Will the Cavalry Ride Over the Hill in Time for Greece?

We’ve cautioned readers that Greece is in a very weak bargaining position relative to its financial overlords in the Troika. As much as Finance Minister Yanis Varoufakis is making sound, logical arguments and presenting proposals that if anything are too accommodating, despite initial cool reactions, many of Greece’s soi disant partners are diehard neoliberals and/or are politically constrained. Varoufakis is approaching them as if they can deal in good faith, when their idea of “good faith” comes from a punitive parallel universe.

While Varoufakis and presumably Tsipras are unwilling to deploy the one realpolitik tool at their disposal, a threat of Grexit, other parties who have influence on the recalcitrant actors are more sensitive to the fact that much more is at issue than just the fate of Greece. The ongoing game of extend and pretend has managed to forestall what amounts to an existential crisis for the Eurozone. Its founders knew its structure was incomplete and imperfect, but they believed the logic of preventing future wars was so compelling that the inevitable future crises would be resolved by further integration.

Unfortunately, as we’ve been chronicling off and on since 2010, the northern bloc, and most important, Germany, have not wanted to give up its catbird seat. It has influence in excess of its population, continues to run trade surpluses with the rest of the Eurozone, which is tantamount to stealing demand, yet it is unwilling to accept the inevitable consequence of running sustained trade surpluses, which is that you must finance your trade partners (or to put it in the terms of petrostates, recycle your surpluses). Moving toward integration, particularly more powerful governance at the Eurozone level, and having more fiscal transfers to allow countries like Greece to have enough demand to have manageable levels of production and employment, means that Germany will have to cede power. And Europe still has strong nationalistic impulses, another obstacle to cementing the alliance.

But it has also been clear, with the rise of ultra-right, anti-Eurozone parties, and to a lesser degree, anti-austerity parties like Syriza and Spain’s Podemos, that this unsustainable status quo is if anything past its sell-by date. Thus for the more forward-thinking technocrats and politicians, Greece’s efforts to free itself from failed austerity policies serve as a focus point for their own agendas to move away from anti-growth, anti-democratic policies.

The problem for Varoufakis and Syriza generally is that the magnitude of the task before them, of negotiating what they hope is a deal with significant new components, is already difficult to accomplish by June, the longest time frame they are likely to have, even if their interlocutors were more receptive. With limited knowledge of the power structures in the key governments with which they are dealing, it’s well nigh impossible for them to find, let alone work with, mid level and senior level figures who are their natural allies.

Thus Varoufakis (at least for now) is forced to broadcast his messages when narrowcasting would be better. Broadcasting means he will almost inevitably offend some key audience, given if nothing else how far apart Syriza’s voters and German officials are in their expectations for the negotiations. But the broadcasting is critical to communicating and rallying both insider allies as well as voters in periphery countries, since shifts in poll results increase pressure on the Eurozone reactionaries. Perversely, the best thing for Syriza’s chances were the Hebdo murders, since the boost it gave to anti-Eurozone Front National leader Marine Le Pen is a big wake-up call for the Eurozone elites.

As Business Insider points out, three big events today may provide some clues as to whether the more moderate and liberal forces are making any headway in checking the punitive, negative responses to Greece’s call for a new deal. As we indicated, the ECB still holds the trump card in dealing with Greece, in that it holds life or death power over its banking system through its control of the Emergency Liquidity Authority, or ELA. Draghi has made clear he is not at all keen about supporting Greece’s banks, particularly since the bank run since they are likely to be insolvent, as opposed to merely illiquid. But Draghi is also sensitive to the ECB appearing to trump democratic processes, so to the extent the central bank decides to muscle Greece, the preferred route would be through mechanisms and procedures that are not obvious to most commentators.

The major events of the day are:

1. The ECB meets to approve the extension of the ELA. The approval is certain but is only for two weeks. But Draghi has hinted he might impose conditions, and that would take a 2/3 vote of the governing board. One faux-friendly tradeoff would be, for instance, to push out the renewal beyond two weeks but require that Greece come to an agreement on certain issues

2. Varoufakis meets with Draghi to try to get his consent on getting waivers to current bailout arrangements, particularly restrictions on bond issuance and access to interest held at the ECB. This is important and likely necessary for Varoufakis to live up to his “no bailout funds” plan and enable Greece to meet its obligations thorough June, when it has debt maturing and needs to have a bigger deal secured. The Financial Times reported that the ECB is negative on giving these waivers. In theory, Greece is flying without support if it goes beyond February 28 without those waivers. And even with very careful cash management, it is not clear it can last until June. As Business Insider notes:

There’s a big gap between the official end of the bailout (if it isn’t extended) at the end of February, and a full deal on debt, which likely wouldn’t come for months (if it comes at all), so it’s crucial for the new Greek government that the ECB still acts as a backstop for the country’s banks, Varoufakis will likely need Draghi’s tentative agreement for that.

The Financial Times reported on the ECB’s negative stance yesterday and the updated version of its account has not modified that reading. Key sections:

Yanis Varoufakis, Greek finance minister, had proposed to European officials that Athens raise €10bn by issuing short-term Treasury bills as “bridge financing” to tide the country over for the next three months while a new bailout is agreed with its eurozone partners.

But the ECB is unwilling to approve the debt sale. It will not raise a €15bn ceiling on t-bill issuance to $25bn as requested by Athens, according two officials involved in the deliberations. “The Greek plan relies fully on the ECB,” said another eurozone official briefed on the talks. “The ECB will play hardball.”…

The ECB’s stance raises the stakes in the stand-off between the anti-austerity government in Athens and its international creditors, which if unresolved, could end with Greece running out of cash within weeks.

It is also likely to puncture a sense of optimism among investors over Greece’s alternative rescue plan and a softening of its insistence on debt cancellation, which lifted the Athens stock market 11.3 per cent on Tuesday and pared 10-year borrowing costs by nearly a full percentage point.
Yields on Greece’s 10-year bonds rose 42 basis points on Wednesday to 10.22 per cent while Athens stocks shed 2.1 per cent.

The Greek government has said it could survive without additional cash until June, when a €3.5bn bond comes due. But many EU officials fear allowing the programme to lapse could restart market panic and spur a bank run.

Recall also that it is in the reactionaries’ interest to force Greece to reach a deal sooner. The more pressure the Greeks are under, the less opportunity they have for supporters among insiders to press their case, and for Greece’s ongoing negotiations and official statements to galvanize voters in the periphery. Moreover, it would force them to negotiate largely within the framework of current bailout parameters rather than explore new arrangements.

This lever is powerful enough to give the ECB considerable advantage and yet argue that they are being completely reasonable, since no other country has been cut this sort of slack. That may also obviate the need to deploy the more brutal and obvious weapon of a not-so-veilled threat to cut off Greece from the ELA, which would also rattle markets. Thus what happens here is likely to be the most revealing “tell” of whether national governments, particularly France, are trying to moderate their central bankers behind the scenes (note my check of Le Monde does not give much cause for hope, since the Greece stories, while pretty evenhanded, were neither prominent nor among the “most read,” but things are moving so quickly it may be behind the state of play. However, the BBC quoted Italian prime minister Renzi as failing to endorse the Syriza efforts specifically but voicing support for growth over austerity).

3. Tsipras meets with EU Commission president Jean Claude Juncker

The other thing to bear in mind is that even if behind-the-scene struggles help Greece get a better deal, the technocrats idea of what is sufficient for Greece is sorely blinkered. For instance, even Le Monde in an explainer provides a surprising amount of support for Varoufakis’ creative debt structure proposals, some of which have the considerable advantage of making the success or failure of the revamped program tied to the payment on the bonds. That provides a mechanism for reopening negotiations if as with pretty much all IMF bailout plans, GDP growth falls short of projections. But the reaction among a large number of commentators, as well as economists, is that Greece can get the relief it needs simply via a further extension of debt maturities and interest rate reductions.

Similarly, Varoufakis has called for a reduction in the primary surplus requirement from 4.5% to 1% to 1.5%. Martin Wolf, the Financial Times’ highly respected lead economics commentator, deems that to be reasonable; other observers call for a “split the difference” approach. But either way, this is just not enough of a break to get Greece back on a growth path. Any fiscal surplus is contractionary. Bill Mitchell has estimated that Greece needs a fiscal deficit of 10% to pull its depression-mired economy out of the ditch. Varoufakis had solved that conundrum in his Modest Proposal via calling for what amounted to fiscal transfers, through Eurozone-level funded infrastructure spending and emergency social programs. Maybe he’ll put those on the table with his formal plan, but by not foreshadowing that they are coming, they will be perceived as an additional negotiating demand and would not be likely to be well received.

But Wolf, whose column urges Eurozone leaders to hear the Greeks, unwittingly reveals how deeply the economic elite has internalized failed neoliberal thinking. After pumping for cutting Greece a break on the primary surplus, he continues:

The second issue is structural reform. The IMF notes that the past government failed to deliver on 13 of the 14 reforms to which it was supposedly committed. Yet the need for radical reform of the state and private sector no doubt exists.

One indication of the abiding economic inefficiency is the failure of exports to grow in real terms, despite the depression.

Indeed, Greece faces far more than a challenge to reform. It has to achieve law-governed modernity. It is on these issues that negotiations must focus.

So this must be the deal: deep and radical reform in return for an escape from debt-bondage.
This new deal does not need to be reached this month. The Greeks are right to ask for time. But, in the end, they need to convince their partners they are serious about reforms.

What if it becomes obvious that they cannot or will not do so? The currency union is a partnership of states, not a federal union. Such a partnership can only work if it is a community of values. If Greece wants to be something quite different, that is its right. But it should leave. Yes, the damage would be considerable and the result undesirable. But an open sore would be worse.

What Greece and the Troika have in mind for structural reforms are significantly at odds. The big factor in Syriza’s favor among the Eurocrats is its independence from the Greek oligarchs, and its willingness to take them on and reform Greece’s tax system, which fails to cover huge swathes of income earners. That is the one set of reforms where both are on the same page. But otherwise they are at odds, which is the reason for Varoufakis saying the Troika bailout monitors are no longer welcome. Varoufakis is correctly unwilling to sell off Greek assets at distressed prices, which is part of the reforms. “Structural” market reforms are to a significant degree an exercise in reducing labor bargaining power and lowering wages. By contrast, Syriza has proposed increasing the minimum wage and a direct employment program targeting the long-term jobless. This sort of thing is anathema to the IMF “structural reform” party line.

Look at the assumption in Wolf’s argument: that Greece, and presumably the rest of the periphery, needs to export more. The world cannot be comprised of net exporters.

