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EU Leaders Threaten Greece With Expulsion From the Eurozone

If you had any doubts about the intent of the Eurobailouts, the latest news should settle them. The game plan was to severely limit Greek sovereignity and assert the primacy of creditor rights, even if they came at the expense of democracy. Greece, as we described in a post earlier today, threatened to blow up the bailout by having a referendum. That measure, even if it took place before year end, would create massive uncertainty and wreak havoc with other efforts (for instance, getting China to contribute cash to the levered EFSF, the bailout funding vehicle. As we’ve detailed in earlier posts, it is unworkable in the absence either of ECB backing or substantial outside funding).

The Eurocrats have decided to try to push Greece into line, threatening expulsion from the Euro (note, not the EU) if Greece does not back down. From a practical matter, if the Greeks were to turn down the bailout package, it would lead to a banking crisis, making a Eurozone exit a not that much more traumatic incremental move with considerable upside. And under the Maastrict treaty, Greece cannot unilaterally exit (although as various commentors have pointed out, Nato is not going to send in tanks if the Greeks were to do so).

But this may be an appeal to the Greek public, or more likely, an effort to break Greek prime minister’s Papandreou’s thin coalition on the eve of a vote of no confidence. Recent polls show 66% of the Greek public favors remaining in the Euro (some NC readers questioned those polls, and I’d love to see how the questions were posed). Greece has already made some concessions, moving up the referendum date to December 4 or 5 when it had been targeted for January. Note that this is before the time when Greece is expected to run out of cash, mid-December, and the officialdom (per the Wall Street Journal) has not disbursed the quarterly aid payment of €8 billion that Greece needs to remain solvent beyond that date.

But this may be too late. The expectations of the Greek public may have been raised by the referendum announcement, and it may be impossible to put that genie back into the bottle. If civil unrest rises, the government will be forced to come to heel, EU pressure notwithstanding.

From the Wall Street Journal:

Europe’s leaders, making plain that they’ve reached the end of their patience with Greece, demanded that the beleaguered nation declare whether it wanted to remain in the euro currency union—or risk going it alone in a dramatic secession.

“Does Greece want to remain part of the euro zone or not,” German Chancellor Angela Merkel said. “That is the question the Greek people must now answer.”

The extraordinary rupture with the rest of Europe—whose leaders have insisted for months that an exit from the currency union is simply inconceivable—follows Greek Prime Minister George Papandreou’s stunning decision Monday to call a referendum on his country’s bailout.

Update Midnight: The Wall Street Journal account, which seemed to be first out of the box, indicated that the €8 billion payment was being withheld, assuring a Greek default as of mid December. The Financial Times put that issue front and center in its account:

European leaders suspended an overdue tranche of €8bn in international aid to Athens and demanded Greece make a clear decision on whether it wanted to leave the eurozone at a dramatic meeting on the sovereign debt crisis on Wednesday night.

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66 comments

      1. aet

        I don’t know, but there have been countries which use other countries’ currencies via a peg or some other such arrangement. I’m thinking of places, in Africa or South America, where say the US dollar has been the currency, either de facto, or de jure….I don’t know whether or not the US Gov has a veto on other countries adopting the greenback as if it were their own…so long as they don’t try actually printing any up fresh, that is.

        1. aet

          Hey yeah, maybe if they drop the Euro, Greece will start using the US Dollar as their new currency.

          Why not? They’d have as much control over that currency’s “printing press” as they do now over the Euro’s, no? Probably even less.

          1. anon

            No, the point would be for Greece to default and stay in the Eurozone. They cannot be kicked out.

            They could then issue new debt which the ECB would have to buy too if it buys Italian debt.

            Ireland has this option too.

            I don’t think Greece is bluffing here.

            What could Germany do? Exit the Euro? The DM would appreciate immediately, solving the core of the crisis: trade imbalances within Europe.

          2. Typing Monkey

            What could Germany do? Exit the Euro? The DM would appreciate immediately, solving the core of the crisis: trade imbalances within Europe.

