My Big Fat Greek Bank Black Hole: No Deposit Insurance

It’s hard to find an official who is comporting himself very well in the wake of the Tsipras surprise announcement of a referendum on July 5 for a then-defunct bailout offer.* Obama called Merkel to make it look like he was Doing Something. Jack Lew called Tsipras to tell him to Do Something, apparently not having gotten the memo that Tsipras has tossed the matter over to Greek voters and there is no way he can reverse course now. Tsipras sent a notes to Eurozone heads of state on Sunday, asking them to override the decision of their finance ministers not to extend the bailout. Hollande tweets a deal is still possible. Merkel says it is up to Greece to capitulate, um, resolve the standoff, which contradicts Hollande and reaffirms that the bailout is not being extended.**

But the most bizarre display was European Commission chief Jean-Claude Juncker’s press conference. Even through the dry medium of live blog comments and tweets, it comes off as if he became unhinged. He seems desperate to resurrect a deal and his reputation. He urged a Yes vote on Sunday in Greece as a way to affirm the Eurozone. But he lost all credibility when he claimed the creditors hadn’t wanted Greece to cut pensions, and he went on way too long about how he had been treated badly by the Greek team and misrepresesnted: “the selfishness and tactical games of populists prevailed”, leaving him betrayed by Greek “egotism”. Junkcer had released a document Sunday night that he claimed was a better offer to Greece that the negotiating team was reading when Tripras aborted the talks with his tweeted referendum announcement. Even if what Juncker reported was the gospel truth, given his blatant distortion of the lenders’ position on pensions, it’s impossible to take the document seriously.

Now there is a reason for Juncker to be so eager to try to secure a “Yes” vote from Greece. It represents virtually the only chance to save the Greek banking system and with it, Greece’s continued membership in the Eurozone. But even then it could be very hard to achieve. If Tsipras were to form a new coalition, it might be possible to put together a stopgap deal to forestall an ECB default on July 20. But with a no vote, or if Tsipras calls new elections after a yes vote (which runs the risk of the timetable for forming a new government too close to July 20; readers who know lead times for elections in Greece please pipe up), it seems likely that the the ECB default takes place, which will force the ECB to either cut the ELA by imposing more stringent collateral requirements or withdrawing it entirely. Either one would lead to a failure of the Greek banking system and force the government to resolve the banks and issue drachma to recapitalize the banking system.

Even now, with the a mere bank holiday and capital controls in place, conditions are not pretty. Banks are closed and customers can’t even get access to safety deposit boxes. ATM withdrawals are limited to €60 a day, according to Bloomberg. Pensioners have not been able to access their monthly stipend; the government is set to announce at 4 PM local time which bank branches they can go to to get their funds. What happens if branches run out of cash?

The Guardian live blog reports that grocery stores in Athens are being stripped bare by anxious customers[Update: the live blog, in a later entry, shows pictures of grocery stores that are normal, so it isn’t clear how widespread the food hoarding is]. Lines are long at gas stations as customers not only fill gas tanks but also cans. It also points out:

But a former deputy governor of Cyprus’s central bank, Spyros Stavrinakis, has warned that reopening the banks will be hard.

Stavrinakis lived through the 2013 Cyprus crisis, in which capital controls were imposed for almost two years.

He says:

Once you impose capital controls, you immediately send a message that there is something wrong with the banking sector.

It is very difficult to phase down and unwind capital controls, once they are imposed, Stavrinakis adds.

And in case you missed it there is something very wrong with Greek banks. And make no mistake, this train wreck is an indictment of the lousy job the Eurocrats have done in dealing with the crisis. One symptom is what has happened in Greece: keeping the country hanging in the breeze with continued draconian policies that induced and perpetuated depression and deflation. Another is the failure to address the rot in the Greek banking system. Third is the lack of remotely adequate deposit insurance.

This estimate is from a couple of weeks ago, when we first posted it, but it gives you a flavor:

Analyst David Zervos of Jeffries (hat tip Scott) claims that an default against ECB would make all Greek collateral ineligible for Eurosystem loans…

But independent of when the ECB decides to pull the trigger, Zervos gives an idea of how brutal the process is (and recall this sort of threat was what drove Ireland to assume responsibility for its banks even though there was no government guarantee). You need to read past Zervos’ schadenfreude; a more borrower-friendly writeup in Tagesspiegel of how the ECB executed the Cyprus bail-in made it clear that the central bank had planned its moves carefully and left Cyprus with no good escape routes. From Zervos:

And to be sure, making an example of Greece is a probably the greatest achievement for the fiscal disciplinarians of Europe. Maastricht never had any teeth. But this exercise is impressive. It shows that fiscal excess will be squashed in Europe. The Portuguese, Spanish and Italians are surely taking notice. And in the days that lead up to a Greek default on 30 June, and then more importantly on 20 July, these disciplinarians will surely display their power for all to see. Oddly enough, I actually think this has been the German plan all along. With no real way to ensure fiscal discipline through the treaty, they resorted to killing one of their own in order to keep the masses in line. It explains why Merkel took out Samaras when she knew a more hostile government would surely emerge in Greece. This was masterful political manipulation.

In any case, enough about the past, let’s run through the most likely end game for this Greek saga as a deal never gets agreed before default.

1. Greece misses its IMF payment on the 30th of June. This could be a trigger but it may not be. The IMF has 30 days to call Greece in arrears so technically Greek government guaranteed collateral, and hence the Greek banks, are still solvent after the 30th. However on the 20th of July the Greeks will surely default to the ECB without a deal. This is the official d day.

2. Upon default, the collateral at Greek banks cannot be posted any longer to the Euro system. The Greek banks then become insolvent and the ECB, through the newly created Single Resolution Mechanism (SRM), is obligated to resolve the Greek banks.

3. So the ECB goes to Tsipras and tells him – we are immediately instituting capital controls and we will begin resolution of your banks unless u sign the agreement and re-enter a program. Without a bailout program in place the Greek government, and banking system, are both insolvent. So Tsipras says – what do you mean resolve my banking system? And then Mario explains as follows. First we wipe out all equity and bond holders. And then, as in Cyprus, we bail in depositors. There are 130b in Greek deposits against 90b in ELA. And while those deposits are technically insured up to 100,000 euro, there is no pan European bank insurance yet in place. That only comes in 2016. Right now Greek deposits are only insured with a Greek deposit insurance fund that has about 3b in it. This Is hardly enough for the 130b in deposits. So we take the 130b against the 90b in ela. Any remaining deposits go to fund a bad bank that begins resolving all the NPLs. The good loans of course will go into a good bank which will be funded with German capital and most likely will have a German name. Of course depositors will get 2 to 3 euro cents on the dollar for their existing balances from the 3bio in the insurance fund. So you have that going for you!

As Nathan Tankus elaborates:

Most things in the European Union are designed to actively obfuscate reality. These are called deposit insurance schemes but that is a legal lie. In the United States the FDIC is Federal (its right in the name). The EU imposes a requirement that each country “insure” their deposits but it provides no financing for this. The last data I saw (which I can only verify from 3 years ago) is that the Greek deposit insurance fund has a paltry 3 billion dollars in it. In short there is no current backstop for Greek depositors. This is why they are talking about implementing a European wide deposit insurance union but that isn’t supposed to come until next year at the earliest and who knows if that will really happen and to what extent it will be universal among current Eurozone members. relevant links below.

Now in fact we already have capital controls and a bank holiday. The ELA is still at just under 90 billion. More deposits have left but even with the rapid outflow, the general picture is the same. And the Wall Street Journal points out, even with the current efforts to reduce the cash burn rate, Greek banks could become hopelessly insolvent before July 20:

Three-and-a-half billion euros. That is roughly how much cash Greece’s banks need to get through the week if each adult takes out the €60 ($67) they are allowed each day. It isn’t much for Greeks to live on, but it may be more than the banks have.

And the article points out a vector of contagion thanks to the failure to address the lack of deposit insurance, a banking prudence 101 provision in any advanced economy, combined with its depositor baii-in policies, which are almost designed to stoke bank runs. In Cyprus, only deposits over (€100,000 were haircut, but that was only after negotiation. The earlier proposals were to whack all depositors.

Whatever the outcome of the vote, both the ECB and the single European bank regulator need to look soon at how to ensure nervous depositors and investors don’t undermine banks elsewhere.

Portugal’s Banco Comercial Português, Italy’s Monte dei Paschi and Austria’s Raiffeisen Bank saw the biggest share-price falls Monday precisely because Greece highlights that banking union remains incomplete and banks in the bloc aren’t supported in the same way.

From now on, “whatever it takes” can’t mean only the ECB policy of buying bonds to hold down yields. Common deposit insurance, resolution authority and capital rules are critical to stopping the spread of financial instability.

