Do Greece, the Troika, and the Eurogroup Actually Have a Deal?

Ambrose Evans-Pritchard has a new article on Greece’s scramble to find the funds to meet it March IMF payments, which are €1.5b in total, with €300 due on Friday. Note that IMF payment dates aren’t as hard and fast as credit card due dates; the agency allows borrowers some leeway if they have a clear intent to pay.

Nevertheless, Evans-Pritchard’s most important observation may be the one at the close of his article:

Whatever piece of paper they signed in Brussels 10 days ago, the two sides are still talking past each other.

In other words, the two sides disagree profoundly as to what the memo means. And that may mean that in reality, there is no deal at all.

I had described the memorandum that was signed to extend the current so-called bailout for four months as a letter of intent, and was worried about using that term, since in the US, smart lawyers make sure to specify that a letter of intent is non-binding. By contrast I assumed that both parties were committed to the process outlined in their February pact. But the ambiguity that was cited as a virtue that allowed both sides achieve closure so that the bailout did not expire on February 28 and to present the agreement as a win to domestic audiences may be backfiring.

From the Troika/Eurogroup side, there are logical reasons for them to see Greece as a supplicant who is in no position to bargain. If you are a borrower who has to go to market to refinance, which is in some ways the position Greece is in, you have to accept the terms on offer. The alternative is a default on its non-IMF debt*, which if Greece could do without leaving the Eurozone, is the best of its unattractive options.

However, the ECB has the whip hand here. It is not clear that the ECB’s governing board would allow the critical bank lifeline to Greek banks, the ELA, to continue. An informal poll of there central banking experts by former IMF staffer Peter Doyle showed that two of the three would not be willing to continue the ELA if the bailout deal had expired; a default is a worse fact set. If the ECB were to terminate the ELA, Greece would have to move rapidly to support its banking system, and have a bank holiday, impose capital controls, nationalize the banks and issue drachma so it could shore them up.

Moreover, Greece said it wanted to stay in the Eurozone no matter what. That puts them in a position of needing to rely on Eurozone institutions and having good working relations with them in order to get some variances here and there.

The process of the negotiations sent a strong message that the creditors see themselves as in charge. As both Der Spiegel and the Financial Times reported, there was no negotiation of the memo. Varoufakis was excluded from the drafting and Tsipras was given a final version and told he could take it or leave it (the pink paper says he was permitted to change one word).

Greece was again reminded of its petitioner status when it submitted its initial draft of structural reforms. While it was accepted as a starting point for further negotiations, both the ECB and the IMF stressed that it did not show anywhere near enough commitment to completing the reforms in the current package. The ECB did say it was willing to consider substitutions if the changes had no negative fiscal impact; the IMF’s tone was less accommodating.

While it isn’t clear what the Troika and Eurogroup will and won’t accept, the structural reforms, as we predicted, are the big point of disagreement. Sources report that the IMF had regarded the primary surplus targets as unrealistic and expected to give ground there. Varoufakis stated that the Eurogroup had agreed on the humanitarian reforms, which Syriza costed out in its campaign platform as less than €2 billion.

However, my contacts say Greece is unlikely to get break on pensions, which was an important promise by Syriza (as in not “reforming” pensions). And it is not clear whether the IMF is willing to concede to Syriza on privatizations. Varoufakis’ point is valid: selling at fire-sale prices makes no sense. But the IMF regards Greece as a problem child that has already demanded and gotten way too much in the way of attention and special treatment. So the agency may dig in its heels out of feeling they need to preserve its bureaucratic authority and not let other countries get the idea that being difficult will lead to more lenient treatment.

By contrast, Syriza thinks it has a very different deal, as reflected in the draft reforms it submitted, which were cut back only around the margin from its campaign promises. Paul Mason points out that Syriza voted through some measures last week. I don’t read this as being as strong an act of defiance as he did, since most were on the tacitly-accepted humanitarian reform list, and the others looked like the had minimal fiscal impact. But the bigger issue may be the breach of procedure, of moving forward with measures that aren’t top priority for the creditors, namely, improving tax collection, and cracking down on inefficiency and corruption, and worse, not getting Troika and Eurogroup approval either.

However, as Ambrose Evans-Pritchard reports today, the Greek government has moved its defiance into a higher pitch, and is now threatening default if it has to comply with the old (or presumably most of the old) structural reforms. He discusses that Greece might raid some central bank “hidden reserves,” meaning pension assets, to make the IMF payments, since Greece must preserve its creditworthiness there (if it does depart the Eurozone, the IMF would be its only source of emergency lending, although with Greece up to its borrowing quota, it’s not clear how much if any additional support the agency would provide). That stopgap is fraught legally, plus it runs the risk that Greece will not have cash on hand for its April pension payments. As we mentioned yesterday, Greece is seeking to renegotiate its July and August payments to the ECB of €6.7 billion

Here are the sections on the Greece view of the memorandum:

Relations between Greece’s Syriza government and the rest of the eurozone remain extremely tense despite a fragile ceasefire agreed in Brussels to buy time and prevent a forced ejection of Greece from the euro, a development ruled as unthinkable by the leaders of Germany and France, and the European Commission….

Mr Varoufakis said Greece did not want any further money if it meant having to buckle to Troika terms. “We won’t take the next tranche if the price is having to continue with the ‘Memorandum’. That is not what the people voted for,” he said. It is a thinly-veiled warning that Greece will default on €300bn of combined liabilities to EMU entities and states if pushed too hard, regardless of what this implies for monetary union.

Paul Mason also noted that, “It was reported that, during a phone conversation with Angela Merkel, Mr Tsipras threatened Greece would default on its debts if pushed too far.”

