How Much Success is Syriza Likely to Have in Ending Austerity?

While the election results in Greece have sent shockwaves through European technocratic elites and have rattled investors, it is not clear how successful Syriza will be in getting big enough changes implemented in Eurozone policies and its own bailout terms to end the humanitarian crisis, rather than just create the sort of bounce off the bottom growth that analysts like to depict as progress. Indeed, once you walk though the likely bargaining positions of the various parties, there is little reason to be optimistic on Syriza’s behalf.

Bear in mind that Syriza has yet to make any official statement as to what its negotiating position with the Troika will be. Both presumed prime minister Alex Tsipras and one of his finance minister candidates, Yanis Varoufakis, articulated bolder positions a year ago, when they were further from power. In the runup to to the election, Syriza has tried to depict itself as an anti-austerity, yet pro Eurozone party. As Jamie Galbraith described it, via Mark Thoma:

The Syriza program is a pro-European program. It is, and I think Europe and Europeans, people are committed to the European project, can consider it a great stroke of luck that there has arisen in Greece, and consequently, partly consequently and subsequently, in Spain, as well as in the present government of Italy, a pro-European set of parties, whose objective is change, constructive change, to make the European project viable.

The nut of that problem, as we will see, is that while may be a very estimable-sounding position, it may not be as pragmatic as it appears. Greece likely has better odds of winning concessions if it is less reasonable, since the Germans and the even more implacable Finns are convinced that the periphery countries are immoral beggars who deserve to be ground into the dust if they cannot or will not pay their debts. Greece is unlikely to be able to shake the perception in the North that they have the upper hand and can force Greece to heel, giving at most only fairly minor concessions.

Greece’s best hope is if it there is an upsurge in popularity of other anti-austerity and anti-Eurozone parties in the rest of Europe. And they are more likely to rally support in the rest of the Eurozone if they take bold positions rather than careful, studied ones. And even then, that may not be enough for them to resolve the deep-seated problems they face. It isn’t simply that they face a very difficult challenge politically vis-a-vis the Troika, but that even if they get most of what they want, their policies do not look likely to generate enough demand to pull Greece out of its ditch.

Negotiating Boundary Conditions

Once you look at the likely boundary conditions, things don’t look good at all for Syriza. The current Greek bailout expires at the end of February. Greece has €10 billion of debt repayments due over the summer and has €7 billion of aid that is on hold unless and until it negotiates a new bailout deal. And the Finns are being implacable. From the Financial Times earlier this month:

Finland has emerged as the biggest stumbling block to negotiating a new bailout deal with an incoming Greek government, telling its eurozone partners that it will not support debt forgiveness and is reluctant to back another extension of the €172bn rescue.

In an interview, Finland’s prime minister said he would give a “resounding no” to any move to forgive Greece’s debts and warned that a new government in Athens would have to stick to the terms of the existing bailout…

If the Greek bailout is allowed to expire at the end of next month, Athens would be left without a financial backstop from the EU at a time of mounting market jitters about the eurozone. Although Greece would still have access to an International Monetary Fund programme, tensions between Athens and the fund have also grown.

Asked whether he could back an extension of the EU bailout, which is due to expire next month, Mr Stubb said he could not “exclude the possibility”. But eurozone officials said Helsinki has taken an even harder line in closed-door talks, telling counterparts that a longer extension of the Greek programme could inflame anti-euro populists in Finland’s upcoming parliamentary elections…

According to officials involved in those discussions, most eurozone countries advocated a six-month extension of the programme to give the political drama in Athens time to play out, but Helsinki wanted only a one-month delay. A compromise of two months was ultimately agreed.

Withholding the bailout funds, if the Finns refuse to extend the bailouts, is likely to grind the Greeks down even further, which is the plan. Even though Jamie Galbraith contends that Greece is in a sustainable position because it is now running a trade surplus, I would argue he’s letting his economics perspective trump social and political realities. The reason trade is in a surplus is that imports have fallen considerably. Some of the exports are things like pharmaceuticals. The Greek hospitals are in near collapse, and one of the big reasons is that they cannot afford many drugs. Many Greek citizens are similarly unable to get important or essential medications. To pretend that Greece can continue at this level of import starvation seems illusory.

The Germans are more accommodating on negotiation timelines, and have always been willing to give Greece more funds if it agrees to yet more austerity, even though anyone with an operating brain cell can see that Greece ultimately cannot pay all this debt if its economy continues to stagnate. But even if Merkel and Schauble were to have a Damascene conversion and come around to the idea that radically different policies were the only way to save the periphery, and ultimately the Eurozone itself, they are boxed in by their own propaganda having whipped already strong German prejudice against borrowers and Latins to a fever pitch. Their domestic politics severely limit how generous they could be to the Greeks even if they wanted to be. A German reader told me that the reactions in the press to the Syria win were “foaming at the mouth”. This Google translate of an article in Faz will give you an idea. Key sections:

The special prize for the most original answer to the question of how Greece can reduce its debt, goes to Rachel Makri. The deputy candidate for the “Coalition of the Radical Left”, short SYRIZA, which will win according to all forecasts, the Greek general election on Sunday, and its proposal for the removal of 315 thousand euros high Athenians debt mountain is really a hit: If SYRIZA was in power the Greek central bank will simply print out 100 billion euros – then the country was ever a good deal further, the politician said a few days ago at a campaign appearance in Kozani, a small town in northern Greece. Greek Finance will be pretty angry that he did not come up with the idea itself.

Giannis Varoufakis, professor of economics at the University of Athens and often referred to as “economic guru” of SYRIZA, has another idea. The French Internet newspaper “La Tribune” he said of those days: “Whatever Germany does or says it will pay anyway.” Meaning: Either, Germany and the other countries of the euro zone, in Greek discussion often forgotten or as a satellite Berlin are referred to waive repayment of most of the billions transfers, they have done since 2010 – they have lost a lot of money. Or do they insist on full repayment – then Greece will leave the euro zone, and Athens creditors can fold from worthless drachmas paper boat, to make them floating down the Lethe, the river of forgetfulness…

In terms of the economic performance Greece to Japan the most indebted country in the world. Do people seriously believe what Tsipras tell them? What drives them? Who are they? Why do more than two million Greeks follow a man who promises them completely unrealistic things?…

But as much as the article has open contempt for Syriza and Tsipras, it quotes promise he’s made that do seem well beyond what he can achieve, and provides anecdotes from various Greeks that Faz uses to suggest that the motives of voters that supported Syriza are often incompatible and thus that their support will fizzle as the truth sinks in. That point is actually true of virtually any elected leader, particularly a fresh face: their popularity is generally highest early in their term in office, and factions in a party, unless it has a very focused mandate, like the Greens, routinely are at odds with each other. So a lot of this article sound like an effort to turn politics as usual into some sort of fatal flaw. But Syriza having seriously oversold what it can deliver is a real risk.

I see three stumbling blocks for the Greek negotiating position. The first is that there seems to be no overlap between what they want and the northern bloc is likely to be willing to concede. This alone is normally fatal to negotiations. Christine Lagarde of the IMF has similarly signaled only limited willingness to make concessions: “Debt is a debt and it is a contract.” Um, contracts are negotiated all the time, including those made with creditors. So why is this one so sacrosanct? So the Troika believes the “moderate” members of Syriza will bring the rest to see reason, as in the Troika way. Even though Syriza has teamed up with a right wing, anti-austerity coalition partner, any arguable increased rigidity is unlikely to impress Greece’s paymasters.

Second is that the best idea that the Greeks have to square the circle of austerity v. the Greeks wanting a more pro-growth, more humanitarian solution, the so-called Modest Proposal, is not modest at all from the Eurozone perspective. While it is “modest” in that it works within the existing Eurozone institutional frameworks, it is such a radical departure from the negotiating terms that the Troika generally has on the table in these discussions that there is simply no way to get agreement by summer, when the next bond payment is due, even if the Troika had an unexpected change of heart and was willing to be far more innovative on the policy front, as opposed to the financial smoke and mirrors front.

For instance, the way the Modest Proposal seeks to finesse the hairshirt of the 3% deficit constraint in the Maastrict treaty rules is to transfers to the periphery countries to achieve more convergence in economic performance and boost overall demand. Those two provisions are a a big investment program (see Policy 3, An Investment-led Recovery and Convergence Programme), funded by bonds issued by the European Investment Bank and the European Investment Fund, and and more emergency social spending (see Policy 4, An Emergency Social Solidarity Programme), which would be funded from the European Commission from existing sources like “interest accumulated within the European system of central banks, from TARGET 2 imbalances, profits made from government bond transactions.”

Aside from the fact that this plan has too many moving parts to get done in an at best six month runway there is a third, deeper reason it won’t happen. The Germans do not want deeper integration and more cedeing of power to Eurozone/European level institutions. From their perspective, they are footing the bill of their neighbors, and they therefore want to maintain a position which gives them leverage. Of course, Germany is perversely in denial of the fact that it wants contradictory things, namely, to keep running large and sustained trade surpluses within the Eurozone, and not finance its trade partners. Nevertheless, the very assumption that Galbraith set forth on behalf of Syriza, that Syriza is pro the Eurozone project working, and to them that means deeper integration, is not what Germany wants since that would require it to give up its advantaged position.

How is This Impasse Likely to Play Out?