Moreover, notice that he explicitly rejects the notion of further Eurozone integration, seeing it as viable as a mere collection of states. The crisis has show the current structure to be unworkable. Having a common currency means a common interest rate. Without more fiscal transfers, growth rates in individual countries are too disparate for a single rate to work. The result was monster borrowing binges and real estate bubbles in countries where the rates were too low, most notably Spain and Ireland. And the members of those countries are blamed for profligacy when the cause was a fundamental design defect in the Eurzone that remains uncorrected.

Finally, see Wolf’s casual suggestion that Greece should leave the Eurozone if it won’t swallow misguided structural reforms. As much as financially-oriented commentators discount contagion risk, the real threat to the Eurozone has move from the economic realm to the political. Greece showing a departure can be made and forcing the Eurozone to sort out the yet-not-specified mechanisms plays into the hands of the anti-Eurzone right wing, which only becomes more powerful as austerity creates more misery and more eagerness for the seeming certainty of strong men (and in the case of Le Pen, women).

As none other than Joschka Fischer, former German Foreign Minister and Vice Chancellor, wrote at Project Syndicate:

Simultaneous debt reduction and structural reforms, we now know, will overextend any democratically elected government because they overtax its voters. And, without growth, there will be no structural reforms, either, however necessary they may be.

Since a supposed friend of Greece like Martin Wolf seems unable to grasp how much it will take to achieve growth in a now-prostrated Greece, his proposals are not that much of an improvement over what its enemies are likely to serve up.

Lambert reacted negatively to Syriza’s campaign slogan of “Hope is coming” as being an eerie parallel of the Obama hope and change headfake. Syriza appears to have vastly better intentions, but faces formidable, and likely insurmountable obstacles. Most of the traditional readings of the Pandora’s box myth has the appearance of Hope, after Pandora has unleashed all the world’s evils, as a sort of consolation prize for her horrible mistake. But classicists warn that ancient Greeks saw Hope as a dark force because it winds up prolonging torment.

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      1. Kyle

        “…because this is what produce shooting wars…”

        Exactly. And economic bottom wars are the most vicious and destructive.

          1. Kyle

            Yes Jim, there is a fragment of the real economy hanging on by it’s fingertips although the neoliberals are doing their best to eradicate every last bit of it. The Eurozone is flirting with frank deflation hoping that their belated version of QE will get accepted soon enough to have an impact on the EZ economy. Although the US is officially out of recession, job numbers aren’t rising sufficiently enough to reflect this. And there are many that are of the opinion, that this is only an error in consequence of an overinflated stock market and an excessively compensated 1%.

  1. cassiodorus

    Endless economic growth on a finite planet — there’s another contradiction. Why is the good life necessarily contingent upon endless economic growth on a finite planet? One recalls Naomi Klein’s advocacy of “degrowth” in her book about abrupt climate change, “This Changes Everything.” From your reporting, I gather, everyone proposing “recovery” for Greece has in mind that it will become a new industrial powerhouse or something along those lines. Would it be too modest merely to recommend that the Greeks deserve to live decently?

    1. steviefinn

      You would hope so wouldn’t you ? but in a world where the prevailing philosophy is more, more & still more – run by those who have the best tools to achieve this – resulting in a massive wealth transfer from the bottom to the top – it is most likely that the treadmill will increasingly have to be mounted by just about everybody, other than the elites, in order to simply survive.

      I had better get creative with my C.V. – worked for Fred ” the Shred ” Goodwin of RBS infamy & although it is alleged that it was somehow ” Lost in translation ” it doesn’t seem to have done Mr. ‘ Hissy fit ‘ Dieselboom much harm either.


    2. norm de plume

      ‘Why is the good life necessarily contingent upon endless economic growth on a finite planet?’

      You might like this recent post by Dmitry Orlov:


      ‘These Indios inhabit a wild, roadless terrain, half-water, half-jungle (the nearest road is a two-hour hike over a mountain pass), do not avail themselves of any government services, don’t have bank accounts and trade a little or work as day-laborers for the few things they need. They are the happiest, most congenial, most carefree people it has ever been my privilege to encounter.’

      1. MyLessThanPrimeBeef

        I think it’s Zen (or maybe something else) that says ‘When you own nothing, you own everything.”

        “Mathematically impossible!!!!” screams the math genius.’

        “Prove it!!!!”

    3. Steven

      It just gets too painful to follow these discussions sometimes. The world has LOTS of things it could spend money on that would be much more beneficial than bailing out bankers, European, American or whatever. Many of those things are even likely to employ people for a while. But I suppose it is too utopian to hope we do the things we need to do for us as a species, for other species and perhaps even for a life-sustaining planet to survive. So in addition to buying more financial ‘toxic waste’ and hoping for more industrial growth so we can create real, genuine toxic waste, I propose:
      1) military Keynesianism for Germany (preferably the kind where Germany buys US arms rather than making their own
      2) giving all Germans enough money so they can enjoy ‘the American lifestyle’ as it existed in the 1960s while Germany’s savings and credit lasts, etc, etc.
      We could have a look at the international monetary and financial systems, apparently hell-bent on preserving the status quo antibellum (that would WWII in case you are wondering what war. There have been so many of them lately!)

    4. jgordon

      I’m glad to see this kind of comment more often of late here. The bizarrely chopped-up way that some people view the economic system as somehow separate from the ecology is a dire sickness that must be eradicated.

      Any article about economics that does not include some mention of the environmental impact is at best ignorantly incomplete and delusional. That is my thinking whenever I read articles like the above. Although the question comes to me whether I should comment on that incompleteness since I don’t like sounding like a broken record, at least not all the time.

      1. cassiodorus

        Economics is a delusional discipline, concerned largely with the authoritarian notion that, when corporate-industrial revolutions fail to deliver the goods, governments will step in to make people into what economic axioms falsely say they are. In this regard it’s no wonder that the economists don’t recognize ecosystem integrity.

  2. Jim Haygood

    ‘Having a common currency means a common interest rate.’

    We’ve come a long way, haven’t we? Back in the Nineties, as the 1999 lock-in of individual countries’ exchange rates of local currencies to euros approached, the great investment theme was convergence of bond yields. Hedge funds made trillions buying peripheral country sovereign bonds, as their interest rates sank from premiums of several percentage points over German bunds to a few basis points.

    Europe’s 2012 crisis threw all that convergence into reverse, as Spanish, Irish and Portuguese yields blew past the 7% level that was considered unsustainable. Now with its latest QE program, the ECB and national central banks will start manipulating bond yields (normally outside their purview of control) with purchases. But meanwhile, bund yields in Germany have actually gone negative, with Greek yields over 10%.

    What’s a central planner to do? You poke here, it bulges out there. Why can’t markets just follow instructions??

      1. Jim Haygood

        Yes, that’s understood — the ECB imposes a common policy rate at the short end, for overnight lending and such.

        But at the long end of the sovereign yield curve, rates are all over the map, from below zero (Germany) to double digits (Greece).

        With wildly disparate bond yields, and fiscal policies determined by each member state, it’s surprising only that the euro zone has held together this long.

    1. digi_owl

      How about they stop trying to plan, and start whacking the banksters on their heads when they get out of line? Right now the ECB etc are giving all the wrong signals, like a animal trainer giving out treats at all the wrong times…

  3. Gee

    How exactly do the EU masters ever expect the eurozone to work if they are never going to allow for fiscal transfers? I just dont get it. Is the plan to get their at some later date, gradually, through some soft of miraculous technological invention that so far doesnt exist? I mean, the euro and single interest rate is still a malformed and in the real world, unworkable, whatever someone may have laid out on paper many years ago, that managed to work for a little while before the flaws were exposed. I guess they think that somehow, you paper over this inevitable outcome of the flaws long enough, and you go back to the mostly workable situation? Uhhh, no.

    Another thing : You stated: “Varoufakis is correctly unwilling to sell off Greek assets at distressed prices, which is part of the reforms.” I totally agree. But one thing came to mind – the distressed prices part. How workable would the (also, admittedly flawed) US crisis response had turned out if banks had to keep assets at fair market or distressed prices? Seriously, the whole FASB accounting fantasy was a major part of the illusion of solvency. So, if that was OK for ALL the global banks, why is it not OK for Greek assets? My feeling is, the prices these would fetch in a forced sale is nothing like they would garner from pre-crisis levels. So as part of the reforms, why not bring these forced sales to fantasy levels, where there is a more realistic fiscal transfer taking place, but it is instead, buried in the asset prices, and in turn, is the penalty for the buyers for bringing Greece to this place (I’m looking at you Germany.)

    As much as I find the masters of finance policy abhorrent, as some commentators here have pointed out, it is not completely their fault – Greece has been run poorly. But do recall, that Varoufakis and others were not part of that governing body, and Im quite sure from a reading of YVs thoughts, he would never have run the country the way it was. But puleeeeeezz, somehow treating the oligarchs like oligarchs…? What country is NOT doing that right now? Heck, even the US has its own version of allowing those types to flourish. (One only need look at the burst of inequality and mean incomes of the 0.01%) That the new government is willing to get the tax system in order is a serious enough proposal that it ought to be rewarded. Yet, Greece’s proposals are still looked at like those of a brash child that needs to be punished.

    Back to my original point, I think that YV and Syriza generally need to make it clear to the world that the EU has no exit plan. Their ideas don’t really help Greece, and they are not a long-term solution to the problems of eurozone structure that have brought them to this point. I would hammer that over and over, as well as the point that because of that, what they trade by conceding is a removal of short-term intense pain, for long-term only slightly less intense pain. I would try to get into conversations in public that force the Troika/Germany etc to state out loud what they really think they are trying to achieve, because to this observer, it only looks like denial of reality, and projection of blame for the crisis, with no ability to objectively assess the historical record, and no willingness to move toward something that will ultimately fix the underlying structural problems.

      1. Kyle

        “…”EVEN the US” has its version — ?????”

        Certainly. TBTF bank heads and billionaires. The capture of our government by such makes our Congress no more than the servant of oligarchy.

        1. MyLessThanPrimeBeef

          Then we should clean up the government before we go full MMT.

          Maybe we go all MMT to clean up our government.

          Which comes first?

          1. Kyle

            “Which comes first?”

            They all get swept out of power more or less simultaneously, sometimes violently. It’s not when the common man comes to realize all the hoodwinking he’s endured. He’s already become accustomed to that. It’s when there’s sufficient pain. During the Progressive Era and even before, during the Farmer’s Alliances and later during the Great Depression there weren’t any social safety nets so problems were felt more acutely. The West had become settled. The ability to move away from problems became less available. Farmers were induced to moving to the cities when the Industrial Revolution gained sway. But, even then, many city dwellers were immigrants, no more than serfs escaping the smothering royalty of Europe and who had low expectations. Living conditions were horrendous in tenement sections of cities, very little sanitation, huge numbers of animals living close by the populace, lots of disease, human filth.

