Greece Cornered as IMF and ECB Refuse to Relent

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Even though Greece has looked to be on the verge running out of cash since late March, the government has managed to extend its own sell-by date by deferring payments to government suppliers, finding and emptying every pocket of funds it could fund, and most recently, using a special drawing rights account to pay the IMF. This is tantamount to the sort of behavior that Yanis Varoufakis decried early in the negotiations, of the creditors’ extend and pretend behavior being tantamount to using one’s credit card to pay the mortgage.

But it increasingly looks like a default is nigh. Varoufakis, who in the past has been reassuring or at least non-commital about Greece’s financial condition, said the government had only about two weeks of funding left as of the IMF payment finesse last week. The IMF was less precise as to timing, but a leaked bureaucratically measured memo dated May 14 stated the obvious: that there is no way Greece can meet its obligations coming due between June and August unless they come to a deal with the creditors.

Even as Greece is becoming visibly more desperate, so far, its “partners” are not acting as if they are alarmed by the prospect of default, as in scrambling to find ways to finesse Syriza’s red line or extend the negotiation timetable. Ekathimerini stated on Sunday that Alex Tsipras sent a letter to IMF managing director Christine Lagarde on May 8 stating that Greece would not be able to make its May 12 IMF payment, and also sent the letter to the EU’s Jean-Claude Juncker and the Mario Draghi of the ECb. Tsipras also reportedly called US Treasury Secretary Jack Lew with the same information. Yet the threat of an imminent default did not lead to a breakthrough (as in a concession) from the creditors in the technical-leval talks over the weekend, to the Eurogroup relenting on its existing plan to make no decision (as in not authorize) regardling a release of funds at its May 11 meeting. or to the ECB letting up on its government funding choke chain. As the Telegraph pointed out:

The Greek premier also appealed to the ECB to allow his cash-starved government to issue short-term government debt and requested the return of €1.9bn in profits held by the ECB from holding Greek bonds.

Following Syriza’s election, the ECB has banned Greek banks from increasing their holdings of T-bills, placing a further squeeze on the government which is scrambling to find the cash to make its public sector obligations every two weeks.

Mr Draghi and his governing council failed to lift the prohibition at a meeting last week, but did provide an additional €1.1bn in emergency liqudity to the country’s banks.

In other words, the ECB is continuing on its inertia course, extending the minimum amount of support needed through the ELA, which makes the severity of the bank run visible on a close to real-time basis. And while ECB directors have also made a point of not sounding terribly anxious about a Grexit or Greek default. While they’ve made it clear that they would prefer not to see it take place, they have also said they believe they can handle it.

Note that well-placed observers, including those who are in contact with the Greek government, believe that the ECB will not withhold ELA support or take other overt action against Greece without having political cover. But it is an open question as to what constitutes political cover. A new Bloomberg article suggests Greece is near the end of its runway on the banking front. ELA support requires pledging collateral and the Greek banks are getting close to running out:

Greek banks are running short on the collateral they need to stay alive, a crisis that could help force Prime Minister Alexis Tsipras’s hand after weeks of brinkmanship with creditors….

European policy makers are losing patience with Tsipras who said as recently as May 14 that he won’t compromise on any of his key demands. While talks are centering on whether to give Greece more money, the European Central Bank could raise the stakes if it increases the discount on the collateral Greek banks pledge in exchange for cash under its Emergency Liquidity Assistance program….

The arithmetic goes as follows: Greek lenders have so far needed about 80 billion euros ($92 billion) under the ELA program.

Banks have enough collateral to stretch that lifeline to about 95 billion euros under the terms currently allowed by the ECB, a person familiar with the matter said. With the central bank raising the ELA by about 2 billion euros every week, that could take banks to the end of June.

A crunch will come if the ECB increases the haircut on Greek collateral to levels not seen since last year. That could be prompted by anything from a complete breakdown in talks to a missed debt payment, the official said. A continuation of the current impasse could even be all that’s needed, the official said.

An increased haircut would reduce the ELA limit to about 88 billion euros, the person said. While that gives banks about four weeks before hitting the buffers, the leeway is so limited that Greece might need to impose capital controls, limiting transactions such as ATM withdrawals, to conserve the cushion.

Observe that the estimate of when Greece’s collateral position becomes acute comes from a single source, and the estimate of a run rate of €2 billion per week is on the high side. Nevertheless, the validity of the concern is confirmed in the Bloomberg sources who describe the Greek government trying to come up with other sources of collateral, such as government guarantees, but there is no certainty that the ECB will accept them, particularly in light of the ECB’s threat that it will tighten collateral requirements.

There are no signs that the IMF is prepared to relent either. The leaked May 14 memo, via Channel 4’s Paul Mason (attached at the end of the post) confirms an earlier leak by the Financial Times’ Peter Spiegel. The story stated that IMF was threatening to withhold is half of the €7.2 billion in bailout funds unless the Eurozone creditors agree to haircut their debts to Greece. New IMF forecasts showed that Greece was going to run a large primary deficit in 2015, 1.5%. As a result, Greece would either need to take severe austerity measures (on the perverse assumption that austerity works) or the Eurozone lenders would need to reduce the debt burden, as they had agreed to do in 2012 but never implemented.

The May 14 memo at the end of the post is written in bureaucratese but nevertheless makes a number of key points. The conclusions are grim, as far as the likelihood of a deal getting done:

There are still significant, process obstacles to negotiations. That’s deadly in supposedly advanced, urgent talks. The IMF still says it does not have access to all the data it needs, that its counterparties have little negotiating latitude, and that the IMF team has no access to government ministers. As the memo notes, “…staff clarified that they will not bring to the attention of the IMF Board any program review that has not been directly discussed with Ministers.” Translation: the Greek failure to participate fully in the talks in and of itself is preventing a deal from being consummated.

