Outlook Darkens for Syriza and Greece

Yesterday, we worked through a scenario in which it might be possible for Greece to improve the very long odds against it making real headway in its negotiations with the Troika. That possibility, as we stressed, depended on Greece having access to enough funds to be able to last without external support through at least the end of March, and better yet into April, when election results in Spain and France could apply pressure to governments that are now opposed to Syriza and shift the negotiating dynamics.

That optimistic possibility now looks hopeless. Syriza is finding its options narrowing dramatically. And as we will discuss shortly, a Grexit is not something the government wants or is seeking, and for good reason. But the short-sighted pounding of Greece will if nothing else play into the hands of Marine Le Pen, the rabidly anti-Eurozone leader of Front National. A Le Pen victory in the French presidential elections of 2017 would mean a rapid departure by France, an almost certain fatal blow to the Eurozone project. So even if a victory over Syriza winds up looking decisive, it is likely to prove to be Pyrrhic.

As most readers know by now, Greek prime minister Alexis Tsipras made a bold speech to Parliament on Sunday, reaffirming his commitment to obtaining relief from austerity. That elicited a harsh response from Angela Merkel and Wolfgang Schäuble. As the pink paper put it, “Together, the remarks amounted to a German rebuttal to Mr Tsipras’ defiant pledge on Sunday night to end the bailout.” In other words, the Greek government is being told, in no uncertain terms, that it will not be permitted to renegotiate the terms of its existing deal, which includes items it has already firmly rejected, such as moving forward on new privatization deals, and replacing reforms designed to squeeze workers with ones to improve domestic labor demand and wage rates.

Yet Syriza is acting as if it is still not getting the message. Finance minister Yanis Varoufakis made some preliminary remarks about the package Greece is tabling this Wednesday, and remarked that Greece was accepting 70% of the existing structural reforms (see the video). But the idea that Greece thinks it can repudiate any of the commitments made in older bailouts, no matter how unsound they are, is anathema to the “a deal is a deal” German thinking. And Eurozone officials are also keenly aware that allowing Greece to get waivers will lead to similar demands from other borrowers, as a rapid rebuff of a request from Ireland demonstrated.

But there is mounting evidence that Greece has limited staying power and cannot pay its bills much into March absent a lifeline from the Troika. For instance, a Finance Ministry official leaked that Greece would be asking for bridge loans through September, when Tsipras has said a day before that they wanted them only through June. Asking for more time is tantamount to asking more more money, and is a sign of weakness. Now perhaps this source was departing from the hymnal, but this request would be seen by Syriza’s already bloodthirsty counterparties that they have the upper hand, and should press their advantage.

And there is even more telling evidence that Greece lacks the financial staying power to hold out long enough to move the political dynamic in Europe. From ekathimerini:

Greece could turn to “another source” for funding in the event that a deal is not reached with its eurozone partners and Berlin in particular, Defense Minister Panos Kammenos said on Monday night, adding that the government – in which his party is the junior partner – has an “obligation to go to Plan B.”

Speaking on Mega television, the head of Independent Greeks indicatively said Greece could seek funding from “the United States at best” or even China or Russia in the event that talks in Europe reach a dead end. He added that this could take the form of concessions for major infrastructure like ports, in which Moscow has expressed an interest.

“What we want is a deal,” stressed Kammenos. “But if there is no deal and if we see that Germany remains unbending and wants to blow Europe apart, then we have the obligation to go to Plan B. Plan B is to get funding from another source.”

Now, again, Kammenos has spoken out of school before; he expressed an intent of cozying up to Russia and had to walk that back by saying that Greece intended to maintain ties with both Russia and the EU. But his remarks confirm that Greece needs the bridge financing, and by implication, sooner rather than later. And he unwittingly makes it clear how dire the situation is, since none of his funding sources are realistic options.

Final evidence comes from Ambrose Evans-Pritchard of the Telegraph:

Even if the ECB agrees to a stay of execution, Athens will start to run out of money in March, when it faces repayments to the International Monetary Fund, followed by other creditors. Tax revenues have dried up over recent weeks as Greeks wait to see what Syriza does in office. The treasury’s cash reserves have fallen to €1.5bn….

Greek lenders are under serious stress. The ECB’s shock decision last week to stop letting them use Greek bonds and Greek-guaranteed debt as collateral for loans has forced them to take on emergency liquidity that is more costly. It also imposes greater “haircuts”, effectively contracting of credit.

This comes at time when non-performing loans are already the highest in the world at over 40pc and still rising. Greek property prices fell a further 5pc in the fourth quarter of 2014, pushing large numbers of mortgage holders yet deeper into negative equity. Data released today showed that Greece’s industrial output fell 3.8pc in December.

Evans-Pritchard’s assessment is that Syriza is willing to play an extreme form of a game of chicken because the costs to the Eurozone will be high if Greece is forced out. He like many observers believe that once the Rubicon of defining exit mechanisms is crossed, other exits are inevitable. The idea that a Grexit will be contained, even if it is “contained” in the immediate sense of limited immediate financial contagion, will prove to be illusory as the spring 2007 delusion that the subprime criss would be contained.

And let me again stress that Varoufakis sincerely believes that a Grexit would be a disaster for Greece. The idea that Syriza is executing a nefarious plan to produce a Grexit while looking blameless to Greek voters is implausible. The damage to the Greek economy, not just short term but longer-term, would almost assure Syriza’s ouster and pave the way for big gains by the Nazi party Golden Dawn. This is what Varoufakis wrote in 2012 on why a Grexit was a terrible idea (emphasis original):

Because of two important reasons. First, because of the crushing delay in introducing a new currency. Secondly, because of what I call the bifurcation between the stock of savings and the flow of incomes. But let me take these one at a time.

Delay: Bank of Greece colleagues tell me that it will take months before ATMs are stocked with new drachmas once they get the go ahead to print them. Even if it takes weeks, an economy cannot remain un-monetised for so long, especially when already on the canvass of a deep crisis, without major civil unrest and an almost terminal effect on economic activity.

Bifurcation: Even ignoring the crippling effects of the delay, we must not forget that the ongoing crises has led Greek savers to withdraw oodles of their savings from Greek banks and either shift them offshore (London, Geneva, Frankfurt) or stuff them in their mattresses, or hide them in their freezers (in ‘bricks’ of 500 notes). This means that, by the time we come to an exit from the euro, the stock of savings will be in euros and the flow of incomes and pensions (once the banks re-open) will be in drachmas. So, unlike in Argentina, a Greek euro-exit will drive a wedge between stocks and flows, savings and incomes; with the former revaluing massively relative to the latter. Moreover, the very availability of such large quantities of ‘hard’ currency savings, in the hands of the average Dimitri and Kiki on the street, will ensure that the decline in the value of the new drachma will be precipitous (something that did not happen in Argentina since most savings were in pesos also).

In short, even if we neglect the devastation caused by the delay in the introduction of the new currency (something Argentina did not have to worry about), the new currency will be debased ever so quickly due to this bifurcation, leading to hyperinflation and the loss of most of the competitive gains we might have hoped for from the devaluation.

3rd difference: Greece is perfectly capable of poisoning the water it is swimming in (Europe)

When Argentina defaulted and broke the peg, the ill effects on its trading partners (China, Brazil etc.), as well as on the broader macro-economy in which it was functioning, were negligible. If Greece leaves the euro, however, the results will most certainly prove catastrophic for our ‘economic ecology’, and in a never-ending circle of negative feedback, will bite our struggling nation back.

To begin with, Greece must exit not only the Eurozone but also the European Union. This is non-negotiable and unavoidable. For if the Greek state is effectively to confiscate the few euros a citizen has in her bank account and turn them into drachmas of diminishing value, she will be able to take the Greek government to the European Courts and win outright. Additionally, the Greek state will have to introduce border and capital controls to prevent the export of its citizens euro-savings. Thus, Greece will have to get out of the European Union.

Setting aside the domestic ramifications over loss of agricultural subsidies, structural funds and possibly trade (following the possible introduction of trade barriers between Greece and the EU), the effects on the rest of the Eurozone will also be cataclysmic. Spain, already in a black hole, will see its GDP shrink by more than Greece’s current deflationary record rate, interest rate spreads will tend to 20% in Ireland and in Italy and, before long, Germany will decide to call it a day, bailing itself out (in unison with other surplus countries). This chain of events will cause a bitter recession in the surplus countries clustered around Germany, whose currency will appreciate through the roof, while the rest of Europe will sink into the mire of stagflation.

How good will this environment be for Greece? I submit it to you, dear reader, that the answer is: Not good at all!

Now Greece might manage a “dirty exit” from the bailout and fly naked after the deadline of February 28. And it might manage to eke out more from its dwindling fiscal resources via using tax anticipation notes for some internal expenditures. But its request for bailout money and the leaks and statements around it strongly suggest that Greece can’t last for a couple of months, which is what it would need to begin to make political inroads and dent the image of Troika invulnerability. And as we also discussed, there is the not-trivial possibility that the ECB would terminate the now-critically important banking system backstop, the ELA, or impose conditions that would box in Greece. So the ECB has yet another powerful weapon that it has yet to deploy.

As we indicated in our companion post on Greece today, Treasury is in discussion with Eurozone officials to try to get them to soften their position. Even though the popular perception is that Germany is the impediment to a deal with Greece, the reality is much worse.

Informed sources tell us that Obama and Treasury are looking to Germany to moderate the positions of even more recalcitrant members of the Eurozone. All of the right wing (or at best) center right governments in the periphery countries that knuckled under to austerity see allowing Syriza to score any success as tantamount to signing their own political death warrants. They are even harder line than the Germans on the need to force Greece to stick with the current bailout terms (which included labor-crushing structural reforms) and are less willing to give Greece a break on debt restructuring and a lowering of the level of the fiscal surplus required (note that most financial types were sanguine that a deal was possible on these elements, but they appear not to recognize how inflexible the positions of both sides are). And the most extreme government is that of Finland. Recall that Finland is the one that boxed in Greece even before Syriza was elected. Finland threatened to veto all the other Eurozone members on their plan to extend the current bailout till June to allow for the formation of a coalition and allow the new government time to settle in. The much shorter February 28 deadline was needed to secure Finnish cooperation.

Reader Swedish Lex points out that the request for additional time by Varoufakis might be a reflection of a need to work around the Finns. Via e-mail:

Each Member State decides unilaterally which EU decisions have to go through parliament and which can be agreed by Ministers (or lower level civil servants as the case may be). Sometimes Member States’ constitutions force politicians to run EU decisions through Parliament. Sometimes politicians prefer to do so for domestic political reasons. I do not know what the national Finnish rules are on the issue but my assumption is that any substantial amendments to the Greek bailout must be run through Parliament. EU politicians therefore always tell their EU partners in negotiations that “I can agree to this but I will never be able to get it through Parliament”

Smaller Member States can identify with Greece in terms of size and economic hardship in recent years. These other states have been bullied by Germany (and France when under Sarkozy) in recent years and have, for the most part, stoically (and stupidly) carried on.

Only natural then that they are really eager not to grant any “unwarranted” benefits to Greece, irrespective if the country is economically doomed under the current program.

Historically, the EU Commission has been on the side of the smaller Member States. But the show is now run from Berlin.

Varoufakis has argued that the Finland-dictated February 28 deadline is “artificial” but his argument seems to be getting little traction. For reader convenience, here are key political dates, courtesy the Financial Times:

February 11 Emergency meeting of the eurogroup, the committee of 19 eurozone finance ministers, to kick-start negotiations over a possible new bailout for Greece.

February 12 EU summit in Brussels, the first attended by Greek PM Alexis Tsipras, who is expected to meet German chancellor Angela Merkel on the sidelines.

February 16 Regularly scheduled eurogroup meeting which ministers have said is the deadline to agree an extension of the EU’s bailout programme, which Mr Tsipras has already rejected.

February 28 Eurozone bailout programme ends. Without an extension, Athens will not receive final aid tranche of €1.8bn.

March €1.4bn payment due on IMF loan and around €1bn to other creditors.

The Finns are as famously stubborn as the Greeks are showing themselves to be. As Swedish Lex noted:

The Greeks (Syriza) and the Finns thus actually have a lot in common, actually; Both are convinced that they right way, and the only way, is to not compromise on matters of (their respective) logic and principle.

Two small proud peoples pitted against each other (since there is no federal structure in place to make sure that problems like these never occur, but that is another story).

And if, miraculously, Greece manages to get some negotiating runway, which will likely be due to the US pressing its case harder as a train wreck looks more imminent, one of the requirements is almost certain to be that Syriza stop taking its case to the citizens of other Eurozone countries, and limit its remarks to what is necessary to keep Greek citizens appraised. It will be hard enough to bring the governments that Syriza is threatening to upstage to the negotiating table, and they are sure to require that the upstart party not undermine their standing with their own voters.

Financial time has a nasty way of moving much faster than political time. Even with the recognition of how much is at stake, too many key actors have strong incentives to serve their own parochial interests rather than try to salvage the Eurozone project. That behavior has been reinforced by the seeming success of years of extend and pretend. Syriza’s appeals to support to support the Eurozone are falling on deaf ears because the political classes have no real interest in moving the project forward. Syriza is thus playing the unfortunate role of exposing the degree of rot at the core.

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    1. PopeRatzo

      That’s the whole point of this exercise. The ruling elite can’t let any anti-corporatist, anti-globalist Left get a foothold anywhere in the world. Otherwise, people start to think they have some choice in the shitty social contract they’re being held to, but never signed.

    2. Dan Pennell

      I think Greece is ready to walk.

      I think that there are only two options..

      1) The Troika back down and give Greece MAJOR relief


      2) The Greeks bail

      It would not shock me in the least to see them trade a military base for the Russians in exchange for financing.

      They hate Germany and dislike the EU generally.

      Further, if the alternatives are a slow death or a quick one I bet they take the quick one if it leaves them their dignity.

      This is no longer a financial issue. This is a sovereignty issue.

      1. different clue

        If the TroikaNazi Europeans remain determined to bring famine and mass-casualty epidemics to Greece, will Greece be able to turn around and cause-spread famine and mass-casualty epidemics throughout all of TroikaNazi Europe in return? And if Greece can, is there any moral reason why Greece shouldn’t?
        Is turnabout fair play, or isn’t it?

        1. andyb

          The choice is really simple for Greece; either force the issue and take, at least on their own, another 3-5 years of pain, or forever become debt slaves under brutal totalitarian control. Sort of like Nazi occupation during WWII, when assets were plundered and too many Greeks died from starvation and abuse.

    3. Dr John Langrod

      Above comment is really presumptuous. Syriza will not have to resign. They should have, and will always have the option of governing with or support of KKE. That’s what should have happened from the beginning and if Greece defaults it damn sure will happen . So, GO FOR IT KKE ! Make it a strong government of the lefty !

  1. Ned Ludd

    The second paragraph contains an unfinished sentence: “A Le Pen victory in the French presidential elections of 2017.”