The strident Greek tone, and the charge made the Spanish and Portuguese governments over the weekend of seeking to undermine the new government, suggests that they believe they have the upper hand, that they will not be pushed out of the Eurozone.

But what matters is not what Greece believes, but what the parties negotiating against him believe. The Germans, Baltic countries (which fall in with Germany), the Finns, the Spanish and the Portuguese, for different reasons, all believe that having Greece leave the Eurozone is preferable to giving it too many breaks. I’m not convinced that Merkel reining in Schabule was based on fear of a Grexit as much as a recognition that he was becoming a liability, pressure from the US, UK, and NATO, and perhaps also persuasion from the European Commission, which was acting as a go-between, that Germany could get what it wanted by giving Greece some face-saving optics.

And the fear of may of the major players may not be of a Grexit per se but an unplanned, as in disorderly Grexit. While I am told Greece is making contingency plans, I don’t have details and suspect it amounts to the use of parallel currencies rather than introducing the drachma. The ECB in many ways is the real power player here, and rumors out of the ECB that were not denied were that the ECB is extremely frustrated with Greece and can explain its conduct only via Greece actually wanting a Grexit but not wanting to be responsible for setting it in motion. But that view is contrary to Greece’s posture and recent actions, and is thus another sign of how poor communications are.

Now narrowly speaking, Greece may have the measure of its counterparties right. They probably are extremely loath to pull the trigger. But they don’t have to do that. All they need to do is keep withholding the bailout funds and denying Greece access to funding markets. As we’ve said, Greece needs money well before the deadline for it to complete its reform list and have it approved by the Troika and the Eurogroup. All they need to do is play good bureaucrats, smile, and insist that nothing has changed. They need to see a reform list that they can accept and that Greece has started to implement. Greece might get through March, but given the anxiety level in Evans-Pritchard’s column, April is dodgy. What happens if the new government can’t pay all of its bills coming due, or has to use a funny-money scrip?

As we’ve said before, financial time moves faster than political time. And despite the fact that Greek government has a potent threat, that of default, its need for cash, and the ability of the Troika and Eurozone to starve it out before July and August ECB payments are due, may give them the advantage.

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  1. charles 2

    My comment on the preceding post could just as well be on this post. Yves feel free to eliminate the most redundant… Here goes

    Three times two cents from me :
    – I don’t know for Syriza, but Varoufakis is NOT throwing away the possibility of a Grexit. Just watch this from beginning to end, especially the last sentence. He just understands that one must first create the Drachmas. Actually it worth watching the whole talk.

    – It is the the “hard core” eurogroup members who don’t want a Grexit. They just want a “Kosovo-ization” of the Greek economy (it is in the same paragraph of the interview where Varoufakis states that there will be “problems” to repay the ECB and the IMF). I.e., no banking system at all, and no possibility to print currency. In Steve Keen’s terminology linked by Yves recently, they want to demonetise Greek economy and reduce Greece to barter inside the EU.

    – If there is no set-up of a transfer Union, The best outcome from the point of view of Varoufakis and the Greeks (and indeed many well informed economists in the world, even Martin Wolf !) is to have Germany exit from the Euro. A good way to trigger this would be to create a crisis of confidence in the currency through default on international holders of Greek Debt and EFSF and “reckless” behaviour of the Central Bank (such as creating dollops of euros using the NBG printing presses to fill the ATM’s, nationalizing the 4 big banks and order them to buy T-BILLs with ELA over approved threshold, and even repaying the IMF with newly printed banknotes for the fun of it (“Dear Christine, your March repayment is ready for pick-up in container 32847 stationed in the Piraeus port” ;-), ) TOGETHER with a stubborn insistence that the currency created is still real euros.
    This insistence would essentially be supported by arguing that all the measures curtailing the power of the NBG to create money that would likely be initiated by the ECB (ELA restriction, purchase of T-Bill restriction by the Banks, Suspension from TARGET2) are indeed motivated by political bullying and are CONTRARY to the stated objective of the ESCB as defined in the Treaties,inter alia “The ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources”. If indeed, fulfilling my foolish hopes, this outcome was indeed Syriza’s plan, Varoufakis is probably one of the most competent to argue the case in front of European Court and European polity. Even if Greece was to loose, legal time would play in Greece hands and a politically negotiated outcome would likely end the case before it goes to court.

    To take Yves’s terminology, the whole game right now is changing the perception of the BATNA of the hardliners. They won’t do it before it stares them on the face.

    1. Yves Smith Post author

      The problem is whether the people who are actually at the table think the outcome would be more damaging to their political interest than giving Greece some breathing room. With the ECB with periphery country yields well controlled, and QE allowing even more ability to influence bond markets, the officialdom may convince itself it can handle a Grexit. Even I suspect the big issue is not the immediate impact. However, having Greece bumble through the process will set up the exit mechanisms (reducing the uncertainty of procedures and timing) and allow other countries to improve on what Greece did, facilitating other exits. Ambrose Evans-Pritchard has long said that Italy has the right characteristics to clearly benefit from a Eurozone exodus, and Marine Le Pen is insistent on leaving for political reasons.

      Given that the ECB is very unhappy with Greece, and is the best judge of financial fallout, its advice, should Greece not knuckle under, may be what drives a decision.

      I must also remind you that the officialdom greatly misjudged the cost of letting Lehman go. The politics, and not an economic assessment, drove that call. Appallingly, no one at the Treasury or Fed had even spoken to a bankruptcy attorney, so they had no idea of what would happen. Lehman had retained the very best bankruptcy attorney in the US, Harvey Miller, but he got absolutely no signals that a filing was imminent (and Miller has an acute nose for a deal). So Lehman filed with a thin-form bankruptcy, the most disruptive way possible to have gone about it.