Now with that ugly picture, one might reasonably argue that the bank bail-in mess is another insult to add to Greek injury. But that happens only if the ECB cuts or restricts the ELA. The choices now seem to be that it Greece voted yes and some sort of restructuring talks were underway, the ECB would figure out a way not to have July 20 be a default, despite that looking like an awfully hard date. Thus the alternative of a Grexit would force the government almost immediately into trying to make the payment system work, which at Nathan Tankus stressed, isn’t trivial, particularly since there are reasons not to seize the Bank of Greece, which for most practical purposes is an ECB operation. The lack of experienced government staff and specialists (even if they can round some up, they will be too few in number for the magnitude of the task) means if nothing else a protracted bank holiday. The longer banks remain closed, the greater the damage to supply chains and Greek businesses, which are the productive engine of the economy. Business collapses can’t be reversed. And as Nathan will discuss, financing imports after going on the drachma is difficult and will do more damage, not just to businesses, but citizens as well.

I wish Nathan had his investigations ready in end-product form and we hope to have some posts this week. Everything based on his granular work points to the impact of a banking system restructuring and conversion to the drachma being vastly more difficult and leading to more concrete harm than pundits and economists taking 50,000 foot views begin to comprehend. Mohamed El-Erain, no hysteric, placed the odds of Grexit at 85%, and gives a flavor of how deep the downside would be:

Greece is heading for a “massive economic contraction” and is likely to be forced out of the euro zone, according to Mohamed El-Erian, the former chief executive at Pacific Investment Management Co…

“What we are seeing here is what economists call the sudden stop, when the payment system stops. The logic of a sudden stop is a massive economic contraction, social unrest and it’s going to make continued membership of the euro zone very difficult for Greece….

“This is a tragic situation — we must not forget that there are Greek citizens that have already been suffering for five years,” El Erian said. “They’ve seen their living standards cut, unemployment is running at 26 percent, youth unemployment is over 50 percent and they’re about to face an even bigger depression.”

This is the biggest reason we have been so hard on the conduct of the Greek government. Varoufakis had concluded in his pre-Greek government writings that a Grexit would be a disaster for Greece. Yet his and his colleagues’ game of chicken approach to the negotiations meant that that was a very realistic outcome that they cavalierly assumed wouldn’t happen. As terrible as austerity is, a Grexit will be vastly worse, and not for six months or even a year. Aw we and others have stressed, Greece could well become a failed state, with human and social costs that would put any effort to assign mere economic damage to shame.

*Some readers insist a bailout could be revived. It could in theory be extended prior to June 30, although that is in practice impossible for a host of reasons we won’t belabor here. As we wrote in comments on another post:

And once Greece goes into default, all the parameters change. The country is guaranteed to go into an economic tailspin by virtue of the bank holiday alone, which is certain to last at least till July 5 and probably longer…. All the primary surplus numbers need to be rethought, just for starters. And the creditors will need to restructure the debt, something which was not on the table earlier. That means they need to decide what conditions (“reforms”) to attach to that.

Per Guardian live blog:

Analysts at RBC have issued a research note, explaining why Tuesday will be a momentous day:

First, the current Greek bail-out programme expires.
This is important as this means the legal basis on which all potential further bail-outs were dependent expires. As the eurogroup meeting declined to prolong the current programme further that means that at the time of the proposed referendum, there is no contract in place that the Greek authorities could then accept or decline (i.e. technically, there is nothing to vote upon). Furthermore, the European side will find it difficult to then pay out any funds even if the referendum went in favour of any further bail-out. In that case, we reckon, a completely new contract would have to be drawn up that would then have to be passed by all relevant member states’ parliaments.

** Merkel couldn’t extend the bailout even if she wanted to. It takes parliamentary approval and she does not have the votes.

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  1. Matthew Cunningham-Cook

    A Grexit doesn’t have to be that awful. Even if there is a massive contraction of GDP, if the government takes the right steps (which is unlikely)–nationalizations of all structurally important industry (electricity, transit, telecommunications, food), seizure of all vacant lands for mass agricultural production, and asset forfeiture of all elite criminals, a foreign policy pivot to Russia–I really doubt that things would get worse in Greece and would start to get better very quickly.

    1. NotTimothyGeithner

      The number two industry is tourism. Uncertainty kills tourism. A “Grexit” despite being inevitable short of EU reform will be awful.

      Even with nationalism, Greece relies on trade. Many trade partners might not take drachmas. Back in 2011, NATO propagandists worked themselves into a frenzy over Gaddafi’s $50 billion in offshore currencies. That was the money Libya used to buy products they didn’t make. Many of Libya’s problems stem from destroying this cash and building malls. Greece has no cash. If they run out of penicillin, will phizer take drachmas? All this nationalization stuff is nice, but who supplies the parts for the transit systems?

      1. washunate

        will phizer take drachmas?

        That question demonstrates exactly the confusion. There are two entirely unrelated issues. One is the operational capacity. Can payments systems handle international money flows to and from Greece if the eurozone member nations cut them off?

        The other question is balance of payments. Will foreign trade partners trade with Greece? The answer to that question – will Phizer take drachmas – depends upon the political leadership. For it to be a relevant question, the payments systems must be functioning at a rudimentary level.

        Phizer will absolutely take drachmas (or euros or dollars or pounds or yen or gold or whatever) if Greece is exporting approximately the same value of goods and services as it is importing, or, if Greece can solicit significant charitable contributions from the world’s governments to fund a current account deficit, or, if Greek expats send a significant enough amount of currency back home to fund a current account deficit.

        Otherwise, Phizer won’t take drachmas, reducing Greek imports. Until they balance exports, at which point, Phizer will take drachmas.

        1. Well now

          I would take this opinion with greater authority if you could spell Pfizer correctly.

          1. washunate

            I thought it would be more fun to keep the name in ntg’s comment. Perhaps I should just call them Monsanto. That helps emphasize the linkage between intellectual property, medicine, food, corporate predation, and other factors.

      2. zapster

        I’m not convinced that “uncertainty kills tourism.” With the prospect of dozens of drachmas to the Euro, Greece will suddenly be the most attractive vacation spot in Europe. I have a hunch that a sudden influx of Euros via that avenue will quickly nullify any protest–unless, of course, that protest is a “regime change” operation from outside. Greeks will be busy selling anything they’ve got to sell. This could be a good bit less traumatic than everybody seems to think. Most of Europe is strapped for cash, so cheap anything will be attractive. And Germans love Greek beaches…

        1. oho

          “I’m not convinced that “uncertainty kills tourism.”

          It’s the weak Turkish Lira that’s hampering Greek tourism the most.

    2. shash

      That leaves about ten minutes to (an engineered) “mass uprising”, maybe a military coup to “restore order”. Maybe a few economic sanctions if that doesn’t work…

      Even without that particular problem, I think such a programme would be pretty difficult to pull off, and no guarantee of even partial success. Also remember, it’s an economy highly dependent on imports. Unless they can figure out a way to pay for all of that, they’re still going to have enormous problems.

    3. Yves Smith Post author

      Nathan Tankus has starting addressing the issue of operational capacity. You are suggesting what amounts to war-level planning and execution. The ruling coalition is already divided by obvious infighting. Ministers regularly contract each other and even try undoing policies that others are pursuing (for instance, the Russia-friendly Energy Minister signed a preliminary memo with Russia on the so-called Turkish Stream pipeline. The Foreign Minister is shooting at it, strongly implying a deal won’t get done).

      And that’s before you get to the fact that the Greek government has been badly budget starved for years, and can’t have much in the way of a professional civil service left.

      1. Matthew Cunningham-Cook

        I think you’re pointing correctly at the real problem here– leadership. The program described above is little different than what the Bolsheviks did in 1917 under far, far worse circumstances. Tsipras and Varoufakis are no Lenin and Trotsky. And no Kollontai anywhere either…

      2. Fair Economist

        We already knew that long-term Greece absolutely could not pay off its existing debts in the Euro and the behavior of the EU just now has made it clear that when they did default they were going to get a banking shutdown and whatever resulted from that.

        So what’s happening was inevitable; it was just a matter of timing. Syriza isn’t a model of technocratic competence but they’re the only party which would even try to do things right. Delaying the default (and possible exit) just means more suffering and waste before it happens.

        So, while the outcome may be very bad for a while it was inevitable and it’s happening at the best time available (immediately) and under the least bad government for it.

      3. Ishmael

        The comments above do not reek of Lenin but Stalin and if you do not remember led to mass starvation. I know this time it will be different. To me it amazes me how the average person commenting on this site always wants to start central planning which has failed and failed big time. One of the main problems with the Greek economy now and what the Troika is attempting to reduce is far too large of government. The government is not just too large but uncoordinated which sums to destructive to the Greek economy. Acting Man had a great blog about how destructive the large government of Greece is.