  2. MartyH

    It was never going to be easy to convince Merkel, Schaubel, or Draghi to flinch. Maybe they do, maybe they don’t. Maybe Obama does. Maybe Syriza does. Does failing to get the Troika flinch mean you lose public support? Maybe ye and maybe no. It’s not a two-dimensional game. And some of the players see past the two-dimensional borders of orthodoxy.

  3. carol

    “Tax revenues have dried up over recent weeks as Greeks wait to see what Syriza does in office.” (Ambrose Evans-Pritchard).
    I’ve read that elsewhere too.

    Are there other countries in the eurozone where people stop paying their taxes when there is an election?

    Syriza has promised higher taxation of the rich and the extremely rich. But how exactly will they be able to achieve this?

    Re Swedish Lex and the Finns:
    I notice that a lot of people use the argument that the Troika should be abolished as democratically that is what the Greek voters have demanded. Syriza got about 36% of the votes: impressive indeed, but still about 64% (!) of voters did not chose Syriza). However, in many eurozone countries, the 240 billion euros were lent on the condition that the Troika could keep a watchfull eye. Without the Troika (or something similar), many countries would democratically have voted NOT to lent 240 billion euros. If Syriza unilaterally wants to abolish the Troika, then parliaments in many countries in the eurozone have a democratic problem. Not a nice problem to have in a project which already lacks democratic legitimacy.

    1. docg

      “Syriza has promised higher taxation of the rich and the extremely rich. But how exactly will they be able to achieve this?”

      If Syriza were truly an “extreme left-wing” party as advertised, they would already have placed these rich tax dodgers under house arrest and incommunicado while launching thorough investigations into their financial activities over the past several years. Those guilty of fraud would ultimately be faced with confiscation of all their wealth by the state. That, “exactly,” is how it would be done.

      1. carol

        docg: +1

        unfortunately, i asked the question because i have become very doubtful whether that really is possible in Greece.

        See e.g. http://www.spiegel.de/international/europe/wealthy-greeks-still-dodging-taxes-despite-crisis-a-864703.html
        This article from 2012 (!) mentions that extremely rich ship owners are exempt from paying taxes: as it is written in the constitution.

        Instead of bad-mouthing the Germans, Syriza might have evoked some sympathy from middle-class taxpayers in eurozone countries if they had prepared a plan, and immediately implemented it: confiscating part of the wealth, or at least frozen it.
        True as it is that most of the 240 billion made a U-turn straight into French and German banks, that does not justify asking e.g. Finnish and Portuguese taxpayers to pay even more instead of the extremely wealthy (HSBC clients and the like) Greek non-tax-payers.

        1. Mark P.

          It’s also a case of closing the barn door after the horse has fled. When I visit London, I continually hear anecdotes from longtime Londoners about the rich Greeks who, alongside the Russians, have recently been buying up prime real estate there.

      2. MonkeeRench

        The Swiss Leaks via the Lagarde List has long ago revealed the names of over 2000 Greek oligarchs who didn’t just “avoid” taxes, they were criminally enabled by HSBC, JB Morgan, etc. to violate Greek law to outsource their ill-begotten gains. These 2k felons have managed to bribe a GoToJail-FreePass from prior finance ministers and investigative jurisprudence, just as have the bribed felons who enabled the fraudulent loans from JB Morgan, et al. If the new crew can’t internally reverse such administrative perfidy, who should believe anything will change with respect to external attitudes?

        As usual, it’s the everyday Greek worker who suffers horribly for the corruption of the oligarchs and international Banksters whose only concern is profit at any exogenous cost.

    1. Yves Smith Post author

      They don’t need to. If Greece is forced into a disorderly exit (see the long quote from Varoufakis in the post), the damage would be somewhere between very bad and catastrophic, and inflicted on a country that is already in the midst of a humanitarian crisis. The northern bloc believes this example would serve to deter any other countries from even thinking about defying the Troika.

      1. docg

        Sorry, can’t help but be reminded of the movie classic, “The Mouse that Roared.” Under current circumstances, the most effective course for Greece might be to take a cue from that plotline and invade Germany. After being thoroughly defeated, Greece would then be eligible for some sort of “Marshall Plan” aid from their conquerors. And how could Germany complain, since they themselves were rescued by the Marshall Plan?

        1. MyLessThanPrimeBeef

          Easier if we pay them to fight the Syrians and the Iranians.

          $100 billion a year is cheaper than if we have to do it ourselves.

          Here, I invoke an ancient precedent – the mercenary Mycenaeans for hire to the super power of the ancient world – Egypt.

          1. MyLessThanPrimeBeef

            I should mention, that if history repeats itself, the Greek Army can march all the way to the Ganges, and take care of all the troubles for us.

  4. vidimi

    it does sound like kammenos was not reading from the script in that excerpt given that the chinese are mighty pissed at greece for halting the privatisation of piraeus. i don’t see greece un-canceling that deal although it’s not inconceivable that china would make a loan deal regardless. perhaps a 20-year lease could satisfy both parties.

  5. YankeeFrank

    I have one little nitpick about your description of Syriza’s behavior Yves. Syriza is not being stubborn. They are doing what must be done. They have no choice. The ongoing misery and destruction of Greece is simply not an option anymore for a people who are not completely insane, and while “Grexit” is a horrendous outcome, at least it provides the possibility that Greece could get back on its feet in the medium term whereas continuing the madness of austerity and debt-peonage means even in the long term there is no hope for things to get better.

    1. Yves Smith Post author

      Did you read what Varoufakis wrote? A Grexit is worse for Greece. You don’t want to believe his assessment. If Greece were starting from a higher economic baseline, they might be able to take it as a society. What about “in the midst of a humanitarian crisis” don’t you understand? Greek citizens should have voted Syriza in at least a year ago. They’ve come on the scene at a juncture where it is very unlikely that they can change the trajectory.

      Order is already fraying, witness that Golden Dawn’s popularity is founded in large measure for stepping where government has been cut so far back that it is not delivering services. So a Grexit also almost certainly means Syriza is turfed out in the next election and Golden Dawn gains, and might even dominate a coalition. Is that, along with an even more economically desperate Greece, really a plus?

      1. YankeeFrank

        No, I do believe he thinks it would be “worse”, but that word is not very specific, what does it mean exactly? It means it would be worse in the short term, but would it be worse in the medium and/or long term as well?

        Even a right wing fascist takeover will likely end at some point, and if it helps to stabilize Greece without a massive, decade (century?) long yolk around the nation’s neck, perhaps its worth it. He clearly thinks risking it is worth it or he would have caved already.

          1. Jim

            Greece’s choice seems like that faced by the people in the top floors of the World Trade Center in 9/11. Burn to death or jump out the window.

        1. Yves Smith Post author

          I provided what he said about the medium and longer term in the post. I suggest you read it.

          Moreover, you supposed Syriza sympathizers are doing the most destructive thing you possibly can in talking up a Grexit. That will give depositors a rational reason to continue the bank run. That can lead Greece to exhaust the increased allocation that the ECB gave to the Greek central bank under the ELA.

      2. Santi

        I think it is worse collectively, but I don’t think it is worse in the medium/long term for Greeks.

        I don’t think Greece will push for exit. They will selectively default on payments to the European countries and IMF and, other than this, try to survive.

      3. wbgonne

        So a Grexit also almost certainly means Syriza is turfed out in the next election and Golden Dawn gains, and might even dominate a coalition.

        It appears to me that a Golden Dawn takeover is more likely if Syriza capitulates than if it defies the Troika. I think the same is true throughout Europe. If the Leftist European politicians won’t stand up to the global neoliberals who are ravaging their nations and ruining their people’s lives, then the people will clamor for the Right to do so. And I don’t think the Nationalist Right will hesitate.

        1. docg

          Yes. The right is popular because it is willing to take a tough stance. Which the left is NOT willing to do. This is the case worldwide — and the reason why we may all be in serious trouble soon.

        2. Ulysses


          “Things fall apart, the center cannot hold.”

          I, for one, would like not to see the most ruthless fascists be the ones to emerge victorious from all this turmoil!

      4. Dimitris P.

        It seems to me that you give more credence to the Varoufakis quote than he himself gives, judged by his, and Tsipras’, moves and sayings!

        1. Yves Smith Post author

          Huh? Varoufakis has said he is pro Eurozone, repeatedly. And I have just had it confirmed privately that he and Syriza regard a Grexit as “unthinkable”. He keeps stressing how high the cost of a Grexit would be to the Eurozone, to get THEM to pull out of the game of chicken. If he were sanguine about a Grexit, do you think he’d press that line of argument as hard as he had been pushing it?

          1. wbgonne

            And I have just had it confirmed privately that he and Syriza regard a Grexit as “unthinkable”. He keeps stressing how high the cost of a Grexit would be to the Eurozone, to get THEM to pull out of the game of chicken. If he were sanguine about a Grexit, do you think he’d press that line of argument as hard as he had been pushing it?

            That is positively Obama-esque negotiating, publicly surrendering one’s only real leverage before trying to make a deal with impacable adversaries. No wonder Syriza ran on “hope.” If this is the reality, it portends a Syriza capitulation (probably the lipstick-on-a-pig variety). What a waste.

            Next up: Golden Dawn, and we’ll see how squeamish those fascists will be about telling Greek-humiliating, money-grubbing foreigners to pound sand. I think Golden Dawn will revel in it.

            Or Syriza might rethink its position while there is still time.

            1. Yves Smith Post author

              They had conceded that point before they were elected. 2/3 of Syriza’s representative are moderates, so the party leaders themselves aren’t prepared to go there. And that was why Varoufakis was named Finance Minister. He agrees with teh party views.

              The voters don’t support a Grexit, even Syriza’s voters. They got votes from old Pasok voters. And there was lots of messaging in the European press to scare voters about a Grexit before the election to put them off voting for Syriza. That clearly did not work narrowly but it did force Syriza to moderate its message and take a pro-Eurozone stance. Not sure if things would have been hugely different absent that, but it would have made some difference.

            2. gtggtg

              “Next up: Golden Dawn, and we’ll see how squeamish those fascists will be about telling Greek-humiliating, money-grubbing foreigners to pound sand. I think Golden Dawn will revel in it.”

              If Golden Dawn is “next up”–and they may well be–we can expect to see a great difference in how the capitalists deal with them. I expect some kind of deal with the Troika would be hashed out quickly. That is because capitalist rulers can work with fascists, but will do anything, up to and including provoking war, before they will allow even a moderate left-leaning government to show it can get its way against the capitalist system and help the people, thereby legitimizing Left rule.

          2. ian

            I don’t get why he keeps saying it’s unimaginable. Greece has no hand at all to play if it isn’t willing to accept the consequences of a Grexit.

      5. john kissinger

        No one can doubt that Grexit is worse for Greece in the near term. It is the medium term where the dispute lies.
        You say that it would have been better if Greece left a year ago… no doubt true. Two years even better, just as never joining the disastrous experiment would be best of all. But this seems to imply that exit a year from now will be a better time than now (EZ is almost certainly doomed anyway), or, if EZ survives, that endless austerity, say a decade or so, is better than exit now… Nobody can know the future, but I would say the sooner Greece leaves the better, regardless of which alternative comes to pass.

        Further, Yanis is smart, but was nevertheless not all-knowing when he took the various positions in his blog. As I wrote in yesterday’s thread, the change to physical drachmas is not difficult and could be done over a short bank holiday… and, as noted yesterday, there is no reason why the drachma would fall against the euro, certainly not until the 10% of GDP/year deficit spending that Mitchell says is needed kicks in… and why, if growth is strong, would the drachma fall then?

        I say again that the disaster of high unemployment presents the opportunity for strong and rapid growth without high inflation once deficit spending begins, whether in Greece or the US. 25% unemployment means that GDP jumps 33% overnight when the unemployed are put to work. In fact the true potential is much higher when you consider that many of those currently employed work part time and/or at very low wages. Greece critically needs jobs, and massive deficit spending can only occur outside EZ.

        I present strong evidence: the US experienced a very strong recovery in 1933 after leaving the gold standard (following the Brit example of two years earlier), driven by deficit spending. Naturally it would have been better to leave in 1932, and better still to have jumped with Britain in 1931. But obviously better late than never.

        Conversely, and ignoring the small trade surplus, continuing the 4.5% primary surplus indefinitely means by definition a decline of 4.5% of GDP/year EVERY YEAR… now really, how long can this go on?

        Perhaps you think Grexit would be bad for EZ and the world. I agree only in the near term… the other Latins also have the potential for strong and rapid growth when they regain sovereignty over their currencies.

        The most difficult problem in the near term will likely be imports of critical items, but as I noted, current shortages would either not get worse (medicines) or could likely be finessed (oil).

        I add something else I did not say yesterday:
        Demographics also says the sooner Greece leaves the better. Southern Europe is losing its best and brightest young workers, which is why unemployment has ‘stabilized’ at around 25%. If nothing changes Germany will continue making up for its crappy birthrate with young imports from the south, and these, once they move, will put down roots in the north. Totally disastrous for the future of southern economies. It is just one more important reason to get out immediately and restore growth.

        1. Yves Smith Post author

          I never said Grexit would have been better a year ago. I said it would have been better if Greek voters had voted Syriza in a year ago.

          I have had it confirmed privately that Syriza regards a Grexit as “unthinkable”.

          1. Kurt Sperry

            There are a whole class of imaginable game theory cases here are there not where publicly and credibly saying that a given outcome is completely off the table and unthinkable is the correct tactic–whether or not that is what what the side saying it actually believes? Saying that a Grexit (too soon to coin Grexuent?) is unthinkable is step one to probably near every branch of play that doesn’t involve aiming Greece at Germany’s three pointed hood ornament while ostentatiously blindfolded and putting a brick on the accelerator which is what a lot of people here are seemingly cheering for. Saying anything else would unnecessarily limit Greece’s tactical envelope. Of course they’re not going to say anything else! They may really believe Grexit is unthinkable or they may be planning for one, but either way they *have* to say its unthinkable and make it believable–or go with the blindfold and brick. Thus, them saying that tells us nearly nothing usefully predictive. Which is why it’s also the smart move.

        2. Sam Adams

          Russia had a record good crop year; they have commodities to spare and a desire to inflict pain on the EuroZone. A warm water port lease would be appealing.

            1. Ulysses

              Who is “we” in this context? I know I’m by no means the only patriot in this country to unequivocally refuse to identify myself with the current monstrous, bloated U.S. MIC. I find this choice of pronoun a bit unsettling, I must say.

            2. john kissinger

              I doubt your last statement… you mean we would start WWIII on account of a Greek base? and anyway if, after Grexit, they offered oil for lease the US could only counter by putting in their own bid. Russians are looking for places to push back, Greece is ideal post Grexit.

              IMO Tsipras should have started with a zero deficit offer, and held hard to it, which anyway keeps Greece in depression, far from 10%/year deficit Mitchell suggests. They simply have to leave, its just a matter of getting the populace resigned to it.

              1. Kurt Sperry

                Putting a base site up for open bidding on a long term lease would absolutely be a page ripped straight from the neoliberal “free market” gospel. Let the magic hand choose who gets to port there. No hard feelings, right? It’s just business.

