Obama Administration Throws Greece Under the Bus; ECB Leak Recommends Capital Controls; Greece Weighing Capitulation (Updated: Germany Rejects Greek Proposal)

Things are not going well for Greece. It appears Syriza has largely capitulated to the demands of the Troika. Greece has submitted a request for a loan extension that the Eurogroup will consider Friday. From ekathimerini:

Government officials on Wednesday worked until late finalizing a proposal…

Specifically the government is expected to seek an extension to the so-called Master Financial Assistance Facility Agreement, the official name for the European Financial Stability Facility’s loan contract. That contract stipulates, however, that the dispensation of financial assistance is dependant on Greece honoring the terms of the so-called memorandum, which contains the economic reforms that the previous government committed to and which the current SYRIZA-led coalition has contested. Indeed, former Prime Minister Antonis Samaras had made the same request in December last year when he sought to extend the European part of Greece’s bailout program, from the end of the year to February 28. Kathimerini understands that Samaras’s request had then used the words “technical extension to the existing Master Financial Assistance Facility Agreement,” the same phrase that the new government was said to be considering last night.

The compromise is expected to satisfy both sides as it would mean Athens can avoid using the phrase “extension of the existing program” and the creditors can avoid using the term “loan agreement.” In substance, however, there would be little difference from the extension sought by Samaras as the terms of the memorandum would have to be respected in order for rescue loans to be disbursed.

This means that Greece is effectively asking for an extension of the bailout, which is what it had refused to do. And that means keeping the “conditionality” as in privatizations and labor-crushing structural reforms, intact. Greece is still fighting to keep some flexibility there but it is not clear they will obtain much. Again from ekathimerini:

The European Commission’s vice president for eurozone affairs, Valdis Dombrovskis, said efforts were under way to reach a compromise by finding “common ground for an extension of the current program.”

He insisted that “the best way forward is to extend the existing program with its conditionality.” Dombrovskis noted, however, that if Greece wants to substitute some of the existing measures in the memorandum with alternatives, it could do so.

In other words, this is a “peace with honor” solution.

As we’ve said from the outset, as much as we’d liked to see Greece prevail in its efforts to restructure its relationship with its creditors, not just for its own sake but for the benefit of other periphery countries and the Eurozone project, it was unlikely to prevail unless it could rally support. One possible source was the anti-austerity and anti-Eurozone parties in the rest of Europe. Perhaps we’ve missed it, but we’ve seen nary a sign of Marine Le Pen in France or Spain’s Podemos, the two proximate threats to business as usual in the Eurozone, using the extraordinary hostility of the Eurogroup to economically rational proposals from Greece as a talking point. For instance, when General Secretary Pablo Iglesias of Podemos appeared in New York earlier this week and took questions from the audience, there was nary a mention of Syriza.

Similarly, it will come as no surprise to regular readers to see the Administration hew to its usual pattern of false friend when it appears to take up of populist causes. Consider these remarks, quoted in the Wall Street Journal, early this month:

“You cannot keep on squeezing countries that are in the midst of depression. At some point there has to be a growth strategy in order for them to pay off their debts to eliminate some of their deficits,” Mr. Obama said in an interview with CNN’s Fareed Zakaria aired Sunday.

He said Athens needs to restructure its economy to boost its competitiveness, “but it’s very hard to initiate those changes if people’s standards of livings are dropping by 25%. Over time, eventually the political system, the society can’t sustain it.”

And as we pointed out at the time, the Administration had legitimate reason to try to push the recalcitrant Germans and northern countries to relent. The Eurozone is on utterly unsustainable foundations. It isn’t just that its structure is defective, with monetary integration but no Federal fiscal structure to allow for Eurozone-wide government spending to help equilbrate economic performance across regions. It is also that the design of the Eurozone is far too skewed to Germany’s advantage. Germany continues to run large trade surpluses with the rest of the Eurozone; they’ve even widened to a record 7.4% of GDP. Germany wants the impossible, to run persistent trade surpluses with its trade partners, yet not finance their purchases.

Unlike the Eurocrats, the Administration, along with most financial analysts, knows that persisting in this course of action assures a Eurozone breakup. And unlike Germany and its allies in the Eurogroup, it believes that a Grexit would pave the way for other countries leaving, and that the consequences of a Eurozone implosion would be catastrophic for Europe and not too pretty for the US either. So the intervention was hardly selfless. And our sources tell us Treasury did expend some effort on Greece’s behalf, although given the lack of movement from the Eurogroup side over the last week, we doubted how forceful a case was made.

Yesterday, with this terse report on the Treasury’s website, the Administration abandoned its support for Greece:

Readout from a Treasury Spokesperson on Secretary Lew’s Call Today with Greek Finance Minister Yanis Varoufakis


Today, Secretary Jacob J. Lew spoke by phone with Greek Finance Minister Yanis Varoufakis to discuss the latest deliberations between Greece and its international partners. Secretary Lew noted that failure to reach an agreement would lead to immediate hardship in Greece, that the uncertainty is not good for Europe, and that time is of the essence. He urged Greece to find a constructive path forward in partnership with Europe and the IMF to build on the foundation that exists to advance growth and reform. Secretary Lew added that the United States will remain engaged with all parties to encourage concrete progress in the days ahead.​

While Ambrose Evans-Pritchard cautioned via e-mail that Treasury could have issued similar warnings to ECB leaders, we see no corresponding press releases. So this looks to be a deliberate retreat from the Administration’s posture that the austerians in Europe needed to relent.

Another source of pressure on Greece was, as we discussed yesterday, was that it was running out of funding even sooner than expected. We had hoped they might hold on until mid-March or later. But ekathimerini reported that the government faced a cash crunch starting February 24. Yes, it can presumably delay some payments or resort to a scrip like the Robert Parenteau’s tax anticipation notes. But the knowledge that Greece was at the end of its rope gave the Troika the opportunity to press its advantage.

A third source of pressure came from the ECB. We were puzzled by the ECB’s decision to give Greece only a €3.3 billion increase in the ELA when it had requested €10 billion. This was clearly not a good sign, although the intent was not clear. Was it to create plausible deniability, as it had two weeks ago, by making it harder for the Greek government to finance itself while maintaining the appearance of supporting its banking system? Many observers saw the measures implemented at the last regular ECB board meeting as intended to accelerate the bank run in progress. If so, the ECB was successful. This looked to be more of the same, to focus media and Greek depositor attention on how little headroom the central bank had provided relative to the continuing deposit drain.

A story in the German paper FAZ (hat tip Dimitri and Swedish Lex) increased the pressure on Greece:

The Greek government should have imposed capital controls by now but was loath to do so, since any leak of that line of thought would increase the deposit run. While it could be done in isolation, simply as a protective measure to prevent deposits being moved out of the country and to reduce daily withdrawals. it would be entirely logical to see it as a step on the way to a Grexit. Anyone with an operating brain cell would want to minimize their exposure to having cash in the bank turned into less valuable drachmas.

The ECB did everything they could in the FAZ leak to stoke that concern. The ominous headline is Central Bankers Lose Faith in Greece. Some extracts via Google Translate:

In central bank circles a “Grexit” is now seen as likely. First, there are 3.3 billion euros more emergency loans… Some policymakers speak now behind closed doors the view that a Grexit is the most likely scenario now. “One gets the impression that the Greeks want to get out and look only for an external guilty,” said a central banker, who declined to be named….

In central bank circles was discussed why the Greek government had not yet introduced capital controls. “The Governing Council and the Governing banking supervisors would be better if there were capital controls to prevent bleeding of the banks,” it said in ECB circles. The Council of the Central Bank also discussed the question of whether and how long the Greek banks in general are still solvent. Ela-emergency loans may only be granted to temporarily illiquid but solvent banks in principle. If the Governing Council finish with a two-thirds majority of the Ela loans, this would effectively mean Greece’s euro-Off…

The skepticism in central bank circles increases more and more that the government will agree Tsipras time required by the EU partners extension of the aid program, subject to conditions. “It is very unlikely that the Greeks will make a 180 degree turn,” said a central banker. “It now runs to the Grexit.”

This story is the banking equivalent of yelling fire in a crowded theater. Whoever planted this piece knew exactly what he was doing.

The article also treats the Greek government as likely to repeat its demands of earlier in the week, which were already rejected by the Eurogroup. It also reiterated that the Germans have no intention of budging:

What are the five points, insist on the Berlin and other donor countries? First, this includes the confession that reforms are not turned back. Second, one expects an assurance that new measures are modified in consultation with the three institutions (European Commission, ECB and IMF) – and also the state budget not charge. Thirdly, to predict, to repay the loans to all donors to the Greek. Fourth part to the fact that Athens agreed to continue with the three institutions that have been called “troika” to work. Fifth, it is expected that the new Greek government seriously committed to the goal of successfully guiding the program to end…

The CSU profiled on Wednesday with Euro critical tones. Your Honorary Chairman Edmund Stoiber used the political Ash Wednesday to sharp attacks on the behavior of the government in Athens to their donors. “How many steps can you give the cow that you will milk,” warned Stoiber. The behavior Athens towards the countries of the Euro Group is an outrage. “The Germans are very helpful and patient, but I do not know how long,” Stoiber said. Europe is a continent of law and live on it that contracts are honored. If the principle of “pacta sunt servanda” (agreements must be complied with) no longer applies, “Europe is at the end.”

Another proof of the German view that Greece is a vassal state: Germany formally demanded the removal of Varoufakis through their ambassador in Athens.

The irony here is that if Greece were willing to default, Germany would have turned an intended subjugation of Syriza into a devastating political wound to the ruling German parties. Refusing to extend the ELA any further, if it were to come to that, merely limits ECB losses. If Greece were to default, it would suddenly expose the size of the commitments to Greece through the Target2 system, the vehicle used to launder the bailout money from Greece to French and German banks. Most Germans have the inaccurate picture than the rescue funds went to stereotypically lazy Greeks, when 91% of the payments actually went to banks.

As Ambrose Evans-Pritchard explains in an important article:

The Target2 claims of the Bundesbank on the ECB system have jumped from €443bn in July to €515bn as of January 31. Most of this is due to capital outflows from Greek banks into German banks, either through direct transfers or indirectly through Switzerland, Cyprus and Britain.

Grexit would detonate the system. “The risks would suddenly become a reality and create a political storm in Germany,” said Eric Dor, from the IESEG business school in Lille. “That is the moment when the Bundestag would start to question the whole project of the euro. The risks are huge,” he said.

Mr Dor says a Greek default would reach €287bn if all forms of debt are included: Target2, ECB’s holdings of Greek bonds, bilateral loans and loans from the bail-out fund (EFSF)…

As a practical matter, the ECB itself would be in trouble. Any Target2 losses must be shared, according to the ECB’s “capital key”. The Bundesbank would take 27pc, the French 20pc, the Italians 18pc and so on, but these are uncharted waters.

“I do not believe that the Germans would allow the Bundesbank or the ECB to carry on with negative capital. They would demand recapitalisation and consider it a direct loss to the German state,” said Mr Dor.

If so, Chancellor Merkel would face an ugly moment – avoided until now – of having to go to the Bundestag to request actual money to cover the damage. Other forms of spending would have to be cut to meet budget targets.

Evans-Pritchard judged Greece to have the far stronger hand by virtue of being able to inflict this level of damage on Merkel. Yet the persistent ECB bludgeoning of Greek banks appears to have chastened Tsipras and Varoufakis.

Or it may be that even the concessions that they are apparently prepared to offer will not be deemed sufficient. For instance, it does not appear that Syriza has agreed to let the Troika monitors back in, one of the five demand seen as critical by the Germans. And even though the European Commission spokesperson Valdis Dombrovskis said there might be some negotiating room on specific conditions, that is also inconsistent with the FAZ description of the German stance. Recall that it was a European Commission trial document that Varoufakis said Greece was willing to sign but was firmly nixed by the Eurogroup.

So it may be that this last round of concessions is meant not as a capitulation but to demonstrate how much Greece was willing to give in the face of implacable Eurogroup demands and was still rebuffed. We’ll know the outcome either way shortly.

Update 8:00 AM. Well, that was fast and ugly. The Germans are playing completely non-negotiable, not that that is a surprise. Greece must surrender completely. From the BBC:

Germany has rejected a Greek request for a six-month extension to its eurozone loan programme, after earlier signs that a compromise was possible.

Greek had sought a six-month assistance package, rather than a renewal of the existing deal which comes with tough austerity conditions.

But German Finance Minister Wolfgang Schaeuble said it was “not a substantial proposal for a solution”.

The European Commission had earlier called the Greek request “positive”.

The wee problem is that the European Commission is not a party to this negotiation. Back to the key sections of the article:

Mr Schaeuble said the Greek request was an attempt at “bridge financing, without meeting the requirements of the programme. The letter does not meet the criteria agreed upon in the eurogroup on Monday”….

And it has this useful, if disheartening, summary:

How the German papers see the Greek negotiations:

Popular tabloid Bild has a full page spread featuring pictures of Vladimir Putin and Alexis Tsipras with the headline: “The Russian or the Greek: who is more dangerous for us?” Underneath it says: “Europe is in the most difficult crisis it’s seen for decades — because two heads of government are aggressively demonstrating their power.”

A commentary in Frankfurter Allgemeine Zeitung says: “The Greek government appears to believe it can treat its partners like fools,” accusing the Greek government of using Brussels like a stage for theatrics, adding that many people have simply had enough.

And the business paper Handelsblatt says the request for a loan extension changes very little. “It remains unclear whether Athens is willing to meet the conditions set by its creditors.” And that, the paper says is crucial for the meeting of European finance ministers on Friday.

Update 8:55 AM More detail from the Financial Times. Notice they confirm our reading of the Greek offer:

Germany has rejected a request by Athens to extend its €172bn bailout despite a significant U-turn by the new Greek government, which for the first time on Thursday promised to work on completing the economic reform measures required by the current rescue programme.

Martin Jäger, a spokesman for Germany’s finance ministry, said the letter requesting the extension, sent by Greek finance minister Yanis Varoufakis on Thursday, left too many questions unanswered and did not meet demands by eurozone finance ministers to unconditionally agree the terms of the existing rescue.

“The letter from Athens is not a substantive proposal for a solution,” Mr Jäger said. “In truth, it aims at bridge financing without fulfilling the demands of the programme. The text does not meet the conditions agreed on Monday in the eurogroup.”

The swift rejection by Berlin after what many viewed as near complete capitulation by Athens is just the latest in a series of breakdowns over how to keep the Greek government financed when the current EU programme expires next week….

Some members of the governing council believe that if a solution is not agreed between Greek officials and the eurogroup by the end of the week, the ECB might then have to review the solvency of Greek banks. The approval of the latest increase lasts for two weeks, but ELA can be reviewed at any time. A two-thirds majority of the governing council’s 21 voting members would be needed to end ELA — a “nuclear option” that would effectively force Greece to adopt capital controls or quit the currency area.

Update 11:45 AM: For a good recap of events and reactions, see the Telegraph live blog. Short version: an emergency Eurogroup meeting is on for 3:00 PM in Brussels tomorrow. If this take is right, it’s going to be a stormy session:

One small bit of good news: The Telegraph live blog says the ECB denied the FAZ rumor that the ECB was ready to recommend capital controls for Greece.

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  1. steviefinn

    As far as Europe is concerned & probably everybody else after reading yesterday’s Orlov piece – I just keep thinking of Chomsky’s lemmings marching towards that cliff.

    1. Cugel

      We now see the key part of Varoufakis’ letter that the Germans have rejected as a “Trojan Horse”:

      “In its proposal to Brussels earlier today, Yanis Varoufakis signed off on a letter which said Greece would aim to: “attain appropriate primary fiscal surpluses, guarantee debt stability and assist in the attainment of fiscal targets for 2015 that take into account the present economic situation.”

      This is in effect a rejection of the 4.5% budget surplus, and a promise not to make “unilateral steps” to undermine the austerity “reforms” until a more permanent agreement is forged. But, it is not actually permanent agreement to the program because what is “reasonable” under “the present economic situation.” THAT is clearly what is objectionable to the Troika. Shorter Greek terms: “Give us a bridge loan and we’ll continue to negotiate what surplus is “reasonable” and what “reforms” must be offered. It’s short-term financing in return for kicking the can down the road a few months.

      And the Troika’s response is “No terms except an unconditional and immediate surrender can be accepted. I propose to move immediately upon your works.” — U.S. Grant.

      Meanwhile Syriza appears to have made all the concessions they are capable of making:

      Syriza’s leaders say Greece has gone as far as it possibly can to assuage creditors but has reached its limits. They await the verdict in Brussels with weary fatalism. “Whatever happens we are not going to accept humiliation or become a debt colony of the Eurogroup. We will uphold our sovereignty,” said one official.

    1. Yves Smith Post author

      This is starting to look like Versailles 1918. A surrender is not good enough. They want an unconditional surrender (which BTW was imposed by the Allies ex post facto).

          1. Ned Ludd

            I disagree. This is a perfectly predictable move by Germany, to demonstrate that they will brook no dissent.

            Syriza discovered that if you try to be reasonable with a bully, you will be humiliated and you will get your head pounded in.

      1. Bobby K

        I don’t understand. Why is it up to Greece to keep the EuroZone together? If my country were in a depression anyway,and continuing the austerity would leave me in that condition for the forseeable future anyway, I wouldn’t have any problem with proceeding with a “Grexit”.

        1. NotTimothyGeithner

          It’s more about imports for the next two years and Greek trading partners. 18% of the gdp is tourism. Yes, that’s obviously a long term problem, but a grexit kills 1/5 of the economy almost immediately.

          I think the EU will be gone within 5 years as we know it. It might be around as a quirky place delegates are sent to, but that’s it. However, not everyone sees that future. They still dig up World War II bombs in Europe. The idea of a nominal United Europe is seductive. Even if it goes against, “a house divided against itself cannot stand.” The problems between the states here pick up when John Q Adams died because they were removed from the Revolution unity and were slave and free countries with radically different societies. Much of the South was very different from the North.

          What did people do? They thought they could compromise and stay the course for years. Not everyone in Greece will recover from where they are now or can see a way through. Do the people who were in the streets really understand this?

            1. Yves Smith Post author

              The big reason for not seeing it that way is twofold.

              First, Greece has a lousy export mix. As Dani Rodrik, a highly respected development economist and no neoliberal, pointed out in a recent Project Syndicate column, Greece has already lowered wage rates by 15%, but didn’t get anywhere near the export boost they should have. So he concludes that a cheaper currency won’t do them anywhere as much good as the textbook stories would lead you to believe. And in the meantime, critical imports like pharmaceuticals and energy get more expensive. The Greece hospital system is already on the verge of collapse and can’t afford many essential medications, like anesthetic. More costly imports have the potential to produce a public health crisis.

              Second, Varoufakis is very concerned, and many people (including the US Treasury) concur that a Grexit paves the way for a Eurozone breakup. All financial analysts agree that would be catastrophic and would plunge Europe into a Great Depression. So Greece, which is already in a depression of its own, would be dragged down further and would almost certainly become a failed state.

              Greece does not need to exit the Eurozone unless the ECB pushes it out, which it might by cutting off the ELA. The better solution is a default while staying in the Eurozone.

