False dawn in Greece

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

European markets were lead by Greek equities which were up 6.8%, attempting a bounce last night on the news that:

Greece’s conservatives have regained an opinion poll lead that would allow the formation of a pro-bailout government committed to keeping the country in the euro zone, a batch of new surveys showed on Saturday.

I’m not too sure why this is such good news, Greece is in deep trouble either way and it would take a person with a serious short term memory problem to forget what has already happened to Greece under the existing programs. Either way, the campaign by New Democracy appears to be clawing back voters leading to a response from the left:

Alexis Tsipras, the head of the Coalition of the Radical Left (SYRIZA) the surprise second-place finisher in stalemated May 6 elections is swinging back. He is locked in a neck-and-neck duel to win the next elections. He accused New Democracy leader Antonis Samaras and PASOK Socialist leader Evangelos Venizelos of trying to frighten Greeks into voting for them with horror stories of a complete economic collapse and anarchy if Greeks support him and other anti-austerity parties that won 68 percent of the vote in the first elections. Tsipras accused “domestic political forces” of “blackmail, threats and lies,” and with scaremongering.

Samaras said SYRIZA’s intention to repudiate Greece’s loan agreement, or memorandum, with the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) could lead the country out of the euro. “A return to the drachma would lead to incomes, savings and assets being halved, while debt would grow,” Samaras told party members at an ND national congress in Athens. “Tsipras will bring a worse memorandum that will serve the drachma lobby, which will be able to buy up the country on the cheap.”

Although Samaras is stating that he supports the existing programs he is actually suggesting that he will re-negotiate the deal. This in itself appears to be wishful thinking, but some his other promises appear outright delusional:

A New Democracy victory in the June would see the party halt the rise in unemployment by the of 2012 and reduce jobless levels to the same rate as in 2009 within two years by creating “hundreds of thousands of new jobs,” Samaras said.

The party’s recovery program for the Greek economy would be to absorb European funds and emphasize liquidity for small and medium-sized companies, he said. Samaras repeated a pledge for no further cuts in wages and pensions, and not to introduce new taxes.

Call it campaigning if you like, but these undeliverable promises highlight to me that Greece is in deep trouble either way and there is little to celebrate even if the centre wins the next election. In the meantime Greek banks received a proportion of the re-capitalisation funds promised under the latest bailout in the form of EFSF bonds that they can “cash in” with the ECB:

Greece’s bank support fund on Monday disbursed 18 billion euros to the country’s four biggest banks as a part of a long-planned recapitalisation effort, a fund official said.

“The funds have been disbursed,” the official at the Hellenic Financial Stability Facility, who declined to be named, told Reuters.

The injection – via bonds from the European Financial Stability Facility rescue fund – will boost the capital base of National Bank, Alpha, Eurobank and Piraeus Bank, allowing them to regain access to European Central Bank funding.

Greek banks already have €125 billion euros in loans from the ECB including €54 from the Emergency liquidity program ( ELA ) via the Greek national bank. Given recent trends the €18 billion is likely to make its way out of Greece towards to core over the next few months meaning the Greek banks will be back asking for more funds. Please see this post for more on that point.

Moving on from Greece we also saw a press conference by the Spanish PM, Mariano Rajoy, in which he gave a very confused report on the state of Spain’s current crisis:

“There are major doubts over the euro zone and that makes the risk premium for some countries very high. That’s why it would be a very good idea to deliver a clear message there’s no going back for the euro,” Rajoy told a news conference.

“There will not be any (European) rescue for the Spanish banking system.”

Rajoy went on to say that Spain must continue to bring down its deficit, but is struggling to finance itself at sustainable levels because of the high risk premiums involved. He also stated that there must be clear and decisive action and Europe needs to move forward with monetary and fiscal integration which would clear up the doubts about the future of the Eurozone. He once again repeated that although his country was struggling it wouldn’t need a bailout, but also stated that he he wanted the the European Stability Mechanism to be allowed to lend directly to banks.