      1. MartyH

        Yves, NC’s coverage (articles and interactions with and among the Commentariat) has been extremely helpful in following this very confusing situation. Two one-liners: Isn’t there a real possibility that none of the players actually see any reasonable and equitable way out? And with global debt at three times global “GDP” isn’t this a prototypical problem going forward?

        1. Yves Smith Post author

          Thanks for the kind words!

          Greece thinks it has a reasonable and equitable proposal, but the fact that Varoufakis is willing to commit to keeping the primary surplus at 1.0% to 1.5% means he is willing to settle for austerity lite. His Modest Proposal got around that by having Eurozone level infrastructure spending and humanitarian relief provide more demands but that is absent here. The other players have very different ideas of “reasonable and equitable.” Many believe a deal is a deal, and others either buy into austerity, or like Rajoy’s government in Spain, acceded to it, and so don’t see why Greece deserves to be treated differently. That would be unfair!

          Re the debt to GDP figures: what you need to worry about is private debt to GDP, most of all household debt to GDP, as well as debt to GDP for non-sovereign currency issuers.

          1. Cugel

            For about 15 years now I’ve been representing insolvent debtors in the U.S. in legal settlement negotiations with the agents of banks, credit card companies and collection agents. Basically the settlement negotiations boil down to giving the creditor a reasonable option to either take what the debtor can reasonably afford to pay, when he can afford to pay it, or reject a deal and face the prospect that they will get little or nothing in bankruptcy.

            Some creditors will be reasonable but many will not. And the reasons are usually that they can’t wrap their heads around any deviance from their bureaucratic procedures. They have a percentage that they determine is “reasonable” and often won’t go below that even if the debtor simply can’t pay. And I’ve learned that it’s utterly futile to try and dispute any portion of their various exorbitant charges and rake-offs, no matter how dubious. They get indignant at arguments that the interest rate they are charging is somehow improper, or that they should waive the default charges before negotiating a final settlement amount. So, unless you plan to sue them in court and win, there’s no point disputing anything with them.

            The credit industry has a quasi-religious faith in “moral hazard” and doesn’t deal well with the simple reality that morality doesn’t enter into it, that “this is just a pragmatic question about money.” It’s better to take what you can get within a reasonable period of time, than squeeze too hard and get nothing, but all too often that’s what they do. One senior partner of a creditor collections law firm told me that they complain that he’s offering too liberal terms to debtors in settlement negotiations, and yet then they whine about their bottom line when their harsh and unrealistic policies result in less money collected and more bankruptcies.

            I see the same scenario unfolding in the Troika negotiations with Greece. The creditors just can’t accept deviance from their quasi-religious faith in Austerity, and they can’t adjust to the political reality that the Greeks not only cannot but will not stay quiet and allow themselves to finish being looted over the next 2 or 3 years. From their perspective, they are in the right and are outraged that anybody questions their moral authority.

            But this does nothing to change the facts on the ground. Syriza simply cannot agree to the terms that the Troika and Germany are demanding. If they do, they will instantly lose popular support and their party will split. 40% of them already voted against extending the current face saving deal. So, Tsipras’ warning to Merkel that Greece would default if pushed too hard is simple reality. They can’t get party support for a complete capitulation, and if they could the same people who are currently supporting them would instantly turn against them and their opponents would move in for the kill. Then the government would collapse amid mutual recriminations.

            What ultimately happens then is anybody’s guess, but chaos and economic collapse are a given. My negative opinion of the prospects for any successful outcome is really rooted in my own experience negotiating with creditors. So the more important question is “what happens after a default or partial default, which may happen well before June?”

            1. dr frank

              I agree with you completely based on similar experiences in debt workouts. And I believe the dynamic you describe more than the geo-politics of the matter is driving much of what we are seeing. But these institutions are not exactly in the lending business, by which I mean to say they are to some degree amateurs.

            2. Foy

              Good comment Cugel on dealing with creditors. I’m with you, I can’t see this ending well at all now – which goes with my same view from when the bailouts started, without a Eurozone trade surplus/deficit recycling mechanism and with endless austerity sooner or later sales of pitchforks would go exponential, bringing down the house.

              After listening to some videos and presentations by Varoufakis over the last couple of years I think he really believed he could sit down and explain to the Troika how and why Greeks debts are unpayable under current circumstances and will only continue to blow out. And why Greece leaving the EU (orderly or otherwise) will ultimately result in the collapse of the EU down the track (as other indebted countries go the way of Greece). And that once the Troika understood this they could all then work towards a restructuring using the methods you describe that you would have with a rational creditor.

              But as dr frank mentions, the Troika is not exactly a rational creditor in the normal sense given all the geopolitics and I wonder how much he has taken that into account. He seems to have played a logic and rational card (taking default and Grexit options of the table beforehand as part of his argument) thinking surely the Troika will come around and understand the situation (that there is no other alternative for either party but to restructure debt), but he ended up in a room by himself talking to nobody.

              There doesn’t seem to be any common ground at all now between the parties on which to start a negotiation as Varoufakis believes the Eurozone cannot survive long term if Greece leaves but it seems obvious the Troika now believe they can. And the ‘humanity’ argument Varoufakis uses as the basis for his positions carries zero weight with the Troika. There is nowhere to go that is palatable to either party short term let alone medium term.