              1. Jkiss

                It’s important to acknowledge status quo is not an option. Even 1.5pc surplus means gdp declines, 4.5 just deeper depression. Further, exporting young to Germany solves German demographics, destroys Greek future.
                Mmt says Greece can bring full employment with drachma, yes imports a problem. Russia likely to supply oil, at least in transition, China maybe pharma, which anyway Greece is already out of and which extension will worsen.
                Yes, ez goes under sooner, but this says earliest out does best because ez staggers on while Greece has most difficult period, plus maybe, as Germans hope, others are terrified…
                I hoped Galbraith would change yanis mind. They need to hold fast and bring in Mosler.
                If Greece leaves and does it right they will be a great progressive example to guide Europe out of the neoliberal dark age.
                Regarding tourism… Imo angry Greeks striking is discouraging, not pro gov. Marches. Staying with the program will pretty soon bring back protests/golden dawn…
                Grexxit now is much better than further collapse into ez collapse later.

              2. Cugel

                Greece does not have any choice but to refuse to capitulate and force the Germans to force them out. If they surrender the Troika will force them to swallow 4.5% surplus. If unemployment is 25% with 1.5% what will it be in a year with 4.5%? No society can possibly survive that. They will instantly lose all political legitimacy, their party will fracture amid violent recriminations, and Golden Dawn will take over and repudiate the Eurozone anyway.

                So their choice is between: “agree to cut your own throats or we’ll do it for you.” Well, under those circumstances it’s better to go down fighting, because there is NO UPSIDE to agreeing. Some temporary stay of execution? They’re not even being offered that.

                1. Ulysses

                  The arrogant Eurocrats are too proud to see the folly of their ways, or even to recognize the obvious benefits to them of accepting the “modest proposal” of the Greeks.

                  Maybe they should heed the words of another Greek, Demosthenes, spoken more than two millennia ago:

                  “I observe that when a league is knit together by goodwill, and when all the allied states have the same interests, then the coalition stands firm; but when it is based on treachery and greed and maintained by fraud and violence, then on some slight pretext or by some trifling slip it is instantly shattered and dissolved”


          1. TaxWonk

            Confused by the statement that Grexit kills tourism. Quite to the contrary, just as it makes Greek exports of goods much more competitive in the global market, won’t leaving the Euro (and the immediate devaluation of the “New Drachma”) also make it much cheaper for everyone else (both Northern Europeans as well as Americans, Canadians, etc.) to travel to Greece?

            I suppose I can see that there will be some among the useful-idiot middle classes of Germany and the rest of Northern Europe — (i.e., the people who somehow see themselves and their “country” as being personally aggrieved by Grexit, because they’re too stupid to realize that this isn’t about allocating losses between “Greeks and Germans” as much as allocating losses between “the Greek people, and the German Banks who made really bad loans and are now, after privating the gains for 20 years, trying to socialize the losses”) — who will refuse to spend their month-long vacations on the Aegean no matter how cheap it becomes in Euro-terms. But seems like that effect would be swamped by people saying “hey, half-off on my Aegean vacation, cool!”

            1. Yves Smith Post author

              Tourism fell sharply when the crisis kicked in 2012. I can tell you (my mother is on all the cruise mail and e-mail lists) that they’ve been giving away cruises to Greek ports of call from then to now. No one wants to visit a country that is undergoing a humanitarian crisis. It will only get worse in a Grexit. Cyprus had produce rotting on its docks and couldn’t get anywhere near enough gas when its banking system was subjected to a bail-in. How do your run tour busses and tour boats? Who wants to visit when food supplies are in question? Given how desperate things are, you could even see food riots.

              1. steve dean

                Tourism fell because all of Europe went into the Great Recession.

                And, despite the financial crisis in Greece, since it was still on the Euro, prices did not go down.

                Back in th day of the Drachma, Greece was an affordable place to vacation.

                1. Yves Smith Post author

                  Misleading. Cruises to other Mediterranean ports (like starting in Venice and going to Barcelona) had fine demand. There was a monster falloff in Greece v. other European destinations.

              2. vidimi

                i was in greece as recently as october for holidays and, if they’re forced out, i will make it a moral imperative to go back.

                1. MyLessThanPrimeBeef

                  I do what I can to support Greece. Probably visit that Greek grocery store near Korea Town here in LA.

                  Too bad I don’t bank at any German banks. Otherwise, I’d move my money out.

                  1. EmilianoZ

                    Great idea! Let’s boycott everything German, big or small. I had a headache yesterday night. I took 2 aspirins. I realized with horror that they were Bayer. But the bottle is almost empty. I’ll replace them with something else.

                    Kalamata olives are the best in the world. I snack on them or use them as appetizers.

                    1. vidimi

                      fun fact: giving up the patent for aspirin was a key demand for german capitulation concluding the great war. that’s why it’s so cheap.

              3. Calgacus

                Yves, as you know, my opinion is that the arguments of Grexit-pessimists like Varoufakis are largely specious and baseless. But the view put forward at NC is substantially more extreme than Varoufakis! All financial analysts do not predict catastrophe for the EU on Grexit. The markets don’t – Barclays’ economists put the probability of Grexit at 50%, according to Rob Parenteau (haven’t checked him.). Warren Mosler doesn’t. If there is a Grexit & there is financial turmoil, the ECB, Germany can go whole hog, ignore their rules if some insanity therein ties their hands, and quell any financial crisis. Or not. It ain’t rocket science. Just do what they did in 2008, more or less. And as Mosler & Pilkington mentioned in an article published here a few years ago, even a debt-deflation Great Depression in the rump Eurozone does NOT mean catastrophe for Greece.

                Perhaps the most common thread is that most modern economists grossly, to the point of absurdity, overstate the importance of the foreign sector. In FDR’s words, a sound internal economy is more important. The Troika wants to impose an unsound internal economy on Greece. (And a default inside the same austerity-mad Eurozone, would merely be a short vacation from the waterboarding at best – worse than Grexit, not better.)
                Read Keynes’s National Self-sufficiency. Read Abba Lerner (his Economics of Employment chapters on foreign commerce has many pages directly applicable to the Greek situation.) Read Lapavitsas & Flassbeck’s Against the Troika – urging a Grexit. Lapavitsas was intentionally included on the Syriza list to show that Syriza meant it about ending austerity.

                But food riots? Why is a small country that can feed itself – with a yummy, well-balanced Mediterranean diet – going to have food riots? When does pessimism become absurd?

                1. Yves Smith Post author

                  No, you are missing that Grexit paves the way for an eventual Eurozone breakup. Actually, the refusal of Germany to consider any measures that will lead to a viable structure for the Eurozone, even things like Eurobonds to allow for more federal-level fiscal spending, doom it anyhow. The only question appears to be when this happens, not if, given the German refusal to change course.

                  Please cite the analyst who says a Eurozone breakup is a nothingburger. It would be disastrous, including for Germany. A DM or a Norther Bloc currency would rise sharply, killing German exports relative to China. Did you miss that the trade surplus is now a whopping 7.4% of GDP? Bye bye German incomes and savings rates when that gets shellacked.

                  Mr. Market is a terrible forecaster of the real economy. You should know that. And markets look forward only a year to 18 months. So all that complacency says is that they don’t see a breakup in that time horizon. I don’t disagree much, political time takes longer than financial time.

                  1. Sibiriak

                    Grexit paves the way for an eventual Eurozone breakup.

                    On the one hand, we are told that a Grexit would be terrible for Greece economically. On the other hand, we are told other EU countries will follow the Greek path. But if a Grexit is so bad for Greece, why would other countries follow that path?

                    (And if a Grexit turned out to be workable for Greece, then perhaps a somewhat shrunken EZ wouldn’t be such a bad thing.)

                    In any case, the idea that a Grexit will necessarily lead to a Eurozone breakup seems highly speculative.

                  2. Calgacus

                    No, you are missing that Grexit paves the way for an eventual Eurozone breakup.

                    I am not missing this. I more or less mentioned it above. A Eurozone breakup is a bad thing why? I think any rational person should be close to saying Eurozone delenda est! soon.

                    Please cite the analyst who says a Eurozone breakup is a nothingburger. It would be disastrous, including for Germany. A DM or a Norther Bloc currency would rise sharply, killing German exports relative to China. Did you miss that the trade surplus is now a whopping 7.4% of GDP? Bye bye German incomes and savings rates when that gets shellacked.

                    ? – I cited two people above who were not doomsaying this way – Mosler & Pilkington. Marshal Auerback is perhaps another – he proposed a German exit from the Eurozone a while back, maybe here, which of course entails the Deutschmark rising, German exports falling.

                    Mosler’s Law applies: There is no financial crisis so deep that a sufficiently large tax cut or increase in public spending cannot deal with it.

                    A Eurozone breakup would not be disastrous, especially for Germany. IF Germany used elementary sanity in running its economy. Replacing lost demand for German exports is the easiest thing imaginable – print the money. Raise German living standards, without inflation. What Grexit – above all the true Grexit- exit from austerity – which may be already happening – does is force the insane Eurozone Deathstar to either : (a) Use sane common sense economics.or (b) stick to their innumerate, illiterate neoliberalism and have the catastrophe you fear.

                    But in any case, as Mosler & Pilkington pointed out, catastrophe in the rest of the Eurozone does not equal catastrophe for a Greece which has already exited. Lapavitsas, Flassbeck & Oskar Lafontaine, who wrote the preface for their book are a Greek & two Germans who don’t see inevitable catastrophe upon Grexit or Eurozone breakup. Their is no consensus, and the “romantics” arguments are much more logical and factual than the pessimists.

        2. Northeaster

          Look at who the creditors are and you find your answer. Common sense and reasonableness are not the weapons of choice here.

          1. JTMcPhee

            One thing I love is the notion of the “sanctity of contract” under some mythical “rule of law” that only seems to exist when the “rights” of the rich are questioned. Last time I checked, bonds were an investment with a risk component that is supposed to be priced into the market for the bond. Where is it graven into a stone tablet that particularly central-bank and “financial industry” and “sovereign” bondholders, especially holders that have used every artifice and karate move and sucker punch imaginable, over a very long period and very long distances, to sucker and arm-twist the bond issuer into, you know, issuing that bond, where is it graven irrefutably that bondholders are “entitled” (unlike pensioners, for example) to “full repayment?” It’s a risk those barstids assume when they make the ‘facility’ available, no? Bonds have failed and been defaulted on since Hammurabi wrote out his ancient commercial code that even then addressed the risks and the situation of impossibility of performance and overreaching and plain old bankruptcy.

      2. john bougearel

        Perhaps more of a Carthaginian Peace.

        From Wiki “After the Second Punic War, Carthage lost all its colonies, was forced to pay a constant tribute to Rome. At the end of the Third Punic War the Romans systematically burned Carthage to the ground and enslaved its population.

        “Carthaginian Peace” refers to any brutal peace treaty demanding total subjugation of the defeated side.

        Nigel Farage was up in arms about this “treaty” with Greece this week.

        “Elections change Nothing” said the German Finance Minister Schauble.
        Mr Juncker said “There Can Be No Democratic Choice against the European Treaties.”

        There is no room for “rule of the people” in the EU under these treaties. Only Subjugation.

        I would like Yanis V and Alexis T to think hard upon these two key quotes as they head into Friday and that they will “endeavor to persevere,” Though I have no clue what form that endeavor should take. I only hope it is something other than the continued subjugation of Greece by these EU Treaties.

        1. diptherio

          If elections change nothing, then what’s the point of having them? Seems like Mr. Schauble just admitted that European democracy is a sham (just like US democracy).

          1. OIFVet

            I hate to agree with Marine Le Pen, but she has been saying that Euro democracy is a sham for a long time. And she is correct too. That, and economic positions that appeal to leftists but are spurned by “leftist” parties, is at the root of the rise of nationalism in Europe, and the insane inflexibility of the Germans is not helping one bit. For those who are interested, here is an interview with Le Pen after last year’s European elections.

            Sovereignty is the foundation of democracy. Without sovereignty, there is no democracy, because having the freedom to cast a ballot in a ballot box is one thing, but if the people you elected with your ballot have no power because the actual power was transferred to a supranational body, then we are no longer in a democratic process. And this is exactly what we are currently going through. I think it was in 1957, in the National Assembly, Mendès France said that there are two ways to establish totalitarianism – either all of the powers are united together, or we transfer all the power to a supranational body. Well, that’s exactly what they did by building the European Union – they transferred the sovereignty of the people to a supranational body that is not elected, that has no legitimacy and that imposes its will on the people….

            …Because the austerity policies that have been implemented have shown not only their injustice but their futility, their inefficiency. The laboratory of these austerity policies is Greece. Just look at Greece : we sent the Greeks back to the Middle Ages, their youth unemployment rate is at 60%, 30% for the rest of the workforce, a drop in unemployment compensation, a drop in salaries, a drop in civil servant bonuses. They no longer have access to appropriate health care, suicide rates have doubled, and there’s been a 50% increase in the infant mortality rate.. Is this progress? Is this what we were promised? This is a disgrace, it is scandalous!

            The interview also covers the Eurozone, Ukraine, and Russia. Agree or disagree with Le Pen’s call to abolish the Euro, definitely disagree with FN xenophobia, Le Pen hits the nail on the head, there is no longer a national sovereignty in Europe and what is happening to the people of Greece is tragic. The problem, of course, is that the rhetoric could lead to a very dark place that no one in their right mind wants to go back to. As far as I am concerned, the Troika and Germany can either be reasonable and give Syriza what it wants, or be unreasonable and face Golden Dawn’s sledgehammer. The former is infinitely preferable, but then again I think the German ruling elites are freaking ieconomic sadists who will do anything to remain in power, including the destruction of Greece.

            1. diptherio

              Given Germany’s history, you’d think they would be leery of imposing too much suffering on a foreign people, knowing how that kind of thing tends to warp one’s sensibilities. I think the Greek people have shown a remarkable amount of restraint in electing Syriza to power…if the German people were being subjected to what the Greeks are now, I imagine we’d currently be discussing the rise of the 4th Reich.

              1. DanB

                Actually, this attitude of imperialism, colonization,”we-know-best” hegemony -or some similar outlook- is very much how West Germany carried out the unification with East Germany in 1990. Many former citizens of East Germany now refer to this unification -which the East German people did vote for in March 1990- as a takeover or internal colonization. Hence the many discussions of “Ostalgia”, a yearning for -some or all- of the features of the GDR. A common term they use to describe what took place after the unification is “Abwicklung”, which can be translated in several ways as liquidation, unwinding, closing down, destruction. Entwicklung means development, and Abwicklung is its antonym.

                1. bob

                  It was also during the re-unification that germany was running massive budget deficits. Due to the size of the economy, it was masked a bit as a percentage, compared to other countries.

                  But, now they want greece to bow to the altar of the ECB, when at the time, Germany was not too worried at all about the ECB telling them to stop the deficits.

                  The take away is that the ECB is pro-cyclical– that it’s fine for a country to deficit spend when the country is not in depresssion, but it is terrible for a country to deficit spend when it needs it, during a depression.

                  This leads to massive imbalances building up over time.



                  “Rules are made to be bent, aren’t they?
                  Some of the 12 countries that use the euro are struggling to stick to the strict fiscal policies that they have signed up to. Will they change the rules instead? ”

                  “None of the big three is forecast to breach the 3% deficit-limit this year. But all are bending another part of the pact, which requires all EU members to aim for budget balance in normal economic times. All have promised to reach balance by 2004. But it is increasingly apparent that the big three want to wriggle off the hook.”

                  Do as I say, not as I do.

            2. Ned Ludd

              The Greek military would crush Golden Dawn if it threatened the E.U. order. For a historic parallel, Hitler murdered the leaders of the Sturmabteilung (SA) – the paramilitary Brownshirts in the Nazi Party – during the Night of the Long Knives, in order to consolidate his power within the establishment.

              Fascist street fighters are thrown to the wolves, if they get off their leash and start to cause trouble for their totalitarian masters.

                1. Cugel

                  What makes you think that the Greek military will want to crush Golden Dawn instead of support them?

                  The U.S. is obviously in a lot better shape than Greece, but the U.S. military would have a hard time simply obeying orders to crush a racist, nationalistic party that had majority support, simply because a lot of hated foreigners were upset with it. That’s because all too many military, especially the officer corps are far right wingers themselves. The Air Force Academy, for instance, is notorious for being a haven of religious mania and xenophobia and some serving officers have openly talked about a “crusade” against Muslims. And U.S. society is pointedly NOT spiraling totally out of control with 25% + unemployment and 60% + youth unemployment. God knows how horrible conditions in Greece will be 6 months from now too. We’re looking at a total collapse of their entire society. The most likely outcome is war in the streets, with the military splitting into factions of the sort that is all too familiar in the Balkans wars, Syria and Iraq.

                  1. Ned Ludd

                    Mr Monastiriotis said [Golden Dawn’s] ideology fitted the description “neo-Nazi”, including the idea of Greeks being a “superior race”, aggression towards immigrants, and hostility towards the EU and Nato.

                    There is support for Golden Dawn in the military. The leadership, however, is loyal to NATO and, consequently, the E.U. – which is increasingly acting like NATO’s political arm.

                    If military leaders have to choose between a fascist “criminal organization” and the NATO military establishment, Golden Dawn will go the way of the Nazi Party’s Strasserist faction. Even now, the military is silent while “the party’s leader and most of its lawmakers are behind bars, facing charges of participating in a ‘criminal organization’…”

                  2. hunkerdown

                    Did you miss the Greek Minister of Defense talking about “turning it into Kougi” if the Troika didn’t listen to sense? It’s quite possible that his subordinates don’t agree, but I presume in that case he would be housecleaning (or housecleaned) rather than proclaiming a readiness for anything.

            3. susan the other

              Thanks OIF for this excerpt from Le Pen. Whenever I hear her speak I think she is the only voice of sanity in Europe (with the exception of her reactionary stance on immigration). The European Union is being exposed for what it is, the Euroburo. I’m impressed by Merkel’s willingness to deal with Russia. She knows it would be suicide to cut off trade and cooperation with Russia. And she said a few days ago she was willing to work with Greece. So how did this all fall apart. I can’t just believe Schaeuble hates Varoufakis that much. To refuse critical concessions to Greece will force Greece into a terrible austerity and/or exit, but it will likely destroy the rest of Europe too. They really should cool it. Give Greece the funds it needs to stabilize its finances for 6 months (a drop in the bucket) and talk like rational people. What would Germany do if it weren’t having a panic attack about the half a trillion euros it has already “donated” to keeping the European banks alive?

              1. NotTimothyGeithner

                Le Pen is an outsider to the establishment. She can judge the EU without rose colored glasses. Most political elites can’t attack the establishment without questioning their fitness.

              2. Kurt Sperry

                +1000 for ‘Euroburo’ if you coined that. The head, Germany, eating its own tail, Greece. I’d spell it ‘euroboros’ but whatever, good one.

                1. different clue

                  Interesting alternate meaning for Euroburo. I was suspecting that “Euroburo” was a play on “Politburo”.

