At Emergency Summit, Creditors Plan to Make Greece an Offer It Can’t Refuse

For those who may not be familiar with American cultural references, we’ve previously cited this scene from the Godfather relative to the Greek negotiations:

Michael: Well, when Johnny was first starting out, he was signed to a personal services contract with this big-band leader. And as his career got better and better, he wanted to get out of it. But the band leader wouldn’t let him. Now, Johnny is my father’s godson. So my father went to see this bandleader and offered him $10,000 to let Johnny go, but the bandleader said no. So the next day, my father went back, only this time with Luca Brasi. Within an hour, he had a signed release for a certified check of $1000.

Kay Adams: How did he do that?

Michael: My father made him an offer he couldn’t refuse.

Kay Adams: What was that?

Michael: Luca Brasi held a gun to his head, and my father assured him that either his brains or his signature would be on the contract.

A Eurogroup meeting ended if anything with Greece and its creditors even more alienated from each other. Greek finance minister claims he was ready to give a proposal (and he apparently did set forth some of his ideas) but wasn’t given an audience; the other participants told the press that Varoufakis’ idea of what a proposal amounted to was out of synch with what they wanted. This sort of culture clash has been a constant feature of these talks. From Politico:

Take this counter-claim from an EU official: “A debt brake, fiscal authority and debt swap: They are nice but none of that replaces the need for reforms … We still do not have a proposal. There was no substantial discussion, to be honest. I didn’t see a five-page proposal, I saw a verbal presentation of his ideas and Dijsselbloem said we need a proper proposal…”

Michael Noonan, the Eurogroup elder statesman from Ireland, was the most specific about the Varoufakis contributions. “They tend to be more macroeconomic in nature than specific. And negotiations are about specifics.”

If an account in the Financial Times is accurate, an emergency summit of Eurozone leaders set for Monday evening is prepared “an offer you can’t refuse,” meaning an offer less generous than one previously made because the other party is signaling his superior position by worsening terms. Recall that it was leaked on June 8 that European Commission president Jean-Claude Juncker and Eurogroup Chief Jeroen Djisselbloem offered Greece an extension of the current bailout till March 2016, with the strings attached that Greece would still need to agree to cross its red lines and agree to pension and labor market “reform”. We stressed that it was not clear whether Juncker and Dijsselbloem had gotten IMF and ECB consent, or whether they needed to sell them on the plan in the unlikely event Tsipras had agreed.

Now I doubt the “offer you can’t refuse” element (assuming the rumor proves to be accurate) is by design but due to the fog of negotiations and the looming deadlines limiting flexibility. Regardless, the Greek side is certain to reject a proposal of this sort with prejudice. From the Financial Times:

Jeroen Dijsselbloem, the Dutch finance minister who chaired the ministerial gathering in Luxembourg, for the first time acknowledged that time had run out to disburse rescue funds to Athens before the bailout programme closes at the end of the month.

Instead, Mr Dijsselbloem said any agreement would now need an extension of the programme into July — the third extension in six months — heightening the risk that Greece will default on a €1.5bn loan repayment due to the IMF in less than two weeks.

“It is unthinkable the implementation [of reforms by Greece] and then disbursement would also take place before the end of the month,” Mr Dijsselbloem said.

If a deal is reached and an extension agreed, among the options being discussed by creditors is using €10.9bn in existing aid previously set aside to recapitalise Greek banks and redeploying it as normal bailout funds that Athens could use to pay its upcoming debts.

Athens faces €6.7bn in bond repayments in July and August.

But Mr Dijsselbloem made clear that no extension would be granted unless a deal were struck on economic reforms…

Mr Dijsselbloem rejected Mr Tsipras’s continued demands that any agreement include debt relief. Several officials believe the Greek premier will be unable to sign a deal without some kind of debt restructuring. Eurozone officials said leaders were prepared to offer the promise of future writedowns, but not as part of the current deal

One wonders why the creditors are bothering to convene, given that both sides are too wedded their current positions to make needed concessions. It seems to be at best an effort to have a talking point if needed if and when a Grexit proves to be as damaging as some fear. Political leaders need to be able to tell voters that they did what their best, even if their best was not all that good. A Politico story suggests that the summit will also focus on how to contain the damage of a Greek default and/or Grexit.

As is typical with the disconnect with realities on the ground, an FT editorial urges Tsipras to accept a deal, then describes one that is markedly more generous than the creditors are willing to offer.

The dire remarks of the head of Greek’s central bank, as we predicted, considerably accelerated the bank run, with €3 billion withdrawn so far this week, outpacing the ELA increase. As readers may recall, the head of the bank of Greece submitted a dire report on the likelihood and consequences of default and Grexit. It didn’t help that Reuters reported that a member of the ECB’s governing board was reported by Reuters as expressing uncertainty as to whether Greek banks would open on Monday. The ECB promptly denied it.

The ECB will have a call Friday to approve an ELA increase between regular two-week reviews. It would take a 2/3 vote to deny it. Varoufakis denied speculation that Greece would impose capital controls. Per the Financial Times:

“A monetary union that has accepted capital controls is a monetary union that has accepted that it has failed in its duty to preserve the free flow of capital,” Mr Varoufakis said.