              2. Yves Smith Post author

                We are already on the verge of starting WWIII with Russia. Moscow Today reports that Russia would regard the US arming Ukraine as an act of war.

                A Russian warm-water port would be of enormous strategic importance to Russia. Look at a map.

                1. Kurt Sperry

                  Arguably, the fraught situation with Ukraine would in fact increase the leverage of the Greeks rather than lessening it. Brinksmanship requires serious consequences–and the more serious, the better from a game theory perspective.

                  1. Kurt Sperry

                    Replying to myself as the edit failed:

                    Appearing crazily, even dangerously impetuous in fact can increase one’s leverage. Take the simple case of the prisoner who feigns being deranged: the bullies in the cell block have to treat the deranged prisoner with a caution and in a sense respect that a rational actor cannot summon, as dealing with the crazy guy requires contingency planning for an exponentially greater number of foreseeable possibilities than dealing with an actor who is deemed rational. Bullies therefore avoid confronting crazies as the risk/reward calculations become impossible to calculate when you have no sense of what the irrational actor might do next.

      6. Edna M.

        This is a minor point but I wanted to say that, in my opinion, there is no way Golden Dawn will ever become part of a governing coalition. They got all of 6% of the vote this time. I don’t live in Greece but I speak the language and have been following their news and reading blogs from Greece. There is a definite ceiling to how high the party can go. The great majority of the people are absolutely revolted by it. No party in the government is or would be willing to work with it. I believe Syriza keeps mentioning the rise of Golden Dawn as a way to persuade those outside Greece to support Syriza’s efforts.

        A final point (perhaps you have mentioned it elsewhere as well), Syriza is extremely popular. I believe the last opinion poll showed 78% of the people support the government. People, especially older folks, were afraid to vote for something new, but now that it is in power, the majority of people are overjoyed by how Syriza is standing up to the creditors. People feel that Syriza has restored their dignity, and they say they would support the government if if they go broke.

        1. Carla

          Edna M., thank you so much for sharing your reading of the Greek press. It is really valuable to hear a report from someone who can read about the situation in the language of Greece!

        2. Yves Smith Post author

          They are still the number 3 party and they are at 6% despite having engaged in fistfights with other Parliament members and having party leaders jailed.

      7. vidimi

        i absolutely believe that a grexit would be worse for greece than even the current level of misery, but i also believe that it would be an unacceptable cost to europe, despite euro banks being a step removed from the mess now. as an analogy, consider two people in a room, one is holding a grenade, the other pointing a gun. the guy with the grenade can throw away the grenade without removing the pin and be shot by the guy with the gun or count on his mercy, or he can threaten to blow them both up. syriza is refusing to use this second option in their negotiations.

        syriza needs to do what’s best for greece. short-term, a grexit is catastrophic, but if syriza knows that if they yield to the troika and that it will be golden dawn’s turn next, surely that is something they have an obligation to prevent. turning east for help would be an option there, but syriza are refusing that, too.

    2. Mark P.

      Yves –

      If you pay closer attention to what Varoufakis has said, it is not only that:

      (a) Yes, Grexit is worse for Greece but also,

      (b) Yes, Syriza will nevertheless go ahead and do it — and has indeed been preparing plans to do it contingent upon the majority of Greeks, who currently want to keep the Euro, being given to understand that Germany and the Troika will not see reason.

      Sure, Varoufakis is trying to sell his claim to his opponents that this game of chicken should be understood as a game of full-on mutual assured deterrence (MAD).

      (In other words, if Grexit occurs then there’ll be straightforward contagion to Spain, then Italy and Greece. At his website, Varoufakis has had some nifty models of this up for the last year or so, predicting that it’ll trigger Eurozone collapse and widespread economic hard times across Europe, including Germany, leading to further incursions by far-right nationalist parties.)

      Granted, predicting is hard, especially about the future. Granted, Varoufakis is playing a game of Chicken. But I see no reason to assume that he’s wrong about what would happen post-Grexit, and no reason why he and Syriza wouldn’t pursue Grexit, given that the current situation for most Greeks is so unsustainable.

  6. jgordon

    Even with the recognition of how much is at stake, too many key actors have strong incentives to serve their own parochial interests rather than try to salvage the Eurozone project.

    Isn’t this speaking to a greater truth about humanity? Certainly in the Western cultural framework all large-scale projects are prone to corruption and decay for just that reason. Those who dream up utopian political or monetary systems have to conveniently ignore the fact that there will be those within who work constantly to undermine the system for their own purposes.

    Scholars put a lot more work than they probably should have to maintain the intellectual legitimacy of the Ptolemaic system as well. With hindsight, they probably a lot better things to do with their time.

      1. jgordon

        I anticipated that you would say that–but even the best of times–they’re long gone now, aren’t they?

        It seems that the larger and more impersonal an organization becomes, the more likely it is to be undone from within. That is independent of whatever political or economic ideologies the organization happens to be partial to. Fostering the conditions that allow for such large scale organizations to exist (by developing ingenious monetary theories or by creating technologies to better extract unsustainable energy resources for example) is tantamount to fostering the inevitable large-scale collapses that follow.

        1. trent

          Right! I love naked capitalism for news, but i feel like Yves still believes this can be salvaged. And that the system isn’t all that bad, just a few bad apples calling the shots right now. I don’t see it that way. I think its inevitable that the system will fall apart.

          1. Left in Wisconsin

            Capitalists want to make money. Period. If the easy/financial/criminal ways of making money are foreclosed, those who can may flee or close up shop or strike in hopes that previous opportunities are restored. But others will see new opportunities and will take them.

            Not saying that capitalism won’t ruin the planet or isn’t capable of striking for quite some time to restore privilege. But capitalism is quite resilient.

      2. PopeRatzo

        The only thing that ever made the ruling classes public-spirited is the threat of the guillotine.

        Where do you think the New Deal came from? The threat of communism.

  7. paul

    I suggest you read this:

    In Europe’s Three-Way Poker Hand, Greek Weakness is Actually Strength

    It must be understood that from Syriza’s point of view austerity does not avoid Grexit. At best it delays it. What is the difference between Grexit now and continuing austerity and Grexit later? It is the continuing austerity and the larger defaut. Hence I don ‘t see why Grexit being a disaster should influence Syriza’s decision. Their choice is between disaster now and a bigger disaster in slow motion. Either way it is disaster.

    Syriza don’t have to choose. The real choice belongs to Germany. Syriza is just saying they want a solution that works. If Germany insists on austerity they get Grexit. Syriza just waits until Germany makes an irrevocable move and so be it.

    1. Yves Smith Post author

      You are missing that the costs of Grexit are catastrophic and Syriza does not have a mandate to go there. Even now, public opinion is opposed to it.

      And this isn’t just a Eurozone exit. People who cheerily advocate a Grexit have failed to work through what it means.

      As Varoufakis points out. Greece will also have to leave the EU. That means it loses agricultural subsidies, putting one of its few export industries at a disadvantage competitively. Plus the currency volatility relative to the Eurozone is another big hassle and risk which means other countries will not necessarily import more Greek goods (currency uncertainty is a big offset to cheaper prices), as will be less ease of moving people and goods across the border.

      Plus most Greek debt is English law denominated. The courts will enforce that, just as they are (in a different manner) with Argentina. So Greece will NOT be able to redenominate that debt in drachmas, which means its debt will largely be in now much more pricey euros, and it will have to pay it off in much cheaper drachmas. That means creditors will get court orders to seize any and every Greek asset they can lay their hand on to repay that debt. Pray tell how that works out to be to Greece’s advantage.

      And pretty much no one wants to be a tourist in a country in the midst of a humanitarian crisis. I can tell you that Mediterranean cruises were having great trouble filling cabins for cruises that included Greece starting as of 2011 or so. They were offering such deep discounts that it was close to doing those ports for free, and they were offering them up to the dates of departure, a clear sign that they weren’t getting much uptake. This will get massively worse with a Grexit as the economy decays even further.

      1. Carlos Fandango

        If Greeks have to pay tax in Drachma and are sitting on piles of Euro with limited availability of Drachma …. I’m no expert but doesn’t that make it not quite so scarily difficult to sell Drachma for Euro?

        If Greece defaults they won’t be paying back anything at face value. A Greek court won’t neccessarily enforce the debt agreements and a sovereign country is not neccessarily bound by a foreign court ruling. Besides even if they are politically obligated to honor some agreements, the proceedings could drag on for years until nobody cares any more. The cavalry may have finally shown up by then.

        I’m really not convinced a challenging life under a sovereign government could possibly be any worse than life under a malicious puppeteer?

        1. cassiodorus

          “I’m really not convinced a challenging life under a sovereign government could possibly be any worse than life under a malicious puppeteer”

          This is an important point. Or, to use my Star Wars metaphor from earlier discussions: what could be worse than being devoured by the (austerity) Sarlacc?

          1. juliania

            I too am failing to understand what would be so catastrophic. Would other countries go to war with Greece over her nonpayments? That would be catastrophic, if bombing and strafing of communities such as is happening in Donbass were to happen. Being forced to live within one’s means? Forget the world stage for a while. Well, I am doing that right now. Greeks are doing that right now. They are resourceful people; they have land; they grow crops. Surely with summer coming on they will not starve or let their people starve. And they should look to Cuba for salvation, not economic salvation surely, but spiritual and landloving proof that the alternative is not disaster.

            Love of the land had better triumph over love of money – that’s all I can say.

            I am of wbgonne’s mind in this that if Syriza doesn’t hold firm and let the troika force the alternative the people will lose faith in them. It would be a slower death but death nonetheless. Just as our own loss of faith in government here. Maybe it’s not so evident in the big cities but it sure is out where I live.

        2. Yves Smith Post author

          Over 70% of the bonds are English law bonds. That means English law courts, and not Greek courts, have jurisdiction. A government is most assuredly bound by a foreign court decision if its bond agreements make it subject to another jurisdiction’s laws as governing the agreement. Just look at Argentina, which agreed to New York state law.

      2. vlade

        yves, a few points on yv’s post.
        re delay. czechs and slovaks manged it very quickly (hint, you dont’t needto print new notes)

        re cap controls-cyprus did it, and is still in eu. it even took people’s eurs, which greec would not have to do, it could print drachma pnly for new spending and keep dual currency cicrulation.

        in fact, i don’t believe there’s anything that would prevent dual currency even now under eu laws, so greece in theory could switch to domestic transactions in drachma nad external in eur (as it did, with a fixed exchnge rate, for some time beforeeur was fully mplmented). what would happen if greece re-introduced drachma at fixed rate (deprecated relative to 2001) to eur and require all internal transactions to be done in drachma? yes, paper drachma could deprecate relative to eur, but what if you didn’t want paper drachma? what if drachma was electronic-only transactions, and you’d want to reduce cash economy, that could still use eur notes, currently in greek corculation? (which happens to be good for your taxes, too, albeit it wold not be cheap to introduce)

        you still trade externally in eur peope who want to have eur accounts can, but interest (hahaha) is paid in drachmas, and for any internal transfers it’s forcibly converted to electonic drachmas (including any exporter’s income and remitances) and you put capital controls on external payments. taxes are of course in drachmas..

        that wouldn’t be a grexit, but would be half way there, if someone pushed.

        1. Yves Smith Post author

          I did a card study for American Express in third world countries in 1997. The Czeck Republic had good uptake of payment cards. By contrast, Greece is a cash dominated economy. The widespread distribution of cash is much more important for Greece to function. Varoufakis reaffirmed not long before the election that it would take 3-4 months to print and distribute notes. Why do you not believe the words of the current Finance Minister, particularly when it is NOT to his negotiating advantage to say this?

          1. vlade

            czechoslovakia before the split in 1992 had i believe about 0 card penetration, and was very much cash economy. it was only 3 years since the changr of regime after al, and the communist regime economy was very much cash driven, as cery large part of it was nt even gray but realy black). it was no unusual for salaries to be paid in cash at tthat time. of course, there were almost no atms to stack either, but people had to show at a bank and exchange czechoslovak notes for czech (which were effectively czech notes, with what looked like a postal stamp on it). of course, themajor difference was that if you kept your czechoslovak notes, you could use them in slovakia, which just continued to use czechoslovak notes for some time, but youlost about 80% of value. there would be no such incentive to change eur notes fr drachmas.

            whichis why i suggested at the end electronic drachmas (initially at a fixed rate)+paper euros. that being the opposite state of what happened when greece adopted eur initially.

      3. paul

        Yves said:
        You are missing that the costs of Grexit are catastrophic and Syriza does not have a mandate to go there.

        I hear you. But If Syriza don’t go there where do they go? Another round of austerity? They do not have a mandate to go there either. And how another round of austerity helps avoid Grexit? We have seen this movie before. The ratio debt/GDP will keep increasing. If the world economy enters a recession their finances will degrade even further. Eventually they will run out of refinancing options et default will happen. In this scenario they don’t Grexit right away but they still Grexit.

        I don’t know what Syriza wants to do and I do not advocate a particular stategy. I am just pointing out that they have an alternative to caving in because on a longer timeframe austerity does not avoid Grexit and Syriza knows it.

        Grexit has very unpleasant consequences on Europe. There is no telling whether this will be a Lehman moment, especially if the Greek banks collapse. It is one thing to threaten Greece. It is another thing to actually make good on the threats and pay the price. Syriza may bet that if they call the bluff a rational actor will not push the self-destruct button without giving himself more time to find a better solution. Maybe you would not recommend this option, but it allows Syriza to try doing more than kick the can down the road with further austerity.

        1. Yves Smith Post author

          As I said earlier in this thread: you supposed Syriza sympathizers are doing the most destructive thing you possibly can in talking up a Grexit. That will give depositors a rational reason to continue the bank run. That can lead Greece to exhaust the increased allocation that the ECB gave to the Greek central bank under the ELA.

          1. paul

            This is a good point. I will shut up. But I think you are fighting a tsunami. The G word is already all over the place in the media.

      4. David Miller


        My first post here in many years.Three issued not being discussed here.

        First, much of this crisis is being driven by lower-middle class European voters who have tired of austerity, often-disguised EU income transfers to the south and the social costs of immigration. There is a real fear among the policy elite that the whole project could unravel and that any serious concessions to the reform-averse Greek government would undermine the restructuring in Ireland, Italy, Portugal and Spain. Blame the voters and those who have tried to ignore the issues they represent.

        Second, if Greece leaves the Euro it is supposed to be forced out of the European Community but that is not automatic and will take time. My guess is that for at least a year the parties will stall on issues like agricultural subsidies, customs issues and EU passport controls- unless a million Greek people get in cars and head to Germany..

        Third, a Greek Euro exit could play out in the eastern Mediterranean and on NATO eastern flank in unexpected ways. Greece has a number of cards to play while it is still in the EU on issues dealing with Turkey, Cyprus and offshore oil deposits. Turkey and Russia are building a new relationship based on economics (eg south stream) and everyone is trying to figure out how the Ukraine-Crimea crisis and Syria fits in (eg Treaty of Montreux issues). Last week, with almost no notice in the British-American press, Turkey simply walked out of a European meeting when it discovered that “somebody” had invited Israel to attend. A Greek government facing a Euro exit can gum up the works on all sorts of issues relating to NATO, immigration, financial dealings with SWIFT, Russia and China.

