Troika Tightening the Noose on Greece as Government Cash Crunch Worsens

“I begin to discern the profile of my death.” That arresting sentence, culled from early drafts, served as the anchor for one of the finest novels ever written, Margarite Yourcenar’s Memoirs of Hadrian.

The Troika and Eurogroup look to be working towards the Greek government to start having similar thoughts. However, given the high level of popular support for Syriza, and press reports that Greek citizens fully expect that the new government to at best only be able to deliver on a small portion of its campaign promises, the end game for Greece is looking more and more likely to be a failed state rather than a more neoliberal-friendly government.

We warned almost as soon as the memorandum was agreed among Greece, the Troika, and the Eurogroup, that given that the government was already out of cash and had IMF payments due in March, the logical course of action would be to withhold funds to force Greece to give in on structural reforms. Remember that the current “bailout,” which is being used as a term of art, is seen by the Troika and Eurogroup as a continuation of the existing IMF funding package, which includes a set of structural reforms. Syriza wanted to change what it says are 30% of them. The IMF and ECB have made clear that they expect the new government to stick with the existing program, and their body language is that they aren’t open to much in the way of changes, save perhaps humanitarian relief (Varoufakis has said that he secured agreement on that issue; the Troika has been mum).

Indeed, the creditors are behaving just as expected. From Friday’s ekathimerini:

Greece submitted to Eurogroup chief Jeroen Dijsselbloem Friday an outline of seven reform proposals to form the basis for discussion at Monday’s meeting of eurozone finance ministers, but the signs from Brussels are that Athens is no closer to securing the release of its next tranche of bailout funding.

The 11-page document sent by Finance Minister Yanis Varoufakis sets out several proposals that have already been made public as well as some that were only made known Friday. The suggestion that caused the most surprise was to fight tax evasion by enlisting non-professional inspectors, including tourists, on a two-month basis during which they would collect audiovisual data that could be used to target evaders..

In his letter to Dijsselbloem, Varoufakis calls for technical discussions regarding the proposals to begin as soon as possible.

“We envisage that… the majority of the items on our first list can be further specified as soon as possible so that the resulting agreement can be ratified by the Eurogroup, and Greece’s Parliament, and become the basis for the review,” wrote the Greek finance minister, who added that the government proposes all technical discussions and fact-finding or fact-exchange sessions should take place in Brussels.

A European official speaking on condition of anonymity told journalists in the Belgian capital that since no technical work had been done by Greece’s lenders due to the proposals only being submitted Friday, there is no way eurozone finance ministers will be in a position to approve the Greek proposals on Monday.

You can see what is going on here. Notice first that the proposed reform list has changed, allowing the Troika to act as if this is a new proposal. Second, the two sides disagree on what constitutes an adequate technical review, and the Troika’s view will govern. Third, which the article does not acknowledge, Varoufakis appears to be trying to circumvent the process envisaged in the memorandum, which was for the Troika to approve the reform package, and then have the Eurogroup approve any release of funds.

So the lenders’ actions can be dressed up as bureaucratic necessities, but they amount to delaying tactics given that time is clearly of the essence for Greece.

The Greek government is starting to sound desperate. Per the Telegraph:

Speaking in an interview with Der Spiegel magazine, Alexis Tsipras appealed to the ECB to alleviate pressure on the cash-strapped country.

The ECB “is still holding the rope which we have around our necks” said Mr Tsipras, referring to the central bank’s reluctance to resume ordinary lending to Greek banks at a meeting in Cyprus on Thursday.

The central bank has also rebuffed Greek appeals to raise the limit on short-term debt issuance, as it faces €6.5bn in payments over the next three weeks.

Should the ECB continue to resist Greek pleas for assistance, “the thriller we saw before February 20 will return” warned Mr Tsipras, referring to the market turmoil which gripped the country as it carried out protracted negotiations with its creditors.

The wee problem was that the thriller extended only to Greek deposits, Greek bonds, and European stocks. Unlike the its US coutnerpart, the ECB doesn’t care about equity prices. Periphery bond yields barely budged, and now with QE about to be launched, they are now trading at insanely low levels. Mario Draghi almost certainly thinks he has the Greek situation well contained.

And the February 20 comparison does not bode well either. As Nantina Vgontzas put it in a Real News Network interview:

You know, in April the institutions–or the troika, it was formally called, you know, the IMF and the ECB, they’re going to review SYRIZA’s budget, basically. And at that point the European Central Bank might be playing some games again. Already today they said that they’re not going to loan money to Greece until they see that they’re complying with the bailout measures. So as those pressures are going to increase again, we’re going to see if the government is going to blink like they did on February 20 or if they’re going to resort to imposing capital controls, nationalizing the banks, and then, lastly, the most radical–not in the ideal ideological sense, but in terms of its economic repercussions, exiting the Eurozone.

John Dizard of the Financial Times works through the implications:

The problem is that the Greek government will run out of cash to pay its operating expenses in full by the summer, or even sooner, and neither the Europeans nor anyone else will give them enough new money to pay its bills. That means the Syriza cabinet will have to tell public sector employees and pensioners that part of their income will be paid in (transferable) IOUs, which will plunge to a steep discount. The leaders can blame Germans, oligarchs, neoliberal economists or Martians, but a lot of their core supporters will be unhappy, and quite open about their feelings.

The eurogroup political leadership and the eurocracy are prepared for this. Their recent civil exchange of letters represents a truce, not a peace. The eurogroupies know that there is no mutually acceptable deal to be had with the Syriza government. So their silent intention is to negotiate with the next government, whoever that might be, after the Greek government is forced to call for an early election.

Things have to get pretty bad for that to happen; after all, Syriza just won fair and square less than two months ago, and their policies are supported by a majority of the Greek public.

The Troika, having gotten Greece to blink once, appears to believe it will prevail no matter what, either by getting Syriza to capitulate (unlikely but not impossible) or to make non-compliance so costly that the government will be ousted. Of course, as we’ve separately pointed out, economic sanctions (which is what this amounts to) do not have a great track record of success. Look how Putin enjoys high poll ratings despite the concerted efforts of the West to damage Russia’s economy as a way to force regime change.