        Over time Greeks have left their villages and moved to Athens and taken a job with the govt. Just last week I was having dinner with a Greek whose father was a doctor in Greece. Her father was amazed that the only person (he was educated in the US) he saw working was him. Everyone else worked for the govt. Before this migration to Athens from the villages occurred Greece was self sufficient food wise. Now it has to import a lot of its food.

        I might have posted here before that my wife inherited property in Greece. It had a house and olive trees even though the trees would need a lot of work. We actually talked about moving there but her relatives said do not move here it is too corrupt. You will not be able to get anything done!

        1. Matthew Cunningham-Cook

          “always wants to start central planning which has failed and failed big time.”

          You realize that capitalism is by nature central planning, right? Governments have to organize capital to protect private property.

          It makes sense that you’re an heir– I doubt you’ve ever had to do real work for a living. That could explain your callow ignorance of historical reality.

          1. NOTaREALmerican

            Re: You realize that capitalism is by nature central planning, right?

            There’s no such thing as “capitalism”. There’s also no such thing as “socialism” or “communism” or any other ism. There’s only smart-n-savvy people and the clueless people who are food for the smart-n-savvy people. The smart-n-savvy people organize societies (all societies) with systems designed to move loot from the clueless people to the smart-n-savvy people. Doesn’t matter if it banksters screwing the clueless people, or unions, or developers, or industrialists…, somebody is getting screwed and somebody is doing the screwing. So, let’s replace all the worthless previous “ISM” with ScrewISM: The smartest-n-savviest people screwing the dumbasses; and primarily by creating bullshit about how the smart-n-savvy people are actually helping the dumbasses’ children (they fall for it every time: the clueless people are clueless that way. Most of the clueless people are just pathologically hopeful and believe hopeful sounding bullshit. It’s so easy for the smart-n-savvy people they’ve become wealthy – the world over – using the process).

          2. IsabelPS

            LOL! You have no idea of the difference between being an heir and inheriting a house with some olive trees around, do you? That could explain your callous ignorance of reality.

          3. Ishmael


            Getting ready to make a run to collect my July rent checks. Hope you have yours made out, I don’t want to work to hard to get it. I have a racket ball match later and i do not want to be too tired to win.


        2. NOTaREALmerican

          Don’t forget….

          1) “Austerity” is bad because it shrinks government.
          2) Government is good because it allows the really intelligent people the fantasy of finally (once-n-for-all) fixing things in a way that is only possible if the intelligent people were running things (instead of the normal smart-n-savvy people who do now).
          3) But, the opposite of “Austerity” is (well, we’re not sure exactly)… but it involves more government run by the intelligent people (and not the smart-n-savvy people who ran it in the past) but let’s just say “Non-Austerity” is great because it causes growth and everybody loves growth (especially the smart-n-savvy people).
          4) The smart-n-savvy people want more government because (well) that’s where the loot is if there’s no “Austerity” (the smart-n-savvy people ALWAYS know where the loot is).

          So, the solution is…. (yeah) being one of the smart-n-savvy people because (honestly) it doesn’t matter if there’s “Austerity” or Not-Austerity, central-planning, or decentral-planning because when you are smart-n-savvy enough you just go where the loot is and take it.

          1. MyLessThanPrimeBeef

            They have organized their country as a corporation.

            A centrally planned corporation.

            In fact, many successful corporations are centrally planed, right there at their boardrooms.

            Thus Beijing can say, forget pollution, earn some imperial currency and everyone snaps to attention.

        3. todde

          Central planning fails everytime?

          Central planning does well when everyone is focused at a task, like in war, ie War Production Board, or making a profit, see corporate board of directors and/or corporate executive committees.

          China seems to be a centrally planned economy that is currently.kicking our ass on the international market.

          1. Ishmael

            So you think Central Planning is working in China. Have you seen the cities built with no one living in them. This is called malinvestment and it is the result of central planning. China has incurred more debt than Japan and the US combined since 2008. It is in the middle of huge debt bubble implosion right now that it is attempting to manage. Since you probably do not follow such things since you have already shown your ignorance regarding China, you would know that the Chinese stock market started melting down last week (driven by margin debt) and has lost a couple of trillion dollars in the last five days or so. China is a lot like Japan in the 80’s driven by central planning and huge malinvestment. That is why central planning does not work.

            By the way having worked in a Fortune 500 financial planning and analysis area I can tell you there is no central planning there. The goal is to drive the planning down to the lowest level of the company possible. The corporate planning area only gives guidance to developing the plans, roll the plans up and analyze them and give guidance to executives where emphasis should be directed. The goal for most successful companies I have ever been involved with is to have a bottom ups plan built by stakeholders not a top down plan by a central committee.

          2. bh2

            Proponents of the superiority of central planning were making the same arguments about how the savvy Japanese would eventually conquer the world cuz they were kicking ass with their fully integrated, fully focused planning genius. We know how that ended when it blew up.

            Before that, of course, the Soviet Union was widely admired by leftists owing to alleged efficiencies of its central planning apparatus. A complete failure by any measure. They could raise tons of wheat in excess of domestic consumption needs but still had to buy wheat from North America because they couldn’t get theirs out of the fields on the creaky transportation system provided by the central planners in order to feed the soviet socialist workers’ paradise. That failed state eventually blew up entirely and collapsed.

            While it’s common these days to hear breathless commentaries lauding the successes of the Chinese “socialist capitalism” model, it may be a bit early to bet the farm on its long term success. Not least because China (like Japan) lies well inside what will be the blast zone of a ticking demographic time bomb.

            In the specific case of China, it must be pointed out that their time bomb (The One Child Policy) was specifically created by their own central planning geniuses a generation ago.

            The EU will also find a way to plan itself into oblivion. Hopefully without bringing on another accidental war.

        4. Andrea1

          I’m always surprised when I see the “Gvmt. too large” argument. If there was some kind of ideal size for a Gvmt. we would surely have some ideas about it, and papers would discuss it (if that exists, I am not aware.) Also, if a Gvmt. can be too large, then it certainly can also be too small, but this argument is never heard. Similarly, for Gvmt. expenditures: against what measure is that judged? None as far as I can see. In any kind of common sense and very basic pov, it is up to the people (or some other hopefully representative entity) to decide if, for example, they wish to have tax-payer funded national health care, or have health care be uniquely in the private sector, or have some kind of hybrid system. So what? What matters is that health care be available, affordable, and have fair to excellent outcomes and that staff have a living wage. One shoe does not fit all…And in any case the whole scheme is centrally planned (Obama care anyone?), in most cases. In short these kinds of arguments are really quite empty.

          A Gvmt. can be ineffective, badly organised, hopeless, obviously. But that is another topic.

          1. bh2

            As the powers of government are enlarged, its size enlarges accordingly.

            If you want a government of limited powers, you want a small government. If you want a government of extensive powers, you want a large one.

      4. zapster

        Offering to hire all the civil servants back for drachmas will likely get enough back quickly enough. I doubt that will be a serious issue.

    4. which is worse - bankers or terrorists

      There will be no Grexit.

      (1) The people will vote YES on Sunday on the non-existent proposal. In the short-term, it’s really no fun not having a banking system…a yes vote is the best chance to get it back.

      (2) The Euro-loan sharks will resuscitate a new proposal, slightly worse than what was voted on. Something acceptable to the people but that really sticks it to Syriza.

      (3) New elections in late July/early August. Tsipras cobbles together a centrist coalition or ND back in power.

      (4) No left wing government will be elected in Greece for the next 50 years.

      (5) German replaces Greek in the local school system

      (6) Similar to the Irish potato famine of 1848, all of the youth leave Greece permanently

      (7) Real estate prices drop further, creating an excellent buying opportunity to the new German-friendly government in the new German-speaking country

      (8) The country formerly known as Greece formally becomes part of the German mothership in about 40 years.

      1. FELIX

        In 40 years Germany will be an amalgam of the Near East, Afghanistan and Africa and I am not sure these people will be able or even interested in vacationing in Greece. Germany’s populaton growth is not coming from people we would consider German natives. The long term tourist and real estate outlook for Greece is grim…..Turkey offers a similar religion and culture for the Germans of the future.

  2. Deep Thought

    Well that was a depressing amount of incompetence (on all sides to differing amounts). Remind me how these people end up in power again?

    1. NotTimothyGeithner

      Have you ever met your neighbors, coworkers, school mates, relatives, and so forth? They always answer this question.

      I believe Syriza came into office largely as a Greek-focused entity with little sense of the EU interests. The expectation was the previous Greek governments were beholden to banks and worked for them and that by going to the Germans directly with a reasonable offer Merkel would take care of everything. There is a sense Merkel is stronger than she is and could change the EU’s course. Merkel’s motivations due to her coalition government are irrelevant IMHO while she has to prevent a rebellion. I don’t think Syriza knew how to go forward except to extend and hope calmer heads will prevail. Instead of preparing, they prayed, but their chief issue is European governments are unpopular. Bailing out Greece (making a reasonable deal) which has been the target of racial discussion became impossible as Europe pushed for their own countries’ austerity.