The Trokia has no plan to give any meaningful ground. From the Telegraph:

Eurozone officials are convinced that the EU holds all the trump cards in the coming clash with Greece’s leader-in-waiting, Alexis Tsipras, including the nuclear option of letting Greek banks collapse. They believe Mr Tsipras knows his weakness.

The hardline approach will be sugared with offers of flexibility on the detail of austerity measures, and a move to allow Greece more time to meet an end of February deadline for renewal of key EU loans that are keeping the country’s economy afloat.

Jeroen Dijsselbloem, the Dutch finance minister who chairs meetings of the Eurogroup, will set out a strategy aimed at playing for time by drawing Syriza into months of talks in the expectation that Mr Tsipras will back down.

In other words, the plan (if the Finns will play ball) is to let negotiations go on a bit to allow Tsipras to manage expectations down and throw him some concessions, say some emergency social programs, to allow him to save face.

Now we do not know if Syriza really has any spine. They appear to be very keen not to appear intransigent, but they could stake out some positions that really are sensible, like pointing out that the Greeks clearly are not good for the debt unless radical changes are made, and refuse to budge. Galbraith contends that the Eurozone isn’t likely to be willing to play nuclear option on Greece because they’d be caught in the fallout:

And the other point of leverage is the Emergency Liquidity Authority, which backstops the Greek banking system. To cut the ELA would be to pull the plug on the Greek banking system and effectively to force a crisis in the affairs of the Eurozone. If the attitude of the creditors is “my way or the highway”, that you can have an election, but you may not change your policies, well then the burden of historical responsibility will be on them. We shall see. However my basic view is that Germany, having been one of the central countries at the origin of the European Union and at the origin of the Eurozone, will wisely not take the step of blowing up the European Union and the Eurozone over an argument about the conditionalities attached to past financial bargains.

In other words, the Syriza position may be to hold its ground on some fundamental issues and if the Troika does not budge, to have them be the ones to lower the boom on Greece if it defaults at the debt rollover date this summer. They want to have clean hand if this were to occur.

But what happens when Syriza comes to realize that the Troika is deadly serious, which I believe it is? Whether the Eurocrats are right or not, it seems that at least the Finns and the Germans see Greece as disposable. Their leaders believe that throwing it out of the Eurozone or simply taking radical punitive measures if Greece does not do a deal by the summer rollover date will be at most disruptive but not fatal to the Eurozone; indeed, they may believe any short-term criss would be to the Eurozone’s long-term benefit, since making Greece a demonstration case of how costly it is to defy the Troika would serve to cow the rest of the periphery countries.

Even if Syriza Manages to Win at Its Negotiations, Will it Really Win?

Bill Mitchell doubts that Syriza’s ambitious-seeming goals are on the right track. From the overview of his post:

[The Greek election] has been hailed as a make or break-type of affair but from what I know from inside-type conversations with some of the players and from general reading it has the hallmark of a fizzer, even if Syriza wins the ballot. Essentially, none of the main players seem to be willing to actually solve the problem. The entrenched interests have helped create the problem and are impoverishing the Greek people (themselves excepted). So they are part of the problem. Syriza talks bit about freeing Greece from the Troika-yoke but has a set of proposals that are mutually inconsistent. They might help around the edge and redistribute income a bit but what is needed is a massive boost in national income and that can only come from a massive increase in spending. The non-government sector is not going to do provide the source of that spending boost to get things moving again. So, ladies and gentleman you know what the answer is – there is only one other sector left in town to do it. And, you also know what is stopping them – membership of the Eurozone and the requirement to obey fiscal rules that restrict necessary spending to stagnation-enduring levels. That is why Syriza’s strategy is mutually inconsistent. Even a debt jubilee – the current favourite of the progressives, which warms their hearts so they can convince themselves that they are different from the neo-liberals will not solve the problem. Repeat: a massive fiscal boost is required, which means deficits above 10 per cent of GDP for many years forward. Repeat: that can only be accomplished within the current political reality if Greece leaves the Eurozone. It should have done that in 2008. It should never have joined. It should do it next week.

Mitchell does not mention Yanis Varoufakis’ Modest Proposal, which as we indicated, does have a finesse for increasing demand via more Eurozone-level-funded spending. It appears Mitchell doesn’t see it as having a chance of getting done due to positions taken within Syriza, let alone the negotiating impediments I flagged. And Varoufakis himself clearly regards a Grexit as a disaster for Greece, even worse than its current dire state of affairs, for the damage it would do to the Eurozone, which would drag Greece even further down, so if he is in an influential position, the party will be steered away from brinksmanship, even of the passive-aggressive sort.

Lambert’s political radar went off when he saw the similarity between Syriza’s messaging and that of Obama’s 2008 campaign. And Syriza is promising even less, not “Hope” but “Hope is Coming”. So despite being mean-spritied, the Faz looks to be right in deeming the Syriza victory to be an “overdose of hope”. As we said, it’s only real chance is via a serious show of solidarity, as in a credible threat from the anti-austerity, anti-Eurozone forces in the rest of Europe. We’ll see whether they use Syriza as a successful rallying point in the coming weeks and months.

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  1. Ned Ludd

    As an FYI, the post currently appears to cut off at the end: “Some of the exports are thi…”

    1. Yves Smith Post author

      I set it to auto launch too early, and I was writing and didn’t see that a partial version had gone live. Sorry. Please read the balance of the post. Quite a lot got added to what you saw.

  2. Ned Ludd

    Syriza is split into an anti-euro Left Platform, representing about a third of the delegates to the party congress, and a pro-euro majority. The majority itself is divided into a left-wing and a right-wing, which appears to be a divide between pro-euro anti-capitalists and pro-euro reformist social democrats.

    The right-wing has been working to reduce the power of the party congress, increase the power of the leadership (which they largely control), and weaken Syriza’s more confrontational positions. From Stathis Kouvelakis, a member of Syriza’s central committee and leading member of the Left Platform:

    Greece: Phase One

    Within Syriza, the forces of the Left Platform developed a principled critique of the EU as such and sees Greece being part of the eurozone as one of the key dimension of the problem. If you are not ready to break with the eurozone, if that turns out as the only option left in the case of a Cypriot-type blackmail, then your hands are tied in advance.

    The majority of Syriza strongly objected to that approach… […]

    The test of reality will come very soon. We’ll know whether it is possible to break with austerity and remain within the eurozone. Everything so far suggests that this is not possible. […]

    The concrete outcome is that Syriza is unprepared. There is no plan B. There has been no political preparation of the party, of Greek society, of the people. And this fact is still used as a way to blackmail the Greek population and will undoubtedly be used in the future to blackmail a Syriza-led government.

    On the Syriza economic team:

    The two main economists of the party — and they are the real representatives of the most rightist tendencies within Syriza, Giannis Dragasakis and George Stathakis… developed their own distinctive approaches to the economic issues, which were systematically different from the decisions of party congresses or the official position of the party.

    Often, Tsipras has had to intervene to re-establish some kind of balance, but this process meant that the initial position — the position of the 2013 congress — was softened up. […]

    It is quite unclear what Syriza will do with the banks, and what it will do about privatizations. It will certainly cancel at least some of the more scandalous cases of selloffs of public assets at completely ridiculous prices. But the recent statements by Dragasakis and Stathakis about banks and privatization are not very encouraging, clearly retreating from the decisions and commitments of the [party] congress.

    1. digi_owl

      That has been the basic problem of “the left” with refrence to EU.

      The social left (or perhaps academic left) has a firm belief in the stabilizing nature of EU. Open borders, open cultural/social exchange/mingling, a bit of kumbaya, and the horrors of European war will be no more, as peace and understanding spreads.

      the industrial left (worker left) on the other hand see very stark practical problem with those open borders, as they erode their power base and so also the concessions they have wrangled from the industrial right. This foundation is the power of the general strike. The ability to shut down the profit earnings of the owners and shareholders, and therefore remind them that the workers exist.

      With open borders those owners are free to move production outside the reach of the strike, and bring workers in that are not affected by the strike.

      End result is that the industrial left can easily fall prey to the rhetoric of the nationalist right.

      1. Synoia

        We wish:

        and the horrors of European war will be no more, as peace and understanding spreads.


        1. bruno marr

          …but for Victoria Nuland (USA) the Ukraines might have found a better way forward. War is the preferred method of American intervention.

  3. brazza

    I suspect Syriza’s promise to renegotiate terms was as much electoral as negotiating strategy. Behind the scenes, they are preparing to leave the Euro … per tougher talk of a year ago. Hiding their hand is helpful on all levels: Grexit has to be sprung as a surprise.

    1. BillC

      I hope you are right, but as Yves notes, Varoufakis’ blogging of the last several months is unambiguously contrary to a Grexit. That he became a Syrzia parliamentary candidate and was floated as possible (probable?) finance minister only a couple weeks ago does not suggest that he pulled his punches in his earlier blogging for politico-strategic reasons. I fear Syrzia’s effort to appear reasonable to its Troika masters will guarantee that it cannot significantly satisfy the electoral expectations it has raised, possibly smothering the anti-austerity forces still in their cribs in the rest of southern Europe.

      1. Yves Smith Post author

        It isn’t just Yanis’ blogging, it was also how Syriza campaigned generally. They ran on a “no Grexit” platform. As the German and EU fearmongering was reported in the Greek press, a lot of Syria candidates moderated their positions. I don’t see how they can break with the stance they took.

