Greece Throws Away One of Its Eurogroup Memo Wins, Submits Reforms Reaching Up to a 3.9% Fiscal Surplus

One of the things we’ve stressed is that the Greek government’s repeated claims that it is submitting an anti-austerity reform package is untrue. The Greek government committed to achieving a fiscal surplus of 1.0% to 1.5% and has separately said it will always run a fiscal surplus. We have stressed that running a fiscal surplus is an economic dampener, and is even more damaging in a severely depressed economy like Greece.

One could argue that Greece still got a win in the Eurogroup memo of February, in which the agreement stated that the fiscal surplus target for 2015 would be reassessed in light of current conditions. Most observers took that to mean that the scheduled increase to 3.0% was officially off the table, and that that was an important success for Greece. Mind you, the 3.0% goal was widely recognized as unrealistic, but Greece was relieved of the need to make concessions to have it reassessed. But is also important to recognize that this was a qualified gain, since the 1.0%-1.5% target is still austerian.

Greece submitted a new version of its structural reform package yesterday. Peter Spiegel of the Financial Times received a copy and reported on it. His article focused on the state of play, that while the working relations between the two sides is improving, the creditor side still sees the draft as needing a lot of work before anyone can make a decision. The International Business Times reports that its sources say Spiegel’s recap of the latest document is accurate.

From my perspective, Spiegel held a real stunner back till close to the close of his article:

Despite demands from Athens that it should be allowed to reduce its primary budget surplus target — the amount of revenues minus expenditures when payments on debt interest are not counted — the document says the measures could mean a surplus of as much as 3.9 per cent of economic output, which is above the programme’s current 3 per cent target.

So if the Greeks are negotiating in good faith, they are committing themselves to more austerity within 48 hours of Tsipras telling the Greek parliament he would not agree to recessionary measures. I suppose that it technically accurate. He’s volunteered to implement them instead.

Now there is a way the negotiators could come to similar numbers without this being as bad from a negotiating perspective as it appears. The positioning would be, “Look, we know you doubt our estimates of how much we can achieve via improving tax collection and government savings. We’ve allowed for your doubts in these numbers. You can see we still have a lot of room so that even if we come short of what we think we can achieve, we’ll still hit a very respectable fiscal surplus level.”

The danger of putting such a high fiscal surplus level as a possibly attainable goal is that Greece has just suggested that they think it is reasonable to achieve it. They’ve just handed their opponents a huge bargaining chip.

Now it may be that the Greek side was putting forward such a bold promise to try to finesse the fact that it is trying to make some of its other reform measures more aggressive, as in more costly and/or more at odds with the existing structural reform program. Again from the Financial Times:

Although the submission marks another effort by Athens to meet eurozone concerns, the measures are similar to Friday’s initial effort and fail to address several issues that bailout monitors have insisted on, including an overhaul of the Greek pension system and greater labour market liberalisation.

Indeed, the proposal appears to reverse reforms in several of these areas. The document includes €1.1bn in fresh spending this year, more than half of it reinstating a so-called “13th pension” — an extra month’s pay — for low-income pensioners. The document suggests that change would add €600m this year.
It also would suspend a so-called “zero deficit clause” that would force more cuts to state pensions; the measure would add another €326m this year.

And while the document includes five separate measures under the heading “labour market reforms”, they include a gradual increase in the minimum wage and strengthening collective bargaining — both measures that would tend to undo reforms adopted earlier in the rescue programme.

Still, the document includes concessions to eurozone authorities, particularly in the area of privatisations. Some government ministers from the far left of the governing Syriza party have publicly stated that all privatisation of state assets would come to an end.

The only problem with that is that these changes are coming after Greece submitted reforms last Friday. At this point, particularly given the urgency of Greece’s desire to get the €7.2 billion bailout money, Greece should be providing more detail and backup for its proposals, and not making significant 11th hour changes. This at a minimum slows the process, and also raises doubts about competence and good faith.

