Leaked Tsipras Letter to Merkel Shows Increased Desperation, Warns of Imminent Default

If the plan of the Troika was to starve the Tsipras government and produce either capitulation or a loss of domestic credibility, their effort appears to be on track.

FAZ reported that the Greek government is set to run out of funds by April 8. Tonight, the Financial Times reports that Greek prime minister Alexis Tsipras sent a desperate-sounding letter to Angela Merkel on March 15. That appears to have led Merkel to meet with him at an EU conference last week and arrange for a one-on-one session tomorrow.

From the Financial Times account:

Alexis Tsipras, the Greek prime minister, has warned Angela Merkel that it will be “impossible” for Athens to service debt obligations due in the coming weeks if the EU fails to distribute any short-term financial assistance to the country…

In the letter, Mr Tsipras warns that his government will be forced to choose between paying off loans, owed primarily to the International Monetary Fund, or continue social spending. He blames European Central Bank limits on Greece’s ability to issue short-term debt as well as eurozone bailout authorities’ refusal to disburse any aid before Athens adopts a new round of economic reforms.

Curiously, the Financial Times story fails to mention that European Commission chief Jean-Claude Juncker offered €2 billion for humanitarian relief. However, there may be less here than meets the eye. If you read the text carefully, the €2 billion is the maximum Greece could get. And Juncker stressed, “That’s not meant to go into the coffers of the Greek state but to support efforts to create growth and social cohesion in Greece.” That would seem to imply that strings are attached or that there will be strict oversight of how the funds are used. And it was not clear how quickly the funds would be released.

But if we are to accept Juncker at face value, the €2 billion is for new spending for specific programs. And since the Syriza election budget proposed €1.8 billion for humanitarian programs, the intent of the Juncker offer might be to fund that part of the Greek reforms so as to eliminate that as a bone of contention and a potential PR disaster. Moreover, it could still be that the release of these funds is contingent on Greece getting its reform list negotiated and approved.

But even if you factor in this omitted bit of good news, the picture is still grim. From the pink paper:

Mr Tsipras was rebuffed in efforts to secure quick financing from either the ECB or eurozone lenders at Thursday’s Brussels meeting with Ms Merkel and a small group of other EU leaders — including French president François Hollande and ECB chief Mario Draghi.

In an interview, Luis de Guindos, Spanish finance minister, said his eurozone counterparts would not sign off on any new bailout funding until a full set of approved reforms was passed and implemented by Greek authorities, a process that could take months.

This comment by de Guindos is more deadly than it seems. He has emerged as the hardest hardliner in the Eurogroup, the committee of finance ministers. Recall that for Greece to get the near-term bailout funds it needs, it not only has to get the blessing of the Troika, but then the Eurogroup. And that vote has to be unanimous. A single dissent can block Greece. So de Guindos refusing to sign off on a change in procedures means Greece is still obligated to submit a detailed reform list and work with the Troika to get to a mutually acceptable version.

But keep in mind that de Guindos is not alone in that view. Merkel last week also stated, in effect, that Greece has to adhere to the process set forth in the February memo it signed with the Eurogroup. From Reuters:

“The agreement of Feb. 20 is still valid in its entirety. Every paragraph of the agreement counts,” Merkel told German journalists who questioned whether she was now offering cash for promises that many of her supporters have stopped believing in….

Merkel insisted only the completion of approved measures — in a final review by creditor institutions — would satisfy lenders including the Euro Group of euro zone finance ministers.

“The Greek government has the possibility of replacing individual reforms outstanding from Dec. 10 with other reforms, if these … have the same effect. The institutions and then the Euro Group must decide whether they do have the same effect,” she said, noting Ireland had made such changes with EU backing.

So understand what this means: Merkel knew last week that the Greek government was threatening default in order to get funds some funds released without having completed the process it had agreed to less than a month ago. She refused to budge.

The Financial Times provides more detail about the missive to Merkel:

Mr Tsipras’s five-page letter is particularly critical of the ECB, which he said had forbidden Greek banks from holding more short-term government debt than they did when they requested an extension of the current bailout last month — a cap that has prevented Athens from relying on Treasury bills to fill its urgent cash needs because Greek banks have become nearly the only buyer of such debt.

The Greek prime minister insisted the ECB should have returned to “the terms of finance of the Greek banks” that existed immediately following his government’s election — when ECB rules were more lenient — once the deal to extend Athens’ €172bn bailout through June was agreed last month.

Far from going easier on Athens, the ECB is considering whether to give its guidance to Greek banks more authority by making it a legally binding requirement not to add to their T-bill holdings. A decision is expected this week.

He also criticised the ECB for only increasing the amount of emergency central bank loans to Greek lenders “at shorter intervals than normal and at rather small increments”, arguing such drip-feeding continued to “incite speculation and spread uncertainty vis-à-vis Greece’s banking system”.

As we noted in our post last Friday, after Tsipras had met with Merkel, Draghi, French President Francois Hollande, Juncker, Eurogroup leader Jeroen Dijsselbloem, and EC council head Donald Tusk, the Financial Times described Draghi as “incensed” over the way Greece was making it difficult for inspectors from the ECB, European Commission and International Monetary Fund to do their job. One wonders if he was shown the Tsipras letter and that added to Draghi’s choler.

The Reuters report on the meeting last week stated that officials told Tsipras that if he presented a plan, the Eurogroup could meet on short order. But the message seems clear: the Greek government needs to flesh out its reform plans, and the starting point is the old, hated structural reforms, let the Troika inspectors do their work, and only then might it get some money.

We were worried from the outset that the Syriza slogan, “Hope is coming” was a bad omen. It looks as if the Greek government pinned far too much hope on the idea that it could play them off against each other (which we thought was remarkably naive) or that its creditors were so reluctant to avoid a Greek default that they’ve go into “extend and pretend” mode and throw Greece a financial lifeline. We’ll see what steps the Tsipras administration takes now that it sees that the Troika has closed the exits and does not seem inhibited about turning up the heat.

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  1. Santi

    Draghi is an ex-Goldman Sachs and De Guindos an ex-Lehman Brothers, they have never stopped being in charge…

  2. charles 2

    1) default without recovery on all foreign creditors expect ECB and IMF (I.e. EFSF and hedge funds), or to make it fun, assign any payment for german war reparation to the EFSF.
    2a) print euros by ignoring ELA limit
    2b) print paper euros, in size
    3) litigate against any suspension of Target 2 and any suggestion that it constitutes a Grexit : Euro is the currency of Greece and the ECB simply has no right to kill the Greek financial sector by Treaty obligations.

    Euro is Drachma ; if Germany is not happy with that, it can exit from the Euro. THAT at least, is legal.

    1. Georgie Welchade

      Nope, it is not.
      ‘Euro is not Drachma’ and, if anything, Euro is Deutsche Mark.
      And THAT is the problem.

      ‘Euro is the currency of Greece’ (?)
      Nope, it is not.
      By definition, Euro is the currency of the Euro Zone.
      The Euro Zone has rules, and systems, and politics.
      The Euro Zone is not Greece (obviously)

      German exit from the Euro is legal ?
      Nope, it is not.
      (Don’t waste your time, trust me)

      The geniuses that designed the Euromess on purpose had the Hotel California in mind so that no intern could leave the asylum.
      …”… such a lovely place…plenty of room…”…
      …”…you can check-out any time you like…”…
      …”… but you can never leave…”…

      You see, any way we try to slice it and dice it we still get back to the bloody “Greek Impossible Triangle”.
      So let’s solve it first because placing the cart before the horses never helps.