The two sides remain at loggerheads on key issues. IMF staff states “no progress has been made” on the fiscal deficit targets, and that Greece has gone backwards or plans to on structural reforms commitments, such as pension, labor, and public administration “reform”. Greek official say they are willing to make other types of reforms in these areas but have yet to say what they are.

The IMF staff reiterated its demand for debt relief. With Greece’s fiscal situation deteriorating, the math of implementing structural reforms and not giving debt relief does not work. However, between the lines, the IMF is again pressing for debt relief rather than giving up on the austerity leeching.

The IMF is not going to relax its procedures to make a deal. “On the fund side, it was made clear that no disbursement will be made until agreement on a comprehensive review is reached….The Managing Director underscored that the Fund cannot complete a ‘quick and dirty’ review, and that staff hs to play by the rules and not obscure the Fund’s mandate.

The memo points out that the other European creditors have discussed a possible partial distribution of funds if some issues can be agreed but no “common position” has been reached.

In addition, as has occurred before, the Greek side seems to think more headway has been made than the creditors do. In a speech by Tsipras after the date of the IMF memo, he reported that “common ground has been found on issues such as fiscal targets” when the IMF put the status as “no progress”.

Peter Spiegel reported in the Financial Times last night based on further reports on the discussion at the May 14 IMF meeting that the agency is weighing a much harder line stance:

According to two officials briefed on the talks, at least one board member raised the possibility of presenting a “take it or leave it proposal” to Greece.

However, IMF staff said they still did not have enough data from Greek authorities to put together such a plan.

A similar tactic was used in March 2013, when the Cypriot government was presented with a severe bailout plan and told it must agree or lose ECB support for its failing banking sector.

The idea of a “Cyprus-like” presentation to Greek authorities has gained traction among some eurozone finance ministers, according to one official involved in the talks.

The official noted that the recent public backing by Wolfgang Schäuble, Germany’s finance minister, for a Greek referendum fits into such a scheme. Under this scenario, Mr Tsipras would take the bailout ultimatum to a nationwide vote for approval.

However, another official involved in the talks cautioned that a “take it or leave it” approach remained only one of many ideas being discussed informally as a way to finalise an agreement.

Bear in mind that if Greece defaults on the IMF in June, which appears likely, that this is not like a private sector default, where downgrades and collateral action kick in immediately. Thus, assuming a default occurs, debate among the creditors is likely to coalesce around a limited set of options, and a Cyprus-style cramdown will be on the list.

While a partial bailout would presumably also be under consideration, the IMF insistence on a full review and debt relief makes that option harder to achieve. The IMF move looks like blame avoidance and bureaucratic jockeying for leverage. As Peter Spiegel pointed out in an earlier article, the IMF previously threatened to withhold funding and then relented. However, the IMF obstinancy, at least short-term, makes it harder for the rest of the creditors to agree to disburse a small payment to Greece to buy more negotiating time. The February Eurogroup memo called for the IMF and ECB to approve a full set of reforms, so even agreeing how to proceed without that in place will require discussion and agreement among the Eurozone lenders (and presumably, but not necessarily, the ECB). Moreover, the Eurozone lenders presumably also wanted the IMF seal of approval to justify providing more funds to Greece, since in many countries, further support is controversial. Not only is the IMF not giving much desired air cover, it has effectively said that provide more new money in and of itself is a waste. The “new money” needs to come in the form of debt reduction.

In other words, despite the flurry of revelations over the weekend, the two sides look as deeply entrenched in their positions as before. While some progress arguably has been made, it’s at best incremental when a yawning chasm between the Greece and its “partners” remains on process as well as deal content. While both Greece are a significant cohort on the lender side are leery of a Grexit, the creditors seem to be getting increasingly comfortable with the notion of a default within the Eurozone, particularly since Mr. Market seems only intermittently concerned.

While Angela Merkel may decide to play deus ex machina and break this impasse, the two sides remain hopelessly at odds. The inertial path is to a Greek default.

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  1. Eric Payne

    It has not been clear up to now that Greeks are willing to forgo that systemic corruption, and they have passed the limits of what the European Union can afford to pay to support it. The Greeks have consistently supported the Eurozone and the common currency. A simple explanation for this is that they might know it could protect them from the typical government theft of savings via inflation/devaluation that they have suffered at least 3 major times in the last century. However, that government theft is required to support the level of corruption in Greek government and society.

    1. Tsigantes

      Eric Payne, I hope you hasten to bless this comment thread with factual links to the assertions and assumptions you make concerning Greece’s “systemic corruption” especially

      However […] government theft is required to support the level of corruption in Greek government and society.

  2. gardener1

    So are there two possible scenarios left?

    1. Greece agrees to sell off every island, every asset, every mountain, port, and town square; every everything to make the next debt payment – after which they have nothing left to sell – and still the debt remains. Unpayable forever and ever.

    2. Greece says No More. This has all become completely ridiculous and we’re going back to growing olives. F* off.

    I don’t understand how this nonsense has carried on this far.

    We were in Greece a few years ago on Rhodes. Rhodes has a huge cat problem, the island is completely overrun with cats by the gazillion. I remember a lady in the town square with a kiosk who was collecting money for animal welfare causes on Rhodes. I stopped to talk to her for a minute, as we had been both feeding and fending off cats our entire time there. I talked to her about the cat issue and she told me ‘Greece is EU now, they simply cannot continue to ignore their stray animal problem as they have done’. She was German.

    I was under no impression the Greeks gave two shits about what the German lady in their town square thought about their EU cat problem.