            This may surprise you, but Germany did just fine before the Euro kicked into gear.

            I find it bizarre that everybody keeps insisting that the (relatively) strong countries depend more on the weak countries than the other way around.

          3. anon

            It may surprise you, but Germany did even better after joining the Euro – just look at the skyrocketing trade surplus it won, while its inner- European “cheap labor” competitors became less and less cheap and less and less competitive.

            70% of Germany’s exports goes to other EU countries – if thete’s a 20-40% drop in those exports due to Germany returning to the year 20900 strong DM, what effects will this have? If it happens quickly I doubt it will be a soft landing.

        2. anon

          I guess technically they could, but it would be suicidal, as it entails huge internal deflation. (Their main problem is that they import a lot more than they export.)

      1. bmeisen

        Rare event! Obama puts foot in mouth! Speaking of Sarkozy’s daughter:

        “I’m confident that Julia will have her mother’s looks rather than her father’s, which I think is excellent”

    1. sgt_doom

      Yup! And for anyone who has read about the Treaty of Versailles, this is definitely a déjà vu moment.

  1. rps

    Is Greece the next Iceland? Or will Greece remain on the Eurozone Titanic?

    Iceland Loses Its Banks, Finds Its Wealth.

    Tim Cavanaugh from the November 2011 issue
    http://reason.com/archives/2011/10/27/iceland-loses-its-banks-finds

    The most important question about Iceland these days (after “How come Iceland is green and Greenland is icy?”)

    So what’s causing the recovery? The plain-sight answer is the one nobody will consider. Iceland is coming back specifically because its banks went out of business. That happened in spite of strenuous public efforts, but the removal of the tiny nation’s colossally bloated financial sector turns out not to have eliminated all that much value.

    It bears repeating that banks are not creators of wealth. They are places where you store the surplus value generated by productive enterprise. In very narrow circumstances that surplus value can be loaned out at a profit, but a financial sector is the icing, not the cake. This should be common sense, but apparently it is wisdom so rare it can only be learned in countries small and remote enough to avoid the deadly medicine of the global financial markets.

    1. psychohistorian

      I agree and thanks.

      I especially like the characterization,

      “avoid the deadly medicine of the global financial markets”.

      The take away from the Shock Doctrine read.

      1. Ramon Creager

        Ditto. Well put rps. What would happen if Greece were thrown out of the Eurozone and eventually recovered like Iceland or Argentina? Does the Eurozone really want to run that experiment? Hello lira, hello peseta!

      2. KnotRP

        > “Does Greece want to remain part of the euro zone or not,” German
        > Chancellor Angela Merkel said. “That is the question the Greek
        > people must now answer.”

        Right. It’s not the insurmountable debt growth over many years (partially hidden by Wall St financial *innovation*) finally outstripping the local economy’s ability to service the minimum payment to creditor (loan sharks)…..”just clap your hands and believe”, says Angela! It’s just another day at the Tinkerbell School of Fairy Tale Management.

    1. KnotRP

      I’ve said it before, and I’ll say it again: I don’t think the sociopaths running the show are fully cognizant of what hard working well trained people might do, once they decide to live by the sociopathic leadership’s example. This is just a minor kerfluffle over declaration of income….that’s just a minor accounting annoyance….it’s not as if they’ve disabled your limo’s brakes or anything. Stop complaining, sociopaths, and correct this mess before it is too late to save your worthless asses.

      1. Antifa

        Does it not seem that the more fundamental problem Greece must solve is to rein in their wealthy elites, who have not paid their fair share in taxes for decades?

        Whether within the EU or out of it, Greece as a populace has a democracy problem — the few with ALL the money are not behaving as if they are part of the country.

        Under a strict tax regime, there could be a whole lot of drachmas — or Euros — in play.

        1. KnotRP

          Which came first…corrupt leadership, or corrupt population.
          Does it even matter anymore? Extend and pretend is like
          a lung machine….it’ll run whether it’s helping the patient or
          not, but someone gets to bill the patient’s estate for the “help”.