      1. Georgie Welchade

        Additional reductionist Excell worksheets don’t help either.
        This time is Deutsche Bank’s (of all people)…


        Questions and reminders :
        * Where have all the statesmen gone ?
        * The bail-ins are coming guys, believe it… and maybe beyond Greece (think de Guindos shutting down his euro window just in case…)
        * Confiscation of German property in Greece is evermore in the cards.
        * Are we all on the same page ?
        * Does Europe think it can come out the other side of this mess smelling like a rose ?
        * WW1 started for far far far less than all of this.
        * Graccident is a butterfly in search of a windshield in California in mid-June.

        1. Cugel

          “We were worried from the outset that the Syriza slogan, “Hope is coming” was a bad omen. It looks as if the Greek government pinned far too much hope on the idea that it could play them off against each other (which we thought was remarkably naive) or that its creditors were so reluctant to avoid a Greek default that they’ve go into “extend and pretend” mode and throw Greece a financial lifeline. We’ll see what steps the Tsipras administration takes now that it sees that the Troika has closed the exits and does not seem inhibited about turning up the heat.”

          If you go back and listen to Varoufakis’ lectures and comments over the last 2 years it does not look like he’s being “naive” but rather – realization that there was no alternative to giving it a shot and hope for the best. The negotiating position was so hopeless, that only a real change in attitude among the Troika or outside support from other countries would give Greece any chance. It’s not Syriza’s fault that the Troika are greedy morons who can’t see beyond the end of their noses. Syriza’s proposals really are a “best for both worlds” approach that would benefit everybody, and the Troika’s complete rejection of even the slightest compromise is utterly short-sighted as well as monstrously cruel. Syriza were committed to giving the Eurozone a chance to save itself. They have rejected that chance out of a blind pseudo-religious faith in the virtues of Austerity.

          In retrospect that may have been naive, but given the lack of alternatives what other strategy is available? Tell the truth to the Greek people? Also impossible. They would never have won and could never keep power by telling everybody “they will march over a road of our bones.” Their negotiating strategy also appears haphazard, but that is also mostly designed for internal consumption. It is absolutely a feature and not a flaw of their negotiating strategy to leak everything – almost a constant live-stream of all the dirty laundry. This is so completely against everything that the Troika is used to in negotiations that they are enraged. But, it’s absolutely essential for the Greek people and the world to continue to see that Syriza is keeping no secrets – especially because the negotiations are destined to fail. Varoufakis has stated this over and over – they concluded that their only hope was the exact opposite of game theory. No bluffing at all. No hidden cards. Nothing up their sleeves. No “strategy” could work because of the totally unequal bargaining power.

          Simply tell the truth to power and stand upright and let the chips fall where they may, because nothing else has the slightest chance of working. There was never any chance they could get the Greeks to be able to take more Austerity punishment, on top of the Great Depression collapse of their economy. It’s as if the Roosevelt administration was being asked to put Herbert Hoover in charge of the economy in 1933 to impose 4 more years of fiscal tightening.

          1. ltr

            I am terrible disappointed in Varoufakis, however. He has been unprepared for negotiations and has shown a poor temperament and poor judgement in representing the Greek people.

  3. Santi

    I see there is already people playing the results of the Andalusian elections as “anti-austerity deflates in Spain”. This is not true. The result in Andalusia was mostly anticipated, and Podemos still tripled their last election results, in a much harsher environment (they were largely unnoticed before the European elections, there are double invalid votes than last elections, rumors of Podemos ballots “hidden” in boots…).

    With the current results they will win a number of big cities in Andalusia in local elections in May

    But when I saw the preliminary results yesterday night, I tought: “God, this results will confirm the establishment that pushing Greece off the cliff is the right thing to do…”

    I give up my optimism about the ability of the Euro to stick: I think we should be preparing ourselves for a slow Euro demolition, which will be very hard for people in all Europe…

    I still think Podemos will win the Spanish elections by the end of the year, and will make significant strongholds in regions in May, but they should start preparing for default and the end of the Euro in a couple of years.

    1. Brooklin Bridge

      He [Guindos ] has emerged as the hardest hardliner in the Eurogroup, the committee of finance ministers.

      Guindos may feel the most threatened by any success Syriza as a “leftist” non-austerity movement might have. Let’s hope he knows something that makes his collar feel restricted – such as the triple increase in vote counts you mention Podemos has achieved in Andalusia.

      1. Santi

        Summary of results of yesterday: 590011 votes vs results in Europeans Andalusia last May: 190,465 votes ( look for them here). The percentage “just” doubled from 7.11% to 14.84% due to smaller participation in European than in Regional elections. According to the results by city, they could get a number of province capitals and big cities (where they get most of the votes) in the forthcoming local elections in May.

        Notice that this regional elections were early elections forced by the president because she was scared that waiting will erode her majority. She played very well: POSE got the same representation in their Andalusia stronghod, while the Popular Party sank, and the “alternative” parties are still not big enough to make a sufficient dent.

  4. Edna M.

    I don’t think that Tsipras’s letter shows that Troika’s efforts at producing capitulation or loss of domestic credibility are on track. It was my impression, based on the positive treatment of the letter by Greek blogs (the ones I read at least), that Syriza leaked the letter. I think that Greek people will react positively to Tsipras’s statement that he will favor pensions and salaries over payments to the IMF, i.e., that he values people over banks. The Greek people had become accustomed to leaders who behaved in a servile manner toward EU officials. They were a national embarrassment. I think the people realize that Greece is in an impossible situation. I don’t think they will be disappointed that Syriza doesn’t produce immediate results. Rather, I think they are happy to finally have a leader who advocates for Greece. Based on Yianis Varoufakis’s statements prior to becoming FinMin, I would think that Syriza is prepared to default within the eurozone. Syriza does at times seem disorganized and inexperienced but I don’t think that this is held too much against them by the people because in many other ways (in terms of their ethics and their efforts on behalf of their country) they far surpass the alternatives.

    1. Yves Smith Post author

      Spiegel is not close to Syriza. He is close to lots of sources in Brussels. This story looks to have been broken by the Financial Times. There could have been parallel leaks in Greece.

      As a Congressional staffer put it, “Syriza has probably blown their chance at success by making no choices for two months….There’s just no willingness to govern on the left.” If Tsipras thinks that complaining to Merkel about how Greece is going to default (which is pretty bloomin’ obvious) or complaining about how the ECB has Greece on a choke chain (again pretty bloomin’ obvious, we’ve been writing about it for at least five weeks as a clear part of the plan) is seen as some sort of forceful measure, both he and the Greek public are smoking something very strong.

      1. TheCatSaid

        What do you think the Greek government can do at this point?
        Inevitable default, but then what?
        What do you perceive the options to be, including options that might be “outside the box”? What might be ways to bring all the Eurogroup members onboard to an innovative solution–something that they can understand as being in their own interest, while addressing the humanitarian crisis in Greece as well?

        1. Georgie Welchade

          Making the Eurogroup understand the euro area GDP reduction that would take place in the event of a Grexit would be one way to make them come to their senses. Of course, the next step would be to really REALLY really listen to each and every word spoken by Yanis Varoufakis, something which the BB axis is not ready (let alone eager) to do.

          Actually, all that the Eurocrats really REALLY really care about is staying in power themselves, for as long and as high the food chain as possible.
          So the chances of success for such attempt are minimal (non-existant ?)

          Of course, repudiating its USD $ 0.5 Trillion real, effective sovereign debt would jump start the Greek economy with primary account surplus on the ‘get go’ similarly to what happened in Argentina. If German property is seized and Russia helps out a little bit, that might be the only way out of anomy for Greece.

        2. kimsarah

          I guess all the Greeks’ souls aren’t worth enough.
          Otherwise, they could invite the Troika in to confiscate anything and everything.

      2. Sibiriak

        Yves Smith: As a Congressional staffer put it, “Syriza has probably blown their chance at success by making no choices for two months…”


        What “choices” should SYRIZA supposedly have made, and what “success” (Troika concessions?) would they have produced, and how?