However, one factor that works against Syriza is not just its utter lack of experience in governing, but also visible divisions in the party itself. Ministers have repeatedly contradicted each other, and the vote within the party representatives was 42% against approving the memorandum, a troubling high level of dissent. So the problem for Syriza is likely to be not the fact that Greece will suffer more if it continues to defy the Troika and Eurogroup, but that the ruling coalition will be perceived as less than competent in reacting to adverse developments and ameliorating the damage.

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  1. John Jones

    “or to make non-compliance so costly that the government will be ousted.”

    I don’t understand how the troika could achieve this since doesn’t non-compliance mean a eurozone exit and default. Were by the troika’s presence will be nullified.

    1. R Foreman

      Maybe the Germans secretly want the Golden Dawn to take power, you know, just like the good old days in Germany.

      1. John Jones

        Yes but SYRIZA will have to capitulate and stay in the E.U and eurozone for that to have a chance.

        It is in SYRIZA’s power to not allow the chance of golden dawn to take power by not capitulating.

        1. Cugel

          “However, one factor that works against Syriza is not just its utter lack of experience in governing, but also visible divisions in the party itself. Ministers have repeatedly contradicted each other, and the vote within the party representatives was 42% against approving the memorandum, a troubling high level of dissent. So the problem for Syriza is likely to be not the fact that Greece will suffer more if it continues to defy the Troika and Eurogroup, but that the ruling coalition will be perceived as less than competent in reacting to adverse developments and ameliorating the damage.”

          I don’t see how Yves can take this view. The dissent within Syriza is between the current government position and the position of party leftists rejecting any compromise with the Eurozone that doesn’t involve getting rid of Austerity. It’s a left wing critique. If anything this should strengthen Syriza’s negotiating position (somewhat), since they can point to the impossibility of getting political support for what the Troika wants and ask for further concessions.

          The question is “why was it only 42% and not a majority?” After all, the climb-down they’ve done just until June is humiliating enough and has only been sold to the party and country as a delaying tactic.

          The reason has to be that Syriza is doing exactly what the people want: attempt to square the circle by winning accommodations from the Troika to a (gradual at least) end to Austerity and the program. The only way Syriza will continue to have popular support is to pursue it’s current strategy of the hopeless negotiations until there is no longer any possibility of gaining anything further from them.

          Thus, the only way the rejectionist left minority will gain strength is if people see the government’s actions as capitulation. And even then if people believe their hand was forced and that Greece has no choice the government may not lose popular support even then. With 80% support, if elections were held right now, Syriza would win a landslide majority.

          In the short term of course. The longer term is still for disaster. Since the Troika imbeciles are bent on total capitulation, either Syriza capitulates and loses popular support and the party fractures amid votes of no confidence, paving the way for Golden Dawn, or they refuse to capitulate in which case Grexit is forced on them, and the Troika do everything in their power to destroy the Greek banking system as punishment, “pour encourager les autres.” At least in that case the government might still maintain popular support, which would be essential for negotiating the horrible economic conditions until they can achieve some kind of stability.

          The price the Eurozone will pay for that is a lot higher than they think, however.

          1. Rosario

            The conflicts within Syriza ultimately expose the extreme nature of the situation, and I believe, the inevitability of extreme solutions (Grexit, collapse of banking globally, reordering of the global economic structure, etc.). It make me think of the divisions within American politics prior to the Civil War except on a global scale. I fear the traditional methods for analyzing the politics no longer hold sway when political commitments adhere to rigid ideologies of economy and markets. These are the kinds of things that happen when deadlocked ideologies are in a crisis, whether in a feudal order, and imperial order, or a representative democracy. The unwinding will probably take a decade or more, but it will happen.

      2. LadyMondegreen

        “The Germans” – by which one assumes you mean the dominant German capitalists and the institutions that serve them – absolutely do not want Golden Dawn to take over – unless they believe that’s what it takes to maintain their dominance over the Eurozone. Fascists are risky. But systemic change is not to be countenanced.

    2. lakewoebegoner

      ” this since doesn’t non-compliance mean a eurozone exit and default”

      a developed nation needs a viable hard currency to import hydrocarbons, foodstuffs, fertilizer, cars, spare parts, etc.

      To benefit most from a weak neo-Drachma, you need a decent manufacturing sector. And a weak Drachma doesn’t help tourism that much as tourists still need oil to get around, eat imported non-Greek food and buy non-Greek consumer items while on holiday.

      Misery via the IMF or misery via a worthless Drachma. Tough choice. And while I hate to say it, it could be one of those times when the devil you know is better than the one you don’t.

      1. John Jones

        a developed nation needs a viable hard currency to import hydrocarbons, foodstuffs, fertilizer, cars, spare parts, etc.

        It used to do this before the E.U and before the eurozone and was doing well for it self. It does not need the euro or the E.U and the sooner the Greek public realize this the better.

        you need a decent manufacturing sector.

        And Greece will never build a descent manufacturing sector inside the eurozone. Since joining both the E.U and Eurozone it has gone through deindustrialization. Any beginnings and established manufacturing has since disappeared.

        If Greece has to go through more pain when it gets out get out then so be it. But there will never be any recovery inside European institutions as they currently are and Varoufakis and Tsipras are not going to change them. And they should tell the Greek public that its not going to change. They should tell them that this is the life you are going to have to get used to if you want to be in the E.U and Eurozone. Or leave and face what you have to but with light at the end of the tunnel.

      2. John Jones

        worthless Drachma

        I also have seen no evidence why it would be worthless.
        This was the exact scare mongering that was been said to Greece in the start of the crisis. And look were staying in has brought us. What is the point of the euros if you have none and cant ever get anymore without losing your country?

        The Drachma wasn’t worthless before and it wont be worthless if it is brought back. The Drachma is what Greece was built with form the ashes of its independence and has been there while Greece has overcome far worse problems.

        And it is the currency that got Greece this far:
        Greece was much closer closing the gap with western Europe in 1979 than at any time since. In 1979, the per capita income in Purchasing Power Standard Units (PPS) was 91% of the EU12. After our entry in the EU, this metric continued to decline and became an important element in the study of the Greek “divergence” (Greece was getting poorer compared to the EU12 average). In 2009, the Greek per capital income in PPS was just 78% of the EU12. I wonder what it is today.

        The euro and e.u brought us what we have now.