            It gives notice to the nobility of the average man, how much he’s willing to endure before laying down the plow and picking up weapons to enforce a minimal respect. The oligarchs have much to say in downgrading rhetoric against how greedy the common man is in wanting decent wages and living conditions. But we know who the real pigs in society are….those that can’t do without their planes and yachts and mansions, and who, with a straight face, will tell you they’ve ‘earned’ their billions.

    1. susan the other

      So why does fair market value change? Why do prices fluctuate? Why isn’t value stable regardless of government spending? What justifies a price discovery “mechanism” (some say “market”)? Why isn’t it recognized that gold is fiat? Who says money is a technology? Is money a form of energy? Why do we need to promote growth to achieve net exports? If it’s Tuesday it must be time to record our deficit. Export deficits and import surpluses. Export surpluses import deficits. Who needs actual trade when we can do it all digitally? Why can’t Greeks produce the things they need for their own well being? Don’t they have hands and brains? What are hands and brains worth? Nevermind.

  4. hemeantwell

    As yet I’ve seen no specific Syriza proposals regarding taxation reform. The Troika will certainly require this, and it would be something Syriza would gladly implement. Do you think they are holding off on making a public proposal to both bargain with it and also to make it clear to the Greek public that it is not simply a leftist attempt to squeeze the oligarchs? In other words, is Syriza using the debt negotiations to leverage a redistributionist taxation reform?

    1. Goldcap

      You might get some info from here, but true, the most I’ve seen is general language expressing the urgency of “reform”. But I think a more accurate statement would be “Syriza would love to collect some taxes, period”. Lots of wealthy Greeks avoid taxes altogether, and pretty much any Tax Scheme is redistribution. To worry about “excessive redistribution” when there is 25% unemployment and apparently scads of uncollected tax revenue strikes me as odd…


    2. dbk

      re: proposals for tax reform
      Before the election, there was talk of a new tax category being instituted for those earning somewhere between 80,000 and 100,000 euros, and of assessing a similarly-structured wealth tax on those with propertied wealth of between 300,000 and 400,000 euros (at market value, which is far below assessed value given that the property market in Greece has collapsed).

      I don’t know how the government will deal with massive capital flight over the past couple months – about 1 billion a day at current reports. Greek banks are, like their EU counterparts, fully automated. All electronic transfers have been duly recorded, as have cash withdrawals, which ranged up to 1 million per depositor in some cases. This is creating a severe liquidity crunch for the Greek banks, but actually, they know who held the money, and they know where it went.

      Regarding systematic-chronic tax evasion by independent professionals, this is hard. I might note that this type of tax evasion occurs in person-to-person cash transfers (private doctors – patients / lawyers – clients for the upper income bracket of +50,000); an independent professional providing services to a business or state entity is required by law to provide proof of both IRS and pension fund clearance, and must issue a receipt or voucher. The tax-at-source (i.e. before payment) is currently 20%.

      Proof-of-source is required to deposit more than 5,000 euros in a Greek bank.

  5. Tom Stone

    Pride and a sense of fairness can cause people to do interesting things.
    There’s a point when most people will say “Fuck you and the whore you rode in on” and kick the poker table over. And they will do so even when a coldly rational person would “relax and enjoy it” because the consequences of kicking the table over are in many ways uglier than the alternative.
    I sense Greece is close to doing this and it won’t be a Government minister who makes the decision, it will be the Greek people.

    1. so

      Thank you for describing exactly the way I feel. Our “leaders” are window dressing and at some point they will have to take the change that’s coming for all of us. Our “betters” will fight to the end to preserve their status.
      Oh well.

    2. wbgonne

      The Greek people may be ready but are the “leaders” they just elected? If the putative Leftists refuse to defy the neoliberals and fail to act on behalf of the Greek people, they won’t last long. And the Right Wing nationalists will be waiting in the wings. I suspect the Nationalist Right will have no compunctions about telling the EU to go eff itself, and let the chips fall where they may. This might be the last chance for the European Left. If SYRIZA turns cowardly, and is betrayed by other nominally Left governments, watch the Right Wing swoop in, maybe not in Greece but in France, To the European Left I say this: abandon neoliberalism or watch the Right Wing loons take over.

    3. jgordon

      This is the essential point that Yves is not weighing correctly. Systems can remain stable for quite a long while, tolerating plenty of stress with aplomb–but they not only can–but will at some point–radically switch over into a different state. Almost everyone here has been complacently lulled into (implicitly and subconsciously) thinking that things will just go on sort of like they are today indefinitely, but that’s not the way nature or the universe works. At the heart of our system is extreme chaos and uncertainty, and trying to suppress that chaos will only lead to greater chaos later.

      By trying to maintain the false stability of the EU, we are only guaranteeing something unimaginably horrific in the not too distant future. If this element of chaos is not factored into the political, economic, or monetary models (and how can it be really?) then the models, and the beliefs we derive from the models, are trash. As you alluded to in your post, I’m thinking something along the lines of a new Fascist movement sweeping across the EU soon. But that is only one possibility of many.

      1. John Hope

        Excellent point . If we imagine the EU as a dysfunctional family in which the stronger members are unwilling, but not unable, to help the weaker members ( which doesn’t preclude them from imposing conditions ) then the option for the weaker member is to look outside that family system for help, but wherever that help is to be found the salient feature of it is that it comes from outside the family system .It is this reality that the Greeks are being made to face by the stronger family members who are unwilling to help them . For the sake of clarity I am talking about people here, real human beings, not abstractions .

  6. timbers

    I’m thinking Princess Leia in Star Wars to Darth Vader & Governor Tarkin:

    “The more you tighten your grip the more the star systems will slip through your fingers.”

    1. ambrit

      But then the Empire blew up Alderan anyway.
      As the Grand Moff put it to the Princess: “You are far too trusting.”

  7. Dino Reno

    The only way Greece gets the deal it wants is to make out with Russian and crash the markets 10% plus. So let’s get on with it. Otherwise, they are just running around Europe like a bunch of econ-fame whores taking selfies.

    1. MartyH

      I am sure that this helpfully-intended over-simplification points in a potentially useful alternative. However, since politics is the art of keeping pitchforks, torches, and guillotines from emerging as street-art, the theater between now and the deus ex machina “solution” must be acted out.

      Yanis V. is not as good at EU-Kabuki as a lot of people so his acting seems clumsy compared to the more experienced professional bureaucrats. I suspect he’s on a very steep learning curve about the time-cycle under situations like this. He’s a bright guy. Hopefully, so is Tsipras. There are interesting outcomes available.

      1. Dino Reno

        All of your points are well taken, but Yanis and Tsipras need to get grow up and get real. The EU and ECB took their measure and slammed the door on any real negotiations. Their only leverage is a market plunge and a pas a deus with Russia. Ironically, neither of these two things have anything to do with Greek debt per se, but they are huge bargaining chips. These are the two things the Western Plutocrats fear most. If Yanis and Tsipras are serious about their commitment to the Greek people, they will take the plunge. Otherwise, they will be exposed as posers and submit to endless depression.

  8. Ignacio

    I think that debt negotiation by itself is not sufficient. The fact that Germany and the Netherlands continue to show escalating current account surpluses indicates that this is the core problem. In this sense, Syriza would be able to find companions/supporters in their negotiations if they include clausules on current account surpluses. If current accounts are not rebalanced debt negotiations will never succeed. If Syriza could do the job demonstrating that the imbalance created by weak german/dutch demand or excess german/dutch savings what makes it impossible to solve the debt problem, and convince italians, spaniards, portuguese, french etc. they migth find the provervial cavalry ride that would help them in debt negotiations.

    A key for Syriza and a success for Varoufakis would be to widen the scope of debt negotiations including current account rebalancing as a necessary part on any debt negotiation effort. I wish the best for Varoufakis efforts in these difficult tasks.

  9. EmilianoZ

    The one thing the Greeks have plenty of is islands. They have hundreds, even thousands of them.

    They should auction a few. If Westerners wanna prevent Russia from acquiring some prime Mediterranean real estate, the bidding could go quite high. Or maybe some Saudi prince will pay top money to build his own private Club Med. It would be more interesting to watch than the Superbowl.

    And the Greeks couldnt be accused of selling to the Russians. Everybody would be an equal opportunity buyer in an Open Free Market.

    1. ambrit

      The problem is, at present, those islands would go for a song. Then the Greeks would really get the wind up.

      1. MyLessThanPrimeBeef

        Another problem is with global warming, you get fewer islands in the future. That puts a deadline into the process.

  10. dbk

    I’ve been following your Greek posts and the ensuing discussion threads with great interest. I wonder how you, as a finance expert, would advise Varoufakis and Tsipras to proceed over the next couple of weeks/months? And also, out of curiosity, why are you so certain that “Grexit isn’t on the table” is written in stone, given that as you’ve been pointing out, the new government has flip-flopped on other pre-election statements/promises?

    I say this because the new party was elected on this platform (no Grexit), with approximately 70% of the population polled before elections in favor of Greece’s remaining in the EMU. But this is politics – Greek politics – and Greek politics is nothing if not volatile. In the first post-election poll conducted, support for the new government, which received about 36% of the vote, was 70% – that’s a pretty big swing in one week.

    If Greece’s masters continue as you indicate in your series of posts that they will, they may force Greece’s hand – wittingly or unwittingly, I cannot fathom which. The result would be a drop in popular support by Greeks to remain within the EMU, a clear presentation of the facts by Varoufakis/Tsipras, and a decision that TINA to departing the EMU for Greece. This would be disastrous for Greece (although thanks to capital flight, nearly everyone with any money left has deposited their euros elsewhere by now – for most of those remaining, since they had no euros anyway, well…), and possibly, lead to a political crisis in the EU.

    1. hemeantwell

      What will be truly disastrous for the Greeks will be for Brussels to force their hand and for them not to be able to convince a politically effective majority of the country that a Grexit is the only way. While I agree with much of Yves’ reading of the situation, I think she hasn’t given enough consideration to how Syriza, as it carries out a many-levelled bargaining/jousting with the Troika, has had to finesse the fact that, yes, a majority don’t want to leave. In a very basic sense, they need to demonstrate that TINA to Grexit should it come down to that. In other words, I don’t think we’re looking at a situation where they blew an option, Obama-style. Obama had, if you will, too much popular support for measures he, as a corporate shill, didn’t want to undertake, so he allowed the moment to wither. Syriza is in the position of trying to build that support, and I think we should be open to the possibility that they will take a tougher stance as time passes. In this way the Troika’s TINA sets up the political potential for a very different TINA for the Greeks that they did not have before or right after the election.
      Hmmm, that’s dialectics for you!

