A Grexit Looks Almost Inescapable

Despite my generally dour outlook, I never thought we’d arrive at the insane juncture we are at now, that of a Grexit being all but baked in. This would be a catastrophic outcome, most of all for the Greek 99%. If a Grexit comes to pass, it should deservedly blacken the names of everyone involved, most of all Merkel, whose incrementalism meant that all of the unresolved contradictions of the Eurozone produced intensifying pressure on its fault lines, and Greece proved to be the breaking point. But as we’ll see soon, her finance minister Wolfgang Schauble would also get a particularly large badge of dishonor.

You don’t need to know much to know that the odds of Greece escaping a Grezit are becoming vanishingly small as time progresses, and there is perilously little time left. And mind you, this sorry trajectory is occurring even after the Greek government prostrated itself and offered to meet even more stringent conditions than its voters overwhelmingly rejected in a referendum less than a week ago.

Greek banks will die by the end of the day Monday if the ECB does not give them more liquidity under the ELA. That pretty much means a Grexit. Even if they get some ELA funds, it’s almost certain depositors will suck the money right out unless very stringent measures are taken to make sure the funds are used almost entirely on behalf of importers (and even that could be abused to get cash out).

The ECB will not give more funds under the ELA unless it gets a guarantee from Eurozone members. That is just about as hard as getting a deal done, despite much smaller amounts of money at risk, but it is the only mechanism that looks to be open for an 11th hour respite.

Too many Eurozone members are opposed to Greece for a deal for it to get done on Sunday. This map was posted by Ambrose Evans-Prichrd yesterday. Remember that Eurozone rules require unanimous decision:

Propagandists can turn public opinion astonishingly far, but not in days or even a week or two. And that assumed you’ve gotten national leaders on board first.

Getting Wolfgang Schauble, the Finance Minister of Germany, on board, is a necessary but not sufficient condition for getting a Greek deal done. We’ve been reporting since February that Schauble, who had been in line to become the chancellor before he was tainted by a corruption scandal, has been in a position to bar a deal. Back then, if the 71 year old had resigned in protest, it would have created a crisis. His position with Germany MPs on the Greek issue has if anything become more powerful as Parliament and the German public have become even more hostile to Greece. The German press has been filled with reports over the last six weeks of a schism between Merkel and Schauble over Greece, with Schauble skeptical of her efforts to keep Greece in the Eurozone. And these reports confirmed that Schauble was being careful not to oppose Merkel in the open, and that MPs trust him more than her oh Greece.

Schaulble has thrown a major spanner in the works. He looks to have been waiting for the right minute to throw his weight around and this was it. We’ve posted a document at the end of the post that Der Spiegel depicted as being a one-page position paper and the Twittersphere attributed to Schauble. The New York Times also reported that “officials” were circulating it. I’m not going to attempt to analyze it in any serious way, save to say that the first option reads as if Greece gets its debt reduction only if it ponies up collateral it can’t possibly have (remember Greece has already been through substantial privatizations; many assets got no bids and others got less than hoped for) and is overseen by bankruptcy overseers and the second is an non-workable exercise in optics to pretend that a Greixt is not a Grexit.

It does not matter whether Schauble is actually serious about this or not. This is a mechanism for saying formally that he is not on board with the Greek proposal. Submitting a napkin-doodle as an alternative serves to muddy the waters, and when time is so desperately tight that helps to stymie a deal. It was not a good sign at all that Eurogroup ministers and other negotiators turned in rather than work through the night to find a resolution.

Schauble’s gambit is consistent with a warning we issued a month ago:

There is a group of hardliners among the Eurozone members that are hostile to Greece, and are taking a tougher line than Germany. For purpose of convenience, we’ll call them “ultras”…. They want to make sure that Greece suffers visibly for its defiance since their countries swallowed the bitter austerity medicine. There are separately quite a few ultras on the ECB board, but they won’t act unless they have political cover.

In a chaotic situation, people tend to gravitate around parties that come up with plans of action quickly and advocate them forcefully. That gives the ultras the potential to have influence out of proportion to their political weight. They can also sell radical action as necessary to protect the Eurozone from the existential threat of other countries of the Eurozone also departing, that it is necessary to make a Greek default as punitive as possible pour decourager les autres. That argument could carry weight with other countries and institutions which might not otherwise be punitive towards Greece.