        If Greece is destined to exit , my private bet is that all the parties have reason to stretch out the process and reduce the pain.

      5. Jose

        “most Greek debt is English law denominated. The courts will enforce that”

        What about European law – aren´t the courts also supposed to enforce that law?

        The ECB´s powers do not include the power to expel Greece from the eurozone – because the European Treaties do no allow expulsions.

        However, if the ECB cuts off the ELA then Greece is effectively out of the eurozone.

        If it comes to that, shouldn´t the courts be required to enforce Greece´s right to stay in the eurozone?

        1. Yves Smith Post author

          The ECB can do it by imposing conditions on the ELA which the Greeks fail to meet. They have cleaner hands that way. The ELA is supposed to be for temporary liquidity support, not to prop up insolvent banks. The ECB can thus also argue that they had already stretched the law as much as they could supporting the Greek financial system.

          The ECB pulled the ELA on both Cyprus and Ireland, and they temporarily suspended it for Greece in 2012. So they have plenty of precedent on their side.

          1. Jose

            There´s a difference between a threat to act and effectively acting.

            Here´s what happened in the case of Cyprus:

            On March 21, 2013, during the negotiations that led to the intervention of the troika in Cyprus, the ECB put severe pressure on Nicosia, threatening to cut off the country’s ELA after only 4 more days – unless Cyprus agreed immediately to the conditions proposed by the troika to grant financial aid. As Cyprus did agree, we don’t know whether the ECB would be ready to implement this ultimatum on the announced date.

            I think you´re attributing to the ECB an omnipotence that it does not have. While states should certainly not behave as if English Law did not exist, the ECB is an organ created by European law and therefore must take that law into account. While member states have no doubt been too timid to remind the ECB of the legal limits to its powers, the time is right for Greece to change the tune and put the ECB in its proper place – of modest executioner of European law.

            1. Yves Smith Post author

              Lordie, did you miss what happened in Cyprus? We wrote about that at length. The yanking of the ELA forced the collapse of the two largest Cypriot banks, imposing huge losses on depositors. Moreover, the banks were resolved in such a way as to shift EUR 2 billion or so of deposits to Greek banks.

              In other words, the ECB most assuredly DID take the Cypriot banks out and shot them.

              1. Jose

                Cyprus surrendered to the ECB’s ultimatum. That’s the reason deposits were confiscated – it was a European imposition.

                But it could have chosen not to surrender.

                Are you saying that the only rational option that Greece has is to obey the ECB’s diktat?

                If so, then all resistance is futile and Syriza should simply disband while crying uncle.

                1. Jose

                  Here´s The Economist on Cyprus:

                  …in early 2013, the ECB forced a resolution of the Cypriot banking crisis by announcing that it would stop authorising ELA within days unless Cyprus entered a rescue programme to restore solvency to its two big bust banks.


                  So here it is – the ECB issued an ultimatum with ELA and Cyprus caved in.

                  Greece should just say no, and call the ECB´s bluff.

                  1. Yves Smith Post author

                    If they hadn’t the banking system would have collapsed. The ECB crammed down bank depositors, so it had no compunction about making them take losses, which would also be the result of a banking system collapse.

                    1. Jose

                      If they hadn´t, it´s highly doubtful that the ECB would have dared to carry out the ultimatum. But Cyprus chickened out and the ECB could cry victory without using its nuclear (and illegal) weapon of terminating the ELA.

                      Cutting off the ELA meant expelling the country from the euro (euro deposits cannot be transferred to the other eurozone countries, for lack of reserves in the banking system) and this is not allowed by the European Treaties.

                      When dealing with the ECB failure of nerve is not an option. Fortunately, Tsipras and Varoufakis seem to score much higher in courage and self assurance than the weak Cypriot leaders – who finally surrendered after a non stop session of threats issued by their EU colleagues (with the German Finance Minister leading the pack).

                      I strongly suggest the reading of this short and impressive description of the Cypriot surrender, as told by a stunned witness, the Maltese Finance Minister:


      6. ian

        “You are missing that the costs of Grexit are catastrophic and Syriza does not have a mandate to go there. Even now, public opinion is opposed to it.”

        I can’t see how Greece has any room to negotiate without a credible threat of leaving the EU – and by credible, I mean Greeks understand the consequences and are willing to live with them.

        1. Kurt Sperry

          I saw a graphic of polling results this morning from Gallup asking if people polled “If you were given the choice would you prefer to have the Euro or your own national currency?” It’s broken down by country and Greece has 52% favoring their own currency. So I certainly wouldn’t take it as settled that the Greeks want to remain in the Euro.

          Graphic referred to can be seen here (interesting page too): https://twitter.com/yiannisbab

  8. SteveL

    Varoufakis is showing himself to be the finest finance minister Europe has seen in decades.If he succeeds in his endeavor to extract Greece from its stranglehold, I believe he deserves at least a nomination for a Nobel in Economics, if not in Peace. If only we had more like him here in Europe (for example in Italy….).
    I think it is misplaced to attempt to judge and analyze the maneuvering of the various players at this delicate stage of political positioning. We’re watching “game theory” as it is about to become “game practice”, and who is better suited to this than Varoufakis ?

    1. Yves Smith Post author

      Yamamoto was also the finest naval leader Japan ever had, and Rommel the best tank commander in the world when tanks were the linchpin of German military prowess. Their considerable skills and effective leadership were not sufficient to produce a victory.

      1. SteveL

        Dear Yves,
        Please understand that there are reasons I’m trying to be optimistic. I left the USA 35 years ago, and built my life, my family and my business here in Italy. If Greece goes down, Italy won’t be far behind. This is partly the reason I’m hoping Varoufakis (and Greece) succeed in their quest. There are simply too many stare-downs in process right now (Greece/EU, US/Russia/Ukraine, etc) and calm heads need to prevail.
        Let me add that I’ve been following NC on a daily basis for several years now, and you are one of the finest econ bloggers around. Keep up the great work !

    2. docg

      Game theory indeed. Varoufakis seems to be playing the “Prisoner’s Dilemma” game, with Greece and Europe as the two prisoners. If one goes down, both go down. Only the troika don’t seem to get it. To play this game both “prisoners” need to understand their situation.

      1. Yves Smith Post author

        Agreed. That has been what he is trying to convey. Unfortunately the Eurocrats are case studies of the Upton Sinclair saying, “It is difficult to get a man to understand something when his salary depends on him not understanding it.”

        1. Trent


          Please describe the difference between your view of this situation Vs. Raúl Ilargi Meijer of the automatic earth. He seems to feel that Greece should leave and staying is only going to make things worse. Why do you disagree with this?

          1. Yves Smith Post author

            It is easy to prescribe simple-sounding solutions when you don’t have to live with the consequences.

            Greece’s export mix won’t benefit as much as the classic textbook story of cheaper currency. Unlike a manufacturing country, they can’t make all that much more in the way of agricultural goods. Similarly, tourism won’t pick up much in a country with a humanitarian crisis that is getting worse.

            Plus read what Varoufakis is right about the costs to Greece of the second-stage effect, of a Eurozone unwind. This would pull down Greece, which is barely functioning now, into failed state territory.

        2. vidimi

          i think that the troika are playing the ‘game’ brilliantly by pretending that they don’t understand the consequences or are unfazed by them. unfortunately, sometimes in a game of chicken, neither player blinks.

  9. alex morfesis

    what is good for the goose…

    Finland and Germany have a higher percentage of government involvement in enterprises than Greece. Dr. Stangeloves brother ran a little government subsidized brewery, Rothaus Brewery


    Greece should call for a european wide agency to monitor each and every governments plans to privatize as required by EU “rules”…and remind the people in Finland and Germany that it was their own governments insistence which has triggered this…

    But, alas, most Greeks do not know how to use “the takeaway”…

    as to labor reforms, a unilateral law dictating that from now on, Greece will abide by German Labor Laws would put “Mutti” in a box, as Germans have labor protections well beyond anything any greek would ever imagine…what could she say….she would not be able to fight that without looking like the dark princess that she is…

    and to deal with the insane Greek Bankruptcy regimen, Greece could unilaterally adopt the Laws of the New York Southern Districts Bankruptcy Code and Case Law…this would allow investors to understand what to expect in case of a bad investment….silicon valley lives on perpetual rebirth of enterprises…who could argue with rules from the belly of the beast…and New York has the most Greek Speaking lawyers, so it would not be a difficult transition…

    but alas, I fear, they will not box germany into a corner by using its own laws against it…but it would work…

    besides, 2014 seems to be turning into a year of change…1849, 1956 and 1989 all over again…but hopefully with a better ending this time…

    go AAP…what a change in India.

  10. Swedish Lex

    Obama is on the phone as I write this, explaining her the basic notions and inconveniences of a Mexican standoff

      1. Carlos Fandango

        I think the cavalry are still running around like keystone cops bumping into each other, they ain’t coming anytime soon. If Syriza back down now there won’t ever be a cavalry.

        1. wbgonne

          Beware of neoliberals bearing gifts. If Greece is counting on President Neoliberal to help them out they best read the fine print. Read it several times.

      1. Swedish Lex

        Cavalry approaching?
        Right now from the Guardian:

        Jack Lew: Europe has a demand problem

        The US Treasury secretary, Jack Lew, has fired a verbal warning shot at Europe tonight, saying fiscal policy should be looser. That’s a clear nudge at Germany.

        Lew also cautioned against idle talk of Greece leaving the eurozone.

        1. Carlos Fandango

          A crack showing (in more ways than one), maybe another reason for Greece to hold their ground and start printing Drachma as a contingency ….. quietly (but audible).

          1. Ned Ludd

            Or meet with Ecuador about its electronic money system, which enables a bit of plausible deniability.

            “Electronic money is designed to operate and support the monetary scheme of dollarization,” economist Diego Martinez, a delegate of the President of the Republic to the Board of Regulation and Monetary and Financial Policy, wrote to CNBC in a comment provided by a central bank spokesman. […]

            Still, others both inside and outside Ecuador have speculated that the country has broader goals. Claiming that there’s no plausible reason for Ecuador to provide “an exclusive medium for mobile payments,” Lawrence White, a professor of economics at George Mason University, wrote in a recent paper that “it is hard to make any sense of the project other than as fiscal maneuver that paves the way toward official de-dollarization.”

            Latin American countries have endured a lot of hardship, caused by the IMF’s structural programs and neoliberal subjugation. If Greece does not turn to Russia, then it will have to look for ideas on how its citizens survive a long period of deprivation.

        2. susan the other

          stg. I read described the two standard remedies for a giant depression caused by a surplus bubble exploding and its subsequent deflation were 1. war – to slurp up all the surplus (note how there are advocates of perpetual war today and they are saying unbelievably reptilian things like “war is good for countries” – Lindsay Graham comes immediately to mind…), and 2. austerity (aka depression itself). We’ve experimented like crazy for the last 70 years with alternatives to both austerity and war. One thing we gotta give liberals credit for is creating a world that managed to avoid hot wars. They weren’t so good at distribution of wealth. Which we all know is why this latest bubble blew the lid off. It would seem that the obvious solution to this mess we have today is an all out mobilization for better distribution. An effort which should override crushing bankrupt countries into deeper bankruptcy. But yes, Mr. Lew, that requires fiscal mechanisms to support not merely demand but demand from the tiniest niches. Trickle down is a joke; it was how closet austerity freaks managed to run the whole world into the ground. And add to this foolishness global warming restrictions because for the lasts 40 years trickle down was 24/7 and fueled by coal, etc. Our great leaders bought high, sold low and made it up in volumes of atmospheric pollution. So please be very careful how you design the demand of the future.

  11. Pepsi

    I appreciate the post and links to Yanis’s blog, Yves.

    I guess the moral of the story is that if Germany/Finland weren’t being so bloody minded, this could be solved without such suffering and the threats of more to come. Get rid of the austerity program, let Greece’s economy recover and change terms so that debts could reasonably be expected to be paid. Thanks for the enlightenment.

    1. Yves Smith Post author

      I know this is depressing and I really wish Syria would win. I hate to be a bearer of bad tidings. But any victory looks likely to be very compromised.

      1. Chauncey Gardiner

        As difficult as this situation is to stomach, Truth and honesty are very deeply appreciated here.

        1. Left in Wisconsin

          Agreed. But I’d be curious to hear what Yves would call a win. I don’t see any potential outcome as a win, only more or less disastrous.

            1. docg

              I’m impressed with your analysis, Yves, and on a purely economic level basically agree. But I can’t accept your politics, which is much too tame. I don’t think they’ve put up a good fight at all. They haven’t even put up a good bluff. They are coming across as political dilettantes, filled with hopes but prepared with no plan at all, not even for a credible bluff. What did they think they were getting into?

              I’ve followed Varounakis’s writings for some time and found them admirable in many ways — both insightful and bold. But never bold enough for the circumstances, and the weaknesses of the programs he’s been advocating are becoming more evident with each passing day. Far too much wishful thinking, far too little strategizing. If this is truly a European problem, then Syriza must find a way to involve all of Europe by taking a revolutionary stance, NOT a conciliatory one.

              They should have seen from the start that conciliation (aka begging) was not going to work. If their program has no teeth then they’ll be the ones to get bitten.

              1. wbgonne

                Dead right. If that is the endgame, people will see right through the kabuki: declaring failure as “victory” following a phony “fight.” What fight? Begging and abandoning your only leverage? Syriza won’t last 6 months, nor do they deserve to. It will be another nail in the coffin of the European Left. I truly hope Yves is wrong about the outcome here.

              2. Yves Smith Post author

                I have repeatedly said readers are wanting Syriza to be something different than what it is. Despite its radical-left branding, it representatives are largely bourgeois social democrats. I keep telling you what the facts on the ground are, and you want to romanticize them into something different.

                1. juliania

                  It isn’t romanticizing if your points are valid, Yves, to simply say in that case the outcome will be such and such. That has to be emphasized, as wbgonne has done, because you are making such points, rather than in opposition to what you say. The consequences in that case will be dire, and perhaps worse for the country as a whole, as it has been for this country since the 2008 election failed to live up to its promise to the citizenry.

                  I don’t think that’s romantic at all. But your message is nonetheless gratefully received and all posts on this subject have been informative and compellingly stated. I very much thank all involved in this discussion. And to Greeks, very little I know, that is true, but we all wish you well.

    2. MyLessThanPrimeBeef

      It appears to be Germany/Finland, but over the weekend, there was a post about economic groups being responsible, and not nations.

      Less Germany/Finland, and more focus on bankers and oligarchs, I think.

      1. Gaylord

        It is a class war, to put it succinctly, and the bankers & oligarchs have won thus far. But that victory is temporary because their exploitation of people and the environment will reach a breaking point. The question is whether they will come to realize this in time to avoid total annihilation and human extinction.