              3. Yves Smith Post author

                No, the Merkel quote has been widely misrepresented in the media. I can’t find it readily in a search, since the translations did not use any distinctive words, but the gist was, “We Europeans have a tradition of being willing to negotiate” but in her very next sentence, she said, “But an agreement is an agreement”.

        2. MyLessThanPrimeBeef

          Or the defeated Incas.

          ‘Give me all gods. We will burn them all. I want your souls.’

          You must believe what I believe – the Euro and NATO.

        3. Mark P.

          ‘Perhaps more of a Carthaginian Peace.’

          It’s a Pyrrhic victory, of course, in the long-term for the Germans. Immensely short-sighted.

        4. Jack

          A key difference though is that Rome crushed Carthage because they were terrified of it one day rising again to be a genuine rival. It was a destruction born out of real respect. Germany doesn’t seem to have the slightest respect for Greece.

      3. MyLessThanPrimeBeef

        Again, the abused grew up to be an abuser.

        Ironical, and all the more tragic, because it’s illegal in France.

      4. vlade

        you know, I was thinking about thirony of this. just a week ago I watched an interview with a 1930s nazi, wh said “it wasn’t good enough for theallies to bring us dow, they had to kick us and stomp on our heads. we couldn’t live with it”

        history doesn’t repeat, but sure it rhymes.

        Geramans tried to conquer europe quitea few times, mostly failed. now they figured economy is better than warfare, but still can’t govern

      5. vidimi

        some, most notably marechal foch, thought that the terms of surrender were far too lenient on germany. he said that this was not a peace treaty but a 20-year cease fire. he was right.

        1. different clue

          Captain of Artillery Harry Truman thought the same thing but derived a different meaning from it. When he heard about the Armistice, he said that Germany should not have been allowed to have an Armistice. He said that Germany should have been forced to keep fighting till German resistance was completely destroyed on German soil within the borders of Germany itself. He said that allowing Germany to surrender without having been unconditionally defeated within its own borders would let Germany resume the war in 20 years. (I saw that claim made on a PBS biography of Harry Truman. The program said he said this in a letter to his mother back in Missouri).

          Of course the other way to have avoided WWII would to have been to let the Central Powers win WWI, which could have happened without American entry. What if Britain and Wilson had not been able to consummate their conspiracy to trick and lie America into the War? It is one of history’s great counterfactuals.

          1. vidimi

            america entered the war when it was already won by the russians, who had cleared a road to vienna. it entered because the germans were so desparate, they relaunched uboot attacks against merchant ships knowing that it would draw the states in. the americans just accelerated the conclusion from then in.

      6. M

        March 18 there are provincial elections in the Netherlands. This might not mean very much but if there’s no regression to the mean the social democrats will be wiped out, quite like they’ve been wiped out in Greece, will be wiped out in Spain this next election and in France in 2017. What this might mean is that the electorate is finally waking up to the reality that they are no longer part of the eqation.

        Merkel and her errand boy Dijsselbloem merely demand their “pound of flesh”.

    2. Jim Haygood

      Even if the Eurogroup were favorably disposed to accept Greece’s proposal, it’s doubtful that they legally could. In particular, with the IMF involved, they do not have the authority to waive conditionality for six months.

      At this point, the sparring over an unrealistic framework for negotiation has reached the point that an accidental default, which neither side intended, could happen if markets revolt.

      Greek banks may well be insolvent already. Accelerating capital flight, if all confidence is lost during the German-Greek food fight, could push Greek banks past the point of no return. In financial terms, this is a game of chicken with nuclear weapons. If it turns out badly, saying ‘we vaporized some folks’ won’t put Humpty Dumpty back together again.

      1. Yves Smith Post author

        Good point that I forgot to incorporate. It’s an obvious talking point favoring the Eurogroup that they haven’t used, presumably because thy are so sure of their position they don’t feel the need. But the IMF has not been at the table at all. Having IMF monitors in may be part of the conditionality, but they’ve not been party at all to these talks.

        The Finns played this brilliantly. I recall reading and I have been unable to find the article, but the rest of the Eurogroup members wanted to give the new Greek government six months, which would make the Eurogroup bailout expiration roughly co-terminus with the big refinancings staring in June. The Finns insisted much earlier and got end of February.

        Remember that the new government has just been parachuted in. They barely have a grip on what is going on. No one has had a spare second to hire anyone. Varoufakis is winging this with no staff or at most some secretaries (as in even if there are more senior holdovers, they would not be trustworthy). The super short runway and more complex approval process for any other proposal forced Greece into negotiating terms in the current bailout, and not a new structure as they had intended. If they had had more cash, they might have held on, but the bank run fears and the low tax receipts made their disadvantaged situation even worse.

        1. Jim Haygood


          ‘Crucially, [Greece] accepted that the extension would be monitored by the European Commission, European Central Bank and International Monetary Fund, a climbdown by Tsipras who had vowed to end cooperation with “troika” inspectors accused of inflicting deep economic and social damage on Greece.’


          It’s only a climbdown from an unrealistic notion that conditionality could be waived. The main question now is how much flexibility the Eurogroup will show on the budget surplus. Doubtless they will want to reduce ‘appropriate primary budget surpluses’ to a hard number.

          1. Yves Smith Post author

            Not quite. You forget that Troika monitors were doing a lot more than monitor, as in writing regulations. The Greek proposal was that Troika monitors would get the info they wanted through Greek officials and experts. The Greeks wanted the monitors to monitor only and not act as quasi administrators.

            1. JTMcPhee

              If anyone is left in Detroit, and paying attention, they might recognize a pattern here. Someone above used the verb “govern” in connection with the Fourth (Financial) Reich. Maybe “rule” is more accurate? In concert with “loot?” Too bad us ordinary people are so befuddled and depressed and fearful of not eating that we’ll apparently eat any indignity dished out by the very blessed few who have mastered the spreadsheet trickery to master the rest of us.

        2. Ben Johannson

          There wasn’t much need for the IMF to be involved as it doesn’t call the shots. Had the eurogang hardliners been willing to negotiate in good faith, IMF was almost certain to fall in line with the decision.

        3. Edna M.

          I think the reason Syriza is suggesting that their defeat will usher in a Golden Dawn victory is so as to get the Troika to give in to Syriza’s demands. The Golden Dawn worship Nazi-era Germany. They are lost in the wrong time and in the wrong place. They got 6% of the vote, which is shocking, but there is a ceiling to how far these mindless thugs can go. There are a number of smaller, left-leaning parties favoring exit from the euro, not yet in Parliament, which, if they get together, could form a political force. I think after too long, the people in Greece are finally seeing that there is no hope of change within the euro zone, and that maybe they should take a chance with the other parties that told them this truth from the beginning.

      2. MyLessThanPrimeBeef

        Sparring over negotiation framework is akin to deciding what kind of game is to played.

        For any good game theorist, the real game is before the ‘official’ game is played.

      1. Jim Haygood

        It gets worse:

        Reuters says the message from Greece is that eurogroup finance ministers have two options tomorrow – accept the deal it has put on the table or reject it.




        Not sure whether Greece holds a strong enough hand to play the ultimatum card. This is getting ugly in a hurry. I fear an accident.

        1. /L

          “Germany’s leaders can’t let Greece leave the euro, and the Greeks know it. They will die in a ditch to defend the euro. This is our Eastern Front, our Battle of Kursk, and I’m afraid to say that it will end in unconditional surrender by Germany,”
          German eurosceptic Gunnar Beck, legal theorist at London University.
          Ambrose Evans-Pritchard latest.

        2. Kurt Sperry

          This may be the perfect moment to strike the wedge. There was obviously a significant existing fracture line if the reporting that it was Germany who vetoed a deal that significant other players were ready to ink is true. Greece had clearly made every concession politically possible. If Germany prevails as is likely and the Greek ultimatum is summarily rejected, a Greek plebiscite should quickly be held on Grexit.

          Germany obviously thinks the damage can be contained and managed and contagion averted. Most of the reporting is talking about numbers and conditions attached to them and investors and bond spread, alphabet soup indexes etc. as if the numbers were real. Which of course in the instance of this debt, they aren’t. In other words, near irrelevancies. This is politics now pure and simple, and the fake numbers and all they weightily carry along with them must be rightly subsumed into a political context if not essentially ignored altogether. Germany’s “weapon” is really these fake numbers cooked up to hide bad loans. If people in Southern Europe *get* this and that they are being played the exact same way the Greeks are, Germany will suffer an inevitable and humiliating political defeat.

      2. Jim Haygood

        Deposit run accelerating, as one would expect with rhetoric escalating:

        ‘An estimated 900 million euros flowed out of Greek banks on Tuesday alone, the day after the talks broke up in Brussels, sparking fears that measures will be taken to stem the outflow. On Thursday, by mid-afternoon, deposits had shrunk by about 680 million euros (US $77.3 million).’


        Looks like the €3 billion ELA increase will be used up this week. Then Greek banks have only their last EFSF bonds to pledge for funding. This is really appalling.

            1. bob

              It’ll be just like cyrpus. the city and FSA are probably already requiring recapitalization of greek based banks in the london.

              bank of cyprus, uk, the london based “subsidiary*” of bank of cyprus was forced, by the FSA, to re-cap a few months before the ECB announced the bail-ins. The UK based “subsidiary” was not subject to the bail-in. No depositor money was lost in the UK.

              Money laundering by regulator. How much of the re-cap of the UK came from the cyprus based parent at the expense of cyprus based depositors?

              This was never discussed for what it was, robbery, of the bank of cyprus for the benefit of bank of cyrpus, UK.

              *calling any bank with an operating presence in london a “subsidiary” is not true in fact. The ability to clear in london is much more important to the bank than any “local” issues back home. The sub in london becomes the parent, by default.

              1. Jim Haygood

                This is my worry. Banks seeing their deposits shrink by 10% over a few weeks are in desperate condition.

                While competing ambulance drivers negotiate over who has jurisdiction, the patient is bleeding to death.

                1. bob

                  “While competing ambulance drivers negotiate over who has jurisdiction, the patient is bleeding to death.”

                  The ambulances won’t even leave the bay without a credit card number, a 5 star hotel room, an expense account, and a written apology. The rats have moved in already, gnawing at the plague ridden body, spreading the disease, after the body snatchers took all the good body parts and pieces for sale on down the line– no warranty expressed or implied. Buyer be dead.

                  The only accurate metaphors are completely abhorrent, and hard to even put to type.

        1. Jim Haygood

          Yes. Here is a chart showing Greek deposits over 10 years, with a final value of around €168 billion as last year ended.


          Since then, Greek daily Kathimerini estimated that total deposits dropped to €145 billion last week. If capital is now fleeing at €1 billion a day, the total could be down to €140 billion as this week ends, taking Greek deposits back to their end-2004 level.

          Banks are leveraged entities. When deposits shrink, assets (including loans) must shrink too. Equity may disappear entirely. How can Greece rebuild with its banks shrinking loan portfolios in a race to survive? This is catastrophically bad. Schaeuble fiddles while Athens burns.

    3. Dino Reno

      Underlying German rejection is that Yanis has got to go. Agreeing to agree is not enough anymore. Yanis has disrespected the entire EU project. There can no deal with him in the cabinet. Yeah, it’s has gotten that personal.
      Sorry Yanis, but your brilliant and blinding media-hyped rollup of the negotiations is now the biggest obstacle to a deal that will crush Greek pride and its finances. He is the anti-dote to Jeffery Sachs in rebuilding a shattered domestic economy. The clear message here is that guys like him have zero chance of making a difference unless you want to wind up like Greece and go the dirty Grexit route. Goal Neoliberals!

      1. Dan Allen

        If you think that Varoufakis is the problem, you have misread things.

        First off, the Greeks have been avoiding the media and negotiating like good little technocrats for 5 years. Yanis’s mentor Stournaras was the last Greek FinMin. It’s doubtful people here or anywhere even know his name. What was going on before wasn’t working.

        Varoufakis was precisely chosen because of his English language skills. The case needed to be brought before the people.

        And furthermore, the choices below Varoufakis, the Deputy FinMin and the other Finance Minister people, include Nadia Valavani (a woman who was taken political prisoner and tortured by the colonels), Costas Lapavitsas (London School of Economics Finance Professor and a huge advocate of Grexit), and ultra left0wingers Lafazanis (also a UK Econ. Professor) and Euclid Tsakolatos.

        So not only is Varoufakis the most moderate of the group. AND the best communicator, he’s also the one most willing to cut a deal. The others do not scare easily, especially Nadia Valavani. On principle alone, she will advocate enduring the devastation of Grexit.

      2. Oregoncharles

        You may be correct, but backwards. At this point Varoufakis’ approach appears to have failed – unless the Germans in fact cave. There is another prominent Syriza economist (name? Help?), but he favors a Grexit.
        So there’s the ultimatum: reject Varoufakis, we pull down the temple.
        And about time, some would say.

  2. jgordon

    The only non-disaster outcome would be the troika largely giving in to Greek demands. Although to my thinking the second best outcome would be for Greece to leave the Eurozone, because then at least the Greeks will have demonstrated that they have some pride left. Syriza caving to the EU will guarantee that the Greek people will have even less trust in their government than they had before Syriza.

    I wonder if Golden Dawn will be especially forgiving of Syriza members once they are in power. Were I in that position I’d strongly be considering emigration at that point!

    1. Dan Allen

      While the Greek voters will be largely disappointed with their gov’t, we have to remember this is not a total capitulation. It has not been remarked upon often in the last 2 weeks, but the previous gov’t called elections in the first place because the troika was demanding further cuts to pensions and minimum wage. Also, tax increases.

      This has always been Syriza’s main red line, and all the bluster of the last few weeks, may have been to protect that line. The troika was OK with the previous gov’t stepping down for its refusal to accept further cuts.

  3. Santi

    I just found this supposed the Greek letter asking for the extension. Not sure if we are again into the draft leaking wars, but if this is it I guess this does not look very good.

    Re: the Podemos support, my guess is that they don’t want to scare moderate Spanish voters. In the last days a “Ciudadanos” party is being promoted. It is “civilized far right”, which means neoliberal, and it is supposed to stop the bleeding of right wing or just discontent voters towards Podemos. So in Spain we are now mostly concentrating in regaining the regional and municipal power, something really critical now.

    I want to see how the apparent capitulation unwinds. It seems to have provoked a breakup already, as Spanish media breaks:

  4. ex-PFC Chuck

    10-15 minutes ago I posted a comment, with link, that is apparently in the moderation queue. It said that according to Zero Hedge Germany has “thrown up” and rejected the Greek proposal.

  5. Lambert Strether

    Faced with a choice between unconditional surrender and detonating the system, I’d detonate the system, motivated by inequity aversion — something profit maximizers don’t understand. Of course, I’m not in the Greek government, which is probably a good thing.

    1. GlassHammer

      You can’t maintain (or stabilize) a system of bilateral bargaining without occasionally acting on those self-destructive impulses. Constantly accepting inequitable deals creates a toxic environment in which cooperation no longer occurs.

    2. diptherio

      I know, right? My first thought was, “Well, I guess it’s time for the Greeks to start figuring out how to f— the German and French banks as much as possible.”

      This is a no-win for Greece and for the rest of Europe. If Syriza is forced to knuckle under, I would imagine they’ll lose a lot of their current support…which may then transfer itself to hard-right parties. If Syriza refuses and a Grexit happens…well, probably the same thing.

      One finds it somewhat amazing that people in Germany have yet to get it through their skulls that it is the BANKERS who are the problem, not the Greeks. Then again, there are still people in the US who blame the subprime crisis on borrowers…

      1. vidimi

        one of the talking heads on french tv that i was watching today said exactly that. unfortunately, i don’t even know who it was (gibert qqchose?) but the opinion is entering the mainstream

    3. Doug Terpstra

      Strongly agree, Lambert. This looks more like total capitulation to TINA, to which, if true, the ONLY honorable response for Yanis Varoufakis would be his resignation. Then again, as serial-capitulator, Barack has proven, once again in this farce (did anyone here ever doubt that he would throw Greece under the bus?), is that there is fabulous wealth and glory to be gained in slavish service to TINA, possibly even admission into the 0.1%.

      It appears that the World Socialist Web Site had Syriza pegged from the beginning and that the only bluff in this game was to its own voters. Let it now commence: “even deeper cuts in jobs, pensions and social services and a fire sale of public assets to the banks and hedge funds.”

      [The Troika] had taken the measure of
      Syriza, viewing it not as the
      representative of insurgent masses,
      but rather as a supplicant speaking
      in behalf of failing Greek capitalists.
      This assessment was borne out by
      Syriza’s entirely predictable
      response to Monday’s provocations.

      Varoufakis balked at signing the
      draft statement, complaining that he
      had agreed to sign a somewhat
      different text that signaled
      acceptance of the existing debt
      repayment scheme, but with certain
      unspecified differences in wording.

      He protested against the refusal of
      the finance ministers to give the
      Syriza-led government some wiggle
      room as it went about reneging on
      its campaign promises and
      implementing the austerity program.
      Nevertheless, he declared after the
      abortive meeting, “I have no doubt
      there is going to be an agreement in
      the end.”

      On the eve of the meeting, he had
      told the Guardian newspaper, “We
      are a party of the left, but what we
      are putting on the table is essentially
      the agenda of a reformist
      bankruptcy lawyer from the City of
      London.” He went so far as to call
      Schäuble the “only European
      politician of intellectual substance”
      and laud German Chancellor Angela
      Merkel as the “most astute politician
      in Europe.”

      It evidently took little more than 24
      hours for Syriza to complete its
      capitulation. The Wall Street Journal
      reported Tuesday afternoon that
      Greek officials would seek an
      extension of the current debt
      repayment program on Wednesday.

      Syriza’s entire approach has been
      based on the notion that it could
      somehow schmooze the European
      ruling classes into slightly modifying
      their policy.

      The leaders of Syriza have never
      questioned the legitimacy of the
      capitalist system. On the contrary,
      they have repeatedly declared their
      support for the banking system and
      their determination to fully repay
      Greece’s debts to the financial elite.
      The centerpiece of their program is
      support for the European Union, the
      political and organizational
      framework for the bankers’ offensive
      against the European working class.

      Like all petty-bourgeois parties,
      Syriza’s politics are embedded in the
      notion that great historical and
      political questions can be dealt with
      through evasions, maneuvers and
      clever tactics. In Syriza’s case, this
      has included forming a coalition
      with a right-wing chauvinist party,
      the Independent Greeks.


      1. Lambert Strether

        I’m not making a policy recommendation; that’s just how I feel, so not sure what you “agree” with. (That said, you’re in a jail cell, three stories up, and you know with certainty you’ll be shot at dawn. You manage to get the window open. It’s pitch dark. Do you jump?)

        On the WSWS material, I’m allergic to the word “masses.” I think it’s a tell of some kind. In this case, the assumption is that the Greek electorate shares what WSWS wants and would back their views. I don’t think they are that point. I don’t know if they ever will be; the voters didn’t vote the Greek hard left in, after all.

        1. Doug Terpstra

          “Detonate the system” IS a policy recommendation, one I strongly agree with. Please enlighten me.