It’s distressing to see the Greek leadership get in its own way. While the government still is popular, its approval ratings for its negotiation stance have fallen from 80% to 55%. Moreover, public concerns about a Grexit have risen. While readers correctly point out that voters don’t support leaving the Eurozone, that view is to a significant degree the government’s doing. If Syriza leaders really believed a Grexit could be a positive step, or at least was a superior alternative if the creditors were unreasonable, they could have made efforts to persuade citizens. The poll results reflect the government having taken that option off the table and stressing their desire to remain in the Eurozone.

The creditors have been unwilling to change their schedules to accommodate the latest submission by Greece right before the Good Friday/Easter holiday. Greece’s financial crunch is imminent. It seems likely that the Troika will continue to keep Greece in the sweatbox, continuing to give bare minimum increases in the ELA even if Greece fails to roll its T-bills on the 14th and 17th (the logic being the negotiations are still on) and thus is in default on those obligations. The way for them to wring more concessions out of Greece is to deny the government funding for long enough so that it is in danger of or actually does come up short on government salary and pension payments. That has the potential to do enough damage to the government’s popularity as to make it more willing to give ground.

It would be better if I were wrong, but the creditors are concerned about the costs of giving what they see as too many concessions to Greece, since other periphery countries will demand the same breaks. And they certainly act as if they are unfazed by the prospect of Greece running out of dough in the next two weeks. Stay tuned.

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  1. cassiodorus

    Well OK. We wait two weeks, Greece runs out of Euros, and we find out which side they’re on. Tsipiras and Varoufakis are perhaps like Greek versions of California’s Governor Jerry Brown: starting out by trying new things and by saying futuristic things, and ending up as conformist corporate conservatives.

    1. Ned Ludd

      As long as neoliberals vociferously attack Syriza from the right, people in (and out of) Syriza will view Syriza as being on the left – no matter what policies they enact. Obama probably views himself as being on the left-most border of what is possible in the U.S. since the right continuously attacks him for being too left-wing while the left is largely quiescent or supportive.

      It is tempting to wonder what a politician believes in their soul; but a well-meaning leftist can sell-out just as easily as an opportunistic charlatan. Every compromise with power will seem “reasonable”, if it keeps you in power so someday you can do the right thing.

      1. cassiodorus

        And then you have the so-called “Left,” pretending that suits such as Obama are one of them:

        The supposed contest between “Left” and “Right” in global politics is really a contest between competing factions of a conservative continuum. Conservatives vary according to the different versions of the preservation of the status quo which they support. If they pretend to be liberals they find other conservatives to blame for that which they do themselves, and that’s the secret of being a liberal. See e.g. Obama and the sequester:

        1. Cugel

          What makes Yves think Syriza could convince the people that Grexit would be anything but a disaster, when that’s exactly what it will be? They will not be permitted to recover their economy outside the Eurozone. The Troika always had the power to crush the Greek economy. Syriza’s only hope from the beginning was that they would see that step as self-defeating, and/or that significant outside pressure would prevent them from forcing Greece out of the Eurozone and withdraw support for the ELA, causing destruction of the Greek economy. Clearly, they have proven they are completely willing to do just that and weather any negative blow-back in their zeal. They think they’ve got it all contained. . . when in reality it’s contained like Fukushima.

          Syriza is in an impossible negotiating position because they campaigned on remaining in the Eurozone and ending Austerity, and the Troika refused from day 1 to permit this. They would never have won the election on any other basis. What are they supposed to say now? “Grexit won’t be so bad!” Reality: It will bring catastrophic and sustained economic collapse, and the Troika will do everything in their power to make sure that the Greek economy never recovers – that Greece become like some some failed African state, under military rule. The billionaires like Warren Buffet have already written off Greece:

          “(Reuters) – Warren Buffett, the billionaire chief executive officer and chairman of Berkshire Hathaway Inc, said Tuesday that an exit by Greece from the euro zone could be constructive for the region. . . . If everybody learns that the rules mean something and if they come to general agreement about fiscal policy among members or something of the sort, they mean business, that could be a good thing,” Buffett said.

          That tells you everything you need to know. The arrogant blindness among the top 1% is total. The only hope for Europe and the world economy is that rejectionist parties will rise in other countries like Spain and ultimately Italy and France, and force the Germans to abandon their Austerity madness. But, Greece is clearly going to be sacrificed long before that can happen.