              As Yves keeps reminding us, financial time moves faster than political time…methinks ‘orderly or disorderly?’ is now the question…

              And also I wish to say to Yves that Yves’ very timely analyses, posts and summaries on Greece have been absolutely first class, great reading, as has been all the NC commentary, all in all a one stop shop on Greece, thanks very much Yves and NCers!

          2. Santi

            Don’t buy the “factoid” that Spain has accepted austerity. Spain has been allowed to cheat, having big size and unemployment and being far riskier than Greece for the EZ as a whole. Spain has currently the biggest primary deficit in the EZ, and having 4 different elections this year ending with national ones it is unlikely that accounts will get better. Growth last year was a 1.4%, with a -0.7% deflactor (yes, we are in deflation now), so a dismal growth for a country with ~23% unemployment now. Unless the oil prices or QE help a bit, the debt-deflation trap will eat our economy severely in 2016, when the elections are gone.

      2. DanB

        Yves observes, “Appallingly, no one at the Treasury or Fed had even spoken to a bankruptcy attorney, so they had no idea of what would happen.” Each semester I show “Inside Job” to my students and they often laugh at how the documentarian juxtaposes the combination of ignorance, hubris and BS dished out by Paulson and one of his assistant Secretaries, who defends Paulson as “getting every call right” in the documentary. As a sociologist I tell my students that given the nature of bureaucracy awful decisions are the norm, not the deviation; that is truly scary because it illustrates power in the hands of venal and decadent mental nincompoops.

        1. BadBentham

          An absolutely viable assessment, and certainly the stuff that literature is made of. Half of “The Hitchhiker`s Guide” by Douglas Adams is just about bureaucratic decision-making, featuring prominently the archetypical brain-dead alien Vogon-race and their plannings of Interstellar Hyperways, e.g at the cost of Mother Earth. Kafka is more the individual approach to the phenomenon of bureaucracy. While Pynchon in Gravity´s Rainbow quite correctly points out: “A million bureaucrats are diligently plotting death, and some of them even know it. “

      3. charles 2

        There are no legal mechanisms for involuntary exit from the EU or the Eurozone. Please see The only legal way to kick-out Greece is for all others countries to dissolve the EU using the Vienna convention and remake a “new EU” with the same Treaties without Greece. The problem is that this implies to ratify the Treaty for the “new EU” in all member states. Good luck for that (especially Ireland and France) ! Also Note that the Vienna convention has a Severability clause, so partial withdrawal of treaties (such as eurozone exit) is not possible.
        The other path to provoke enough misery in Greece so that it cries uncle and asks for its exit by itself (which is allowed by the Lisbon treaty). Such a mauling of Greece by various means will certainly be politically popular in Northern Europe, but the slow motion explicit display of raw malevolent power by the Eurogroup will have disastrous political consequences in France and Italy. I can’t imagine a better way to put Marine Le Pen or Beppe Grillo in charge, and I think Hollande and Renzi will figure this out very quickly, if they haven’t already.

        Furthermore, if the “set-up of a procedure for exit” is used by France or Italy or Spain as you suggested, then all three will be out of the euro in no time (there is no way France’s economy can compete with a exited Spain or Italy), which essentially mean that the euro is dead. If that is the final outcome, it is better that Germany exits now and leave the euro to the French, which will leave it to the Italian, which will leave it to the Spanish, which will leave it to the Greeks ! It is also institutionally much simpler : one simply has to modify the Treaties to :
        a) removes the objective of Price Stability for the euro
        b) authorise members states to introduce their own currencies managed by their National Central Banks if they want to, but without banknotes.

        BTW, I know that it would be a thermonuclear strategic strike in the currency wars (and do does Varoufakis…) , but hey “our currency your problem” right ?

        1. Yves Smith Post author

          There is a paper by the ECB that begs to differ. There are only two good legal analyses on the topic of exiting the Eurozone, and the ECB’s I am told considers this topic. I’ve kept it open in my browser window but have yet to read it.

          1. charles 2

            If it is that study (written by a greek BTW…), there is nothing that contradicts what I wrote above. To be honest, it is so close that the most likely event is that I read that document when it was published (or when it was mentioned by AEP ), forgot that I read it, and plagiarised it inadvertently ! For a moment , I really believed that I was smart and knowledgeable…

    2. Haralambos

      Charles 2

      Re: “Just watch this from beginning to end, especially the last sentence.” No link.

  2. plantman

    The impending clash is unavoidable, after all, Varoufakis says he has one deal, and the troika insists they have another. So there’s going to be a confrontation.

    Tspiras could cave in to the troikas demands but that would alienate his base and probably force V out of the cabinet for reputational reasons.

    Neither Germany, the ECB or V are showing any sign that they will change their position, so it depends on Tspiras. It looks to me like Greece could back into a default that will impact the banks in a way that could be irreversible.

  3. joecostello

    Funny to think the Greeks think, as implied, they can get a better deal from IMF than the Euros.

    1. Dan Allen

      The Greeks are right to think that. Behind the scenes, the IMF has been a lot more accommodating than the Europeans. There have been many examples of this.

      Also, given the statements of ex-IMF board members in the press, it is plain to see that there has been pressure on LaGarde as well.

  4. dr frank

    Why isnt anyone worried about riots in the streets of Athens any everywhere in Greece?

    Why isnt the cry of humanitarian crisis echoing through the “institutions?”

    Why arent the proposals to maximize debt recovery via writedowns and moderation of austerity programs being analyzed and considered?

  5. generic

    Does it need the cash for anything except repayments though? I’m not quite clear on whether the primary surplus is still current or not.

    1. Dan Allen

      They still have a primary surplus.

      The problem is imports. Once their currency crashes, they will still have to pay in hard currency for food & energy.