      2. cnchal

        My impression is that the German banksters and German politicians ganged up on German workers and stole their money. This stolen money was then used to lend at stupidly low interest rates to people in Spain, Portugal and Greece to buy BMW’s and expensive ocean front properties.

        It’s a loanable funds model writ large, hard money system, and the German banksters want the money they stole and loaned, back.

        1. MonkeeRench

          German banksters are surely not innocent of their share of perfidy, but it was Bankster JP Morgan that first bribed the 2k Greek oligarchs (of the unprosecuted Swiss-Leak Lagarde List) to enable the fraudulent loan terms that could never paid, but could nicely be driven down, colluding with corrupt rating services, into high-profit bets against them.

          The Euro-Banksters and London-Banksters learned their craft of theft well, but it was the BadMath Wall Street-Ivy League Banksters that taught them how.

      3. Makaveli

        I agree with you bro.

        Finland hasn’t gained anything from this. We have stimulated our economy with billions, but nothing happens, cause we are too small. Have lost almost 200,000 exporting jobs, because of too high wages and too high euro. Of course Nokia did some damage also, but… Today new orders rose 15 % from the last year, so something might start to happen.

        Germany is just exporting and owners of those companies are making billions. It’s the Elite who are benefiting. Productivity and labor wages hasn’t gone hand in hand in Germany in the past 10 years.

  12. Carlos Fandango

    Phoof … Yves sure lays down the negativity on a Grexit pretty thick, with few suggestions how to mitigate the worst effects. Bill Mitchell seems a bit more sanguine that an exit could be managed somehow … Where there’s a will, there’s a way… eh! … Who to believe?

    Staying in the Euro is surely a (less?) painful but slower death for everyone concerned (except the elites). If Greece are body slammed into submission, you can kiss Podemos, 5 star and the rest of the left (less right) wing hopefuls goodbye. Extreme nationalism will be the only hope for the repressed. Although it’s more likely the neoliberals will consolidate and stay in power indefinitely, throwing a few crumbs here and there as they slowly tighten the thumb screws, cranking up the police state and raising the threat of the bogeyman du jour.

    You have to think Syriza and co have a plan C if their renegotiation plans are emphatically rebuffed and other suitor countries conditions are too onerous.

    1. Roll over like a poodle and let the troika tickle their tummy.
    2. Have a underground bunker full of Drachma with delivery drivers revving up like the Italian job.
    3. Resign and run for the border.

    Sod it, I’d still rather they go out fighting bravely than give up or live in the debtors punishment camp with a leash around their necks. At least they could hold up their heads and believe they tried to do the right thing for Europe.

    1. Santi

      There is one option that you didn’t list that they will probably use: defaulting payments to EZ and IMF loans. See what Mr Varoufakis wrote in 2012:

      To conclude, Europe’s optimal strategy is to let Greece default, to allow the Greek government to find ways to live within its tax take for the next year or so and, at the same time, work out the Overall Solution to the euro crisis that was promised last year and never delivered. A Greek default will provide the clarity and the time-space to do this properly. The other two alternatives (more bailouts or a Greek exit) constitute cruel, unnecessary and unusual punishment. For the whole of Europe.

      If Europen does not “let” Greece default the EG will have to provoke grexit. Now the thing is easier than in 2012, as Greece is supposed to be already having a primary surplus, and defaulting removes need for financing except if further heavy bank runs occur.

      1. Carlos Fandango

        I’m starting to see the option of a Greek default and staying within the Euro (not being ejected), of course there will be the mother of all bickering over the kitchen table and I suspect we will just be back to square one with defaulters needing to be spanked.

      2. Yves Smith Post author

        It is not clear that Eurozone members will let a default go unpunished. If the Greeks default, the Administration will argue for that but the ECB can pull the ELA at any time.

  13. JDabrowski

    So in all seriousness, what would you do in this situation? Are there any good choices? Let’s say you’re Alex Tsipras, what do you do? At a certain point you have to rely on the political mobilization of the masses of people in Greece, or defeat and knuckling under to austerity is inevitable. I agree that they don’t have a mandate for risking the hardships of a Grexit, though. The large minority that voted for them are mostly former PASOK voters, not politically-mobilized supporters of a cadre left party.

      1. Santi

        You mean https://www.jacobinmag.com/2015/02/syriza-euro-greek-exit/ ?

        It is interesting because it discusses “wage compression”, which is the ultimate cause of the Eurozone problems. The talk by Heiner Flassbeck https://www.youtube.com/watch?v=kW_WrlpBilg makes is sufficiently clear that Eurozone will not survive without real German wages growing, or else Greece, Spain, etc. making a really heroic effort. In Greece case it implies doubling the current wage cuts to regain competitiveness WRT Germany, for instance…

  14. Kurt Sperry

    Delay: Bank of Greece colleagues tell me that it will take months before ATMs are stocked with new drachmas once they get the go ahead to print them.

    This doesn’t pass the sniff test. If the Greek government isn’t already frantically printing up Drachma notes in quantities sufficient to stock ATMs for a period of months with conventional withdrawal limits as a contingency, that would represent a total dereliction of leadership. Surely the physical act of putting pieces of paper the exact same size into the existing cassettes could be accomplished over a long weekend if the will existed to do so.

    1. Clive

      No. Way way a-back when dinosaurs roamed the Earth and I was a junior in my TBTF I worked in the ATM Operations unit. It was a big, big unit. The logistical effort is considerable in maintaining an ATM estate — and that is under BAU conditions. Cash is bulky. The security requirements are considerable. The ATM hoppers are designed for specifically sized notes (the specification is exacting — if the notes are not precisely the same height, width and, crucially, paper grade, the ATM will jam up quickly; this applies to note counters as well). You can’t just max out high demonization notes either — a functioning cash currency needs sufficient quantities of various notes and coinage in the right proportions. Physically stocking, balancing and making an ATM ready for service once depleted takes a finite amount of time and that time isn’t trivial. And most ATMs are “dual control” — you need two operators for fraud prevention. Like I say, for a single TBTF to maintain a network of ATMs takes several hundred head office staff and a lot more in-situ staff. Then you need armoured cars, guards, access to premises. That’s many hundreds more needing to be planned, rostered and actually turning up each day. It is a major undertaking — and this is under normal, day-to-day operational conditions. Factor in secrecy (which would be inevitable, certainly in the run-up until the last few days anyway) and it is even more difficult.

      And then you have self-service tills in supermarkets, vending machines, ticket machines and so on. Again, the specification of the physical currency is critical. For stores, marking prices is a labour-intensive job.

      If Varoufakis were here having a cup of tea with me, I’d tell him that, from first-hand experience, don’t fcuk with the currency unless you absolutely have no options left whatsoever. From what he’s pronounced — and as Yves has repeatedly said, this has been his consistent message — I think he gets that already.

      1. washunate

        I’m not sure that really responds to Kurt’s point, though? Anonymous sourcing that a key logistical step would take months is almost by default worthless. It’s not a substantive assessment.

        Most payment activity these days is electronic anyway. In a true drachma shortage, the cash economy would just use a currency other than drachmas. You know, like the Euros already circulating in the cash economy. It’s really only Americans that get confused by that since the US is so big and our core economy is so isolated from global trade that we almost never encounter foreign currency. Even then, every once in a while a Canadian or Mexican coin ends up in the US. Enterprising foreigners and expats would start importing thousands of Euros and Dollars and Pounds (and Rubles, and Lira, and Rupee, and…) on Greek cruises, bed and breakfast stays, backpacking outings, business trips, you name it.

        Plus, the illicit drug trade is one of the largest industries in the world, and it manages to function at an enormous cash scale not just in the absence of central government support, but in the presence of active government opposition.

        1. Mark P.

          Washunate wrote: “Most payment activity these days is electronic anyway. In a true drachma shortage, the cash economy would just use a currency other than drachmas. You know, like the Euros already circulating in the cash economy.”

          I think this is most to the point.

        2. hunkerdown

          Plus, the illicit drug trade is one of the largest industries in the world, and it manages to function at an enormous cash scale not just in the absence of central government support, but in the presence of active government opposition.

          I think it’s more correct to treat the supply management exercises of US troops in Afghanistan or Colombia or DEA agents in El Paso, or the DOJ-provided arbitration services between the Zetas and the Sinaloa cartels, as support rather than active opposition. One could even argue that the 1961 Single Convention on Narcotic Drugs was an official program to seize a new class of individual rights and create a worldwide market out of them.

          1. washunate

            I heartily agree that the US government is actively involved in the drug war to such an extent they seem to rather like it. You might say they are addicted to it :)

            But that’s all for the people at the top. The trickle down effect of the drug war is very different for the people being trickled upon. For average citizens, drug and terrorism and tax laws make cash more difficult for usage, not easier. For example, did you know that in Italy paying rental expenses in cash is now illegal? And even Greece, perhaps the king of the grey economies of EMU, has an official limit of 1,500 Euros.


            We live in a western world that is so opposed to ordinary citizens transacting in cash, away from the ad tracking and government snooping alike, that I think people have internalized that philosophy as something inherent to the natural world rather than a specific set of public policy choices.

            1. fumobici

              My father bought a house in Italy around fifteen years ago and was astonished to learn that the closing was expected to be (and was) finalized with a suitcase full of 100 Euro notes. Apparently this was considered perfectly regular in Tuscany.

              1. washunate

                That’s awesome. I find cultural differences like that with respect to how money works really fascinating. Of course, that’s what the 500 euro notes are for…

      2. Mark P.

        Clive wrote; ‘if the notes are not precisely the same height, width and, crucially, paper grade, the ATM will jam up quickly; this applies to note counters as well.’

        You’re assuming that the Greeks couldn’t just go ahead and print Euros, you know. Euros are printed and issued by member states. If the Greeks wanted to be bloody-minded they could do it. In this game of Chicken, it’d be something else for the Germans and the Troika to think about.

        “You can’t just max out high demonization notes either”

        Heh. I like this a lot, but that’s not quite the right term, is it? Demonization is the reinterpretation of polytheistic deities as evil, lying demons by other religions, generally monotheistic and henotheistic ones.

          1. supermundane

            Aren’t Greek Euro’s already designated with a unique mark or identifier? I don’t have access to one but I believe it’s a ‘Y’ in the serial. Why couldn’t as a transitional move, the Greek government only accept these notes as legal tender and begin to introduce a new drachma while the existing currency is phased out?

            1. washunate


              That option is so obvious to anyone thinking about the ESCB for more than 2 seconds that it really sheds an interesting light on claims that there would be a huge logistical hurdle in the cash economy. Many of the non-EMU ESCB NCBs print their own currencies. Even some of the EMU member NCBs print their own currency. And even just among the subset of ESCB countries that are EMU members and are using the Euro, almost all of the printing is done by the NCBs, not the ECB.

              But Yves isn’t talking about coins and paper currency for the general populace. She’s talking about electronic payments for the banks – ELA is Emergency Liquidity Assistance.

              And that’s the real question, not cash logistics. Is Syriza serious about changing the contemporary western model of the past couple decades that says the economy exists to serve the banks? Because if they are serious about upending the premise that the role of government is to protect the looters, then at some point fears of being cut off from the ECB aren’t threats – they’re signs of independence and national sovereignty.

              Being threatened at losing ELA is like a boss you don’t like at a job you don’t like threatening that you can’t come back to work after quitting. Well, duh. That was kinda the point of quitting. To not go back to work there ever again.

              The only reason Greece needs financing from the eurozone financiers is to pay off the fraudulent debts of the eurozone financiers. Renounce fraudulent activities and voila, you don’t need the fraudsters’ money because the only purpose of that money was to repay the fraudsters.

              This isn’t some radical philosophy. This is the basis of rule of law. Debts specifically, and contracts generally, are only as good as their ability to be enforced in court.

        1. Yves Smith Post author

          You keep ignoring the issue that Clive addressed, that it is not a printing issue. Greece has a perfectly serviceable currency printing press that now prints Euros. It is a distribution and ATM loading issue. Varoufakis has said it would take months to get enough currency in circulation. An inadequate monetary supply is deflationary, the last thing Greece needs on top of all of its other economic tsuris.

          1. Kurt Sperry

            I’m going to spitball here.

            Assuming the distribution and loading (watched it done while shopping, takes maybe ten minutes on site) are hugely problematic–and all the pieces are obviously already there in place, the armored cars, the low level people who actually possess the needed skills, do all the actual work etc. could probably be easily found in the unemployment lines–the currency in any case needn’t immediately be distributed through ATMs, after all we got along fine for some considerable time I believe without them. All you’d really need is a postal banking infrastructure similar to the one used in Italy (or say the publicly owned and recently killed [coincidence?] Hellenic Postbank) and real time access to the necessary account data–the same data any ATM requires access to to function. Difficult logistically? Yes, no doubt. But beyond the means of an entire motivated national government?

            As for shortages of physical banknotes, if the Greeks aren’t already hard at work printing those up right now by the ton as a contingency arrangement, they’ve really not been doing their job. It’s not like it was hard to foresee the potential need to do so long before the election, even if the likelihood they’d ever be used was seen as low.

            Everything up to now as this has unfolded since the election from the EU side has been dead predictable right? The troika chicken car is running on autopilot on the expected collision course, there have been no surprises at all I’m aware of from the EU technocrats, so all pretty easy to contingency plan for. I doubt any surprising or unexpected moves from the troika are even likely looking forward, they seem locked in and incapable of modifying their expected positions. Much of the thinking through and planning of the logistics could and thus should have been done months or even years in advance before the elections.

            1. Clive

              Like I already said, the physical cash handling is just one aspect. And to take your example, okay, unloading the cash from the truck takes 10 minutes. But how does the cash get onto the truck ? Where are the regional distribution centres ? How much cash goes to which ATM ? In what denomination ? Who is the hand off to once the cash gets off the truck ? And when the new currency is loaded, the ATM has to be taken offline until the old currency to new currency switch over date — so the ATM network is progressively disabled as old currency is swapped out to the new currency.

              Yes, there is infrastructure, processes and people in place to handle this task now (how else would the ATM network keep going). But it is sized for normal operating parameters! A typicaly ATM will run for between 3 to 10 days between replenishment (some really busy sites like stations or shopping malls after a weekend will run “dry” in a day, but these are the exception). So everything is geared up to service the ATM’s cash needs in a gradual, progressive fashion. I can tell you without any doubt at all there is not enough pre-existing capacity in the cash holding centres, the fleet of transport vehicles, trained people or the IT systems to cope with a currency swap out in a weekend or even a whole week.

              And that is before you get to physical constraints like having to redesign the ATM hoppers. Creating a new currency with the same specification as the old one is a non-starter. It is called counterfeiting.

              Put it this way — this has all happened before. The Euro countries swapped over from their previous national currencies to the new Euro. The planning and implementation took the best part of a decade to do in an orderly way. You’d be talking weeks or months — best case — for Greece to do the same.

              The last thing Greece needs is more chaos.