          Syriza can spin it any way they want, but there is simply NO WAY for them to build support for continuing the Memorandum. The KEY POINT: The Greeks are judging and will judge their efforts the same way they judged PASOK, by results. If PASOK couldn’t deliver, how could Syriza? The decline in their support will continue if they reach a final agreement that does anything to extend austerity. They may believe this is the best they can get in a bad situation because no international support has been forthcoming. But, they can’t implement 3.9%. They could promise 20% surplus with as much real hope of implementing it.

          As soon as the reality sets in that the death spiral will continue, their support will collapse. What the Troika can’t understand is that NOBODY can implement the Memorandum. It can’t be done short of a military coup and permanent martial law. I suppose that could happen, in which case every young Greek will flee the country.

          But, the Troika plan to “discipline” the Greeks will simply lead to chaos and bloodshed. The Euro is already falling towards parity with the dollar due to fears about a possible failure to stop Greek default. What will happen when the ELA support is withdrawn and the Greek economy collapses? Who will want to hold Euros then? Will there be a run to the dollar as the safer currency as investors all over Europe take stock of the possible long-term failure of the Eurozone?

          Warren Buffet doesn’t think so. He clearly thinks that it will be “good for Europe” for the stupid little people who believe in Democracy to find out who makes “the rules” that “mean something.” They’ll learn that lesson of course. But, as in the 1930s the result will not be pleasant.

          1. cassiodorus

            Leaving the Eurozone may be a disaster for Greece, but it will be a disaster in which the Greeks will have control over their own currency, which will be a definite plus in the coming humanitarian disaster (which will happen anyway, especially given that the Greek government just signed on to run a 3.9% surplus). Right now they don’t even have that.

          2. Georgie Welchade

            Cugel, obviously you have not heard about the Greek ‘impossible triangle’ have you ?
            Check it out and we should talk a lot about it.
            Fair enough ?

          3. Calgacus

            Cugel:What makes Yves think Syriza could convince the people that Grexit would be anything but a disaster, when that’s exactly what it will be? They will not be permitted to recover their economy outside the Eurozone. The Troika always had the power to crush the Greek economy. … What are they supposed to say now? “Grexit won’t be so bad!” Reality: It will bring catastrophic and sustained economic collapse.

            Really? How? Is there going to be an armed invasion of Greece? Are there going to be Iraq-style sanctions imposed? What precisely is the Troika’s power over a Greece that said goodbye? The answer is that these things are not going to happen, and the Troika has no such magical power. It is already doing what it can to make Greece’s economy scream – and its primary weapon is convincing Greece to hurt itself. Grexit would be a blessing to Greece. The indications are that after a short changeover, Greece’s economy would thrive. Varoufakis is groundlessly pessimistic, Yves is yet more pessimistic and I am surprised to hear criticism of Yves as not being pessimistic enough!

            German Native Speaker, who posts here occasionally is quite right that Greece has something to learn from Germany. The primary one is that Greece should decide to grow up enough to not listen to ravings aimed at convincing them of their own impotence, no matter which finance minister they come from. Greece, like Germany needs to decide to take control of its own destiny, and realize it always was in control. Why doesn’t anyone prophesize that the magical blows of the almighty Troika would destroy poor Germany if it left the Euro? Not much sillier than the Grexit bogeyman. The mark was strong, Germany was strong, Germany is an industrial, export powerhouse – because Germans decided it would be – and worked at it together. Not because Germans relied on mystical forces emanating from all-powerful (hah!) international banksters.

        2. hunkerdown

          The secret of being a liberal is to deny that it’s a right-wing, pro-capital, anti-democratic ideology.

    2. MyLessThanPrimeBeef

      Has governor Brown been skipping his Zen meditation sessions?

      I think he should focus full time (as 24/7) on that.

        1. MyLessThanPrimeBeef

          I searched the article and did not find a single reference to Zen.

          Chan, what they used to call Zen in China, went out of business, but survived in Japan, because people in the Middle Kingdom babbled nonsensical stuff to make themselves sound Zen-ish or like Zen masters. So, yeah, it was and still is easy to fake (It’s how you shout out your response to a koan. Kwatz!!!!).