        No one ever explains that.

        1. Yves Smith Post author

          Not true. Don’t make stuff up.

          1. Syriza has not made detailed reform proposals. They’ve lost more than three weeks when time is not on their side. We were reporting weeks ago that Greek citizens were writing to us, complaining that Varoufakis was doing too much media and not enough of his day job.

          2. We’ve repeatedly written that Greece should launch a parallel currency, such as TANs. No apparent action on that front.

          3. Greece should be quietly studying how to handle a Grexit. They could be doing that but it would be hard to keep a secret, and having it leak would spook depositors.

          4. Most important, the new government should have imposed capital controls the first week it was in office. It was a monster mistake not to.

          1. generic

            Honest question: What would capital controls have achieved as long as ELA keeps flowing? And if it doesn’t aren’t their banks dead anyway?

            And since I’m here already let me write a take on some of the other points:

            To point 2: I think the Syrizia people don’t see it as an emergency measure. There are several things that keep coming up in their proposals that look like a plan to build a government controlled payment system in the medium term. For example the citizen card to be usable to pay for social services. The 100 instalments payment plan also looks more aimed at creating a universal need for whatever scrip the government plans to issue. Basically they may think of it as a way to at least temporarily escape the deflationary primary surplus trap.

            To point one: My opinion is unchanged: The Greeks resist presenting a detailed plan since this would once and for all pull the discussion down to the level of technocrats and completely eliminate public participation. And since a good faith negotiation never was in the cards I think the Greeks wanted to conduct negotiations in the open and at least partly over the media, all the while appearing just too reasonable to be thrown out of the Eurozone. Noting the voices of frustration about the media coming from the leadership this isn’t working out quite as well as they hoped. I mean in the end all deadlines that are set now are artificial and while the IMF has no reason to care everyone else would like to not be stuck with the blame for an Euro breakup.

          2. The heretic

            Syriza philosophy for government is both humane and clear sighted, they are acting in a way to maintain communication and build trust with their own citizens… (Hence allowing the aspects of the negotiation to become public) . However, this debacle also shows that they need to be a hard nosed strategist. They need the ability to communicate and navigate a situation in which the Euroleaders act in bad faith, while still being trustworthy to the people of Greece. Conversely, they should also have done more to endear themselves to the middle and working class of Germany, and the Northern Block of countries, as well as Spain and Italy, such as combatting any negative stereotypes about either nations in any of the Euro press. Goodwill and popular support is critical to their success, and there is still a pool of decency in Europe to dip into, if it is respectfully utilized. (after all, if the of People of Norway actually believe it is important to house Anders brevitk in a comfortable prison, might they not have sympathy for the ordinary Greek?). Unfortunately, this far Syriza has allowed its anger to govern some of its communications… It’s demand for financial reparations from Germany for WWII, is probably not helpful with the German public.

            This far, I see a cultural meme playing out. Greeks are a proud people, and will strive for greatness, glory and dignity long after many others would have given up. Unfortunately for the Greeks, the biblical admonition is also usually true:
            ‘Pride is the herald of destruction’.

            Too bad there is no Mariner Eccles among the Euro bankers.

            1. Sibiriak

              The heretic: “[Syriza] should also have done more to endear themselves to the middle and working class of Germany, and the Northern Block of countries, as well as Spain and Italy, such as combatting any negative stereotypes about either nations in any of the Euro press.”


              Good point.

          3. Sibiriak

            Yves Smith:
            1. Syriza has not made detailed reform proposals. They’ve lost more than three weeks when time is not on their side. We were reporting weeks ago that Greek citizens were writing to us, complaining that Varoufakis was doing too much media and not enough of his day job.

            2. We’ve repeatedly written that Greece should launch a parallel currency, such as TANs. No apparent action on that front.

            3. Greece should be quietly studying how to handle a Grexit. They could be doing that but it would be hard to keep a secret, and having it leak would spook depositors.

            4. Most important, the new government should have imposed capital controls the first week it was in office. It was a monster mistake not to.>

            First of all, I was responding to this specific quote:

            Yves Smith: As a Congressional staffer put it, “Syriza has probably blown their chance at success by making no choices for two months…

            Are you saying that this Congressional staffer who you quoted in support of your criticism was talking about points like those you list?

            More importantly:

            Regarding 1) more detail. Perhaps. But that seems to miss the fundamental point. SYRIZA is interested in anti-austerity reforms, while the institutions et al. insist on a completion of the previous austerity program. So the disagreement is political and ideological— not technical–and it had to be kept on that level. A faster production of technical details on their anti-austerity approach would hardly have yielded any big success for SYRIZA, imo.

            Regarding (3): preparation for a Grexit. I agree. Should be done, probably is to some extent. Of course, SYRIZA is politically and ideologically committed to do their best to avoid a Grexit, and that constrains them. In any case, I don’t see that as a missed “choice” that would have led to some success. It’s about plan B in case of complete failure.

            Regarding (2) and (4): a parallel currency, such as TANs and capital controls. Thank you for identifying those two points for me as the critical choices you think SYRIZA should have made while negotiating with the institutions et al. Those are/were certainly proposals worthy of consideration, but as the discussion at this site has shown, there is great disagreement about what consequences they would have produced, especially in the beginning stages of negotiation. So while you may be correct, it’s not so slam-dunk clear to me that they were obviously good moves that were missed. But thanks again for clarifying things for me regarding your criticism of SYRIZA.

  5. Plantman

    These people are barbarians. I can,t understand why anyone would want to be a member of this Bankers Union.
    Greece should salvage what’s left of its dignity and leave ASAP.

    The men who run the troika think it’s their responsibility to lower standards of living, wipe out progressive reforms, and set the clock back to the eighteenth century. That’s what this is all about, Isn,t it…imposing neoliberalism on those “spoiled” Europeans?

  6. Moneta

    I find it telling that anyone could think that Greece had any chance at all negotiating with the troika. And depressing to now see how many are blaming the outcome on bad negotiators and their lack of experience. Thanks to the media and armchair analysts, the neolibs are winning. Again.

    For me this outcome is proof that negotiations are futile. They could have approached it in any way and the answer would have still been nein.

    1. Moneta

      From the get go, I was convinced the negotiations would fail but would give Greece some time to prepare.

      This failure would finally help convince most of the Greek population that negotiating is futile. This would mean default which would eventually lead to one of 2 outcomes: change of stance from troika, Grexit.

      Because of other weak countries, I don’t see how the troika can change its stance. But an exit from France or Italy could happen before Grexit.

      It’s a slow moving train.

  7. washunate

    It’s all just words until Tsipras actually does something different. He can sell a new vision for the euro zone (which means convincing the French and Italians as well as the Germans), renounce fraudulent debt, or keep doing what Greece has been doing.

    So far the actions are still on door number 3. Time of course will tell, but he’s already used up two months of that for a party that has supposedly opposed the bailouts for five years.

  8. Swedish Lex

    Merkel and the Troika continue with this utterly embarrassing micro management, year after year, and continue to go backwards. Nobody has any idea of the big picture angle of this.

    So we are now talking liquidity rushes that should last, what, a few weeks?

  9. voxhumana

    That the “Financial Times” would describe Tsipras’ letter as “desperate” should surprise no one.