          I don’t care much for the word “masses” either (like “sheeple” or “the great unwashed”), but I wouldn’t reject WSWS’s perceptive analysis on the basis of one objectionable term. So far, they’ve been pretty accurate; had Obama pegged from the start too.

          To your question, don’t jump. Where there’s life there’s hope. I assume that’s your point: Yanis is choosing the lesser evil, total surrender, to detonating the system (likely (not certain) suicide?), so that Syriza can buy time and make improvements at the margins. I don’t know

          This is just so exasperating. I had hoped Syriza would show more fortitude and outside the box thinking, including seizing the loot of oligarchs, imposing capital controls, exploring alternatives through Russia or China. This just looks too much like another hope-and-change bait-and-switch, an oligarchs’ game of musical chairs.

          1. Lambert Strether

            It’s a policy outcome, not a policy recommendation. I’m just describing my personal feelings. An actor taking more factors into account — like being responsible to an entire people — might well think differently.

          2. susan the other

            For socialists Capitalism is always the question. For capitalists, evolution is the question. What can capitalism become if it is given an extension; if unilateral contracts can be reworked; if mutuality can be achieved. All goals of an ideal capitalist system. But the system is on the rocks and everybody has run out of time by wasting their time strong-arming the next guy. Greece’s position is bag holder. And Greece is done with that.

        1. Doug Terpstra

          By agreeing to the terms of the original memorandum, that’s agreeing to all ALL of it, including the fire sale of key assets, the continuation of austerity and the bailout of banksters and hedgehogs. Sadly, this is looking like total capitulation. Call your broker and go all in, because the market is going to soar on this (until it can’t).

          1. Dan Allen

            No, I posted above that the previous gov’t fail for refusing to implement new cuts.

            The new Greek document refuses what the Troika demanded in late November.

            The previous gov’t fell over this issue.

            It is the main sticking point.

      2. diptherio

        I think they’re reading the situation, and especially Yanis, all sorts of wrong. One thing that’s striking in watching YV is that it’s pretty obvious that the guy is not your average social-climber politician. The difference between his press conferences and your typical politician’s are huge. Unfortunately, he’s been put in an impossible position, and with the fate of his country at stake. Of course he’s going to try to flatter the people who are holding a gun to the head of his fellow citizens–what should he be doing, trying to provoke them?

        He’s walking a very fine line, trying to avert total collapse which he fears will lead to the rise of Golden Dawn and other fascist parties. So he has got to try to push back against the troika-caused collapse without then having something else, like a Grexit, cause one. Also, I think WSWS simply failed to understand YV’s explanation of the important differences between the two offers, and so assumed that he was just hand-waving, but that’s just a comprehension fail on their part, YV made it very clear that original agreement was quite different than the last minute replacement (else why would the troika have changed it?). WSWS are just being a bunch of armchair idealists, here, and not at all helpful.

        1. Doug Terpstra

          Well, we have plenty of armchair idealists right here. I do hope you’re right. I guess we’ll know soon enough. WSWS has a pretty good record on their calls, but we’ve certainly seen quite enough bait and switch.

    4. Dirk77

      I know I’ve been for Greek default, but given the tight deadline I’d say I’d capitulate too. Syriza et al. just don’t have the experience yet. All they need to do is take the money and then drag their feet on “reforms” until they are ready to do things right: to default quickly. I assume this is possible, right? Why deal honorably with criminals?

        1. M.Black

          Isn’t this option precisely reflected in the rejection of the Greek offer as a “Trojan horse”? If we can foresee the possibility of skirting onerous commitments by playing slow and loose with terms, why wouldn’t the Lords of Austerity in Berlin and Brussels?

    5. NotTimothyGeithner

      But are you a Euro skeptic? I think believers will fight against the wind. The EU is dysfunctional as an entity. France, the UK, and West Germany anyway were already in an interconnected peace and brought along the little and more dysfunctional countries. For people who didn’t recognize that reality, they will fight for the EU as we know it. They will go d own with the ship.

    6. jgordon

      I’m with you on that! I’d see the whole house burn down to the ground before I’d put up with being crapped on in it. Syriza should just admit that this whole thing is unworkable and leave now, whatever the perceived costs. Because next up to bat is Golden Dawn, and they might not be so conscientious or reasonable about a Grexit as Syriza would be.

      1. Carlos Fandango

        Don’t be so sure it’s Golden Dawn, the Stalinist Communists with 10% of the vote have been staunch on Grexit. Add another at least 10% from a disbanded Syriza left wing, there’s at least a 20% core of well organized radical left wingers who could rebrand and push for power on a Grexit platform. Impossible to see the center parties on any other platform than staying in the Euro.

        Greeks will have a few choices: Grexit with radical right or radical left. Stay in the Euro with your choice of centrist Euro puppet. At least it will make voting exciting.

        1. Lambert Strether

          One terrible mistake the left made in 30s Germany as adopting the iconography and tropes of the Nazis (Richard Evans). Any chance of that happening with the radical left in Greece, do you know?

          1. Carlos Fandango

            As I understand it, the Nazi party had a good number of socialists when they first came to power and they implemented some socialist looking policies. Communists of the day were infiltrated by 5th column Stalinists, sheer anaethema to Nazi imperial pretentions. The extreme nationalist/racist core bloodily cemented power in the Nazi party, decimated the socialists, waged war on communists and took a pragmatic approach to industrialists, supporting those who supported them.

            Hard to see 30’s Germany parallels in Greece, both the extreme left and right have common ground on sovereignity and a claim to nationalism, they both would adopt a deficit spending economic approach after Grexit. Differences are on defence, immigration and who gets the money.

    7. jrs

      Me too, me too, blow the damn system up. So disgusting to see a wonderful culture like Greece reduced to humanitarian catastrophe.

  6. dr frank

    A negotiation in which one side does not budge from its initial position is not a negotiation. The only way for Greece to bring its counter parties to consider some kind of concession is to present a completely creditable willingness to shoot themselves in the foot, take no more money from the Germans, let their banks fail, leave the EU. If, as you point out, the cost to the Germans of reaching a compromise with Greece is less than the cost of a Greek rejection of their terms, and the Greeks know this about the Germans, the only reason the Greeks have to fold and take the German money now is to buy some time, prepare the people, line up some support outside the EU. You have to wonder about the risks the Germans are taking with their non-negotiable posturing.

    1. Yves Smith Post author

      Schauble is a diehard believer in austerity, despite it never having worked anywhere. The Germans think the failures are because the debtors weren’t squeezed hard enough. The German public has been propagandized (playing on existing prejudices) that the Greeks are welfare queens of the worst sort. That is of course to divert attention from the fact that the French and German banks were really the ones who were bailed out. Merkel believes this too.

      So even if German leaders were all to have brain transplants, relenting now would be political suicide.

      But having said that, their conduct is astonishingly and openly vengeful. Via e-mail, Mark Ames said, “Brutal. Like watching neighborhood bullies snuff a puppy.”

      1. susan the other

        Rant: The relaxed composure of Merkel and Schaeuble about 2 weeks ago was strange. That was probably just after they had a high level conference and decided to cut their losses and go with Russia. Which outcome has just unfolded. Merkel just announced (in spite of the ongoing push by Russia to make a land connection to Crimea) that she was ready to work with Russia. The Germans have chosen Russia over the EU. The French will be interesting. And Greece is the first writeoff of the whole EU experiment for Germany. Germany either doesn’t care and is done with the whole thing, or it is incompetent. Maybe. And so, where does it go from here? We will have a hard time justifying causing a perpetual war for oil (including Russia’s Caspian) but it makes us extremely paranoid to allow things to unfold naturallly. Our chckenhawks might just boldly go where no man has gone before and create WW3 out of lust for oil… oh wait. Anything is possible when everything is up for grabs. Russia seems to be financially a good conservative fit with Schaeuble. We’ve only got a few years left to secure our neoliberal “finances” plus all the oil in the Middle East. Then, if not, we will have to find something to back the dollar besides our full faith and credit since it has become obvious we have neither. Which might explain our insane dash to be the #1 producer of natural gas, etc. That’s not to say we did not sacrifice everything on an idealistic (but irresponsible) dream. We did. And Blahblabla.

      2. anonymous123

        Re: austerity never having worked anywhere, I was talking with my macro professor about Greece the other day, and he said that while it rarely works, austerity can work when you have an entire country’s population generally on board with it. The example he gave of austerity succeeding was with Ireland. I’m certainly no expert, but thought I’d bring up that point.

        1. Yves Smith Post author

          Huh? Its nominal GDP fell by nearly 20% (which is more important in paying off debt than real GDP since the deflation boost to the “real” figures does not help you in payment terms), making its debt to GDP ratio much worse. A huge portion of Ireland’s population decamped, disproportionately its highly educated young. That is not “austerity working”. That is a country small enough to depopulate in order to sort of make the math work.


      3. flora

        ‘But having said that, their conduct is astonishingly and openly vengeful. Via e-mail, Mark Ames said, “Brutal. Like watching neighborhood bullies snuff a puppy.” ‘

        Yes. YV insisting on a slower time frame for negotiations has given the world time to see what is happening. The honest reporting here on NC – not the prepackaged, talking points koolaid – is also having an effect. There has been a slight change in the MSM reporting, a hint of doubt about the “good faith negotiations” of Germany and the Troika. Thanks very much for your posts about Greece.

    2. aletheia33

      “the only reason the greeks have to fold and take the German money now is to buy some time, prepare the people, line up some support outside the EU.”

      varoufakis has said he believes the only way forward in the face of the neoliberal global chokehold, the fait accompli at this point of the defeat of the left in europe, is to buy time to allow a new movement to form and arise out of the ashes of that defeat. (this is my perhaps not accurate interpretation of some of what he said in the guardian piece linked in today’s links.) it is a darker view than most would like to embrace, and leads me to think that in pursuing his current efforts on behalf of greece he holds no illusions whatsoever about his common sense arguments actually persuading any of TPTB he’s been holding discussions with to change their views.

      time to allow a new european movement to grow is obviously a different kind of time to be trying to buy from the kind greece is in desperately immediate need of right now, but i will not be surprised to see greece “take the money now in order to buy some time, prepare the people, and line up some support outside the EU.”

      at the same time, i was more surprised this morning to see that the proposal greece submitted this week was expected to be accepted, than to later see that it was rejected. i had thought that tsipras/varoufakis fully expected that it would be rejected. i think they understand that they can expect germany and the other powers that be to stand against their proposals like a concrete wall, and they have been prepared for this from the beginning. nonetheless, they have to continue to make proposals acting and behaving as reasonable negotiators straightforwardly asking for what they accurately know greece absolutely needs.

      as yves has pointed out repeatedly, the forces arrayed against greece are very formidable and sufficiently unified against it to crush it in the short term. whatever happens next, the greek people are going to continue to suffer. with the italian, spanish, portuguese, and french people not suffering as much, at least not for awhile. i think that varoufakis genuinely expects the rise of popular fascism in greece as a consequence, and eventually in europe as suffering spreads. meanwhile, perhaps a new movement will form that can persuasively offer an alternative path out of that suffering.

      1. Oregoncharles

        ” the forces arrayed against greece are very formidable and sufficiently unified against it to crush it in the short term. whatever happens next, the greek people are going to continue to suffer. ”
        This is the fundamental argument for a Grexit: not that they wouldn’t suffer, but they’d be out from under the boot.

        1. Yves Smith Post author

          It is not just that they will suffer both ways, as in we are talking comparable levels of suffering. The suffering in Greece and eventually the Eurozone will be vastly worse with a Eurozone breakup. It’s like comparing having one leg amputated to being a paralytic.

    3. BadBentham

      Basically, it seems that the Euro Zone has underwritten its own death sentence today.

      Clearly, Syriza`s surrender now can only be understood as means to buy time for the necessary adjustments for Grexit, as last possible resort. I guess,

      Germany knows only too well of the dangers for the Euro Zone if this happens. Thus, its own aim is to force democratically-elected “revolutionary” Syriza to resign ASAP, and to install a then-permanent Muppets regime with the help of the indigenous oligarchs, -the “good Europeans” in Greece for the last 70 years- , in Athens afterwards. So: No deal!
      However, although it might “stabilize” the status quo for a while, in the end this behavior will backfire, and only speed up the implosion of the continent; – IF Europe as a whole is not able to engage in a desperately needed war against an outside enemy somewhere…

      1. JTMcPhee

        Query, BB, and this is just my personal oddness and no attack on you or your points, which I agree with — would it be a little clearer to restate it maybe thus: “Basically, it seems that the rulers of the Euro Zone have shot the other 330 million people who live within that boundary in the liver and both feet”?

        It seems in geo-political-economic analysis, that always looks and sounds like a Game of RISK! ™, that the convention of reification, of hypostatization, of personification, maybe leads to misapprehension of the real nature of the actors and the moving forces? “Germany” is not a person, and all the actions “it” takes, as with the actions or inactions or “positions” of “the US” and “the EU” and “EMU” and “Russia” and even “ISIS” and so forth, are the actions of individuals and corporate entities and “portfolios,” not of some active entity in the singular sense. Why are the rest of us always supposed to live and die for the sins and idiocies of those who trick their way into supposedly speaking for and commanding the lives and futures of so many others?

        Understood that some kind of shorthand is needed for us limited humans, with our narrow non-cyberscale bandwidths and odd, ad-hoc, confused and often suicidal operating systems and perverse programming, to begin to approach any kind of useful information exchange or group action. But personification seems to lead to some pretty egregious misunderstandings, misapprehensions and mis-steps. The land area, conscripted bodies, repressed labor, military “assets” (sic) and that manifold complexity that is political economy of an assumed entity like “the EU” could hardly be said to “engage (as a unit) in a desperately needed war against an outside enemy.” Petro and Merkel and that squidge Cameron, e.g., will not suffer and die.

        Though of course the heirs, successors and assigns of Edward Bernays are always working, working and conniving, to move the masses as a herd in the direction of one cliff or another, behind one false flag or manufactured consent or another…

    4. Oregoncharles

      As I’ve been saying, that’s how you play Chicken, and that’s the game on the table.
      Of course, if you’re playing Chicken, you’re a juvenile delinquent, or at least juvenile. The term contains its own critique.
      So who’s the JD here?

  7. timbers

    “So this looks to be a deliberate retreat from the Administration’s posture that the austerians in Europe needed to relent.”

    This might be just usual Obama behavior and nothing more than that, but might it be more?

    Could Novorussia’s victory in Debaltsevo and the pressure it puts on Uki President Poroshenko to produce results or step aside be forcing Obama to divert all his cards towards getting Germany doing what he wants most – accepting militarizing Kiev?

    Saker is saying Kiev could collapse into chaos and civil war this summer due to the collapsing economy. That might leave Novorussia looking like nirvana in comparison and be an embarrassment to Obama’s famous pride and be a big setback to his agenda in Ukraine.

    1. Yves Smith Post author

      I didn’t have time to include that in the post, but I’d say the odds are high that that factored in. We have Links that discuss the rout in Eastern Ukraine now. It looks like a big chunk of what passes for Kiev’s army has been captured. And Obama tore into Europe this week over what he called tech protectionism, which is remarkably cheeky in light of how much spying US companies have been engaged in, in flagrant defiance of Europe’s privacy rules (and that’s before you get to NSA spying enabled by US tech). So what the US calls protectionism is the Europeans need to turn to domestic providers to have any hope (and not much at that) of escaping from the Five Eyes information dragnet.

      So yes, this was not a good time to be pushing Merkel, unless the US pulled out a big threat, like pulling the currency swap lines (which is a Fed not a Treasury deal, and really should have been subjected to Congressional approval and oversight). But I suspect the Administration and the Fed were not on the same page, as in the Treasury was pushing some, while the Fed was either standing pat or just going through the motions.

    2. Doug Terpstra

      Or, it’s also quite possible that capitulation is just what he does, his default reflex, treachery and betrayal. Great Game strategy may have little to do with it.

    3. flora

      Obama is all on board with neoliberalism, no matter the human cost. There was little chance Obama was serious about modifying the excesses if modifications looked to endanger the whole neoliberal project. What is said in front of the camera is just window dressing.

      “I like the Walrus best,” said Alice, “because you see he was a little sorry for the poor oysters.”

      “He ate more than the Carpenter, though,” said Tweedledee. “You see he held his handkerchief in front, so that the Carpenter couldn’t count how many he took: contrariwise.”

      “That was mean!” Alice said indignantly. “Then I like the Carpenter best—if he didn’t eat so many as the Walrus.”

      “But he ate as many as he could get,” said Tweedledum.

      — Through the Looking-Glass

  8. washunate

    Yves, your tenacity in following this story in real time has been fantastic.

    Whatever happens, no one can say later we didn’t know. Either Syriza officials accept the legitimacy of the bankster debt, or they repudiate it. The details follow from that simple conceptual choice. If Tsipras caves, it simply means another politician declined to stand up to the looting. Not exactly the first, nor probably the last, but it wouldn’t change anything substantively about unpayable debts and socialized losses.

    But of course, the wildcard in all this and in fairness to Syriza is that Tsipras hasn’t caved yet, despite what is obviously enormous pressure behind the scenes. It could be Tsipras knows even partial caving is not acceptable to the fraudsters, so he knows he can offer eminently sounding compromises without fear of them actually being accepted.

    1. Lambert Strether

      No, that’s not what it means. As Yves has pointed out endless times, Yanis makes a strong case that Grexit is worse for the Greek people, starting with the loss of EU agricultural subsidies. It’s wrong to frame defeat as caving.

      1. washunate

        By ‘it’, I’m assuming you mean Tsipras caving, not Yves’ tenacity?

        I don’t follow your mindset that we all have to have identical groupthink as some sort of machine duplicates of each other that can’t have differing opinions and interpretations and perspectives on world events. It’s the discussion itself that is valuable, especially since most of us aren’t Greeks and the most important thing we can do is give them some space to make whatever decisions they want.

        Yanis makes a strong case that Grexit is worse for the Greek people

        Actually, I think the case he has made publicly is pretty weak, almost as if it’s meant to be seen through how weak and conciliatory the case appears to be. Opinions differ there, of course.

        starting with the loss of EU agricultural subsidies

        Those come from the EU, not EMU. Sure, it’s possible leaving EMU would get Greece kicked out of the EU, but I don’t see how it’s helpful to accept such an outcome as the only possible outcome in advance.

        I also am deeply opposed to these kinds of subsidies at a systemic level because they create precisely these kinds of warped incentives. Perhaps the most prominent in the western world is corn ethanol, but there are many, many examples of targeted subsidies that end up driving much larger policy decisions. Just to give one example of how public/private partnerships warp things is that in the EU’s CAP, a small percentage of recipients receive the majority of the funds. Actually, let me give two. It’s insane that the US and EU subsidize an excessively large agricultural industry in the industrialized world to compete against the large number of subsistence farmers in other parts of the world.

        But even if you disagree with my philosophical view on government picking winners and losers, the specific Greek CAP ag subsidies are small compared to the debt. Plus, ag exports could actually potentially increase with the combination of a freely floating Greek currency exchange rate and leaving sanctions regimes against countries like Russia and Iran.

        It’s wrong to frame defeat as caving.