        1. Mattski

          These are two really salutary posts. And let’s be really wild and bring history in to the picture (whee!) Remember, let’s say, that the CIA prevented socialist governments from taking power in elections in both Greece and Italy in the post-war period. (Wouldn’t that steady two percent per annum growth the socialist countries were recording look good now, twenty-thirty years on, when we’ve been through five or six miserable convulsions under the new neoliberal World that the capitalists-without-borders Ordered–god knows, that might actually be a model of something like–hush your piehole–sustainability.

          We could dig even deeper and talk about how the Marshall plan set this all up. Deutschland doesn’t go back uber alles without the not-quite-invisible hand of US capitalism. It’s only invisible if we don’t revisit it.

    3. Yves Smith Post author

      Ambre Evans-Pritchard argues that a default is a serious threat to the Eurozone, since the losses on ECB debt (the obligations on which the Greek government would be most likely to default) would be recognized. Since the Bundesbank is not amenable to the ECB running on inadequate/negative equity (as in eventually monetizing the losses), the Germans would insist that every member national bank pay its pro-rata share to make up for the loss, at least in part and probably in whole. Now mind you the ECB would also have to determine how much of a loss to recognize (as in the Greeks might not pay based on the argument that the ECB is withholding interest it can credit to the principal payments, plus the ECB bought Greek bonds in 2010 as part of its efforts to contain periphery bond yields, and those bonds were not included in the 2012 restructuring and if they has remained in private hands, they would have been written down considerably in that deal.

      However the ECB?IMF view may be, and the German view certainly is that having Greece default or do a forced Gresit (which would occur if the ECB were to end the bank lifeline of the ELA, which it could clearly do, indeed might feel compelled to do in the event of a default), would be less costly in the long run than having Greece negotiate concessions and then have all the periphery countries demand similar breaks.

      1. Cugel

        Yves, you are certainly right that’s what the Germans are thinking. But, this merely exposes their short-term mindset. Grexit is “containable” in the short-term, but this blinkered stupidity takes nothing into account but their short-term economic losses. “How do we make good on bond losses?” It takes no account of the political fallout. Certainly, it would lead to a massive growth in nationalist anti-German sentiment in Southern Europe. That cannot be “contained” by bureaucrats. That, in fact, ought to have been proven for all time by the failure of the Bruning government by decree, and the rise of the Nazis in 1933. The rule of bureauracy without political support cannot contend at all with the rise of nationalist and racist passions. You might as well suppose that opening Pandora’s box can be “contained” as unlearning the lessons of the 1930s.

        And most of that sort of talk is merely a rationalization for their deep quasi-religious belief in Austerity and the “risk of moral hazard”. It really isn’t about minimizing losses at all. They may tell themselves that it will be “better” to punish Greece than to let them change the rules, but that is certainly NOT a cost-benefit analysis. Varoufakis has been desperately attempting to get them to look at things in pragmatic economic terms of mutual benefit – utterly without success.

        When you think about how easy it would be for Germany to make more money and eliminate all risk to their investments simply by giving Greece better terms (performing loans pay better than default), and their indignant refusal to do it, you can only conclude that there is no rational basis for their actions at all – not even maintaining elite controls, in any realistic long-term view. They might think that Golden Dawn would be preferable to letting Syriza renegotiate the loan terms, but that’s rather like the imbecilic French right-wingers who kept chanting “better Hitler than [Socialist President Leon] Blum” in 1936.

  2. hunkerdown

    PIIGS and BRICS unite! (failed evolution) This bears serious consideration if for no other reason that it did save the bacon in a certain well-known children’s folk tale when the wolves came huffing and puffing.

    1. Mattski

      I was in Spain for several months last summer, and saw that there was a muted tone of admiration for the BRICS’ accomplishment in the Podemos rhetoric; of course, Spain was for so long ‘where Africa begins’ that the notion some former colonies have moved beyond the mother country in their evolution does not easily gain acceptance–even the Socialists under Felipe Gonzalez seemed to want to further manage Latin America rather than learn from it. Obviously, Iglesias & Co. feel compelled to extreme circumspection, but the failure to send up even a flare in the name of solidarity on the part of what’s left of the left, across Europe–not to mention Podemos–is to me only dismaying. At what point do any of us actually declare for what we really believe, get down to the business of creating it?

      The answer is, of course, on the ground and not here. It’s folks like the Via Campesina who are putting the new world in place. And they do have quite a presence, at least in Valencia and Barcelona.

      Meanwhile, the “failed state” rhetoric really wants a little more critical analysis than you’re giving it here. That’s the man’s term, not ours.

  3. ambrit

    The most recent exercise in “regime change” NATO tried, (I’m conflating NATO and the EG, I know,) was in Libya. That turned out well, didn’t it? If the Atlanticists think they can ‘contain’ the collateral damage from a Greek failed state, they are smoking something very strong, and inhaling. Look at where Greece is located geographically. How many rock solid governments does it border on? If the Troika isn’t careful, Greece’s main export will soon be civil discord. (What’s the population flow in and out of Greece going to look like this time next year if the “Institutions” have their way?) Let’s not get into what the politics of France will be like if Le Pen gets to be even junior partner in a coalition government in Paris. (You think ‘le affaire Charlie’ was bad? Just wait until French Fascists start burning mosques and Muslim owned businesses. [I can hear the Front National now; “This is a spontaneous expression of the will of the people. Who can expect the Government to ignore the public mood? We will be patient until the violence dies down.”])

      1. ambrit

        Got me there. I did forget Ukraine. The ‘collateral damage’ possible from that Adventure makes me want to hide out in a cave somewhere.

  4. Kristiina

    It really seems Goliath has great difficulty in understanding that David has a sling. Here in Finland there was a debate of party leaders on current politics, as the elections are coming up in April. On the question of Greek debt, the party leaders were unable to make any clear position – even making sounds that yes, we can trust the debt will be paid. The audience was asked what they think, will the greek debt be paid? Large majority lifted a red card, meaning no. So the hoi polloi know, but the political class needs to extend and pretend. The only reason I can think of for this is that the looting is still profitable. Every penny that can be extracted is swell fodder for the eurocrats, the carcass will be thrown off only when it is sucked completely empty. It is just sooo convenient for the eurocrats that the folks in Greece happened to vote a left party in – they are the perfect scapegoats, to scare off anyone else considering ways to end the indentured slavery of absurd debt. I find it difficult to believe grexit would be contained. But there’s that war tactic germans like to apply: burn everything when retreating. Older folks still remember how they burned Lapland. They had already lost, just out of spite they saw it fit to destroy all they could. All nations have their shadow sides…

  5. cassiodorus

    “So the problem for Syriza is likely to be not the fact that Greece will suffer more if it continues to defy the Troika and Eurogroup, but that the ruling coalition will be perceived as less than competent in reacting to adverse developments and ameliorating the damage.”