        1. Syzygy

          I’ve heard the speculation that they want Germany et al to be the ones to force Greece out. It would cover their backs with the 75% Greeks who apparently want to stay in the EZ.

          1. kemal erdogan

            Yes, indeed. This is also my understanding. They want to be able to say they did all they could before introducing national currency again. This is important for long-term viability of the party. I am pretty sure they have been busy working on the details of how they will re-introduce drahma.

        2. cassiodorus

          “I don’t see how they can break with the stance they took.” Since they will have to do so if they want to avoid being cast into the dustbin with all of the other parties, you’d think it would occur to them at some point that they need to devise a strategy for the radicalization of Greek politics.

    2. Bobbo

      I hope you are right. It would be devastating for the Greek people for awhile, but at least they would get their country back. And the world financial titans need to realize that they cannot always use the bulldozer to run people in ground with no consequences to themselves. Sovereign debt is not risk free. No debt is risk free. The sooner that truth and the people rise up against the over class, the sooner we can reset the system. Hopefully at a more localized level.

      1. madisolation

        And there is hope for Greece if it decides to exit. From Russia:

        If Greece has to leave the European Union, we will build our own relations with it, the food ban will not be applicable to it,” Fyodorov said as reported by Tass.

        In other words, Russia has casually thrown out feelers to Greece (and any other peripheral European country) and given it the option of joining the greater Russian sphere of influence…

        1. Yves Smith Post author

          Food sufficiency is not what the pundits are most worried about. It’s the impact of a banking system collapse on Greece and what a Grexit would do to the rest of the Eurozone. (Having said that, the idea that Greece, which has been keeping its military expenditures high as the country is falling apart, becoming aligned with Russia, is something that would make the EU unhappy. But will they become unhappy enough to change course when they think they can bully Greece into falling into line? Remember, despite its “radical” label in the Western media, Syriza is composed primarily of moderates).

          The Germans and Finns seem to believe a Grexit would not lead to a Eurozone breakdown, that it would be an isolated but possibly disruptive event. But pretty much everyone who has looked at the consequences of a Eurozone breakdown agrees that it would be catastrophic, a potential Great Depression-level event that would make even austerity look better. See a 2012 paper from Josh Rosner as one example. Key points:

          Past Eurozone growth, particularly in Germany, did not come from meaningful improvements in productivity, but rather on the back of household wage reductions and industry-friendly reforms to the labor market – the Hartz reforms – which transferred wealth from the people to the banking and export-driven sectors of the economy….

          With this as a backdrop, it logically follows that the German government and central bank are seeking to protect the markets for German exporters and the German banking sector. Accordingly, the German government will be forced to choose either a large share of the costs of supporting a further integration of the European Monetary Union or, alternately, the larger economic and social costs of its failure, including the massive costs of recapitalizing German banks and financial support for German industry Either approach will lead to German debts rising markedly while its economy contracts. The costs will be astounding.

          The longer it takes for political leaders to offer their constituents full disclosure and transparency, the more costly any solution will be. For this reason, Eurozone political leaders must act decisively…

          Having that huge downdraft take place among Greece’s main trade partners means Greece would be dragged down along with them. Russia is not remotely a big enough economy to do anything to dent that in a serious way even in the best of times, and it’s already in a world of hurt itself.

          1. EoinW

            Perhaps it would make austerity look good, however austerity is a bottomless pit with no end ever in sight. At least a catastrophic EZ breakdown would effect everyone, including the 1%. If it’s that bad then action will need to be taken to improve things because human beings are not going to wallow in debris forever. Thus there will be a light at the end of the tunnel, regardless of how catastrophic it is.

            Now that may sound like me treating the Greeks and Europeans as guinea pigs. Yes it’s true catastrophies are more bearable when happening to other people. Nevertheless, austerity has made the Greeks into guinea pigs, while we’ve all considered moderate responses from the comfort of our computers. Plus it is proven that the powers which rule Europe are willing to made the Greeks suffer endlessly. Wouldn’t the dynamic change dramatically if all Europeans, even the financiers, took the hit?

            1. cassiodorus

              Right — how can you “make austerity look good” if austerity is a bottomless pit? A Grexit is worse than being devoured by the Sarlacc, y’know.

          2. /L

            Greece export in goods was 2007; 63 % EU-27 and other countries 37 % and 2012; 44 – 60 %.
            Its largest import partner is Russia, largest export partner is Turkey.

            Merkel and the Finns maybe right, but Greece is one minor piece in the puzzle, key events to come is how Podemos do in Spains election and UKIP in UK and then will there be a EU referendum in UK 2017, and most of all how will Marine Le Pen do in the 2017 election.

      1. Ray

        “would allow someone to govern you”

        Funny – you said “allow” – you don’t choose your masters, they are selected for you.

        1. proximity1

          …”your masters, … are selected for you.”

          Yeah, especially so if a great many acquicesce–or, worse, positively cooperates- wittingly or not- in the resulting selection, offering little or no resistance.

    3. Jim Haygood

      If euro zone history is any guide, after a standoff at the brink of default, the Greeks will be bought off. And if necessary, so will the Finns. Everybody happy!

      1. hemeantwell

        re brazza’s comment that Syriza may be considering an exit, I suspect that helps explain their choice of a right-wing coalition partner, the goal being to better draw right/nationalist support in a Grexit crisis.

    4. Ned Ludd

      Within Syriza, the Left Platform wants Greece to consider leaving the euro. Unfortunately, “The majority of Syriza strongly objected to that approach”. The majority of Syriza believes (or, at least, claims) that leaving the euro “leads to a withdrawal back into national solutions” and “nationalist capitalism”.

      In the last party congress, the Left Platform got about one-third of the vote. The majority of Syriza, however, strongly objects to leaving the eurozone; and they insist on seeking reforms within the existing EU.

    1. Mark

      I’ve respected Yanis’ ideas on the Eurozone crisis for a long time now. I look forward to seeing him in an official role and hope he can have some influence on things.

  4. washunate

    Doesn’t it simply come down to whether Greece will accept the debt burden of bailing out the banks, or not? The policy options are basically determined by that choice.

  5. Petey

    “Both presumed prime minister Alex Tsiprias and one of his finance minister candidates, Yanis Varoufakis, articulated bolder positions a year ago, when they were further from power.”

    FDR campaigned on balanced budgets, y’know…

  6. Christopher D. Rogers


    I’m afraid Bill Mitchell is wrong in his analysis, and for someone pontificating in their analysis this massive mistake needs to be clearly understood. Now, I concur with Bill that in order for not only Greece, but the majority of the European Union member states to avoid catastrophe it’s absolutely essential that given the end limits of monetary policy, that’ governments return to Keynesian stimuli programmes of the kind last witnessed in Europe under Marshal Aid.

    Where Bill is wrong, and its essential he understands this, he’s relating the issue to Greece’s membership of the Euro, which as we are all aware is a failed revolution, but one the technocrats will not abandon. It matters not one iota if Greece leaves the monetary union/Euro, because the Euro is only one small part of the problem, which is to do with the European Stability and Growth Pact which all EU member states belong too, which was signed into treaty in 1997, and of which, Greece is a signatory. So whilst breaking free of the straightjacket of the Euro may help, I’m afraid a 10% GDP fiscal deficit year in year out is not on the table.

    Once you understand this caveat, you may now understand that Syriza’s position is not necessarily a Greek exit from the Euro Zone, But rather a renegotiation of the ESGP itself, which far from being flexible, with Germany supposedly at the helm of the EU, is very definitely inflexible at this juncture in time. However, this neoliberal piece of economic chicanery that was utilised to usher in the monetary union in the first place, can and should either be revoked, abandoned or renegotiated urgently in order to stop the inevitable collapse of not only the Euro, but of the European Union itself. And, in order to do this, you’d need the French, British, Italian’s, Spanish, Irish, Poles and Portugal onboard – and there’s zero chance of the UK under the Tories leading this group, and Merkel will oppose this until her last breath.

    Anyway, these are the actual facts Syriza’s are labouring under, they are under no illusions because many of their advisors were actually involved in building the framework of the structure that’s now strangling its victims – Stuart Holland being one of these folk, who Yanis Varoufakis has worked with closely over the years to offer an alternative to the austerity obsessed neoliberal economics prescriptions that are a cancer with Europe.

    1. Yves Smith Post author

      With all due respect, I think you are missing Mitchell’s point. The Greek economy is so depressed it would take a massive fiscal deficit to take up all the slack resources. Even if there were to be some change in the Maastrict rules, no way will Greece be allowed to run that big a deficit. How would it finance it as a Eurozone member? As a country that does not control its currency, it would have to borrow, meaning issue bonds. Without some sort of Eurozone/EU guarantee or support, no way is the market going to allow that.

      Mitchell does not mention the Modest Proposal, but even in the unlikely event that the Troika would agree, I can’t see the stealth fiscal transfer part getting to 10% of GDP. The Germans aren’t up for a European Marshall plan (which contrary to conventional US wisdom, was actually recycling European flight capital back to Europe). They want to break and own Greece. Recall that various bailout plans called for all sorts of Greek assets like the Parthenon and Greek beaches to be sold. The only reason more of that hasn’t happened is that the prices the Troika sought were unrealistic and they didn’t get the bids they wanted from investors (and some people had the taste to think that hawking the Parthenon was a step too far).

