Greece Threatens to Miss IMF Payment, Issue Drachma (Updated)

Greece has decided to up the ante in its negotiations with the Troika. The open question is whether the latest move, the press leak via Ambrose Evans-Pritchard at the Telegraph that Greece will miss its April 9 payment to the IMF so that it can continue to make pension payments, and has started to make plans to issue the drachma, are game-changers that Greece hopes they will be.

The sources that spoke to Evans-Pritchard said that the government would be out of funds on April 9, the IMF due date. Note this is earlier than the most recently leaked drop-dead date of April 20. The Greek government cannot make that payment and also make pension and government salary payments due April 14.

Keep this in mind:

Investors have recognized that a Grexit was a possible outcome; indeed, the financial press was treating it as a far more likely outcome than the political press. With Greece running out of money, discussion of that possibility increased last week, with Warren Buffett even saying a Grexit could be good for the eurozone versus serious pundits like Martin Wolf warning that a Grexit would pave the way for other countries to leave. But even Wolf held out the option of a managed Grexit so as to reduce the dislocation.

So the idea that Greece might leave is hardly news. And Greece has made veiled threats officially, along the lines of, “We can only be pushed so far.” The question is whether the markets have really priced that in, since an adverse market reaction would give Greece more leverage.

Despite the dramatic sound of invoking the “d” words, so far, this is a bluff. Read the first paragraph of the Telegraph account:

Greece is drawing up drastic plans to nationalise the country’s banking system and introduce a parallel currency to pay bills unless the eurozone takes steps to defuse the simmering crisis and soften its demands.

If you read the article, Greece has yet to take a single concrete step towards issuing drachma, the most important being to impose capital controls.

Market reactions will be influenced by Eurocrat actions and messaging. Here Greece has given the officialdom a full four days, since Friday and Monday are holidays in non-Christian Orthodox Europe, to plan a response. No developed economy has defaulted on the IMF, but the flip side is IMF payment dates are loose. In fact, the Telegraph reports that it is a full six weeks after a non-payment before Greece would be declared to be in technical default, so the April 9 date is not an event horizon. Moreover, Greece was already up against an end-of-month deadline to conclude its bailout fund negotiations, so missing the payment in and of itself does not change the overall timing parameters. Note some analysts worry that there could be more serious knock-on effects. For instance, we have this dire take in the Ambrose Evans-Pritchard account:

Bank of America warned that a “critical sequence of events could unfold” once Greece misses a payment to the IMF. It would trigger a parallel default to the eurozone bail-out fund (EFSF) under the legal master agreement, and might force the EFSF to cancel its loan packages and demand immediate repayment. This in turn would trigger a default on Greek government bonds issued under the bail-out accord.

Since it highly unlikely operationally, given the long weekend, for the Troika to approve the reforms and then get Eurogroup approval to release the bailout funds, it seems more likely that the IMF would determine what sort of short-term fudge it needed to engage in so as not to trigger a default under the EFSF. Again, since there were doubts that Greece would be able to make all of its March IMF payments, it may well be that some “extend and pretend” gambit has already been pre-planned.

The leak will accelerate the bank run. One correspondent pointed out in February that anyone who was keeping deposits in Greek banks was a fool. Those who relied on the government statements that they were committed to remaining in the Eurozone will be forced to reassess, and if they have an operating brain cell, will drain their accounts.

The most immediate effect will be to put the ECB in a difficult position. In theory, the ELA is only for short-term liquidity problems at solvent banks. But the Greek banks are not solvent. The ECB has chosen to ignore that issue for the moment. But if the bank outflows are large, it may become more politically contentious at the ECB board, which decides every two weeks whether to continue the ELA, to keep funding it. The inertial path would be for the ECB to continue to provide bare minimum increases in the ELA as long as Greece is engaged in negotiations. The more conservative members of the ECB board might condition their approval on some sort of fig leave statement from the IMF in the event of a default.

The second-order effect of the worsening of the bank run will be to further damage the economy. Consumers who are nervous enough to have their cash in mattresses are not a free-spending lot.

Drawing the line in the sand on pensions is a tough sell in Europe. In addition to the creditors doubting the Greek government’s estimates of how much it could generate from its various revenue-boosting measures, they also objected to Greek plans to increase union rights and raise pensions to low-wage groups. Making pensions the rallying cry may be popular in Greece, but it has gotten resistance in the rest of Europe. The pension matter is so charged that in his press conference with Merkel in March, Tsipras felt compelled to say, “I haven’t come to Berlin to ask Germany to pay Greece’s pensions!”

Greece already has very high pension obligations compared to the size of its economy, so the perception is that Greeks get a better deal than retirees in other nations. More granular analysis indicates that the relatively high Greek pension burden is due mainly to an aged population. But that story is not well known, and the idea that other nations’ taxpayers are funding a believed-to-be better-treated retirees in Greece could be used as an important talking point against the Greek government. The Greeks have a much better case to be made by showing the terrible state of government services, particularly hospitals. It’s mystifying why they have not told that story better.

Greece seems to be pinning its hopes on Merkel. From the Telegraph story:

Syriza is still hoping that German Chancellor Angela Merkel can defuse the crisis, deeming her a “real ally”, but fear that she will be confronted with a fait accompli beyond even her control.