      1. MyLessThanPrimeBeef

        If they keep on insulting Greece, with all the imperious arrogance they can muster, maybe Grexit becomes not impossible to contemplate.

      2. Kurt Sperry

        If events unfold such that Syriza can turn to the Greek people and credibly say they tried absolutely everything possible keep the EZ intact and run into a brick wall of troika intransigence, then a popular referendum on default/Grexit is held as popular discontent reaches a crescendo… The same threats and arm twisting that might be effectively used on leaders behind closed doors cannot be publicly used against a popular mandate. A popular mandate would change the entire dynamic.

        Syriza should make every effort to appear reasonable and like the only grown up in the room–indeed once it seems clear the troika won’t give in an inch, they should very publicly offer generous–even stupidly disadvantageous–concessions, safe in the knowledge those concessions will be turned down cold. Maybe this is the exercise they are presently engaged in even. Complete intransigence may *look* like a strong bargaining position but it completely cedes the initiative to the other side. The intransigent party cannot adjust its course either strategically or tactically, or adapt to changing realities and further it allows the other party to predict in advance exactly what their opponent will do even several moves ahead, constrained and paralyzed into immobility by their hard line.

  11. Brooklin Bridge

    I agree with Lambert. Obama not only sucked all the oxygen out of the “hope” thing, he poisoned it like rotten meat. To hear it used again so soon makes you wonder what people are thinking.

    One gets the disturbing feeling that people have to play out these parts, over and over and over, even though the outcomes seem so clear to us on the sidelines. I could understand not playing the Grexit card right away, for instance, but taking it off the table altogether – a la Pelosi, seems, from the outside at least, to be a flagrant mistake; literally asking for a tough response from very obviously tough people.

    I have been very moved by this terrible savaging of Greece, and obviously I am hardly alone, but I can’t imagine such a self sacrificing way of going about it would be the conscious choice of any of the current players in the Syriza. Damnit, what were they thinking?

  12. Ulysses

    The electoral success of Syriza has raised tremendous hopes in Italy. Here’s Paolo Fererro’s message to Varoufakis and Tsipras:

    “Oggi le vostre responsabilità sono enormi perché siete il punto di riferimento delle speranze dei popoli europei per rovesciare le politiche di austerità e uscire dalla barbarie sociale in cui ci hanno portato la Merkel e i suoi camerieri. Tutti i popoli europei stanno comprendendo che la vittoria di Syriza e del popolo greco apre la strada alla vittoria di tutti i popoli europei contro il comune nemico costituito dagli speculatori e dalle politiche neoliberiste. Ad Atene abbiamo festeggiato, oggi è il tempo del lavoro e del raccolto: lavorate bene è il solo augurio che vi posso fare, da parte nostra faremo la nostra parte in questa comune battaglia”.

    Apologies for my hasty, and far too inelegant translation:

    “Today your responsibilities are enormous– because you are the touchstone for the hopes of the peoples of Europe, for an overthrow of the politics of austerity, and for an escape from the barbaric social injuries foisted on us by Merkel and her lackeys.

    All of the peoples of Europe are beginning to understand: that the victory of Syriza and the Greek people has opened the door to the victory of all the peoples of Europe– against our common enemies, the speculators and neoliberal politicians.

    We have celebrated in Athens. Today it is time for work and for harvest. Work well is the only wish I can give to you! For our part we will do our share in this common battle.”


  13. flora

    Thanks for this post.
    “[The Eurozone] founders knew its structure was incomplete and imperfect, but they believed the logic of preventing future wars was so compelling that the inevitable future crises would be resolved by further integration.”
    Yes. They did not anticipate – to misquote Clauzewitz – “Neoliberal banking is war by other means.”

  14. Robert Frances

    Let’s assume Greece and its creditors muddle through this week and through February and June, with Greece receiving a few concessions on the interest rate charged and modest extensions in the due-dates on some of its maturing debt . (They’re being charged 4% interest in a worldwide deflationary environment? That sounds downright usurious.) This is actually the easy part. Then the Greek government needs to tackle the much more difficult question of internal reforms. I’d rather face some stern bankers who want to partially enslave me, but also want me to keep me alive so I can continue to pay them interest and principal on their loans, than face a country of 10 million people who will find something not to like in whatever fiscal and tax reforms the new government has planned. Many of these internal changes will be bitterly fought by dozens of entrenched vested interests and the reforms will take time to formulate and implement. It could take up to 1-3 years before these internal reforms start to show promise, assuming they are thoughtful reforms.

    If the new Greek government is able to implement substantial budgetary and tax reforms over the next 6 months, then I’d guess its creditors will be more open to extending some debt in the months following if additional debt restructuring is urgently needed. But as an outside creditor that has already suffered some losses on Greek debt, I’d want the country to show me they are serious about reforms before making many more concessions.

    What I don’t understand is that informed people actually think Greece’s economy will “grow” at some significant level. How is that suppose to work exactly? Their olive and lemons trees will start producing 50% more fruit? The world’s tourists will start flocking to their beautiful and historic islands for month long-vacations, even though most of us are vacationing and traveling to more exotic places in SE Asia, Africa and S. America? International companies will start investing in new operations in Greece even though their workforce doesn’t have the best reputation for hard work or have the highest skill levels compared to other countries? Sometimes we need to be realistic about our capabilities as much as we might want to be like someone else.

    I’d rather see Greece become a model for how people of the world should all start to live: job-sharing and reduced work weeks to absorb an outrageously high unemployment rate, pushing the unemployment rate down to zero; shifting taxes off productive labor and onto passive income sources like rent, interest and capital gain incomes; implementing a Georgist-like property tax, with much higher tax rates on land values and low or no taxes on buildings and new construction (exempting any harsh impacts from this tax policy on a family’s personal residence, small farms and small businesses); attracting some of the world’s creatives to their shores by emphasizing personal freedoms, great climate, excellent food, cultural and racial diversity, and an affirmation that life is about “living” and not mainly about cranking out more doo-dads to sell to the rest of the world. Since most of us can’t afford the 200+ euros a day it takes to enjoy the good life in Paris, London and Berlin, I’d be trying to create an “it place” in Greece where the good life can be lived at a far lower price point.

  15. Doug Terpstra

    What is Lazard doing for Greece, and why would Greece hire the same advisor that helped it pile on more bogus debt in 2010? Isn’t that a bit like Obama trying to appoint Antonio Weiss, Lazard’s tax-inversion artist as TreSec Undersecretary? I understand hiring a thief to advise on loss prevention, but it sure seems like yet another bad Obama omen, especially when Lazard is so conspicuously absent while everyone is sagely acknowledging TINA, that there is no alternative to crushing, unsustainable debt than more debt, selling everything you have in the process. This groundhog deja vu is all getting so very, very old.

  16. Kyle


    Would you consider drawing parallels between Greece’s troubles and the state economies of Brownback, Walker and Christie to help emphasize the fallacies of neoliberalism in a future post? These austerian policies are causing destruction wherever they’re implemented and especially the more fully they’re implemented. The US is one of the major sources of these obviously failed economic views.

  17. Praedor

    The Greeks are constrained by…the Greek people. They are so (wrongfully) wed to the idea of being part of the scam called the “European Union” that they wont allow their government to properly serve their best interests. Since the government cannot negotiate from the standpoint of strength (“You will forgive much of our debt and soften the payback terms or we will simply default and leave the EU, screw your bankers”) and are pathetic and weak (“Please forgive some smidge of our debt and soften some of the terms…or we will hold our breath until you agree!”). The Greek people must come to the realization that the EU IS a scam designed by bankers for bankers. No country should ever agree to give up economic policy sovereignty to financial technocrat looters. Governments MUST be free to do WHATEVER it takes to help its own citizens in economic hard times.

  18. financial matters

    “”which lifted the Athens stock market 11.3 per cent””

    I don’t think this should be casually accepted as a good thing. It reminds me of the US ‘stock market’ and how it is manipulated in various ways and generally not in the interest of the general public. Wouldn’t it be better to focus on employment?

    1. /L

      In theory a lifted stock market is a sign of companies engaged in real production is doing well a benefit for all of us, Smiths invisible hand you know, in the neo-feudal financialized world we live in it’s a sign of another transfer of wealth from the many to the few or Central Banks and governments awash the the wealthy with even more fantasy money so they can buy even more of the worlds assets.

      1. MartyH

        Yes, but in recent practice, it is a sign that one or more Central Banks have given their friends free money to play with and those friends are bidding everything up (asset-value inflation) that isn’t, yet, hitting the street as consumer-price inflation.

        1. Kyle


          “In theory a lifted stock market is a sign of companies engaged in real production is doing well a benefit for all of us,”


          …it is a sign that one or more Central Banks have given their friends free money to play with and those friends are bidding everything up (asset-value inflation) that isn’t, yet, hitting the street as consumer-price inflation.”

          I was looking over papers at EPI and reviewed one by an economist whose name I can’t remember now. He had some edifying points.

          One was that in a disinflationary (recession) or deflationary (depression) economy, the only people who get loans, in the majority, are those that have sufficient assets and existing income to qualify for those loans. The economist argued that this is one of the reasons for wealth inequality given that, for most of the 99%, their home is the accumulator of their wealth. If you are a good momentum trader that can turn a profit trading an up market you can pay the interest on those loans and make a profit over and above the loan.

          Add to that the fact that interest rates are at all time lows. This means that margin accounts at brokers have reduced interest costs of borrowing and they allow financing on 50% of the cost of stocks.

          Historically the price/earnings ratio of stocks is undervalued when the P/E is around 7 and overvalued when it is around 14. The average P/E ratio of stocks is currently around 24. This tells you that the value of stocks are way above historical valuations. This is bubble territory. Therefore, you are looking at another asset bubble instead of the economy actually doing better. This is one of the fallacies of the neoliberals. They’re accustomed to blowing bubbles and mistaking them for real economic progress.

          The reserves of banks must remain in accounts with the Fed or receive severe penalties. It’s the low interest rate that’s driving this inflation of the stock market, that along with poor prospects in the real economy.