          1. cassiodorus

            Wikipedia doesn’t have to tell you that some of the Japanese who invaded China were Zen Buddhists. You can assume it. I only used that reference to illustrate what the second Sino-Japanese war was.

            1. MyLessThanPrimeBeef

              It was an ugly chapter in their history and world history.

              I agree there, but I guess I got confused with the linking of an article about “the second Sino-Japanese War offered a full illustration of the nasty purposes to which Zen can be put” – which I don’t disagree, though I think most people don’t immediately connect Zen to that, and I believe it’s a particular point you would like to make, which can be educational – that is about the war, but nothing specific Zen. I guess I was looking forward to something to show that point, not just to assume it.

  2. Gerard Pierce

    What is left out of all of the “debate” is the fact that reality has a known liberal bias. All of the negotiations, in good faith or otherwise, keep the actual numbers upfront where they cannot be ignored.

    Greece may not have a bargaining position, but the more Germany and the EU continue the economic war, the more obvious it will become that austerity doesn’t work and is in the process of destroying the economy of most of Europe.

    There comes a point where France and Spain become the major issue, even in the absence of current elections. This leaves Germany with the necessity of kicking dirt over the whole smelly mess and coming up with a different form of pretense – one that lets Greece survive while pretending that they are not pretending.

    1. cassiodorus

      Reality has no liberal bias because liberals are conservatives with nice optics. It is already obvious that austerity doesn’t work. Why do you think it persists?

      1. Robert Dudek

        Austerity persists because the masters know that in a world of dwindling resources, they need a way to grab an increasing share of them without the masses fully understanding what is happening.

  3. Dimitris P.

    It is noteworthy that while, since November, Eurozone politicians and analysts were saying that grexit would not cause much harm to the Eurozone recently observers and analysts are shifting to the view that a grexit might be a welcome event! Hm!

  4. Tree

    People just don’t understand the nature of the neoliberal game. If you sit at their table they always win. You eventually need to get up and leave, or you are the greatest fool.

    I never thought an Adam Sandler clip would be educational, but just imagine that little kid is… I think you can figure it out.

  5. Samuel Conner

    A more sympathetic to Syriza leadership interpretation is offered by Ilargi here:

    He thinks that an agreement that violates Syriza’s election mandate will be tested with the people via referendum, with the alternative of Grexit in view. On that theory, the seemingly inept negotiations have been about demonstrating what hard-***ed bastards the other side is. It that is right, perhaps Grexit has been the goal all along; why put a lot of effort into complying with the bailout terms when you know that is not going to work?

    1. Yves Smith Post author

      *Sigh* A lot of writers want to rationalize what the Greek government is doing because the creditors are insisting on austerity and dubious structural reforms. But the fact that the creditors are ugly does not mean that the Greek government is doing a good job. I like Ilargi and had to refrain from shredding that post.

      The Greek government has not done any messaging to overcome the public doubts about a Grexit. The government did not impose capital controls, which would have given it way more bargaining room with the creditors. The bigger the deposit hole, the more money the government would have to print in the event of a Grexit. Varoufakis also has a long record of saying a Grexit would be a disaster for Greece, so it is extremely unlikely that the government strategy is to force a Grexit.

      1. Georgie Welchade

        The only important point I agree with Yves on this aspect of the Greek mess is that they should have established capital controls a long time ago, like a week after stepping into office.
        By not doing capital controls they have unnecessarily lost LOTS of bargaining room.
        Apparently no one in Syriza (let alone YF) studied the details of Argentina’s meltdown in 2001.

  6. Lakshminarayanan

    “if the creditors were unreasonable, they could have made efforts to persuade citizens”

    This has baffled me all along on what Athens wants to do. If they wanted to really quit the Euro, I am sure that getting the citizens to your side once you have the propaganda machinery on your side (by virtue of being the ruling party) is just about reading Goebbels, who did quite a feat of it.

    1. NotTimothyGeithner

      What does Syriza want? waited? and will want? Did Syriza believe the problems with the Troika stemmed from the previous Greek governments accommodating nature or personal views on austerity?