As we’ve said, the ECB is the real power player, and it will play a decisive role in coming weeks. Greek banks depend on ELA support and the ECB will determine if and when it is withdrawn, which would force a depositor bail in or a Grexit. From Politico:

Economists are divided over whether the ECB would sustain its aid to the banks.

“If there’s no prospect for another aid package, I don’t think the ECB will end the emergency liquidity,” said Jörg Krämer, chief economist at Commerzbank in Frankfurt. “It would be the right thing to do, but it’s a deeply political decision that they don’t want to make.”

Still, Greece faces a number of large bond repayments in July. Those bonds are held by the ECB. It would be difficult for the ECB to help Athens if it fails to make the payments. Doing so would amount to using its printing press to fund a defunct state, a clear breach of its charter.

We may have a clue as to how Draghi is leaning. In his presentation to the EU parliament on Tuesday, he stressed in his discussion on Greece that the ECB is a rule-based institution. If he holds to that view, the ECB would not be able to keep supporting Greek banks if the Greek government defaults on a €3.5 billion payment due July 20.

And note that as we have said previously, Russia is not about to ride in to the rescue. From the Telegraph:

Meanwhile, Greek prime minister Alexis Tsipras arrived in St Petersburg to meet with Russian president Vladimir Putin to discuss Russia’s planned extension of the ‘Turk Stream’ gas pipeline and a BRICs bank.

Russian Deputy Finance Minister Sergei Storchak said that despite speculation “there have been no requests [for help from Greece]”. He added that “there are no resources [in our budget to provide money].”

So the high drama will continue next weeks. Sadly, no probable set of outcomes looks good for the long-sufffering Greek people.

Print Friendly, PDF & Email


  1. ennui

    Greece is not an “off-shore” banking haven like Cyprus. Given how the numbers work out and the slow bank run that’s been going on, where the mobile deposits are long gone from the Greek banks, I don’t see how even *threatening* a “bail in” in Greece doesn’t immediately nuke the Greek banking system and put the Greek economy on a strictly cash basis for the forseeable future (nukes it back to the stone age.)

    And, if the ECB nukes the Greek banking system, you don’t have to be a particularly bright Slovakian, say, to start thinking about the possibilities, if, God forbid, Slovakia ever has a financial crisis. There are plenty of local stakeholders in Europe who don’t relish the prospect of being bankrupted to make German and French bondholders whole, even if they have no sympathy for the Greeks. Not to even think about the calculations that are going on in Spain…

    So, making an “offer you can’t refuse” to Greece, seems like the old joke of holding a gun to your own head and telling everyone else to put their hands up. How can you have a European banking system if the central bank acts like a mob enforcer?

    I guess no one (certainly not the, supposedly Straussian, American “neo-cons”) understands Thucydides anymore. You can’t maintain a trading empire if you have to keep destroying your trading partners when they start to look threatening.

    1. Nick

      “You can’t maintain a trading empire if you have to keep destroying your trading partners when they start to look threatening.”

      Except Greece doesn’t trade anything of real value. What do they have to bring to the table? Very little.

      1. Santi

        They BUY whatever Germany sells (BMW, industrial machinery, saurkraut…). Don’t forget that there are two kinds of traders: those who sell and those who buy; if the buyers can’t or won’t buy there is no trade.

        See Reiner Flassbeck for how historically Germany surplus matches almost exactly the periphery deficit, i.e., Germany without the periphery will loose their power position fast. I use the future here, as they are destroying the euro and I have no doubt that German products will be boycotted in the periphery after an Euro breakage caused by their dogmatism.

    2. MyLessThanPrimeBeef

      We don’t understand Thucydides, nor could he our world.

      And this is our world – as the German Trading Empire is destroying Greece, Greeks are buying more German cars.

      That badly incentivizes the trading empire into foolishly thinking it should continue with the destruction.

      “Destroy, destroy. More cars exported.”

      1. ennui

        We don’t understand Thucydides, nor could he our world.

        It’s currently intellectually in vogue to say this sort of thing about the “classical” world and it’s certainly true in an absolute sense, but I think you could say something similar about the past in general. The problem is that it side-steps why history, even ancient history, continues to be relevant, at least on the level of rhetoric. Also, I think one of the factors behind this intellectual fashion is the way in which “neo-cons” in the US, like the Kagans, talked about Thucydides in the run-up to the second Iraq War. In particular, the famous “speech of Pericles” was and is the touchstone for all sorts of debates about “national interest” policy. So, rather than engage with the neo-cons terrible reading of the classics, which represents a barely disguised fetish for the “classics” obsession of their British imperial heroes, left intellectuals dismiss the whole subject.

        The irony is that the Athenians lost their empire after a politically ill-conceived and ultimately militarily disastrous invasion of a foreign land, Syracuse in Sicily. There is much to talk about in Pericles, but the gist is that he reminds the Athenians that their power lies in their navy, and the navy rests on the ability to extract tribute from the Delian league… the ability to extract tribute rests on the control of trade within the league. In order to fight an increasingly aggressive and costly war, the Athenians bore down harshly on their tributaries sparking endless rebellions that they squashed violently. Once the Athenians lost their fleet in Syracuse, they were no longer able to dominate the Delian league, they lost tributaries and tribute and were never able to rebuild their navy.