While Merkel has made statements that she would like to keep Greece in the Eurozone, she’s always stressed almost immediately afterwards that Greece needs to honor its commitments and implement reforms. While Merkel is clearly concerned about her legacy and a Grexit would tarnish that, she is also concerned about considerable domestic resistance to the idea of Greece getting off too easy and German voters being overburdened as a result, particularly if other creditors use the Greek precedent to push for similar breaks. There is a school of thought in Germany that a Grexit does more to preserve the Eurozone than cutting Greece a deal would. It’s not at all clear how she will resolve the tension she has been able to finesse so far.

If the Greek gambit does not pressure the Troika and Eurogroup to change their position much, the government could see its approval ratings decline further. As we’ve pointed out, the government has done nothing to build support for a Grexit. While it remains popular, its approval ratings for how it is handling the negotiations has fallen from a peak of 80% to 55%. A mere two days prior to this leak, Tsipras reassured Parliament that he was seeking an “honorable compromise”. This move is yet another kolotumba, but on a matter of primary importance.

If the creditors can pull it off, their winning strategy is to keep Greece in the sweatbox. Greece has effectively admitted that is it politically toxic for them to miss or come up short on pension and salary payments. If the creditors can finesse the IMF default and can stomach funding the accelerated bank run, their strategy for keeping pressure on Greece is to act as if nothing has happened and not accelerate the negotiations or find a way to issue a small emergency payment. How this comes out is likely to reflect the strength of the relative bargaining positions of the Greece hardliners, which are the IMF and ECB, versus the more conciliatory parties, such as the European Commission and the French government. And while Merkel may lean conciliatory, she has yet to take any concrete action.

We’ll see soon enough if the creditors blink. But as you can see, it’s not clear whether they will regard the Greek threats as something they need to take seriously or a move they actually expected.

Update 5:30 AM: Because Ambrose Evans-Pritchard has good source in the Greek government and has been sympathetic to the Greek position, I took his account at face value, particularly since he was quoting anonymous Greek officials. However, I see on the Guardian live blog for April 2 that one of its last entries was a denial that the Greek government would run out of funds on April 9. So is this a tempest in a teapot? A group of dissenters trying to pressure the Troika and Eurogroup?

This means that the negotiations are likely to be on the original track. But the question is who would launch a leak like that, and why would Ambrose Evans-Pritchard (who has ready access to Varoufakis) run it? The plot thickens.

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  1. cassiodorus

    The Greeks appear to be taking their sweet time. Will the bank run accelerate things?

    1. Ned Ludd

      Right now, they are probably running through a list of countries that they hope will save them.

      United States (didn’t work out)
      • France
      • Russia (send apology note for voting to damage their economy)
      • China
      Brazil (political problems)
      • Venezuela (maybe oil rebounds?)
      • Ecuador
      • Iceland
      • Saudi Arabia? If their government buys our public assets, is it really privatization?
      • Bring world map to brainstorm session.

  2. Swedish Lex

    Since Greece got its new government, I have been wondering whether Tsipras & Co. have been preparing contingency plans or not. The new Government style is quite rock n roll so they were either real amateurs without the required runway to get organised and to provide coherent political leadership or, alternativelly, real good poker players, bluffing the global audience with coverage in Paris Match while preparing a rather monumental Drachma operation behind closed doors.

    If they truly have Drachmas and bank nationalisations ready to go, I find it surprising that there have been no leaks on the Greek side. Alos surprised that the NSA’s briefings to the White House about the Greek plans have not resulted in a more pro-active stance from the U.S. Perhaps the Americans have already discounted Greece.

    Tsirpas will be meeting Putin in Russia next week, having moved the meeting forward by a couple of months. Putin has recently lent Hungary, another EU member, 10 bn euro:

    Given how fed up the Greek Government and the Greek people is with the Troika, they could very well chose to go it alone.

    As I have said many times before: Merkel is to Europe, and the world, what George W Bush was to the U.S., and the world, minus military aggression. Otherwise just as disastrous and overrated by their respective contemporaries.

    1. PlutoniumKun

      During the Greek election, I kept wondering how anyone so inexperienced in both politics and active administration could maintain the intensity of a very close and dirty election, while simultaneously making sure they were prepared to govern from day one. Especially as an organisation like Syriza would not have had the resources to employ experienced people to draw up detailed, practical plans for government. I think the answer to this question is now clear – they didn’t have any plans, other than a vague hope that their election would create a surge of political pressure Europe-wide behind austerity.

      On a personal level its very hard to blame them for this – anyone who has read political history knows that in almost every country, it has proven very, very difficult for idealistic newcomers to understand and fight entrenched bureaucratic systems. The most successful political reformers have been almost without exception people with deep knowledge of how to fight behind the scenes bureaucratic battles (or the resources to simply stomp on entrenched systems) – hence (to give one obvious example), Johnson was a far more successful reforming president than Kennedy or Carter. I’m sure there are equivalent examples in nearly any democracy. It is increasingly clear that the Syriza leadership is simply out of its depth at the moment. There are some very intelligent and capable people there, so we can only hope they are very fast learners.

      1. Swedish Lex

        But they could have drawn up exit contingency plans in a bunker somewhere starting day one upon taking office.
        Since an exit would have to take everyone by surprise, at least regarding the timing, it would have to be prepared by stealth.