    The Greek public may already recognize that “competence” is what Samaras and New Democracy displayed to the world in allowing the Troika to run Greece aground. If that’s “competence,” then who needs it?

    SYRIZA is trying to show its versatility here. I don’t think we will have to wait long before that 42% becomes more than 42%.

  6. George Phillies

    Curiously, though perhaps it is an attitude that does not translate correctly, Syriza has not yet tried appeals to patriotism to persuade small taxpayers to start paying again. Perhaps that will await some number of major arrests. I have seen reports that a certain number of large bank accounts have already been frozen. If the Greeks are backed far enough into a corner, at some point they will simply repudiate all their foreign debts and have their treasury continue to print Euros. Announcing that some fraction of tax income will go to pay off debtors, in order, might throw up a smoke screen. Anticipation notes valid at par for paying taxes may have relatively stable worth. On a different note, the statement that the Drachma will immediately crash relative to the Euro appears to have the perhaps unneeded assumption that the new Drachma will initially be issued at 1:1 to the Euro.

    Broadcasts in favor of Podemos, Five Star, le Pen, UKIP and AfD in the appropriate languages are also of some note, especially if the broadcasts are blandly factual.

    1. c
      billy blog Bill Mitchell: Don’t mention the war! er the Troika …
      Posted on Thursday, February 26, 2015 by bill

      The Finance Minister wrote that: This means that, by the time we come to an exit from the euro, the stock of savings will be in euros and the flow of incomes and pensions (once the banks re-open) will be in drachmas.
      And the conclusion: Moreover, the very availability of such large quantities of ‘hard’ currency savings, in the hands of the average Dimitri and Kiki on the street, will ensure that the decline in the value of the new drachma will be precipitous …

      This is a common claim. That the currency will depreciate so much it will wipe out any real prosperity as a result of the devalued savings (expressed in drachma).
      It have considered the claim that a new Greek currency would significantly depreciate against the euro once issued previously.
      Why would that happen? Foreign exchange parities are determined by supply and demand.
      Who would be issuing the new Drachma? Answer: Only one institution – the Greek government via the central bank.
      What is the current volume (supply) of new Drachma in the foreign exchange markets? Answer: zero – it doesn’t exist.
      If the Greek government restricted its supply but were able to require people to demand it – to pay taxes etc – then why would the currency depreciate violently in the period after issue?
      You are thinking (like most people) of an existing tradable currency that is unpegged or something like that. Then the depreciation can be sudden because there is a lot of supply.
      A significant exchange rate depreciation of the new drachma in the short-term given the fact that supply would be limited. The examples often used, such as Iceland and Argentina, all relate to currencies that were already supplied in volumes to the foreign exchange markets.

      1. Left in Wisconsin

        The question is can you issue enough drachmas to run the economy and limit the supply to retain its value? And I think the answer is no.

        1. Peter Pan

          What I never see or hear being asked is what happens to the value of the Euro currency if Greece defaults, leaves the EU and Greece issues it’s own currency. Perhaps the Euro will suddenly be worth less (or worthless) than the Drachma.

          At any rate, such an instance would break the backs of many currency traders and their brokers/bankers (see the results of the recent trading of the Swiss Franc as an example). All hell will break loose.

    2. BadBentham

      Well; I guess some of the problems that lead to a massive currency devaluation can currently be observed in Venezuela, which is of course a very specific case on its own. The issue is of course how dependant a country is on imports , and thus needs to trade in foreign currencies (be it Dollar or Euro) . – Economic self-sufficiency in major commodities is thus still a huge boon. For Venezuela, with its huge oil reserves that could translate into great wealth, it goes that nearly all basic goods have to be imported- for Dollar; – with the devastating specialty of several different currency exchange rates (the best price for importers) that make arbitrage operations with Dollar far more profitable than actual trade. (So, no toilet paper…- and a further devaluation of the Bolivar) Added to this, capital flight makes generally tons of headaches, and was one the major reasons for the German hyper-inflation from 1923. In Venezuela, the estimated number during the last decade sums up to outrageous 250 billion US$ that have left the country . -Even now, still under the Euro roof, Greece is bleeding empty pretty quickly, and it is not so obvious how a free fall would stop with the Drachma.

        1. reslez

          When gaming at a competitive level one sometimes encounters a situation in which, unless an improbable thing occurs, loss is inevitable. In these situations it’s best to play as if the improbable fortunate thing will happen. Don’t rule out success on your own, force fate’s hand.

          From an outside perspective it seems Syriza has lost, unless it’s possible to successfully grexit. It’s unclear to me what other positive scenario might exist. The Troika are bent on suffering. The odds may be against a successful grexit but at this point it appears to be the only thing that has any possibility of a positive outcome for Greeks. Better to play for the narrow chance of a win than accept a guaranteed loss. Yes it will take leadership and some sort of plebiscite. At least let them try something like Parenteau’s TAN or (needlessly complicated techbro) FT-coins.

      1. Calgacus

        BadBentham:Well; I guess some of the problems that lead to a massive currency devaluation can currently be observed in Venezuela, which is of course a very specific case on its own.
        Venezuela’s “devaluation”/ inflation until the recent oil price drop – probably engineered for political reasons, to hurt, e.g. Venezuela – was entirely due to Venezuela’s own bad, artificial policy of multiple exchange rates. See Mark Weisbrot’s Fixing the Exchange Rate System in Venezuela. There is no reason to expect something similar in Greece.

        As for Greece, Warren Mosler answers Varoufakis’s mostly confused criticism of Weisbrot that Yves cited here. And Marshall Auerback just today reiterated some of the reasons that TANs (or drachmas) would not (hyper)inflate – The Greek Crisis: Time to Rethink the Concept of “Money”. (You may need google cache to get to it.)