      If Greece gets money without politicos earning a win, the next question is where is the money for s cools, energy, jobs, etc…

      Ukraine, Russian sanctions, and NATO demanding money aren’t making the situation easier, and I don’t believe Syriza ever understood this.

      1. Deep Thought

        Yes, unfortunately I do often have to interact with real people. For some reason, some times, my optimism trumps my cynicism and I expect better of people who get themselves elected to high office.

        I had hopes that Syriza could be a turning point for European politics. But the wording of that referendum and the fact the agreements it references will have expired when the referendum takes place screams amateur hour from the tops of its lungs…I’m really disappointed.

        1. Gio Bruno

          …are you a US citizen? Ever hear of GWBush? Recall the trillions wasted on a trumped up war? The one MOST political representatives authorized. The one that featured citizens in the street protesting against it. The war that killed 100’s of thousands and now has created a refugee crisis around the WORLD. Now that’s disappointment.

      2. Nick

        A consistent failure of democracy is that you can’t always depend on a majority of the people to vote for their own best interest.

        1. Brooklin Bridge

          Nor depend on a Lincoln or FDR to untie the knot every time the strands get into a serious mess.

      3. zapster

        Since EU interests are nothing but the protection of criminal loan sharks and the wholesale theft of public goods, it seems to me that Syriza was by far the most realistic choice if the Greek people are to get any justice at all or even a solution that doesn’t involve mass slavery in the service of usury. :/

    2. Jeff N

      Syriza won because they promised Greeks that they could have it both ways – less austerity and they could stay in the Euro.

  3. financial matters

    I agree with Stiglitz that this isn’t about the money. (At least narrowly defined as this Greek debt problem.)–stiglitz-2015-06

    “European leaders are finally beginning to reveal the true nature of the ongoing debt dispute, and the answer is not pleasant: it is about power and democracy much more than money and economics.

    Most of its members’ governments did not seek their people’s approval to turn over their monetary sovereignty to the ECB. When Sweden’s did, Swedes said no.

    We should be clear: almost none of the huge amount of money loaned to Greece has actually gone there. It has gone to pay out private-sector creditors – including German and French banks. Greece has gotten but a pittance, but it has paid a high price to preserve these countries’ banking systems. The IMF and the other “official” creditors do not need the money that is being demanded. Under a business-as-usual scenario, the money received would most likely just be lent out again to Greece.

    But, again, it’s not about the money. It’s about using “deadlines” to force Greece to knuckle under, and to accept the unacceptable – not only austerity measures, but other regressive and punitive policies

    After all, it is extremely inconvenient to have in Greece a government that is so opposed to the types of policies that have done so much to increase inequality in so many advanced countries, and that is so committed to curbing the unbridled power of wealth. They seem to believe that they can eventually bring down the Greek government by bullying it into accepting an agreement that contravenes its mandate.

    By contrast, a no vote would at least open the possibility that Greece, with its strong democratic tradition, might grasp its destiny in its own hands. Greeks might gain the opportunity to shape a future that, though perhaps not as prosperous as the past, is far more hopeful than the unconscionable torture of the present.”

    1. ben

      Agree with what you are saying regarding who is being bailed out.

      I think the EU won’t let Greece succeed too much – if they do Italy/Spain will be thinking of jumping ship. Really Greece is a side-show which may or may not influence larger countries in reneging on debts/leaving the EU.

    2. washunate

      That’s the question, isn’t it? Do Greek leaders actually want monetary sovereignty?

      1. financial matters

        That’s an interesting question. What they want is anti-austerity which I think a good definition would be a leveling of inequality to favor the non elite.

        I think the engine for this is living wage jobs. This can be dealt with at the ECB level and they could help fund a development plan for all of Europe including social services. If they don’t want to do that then I think Greece has the skills to set it up themselves which would involve taking back monetary sovereignty.

        Many countries have monetary sovereignty but don’t seem to be fighting for pensions and good jobs.

  4. Pongo

    One has to wonder, at what point is this strangulation of Greece going to turn into a literal physical blowback against Germany and the European community who conspired with the Germans? With the exception of right-wing jihadism, it seems that the politicians and the security services in Europe and America are far more concerned with left wing elements. This could be quite a mistake, as modern Greece has displayed a very ugly nationalist streak, and for a small country Greece has a surprisingly large and well-funded military and intelligence apparatus. The Eurocrats may harbor some secret fantasy that the security apparatus will step in and quell the growing anarchy and help enforce fiscal discipline, although I can foresee a slightly different future, one in which some rogue nationalist elements in either the Greek armed forces or the intelligence services decides that it’s time to settle scores (both new and old) and embarks upon their own covert war against Germany. There are almost an infinite number of ways such a group could cause trouble, whether it be cyberattacks against German banks, physical attacks within Germany itself or attacks on German interests (ie, businesses or tourists) in third-party countries that lack the ability to retaliate against Greece.

    1. Yves Smith Post author

      I’ve wondered about that too. We’ve warned that Greece could turn into a failed state, and failed states are breeding grounds for terrorists. And as you point out, the Greek one would have access to much better materiel than the jihaids that have the West freaked out, plus proximity, plus being not very or not at all foreign looking.

      1. Ishmael


        I believe Greece will revert to past processes before it gets to that point. I would expect a military junta to step in and take over things. Greeks are Greek Orthodox and not Muslims. It is not in their nature to blow themselves up. Once again the past will show the way — emigration out of Greece. I already know a number of young Greeks that have come to the US. The Greek communities are very tight here and take them in.

      2. Deschain

        My sense is that Grexit always had two likely outcomes-

        1) It actaually works out ok for the Greeks, which is a disaster for the EU and especially the Troika, or

        2) Things get much worse and within a year or two you probably have a Golden Dawn government. Also a disaster for the EU.

        Obviously there are other potential outcomes, but this whole thing has been dumb, dumb, dumb.

      3. Aaron

        To suggest Greece could become a failed state is to put them in the same bracket as Afghanistan and Somalia. Greece will probably have a very severe depression but there is no way they will end up as a failed state, not in the commonly used sense of the word.

        Maybe they will long term, but maybe we all will.

        1. Yves Smith Post author

          I don’t think you appreciate what it means to have no functioning payment system in a country that imports food and energy. We are talking starvation. No joke. Greece produces only enough food to feed everyone at just above starvation levels if calories were distributed equally (age adjusted). Think you are going to get equal distribution? And to the extent you can actually manage to import they are much more expensive.

          This is not an Argentina scenario, a mere severe currency devaluation. It is also a banking system collapse, an emergency introduction of a new currency, and a loss of payment system architecture (needs lots of reprogramming, and where do you find the money and talent. And payment systems IT has to be built to a mission critical standard. You won’t be allowed to connect to the international architecture otherwise, plus you can lose your shirt in a remarkably short amount of time).

        2. washunate

          And that’s an interesting comparison as one of the key commonalities between Afghanistan and Somalia as they exist today is the role of the Americans.

      4. samhill

        Failed state? That’s a feature not a bug, and surely long in the works: Project FUBELT/Track II, Operation Gladio, No code name but google: Jamaica Manley Seaga Guns Cocaine CIA). Greece won’t know what hit them.

    2. myshkin

      The blowback except in the rare circumstance seems to most often damage the working and middle class and is not unusually deflected toward the exclusive purposes of the eltes. Look where the 9/11 Aghan cold war blow back has taken the United States, certainly not toward democracy, economic well being or peace, much the opposite.
      Whether this, “was masterful political manipulation” by Merkel, the Troika and the European elites will depend on how the blowback plays out. One hopes the Greek military refrains from a return to some variation on the era of the Colonels but it is not impossible to imagine. One also wonders if such an event transpired how the Eurozone would react. Would they stand by and watch if the coup began executing ‘enemies of the state?’
      Also where is the solidarity from the far flung, unorganized organized left with the Greek people against this beat down of Greece? Working interests are very much on the line, people should be joined in the streets of Europe.

      1. Phil Perspective

        Also where is the solidarity from the far flung, unorganized organized left with the Greek people against this beat down of Greece? Working interests are very much on the line, people should be joined in the streets of Europe.

        You’re kidding, right? Hollande is helping put the screws to Greece. Labour couldn’t even win an election against a clown of a PM in England. Does a German left even exist?

        1. myshkin

          I’m not kidding and I’m not talking about politicians. I’m talking about workers like the taxi drivers who went after Uber recently. There are strong unions in Germany that should be taking notice, and spare me the explanation of how they’ve been benefiting from the weak Euro resulting from the zone. In London yesterday there was an anti austerity demonstration, they should be happening across the zone.

          1. Tsigantes

            German Unions have been strongIy supporting Greece since 2O14 when aII the EU nationaI unions decided to band together as a solidarity force.