      I know a local Team Blue type and retired history professor who told me that he thought the Republicans would really want to work with Obama in 2009 to pass a positive agenda. The man made up a whole deranged scenario based on fantasy of what would be easiest, not what was practical. After a few minutes of waffling, he brought up JFK as if it would shield his claims. Fortunately, I despise the Kennedy clan. The worst part is I live in Virginia, so we saw the same dog and pony show play out with then governor Kaine and the GOP in 2007.

      Getting back to Syriza, I think Syriza believed in the EU and look at it through rose colored glasses. Yes, they could see the cramming so of the previous Greek governments on display, but the ugliness of the Troika and so forth may not have been obvious in person to EU believers.

      Assuming they understand the situation and know Merkel’s heart won’t grow three sizes, what does Syriza do? De
      Gaulle isn’t walking through that door which means they need to agree before a message can be pushed. After all, Goebbels served Hitler not a mass polity.

  7. Gaylord

    Tsipras’s April 8th meeting with Putin in Moscow could be a significant turning point. I imagine he will try to walk a fine line between economic and perhaps military cooperation with the Kremlin and maintaining a favorable relationship with the US and EU, given the conflict in Ukraine and the economic sanctions against Russia. In fact, Greece could even become an honest broker for peace behind the scenes, given its geo-strategic importance both militarily and in terms of future energy (gas) transfer to the EU, and given its sympathy for Russia in antipathy toward the sanctions and other threats from the West.

    1. Yves Smith Post author

      As we’ve said elsewhere, the Russians have no interest in funding Greece, particularly now when Russia is in economic stress and has vastly higher geopolitical priorities. Plus Turkey is a very important ally. The Turks and the Greeks hate each other, so Russia has more to lose than gain on that front alone if it were to offer to help Greece in any meaningful manner (if/when Greece becomes a failed state, that equation would change, since Turkey might put up with Russian help as stabilizing Greece). So on that front, all Russia would offer is token gestures. The idea that the Greeks will get anything more that a photo op and may some vague promises is a fantasy.

      1. John Jones

        Plus Turkey is a very important ally.

        Why is Turkey so important to Russia? Can you expand on why Turkey is a very important ally?

        1. Georgie Welchade

          Yves might have her own reasons, of course.
          Still, please allow me to point out just one (well, actually, it’s two) : Bosphorus and Dardanelles.

          At any rate, as I have explained in detail many times (including in this same thread below) I don’t agree with Yves regarding the Greek chances of getting Russian support.

          Getting back to Turkey’s importance to Russia, by taking a quick look at any world map it’s easy to see that as huge as Russia is (believe it or not, just check it out) if it weren’t for Bosphorus and Dardanelles Straits (both in Turkey) Russia would be a land-locked continent.
          All other surrounding seas and oceans are either water to nowhere or just about impossible to go through 11 months of the year.

          That’s also why Crimea (and its ports) ar so important for Russia.
          Check out any Black and Azov Seas map.

          1. John Jones


            I am looking for Yves opinion. But thanks for offering yours as well. I appreciate it.

            Yes I think what you say is true.

            I remember reading something roughly. It was about during the wars between Greeks and Turks before the Turkish state was formed. If the western powers couldn’t control the Bosporus, Dardanelles Straits and wider Constantinople area. They favored the Turks controlling them. But never the Greeks. Despite a sizable Greek population there. Because of fear Greece would become a stronger competing state in the area to western interests and also ally with the Russians and allow them passage.

      2. norm de plume

        ‘the Russians have no interest in funding Greece, particularly now when Russia is in economic stress…’

        I would add ‘and Greece is saddled with unpayably huge debts’

        But what if Putin says to Tsipras ‘default and/or exit and we will help you through the chaos that follows’, thereby avoiding the millstone of that debt?

        ‘and has vastly higher geopolitical priorities’

        But surely action to assist Greece to secede from the abusive EU can be made to serve those higher geopolitical priorities. With Germany marching in lockstep with the US on the continuation and even expansion of sanctions, wouldn’t the potential for a Greek pivot to Russia after a painful (esp for German and French banks) default be a possibly decisive factor in German deliberations vis a vis NATO/US demands? Particularly given the chance that such a move might sway other depressed EU debtor countries to look at doing the same?