      So, even though they can begin to address unemployment and taxation, they will quickly fall behind when it comes to imports.

      1. Calgacus

        How much and if their currency crashes is really besides the point, because of the surpluses etc. The important thing is to exit austerity. If this means exiting the Euro, that is what it means. There is no reason to think that Greece will fall behind when it comes to imports relative to its current situation, and every reason to think that exiting the Euro would improve its capacity to import necessities after a short transition, especially, as is very likely, it would be accompanied by interruption of debt payments.

        1. BadBentham

          The problem is most likely, that after a Grexit noone will even bother to lend Greece money for quite a while. If Greece still has to import stuff afterwards, what is rather likely, it appears almost certain to me that this will trigger a hyper-inflation in the new currency, what is not necessarily the most rosy prospect.

          1. Calgacus

            BadBentham:After a Grexit noone will even bother to lend Greece money for quite a while.
            So what? It isn’t borrowing now, except for keeping current on old debts.

            If Greece still has to import stuff afterwards, what is rather likely, it appears almost certain to me that this will trigger a hyper-inflation in the new currency, what is not necessarily the most rosy prospect.

            The probability of hyperinflation is not almost certain, but nil, if Greece behaves sanely, as there is every reason to believe it will. It will pay for imports with exports, as it is doing right now. Not a big deal. As Mark Weisbrot notes, the closest comparison is to Argentina a decade odd ago – and the differences tend to be in Greece’s favor.
            As I have said before, common extreme Grexit pessimism is more appropriate for a country about to or being invaded or blockaded. Or maybe it is based on prophecies that Thera / Santorini is about to erupt again. Not on logical arguments or historical experience. The problem is that what FDR called “old fetishes of so-called international bankers” have possessed many minds – far more deeply than they ever had the so-called international bankers’.

  6. Dan Allen

    Excellent analysis. I think Paul mason is also giving excellent readings of what is going on.

    Behind the scenes in Greece, I suspect the gov’t is very aware of the near impossibility of improving the Greek economy in the current conditions. So, while political time may be different than economic time there, Greece is truly frozen. It really doesn’t even matter if the decisions are made next week since there is little to nothing Greece can do to improve its situation under this straitjacket.

  7. No one in particular

    “PM Alexis Tsipras announced five laws on Saturday. They included a write off of small debts for 3.7 million people; an instalment scheme for people who owe up to €50,000 in tax; food stamps, free electricity and free housing for those in extreme poverty. Plus the reopening of the state broadcaster ERT and the closure of a controversial gold mine,” (Paul Mason)”
    IMHO, the Tuesday paper was to allow the pretence of a deal, and thus the ECB to maintain Target/ELA balances – period. If the eurogroup wanted Grexit – they could have had it – last Friday – nice and easy. That’s the rub, they want to continue the current fudge, for better or worse. This gives the T+V an enormous leverage, see the money spending measures, certainly not agreed with the “institutions” in advance. Tsipras wants to stay in the euro and the EZ to subsidise this forever (the limits of his precarious mandate) – and the eurogroup wants to defy economic reality – both will fail, eventually. It is a matter of time, of how much more it will cost for the delusional bailout fanatics in Berlin and elsewhere to realise that the game was up a while ago (- May 2010 to be precise) – who will take the blame and who will ultimately will pay. Everything eles is show, to keep the audiences distracted from the real going on. I would dismiss the rumor on ZH recently, where somebody claimed “there was a deal between the two to extend for 4 month to organise an orderly Grexit” – as rumour – the main players on the EZ side still believe the euro is TINA – even if the ongoing bailouts and accompanying violation of every rule and law is undermining the very EU framework the euro was supposed to strengthen. I hope at least the history books will get the irony. We will have to wait for the next Clark – sleepwalkers to bring it to the then public attention.

    1. susan the other

      yes. I agree that no one in the EU wants a Grexit. But it just so happens that the Greek politicians, Tsipras and Varoufakis and the lesser players, are all very smart guys. The EU is in desperate need of smart guys right now. Not Schaeuble smart, but closer to MMT smart. Or Steve Keen smart. Or Michael Hudson smart. Or Jamie Galbraith smart. Etc. Because the EU have such a pompous, classical and arrogant financial mess-of-their-own-making on their hands they cannot fix it unless very smart “exogenous” people step up with the courage to just be blunt and rude and get some things done. I also agree that the consensus that comes from this will be a financial blueprint for the EU – and maybe some of it for us too. We can hope.

      1. No one in particular

        I can only higly recommend to watch the movie “Downfall” again – and not only the bit where Hitler moves armies not longer in existence…. Imho it perfectly reflects the current mood in Berlin.

        Whilst the “shoot the messenger attitude” is prevalent in dealing with bad news, all over the EZ apparatus, especially in Berlin, good luck with finding any volunteers, it is a suicide mission for the time being – the willingness to defy reality much too overwhelming. As Berlin is key for change….
        And you would be dealing with a mind-blowing level of “Kadavergehorsam” (there is no obvious translation. slavish obedience does not remotely cover it, it is more obedience till you are a cadaver, i.e. beyond caring). A ex FT journalist recently said the German approach to debt results from the semantics of debt = Schuld = guilt – but I disagree: Whilst this may be a minor contribution – it think the German psyche was brainwashed after WW2 – along the lines: “this was your fault and you have to pay for it” – and now Berlin, having dutifully absorbed the message and internalised it, tries to apply to everybody else – I would call it backfiring. However, the European elites have backed themselves into a corner; if they implode the euro – necessary for economic recovery, they blow up the political plot and the dreams of world influence, as none of the current players would survive the uncovering of all the hidden debt – so it is “apres moi, le deluge”. Any clean-up mission will (sadly) have to wait till after the eventual downfall, and anybody qualified will do their best to keep away to avoid being tainted by association with the current lot.