      2. Tom

        I agree. Reading reports about technical details in the German press you get the notion that Greece doesn not get her act together. And I specifically don´t mean Greece bowing to EU demands. I mean things like negotiators nor contradicting one another, coming up with plausible figures, a.s.o. The impression is of a new government that seems to not have understood what the daily business of governing is all about. Instead there is constant grandstanding, appeals purely made for public consumption, a huge military parade in Athens to show the “spirit” of the Greek people and now they are supposedly drwing up plans to introduce the Drachma. Who is going to believe them? Empty threats might placate Greek voters but are dumb when dealing with sophisticated adversaries.

        1. Tsigantes

          @ Tom
          Well naturally you would get that impression “reading reports…in the German press”. Did you try reading reports in the Greek press? Or is researching 2 sides of an issue simply beneath you?

          Meanwhile I invite you to give exact examples of :
          – the Greek government’s inability to understand the daily business of governing – how? in what ways?
          – the “constant grandstanding” – how, when, what was said?
          – “appeals purely made for public consumption”. Which appeals, for what purpose, when?

          As for the “military parade” – this, amongst other rituals (since March 25 is also the feast of the Annunciation), is how Greece celebrates its Independence Day. Is this objectionable? A proof of moral – or perhaps civilizational – failure?

          The drachma story came from a journalist in London and was taken up immediately by the MSM. Denied by Athens.

          “Empty threats might placate Greek voters but are dumb when dealing with sophisticated adversaries.” That is rich, Tom, worthy of Bild itself. Clearly you are an impartial, well informed observer and have thus ‘earned’ the right to comment here.

      3. Tsigantes

        From Athens.

        First, you impute far too much expertise to the old parties :)

        Second, SYRIZA has been in parliament since 2004. In 2011 there was a huge drain out of collapsing PASOK into SYRIZA, including important, highly experienced, retired politicians from PASOK’s early idealistic days. There are also KKE, ND and DIMAR crossovers. The permanent staff at ministries are composed primarily of SYRIZA voting civil servants, ditto the armed forces and diplomats. The former long time constitutional and economic consultants to previous governments hold party positions. A brain drain into government from all sides. You could in fact say that there has never been such a hands-on experienced and professional government working hand in hand with like-minded ministerial civil servants in post-war Greece.

        I notice on this board that commentators tend to take the anti-SYRIZA MSM and Eurogroup at face value on the one hand and are unable to see what is playing out under their nose on the other. Does SYRIZA have a strategy? To Greek eyes, yes. Is it a clear strategy? Yes, if you look past the noise, smoke & mirrors on all sides. Are they obliged to spell it out for you? No. Did they hit the ground running? Yes – on steroids. More than any other government in Greek history, and certainly faster than the 3 months it took Merkel to appoint her latest cabinet.

        What is the mood in Greece? Very, very calm – cheerful in fact.

        1. Michael

          The disparity in power is clear as well. From my perspective Greece does not have any cards to play other than a default. Germans seem determined to restate that a debt is a debt while overlooking the fraud that was needed to generate the debt. I do not see how anyone will manage to save face if a deal is struck.

          I can not find the poll or I am mixing the British and Greek polls but I believe that a majority of Greeks are prepared to leave the EU. A lot of people on this board seem to think that Greece will never consider leaving the Euro/EU but I do not think that they will have no choice in the end. If Syriza accepts the Troika’s position then it will lose all credibility/power.

          Who can fill that vacuum other than Golden Dawn? From what I can gather they seem to have developed from the Greek Junta. I can not understand why any Greek political party would commit domestic suicide and knowingly give political power to a group that is linked to a repressive military regime.

          Does anyone have data on the % of Greeks on pensions? If Syrina were to cut pensions in order to satisfy a debt program it would lessen any economic expansion or severely exacerbate contraction. If they do not pay their IMF debt but instead pay their pension obligations then that will increase their popularity. It reminds me of when Lula rejected an arms deal in order to spend the money on his Zero Hunger program. He popularity soared in Brazil and leftist circles. Its of course different than a debt obligation to the IMF but spending money on a popular program while thumbing your nose at a powerful country/institution is always a popular measure.

          1. Fair Economist

            Right now the polls show the Greeks are willing to leave the Euro but not the EU. This is a big shift from even a few months ago when they were overwhelmingly supportive of the Euro as well. That would probably be the ideal position for them, judging by how well the UK has done in spite of a starting position on government debt much worse than Spain, a big housing bubble, and painful austerity.

            1. Michael

              Thank you.

              Are they able to just leave the Euro? Could they leave unilaterally leave 3 months from now if they have printed enough drachmas? What happens if they leave the Euro and Greece does not collapse? I personally think it will collapse because Italy and the other debtor countries will have a precedence to work from.

              I’m not intently following these developments. 5 years ago I would read every article I could find but now I have a kid etc..

            2. Yves Smith Post author

              The problem is the legal analyses I have read say the two are linked. An exit from the by treaty “irrevocable” Eurozone pretty much triggers an EU exit (at least there is a very vaguely specified mechanism for an EU exit, none for a Eurozone exit). I’ll need to reread the legal argument.

              1. Tsigantes

                There is a 2 year process specified under the Lisbon Treaty for withdrawal from the Eurozone. It can only be initiated by the country wanting to leave. There is no mechanism for outside agents to force a country out of the eurozone. There is no mechanism to leave the EU (Maastricht and Lisbon).