        So is framing caving as defeat, a justification we’ve seen far too much of here in the US by various educated liberals and pundits and Democratic operatives over the years. I think the simplicity of the term caving is what bothers you here? You want to leave some way out for Greece to participate in the extend and pretend game a little longer without compromising the moral high ground of claiming to oppose extend and pretend?

        1. Ben Johannson

          “It’s wrong to frame defeat as caving” means it is possible to do everything right and still lose. Losing your tennis match doesn’t mean you surrendered and gave up.

          1. washunate

            Agreed. Losing your tennis match doesn’t mean you didn’t give up, either. The outcome itself is a separate thing from the reason that caused the outcome.

        2. JIm

          “I don’t follow your mindset that we all have to have identical groupthink as some sort of machine duplicates of each other..”

          washunate: You have raised an important issue that, in my opinion begins to get at one of the reasons for the historical failure/tragedy of traditional left politics.

          Way back when, Marx and Engles argued in “Address of the Central Committee to the Communist League” that political centralization is a tactical necessity precisely to the degree that human division, manifested in the appearance of diverse political goals and interpretations, militates against the formation of a unitary revolutionary will.

          In the process of creating this will the party must not allow the existence of significant human difference, thus its rejection of democracy and the affirmation of the need to forcefully impose unity on individuals–which led to the 20th century perversions of Marxism that achieved its most purified form in the project of Stalinism.

          Throughout its history the left has often bought into the necessity of overcoming plurality through squeezing all bodies and minds into one generic form.


          1. MyLessThanPrimeBeef

            Because one can never be certain that one is scientifically correct (which allows a better explanation or theory tomorrow), or just correct, one should always tolerate differences and diversity, and avoid any dictatorship of the proletariat (or non-proletariat) and any forms of power concentration, often in the name of ‘helping the people,’ or saving souls (offering salvation).

          2. hunkerdown

            You’re describing bourgeois class identity, not leftism. “Precisely to the degree”, in the sense of what is someone claiming involvement with the Party for? In SF/F fandom there is a saying: “If you volunteer to do something and you’re not doing it, *you* are preventing that thing from getting done.” If you’re not interested in revolution, by their lights, why would you be in the Party, other than to co-opt it?

  9. Jack

    This is a captivating story of the underdog vs. leviathan. After reading this piece about Yanis, I can’t help but be truly amazed how sensitive to their place in history the new Greek government is continuing to be despite the current situation. No matter how this turns out I think the Greek government has earned a place in history. And after the events of the last week, I don’t think anyone will fault them if they do bail from the EU. Between what Yanis wrote, his comments, and their proposals, they seem to have really tried to work within the current framework. I think that they will default at the least and possibly exit. The Greeks are more afraid of Golden Dawn than the Germans.

    1. William C

      It would be interesting to know how firm the Greek government’s hold on its Parliament is. Could they push through measures, if they need them, to seize their banks, declare default (or ‘structured repayment’) ? If yes, then they could be setting up a situation where they can blame the Germans for forcing their hand. If no, then their position is weak.

      1. Dan Allen

        Laws are igored in times of capital controls. You are on war footing at that point. Decisions are made instantaneously.

        Remember, converting currency, or even an alternate form, takes a long time. While they can do it electronically almost in an instant, the paper form will take about 2 months to roll out.

        There will be no deliberations inside the Greek Parliament over exit. It will be conducted quickly, in the matter of an hour.

        1. William C

          In the UK in 1939 exchange controls were introduced under the Emergency Powers Act 1939. Trying to stop people withdrawing money from banks if you have no legal authority to do so will not work if you are still operating within the rule of law. Of course if you are operating outside the law, you are in a whole new state of affairs – but watch your back for a coup (or should that be a counter-coup?) !

    2. ex-PFC Chuck

      Yes, I definitely agree that the OpEd by Yanis is a must read. Someone put it in a comment yesterday which is where I found it. Great insights into where the man is coming from and the fundamental empathy of his character. However, many westerners’ and most Americans’ aversion to the “M” word (Marx) will lead them to click away. Just read on and keep an open mind.

  10. Maria

    Yves, I like your blog, but your analysis on this situation is completely wrong. Americans only see this through the lens of their own interests. The USA thinks Europe should give in to the Greeks, because a collapse of the eurozone will be bad for the American economy. Maybe it is, but in Northern Europe (I am Dutch) we look at it a little bit differently. Yes, the Greek can never repay their debt. Yes, the Greek people suffer terribly from austerity measures. Yes, the loans to Greece benefited just the European banking system. Yes, it is time politicians in other European countries take a good look in the mirror and FINALLY acknowledge that these 240 billion euros loans to Greece are down the drain, Grexit or no Grexit.


    What would it help if we give Greece more money and keep them in de the eurozone? This is no solution, on the contrary. Then they will keep blackmailing the rest of Europe in giving them more money. Forever and ever, because their economy will never be able to compete with Germany. So essentially you are in favor of a transfer union. Now tell me why German and Dutch tax payers should be obliged to give billions of euros a year to Greece until eternity. You suggest Germany’s trade surplus exits because of the uncompetitiveness of the Club Med-countries. It doesn’t. Before the word euro was ever mentioned, Germany and the Netherlands had big trade surpluses and Greece has always been a miserable economy. So because some eurocrats decided 25 years ago, for non-economical reasons, to strive for monetary union, we now must subsidize half Europe forever? Are you mad? If the Greeks succeed in blackmailing the eurogroup into submission and paying (again) on the basis of half baked promises that they will never keep, then you can wait until Spain and Portugal and Italy and France play the same trick.

    You have to look beyond this Greek crisis, beyond tomorrow. The eurozone will never survive, under no circumstances. Period. It can hump along for twenty more years or so if we save Greece AGAIN but then there will be more Greek crises, Italian crises and so on, until the whole thing bursts. The United States of Europe will never come into being in a democratic fashion, because no country, not even the Greeks will give up their sovereignty to Brussels voluntary. The current situation proves just that. The US of E can only be realised as a dictatorship, run by eurocrats. Is that what you want? There is no European culture or demos. There can never be unity. Giving in to Greece now will create a domino effect in which other countries will make the same demands. It all ends when Germany on its own has to sustain more than half of Europe. It will cripple Germany, even Germany can’t carry that burden.

    So I say: pull the plug now, take the losses and never mention the word ‘European Monetary Union’ again.

    That, my friend, is how a lot of Europeans feel and that is why Schäuble says what he says. We are al sick and tired of this Greek blackmail game. Sick and tired.

    1. Lambert Strether

      “then you can wait until Spain and Portugal and Italy and France play the same trick. ” So it’s all about German hegemony then? Over the entire Southern Tier of the EU?

      Or, more precisely, the hegemony of German banks?

      People keep yammering about “sustainability,” but how sustainable is that?

      1. Maria

        This is ridiculous. So German ‘hegemony’ (I would rather say ‘strength’) must be broken, is that it? Germany happens to be a big country and a big economy. Is that reproachable? In that cas: what about American world dominance? Russia, China? Can Paraguay justifiably demand eternal subsidization by Brazil, because of Brazils ‘hegemony’ in South America?

        1. Yves Smith Post author

          91% of the bailout money went to French and German banks. But the Greeks are expected to continue to limp through a humanitarian crisis to try to pay off debt that is impossible to sustain.

          When a lender makes a bad lending decision, it’s the lender’s fault. It was obvious at the time these loans would never be money good and austerity would backfire. We and plenty of others have said this for years. When a debtor is obviously insolvent, you restructure the debt. That’s what any prudent lender does. The Germans are acting like sadists rather than like sensible businessmen.

          The German government has been lying to its citizens. Germany cannot runs sustained trade surpluses and not finance its trade partners. But you’d rather blame the Greeks rather than your own disastrous national strategy, which will blow up the Eurozone and Germany along with it.

          1. Maria

            I do not blame only the Greeks. Germany is to blame too, or more specifically: German politicians like Helmut Schmidt and Helmut Kohl, who gave up the Deutschmark in exchange for French support of German reunification. But we are in this mess now and there is only one solution: Grexit. Scrap the debt so Greece can start again fresh on it’s own. I AM for restructuring the debt, that’s what I say! But I’m not for eternel subsidies or a transfer union. I do not see why the end of the Eurozone is such a nightmare scenario. You also ignore my eternal transfer union argument, that helping the Greeks is no solution, because they and others will always come back for more.

            1. diptherio

              If you want to “eternally” run a trade surplus with other countries, you have to “eternally” finance their deficits, else they will quickly run out of Euros to buy your goods with, because you will have them all. What is it, exactly, that you don’t understand about arithmetic?

              1. Nameful

                You’re being disingenuous. First, nobody said anything about perpetual trade imbalances. In fact, that’s one of the thorny issues that get ignored by all Greek coverage. Second, you’re not addressing Maria’s point at all – your perspective is Germany wants a trade surplus so it has to finance the buyers, that’s preposterous. Might as well burn the goods instead of selling them, the long term outcome would be the same. Third, your argument falls flat because Germany and Greece are not a closed trade system, equilibrium becomes non-trivial with multiple interconnected trading partners and the naive (exporter? then finance!) point that you’re making is most definitely not a long-term equilibrium – why make the effort to produce and export when you can just consume and be financed?

                Now, the thing I suspect Maria was trying to say is that Greece has no interest in trying to become competitive as long as there are easier ways to obtain money. Especially if they can hold Damocles’ sword over the EMU’s head to keep the money spigot running. The solution to your trade imbalance problem is to have Greece rebuild their economy in a way that balances their own trade (and not by exporting to Germany, the world is larger than that) and reduce their corruption problems that keep the government coffers empty. No country is free of corruption, but you’ll find that no citizen wants to pay for another country’s corruption. This would be the best outcome for both Greece and the EU. Sadly, it’s a textbook example of Prisoner’s Dilemma – the trust-based unstable equilibrium, Greece has a better outcome by trying to take the money and do nothing, Germany has a better outcome by trying to assert control, and nobody trusts the other side to keep their promises.

                As for the argument of ordinary Germans, etc. being brainwashed that the Greeks and not the banks are the problem, I strongly suspect that the ‘you have to finance Greece’ rhetoric is a good part of the problem. ‘Help the Greeks help their country’ would have a significantly different impact, except for the problem of following up with how you show that the Greeks actually want that (more precisely, that you’re helping the Greeks that want to help themselves and their country, not the ones that help themselves to your money). Getting the banking system as far out of the action as possible (a.k.a. restricting their profits from a humanitarian crisis) for a while might be another thing that would help.

                1. Yves Smith Post author

                  Huh? Do you have the foggiest idea of what you are talking about? Germany has run sustained trade surpluses and they are getting larger. They are the result of a deliberate national strategy, since the labor-squeezing Haartz reforms were meant to favor exporter businesses and banks over workers, consumers, and retirees.

                  Second, you clearly do no understand the basics of how trade works. If you run persistent trade surpluses, you DO finance your trade partner. That is inherent in the relationship. If you want to stop doing that, Germany would need to give up 7.4% of GDP. That would led to a depressions, since the knock-on effects of losing that much of the economy would make the contraction even deeper. ‘

                  You don’t even begin to comprehend that you are just reciting neoliberal articles of faith and not grasping the implication. You cannot have a world of countries that are “competitive” which is code for net exporters. If Germany were somehow to get the rest of Europe to be as “competitive” as it derangedly thinks it should be, Europe as a whole would need to run trade surpluses with the rest of the world of 5% of its GDP. That is not even remotely in the cards. No one is going to sit and let Europe suck that much in the way of demand, meaning jobs, out of their economies.

                  As Randy Wray said by e-mail:

                  Yes, Greece deserves blame. And help. Any rational EU policymaker would support syriza and help to put in place the conditions to tackle the substantial real internal problems in Greece. Well, any EU policymaker who actually cared at all about the European project.

                  That said, those Greek problems are on-going and only slightly compounded by the EMU (ie: cheaper borrowing by elites–a common problem throughout the developing world).

                  The problems throughout the periphery directly result from Germany’s mercantilism. This is a fact that Germany will not recognize (publicly); it seems the plan is to go straight from colonizing Euroland to trying to colonize China.

                  That–fortunately–will not work. And Germany will throw its own labor and economy under the bus as it fails in its attempt to colonize China.

                  For its part, China just wants the Audis. But it’s going to get the whole kit and kaboodle.

                  1. Nameful

                    I’m sorry to see I produced such a reaction, Yves. Especially since what I was arguing against was diptherio’s use of ‘eternally’, which I view as a baseless assumption. It seems to me that you’ve fallen into the same trap – persistent trade surpluses are not perpetual trade surpluses. Crises happen, wars happen, new technologies happen, history is full of dynamics that ended persistent trade surpluses. I believe Wray is right when he likens Germany’s policy with a colonisation, and in fact this is what I pointed out as Germany’s ‘better outcome’ for the short term at the end of the second paragraph above. I also believe that in the long run they will fail, simply because the imbalance will force a reversion of fortunes. One cannot separate the economic outcome from the social one (just as Economics and Politics are not separable in practice) and economic imbalances that lead to social imbalances have (sadly violent) ways to correct themselves. Germany is trying to extend a good run at all costs, and the ‘all costs’ part will come back to bite them.

                    Now, back to the point at hand, I still maintain that much of the current problem has to do with both Germany and Greece not being trustworthy. From Greece’s perspective, they rightly fear that Germany will buy them piece by piece with the forced loan-cum-conditions package, while from Germany’s perspective Greece will just act like a junkie and take money without addressing any of its structural problems (and I’m not talking ‘competitiveness’ here, that’s for political talking heads to bandy about. Greece has well-recognized problems that are hard to address, but not addressing them is worse in the long run). So here you have it, a repeated Prisoner’s Dilemma with both players having betrayed each other before. There was a very interesting paper a few years ago (http://www.ncbi.nlm.nih.gov/pubmed/22615375) which shows that as long as you don’t care about your own outcome you can force an average outcome on your opponent regardless of their strategy. This may or may not be what Germany is attempting, but regardless of that, the current framing of the situation does not have a stable outcome in the short term. This is why I don’t buy the ‘Germany should cave’ argument, it’s the same kicking the can that keeps happening since the beginning of the crisis. And I do remember you arguing against the can-kicking at the time, Yves.

                    Now, there are clearly things that I do not know, as nobody can know all (and I tend to be partial to non-omniscient deities due to Quantum Mechanics reasons at least :) I’m also very open to having my views corrected. However, a schoolbook toy model of two trading partners is a poor approximation to a dynamic trading network. Mean-field types of approaches do get one further, and there are some invariants that also help the macro-level description, but in my experience two-partner interactions in a dynamic network are hard to describe, as they more often than not lead to a chaotic system. Thus, while I’m grateful when someone points out my mistakes, I do require an explanation that I can buy.

                  2. different clue

                    Someone in Germany thinks that Germany will somehow colonize China? More likely China will reverse-develop Germany in the long run . . . if that New Silk Road concept is rolled out and built. German industry will be maquiladorafied and relocated to factory cities all along that New Silk Road.

            2. Lambert Strether

              As Yves explains, your “coming back for more” is really “finance [Germany’s] trade partners.” That’s “eternal,” insofar as trade doesn’t stop.

              Do you really think every country can run a trade surplus? How does that work?

              1. JTMcPhee

                Fiat money? Platinum coins?
                Germany or its grandfather had actual industry that made stuff to sell and make war with in 1914 and 1934. What does the place denominated by the lines on a map that gets personified as “Greece” produce, either in the traditional trash-and-burn industrial system or in the rush toward post-human “artificial intelligence” (sic) have that would stand the same function? A surfeit of rapacious tax evaders and corruptniks apparently is not an asset that can be further privatized.

            3. Tim

              Learn some double entry accounting before coming here with your rhetoric of practicality. You know nothing of practicality, because you don’t even have a grasp of the fiscal flows. Accounting. Algebra. It’s not that hard — it’s only hard when you don’t want to learn, which is clearly what is happening here.

              Where do you think your corporate profits come from when Germany and N. Europe make sales to Greece?

              You should also keep in mind that destroying the Eurozone means all your comfortable bourgeois lives come quickly to an end, because who will buy your nation’s export products? Capitalism runs on sales — no sales, no capitalism.

          2. Jackrabbit

            You might also add that the vast majority of the benefits of joining the Eurozone went to Greek oligarchs and elites who controlled previous governments and didn’t pay much in the way of taxes.

            These people absconded with the money and the Euro Banks that lent the money should’ve known (and almost certainly DID know) about that risk.

            The Banks will say: “we have to dance while the music plays” (as Citibank’s Chuck Prince famously said of the bad loans made in the lead-up of the 2008 GFC). It is ultimately Governments/Government Regulators that are responsible for curtailing such systemic risk. This leads right back to the German Govt – Greek Govt tensions that are playing out today.

            H O P

            1. NotTimothyGeithner

              Politics and long term effects of not acting and propaganda. Merkel leads a grand coalition and is essentially a lame duck with a country that has had no conversation on how to fix the problem.

    2. YankeeFrank

      There is a very simple solution if you don’t want Holland, Germany, etc. to keep transferring money to Greece: stop loaning them money to buy your products. No money from you, no goods bought from you, no transfers necessary. You have blinders on, and have refused to learn anything from this blog, if you think the transfer payments only benefit Greece.

      1. Maria

        We agree then. No more loans, no more transfers: Grexit.

        By the way: The Netherlands exports almost nothing to Greece: less than 2 billion euro a year.
        The Netherlands have loaned Greece 18 billion euro since 2010, excluding the potential ECB-losses.

        Yeah, that has been really a very good deal for the Netherlands.

        1. diptherio

          And if Grexit leads to so much human suffering that the Golden Dawn makes a comeback? Hmmm? What then? Don’t you remember the history of your own f—ing country?!? Remember what happened when your people were immiserated by foreigners? Remember what that led to? Well, that’s where you’re pushing Greece with your self-righteous BS. Way to go–that’s real bright…

          1. OIFVet

            Wow, Diptherio, I love the fiery passion. I think Maria illustrates a very sad trend in Europe: the attempt by TPTB to destroy historical memory by endlessly propagandizing the populations. Concurrently, they are always in a search of an “other” to blame for the falling standards of living that accompany the relentless neoliberalization and the race to the bottom on wages and social safety nets. They are succeeding, it pains me to say. The victims are at each other’s throats while the elites are having a good laugh over it. In the poorest member of the EU, Bulgaria, it is far too common to hear disparaging comments on the “lazy, soft Greeks”. People say, “We’ve lived in privation for 25 years and counting, why should the Greeks not put up with it like we did”? Which is the wrong question to ask, of course, but it illustrates just how effective the elites have been in using economic warfare to set people against one another rather than to fight back against the source of misery. So should Syriza’s attempt to stand up to TPTB fail, I will mourn not just for Greece but for the rest of Europe as well.

            1. Left in Wisconsin

              This propagandizing will work until one day it doesn’t. The question is will there be anything left at that point or will it require rebuilding civilization from scratch.

            2. jrs

              Yes you get the feeling Europe = U.S.A., in terms of how effective, widespread and all encompassing the propaganda is.

        2. Dirk77

          Well, if everyone in Europe agrees with your actions, then we can wrap this up pretty quickly. All the peripheral countries default and exit. The citizens left realize they been had by their bankers in collusion with their governments and throw them all in the New Bastille. Civilization is saved for another day.