        1. susan the other

          Kadavergehorsam. What a great word. Thanks for these insights even if they are very depressing. And frightening because as the euro burns, the US and UK are gearing up to go to war with Russia. I’m hoping one thing today and it is that this time around (IMO we have had two wars already trying to take over Russia – WW1 and WW2) we will back down because we won’t have Europe to do our dirty work for us. My reading of Merkel is that she refused to even consider another war and made the public statement with Hollande that the EU now wants to deal/trade with Russia and Putin. It is a game of chicken and the prize, as always, is oil. So I wonder about the timing of all this. Did Western Finance know it was inevitable that it would implode and create the “great financial crisis”? The only thing that can save us all is good politics. Which is hard to achieve when war is the real agenda. Kadavergehorsam is dangerous denial.

  8. mpr

    I am slightly more optimistic about the Troika’s responses. After all, the Greeks negotiated (Spiegel and FT notwithstanding) a completely different agreement to what was on offer the previous week, and the Troika then “accepted” their list of reforms. Its hard to imagine that Troika and al believe that all this fuss was just so that Syriza could comply with the previous memorandum, especially when Varoufakis and co have been explicitly and repeatedly saying that it was dead.

    By contrast, Syriza thinks it has a very different deal, as reflected in the draft reforms it submitted, which were cut back only around the margin from its campaign promises.

    Yes, I’m sure their position is “we told you what we were going to do in our list of reforms, which you accepted”
    This is exactly the reason I’m perplexed anyone would think this was a Syriza capitulation.

    Now narrowly speaking, Greece may have the measure of its counterparties right. They probably are extremely loath to pull the trigger. But they don’t have to do that. All they need to do is keep withholding the bailout funds and denying Greece access to funding markets.

    Something like this is quite likely, and the dynamic of forcing the opponent to make the first move is an important one in this stand off. But here I have a technical question. What of Greece just issues more T-bills (maybe under another name), despite the ECB. Is the ECB taking these T-bills as collateral anyway ? As we know the T-bills are essentially an alternate currency anyway. This would be a last ditch move, since it would be seen as very provocative by the ECB, but it would put the ball back in their court.

    1. Yves Smith Post author

      They did not “accept” anything. They only said they were adequate for negotiation. And the ECB and the IMF both made very clear that they expect significant changes to be made.

      They are accepted ONLY when the Troika and the Eurogroup approve them. Only then will bailout funds be released.

  9. Edna M.

    Regarding the possibly non-binding nature of the agreement: The government is not putting the agreement to a vote in Parliament, despite demands from the Communist Party (KKE) and, I believe, the other parties as well, to bring it to a vote. Instead, they will bring it to Parliament for discussion by party leaders but not for a vote. The reason given is that a vote is not constitutionally required. But some speculate that their real reason is so as not to make the agreement binding. A second possible reason, and one that the Communist Party believes, is that the pro-austerity parties ( or pro-memorandum parties, as they are called in Greece) will vote for it, thereby unmasking the deal as no different than the prior deals.

    Regarding staying in the euro at all costs: Although internal polls suggest Greeks favor remaining in the euro, here is a poll by WIN/Gallup finding that most Greeks (52%) favor their national currency over the euro. (p.4)
    My hunch is that the people are more radical than the radical left government gives them credit for.

    Thank you, Yves, for covering this story in such depth.

    1. ChrisDB

      I looked at the survey, and was a bit confused about the question asked on page 2:

      EU2. If there was a referendum tomorrow in your country on whether Afghanistan should remain a part of the European Union, would you vote to stay in the European Union or to leave the European Union?

      Is Afghanistan secretly part of the European Union? Or is this some kind of typo / mistranslation?

  10. docg

    Payday at Coal Creek
    As performed by Pete Steele.

    Payday, it’s payday, oh, payday,
    Payday at Coal Creek no more,
    Payday at Coal Creek no more.

    Payday, it’s payday, oh, payday,
    Payday don’t come at Coal Creek no more,
    Payday don’t come no more.

    Bye bye, bye bye, oh, bye bye,
    Bye bye, my woman, I’m gone,
    Bye bye, my woman, I’m gone.

    Miss me, you’ll miss me, you’ll miss me,
    You’ll miss me when I’m gone,
    You’ll miss me when I’m gone.

    She’s a rider, she’s a rider, she’s a rider,
    She’s a rider, but she’ll leave that rail sometime,
    She’s a rider, but she’ll leave that rail sometime.

  11. no one in particular

    More T-bills will not be accepted by the ECB at present – Greece has already placed EUR 15bn T-bills. This door was explicitly closed.

    1. mpr

      This doesn’t answer my question. ‘Not accepted’ in the technical sense that they won’t accept them as collateral, or in the sense that the find the move ‘unacceptable’ ? In the latter case, the question becomes what they are going to do about it.

      1. No one in particular

        Neither, I believe – but real information is hard to come by. The ECB has twisted her rules beyond recognition since 2007 the following is as the German press is reporting, to be taken with a big pinch of salt; the ECB currently has accepted EUR 15bn of Greek T-Bills as collateral – but they will not accept any more for the time being – and any variants, IOU’s won’t be accepted either. So this road is closed – there is only the ELA/TARGET ways. There is a ECB council meeting today/tomorrow, so things may change.

        1. No one in particular

          The EUR 15bn limit was/is part of the old MOU reform plan….. not sure how valid….