                These are the rules. But rules have been changed and bent during euro’s history and throughout the crisis, not least by ECB and Germany, despite their mantra of abiding by the rules.

                If the Greek government defaults, it will default within the eurozone. Essentially default inside the euro means “our problem is now your problem”, “over to you”.

                There is no need for Greece to leave the EU and many good reasons to stay – principally in terms of boundaries. As a frontier country the EU EEZ (frontiers) are Greece’s frontiers to the east. Important in terms of Turkey.

            3. Cugel

              Tsigantes, the Troika is insisting on implementing the Memorandum. What chance is there that the Greek people will ever accept that? So SYRIZA does not have the power to capitulate and make it stick, any more than PASOK could. You know better than I all the evolutions of coalition attempts like “Olive Tree” that failed to win any support in which they tried new coalitions only to fail utterly.

              Now Samaras wants to join a “Unity National Government” in which every party would participate in the rape of Greece so that the voters would have nobody to blame. How can that work? There will always be rejectionist parties and politicians, and in the last event if there is no left opposition there is always Golden Dawn.

              Implementing the Memorandum means promising 4-5% surplus. How can that even be possibly implemented when every increment of surplus will contract the economy further?

              If PASOK with 46% support in 2009 couldn’t complete the Memorandum how can Syriza>

              1. Swedish Lex

                “leaving the euro” would in my view be a de facto decision by which Greece unilaterally decides to go its own way and to do its own thing. No time to draft and discuss treaties with the EU “partners” at that point. By definition chaotic.

                As far as I understand, the key short term issue would be Greece’s access to the markets to continue funding itself and the (nationalised) banks. If a unilateral decision to leave the euro has as consequence to isolate Greece financially, it could become tricky. One unrealistic or perhaps realistic suggestion would be that Greece agrees with another state – a new friend, perhaps Russia, – to be financed via that state. Greece can then continue to trade etc.

                And Greece would unilaterally decide not to honor its external debt, at least the part of it that has been built up over the past few years and sent back to the European banks and governments.

                And Greece’s balance sheet would then have improved.

                Then you draft an Treaty.

              2. Tsigantes

                PASOK in 2009 was the beginning of the drain out of PASOK: internal polling showed they had no majority. MOU was pushed through by the technocratic govt of ex-ECB VP Papademas with PASOK, LAOS, DIMAR, ND.

                Don’t be diverted by Samaras. He is a dead duck refusing to step down from the leadership of ND and producing meaningless soundbites. He only became head of ND because more than 80% of the party were split into two bitter camps and voted for him as the 3rd option, something they’ve lived to regret since Samaras is one hair away from Golden Dawn and supported and covered for them. Whether he has destroyed ND remains to be seen.

                IMO Golden Dawn is no threat. Since SYRIZA started fighting on behalf of Greece there has been a huge drain out of the party, which is now polling just above the minimum 3%. If there is a fascist threat in Greek terms it would come internally from Samaras / GD with external help, since the army is firmly SYRIZA. For Greeks (and not only!) the EU’s neo-lib direction, the unaccountable EC and ECB, are more of a ‘fascist’ threat to the health of Europe.

                SYRIZA & ANEL got where they are simply because they were the only 2 parties prepared to stand up and fight. Not because of left-right ideology. Floating voters afraid of ideology voted for other parties just in case, but back SYRIZA’s fight.

            4. /L

              The Euro is mandatory for EU-members in the Lisbon treaty, only the UK and Denmark have exceptions. Members are obliged to do what they can to qualify for the Euro.
              A country, leaving the euro makes a crack in the EU framework that suppose to be keeping this union together.

              1. Tsigantes

                It is only mandatory for new members. Iceland, for example, sent a declaration last month that it will withdraw its membership application LOL; ditto Serbia is dragging its feet :)
                Hungary, Sweden, Czech Republic among others retained their own currency.

                1. /L

                  No it’s mandatory for everyone, it’s in the Lisbon treaty. Only Denmark and UK have a treaty with exception. Sweden avoid by the loophole that it’s voluntary to join ERM II, the last step in the process for the Euro. ECB use to remind Sweden that the Euro is mandatory. But Sweden is largest per capita net payer to EU, EU also know that Swedish politicians want the Euro but there was a referendum where the people said resoundingly No. But despite that no exception have been demanded. Sort of waiting for the right moment to fool the people and join.

          2. Tsigantes

            Greeks pensions:
            I don’t know the percentage of pensioners – apologies – but Greeks have the greatest longevity in the EU. Death at 80 is considered tragically young and requires explanation. My mother-in-law is 102, lived alone with faculties perfectly intact until a fall (after her nightly gin&tonic) on election night, from excitement. After being the oldest person operated on record, she is walking again but living – temporarily – with a companion, chosen for her ability to carry a lively & informed conversation, fresh appearance and, um, nursing skills.

            What I do know is that a stunning 42% of families are surviving on a single pension – this can be up to 4 generations of family members.

        2. DJG

          Tsigantes: Thanks. Syriza’s Thessaloniki platform is highly specific, highly rationale. Yet people want to filter Greece through London and its reactions. Hmmm.

        3. Lambert Strether

          Look, I want to agree, but Nixon had a secret plan to end the Vietnam War, which then went on for four more years.

