“Greece Brought a Latte to a Gunfight”

By David Llewellyn-Smith, founding publisher and former editor-in-chief of The Diplomat magazine, now the Asia Pacific’s leading geo-politics website. Originally posted at MacroBusiness

The weekend’s European news could not be more extraordinary. A superb opinion piece by Yanis Varafoukas in The Guardian brought everything to a head:

In 2010, the Greek state became insolvent. Two options consistent with continuing membership of the eurozone presented themselves: the sensible one, that any decent banker would recommend – restructuring the debt and reforming the economy; and the toxic option – extending new loans to a bankrupt entity while pretending that it remains solvent.

Official Europe chose the second option, putting the bailing out of French and German banks exposed to Greek public debt above Greece’s socioeconomic viability.

…Our government was elected on a mandate to end this doom loop; to demand debt restructuring and an end to crippling austerity. Negotiations have reached their much publicised impasse for a simple reason: our creditors continue to rule out any tangible debt restructuring while insisting that our unpayable debt be repaid “parametrically” by the weakest of Greeks, their children and their grandchildren.

…Greeks, rightly, shiver at the thought of amputation from monetary union…To exit, we would have to create a new currency from scratch. In occupied Iraq, the introduction of new paper money took almost a year, 20 or so Boeing 747s, the mobilisation of the US military’s might, three printing firms and hundreds of trucks. In the absence of such support, Grexit would be the equivalent of announcing a large devaluation more than 18 months in advance: a recipe for liquidating all Greek capital stock and transferring it abroad by any means available.

…After the crisis of 2008/9, Europe didn’t know how to respond. Should it prepare the ground for at least one expulsion (that is, Grexit) to strengthen discipline? Or move to a federation? So far it has done neither, its existentialist angst forever rising. Schäuble is convinced that as things stand, he needs a Grexit to clear the air, one way or another.

What do I mean by that? Based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone.

This is a truly bizarre confession. Yanis can see with razor sharp clarity the economics and politics at play. But at the same time he sees them as somehow new, as if Schäuble and German position has “suddenly” altered in some way in recent days. This is plain wrong, as MB’s own Delusional Economics pointed out five months ago when Yanis was first elected, he displayed an impressive grasp of economics and political naivete in equal measure.

Germany has not changed its position recently, if at all throughout the four year crisis. For Germany the euro is a simple national interest weapon. It allows it to dominate Europe and global trade by artificially suppressing its real exchange rate. For it to sustain that position it cannot allow peripheral nations to successfully drop out of the currency. They’d flood out and the more that left the higher the euro would rise as the German weighting in the currency increased. Anyone staying must adhere to German rules and anyone leaving must be destroyed to deter others from doing do. The euro and Europe are irrelevant to German real politik. They are in it for the Germans.

Yanis appears to have assumed that he could grasp the European light on the hill and persuade with elegant reason all of Europe to embrace enlightened super-national consciousness. He’s been genteelly sipping lattes at a gunfight and by doing so has played right into realist German hands by destroying his country’s economy as an example to all other European ‘dead beats’.

There is nothing new here. Yanis has simply been outplayed. When it was elected, Syriza either had to sign up to new terms of austerity or immediately leave the euro. It’s stylish five month congress with Europe has ruined its economy to no purpose of its own given it will either now buckle under to even deeper austerity or will still be forced out of the euro, taking its economy from wrecked to destroyed. By misreading power politics from the outset, Syriza has allowed Greece to be turned into an open-necked sacrificial goat gutted to keep the rest of Europe bowed to German will. That Yanis can see it now changes nothing for the forgotten Greek national interest.

By Saturday the German game of cat mouse reached laughable proportions, from Reuters:

Germany’s Finance Ministry believes Greece’s latest reform proposals do not go far enough and has suggested two alternative courses for Athens including a “timeout” from the euro zone, the Frankfurter Allgemeine Sonntagszeitung (FAS) reported.

“These proposals miss out important central reform areas to modernise the country and to bring economic growth and sustainable development over the long term,” the FAS quoted the ministry as writing in a position paper.