    I daresay the EU is a tattered fabric. The Germans pushing their ethics and monetary principals onto people who hail from a completely different train of thought.

    This was never going to work.

    1. John Jones

      So if I care about the welfare of animals etc that means I have German ethics. And if I don’t care I have Greek ethics?

      The E.U isn’t a tattered fabric because of the ethics of different nations. People have different economic circumstances as well as other issues to deal with so have different things to prioritize. If anything I think the E.U is failing or wasn’t going work because people think different ethnicity’s and cultures are so different to themselves like having different ethics etc. They are not but it is impossible to convince people of this.

      1. financial matters

        Creating financial independence seems like a very hard nut to crack. The top tier creditors will use every means possible to maintain the system of inequality.

        This isn’t limited to the EU but we are seeing the same thing in countries with a sovereign currency, the US, Australia, UK, Canada. Austerity which favors the creditors and inequality is still favored over stimulation programs that increase demand by focusing on decent employment and socially and environmentally important projects like pensions, medical and legal care, education, and better use of energy sources.

      2. gardener1

        It was a metaphor, dear. An analogy for all the ill-fitting ideas – both financial and terrestrial – that prevent the EU from being in fact, a Union. Because they’re not.

        The German[s] showed up in Greece to tell them what they should do with their cats. The Greeks explicitly ignored their well intentioned advice.

        The Germans showed up in Greece to tell them how to handle their government and culture and finances. The Greeks ignored their advice.

        So I suppose the moral of my story is, that Germans and Greeks operate on different principles that are not in harmony together.

        To suppose that these two differing principles, and cultural principles do indeed translate into business ethics, could possibly ever come to a meeting of the minds in the world of macro economics is indeed a stretch of the imagination – when they resent each other even in the realm of cats.

        1. John Jones

          The Germans showed up in Greece to tell them how to handle their government and culture and finances.

          No they did not. They did not go there to create the same state in Greece as they have in Germany. They showed up and took control of the state preceded to push austerity measures, dismantle the labor laws make job cuts all over sell assets and liberalize the economy even more. They push and pushed things the German government themselves never have done to their own economy and never would do to such an extent.

          So you are talking as if the Germany government went to Greece to try and help when it did anything but do that. They went there for there own interests. To turn over every rock for every euro they could find to pay back debt regardless of what it would do to Greek lives. To sell assets, change labor and business laws to suit there own corporations regardless of what it would do to Greek lives.

          This is were the resentment and clash comes from not from different ethics. Greeks like other humans don’t like been talked down to or have people tell them there is something wrong with their culture. If they went there with German experts in different fields to help fix areas of the Greek state for the betterment of the Greek people I can assure you that Greeks citizens would of welcomed them with open arms. This is why there will not be a meeting of the minds.

          The Greeks ignored their advice.
          If the Greeks ignored their advice they wouldn’t be in the situation they are in. It was very much done by a position of giving orders to the local Greek sell out representatives and not from a position of giving advice.

          The German[s] showed up in Greece to tell them what they should do with their cats. The Greeks explicitly ignored their well intentioned advice.

          Why would they not ignore it. There are unfortunately for the cats more pressing issues to Greeks. Like worrying about money for food and medication than for cats. How is the Greek state going to divert funds to animal welfare when people need it. Maybe the German lady can worry about Greek people first and not Greek cats for the time being. Maybe she should try understand Greek people and why the problems of strays occurs in a country like Greece. Instead of talking down to them ‘Greece is EU now, they simply cannot continue to ignore their stray animal problem as they have done’. Many strays in Greece are better fed than Greek people.

          Not to worry though the way things are going I am sure the cats of Rhodes will soon become a good substitute for protein eliminating the stray cat problem.

    2. vidimi

      I was in Rhodes last fall and, while there were feral cats wondering about, your post makes it seem like cats have covered every square inch of the island. I would go as far to say that there is no cat problem at all, much less a “huge cat problem” as the cats there are mostly self reliant and keep to themselves. without them there might even be a “huge rodent problem”.

    3. Tsigantes

      Hmm, cats, that’s interesting. How do you explain that Greece has the strongest animal protection laws in the EU and most stringent penalties and that these are enforced? (30,000 euro fine plus up to five years in prison for the deliberate death of an animal, and/or maltreatment leading to death – for example). One german woman in Rhodes is the ‘expert’ but forgot to inform you?

  3. Older & Wiser

    On a separate thread on Greece (“Why will Syriza blink”) one comment “Jim” made was:
    “Syriza is in a position somewhat similar to that of some of the occupants of the twin towers at 9/11. Jump out the window or be burned to death”

    I say:
    Yeah, sorta, kinda…
    Still, in the analogy is missing that

    (1) the Twin Towers (Greece) are still within the EZ and still with the euro as currency. No plane impact (yet). So Syriza isn’t doing anything of what you are suggesting (yet). So let’s just give’em a chance to do their job.

    (2) the planes that would bring Greece down (out of the EZ) are the rest of Europe, meaning that if Greece goes down they go down with Greece.

    (3) The pilots of such planes are the BB-axis Eurocrats, and the plane passengers (the people of Europe) may pull a mob attack on the cockpit (remember United Airlines flight 93 flying over Pennsylvania?) bringing the plane down without it ever coming close the pilot’s intended target (Greece)

    (4) If possibility (3) took place, Europe would go down and Greece would remain intact and without paying back a single cent of what it was borrowed.

    That’d be fun, don’t you think ?

    So… as Yogi Berra would have said: it ain’t over till it’s over.