              1. Lambert Strether

                Here is how the Czechs did it:

                The split was announced on February 2. The two countries already had capital controls, but all cross-border money transfers between them were halted to avoid further speculative flows into the Czech Republic. Border controls were tightened.

                Komercni Banka, a then state-owned commercial bank, glued stamps, printed by a British firm to ensure secrecy, on 150 million federal banknotes. These were trucked around the country with the help of police and the army.

                The exchange for notes stamped by Czech or Slovak stamps, at a 1:1 rate, started on February 8 and was completed in four days. Later in 1993, the stamped notes were replaced by new ones.

                People could swap a maximum of 4,000 crowns — then worth $136 (87 pounds) — in cash. They had to deposit the rest. The old money ceased to be valid immediately the switch started.

                The whole process, which required 40,000 people just on the Czech side, went ahead smoothly. An opinion poll showed 86 percent of Czechs experienced no problems in the operation. Capital controls were essential to stop bank runs. Secrecy in the buildup was paramount.

                I like the stamps concept. The greeks could stick drachma stamps on the Euro bills. (And pay for the value of the physical paper later, if anybody gets miffed.)

                Note the presence of capital controls however. For whatever reason, the Greeks did not do this.

                1. Clive

                  Oh, with enough planning — and an orderly transition being accepted and welcomed by currency users i.e. the general population — there’s all sorts of work-arounds possible.

                  But, for example, the Czech “solution” above the killer snag is:
                  “People could swap a maximum of 4,000 crowns — then worth $136 (87 pounds) — in cash. They had to deposit the rest. The old money ceased to be valid immediately the switch started.” because this only worked for the reason that, in that situation, there was nowhere else you could go to spend those soon-to-be-illegal-tender Czech crowns.

                  Conversely, if I have, say, 50,000 euros stuffed into the mattress (many Greeks do, to a greater or lesser extent) I have every incentive to hang onto those and over the next few months (or even years) knowing full well that I stand a better than 50/50 chance of smuggling these out into Italy, Germany, the UK or wherever rather than hand them into the banking system and have to take my chances with a currency devaluation.

                  What worries me is that even just talking about this stuff will make previously ambivalent, stoic people start to wonder about not wanting to be the schmucks holding the bag and (if?) (when?) Greece does a Cyprus or “abandons the Euro”. That is exactly what produces a bank run. There is a strong possibility that a full-on bank run will tip Greece over the edge.

                  Greece cannot — must not — leave the Euro. The consequences of it doing so would be hideous. No sleight-of-hand gimmicks with the physical currency will ameliorate that for the 99.9%.

                  1. Kurt Sperry

                    If that last paragraph is believed to be true by Syriza, then there is really no point in continuing their anti-austerity project is there? They have nothing to bargain with and they will suffer an utterly humiliating and inevitable defeat. Since a debt renegotiation is their policy centerpiece, they may as well stand down now, call new elections and dissolve the party.

                    1. Clive

                      @ washunate above (oh no ! quelle calamity ! WordPress runs out of nested reply capacity !)…

                      This is a complete non-starter; you cannot have the entire population of Europe (and non-Euro countries like the UK which routinely accept and clear euro currency) checking it for “Greek” euro serial numbers. And what about automated tills in supermarkets etc ? They check the notes being input for the built-in note security features (paper weight, metallic / UV markers and so on). They can’t scan serial numbers.

                    2. Clive

                      Becoming Europe’s version of North Korea will not put Greece and its people on the path to happiness.

                    3. washunate

                      So you do acknowledge that the primary issue is not the cash logistics, then? It’s about what ‘Europe’, especially the eurozone, will do to Greece if they were to repudiate their bankster debt.

                      But at anyrate, my point is that the issue of not accepting Greek Euros has nothing to do with Greece printing more Euros after leaving EMU.

                      Even if they didn’t print another note, there are already Greek Euros in existence. This isn’t Greece’s problem. It’s one of the points of negotiating leverage. It’s the problem of

                      the entire population of Europe (and non-Euro countries like the UK which routinely accept and clear euro currency)

                    4. washunate

                      P.S., this isn’t some esoteric matter. What to do with old currency is a real question. In the US context, we never obsolete it. You can still redeem silver certificates and old $100 FRNs.


                      Well, because the far reaches of the American empire depend upon the cash itself always being valuable and unaccountable. Suitcases of paper USFG emissions grease the world, at the margins.

                      Calling in old FRNs (and other USFG emissions from over the years) would be one of the best anti-terror, anti-drug, anti-warlord policy moves ever. Which is why the USFG can’t do it.

                      The Euro is in an even tougher spot, because at least with the US, the US government itself is the only meaningful issuer of FRNs and other paper. The state of Texas was desperate to enter the Union. But if they wanted to leave for some reason, they would have no capacity to print FRNs.

                      In Europe, by contrast, I think it’s 11 different national central banks that print currency units that are accepted officially in all of the Eurozone and in many places where the official currency is something else. If they designed the technology backend so that the individual NCB emissions can’t be distinguished from each other, that is huge negotiating leverage held by each NCB – if said NCB was willing to walk away from EMU.

                      The other member states wouldn’t know a member state had fudged until long after the transition period said fudging was designed to patch over had passed. Which is why I think the technical challenge of distinguishing Greek Euros is probably overblown. Because if it’s not, that’s a technical hole big enough to drive the entire drachma caravan through. Greece will have de facto re-implented a national currency before European leaders even have time to develop a coordinated response, let alone implement it.

    2. Jim Haygood

      Having some local notes handy is certainly a more plausible Plan B than expecting a bailout from ‘the US or China or Russia.’

      Given Greece’s current excessive debt, no sovereign is going to swoop in to the rescue without getting super-senior status over the existing debt. But that’s not possible, since the existing creditors (IMF, EU, ECB) will never accept being subordinated.

      Two possible outcomes: Greece accepts a face-saving modification of the bailout terms and calls it a victory; or else Grexit. There is no white knight waiting in the wings.

      1. Santi

        Varoufakis has said it a number of times after having been elected, in the last two weeks, and also earlier in the last years:
        * Greece is a bankrupt state,
        * you don’t treat insolvency as if it was illiquidity, by “extend and pretend”
        * Greece is becoming addict to bailout loans. He does not want more money.

        He will default, with agreement and plan or without it. This is his real strength. He will push the button if not offered an equivalent solution that saves the face of the EG/IMG/BCE. ;)

        1. Jim Haygood

          Okay, that’s a third option. But defaulting, losing ELA, and staying in the euro zone means Greek banks close the next day. Massive economic damage results.

          1. MyLessThanPrimeBeef

            I believe it was quoted from the Greek leader’s speech on Sunday about the achievement of the European Union being the free movement of people.

            Expect a lot of Greek migrants in Berlin. Frau Merkel will make sure they are not deported.

            No manpower shortage for the Second German Economic Miracle and the Fourth Reich.

            1. MyLessThanPrimeBeef

              Sweeter when they and their children and grandchildren will then be able to vote there in the future.

              That’s not something you can say about the Carthaginians after being conquered by the Romans who salted North African fields to teach them a lesson.

      2. JustAnObserver

        Defaulted debt cannot be “excessive”.

        And that, of course, is what will happen, whether the default is dressed in the clothes of GDP-bonds or perpetual-bonds or 200 year maturities or whatever. What cannot be repaid won’t be and in that regard it no longer matters much what threats or downright brutality the ECB/EuroGroup/Germany apply. The only question remaining is the political one whether the current EZ members actually *want* the Euro to survive after the economic carnage its flawed design has inflicted on the people of Europe … in fact all EU states.

        In this regard IMHO the insurgent party to watch is not Podemos, 5-Star, SinnFein but the anti-Euro German AfD (Alternativ Fur Deutchland ?); the Greek drama is playing right into the hands of these D-Mark nostalgists. I suspect its existence is largely responsible for what appears to be hysterical gibbering coming out of Germany’s otherwise fairly staid MSM.

    3. MyLessThanPrimeBeef

      I refuse to believe efficiency belongs exclusively to those ‘productive’ Teutons up north.  It’s almost like defeatism to say that…something you might have heard at the end of the Thousand Year Reich, but not before the battle has begun.

    4. Carlos Fandango

      Mind you there will be people in Greece trying to make everything the Government tries to do fail.

  15. z80


    Why don’t you post forward looking balance statements and budget projections related to different Grexit scenarios. You could include secured and unsecured debt, public assets, likely write-down scenarios, currency projections, and all of that fun stuff. I’d be surprised if they have any hard assets left for the creditors to take.

    Regarding agriculture, Russia and China might pick up the slack from an exit.

  16. steviefinn

    It kind of reminds me of post WW1, when the intransigence of the victorious European states, in particular France, led to Germany’s humiliation at Versailles. Short termism & short memories – it will not end well.

    1. Jim Haygood

      Le grec paiera, as it were.

      All the olive oil in the world wouldn’t service Greece’s debt mountain.

      1. steviefinn

        I suppose that the other possible upshot of this, is that the voters of the other periphery countries, might well cotton on to the fact that their votes are not worth a damn, which is a realisation that is probably not going to end well either.

    2. Chris in Paris

      Only this time we have hard right neo fascists in France who would close European borders, impose unilateral tarifs, and most likely leave NATO and the EU. Russia is isolated and being thwarted in protecting its border interests, chaos reigns in the Middle East and the whole world is armed with nukes. I’d prefer post WWI.

    3. cirsium

      Stevie – the terms of the Versailles Treaty are understandable, given the death and destruction, both economic and societal, caused by warmongering, German militarism. The post-war problems did not stem from the “intransigence” of the victors but from the fact that Germany was not occupied and reconstructed. It was only with the Second World War that the German Empire was finally defeated. Given the problems Empires and imperial ambitions caused in the twentieth century, it was sobering to hear Mr Barroso last year, when he was head of the EU, describe the EU as a “non-imperial empire”. Looking at what is happening in the Ukraine and at the humanitarian disaster in Greece, I am reminded of the aphorism that those who do not learn from history are bound to repeat it.

  17. NotSoSure

    Greece should sign whatever it needs to sign to get through the next however many months, make some noise again a month prior to the Spanish/French election, then renege all deals outright. The time for conventional solutions have passed.

  18. ohmyheck

    Now here is a headline for ya!

    “The REAL Greek Negotiations: Situation Is “Berserk”, “There Is No Plan”, “Greeks Digging Own Graves”
    ZH …
    sourced from this site: Euro Insight–
    “Brussels officials ‘infuriated’ by ‘wildly misleading’ Greek claims that Juncker and U.S. Treasury are backing Syriza plan to alleviate debt; EU official says Greeks are ‘digging their own graves;’ Lazard criticized by EU side”


    It is a little less hair-on-fire than the “Fight Club” version….

  19. ErnstThalmann

    There is no alternative but the creation of a workers state with the attendant confiscation of private property, and the public trial of the scum that have brought Greece to this pass. That would set the tone for Spain and Italy, eh?

    1. ErnstThalmann

      The new workers’ state will be called the Democratic Peoples’ Republic of Greece. There will be no “messing with property rights”, there simply will be the non-recognition of any private property rights whatsoever except for those of the people collectively in any and all assets. You may be assured that the Greek people will know how to respond to any hostile initiatives on the part of foreign interest or powers.

  20. Mel

    One of Gregory Bateson’s contributions to psychology was an explication of the Double Bind, which R.D.Laing used in analyzing schizophrenogenic situations. In a Double Bind, someone is offered two choices:
    1) You lose
    2) You lose
    and if there’s much of anything at stake, the result is very destructive stress. Bateson ponted out the third tacit rule:
    3) You can’t get out of the game.
    Per Bateson and Laing (IIRC. Until I unpack the books I won’t know.) a healthy resolution ususally involved opening door 3 and getting the hell out.
    My hope for Greece is that doors 1 and 2 are just part of the courtier kabuki (y’all know what I mean, even though it’s an implied insult to real 歌舞伎) and that real life — food, clothes, houses, conversation, all that — will still be possible once the Double Bind Game is over.

  21. Stephen

    So . . . if Syriza ends up having to “knuckle under” and accept all of the troika’s demands, and given how much the greek “man in the street” is suffering (and angry) right now, and given that by all accounts this suffering will only increase if the troika has its way, at what point do we see social unrest on such a scale as to render the situation not only intolerable but uncontrollable save by massive military force (and force directed by whom)? It seems to me we’re talking as if the “talkers” (i.e. Syriza, the troika, the US govt., the Finnish govt. and so on) are the sole “deciders” here. Forgetting, I fear, that something akin to “mass hysteria” has in the past wrested control of events from the hands of political leaders regardless of competence or righteousness. Questions of whether Greece stays or leaves the EU, or whether the exit is orderly or chaotic could be rendered moot if there is essentially no viable nation to stay in or leave anything. A combination of humiliation and hopelessness in a nation is a dangerous mix, to put it mildly.

  22. Bill Frank

    The moral of this story? Any nation that allows (or is forced into) the kind of austerity preferred by financial elites will find it most difficult, if not impossible, to ever escape from it’s death grip. This is the Faustian bargain facing Greece. The financial elites may find that Greece is willing to face the fear of what will happen if they exit rather than tolerate the current boot on their neck existence. Repayment of debt should not be a primary consideration for Greeks. Smashing the brutal mandates of austerity should be their primary goal. The elites control the financial system and all of it’s workings. They have rigged the game to assure their victory in virtually every scenario. Don’t underestimate Syriza. They may simply refuse to play the game. I’m holding out hope that Syriza stands strong and deals a much needed blow to the financial elites who seem hellbent on forcing and maintaining austerity across the planet.

    1. Carlos Fandango

      I agree, If we want to talk about winning the wide game… Best for Europe and all that….. In the bigger game a Grexit with bank nationalization and wipeout of the Greek elites would send shivers down the spine of the elite swines who are stuffing us into this hell hole. If Yves is right Greeks may go through a rough time (maybe not so bad), no doubt any shortage of cough drops being magnified and trumpeted by our bought and paid for mainstream journalists.

      The boost to the rest of the world’s oppressed if Syriza by guts, skill and luck produce a ray of genuine hope in Greece….. Priceless!

    2. MyLessThanPrimeBeef

      With stocks rising, it appears they are preparing a Looters Ball based on inside information we don’t have right now.

      The elites can sleep soundly tonight after their drunken debauchery.

      1. Carlos Fandango

        If Syriza have capitulated under the pressure and have turned all third way on us I wouldn’t be too hard on any of them personally, at least they had a go…. But it will make life much harder for all of us in the long run. The neoliberal boil just gets bigger and bigger.

        Maybe they can still kick some oligarch tax avoiding ass before their demise.

  23. Ignacio

    I think that Krugman has a point hen he says that Tsipras and Varufaikis are different to any other leader that has negotiated with the troika. They personally risk much more that others. I believe that Varoufaikis would resign the moment he finds it impossible to reach a reasonable agreement. Tsipras migth be different. I don’t know how far would he go.

  24. mpr

    Saying they are not in favor of Grexit just means Tsipras and Varoufakis will not actively pull that lever themselves. But they may well call the ECB’s bluff, and dare them to cut off ELA. In fact Varoufakis has written in the past that he thinks this is an empty threat.