        The power of the US lies in being the largest spider in the web of international capital flows built after WWII. The US has been aggressive in it’s export of American legal standards for resolving disputes over investments but the apparatus is embedded within international institutions and mechanisms and rests, uneasily, on the willingness of the US to go against it’s immediate interests for the sake of the system, i.e. we bailed out Euro banks on the same terms as US banks. There is a double irony in calling treaties like the TPP, “trade” treaties because they are mainly about defining rules for capital, often intellectual capital, and while they have little to do with freeing regulations of trade of actual goods, they are crucial to “freeing” and extending the “trade” of capital. You can read a very high-level history (and ideologically axe-grindy and likely inaccurate in parts) of this in Panitch and Gindin’s “Making of Global Capitalism.”

        It’s easy to talk about “neo-liberalism” as an ideology, but it represents an actual system run by administrators in institutions, not just banks, through which US federal government has a hand. The irony of the “anti-globalization” protests of the WTO meetings in the 90’s was that most of the real decisions were made in the negotiations run by the US Treasury department. The neo-cons were unabashed in their desire to tear down the international institutions within which US power resides, which was an even bigger irony than their advocacy for aggressive war.

        But the point is that you can’t make an example of Greece without sending a clear message to the other smaller partners in the Eurozone. The ECB has effectively directed, rather than fought against, a slow run on the Greek banks. The comment from the executive board has now set off a fast run on the Greek banks. The fact that Greece is only weakly connected to intra-European trade doesn’t take away from the message being sent about whether the core Eurozone countries will put the interests of the smaller nations ahead of their own. Arguably the US is still doing a better job of this… the next Eurozone country to run into trouble will certainly take lessons from the Greek experience.

        1. MyLessThanPrimeBeef

          Thank you for that bit of interesting background information on our own recent history.

          I agree with you when you write that no one understands Thucydides anymore.

          Human nature is human nature; it doesn’t change much, even over 2,000 years.

          We live in a crazy quantum paradoxical world (so was the ancient world), but the modern details of which are something that will baffle our historian.

    3. susan the other

      Or a mobless enforcer. Funny story. The irrational choices in the EU almost make you think nobody can be that stupid and stubborn. So maybe they are trying to get rid of all the hot money left in Greece… let it escape so it does not come to exist and thrive on the new arrangements. The ECB has no political mandate at all. Everything has been fudged so far. It is just part of the absurd contract that EU members sign on to. The ECB as a political force will happen because the rest of the EU is so damned hapless. Just consider Greece itself as a bank in this goofy contract – because as it stands now, Greece is literally nothing politically. So if Greece is a bank and Greeks are the resources of the bank, then the ECB (nevermind how perverted the whole thing is) is almost mandated to take care of the entire situation. And almost is good enough in an insane crisis. Varoufakis: “A monetary union that has accepted capital controls is a MU that has accepted that it has failed in its duty to preserve the free flow of capital.”

      So if we apply what we just learned about money creation, the real reality of modern money, then hold everything. All the ECB has to do is balance its fiated books, for a good cause of course, and everything can evolve. Greece should really just call bullshit. Organize basic necessities. And sit back.

      1. ian

        “The irrational choices in the EU almost make you think nobody can be that stupid and stubborn”

        ‘The truly terrible thing is that everybody has their reasons.’ – Jean Renoir

    4. John

      As noted below, it’s the Germans, not Us, that’s destroying this trading partner. In this case we’re just an annoyed bystander.

      1. wolf

        I am sorry to say, it’s neither Germany or the US. If anything, this is a genuine Greek accomplishment. 5 bankruptcies in 180 years is quite a track record, practically one every 30 years! You though Argentina was bad? Compared to Greece, Argentina is a toddler!

        1. susan the other

          5 bankruptcies in 180 years? Greece is the toddler. Let’s look at the US. Was the Civil War our first national bankruptcy? It was followed by a deep depression in the 1870s and another crisis after the Gilded Age collapsed. Then there was an horrific collapse of our economy in 1907 which resulted in the creation of the Federal Reserve. Followed by a bankruptcy after WWI which was essentially resolved by stoking the economy and also ended in a huge crash in 1929. Followed by such a paralysis nobody could get the economy going, leading to WW2. In 1948 recession came creeping back and we just printed our way out until 1971 when we jumped the gold standard. The ensuing inflation freaked everyone out and we did crazy things like trickle down economix which was the equivalent of austerity which accomplished nothing. Then bubbles blew from 1987 thru the 90s; we gambled like lunatics (LTC); then the crash, then some clever financing and securitizations and derivatives and then the mother of all housing crashes in 2008 which was really just the whole credit bubble exploding. And etc. How many “bankruptcies” is that?

  2. Jim

    “either your brains or your signature will be on this contract” – sounds pretty persuasive. I’m always open to reason.

  3. Jim

    “a clear breach of its charter” – I didn’t realise that anybody gave a shit about the legality of the ECB’s actions.

    1. JTMcPhee

      “Legal,” any more, just means “whatever behaviors somebody else has the raw power to keep me from doing or can force me to do.”

      Not what I was taught in law school, except in one class… but any more, who gives a sh!t?

    2. Yves Smith Post author

      The Bundesbank is the heavyweigh in the Eurosystem. The chairman of the Bundesbank will apply serious pressure for Draghi, the ECB president, to follow that rule. The Bundesbank is already very unhappy about all the support that has been extended to Greek banks.