            Concerning a comment above, the socialist parties of Europe are aII centre-right having embraced neo-IiberaI ideology and practise. Despite retaining their names, they are not Ieft or even centre-Ieft.

    3. Synoia

      embarks upon their own covert war against Germany.

      Hard. Look at a map, especially one of railways and roads.

      It is a long an difficult walk from Greece to Germany.

    4. Lexington

      Yeah, I’m sure the Germans are real scared.

      After all Germany and Greece have butted heads before. My recollection is that it didn’t go so well for the Greeks.

      My own guess is that if all goes to hell in a handbasket the Greeks will have other things to worry about that waging jihad against Germany, even if like many NC commentators every Greek knows in their heart that all their problems are really Germany’s fault.

  5. No one in particular

    “”** Merkel couldn’t extend the bailout even if she wanted to. It takes parliamentary approval and she does not have the votes.”

    “And I thought you have not too many favors left? – That’s true, so keep this in mind”.

    She might have one more vote in the quiver, – and another extension of the 2nd bailout might have gone through – but as many of her own MP’s made clear – in February 15 that was, extension of the 2nd package, may be, and only if stringent! reforms are part of it, but NOT a third. punto

    I wish you could read the cynic and corrosive undertone in many postings to articles …. even if the MP’s were to follow her, the people will not….. Even the staunchest, defending the euro is worth everyting fan I know had enough this weekend, and is happily supporting Grexit.

    Given the latetest offer by the creditors was more or less devoid of reform efforts that could be seriously implemented, and had a lot of new money…… I reiterate what I said ages ago – there is no viable “business model” for Greece, i.e. one that works without gift from the outside, and the will of the remaining Europeans to be fleeced is quickly evaporating…. Tsipras may have missed the last train on Saturday

    1. NOTaREALmerican

      Re: there is no viable “business model” for Greece

      And, ya gotta wonder, how may other countries and states does that apply to?

      As long as that debt keeps increasing and rolling over – and there’s no (gasp) “Austerity” – everything’s peachy.

      (It’s funny how debt is lubricated from the top down, but “Austerity” grinds from the bottom up. Ya gotta hand it to the smart-n-savvy people, they sure got these financial systems gamed for themselves).

  6. Noonan

    Joseph Conrad described Brussels in Heart of Darkness:

    “In a very few hours I arrived in a city that always makes me think of a whited sepulchre. Prejudice no doubt. I had no difficulty in finding the Company’s offices. It was the biggest thing in the town, and everybody I met was full of it. They were going to run an over-sea empire, and make no end of coin by trade.”

    Not much has changed.

    1. The Insider

      Indeed! And as for the bureaucrats, I am reminded of the accountant:

      “I shook hands with this miracle, and I learned he was the Company’s chief accountant, and that all the book-keeping was done at this station . . . I respected the fellow. Yes; I respected his collars, his vast cuffs, his brushed hair. His appearance was certainly that of a hairdresser’s dummy; but in the great demoralization of the land he kept up his appearance. That’s backbone. His starched collars and got-up shirt-fronts were achievements of character . . .

      “I sat generally on the floor, while, of faultless appearance (and even slightly scented), perching on a high stool, he wrote, he wrote. Sometimes he stood up for exercise. When a truckle-bed with a sick man (some invalid agent from upcountry) was put in there, he exhibited a gentle annoyance. ‘The groans of this sick person,’ he said, ‘distract my attention. And without that it is extremely difficult to guard against clerical errors in this climate.'”

      I am sure there is much of “gentle annoyance” in the capitals of Europe at the groans of its suffering people.

  7. c

    I find it hard to believe the Greek side is so stupid and ignorant that they have no clue what you outlined. It also would seem likely they have a plan of some sort.

    If the Greeks default, what happens to the CDS out there and the issuers of them. This seems very reminiscent of the mortgage crisis when everything was contained and ring fenced and yet was not.

    Could CDS, if triggered not add a level of European chaos?

    1. Yves Smith Post author

      No, there are virtually no sovereign CDS.

      And you would be amazed how few economists understand this stuff, and it’s economists that opine, I just saw a post at VoxEU by a prominent economist that was tweeted widely where he had basic stuff about how the ELA worked wrong. And it made a difference in some of the conclusions.

  8. Joe Emersberger

    Yves you wrote

    Now there is a reason for Juncker to be so eager to try to secure a “Yes” vote from Greece. It represents virtually the only chance to save the Greek banking system and with it, Greece’s continued membership in the Eurozone

    So, notwithstanding your criticism of Junker’s extreme dishonesty, you want Greeks to vote “yes” as Junker and a few others are pleading for them to do? Please confirm I am not miss-interpreting you..

        1. Yves Smith Post author

          We do not do endorsements on this site. That is a our long-standing policy.

          And we have separately said that the referendum as formulated is sham democracy. It asks for a yes or no vote on a bailout offer that has expired. It is like having a referendum on whether the US should enter World War II. The bailout offer expires June 30, before the referendum. And Tsipras will have defaulted on the IMF, and will have put Greece in a position where it is just about impossible to avoid an IMF default. So how is this anything like democracy or a choice?

          As a result of referendum being meaningless on a practical level, what it means is an exercise in projection. What kind of process is that? What Stiglitz asserts that means has been vigorously denied by the Greek government! They have said firmly that they do not want to exit the Eurozone (which is what he means by take destiny in their own hands) but want a mandate to go back and negotiate harder with the creditors, that a no vote will give them more authority. Huh?

    1. Lambert Strether

      You’re not familiar with the twin concepts of a choice between evils and binary thinking? Do you think the Greek people are making a serious policy choice, or voting against whatever the bad guys say?

      1. Santi

        I think the serious policy choice is voting agains what the bad guys want. They have been spoiling them and want to keep on with the pillage, after all.

        The argument of doing what they tell you to do on the grounds that you will be worse of if you don’t do it looks like, reusing Yves metaphor in a non-ad hominem way, when a beating husband tells the wife: stay with me; I love you and only beat you when I’m drunk, because out there you will have trouble finding a better place.

        Women’s shelters are built precisely to counteract this “evil choice”. And Greeks will have to build their own shelter. The demonstration yesterday was a good start.

        1. Yves Smith Post author

          This is your projection. It is not what the Greek government is doing or offering to its people.

          If you had read the news today, several European government leaders said a no vote is a vote to exit the Eurozone. That is technically sloppy but this is politics, and it is directionally correct (as in as we said, a Yes vote might lead to a new government or coalition to be formed in time so that negotiations would be resumed, allowing the ECB a thin justification for declaring the inevitable default on July 20 not a default somehow, so it does not have to cut off the ELA as required otherwise. Cutting off the ELA would as we have discussed repeatedly, necesitat a de facto Grexit. There’s no mechanism for a de jure Grexit, since the Eurozone by treaty is irrevocable, but the issuance of drachma and conversion of bank deposits to drachma could be used as a basis for suspending Greece from the EU. Suspension means it gets no benefits but still has the obligations, BTW).

          So the Eurozone leader were effectively saying what you are saying: this is a vote on leaving. And I did not see any attempts at affection in the messages. From the Ambrose Evans-Pritchard at the Telegraph:

          “What is at stake is whether or not Greeks want to stay in the eurozone or want to take the risk of leaving,” said French president Francois Hollande.

          Sigmar Gabriel, Germany’s vice-chancellor, said that the Greek people should have no illusions about the choice before them.

          “It must be crystal-clear what is at stake,” he said. “At the core, it is a yes or no to remaining in the eurozone.”

          Chancellor Angela Merkel – standing next to him after an emergency meeting of party leaders – was more oblique, but the message was much the same. She insisted that the eurozone cannot yield to any one country. “If principles are not upheld, the euro will fail,” Ms Merkel said.

          So how does the Greek government react? It attempts to depict the Eurocrats as trying to push Greece out of the Eurozone, when a Greek default (which is an action Syriza took without democratic consent, it could have obtained it prior to default) puts it on a difficult-to-avert path to breaching ECB rules that means it has to end the ELA. The government basically screamed bloody murder that it had no intention of leaving the Eurozone and would not be pushed.

          So the government, to use your beaten wife metaphor, says it wants to stay married to the wife beater because it likes the nice house. And they are not in denial that he is a wife beater and abusive. But they insist that they do not want a divorce and do not want to leave the house.

          1. myshkin

            NC’s focus on this is greatly appreciated and your expertise and submersion in the intricacies of the negotiations is understood. My suspicion and doubt is whether representatives of the Troika can be expected to adhere to rules, maintain positions, honor any statements, particularly at this point in negotiations when much is in flux.

            When the meeting of the finance ministers illegally excluded Varoufakis from the meeting last Saturday their explanation was, ‘The Eurogroup is an informal group. Thus it is not bound by Treaties or written regulations. While unanimity is conventionally adhered to, the Eurogroup President is not bound to explicit rules.’