  10. generic

    Syrizia’s inexperience might be a bit overstressed. I’m becoming increasingly convinced that at least part of their strategy is coordinated with Juncker. He really wants Merkel to lose. Remember:
    A Commission official writes a letter vetoing a humanitarian law and the installments plan. The Letter is leaked, sinks like Plutonium and Moscovici proclaims that they would never even dream about vetoing humanitarian laws. Both laws are passed and we have a precedent for the Greeks outright breaking the extension agreement (The Troika decides what’s fiscal neutral, unilateral) without suffering any consequences. ELA is increased again.
    The ECB governing council could have forced a moment of crisis whenever it chose to by pulling ELA or just not increasing it. That they didn’t do so yet points toward a certain uncertainty on the Euro side.
    Another point I haven’t seen raised here is a possible reason why the Euro side keeps demanding detailed lists full of bullshit numbers and the Greeks keep handing in several page memos: No one reads 450 page documents full of annexes and tables. Least of all journalists, they hardly paid enough for that. Now since the Council’s position is more or less indefensible depoliticising the debate would be pretty helpful for them. Doing this would put paid to public participation in the debate which would once again be dominated by insider leaks.

    Now while the above sounds hopeful I still don’t see how they can muddle through their liquidity shortage. For this the Council has to move and no matter how great Juncker’s political infighting skills are they seem to have backed themselves into a corner.

    1. Yves Smith Post author

      I have not been able to verify this, but a reader on Friday’s Greece thread said that the 2 billion euros that Junkcer offered Greece was actually funds allotted to Greece for development that former governments had never taken up. If true, that means it either had lots of strings attached or the current government didn’t know about it, which would be not at all a good sign in terms of basic competence.

      1. generic

        I’m by no means an expert and can’t confirm whether the money comes from the Greek allotment but I think the main conditionality on European funding is matching funds though I’ve seen different ratios that are required.

        Another problem in accessing EU funds is that there often is no local know how of how to write a successful proposal. While I really only have a passing familiarity with research grants, I suppose at least some part of structural funds is also reserved for local initiatives. And EU paperwork is the worst kind.
        Finally failure to draw structural funds doesn’t seem rare, I’ve seen an absorption rate of only 13 to 15% given for Rumenia and Bulgaria for 2007-2013.

      2. Santi

        Typically those Europeans funds require things like:
        * percentages of local/national investment (typical 25%-25% to get 50% from the EU). You see where the megainfrastructure investment is coming from, don’t you? Plenty of this investment-frenzy in Spain, where corruption “extracts” money from the works by inflating prices)
        * partnership between different country companies, for instance for R&D funds. Last work I had was one such project

        When your economy is melting down it is really difficult to meet the conditions, even when you have people writing proper English and the know-how

        1. Yves Smith Post author

          Aha, this is VERY helpful, thanks.

          So this may be why the media is largely ignoring this. Unless/until Juncker makes clear that the conditions for getting the money have been loosened, this is an empty offer.

  11. samhill

    Greece was at the poker table holding a pair of Threes and the sharks figured out how to snatch away those too. The 2 billion € offered was a treacherous play to co-opt Syriza’s one strength, the fact that it very visibly had the moral high ground. The Greek parliament just past a €250mil package for emergency aid to the poor made so by austerity, now the EU can say we just took care of your desperate poverty issues for the next eight years. Stop bitching, stop fighting, and sign over your pound of flesh.

  12. Sibiriak

    “If the plan of the Troika was to starve the Tsipras government and produce either capitulation or a loss of domestic credibility, their effort appears to be on track.”
    There are no signs of an imminent Greek “capitulation”, nor signs of a looming loss of credibility.

    But if the plan is to force a default, then things do indeed appear on track.

    1. Yves Smith Post author

      Huh? What about “running out of money in early April” don’t you understand?

      The next step would be for Greece to raid the pension funds to maintain spending and make the IMF payment coming due.

      If Greece gets no new funds before the next rounds of pension payments are due, it has to partially stiff pensioners and/or government employees, and Greece has a large civil service.

      Tell me what that does for the government’s support at home. Hint: Syriza has a particularly strong base among civil servants.

      1. Santi

        I guess Tsipras told Merkel that, unless the stranglehold by ECB is loosened, he would either stop paying, set up capital controls, write a promisory note or some combination of these.

        I don’t understand German, but from the body language I just saw in the presser, it looks like the game is still going on… Nothing definitive.

        1. RepubAnon

          Greece should definitely put currency controls in place, and make preparations for leaving the Euro. They can easily convince the Greek voters that they were forced to do this by the stubborn Germans.

          It’s time to start preparing publicly to pull the trigger on a Greek exit – let’s see what the markets do to the Euro at that point.

        2. Yves Smith Post author

          As I said earlier in the thread, the government should have imposed capital controls long ago. Even the ECB and Dijsselbloem have said this. It’s not a threat, it’s a way way overdue prudent move.

      2. Sibiriak

        Yves Smith: “What about “running out of money in early April” don’t you understand? “

        Running out money makes some form of default an imminent possibility, is my understanding.
        “If Greece gets no new funds before the next rounds of pension payments are due, it has to partially stiff pensioners and/or government employees”

        OR: as MPR wrote:

        “they will default/delay payments to the IMF before cutting pension payments.”

        1. Yves Smith Post author

          No, you don’t get the equation here. Greece absolutely does not want to stiff the IMF. They are the most senior creditor and the lender of the last resort. Varoufakis made clear that Greece is prioritizing payments to the IMF and will borrow from the pension kitty if necessary.

  13. Pookah Harvey

    Varoufakis has been explicit that his plan was to default inside the Euro and then let the chips fall where they may (while preparing as much as possible for a forced exit). . In any case Europe must be faced with a crisis if there is to be any change in Eurozone policies which he considers essential if the Union is to continue in existence.
    From his talks over the last few years he is not naive, Greece’s choices range from bad to worse (forced exit) and the only hope that he has promised was there would be a light at the end of the tunnel, most probably a long tunnel This requires getting out of austerity, within the Euro if possible or forced expulsion

    It’s interesting that the anti-austerity Sinn Féin party has been leading in the polls in Ireland and has been calling itself the Syriza of Ireland . Is Syriza’s audacity in prolonging the inevitable stoking a revolt? Meekly dragging their feet certainly wouldn’t.
    Add in Podemos and is it possible that change is in the air?.

  14. Steven

    I continue to marvel at the ability of NC readers to ingest the mountains of trivia and reams of (dis?) information produced in the Greek government battle for time with Germany and the ECB. But I wonder if it would not be more productive to concentrate on addressing underlying causes as Yanis Varoufakis has attempted in his short “Europe after the Minotaur: Greece and the Future of the Global Economy”. (The Kindle version is free on Amazon.) Varoufakis’s analysis has implications for Europe – and the rest of the world – that go FAR beyond the current ‘crisis’.

    The bottom line is an international monetary and financial system that has allowed one country, the United States – Varoufakis’s “Global Minotaur”, to devour the rest of the world’s industrial “surpluses” (which of course eventually become financial surpluses) by simply printing money, the US dollar. Morally repugnant as such a system might be, it had two practical benefits:
    1. it prevented those surpluses from funding the armies with which Europe’s tribes attempted to destroy each other twice in the last century;
    2. it held ‘communism’ at bay by providing an outlet for the profits from the industrial enterprises of Europe’s ‘old money’, profits which might otherwise have to have been distribute their peasants (thus making them unruly and hard to govern).

    Exposing the Global Minotaur’s systemic swindle might of course be dangerous armed as that Minotaur is with presumably the very best weapons of mass destruction – paid for with the world’s financial surpluses. But perhaps of even greater concern for Old Europe’s (and Japan’s and China’s?) political leadership is the embarrassment the exposure of this systemic fraud they allowed to persist and ripen to its present global spanning proportions would cause them.

    Back to Europe and Greece… What is wrong with Varoufakis’s proposal presented in this section of the above mentioned book?
    Why is Europe dithering when the crisis could be resolved simply and quickly?

    Varoufakis, Yanis (2015-01-28). Europe after the Minotaur: Greece and the Future of the Global Economy (Kindle Location 259). . Kindle Edition.

    1. Georgie Welchade

      Steven, you are making one (VERY important) conceptual error.

      One thing is Distinguished Visiting Professor Y. Varoufakis and another very different animal is ‘welcome-to-the-club-you-Greek-political-bastard’ Johnny Who ?