      Bill’s point is the only way that Greece can run a big enough fiscal deficit is if it controls its own currency and monetizes the fiscal spending, as in in lay terms, “prints”

      In other words, if you think there is a possibility of relaxing the current rules enough for Greece to do what it needs to do in the current framework, you are smoking something strong.

      1. Christopher D. Rogers


        There are two ways to look at this, at this present juncture in time the EU, regardless of the outcome of last years Euro Elections, or the outcome of Sunday’s Greek election is basically on a suicide mission, hence my reference to the ESGP, never mind the Euro. Given this fact, what does the left in Europe do, bury our heads in the sand, which is the New Labour policy under Mr. Miliband, demand meaningful reforms – Syriza’s and the UK Green Party platform, or leave full stop, the preferred UKIP platform and that of many rightwing Conservative MP’s, the only problem with the latter for the Tories is that big business in the UK is happy with the EU as long as it fills their coffers with gold whilst the rest of us starve, hence its not a viable option for the Tory elite.

        Now, being a student of the Balance of Power in Europe, the same game played out prior to 1945 is being played out today, which means alliances must be built within the EU itself to force meaningful change, or abandon the mess full stop. And that means alliance with France, with Germany or a coalition of the willing able to force change at the very top.

        In a nutshell, Greece is screwed not only if it remains in the EuroZone, its screwed if it remains in the EU under the straight jacket of the ESGP, which by the way, most nations did not have a chance to vote upon, and if they did and the vote was not what the Eurocrats wanted, back to the poll booths again.

        For my sins as are ardent europhile, I’d plump for the Nuclear option, meaningful change, or a large portion of the EU’s current 28 member states withdraw, its just a shame the UK’s Labour Party will not lead this process.

        Fact of the matter is this, all Customs Unions tried on mainland Europe in the nineteenth century imploded, and the EU is repeating this mistake. The word “deranged” applies here, but we are playing a dangerous game, millions, many millions are suffering in Europe, and for what, the bankers and the TTIP!!!!

        Europe’s finally waking up to this lunacy, Greece is showing the way, it is not Greece at fault and they are playing a canny hand. But sooner or later enough is enough, particularly for those on the left who fell for the charms of Jaques Delors in 1987 – we don’t have a social Europe, we have a bankers charter for rent extraction.

        That’s my take, and my solidarity remains with many of my peers across Europe, we can’t let the right make this charge, it has to be the democratic left, which is why I really am galvanised by Syriza’s success and why I’m working on behalf of the forces of change to alter these sad realities.

        1. Marko

          ” That’s my take, and my solidarity remains with many of my peers across Europe, we can’t let the right make this charge, it has to be the democratic left, which is why I really am galvanised by Syriza’s success and why I’m working on behalf of the forces of change to alter these sad realities. ”

          I only hope there are millions more like you , and that this becomes apparent next in Spain.

          Don’t look to Anglo progressives for advice on how to bring about change in Europe. In the US , their favorite tool to effect change is the circular firing squad , as was painfully demonstrated by the “Piketty Debacle”, where progressive after progressive took pleasure in throwing Piketty under the bus.

          Now , they’ve moved on to their next target , Syriza. Don’t listen to them. Keep the faith.

      2. ohmyheck

        I like this comment I found elsewhere:

        “What they SHOULD do is demand an audit of all that debt. They should publicly declare their intention to pay on all LEGITIMATE debt, pending the results of an audit.
        Why not just default? Because that plays into the whole “The Greeks are irresponsible!” meme. These huge sovereign debts are FULL of fraud, and many of them most likely cannot even be properly traced because of all the machinations of the CB’s and their governments.
        Just like the MERS situation exposed the shoddy situations with many home loans, TPTB have created such a complex construction around their financialization of everything that it is no longer possible to verify much of this debt. Debt like this is NOT legitimate, and there is no moral obligation to pay it.
        So, rather than just default, they should use this opportunity to shine some light on all this phony, inflated debt. Who got what, and when? Names, dates, specific dollar figures…get it all out there for everyone to see.
        Instead of being the world’s ‘deadbeats’, they could help start a movement by exposing how fraudulent the whole thing IS.
        And if Goldman Sachs was involved in saddling Greece with such onerous debt, then Greece’s new government should announce an investigation of how this happened. If there was ANY wrongdoing, that debt should be immediately repudiated. Followed by arrests and asset seizures.
        I have the feeling that everyone involved would MUCH rather the Greeks simply default. No one wants an audit of that debt…no one. Because much of it CAN’T be ‘proven’, and they KNOW that. They’d much rather have everyone see the Greeks as deadbeats.
        For that reason alone they should absolutely NOT do a general default. They MUST state their intent to pay, but they must also demand that the debt be verified. They can then retain the moral high ground while putting the Troika’s feet to the fire. Bemused Observer”
        (sorry about the caps, but it is not my comment)

      3. Doug Terpstra

        It’s a shame some folks’ tastes foiled the sale of the Parthenon Temple. Imagine how spectacular it could be remodeled as a German techno diskothek with colored strobes and air-raid searchlights. Wow! Or NATO could use it as an ammo dump like the Ottomans did, rendering it quite a bit more rusticated than it was up to the 17th century. But what a great fireworks show that was! For that matter, the entire Athenian Acropolis, where the Parthenon stands, could be turned into a Disney theme park, instead of the boring UNESCO World Heritage site it is now. For an imaginative billionaire, the profit possibilities are endless. I trust Yanis will given the economic potential of an auction due consideration.

      4. Christopher D. Rogers


        I did respond to you on this and at length, so maybe lost in the ether, however, have just spent 2 hours corresponding with Stuart Holland, a collaborator of Yanis Varoufakis and adviser to Syriza, Holland’s take is that Mr. Mitchell’s negative stance as to what Syriza’s can achieve under the straight jacket of the Euro and ESGP dispenses with a solution that is at hand, but one people will not discuss in the higher echelons of Europe – his interjection has been emailed to you and he’s happy to have it posted if of any value to your readers.

        1. Yves Smith Post author

          I assume he is referring to the Modest Proposal or something very much like that. I addressed it in the post.

          And your summary proves my point. If “a solution that is at hand, but one people will not discuss in the higher echelons of Europe” that means it is too far from it being likely, or even possible, to get people in the various officialdoms on board in a few short months. The debt rollover dates is June, and that’s just not a viable runway to get three separate parties, the ECB, the IMF, and the EU, on board with a policy program that has many different features than anything they’ve considered before in a serious way.

          The obstacle is complexity, both in process (to add the the three party problem you have other issues, like the ECB is sort of constrained by the Bundesbank, but not fully, and the aggressive pro-austerity stance of the Finns) and in the perceived novelty/number of moving parts in the Modest Proposal or any variants thereof.

          1. Christopher D. Rogers


            Very much agreed, and its the “Juncker proposals” that Mr. Holland is referring to, he’s sent me a heap of correspondence and is in no doubt its Merkel and Finland that’s at fault, and that the ECB could and should implement full treaty obligations as agreed at the Amsterdam Special Action programme in 1997. Indeed, by what I’m reading Juncker has all the powers at his disposal to over-ride German opposition via the EIF, i.e., fiscal matters in several important areas are of no concern to the ECB, or breech ESGP as such expenditures are not counted in its 3% straight jacket. Interesting stuff, can send over entire exchange if you’d like, what’s most important is the fact that within the EU’s 29 member States, only an handful are supportive of Germany, the usual suspects being Holland and Finland, he further contends Greece can take the issue to the European Court of Justice and actually sue Germany and he should know, he help draw up much of what he’s talking about, Merkel still being a communist when most of this transpired, i.e., prior to 1989.

            His observations on Germany and Merkel are cracking, he’s no fan shall I say!

    2. Ciaran

      That’s insane, the fiscal rules are broken regular and indeed for the bigger countries with impunity. If a country leaves the euro , then the stability and growth pact will be utterly irrelevant .

  7. kiers

    With this situation, it looks like the eurozone QE burden with respect to Greek Sovereign Debt in particular will have to be borne 80% by ONLY the Greek Central Bank!

  8. jo6pac

    1. Throw the eu and fiends under the bus.
    2. Call Iceland (Niceland) asked them how it worked for them.
    3. Call Russia and China ask them if they would like to rent some slightly used military bases.
    4. Since their not in the eu anymore ship goods to Russia and Brics. Buy/Trade from them also.
    5. Throw out all westerner banksters and ngo.
    6 The list goes on

    1. Massinissa

      And if you imagine Syriza is going to do any of those things, then I kindly suggest that those things probably wont be happening. Syriza is centrist, not radical.

        1. MyLessThanPrimeBeef

          That’s a golden opportunity for China to have a bridgehead in Europe…a fueling stop for their Treasure Boat navy, a military base for their army to project strength into Europe, the Middle East and North Africa, another terminus for the New Silk Road rail, and maybe even a center for their global currency ambition.

          Chinese hedge funds, here we go.

    2. Chris Maukonen

      Indeed. Would love to be able to tell Brussels and the Finns to take a flying leap at a galloping goose. Watching the investors heads explode would be most entertaining.