  9. John Smith

    Instead of deposit insurance for “private bank” depositors, why shouldn’t the ECB itself, being monetarily sovereign, provide risk-free Euro storage and transaction services for ALL Eurozone citizens and not just for banks?

    Then the choice to lend to a bank would be voluntary and not forced by the lack of a practical alternative to keeping money in a private bank. Then the real economy would be less of a hostage to banks.

    1. MyLessThanPrimeBeef

      Everyone has an account at the central bank.

      Storage and, who knows, direct deposit of newly created money to stimulate the People and the economy?

      1. John Smith

        Sure. Why not? QE for the people via direct deposit to their central bank accounts. And then IF the people wish to lend some of it to private banks they can do so – if the interest offered is sufficient.

    2. backwardsevolution

      John Smith – great idea! I had often thought someone should start a bank where people could just safely deposit their money (it’s all there, ready for the taking if you wanted it), but having the central bank do it would be even better. Then the people could decide if they wanted to loan it to a bank. Yes!

  10. Yonatan

    Someone one said “This sucker could go down”. I guess it might, and who wants the unravelling of the western financial system on their resume? Putin was the designated fall guy, but he is definitely not playing the game.

  11. ennui

    This is the biggest reason we have been so hard on the conduct of the Greek government.

    Yet, who had the greater responsibility in the negotiation? The Troika has now bet the financial stability of the entire Eurozone on not being able to squeeze a few hundred euros out of some Greek pensioneers. You are promoting a strange line: over and over you’ve noted that Tsipiras had capitulated on all major points, yet even at the last minute, via the IMF backed by Schaeble the Troika has move consistently backwards from every Greek position, but it’s the Greeks who have been cavalier?

    Now, either Syriza never actually capitulated (against what you have repeatedly claimed) or you will have to admit that the Troika never wanted a negotiation. They wanted either to dictate terms and, absent that, were willing to make an enormous gamble based on, one may assume, a stronger kind of shock therapy in Greece as a failed state.

    Granted Syriza may not be aware of how grave a crisis the Greeks have been led into (and this is irresonsible), but the arrogance, short-sightedness and, ultimately, recklessness of the ECB and German and French bankers is truly stunning, from people whose whole business is based upon confidence in sober and conservative decision making.

    1. NOTaREALmerican

      Re: from people whose whole business is based upon confidence in sober and conservative decision making

      You had me until that phrase. Anybody making a loan to a corrupt government – with a long long long long track record of corruption – can’t be all that sober or “conservative” (what-ever that word means now-a-daze) unless there was an “understanding” amongst the ruling sociopaths that “the loan would be repaid”.

      Banksters are only sober or “conservative” when their own loot is at risk. I don’t think we’ve seen banksters begging in the streets due to their own bad loan-making for many generations now. And, honestly, the ruling sociopaths wouldn’t want it any other way.

    2. MyLessThanPrimeBeef

      To bet on the financial stability of the entire Eurozone.,,


      At the cost of more wealth inequality, the solution to any financial stability, here in the US or in Europe, has been shown to be QE and more QE.

      ‘All things are possible to him who believes.’

    3. Brooklin Bridge

      Yet, who had the greater responsibility in the negotiation?

      This is not a competition and such a taunt is of no help in understanding what is happening. Regardless of the Troika, Merkel and so on, the Syriza government and Tsipras particularly have been terrible in their strategy, their honesty in negotiations, and now in their lack of concern for the people as compared to their own political hides. The degree of one side’s crimes (the creditors/guido) doesn’t exonerate the lessor degree of the other (nor does it, as has become more and more depressingly clear, offer much in the way of excuse).

      Now, either Syriza never actually capitulated (against what you have repeatedly claimed) or you will have to admit that the Troika never wanted a negotiation.

      Again pitting one against the other as if causality is inextricable is way off the mark. First, Yves and others have shown in detail that Syriza did indeed capitulate, progressively, until they were putting fig leaf upon fig leaf over their crossing of red lines. These are simply facts no matter how much one wants to blame the messenger. Second, Yves has pointed out over and over and over and then over again that the Troika’s intentions were more aligned with making an example out of Greece than with any workable negotiations. So no, the Troika never wanted to “negotiate” and yes Syriza did capitulate.

      It is alarming that so many find it so incomprehensible that BOTH sides can have bad motives, admittedly of differing degree, and work past each other to get bad results.

      1. ennui

        This is not a competition and such a taunt is of no help in understanding what is happening.

        It’s not a taunt, the consequences are vastly greater if the powers of Europe are led by reckless men and women than if the Greek government is. To me, that’s the story of this “negotiation”: that Europe once again is run by people so arrogant they would risk catastrophe for little benefit. The dangers to Europe from a Greek default are vastly greater than the “moral hazard” of an economically inefficient bail-out, yet the troika seems to have embraced the default as better than agreeing to a deal the Greeks wouldn’t be able to keep. (not to even get into the fact that any deal requiring fiscal surpluses in Greece was not going to be kept, by any government…)

  12. alex morfesis

    July 14th will be the most important day…it will be the tuesday after the first weekend…after the vote…

    resolving the small number of banks in greece by breaking them up and allowing a larger number of foreign banks to step in is one scenario, another being passing legislation for credit unions…obviously no northern banker will be stupid enough to step in and not expect a strong reaction from greek deposit holders…

    as to the 90 billion…if they try to resolve the greek banking system at pennies at the dollar, there will be bank runs at every non german bank in europe…what they will do is make a capital call. The capital call will most likely be handled by issuing govt financial instruments…Germany 25 billion, France 17.5 Billion, Italy 15 billion, Spain 10 billion, Netherlands 7.5 billion…etc…90 billion at 250 basis points tops will be a fart in a huricane…for germany 50 basis points on 25 billion will be 125 million per year…maybe the US, UK and China throw in 10 billion each to help it along…

    mister market just gave Germany a lesson on negotiations by pick pocketing 50 billion from the stock market in Germany….

    It will take 4 to 9 months to stabilize the greek economy no matter if in or out of the euro…if out, it will take 30 months to reenter the capital markets with a new draxma…

    as to the draxma…most people with a job in greece remember the draxma…so mentally, for many, it will be comfort food…

    the military danger is not against Germany as described in an earlier comment (although, five years from now maybe, when the revenge can be served Ice cold…) but a wild ride in attempting to use that military hardware to take a few things, like pyrates…

    a nod and a wink deal with turkey to allow Hellas to restore a certain monarch in cyrenaica (as if one wants an excuse, long ago it was a greek colony) and share the new oil fields with turkey…

    Anger and frustration is no excuse for bad planning…

    If, Syriza was going to turn its actions into a useful plan, it would pass certain legislation to fix the various agreed upon problems in the Greek system, to show it intends to make Greece a prosperous place for opportunity…do a take away and move forward….



    merry christmas mister potter

  13. NOTaREALmerican

    Well, looks like sociopathic banksters making loans to sociopathic politicians elected by semi-psychotic pathologically optimistic voters isn’t such a good idea.

    I’m sure the system can be fix tho. But only if we elect Hilary!

    1. Fool

      Without clicking, I’m guessing it involves a conspiracy of banksters committing “control fraud” and so inflict a deadly strain of “Gresham’s Dynamic” on every global financial institution…

      1. juliania

        Wrong guess, but I should have indicated what it was about; thank you, Fool. Prof. Black discusses two types of strategy employed by game theorists, and points out that the aim is to achieve the most successful result for both parties. Which the current scenario doesn’t do.

        (Sigh) I’ll let you in on the bit that charmed me:

        . . . the exception to this result is economists and economics majors. They are much more likely than human beings to respond by being nasty little dictators and passively accepting drones who agree to take a penny. Normal human beings care a great deal about fairness and are willing to suffer personal losses rather than give in to dictators like the troika.

        Made me feel a ton better about myself. I’m normal! Thank you, Prof. Black!

  14. Metatone

    As Stiglitz notes, a “Yes” vote is a vote for “depression with almost no end” – we’re talking 10 – 20 years minimum. So if Grexit = failed state, it needs to be admitted that acceding to Troika demands = failed state.

    And that’s why I and other commenter have been so hard on your stance here at Naked Capitalism.
    Greece is almost already a failed state, Troika policies have led to massive emigration of talent and capital.
    60% youth unemployment.

    1. bh2

      “Greece is almost already a failed state”

      …and not least because irresponsible dreamers in the EU admitted Greece when they were obviously ill suited. Now the prissy eurocrats pretend to be offended by inevitable consequences of their own original blunder, promising only new and greater blunders to compound that error.