      The political mud has almost always drowned every nice-sounding thinker-philosopher.
      And I say this with deep sorrow and respect for Yanis Varoufakis, and honest and most intelligent person.

        1. Georgie Welchade

          Steven, I actually follow (and agree 100%) with every word you say, albeit I might speculate that we both do not enjoy much company to speak of.

          Still, I’m just pointing out to you that, from the calmness of the academia context and the basically unchallenged power of a scholar speaking in front of a basically utterly controlled audience… just about any-every university professor makes his case for whatever it might be worth. In YV’s case it is exceptionally valid, in my opinion (and probably yours also)

          But the instant that anybody steps down to the mudslinging world of politcs, then alliances, internal divisions, extorsions, money, bad timing, rushed deadlines, etc., etc. turn against the ex-University Professor and its a very different, slippery world.

          Johnny = Yanis, mispronounced on purpose, never ever heard the name
          Who ? = Varoufakis, who cares about you unknown Greek Erratic Marxist of sorts ?
          Political opponents don’t care about “Europe after the Minotaur” or its reasoning. They just care to stay in power themselves as long and as high as possible (the BB axis, Berlin-Brussels) by making ex-University Professor Yanis Varoufakis slip (resign ?) by throwing in his path every sort of banana peel imaginable. This is what you correctly call … “trivia and reams of (dis?) information”…

          And as Yanis Varoufakis clearly states in his work, after August 15, 1971, in purely strategic terms, the undisputable No.1 enemy of the world is the United States of America and its fraud dollar.

          The evil of the above is so powerfull that it makes your point No. 1 also wrong because Europeans will still manage to gouge each other’s eyes without even firing a single shot (just wait) as we have witnessed with increasing tempo.
          Your Point 2 is also out of context as communism has been dead for 25 years now, so the name of the game has changed completely.

          Steven, in a reasoned – reasonable world you would be correct.
          The political world is not, let alone interested in solving anything “simply and quickly”.
          Because if that were the case we should have gone back to the gold standard long ago and the Greek crisis would have never ever happened, let alone other HUGE crisis coming through the pipeline.

          1. Steven

            Georgie (and webmaster)

            Thanks for your explanation. I would hope you are wrong about the ability of Europeans to get along with each other! Failure to do so will give added marketability to the international bankers’ pretentions of benevolence. My point 2 was intended as a sort of obscure joke. The Red (as in Russian) Menace may be long gone (if it ever existed? From what I can determine it was always much more a contest for hegemony in Europe; whether Russia would maintain an independent existence as a nation or eventually be incorporated in the “Grand Area” – essentially the rest of the non-Soviet world the US staked out for itself at the conclusion of WWII). But the threat of ‘communism’ – defined as having to share the wealth producing advances in science and technology with society at large – remains.

            Your comment about retuning to the gold standard opens up a huge discussion about the validity of ex nihilo fiat money especially when it serves as a reserve currency. From a practical standpoint gold remains a ‘barbaric metal’ when it comes to its function as money. No one wants it – anymore than they want stacks of paper bills or coins – until the ex nihilo fiat money has been utterly and totally corrupted by either its public or private creators. As Varoufakis notes, this has happened twice in the case of the US dollar – the publicly created money in 1971 as a result of irresponsible and unnecessary military adventures abroad by the US in contest with the Soviet Union for hegemony; and in 2008 as a result of the unrestrained greed of Wall Street’s ‘financial engineers’ and US banks.

            (In Nomi Prins’s “All The Presidents’ Bankers”, Prins notes that this indifference to the principles of sound banking long predated 1971. Even when the US dollar was supposedly being created by a regulated formal banking system, those bankers created money “because they could” not because they believed it was backed by real wealth.)

            Calgacus has a point when he criticizes the rest of the world’s crude mercantilism and notes that “somebody has to do it!” (Do they?? Are the functions of an ex nihilo created reserve currency so important they justify giving away a nation’s wealth? Bilateral and multilateral currency swaps may be a pain in the behind but they would appear to be a lot more efficient than simply giving stuff away.) But (s)he conditions this observation with “Printing money” should be done scrupulously and carefully”. I’m not sure this is even a possibility when this power is in the hands of a private party – or a nation run by power-hungry psychopaths – and the public doesn’t have a clue what is going on.

            From what I can determine Frederick Soddy had the last word on this (as in just about everything pertaining to “Virtual Wealth”, i.e. money) in his 1934 edition of “Wealth, Virtual Wealth and Debt”:

            It is not, therefore, the balance of trade between two countries that has to be maintained, but the balance as between any one country and the whole of the rest of the world together. These are the realities of foreign trade, and the part played by money in it is apparent rather than real. If, as in all countries having international currencies on a gold basis, gold is given a fixed exchangeability in terms of money, the relative values of the currencies cannot vary very much with time, i.e. the foreign exchanges of these countries are stable.

            Soddy, Frederick M.A., F.R.S.. Wealth, Virtual Wealth and Debt (Kindle Locations 4542-4545). Distributed Proofreaders Canada.

            1. Georgie Welchade

              Watch out then because according to your explanation central bankers must necessarily be very VERY very stupid people as they hoard physical gold (a barbarous relic you say) in ever larger quantities.

              So, apparently, central bankers want gold BIG time !

              Can’t supposedly intelligent people see the US dollar debacle coming their way ?
              What’s wrong with you ?

              IMHO, Calgacus needs to read more and write less.

              1. Steven

                Again, I am not following. If Soddy’s logic is correct it makes perfect sense for bankers to “hoard physical gold … in ever larger quantities.” Hoarding “the barbarous relic” is perfectly consistent with “supposedly intelligent people (who) see the US dollar debacle coming” -especially central bankers and the governments they control.

                What’s coming (hopefully!) is the end of a global monetary system where bankers can create ex nihilo fiat money – without at least causing the creation of real wealth to back that money. But if you want something, particularly something produced beyond a nation’s borders, and you don’t have wealth the world wants, you must pay for it. That means both creating money AND (as Minsky noted) getting it “accepted”.

                What the central bankers probably foresee is that acceptance is going to be conditioned upon the ability to cough up gold if people begin to be too suspicious of your money creating propensities, IOW a return to classical fractional (or 100%) reserve banking, at least among nations.

                In summary money and the ability to create it equals power. And that in the final analysis is what the central bankers are after.

        2. Georgie Welchade

          NOT to be published NOT

          Mr. Webmaster:
          A couple of hours ago I responded to my friend Steven’s question with a rather ‘longish’ and elaborate explanation which has not yet been posted while later inputs of mine were.
          Please try to find in your inbox or files or something.
          Steven deserves to read my answer.
          You must have it, it must be there somewhere, I sent it the same as all my other interventions.

    2. MyLessThanPrimeBeef

      We have to be wary of that gift – the ability to print the global reserve currency – not really the concern over domestic inflation, but what it does to the Nature, global warming and universal brotherhood.

    3. Calgacus

      I strongly agree that people should spend time on “addressing underlying causes”. I think many, like YV, make serious, fundamental errors on the relevant law and economics leading to groundless pessimism.

      The bottom line is an international monetary and financial system that has allowed one country, the United States – Varoufakis’s “Global Minotaur”, to devour the rest of the world’s industrial “surpluses” (which of course eventually become financial surpluses) by simply printing money, the US dollar. Morally repugnant as such a system might be,
      IMHO the problem is that YV gets things half right; as usual, he understands complicated and difficult things, and gets tripped up on the simple and easy ones. Here he is quite wrong. There is nothing morally repugnant about this system, about the USA simply printing money. Maligning the poor Minotaur USA for this is pure BS. Indeed Abba Lerner analyzed essentially this case more than 60 years ago – his example was France making a “hostile gift” to the USA – and said that the USA had a moral obligation to its people and to the rest of the world to “print money” to prevent a depression, to be a kindly “Minotaur” to foolishly mercantilistic societies. “Printing money” should be done scrupulously and carefully – but if you want to have money-using societies, somebody has to do it!

