee's 350 members backed the radicals' plan. But ultimately Alexis Tsipras, the prime minister, won support for the government's negotiating efforts in a show-of-hands vote.

For weeks Mr Tsipras has sounded defiantly optimistic in the face of a worsening cash squeeze and excruciatingly slow bail-out negotiations with the European Union and the IMF. Though Greece’s plight is becoming desperate, Mr Tsipras still insists a deal will be struck with creditors by the end of this week, freeing up €7.2 billion ($7.9 billion) of bailout aid. That would be enough to prevent a default in June on a €1.6 billion loan repayment to the IMF and give the cash-strapped government some breathing room. The talks have made some progress since Mr Tsipras removed his free-wheeling finance minister, Yanis Varoufakis (pictured above arriving at the central-committee meeting on Saturday), from the negotiating process.

Yet Mr Tsipras’s previous assertions that Greece was on the brink of an agreement have all come unstuck. Last week, for example, his aides claimed that Angela Merkel, Germany's chancellor, would cut the “Gordian knot” of disputed issues at the EU summit in Riga. Instead, Mrs Merkel insisted the IMF, which is seen as more hardline than the EU, would have to approve any bail-out aid. A worried Mr Tsipras immediately asked the American government to try to soften the IMF’s tough conditions for a deal.

More

Greece and Creditors Struggle for Elusive Deal

Wall Street Journal
May 22, 2015

Greece and its lenders are casting around for ways to prevent the country from defaulting on debts to the International Monetary Fund in June, as negotiations to unlock bailout aid barely inch forward and the Athens government runs dangerously low on cash.

Greece needs financial help in some form by mid-June in order to repay a series of IMF loans falling due, several officials from the country and its creditors said. The Greek government is expected to be able to cover pensions and public-sector wages in May, and it can probably scrape together enough cash to repay a €300 million ($331 million) IMF loan on June 5, these people said.

But three subsequent IMF payments totaling €1.25 billion due in mid-June pose a severe challenge to Athens’s bare treasury, the officials say, and could force the government to either take politically costly measures such as raiding pension funds or delay the payments and risk an unpredictable fallout at home and abroad.

More

Schaeuble Said to Cite Option of Greek Parallel Currency

Bloomberg
May 22, 2015

German Finance Minister Wolfgang Schaeuble raised the possibility that Greece may need a parallel currency alongside the euro if the country’s talks with creditors fail, people familiar with his views said.

Schaeuble mentioned the idea of parallel currencies at a recent meeting without endorsing it, according to two people who attended and asked not to be identified because the gathering was private. He also cited the example of Montenegro, which uses the euro but isn’t a member of the currency union, one person said.

The comments suggest that some in Germany are preparing for the worst amid a standoff with Greece that has dragged on since February. While Chancellor Angela Merkel and her finance minister say the goal is to keep Greece in the euro, Schaeuble has also said he wouldn’t rule out a Greek exit from the 19-nation currency.

Germany is “ready to take this brinkmanship very far,” with Schaeuble in the role of “attack dog,” Jacob Funk Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington, said by phone. “The risks of contagion to other euro-area countries from a deterioration in Greece is very low.”

More

The Only Three People Worth Listening to on Greece

Bloomberg
May 22, 2015

As Greece hurtles toward another denouement, figuring out who to listen to can be a challenge.

One minute Finance Minister Yanis Varoufakis is moving Greek bond yields by saying a deal is imminent. The next, his claims are being shot down by Germany’s Wolfgang Schaeuble. The result has pushed securities this way and that while giving few clues as to how the crisis will eventually play out.

The trick, say economists from ING Diba in Frankfurt to Berenberg Bank in London, is to focus on the people who exercise true power over the euro region’s bond and currency markets right now: Greek Prime Minister Alexis Tsipras, German Chancellor Angela Merkel and European Central Bank President Mario Draghi.

“You’ll have to take your guidance from these three,” ING Diba’s chief economist, Carsten Brzeski, said in a telephone interview. “While Merkel is keeping a low profile with her comments, she plays a crucial role.”

In charge of Europe’s economic powerhouse for a decade, Merkel has been around since the opening act of the Greek crisis and will be critical in deciding how it ends, juggling voter saturation at subsidizing Greece with the desire to avoid a breakup of the euro. Leading the opposite camp is Tsipras, playing hardball to end the austerity, humiliation and suffering of the Greeks. In the middle, the Italian-born central banker is doing whatever it takes to preserve the euro.

More

Greece To Be Granted A Bailout Extension; Eurozone Lacks Credibility

by Stephen Pope

Forbes
May 21, 2015

Since the general election of January 25th when the Syriza led coalition government was elected it has has failed on six occasions to present to its international creditors a meaningful set of reforms that would have paved the way for the next tranche of bailout money to be advanced and so avoid a default.

The far left of centre government has known the timetable and yet has been totally shambolic in the propositions its has offered to the European Union. It has argued against austerity whilst expecting international sources of finance to simply let the struggling nation off the hook.

Syriza won the election by playing a populist card without any regard for the reality of life which is that he who pays the piper is allowed to call the tune. However, perhaps Greece has been the smarter party as right now, just when the debt and default clock is ticking ever louder it appears that the European parties Greece has to satisfy have themselves rolled over to have their tummies tickled.

More

How politics will seal the fate of Greece

by Philip Stephens

Financial Times
May 21, 2015

Forget debt ratios, fiscal balances, liquidity crunches and the rest. The EU and International Monetary Fund technicians negotiating with Athens are going through the motions. The Greek crisis was always as much about politics as economics. Now it is all about politics.

There are two theories of the Syriza government led by Alexis Tsipras. One presents a cast of bungling amateurs who have spent the past several months digging Greece into an ever deeper economic hole — all the while squandering the trust and goodwill of its eurozone partners. The other says the antics of Yanis Varoufakis, finance minister, are an elaborate political charade calculated to set Greece free from the shackles of merciless creditors.

The first hypothesis is the most popular. The preening and pirouetting, the interviews in glossy magazines, the undergraduate Marxism and love of the limelight — all point to a colossal failure on Mr Varoufakis’s part to grasp the depth of Greece’s plight or the sensitivities of its European partners. Along the way, tens of billions of dollars have drained from Greek banks as citizens stash their savings elsewhere.

The conspiracy theory, though, also has its adherents. They start with the assumption that no one could be quite as witless as Syriza has often seemed. Mr Tsipras’s government knew from the outset that it could not reconcile its domestic promises with Greece’s international obligations. The problem was that Greeks had voted at once for an end to austerity and to stay in the euro. A crisis had to be manufactured to show the government’s hand had been forced. By the Germans, of course.

More