        3. Lambert Strether

          Along with Spexit, Frexit, Itexit, Portexi… If the economic incentives aren’t the same, the sovereignty incentives certainly are. Does anybody imagine that the Germans will stop at demanding the replacement of one minister, once the precedent is set?

        4. bob

          How much does the netherlands export to other EUR countries? It’s probably pretty tough to get a good number, admittedly, with the netherlands being the center of a lot of ‘legal’ money laundering and tax evasion schemes.

          Your banks are going to be fine, given the terms you detailed. Your math proves it. No problem at all. An economy based on trade and banking. No. Problem. At. All.

    3. GlassHammer

      “So because some eurocrats decided 25 years ago, for non-economical reasons, to strive for monetary union, we now must subsidize half Europe forever?”

      You keep getting this backwards.

      The fact that Germany runs a trade surplus means that half of Europe must run a trade deficit. They (Europe) have been subsidizing Germany’s trade balance for decades now. And the whole thing functioned so long as Germany financed their trade partners. But when Germany gets tight fisted with credit, the whole thing starts to break down.

      1. Kyle

        “But when Germany gets tight fisted with credit, the whole thing starts to break down.”

        Exporting deflation.

    4. alex morfesis

      I am sorry you have been convinced the reason there are pot holes on the road to your home is because some greek is sitting around eating baklava in a cave…(santorini actually has hotels built around caves on a mountain)

      While your grandparents were hiding from the russian bear (after they sat by and thought it was ok to ‘watch” poland get eaten up by germany and russia in 1939), Nato (ie – American Taxpayers), with the help of other “southern” european nations (to borrow from yannis papas “the greek peoples”) were paying more per capita per year towards YOUR protection after ww2 until the fall of the wall…

      that was ok to subsidize YOUR FREEDOM…but now you don’t want to pay it back. how sad…how northern…

      so your grandparents lied to you and politicians lie to you, yup that makes it ok for you to act in a “what have you done for me this week” attitude…

      The 240 billion is not down the drain…your math stinks…at best, it would cost about 50 billion over 25 years to RETURN to greeks the excess money they spent to contribute to NATO…meaning your pathetic inability to defend yourselves against the russian threat…

      meanwhile, Germany has been able to manipulate the market problems with greece to drive its costs of borrowing down…it has already saved over 100 billion, more than they have actually put out in terms of cash, so the “bailout” has been a break even situation for the German Government and tax payers, and probably a 50 billion gain if one includes the lowered cost of doing business for German Enterprises

      BUT…is Germany now broke…??? I mean financially ? Is this refusal to be reasonable less about the german finance minister doing his best Dr Strangluvauble and more about some massive financial disaster that would come from the German government having to pay higher interest for its borrowings ?

      Either way, Greece has already won…the new administration has changed the tone of the conversation.

      They have done a massive take away….they have outed Berlin for what it is…

      Little Moltke is what the Germans called Metaxas…I suspect under her breath, Mutti is calling Minister Varoufakis, Little Moltke the 2nd, which is why Germany wants him out of the way…

      Now Greece will submit totally…Totally…no restrictions…they will take a page out of the German Handbook…lie lie and lie some more…the total takeaway…Minister Varoufakis then turns to finding 10 thousand financial pools globally and convinces them Tsipras is the new Lula…one thousand active buyers of financial instruments restarts the private market for greek debt. Germany hides behind its State and Local Government borrowings when it insists its “Sovereign” Debt is low…if its non “national” government borrowing were included, one might take a different view of Germany and her financial house being in order…Minister Varoufakis will just create Tax Increment Financing vehicles at the State or Nomo level, just like the Bavarian State in Germany does…TIF’s get their own ratings and are designed to be outside the arena of Federal or even State Debt. That New Jersey or Bavaria have financial problems does not effect the ratings in DC or Franfurt…

      Minister Varoufakis will simply bring Hellas into the 21st Century…game set and match…pass the tiropita…

      but Germany likes to try to think that somehow via Kyffhauser, they have a “long history” but germany is a newish nation…the “holy roman empire” never had any peace…but Greeks do have a long memory, and will do what is needed to get past this moment…

      FDR is quoted as using an old Greek Orthodox parable when describing having to deal with Stalin, Churchill and DeGaulle…

      sometimes you have to hold the hand of the devil to get across the bridge…

      there will be no bank run…any greek who could get resources out of the country did so a long time ago…those who remain are not going anywhere…

      If greece were shut out of the euro it could in theory move to the dollar…plenty of euro dollars out there…and your country in the antilles has already allowed the US Dollar to become the currency used in the economy so there is an existing scenario of an EU country having its citizens operating with the US Dollar…

      Greece wins…open the bottles of tsipouro…yes…I seem like an out of control optimistic cynic, but getting past this year is all that was needed by greece….and the door is now open for adjustments in the near future…

      Who might get a bigger crowd cheering in June…

      Prime Minister Tripras sitting on the steps of the Rathaus Schoneburg in Berlin

      or Mutti trying to give a speech at Athens Polytechnic…

      1. alex morfesis

        maria, this above was for you…somehow I fumbled and it got bounced under its own heading…but others have made the basic same points…

        to add just one more thought…

        bretton woods was born with the attempt on the little clown with the charlie chaplin mustache…the idea and hope was the mental midget methhead (mein dummkopf) would not survive the suitcase…but he did not die on July 20 and millions more had to die…but the IMF, etc. was officially born on July 22nd,…the BIS was to have been dismantled after the fall but it magically was kept alive…

        Just like the death warrant agreed to and signed at the Mount Washington Hotel was removed on the BIS despite the global agreement, so too will the death warrant on Greece be removed…

    5. trinity river

      “Yves, I like your blog, but your analysis on this situation is completely wrong. Americans only see this through the lens of their own interests. The USA thinks Europe should give in to the Greeks, because a collapse of the eurozone will be bad for the American economy.”
      Maria, you have not been reading this blog long enough to know what either Yves or the rest of us believe. Why not read a while before making statements that reflect your own prior beliefs.

    6. Ignacio

      You are making a strong case for the disintegration of the euro and the EU. Not because you are right, but because you are wrong.

      It’t true though that if any European nation has any sort of self-pride will abandon your wrecking ship, because this is what ultimately will save Europe from nationalism and bigots gone too far. Like in the past. You cannot have it all, you need to understand basic arithmetic and follow the real flows too, but because you have been brainwashed by a moralizing rule-set discourse you cannot.

      The only way to save Germany from itself is to abandon the euro and leave them with their rules and their euro, then close borders and rise tariffs, and arm ourself with nuclear weapons before they follow their preferred historical path and make the rest of Europe their scapegoat for their veiled pan-germanist dreams that have been going on for almost two centuries, now masqueraded as stupid ordoliberalism and ‘hard-money’ mentality.

      Let’s hope Le Pen wins in France because the left lacks balls to do what needs to be done (looking so far).

    7. liam

      “You suggest Germany’s trade surplus exits because of the uncompetitiveness of the Club Med-countries. It doesn’t. Before the word euro was ever mentioned, Germany and the Netherlands had big trade surpluses and Greece has always been a miserable economy. ”


      What is happening to Greece is disgusting, and even more so in light of the ignorance of such arguments as that above. Before you think that destroying another country is ok, at least make sure that your pretext is correct.


      Yves, it would be really good if that particular myth was burst.

      1. MyLessThanPrimeBeef

        A general question regarding trade surpluses – is it easier to run persistent, not occasional, trade surpluses if one is not a commodities based economy?

        As for Germany’s persistent trade surpluses with trade partners (from above: Germany wants the impossible, to run persistent trade surpluses with its trade partners, yet not finance their purchases), it seem, in effect, the Germans want a Europe-wide-reserve-currency (instead of global reserve currency) – with a central bank, ECB, they control, or basically run – without running current account deficits.

        Maybe that will create German jobs, but you can run a reserve currency like that.

        1. craazyboy

          A long time ago when I worked for a company in the manufacturing sector, we had quarterly Trade Surplus Running Meetings. Our CEO would set the surplus number, then because focus always helps everything, we directed the surplus at one country. When choosing this country, the CEO would decide if it would be “beneficial trade” – we export a product the bi-lateral* trade deficit country didn’t produce, or if we would drive a weak domestic company out of business. This sorta depended on what mood the CEO was in that day.

          I have to admit it worked terribly. Not.at.all. in fact.

          But nowadays they have Macro Economic Technology. We read all the time about how countries just “run a trade surplus”, or more often, “run a trade deficit”. No problem doing that whatsoever-and they must have someone in charge of doing it, we just never hear who.

          Apparently Germany has become expert at using this economic tool and directed it squarely at Greece and nowhere else.(except maybe a little missed and hit a few other countries) Greece didn’t stand a chance and had to buy massive amounts of stuff from Germany – and of course the terms and conditions stated they can’t buy anything from anyone else. Especially Chinese stuff. However, Greece is allowed to sell olives to anyone they want. But really, do you know how many olives you have to sell to pay off a Bimmer? Sheesh.

          So this is why Greece is purely innocent in the whole deal, and the entire population of Germany to blame – and most importantly not just the international banks that oversaw the financing, or central bank overlords, the EU, the BIS, Brussles, DieselBoomers, etc…etc….

          So it all makes sense when you know how it works.

          *In our terms and conditions we stated our chosen bi-lateral trade partner could not import ANYTHING from ANYWHERE else. We were serious about that too!

  11. D. Galanis

    Go with me to a notary, seal me there
    Your single bond; and, in a merry sport,
    If you repay me not on such a day,
    In such a place, such sum or sums as are
    Express’d in the condition, let the forfeit
    Be nominated for an equal pound
    Of your fair flesh, to be cut off and taken
    In what part of your body pleaseth me.

    1. kristiina

      The strange quirks of destiny making germans behave as the jew…And then, knowing the sweet rain already gathering in the clouds…
      The quality of mercy is not strain’d,
      It droppeth as the gentle rain from heaven
      Upon the place beneath: it is twice blest;
      It blesseth him that gives and him that takes

      1. Keith Howard

        What is our life? A play of passion,
        Our mirth the music of division.
        Our mothers’ wombs the tiring-houses be
        Where we are dressed for this short comedy.
        Heaven the judicious sharp spectator is,
        That sits and marks still who doth act amiss.
        Our graves that hide us from the searching sun
        Are like drawn curtains when the play is done.
        Thus march we, playing, to our latest rest,
        Only we die in earnest, that’s no jest.

  12. George Phillies

    For the third time in a century, incompetent German politicians are threatening to destroy Europe.

    With all respect, the coverage last night in iirc the Guardian was that the Greeks would call their refinancing what the ECB wanted it called, but also make clear that the troika and other such terms were rejected. It is unsurprising that the Germans rejected the proposal, and that one expects the Finns may reject it, if they think it is worth the bother. As was correctly explained by one of the Northern Europeans, this maneuver was intended by the Greek government to make clear that what happens next is the fault of the Europeans.

    An interesting option for the Greeks is to impose capital controls that protect their voters, inform the Europeans that they are going to total sovereign default, e.g., those bonds are money that was sent to your banks, you recover it from them, because we are nto paying. They might perhaps offer to pay off capital on bonds on money that went to Greece, but only as a restricted fraction of their balance of payments surplus. However, no drachmas; the Greeks will stay in the Eurozone, except that the Greek Central Bank will ignore ECB efforts to shut down ELA.

    The solution to the German effort to destroy the EU via a balance of payments surplus is that the EU needs a 100% tax on balance of payments surpluses, the money being sent back to the deficit states. If the Germans do not like this, they should try buying more from abroad, but the money is not staying in their foolish hands.

    1. Lambert Strether

      That’s really not fair to Germany or its politicians. Read The Sleepwalkers which, contrary to its title, shows that there were plenty of factions in European governments who wanted war, among them ascendant elements in IIRC the French foreign ministry, and some Russians as well.

      1. Mel

        I only know the one by Arthur Koestler, and IIRC it’s about Renaissance physics..
        I have a dim impression that there’s another one, but Wikipedia isn’t helping.

  13. /L

    Obama — Merkel/Schäuble: 0 – 1

    For Schäuble its like Versailles, an moral issue, the sinner have to be punished to protect European moral standards. Otherwise the confidence fairy will not materialize and bless the righteous.
    I believe it was Dean Acheson that blamed Versailles on Willson, a dammed moralist that wanted to punish the sinner instead of making a sensible deal everyone could live with. Europe and not least Germany should be utterly thankful that the U.S. WWII victories scraped the initial moralism and come up with the Marshall plan to reignite purchasing power in Europe. Yes to its own benefit.

  14. voline

    Full text of Varoufakis letter to the Eurogroup from The Guardian (at entry marked 11:49):

    Dear President of the eurogroup,

    Over the last five years, the people of Greece have exerted remarkable efforts in economic adjustment. The new government is committed to a broader and deeper reform process aimed at durably improving growth and employment prospects, achieving debt sustainability and financial stability, enhancing social fairness and mitigating the significant social cost of the ongoing crisis.

    The Greek authorities recognise that the procedures agreed by the previous governments were interrupted by the recent presidential and general elections and that, as a result, several of the technical arrangements have been invalidated. The Greek authorities honour Greece’s financial obligations to all its creditors as well as state our intention to cooperate with our partners in order to avert technical impediments in the context of the Master Facility Agreement which we recognise as binding vis-a-vis its financial and procedural content.

    In this context, the Greek authorities are now applying for the extension of the Master Financial Assistance Facility Agreement for a period of six months from its termination during which period we shall proceed jointly, and making best use of given flexibility in the current arrangement, toward its successful conclusion and review on the basis of the proposals of, on the one hand, the Greek government and, on the other, the institutions.

    The purpose of the requested six-month extension of the Agreement’s duration is:

    (a) To agree the mutually acceptable financial and administrative terms the implementation of which, in collaboration with the institutions, will stabilise Greece’s fiscal position, attain appropriate primary fiscal surpluses, guarantee debt stability and assist in the attainment of fiscal targets for 2015 that take into account the present economic situation.

    (b) To ensure, working closely with our European and international partners, that any new measures be fully funded while refraining from unilateral action that would undermine the fiscal targets, economic recovery and financial stability.

    (c) To allow the European Central Bank to re-introduce the waiver in accordance with its procedures and regulations.

    (d) To extend the availability of the EFSF bonds held by the HFSF for the duration of the Agreement.

    (e) To commence work between the technical teams on a possible new Contract for Recovery and Growth that the Greek authorities envisage between Greece, Europe and the International Monetary Fund which could follow the current Agreement.

    (f) To agree on supervision under the EU and ECB framework and, in the same spirit, with the International Monetary Fund for the duration of the extended Agreement.

    (g) To discuss means of enacting the November 2012 Eurogroup decision regarding possible further debt measures and assistance for implementation after the completion of the extended Agreement and as part of the follow-up Contract.

    With the above in mind, the Greek government expresses its determination to cooperate closely with the European Union’s institutions and with the International Monetary Fund in order: (a) to attain fiscal and financial stability and (b) to enable the Greek government to introduce the substantive, far-reaching reforms that are needed to restore the living standards of millions of Greek citizens through sustainable economic growth, gainful employment and social cohesion.


    Yanis Varoufakis
    Minister of Finance
    Hellenic Republic

  15. ambrit

    I’m late to the party but…
    The first thought that popped into my head when I read the post was: Greek Civil War in Spring 2016.
    The Germans have just immeasurably strengthened the hands of both the Far Right and the Far Left in Greece, no mean trick. The, what I’ll call the Rationalist, Syriza Party has just been publically neutered by the Germans. When the Syriza signs the rotten deal Germany hands them, the clock will start ticking. As the misery of Austerity gets even worse in Greece, the public, whose hopes in Syriza had been dashed by German intransigence, will have only far Right and far Left parties promising any meaningful hope for improvement. Realistically, who cares about the banks when you are about to lose your house, or Uncle Terseus is dying from an easily treated condition, but can’t get treatment because of budget cuts? Desperate people are prone to desperate acts. Demagogue is a Greek word. So is Hubris.

    1. NotTimothyGeithner

      There won’t be a civil war. The fighting ages are too anti-EU to fight. Europe might need to be concerned about the Greek youth infiltrating through the Greek merchant fleet.

      1. ambrit

        Who said the actual fighters in a civil war had to be exclusively from the country in question? Look East to Ukraine for something similar to what I’m positing. Indeed, the history of the Spanish Civil War becomes relevant.

  16. /L

    Of course it’s a very difficult position for the new Greek gov. a rookie gov, with little political experience. Might also be its advantage in some aspects. Let’s say they want to remain in the euro but only at sensible terms otherwise grexit is the unwanted option. They need time, you don’t pull of an grexit ad hoc. Probably more to be managed and considered than any one can imagine. Probably not that they could close down Friday evening an open Monday with Drachma.

    1. NotTimothyGeithner

      Less than 2/3 of the Greek electorate didn’t vote for a publicly antiEU party. Half of that group didn’t vote, and much of what was left voted for new promises or even rebellious elements of existing parties. I don’t think a “grexit” would be opposed, but I think Greece would rather be kicked out. If they could be kicked out, the Germans would be aggressors, Syriza would be seen as reasonable, and it would put the other PIIS that the promises of the EU are second to banks.

        1. NotTimothyGeithner

          I wonder if Germany/Troika saw this and needs to press Yanis into acting hastily before his message gets out of Greece or solidifies Syriza’s status.

  17. Jackrabbit

    I have always thought that Default = Grexit because it is likely that Greece would no longer be welcome in the “Club”. Germany and other countries would make things very difficult for Greece going forward.

    Greece is now in a position where it can say that it was effectively forced out.

    If there is any alternative to German refusal to budge from their position (along with their egregious attack on democratic principals), it seems that it lies with support from the BRICS bank (is that operating yet?) for a Grexit. Having such an ‘option’ might entice support from the US (as an alternative) – and these alternatives might then lead to a softening in the German position.

    The US/Obama is of course a ‘false friend’ to Greece (did anyone seriously think otherwise?). US/EU will only respond to a third-party alternative like BRICS Bank support for Grexit.


    “If you want a vision of the future, imagine a boot stamping on a human face – forever.”
    – George Orwell

    H O P

  18. Petey

    “So even if German leaders were all to have brain transplants, relenting now would be political suicide.”

    The SPD (partners in the coalition) came in favor of the Varoufakis letter. So dissension even within the German government.

    (And Junker, of course, came out in favor of the Varoufakis letter.)

    There’s obviously no doubt that Moltke, er, I mean Schaeuble wants war. But we’ll see if the Eurogroup is willing to go along this time, under these conditions, after Greece has made a truly good faith effort to comply with EG red-lines.

    Continue to believe that there is a valid case to be made that there are countervailing forces here to save Germany from itself. But we’ll find out soon enough…

  19. Jus'Thinkin

    Tsipras and Yanis stand on the threshold of possible world changing historical figures. If the cave they will be just some jerkoff politicians. If they pull the trigger and default they may be the catalyst to a greatly improved world or to the beginning of a world cataclysm. I hope they have the balls to stick with their election mandate and free Greece from the clutches of the Troika even the results of such a move cannot be known.