  4. Sam Adams

    Just an observation on the ground: the French population don’t seem all that concerned about a bank run contagion. Though since last night cash machines seem to be doing a brisk business.

    1. Pancho

      Who expected an outright bank run contagion spreading through the whole Eurozone?
      Worst realistic case would be the markets “testing” the next weakest candidate requiring the ECB to go all-in with measures it didn’t have in 2008-10, possibly including OMT. While not immediately prompting wide-scale bank-runs this scenario would still be enough to throw the Eurozone back into fear of another outbreak of the muted but ongoing financial crisis.

    2. wolf

      you really meant what you wrote here?
      well, the bank run is only a Greek scenario … not relevant in any other country! It’s the Greek’s central bank that is running out of liquidity, nobody else.

  5. Erwin Gordon

    Wow, this sounds eerily like what the IMF and the World Bank did with so-called third world countries in the late 20th century where irrespective of the number of reforms that a country does, they still hold the country by the balls! What a brilliant proposal for Greece, you cannot pay your debts so rather than acknowledging that defaulting and starting over while doing pension and labour reforms, let’s instead do pension and labour reforms without any hope of getting of resolving the present situation! It’s difficult to emphasise the crass stupidity of people who buy into the ECB, EU and IMF as well as the officials themselves who push this stuff. Let’s hope that the group in Syriza who are actually using their brains have drawn up a plan for handling the ECB’s attempt to squeeze Greece by bringing in a parallel currency while implementing capital controls when things blow up.

    1. Praedor

      Please, everyone, stop using the neoliberal-speak of “reform” for pensions and labor. They mean GUT:
      “Please toss your elderly, your retired, into the street and starve them. Please cut your labor wages down to slave labor 3rd world levels. Do this because our rich dudes up north don’t want to lose a dime. They’re all looking at a new yacht or vacation mansion and need every penny. Also, many have eyes on most of your prime land that is currently housing retired or elderly people. Kick ’em to the street so we can tear down their hovels and put up some gated resorts and private mansions using your “reformed” laborers paid at $5/day. Chop chop!”

        1. Linda Filkins

          If pensions are “15 % of Greek GDP” (even after all of the savage cuts) its because Greek GDP has collapsed because of the polices of the “troika” ..And what do we mean by “Greek”? Greek spending on social security programs was, for the decades leading up to 2015, less than the European average, not more. The “loans” made to “Greece” were made for things like bloated, unnecessary and unjustifiable military spending, aggressively demanded by NATO “partners” (the U.S and U.K.). Greece was essentially a Giant CIA station throughout the cold war. The people of Greece LOST money on all of that, not the other way round. And what about the “profligate” Greek Bourgeois ? Maybe the plentitude of CIA front companies in Greece can also explain most of the hemorrhage of illicit capital outflows from the country over the same time period – most but not all. Lets not forget how much of the money up to this point has been spent to recapitalize Greek banks and therefore, primarily, the very wealthy . The Greek people , the “99%” , the working class, are not, and have never been responsible for Greek financial crisis, except only in that they “allowed” the Greek ruling class to create it. But again the Greek ruling class were also “partners” in all of this every step of the way, to NATO (U.S.A.) . The crushing of Greek resistance is a political laboratory for the global ruling class. Its totalitarian capitalism gone feral. Capitalism cannot survive without the proletariat. Its broods on that levitating trick but knows it cannot. What we are seeing in Greece is the process of how the total, enslavement of the rest of us will be worked out.

          1. wolf

            first of all it’s 17.5%. Secondly the economy was inflated based on cheap money, average wages grew 40% in the 8 years prior to the crisis and pensions often enough were 110% of the last wage. Naturally, if you adjust these absurd figures, they look very drastic, and the result is very drastic for the people. Nonetheless, if we quote numbers, it helps to be fair and put those numbers into perspective. Bottom line, a country with not even 11 Mio people having 4.3 Mio pensioners with partly absurd and privileged conditions, and moreover them being in many cases the main breadwinner in Greece (not a joke, Tsipras himself made that point) is absurd. A non-productive major part of a society providing the income for families … Anyone still wondering why this country is going downhill?

            1. M Quinlan

              Look to German demographics, not to far away from having more pensioners than workers.

              Nice precedent Berlin’s setting up; screw the old to save the Billionaires. Hartz 2.5?

  6. EoinW

    In keeping with the spirit of such a wonderful analogy:

    We all know what happens to Luca Brasi. And who kills him? The Turk.

    Just wondering if a horse’s head in anyone’s bed would make them more reasonable.

  7. ex-PFC Chuck

    Some late breaking stuff on the ‘net this morning is pertinent. First, remarks Tsipras made in a St. Petersburg forum a few hours ago aren’t, shall we say, conciliatory:

    And then this from Raul Ilargi Meijer:

    “When spokespeople at the troika side of the table stated on Thursday that they don’t know if Greek banks will be open on Monday, they crossed a line that should never even have been contemplated. This is so far beyond the pale, it should by all accounts, if everyone involved manages to keep a somewhat clear head, blow up the union once and for all. If a party to a negotiation that can’t get its way stoops to these kinds of tactics, there is very little room left for talk.”

    There’s more:

  8. The Insider

    The ECB will have a call Friday to approve an ELA increase between regular two-week reviews. It would take a 2/3 vote to deny it.

    They just approved it. And this I think highlights one of the key dynamics of the situation: doing anything requires willpower, and right now there is an almost total lack of willpower.