          So, you write “Are they obliged to spell it out for you? No.” Nobody spoke of obligation. Presumably, however, if the strategy exists it’s spelled out somewhere, and you’d link to it to make your point with evidence instead of by assertion.

          So is there a strategy, or is there only confidence there is a strategy?

          For example, why does it make sense to leak to APE on going to the drachma while not imposing capital controls? How does that work strategically, unless the object is to cause a bank run, and what then?

          1. pascal

            I m not so educated in finance as the general public here, but does not declaring capital controls implicitly make the ECB through the ELA finance the bank run? And if yes, would that be a reason not to control capital, by 1. making the leverage of a default higher by increasing it, 2. supposing a good deal of this money will come back anyway, specially, that from small holders ?

            1. Lambert Strether

              Could be that’s the message they’re sending. On the other hand, it’s a financial message, and uses the Greek people, who would suffer immediate consequences, as pawns. Maybe, since they’re calm, they’re accepting of the possibility.

              1. Tsigantes

                To answer your question “Is there a strategy?” I would say this:
                SYRIZA received a specific mandate, to reverse MOU / Austerity and to stay inside the euro. Staying inside the euro is not because Greeks love it [not!]; but because of the pain of default on top of the present exhaustion/destruction. Of these two ‘commands’ which is non-negotiable? Reversing austerity. So:
                1. Reversing / mitigating austerity
                2. inside the euro.
                Greeks however were ready to agree to:
                3. An ‘honourable compromise’.

                SYRIZA went ahead and started negotiating. What has been the result? A monolithic brick wall of refusal every step of the way. Not only, but also a tsunami of propaganda against the government & its ‘incompetence’, demands for Varoufakis to be replaced, the usual insults about lolling around on the beach etc. and ECB breaking its own rules almost immediately to kill the remaining shreds of the Greek economy.

                Greeks have lived with 6 years of crisis, collapse, economic destruction, rampant poverty, austerity, and NON-STOP propaganda. They are also by tradition politically well informed. Austerity is off the table completely (they know where that leads) and they are immune to insult by now. So what do they see?

                A new government hampered (by themselves) from being able to use default as leverage. A government willing to make an honorable compromise more or less from the start. And in return, total unbudge-able stonewalling and disrespect from their ‘partners’. PLUS ECB applying the thumbscrews from day 1, which brought on board even greek euro-conservatives. Because even euro-conservatives care more about their country (and businesses) than they do about EU. 80% of the country gets behind SYRIZA. This has now dropped to 55% as default looms and fear takes over, but the other 45% is bitterly divided between other +8 parties and at least 10% in parliament (KKE and GD) will NEVER support MOU.
                Leaving only ND, PASOK, and as-the-wind-blows Potami.

                Meanwhile support for the euro has dropped massively. Understand, this is D-day for Greeks. The highest polls put pro-euro [fear factor] at 52%, other polls have pro-euro well below 50%. Meanwhile ECB has bled Greece dry…..and now big payments / T bills have to be paid this month. And SYRIZA is still struggling to stay on the ‘correct’ EU Good Citizen path by doing just that – if they can. And at what cost to ourselves?
                And SYRIZA continues to struggle, always observing Mandate 1….

                It needn’t have been this way of course. However the important factor is that if there is a fault in this life-or-death struggle for Greeks, if there is evidence of bad faith, it absolutely does not lie on our side.

                I hope this helps.

                1. Tsigantes

                  ps. Leaks to AEP.
                  It seems clear to me that this is to put default discreetly back on the table from outside Greece, using the famed ‘alternate voices’ excuse of SYRIZA and a distant London journalist, but in no way coming from the Finmin or Tsipras who firmly deny such an option.

                  What bank run? You persist in thinking there is anything but chump change left in Greek banks :))

                  1. susan the other

                    I shouldn’t even comment because I have no insight at all but this really spins my wheels. The British and the US have been kinda quiet. The US has been extremely quiet even tho’ Jack Lew took a trip to Athens and some Fed people went with him. No assistance has been offered to Greece that we know about. We know that David Cameron hates the restrictions that using the euro creates for British finance. We know there is a faction of lunatics here, mostly the old neocons, who would love a nice little war in Ukraine, regardless of the hardship for Europe. And going way back we know the British insisted Greece join the West when eastern Europe was divided up in 1945. Is this just the death rattle of western finance?

          2. generic

            Issuing a parallel currency not going to the Drachma. I can’t answer the question of whether they have a strategy or not but I don’t really see how capital controls would help if they aren’t planning to leave the Euro. If you leave the Euro you’d basically have to default on everything and grab all the Euro’s you could get by forced conversions. If you default in the Euro the situation differs:
            For one what is the problem as long as ELA is provided? The banks were insolvent before and the Euro side could push them over the edge at any moment of their choosing. If they decide to do so most of the money still in the system will probably be inaccessible/lost so having it stuffed in mattresses might be preferable. According to this analysis of bank of Greece data this might amount to some 9 billion since November. Mattress cash can still be used to pay taxes and buy goods, deposits in insolvent zombie banks don’t do anybody any good.
            Now from an objective point of view ceasing all payments, imposing capital controls and threatening default was probably the strongest move they had at the start of the negotiations, but having been elected by only a minority of the population they needed to bring the rest on board or risk collapse. And whatever little else the negotiations achieved they achieved this. Domestically there is no other game in town and all the concessions Tsipras made will ensure that the Euros would be blamed for any breakup in negotiations.
            I would suggest that is the reason talk of default is getting louder and fundamentally the telegraph article says nothing different than Tsipras already did in his letter to Merkel.