  2. Francois T

    Eurotards should be careful here: What if Papa survive the no confidence vote and Greeks decide Europe sucks anyway?

    Yes, the ensuing recession would not be a pretty sight. But what about the promise of decades of misery and quasi-zero growth?

  3. Dan G

    At this point, I think the EU bankers need Greece more than the Greeks need the Euro. Default on the elitists.

    1. bigsurtree

      Greece,Iceland,Italy, Portugal, Spain should form their own
      Mediterranean-Atlantic Alliance called SPIGI and trade with each other. Adios EU

  4. alex

    “threatening expulsion from the Euro”

    Is that like China threatening to sell US Treasuries? Oh, yes, please, we’ve been naughty, carry out your threat (it’s what we’ve been hoping for).

  5. Hugh

    The ECB is a German sockpuppet reflecting the same deadend philosophy of the German kleptocratic elites. Chinese kleptocratic elites are not going to bailout (read allow themselves to be looted by) the Euro kleptocrats. So the expanded EFSF is dead before it arrives.

    Merkel and Sarkozy can stomp around like a couple of new Axis wannabes but Greece is in so many ways the least of Europe’s problems. Indeed Merkel and Sarkozy’s tough guy threats are really a screen to direct attention away from all those other problems. But reading the riot act to Greece and deciding its fate on their own, with all the nasty historical echoes of Czechoslovakia in 1938, won’t stop the contagion that is already consuming Portugal, Ireland, Belgium, Spain, and Italy.

    Europe needs
    1) A debt and fiscal union
    2) An empowered ECB
    3) Balanced trade/investment
    4) A restructured banking system
    5) Removal of their corrupt political elites
    6) To tax their wealthy out of existence

    Note how none of the Merkel/Sarkozy posturing touches on any of this.

    1. Mr. Eclectic

      Last Friday, 10/28, on a national holiday commemorating the day Greece rejected the Axis ultimatum and entered WWII, celebrated as the “No Day”, spontaneous demonstrations in all Greek cities forced the President, K. Papoulias, to leave abruptly the site of the military parade (which was cancelled). The crowd kept shouting “traitors”, to which he later commented to the press “I fought in the resistance against the Nazis. How can they say that?” That mentality of being the sole custodians of the nation is common among the Greek political elite.

      As Petain was the custodian of France, or the first PM of the cooperationist government during the Nazi occupation of Greece was Tsolakoglou, a general and hero of WWI.

      But GAP is a Quisling. His father was a Pericles: brilliant, visionary, also arrogant and slave to his passions, leaving a political offspring that spelled doom for the state: Alcibiades then, GAP now.

  6. David

    What is Greek for “safeword” in this European S&M drama ?
    Or will Germany or France be the first to utter the “safeword”.

        1. Mr. Eclectic

          Συν Αθηνά και χείρα κίνει.

          Athena helps, but also use your hands (ancient Greek proverb)!

  7. mac

    For how many years(maybe centuries) have France and Germany been stirring up trouble in Europe?
    Let us hope Barry learned a bit of History and stays out of this round!

  8. Knut

    It’s not obvious to me why the threat to kick Greece out of the eurozone is operational. If the Greek’s rationally decide to renege on their debt, they either suffer even worse deflation than the EU is now imposing on them or they exit themselves, adopt the drachma and devalue to get some tourist euros. It seems like a no-brainer to me. As to the Greek’s pension funds, they’re already gone.

    1. craazyman

      that was Ezra Pound.

      Not sure what a Greek vote will solve.

      Say they vote 58-42 to stay. What has changed? It’s like voting in your own mind you still want to lose 50 pounds. Will 58% of yourself really eat the lettuce and cottage cheese? or will it want the weight loss and the Super-Size Fries? and will the 42% riot because it gets starved to pay for the fries?

      could be just another can kick if it’s not a No vote.

  9. Crazy Horse

    So the die is cast. (Actually it was several months ago.) Greece will not remain a member of the EU, and the final parting of ways could happen within weeks.