        IMHO, Weisbrot’s analyses are the most realistic detailed ones on Greece’s prospects & Grexit. They are also the most optimistic. Lapavitsas’s & Flassbeck’s in Against the Troika are not dissimilar.

        Even now, still under the Euro roof, Greece is bleeding empty pretty quickly, and it is not so obvious how a free fall would stop with the Drachma.

        No – it is obvious. That’s the problem – people are educated into seeing complicated, confused, obscure things as “obvious” and then to not see what is truly obvious. See my next comment for recommendations on what to read to make the obvious obvious again.

        Greece not paying its Euro debt will clearly stop the bleeding of Euros pretty quickly – I don’t think anybody doesn’t see that! But even more important is for Greece to decide to end austerity. To decide to fully employ its people and resources – and not listen to nonsensical “arguments” that there is some magic that makes this impossible, or even difficult – and that there is some magical benefit to forcing millions to suffer under austerity. This decision may entail financial “innovation” or Euro exit, drachma introduction. If so, that is what it entails. There is no sound argument that Grexit would cause a catastrophe, and every reason to expect that following a short adjustment period, things will quickly improve. Things will improve because millions of people will be working to improve their own lives. The crime of austerity is that it systematically prevents people from doing that.

  7. MartyH

    OK, so what does the German Government and the French Government do after they give Greece to the bankers in payment of the “debt” … I mean, who runs the country for the banks.

    Oh, that’s right, Brussels has plenty of non-democratic technocrats. Maybe THEY can work out a deal with Golden Dawn to keep “productivity” up. Morale, too!

  8. plantman

    From what I’ve read, the Greek people are following events very closely and are overwhelmingly supportive of Syriza’s moderate demands. They are also aware of the troika’s absolute inflexibility on these matters. This popular support should help if Greece is forced to leave the euro. Of course, the prospect of a military coup authored by deep state oligarchs (and the US?) cannot be discounted. There are powerful people in Greece who will oppose the transition regardless of its costs to democracy or political stability.

    I still think the likely scenario is a split between Varoufakis and Tspiras. Tspiras is basically a politician who will eventually stand down, while V will insist that austerity at least partially be lifted to address the humanitarian crisis and to create a way out of perennial Depression. I’m guessing that V will leave the party when T capitulates, but I’m just guessing.

  9. drfrank

    They should securitize the past due tax receivables and assign them to the creditors. They should accept partial privatizations at ridiculously high enterprise valuations to disguise the implicit debt forgiveness. They should encourage the use of local scrip and barter, and then pay goverment employees with vouchers. They should lock up supplies of fuel and food in preparation for a default. They should boost domestic ag and put tourism on sale. They should explain to the world what separation from the Currency Union entails in terms of treaties and legalisms. Tactically, they should lower the rhetoric for a while and let the world wonder. They should try to milk the EU for all its worth.

  10. timbers

    “So the problem for Syriza is likely to be not the fact that Greece will suffer more if it continues to defy the Troika and Eurogroup, but that the ruling coalition will be perceived as less than competent in reacting to adverse developments and ameliorating the damage.”

    If Greece does what the Troika wants, more and more suffering is in store for Greece and Europe as far as the eye can see.

    At some point, the consensus view here at NC that Greece exit from EU is worse than staying must be reconciled. What point is that? Le Pen impacting the situation?

    1. Yves Smith Post author

      The suffering will be less immediate. Not paying salaries of officials, not paying pensions of pensioners, or paying it in funny scrip, will be noticed immediately and also have strong negative knock-on economic effects. The causality is clearer and the impact much faster.

      Moreover, as we have pointed out, what Syriza is trying to achieve, despite its lofty rhetoric, is actually not an end of austerity. It wants a primary surplus target of 1.0% to 1.5%. That would be contractionary even in growing economy, and more so in one that is already mired in recession like Greece. So Syriza is actually not pushing for an end to austerity, but merely austerity lite.

      1. cassiodorus

        “The suffering will be less immediate. Not paying salaries of officials, not paying pensions of pensioners, or paying it in funny scrip, will be noticed immediately and also have strong negative knock-on economic effects. The causality is clearer and the impact much faster.”

        It doesn’t look like the Greek government will be able to prevent that.

      2. timbers

        Perhaps I’m asking the wrong question….

        Maybe it would be helpful to compare the pain of leaving the EU now vs the pain of leaving the EU when it collapses? It that even possible? Of course it is possible EU becomes sane and reverses austerity, but doubt it.

        If the NC consensus is the EU is certain to fail – thus meaning everyone will leave it in a sense – how does that cost (plus the cost of waiting till it happens) compare to Greece exit now?

        1. Doug Terpstra

          Kicking the can a little further now is more politically tolerable/survivable (for politicians), and theoretically better IF vigorous preparations are made for the inevitable, so the impacts are not so sudden and catastrophic. I sincerely hope that is Syriza’s strategy, but the signs are not encouraging. It looks like typical can-k
          icking by the usual ostriches.

      3. Peter K.


        “So let’s think of a maximalist case, in which Greece stopped running a primary surplus at all (this is not a proposal). You might think that this would let the Greeks spend an additional 4.5 percent of GDP — but the benefits to Greece would actually be much bigger than that. Remember, the main reason austerity has been so harsh is that cutting spending leads to economic contraction, which leads to lower revenues, which forces further cuts to hit the budget target. A relaxation of austerity would run this process in reverse; the extra spending would mean a stronger economy, which means more revenue, which means that the primary surplus wouldn’t fall as much.

        Suppose that the multiplier is 1.3 — which is what IMF estimates seem to suggest — and that Greece can collect 40 percent of a rise in GDP in revenue (roughly matching its average revenue/GDP). Then an additional billion euros in spending should generate around 0.5 billion euros in revenue, reducing the primary surplus by only 0.5 billion euros.

        And if you follow that through, you find that dropping the requirement that Greece run a primary surplus of 4.5 percent of GDP would allow spending to rise by 9 percent of GDP — twice as much — and that this would raise GDP by 12 percent relative to what it would have been otherwise. Unemployment would fall by around 10 percentage points relative to no relief.