        2. charles 2

          Greek NCB can always do ELA and there is nothing that prevents it to go beyond the ECB approved threshold (except the ire of the council of course…). Actually, the main problem for the greek government is to actually to find a local bank willing to buy the debt. That is why I think a smart move would be to do a selective default that protects holdings of Greek banks.

  12. Synoia

    Could the Greeks deposit the equivalent of the $1 Trillion platinum coin in the Greek Central bank?

    The Brass E1 Trillion EuroCoin perhaps?

    1. financial matters

      Interesting question. The purpose of the coin in the US is to unravel the complicated Fed/Treasury aka monetary/fiscal operations.

      It’s a strange concept to a strange problem. Rather than just saying ‘we don’t have the money’ it’s saying ‘alright we do have the money, now lets decide how we want to spend it’.

      A technocrat decision or a democratic decision. Central banks were set up to be independent from governments but that doesn’t seem to be working out very well.

    2. charles 2

      Nope, commemorative coins are limited to 2 euro, and in limited amounts, and they are not legal tender out of the country of issuance !

  13. Ian

    Would just like to say thank you to Yves and associated persons in what NakedCapitalism is doing and has done. Giving me and so many perspective. (also bringing about change through the growing of that insight and perspective)
    Thank you.

    -Ian Cooper

  14. kaj

    Everything I have read about Syriza tells me that this is a more hard care and seasoned ( as in well educated and intellectually trained and disciplined) organization, with an Althusserian bent. They expected and expect a hard fight from the core neo-liberal economies and their institutions with a range of likely outcomes, game-theory as it were. They have rehearsed some outcomes and others likely known-uknowns. This is not an unfolding tragedy, so one need not be too pessimistic, as is our wont. It is likely to be a disaster in the making for every member of the European community and the global economy. Let Greece take them down, one by one, or in one fell swoop. It will be terrible for the ordinary Greeks, but no one will be spared, not the Germans or the Finns and the USers. I for one will love to see this happen, for the first time in my life, that a left-government duked it out with the morally bankrupt system and all the stupidly accumulated capital went down in flames.

    1. Mario Medjeral

      The EU bureaucrats know well that this is a structural crisis affecting the whole West and that Greece is only one of the most affected in Europe. To play this down as a sole ‘Greek crisis’ and have Mickey Mouse Socialists (Dijsselbloem), to borrow a term from Meszaros, to enforce compliance shows that they are solely playing for time and delay a next ‘2008’, nothing else.
      I’m confident that Varoufakis, if allowed, could bring the whole dysfunctional EU down nicely, which I believe he termed ‘bankruptocracy.’
      Kaj, let’s share a nice bottle of wine when this monster goes down in flames.

  15. JTMcPhee

    I abase myself before the deeply experienced and educated and sophisticated people here, and apologize for my ignorance both of the lexicon and postulates of the science of economics and the depths of and convolutions of diplomacy. That said, might I humbly offer a viewpoint?

    It seems that stuff like these bubbles and recoveries are even possible, in the first instance, because ordinary people go about their business — shopkeepers, teachers, doctors and nurses, lawyers even, farmers, mechanics, little manufacturers and their employees, trash collectors and masons and plumbers and carpenters, and so forth — the behaviors and interactions that seem to be the real “wealth creation” mechanism. The mechanism that buys and builds stuff, and pays taxes and rents, using the simpler kind of money, that you can put in your wallet or pocket or deposit in savings banks. All of it built, in large measure, on our kind’s having figured out how to convert ancient carbon into carbon dioxide and heat and complex organic molecules.

    The froth of business and government that designs and executes the bubbles and kleptocratic practices is complaining that, now they’ve stripped most of the real wealth and savings from those mopes at the bottom, they are impatient that the mopes are not doing their duty to re-fill with REAL wealth the strippable coffers emptied to inflate the bubbles and create that what, $4 quadrillion now of “derivative” funny money, fast enough, not spending and taking on new debt fast enough, and not accepting uncomplaining the taking of their little property and slashing of their wages and pensions and retirement accounts, and steady, heavy inflation of the price of necessities like food and shelter and medical care. The froth also has built these enormous seductive and covert invitations to “take on more debt” and manufactured demand for all kinds of stuff, so e.g. people will line up days before “release” with their credit cards to buy the latest iPhone. And of course stuff like the triumph of the global MIC, which can’t win wars but can sure “prosecute” them.

    It’s interesting to try to follow the subtleties and machinations reported here. But it seems it all boils down to another assault by the people who live in penthouses and gated places on the people who at least in earlier feudal times, from what I recall, had some protection except in war (granted, most of the time in many places) from being stripped of all wealth and liberties. Whether the players are Talleyrands, or should aspire to be, or Timurs,, the result is “success” for a very few, without regard for the pain caused to others and the likely dead-end situation that this game play is leading toward.

    Very cool to parse and perceive and debate the many convolutions and niceties of the “positions” being taken, particularly by those who have figured out how to control the money flows and dominate industries and now whole areas that used to be thought of as sovereign nations. But is there any part of this that is about the simple continuation of the species, in any construct other than something that looks llike a cross between “Terminator’s” time and the world of “Soylent Green?”

    What if anything in all this deep dark complexity deals with or in any way addresses the impunity and immunity to any personal consequences of the people who are creating the present and coming horrors, and who know that before, or even during, the mess and troubles that appear to be so likely, they will be long gone or far away, safe from retribution or restitution? Or should us bystanders and mice under the dinosaurs’ feet, with grandchildren we care about and a vision of our post-work-life old age as nothing but “die quick now, and don’t expect anyone to bury you,” just accept that all the vectors and “interests” and pieces and subtleties remarked on here make the apparent most likely end game just inevitable?