  19. Sanctuary

    While I think this is a great analysis, I wonder if our assumptions of outcomes are all wrong because we are expecting rational responses. I’ve been arguing that Syriza is playing a head fake game and is rationally proceeding to threaten Grexit nearer to the end of the month when its leverage will be greatest. Yves has been arguing that Syriza will rationally have to cave and tamper down expectations because its leverage is weak. But what if this is a WWI style disaster in the making? What if this is a situation where all parties see that a disaster is certain and before them, but all proceed forthrightly into the abyss simply because they feel they can’t afford to back down and don’t know what else to do? No one expected WWI to ever result because everyone was aware at the time that a war would be disastrous for all parties so rationally, every country would work in its best interests to avoid it. But it still happened and it happened because no actor felt they could afford to back down from the agreements they were party to. So even though rational analysis held that a solution would be worked out, even if just to maintain the status quo, a disaster resulted because of an irrational adherence to agreements and beliefs. Has it been considered that both sides have a rational position but may have an irrational adherence to it that leads to a foreseeable but unintentional disaster?

    1. aletheia33

      YV has said he is not sure game theory will be of much avail to him in the current situation because game theory only works when opponents act rationally, and he is not sure that his current opponents will.

      why he said that publicly is, of course, up for debate.

      1. norm de plume

        He has a deep understanding of game theory and may well use this to try and unpack opposing positions, but as Steve Keen makes clear in this warm appreciation of his friend, he got involved in the study of it in order to debunk some of its assumptions which he could see were erroneous and potentially dangerous, so he is unlikely simply to adopt game theory approaches:


        YV makes the point in an essay from 2010 that Daniel Ellsberg too saw the Achilles Heel of game theory early on at RAND. It was mainly concerned with military and political decision making but found its way into economic models like VAR, partially causing much of the havoc we have been living thru the last 6 or 7 years:

        ‘Have you ever wondered where the financial engineers who, decades later, gave us the now fabled toxic derivatives got their confidence to calculate exotic numbers, like Value at Risk (VAR), which lulled the banks’ risk managers into idiotic acquiescence to the laughable (supposedly ‘riskless’) risks their golden boys and girls were taking? The answer is: In these very mathematical models that people like Savage and Ellsberg worked on in RAND and at other such Cold War research outfits in the 1950s. All these incredibly smart people believed strongly that their mathematical, expected value, approach was the way to go. All except one: Daniel Ellsberg who soon, from first principles, and out of sheer intellectual honesty, worked out the utter folly of the whole approach.


    2. Yves Smith Post author

      Please read Varoufakis’ writings. He has been saying for years that a Grexit would be a disaster for Greece. And he is explicit that this is not due to the short-term pain. He sees it as setting in motion the dissolution of the Eurozone. That would create a Great Depression in Europe, and make Greece’s already terrible situation even worse.

      So as long as Varoufakis is Finance Minister, this in not happening. In addition, separate from what Varoufakis believes, I doubt Tsipras would back it either. 2/3 of the Syriza representatives are moderates and are also pro-Eurozone.

      The irony here is that Germany and the northern bloc do not believe that there is any contagion risk. While the ECB does indeed appear to have addressed the issue of financial contagion, the risk of political contagion (countries leaving because they see austerity as not working but the Troika will not provide enough relief and voters put in anti Eurozone governments) is rising. A Grexit would force the Eurozone to sort out exit procedures, something that does not exist now. That alone makes the idea that others will leave more of a reality.

      So you have one negotiating party not willing to use what it (and many observers) think is a nuclear weapon, and the people on the other side of the table not impressed by the threat, seeing the weapon as a pop gun (and I don’t think the Germans are posturing here).

      1. Sanctuary

        What do you think about this crisis’ effect on NATO? That’s where I’ve been suspecting the political contagion taking off. If Russia is offering aid and markets to the Greeks and Europe is offering entrenched misery and castor oil to its fellow ally and/or willing to let its economy be destroyed to satisfy Germany
        (http://www.zerohedge.com/news/2015-02-04/ecb-pulls-trigger-blocks-funding-greece), how does this look to the Eastern Europeans and Baltic states? Apart from the obviously terrible optics of that, how can you claim to be an effective defensive alliance when you willfully allow an “ally” to be pushed into a decades long depression by another “ally”? Greece is a member of both the EU and NATO, but I don’t see how you can be a true member of NATO if the EU is determined to destroy your economy to satisfy one of its members. How can NATO be a credible organization if it has nothing to say about becoming a hollow organization of weak states that cannot afford to meet their treaty obligations because they must satisfy German economic dictates? That’s disastrous in the face of Russian aggression in Ukraine.

        This is why I think the EU/ECB winning this confrontation is far more dangerous than if it yielded ground to Greece. Winning this battle calls into question both the efficacy of democracy within the EU and the continued existence of NATO.

        1. Yves Smith Post author

          The Greeks already joined the EU sanctions. There is no way they will make overtures to Russia. If you think the treatment they are getting now is harsh, it would be a pale shadow of what they’d be served if they tried that. This would be a Cuban missile level crisis, and I could see the US reacting as if Greece had engaged in an act of war. The US sent a blockade to Cuba, and that was what led Khrushchev to back down.

          1. Sanctuary

            I mean more about the treatment of Greece by supposed allies, not so much it taking the Russians up on their offer. I wonder what newer members of NATO and the EU must think of how membership in both organizations is becoming contradictory. It seems to me that Germans are cutting off their noses to spite their faces. If you’re a country like Poland (or Czech or Hungary for that matter), I don’t see how you’d ever allow your country to be part of the Eurozone if you want to be part of a strong NATO. But if I remember correctly, didn’t the EU make the eventual adoption of the Euro a condition of membership even if you’re already a member?

            It seems like this austerity/deflationist dogma from the Germans will force more countries to choose which is more important: NATO or the EU. Countries bordering Russia would probably choose NATO if allowed a choice. If not allowed one, then you have a structurally weak and deficient NATO unable to deliver on its mission of a defensive alliance and ultimately one that falls apart.

  20. WanderingMind

    To be filed under the “history does not repeat itself, but it rhymes” category, what is happening now in Europe has echoes of the 1930’s during the Spanish Civil War.
    The Spanish Republic had communists and anarchists in it and the Soviet Union for foreign support. Franco had Hitler.
    The French socialist government could have vigorously helped the Spanish Republic, but chose not to. The United States and Britain stood by while the Spanish fascists, with obvious support from the Nazis, decimated the Spanish people. The reason? Fear of a communist takeover of Spain in the event the duly elected government prevailed over the Francoist forces.
    That decision reflected the broader policy of tolerating the Nazis rather than taking a chance that the communists would gain power in Europe.
    Now, the powers that be in Europe and even the United States are taking an even more extreme position. They are willing to risk the rise of neo-fascist governments and the breakup of the Eurozone rather than permit the moderate leftist changes which Syriza and Podemos are seeking.
    We will see whether things will be different this time.

    1. Jack

      I think that is a good analogy. Look at what is happening in the Ukraine as well. Toleration and support of neo-nazi groups.

    2. hemeantwell

      To narrow the focus of the Spanish Civil War parallel, I’ve seen next to nothing, no, actually completely nothing by way of speculation regarding the Greek armed forces stance concerning negotiations. Surely the appointment of Syriza’s right-wing coalition partner as head of the Defense ministry must reflect concern about preventing coup sentiments from building. Also, Syriza has given some emphasis to a national salvation motif of the sort the colonels would bray in justification of their coup, and this also seems like an attempt to grab the flag before some jackbooted fascist does. ?

  21. Chauncey Gardiner

    Much to digest here, and I have not been able to fully absorb it all. However, on the face of it, it seems to me that Greece is not without some leverage in dealing with these austerity/privatization Troika ideologues in renegotiating writedowns of the debts, which are now held predominantly by “official” entities, not by large private banks who might threaten the payments system.

    Prospective Pressure Points:
    Do nothing. Debt default
    Contagion to Italy, Spain and France
    Impairment of key German export markets
    China’s New Silk Road and Russia’s Natural Gas and cultural ties
    German nonpayment of WWII reparations
    Grexit and the euro

    Reflecting on credit underwriting responsibility and the initial accounting fraud, who else was involved that has quietly flown under the radar?

    Economic arrangements, money and governing law are all human constructs and can be modified. I understand the timing issue here, but doesn’t it cut both ways really?

    1. Yves Smith Post author

      No, the ECB’s special facilities have pretty much solved contagion risk. The bond markets in Greece are reacting badly to the news, but the bond yields in other periphery countries have barely budged. As long as Mr. Market believes there is no contagion risk, which is what he seems to believe now, there is no contagion risk.

  22. kevinearick

    Make Work Wars & Pot Vending Machines

    All right, all right, one last time, I’ve got another baby coming…

    How did I know that the contract price for oil, the empire value of the petrodollar, was $45, that the Greek/German game of chicken would turn out the way it did?

    Yesterday, the critters, who will never have to concern themselves with feeding, clothing or housing their children, said that the price of oil would go to $20, and today they say it will go to $200.

    The majority is trained from birth to organize their minds in terms of time, which is simply a convention relative to their position, which is a prison, a self-fulfilling prophesy, which is why they shorted nuclear back to oil, as expected. They spend all their time looking at gravity, which is a symptom, and none of their time looking at the relationship between magnetic and electric fields, applying all kinds of redundant resistors to prove that gravity is reality. That’s why those planes, trains and automobiles are blowing up, with increasing frequency. Sine waves are only additive in a shared reality if they are of the same frequency.

    That is also why that Bay Bridge elevator isn’t working. Whoever fixes it will be blown up as the scapegoat. I don’t care any more than I care about the price of oil, because the ivory tower crowd can’t do anything, but employ game theories, hoping that others will react to their artificially induced variability, as a result of arbitrary public education, which can only result in capricious and malicious behavior. If you are a leading outlier, the critters are going to rotate majorities to hunt you down, to prove that an irrational market outlasts all individuals. From the perspective of labor, the 10th amendment was a Trojan Horse from the get-go. Your rights do not come from the State, unless you accept the contract, and gravity has its uses.

    Imaginary numbers are only imaginary relative to the majority. To understand the double-sided mirror, you have to live in it. And you can’t learn anything about it from a textbook, in a box, in an ivory tower. The majority simply cannot tolerate reality, which is why it will never get off this rock and why it is fixated on fixed sporting events, to confirm itself, and why most believe in a god savior, whether it’s a politician in Greece or a mythological figure in a book.

    It’s a good thing that most do not understand what I’m talking about because their brain would otherwise implode. If you really want to learn something from my material, just read it and let your subconscious work on it, while you watch, instead of trying to understand it in time, which is like increasing your speed in a blizzard, but understand that you will be hunted as a result, if you do not provide the empire with consistent gravity to track. As bad as the cloud is, and it’s pretty invasive, it’s just so much nonsense, as is everything the doctors learned in those concentration camps. The reason those vaccines don’t work is because they are not local, which is why you have measle and chicken pox parties, which mothers will tell you, if you listen.