  20. Robert McElroy

    Greece is a small country with limited physical assets. It was subjugated by the Ottoman Empire for four centuries before the war of independence in the early 19th century. WWII added a horrific chapter to Greek history. After expelling the invading Italians, the German invasion and occupation was brutal. The Greeks have a collective memory of that brutality. The book Eleni (and movie) written by Nicholas Gage gives one a sense of that time and after WWII. During a trip to Greece in 1999 I was witness to the arrogance and disregard for antiquity site rules by German tourists and the deep resentment if not hate of Germans by some Greeks. This of course is an anecdotal experience, but I think informs the present crisis. The news programs are not now showing the disastrous conditions in Greece nor have they indicated that 91% of the so called bailout money has gone to non-Greek banks and their bankster CEO’s. The conditions required by the bailout included the sale of Greek state property at fire-sale prices and major reductions in government salaries and pensions to the point most Greeks were in penury. Trying to continue the present austerity program of the Troika must look like and feel like the German occupation during WWII with onsite IMF inspection. Those opposing austerity in Ireland, Portugal, Italy, Spain and France have yet to show up and make their numbers felt. The hypocrisy of our government is despicable, but Bush/Obama have chosen the banks over people. The Greeks have been left to the modern equivalent of the Wehrmacht and its collaborators. Ambrose Evans-Pritchard’s analysis that a debt jubilee or forgiveness program was needed certainly has ample historical precedent. Germany has been the beneficiary of such a debt forgiveness in the 20th century. Of course this was modeled by a Greek, Solon.

    1. MyLessThanPrimeBeef

      I would add the Pontic Greeks who resettled in Greece after the tragic events in Turkey post-Ottoman.

  21. /lasse

    Merkel/Schäuble in practice want to implement the Morgenthau Plan on Greece, “converting [Greece] into a country primarily agricultural and pastoral in its character.”
    Something similar did IMF do to Mongolia with disastrous effect, the country was deindustrialized of what little of industry it had and “converted” to a agricultural and pastoral entity. This in place where the temp could go down to -50 c / 58F in the winter.

    1. Mel

      Yeah, but the trouble with that is that countries primarily agricultural and pastoral can’t buy very many Beemers and Mercs. You can’t sell much into economies that need, and can afford, so little. The industrial north is in trouble, whether they waste their time converting other countries or not.

  22. Cassiodorus

    So the Greeks are very close to falling into the austerity Sarlacc, where they will discover a new definition of pain and suffering as they are slowly digested over a thousand years. Does it really matter who holds “official power” in Greece if SYRIZA capitulates completely? What’s next in terms of further immiseration of the Greek people?

    And never mind that the Eurozone is unsustainable — the capitalist system as a whole is unsustainable, and for more in terms of reasons than Varoufakis has admitted so far. (See e.g. dying ecosystems.) In this regard Varoufakis’ line about “we need to preserve an unsustainable system because to fail to do so would be worse” looks like something he said last week in order to give SYRIZA the illusion of an initiative. It would have looked great had they gotten something. What does Varoufakis’ Marxism tell him now? What do the ruling men (are there really no women at the top of SYRIZA?) say if they are obliged to re-impose austerity? “Sorry Greeks, you’ve been suffering a lot lately, and we appreciate your best efforts at begging for those crumbs of bread you’ve been getting as your bodies wither away into malnutrition. But you still believe in capitalism, and so for this we’re cutting your rations further. TTYL!”

    1. hunkerdown

      At that point, it’s pretty much down to marching north with government issue pitchforks, isn’t it?

      1. Cassiodorus

        The Greeks need to organize their lives around meeting basic needs without depending upon capitalists. A first step would be for the whole nation to join Via Campesina, invite the Zapatistas into Athens, and hold a confab.

        1. Ulysses

          “A first step would be for the whole nation to join Via Campesina, invite the Zapatistas into Athens, and hold a confab.”

          Would the Zapatistas bring plenty of Tequila, or would they have to learn how to drink Retsina??!!?

    2. jrs

      Yea I found the essay unconvincing, as I still wasn’t sure being a non-erratic Marxist wouldn’t be a better path to take in Greece’s situation.

      1. Cassiodorus

        It’s understandable why Varoufakis took the “erratic Marxist” position and somehow found himself Finance Minister. This is changing the world by grabbing a bit of power, something John Holloway reacted against in his frustration with neoliberal “civil society.” Varoufakis’s actual position, however, is like that of someone who has to beg and plead with the financial aid department because there’s no other way of going to college and paying the rent at the same time. Maybe if he spent more time arguing with Holloway instead of with Schauble we’d be able to figure out where he’s going with the negotiations.

  23. JEHR

    I am saddened to tears. But there will be consequences for Germany even if I don’t know what they may be. The bully needs to be bullied back so he knows what it is like. The banks are toxins we should avoid.

    1. hunkerdown

      Totally wrong. You don’t bully bullies back. You disable them as suits the situation, whether that means deportation or cutting out of tongues on pay-per-view. pour decourager les autres. Otherwise you’re playing, not fighting.

  24. JustAnObserver

    The next steps for Syriza. Starting tomorrow am:

    o Capital controls. As draconian as possible.

    o All banks & other credit generating institutions nationalised … temporarily of course :-).

    o All debt repayments (maybe principal only) suspended until the result of …

    o Announcement of a Grexit referendum to be held before the end of next month. The likely consequences of either decision to be made brutally clear during the 6 or so weeks of campaigning. Herr Schauble invited to Athens to put the case for staying.

    As pointed out many time in this & other blogs Syriza does not have a popular mandate to unilaterally leave the Eurozone & go Drachma. So it, Syriza, would phrase this as a necessary step to get such a mandate “to die on your feet or live on your knees” or “We are facing Varkiza 2.0” .

    The PASOK government tried this at the beginning of this crisis and was kneecapped into capitulation.

  25. Carlos Fandango

    It’s very clear now the Eurozone is a failing institution. The design was mortally flawed from the outset. Without fundamental reform with sensible fiscal transfers and/or a federalised Europe, sooner or later it will collapse. This is not an IF it is a WHEN. If Yanis is really a bright guy he should know this.

    The question for Greece is not whether to stay or leave, it is when to leave and how to leave. Wait for the ultimate meltdown or leave now. I am not being facetious here, if they leave now, make sensible reforms and suffer the pain of adjustment to the new Drachma. When the Euro does collapse they will be in a better position than if they had stayed. It’s a logical response.

  26. Petey

    “The better solution is a default while staying in the Eurozone.”

    I was under the impression that this was impossible, due to the fact that as long as Greece remains in the EU, that default means claims would go to the ECJ, which would protect the creditors. In other words, default that has any benefits for Greece whatsoever implies exit from both EZ and EU.

    But I am not sure if that is the correct interpretation.

    1. mpr

      I think this is too legalistic a reading. Creditors have to go the ECJ, but that would take years, and collecting on this scale ultimately becomes a political question. The penalty for not complying with ECJ rulings is not ejection from the Eurozone.

    2. Yves Smith Post author

      This is where it all gets messy. I would assume the court could not summarily order an expulsion, that there would e some sort of murky groping for a process.

      But this is likely moot given how bloody-minded the Germans are right now. I’m told Draghi does not have a lot of spine, and the ECB board this two weeks is very Greece-unfavorable. The only small bit of good news is the Telegraph live blog says the ECB denied the FAZ rumor that the ECB was ready to recommend capital controls for Greece.

      But a default could be used as an excuse to pull the ELA, which would force a disorderly Grexit. Greece would pretty much have to nationalize its banks and issue its own currency to support them.

      1. hunkerdown

        Do you happen to know to what extent are Frankfurters *cough* aware that their big paper is only a few steps short of being a rewrite bureau for the CIA?

  27. mpr

    I’m not seeing why so many people read this as a capitulation. That depends on what is in the extension request. The name is irrelevant. It is the conditions which count. I think the likely explanation is the one suggested by Yves in the above piece. The Greeks needed to put something on the table to appear reasonable. Their entire strategy is to force the other side (Eurogroup, ECB) to make a decision. Since the Germans are apparently suicidal, the only way this ends is if you can drive a wedge between them and the rest of the Eurogroup. The fact that the EC liked the proposel, but the Germans rejected it suggests that they probably struck the right balance.

    I share the view that the political losses inflicted on Merkel via a default should make her come around, but it isn’t obvious to me how aware she is of this as a possible outcome.

    If the Eurogroup says then I expect the Greek government will go for the route of trying to scrape through March with perhaps an ‘reluctant’ default to the IMF.

    1. Yves Smith Post author

      Please read the Financial Times update at the end of the post. The Greeks made a LOT of concessions, including largely agreeing to conditionality. This was not mere optics this time. The Italians, which were opposed to Greece earlier this week, support the latest proposal, which confirms that the Greeks have given up a lot of ground.

      1. mpr

        Thanks. The FT article contains a link to the actual letter. After reading it, it doesn’t surprise me the Germans a re apoplectic. Its basically giving them the finger. There are no concessions (unless one regards as applying for an ‘extension’ as a concession in and of itself), except possibly allowing the resumption of ‘supervision’.

        1. Yves Smith Post author

          The resumption of supervision is not trivial, and asking for an extension means they agree to conditionality. They are trying to negotiate some of that back but asking for the extension is huge.

      2. Richard

        This article, linked to by Paul Mason, argues as mpr does, that the concessions are political rather than (necessarily) substantive. I am not sure how it matters that most of the financial press chose to ignore this interpretation.

        1. Yves Smith Post author

          Huh? This is completely consistent with what our post says. We said the Greeks gave a lot of ground, but still fell short of everything the Germans have been insisting on. Lilco says this:

          Varoufakis applied to extend the troika programme for six months, even agreeing that Greece’s conformity with the programme be supervised by the European Central Bank, European Union and IMF — the hated troika – there was general astonishment…..

          And that is the cunning bit. In the abasement gambit you grant your opponents such a total political victory that they feel they must grant you some concessions on points of substance to save your face and allow you to carry out your surrender without being replaced by others.

          He calls it abasement and that the Greeks were hoping to get some concessions made for a show of near-complete capitulation. And I don’t agree with his generous reading of the language. For instance, I don’t see of the clause “mutually acceptable” as a non-concession, since “mutually acceptable” means the Eurogroup has to agree. And the Eurogroup will not agree to the supposed carte blanche of “refraining from unilateral action that would undermine the fiscal targets, economic recovery and financial stability.” They will argue with the Greek cost estimates and substitutions. Lilco seems to think that the Greeks could just use their own budgets estimates and that would go unchallenged. No way. They agreed to let the Troika monitors in again and the Troika monitors will go full proctological as punishment.

          This is no different in substance, just putting a more Syriza-favorable spin on the same fact set.

  28. Petey

    French PM Valls: Need to respect Greek vote, reach accord.

    (And previously: Italian FinMin comes out in favor of the Varoufakis letter.)

    1. mpr

      Trying to catch up, but it looks like Varoufakis has somehow managed to get people to believe that the letter offers ‘major concessions’ – for example as reported by Reuters – while the text of the letter concedes almost nothing. I don’t know how he managed that, but it seems to be some kind of PR masterstroke.

      Question: what are the voting rules for the Eurogroup ? It looks like it will hinge on whether the Germans are overruled.

      1. Ben Johannson

        The legal construction of the Eurogroup:

        Article 1
        The Ministers of the Member States whose currency is the euro shall meet informally. Such meetings shall take place, when necessary, to discuss questions related to the specific responsibilities they share with regard to the single currency. The Commission shall take part in the meetings. The European Central Bank shall be invited to take part in such meetings, which shall be prepared by the representatives of the Ministers with responsibility for finance of the Member States whose currency is the euro and of the Commission.

        Article 2
        The Ministers of the Member States whose currency is the euro shall elect a president for two and a half years, by a majority of those Member States

        The rest they make up as they go.

        1. mpr

          Wow. So how do they decide what the ‘decision’ is ? Does Diesel Boom get to say whatever he wants ? Do they have to reach consensus ?

          1. Ben Johannson

            We’re told users of the euro get a vote, and very little else. Not how it is determined what to vote on or how the vote is conducted. It’s a private club with public power.

            1. Yves Smith Post author

              I believe it is one country, one vote, and a lot of matters require 100% approval. That’s why the Finns were able to get the bailout to be only to Feb 28. They had a de facto veto and everyone else had to bend to their wishes.

          2. NotTimothyGeithner

            This is why there were so many Euro skeptics. Nationalism had nothing to do with it. Pre-Euro West Europe was pretty nice, so sins were overlooked.

  29. Petey

    “I’m told Draghi does not have a lot of spine”

    He seems to be trying to walk a very fine line, which means he has some spine, if not “a lot”.

    After all, both OMT and QE were both rabidly opposed by Germany, no?

    1. Santi

      There is an interesting spin which I found via Krugman and tweeted:

      We might see if when @MarioDragiECB said “whatever it takes” he was meaning it

      What happens if the ECB keeps the Greek Banks with liquidity while the “current programme” is not extended? In political terms would be a message like: “Please solve your differences in policy without messing with the euro”. In financial terms I’m not sure what happens…

    2. Yves Smith Post author

      Fair point. This is relative to Trichet, who was a forceful ECB chief. By contrast, Draghi will not buck Germany. He will work to persuade them, but they are not very amenable to that.

  30. docg

    Excuse my ignorance, but what would it actually mean for Greece to “leave the Eurozone”? If Greeks have Euros, will they not still be able to spend them? Or invest with them? Or pay their taxes with them? If educated and highly trained young Greeks get good jobs elsewhere in Europe, will they not be able to send money home in the form of Euros? (Actually these young people should march en masse to Germany, where the jobs are, no? If Greece remains in the European Union, not even Merkel could stop them.)

    Why will it be necessary to switch back to the Drachma? If Greece wants to lure tourists, why not simply lower prices? What would a devalued Drachma do for them, especially if it leads to runaway inflation? And by the way, Greece could earn an awful lot of Euros and dollars if it offered good deals on Greek island vacations, no?

    So please someone tell me what it would mean if Greece grexited this mysterious creature called “the Eurozone”?

    1. blowncue

      Short answer: Euro denominated deposits in Greek banks would either be frozen, or exchanged in drachmas which would devalue in the currency markets. You wake up and you savings account has effectively half of what it had. Prices of imported goods go up. Loss of access to EU subsidies mentioned…by Yves…im guessing she meant on imported goods. Greece does not have robust manufacturing sector so the competitive advantage on exports is then muted. I would be waiting for emigration stories a la Irish potato famine. Post Grexit you might see someone like Ross Wilbur come in and invest in the banks-but-he is in Cyprus, and their government won’t pass legislation supporting foreclosures, which complicates his investments in a Cypriot bank. While there was a huge title fraud issue there, the troika’s program is at a dead stop there. Is their a system supporting clear property title in Greece? For runaway inflation, see Venezuela. I see no light ahead unless anti austerity governments took hold in France Italy Ireland and Portugal and formed their own currency bloc. For now, the Death Star is warming up the laser for use on Alderaan.

      1. docg

        Well, yes, of course — if they switched to the drachma. But why would they need to? What’s to prevent them from continuing to use euros? If the word gets out that the drachma is off the table, then there’d no longer be any reason for people to pull their euros out of the banks. Surely not every single country in the world has its own currency. There must be some that use foreign currencies, such as the dollar.

        Actually I just looked it up. Here’s the answer: http://qz.com/260980/meet-the-countries-that-dont-use-their-own-currency/

  31. Petey

    For Lambert: here’s the link.

    (Everything is coming so fast, and I’m so befuddled at what the auto-spam filter moderates out, that I’ve been omitting links. However, be assured that I am most definitely trying to cite sources that seem to have a good track record of reliability, or at least don’t have a track record of just making stuff up.)

    1. Lambert Strether

      Then we pull them out of the queue. At least give an indication of sourcing, like “FT” or “Reuters” or a twitter handle or something,. something. If every commenter acted the same way, we’d have no threads worthy of the name.

      1. Kurt Sperry

        Unfortunately I’m afraid to include links too. The problem’s not the posts that get caught in the queue, it’s the ones that never even make it that far. Then it becomes wasted time/effort.

  32. Petey

    Lambert: Posted the link, but post got put into limbo by the auto-spam filter, which I don’t understand the rules of, which is why I’ve been omitting links in this situation in the first place, as it’s all coming so fast and furious.

    However, be assured that I’m most definitely trying to cite sources with a good track record of reliability, or at the very minimum, a good track record of not just making stuff up…

  33. Petey

    “On the SPD, you’d help out both the commentariat and Yves if you gave a link. Thanks.”

    As stated just above, having severe trouble with links getting stuck into the moderation queue.

    On the facts on the ground, things have shifted a bit. While the initial SPD reaction was indeed in favor of the Varoufakis letter, the subsequent line shifted to that they neither accept nor reject the Varoufakis letter. So still some significant division in the German coalition, but not as much division as the initial SPD reaction would have implied.

  34. Bart Fargo

    Wow…the Troika finally succeed in getting Syriza to bend over, but before the Greeks’ hands have even reached their ankles, the Germans demand that they also spread ’em wide. As you’ve long said, these “negotiation” tactics will certainly be remembered by the people of Spain and France when things inevitably come to a head in those countries.

  35. mpr

    A correct account is given by the NYT here


    This essentially amounts to giving the Eurogroup a chance to vote on the Moscovici proposal, which Varoufakis already said he agreed with, labelled as an ‘extension of the current program’. That makes perfect sense actually. It explains why the EC is in favor, and why some finance ministers who didn’t get to consider that proposal on Monday, thanks to Diesel Boom, might be in favor also.

  36. Petey

    “As you’ve long said, these “negotiation” tactics will certainly be remembered by the people of Spain and France when things inevitably come to a head in those countries.”

    FWIW, the French government has already started putting significant daylight between itself and Germany this week…

  37. Petey

    FT Alphaville post (linked to by most recent Krugman post) on ELA extension if talks break down, (and even before talks are held), is required reading IMHO.

    We might finally get to see just how much of a spine Draghi really has in the most important issue he’s ever faced…

  38. Berial

    So, is Greece basically in a ‘company store’ situation?

    What little they have is because of the company (EU), but they have ended up owing more to the store than they get so the options they are being given are basically starve or becomes slaves to the company?

  39. dingusansich

    What we see in the EU and elsewhere is a conflict between capitalism and democracy. The bailouts of nations are only ostensible. Banks and enabling insiders get the so-called bailout funds. From a democratic standpoint the obvious and sensible path is to force the bettors to take their losses, because in schoolbook capitalism, investments entail risks, and when investors make bad bets and bad loans, they lose all or part of their investments. Instead we see privatization of gains and socialization of losses. The northern EU countries aren’t enabling a lazy, crooked, profligate south; they’re propping up the power and profits of the EU’s banking system. The answer isn’t a voluntary or forced Greek exit from the EU; it’s democratic ascendance over financial power. There as elsewhere, now as ever.