          3. chris

            Most of the big money is out, the money leaving banks now are the little guys. They will be staying in Greece and thus the euros will stay, even if they are in a matress, hence no need for capital controls. Is this possible explanation for the lack of implementing them?

          4. Tsigantes

            Why can’t you see that the moment Greece imposes capital controls the game is over? Essentially there is no money in Greek banks right now except tiny accounts that no one would touch (max limit is 2000 eur for tax authorities, so I mean less) and even the tinies have cash stashed at home. Not to get rich on but to function in case of default. Also accounts with the official running expenses for companies month by month.

            The ELA drip allows some liquidity in the economy. Ordinary people (and tourists btw) can withdraw from ATMs! Thank God! You think our banks have cash on hand to cover all the tiny accounts in case of mass withdrawal? No….NOT imposing capital controls helps ordinary Greek people continue to function, SYRIZA’s voters. The big money left years ago.

      4. different clue

        If Greece controls capital flight, re-issues drachma, other things indicating a genuine jailbreak from the EU, the EU will put the kind of blockade on Greece that the US put on Castro Cuba. The EU will at least try. If the Greek citizens/people/etc. are ready to accept the truth of this and then come to decide that life under a Cubaform blockade is better than the life Europe plans for them, then they will be ready to re-issue Drachma, ready themselves for a Grexpulsion, and be ready to live under War Socialism for years to come.

  3. sd

    Capital controls would telegraph Grexit. And if Greece decides to leave, won’t this in turn trigger bank runs in Spain, France and Italy? Strikes me that the contagion will spread like wildfire.

    1. Ned Ludd

      I think Syriza already telegraphed Grexit. After all, they told TheTelegraph:

      Greece is drawing up drastic plans to nationalise the country’s banking system and introduce a parallel currency to pay bills unless the eurozone takes steps to defuse the simmering crisis and soften its demands.

      If anyone wants the inside scoop on Syriza’s plans, just call them up and tell them that you are with the press. Syriza is The Gang that Can’t Shut Up about what they will do next (which seems to change by the day).

      1. sd

        Under the circumstances, that’s actually a good tactic. A bit of hiding something in plain site.

      2. generic

        That’s still only preparations for default in the Euro. I doubt Ambrose Evans-Pritchard’s Greek sources are happy that he called their parallel currency Drachma.

          1. cassiodorus

            Slow motion drama, to be sure. In the standard political give-and-take, movement on this issue would be faster and either a settlement or a divorce would have transpired long ago.

    2. Yves Smith Post author

      Not necessarily. Greece could have imposed capital controls in response to the bank run in January (which was even faster than now). They would have had an easy justification. They could argue that “the ECB told us to” now which is technically true but has been so for a while if they needed cover. The ECB is getting sick of ELA advances, so this could be spun as an external demand, or to buy points with the Troika. More of a stretch, but still doable.

      1. Tsigantes

        It is 100% up to northern Europe now. Greeks will live with the consequences but will not agree to more austerity.

  4. ErnstThalmann

    The answer here always has been withdrawal from the EU and the creation of a workers state, followed by the public trial of the scum that currently are trying to fleece the Greek people. Connecting with Russia right away can only be a positive step also. We will soon find out if the present Greek government are merely a humdrum repeat of the pathetic, reformist “social democratic” parties now infesting the rest of Europe. Greece needs something more than social fascism at the moment.

  5. Santi

    The fact that Samaras offers a bridge for Syriza to cave into austerity makes it clear that the government is negotiating as tough as they can. It could be read also as a proposal to lead up a government after a coup d’Etat. But I think Tsipras read the situation most correctly when it allied with ANEL.

    1. Tsigantes

      Samaras, like Venizelos, is roadkill, fighting off the demands of his party to step down. At least Venizelos had sufficient nous to declare a deferred leadership vote, and rides out the storm today looking for a way back in ;)

  6. vidimi

    absolutely agree that the threat to issue the drachma is a bluff. for starters, if they were serious about issuing drachma they would keep it under tight wraps in order to prevent capital flight. it’s a strange negotiating tactic: pointing the gun at your temple and threatening to shoot.

    i am tired of trying to understand what greece’s plans are or making sense of their actions. they seem so inconsistent and counterintuitive that i’d rather just watch with interest to see what happens than try to guess anything.

    also, a small correction: most countries only have monday off. other than the UK who have both friday and monday off, i don’t know who else would.

    1. IsabelPS

      Eurocrats have both (it doesn’t mean that they won’t work on holidays if there is an emergency, but it might not be the case).

      1. Yves Smith Post author

        My bad on the rest of Europe is an issue, but markets/businesses being open in Greece isn’t a big deal. It’s the officialdom being on holiday and the markets being closed or on light volume. Of course, the latter can exaggerate reactions.

    2. human

      “it’s a strange negotiating tactic: pointing the gun at your temple and threatening to shoot.”

      It always works for Wall Street!

      1. Ian

        I thought it was just gunning down all the people around you and then stating “we have the guns” to all that is left.

      2. Yves Smith Post author

        You need to be perceived to be systemically important for the Blazing Saddles strategy to work. That is not clear with Greece.