The scenario we set forth then as a radical downside scenario is tame compared to what looks almost certain to take place. And aside from the ECB finally getting the go-ahead to strangle the Greek economy, the ultras haven’t even had to break a sweat.

It is still early in a day that will be decisive and is far too likely to prove to be catastrophic. If the seemingly-inevitable trajectory towards a Grexit continues, the ruin will be visited on Greece first, but in the end, the rest of Europe will not come out of this unscathed. As Swedish Lex wrote:

This it totally, utterly crazy. Total meltdown.

The proposal is the product of warped minds of people that have spent far too much time inside a bunker, on the other hand it manages to firmly establish a German (death) wish to dominate and control other peoples and nations. That control is then supposed to be exercised “by following the rules and within the Law”. Just like the Nazis, and the whole of Germany, operated within the Law that they themselves created as they went along. I am not saying that Schäuble or current Germans are Nazis, only that their mindset to control and to dominate, which has been the same for the past several hundreds of years, has not changed (see the interview with Emmanuel Todd.

I’ve been joking for years that I feel like I’ve walked into the last act of Gotterdammerung and am looking for the libretto. Sadly, today I might finally find it.

Update 6:00 AM. A new story from the Guardian (hat tip Margarita) does not look promising. Key sections:

Last-chance talks between the 19 eurozone finance ministers in Brussels ended at midnight, with deep divisions persisting over whether to extend another bailout of up to €80bn to Greece in return for fiscal reforms.

Finland rejected any more funding for the country and Germany called for Greece to be turfed out of the currency bloc for at least five years.

Experts from the group of creditors known as the troika said fiscal rigour proposals from Athens were good enough to form “the basis for negotiations”.

But the German finance minister, Wolfgang Schäuble, dismissed that view, supported by a number of northern and eastern European states.

“These proposals cannot build the basis for a completely new, three-year [bailout] programme, as requested by Greece,” said a German finance ministry paper. It called for Greece to be expelled from the eurozone for a minimum of five years and demanded that the Greek government transfer €50bn of state assets to an outside agency for sell-off.

Timo Soini, the nationalist True Finns leader, meanwhile, threatened to bring down the government in Helsinki if Alex Stubb, Finland’s finance minister, agreed to a new bailout for Greece. Stubb apparently came to the crunch meeting on a new bailout without a mandate to agree one.

“The hawks are very vocal,” said an EU diplomat. “It’s very tough.” Berlin also demanded stronger and more intrusive powers for outside monitors to police the economic and fiscal reforms that Alexis Tsipras, the leftist Greek prime minister, would need to commit to to secure the new bailout.

Saturday night’s talks were not to agree on a third bailout, but were negotiations on whether to launch more talks on Greece’s third rescue package in five years. The ministers faced formidable problems, said Schäuble, who argued debt relief for Greece, broadly seen as essential, was banned by the EU treaties. “Athens’s proposals are far from sufficient. The funding gaps are way beyond anything we’ve seen so far,” he said.

The hard line was echoed by Peter Kazimir, finance minister of Slovakia, who said that new austerity measures tabled by Athens were already past their sell-by date…

The widening gulf between eurozone hawks and doves paves the way for an acrimonious summit on Sunday, with France and Italy lining up against Germany and the northern and eastern Europeans. Matteo Renzi, the Italian prime minister, is expected to tell the German chancellor, Angela Merkel, that enough is enough and that Greece should not have to put up with any more humiliation.

Merkel is under intense pressure from the Americans not to “lose” Greece and is worried about her own legacy. But Greece fatigue is becoming endemic in Germany, and she faces growing unrest in her party ranks where Schäuble’s hard line is popular. She was said to have endorsed Schäuble’s tough position.

If Merkel actually “endorsed” the tissue paper below, she’s effectively committed to a Grexit. As Swedish Lex noted earlier:

I am genuinely curious to know what Hollande knew about Schäuble’s invitation for Greece to become the most Southern Province of the new German Empire (control over Greece exercised via a bank account in Luxembourg that would control 50 bn of Greek assets, i.e. control Greece)? I sincerely hope it came as a surprise. If so, it would mean that Schäuble and Merkel have been fooling Hollande for the past week at least. And, presumably, also fooling Obama.

On the other hand, if they knew and had endorsed it. Well, in that case Europe’s political and cultural insolvency is total.


Print Friendly, PDF & Email