    1. Lambert Strether

      Yogi Berra also said: “You can observe a lot by just watching.” Every one of your claims has been comprehensively debunked. In particular, if point (3) were going to happen, it would already have happened, when the indignados were taking over the main squares in European capitals.

      Nobody would be happier to see the ECB and its minions get theirs than I. But the Greeks, and the left worldwide, aren’t helped by wishful thinking, which is fundamentally frivolous. As they said from the stage at Woodstock: “”Hey, if we think really hard maybe we can stop this rain!” Well, no. It doesn’t work that way.

      1. James Levy

        What is so hard for many of us to wrap our heads around is that the objective of those in power in the EU never seems to be to “right the ship”, get Greece “back on course”, or any such metaphor. This is what one would expect if one wanted to get paid back. What we see instead is a process akin to bleeding in the old days. Somehow by bleeding the patient, the idea goes, the bad “humors” that afflict the Greek body politic while be excised and all will be right with the world. Most thinking people see this as ass-backward. First you strengthen the patient, then you make him exert himself in order to pay you back. Perhaps what trips us up is the idea that a “member” is a “friend” or an “equal”, or someone whose welfare you vaguely give a shit about. But we see that being a member of the EU implies no such thing. In any case, again, it’s hard to get a handle on just how callous, blinkered, and depraved those with the whip hand are in this world today. They are not in the problem-solving business–they run an extortion racket. When you think of it that way, the world becomes a truly frightening place, which is why most of us don’t want to think of it that way. Many of us, most of the time, want to image the PTB as having asinine ideas about how to solve problems, when, in fact, they don’t care about solving problems–just obtaining their pound of flesh.

        1. Lambert Strether

          The ECB’s behavior reminds me of what doctors did in torture cases: Revive the patient just enough to go around round. Not malpractice; malevolent practice. I’m surprised that nobody has proposed that Greece simply declare war on Germany, with the possible “Mouse that Roared” good outcome (which seems as plausible as any other good outcome, at this point). OTOH, I wonder what that would do, under international law, to treaty obligations…

          1. Oregoncharles

            It ends them – but most of the “obligations” are multilateral.

            Incidentally: that unpaid debt from the WWII occupation provides grounds of a sort.

            1. Tsigantes

              A key to understanding situations is omission.
              For example: the privatization of Pireaus port to the Chinese.

              The English language MSM has used this as a stick to beat SYRIZA (“betrayal of promises!”) – lol a Right wing press defending the Left’s supposed ideological purity. The unreported aspect is the Exercise of Other Options: i.e. the consolidation of the Greek end of the Chinese Sea [Silk] Route infrastructure.

              You may not have noticed that Lapavitsas has gone quiet on this front.
              And no demonstrations against it in Syntagma either.

      2. Calgacus

        The following rant is not so much placed to support Older & Wiser’s comment, which imho does contain some wishful thinking but in response to the discussion around:

        Lambert Strether: But the Greeks, and the left worldwide, aren’t helped by wishful thinking, which is fundamentally frivolous.
        They aren’t helped by blind pessimism,TINA and defeatism tantamount to clinical depression either. “The left”, unlike “the right” has a record of snatching defeat out of the jaws of victory. The main, the only thing is to try to understand the Truth, always. Naked Capitalism is great on the trees of the Greek situation, but very much misses the forest, especially on international-legal matters.

        For instance, contrary to Older & Wiser, the Yogi Berra still lives! And on the question of how there would be a good outcome – The Mouse that Roared is fiction, based on the fact of the wisdom of the post-WWII settlement. Greece declaring war now would be insane and make its obligations much worse. German debt to Greece (or vice versa) is not a valid reason for declaring war. Next to nothing is, in the world of modern international law, the world of the UN Charter. (OregonCharles may not have been serious.)

        The possible good outcome would be a Grexit, forced or not. Whether Grexit happens is very uncertain, but it is not improbable. With a reasonable degree of administrative competence – saying Syriza has it is not a heroic assumption – this should cause a long and robust recovery, after a brief transition. The pessimistic arguments make no sense and are based on basic economic errors and ultimately the psychological factors above. Wishful thinking is a precisely wrong diagnosis here.

        1. Lambert Strether

          “They aren’t helped by blind pessimism,TINA and defeatism.” Wowsers! Now, where’d I put those pom poms? Thing is, though, as commenters less committed to turning NC into a cheering section have conceded, Yves keeps being right on the merits.

          And a note on style: Although the tricolon is an effective rhetorical device, it takes more than, er, blindly stringing together vaguely similar terms of abuse to make use of it. TINA, as in Maggie Thatcher’s “There Is No Alternative” to imposing neo-liberal policies on the UK, is in no sense whatever a programme that NC or Yves support; in fact, one of the themes of the blog could be said to be a constant quest of alternatives.

          NOTE I’m a strong believer in the Oxford comma, as a sign of clear thinking. #justsaying.

          1. Calgacus

            I did call it a rant, and I broke a personal rule against exploring motivations in the tricolon (thanks for the new woid) In my defense, so does the phrase “wishful thinking”.
            On the Oxford UnAmerican comma – battle to the death, set the HUAC on it. Me hates it! And I bet Yogi does too!

            in fact, one of the themes of the blog could be said to be a constant quest of alternatives.
            Yes, and that’s great. Except in the case of Greece, by not exploring the Grexit alternative, dismissing even the existence of the experts who say it should quickly yield a clearly positive outcome.

            Thing is, though, as commenters less committed to turning NC into a cheering section have conceded, Yves keeps being right on the merits

            There is such a thing as cheering. There is also such a thing as booing. I think NC aspires to do neither, but to be a neutral referee or ump. This is a hard task.