  15. Jerry Denim

    This very slow moving train wreck of a crisis has become a fast moving, very unpredictable and serious crisis very fast. Things are looking extremely bleak for the Greeks but I’m not convinced that all is lost, yet. It certainly looks as if Tsipras and co. may have misunderstood the Troika’s bottom line and they may have overplayed their hand with this surprise referendum which appears to be more about political theater and a negotiating stunt than democracy, but who knows? Even after five years of preparation and blood-sucking a Grexit is not with serious risk for the Eurozone creditor countries. Attempting to break the power of the Troika by pitting the bankers and technocrats against the various elected national leadership just might produce some kind of last minute breakthrough for Tsipras, but as Tankus and this post point out perhaps its already too late since the capital controls and the bank holiday has started a fatal unraveling of the economy. If the Greeks do transition back to the Drachma I’m sure life will be hellish for a bit, but if they can figure out a way to trade something for energy I don’t see why they can’t make most everything else they’ll really need to get by for a few years at home until they can hopefully regain access to the international credit markets. I’m sure Greece will forevermore be ‘persona non grata’ in Anglo-US banking circles but the BRICS want to break into the international banking game and are on the lookout for clients. I’m rooting for the Greeks and I’m not so sure Tsipras and Varafoukis will be remembered as fools, but yes, the storm clouds gathering over Athens do look awfully scary at the moment.

  16. par4

    What about another military coup? The evil empire sure doesn’t want Greece getting cozy with the Russians.

  17. Jerry Denim

    Oh, I forgot to mention Syriza and Tsipras rode a wave of anti-EU, anti-austerity into power and they promised an end to Greek rule byTroika and the Troika mandated austerity. They were expected to make a stand and they have. Backing down without going to the brink would have been a sellout. Syriza was elected to do a tough job and Tsipras is doing his best to deliver. Grexit at least has a slim chance of succeeding, more Troika austerity was guaranteed to result in even more of misery Greeks have suffered in the last five years. Sometimes people just need to make a stand based on principle.

    1. Alphonse Elric

      Tsipras may be doing what he can to deliver what he thinks is best, first by offering to cross most of his red lines to get a deal, and then after that wasn’t enough for the Troika, proposing this referendum.

      But he hasn’t been honest with the Greek citizenry that a “No” vote means Grexit. So whatever other principles Tsipras is taking a stand on, trusting people to choose their own destiny without trickery isn’t one of them.

      1. Jerry Denim

        “he hasn’t been honest with the Greek citizenry that a “No” vote means Grexit”

        I wouldn’t get too bent up about it if I were you. I’m pretty sure the media and the officials in Brussels will manage to make their views on the referendum abundantly clear in the intervening week between now and the vote. The Greeks will be subjected to every manner of propaganda promising a demise of Biblical proportions if they reject the EU’s terms and choose to leave the Euro.

        1. Lambert Strether

          Fascinating exchange:

          “he hasn’t been honest with the Greek citizenry that a “No” vote means Grexit”

          I wouldn’t get too bent up about it if I were you.

          So, Jerry, I take it you’re a proponent of the Straussian “noble lie”? We had a lot of believers in that theory in the first Bush administration. The movie didn’t end well.

  18. kevinearick

    Civil Society in History, ADD

    Relationships among nation/states is just an aggregate derivative of the civil marriages upon which they rest. A couple gets into s fight, you step in, and before it’s over, opportunity has passed you by and you are on the losing end, and they are back together, telling you how to conduct a marriage, even after they are divorced.

    It’s always the same sh-show. The law cuts off the leading edge, places it in back, and presents the outcome as History, depicting the result as God’s will, the will of The People, AI or whatever political mythology passes for intelligence at the time.

    Due process continues until the entire economy turns upside down, the critters must raise the rent to make their nut, slave trade must be made more efficient, and infrastructure crumbles, while the cave people build a taller edifice to their mythology, in the face of another unnatural disaster. Empires come and go accordingly.

    The controlling class can’t feed itself; all it has is words; and it’s beholden to capital, the past. Does it really matter to the lower middle class in Greece who is in charge of keeping it in poverty, for a share of global real estate inflation, until the latest and greatest controlling class is fed to the mob, like all the rest?

    So, I am looking at $3M over 15 years to provide for my family, and have offered Bank 10% in interest, taxes, whatever the critters want to call it, for a line of credit, to test intent. The response is 75%, and if I don’t accept, my kids will be taken and handed over to a homosexual couple, which now has the right to receive them, and I will be arbitrarily taxed anyway. Next.

    You can go to war or be about your own business. Politics and Religion, Democrats versus Republicans, is a waste of time, with or without the US Constitution. Every so often you just let the critters have their way, and we all find out just who has built the best foundation.

    How the people of Greece vote will be interesting, for about 15 minutes, because the only difference among nation/states is the scale of the debacle and its timing, in a trap of global accounting, embedded in their infrastructure through trade deals. Creditor or debtor, global accounting practice is a weapon of mass destruction.

    Which brand of civil marriage wins the latest competition to assign debt to future generations, at the least benefit to itself, in terms of rent/income, is of no concern to labor. Who cares if homosexuals are granted civil marriage, it’s their own undoing.

    Affirmative action for homosexuals simply shortens the attention scan, another accounting gimmick, in a very long line. If you are looking to be rebellious, to feed the empire, you needn’t go nearly so far; stupid laws to confirm peer pressure behavior are everywhere, and the only difference is the color of the law.

    Transient Occupancy Tax leverage is a piss-poor foundation for property and sales taxes, below-the-line tax on tax, but that never stops the critters from financing the ponzi with inflation. Charging locals tourist prices to pay the rent for institutional investors, with the accounting privilege of monetary and fiscal spigots, above-the-line credit on credit, something for nothing and nothing for something, can only have one result.

    Poverty is no accident; it’s a threat. For the majority, employing government as a scapegoat makes sense. For labor, it’s just a system of counterweights; an automaton threatens to kill itself if you don’t give it a car with WiFi, what do you do?

    Philanthropy is just a down payment on what is to be stolen next. Different people redistribute differently, but the automatons assume that no change in behavior, long-term natural resources for short-term money and long-term money for man-made resources to replace the former, will provide a better result than best, until nature sees enough.

    A homosexual takes over the foodbank, immediately cuts my wife’s income in half, and gives her truck to a kid from LA, to support yet another drug operation; everyone loses, while rent inflation in all the components buries them all, brilliant. Funny, the number of people up here who drive by a foodbank truck being searched by cops and pay no mind, those who do, and outcomes.

    There are two basic rules of marriage: heed the counsel of your spouse before all others and don’t invite others into your marriage. The US took Canada for granted, to become a superpower on the world stage, slaves to the past convincing themselves that they are masters of the future.

    There is nothing new about teaching children that physical labor is bad, while telling others what to do is good, all chiefs and no indians, in a circular firing squad. There is a great deal of resentment in Canada for the US, like everywhere else, but you might want to begin there, and let China blow itself up, if it is determined to do so.

    The actuarial ponzi blows itself up every time, in a bipolar positive feedback loop between the haves and have-nots. “In the End, we will remember not the words of our enemies, but the silence of our friends.”

    Russia, like all others, can only occupy at the cost of its own impoverishment, and America is easily the largest occupying force on the planet. Poverty is an act of government, of by and for the majority, regardless of representation, not an Act of God, and the only answer is personal responsibility.

    Marriage is a business, the business of raising children, built on a foundation of love, sacrifice in a contract of faith, which cannot be replaced, whether you care to think about it that way or not, and the only person you can change is yourself. Spoil your grandchildren, but don’t interfere with their parents and expect your pension not to disappear with inflation.

    Civil marriage is about the collective, not the couple, the lowest energy level form imprinted on the mind, circuit replication, baking communism, misdirection and viral growth patterns into the cake, as an efficient counterweight. If you look at it in terms of good and evil, instead of DNA, you are lost in a sea of gravity before you begin.

    Of course the critters seek external security to assuage internal insecurity, and so measure consumption as production, producing the world you see, if you limit yourself accordingly. Warren Buffet built his replica on civil marriage; pensions are a problemsolution, surprise.

    Poverty is a choice made by habit; arguing about the past as a means of ignoring the present, and not preparing for the future. Insert a double-sided mirror (2 Cs back to make, making up the multiplexer switch), and move forward until you have time to reconsider, by which time the problem will solve itself, if you have chosen priorities consistent with life.

    The horse doesn’t need the cart, but the cart does need a horse, but don’t waste your time telling the communists that. The communists assume that they have an information advantage because they have more eyes, looking at the same thing, themselves.

    I’m not going to leave my wife and child to feed the communists, but I will feed the communists if they understand their place, in History. If both sexes really want to work, the 20 hour workweek X 2 @ income 4X rent as a baseline isn’t negotiable.

    Don’t send your kids to Public Education, a school for communism, expecting anything else. Obviously, the stock market is a collective of collectives, misrepresenting itself as a free market. From the perspective of labor, the banks have been closed for two generations; blow each other up, on the word of Trichet, a casino operator with the highest unemployment rate in History.

    “a clear line and course,” crack me up.

  19. phch

    Fascinating analyses on NK. Many thanks, Yves, for presenting a complicated analysis of a more-than-complicated situation.