        Russia might not want to conquer (that would be us) but dividing would have upsides; i.e., reducing the scope for it to be conquered by a US led coalition of the less-than-willing.

    2. Georgie Welchade

      As you’ve rightly indicated in a previous thread…” Greece is a mess“… which could be taken advantage of.
      “You should never let a serious crisis go to waste… it’s an opportunity to do things you think you could not do before.” (Rahm Emanuel)

      Now then, how about Russia throwing a monkey wrench inside Europe’s already puffing engine by threatening to help out Greece (and itself) right NOW, not later ?
      Helping Greece and complicating Europe’s game re Ukraine, ISIS, etc., works in Russia’s favor. Having Greece turn anomic here and NOW would only mean a massive threat at Europe’s doorsteps.

      Possibilities :
      Russia could transfer to Greece its (heavily discounted) Ukranian bonds for full nominal payment of Greek debt to the IMF. How about Russia getting a jumbo-size military base in exchange ?

      What if Russia invested in Greece (jobs) starting with the now re-directed massive Russian gaspipe through Turkey right up to the Greek border, plus other required infrastructure.

      How about Russia buying Greek stuff, particularly in view of Europe’s sanctions that today don’t allow Greece to sell Russia.

      By having Greece still within the EU, it can veto against the TTIP which Russia does not want.
      Interesting times.

      1. Georgie Welchade

        Greece can also offer Russia tons of deep-sea oil and gas exploration business in the Ionian Sea…

  8. generic

    It would be better if I were wrong, but the creditors are concerned about the costs of giving what they see as too many concessions to Greece, since other periphery countries will demand the same breaks.

    I wouldn’t put it like this. More important are the electoral fortunes of the two established political families. Rajoy needs to present his people with a choice between his fake recovery and starvation. Otherwise halve his cabinet might land in prison. It’s not as stark a choice for Merkel but still the only domestic political force threatening her dominance at the moment is the AFD which strives on BILD anti southerner propaganda.

    It seems likely that the Troika will continue to keep Greece in the sweatbox, continuing to give bare minimum increases in the ELA even if Greece fails to roll its T-bills on the 14th and 17th (the logic being the negotiations are still on) and thus is in default on those obligations.

    This part I agree with very much. That’s also how I read the Eurogroup communications strategy. The harping about lack of details in the Greek proposals avoids having to make any statements on the substance. Play for time and make it look like the problem is leftist incompetence instead.

  9. Disturbed Voter

    It seems the larger agenda is “chaos capitalism” … and that plan is going ahead swimmingly ;-( In a room full of pathological liars … is there any reality to be had? Greece has been a soccer ball kicked around between the neocons and neo-libs since 1945 … I don’t see this ending in the near term. The real economy is fuel and food … as long as they have those two, then Greece is not a failed state. However it may be the general plan to make Greece into a failed state like Libya, Ukraine, Syria, Iraq, Yemen etc.

  10. MyLessThanPrimeBeef

    Sounds like they put pensions before privatization.

    Wish our government would take care of seniors, all seniors, like Syriza.

  11. Oakchair

    Yanis Varoufakis Greeks financial minster has said if they don’t get a deal Greece will adopt bitcoin. I’m not sure why anyone would go with bitcoin over the Drachma considering Greece can’t and wont control bitcoin when they could control the Drachma. Maybe its just a transition out of the Euro until Greece can set up a Drachma.
    If this is something that ANEL and Syriza would pass then its a good sign.

    1. hunkerdown

      April Fool!

      One can use the Bitcoin software with own servers, keys and wallets in parallel with the official Bitcoin system, if one is so inclined. That said, Bitcoin has its 51% problem: any one northern European nation has easily enough CPU power on tap to override the ledger of a nation as small and “underdeveloped” as Greece.