            Far more clearly than the economic situation, where there is room for reasonable difference, which is my point there, on the merits of NC’s position on the international legal situation – the ump, NC, is quite off base – for there isn’t even a game going on! On the basics, All sources and experts are on what has been mischaracterized as the “romantic”, “Syriza cheering section” side, and I hope that everyone here at Naked Capitalism will use google, wikipedia, books, papers, conversations, channelling, whatever to learn that.
            The basics of the legal regime that everyone on Earth has been living under since 1945, which with all the defects, lies, crimes and hypocrisies since – was and is a major improvement from the status quo ante. It is really, really important. But it is so “well-known” that it is ever-shockingly little known.

      3. Tsigantes

        Best not to confuse the 53% Greeks supporting the greek government with the Left. Some are from the Left but certainly not all or even half. Significant portions of the Greek Left (KKE, ANTARSYA – 10%) are refusing to support it. Greek support comes from across the political spectrum including GD voters.

    2. Older & Wiser

      Yogi Berra, strikes back way back from his coffin :
      “It takes only one to pick a fight, but it takes two to tango”

      And you may want to pick a fight, but you certainly can’t tango (I know that for a fact)

      So just relax my friend and bear in mind that it is real PEOPLE that are at stake, not bonds, not contracts, not balance sheets, not banks, not columnists… not even politicians.
      (1) Please make specific reference to ‘every one of my claims'(sic) that you insist have been comprehensively debunked (??)… as I have posted in this NC forum only twice without establishing “claims” of any sort.
      (2) Your take on ‘indignados’ is, at least, childish and mis-informed.
      (3) The game doesn’t finish with default or whatever happens to Greece.
      (4) Wishful thinking is at your exclusive expense (‘fundamentally frivolous’)… not mine
      (5) Some clinical thinking now:
      Anomy and chaos Greece becomes hell’s gate to Europe, ISIS, rampant immigration, Golden Dawn, etc.
      Then what’s left is a military coup d’etat (or something to that extent) smack in the middle of this context.
      Then we might as well kiss the EU goodbye…
      Point (3) of my original post (above) is just a page taken from basic world history my friend.

      And ”Hey, if we think really hard maybe we can get the money borrowed (plus interests) from these Greeks ”
      Well, no, it just doesn’t work that way…

  4. daniel

    Hi Yves,

    Thanks for the very detailed feedback on this Greek tragedy. Yep a tragedy, it is. In its full original sense:(

  5. lakewoebegoner

    to be machiavellian with a crazy idea from left field (not Treaty of Maastricht expert)…Greece should play its ‘citizenship’ nuclear card—–meaning open the doors to Greek citizenship for something crazy low (say) 10,000 EUR. To raise 100 billion EUR, Greece would ‘only’ need 10 million new migrants, not a ridiculous number of people.

    And not only will there be revenue, but a likely byproduct/nuclear option would be to increase migrants throughout the EU as most of these 10,000-ers would likely transit through Greece for the UK or Germany. And many in UK are already threatening to leave the UK due to Eastern European intra-EU migration, surely the idea of Greece ‘giving away’ EU passports could harden the support for a UK exit of the EU.

    And like biblical Samson, Greece could bloodly-well bring down the whole of the EU should the British decide to leave the EU over EU freedom of movement, which is a German ‘red line’.

    1. Santi

      Spain already did that, so this is not new. We did it a bit more expensively, and for the moment it is just residence permits, but even those are coveted, as the people drowning in the Mediterranean can attest. In this golden visa site they explain how to get it. Just remember:

      The minimum investment must be at € 500,000.
      On top of the amount of investment you need to add 11 – 12%, which goes to the purchase cost, including tax, stamp duty, VAT, notary and lawyer.
      Investments may be spread over several properties for a total purchase price of at least € 500,000.
      You can do your investment via a foreign company if you can prove that you own the majority of this company.
      There is a certain flexibility to borrow part of the money you need from your home country or from a country outside Spain.
      Spanish residence visas may be issued to the immediate family, including spouse and children up to 18 years.
      The Act also includes your children over 18 years old who, due to health issues, are not objectively capable of looking after themselves..
      There is no requirement for minimum stays ordering to renew the visa. This means that it is optional to stay in Spain.
      The Spanish visa does not need to be renewed within five years.

      This plot was invented as a way to lessen the problem of our tremendous real state bubble, with literally millions of empty houses and millions of underwater mortgages… Those Russians/Ukranians (the nationalities using this the most, for what I know) will be getting Spanish nationality if they so want, after a few years with the visa.

      1. Nathanael

        The UK (biggest tax shelter in the world) has had this forever. You need a million pounds beyond whatever you need to live on, but you get it back after 10 years.

      2. Tsigantes

        Greece did the same from 2011, citizenship in return for an investment of a 250,000 euro property in Greece. The EU closed this window of selling EU citizenships around 2013.

    2. Tsigantes

      lake woebegoner:

      Citing 10 million new migrants as “not a ridiculous number” might be true in the US or China, but the Greek population is only 10 million. With brain drain emigration, the decline in births, outflow of old migrants, this is down from an historic high of 11 million. Doubling a country’s population in even the best of circumstances would be catastrophic :)

  6. Which is worse - bankers or terrorists

    Here is my guess for next steps:

    (a) When Greece defaults but stays in the EU, the banking system needs an immediate recapitalization and the only entity that can do that is the ECB.

    (b) ECB recaps but provides minimal (starvation level capitalization) for the maximum collateral capture. The ECB claims every conceivable government asset: highways, power plants, airport, military base land (warding off Russia), you name it.

    (c) The starvation level bank recapitalization fails when Greece defaults within the euro, Greek banks collapse, chaos ensues, government cannot provide essentially services.