    The ECB is going to allow the Greek banks to remain open until someone tells them to shut it all down. That decision will require willpower which is currently lacking. That means the Greek banks can potentially remain open long after they are bankrupt, disbursing funds they don’t technically have.

    That being the case, I don’t know why Greece would have to accept any particular deal. Europe lacks the willpower to pull the plug on the Greek banks, so the Greek banks can continue dispensing funds they don’t have, for quite some time. What the ECB will do about the growing hole in its balance sheet due to money owed from the Greek banks is an interesting question, but that’s a problem for Europe, not for Greece.

    1. Jose

      Yes, thanks to TARGET2 and ELA (both mandatory under the euro) Greece could game the system in her favor if she wanted – but she’s too terrified of the EU to do that.

      According to Varoufakis the differences in the negotiating positions amount to only 0.5% of Greek GDP in 2016. So we can likely get ready for a full Syriza capitulation soon.

      1. The Insider

        Greece may yet capitulate, but after the ECB decided to leave the spigot open, I think they are considerably less incentivized to do so. There were some noises made about how the ECB may not leave the spigot open forever and future liquidity may be linked to concessions from Syriza, but if at every point up to now they have decided not to cut off the Greek banks, there’s little reason to believe that will change.

        My core thesis is that Europe’s top priority in this crisis is to avoid a resolution of the crisis. The strategy is to kick the can down the road for as long as possible. The ECB’s move is perfectly in line with that, and I think Syriza has (correctly) surmised that Europe wants to avoid the confrontation that would be required to cut off Greece and the Greek banking system in particular.

        1. Percy

          “My core thesis is that Europe’s top priority in this crisis is to avoid a resolution of the crisis. The strategy is to kick the can down the road for as long as possible. ”

          I think this is right — and, as we here have shown, “as long as possible” has no real end-point. One wonders if Yves agrees or has some other idea. After all, this is not a movie.

        2. Chauncey Gardiner

          The economic hardships being suffered by the Greek people under the severe austerity policies that have been imposed by the Troika need to be addressed. That aside, nursing the status quo along indefinitely through principal refinancing extensions appears to be a reasonable policy approach to me. Meets most of the economic policy objectives of the various parties.

          Further, if the statement attributed to Varoufakis is accurate, and the difference in the negotiating positions amounts to only 0.5% of Greek GDP of around $250 billion annually, or $1.25 billion, that difference would seem to me to be resolvable.

          1. MyLessThanPrimeBeef

            From above:

            Michael Noonan, the Eurogroup elder statesman from Ireland, was the most specific about the Varoufakis contributions. “They tend to be more macroeconomic in nature than specific. And negotiations are about specifics


            I worry it’s turning personal. They are accusing, or saying, they want a ‘proper proposal.’ From the Greek side: It is just about 0.5% GDP. But how, counters, the other side and starts irrationally ranting about clowns and adults.

            Like Inspector Clouseau’s boss, someone might be driven mad into an insane asylum.

    2. MyLessThanPrimeBeef

      Don’t they have something like 95 billion euros worth (today’s value, I guess – could be way less in the future) of collateral from Greek banks, so these banks can borrow about 87 billions euros?

      I hope the collateral does not include a lien on the Parthenon.

      And in case of default, the hated Germans, or the German taxpayers, will own, indirectly through the ECB, the assets backing those 95 billions euros worth of collateral, I believe.

      I don’t see how Greece played Germany like a violin, as Shedlock claimed.

      1. Kraut

        “I don’t see how Greece played Germany like a violin, as Shedlock claimed.”
        That was the price to install a German ECB chief for the next decade and the German government was willing to pay it.

        1. MyLessThanPrimeBeef

          We soon will find out if Germany played Greece like a violin or the other way around.

  9. sid_finster

    My guess was that the Troika made Greece an offer it couldn’t refuse, with the intent that Greece refuses it.

    Once Greece does refuse, it can be ejected from the EMU or even the EU. and the consequences made as severe as possible.

    In case Portugal, Spain, etc. start getting ideas.

    That said, I don’t know that my theory jives with the increase in ELA support.

    1. wolf

      nope … if anyone moved towards a compromise it is the troika – repeatedly! However, Greece thinks it has Europe by the balls dragging them through Europe. What it forgot is that there is a greater responsibility towards the whole Eurozone vs. a single member if that single member thinks, it can blackmail, insult and extort all of Europe (for Germany haters: Germany). Only that Europe’s balls are hopefully as big as the moon. Good luck dragging the moon through Europe! With other words, Europe has no option at this point but to let Greece go. Game over! And as it stands, no member of the Eurozone can leave it, unless it leaves the EU along with it!

  10. washunate

    It seems to be at best an effort to have a talking point if needed if and when a Grexit proves to be as damaging as some fear.

    That sounds like a very reasonable explanation.

    All through this, the subtle undercurrent of the Greek position in more leftists circles has been something along the lines of ‘Germany is being unfair to us’, ‘we’re representing the entire south’, etc.

    But in practice, it has never been Germany vs. Greece or the north vs. the south or even the big countries vs. the little countries. It has always been Greece vs. the entire rest of the eurozone. The more this has drug on, the more impressive that united front is. What an utter failure of the Varoufakis moxy that Greece stands completely alone.