      What is wrong with Varoufakis’s proposal presented in this section of the above mentioned book? Nothing. Basically he is proposing a “good Euro”, a Europe with the (money-printing!) fiscal equalisation/response/stabilizations (which are not “transfers”) that are always necessary between any regions which have decided to become one region by using a common currency. I agree with him that presenting such rational proposals to Greece’s insane creditors is/was imperative, the right strategy in theory and practice. But the probability of success was always close to zero, closer to zero than I believe YV thought, although he said it would probably fail (and does seem to be failing).

      1. Christer Kamb

        “proposing a “good Euro”.

        A good Euro consist not of 19 national debts but of one for which you must have a federal fiscal/transfer-union. You can´t solve everything with money-printing. Only financial overstretching/inflation(and lack of taxes according to MMT´rs?). But most important is that Europe can´t be like the US. Real europeans won´t evolve in 50 years or even 100 years. The european nations decided they were not interested in a federal union. We know that the EU-elites incl R Prodi predicted a euro-crises in the future as a opportunity to force forward a real federation against the will of the people. I call the euro a political scandal and an instrument to top-ride it´s people for the sake of themselfes, their carriers and personel legacy. A fraud.

        1. Calgacus

          Christopher: We don’t seem to disagree really; the Euro is a fraud. But your, or my or YV’s “good Euro” proposal does involve the money-printing that YV inconsistently decries in another context. Also, as I said above, “transfer” is the wrong word. Fiscal “transfers” – are NOT transfers, but exchanges. The basic difference between today’s bad Euro and a mythical good Euro or the USA is that the USA etc has a reasonable, normal, traditional central money system and today’s Euro is the worst and strangest and most destructive central monetary system of all time. It makes no sense. It causes austerity and massive unemployment, real resource destruction, impoverishment and despair – which is the primary thing that money-printing should be used to solve.

          1. Christer Kamb

            @Calgacus; Agree, my intent was to define a sound Euro. You can´t have a common currency, one interest-rate and still keep 19 sovereign bonds and a centralbank not allowed to print elastic money. One reason to this failure is Germany. France was the originator behind the idea but Germany demanded a impotent centralbank, national bonds combined with harsh rules regarding budget-deficits etc(which they were the first to brake). Still finance-markets can target a certain country by shorting bonds with ECB standing by helpless(standard-rule). The thoughtless and naive elite presumed constant economic control by the rules would guarantee pricestability. Well we know what happend. Historically weak countries came to paradise welcomed by the biggest salesforce ever; an unregulated(except BIS-capitalrules) armada of wholesale-bankers ready to lend german and french current account-surpluses for bonuses. Bankers who earned 100 of milions buying sovereign PIIGS high-interest bonds before the Euro was introduced.

            A real federation have a federal budget with federal taxes. Transfers are necessary to balance the difference in economic ability between the states. A common currency demands a real fiscal federation. Everything are just half-done and they know it and wait for the moment to go all in(Scheuble, Juncker etc). Without a common budget the Target 2-balance should be cleared by sovereign centralbanks. Instead the unbalance is growing larger and larger again. Germany have been the winner so far. But will they also be the loser in the end? Certainly a big risk indeed.

      2. Georgie Welchade

        Print money out of thin air ?
        Is this another vertebrae of the American exceptionalism backbone ?
        For Crisssake what makes you think the US dollar is so special ?
        It´s just an IOU only good paying for American products and American services (of which there are less and less good ones every passing day) plus American taxes for maintaining American welfare and American warfare now in charge of an American Peace Nobel Prize president with several wars in his charge and others coming.
        There are many morally and practically repugnant things about such system.

        And as Yanis Varoufakis clearly states in his work, after August 15, 1971, the undisputable No.1 enemy of the world is the United States of America and its fraud dollar.
        In the history of money, this is the very first time that the whole wide world does not have a single currency with gold or silver backing as the US Constitution clearly and unmistakably requires. They are all fiat, no store of value in any of them. God help us all..

        1. Calgacus

          Georgie Welchade: Print money out of thin air ?
          Is this another vertebrae of the American exceptionalism backbone ?
          For Crisssake what makes you think the US dollar is so special ?

          There is nothing special about the US dollar. That was my point! Varoufakis is the one making far-fetched claims about American exceptionalism. The US – or anybody else – printing its fiat money to bolster employment at home, to accomodate foreign and domestic saving is a domestic and international moral obligation, as Abba Lerner clearly explains in Economics of Employment.

          There are many morally and practically repugnant things about such system.
          Name one. As I hope I made clear, the military actions etc of the USA are not essential parts of the system of the US dollar as the world reserve currency – which is soundly backed by American products, services and taxes. Complaining about a fiat currency Minotaur here is like saying that if you give a productive job to someone to who in turn spends his wages on productively employing others – and then this guy decides to take a gun and slaughter people – that the evil bad thing was productively employing him!
          And as Yanis Varoufakis clearly states in his work, after August 15, 1971, the undisputable No.1 enemy of the world is the United States of America and its fraud dollar.
          In the history of money, this is the very first time that the whole wide world does not have a single currency with gold or silver backing as the US Constitution clearly and unmistakably requires. They are all fiat, no store of value in any of them. God help us all..

          Inaccurate history, way outside the academic consensus in any respectable field, except the lunatic asylum of mainstream economics. Ultimately, all money is and always has been fiat money, credit money – there just isn’t and can’t be any other kind. “Fiat” money – an excellent store of value – is what backed gold and silver, not vice versa. Nixon in 1971 – really, more FDR in 1933 – did the rest of the world a great favor – helped the USA and everybody else by removing the last vestiges of a “barbarous relic” (Keynes).

          1. Christer Kamb

            And the EU gave Eurozone-countries another “barbarous relic” aka the Euro. Instead of being backed by “store of value” at a fixed price the Euro-members are constricted with a fixed(same) interest-rate(repo), different long-term rates and no printing-press. Beautiful!
            Now some people say no country have the right to exit the Eurosystem according to Lisbon-treaty!? At the same time EU-elites have not got the right to change EU into a full fiscal-union without elections! What a stall! But we know that the fish-monglers are acting behind curtains to impose a full federation bit by bit under undemocratic forms. The creation of salvage-funds, a bank-union and now a corporate tax-system is really big steps.

  15. docg

    Well, I must say, this situation represents a win-win for me personally. :-) If the “Institutions” wind up bailing Greece out regardless of all their huffing and puffing, as I’ve predicted, then I’ll have been proven right — and Yves (along with so many others) will have been proven wrong. (Sorry, Yves — I’m a huge admirer, but we can’t always be on the same page.)

    On the other hand, if the bailout is withheld, and Greece defaults, then the long-term consequences I’ve been predicting for so long on my blog will — finally — come to pass. The Eurozone will collapse and the entire world “economy” (actually the financial system — they are NOT the same) along with it. The gateless gate (Mumonkan) will at last be opened, and the precipice (koan) will be looming before us: the gate of Hell: http://amoleintheground.blogspot.com/2009/02/shape-of-things-to-come-6.html

    “The Great Awakening I wrote of in my earlier post will come only after the so-called “financial system” has collapsed to the point of no return — meaning that the printing [i.e., lending] of increasingly alarming amounts of paper money will inevitably result in the universal realization that money is, in fact, only paper and nothing more. Something like Alice’s realization that the rulers of Wonderland and all their minions were “nothing but a pack of cards” — the moment when she awakens from her dream.”