The trouble is that the Spanish government’s fund to support bank restructuring only has €5.3bn, and Bankia, which already requires nearly €24bn, is not the only bank that will need support. The most notable are CatalunyaCaixa and NovaGalicia which were nationalised by the Spanish government in September who have recently stated that they want addition capital. The Spanish government has ordered an audit of the banking system which will be delivered in June, but the some of the bad news is already being reported:

BFA, the parent group of nationalized Spanish bank Bankia, said on Monday it had restated its 2011 results to reflect a 3.3 billion euro loss, rather than a 41 million euro profit, following a bailout from the state.

In a statement to the stock exchange regulator, BFA said the restated loss reflected a review of its loan portfolios and capital needs after a new audit and as part of the clean-up plan implemented by the government.

Although Mr Rajoy claims there is no requirement for a bailout he has been very vocal with calls for the ECB to do more to support Spanish debt. That appears to have fallen on deaf ears, as the latest stats from the ECB show that the SMP lies dormant.

Spanish yields were up again after the press conference and are now approaching the highs of last November. Against Mr Rajoy’s insistence it would appear that a bailout is coming.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. Dan B

    The European Union, ECB and IMF are shaking their pepper spray cans to douse Greece as a (futile) warning to Italy, Ireland, Portugal, and Spain. Europe is in ecological overshoot, primarily because of peak oil, an obdurate fact that cannot be perceived by those who think growth is a natural jobs creator and the only sane way forward.

    1. Maju

      Peak oil can be dribbled by means of renewable+hydrogen energy, every month more efficient and only needing political backing to kickstart as serious energy source.

      While it may be a problem and a growth-based economy is simply a wrong idea for many other reasons (mostly massive environmental damage caused by unaccounted-for thermodynamic inevitability), the real problems can’t be simplified to mere “peak oil”.

      1. Christophe

        The real problems can’t be simplified to mere faith that we only need “political backing to kickstart” some fervently wished for new energy source. Your “renewable+hydrogen” perpetual emotion machine is both deeply satisfying and deeply delusional.

        The universe has not promised and does not owe us a cheap, concentrated energy source. Your heartfelt desire for something to come to pass is insufficient to bring it about, despite what The Secret told you.

        1. Nathanael

          Peak oil is not a serious ecological issue, because there’s enough solar energy to satsify the entire world’s energy needs millions of times over.

          Peak oil is an *economic* issue and a *political* issue, because our governments do not have the political will to switch us over to solar power, which is “more expensive” in the short term.

          The ecological issue is global warming, and we’ve only seen the very beginning of the problems it’s going to cause.

          The other ecological issue is overpopulation, but Europe’s *solved* that one.

          1. Maju

            Actually solar power is probably by now as non-expensive as oil, specially considering that oil multiplied its price times four in the last decade.

            The real problem with most renewables is that they can be reasonably decentralized and that is direct threat to big corporations and centralist states themselves. Today most energy supply is under the control or a few corporations (the seven sisters and some others, areal electricity monopolies, etc.), generalizing solar+hydrogen (or other non-massive renewable combos) threaten their oligopoly.

          2. Andrew not the Saint

            Explain how solar energy can replace fossil fuels for transportation – land, sea and air, and what kind of investment into the infrastructure it would require.

            These are just fantasies, the world economy will collapse much sooner than the whole transition will even begin.

          3. Maju

            @Andrew: the most reasonable method to store renewable electric energy is hydrolisis of water into hydrogen (and oxygen). The hydrogen can then be used as fuel to produce energy in situ when the main source is low (for example at night) or elsewhere like cars or generators. The byproduct of combustion is simply water (can hardly get cleaner at all).

            The only problem of hydrogen is its extreme flammability what requires special storages like hydrogen fuel cells. However in these conversions there are sensible loses, which are still to be fully overcome.