    I think that’s a lot of the creditor mindset. Demonstrating quite vividly that Greece is the black sheep, almost daring anybody else – anybody at all – to stand up with them.

    1. Robert Consoli

      No. And I think that this is what Yves shows no sign of understanding. It’s not Greece vs. the Eurozone. It’s Greece vs. the governments of the Eurozone. Those governments seem not to understand the political risks they are taking in their own countries; or do you think that the kleptocrats can defeat each country one by one without ever having to face the electorates? France?

      1. washunate

        I’d say the creditor mindset is that the governments represent/command/wield/whatever the power of their countries. I’m certainly willing to agree that could be unfounded hubris down the road at some point. But it’s not today.

        do you think that the kleptocrats can defeat each country one by one without ever having to face the electorates?

        Yes, actually, I do. I think the extent of the damage in western civilization has been systematically underestimated and under appreciated by more comfortable liberals for a couple of decades now. This is understandable because the rot has been systemically designed to leave the veneer, the surface, of a functioning system as the more marginalized and voiceless members of society have been preyed upon. It’s the insistence on formality and being technically not lying even as one spins deception after deception. A long, slow decay is much harder to see in day to day life than a sudden calamity. [side note, I don’t say that pessimistically; I think burying one’s head in the sand is pessimism. Rather, it’s simply an observation that the most important step of problem solving is understanding the problem, and the problem is that a significant number of educated/professional/intellectual Americans specifically and westerners generally benefit from the kleptocracy whether they consciously participate or not.]

        I vividly remember Le Front National in the 1990s. Guess what? They are still not in power. NATO expansion is absolutely idiotic. The Anglo-Americans have done it anyway. The most important overseas US military bases are still in Germany. etc. Berlin and Paris cannot even think of acting independently of London and DC until they know for sure who is with them, through thick and thin.

        But moreover, I don’t quite buy the framework that Greece is simply interchangeable with the next country in front of the kleptocrat steamroller. I think there is a unique cultural quality about how Greeks and the rest of the eurozone are moving away from each other. In my read, Paris/Rome and Berlin breaking from each other is a very different thing than Athens deciding to part ways with Frankfurt/Brussels. White Europeans are not white in the way that white Americans are white from Seattle to St. Louis to Savannah. Europeans are French and German and Italian and Spanish (and even that is an oversimplification that can miss regional identity differences). Some of the most interesting political economy happenings to me are independence movements in places like Scotland and Catalonia.

        I’m curious, are you seeing some kind of groundswell of public opinion in other eurozone countries that will materialize into pressure on the governments on a timeline that can resolve debt matters in Greece? I’m not an expert on Europe, I’m just watching from afar like most of the rest of us Anglo-Americans.

  11. Gaylord

    Russian Deputy Finance Minister: “there have been no requests [for help from Greece]”. He added that “there are no resources [in our budget to provide money].” Does anyone take that at face value? The BRICS fund has $100B available for investment, Greece could soon become the sixth member, and one of the most lucrative projects in history (Turkish Stream Pipeline) will include Greece. Come on, let’s get real — these denials of Russia (and its partners) being willing or able to come to Greece’s aid are clearly diversionary. They obviously don’t want to give the Washington scoundrels any ammunition (twisted justification) to pull more dirty tricks like what happened in Ukraine, where acceptance of aid from Russia instead of Europe cost the people dearly.

    1. Pancho

      I think so, too.
      Plus: While Russia certainly won’t pour out huge sums to bail out Western contagion, it will probably do what it can to support a Greek recovery, but not before Greece’s negotiations with it’s creditors have resulted in either a settlement or a rupture/default. So for now it’s certainly wise not to make public promises.

      1. gemini33

        Russia needs warm water ports and ways to defend the Black Sea which is now crawling w/ war ships unfriendly to them. I agree w/ commenter above. I wouldn’t count out some help from BRICs and Russia. I’m guessing there are a number of national defense monies being spent that were not in their budget either.

        1. Lambert Strether

          Not sure how the Russian Black Sea Fleet makes it through the Dardenelles. The Russians have wanted a warm water port for ages, but that doesn’t mean they can get one. IIRC, they have a port in Syria, and maybe a port in Greece (or Cyprus) is Plan B, but I can’t imagine either Turkey or the United States looking with favor on that.

          1. Tsigantes

            China and Russia heId joint navaI exercises in the Mediterranean in May.

            Russia maintains a suppIy and maintenance base at Tartus port in Syria. As for access through the BIack Sea and DardeneIIes this is by way of the international waters / shipping Ianes. The US navy in the BIack Sea is in international waters and aIso within the Ukrainian EEZ.

    2. wolf

      of course there have been no requests – because it was made clear they better don’t ask.

  12. Kas Thomas

    I would like to see Yves and others comment on what the post-default “discussion points” and/or punitive actions might be and the degree to which creditors may or may not “kick Greece after it’s down” (which various politicians may see as necessary, to make an example of Greece). I suspect IMF might have very different notions than ECB as to how to treat Greece after default is “real.”

    I would also enjoy seeing Yves compare/contrast various positions outlined in the IMF paper on income inequality and redistribution with IMF-backed austerity proposals, as many of the IMF positions (in the paper) are surprisingly liberal/rational.

    Thank you for the excellent coverage of the Greek crisis thus far.