      Pass the popcorn bowl.

    3. /L

      No 3
      China already have a 35 year lease of most of Pireaus and Tessaloniki ports. And they intend to build a modern railroad from there to Budapest via Belgrad. China probably have a lot to ship in but what will they ship out from these parts of the world.
      Greece still have the world largest merchant fleet, albeit most under flag of convenience.
      No 4
      Turkey is Greece largest export partner, Russia is its largest import partner, Greece export in goods was 2007; 63 % EU-27 and other countries 37 % but 2012 it have flipped to; 44 – 60 %.

      China comes with its pockets lined with export surplus dollars (i.e. US trade deficit dollars created out of thin air) and build railroads, while the eurocrats wring their hands in despair that they have run out of money in the euro pseudo gold standard.

  9. Giannis

    Hi Yves.I could tell you some things about this election.And what “chances” any greek movement/party would have to negotiate.

    I tried already to do so but for some reasons my posts did not even made it to your blog in the last weeks.

    This election is not about Syriza and their “chances” but more a signal to all people around europe (and the USA) to join the resistance against banksters and criminals.

    Simple as that.

    If nobody joins,”they” will eat us alive in the next months.

    Our hopes are now on spain and their elections in the next few months.If Podemos wins and other “leftist”,”extremist” or call it how you want join around europe we will have indeed a chance for change.I told you that before.JUst a few days ago Podemos-leader Iglesias was here in greece and promised us that spain will follow.Portugal could follow also,maybe italy too.

    Again:It is NOT about Syriza and how Tsipras and the rest us hellenes will have any chance against the machine if we stay alone.This was never the role of greece in history.It was always symbolic.Historians like Mazower have written about this in recent years.Our grandfathers and fathers back in 1940 knew they would loose and pay a high toll against the powers of facism but they knew they would have at least to try some symbolic resistance.We paid for this dearly back then.Alltough this is history modern greeks know about their history and their duty.

    Maybe the machine will destroy us again but maybe we can inspire other nations to take it to the streets too.We don´t expect aything else that now hell will break loose on us in the next months.The question is if there are other people out there who stop talking and move their ass to the streets.It is very simple.


    1. OIFVet

      I agree with your assessment: Greece needs to be joined by other nations if the push back against EU neoliberalism is to succeed. I wish I could tell you that the people of BG will join the Greek people in this struggle for the welfare of the common people, but I don’t see it happening very soon. There is a lot of simmering discontent but no genuine leftist party or movement currently exists to harness it into meaningful action and changes. What passes for the “left” is as fake and as corrupt as your PASOK. I hope that Spain and Italy will join you soon, the change in Europe needs to start from the South. It has proven many times that it is capable of resisting effectively, time to prove it yet again.

  10. c1ue

    References to people from Finland should be Finns, not Fins. I thought at first you were referring to banksters.

  11. Petey

    “It isn’t just Yanis’ blogging, it was also how Syriza campaigned generally. They ran on a “no Grexit” platform … I don’t see how they can break with the stance they took.”

    Beyond my upthread comment on FDR campaigning on a balanced budget, we also need to look at Syriza’s first post-election action. They picked a (rightist) anti-austerity, anti-Eurozone coalition partner, despite having other options. That’s significant.

    Also, while I assume Syriza would likely prefer a “no Grexit” outcome, they will negotiate with a “Grexit / ECB default possibility” for leverage. And if negotiations make the insane creditor nations look unreasonable, they’ll have minimal political problems directly stemming from breaking that “no Grexit” stance.

    (I assume, but certainly don’t know, that Syriza’s preferred outcome, is to wait for Podemos and Italy to bring additional artillery, and then launch their offensive with allies. The ideal is seemingly to reform the Eurozone, not to exit it.)

    1. Yves Smith Post author

      FDR won by a landslide in a two-party system: 64 electoral votes and over 57% of the popular vote.

      Syriza has only 36% of the popular vote. Its mandate is no where near as solid.

      And as Bill Mitchell stated, the level of fiscal deficits Greece would have to run to get its economy growing rapidly enough doesn’t look remotely feasible on the path Syriza has chosen, that of a reformed Eurozone.

      Readers do not like hearing that Greece has only terrible options. The romantic-seeming image of Samson pulling the house down wound up with Samson dead.

      1. Synoia

        Germany had similar problems with Reparations after WW I. The economic solution was a form of “dual currency.”

        The political solution makes me shudder – I’m thinking of Syrzia’s fate being similar to the Kerensky Government of Russia – replacement with a hard left or right party (I also believe the hard right and hard left are dissimilar only in some rhetoric, and the practical effect on the citizenry very similar: Obey or Die).

        1. cassiodorus

          As far as I remember from reading Russian histories, the Kerensky government was largely a product of the political vacuum which ensued upon the defeat of the monarchy in the chaos of the February Revolution. The Soviet takeover was the ultimate result of this chaos. The Soviet Union in its NEP formation was, in turn, the failure of Lenin and his allies to instigate any semblance of a European revolution. That formation later hardened, of course, into the dictatorship of Stalin.

          Presumably the Greeks are hoping, at some point, for some help in a European revolution which will at least put a stop to the austerity insanity.

    2. Calgacus

      FDR campaigned for a balanced budget. But as Phil Harvey has pointed out, in his main speech on economics before the 1932 election, he said at the end- after a good deal of “deficit terrorism” that he would run a deficit if necessary to put Americans back to work. I’ll dig it up if requested. My 2 cents is: The problems with a Grexit are overstated. But if Syriza / Tsipras has the political canniness & economic understanding that FDR had, it is not obvious to me, though of course I hope they do.

    3. Ned Ludd

      Some people within Syriza want to leave open the possibility of exiting the eurozone. However, at the last party congress, the majority of Syriza rejected this approach:

      …saying that such an approach leads to a withdrawal back into national solutions. They criticize not only a lack of internationalism but a even lack of anticapitalism, because the project underlying [rejection of the euro] is, they claim, a return to nationalist capitalism. […]

      And behind this is the idea that we have to change the balance of forces directly at the level of the EU, avoiding any kind of unilateral move at the national level. Any other strategy is said to amount to a regression because it demonstrates nostalgia for the old nation state and so on. So these were the term of the debate. The question of the euro became a point of cleavage.

  12. MarcoPolo

    Well, I think it’s a day for optimism and I think the Syriza strategy is brilliant. They’re never going to bring the northern uber-monetarists around. They must drive a wedge between that block and the rest. And that isn’t impossible. Spain is already on board. Although movement there requires election which won’t come too soon for Syriza.

    The “Troika” is out of the picture. The IMF has been irrelevant since sometime between the Asian Financial Crisis and Argentina. Nobody wanted them in this anyway, except the Germans who refused to pick up the tab the first time. The IMF will be paid. Why stir that up? Then the IMF can go back to the water and stand on its head waving its feet.

    But Greece isn’t going to come out of this without new investment. So, the negotiation is over the debt held by the ECB and the other CB’s and the Greek budget going forward. In other words, the haircut has to come against the part the Germans did put in. I can hear Schäuble already. But the north has punched above its weight. I have no idea why the ECB has been so differential. Maybe it’s that Goldman thing. But the north may find themselves in the water with the IMF.

    Further, Tsipris can offer “reform”. Syriza is a new party completely from the outside and the Greek govt. has been notoriously corrupt. It works for Tsipris to throw those guys out and put his own people in. And he might get the EU to help him do that.

    I don’t want to make book on it. It’s still a long shot. But to my mind it’s the brightest day they’ve had in Europe for a long time.

  13. NV

    Knowing the Greek mind as I do, I’d say that Brazza’s evaluation is spot on. Regarding JoPac’s comments, yes, and the Russians are co-religionists to boot.

  14. Another Gordon

    BBC radio’s ‘Today’ programme of this morning interviewed Yanis Varoufakis. He strikes a very measured and reasonable note light years ahead of anything I’ve yet heard in the UK. It’s 7 minutes and the first speaker is Yanis.

    If I had to bet (and this is purely speculation on my part) I would say that Berlin and Brussels could easily find themselves in an awkward corner. If they yield, Syriza wins – and so do all the upstart populist parties in Spain, Italy etc. If they don’t yield, Syriza leads the Greek people towards Grexit and the bankers and their political stooges loose again. What Syriza must avoid is an early Grexit before the ground is prepared as the entire Euro establishment will then break every rule to make an example of them in case the rebellion spreads. If push does come to shove then I imagine that Syriza will find support from a Russia that would love to get its own back for the Ukraine debacle and sanctions.

    1. Yves Smith Post author

      You miss that Berlin and Brussels have no intention of yielding to Greece. The only thing that might change the dynamic, as I said, is if there is enough support in the rest of periphery Eurozone. And that has to come fast, since the longest Greece has is until summer, and it may have only a month or two if the Finns refuse to budge. There is simply no way anything of moment will change in a month or two. There have been massive anti-austerity protests in Spain and Portugal (not at all well reported in the US) that did not move the Eurocrats one iota. The only thing that might change the calculus is big changes in poll results, enough to threaten them being faced with anti-Eurozone governments in the periphery countries.

      And even with that, the northern bloc appears to believe that letting Greece go (if it comes to that) and making sure a Grexit or mere default is a devastating event will do enough damage to pro-exit sentiment in the periphery to beat down the opposition. That is where popular opinion sits in those countries. Any politician that defies that is risking political death. Germany’s course throughout this crisis has been driven entirely by domestic considerations. Why should one expect this to change now?