  12. docg

    With all the talk of “extend and pretend,” why should anyone be surprised by the current crisis over the Greek economy? All Ponzi schemes eventually break down, and the current situation in Greece looks like the first sign of that, at least as far as Europe is concerned. It stands to reason that Greece would come first, because it is clearly the most vulnerable victim of this absurd scheme. Even if Greece gets its “bailout” (which imo it will, in spite of everything), the pretense of normality can only be extended for a very short time before yet another bailout is required, either for Greece, or Spain, or Italy, or even France. The idea that a large segment of the world economy can persist on the basis of loans, loans and more loans, and new loans to pay back all the old loans, in the hope of keeping all those balls floating in the air by blowing bubbles, is insanity. And, judging from what is now happening with Greece, which is entirely understandable and in fact inevitable, we will be entering a completely new economic AND political arena very soon, and on a worldwide basis.

  13. john c. halasz

    While I appreciate your bird-dogging of the Greek crisis, Yves, I think your rather dour take often misses some marks.
    For one thing, the Greeks must operate under a very tight series of constraints. Thus citing Billy Mitchell’s wild MMT fantasies is irrelevant. The fact of the matter is that Greece has a huge external debt and can’t possible run a current account deficit. Given that, they must run a government primary surplus, insofar as the other two domestic sectors can’t be net saving under current conditions. But lowering the primary surplus required nonetheless has a multiplier effect, if not a salvific one, since multipliers work in both directions, up or down, and, in a severely depressed economy, are likely much greater than “normal”. Further, the 3.9% surplus that has just now surfaced should ignore compositional effects. Much of the claim results from increased tax enforcement, a magic asterix, yes, but one largely not coming out of the hides of ordinary Greeks. And the notion of a “balanced budget multiplier” shouldn’t be discounted, neither in its economic, nor political effects. And the Pireaus port deal with the Chinese might actually be worthwhile, since it is fire-sale prices that are the objection and apparently the Chinese bid is 500 mn Euros. China can afford to bid top dollar because they are now largely paying in $ against a depreciated euro, and, since they are already operating in the port, they might have built up some cred. Likely the sticking points are over how much regulatory authority the Greeks will maintain, since privatized monopolies without close regulation are always a bad idea.

    Capital controls have been mooted by the other side, and since I assume the Syriza economists aren’t dummies,- (it’s a fairly deep bench),- likely the refusal to impose them is a deliberate strategic decision. Because to do so would signal a preparation for “Grexit”, and because, were that to occur, the withdrawn euros would likely flood back in, stabilizing the depreciation, (regardless of domestic distributive consequences), and because, with “Grexit” comes default, and the space for recapitalizing and nationalizing the already insolvent banks in the new currency would actually increase. What is more, to remove or attenuate the threat of “Grexit” would weaken the game of “chicken” that is being played. The Troika might pretend that they are immunized from the consequences, but that relies on a confidence in risk as opposed to uncertainty, which is part of their delusion. Perhaps, paradoxically, it is to the advantage of the Greek position to increase the risks, thus uncertainties, rather than kow-towing to the austerians’ premise.

    Vaoufakis has claimed that exiting the euro isn’t desireable because it would not only damage the Greek economy, but damage their European trading partners as well, which would be a double-whammy. The Troika doesn’t seem to see the potential damage to their own prospects and might want to call his bluff. But actually Greece doesn’t have much export capacity, so whether their trading partners are damaged or not, whether the euro appreciates or depreciates or becomes increasingly volatile, really doesn’t effect the domestic Greek economy all that much. Either way, the Greek economy will have to grow from domestic endogenous sources or not at all. And the legal mechanisms for are unclear, so the calculations for any clean break are indeterminate. Hence, regardless of whether Varoufakis is right or not, the obfuscation about the issue doesn’t really weaken the Greek hand.

    Finally, what is really infuriating about the whole business and especially the “messaging” is the fact that, by agreeing to the (non-)bailout program, Greece effectively saved the EZ. It was obvious to me and lots of others that in early 2010 the Greeks would have been better off defaulting and exiting the EZ, which would have resulted in a sharp deep depression, but also the possibility after the chaos of a sharp recovery. Instead, they got a slower depression with no prospect of any real recovery. And leaving now would have a further chaotic and depressive effect on top of the rest. But had the Greeks defaulted and exited in 2010, the contagion would have been such that the entire EZ would have unraveled chaotically. But neither the Greeks, nor their overlords seem to broadcast or acknowledge that “moral” point.