    Wiring high VAC isn’t for everyone; careful who you choose to hunt. Those transients are killers. When in the empire, do as you are told. Just don’t spend so much time in the empire. Jesus proved that an individual could withstand the irrational empire, and look at all the nonsensical make-work the drive-by Christians have generated trying to prove otherwise. All equal government rights has accomplished is having young, independent-minded females being hunted as hard as young males. Congratulations Hillary.

    Going to work, doing your job, and going home to raise your children is never going to be popular, for what should be obvious reasons. The real work is done at home, in privacy. Mathematics and language, as wonderful as they may be, are derivatives, turned in on themselves by the empire. The microscope and the telescope exist on a fulcrum, a circle with a switch. All that oil is going to end up back in the ground, after the critters have choked themselves with it.

    To fix anything – a train, a plane or an automobile, you must suspend the empire, which is far more weight than most are trained to carry. If you understand your spouse, there would be no economy, no reason to trust. Usurious users forgiving co-dependent debtors of debt will change exactly nothing, just as QE and austerity, free money from the top down and increasing economic servitude from the bottom up, has changed nothing. The unions and standards of living haven’t been shrinking since Family Law was re-introduced by accident. All wars are make-work nonsense. Take a look at any corporate HR department anywhere in the world and you will not be surprised by outcomes.

    A 500-yr-old redwood grove in exchange for a one-year grant, to control water for pharmaceutical pot growers, to feed doctor landlords toilet paper – brilliant. Funny, the judges will not allow investigation of jurisdiction, surprise.

    Rocket Scientists; hard work pays off, in the future, not the present, where the majority is always trapped, by their own assumptions.

    1. tomk

      Hey thanks, maybe craazyman can weigh in and expand on your thoughts.
      I’ve always liked the situationist slogan,
      “Hope is the leash of submission”, which may be relevant to the Greeks and all of us.

      1. craazyman

        It’s a dark vision, that’s for sure. I get so depressed reading it I feel like there’s no hope at all for a 10-bagger and a lifestyle of lazy, langorous luxury laying around all day doing nothing because some hideous hell will break loose all over the place. For all the reasons Mr. Kevin describes. A hell errupting like a volcano ffrom the black hole of money gravity, I’d rather not even think about any of this. It’s a headache, frankly. Why is Greece giving us all a headache? Why are there all these tense negotiations and turgid analyses? It seems ridiculous to me. Why cant they just let Greece print up some drachmas to tide it over and keep the euro? I mean reallly. What difference does it make? The ECB can just print up some euros and give those to itself if Greece can’t pay it back. The ECB prints money themselvves! They can print money and give it to themselves. They don’t need Greece. If you could print money for yourself, would’t you if you needed it? People think this stuff is complicated but it’s not. It’s only complicated because people make it complicated.

        1. craazyman

          In fact, they should give a Nobel Prize to somebody who can prove this mathematicallly. It can be done quite easily. It’s low hanging fruit if somebody wants a trophy for the bookshelf and doesn’t want to go buy a 3D printer. You’d need a wave function for money/property that proceeds through time guided by a multivariate conditional probability distribution derived from operator functions created through analysis of the the economic texture of social relations. You can show that money at any given point in time derives value not from past observed values of property but from the structure of the wave function in relation to the operator functions, This is a very important point — that money value is always conditional on unobservable but probabilistically determinable future states of the operators, which in turn relate to conditions of social relations and and not to current observed states of monetary quantities. You can do this on a napkin at a restaurant over a beer. It amazes me that nobody does it. it really doesn’t matter if the ECB prints money and pays itself if Greece cant come up with a few hundred billiion dollars. What matters is the operator functions and the evollution of the wave function through time — and that may even be improved if the ECB just pays itself and everybody says OK, We all screwed up but its over . In fact, they can kill the whole wave function if they’re not careful and won’t have anything but memories of delusions. This is all so obvious I can’t help but believe they’re just ignoring it out of spite and pique. That’s an operator function right there. It might be useful to think about Shrodinger’s equation as a model here, just to get thinngs moviing. It looks complicated, i admit, but so does Chinese if you can’t read it. I’m surprised Professor Kelton or Professor Wray hasn’t done this. They’re only halfway there but they think they’re all the way there. It’s only halftime for MMT. They need to get back out on the field for the second half kickoff.

  23. /lasse

    Reforms, structural reforms is the key for EU/euro success, nothing less will do it. Lower wages and severely hollowed out social welfare is a must for success. Success for whom? The people of Europe?
    Even without GFC EU wasn’t an economic success story, low growth and high unemployment was persistent. The eurocrats had their 10 year plans, the Lisbon Strategy (2000-2010) did not achieve what it promised, the next 10 year plan the 2010 strategy have no chance to prevail. The euro was promised to create common prosperity and high growth and low unemployment. There is of course nothing what so ever wrong with these plans, the leadership of EU know what’s wrong why the plans failed, the peoples of Europe is to blame, they didn’t structural reformed them self. If they just structural reform the gates of heaven will be wide open.

    Greece do have corruption problems, but was that the cause of the problem? It will probably be good for Greece society if they solve that problem but will it solve the economic problem?

    Some Greek charts until the crisis hit them:
    chart 1, chart 2, chart 2, chart 3, chart 4
    turism1, turism2

    1. Yves Smith Post author

      You have no evidence for your claim. The evidence in the Eurozone is that structural reforms, which drive wages down, do not work. They are meant to help with an export-oriented strategy, at the cost of domestic demand. It is a logical fallacy to base economic policies on the idea that everyone could and should be net exporters.

      As analyst Josh Rosner wrote in 2012:

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

      While German and French taxpayers are justifiably angry, their anger is largely misdirected. Rather than embracing the false narrative blaming only peripheral nations for requiring bailouts, the anger should more rightfully be directed at:

      • Designers of the European Monetary Union who, at the creation of the EMU, ignored regular and repeated warnings, from noted academics, analysts and policy advisors, that structural weaknesses would lead us to the crisis we now face;

      • Banks, in the core, with weak internal controls and excessive leverage, which were profligate lenders in search of yield, to weak private, corporate and sovereign creditors in the peripheral countries;

      • Those officials and technocrats who failed to properly regulate the domestic banking industry and allowed bankers to treat all sovereign debt as equal regardless of the differing debt capacity of the issuer;

      • Rating agencies that failed to offer meaningful analysis of sovereign credit capacities and also assumed that too-big-to-fail financial institutions ratings should reflect an implied or explicit guarantee by their home country;

      • Political leaders who, since the beginning of the crisis, downplayed its ultimate costs and, thus, delayed its resolution and increased the ultimate costs to taxpayers;

      With this as a backdrop, it logically follows that the German government and central bank are seeking to protect the markets for German exporters and the German banking sector.


  24. readerOfTeaLeaves

    No previous Greek government had the public support, nor the creative thinking, of Syriza. No previous government had the motivation, nor the public support, to pull off real reforms. (After all, the previous Greek governments participated in the charade that Greece was in an illiquidity problem, and failed to confront the reality of insolvency.)

    Here’s hoping the EU technocrats wake up before that continent descends into far-right reactionism.

  25. /L

    It remains to be seen if Tsipras and Varoufakis is just another pair of “social democrat” EUrophils wedded to the EU project at any cost. Are they even anti neoliberalism at hart?
    Was Varoufakis against or for the Euro at the beginning?

  26. Obereit

    Interesting interview on Realnews with German Economist Heiner Flassbeck.
    Key points IMO:
    1. New EuroCommision will be pragmatic like its new President Juncker.
    2. German’s budget surplus this year of 200 billion will set into relief its parasitical relation to Greece and other debtor nations.
    Syriza Needs Alliance Against German “Beggar Thy Neighbor” Policies: Economist Heiner Flassbeck tells Paul Jay that Germany has violated EU agreements and Syriza should focus on creating an alliance with Italy, Spain and France to oppose policies that are driving Europe into a deeper recession.

    1. Obereit

      This is the perhaps salient point from this interview that I’ve seen nowhere else, namely that Germany’s budget surplus violates EU law: whereas surplus must be capped at 6%, this year Germany will be at 8% of GDP.
      “So this is the point, you see. And it’s a violation of the rule inside the Monetary Union that you should not have macro economic imbalances that go beyond a certain point. The Germans insisted that it should be 6 percent of GDP, but now the German surplus is even going far beyond that. It would be 8 percent of GDP this year. So I would, if I were Mr. Tsipras, I would take this point. I would say, you see, the Germans are violating everything, and the most important thing under the sun, namely, the current account balance–and at the same time, they’re accusing us of violating other parts of the treaties of the European treaty. So who is the biggest violator, and who’s going to play along the rules or against the rules?”

  27. Ralf Nortino

    The whole concept of “recycle your trade surpluses” or “finance your trade partners” means lending out your surplus production with the expectation that you will be paid back. Both interest and principal.

    The drive to do this, as I see it, is an attempt to “save” surplus human-created wealth. If the producers don’t consume all they produce, lending it out serves as way to “save” it.

    Karl Marx, Henry George, etc. saw the problem as “overproduction”. Keynes saw the problem as “insufficient aggregate demand”. Both were describing the same problem from a different frame of reference. I prefer to look at the problem as one of overproduction. I don’t think printing up money or borrowing it to increase “aggregate demand” solves the underlying problem.

    Can production (or human created wealth in general) really be saved? To a certain extent yes, but mostly no. That’s my take on the fundamental problem with the whole system.

    Wealth is for consuming now or in the near future. If you aren’t going to consume it now, don’t even bother producing it. That concept is lost on the 1%. As an aside, the whole concept of social security is sound. No need to save 30 years worth of food ahead of time. It won’t keep.

    Another factor that I believe drives debt creation is the whole concept of interest. Every producer is taking a set of inputs, combining them together, and then marking up the final product. In order to account for this or to pay for it is either to produce something elsewhere in the economy to make up for it, or to create debt to pay for it. I’m actually not sure how Marx, Keynes, George, etc. addressed this.

    1. Yves Smith Post author

      No, the investment does not have to be in the form of lending. It can be in the form of equity, where you do not have a fixed return and have the risk of loss. And you are assuming lots of countries with trade surpluses. In theory, you could have most countries running really close to balanced imports/exports, and one mid-sized country running what for it would be a large trade surplus. But that one country would still be in the position of funding its trade partners.

      But in general, trade surpluses are a problem that is bizarrely treated as a virtue. Keynes recognized that they are destabilizing to the international system. He worked hard at Bretton Woods to get measures put in place to create costs to chronic net exporters so as to discourage this behavior as a matter of national strategy but failed.