            Still the efficiency of all the systems implicated has been growing and growing, so it’s not any utopy, just a matter of someone making it happen, for instance by subsidizing the technology with a tax break or something. This can be rationalized as a matter of course because of the comparative cleanliness of the renewable energies vs. oil, coal and nuclear, which deflect many hidden costs towards the environment, loading the immediate future with unbearable risks, specially in the case of nuclear.

          4. Maju

            @Andrew: all that does not mean that the world economy is not collapsing as we speak – just that energy is not the key issue, rather pollution, overpopulation and very specially a wrong distribution of resources and priorities by means of a most inefficient oligopolistically clogged market, which always redistributes upwards, making all production gains worthless (as most goes to the elites in any case in the form of luxury waste, not to general social well being).

        2. Maju

          No “perpetual movement” here: it has a perfectly well known external (but very long-living) source which is the Sun and which actually energyzes nearly everything that happens down here on Earth beginning with life itself (and of course your sticky oil and dirty carbon, peak or no peak).

          “The universe has not promised and does not owe us a cheap, concentrated energy source”…

          No promise, man: it’s a real thing out there shining over our heads and effectively providing nearly all energy down here on Earth.

          It’s not any mystical speculation but a matter of facts.

  2. jsmith

    Um, so let’s see.

    All of sudden the Greek conservatives have seemingly gained the lead again and NO ONE’s mind autmatically turns to the word of the decade: FRAUD?

    I mean, we know for a certainty that elections/polls – besides being basically meaningless for the common Western citizen no matter who people vote for – have been totally corrupted and co-opted yet we shouldn’t automatically think that the elite who are not above letting women and children starve to death due to austerity wouldn’t tamper with the electoral process?

    Check out this Guardian interview with Lagarde from a couple of days ago and appreciate the dripping sociopathy.

    From the interview:

    “Asked if she is essentially saying to the Greeks and others in Europe that they have had a nice time and it is now payback time, she responds: “That’s right.”


    These fascist technocrats are the enemies of humanity and must be stopped.

    1. Maju

      Beware of Lagarde: she was appointed by Sarkozy (that says it all).

      Tsipras and even Venizelos protested (correctly) that Greek workers do pay their taxes, which are a massive burden.

      1. Synopticist

        Greek workers might pay their taxes, but the wealthiest 30 odd percent don’t.
        And that’s the problem.

          1. rotter

            the US…sorry this response is split in 2……i really despise talking by means of pecking at this stupid, defective board with my fingers

    2. Maju

      Opinion polls may have been fraught indeed but would it be election polls we’d know with certainty. In Europe voting and counting is still done manually in transparent boxes, what leaves almost no room for fraud. Still the results are known very quickly, in a matter of hours (what also aids to transparency normally).

    3. Aquifer

      Greeks wouldn’t be the first to chicken out from voting left when told that “awful things will happen” if they don’t stick with right wing schmucks – another populace comes to mind as well …

      1. Maju

        We’ll see: in the previous elections SYRIZA got almost double than opinion polls predicted, while ND was well below. I imagine (and hope) that this will happen on June 17 as well.

        Greeks have two paths before them: the right path leads to Haiti, the left path probably to Cuba (with some uncertainty variants such as Nicaragua, etc). My bet is that the Greek People will choose what is best for them and that is obviously not the Haiti option.

    4. Jim

      I’m in the minority, but I don’t think it makes a difference which party wins. You can’t square the circle. The party that wins will have to reintroduce the drachma.

      1. tiebie66

        And this will help? How? Like the Zimbabwe dollar benefited Zimbabwe? The problem is not the euro, but an unproductive society. The problem is also not the debt, but an unproductive society. The problem, to drive it home, is not the banks, but an unproductive society that chronically needs to borrow from the banks.

        1. Nathanael

          None of what you say is actually true. That’s the only problem with your theory.

          You want to see an “unproductive society”, visit the “Square Mile”, the City of London. There’s a society whose primary problem is that they are unproductive leeches.