      1. Another Gordon

        Umm, I didn’t miss that. That HAVE to throw everything at stamping out this rebellion by fair means or foul or it will spread like wildfire. The scenario where Berlin and Brussels accommodate Athens is, in my view, a very low probability one that will only come about if, as you say, events elsewhere force their hand. Equally, they will want to beat Greece to a bloody pulp pour encourager les autres if they go for Grexit. Syriza needs to plan for that eventuality.

        1. rfdawn

          Meta-analysis suggests the very-varied efforts to predict an outcome, while commendable, may be futile. Unpredictability may be the best card that Athens holds and I’m betting/hoping that Berlin and Brussels find it credible. Strangely, the SNB may have just helped with that.

    1. Yves Smith Post author

      While cracking down on the oligarchs is a good move regardless, that is also a “reform” that the Eurozone has long wanted. Making that a prominent part of the policy is meant to reassure the Troika, not a sign of a willingness to buck it.

      See this analysis from Reuters. Bottom line:

      So there might be a way of cutting a deal. The snag is that doing so would involve a massive somersault – or what Greeks call a “kolotoumba”. Many of Tsipras’ backers would then accuse him of betraying their cause. It is still far from clear whether he is prepared to do that.

      But if the Syriza leader is not prepared to compromise, Greece will default and will have to impose capital controls to stop the banks collapsing. If the people then forced the government to backtrack, there would be one final chance to stay in the euro. Otherwise, the drachma would beckon.

      Varoufakis has repeatedly rejected a Grexit as being too costly to Greece. If he becomes a leading player in the negotiations, I doubt we’ll see brinksmanship.

      1. Andrew Watts

        “I doubt we’ll see brinksmanship”

        Then they’ve surrendered their only trump card and they will fail. It’s really that simple.

        1. MaroonBulldog

          Right, if Grexit is off the table going into the renegotiation, then the activity that Syriza will be doing should not properly be called “negotiation” at all; its true name is “begging”.

          Sometimes begging works, but likely not this time.

          1. Yves Smith Post author

            I’ve said repeatedly (in Links) that being reasonable was a lousy idea and agree that their nuclear threat is the only tool they have to force meaningful concessions.

            Readers seem remarkably unwilling to believe Syriza’s own words about what it plans to do. It has not deviated and it has not amped up the rhetoric after its victory.

            I don’t know why readers are so unwilling to accept evidence on its face.

            As I also said in the post, the only way I can see Syriza being tough is if it draws some lines in the sand and pleasantly refused to budge. Perhaps they plan to be non-negotiable while acting faux nice. But with Yanis and others having said that a Grexit would be a disaster, they’ve also created quotes that can be used against them if they were to be stubborn in private.

            1. Camlon

              The reason people refuse to believe SYRIZA is because their stance is unreasonable. It is very likely that EU will refuse, and there will be no european movement for Greece.

              That means he needs a plan B, but when asked he refuse to give an answer. The alternative to default is to accept the austerity measures, but then he will get slaughtered by his own party. I think he will default, and if EU close down the banks then he will leave the euro.

              1. Yves Smith Post author

                No, it appears you have not been paying attention. Syriza was in the runup to the election and since it has continued to be reasonable. They have ruled out a Grexit and expect the Troika to negotiate with them, as opposed to throw them a few bones. That is a big problem.

            2. kemal erdogan

              Yannis himself said in an interview that they will never leave Euro voluntarily. He said they will have to kick them out. I think these are assurances for the greeks who do not want to leave euro.

              However, he also said they will not continue with austerity. As most people pointed here, these two positions are not consistent. It is consistent however if it follows that they will not bend and embrace for an forced exit from euro. This will give them some time to prepare for the exit and the legitimacy to claim to its own electorate that they tried.

              Party congress might have insisted to stay in Euro but that does not mean that they would stay in Euro under any conditions. I am pretty sure that they will break but bend in front of Merkel as Papandreu did few years ago.

  15. Petey

    “Readers do not like hearing that Greece has only terrible options.”

    I don’t think anyone (sensible) argues with that. But, more or less, that’s been the case for 5 years now.

    I mean, hell, Syriza’s opening offer is for a 2% primary surplus. But this is a big project, and no one ever said that even moderate Keynesian reform of the Eurozone would be easy. It took the Union a looooong time to make any progress whatsoever against the Confederacy.

    If there are any sane Germans in the power establishment, they’ve got to realize at some point that the Eurozone is vital to their national interests primarily in keeping their currency permanently undervalued. And that what gives a (theoretically existent) future non-creditor bloc genuine power.

    The election isn’t a panacea, either for Greece or the Eurozone. But it could well be the beginning of the beginning…

  16. flora

    You may be right. However, small as it is, Golden Dawn continues to boil in the background and China is still eager to invest in Greece as part of its Silk Road infrastructure.

    1. susan the other

      Which makes me wonder about Greece’s natural resources. We know they have oil/gas fields which the Russians offered to buy and the EZ refused to allow. That offer would have balanced Greece’s books. But the EZ would rather have a standoff with both Greece and Russia. And that is probably why Cyprus was destroyed. Looking at the eastern Mediterranean we see it is a serious bone of contention from Gaza to Greece because of oil/gas fields. We are looking at resource wars here. Not only does Greece have energy, it has valuable minerals in the north. It has rich fishing grounds – maybe the only ones left thanks to Fukushima; it has wonderful but limited Mediterranean agriculture. The Greeks are smart. They can set up and manufacture their own pharmaceuticals. If India can, Greece can. This is a standoff between China and its new bff Russia and the west. The solution to Greece’s intolerable situation and all austerity is a new detente between East and West. A new green detente. Let Greece leave the EU. Let Greece become a new autarky dedicated to the environment. First cause no harm. I doubt the rest of the EZ will sign up for that mandate.

  17. Petey

    “FDR won by a landslide in a two-party system … over 57% of the popular vote. Syriza has only 36% of the popular vote. Its mandate is no where near as solid.”

    Noted, and a fair point.

    However, two caveats:

    1) Multi-party coalition systems pretty much never deliver 57% of the vote to a party. Yet mandates can exist. If Tsiprias were the nominee of the left and out-of-power party in an American style system, he’d likely have gotten 57% of the vote too.

    2) Much like FDR, Syriza has the luck of coming to power after many years of full-on depression have left the populace exhausted and ready for a new start.

    Again, I fully agree with you that structural issues at hand in Greece leave Tsiprias with far fewer immediate good options than were available to FDR, but if he can manage the trick of maintaining domestic support, that is the trigger to bringing about a lefty ‘contagion’ periphery rebellion, which is what will give him genuinely good options.

  18. trent

    “Readers do not like hearing that Greece has only terrible options. The romantic-seeming image of Samson pulling the house down wound up with Samson dead.”

    I think that is the only option facing every country. Its either lower living standards for the majority, while the wealthy continue to allocate the difference to themselves, or somebody pulls the house down. What option am i missing here?

    1. MarcoPolo

      That’s what I think too. It’s do or die for Greece. Either they drive a wedge between that MINORITY northern block and get some accommodation on the austerity program or they go all Argentina. The northern minority would have them go Argentina rather than lose their influence over the majority. But Greece doesn’t have to do everything at once. The first chink in the armor up north and the whole thing comes down. Which is to say the first vote which proves that things don’t to have to be done the northern way may end the whole thing.

  19. ErnstThalmann

    Before the new left government wusses out as many here have suggested that it will, its more courageous wing needs to consider using the election mandate as a platform to declare the creation of a peoples’ or workers state. Then it needs to spit in the eye of any that seek to collect its debt. A public trial of the criminal banker class that created this mess would send a clear message that Greece cares not one wit about the Eurozone or its own membership that does, but for the Greek people period. The only hope this new group has is radical militancy and that with a solemn commitment.

  20. kevinearick

    Forward Guidance

    Feudal contract prices include the cost of managing consumer herd perception, profit on artificial variability, so the market-makers require a preferred position in the FILO bankruptcy queue, at the Fed window, which you can easily discount if you immediately exchange the toilet paper for something useful in your private life, while maintaining a stupid identity for the stupid technology to track, with a fraction of your time. Knowing oil was $45, you could have made a withdrawal at the time and place of your choosing.

    Of course the markets are fixed in mythology. The ‘founding fathers’ were slave owners, feudal systems are a function of the natural resource burn rate relative to demographics, and the pontiff always proposes that only a god savior can withstand the irrational empire. Derivative technology merely replaces physical prisons with psychological prisons of peer pressure. Bill B plays in the grey area of the rules, just as he was trained to do.

    Every majority, including its elite, complies with or rebels against a human wave of History, proposing ever more laws to ensure that everyone else does the same, affirmative action strangling itself with consumption while hoarding productive assets. That cloud is simply gathering psychographic data for categorization, hunting down those that remain unidentified. Give it an identity that you like to do anyway and otherwise get on with your life.

    The middle class built its entitlement rights on the Foundation of Family Law, and now finds itself subject to the same upon demographic deceleration, embedded in the assumptions of its own technology, with pensions driving legacy asset inflation, putting themselves out of make-work with automation. Labor didn’t move those factories to China or short nuclear back to oil, to build a global spy network with stupid technology, in a system that depends upon growth which can only contract. No privacy, no economy.