        OK, this is not going to happen — even in the best of circumstances, Syriza is going to be able to get a relaxation of the primary surplus requirement, not complete abrogation. But even a partial move in the direction I’ve described could have quite significant positive effects on Greek welfare.”

        10 percent of GDP would do a lot to help mitigate the humanitarian crisis. Why does some on the left ALWAYS make the perfect the enemy of the good?

        The Greeks and Syriza don’t want to leave the Euro zone. They’ll do “austerity lite” in order to stay. Otherwise they’ll probably leave.

        1. Yves Smith Post author

          Krugman’s case is a straw man. First, Syriza is not asking for no primary surplus, so ti won’t get that as a result of negotiation. It gets that ONLY by being complaint on structural reforms and not being able to deliver due to continue economic decay.

          Second, despite a 4.5% primary surplus target for 2016 being in the memorandum, everyone, even the Germans, knew that was unattainable and had to be reduced, Syriza or not. Even the Germans were discussing 4.0%, which was their ask, and most commentors were suggesting 2.0-3.0% which is still too high but concedes that there is a problem.

      4. reslez

        As long as the “funny scrip” is transferable and can be used to pay taxes on par with Euro I don’t see much of a problem.

        To channel craazy a bit, money is a shared hallucination. To say there are no solutions except knuckling under to psychopaths betrays a lack of imagination.

  11. Jose

    No, the Drachma won´t be worthless.

    There are already tens of billions of euros owned by Greek nationals deposited abroad, especially in Germany and Luxemburg (see the most recent data on TARGET2 balances).

    If the Greek government reintroduces the Drachma it will only have to tax heavily these deposits (an easy task, since there is exchange of information between the tax authorities of EU countries – even Switzerland is now providing that kind of information to other European countries).

    Then, the government may offer a powerful incentive – send these deposits back to Greece and we won´t tax them.

    The return of such a sum to Greece will automatically create a high demand for the new Drachma.

  12. Andrea1

    The Swiss authorities tried several times since 2010 to propose to Greece some ‘information exchange’ concerning Greek bank accounts in Switz.

    While the common stereotype of ‘Swiss bankers and their secrecy’ is valid in some ways, in others it is not. It collaborates for ex. with Italy (in some ways in a similar position to Greece) thru an accord of information exchange, before automatic info. exchange comes in, which is fully expected in Switz, planned for, and will be implemented.

    Now I’m not supporting Swiss banks or bashing Greeks (I despise the former and love the latter), afaik, from news only: the Greek Gvmt has never replied, not even with ‘we will consider…’, there is just zero response. There have been no requests for info on bank accounts in Switz. from Greece (usually around 500, or far more, per year, mostly from France, Germany…)

    Athens under Tsirpias has made several declarations along the lines of ‘hidden fortunes in Switz., disgusting’ – Switz. has a moral obligation to help us stop tax evasion (Nikos Filis, chief of Parliamentary Syriza group), Holdings and oligarchs use financial centers like Switz. for their private profit, that has to end (Dimitrios Papadimoulis, EU parliament), and so on.

    For now the Swiss are awaiting some reaction from the new Gvmt.

    From, amongst many others, an article in Le Temps, which is in French and behind a pay-wall (this version might show up for some or not) posted for reference.

    Of course the Greek Gvmt. has more pressing probs, and the ‘Lagarde list’ or ‘Swiss leaks’ – which they have promised to address – are but the tip on an iceberg.

  13. generic

    I’ve been trying to narrow down why my reading of the state of affairs differs so drastically from the one presented here. I’ve come to narrow it down to two premises that I think we disagree over.

    First Greece needs money from the Eurogroup to keep running.

    Second Greece needs to convince the Eurogroup.

    On the second there never was any hope, they act in blatant bad faith. The Iberians would advocate blocking the harbors and bombing the population centers if they could get away with it. And Merkel’s dominance over Europe is based on unachievable debt targets that make everyone else a supplicant. So Greece has been negotiating publicly, showing not only their cards but those of their opponents as well to the great anger of everyone present. They also have been making proposals that are just too reasonable to publicly oppose. I’m pretty sure they will continue to do so. On the face of it it seems difficult for the ECB to not hand the two billion Euros it owes the Greek government over to the IMF if it has to actually defend the decision. The situation is similar for the debt it holds itself. If Tsipras manages to bring the political role of the ECB into the political lamplight its freedom of operation gets reduced. And the ECB is the core actor here.

    As to one. I don’t think Varoufakis expects the Euros to cough up a single cent for the operation of the Greek state. And if you look at his future coin proposal he penned more than a year ago, he expects to be able to keep the value of IOU’s pegged to the Euro. That Syriza doesn’t just cancel unplayable tax debt but instead proposed a hundred installment payment plan also points in this direction. And anyway problems with paying internal bills is hardly a new thing and won’t break this government as it hasn’t the last.

    1. fosforos

      This hits the main point–it is a public political contest with the Eurocratic Establishment, of which the “Iberians”(the worthy heirs of Franco and Salazar) are the weakest link and primary target.

      1. BadBentham

        Agreed. Bringing the people of Iberia to switch out their governments might prove as a game-changer. At least, it would split Europe in half – North vs. South (including France, plus maybe Ireland) -, while it ideally would be an opportunity to re-negotiate the continent to a new common ground. So, it basically comes down to that either Syriza resigns, Podemos comes to power, or Greece has to exit. All Syriza can do at the moment is to prove a long breath, while the Eurocrats try to impose pressure on the country (ideally without letting Greece slip away) to keep their own political power. Interestingly in this game, both sides want to have a Grexit as a threat, as in Chicken Game, but they do not want to realize it. However, Greece will be forced to if the policy in Europe does not change – or they will have to live on their knees…

  14. Deloss

    Beg pardon: “Ministers have repeatedly contracted each other”–could this possibly be a typo for “contradicted each other”?

  15. DJG

    Compliments on the reference to Memoirs of Hadrian, which indeed is a brilliant evocation of a remarkable man (born in Hispania) and his lover who became a god. It also evokes Rome and Greece, the civilizations that invented so much of what is now considered modern Europe. Yet I suspect that the Anglo-Americano-Germano consensus is that Italy is a nice shopping mall run by irrational folks and Greece is now inhabited by Greeklings who don’t measure up to their past and, therefore, are expendable–a potential nation of waiters and trinket-sellers. So we have a failed developed state, something that Europe hasn’t had in 70 years. And I won’t mentioned the failed 2d-world states along the eastern margins like Hungary or Latvia. Or pillaged Ukraine. I don’t want to interrupt the looting: In this one regard, Cavafy is wrong. The barbarians are not a kind of solution. (I wish that the oracle at Delphi hadn’t been suppressed, because I suspect that the Pythia is seeing drachma in the future.)