    2. /L

      And in the case of last decades of huge American trade deficits, is it exporter or importer driven? Ill guess the later, without it it we had far less export led growth in various export tigers and the global economy. A special case of course, only No 1 can operate in its own currency on a global scale. If Germany had run the world we had been in serious trouble.

  28. aletheia33

    ECB Suspends Greek Banks’ Waiver for Regular Lending Facilities
    Greek Banks Can Still Borrow Through Emergency Lending Program

    Feb. 4, 2015 3:57 p.m. ET

    FRANKFURT—The European Central Bank said Wednesday it would suspend a waiver it had extended to Greek public securities used as collateral by the country’s financial institutions for central bank loans.

    The announcement came as officials raised pressure on the new Greek government to come to terms with its international creditors on the country’s bailout program.

    “It is currently not possible to assume a successful conclusion of the program review” for Greece, the ECB said in a statement.

    Because Greek government bonds are junk rated, and thus below the ECB’s minimum threshold, Greek banks have relied on the waiver to post collateral for cheap ECB financing through the central bank’s regular facilities.

    Greek banks will still have access to funds through the ECB’s emergency lending program. Under that facility, the credit risk of the loans stays on the books of the Greek central bank, and the loans carry a higher interest rate….

    1. Jim Haygood

      And furthermore:

      The instruments in question will cease to be eligible as collateral as of the maturity of the current main refinancing operation (11 February 2015).

      Mellonism, comrades. Liquidate the banks; purge the rottenness from the system.

      Sheriff Draghi says, ‘We don’t need no stinkin’ GGBs.’

      NOW can we have a bank run??

    2. Robert Frances

      Doesn’t the world have too many banks as it is? If the Greek banks are so poorly managed they have to rely on almost funny-money bonds issued by the Greek government for cheap financing, then maybe a few of the Greek banks should be included in the collateral-damage as the banking sector continues to consolidate.

      Someone mentioned earlier that Greece doesn’t have many credit unions or community banks. If true, that’s shameful. I’d rather see a few of the large Greek banks go under and replaced by dozens of well-managed credit unions and small community banks. If some of the millions of retiring US and European baby-boomers are looking for a second life, going over to Greece to help them build modern, community-based financial institutions could be an interesting adventure. It’s curious so many (mostly) well-functioning institutions that we rely on for accuracy and efficiency in the west (and in most countries in SE Asia and S. America) aren’t well-established in Greece. It’s as if the former political leaders deliberately let the country go fallow for 60 years.

      1. alex morfesis

        the problem is there ARE only a few banks…so pruning the few would leave none…

        unlike most of europe, greece has almost zero competition…very few banks…Greece doesn’t have ANY …ZERO…NONE…no credit unions, no landesbanks, no sparkassen, just a small handful of institutions run by the same old stale bread…

        but…the eu banking system knew that and let it happen…the question is why…who benefits…aside from the small cadre of families (small meaning 500 families and entities) who have turned greece into their little fiefdom…

        greece could take on the model of a florida growth plan…be the “gods waiting room” of europe…it could easily allow certain islands to be leased (not sold) to language specific/nation specific groups who could cater to a middle class looking for a place to have fun and get old in…could open up special rules for financial institutions of those nations to have special limited licenses…and grow via retirees…

        less than 150 islands out of 1500 hundred have more than 100 inhabitants on them…setting up 500 islands as special retirement development zones with native speaking support services…medical, financial, etc…would support at least another 5 million people…bringing in FDI type situations with monthly pension money flowing in…over 25 years it would create infrastructure jobs across the board…in europe, what other choice do you have for a retirement option if not greece ?

        1. Robert Frances

          “unlike most of europe, greece has almost zero competition…very few banks…Greece doesn’t have ANY …ZERO…NONE…no credit unions, no landesbanks, no sparkassen, just a small handful of institutions run by the same old stale bread…
          but…the eu banking system knew that and let it happen…the question is why”

          I’m not sure this was or is the EU’s problem to tackle. If an individual country doesn’t allow a robust market economy to develop with relative ease of access for companies to start up to provide competitive goods and services, then that’s the fault of the government leaders and the people who elect them, not outside institutions.

          Based on what I’ve read here and other blogs, Syriza supports belonging to the EU and using the Euro as its currency. I think that’s the smart position. IMO, having a strong currency to govern daily affairs is much better bet for lower and middle-income households compared to using a (mostly) depreciating currency where rampant inflation is the norm. Inflation and currency debasement always hit the bottom tiers of society hardest.

          Developing some of the islands as retirement communities sounds like an interesting and possibly fruitful idea, although I think most people would rather have some cultural, geographic, racial and religious diversity in their communities, but I could be in the minority on that. But is the development primarily for the developers building gated golf course communities and extracting significant wealth from the inhabitants before they meet their god, or are the communities lower-cost, more moderate enclaves that include civic engagement and vibrant streets where people are getting around on bikes and golf cart type vehicles, filled with small shops, bars and restaurants? You’re right, that development strategy seems to be working for Florida, assuming we overlook the environmental degradation of the innumerable sprawl development projects.

          It seems at some point the Greek people need to be more engaged with creating their own future. Why isn’t there a robust property tax system? Why aren’t there small community banks and credit unions? Why isn’t job-sharing a part of the culture rather than relying on 25% youth unemployment? If Syriza is serious about tax and budgetary reform, it may turn out that much of the “stale bread” will move permanently to their offshore homes in France, London, New York or whatever foreign locations Greek oligarchs seem to favor. That will cause some local economic pain, but it provides the base from which Greeks can start to build the society they want to live in rather then be forever prostrate to their oligarch overlords and outside institutions like the EU.

          1. alex morfesis

            most people on the globe don’t speak greek…the idea of creating an environment that they are comfortable in with their own language as the main thrust of the community they live in would help create the unique selling proposition…most greeks have abandoned the islands for a life in the big city…and unlike the bahamas, there are no mail boats you might hitch a ride with to get to most of the islands today…as to the environmental disruption that might come from the growth, most of these island had much larger populations on them…and they did just fine back then. Certainly one can create rules which would call for non carbon based power generation, as there is currently limited infrastructure in place on most of the islands for electricity. And easily, since the communities would in theory be small and compact, one could develop a golf cart for transport scheme. It is something which the financial world can understand and monetize, and which will allow the growth needed to deal with the obscene waste that has existed in the handing out of government contracts over the last 40 years in greece. As Minister Varoufakis points out, it costs three times as much to build a mile of highway in greece as it does in germany, even though german wages for this type of work are twice as high as in greece…Corruption exists everywhere…but at least in California, when a highway or road was to be built, the plutocrats would buy options on real estate in the way of progress to cash in as the work was done…they didn’t also milk the project and move the money into austrian numbered accounts inside foundations or treuhand arrangements…(what you thought only the swiss had numbered accounts…)

  29. Gee

    My apologies if I’m being obtuse, but how would we compare Greece’s situation and expected path out, vs that of Spain, which, if not out of the woods, has made much more progress (at least in the generally accepted national acctg terms) ? I mean, the Troika pulled a significant internal devaluation on Spain, got exports going, smacked down the little people, propped up Rajoy, and kept the debt to GDP ratio rising, as only modest progress on the deficit was made, and it’s still larger than GDP growth, and will continue to be for a while. But they dont seem to care as long as deficit % is going down and gdp % growth is going up, eventually they converge, and all is well in the universe… haha. Or so it seems for now.

    So, as I see it, Greece so far has internally devalued, but cant become an exporter like Spain (cant just will it into being) and gets perhaps a slightly smaller lift from tourism, and generally has much worse tax evasion. So what can Greece promise that can offset, and what is it not promising that Spain promised? Id say tax reform would be a big help, but they should have done this quietly-backchannel, as even mentioning it only fostered bank runs and capital flight. So what should be a positive turns into a negative.

    I know that Spain has it’s own misery, still 24% UE rate (but down from 27 ;-) ) , public unrest, rise of Podemos, etc. But Germany seems to think this outcome is OK. A lost generation? Hey, suckas, that;s the price you pay for all that crazy lending, home price appreciation and buying german goods. Funny, Germany still benefits, and wont give back a douche-mark of all their ill-begotten gains that created the problem. And they seem willing to use Spain as an example that their policy works. (and they could claim Ireland too.)

    But does it really work? Is Spain on track? Is Ireland? Not sure on how Portugal is fairing. But there other cases that seem to be somehow given the all clear, yet also going in the wrong direction (eg Italy.) And if the EU deflation is part of a global phenomenom these debt issues get harder to grow out of. For some reason, it all just seems like can-kicking to me.

  30. craazyboy

    Hot off the press

    It looks like maybe the ECB just killed Greece?!

    They won’t take Greek bonds as bank collateral anymore – particularly from Greek Banks looking for cash from the ECB – which means if there is not a bank run yet, there probably will be!


  31. Min

    “While Varoufakis and presumably Tsipras are unwilling to deploy the one realpolitik tool at their disposal, a threat of Grexit, other parties who have influence on the recalcitrant actors are more sensitive to the fact that much more is at issue than just the fate of Greece. The ongoing game of extend and pretend has managed to forestall what amounts to an existential crisis for the Eurozone.”

    We do not know what Varoufakis and others are doing behind the scenes. For Greece to make a public threat to leave the Eurozone would be counterproductive, as everybody else would be forced to stand firm. Varoufakis is not only an economist, he is a game theorist. Not all game theorists are good game players, but, having read him on game theory, I think that he is. I think that he, and Greece, will do better than people may expect. :)

    Is the US in play? It would not be the first time since the US became a world power that it aided a European debtor nation in order to maintain political stability. OTOH, it is hard to imagine a GOP Congress voting to send aid to a socialist gov’t.

    1. Yves Smith Post author

      He barely has time to prep and travel to his whirlwind of meeting and get the detail of his proposals worked out. Trust me, he simply does not have the personal bandwidth to be doing much else. And to even know who to try to get as an ally requires understanding the power structure of the key governments. There are plenty of people who may be sympathetic but do not have influence. Varoufakis is under way too much time pressure to do general outreach.

  32. Min

    The Eurozone’s “founders knew its structure was incomplete and imperfect, but they believed the logic of preventing future wars was so compelling that the inevitable future crises would be resolved by further integration.”

    Or maybe they wanted to crush labor and democracy.

      1. Min

        Thanks. I have been reading the wrong people, I guess. :( I thought that the main architect of the Euro was well aware of the problems it posed for both labor and democracy in the event of a severe economic downturn. Something that Thatcher, among others, pointed out at the time.