    “We, the People” choose fascism as a matter of course, printing debt with every new purchase, whether Republican or Democrat, American, Asian, European or Martian. Lawful public education is everywhere and always an automaton sh-show, investing the future in the past with ever-more efficiency. As a parent, you are the bad guy, in a soap opera staged for the purpose, with critters herding up to kill each other trying to prove that they are the good guys. Whether that pyramid is inverted depends upon whether you view trickle-down commodity inflation as devaluation or wealth.

    Don’t talk to labor about God, politics or war and expect a response. The planet, like the universe, is making land all the time. Climate variability is a function of human stupidity, not oil, CO2 or God. The only people that can see forward and make decisions accordingly are parents who love their children, capable of climbing the consumption wall, and there aren’t many of those remaining, in this country or any other.

    Labor isn’t going to show up in the cloud because Europe is printing inflation again. Look at Europe’s relative population rate, economic size and social compliance welfare spending. No one capable cares what European politicians/bankers think, say or do, because all they do is employ real estate inflation to launder money. Something-for-nothing doesn’t fly, but that never stops the Germans from putting wings on a pig and throwing it off a building.

    If the critters currently in the empire economy could make it work, it would be working, but keep inflation US GDP expecting a different result. Fire another non-complying parent to hire two more make-workers to serve the homeless, rent inflation. I know many of you have not gotten back your licenses yet, and many of those who have aren’t using them.

    1. craazyman

      what if they were in the world all by themselves?

      they couldn’t borrow any money because there’s nobody left to borrow from. They have all that debt but they don’t owe it to anybody anymore. All the people they owed it to are gone. Where did they all go? Nobody knows.

      This is like something from the old Twilight Zone. An entire country wakes up one morning and owes money to people who arent there anymore. What do they do now? Of course the imports and exports would be impossible. So they’d have to do it all by themselves.

      That would be an interesting story if somebody could write it well. You really don’t need money but you need the stuff that money buys, so it’s worth something. Then you can have money and it’ll work like you hope it wiill.

      1. craazyman

        whoa BD lives! This is it! This is what it would be like to wake up like that. See you never really know what you’re thinking until the words come in from nowhere, the way words will :

        “How does it feel,
        ahhh, how does it feel?
        To be on your own
        With no direction home,
        like a complete unknown
        Like a rolling stone

        -Bob Dylan – Like A Rolling Stone Lyrics

    2. WorldisMorphing

      You see Kevin, the thing with shrooms is that you have to clear the psychedelic tsunami completely; and only when you’ve reached and traveled uninterrupted for 45-60 min in the silent, tranquil steppes of psychedlic lucidity…can you safely post the fruits of your thoughts online and thus efficiently benefit from the 20 points spike in IQ …
      If you skip that clearing period, your insights will not be properly translated in common prose intelligible to the unfortunate sober majority.

      That being said; I’m under the impression that you wanted to blur out that the great demographic reversal, the implacable, unbridgeable energy cliff, and finally the inescapable ecological black hole will infallibly dictate everything, and that all else is mere cosmetics to mask the brutish reality.
      Greece is but the first of western societies to get clobbered to lifelessness; yet sooner or later, everyone will have a taste of it…
      –In that case, all I can say is: I agree.

  21. Steven

    Isn’t all this really just a European version of Calvin Coolidge’s “they borrowed the money, didn’t they”, this time with European bankers (and of course Goldman Sachs) playing the role of JP Morgan? Should not those bankers have performed a little due diligence before they assisted the tax evasion of Greece’s (and Spain’s and Italy’s, etc) wealthy citizens in evading taxes by loaning their government(s) money and then helping to obscure their national insolvency through financial engineering, etc?

    Perhaps the Germans and other European powers should remember how they liked being on the receiving end of a Puritanical insistence on financial rectitude and what splendid results it produced for Europe and the world.

    1. MyLessThanPrimeBeef

      The irony is this: Greece doesn’t have to try to get out now.

      Without Goldman’s ‘help,’ she would have been on the outside all along.

      But we can’t talk about this in France. There’s a law against irony.

  22. Jordan from Croatia

    Regarding the need to deficit spend for recovery:
    Varoufakis also sugested solution to such a problem. State will issue small bonds in lieu of future tax obligation as payments.
    That is such an excellent idea since it hides the fact that this is what money really is, but not call it drachma since that would give away the game. This would be parallel currency to euro.

    This is what Slovenia did also, they are in EZ too.
    Slovenia payed some part of wage to state employees with small amount state bonds which were accepted only by banks in lieu of credit payments. Banks erased credit principal with these bonds just as with real money, and it worked. It was temporary but it worked.

    Greeks can also set up state owned developement banks just as FDR did using Tresuries as capital requeirments and then went on just as any other bank.
    With digital money that is much easier done now then in FDR’s time.

      1. Jordan from Croatia

        In Slovenia it was temporary while Varoufakis suggested as permanent measure, i mean it has to be a permanent measure since that would lower tax receipt in euro, by some margin.
        But combining it with implementing taxes on dividend and interest income, raising tax on high incomes, returning property tax on foreign owned real estate and so on, there is much to do in reforming tax code to resemble a normal state tax code that would bring state receipts buck up with wich to fund projects.
        Forming developement banks that could refinance debts with much lower interest is a big deal. Using state bond as capital requierment for developement banks is opening financing problem wide open. Then those banks can use ELA for real euro needs while mostly operating in digital sfere.

        There is so much history that describes run around game to get over this problem of state finances for recovery projects, it only needs willing and knowledgable Ministers and it is a no problem.

        1. Yves Smith Post author

          There is novelty aversion, a lack of willingness of the Troika to bargain with Greece, “not invented here” syndrome, and a six month runway all against Yanis’ proposal. It’s never been treated as legitimate by a Serious Economist respected by Eurozone types. I don’t see how it gets traction in the short time frame for coming up with a solution.

  23. Petey

    Krugman touches on a point I was trying to raise earlier:

    The difference between running a 4.5% primary surplus (current troika mandate) and a 2% primary surplus (Syriza opening bid) is significant.

    When you’re coming from a place of extreme sadistic abuse, even still bad options are magnificent Keynesian solutions.

    All Greece’s options are bad, but there are less bad options to be explored after this election success…

  24. MaroonBulldog

    When the former sovereign democratic nation of Newfoundland defaulted on its debt of London banks–a debt denominated in pounds sterling, not Newfoundland dollars–during the Great Depression, the bankers put the country into a receivership, which was in truth a dictatorship, until the debt was repaid. The receivership/dictatorship only ended with the cancellation of Newfoundland’s sovereignty and its accession to Canada as a new province. So, eventually, the Newfoundlanders got some part of their democracy back, but they never did get all of it back, and they never got their sovereign country back.

    But that was eighty years ago. You wouldn’t think the ESM/IMF/ECB troika would try anything like that on Greece, in modern times, would you?

  25. gordon

    It’s very easy for the well-informed to speculate about various fairly complex options facing the new Greek Govt., but maybe it would be a good idea to first consider how they were put in their present awful situation – via the so-called Troika and its scorched-earth demands. We could also consider the sorts of demands made on supposedly sovereign Govts. of Italy and Spain as revealed in the Trichet letters:

    Maybe the best first move for the Greek Govt. would be to jawbone. Syriza and Tsipras need to make the case for a moderation of the EU/IMF conditions. They shouldn’t assume that everybody in Europe (or, indeed, the US) knows what’s happening there, or what options exist to relieve the pressure on the Greek population. To a sophisticated audience that may sound too simple, even childish, but especially if reliance is to be placed on sympathetic movements in Spain and Italy – or even in UK or France – it seems very necessary to me.

    If/when the EU and IMF show themselves unmoved by such Greek proposals based on the simple logic of the urgent need to relieve suffering, then more radical (Grexit, debt rescheduling or default, etc.) moves might be raised as desperate expedients which has been forced upon the Greeks, not as things which they always intended.

  26. matcohen

    I guess the question is, is this statement “a massive fiscal boost is required, which means deficits above 10 per cent of GDP for many years forward.” true.

    A return to the drachma would result in that currency being devalued beyond belief. While I agree with this site that the Greeks are too inept to export their way out of their problems, Greece is a very nice destination for tourists with great weather, good food and plenty of things to see and do. It could quickly become the most affordable vacation spot in Europe. Europeans, as we all know, have a lot of vacation time.
    Greece only has 11 million people. Tourism already accounts for around 20% of Greece’s GDP. What if the cost of a Greek vacation dropped by 50% for a German? It does not take much of a “tourism stimulus” from the other 490 million EU members to create some very nice employment growth.

    I know from this site that Greek labor costs have fallen and this has not materially impacted exports. But labor costs are only one part of the equation.

  27. RBHoughton

    Its imperative Syriza gets it right because Greece is just the first – there is Spain. Portugal and Ireland yet to come, possibly Italy. Syriza should recall the anarchists cry “be reasonable, demand the impossible” and tell the troika the truth.

    The EU failed to monitor former Greek governments and allowed the situation to get out of hand. Sure Greeks in power knew what they were doing but its not right now to simply place the entire load on the people. The local moneymen stashed US$40b in Switzerland. Give it back – that will go some way to helping the country. Speculators drawn in by sky-high interest rates and risk-limiting derivatives – you knew what you were doing.