    Yves, game this out – we get to March with no agreement. Your analysis of the finances seems to include payments to the IMF and others. There is no reason at all to pay the IMF if the Eurocratic position at that point is still ‘we won’t negotiate’. They may well decide they are going to stop paying altogether, but they can decide whom and when to pay. This is one of their tactical advantages. Basically, the one thing they won’t do is print drachmas just to fund government spending, but everything else is on the table.

    Of course while all this is going on Mr. Market will be tightening the screws on the rest of Europe. You see, Yanis is a nice guy, but Mr. Market he gets easily upset. And when Mr. Market gets upset, he has a bad temper …

    1. Yves Smith Post author

      If the government runs out of money and defaults in March, I would not assume they will be treated well. The ECB can easily impose conditions, like “if you continue to violate these terms of the current structural reforms, the ELA [which is subject to renewal every two weeks] will not be renewed.” That will put the blame for the loss of the ELA on Greece, not the ECB, at least from a PR perspective.

      1. mikkel

        Can other central banks step in and provide liquidity? They certainly are taking everything else up as collateral?

        1. Ben Johannson

          By statute reserves can only be issued under authority of the ECB council of governors. National CBs have the technical capability to do so but the political and financial repercussions of violatinf the law would be akin to a quantum torpedo detonation.

            1. Ben Johannson

              The ECB statute doesn’t leave any wiggle room on this. Per Article 14, paragraph 3:

              The national central banks are an integral part of the ESCB and shall act in accordance with the guidelines and instructions of the ECB. The Governing Council shall take the necessary steps to ensure compliance with the guidelines and instructions of the ECB. . .


              The moment a national CB attempted to do something like issue its own euro reserves the Executive Board is going to order it halted. By law the CB must comply.

  25. JohnB

    Nice to see mention of Rob’s ‘Tax Anticipation Notes‘ idea – Yanis proposed something very similar, not too long after Rob posted that :) (though in a comment on his blog, Yanis said it was ‘no panacea’, though I’m not sure quite what that meant, i.e. what the limits would be)

    I’d be very interested in a full post/analysis sometime in the future, for schemes like this – it is something that seems to rarely be discussed. It strikes me as something that is again very similar, to what the Nazi’s did with ‘MEFO Bills‘, as Phil Pilkington did some excellent writing on (Phil’s article there, has some fascinating and informative history in it – well worth a re-read every now and then).

    If the Nazi government could secretly utilize MEFO bills to fund re-armament like that, I don’t see why something similar could not be done within Greece, so long as they manage to strike almost any kind of a deal, that avoids any immediate or short/medium-term disaster.
    Might it not also provide the perfect opportunity, for setting in place the infrastructure needed (that which handles the TAN’s – almost like an alternative currency system), for preparing/safeguarding for a Euro exit – minimizing the highly damaging transition period? (obviously that would want to be avoided at all costs, but it seems like it might be a very prudent ‘worst case’ safeguard)

    1. Ben Johannson

      The question is whether the troika/German bloc would accept member states issuing what amounts to domestic currencies concurrent with the euro regime. At this stage I can’t imagine they would stand by without imposing increasingly severe penalties while successfully bashing the offending nations for attempting to sabotage the pan-european project.

  26. docg

    Forward, We’ve Not Forgotten

    Bertolt Brecht

    translated by “Henry Jordan”

    Forward, we’ve not forgotten

    Our strength in the fights we have won!

    No matter what may threaten,

    Forward, not forgotten,

    How strong we are as one!

    Only these our hands now aching

    Built the roads, the walls, the towers.

    All the world is of our making.

    What of it can we call ours?

    Forward, march on to power

    Through the city, the land, the world.

    Forward, advance the hour!

    Just whose city is the city?

    Just whose world is the world?

    Forward we’ve not forgotten

    Our union in hunger and pain.

    No matter what may threaten

    Forward, not forgotten,

    We have a world to gain.

    We shall free the world of shadow

    Every shop and every room

    Every road and every meadow,

    All the world will be our own.


    1. susan the other

      I heard another quote last nite from Brecht, a line in the 3 Penny Opera: “What is robbing a bank compared to founding one?” I think it was on France 24.

  27. susan the other

    Yves: “Financial time has a nasty way of moving much faster than political time.” If all debt defaults are socialized, as it seems they are, and cause destabilizations in the financial world as it tries to remain a private enterprise, it would be a good move to look at limits for privatized gains. If politics allows private finance to impose austerity as well as socialize its losses at a faster pace than society can respond, it’s just slaughter.

  28. Cugel

    Since Austerity is a death spiral anyway, what is the point of delaying repudiation of it? It’s like a choice between getting shot in the head now or 6 months from now. Most people would choose 6 months, but if that extension of time required you to grovel and eat turds and there was no possibility of survival at the end of it?

    Either Greece refuses to yield and is forced out amid horrible economic dislocation, or it agrees to more austerity as a condition for extending the debt. Then what? The situation will only be worse in 6 months time and meanwhile the Greek government will have voluntarily imposed more crippling austerity on it’s own people. Why not go down fighting? Because there is no alternative.

    The Troika is playing into Syriza’s hands politically in Greece because the Greeks are going through all the “reasonable gestures”. It isn’t that they want Grexit, it’s that it’s inevitable anyway due to the blank insistence on endless waves of Austerity.

    Why would the Troika prefer that Greek fascists take power? What good does that do them?

    1. hunkerdown

      The reproduction of the aristocratic international and social order that puts people beneath them.

      Also, the risk of ending up as some Ottoman king’s ottoman for the rest of their days.

    2. supermundane

      Why would the Troika prefer that Greek fascists take power? What good does that do them?

      Capitalists have always founds fascists amenable in the past.

  29. JohnB

    (Repost with stripped links)
    Nice to see mention of Rob’s ‘Tax Anticipation Notes’ idea – Yanis proposed something very similar, not too long after Rob posted that :) (though in a comment on his blog, Yanis said it was ‘no panacea’, though I’m not sure quite what that meant, i.e. what the limits would be)

    I’d be very interested in a full post/analysis sometime in the future, for schemes like this – it is something that seems to rarely be discussed. It strikes me as something that is again very similar, to what the Nazi’s did with ‘MEFO Bills’, as Phil Pilkington did some excellent writing on (Phil’s article there, has some fascinating and informative history in it – well worth a re-read every now and then).

    If the Nazi government could secretly utilize MEFO bills to fund re-armament like that, I don’t see why something similar could not be done within Greece, so long as they manage to strike almost any kind of a deal, that avoids any immediate or short/medium-term disaster.
    Might it not also provide the perfect opportunity, for setting in place the infrastructure needed (that which handles the TAN’s – almost like an alternative currency system), for preparing/safeguarding for a Euro exit – minimizing the highly damaging transition period? (obviously that would want to be avoided at all costs, but it seems like it might be a very prudent ‘worst case’ safeguard)

    1. JohnB

      Here are the links I stripped from the above post, so I could actually post it:
      TAN’s: http://neweconomicperspectives.org/2013/12/exit-austerity-without-exiting-euro.html
      Yanis’ TAN’shttp://yanisvaroufakis.eu/2014/02/15/bitcoin-a-flawed-currency-blueprint-with-a-potentially-useful-application-for-the-eurozone/
      MEFO Bills: http://en.wikipedia.org/wiki/Mefo_bills
      Phil Pilkington on MEFO’s: https://fixingtheeconomists.wordpress.com/2013/12/11/hjalmar-schacht-mefo-bills-and-the-restoration-of-the-german-economy-1933-1939/

  30. Ned Ludd

    My grandfather had a saying: “Just when you think things can’t get worse, they do.” If “Plan A” and “Plan B” are falling apart, it is time to move on to Plan C…Z.

    It is time to think about food & fuel. It looks like the RMS Euro is going to come awfully close to the Grexit iceberg. People in Greece need to think about food, transportation, and how to heat their homes – if money ceases to exist, for them.

    Greece is being pushed from the security a modern society – dependent on electricity and running water and modern sanitation to control diseases like cholera. Given the intransigence of the other European governments, Greeks may be required to survive with whatever means they can provide for themselves.

    1. docg

      There is no reason the Greeks can’t provide their own food, clothing and shelter. If hunter-gatherers could do it so can the Greeks. As for fuel, they can probably work out an arrangement with Venezuela and/or Russia. iPads and iPhones they can live without (though most already have them I’m sure). Doctors and nurses they already have. Pharmaceuticals could be a problem, but they could probably get some help in that dept. from organizations such as CARE and Save the Children. What else? If they are forced to ditch the Euro as an official currency, that won’t prevent them from using them anyhow. And if they lack the monetary means to pay their workers, all the better, since money is going to be obsolete soon in any case. They could probably institute some sort of rationing program. We did it once here in the States, as I recall.

      The poorest country I ever visited was Tito’s Yugoslavia. It was the best run country I’ve ever seen, with NO beggars, NO slums, jobs, food, clothing and excellent medical care for all. (Best of all, no rich people either.) The exchange rate was 1000 dinars to the dollar and I rented a beautiful room for a dollar a day.

      1. hunkerdown

        First of all, “If x can, so can y” is a violently offensive trope and about two steps away from talking to plants on the psychotic delusion scale, so has absolutely no place in sensible discussion. It is lying in a uniquely celebrated American fashion: the fallacy of composition, the horseshit of can-do-ness, the arrogance of tasking other people with hazing rituals, the sloppy submissiveness of the American worker, all rolled into one stupid lie, what might be the foundational lie on which Exceptionalism is based.

        The best thing the world could do right now is outen all those undersea cables and leave the US to become its own run-down capitalist North Korea. Unfortunately, Cuba’s got Netflix now…

        1. docg

          I don’t think there’s anything shameful in being self-sufficient. And nobody is about to “outen” any undersea cables, where is that coming from? The Greek people have very few choices at this point, so if they can be self sufficient for a while, why not consider it?

  31. Oregoncharles

    “Yet Syriza is acting as if it is still not getting the message”
    It’s Chicken, and they’re playing it the way you have to. The same is true of the Germans, who also are taking severe risks – as you point out. Of course, they may not realize it. When you’re used to being the big dog on the block, it’s hard to realize the little yapper has you by the tender bits. They’re replaying WWII, and Germany lost that one.
    Which isn’t actually very optimistic: the Euro going smash isn’t the best option by a long shot. But it’s Greece’s hole card (to mix my metaphors, again).

  32. Jess

    It sounds to me like the financiers have won. National sovereignty is gone for any EU periphery country. Once you’re in the grasp of the EU and the Euro, you’re dead meat. Your only exit options are death by drowning or death by fire.

    What happens if Greece accepts austerity, hangs in for a while, and then another desperate nation — Spain, Italy, etc., — bolts the EU while their economy is in a little better position to hang on and ride out the transition storm? Does that somehow then make things better for Greece? What if Greece, Italy, Spain, etc., all exit and cooperate with each other on imports, exports, etc. Is that even feasible?

    All in all, I think the commenter above who said that if Syriza doesn’t exit the EU, Golden Dawn will make the move, has it right. And as much as YV opposes a Grexit for the reasons he’s outlined, I might feel a little better with him managing the damage than whoever Golden Dawn would install as Finance Minister.

  33. Gee

    I see France as the wildcard – it’s a good (or bad?) thing their election isn’t until 2017.

    My reasoning is that, when the left wing parties (first Greece then Podemos) fail to live up to their campaign promises (cant negotiate meaningful austerity reduction,) wont force a euro exit, can’t negotiate their way into being forced into a euro exit, and cant quickly turn their public opinion against being in the euro, after they arent forced to grovel, their populus will turn against them, and swing extreme left to extreme right. And the so called rabid right is almost always up to the dirty work of being extreme. This is what makes France dangerous. So if we dont crash the euro project now, what outcome buys any time that doesnt make its end that much more inevitable in a couple of years? And what outcome short of an exit, given how far the concessions card has already been rolled back, possibly do anything but give further support to extremist parties both left and right?

    Im not sure why Germany, the Finns and the other hardliners dont grasp the fate they are sealing for themselves. Do they really think that since they have kicked the can so far that they can just kick it forever and there really is no cliff that it might go off? Can they be that obtuse, or do they see it as so long term that they’ll trade the short-term benefits, stockpile the gains they can in preparation for the apocalypse? I mean, there is some support for that notion, in that now they get QE, and they can just start to hoard as many assets as they can. This is one of the reasons they love the privatization land grabs so much.

  34. Petey

    “And let me again stress that Varoufakis sincerely believes that a Grexit would be a disaster for Greece.”

    As always, I agree with this. But as always, I think Varoufakis is fully willing to countenance a Grexit if Syriza’s brinksmanship totally and utterly fails.

    My latest ammunition for this position is Varoufakis today saying:

    “If you’re not willing to even consider a clash, you’re not negotiating. We’re not seeking a clash. We will do everything to avoid it. But you’re not negotiating if you’ve ruled it out.”

    So, yes, a Modest Proposal is far preferred to a Grexit. But if not even an exceedingly modest proposal can be negotiated, everything implicit in the essence of Syriza’s brinksmanship, not to mention Varoufakis’ various explicit comments, calls for a countenancing of getting forced out. Plan B is awful, but the Status Quo Forever is awful too.


    And in response to the comment upthread about the comparison to WWI, I’ve been thinking that too ever since the brinksmanship started.

    The only positive thing to take out that analogy is that the brinksmanship over a Full European War started almost a full decade before the guns of August. It took a number of episodes of near misses, and pulling back from the brink before policymakers had lost their heads enough to be willing to embark on a course down which they strongly suspected everyone would lose. (Even actual military mobilizations had occurred prior to 1914, to be pulled back at the last moment.)

    And given that this is the first real episode of brinksmanship in the ongoing Eurozone crisis, policymakers may well not be willing to pull down the temple on all their heads quite yet.

  35. carol

    unfortunately, i asked the question because i have become very doubtful whether that really is possible in Greece.

    See e.g. http://www.spiegel.de/international/europe/wealthy-greeks-still-dodging-taxes-despite-crisis-a-864703.html
    This article from 2012 (!) mentions that extremely rich ship owners are exempt from paying taxes: as it is written in the constitution.

    Instead of bad-mouthing the Germans, Syriza might have evoked some sympathy from middle-class taxpayers in eurozone countries if they had prepared a plan, and immediately implemented it: confiscating part of the wealth, or at least frozen it.
    True as it is that most of the 240 billion made a U-turn straight into French and German banks, that does not justify asking e.g. Finnish and Portuguese taxpayers to pay even more instead of the extremely wealthy (HSBC clients and the like) Greek non-tax-payers.

  36. Kyle


    “Since Austerity is a death spiral anyway,…”

    Exactly! Austerity is only an exercise in irrationality. Imposing austerity simultaneously destroys your markets. By doing so, how do they expect the debtor to attain the revenues that will pay off the debt??? Can’t happen! It’s a road to ruin fostered by way of criminal fraud.