  16. mpr

    The implicit assumption in this post is that the situation will remain static, in the sense that Syriza will continue to have a funding shortfall. Contra claims made here a few weeks ago, they are not actually out of money now. Whether they can continue limping along by raiding pension funds and deferring payments depends on what happens with tax receipts.

    Ultimately,its all about the tax receipts, which is why Varoufakis is so obsessed with that. If they manage to run a primary surplus their negotiating strategy is immeasurably strengthened, since they can ultimately tell their creditors to take a hike. If they don’t then they’re eventually screwed – largely along the lines spelled out in this post – since the Troika can just tighten the thumb screws.

    The worrying point is that the time to begin reforming the tax system, and to actually see an improvement in collections is very short. I suspect they will need to take some rather draconian measures in this direction.

    1. Yves Smith Post author

      What I said here does not contradict that they were out of money as of the 24th. The Greek government, in past shortfalls, has delayed payments to suppliers of various sorts. But not paying salaries and pensions is a different matter entirely.

      I don’t see this as static and am mystified that you read the post that way. Greece is in an untenable situation and something will go critical in very short order. What exactly is very much subject to question. And I don’t see how they improve tax collections in their short runway, which is the next month for the IMF payments. Building the apparatus to do so and actually finding and rounding up the money takes time. And even if they accomplish a miracle and manage to get to a primary surplus in a few months, they’ll have the shortfall to make up (as in redeeming whatever funny money scrip they used in the interim), plus it is absolutely impossible under any scenario for them to come up with enough money to make the principal payments coming up between now and August.

      1. mpr

        Perhaps I shouldn’t have used the word ‘static’, by which I only meant that you regard the fact that they will have a funding shortfall as something that is not going to change in the short to medium term (I did write that explicitly though). Your response confirms that you do regard this as probable.

        I have to admit that you make a depressingly good case. I don’t believe the Troika will allow things to go critical in the next month, but if they don’t improve tax collections enough to be in surplus by June they are screwed.

      2. mpr

        I should say that I suspect with the IMF payments they’ll delay at least two of them, having made a show of good will of paying the others. The IMF does allow that apparently.

  17. fosforos

    Why should tax-anticipation certificates, paid to government employees and transfer recipients and providers as a portion of their remuneration, trade at any discount at all when they can be immediately returned to the government at face value by anyone owing taxes (like the VAT on all purchases)? Aren’t they (internal) money, given that what makes anything money is that it is legal tender for public debt (ie., taxes)?

  18. Michael G

    Alternative prediction
    Within a year the Military will take over to “preserve public order”.
    The recent election will be declared invalid.
    A government acceptable to the Troika will be installed.
    A form of words will be devised to explain why a military dictatorship should be part of the EU.
    The leadership of Syriza will either be in jail or exile.
    Greece can be sold off island by island to repay its debts.
    Not a certainty, but not completely implausible.

    1. ambrit

      I’m glad to see I’m not alone in my ultra cynical prognosis.
      There has been a lot of surplus Greek military ammo coming onto the market recently. This might be a sign that the Greek Army is clearing out its’ inventory and freeing up storage space and personnel for new items.

  19. Doug Terpstra

    The most disturbing and ominous news here is Syriza’s proposed tax enforcement strategy, its focus and its methods. It’s targeting the small fry and presumably the most regressive taxes, VAT and local service and labor taxes, using secret police tactics and surveillance to enforce compliance. The impression is perverse and sinister: targeting petty tax evaders, the bakeries, cafes, grocers, fishmongers, cabbies, and tourist workers, using tourists and coworkers as spies, creating a divisive and fearful culture. What about the oligarchs, financiers, shippers, etc.?

    Syriza is looking more like the Obama regime as time goes by. New warnings may arise from this: “be ware of fellow Greeks bearing gifts” and “always look a gift horse over carefully.”

    1. Santi

      I think this measure has two different objectives tied together: first, it is a kind of small scale “helicopter money”. Paying part time salaries to perform a task that is not competing with any well paid job amounts to giving some money to unemployed people that probably will spend it locally benefiting local economy; second, it targets the sector of the touristic industry that is cheating on VAT or plainly avoids declaring income. There is a psychological effect, as industries will think twice before free-riding on the economy and risking to a big fine.

      On the other hand, the fact that this plan is going on does not impede a reinforcement of the regular tax inspector to cater with big scale evaders.

      I am quite sure that Syriza is not a neoliberal puppet like Obama or the European “socialist” parties have shown themselves. They are regular social-democrats, much like Willy Brandt or Olof Palme used to be. As Pablo Iglesias says, having a social-democrat program in the XXIth century is very radical.

      1. Doug Terpstra

        Wiring tourists as tax-enforcement spies is a horrible employment strategy. It’s guaranteed to strangle the golden goose while shooting both feet with an assault rifle. Can you imagine what exemplary fate awaits the hapless tourist who’s duped into becoming an agent of Syriza’s secret tax police to squeeze street vendors? In the history of stupid ideas, this is dumb, dumber, dumbest. Worse, ISTM a devastating indicator of twisted priorities by a pseudo-left political party.

      1. Doug Terpstra

        I wish they would do that … and also very publicly enlist the Troika in pursuing the loot of former politicians, financiers, and other high-level tax cheats ensconced in Switzerland and elsewhere. ISTM they could also pursue high-level land and tax reform internally first. But going after the little people first, enlisting tourists with underhanded methods, just seems utterly nonsensical from both a practical and optical perspective. How much blood can they squeeze from turnips? How much blood from tourists can they withstand? And what happens to their popular support? I don’t think they can count on the partly race-based Obama phenomenon. For me, “disappointing” doesn’t begin to describe Syriza to date.

  20. RBHoughton

    Belgium has just survived a year of ungoverned existence. It seems on that example you do not actually need a government at all – things go on as before, the sun rises and sets, birds sing and shops open and close.