    It’s cliché to say so, but this looks a lot like a classic class struggle, less about Germans and Greeks, cultural and historical identities notwithstanding, than about money and power. I read the Guardian piece by Yanis Varoufakis and sympathize with his dilemma. Yet in his own thought a glaring contradiction stands out: the anti-Thatcherite says that there is no alternative, because a Greek exit will result in fascism. That position seems less Marxist than February Revolution paleo-liberal. It’s hard to see how he can negotiate effectively from it, even if it’s entirely understandable and humane. He’s bargaining for democratic sovereignty and an idealized capitalism (when bets go bad, losses must be taken) with the managers of a system for whom democratic sovereignty is a nuisance at best. What’s needed is not another loan or contract but a reformed system, and that’s simply not on the table. It’s really tragic. These abuses can lead to terrible suffering and anger. It’s infuriating and above all sad.

  40. kristiina

    What a ride…Greeks have outed the reality of eurocrats: they hate democracy. And they have outed the german atttude – if it is true germans have asked Varoufakis to be removed, that is truly stunning. Whatever happens from now on will be different. Simply because now we know. Not that these particular tidbits are in the news. Total control by EU mainstream. And this is probably why mr Market seems to not have noticed anything. Cognitive bias for the illusory strength of Germany. From now on, nobody can claim they did not know…

    I put on my oracle cape and breathe some fumes from a crack in the earth, Delfoi style, and give this forecast: It is auspicious for the leaders of Athens to remind Europe exactly how and where a default will hurt. In a language that mr Market can understand. Doing this before market opens in EU on Friday is auspcious. Then sit back and watch mr Market dance. Sauerkraut will be soft by afternoon. Ares and Afrodite will find accord on Saturday.

  41. Petey

    “Trying to catch up, but it looks like Varoufakis has somehow managed to get people to believe that the letter offers ‘major concessions”

    Or maybe, rather than Varoufakis bewitching and bewildering folks in EU governments through Jedi tricks, the actual truth is that a lot of folks in EU governments don’t want to keeping riding the German Death Train.

    Would’ve been quite interesting if Dieselboom had let the Moscovici draft come up for an actual vote among the FinMin’s last week, which is almost assuredly why he didn’t let that happen…

    1. Yves Smith Post author

      Lilco called it an abasement gambit, and depicts it as giving opponents “such a total political victory that they feel they must grant you some concessions on points of substance to save your face and allow you to carry out your surrender without being replaced by others.”


      How can you not say this is a near capitulation when someone working hard to defend Syriza depicts it like that? As I state earlier, I don’t agree with his reading of the clause “mutually acceptable” as a non-concession, since “mutually acceptable” means the Eurogroup has to agree. And the Eurogroup will not agree to the supposed carte blanche of “refraining from unilateral action that would undermine the fiscal targets, economic recovery and financial stability.” They will argue with the Greek cost estimates and substitutions. Lilco seems to think that the Greeks could just use their own budgets estimates and that would go unchallenged. No way.

  42. Oregoncharles

    that isn’t negotiation, it’s defenestration. They’re going to PUSH Greece out of the Eurozone; apparently they’re going to be made to pay for their defiance.

    Is Merkel really such a gambler? Remember, her government rests on a shaky coaliton; she could be looking at new elections shortly after – or the breakup of the Eurozone.

    Interesting times. I hope Varoufakis and Tsipras have been preparing for a Grexit behind the scenes – but from what Yves tells us, YV would be replaced by the other prominent Syriza economist. At this point, YV’s strategy has failed.

    1. NotTimothyGeithner

      Merkel is done if she helps Greece too. Austerity and defense spending haven’t been sitting well with European populations. Her best bet is to portray Syriza as unreasonable and go from there. Declaring Greece to be a “Trojan Horse” is an absurd comparison, but it creates the idea Germany is under siege. It was a metaphor from a minister in her government.

    2. Rosario

      That may be true, but Varoufakis was probably the best both sides could hope for, and I’m sensing the clock has run out so there isn’t any hope for an equivalent or superior replacement. The problem will be solved in the streets.

  43. Petey

    Paul Mason:

    “Euro Working Group still working in draft based on Greek letter, backed by @J_Dijsselbloem – with German position *not* basis of draft”

    Have genuinely no idea what to make of that. Obviously think Dieselboom would be far more interested in laying a trap than finding a resolution. But noteworthy, nonetheless…

    (Perhaps Dieselboom thinks that if he just tried the German draft again, he’d get immense public pushback from FinMin’s, and this is his way to defuse that public pushback, while still serving Germany and its Quislings. But who knows?)

  44. vidimi

    Germany, masters of game theory:

    The European commission welcomed the Greek proposal – widely seen as a climbdown on some of Greece’s key demands – as a positive sign that could pave the way for compromise.

    But in a sign of divisions within the EU, Germany said the Greek plan failed to meet eurozone ministers’ demands that Greece stick to its bailout programme – a set of conditions laid out on Monday at an acrimonious meeting in Brussels that failed to end the deadlock.

    this is very, very bad. the neoliberal order is going to make an example for the ages out of greece. either they accept even more crushing austerity including a depositor haircut or they’re thrown out of europe. say hello to golden dawn.

  45. Jill

    “What’s the main characteristic of a sociopath? A complete lack of regard for morality…This means that a sociopath won’t abide by the rules of fair play, and there’s a good chance he won’t even give them a passing though. Make no mistake: This guy will not be worried about pulling dirty tricks, not playing fair, …He has one thing in mind, and the ends justify the means…” Although this quote is about violent men intent on doing physical harm, I believe it describes most of the world’s powerful elites. And they are violent.

    They don’t care whom they kill by war, starvation, lack of medicine, etc.–absolutely none of those things matter to them. I believe we need to realize that these are the type of people in control right now and we need to stop considering them as normal, caring individuals. They aren’t. It thus falls to the rest of us to stop treating them as if they were were. They are “predators”.

    Reasoning with them isn’t going to work. I feel Greece should simply refuse to play by any and all of these predator’s rules. The Greeks should take whatever financial measures they need to take for their people to survive and survive well. There should be no other concern in how they react.

    1. NotSoSure

      That’s basically my point last time. Greece should have used intermediaries to purchase CDS on itself on the open market, preferably with Deutsche Bank and then default or playing delaying tactics by accepting a deal now to secure funds for the next few months while waiting for elections in other European countries. The Greeks need to heed the lesson of the Aeneid: “If you can’t reach heaven, raise hell.”

  46. Peter Dorman

    I think this thread hasn’t taken advantage of Maria’s earlier comments. Maria’s perspective is crucial, since she is, from what I can tell, accurately reflecting dominant public opinion in the “no” countries. That her views contradict the basic macroeconomic identities is irrelevant. This isn’t an academic seminar, at least not this particular discussion.

    The main question I would have for Maria, if she’s still there or can come back, is how her opposition to Greece demanding more money “forever” squares with the demand of Schäuble and his Dutch and Finnish allies that Greece continue to adhere to the existing program. This program, after all, involves concessionary lending on the part of the EU. It is obvious, as it always has been, that if Greece and the Troika (or whatever you want to call it) remain on the same path, there will have to be further loans to enable repayment of the existing ones. If Greece is a millstone around the neck of responsible northern Europe, why continue to extend new lending at below-market rates, thereby exposing your taxpayers to even greater future losses? How does your analysis of the current situation lead you to support the position of your government?

    1. Yves Smith Post author

      Greece is not demanding more money. Greece is asking for the debt to be restructured.

      And you seem to miss the point Maria’s interlocutors were stressing. Germany is now running a record trade surplus, 7.4% of GDP. It needs to give that up if it is unwilling to finance its trade partners. Providing financing is intrinsic to running sustained trade surpluses.

      The Germans want two contradictory things. They want to continue to run those surpluses, which is understandable, and not finance their trade partners. They can’t have both. So it is Maria who needs to resolve the internal inconsistency in her position.

      It appear Germany will resolve it by destroying its export markets by continuing to impose austerity.

      1. Peter Dorman

        Yves, I think you miss the point. I’m not trying to convince Maria of anything. I think we can learn from her how public opinion in much of the eurozone views the current situation. This has nothing to do with whether she’s right or wrong. You probably know what I think already.

        1. Yves Smith Post author

          But she has already expressed conventional positions which are deeply wrongheaded. With all due respect, she is completely in line with the German press. She, like German mainstream opinion, does not seem to have any insight into the inconsistency of her beliefs and has manifested no willingness to question them. We have just gotten dogmatic, knee-jerk responses. She does not seem able to acknowledge that she can’t continue to get what she thinks she deserves.

          1. Peter Dorman

            Well, I don’t want to push this any further — no need to reply. My motivation came from the sudden appearance on this thread of someone who, as you say, reflects back to us the viewpoint of the German press. I’m genuinely curious about how people who take that position explain it to themselves. I’m afraid I’m too immersed in economic reasoning to see it through their eyes without a lot of help.

            I do the same thing with my students when I teach, trying to get them to express the “folk economics” they bring into the classroom. In that mode the purpose is not to argue. Not yet, at least.

      2. Fair Economist

        Ah, but the Germans do have a solution! Run the trade deficit, and have the entire EU finance it! OK, it won’t work forever, but it will work for a while.

        Maria is understandably upset at her government’s money being placed at risk. She’s just mistaking the primary beneficiary, which is German industry, not the (mythical) Greek layabouts.

        1. Mel

          There was a post a while ago: “There is no Greece, there is no Germany. There are only massive imbalances in inter-sectoral financial flows inside the Eurozone”. But I can’t find it anymore. German industry wants to sell, but there’s no way for anyone except German industry to make the kind of money that could afford to buy.
          It’s analogous to America up to 2007. The 40-year War on Payroll meant that consumers didn’t have the money to consume with; the economy tried to fix that up with credit cards and mortgage loans, but that solved nothing. They weren’t earning money, neither to buy goods nor to repay consumer loans.
          Same thing in Europe. Extending loans to repay loans doesn’t solve anything. Just stirs the existing problem around. Write-downs and building the capacity to earn make up the only solution.

      3. Dirk77

        They aren’t even asking for more money? This is crazier than I thought. As everyone else seems to be saying: default and then see what the eurozone does. End of story.

  47. Ysaac

    1) So my understanding is that Greece needs Euros for its working. But most of the Euros that its getting (91% of it) is channeled through to non-greek private banks to bail them out. Moreover, the terms of getting that money are basically unacceptable to Greece. How would then approaching other nations outside of the EU who have Euros be? If it can approach multiple nations, maybe the resulting group can try to atleast pressurise the EU to not have the money channeled through to the non-greek banks but put to grow the Greek economy?

    2) Can the recently set up BRICS development bank somehow help?

  48. beerdignado

    Hello Yves or equally appreciated regulars, a question:

    You said 91% of the greek bailout has gone to banks, which I think may be a bit high. Since i agree that the underlying point, that this “greek” bailout which wasn’t the bailout of Greece is a CRUCIAL point to hammer home in the EU collective mind, so I’d like to be sure. Do you have a link for that number?

    I have it in mind Le Monde had it 80% for (in that order): german, french and greek banks and pension funds, but the article was behind a paywall. I also found 77% on the site of ATTAC.

    much obliged

  49. EmilianoZ

    This is a crushing defeat but this is not the end for Syriza. They can still do a world of good inside Greece by spreading the pain more equitably.

  50. Rosario

    I hope Germany has something beyond dogma moving forward (say a rational plan) because they will go down with the ship otherwise. If they think they can bully into perpetuity, they will be rudely awakened when four (maybe five) EU nations have hungry, bored, and irritated people marching in the streets calling for blood. I think we can all agree that this problem is no longer economic, it is political.

  51. kevinearick

    The ‘scientific’ answer is always to steal something from nature and build an artificial world, to protect the feudalists from nature, which isn’t science; it’s politics, always behind the curve. What you see on the SMART boob tube is critters who have never worked arguing about theories on labor markets, all of which are failing, which they can never understand. With all that RE inflation, what do they have to show for it, but crumbling and empty RE?

    Human majorities always build pyramids, only to find out that they are inverted, when it’s far too late and they are on a one-way trip back to the churn. ISIL is just another desperate attempt to get you involved. NATO, like all the others, is just a vacuous party for addicts. All they have is moneychangers and debtors in co-dependence, practicing extortion, with dc technology created for the purpose, well deserving of each other.

    Of course the majority is going to gang up and try to make an example of you. That’s public education. Show up and knock on the door. If they don’t let you in, acquire more skills, show up, and knock on the door. Do not sit in the parking lot with other rejects and smoke pot. Sooner or later, someone has to do the work needed.

    $50k social workers handing out $10 vouchers for milk to pregnant women, lined up for the purpose, is not work. If you must stand in a line, do something constructive with your time, which is not gossiping with critters habituated to standing in line, to get in another line. No majority, including the one represented by American Government, is interested in the future. They all fight over the past. That’s empire.

    The HR process is all about excluding you, to hunt you down implicitly, and steal whatever you have by process of financial elimination, which is why the critters can only print inflation on falling living standards, eat cardboard, breathe smog and drink sewer water. Mass consumption of oysters is like cutting off your own feet or burning your house for firewood, but don’t bother telling the consumers.

    We can make Maglev work tomorrow, as we could have yesterday, but we’re not going to until the critters put you to work, or they all kill each other. Life is not a negotiation. Do your part, and let others cut their own throats if that’s what they want to do. Sooner or later they get tired of killing each other and the work process starts again. Their infrastructure isn’t crumbling by accident.

    Seeing what others do not, because you are looking, is what makes you valuable. Money pays the chasers to see the same thing, always a façade. Wages don’t mean anything in and of themselves. Gotta get back to the wifey, the all merciful one. We are doing the prenatal thing, and I am not so merciful.

  52. jkiss

    If Syriza knuckles under they will presumably need a new coalition partner, the only reason the existing one joined is to fight or leave EZ. No doubt a new partner could be found, but Syriza would lose maybe a third discontent MP’s to anti-Euro forces, and while many greeks want to stay, all of this will persuade many others it is past time to leave. Government will become very unstable at best, not least because protests will begin again, in time to ruin the summer tourist season.

  53. The Moní Arkadhíou Address

    Greece will always be part of Europe. Greece is the bedrock of Europe. With Europe and the rest of the world, Greece has affirmed all peoples’ right to development.

    Now the Greek people’s progressive attainment of development is in question. Commitments of previous Greek governments brought responsibilities that compromise the economic and social rights of Greeks. Some commitments require expenditures that compete with the Greek people’s right to health, education, housing, social security, and even food.

    Development is inseparable from the right to peace. In pursuit of the imperative of peace, Greece entered into pacts to foster regional security in compliance with the UN Charter. But regional security cannot conflict with human security based on rights. Europe is at peace and these pacts should be reviewed, having regard for the factors currently affecting peace and security.

    Without such review, collective-defense commitments based on force can promote not peace but great-power confrontation. In a multipolar world with nuclear weapons being spread in breach of law, great-power confrontation is wrongful. Great-power confrontation is an intolerable threat to peace. Greece has a responsibility to demonstrate its commitment to friendly cooperation and pacific settlement of disputes.

    For these reasons, in accordance with the provisions of NATO Charter Article 13, Greece gives notice of denunciation to the United States of America. Greece will cease to be a party to NATO on 21 February 2016.

  54. Petey

    Simon Tilford via Paul Mason:

    “#Germany can always rely on the Balts and Finns, but #Schauble seems to have given the ususlly treu Austrians & Dutch pause for thought.”

    Post-Bismarck, Germany has a unparalleled ability to win battles and lose wars…

  55. Petey

    Yannis Koutsomitis:

    “#Eurogroup Working Group ends; closer to agreement, Greek positions largely accepted by majority: sources ~MNI /via @FGoria”

  56. /L

    Bill Mitchells view:
    “I read it and read it [Varoufakis letter]. Each time I concluded cave in! Sure the words were still a bit like those that a proud, independent people might write to international partners. But once you cut through the defence of self-esteem to the substance the conclusion resonated strongly – the Greek government, for all their talk and bluster, have caved in. Then I read the memo from the German Ministry of Finance in all its Teutonic clarity – Fuck off, we want you to get down on your knees when you cave in not stand there without your ties and suits smiling about it.

    The options now would appear to be obvious: (a) if the Eurogroup doesn’t stand up to the Germans at today’s meeting, then the Greeks have to become complete surrender monkeys. (b) The other option is that they restore their independence and get out of the dysfunctional Eurozone mess dominated by sociopaths who have not learned the lessons of history well. Bets are on that they will surrender.
    Cave in or Trojan Horse?

    And in Germany all is so good:
    The economic powerhouse of Europe, Germany, is being chocked by wage inequality and “regional disunity”, with over 12.5 million Germans now below the relative poverty line – the highest number on record since the reunification of Germany 25 years ago.

    But being employed also no longer means a person can make ends meet in Germany, as around 3.1 million workers receive salaries below the country’s poverty threshold. People have been forced to cut back on food and heating in order to survive, German media reported last month.

    It’s not the export industry that have low wages, it’s in the domestic economy the wages and benefits are squeezed all to keep import down to create abnormal export surpluses. I believe the current account for 2014 is estimated to be somewhere between astoundingly 7-8 percent.
    The people of entire nation is refused to enjoy the fruits of the country’s enormous productive capacity.
    This European “peace” project have turned so malevolent (under German leadership) now that it have to go and the only hope for that seems to be Marine Le Pen. Evil shall with evil be expelled.

    As Thatcher said in her last book:
    Europe is a monument to the vanity of intellectuals, a programme whose inevitable destiny is failure: only the scale of the final damage is in doubt

  57. Santi

    If the Germans don’t cede to an agreement, all we European are going to find soon that the monopoly game (a rent extraction exercise with a fixed amount of circulating currency and low taxes) ends when one of the partners gets all of the printed money… There is no more fun and the winning party has to distribute the notes again if they want to play.

    We are also going to find that money is a social construct, and without a social contract itis value is zero…

  58. /L

    Neglected, decaying Kiel Canal wreaks havoc with Baltic box schedules

    German road, railway infrastructure is decaying
    The once-soaring bridges are sagging. Some railroad switching equipment, once top-of-the-line, has not been updated since the time of the kaisers. Well-engineered canal locks are succumbing to silt and neglect. …
    Even maintaining the status quo will require nearly doubling current spending levels, according to a recent report issued by a government commission. …
    Peter Osse, a shipper in the port of Hamburg, said he increasingly reaches not for a timetable but a prayer book when he makes transportation plans. …

    And now they have made blanced/surplus budgets law.
    Meanwhile the Chinese is planning to build modern railroad from Thessaloniki and Piraeus to Budapest via Belgrade, that is if they get the contract on the Greek ports. China with their pockets stuffed with American deficit dollars created out of thin air. This while Europe and Germany have “run out of money” in their fictional gold standard. Europes have to be saved from itself somehow, austerity gone wild.

    1. Lambert Strether

      Nice bookend to 1914, since that’s then the Keil Canal was widened to take Dreadnoughts, which could bypass the straits between Denmark and Sweden when going between the Baltic and the Atlantic, which Tuchman says was on the German checklist for going to war. And now it’s falling to bits, how a propos…

  59. dejavuagain

    I woder how much of the $6 I pay for a container of Fage Greek Yogurt actually ends up in Greece and how much of the $6 is received as taxes by the Greek government?

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