    I’m fed up with hearing that the new Eurobankster schemes trotted out on a daily basis are referred to as “Greek Bailouts”. As anyone with an ounce of brains can tell, they are Euro/American bankster giveaways to be financed by future taxation of the groveling serfs. The sums involved may seem small compared to size of the entire Euro system, but full default by Greece will bankrupt major French and Italian banks which have leveraged exposure to Greek bonds. Enter our old friend Goldman Sachs, whose CDO derivatives liabilities to the French banking system alone are reported to be twice its market cap. Now everyone knows that Goldman can’t fail–after all they own the President and the Treasury Secretary. However the chickens will come home to roost, as the old saying goes. From a distance it might look like a fox is following them, but it is actually a wildfire.

    Assuming the rest of the world still has a functioning economy, how will poor Greece cast alone upon stormy waters fare? Perhaps they will build a democracy that has the ability to actually tax the richest 20%, instead of relying upon taxes levied upon wage earners and public employees while borrowing the rest from the EU?? If the drachma ends up having only 50% of the value of the Euro, there will be thousands of sun-starved Scandinavians and eastern Europeans lining up to buy new Greek villas. Russians now mobbing the beaches of Montenegro will shift their sights to the west, and hordes of tourists will descend from Germany. I’d be surprised if the austerity hair shirts proscribed by the Eurolords are much in demand a couple of years after the Greeks decide to reject death by a thousand cuts from above.

  10. George Phillies

    It is my impression that the Germans and the French do not actually have a legal mechanism to expel the Greeks from the Eurozone, if the Greeks choose not to go. Not to mention, of course, that the EU advances by unanimous consent, and sending Ambassador No to the EU consent mill might send a message to the Germans and the French.

  11. Glen

    “Does Greece want to remain part of the euro zone or not,” German Chancellor Angela Merkel said. “That is the question the Greek people must now answer.”

    No, the real question is why do Greeks want to bail out German and French banks?

    Greece is going to default and make the Germans and French bailout their own banks. And that’s assuming that the French and Germans even want to bailout their banks, because if Merkosy let the German and French citizens vote on it THEY wouldn’t want to bail them out either.

  12. Mikey M

    Well this is a lovely reminder to all pro-euro fanatics just what a sick and perverse organisation the EU has become.

  13. Mikey M

    It is amazing when its the euro itself that is the white elephant in the room, making the GIIPS far less competitive vs Germany and the rest of the world.

    The only sustainable answer to the problems would be allowing some sort of north/south split on the euro currency. Whether Germany leaves or whatever.

    But as long as the GIIPS are in the euro they will continue to fail as economically viable states.

  14. vlade

    Woohoo! escalation of commitment & game of chicken! I’AM going to write a case study on this…

    It reminds me of the scene in Blazing saddles

    [the Johnsons load their guns and point them at Bart. Bart (black sheriff) then points his own pistol at his head]
    Bart: [low voice] Hold it! Next man makes a move, the nigger gets it!
    Olson Johnson: Hold it, men. He’s not bluffing.
    Dr. Sam Johnson: Listen to him, men. He’s just crazy enough to do it!
    Bart: [low voice] Drop it! Or I swear I’ll blow this nigger’s head all over this town!
    Bart: [high-pitched voice] Oh, lo’dy, lo’d, he’s desp’it! Do what he sayyyy, do what he sayyyy!
    [Townspeople drop their guns. Bart jams the gun into his neck and drags himself through the crowd towards the station]
    Harriet Johnson: Isn’t anybody going to help that poor man?
    Dr. Sam Johnson: Hush, Harriet! That’s a sure way to get him killed!
    Bart: [high-pitched voice] Oooh! He’p me, he’p me! Somebody he’p me! He’p me! He’p me! He’p me!
    Bart: [low voice] Shut up!
    [Bart places his hand over his own mouth, then drags himself through the door into his office]
    Bart: Ooh, baby, you are so talented!
    [looks into the camera]
    Bart: And they are so *dumb*!