    There are people raising chickens and growing veggies, There’s fish in the sea. Existence is a challenge and the Greeks have the history to rise to it.

    Before joining the EU they provided the main smuggling route into the common market and they have the talent and shipping to do that again any time. Come on Greece. Stop listening to the economic voices of doom and save yourselves.

    1. readerOfTeaLeaves


      In addition, it seems that the narrow conversation about ‘paying back debt’ plays into the hands of the Troika.

      That would be tragic, as it would cut off a more interesting conversation the Greeks are offering, about creating a different kind of economy.

      What’s really at stake are competing concepts of the purpose, role, and functions of an economy. That’s where the rubber really meets the road.

      If the conversation is restricted to ‘debt’, the Greeks lose.
      If the conversation about economics is expanded, the Greeks are saying something quite similar to what Pope Francis seems to be saying: the current system is immoral, failing too many people, is predatory, and needs to be overhauled.

      IMVHO, one of the more fascinating aspects of the Greek election is how clear it’s become that the existing (crony) economy in Greece requires corrupt politics. Remove the corrupt political parties, and it doesn’t appear that the economy can function. It’s not a market economy in any true sense of the word. It’s cronyism, which is consistent with neoliberal economics.

      Obviously, that’s the last thing the Troika wants to hear.

      Syriza should remind everyone about the dangers of Golden Dawn waiting in the weeks, should Syriza fail. That ought to concentrate a few minds in Brussels and Berlin (and D.C.).

      1. Kurt Sperry

        Golden Dawn as insurgents heroically battling a emergent existential commiecolypse. Line ’em up and sign ’em up, We can find some “moderates” if we have to invent them. The US seems cool with using neo-nazis in Ukraine, so its not like this dog eared page from the neocon playbook hasn’t already been rolled out within Europe.

  28. Sanctuary

    I don’t know if I agree with the pessimism of this post. Syriza’s very existence as a parliamentary party was thought impossible just 4 years ago and now it leads the government. So impossible things become possible quite fast in a disaster and that’s exactly what the Eurozone has become. I think it has a stronger hand than many are realizing. I think there are two planks to Syriza’s stronger hand. First, is the deflation gambit. Given we are in an environment of plummeting oil prices reflecting the destruction of demand that is accelerating worldwide, time is NOT on the side of the Troika, the Germans, nor the Finns. Syriza driving a hard bargain over the course of the next few months for real debt reduction reflecting its inability to repay these loans, heightens the stakes and costs for austerity hardliners. Markets will grow increasingly volatile over the next few months anyway, but throw in an intransigent Syriza-Independent Greek bargaining position, and European markets will start swinging violently, completely negating the vastly oversold QE program that the ECB is desperate to show as a success. As deflation sets in deeper and German exports collapse, Syriza will continue to represent itself as the party advocating for true European integration. I would not be surprised at that time if Germany starts advocating for policies for itself that it has steadfastly denied others, i.e. deficit spending. They will try to spin it as some kind of anti-deflationary necessity not at all similar to “immoral” and “corruption” inspired Greek deficit spending, but it will be laid bare to all of Europe for the hypocrisy that it is. This will undercut the German/Finn position dramatically. In order to avoid the rest of Europe seeing the Eurozone as a colonialist/mercantilist construct that only benefits Germany, they will have to give much more than they are comfortable with currently.
    The second plank is the Russian option. I’m not just talking about Russia’s offer of agricultural markets. The Greeks could offer the Russian military long term leases on several islands for which to build bases right in the Aegean. Not only would it give the Russians several warm water ports, it would give them a strong military presence right at the entrance to the Black Sea, which combined with their annexation of Crimea and their control over South Ossetia would give them supremacy over the Black Sea while also causing a serious split within NATO. That’s something the Russians would pay a great deal of money for, probably dozens of billions for. Likewise it would give Greece a sizable cash infusion to run any development program they wish. Greece would publicly be in a position where its supposed allies are offering depression and grinding misery while its supposed enemy would be offering cash and relief. To prevent that debacle from happening, the US by way of NATO would bring extreme pressure upon the EU and the ECB to get real and cut a deal more to the liking of the Greeks. NATO cannot afford any kind of division right now with Ukraine getting worse and Russia becoming more reactionary.

    For this all to work, the only reasonable negotiating position for Syriza to take is one of intransigence. It simply has to keep saying no and convince the other EU members it is more than willing to follow up on its other options.

  29. cassiodorus

    A transnational capitalist class will have to be confronted by transnational resistance if it to be made to compromise. The big question is one of when this transnational resistance can be expected to happen.

    1. proximity1

      “The big question is one of when…”

      I’d say an even bigger question is the “how” part of it.

  30. proximity1

    Test your analysis chops– offer your views of the most likely scenario in the Brussells/Berlin (a.k.a. the Troika) (BB) vs. Athens (A) ( Syriza/coalition ) smack-down.

    I see one of two likely outcomes–depending on which of the antagonists proves most venal and corruptible and, at this writing, I suspect that BB has that role so far. BB is morally corrupt and shallow and, so, amenable to making a deal if it is sufficiently face-saving–i.e., they believe that they can “sell it” as a compromise. We know that Greeks were not and Greece was not “bailed out”–rather, the financial interests who stood to lose a fortune were bailed out in the process of saddling Greeks/Greece with unsustainable austerity and debts. So, BB’s first move would be to protect and preserve that gain to the greatest extent possible. if that can be done w/out giving much away to actual suffering Greeks, then that’s what they’d like to do. If not, they’d try to see how little they could get away with conceding.

    Will / can A. Tsiprias ( ATs) stand firm against threats and bullying or a faked charm-offensive? Remeber, the Troika will lie to the Greek public and the rest of us about what is on offer and what Syriza did or didn’t do about it. Also, the negotiations will be secret–at least in the first place.

    Unless ATs stands firm on a genuine end to austerity as it has been known in Greece since the financial collapse, his efforts in the election campaign were essentially for nothing and, perhaps worst of all, an extremely dangerous spectacle shall soon present itself: popular opinion’s last hopes in what the West loves to refer to as “a political settlement” which ends auserity (resolution via democratic processes–of which no modern nation has much in practical fact) , since nothing less shall serve, shall be exposed as vain and thwarted. That raises the liklihood of the last resort–civil violence and potentially, civil war, protracted or not, depending on too many variables to manage.

    ATs would argue that, without an end to austerity and an effective repudiation of much / most of the outstanding debts with which BB burdened A, then, yes, he’d reply that, in that case, there’s going to be a very hard landing: refusal to pay further interest or principle, i.e. default, and, if necessary, abandonment of the Euro and, if that entails BB’s determination to evict A from the E.U., ATs would have to stand firm and say, “So be it, but you’re not going to like the consequences of that course either.” In doing much less than this, ATs would be betraying his own electoral stand and effectively demonstrating to his electorate that he wasn’t up to the task of defending their interests as he’d claimed all along he would do.

    Would BB stand by and allow Greece to dissolve into civil war? In my opinion, absolutely they would. Can ATs muster sufficient popular cohesion to stave off such a break-down in social order if, faced with BB’s refusal to grant enough in concessions? That, frankly, I don’t know. I’m only very moderately optimistic about it. He might, but it wouldn’t surprise me if it proves that, despite his efforts, he can’t. BB also wouldn’t stop at actually fomenting episodes of violence to set off a larger popular division of opinion, thereby provoking civil strife to put pressure on ATs.

  31. ks

    FAZ (Frankfurter Allgemeine Zeitung) leans right. Tagesspeigel’s reaction was more moderate, though they did seem to believe that the spread of left-wing populism would be a problem for the EU, albeit one that should be addressed by ending the austerity program.

  32. Petey

    Another, more detailed, Krugman piece on the topic I keep harping on:

    While running big deficits is Greece’s obvious “correct” solution, they have no way to do so, either with or without Grexit. So then it just becomes a matter of dramatically reducing austerity, by reducing the absurdly high primary surplus requirement the troika has forced upon them.

    And in this piece, Krugman explains why Syriza may well have some genuine near-term leverage here…

  33. Petey

    Smart brinksmanship on the part of Syriza on foreign policy.

    (Full disclosure. Unlike Lambert, I’m on the side of Ukraine and against Russia.)

    But given the bizarre liberum veto Polish Sejm structure of EU foreign policy, (which resulted in the destruction of Poland, BTW), Syriza was correct to play the ‘madman card’, and let everyone know that if they aren’t treated like human beings, they can cause trouble.

    And also glad they backed away from the brink after proving their point.

    Tsiprias and team may just know what they’re doing, after all…

  34. Petey

    From the FT on the preliminary talks between Greece and the troika ahead of the official EuroGroup meetings.

    “According to people briefed on the meeting, most were open to showing some leniency — possibly extending debt repayments, lowering budget surplus targets and allowing more social spending — as long as Greece stuck to most of the bailout’s reform commitments.”

    Still very early in the game. Nothing at all is assured. But the Euro conversation is starting to shift onto Syriza’s ground.

  35. Petey

    Since today’s kerfuffle, my short comments here go through. But my attempts to address the charges against my “intellectual honesty” get rejected. Color me confused.

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