    It might prick back ears at the Troika if Varoufakis put a ‘closed’ sign on the debating hall, sent the civil service home on unpaid leave and went fishing.

  21. different clue

    I am re-reminded yet again of what Ian Welsh has been writing about Greece’s future and choices regarding Europe. I hope Minister Varoufakis and the Syriza government personnel in general read and consider Welsh’s thoughts on the matter.

    I am aware by now that the whole Syriza goal was to end austerity and stay in Europe. If Europe won’t allow that, then staying in Europe means many years of Austerity for Greece regardless of Syriza promises or Greek public majority desires. If Greece left Europe, de-Euroized and re-drachmafied, would a rebellious Greece be plunged into even deeper austerity? If so, perhaps survival dictates remaining in Europe and under the heavy yoke of European subjectitude. But if leaving can’t make Greece’s austerity any worse than it is already going to be anyway, then perhaps the Greek public needs to decide if they want their austerity with freedom or with subjection. If they want it with freedom, then they will eventually be forced to choose between War Socialism under a serious Left-led coalition, or War Fascism under a serious Golden Dawn-led
    coalition. It seems to me that is the three-way choice that Greece faces over the next few years.

  22. ckimball

    I watched the 2/16/15 interview with Mr. Varoufakis. During the interview he used the term kick-start.
    The word jumped out at me and I thought, I want to do a kickstarter for Greece (not knowing what it
    entailed or how to do it).
    Since we people of the world do not have a vote on determining how our world will be, could we
    enact a democratic process through this vehicle or another to establish a world fund in order to
    stand with Greece in her struggle with these international cartels?
    Perhaps we, the people of the world, can demonstrate the chorus for this tragedy and assert that
    if Greece is lost it will be the world’s loss.

  23. dbk

    At the risk of chiming in rather late in this thread’s life, some observations on points made by others:

    (1) I am a bit lost about why people imagine that the EU (Eurogroup) would think that by pressuring the new government to the breaking point and beyond, GD would provide any solution. This party (now polling at <5%, 4.7% iirc) is rabidly anti-European. I suspect that the real objective is to force Syriza into ordoliberalism, given that the two parties which have ruled Greece for the past 40 years are now totally discredited.

    (2) re: the new government's purported failure to act on the Lagarde List (and other similar lists of large depositors abroad): actually, a lot is going on on this front, it's just that not much is being published in the Anglophone press. It is known that 38 former PMs (and relatives of PMs)/Ministers/MPs channeled money abroad. These include the previous FinMin, who made 56 deposits of <10,000 euros in 2012 when he was Special Consul to the PM. And another former FinMin is currently on trial for concealing the names of three relatives with large deposits in Switzerland. It's a lot more fraught politically than outsiders imagine. But there's no question that large sums (billions) will be confiscated and/or taxed and/or repatriated.

    (3) Re: the employment of housewives, university students, and tourists to serve as part-time IRS "inspectors" in the islands (primarily, the Cyclades) during high season (late June – early/mid-Sept). I had the same reaction as others when I initially read this, viz. I cringed. On the other hand, it's not "street-vendors" they're going after, it's the operators of beach-front restaurants, bars, night-clubs, and cafes who do an enormous business for 10-12 weeks a year. On a single beach, there might be anywhere between two and twenty such establishments – and there are thousands of beaches in Greece. A large beach-bar/cafe establishment probably takes in 5000 euros a day during those 70-80 days of high season – that's at least 80,000 in taxes alone, not to mention VAT, lost, per establishment. Multiply this by a few thousand, and the dimensions of the issue become clearer. It's entirely natural to say "But, but, IRS Inspectors should do this job." However, the Greek IRS has been decimated by Troika-imposed civil service layoffs and firings. There are no staff to do the job – in fact, there are no staff in actual IRS offices. What would nc commenters propose instead?

  24. Calgacus

    In 1937, FDR told Arthur Krock “I’m prouder of that than anything I ever did.” Not any New Deal program, going off gold, Social Security, the WPA etc but torpedoing the 1933 London Conference. Though I had quoted other people’s quotes from it & Keynes calling it “magnificently right”, I hadn’t looked at the message myself until a few days ago.

    IMHO, excepting a few obsolete allusions, reading the Wireless to the London Conference is the best start to thinking sensibly about money among nations – and thus very relevant to Greece & the Eurozone, the Euro being nothing but a new “fetish of so-called international bankers” derived from very old “basic economic errors”.
    In one sentence: “The sound internal economic system of a Nation is a greater factor in its well-being than the price of its currency in changing terms of the currencies of other Nations.”

    The Eurocrats are hell-bent on forcing an unprecedentedly unsound economic system on each Nation in the Eurozone, on the Eurozone as a whole and on Greece in particular. That ongoing damage is far more than any minor and temporary disadvantage that going it alone could cause.

    (My next unsolicited recommendation is Keynes’s National Self-sufficiency, and after that the chapters on international trade in Abba Lerner’s Economics of Employment.)

  25. Stephen

    I am like, soooo waiting for a promotion to pop up on my screen from the Greek government, enticing me to visit this summer, offering discounts if I bring my iPhone equipped with the latest app so that I can spy on my hosts. I have always wanted to be a spy and now I have the technology and the opportunity! Ah, the wet dream of all governments everywhere! The people united in one grand effort to monitor themselves and forcing everyone (else) to behave!

    Seriously. Was Varoufakis joking? Perhaps he is trying to shame his counterparts in Brussels, sort of saying, ‘Is this the sort of thing you want us to resort to so that we can get you your blood money?’

    He always struck me as much more sensible than to propose such a thing. Maybe he was hoping that the idiots in Brussels would make the mistake of jumping up and down with glee, in front of the t.v. cameras, at the prospect of turning the Greek people into snitches working for, in the final analysis, bankers.

    Sadly, this new tax initiative might go forward. Greek society turned into East Germany but with sun tan lotion, cheap wine, and lots and lots of sex with richer foreigners (with VAT accounted for, of course.) Taxes will be collected from the small fry to pay for what the corrupt elites did to that country. Is this the way it’s going to hash out here at home? (USA.) I had better run out and get the latest mobile device. Wouldn’t want my neighbors getting one up on me.

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