    (d) Fortunately, the ECB comes to the rescue. The ECB is such a kind and benevolent leader. The ECB parachutes in a creates a protectorate to provide essential services, aid, keeps the hospitals open, etc. Calls the new state “General Gouvernment” or something similar.This is particularly effective since the ECB owns all of the essential government assets.

    (e) Trains run on time. Greece becomes a great place for German retirees to live. Young Greeks leave or consign themselves to be waiters/kitchen staff/hotel staff for German pensioners.

    (f) Schoolchildren in General Gouvernment for the next 60 years are taught about the kind heartedness and benevolence of the ECB and Germany. In German, of course.

    1. Older & Wiser

      Loved it !
      How about you describing for us other alternatives for (d) + (e) + (f) closer to reality ?
      I mean, your (a) + (b) + (c) are right on the ball in that something to that extent WILL necessarily happen, leading to anomy and chaos at Europe’s doorstep.
      But the game doesn’t end there, does it ?
      Good sense of humor yours…

      1. Which is worse - bankers or terrorists

        I didn’t really see anything funny about (d), (e), and (f). Don’t you think the whole point of the EU is to homogenize Europe so it becomes a United States of Europe, over time?

        1. Older & Wiser

          Yeah, that’s the BB-axis idea but, obviously it won’t happen for many good reasons.
          Instead, the EZ is rapidly becoming a failed project, and (d), (e), and (f) will turn out to be quite different methinks, basically along anomy and chaos.
          They are not THAT far away from it, are they ?
          Think Libya, Syria, et al.
          It’s happened before, it’ll happen again.
          World history 101….

    2. Tsigantes

      small correction in (d)
      ECB/EU has so far preferred to SHUT hospitals and clinics – saves money y’know. Anyway who needs hospitals when you have Medicins Frontieres? Then state educated (each graduate = 270,000 euro cost to taxpayer) Greek doctors emigrate to Germany to work in German hospitals – this has been underway for 4 years.

      You forgot to add the very real investment policy for Greece of the Federation of German Industry formulated July 2012 and operative as soon as Greek minimum wage goes down to 320 euros/month, equal to Croatia. FGI will build corporate tax-free SEZs in Greece on government donated land offering jobs to Greeks with 6 days per week / 13 hours a day / no benefits / no unions. The aim is repatriation of German factories from China.

  7. Ishmael

    Maybe the answer to all of this lies in why Dante put Ulysses (or Odysseus which ever you prefer) in Hell. If you have ever read the Odyssey you will find that Ulysses in not quite what we would call the most honest person but the Greeks figured he was sly and someone to look up to. There is a reason that Ulysses was the man who came up with the Trojan horse idea. On the other hand, the Roman’s just labeled him as unhonorable which they considered was one of the worse traits you could have and so Dante placed Ulysses in Hell in the Divine Comedy.

    So maybe that thinking carries on today. Modern Europeans are well aware of these stories. Syriza believes they are being sly and attempting to give the EU a Trojan Horse but Europe just looks at them as being unhonorable.

  8. Lambert Strether

    Out of idle curiosity, can someone with a command of idiomatic Greek tell me if Google’s translation of “concern troll” — ανησυχία συρτή — is correct, and, if not, supply an alternative? Thank you!

    1. RabidGandhi

      Aνησυχία συρτή = “Troll concern” or just plain “trolling”. Context?

        1. Tsigantes

          No…it literally translates as anxious drag or weight (creeping anxiety, weight of anxiety in english?). We simply adopted & adapted the English i.e. “trollarisma” with the accent on the first ‘a’.

    2. Lefteris

      Hello, i’m a native Greek living in Greece. So, “ανησυχία συρτή” translated back to English means “crawling worry”. If you want to translate “concern troll” to Greek then going for the verb would be best and it would translate to “τρολλάρισμα μέσω ενδιαφέροντος” which in English would mean “trolling through concern”.

      On a different note. I regularly read this (and other English information sources), as well the Greek press. In my view there is huge amount of effort being expended in controlling the news both inside Greece and in the English press. While i believe that Yves is extremely good at weighting the various situations and reading behind the lines, i also think that in the Greek case Yves is not “reading” the situation correctly (due to the seer size of misinformation that goes around).

      Speaking from a pure financial point of view, it shouldn’t be very hard to estimate the cost of keeping Greece in the EU and the cost to EU of an GREXIT. People in power must have done these calculations and have concluded that a GREXIT would be more costly (unfortunately for me because i would have preferred a GREXIT from the EU madness). The fact that at the last moment IMF essentially paid itself from its own money, attests to that.

      Another way to look into the whole charade, is to look at it as a game of chicken between a tricycle (Greece) and a truck (EU) where the truck driver is constantly shouting how much he will continue in the same path and how much he won’t be affected. Whom of the two do you think worries the most?

      For me the best scenario is for an GREXIT to happen. Greece will have a chance to find its own way and EU will have to do with just being the “E” (which has been the plain fact from the start, no “U” in there). The worst scenario is to go back into the eternal condemnation of the perpetual debt.

      1. Lambert Strether

        Thanks for the translation, I appreciate it. However, I continue to be amazed by comments that (1) criticize Yves for not reading the right sources (since that’s what failing to get the situation right due to the volume of disinformation boils down to in practice) and then (2) don’t provide alternative sources, this comment, sadly, among that number.

        Have you taken note of the sheer volume and variety of the links that we aggregate daily? It’s not like we’re not willing to read. But we can’t read what we don’t know about, and the people who claim to be in the know don’t share what they read. It’s frustrating.