    Real interesting to follow and have a sense of mastery of and argue about the intricacies and details of “diplomacy” and “negotiations” at the post-supra-national level. But what is the fundamental goal and structure of the game we are all immersed in? And when does the touchscreen announce “Game Over”?

  16. cassiodorus

    Yves, you say at one point: “What happens if the new government can’t pay all of its bills coming due, or has to use a funny-money scrip?” I’m guessing that’s the most important question. I’m not sure, though, that it has much to do with the outcome of negotiations. Maybe the negotiations will blow up and there will be a default and a Grexit and capital controls and Greece will be left to “go fish” for trading partners. And maybe the negotiations won’t blow up. I’m guessing that a lot will ride on the Troika’s reaction when it turns out Greece can’t pay its bills. Will they say “enough” and try to force Greece out?

    1. Yves Smith Post author

      No, it is that Greece needs the bailout money as of yesterday and does not get it until its list of reforms is approved by the Troika and the Eurogroup. The ECB and IMF have already made clear that the list as it is is not adequate and needs to have significant changes made before any funds will be released (their tone was that it was barely OK as a basis for negotiation)./

      If Greece were to default, the elephant in the room is what the ECB does with the ELA, the support to the Greek banking system. Opinion is divided, but I’d say the odds are better than 50/50 that the ECB would feel compelled to withdraw the ELA. The ECB already warned Varoufakis that saying Greece was bankrupt was tantamount to saying it was not eligible for the ELA. Varoufakis stopped that line of talk immediately.

      Withdrawing the ELA would force Greece to impose capital controls, nationalize the banks, and go to the drachma so it could recapitalize the banks. It would be a de facto Grexit, with the legal niceties to be tidied up later.

  17. plantman

    Okay, so this is where the rubber meets the road. Newsweek just reported that Greece is planning to dip into the pensions fund to pay the IMF.
    But…last week in an interview with CNBC, Julia Chatterley asked Varoufakis point blank, “So you’re ruling out pension cuts?”

    Varoufakis: “Of course over the next four months there will be no such thing.” (CNBC)

    So, how is that going to work? Personally, I expect a split between Tspiras and V on pensions.

  18. JTMcPhee

    A quickie from Bloomberg: It seems one of the stratagems the ECB is applying to keep all the bubbles in the air, buoying the apparently accelerating upward flow and concentration of wealth and resources, is QE with big bond purchases: “Draghi’s Rescue Plan Has Created a $103 Billion Problem,”

    Relating that to the Greek situation, can I ask whether that’s another bone-breaker for the Greeks and “those other little countries” and the companies located there that were “foolish” enough to set up defined-benefit pension programs, apparently on the counsel and representations of a lot of really smart financial advisers and with some silly notions of sharing the wealth and providing some loyalty and incentives to workers?

    And at what point do people get to that condition of hopeless indebtedness and incurable impoverishment where “burning it all down” (rather than quiet suicide by suffocation, as noted here recently, becomes the most attractive option? At least there would be some looting opportunities for someone beside the owners and beneficiaries of the current financial overlordism…

    Not long ago, there was a neat series in this space, “Journey into a libertarian future,” One has to wonder where we are on that journey.

  19. MyLessThanPrimeBeef

    I have one theory: Peak Blood.

    As in, we have no more blood for you to s**k on.

  20. JEHR

    In my country, and in my small province, the “db” pension plans have been changed to “shared risk.” So the recession has reached us too but no one makes the connection between the elite overlords who created the world bubble who created the financial crisis which caused pension plans to deflate. If the Greeks make waves, good! I would rather the sh*t hit the fan sooner than later. I am willing to share their misery now.

  21. Matt

    I sympathize with the the Greek position. If the other side is only going to dictate, then what good are any Greek proposals. I suspect the Greeks have another game to play, that is to reduce bureaucracy and corruption on the home front.

  22. financial matters

    Apparently, Yanis has Jamie Galbraith and Elena Panariti as consultants.

    I see it as a strong move to incorporate Panariti. She was a member of the Greek Parliament from 2009 until 2012 (PASOK). I think it can be important to have the right people at the top to really get the true potential out of an individual on the team.

    She seems to have a deep knowledge of the structural reforms in taxes, property and labor that can allow any government to function well. There can be complex issues leading to ‘under the table’ deals including profitability and lack of risk of prosecution and also trying to work around unnecessary bureaucracy.

    She seems to be another bright addition to the Syriza team effort.

    1. JurisV

      Financial Matters —

      Thanks for the link ! I loved it because her introduction emphasized the necessity for trust in institutions of government. In my view it’s the fundamental aspect of pretty much everything in human relations. Elena Panariti’s use of that word reminded me of a conversation I had years ago with a friend who worked with a major developer in the Puget Sound region of Washington. That developer taught him that the primary problem in negotiating deals was similar to two emotional apes on opposite sides of a log who have “issues”. They may gesture, grunt, and maybe even pound on the log — until they either trust one another or not. We humans, the developer taught my friend function (in degrees) similarly to those apes. If, at the beginning of a negotiation for a deal, through conversation, they reach a level of trust they’ll find ways to make the deal happen; if not, no amount of further discussion will result in a decent deal. Trust seems to be a fundamental human need for civil functioning in our complicated world.

      For example, my son who works in Japan reminds me of the importance of trust building in Japanese business dealings. There is a cultural necessity of getting to know one another (dinner, drinks, non-business discussion) to develop trust before any talk of business. He says deals by foreigners are commonly blown by not understanding the subtleties of Japanese culture.

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