      1. Praedor

        And yet the latest I’ve read is that Pap is a limpdick and just backed away from the referendum and will not resign.

        More anti-democracy from a “democratic” government of Europe.

        They ALL need to go down in flames (ALL European governments bought and paid for by big finance). They are ALL illegitimate governments.

          1. Mr. Eclectic

            He is a spineless, castrated limp-dick of a SOB with daddy issues. “Oh, daddy divorced mammy!” Go get some therapy, don’t run for office, you poor excuse for a human being!

            Excuse the rant, but the last 24 hours have been the proverbial drop.

            The major construction, press and banking conglomerates (all owned by the same 10 families) are pushing for a coalition, so that everyone will be complicit, mainstream commentators are asking for a “national salvation” government with emergency powers (so this is how democracy dies), aspiring successors are conspiring for support by the other mainstream parties, banks have suddenly frozen the assets of the only centrist paper in Greece that has been critical to the government (Eleftherotypia), and the whole Nice disgrace.

            They’re making an example of us alright. I just hope that you are getting the right message from all of this, not theirs. That at least would make this endurable. There would be hope.

  15. LRT

    All the editorial tendency is advocating is, in one sentence, austerity with the drachma.

    Yes, if you are running the drachma, you can devalue. You raise the price of imported goods, lower standards of living, the country gets poorer. Yes, you can default on your drachma bonds. Next time you want to borrow interest rates are huge to compensate for that and exchange rate risk, and the country gets poorer. Yes, you can print as many drachmas as you like. That gets you austerity with inflating drachmas, and its no better.

    What they should do is default, stay within the Euro, and run balanced budgets. They will be poorer than their northern neighbors. They were before, they are now, and they still will be. The only way they can get richer is to work and administer differently. As long as they run the country the way they have been, they are going to be poor and wretched. More poor and wretched with drachmas than with euros, but poor and wretched in both cases.

    1. Praedor

      Don’t forget the key: do NOT sell a single national asset (not a single vacation resort, not a single Greek ruin) to foreigners. THAT is what the rest of Europe is drooling over: stealing national treasures of Greece for private profiteers.

    2. Binky the Bear

      Doesn’t such an action create numerous new opportunities within the country that would compensate for the loss of imports? Suddenly an impetus for domestic manufacturing and retail of products formerly imported from GDR and FR, perhaps? More likelihood that local oligarchs will have to contribute more to the commonwealth?
      Certainly it couldn’t hurt to have more local political and economic control as contrasted to the tendency of international capital to reward the existing corrupt oligarchs emplaced with the help of intelligence agencies of foreign powers.

  16. Lee S

    Ignoring the question of whether Greece can be kicked out or not, doesn’t their exit solve Greece’s problem? We have seen many posts saying that austerity is actually causing the opposite of its intended action. A quick search illustrates this with a model of Italy’s future by Kash Monsori here: http://streetlightblog.blogspot.com/2011/11/italys-future.html.

    Without addressing the trade imbalances, then a default (voluntary or not) is only going to fix the short term problem but it will return in the future.

    If Greece is kicked out, they go through short term pain, hopefully following the path of Argentina to return to growth. For Greece, the problem is solved, and the Greeks can blame it on the other countries instead of making the difficult choice themselves. For the Euro zone, one problem is eliminated but the larger problem would still remain.

    Papandreou would still be shouldered with the political responsibility of an unpopular result, but other politicians would be sheltered from having to make the choice.

    1. Praedor

      It was fantasy in the first place for ANYONE to posit that austerity would solve anything. Austerity can only make things worse. ANYONE who holds otherwise is holding to a blatantly false, empirically false belief system.

      Austerity never works. Austerity ALWAYS and EVERYWHERE makes things worse. Austerity can (and should) lead to revolution.

  17. Praedor

    It begins to appear that the Greek populace will have to burn down their government as it is now battling with itself to remove Pap so as to prevent the referendum. Thus they have their own government actively fighting AGAINST democracy, seeking to force upon the Greek people what a few elite (self-chosen) demand that they accept.