        1. Lefteris

          I’m afraid that concerning the Greek case, the information well has been poisoned so much that it is very difficult to find something “clean” (isn’t affected). This applies to both internal (in Greece) and external sources.

          The reason i’m writing above is that i was finding it odd how low the signal to noise ratio was in the news of both Germany (where i travel a lot) and in Greece. A lot of opinions and sentiment exists in the news (anger in Germany, fear in Greece) but not much signal. In my experience, usually the signal is bigger than what i’ve been noticing concerning the Greek case.

          So, based on this observation i’ve started to search for other sources of information and it still seemed to me that the signal to noise ratio was lower than what it should be. For example, while you see a lot of news proclaiming how solid the front of the EU countries is against Greece (18 vs 1) have you seen any comprehensive analysis of the position of each country on this front? Usually in these kinds of things you see multiple opinions/statements from the various people in power. But in this case, they are portrayed unnaturally homogeneous in how they look like from the outside. And their statements are just different versions of the same thing.

          How many times have you seen such a uniformity in the behavior from that big a group of powerful people in that many different countries?

          1. Jackrabbit

            Also noteworthy is the focus on the superficial. We hear about what is happening but MSM says little of the background.

            Greece is treated as a spectacle – if it gets into MSM at all. The plight of ordinary Greeks gets very little coverage. The inclination to ‘blame the victim’ is very strong, and MSM shys away from topics that might embarrass the powerful.

            Greece is one of many topics that raise troubling questions so they are avoided (like Palestinians, US support for the Saudi attack on Yeman, the “black injustice tipping point”, etc.).

            – What does it mean to be European? Is it simply about bureaucratic nightmare that makes visa-less travel possible or is there some expectation for allegiance and affection?

            – Why were Banks allowed to make irresponsible loans? Why were governments (in the EU and US) so willing to bail them out?

            – Why has wealth inequality increased while austerity is imposed on the less well-off? Is this how a democracy works?

            – How did Greece get into the EU (Goldman swaps)? What are the power relationships that dictate who wins and who loses?

            – Etc.

            H O P

            1. Nathanael

              What Lefteris and Jackrabbit said.

              The propaganda campaigns are very substantial and it’s hard to actually find any reporting at all. This, in and of itself, indicates something.

            2. Tsigantes

              Why was Greece not allowed to default back in the Canary-in-the-Goldmine days?
              Where did the money “lent” to Greece go? On what basis were those decisions made? Was it legal according to ECB mandate and EU law? How much has the Greek state actually received? How was it received and on what basis?

              Why was there no conflict-of-interest issues raised when Lagarde went from being Finance Minister of France under Sarkozy to IMF chief breaking (“changing”) IMF rules to take part in the Greek “rescue”? Where were the press stories covering the ructions inside the IMF at this decision? Why has only one clear account appeared after 5 years and where is the coverage for it? Paul Blustein / CIGI: IMF, Eurozone and Greece – (covering only the 2010 loan.)

              What exactly happened at Cannes in 2011? What actually happened in that moment when, on the return from Cannes, Venizelos stepped out of the PM’s plane and made his statement without the PM’s knowledge and against his intentions? Should Peter Spiegel’s (FT 2014) [Venizelos press office fed-] account stand as the last word?

              Who are/were the individuals comprising the Troika? WHAT were their decisions? Why did the European Parliament ruled Troika illegal and how has this judgement been ignored? Why have the decisions of Troika broken EU law without commensurate democratic debate and agreement to change laws?

              Why was it convenient to demonize Greece and the Greek people? Whose interests were served by characterizing Greeks as truly unique scum of the earth, mega cheats, mega-liars, mega-corrupt?? Why has 90% of the English language MSM refused to look deeper despite alternative information freely available online not only from Greek and international press but also the EU itself and OECD? From the Lancet, from Amnesty International, from Freedom House? Why are these tired old shibboleths kept alive today? Why have dedicated English language troll websites sprung up from the earliest stages to the present i.e. Observing Greece (from an ‘Austrian’ ‘banker’ pushing Pinochet’s Chile) to ‘Greek Analyst’ today? WHY is the propaganda battle fought out almost entirely in English?

              How do you explain the EU, IMF, Eurogroup, ECB and Washington’s unparalleled threats and daily pressure & propaganda in 2012 and 2015 elections to vote for the old, corrupt parties?

              Why are the very real differences and disagreements both politically and re the euro inside the EU between nation states receiving no coverage? Why are the dramatic treaty breaking changes within EU receiving no coverage? Why is analysis of the real banking problems inside EU not made?

              I’m sure others can add to this list…

          2. Tsigantes

            Lefteris is 100% right concerning the English language mainstream press & media, which is more or less joined at the hip. (9 owners, hmm?) This is reinforced by the Greek MSM being 90% oligarch owned and having more invested in ousting SYRIZA than even the EU, Eurogroup, ECB, Berlin etc. The Greek media feeds English language media by having the money to publish English editions, with ‘sources’ and with their opinion pieces/polls.

            Alternate voices are hard to find in English and tends to be in various blogs, internet press and academic press. These, plus common sense, has been the main source of anti-Troika analysis for the Greek public for years now. These included Yanis Varoufakis blog, Ambrose Evans Pritchard (Telegraph), Bill Black and others, Stiglitz, Krugman, Frances Coppola at Pieria and Forbes, Mainly Macro (Simon Wren Lewis), certain economic and labour economics contributors at Social Europe. Of the Greek press in English: MacroPolis and its earlier incarnation; Keep Talking Greece; press (Greek and English), A Gael in Greece, Failed Devolution. There are others too which are not springing to mind at this moment. Beware The Toc (Latsis – shipping/real estate); Kathimerini (Alafouzos); To Vima, Ta Nea; Proto Thema; Ethnos. There are a few excellent Greek publications and blogs online in GGreek (google translate) : Protagon, H Efemerida ton Syntakton;

            I have cited these endlessly going back years.