  37. Kyle

    BTW, I wouldn’t be surprised at a further devaluation of the Euro as well as adverse events in the American and European banking sectors caused by another black swan event.

  38. hunkerdown

    French MEP whinges that Greece shouldn’t demand war reparations. Reasons cited include: we’re better than you, we don’t wanna, “family” looks forward not backward, and “but that’s where the money is”.

    The French can’t not be arrogant, can they?

    1. MyLessThanPrimeBeef

      I think French wine makers are pretty arrogant.

      And I think Spanish cheeses are far superior.

    2. Paul Tioxon

      Why is Haiti so poor? The French made vast fortunes off of their colony, much as the British did with their island plantation cash cows. But after the slave revolt, the only successful slave revolt in human history, due to slaves taking political control over the territory they lived in as nation, the debt of property dispossession that resulted from the revolution crippled the young nation. The French demanded payment for loss of land and property. The sum was too much to bear but was eventually paid off with interest under universal international pressure to do so in form of extreme political and economic isolation. Even after a debt reduction, it wasn’t until 1947 that the debt was paid off. The revolt happened in 1791. That’s how forgiving the Liberty, Egalitarian and monarchy free French people treated a similar revolution. If Greece exits all they have to do is look across the ocean to the what their future holds, they will be Haiti of Europe, strangled with trade sanctions and debt payments.

  39. Lisa

    I am surprised that no one seems to countenance the idea that the most probable outcome of all this is a (probably military) coup in Greece. I am sure the US/EU/etc and all their ‘intelligence’ organsations are working real hard on that outcome. I’d put that as a 75% probability.

    A good brutal coup with lots of killing and torture, to put the fear of death into anyone else thinking of trying to escape the ‘Washington Consensus’, woud be considered a great outcome by many in the ‘elite’.

    I am sure there are a lot of people working very hard on this right now.

    1. Gee

      Just when you think it can’t get any more grim around here…sigh. Sadly, you are probably on to something.

    2. hunkerdown

      Some elite US Treasury twit did just go over there to appraise the joint their situation. That’s usually a sign. Here’s hoping that Greece’s brothers in faith to the northeast will provide “technical assistance”.

    3. Yves Smith Post author

      No, you don’t see coups when a government has a high level of public support. Syriza is now polling at 70+%. And the US is not on the same page as the Eurozone.

      Plus the ECB can just pull the ELA, or impose conditions that Syriza can’t meet, making them look like the bad guy.

      You don’t need to resort to guns when you hold all the financial cards.

      1. vidimi

        didn’t the u.s. try to pull that with chavez with similar support numbers? and they removed aristide from haiti with even greater support.

        support doesn’t matter much if you can control the narrative.

    4. gordon

      There was discussion upthread that a Syriza failure would lead to a Golden Dawn Govt. This was treated as an awful possibility. But what would happen if that did eventuate? I don’t see how G.D. would find itself in a better situation than Syriza is in now – very likely worse – and so how could they possibly implement their agenda of Grexit and leaving the EU? They would face the same pressures that Syriza does, and there seems to be a lot of agreement with Yves’ thesis that Syriza cannot succeed.

      Of course if G.D. positions itself as the political tool of a creditor-dominated coup the problem goes away, but that would involve G.D. adopting policies diametrically opposed to those it currently embraces. Not impossible, but still…

  40. Dino Reno

    Least likely scenario: No Grexit, no war with Russia.
    Next least scenario: Grexit and war with Russia
    Most likely scenario: No Grexit and war with Russia.

  41. Makaveli

    ” Finland threatened to veto all the other Eurozone members on their plan to extend the current bailout till June to allow for the formation of a coalition and allow the new government time to settle in.”

    This is completely new information for me as a Finn, so could I get some sources for this accusation?

    “I do not know what the national Finnish rules are on the issue but my assumption is that any substantial amendments to the Greek bailout must be run through Parliament.”

    We have agreed on these mechanisms already, so if you bail out Greece by them, then it doesnt need to go threw the parliament. At the beginning of this show few years back, we gave bilateral loan for Greece worth 1 billion. Its market value is now 300 million, so it didn’t go too well, uh. But our government is saying in parliament and TV, that we haven’t lost an euro yet. I wouldn’t really say so, if my bond would be worth of 1/3 on the markets.
    “The Greeks (Syriza) and the Finns thus actually have a lot in common, actually; Both are convinced that they right way, and the only way, is to not compromise on matters of (their respective) logic and principle.”

    Yeah, Syriza, Greeks, Finns and rest of us are human and we can be stubborn, tender or what ever we like. It’s just a question of what you wanna be. Second biggest party leader (Finance minister Rinne) in government was ready to forgive Greece loans in chairman contest for The Social Democratic Party 12 months ago, but now he have changed his mind for some reason, but Olli Rehn will be probably next Finance minister, EU-minister or some other straw man in a few month, when we have those parliament elections for what they are all acting out. Even Olli Rehn said few months ago, that Greece should have reliefs and its debt should be constructed on tell-a-vision. He even said, that they talked few years ago, that if Greece would implement these things, they would forgive some loans. He even admitted, that he fu#¤ed up things a bit, thanks for Rogoff’s and Reinhart’s voodoo-paper, what was like the bible for him for awhile.

    This is just all big show and I still don’t understand why you think, that Finland is one of the biggest players in the EU? It really wonders me. It’s oligarchs (evil people, who want to enslave humanity) vs. 99,999 percent (mostly useful idiots and few bright souls, who will illuminate the whole world). Not Finland versus Greece or something like that. They are playing divide and rule. It’s really hard to make any conclusions from these outputs, because they are always acting for domestic spectators and telling all kind of Alice in Wonderland stories.

    This Greece thing was real big thing 4 years ago and now many politicians are loosing their faces, because everybody knew, that Greece will not be able to pay back their debts and these moneys went for banks anyway. 1,8 % went for Greece, rest of it went for banks, but elite kept up dreaming in EU-heaven and now their clouds have vaporized, so they are fu¤%ed and this f#%k up will be remembered for a long time. Thanks for the internet and youtube. Greece will not default. Yeah right! =)

    I hope, that Syriza will success to change atmosphere in the EU, but I also think, that the Washington consensus will have something to say about it. If there would be enough many of us, we could change policies, but Syriza alone has a very little changes.

    1. Yves Smith Post author

      This was in the Financial Times in January. I don’t have time to track it down.

      EU rules give members a de facto veto over certain matters. Finland has operated in a blocking position before and can again.

      1. Makaveli

        It was (ex)-Prime minister Stubb. He was only making election speeches in the FT. You shouldn’t take him too seriously.

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

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


        Just a week ago, parliament talked whole day about this topic in the parliament session and Stubb was ready to watch, what Syriza brings to the table, so I wouldn’t put too much pressure on this article, which is old news already anyway.

        “But eurozone officials said Helsinki has taken an even harder line in closed-door talks, telling counterparts that a longer extension of the Greek programme could inflame anti-euro populists in Finland’s upcoming parliamentary elections.”

        Like I said, elections are the main reason for this game, what Stubb plays.

        “Asked whether he could back an extension of the EU bailout, which is due to expire next month, Mr Stubb said he could not “exclude the possibility”.

        You said: “Finland threatened to veto all the other Eurozone members on their plan to extend the current bailout till June to allow for the formation of a coalition and allow the new government time to settle in. The much shorter February 28 deadline was needed to secure Finnish cooperation.”

        Stubb didnt exclude this possibility. Finland didn’t set this deadline?

        Then some anonymous fella says:
        ..without Finnish objections, a deal with moderate figures within Syriza to extend the bailout and begin discussions could be possible, especially given mounting realisation in eurozone capitals that Syriza is likely to win the January 25 vote.”

        How this guy knows, that Finland objects, because Syriza wasnt in power yet? How Finland could have rejected Syrizas program, when it wasn’t even on the table yet?

        This is just negotiation tactics all over the place. We don’t really know what they are planning to do. It’s important, that nobody looses faces. I hope, that Germany will not be the only winner this time. Last time they screwed all of us.

        And yes, in many cases they must make unanimous decisions and Finland can block matters alone, but when have we done so, may I ask?

        This austerity is just a way to get these famous “structural reforms” made. If you would make them right. You would get a nice society, but now it seems, that only agenda for the reforms is to transfer wealth to the rich and get them more power. These structural reforms are anyhow a really funny concept, because people don’t ever tell any concrete things, what needs to be done, so that people good think effects and choose, if these reforms will bring the agenda, what is wanted.

        1. Yves Smith Post author

          No, that is not the article. The article stated that the FEb 28 bailout deadline was solely Finland’s doing. This was retrospective not prospective. All the other Eurozone countries wanted to go until June but Finland balked and got the end of Feb, a mere month after the elections. The Finns really wanted the screws on the Greeks.

  42. charles 2

    At the risk of repeating myself…

    1) There is nothing in the EU Treaties that says that a sovereign state cannot default. it can even default selectively, which is exactly what it should do.

    2) All Greece has to do is default with 0% recovery on all bondholders except
    a) domestic
    b) Central Banks
    c) IMF
    d) the EFSF (for the fun of it…)
    which essentially leaves hedge funds, mutual funds, pensions and EFSF.
    yes it will all go “Argentina” then so what ? They will seize agricultural subsidies at the source ? This is small change…

    3) Once Greece has done that, it has a SUSTAINABLE debt load, therefore if the ECB threatens to remove ELA on Greek Bonds or cut Target2 or refuse to provide the Greek banking system with banknotes, the Bank of Greece can challenge the decision in European Courts on the ground that it is not a monetary decision (because the collateral is sound) but a political one. Such decision will take time, and the Greek challenge will have some real merit. That will give some time to reach a compromise. Meanwhile, there are plenty of “euroeuros” around in countries like China or Russia to get the necessary liquidity (and even banknotes), and of course, the countries willing to help will get a better treatment in the selective default…

    1. Kyle

      I wonder how much of these bonds are floating around on the open market. They’ve certainly depreciated with the rise in interest rates on Greek debt.

  43. Paul

    Nice article, although it has left me feeling very depressed. Further to your post the other day on being part of the solution and not the problem, I started thinking about how I could make a small difference. German neo-liberals are focused on money above all else, so I will focus my efforts on the only thing they seem to care about. Along the lines of #greeklivesmatter, I propose #boycottgermanproducts. I will do my very small part to fix the German trade surplus. Everyone who cares should do the same.

    1. gordon

      Good idea. I’m helping by not buying a Volkswagen today. I doubt whether I will buy one tomorrow, either.

      1. Kurt Sperry

        Modern German cars are hideously overengineered, crusted and weighed down with accreted and often buggy and gimmicky gadgetry, unreliable because of the above and ruinously expensive to service besides, either for planned maintenance or when they inevitably fail. Even if Germany were a paragon of virtue it wouldn’t make any rational sense to buy their overpriced, overweight, overengineered (but admittedly often very pretty) cars.

  44. Bobbo

    I think we are getting a little carried away with our fears when we start saying that an exit from the Eurozone would be catastrophic, that it would be the end of life as we know it, that it would be a complete unmitigated disaster. It’s kinda like saying we cannot end slavery because the slaves would lose all of the protections that their slave masters provided. There’s an irreconcilable disconnect.

    Guess what? The sun will come up tomorrow.

    If debts cannot be paid, the borrower should repudiate them. I know that this blog hates all religion, but that the world needs is a debt jubilee. What the world needs is to rise up against the overclass, which preys on everyone else with the threat of debt servitude. To do that they rely on the centralization of power. Everything needs to be decentralized. Economies need to be decentralized. That’s the only path to reclaiming democracy.

    When we get to the point where we consider it a matter of life and death when we are dependent on institutions of centralized power like the Troika, we need to start reclaiming our lives. Yves, you frequently link to Ilargi, and this is one of the central themes of his writing, so I am surprised you come out so strongly against his message.

  45. jwl

    Greece is too big to fail. Since ‘too big to fail’ is the criterion for Treasury and Federal Reserve intervention, it’s time for both to act.

  46. MaroonBulldog

    Let’s say the Greek government offers some 6 month t-bills (to tide them over during negotiations on a new plan) on Wednesday, with a better-than-“market”-rate of interest–that is to say, a positive integerr with only a few zeroes preceding it to the right of the decimal punctuation–and you have a small retirement account with a $13,000 CD expiring on Wednesday. Would you invest your retirement money in the t-bills. (Assume you’re 67 years old and already retired.)

    Would you invest your retirement fund in the Greek t-bills? If you wouldn’t, how do you justify that? Doesn’t Greece’s need create a claim on your resources?

  47. Chauncey Gardiner

    Hi MaroonBulldog,

    Don’t think Greece needs our IRA’s with the world’s central banks now “monetizing” more than 100% of global sovereign debt. How do you think that $16 trillion to certain debtors in the wake of the 2008 financial system collapse was funded, and why we now are seeing negative real yields on much sovereign debt?

    Greece’s debt is a pitifully small fraction of that amount. One of Syriza’s and Greece’s problems is that they gave up monetary sovereignty and they’re evidently the “wrong kind of insolvent debtor”.

  48. Aussie F

    Unfortunately, Yves, I think you’re absolutely right. Greece is effectively confined in a neo-liberal cesspit, and there’s no way out. Of course, it’s a pyrrhic victory for the Troika, because the likely end state is increasing success for the Nazis of the ‘Golden Dawn.’
    It’s worth remembering that as well as it’s signal contributions to democracy and rationality, Greece also invented the tragedy.

  49. kristiina

    First time a post on NC feels like a move in a game (to me). I trust the game will have a benvolent outcome for all, whatever that may be.

    About the role of Finland: I could not find anything on the role of Finland in the events after Syrza win, apart from the Finnish board member of ECB (Erkki Liikanen). The country positions are presented here: http://www.bloomberg.com/news/articles/2015-02-02/greek-debt-writedown-demands-faces-euro-area-disdain-overview
    Prime minister is willing to negociate, but says no to forgiving loans. A general election is coming up in April, and probably no party is really willing to move before that to avoid upsetting the voters. As a Finn, it looks to me that Finnisn stance is always to do what Germany does. I don’t see any independent line there. Another matter is Liikanen on the ECB board, but he has only one vote there.

    1. jjonas

      As a Finn, it looks to me that Finnisn stance is always to do what Germany does.

      For the third time in a hundred years, the Finnish goverment lunges forward with the support of mighty Germany during a major European crisis. On the two previous occasions (1918 and 1940) it didn’t turn out so well for either them!

      1. kristiina

        Sad, but true. Mass hysteria…dreadful to look at. This is what Jung said in 1918 “Christianity split the Germanic barbarian into an upper and a lower half, and enabled him, by repressing the dark side, to domesticate the brighter half and fit it for civilization. But the lower, darker half still awaits redemption and a second spell of domestication. Until then, it will remain associated with the vestiges of the prehistoric age, with the collective unconscious, which is subject to a peculiar and ever-increasing activation. As the Christian view of the world loses its authority, the more menacingly will the “blond beast” be heard prowling about in its underground prison, ready to burst out with devastating consequences.”

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