    Screw that. No referendum, then no government. They should burn down their government if it tries to block the PEOPLE telling their government (and the rest of Europe) what they want. Literally. Burn down the government and all that make it up. They are all robber baron criminals.

  18. Psychoanalystus

    >> The Eurocrats have decided to try to push Greece into line, threatening expulsion from the Euro (note, not the EU) if Greece does not back down. <<

    Ooo, scary! Please Angy, please, Sarko, please, be gentle…
    We are so scared… So frightened… What are we going to do once we slap a 50% import fee on your shitty Volkswagens and BMWs… And what are we going to do once you'll have to pay 250 DM to get a tourist visa to go to the Islands… Gosh, how could any Greek possibly live with that?… How could any Greek possibly live with the idea of driving a Toyota or Lexis instead? And, how could any Greek accept millions and millions of Chinese and Russian tourists crowding the beaches…

    Ooo, scary stuff…LOL

    Psychoanalystus

    1. CaitlinO

      Now, in a total betrayal of democracy in the very country that invented the thing, Papandreou has decided to call off the referendum. Unless there’s more to this than meets the eye, it looks like just one more craven kow-towing to the financial MOTU.

      NOW HIRING

      Position: Leader of a western democracy
      Requirements: A spine.

      1. Lafayette

        Now, in a total betrayal of democracy in the very country that invented the thing, Papandreou has decided to call off the referendum.

        Total betrayal? Wow …

        How is it a betrayal of democracy if the Greek parliament (duly elected representatives of the Greek people) votes to approve the negotiated agreement that Greece’s Prime Minister (Papandreou) had previously accepted?

        An agreement that cuts 50% off the Greek debt? An agreement that allows the Greeks more financial breathing room?

        Where’s the betrayal of Greek democracy? Just the opposite, I’d say …

  19. Lafayette

    The withheld payment will not change much. If Greece defaults, according to the domino-effect, Portugal is next. Then Spain, then …

    Which is why Portugal has already started to renegotiate a larger haircut for its debt. The banks will, of course, refuse.

    To no avail, however.

    The payment will be made, as soon as the Greek government, presumably the new one, dumps the referendum and simply votes its approval of the arrangement negotiated last week.

    All this is making a mockery of the G20, taking the focus off more important matters. Like a Financial Transaction Tax, that Obama seems more favorable about, but to which both Wall Street and London Finance look askance.

    Both keep saying that if it is enacted, but only partially, then business will simply go “elsewhere”. I am not so sure that is so blithely easy. (Some financiers dislocated from London to Geneva, to enjoy a lighter tax regime. They moved back … )

  20. Rodger Malcolm Mitchell

    Threaten to expel Greece from the eurozone? This is a threat?? Within 2 years after being expelled, Greece will be strong, hearty an growing.

    Those who do not understand Monetary Sovereignty do not understand economics.

    Rodger Malcolm Mitchell

  21. Fiver

    So what caused Pappy to reverse course and call off the referendum?

    I find it hard to believe he’s a total Bozo having managed to get this far in a truly disastrous situation. He had to know where his party, the opposition, major Greek players and EZ capitals were all going to stand on this before he made his first move. I also find it hard to believe he would go so far out on a limb in a calculated move to force a national unity government “consensus” when the risk of further enraging the public is so high.

    Maybe he is just a dolt. But I wonder if something he did not anticipate took place – like a call from the military, who in turn received a call from “upstairs”?

  22. Fiver

    Just read the great link provide by Yves re the Greek Deputy PM/Finance Minister’s grotesque betrayal. We just witnessed what amounts to a coup. Venizelos must resign and ought to face charges of treason. I rather suspect he was the recipient of the “call” I alluded to previously.

    If Pappy and the Greek people let this stand, they are utterly screwed for a decade at minimum. The faster the Greek people rise up and cast off the money chains that exist only to the extent they are honored by not viewed as legalized theft, the faster they can get on with a tough but real healing, at last in control of their own fate. It’s now, or never.

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