    3. Oakchair

      It is assumed that leaving the Euro also entails defaulting which is pointing the gun at the Eurozone not Greece. Defaulting means Greece no longer has to pay billions to foreigners holding their debt, it means the Eurozone now holds a bunch of worthless pieces of paper.

    4. craazyboy

      Going Drachma is no fun at all unless you also permanently default on $300B of euro debt. Likewise, nationalizing banks may be a necessary procedural step to capital controls – assuming maybe bankers won’t listen if the Greek guv just decrees euros can’t leave the country. This of course works best if it’s a “surprise” announcement coincident with storm troopers charging the front door of all the banks. Be aware that the banks probably have contingency plans to execute algos to transfer accounts of all rich people to Switzerland. To preempt Eurexit, be sure to shut the power down, shoot the emergency standby generators full of holes, as well as any large banks of capacitors you see. Capacitors are your enemy!

  7. Santi

    In the video on this Reuters “Exclusive”, which rehashes the same kind of stuff, I loved the Varoufakis intervention in the parliament. In the fragment he says: “Are you telling me that we’re wrong because we didn’t agree to all those things that the Greek people elected us not to sign? Those things that sent you to the opposition because you promise to do them?”

  8. Jim A

    Hmm…Pondering the paralle currency thing. I suppose they could issue warrants as California did and call them “Drachmas”…

    1. Pookah Harvey

      Varoufakis has been talking about a parallel cryptocurrency TANs for the Euro periphery for the past year

      Governments in Europe’s Periphery are asphyxiating in a Gold Standard-like monetary union that is buffeted by the winds of recession and outright deflation. Their economies are in desperate need of greater liquidity and of a respite from austerity. The problem is that Europe’s leadership is refusing even to enter into a rational debate of the institutional reforms that can render the Eurozone viable again. The question is: Is there something that the peripheral countries can do to give themselves a chance to breathe better and to act as a bargaining chip that will make Berlin, Frankfurt and Brussels take notice?

      The answer is yes: They can create their own payment system backed by future taxes and denominated in euros. Moreover, they could use a Bitcoin-like algorithm in order to make the system transparent, efficient and transactions-cost-free. Let’s call this system FT-coin; with FT standing for… Future Taxes.

      Interestingly there is already software that ties crptocurrency servers to ATM machines.
      So if you have cryptocurrency server and software to tie those servers to ATMs all you need to do is issue currency cards and you have a parallel currency inside the Euro.


  9. DanB

    “The Greeks have a much better case to be made by showing the terrible state of government services, particularly hospitals. It’s mystifying why they have not told that story better.” I think this shows that they remain loyal -a la Albert Hirschman- to the political/economy which the Euro represents. In the health policy arena there are numerous studies showing how austerity has decimated health systems, especially in Greece. Yet all of these studies are ensconced in the box of loyalty to the system. Therefore, the analysis and policy recommendations of these studies assume that if only political leaders could be made aware of the damage and pain they are inflicting they would be horrified and move to restore these health systems. That’s simply not true -politicians value finance far more than the lives of common people -because TINA. This will go on until the leaders of health systems and health policy organizations say the hell with loyalty and begin to use their voice to challenge austerity as both inhuman and systemic. And I fully expect they will continue to wring their hands and soothe their conscience with more loyalist studies as these health systems continue to collapse. Ultimately, it is in their -medical and health policy leaders- own vested interest to remain loyal to the 1% and shed crocodile tears for the 99%; that is, until the 1% get to them, as is now occurring at theUniversity of Wisconsin where, for example, the health sciences budget is being slashed by Scot Walker and the university’s medical and health sciences leadership response is to look for “efficiencies” in their operations.

    1. different clue

      Perhaps the Wisconsin experiment will run its course just like the Kansas experiment is doing. Apparently a majority of Wisconsin voters really did vote for Walker. If other states elect overt anti-Walkers who keep things like Universities somewhat funded, then all the high quality people at Wisconsin’s universities can do a slow stealth-departure for states with smarter governor-choosing majorities.

      In other words, Wisconsin’s Modernians can spend the next few years evacuating the state and leave the Shit Headistani majority behind. And Wisconsin can become a proud beacon-holding lighter-of-the-way for other Shit Headistani majority states as they work to create a multistate region of Shit Headistan.

  10. Tsigantes

    Where did you get this impression from? The crisis in greek medical services has been the Greek crisis’ most publicized aspect after access to food. It is also the one sector with the most external support and solidarity from the profession and NGOs.

    In what way would greek medical services benefit by serving the 1%, most of whom consult doctors abroad? The majority of greek doctors are public servants in a public health system – the same as in the UK, France, Italy, Spain, Holland, Belgium, Scandinavia etc. Not only, but the Greek public health system is held in much higher professional regard, and amongst the population, than private sector medics who are seen as profiteers with questionable credentials and interior decorated clinics.

    Surely you have heard SYRIZA’s platform to raise the wages of public servants? In Europe and Greece, this includes medics. In Greece, doctors wages start way below the 700 p/m average; senior heads of departments barely earn 1000 p/m now. Hospitals & clinics have shut on most islands, and there is a huge brain drain out.