    I don’t know if you or Krugman have the correct take on the situation (he says the Greeks should vote No, you say Yes) but one thing is clear: Greece would have been far better off if this drama had occurred well before the tourist season. I’ve been listening this morning to the BBC World Service reports from Greece and its clear that that tourism is going to be devastated. Hotels, restaurants, and other tourist-related industries will suffer disruptions and tourists will be cancelling their trips, hurting the Greek economy. Had this happened months ago, the dust would have settled at least to some extent and I suspect that impact on the tourist trade would have been less than it will be now, with the crisis hitting at the height of the season.

    Only an incompetent strategist (funny, a greek word) would choose to fight a battle on a field of such disadvantage. Syriza have proved themselves a bunch of amateurs.

    1. Jerry Denim

      “Syriza have proved themselves a bunch of amateurs.”

      Perhaps, but that remains to be seen. Wait a few weeks and see how this plays out. A Grexit is not going to be a totally one-sided affair with no risk and no blow back for the eurocrats.

    2. TheCatSaid

      “I’ve been listening this morning to the BBC World Service reports from Greece and its clear that that tourism is going to be devastated. Hotels, restaurants, and other tourist-related industries will suffer disruptions and tourists will be cancelling their trips, hurting the Greek economy. “

      It’s a possibility, but BBC also has strong propaganda aspects.

      Greece has taken some steps so tourists can function, and there will probably be attractive bargains for those who do visit.

      1. Lambert Strether

        Cancellations happened in the 2010 crisis, so there is ample precedent:

        GREECE has set up a crisis unit for tourism following nearly 20,000 hotel booking cancellations in Athens alone after violent protests against government austerity measures, an official said.

        “Following mass cancellations of reservations, a crisis committee led by the Greek Tourism Organisation has been set up,” government spokesman George Petalotis told reporters.

        He estimated the cost in the “tens of millions of euros.

        To be fair, there’s been no violence. Yet. More on 2010 and tourism:

        Reservations are down by an average of about 30 percent nationwide since last summer, and experts expect a large number of cancellations. The Association of Greek Tourism Enterprises (SETE) reported that in the first 24 hours after the general strike in early May, more than 5,800 reservations were cancelled in 28 Athens hotels. According to SETE calculations, at least 300,000 Germans will decide not to make their usual trips to Greece this year.

        Dozens of conferences and major events have been cancelled in the country’s two largest cities, Athens and Thessaloniki, as well as in Crete and the northern Greek beach resort area of Chalkidiki. After the riots in the capital, some countries, like Romania, issued travel warnings for Athens.

        More than 400 hotels are now officially for sale: 81 on the Ionian Islands, 48 on Rhodes, 50 on the Cyclades and 44 on Crete. The Greek vacation atlas, with names like Paros, Naxos, Andros, Milos, Santorini, Corfu and Kos, reads like one big bargain-basement sale. The Athens daily newspaper Kathimerini estimates the value of all properties currently on the market at more than €5 billion ($6.2 billion). They also include luxury hotels, the names of which have been concealed from the public.

        Yes, yes, the link is from Der Spiegel, but it cites to Greek sources.

    3. Yves Smith Post author

      I have not taken any position. We don’t make endorsements. However, I have said repeatedly the referendum is sham democracy

  20. Oregoncharles

    You’re sketching the prelude to the biggest IMF riot ever – one that actually overthrows the government and starts a whole new clock. One that’s likely to spread.

    Remember the giant demonstrations in Athens a few years ago? Those were carefully choreographed – the demonstrators perfectly well could have occupied Parliament , but didn’t. This time….

    Europe is juggling burning swords, all to save the neoliberal model.

  21. steelhead23

    In the proverbial “game of chicken” where two drivers accelerate their cars toward each other, the rational player always loses. When both parties are too afraid to lose, a colossal wreck ensues. It would appear that that is exactly what will happen in Greece’s fiscal crisis. Again, I plead ignorance but I cannot for the life of me understand why real debt relief could not be offered to Greece, Spain, Italy, Portugal, and Ireland. My point is – austerity diminishes economic production – period. One does not run a marathon after donating blood. So, while Yanis Varoufakis may not have displayed the proper posture toward the troika, he was right – further austerity would further reduce economic productivity, likely meaning continuous debt restructuring until debt service costs overwhelmed GDP. That is, even a “yes” vote is a vote for a painful debt spiral. It is the troika that is being irrational. Perhaps someone could explain to me why, when most of the money would go to large financial institutions, the ECB cannot simply monetize a sizeable portion of Greece’s debts? Even if such a move caused a bit of inflation throughout the Eurozone, the effect would pale by comparison to full-on default and a Greek exit. Yes, of course by implication, the rest of the periphery would need debt relief. Just remember this – if the value of the Euro took say a 20% hit, it would have the effect of making the entire Eurozone more competitive on the global market, getting people back to work, and factories humming.

    Patrick Smith makes an interesting comparison of the Greek and Ukranian financial crises:

  22. samhill

    …with the crisis hitting at the height of the season. Only an incompetent strategist (funny, a greek word) would choose to fight a battle on a field of such disadvantage. Syriza have proved themselves a bunch of amateurs.

    The bill came due in summer, whatcha gonna do? Could the EU/Troika have been so prescient? Evil geniuses, obtuse incompetents? I’m so confused.

    1. NotTimothyGeithner

      Its the ivory tower. They thought the Greeks would fold or promises of economic recovery would solve the problem

      Greece/eu went through this 3 months ago and 6 months ago. Syriza came to power in a multi-year process. Besides, there was a 1/4 chance the crisis would occur in the Summer.

  23. linda amick

    Staying in the Eurozone is a known for the Greeks. They will never get out from under a vile, draconian, neoliberal system. Their future is the present and the past 5 years.

    Voting “No” offers a hope for something better. Greeks could look east. Greeks will have gained back their dignity.

    I wish the Greek people the best. I was a Greek major in college and studied the classics in the original language dialects. As Whitehead said: “all philosophy is nothing more than a footnote to Plato”
    We westerners are indebted to our democratic heritage via Greece.

  24. Bobbo

    The lesson here is that if you’re going to default, you need to take down the entire system with you so that everyone has to work together to rebuild. Greece waited too long. Portugal, Spain, Italy take note and do not repeat Greece’s mistake.

  25. Robert Dudek

    There is at least one thing that has happened in the last five months in Greece that is a positive development. Judging from the on the scene coverage in Athens by the Guardian, there are significantly more Greeks that are looking at the drachma as the only viable way out of this impasse. Of course that is largely due to the troika’s negotiating methods – so I give them full marks on that score.

  26. Lambert Strether

    Actually, no. You can distinguish an amateur from a professional on process grounds, regardless of outcomes (happy, or not).

    As usual, we have an exact parallel from the world of Obots, circa 2009: “Give him a chance. He’s only been president __ months” is the equivalent of “let it play out.”

  27. Bobbo

    If NC is right, if the extension expires today so there is nothing to vote on come July 5, then why is Greece moving ahead with plans to hold a referendum anyway?

    1. bh2

      Only to allow the voice of the Greek people to be heard — and obeyed by their government (present or future).

      What will make this national up/down vote different is that eurocrats will have no power to force a do-over if the Greeks vote “no”. Fortunately, the EU doesn’t yet have its own jackbooted army to conquer the Greeks by force.

      1. Yves Smith Post author

        Referendum questions are usually formulated with great care. The notion that this vote is on a null and void issue means that what it means is what various individuals think it means, It has no objective meaning. How can you say present this as responsible or sensible?

  28. thom

    JUNKER (PRUSSIA) [As in JUNCKER] –from Wikipaedia

    Did anybody else catch this exquisite linguistic semantic orthographic mea culpa — or just those of us who read poetry?

    JUNKER: Modern popular usage in Prussia [edit]

    Main article: Junker (Prussia)

    In modern Prussian history, the term Junker became popularly used as a loosely defined synecdoche for the landed nobility (particularly of the east) that controlled almost all of the land and government, or by extension, the Prussian estate owners regardless of noble status. With the formation of the German Empire in 1871, the Junkers dominated the central German government and the Prussian military. A leading representative was Prince Otto von Bismarck.[5] “The Junkers” of Prussia were often contrasted with the elites of the western and southern states in Germany, such as the city-republic of Hamburg (which had no nobility) or Catholic states like Bavaria, in which the “Junker class” of Prussia was often treated with contempt.[6]

  29. Matthew G. Saroff

    While I agree that the immediate consequences of a Grexit would be severe, and it would likely involve 12-24 months of hell, I think that Greece wiil begin to recover after that, and it will recover strongly, because of the devaluation of the Drachma.

    Once this happens, I think that some of the other southern tier nations will realize that a Euro Exit might be a good thing if they can implement the changes more smoothly, and they will start getting their ducks in a row.

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