    1. MyLessThanPrimeBeef

      My fear is, post-default, the military will be courted, in order to keep Greece away from the Russians.

      They will have to exercise force, keep order and help the creditors extract reparation.

      1. Praedor

        No doubt NATO and the US already has a coup plan setup, with snipers and thugs ready to turn protests into anti-Syriza/government protests that “turn violent” because of faux govt forces shooting or beating innocent protestors, ala Ukraine. Of course, any snipers or thugs will actually be on the CIA payroll, dressed up to look ambiguously like govt forces. Probably shoot at both protesters and police so each side thinks the other started it, NATO/US blames the “radical” Syriza govt…same as Ukraine, military takes over and it’s a US paradise – any dictatorship is a Good Thing(tm) to the US foreign policy criminals so long as it prevents any end to the “Washington Consensus”.

  13. -jswift

    Does anyone see similarities of media coverage of the Greek debt negotiations, to the media blitz leading up to the (2nd, post 9-11) Iraq invasion? Its unfortunate to have to speculate that tough language being used is part of a plan to show that no dissent (at intergovernmental levels) from a certain neoliberal mainstream line of thought is likely to be tolerated. Have the media been fact checking claims of Juncker etc of
    Greek leaders lying to their population? To the extent that I’ve seen anything its at best ambiguous.
    (or of lagarde’s “adult” quip for that matter.)
    The situation is more complicated than Iraq in some ways, and Europeans maybe harder to wool-over than the US was post 9-11, so the blitz is on a more subtle level, but its also hard to find much dissent in big name papers. Has the reasoning for reforms, based on a logic of globalization been reexamined in light of problems that have surfaced, of conflicts of globalization with democracy and other fundamental values? As far as I can see the conflicts are acknowledged in passing, then the same logic is enunciated as if nothing can change it.

    I don’t think Euro leaders expect Greece to persist, so i doubt they have very specific plans beyond any unexpected default, but I’m sure there are some who will push for tough treatment, to ensure that no one else dares try it. But I doubt they will discourage voters from turning to alternative movements; there is not enough of a recipe for hope, beyond the usual trickle down, and western europe still has a lot of downward mobility to face under such policies.

    1. Praedor

      The BIGGEST flaw of “globalization” is that the various trading areas/unions include 2nd and 3rd world nations. You CANNOT mash 1st world, fully developed and modern industrial and social societies into a group of “equals” with a bunch of developing nations. This automatically creates the expectation that advanced country labor should compete on wages with 2nd/3rd worlders where they are paid a dollar (or Euro) a day, work 80 hour weeks, aren’t allowed weekends, have no retirements except death (or counting on your multiple children to keep you sheltered and fed in your dotage). Madness. Only 1st world nations should be in “equalized” trading unions where labor in Germany is competing with labor in the UK or USA or Canada. The race to the bottom is then not really all that much of a bottom. Corporations that use cheap (slave or child) labor in “developing” nations should see tariffs on their products so they don’t actually gain much by using slave labor. Better yet, setup a universal corporate tax system that is punative for corporations that pay their top execs millions while paying their workers pennies a day. The difference between average worker pay and top exec compensation in any corporation should be the determining factor in corporate taxation. Any difference greater than 60x worker pay (in Euros or dollars depending on origin) sees a punitive corporate tax.

      You protect worker wages in rich countries, you greatly increase pay for workers in poorer countries, and in any case you eliminate the problem of unsustainable and destabilizing income inequality.

      1. MyLessThanPrimeBeef

        Advanced country labor vs. wages of 2nd/3rd worlders.

        What about 1st world capital vs 2nd/3rd world capital? There is not competition there. The victory was secured decades ago. First world capital flows from the imperial fount – a magical printing press – and today, it’s available nearly cost free to the well-connected first worlders. For this super-efficient leisure class, so efficient* that they have too much idle time, amusement is needed.

        Enter the arbitrage game of1st world labor vs. 2nd/3rd world labor. It matters not who wins or who loses – the fight must be entertaining, or else life would be too boring for these overlords.

        *Thus, the dedicated pursuit of ever more efficiency.

  14. kaj

    I don’t understand the reason for breathless-ness in Yves Smith’s commentary today. There does not seem to be an understanding here of the basic strategy underlying Syriza and Tsipras because you are dealing with committed, disciplined, theoretically well-honed activists, who have studied the history of past Left government and left parties’ strategic and program failures and drawn appropriate lessons for future struggles.

    The whole dialogue here seems to consist of citing FT, WSJ, Politico etc. which traverses the neo-liberal paradigm and expect this new group, Syriza in this instance, however rational its demands appear to be, to cave because after all their neo-liberal, weltanschauung is all they are ideologically familiar with and it appears so historically correct and “reasonable.” Everything else is “childish” and not adult: Francine Lagard – IMF Chief.

    & Ms. Smith wants it all to end soon because the Greek people are suffering so much! But they have been suffering enormously for along time. Greece needs its own currency and to remain a member of the EMU is suicidal for it today and in the future. Tsipras understands all this. He just wants time to bring the Greek populace to that conclusion, that understanding.