    1. DanB

      I suggest you read what I said again. Just one example: I never said the Greek health crisis was not well-known -rather it amounts to a lot of useless handwringing. I said this framing exhibits loyalty to the status quo and an unwillingness or fear to use the voice portion to criticize the system. Big difference.

    2. Yves Smith Post author

      It may be the best publicized, but the depth of the crisis in Greece isn’t as well recognized as people inside Greece think it is. The government keeps using the term “humanitarian crisis” which while technically accurate, is also bloodless. People react to anecdotes. More references to human costs in human terms by government officials would help. This is Greece’s moral high ground and officials should thump on it every time they have the attention of the media.

  11. JTMcPhee

    Speaking of Greece — Anyone else a “Dune” aficionado? Remember Liet-Kynes, the very powerful planetary ecologist on Arrakis, a planet suspended as the crown jewel from which a whole galactic political economy was inferred under the simple mandate that “the spice must flow?” Overtaken by Imperial machinations, beaten and dropped without a functioning stillsuit in the deep desert? Being lectured in extremis on the sources of his errors by the ghost of his father, predecessor in office? Then noting he was about to be killed by a “spice blow,” a biological imperative in the spice cycle, and realizing as he dies that his father the didactic know-it-all control freak was fundamentally wrong: “The most persistent principles in the universe are accident and error.”

    Herbert was realistic/pessimistic enough to string out his thought experiment to conclude that humans can’t even be saved from entropy by an all-knowing, nearly immortal, all-powerful God-Emperor.

    Interesting that Frank Herbert chose a Greek lineage, the Atreides,, as his heroic narrative axis, and the Finnish/Northern European “Hardonnen” lineage as his evil axis… Too bad the common spices used in Greek cuisine aren’t as monetizable as the fictional “mélange.”

    1. Kurt Sperry

      Speaking of Spice, I don’t know if the political climate in Greece would allow it but if Greece withdrew from treaties prohibiting it and allowed unlimited full scale commercial farming of cannabis, as opposed to the decriminalization currently in place in Spain and Portugal and put a tax equal to perhaps half the black market street price they could raise a *lot* of revenue as the first country in Europe to do so. Just produce 20x or 100x the amount that demand exists for domestically and let the magic hand do the rest, they’ll be flooded with Euro currency. If they are pushed out of the EU as well as the EZ, it’d be almost stupid not to do so.

  12. docG

    “The town had a gaunt untidy look, roads and buildings were in poor repair, the
    streets at night were dimly lit for fear of air–raids, the shops were mostly
    shabby and half-empty. Meat was scarce and milk practically unobtainable, there
    was a shortage of coal, sugar, and petrol, and a really serious shortage of
    bread. Even at this period the bread-queues were often hundreds of yards long.
    Yet so far as one could judge the people were contented and hopeful. There was
    no unemployment, and the price of living was still extremely low; you saw very
    few conspicuously destitute people, and no beggars except the gipsies. Above
    all, there was a belief in the revolution and the future, a feeling of having
    suddenly emerged into an era of equality and freedom. Human beings were trying
    to behave as human beings and not as cogs in the capitalist machine.”

    George Orwell, “Homage to Catalonia.”

  13. Pookah Harvey

    Varoufakis has stated that Greece will prioritize IMF payments . “We shall squeeze blood out of stone if we need to do this on our own, and we shall do it.” However, “the ECB repayments are in a different league and we shall have to determine this in association with our partners and the institutions”. I would guess that the serious discussions on default will come when payments are due on Eurozone debt.

    In the meantime Syriza continues with humanitarian actions.
    “Greek Prime Minister Alexis Tsipras said a 5-euro fee to access state hospitals had been scrapped and 4,500 healthcare workers would be hired, the latest move by his leftist government to ease what it calls a humanitarian crisis in the country.”

    “The move is likely to further endear Tsipras to austerity-weary Greeks but represents yet another potential outlay by the cash-strapped government at a time when its European and IMF lenders are demanding a commitment to fiscal rigour”.

  14. alex morfesis

    no capital controls required

    there are not really any brokered deposits in greece so who would be pulling out their money that has not already done so ?

    I think people tend to forget the large level of shipping industry involvement of the general population…at least half the population has either a relative or a friend who either lives or has assets outside of greece. There is no reason for a bank run…whatever money is there is being held by those who either have enough assets outside of greece or who are not leaving, no matter what…as to the current purported loss of deposits, it is a combination of concerns for any possible capital controls in the future (ie- argentina style withdrawal maximization) and arbitrage by buying DOLLARS AND POUNDS, not euros…just in case the ECB tries to attach “greek” deposits…

    again…my personal objection to getting out of the euro is that today, in the real world, the human capital is not in place to help greece long term…short term any burp up would be a disaster lasting possibly 6 months…and then it would stabilize…the question would be can the adjustment period have a good or disturbing effect on the summer 2015 tourism season…over the following 5 to 7 years, being out of the euro would be good, but sooner or later, there will need to be some reintroduction to capital markets…and dealing with the debts outstanding…

    what is confusing is why there is no discussion on how the choices made by greeces own troika of papandreou, karamanlis and the bavarian greek royal family/junta crew which was, even though sloppy and mismanaged, predicated on the introduction of Turkey into the EU and the actions of Germany and France to keep out Turkey would always lead to this current disaster…the three stooges were expecting a big bounce of positive economic growth with Turkey inside the EU…is it too impolite to bring this up ???

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