    1. jonf

      I may be confused but isn’t it true that if the foreign sector and the private sector are negative then the government sector must be positive by definition? Is that the situation Greece is in now? If so they would want to increase tax collections to take some pressure off the private sector. And I would presume also to discourage imports. That situation would seem an anomaly. How in the world can Greece afford to import?

    2. norm de plume

      ‘the Pireaus port deal with the Chinese might actually be worthwhile, since it is fire-sale prices that are the objection and apparently the Chinese bid is 500 mn Euros’

      No, one period’s fire-sale prices may be another’s market top. That is essentially irrelevant, because the boost to the current bottom line is a one-off no matter how big it appears to be. The objection is, or ought to be – if that port is potentially profitable enough for a firm from China or indeed anywhere to spend that much dough on it then it obviously has durable long term income-stream prospects that a prudent owner state should take steps to lock into public ownership, to help buttress national bottom lines from here to eternity, not just to keep a wolf at bay right now.

    1. mpr

      Santi – thats a very interesting piece. The telegraph has had some of the best reporting and commentary on the situation.

      Actually that piece, once again highlights, a fundamental misunderstanding of the situation by this blog, which, ironically, seems to be shared by the EU/Troika. The logic seems to be that since Syriza has taken Grexit ‘off the table’, they will have to knuckle under, and therefore had better do so sooner rather than later. In particular, all the manouvering since the Eurogroup agreement has been a waste of time.

      The truth is that, far from Grexit being off the table, T&V have always been very clear that there are certain red lines they will not cross, and by implication that they will choose Grexit over crossing those red lines. Indeed they have a faction for whom Grexit is the desirable outcome. The piece you linked reiterates this point, but they have been messaging it furiously for for the last two months. It isn’t clear to me why this has been missed by much of the mainstream media.

      1. docg

        I haven’t missed it. They have denied any interest in Grexit because they want to make sure that if it happens the blame will fall on the Troika’s heads, not theirs. And this will imo turn out to be a very effective strategy because there is no way any of the Eurozone leadership would want to take responsibility for the Europe-wide disaster that would ensue. Greece will get its bailout regardless and hopefully the Syriza leadership understands this and realizes there is no need to comply with Troika directives. Yves has compared this situation to Lehman not realizing that it wasn’t going to get bailed out, but in retrospect failure to bail out Lehman is now seen as a mistake, and world leaders are not eager to repeat that mistake. Actually a Greek default would be far worse. Greece is too big to fail.

      2. Jonf

        In all the talk of a Grexit has anyone figured out if the Troika demands could be met? We know tax collections are critical. How much revenue can be legitimately recovered from the elites? Can imports be restrained and exports increased? Are pensions at reasonable levels or is some part of them out of control? Are business taxes at appropriate levels and enforced? What exactly does Syriza want to do to support investment and productivity?

        I have not followed this to the extent many have, but good answers to these questions and probably many more need to be answered before Greece jumps the shark and exits the euro. These problems could follow them even after the euro. Bottom line, are the masters of the euro unequivocally evil or is there some measure of truth?

      1. Santi

        Yes, missing a IMF payment has small consequences initially. Missing the payment would be a message of “Stop denial!” sent to the markets, the institutions and public,

  14. kemerd

    This does not make any sense. Why would they concede on a point they don’t have to; which will certainly make their economy shrink even faster. My only conclusion is that they have no intention whatsoever to implement any of those “reforms”, except for, perhaps, collecting taxes from the rich. But that, on its own, does not make much sense either, unless we are to imagine some secret grand plan in action.

    The only other interpretation would be they simply betray their cause, hoping that their opponents would let them stay in power a bit more by releasing some fresh funds. I don’t want to believe in this, but this certainly is a much simpler explanation.

    1. Santi

      I guess this leaked document was the result of a suggestion to adhere “formally” to the requirements of the MoU, so that it could be formally approved because of the “max” column is compliant. Amtssprache brings this kinds of distortions of reality.

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