  3. Susan the other

    Spain bailed out Bankia with sovereign bonds so Bankia could take them to the ECB and exchange them for credit?

    1. Maju

      AFAIK, as of now, nobody knows how exactly will the Spanish state bail out Bankia. Rajoy claims that no further indebtment will be needed, what has been interpreted as meaning another 24 billion cuts to the already hyper-squeezed budget of 280 billion (after the first 27 billion cuts).

      He also said that two other smaller saving banks may follow suit. It is not fully clear if he said so because it’s true of because he is trying to deflect partisan responsibility towards the PSOE and CiU opposition parties, who may be involved in thes other cases.

      There seems to be a lot of PP-centered corruption in Bankia and this is what may be politically (ethically) most costly for Rajoy: because the Spaniards will be made to pay with their education and healthcare (even more than before) for sustained private-political cronyism and not just “bad luck”.

  4. Lambert Strether Post author

    Susan, in Links there are three Bankia stories. They include lucid (I won’t go so far as to say “correct”) explanations of what Spain is doing.

  5. Min

    “BFA, the parent group of nationalized Spanish bank Bankia, said on Monday it had restated its 2011 results to reflect a 3.3 billion euro loss, rather than a 41 million euro profit, following a bailout from the state.”


    1. Mole

      Isnt it funny the way nature slaps you in the face.

      The Spanish bonfs are as good as Bankia, junk. Its up to the German people to say shove it.

  6. Calgacus

    Sucker’s Rally is more like it. The suckers like the bright idea of fighting off loan sharks by incurring ever more unpayable debts to the loan sharks. And they reject the guys who want to stop digging a deeper hole & might stand up to the loan sharks.

    Poor Greece. Poor Spain. Poor Eurozone.

  7. indio007

    That’s a push poll in the sense that people seem to think elections are like a horserace in that your trying to pick the winner. Convince people candidate X is going to win and the sheep go right along with it.

    You gotta throw in some Diebold just to be safe. ;)

  8. Nathanael

    Either Syriza wins the next election, or Golden Dawn wins the election after that.

    It’s basically that stark. The “conventional parties”, PASOK and ND, are dead parties walking and they just haven’t noticed it yet; the Greeks backing those parties are just slow and won’t be backing them in a year.

    People are backing Syriza because it seems like the best chance of ousting the psychotic “conventional parties”. If Syriza doesn’t pull it off, the people of Greece WILL turn to Golden Dawn. We have centuries of experience with this phenomenon.

    It is, sadly, quite possible that the Troika and the “conventional parties” and all the other scum in power will manage to cause a Golden Dawn takeover of Greece. This is why the scum in power need to be destroyed as fast as possible.

  9. Ms G

    Meanwhile, from the “You can’t make this s*** up” Department:

    Christine Lagarde does NOT PAY TAXES on her 300,000 (Brit. Pounds Sterling) annual salary as director of IMF. Her telling Greeks to pay up is somewhat analogous (though far more grotesque in the immediate) to having a US Congress involved in tinkering with private health insurance (in the name of crafting health care legislation) while enjoying life-long The Creme de la Creme health coverage at no cost.


    P.S. Of course this was published in the Guardian UK. No US media (to my knowledge) mentioned it.

    1. Maju

      Against what the article says, the Vienna Convention does not seem to protect UN agency officials, because Strauss-Kahn, her predecessor was arrested and that would have been illegal under the Vienna convention which is dedicated to state the privileges of diplomats. It was said back then that UN officials are not diplomats.

      So, Lagarde: pay your taxes!

        1. Maju

          It could be but the article says “Vienna Convention”. It’s also possible that they slided towards the ambiguous zone in the DSK case out of political reasons only but that in general they are applying the Vienna Convention to UN officers.

  10. dandamn

    every country in the same situation as greece and gone tovtheir own currency scheme as seen remarkabl growth afterwards. look at argentina whose had growth around 8 percent a year. greece is only screwed if it stays in the euro and doesnt default

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