    This applies to all the itty, bitty countries that constitute this Monetary Union. Not just Greece, but Portugal, Finland, Estonia-Latvia-Lithuania, Slovakia, Slovinia, etc. that just don’t have the infrastructure and universities and research institutions like the U.S., Japan and now even China to some extent, that spawn advanced technologies and large enough population bases for an internal market that can then be used as a fulcrum to spread the fruits of the innovations. Even, Spain and France are going to have a hard time in the future staying up with German productivity, and the EMU was a stupid contraption devised by Mitterand for subsidizing France. Turns out that its chief benefactor was Germany, just the opposite of what was originally intended.

  15. docg

    I’ve been repeating ad nauseam my conviction that Greece will get its bailout regardless of what Tsipras decides to do or not do. Now, via the grapevine, I’m getting a glimpse of the necessary euphemism: “Emergency Funding.” Of course, the “institutions” can’t possibly admit defeat — and allowing Greece to get its bailout after all would certainly look like defeat. “Emergency Funding” sounds better. Greece will get “Emergency Funding” to tide it over this difficult transitional period. No doubt “humanitarian concerns” will also be mentioned. What a lousy joke this farce has become.

  16. Calgacus

    From following the links in the failed evolution link in today’s links:

    SYRIZA is not afraid of Grexit by Syriza heavyweight and Deputy Minister for Social Security Dimitris Stratoulis.

    His head is screwed on straight:

    “Creditors would suffer much more than Greece in the event of Grexit. People should not worry. We would have difficulties for several months but then everything would be fine.”

    And ‘If Greece goes out, the euro might break down’ by Euclid Tsakalotos, Alternate Minister of International Economic Relations and Varoufakis’s replacement as chief negotiator.

    It looks like the Grexit scenario – that Varoufakis deemed more likely than not a year odd ago – is playing out now.
    I must comment on Tsakalotos’s

    “My greatest fear is that the break-up of the euro will return (us) to the competitive devaluations, and the nationalisms, and the kind of politics we had in the 1930s.”

    This is mistaking the cure for the disease: competitive devaluations, currency wars are/were basically a good thing – definitely a good thing compared to unworkable fixed exchange rates or currency union as an instrument of torture in today’s EU. The politics of the 30s came from the politics of the 10’s & 20’s & the bad economics of the 20s, the correct parallel to today’s EZ. But the economic benefits of the 30’s economic “nationalism” were too little, too late, not enough to prevent the earlier bad decisions from bearing fruit and were perverted to serve the political destruction.

  17. wolf

    For those who do not understand why the creditors will not accept a haircut. Here is why.
    Greece has received the most generous conditions ever! 1.35% on 145bn of 200bn Euros with interest rates halted until 2023 is quite something and definitely sustainable, even for Greece. People always simply look at the debt to GDP ratio, as if the conditions were irrelevant. Quite frankly, I don’t give a rat’s ass how much I owe, as long as I can make my payments! As Tsipras and Varoufakis made clear on pretty much every occasion, their main focus is to attract investment to Greece. Giving Greece a haircut, let’s say 50% as many demand (of course forgetting that the most generous conditions in all of the Eurozone that were given to Greece de facto constitute a haircut) would put Greece ahead of Spain, Italy, Belgium, Ireland – even France and only little worse than Germany. Based on WHAT? But would happen next? You guessed it! Greece would attract investment, and would have no problem borrowing cheap – and it certainly would! And that is basically Greek’s business model – and nothing else! And who thinks Greece would then be able to push reforms through when any greek’s government main clientele is that 30% government workers with their privileged contracts and pensions? Keep dreaming! Greek will only reform, if there is NO further haircut and if there is an incentive to reform. We have our experiences with Greece in Europe, and a track record of 5 bankruptcies in 180 years speak for itself. And it wouldn’t be the first time they are kicked out of a monetary union either – see 1850s.
    Greek has chosen to abandon Europe, not the other way around. Greek has always received unprecedented solidarity, and I am not only talking about the crisis. From the EU alone, Greek to date received 180bn Euros since 1981 when it joined the European Union. Be my guest imagining where Greek would be as a country without the ongoing solidarity of Europe. But one thing is for sure, we in Europe, will not be taken hostage, insulted, blackmailed and extorted by a country that sees no need to reform in the face of blatant and absurd shortcomings and deficiencies. Take it or Gr(EU)it!

  18. wolf

    all experts agree, with the Grexit Greece’s standard of living would go down. all benefits of competitiveness with a new drachma (expect to devaluate 50%) would not be enough to compensate for imports practically rising equivalently in relation since they still have to be paid in Euros and Dollars. Energy costs alone (think gas stations, households, industry) will set this country almost en par with third world countries. On the other side, Tourism is going to boom and Greeks are known to be very welcoming people. Only if Europeans are so eager to spend their holidays in Greece after they have just been royally f… over – I have my doubts.

    Interesting will be to look at Spain later this year. 26-27bn euros is the exposure of Spain concerning the Greek bailout, as much as Spain is spending for their own unemployed. Podemos had been gaining much territory in Spain but since January this year a new party called Ciudadanos (Citizens) is gaining territory even faster (now practically en par with Podemos) and dramatically slowed down Podemos advance in the political arena. Even though Podemos is meanwhile around 20%, it certainly won’t be enough to govern the country! Just on a side note …

  19. Christopher C. Currie

    The longer Greece waits to get out of the Eurozone, the poorer it gets. Greece should STOP playing the EU’s debt-based monetary system Ponzi game (a pathological scam). Get out NOW!

Comments are closed.