    “The realization will slowly dawn that life can still be lived without all the appurtenances of capitalism, from investment, to credit, to money itself. And this will be on an international level, because it already is an international problem. Despite the breakdown in the economic system, there is still enormous wealth in the world, in the form of all the things humans need to survive and even prosper: agricultural produce, minerals, fossil fuels, hydroelectric plants, energy to be drawn from wind and solar sources, automobiles, trucks, hospitals, schools, colleges, universities, the list goes on endlessly. All that has been destroyed is certain illusions foisted upon us, consciously or unconsciously by the ruling, monied classes, who have in fact ruled us solely through the power of the financial system they themselves have now destroyed.”

    From Mole in the Ground, Feb., 2009

    There once was a money called “Euro,”
    Whose value descended to Zero.
    To our great surprise
    It’s sudden demise
    Transformed Greece from victim to Hero.

    1. Yves Smith Post author

      I never said the institutions would not bail out Greece. I challenge you to find me having said anything even remotely like that. I have repeatedly said 1. If Greece defaulted, that would trigger loss recognition on the ELA, which would almost certainly lead to taxpayers being required to stump up to the ECB to recapitalize it (actually not necessary but the Bundesbank would not allow the ECB to monetize a negative/low equity position). That would seem to be so toxic politically as to be a non-starter. However, 2. Greece is clearly going to run out of dough before the summer, which is when it would face a default (defaulting on IMF debt is seen as so damaging to the government’s ability to get money and negotiate with the lender of the last resort, the IMF, that the government has signaled that it regards that as a third rail and will do everything it can not to default on the IMF. But the summer debt rollovers are not IMF debt). 3. Running out of dough and squeezing spending further and the high odds of missing or making short payments on pensions worsens the downturn and will also erode Syriza’s support, which has already fallen 20 points. So the creditors just need to make Greece sweat some more.

      We are only two months into this. July is four months away, an eternity in politics.

      I also pointed out, more than once, that it was widely understood that the creditors were willing to make further reductions in the economic valued of the debt, as in extend maturities and cut interest rates. And they had already accepted that the primary surplus targets (3.0% for 2015 and 4.5% for 2016) were insane and needed to be reduced. Even Schauble has conceded that, although he offered only a meager reduction.

      The fight has been over structural reforms, and I called that from the outset.

      I’ve more or less said Greece would have to capitulate, as in agree to rule by the Troika, which meaning adhering to the terms agreed by prior governments, which the current government has tried to repudiate. That means implementing the existing structural reforms, with the only concessions made being humanitarian relief and any other substitutions allowed as having no budgetary impact. And Greece has ALREADY lost by promising to maintain primary surpluses, which will only deepen the current contraction.

      Don’t straw man me. You tried getting sexist yesterday. You are rapidly accumulating troll points.

      1. docg

        I apologize if I misrepresented your position, Yves. I wasn’t attempting to strawman you. The situation is complex. What you wrote seemed to imply the inevitability of a Greek default, but I guess I misread you. Sorry.

        My “gloating” as well as my “sexist” remark were intended as humor. And, as is so often the case, my feeble attempts fell flat. Again, I apologize if I offended you.

        1. participant-observer-observed

          Yes, you did misrepresent her position which has been consistently reserved and skeptical of Syriza’s real prospects week after week, even despite what appeared to be strong desirous sentiment in the NC Comments to want to see any kind challenge to the Goldman et al. oligarchy, no matter how precarious.

          Of course any reader who looks at the NC pages even a few times a week knows this, and therefore also knows how preposterous are your boastful suggestions to “disagree with Yves.”

          Cheap apologies after the fact, in the absence of sincere penance and regret, have no currency. Show your reparations; demonstrate your act of penance and such apologies might be one day be meaningful.

          In the meantime, go back to playing re-runs of your hedge fund dividend algorithms. It sounds like you’ve bet on both sides.

          1. mpr

            demonstrate your act of penance and such apologies might be one day be meaningful.

            You want pics of the self flagellation wounds ?

    2. Georgie Welchade


      Greeks voted Syriza into power a very few short weeks ago with the specific mandate of backtracking austerity in all forms.
      If Greece were to capitulate agreeing to the Troika rulings, Syritza would be out of business effective right NOW. Adhering to the terms agreed by prior governments would be suicide, and Syritza knows it.

      Syriza invited nothing less than its right-wing arch-rival (!) the Independent Greeks party to form a majority coalition on the exclusive basis of sharing the common goal of backtracking austerity.
      Any ‘agreement’ otherwise has to be approved by the Greek parliament, and it just won’t pass.

      Not reversing the Troika austerity programs would immediately melt down Syriza’s foundation with no political engineering solution anywhere in sight.
      We don’t even want to think about what Greece would turn into.
      Fortunately, I can’t conceive that would happen

      1. Yves Smith Post author

        Um, Syriza is already over.

        The government signed the memo with the Eurogroup in February.

        As I explained then, the memo clearly, explicitly, and repeatedly reaffirms Greece’s commitment to implementing the existing structural reforms. This is not ambiguous. The problem is hardly anyone bothered reading the actual document.

        1. Sibiriak

          Yves Smith “… the memo clearly, explicitly, and repeatedly reaffirms Greece’s commitment to implementing the existing structural reforms. This is not ambiguous”

          Nevertheless, as Peter Spiegel concisely puts it:

          “Tsipras regards the February 20 agreement as a break from what came before; other eurozone leaders, particularly in Germany, regard it as simply an extension of the existing bailout programme.” (emphasis added)

          Whether reinterpreting, misinterpreting or outright violating an agreement, the simple fact remains: Greece is NOT committed–in intent and in practice– to implementing the existing structural reforms.

        2. Georgie Welchade


          If you think that, um, Syriza is already over after only a very few weeks in charge… then you must also think that Greece is inches away from civil strife and anomy. Would my reasoning be correct ? Obviously enough, such outcome would not bode well for Europe and would necessarily have knock-on consequences.

          Regarding the Feb. 20 memo, my problem is that in Greece, and elsewhere in the Mediterranean culture, there is no such thing as a “contract” as you and I would take it to be.

          Take the menu at any restaurant and you’ll immediately understand that it is just an ambiguous work-in-progress guidance document, not a contract whereby such and such plate (which we offer and do have right NOW) is to be served to you at such and such price. Nothing really close to that.
          From the Greek side, the same sticky ‘understanding’ applies to the Feb.20 memorandum…

    3. washunate

      That’s interesting how you set up a framework where a bailout of Greece is a victory for Greece. That would mean a defeat of everything Syriza supposedly stood for. To paint that as a victory I think would make the main ESCB participants feel like they were victors. Maybe that’s the face saving out for all? A bailout that the Greeks can herald as a new agreement and everyone else can herald as a continuation of 2010 and 2012.

      And then for your other scenario, I find this notion that the eurozone will necessarily collapse without Greece rather extreme. For starters, the eurozone is basically three countries: Germany, France, and Italy. Those nations alone account for over 200 million residents, and there are 25+ million more in the neighboring Benelux countries. It’s a very different situation than the US, where population is widely disbursed across many states. If Greece openly defaults, it’s because those nations stuck together with a vision fundamentally different from Greece, which is all the euro needs. That’s what the original ECSC was.

      But moreover, the issue with Greece is larger than the eurozone. The major wildcard is how a Greek default would interface with the Anglo-American world. That’s my personal hunch for why Syriza didn’t simply renounce their debts on day one. Something is being communicated to them not just from Germany and France, but also the UK and the US. Kicking the can of financial fraud isn’t a unique problem of the euro area. If anything, they may be relatively less at risk than the dollar, pound, and yen areas.