        1. skippy

          Financial fraud induced economic down turns resulting from Prime Minister Margaret Thatcher deregulating the financial sector –

          “After Prime Minister Margaret Thatcher deregulated the financial industry as part of her Big Bang policy in 1986, more than 175 foreign financial firms came to the City and turned it into the No. 1 international banking center. Regulators have long trusted the City to largely police itself.”

          for a quick up tick in economic metrics sure has had its unforeseen consequences.

          Skippy… when unconscionable social edict becomes the dominate force in society, it eventually bares the fruit of its own destruction…

        2. Calgacus

          I think you were right the first time, the Euro was/is about crushing labor & democracy. More or less what Alain Parguez says, who Wray calls the best historian of the Euro. Besides being a dandy mechanism to instigate international tensions, not much to do with wars, which nobody was talking about at the launch of the Euro. Talk about wars was at the launch of the EEC / Common Market predecessor of the EU, much earlier.

        3. /L

          European Coal and Steel Community (ECSC) was about peace, control of the then important coal an steel around Ruhr a necessary asset for industrial war production. Long gone now. Not least to keep Germany in check. When Germany wants to control Europe it oftentimes ends in disaster. Mitterrand thought forcing Germany to accept the euro would keep them checked and benefitting France. The euro was a precondition to let Germany incorporate East Germany.
          Think it was Giscard d’Estaing, claimed to be hostile to Germany answers something like this; I love Germany, I love them so much that I’m extremely happy there is two of them.
          Now we are there again, the Hun is back in the saddle as the sole superpower of Europe.

  33. reslez

    When Syriza fails the fascists will come into their own. Europe made the same choice in the 30s and killed 75 million people. Such disgusting greed.

    1. wbgonne

      Exactly. Last chance for the Left. Be brave or go away and let facsists show you how it’s done. And it won’t be pretty. The second Syriza took Grexit off the table they signed their own death warrant. No leverage means they are guaranteed to get rolled.

  34. Lune

    Under what authority is the ECB able to make distinctions between banks of different countries i.e. deciding which banks have access to its lending facilities, especially for the purpose of meeting withdrawal requests? I’m not a lawyer, and certainly not a central banking expert, but wouldn’t being chartered in a Eurozone country mean the ECB is automatically your backstop? In my mind, access to ECB lending facilities to individual Greek-chartered banks to meet euro withdrawal requirements is very different from the ECB agreeing to buy sovereign debt. The way the ECB is singling out Greek banks, IMHO, is akin to the Federal Reserve saying California banks (for example), can no longer borrow from the overnight Fed market, because they wish to punish the government of California.

    Admittedly, this is a pointless question: the ECB and its neoliberal backers have shown no hesitation in breaking numerous other laws and customs of the banking world in the past several years, so I’m sure there’s some loophole out there. I’m just curious what that loophole might be…

  35. dejavuagain

    The ECB and Greece should put together a very very serious legal team – law firm to represent Greece in collecting the tax avoiding Greek oligarch money and assets sheltered and hidden in various EU countries (and the US and the Caymans) – and the creditor countries should interevene in all enforcement actions by the Greek government to force their banks etc. to disclose information etc. to support the Greek government’s enforcement actions. The legal team should be supported by a legal intelligence-litigation support team armed with the very latest money laundering investigatory software to track the flow of money from Greece. The budget for this should be in the 100 million dollar range.

  36. Strategist

    For those of you handy for London who haven’t yet had a better offer for Valentine’s Day….

    Greece Solidarity Campaign activist meeting Sat 14 Feb 2-5pm
    Unite HQ, 128 Theobalds Road, Holborn, London WC1X 8TN
    Be part of plans for action, including campaigning on the debt, parliamentary activity, building support in the unions, promoting the open solidarity letter, media activity and more. All welcome

  37. steelhead23

    By now everyone here must know that the ECB just announced that it is unwilling to accept Greek sovereign bonds as collateral – at all. No haircut. No conditions. Just no thank you. So, if the eurozone’s central bank won’t accept the debt of a member state – who will? In my view, this was a precipitous and unnecessary move. It is intended to force the Greek government to continue its austerity programs – which Syriza promised not to do. I haven’t a clue how Varoufakis will respond, but I suspect he’s not smiling today.

    1. Santi

      Is it legal? I mean, is discrimination by country of the ECB in its charter/attributions? Isn’t it against European treaties? I’m not sure but it looks like they can’t legally do that.

      If the ECB plays this card getting so far off their mission, and I was Varoufakis/Tsipras, I would call for a referendum where the Greeks would decide if they want to accept the current conditions or give the government a mission to default. Tit for tat. Defcon 5. Next?

      1. MaroonBulldog

        In particular, it’s intended to pressure Syriza to capitulate before February 25 and accept the disbursement of ELA funds due for release on February 28–the funds that Y.V. has said that Greece doesn’t want. The ELA funds are intended to afford liquidity to Greek banks. Without access to those funds, and lacking the ability to obtain liquidity by pledging Greek government bonds as collateral for loans, the Greek banks will become exposed to bank runs. Game over, lights out, if that comes to pass.

        Oh, and it’s all being done according to the ECB rules, all right. Under strict ECB rules, Greek government bonds are not acceptable collateral; however, up till now, the ECB has granted European banks a discretionary waiver of its own rules, so as to allow them to accept Greek government bonds as collateral, and thereby permit Greeks banks to borrow against them. The latest action is to withdraw the discretionary waiver. If they even feel a need to justify this action, all the ECB would need to say is something along the lines that the Syriza government’s actions have raised the risk of Greek government default to such a level that continuance of the waiver can no longer be justified as a financial matter.

        Further proof, if any were needed, that the ECB is run by reptiles.

      2. /L

        A referendum would be the right thing to do, its showdown, surrender to Germany or leave the euro, it’s a decision for the people to make. Papandreou tried that and was outmaneuvered by Eurocrats. Now the Germans think Greece is expendable. And there is no counterbalancing powers left in EU, what Germany say goes. A serious democratic deficit in EU.
        As have been seen during the entire Euro crisis the Eurocrats are prepared to play dirty to get their way, prepared to do whatever it takes to “save the euro”.
        If this IS EU is it then worth to preserve, what good is it for the peoples of Europe?

      3. Calgacus

        It is worth recalling that the question of a referendum was what unseated Papandreou after he suggested it, then being stabbed in the back within hours by his finance minister Venizelos. It was an occasion where the mask fell a bit, where most of Europe’s political class showed the inner Nazi beneath the smiling, patronizing façade.

    1. Kyle


      Thanks for the link. The writer sounds like a rational human being.

      This isn’t the first time America has been through the ringer with the privateers (neoliberals). Did I say privateers? Yes, I said that. They should be flying the Skull & Crossbones.

      In case you missed it –
      Wall Street Owns The Country

  38. mpr

    Yves, they *are* deploying the tool of a possible Grexit, but you don’t do this by openly threatening it (which would only make finding a face saving resolution harder). You do it by saying that they’re convinced that their they can work with their European partners etc etc.

    Put aside the monetary mechanics with the ECB for a moment. What Syriza is saying is “we’re prepared to pay 1-1.5% for GDP for the privilege of staying the Euro. You guys can decide how to denominate that amount, be it term extension and interest reduction, or outright write downs”

    Now faced with a choice of 1-1.5% of GDP vs. nothing, plus a political and financial crisis in Europe, why would the Europeans turn this down ? The only reasons to believe that are

    1) They are institutionally incapable of getting to ‘yes’.

    2) They think it would create too much moral hazard vis a vis other peripheral countries.

    3) They think Syriza is bluffing.

    I don’t think 1) is true, although I suppose it could be. 2) seems to pale compared to the crisis a Grexit would cause in those same countries and the general failure of extend and pretend it would cause (as you point out). You seem to believe 3), but all the signals coming from Varoufakis are the opposite – the inside reports from his meetings in London are that they are deadly serious. More importantly, there is no indication the Europeans believe they are bluffing – they are already begging them to take the extension to the bailout program.

  39. Swedish Lex

    Seems that it will have to be the Cossacks that come storming over the hill.

    When the ECB ousted Berlusconi, nobody was sorry. On the contrary. But if the ECB now wishes to be Merkel’s willing executioner against Greece, the whole thing has exponentially better (or worse, actually) odds of blowing up straight into Draghi’s face.

    Bullying Greece’s new government into a corner, has a very good potential of backfiring.

    Nothing of what the new Greek Government has said or done appears unreasonable to the average Europan (barring Bavarians and those in the bunker in Berlin). There was a weak expectation that the Europeans, at least once, could fix things without taking the global economy hostage for an extended period of time. But that was apparently being too optimistic.

    Truly sad that the really bad old days prior to the introduction of the euro actually look so much better than the current ordeal.

  40. /lasse

    ZEIT ONLINE: During the campaign, Syriza announced a spending programme worth billions. Can it be implemented without new debts?

    Varoufakis: It has to. I can promise you: Excluding interest payments, Greece will never present a budget deficit again. Never, never, never!

    Varoufakis: Germans have to understand that it doesn’t mean we’re turning away from the reform path if we give an additional €300 a year to a pensioner living on €300 a month. When we talk about reforms, we should talk about cartels, about rich Greeks who hardly pay any taxes. Why does a kilometer of freeway cost three times as much where we are as it does in Germany?

    Varoufakis: Because we’re dealing with a system of cronyism and corruption. That’s what we have to tackle. But, instead, we’re debating pharmacy opening times.

    A primary fiscal deficit Never ever? I don’t think so

  41. pietro gori

    The above discussion is very interesting and instructive.
    But it seems to me that there is no solution to Greece’s and Europe’s economic woes within the common currency framework.
    Syriza and Varoufakis don’t seem to appreciate the fact that Greece and the Southern countries, among
    which I would include the conceited French, cannot be saved within the present currency arrangements
    Reading Varoufakis’ Modest Proposal he seems just dimly aware of the role that BOP imbalances play in the overall Euro-zone crisis.
    How anyone can plan to reflate their country out of this horrible mess in a fixed exchange regime is beyond me…
    Exit is the only solution for Greece and the other beleaguered periphery countries, painful as it would turn out to be. It would be better if it were the upshot of a political agreement, a managed solution, but as was said
    men make their own history, but they do not make it as they please…

    1. Yves Smith Post author

      Varoufakis’ fix was more fiscal transfers through his emergency social spending programs and EU-level-funded infrastructure spending in the periphery. As in the US, fiscal spending flattens out state/regional differences enough to make our fixed currency regime (at the state/local level) viable. But agreed, he did this via a finesse rather than addressing this as a major shortcoming that he was addressing.

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