        2. MaroonBulldog

          When Lefteris spoke of Yves “reading,” his context was “reading the situation,” not reading written materia . Which I take as a suggestion that Yves’s conclusions are not not Lefteris’s conclusions, perhaps because Lefteris is paying attention to different things.

          1. Tsigantes

            Hmm, please tell me: what are the different things Lefteris would be paying attention to re Greece? It is not as if there are multiple versions of the same known, single, ongoing situation. There is however a very big and long established propaganda campaign, ignoring a lot of facts and questions, that aims to present and re-present and present once again a skewed storyline. Either you accept the storyline or ask why. If you find facts are different from presentation then what does a normal person conclude about the “news” sources?

      2. Yves Smith Post author

        It is not possible to estimate the cost of a Grexit. Look at Lehman. Way way too many interconnected variables, and outcomes dependent on regulatory/official responses.

        Even now. after the crisis, economists argue over what it cost. So how can we possibly know ex ante?

        And now we have the reverse post-Lehman: the officials are confident they can ameliorate any fallout.

        But more important, you seem to be missing what the most likely scenario is right now. Greece does not want a Grexit. The EC does not want a Grexit. Merkel does not want a Grexit, more for legacy reasons. The ECB prefers no Grexit but thinks it can handle one. So the inertial path is a default in the Eurozone.

        I also have to point out that to a person, all of the people complaining that I mot reading the “right” as in Greek friendly, sources, are unable to identify a single error made as a result of looking at sources they diss. And I also must point out that this particular critic is well behind the state of play by relying on his supposedly better but still unnamed sources.

        1. Older & Wiser

          Are you that sure Yves ?
          Michael Roberts has already quantified what the minimum minimorum cost of a Grexit would be on very solid, un-objectional basis.
          AaMoF I’d say that his calculations fall waaay short of the real impact because of the knock-on consequences (subjective, mind you) on third parties, i.e. Spain, Portugal, Italy… and FRANCE.

          Reverse post-Lehman, procyclic post-Lehman… (hmmm)
          Take care

          1. Yves Smith Post author

            You are seriously telling me one person has a definitive analysis on a massively complex, unprecedented issue where policy preparation and responses matter? Michael Roberts is a professor of finance, not a macroeconomist. The costs of a Grexit are macroeconomic costs and he is doing analysis outside his field. This is like a heart surgeon analyzing a brain tumor. I’ve never seen a single policy person reference his work on a Grexit. More important, an increasing proportion of policy makers in Europe regard a Grexit as affordable, that the ECB has enough tools to buffer the costs. I’m not saying they are right, I’m saying that is what a significant number of policymakers, INCLUDING apparently economists at the ECB, believe. ECB directors have consistently made statements along the line of “we’d rather not have a Grexit but we can handle one if it comes to that.”

            Moreover, you miss the bigger point. Greece does not want a Grexit. The ECB could force a de facto Grexit but Merkel would not want that either. So the glide path is to a default in the Eurozone, NOT a Grexit. I stated that clearly but you ignored that.

        2. Tsigantes

          Yves are you really, really confident when you state that Merkel only wants to prevent Grexit for legacy reasons? Deutschebank/Landesbanken don’t come into her calculations? The recent HETA scare (is this contained?), bond selloff stampede (why?) and the pfannebriefen guaranteed by the German state have no part? An immediate 40 billion loss on Greek default, not to mention Target 2? On top of that, what is Germany’s true relationship with the United States and what degree of freedom does the German government really have to make its own sovereign decisions? You might find the last questions strange but they are a part of the equation in Europe.

  9. TG

    How about the Greeks take full advantage of the Schengen agreement, and the entire population of Greece moves to Germany?

  10. Cassiodorus

    “But it increasingly looks like a default is nigh.”

    Is someone of importance supposed to notice if enough posts saying this are published in Naked Capitalism? It would be more fun just to wait, and then see what happens when they default.

    1. MaroonBulldog

      Yes, more fun. Like the kind of fun you experience watching “Antigone” or “Medea” or maybe “Oedipus Rex”. A fun night’s outing at the theater.

      1. Cassiodorus

        Or watching a routine of the elder late great George Carlin on YouTube:

        Look, the folks at the top of the SYRIZA pecking order (woe betide those at the bottom!) might be doing a few things to help the folks at the bottom of Greek society. But there appears to be no preparation for the “Grexit” that itself appears to be quite inevitable and which will be inevitable once the whole of capital flees from Greece, taking everything that isn’t nailed down, and once the Greek government scrapes the barrel clean in its current, futile attempt to hunt down cash to please the greedy European financial overlords, whose own claims to financial solvency nobody dare question.

        It would be nice if there were signs of genuine, ground-level socialism amidst all of this — but those need to develop on their own, and when we speculate on where the money is located or on what the SYRIZA people are thinking, we don’t develop those signs. It’s fun to sneer at Varoufakis’ “dilettante Marxism” or whatever it really is — but that fun came and went a long time ago. Carlin: “I’m having too much fun keeping an eye on you folks, watching what you do. Human behavior — that’s what I like.”

        1. Nathanael

          I haven’t seen enough genuine internal news from Greece to tell what Syriza is actually doing internally. I don’t think Yves or Lambert have either, since they haven’t linked any such news.

          1. Tsigantes

            Nathanael, go to and read backwards over the last months, including comments. This is an English language greek site from a senior journalist, told in a deliberately light way that nevertheless gives most of the facts, links etc..

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