      1. Santi

        You miss Spain, though Italy could make a good example too. See, Spain has 45 million inhabitants and a primary deficit of ~3%, and it is highly difficult it could improve it with unemployment above 20%, very close to Greek levels. Even if it is a big economy, fourth of the Eurozone, the debt has raised from around 60% GDP to 100% GDP during the crisis, and it will keep growing strongly while the primary deficit is there, and it will be there while unemployment is there, and it will be there while austerity is (at the European level) there…

        How much time till Spain becomes the next, and 5 times bigger, Greece?

        All that I have said applies to Portugal and Italy. Not so sure about Ireland. The timings are different for each country, but while there is no fiscal transfer mechanism in place and the Northern countries, specially Germany, suppress their wages, they are exporting unemployment and debt towards the South. The Greeks are just the first in the row going off the cliff. This is why we (I’m Spanish) have a strong solidarity duty with them.

        The worse thing is that a Greek default will accelerate the slow process, as it will put their debt black on white on the books, and strengthen deflationary forces for the Euro. France, like Spain, is “bending the rules”, and having consistently higher primary deficits than accorded, in order to avoid falling themselves into the trap. But how long will they be able to skip insanity?

        1. washunate

          I would maintain all the euro area needs is the ‘inner six’. I think even Spain could leave without the kind of complete collapse you are describing/predicting.

          But that’s way down the line. Right now, the government of Spain does not have a strong solidarity with the government of Greece.

          That of course could change (some of us would hope it does change), but the eurosystem is, right now, Greece vs. everybody else. That’s what’s increasingly bizarre as time passes about the approach that Syriza has taken. Why haven’t they been able to offer an appealing alternative vision to any other euro area country? Why is this a letter from Tsipras instead of a letter from the heads of state representing the majority of the euro area population? Or at minimum, a majority of the member states in the euro zone.

          At this point, it seems increasingly likely that the simplest explanation is that Greece isn’t really offering an alternative vision. I mean, the Vice President of the ECB’s executive board is Portuguese, and the President is Italian. If those actors aren’t sympathetic to Greek concerns, who will be?

  16. participant-observer-observed

    Syriza needs a wild-card, asap. Another player needs to step in.

    China has cash, and probably wouldn’t balk at Mediterranean seaport, even if it doesn’t need one, but may not see enough benefits when it has its own problems.

    Who else is out there who would see the vulnerable Greek position as a profitable opportunity and have the means to back it financially?

    Is Troika the only game in town, really?

    1. Yves Smith Post author


      Europe is one of China’s biggest export markets. A big disincentive to pissing the Eurocrats off.

      Greece is a mess. What exactly is the upside of intervening in a country with a collapsing economy that is on the way to becoming a failed state?

      And if there is anything China might want, it will be cheaper later.

  17. mpr

    I looked at the Tsipras letter. I don’t read it as desperation, although you can call it that if you like – there is clearly a sense of urgency. I read this as a continuation of the negotiation which took place at the Eurogroup, at the technical level. For example

    Meanwhile, I also regret to report that little progress has been made in the negotiations between the technical teams in Brussels and Athens. The reason for the extremely slow progress is that the institutions’ technical teams, as well as some of the actors at a higher level, seem to show little regard for the 20th February Eurogroup agreement and are, instead, committed to proceeding along the lines of the Memorandum of Understanding that pre-dates both the 20th February agreement and 25th January 2015 – the date on which the Greek people elected a new government with a mandate to negotiating the new process established by the 20th February Eurogroup agreement

    Thus, as I wrote yesterday, the mini-summit likely served the purpose of getting the technical teams to accept there (somewhat) new roles. This is of course an important part of the negotiation, insisting that the new agreement is not rule by Troika, something on which T. & V. have been very clear.


    Given that Greece has no access to money markets, and also in view of the ‘spikes’ in our debt repayment obligations during the Spring and Summer of 2015 (primarily to the IMF), it ought to be clear that the ECB’s special restrictions [see (a) above] when combined with the disbursement delays [see (b) above] would make it impossible for any government to service its debt obligations. Servicing these repayments through internal resources alone would, indeed, lead to a sharp deterioration in the already depressed Greek social economy – a prospect that I will not countenance.

    This indicates that they will default/delay payments to the IMF before cutting pension payments etc. Obviously the right move strategically.

    All in all, my take is that the negotiation continues, but the Greek govt. is making slow progress in the face of pretty entrenched opposition.

    1. Yves Smith Post author

      The mere fact of one head of state writing a five page letter, particularly one that complains about an independent central bank. IS desperate.

      1. Sibiriak

        Tsipras : “….a prospect that I will not countenance.”

        That sounds like resolve, not desperation.

      2. mpr

        I have no interest in getting into a semantic debate, but I will say that regarding the ECB piece, specifically, I think that’s a useful shot across the ECB’s bow. One of the ECB’s soft spots is their desire to be seen as apolitical. Calling this into question is one of the few tools Syriza has against the ECB, and in fact it drew a reaction.


        I’m actually surprised they didn’t try to exploit this pressure point sooner.

        1. washunate

          The eurosystem isn’t a semantic issue, though.

          The ECB is an institution that functions, that operates, that governs, that budgets, separately from the EU framework. It’s distinct from the European System of Central Banks (ESCB): the National Central Banks (NCBs) of all EU countries. The eurosystem is just the euro area NCBs and the European Central Bank (ECB). Yannis Stournaras I think is the current Greek member of the ECB governing council.

          The existence of this kind of communication, rather than private conversations at the governing council, is what is notable. Of the six members of the Executive Board of the ECB, five of them are not from Germany. And at any rate, the general philosophy is supposed to consider the eurozone as a whole, not represent specific countries.

          To say it differently, if these were simply technical challenges, then the technocrats could work them out. If Syriza was going to renounce the debt, they would do it. Tsipras’ need to politicize the situation, to have direct head of state to head of state dialogue, is a sign of urgency, not insignificance.

          1. financial matters

            I think the need to politicize the situation also reflects that Syriza is attempting a broad shift in policy.

            Stathis Kouvelakis, a member of the central committee of Syriza stated this shortly before they were elected:


            “But every experiment so far in the history of social transformation has happened in a hostile international environment. And here, the notion of time and temporality is absolutely crucial. Politics is essentially about intervening at a particular moment and displacing the dominant temporality and inventing a new one.”

        2. generic

          They did. In fact complaing about the ECB has been pretty constant. I can’t find it at the moment but in one of the Greek draft, Council counter draft episodes they explicitly put in that the ECB is independent.

      3. mpr

        one that complains about an independent central bank

        BTW, surely you don’t take the ECB’s “independence” seriously ?

  18. Christer Kamb

    What about the latest polls i Greece saying only 42% now in favour of the Euro! A turnaround in the making?
    The euro/usd-rate must be discounting a euro-collapse. A Grexit would strengthen the euro for a while until next “debt-patient”, i.e Spain, evaluates the coming effects of a “50%” devaluation of a new Greek currency. Instead of defaulting on all debts Greece could choose to/forced to keep them but rewritten to a new currency(foreign law). A devaluation is de facto a debt-restruction/reduction in the short or medium term. At what price/interest would these “new” bonds settle? I guess a lot of tourist in Spain would leave for Greece pretty fast. Could Greece be a bigger competitor in farmland-products than today? Why not! Capital-flights to i.e german banks would return instantly(at least for the bigger part). Inflation though would be the biggest problem. Greece needs to import almost everything and many depending businesses will probably continue to suffer. Now one really knows what will happen if the european economy continue to lag&drag. Greece need the EU-market but to stay with the Euro is a very bad idea in the long run even if Greece was´nt overindebted. I think the difference in economic structure and relative productivity sets the options.

  19. Santi

    I’m shifting my evaluation of the situation from

    Greece will stay in the Euro, no matter what


    The Neoliberal elite has found a guilty party for all their misconceptions: they will let Greece fall, blame on them all the Eurozone problems, and shift politics to keep pretending austerity “would have worked if they just had tried hard enough…”

    thus further complication the situation.

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