Instead, the ministry set out two alternative courses for Greece. Under the first, Athens would improve its proposals quickly and transfer assets worth 50 billion euros ($56 billion) to a fund in order to pay down its debt.

Under the second scenario, Greece would take a “timeout” from the euro zone of at least five years and restructure its debt, while remaining a member of the European Union.

Schäuble must be choking with laughter behind closed doors; playing the good guy with a sympathetic Greek “timeout”. Using what currency? The proposal also included the generous offer of “growth-enhancing, humanitarian and technical assistance”. Food stamps for German exports, no doubt.

Finally, when the Eurogroup did meet it was a mess with Finland leading a Teutonic rebellion against even the bailout, let alone any notion of debt forgiveness. By Sunday talks resumed and what surely began as Schäuble sniggering suddenly became reality as the terms of the Greek bailout that were counter-offered by Eurogroup suddenly became significantly more harsh that either the offer of two weeks ago or the Greek’s bizarre referendum-betraying counter proposal. The list included the politically impossible demand that Greece transfer $50 billion euros of state assets to a Luxembourg company so that the Eurogroup can sell ‘em when it pleases.

The offer was surely only made tongue in cheek as it came with what appears to be the real idea, that Greece take a five year holiday from Eurozone membership. Greece must enact key reforms this week before any talks on any new financial rescue and the Greek parliament will need to approve legislation by July 15. Once done, funds can be released to avert Greek bankruptcy. An absurd timetable for ludicrous demands.

So Greece will now walk, obviously. Except for this from the BBC:

So the first rather chilling thing I’ve learned, from well-placed bankers, is there have been no conversations between the Bank of Greece, the government or regulators and Greece’s commercial banks about the technicalities of leaving the euro and adopting a new currency.

This is astonishing – and some would say pretty close to criminal – given that on Wednesday night the president of the European Union, former Polish prime minister Donald Tusk, was explicit that this weekend’s negotiations were all about whether Greece would stay in the eurozone.

Greece has not even been negotiating with an armed latte.

And so, by burning its political capital with Brussels over five months of polished debate, convincing the Greek people of the righteousness of their cause of staying in the Euro but paying no German price for doing so, and then flipping to outright panic as their banking system collapsed, Greece has destroyed itself so that Germany can rule the zone.

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  1. IsabelPS

    OK. Let’s imagine for a second that “they” get religion and find 82-86 billion to fund Greece. What next? (Till when?)
    Any idea?

    1. timbers

      82-86 billion?

      Here’s a thought: Let Greece exit and have EU pay for it. It’s obvious Greece and and most of Europe will benefit from each and most every member exiting the EU, so subsidize it.

      Germany paying for a full subsidized Greece exit is cheaper for Germany than if Greece stays in the EU and it’s enormously better for the Greeks to exit.

      1. Yves Smith Post author

        Huh? Schauble joked about paying Greece to leave.

        The cost to Greece of a Grexit would be massive and beyond the ability and willingness of Germany to subsidize in addition to the losses it will take on its loans and ECB exposures (although the economic value is well below the headline numbers, since those losses will be spread out over time. The government pays out only when Greece does not make payments and those payments don’t even start till 2020 on one facility and 2023 on a second. Not clear how losses on the ELA and Target2 would be recognized. In theory, the ECB could just monetize them but the Bundesbank does not like that).

        Plus the point is not to help Greece. As the post stresses, the point is to make Greece into such a horrorshow that no other country will think about a Euroexit for a very long time (although this is also proving to serve as cover for an awfully ugly dose of German vengeance).

        1. IsabelPS

          At this point in time, what would be “to help Greece”? I really have no idea, and I haven’t seen any suggestions in a long time (I think that a couple of months ago there were some, but they must be way insufficient now). What would be a good solution for Greece?

        2. Cugel

          Yves, Schäuble is not laughing, unless he’s an even bigger cretin than he looks. Germany has just inaugurated the destruction of the Eurozone, in one of the the worst own-goals in history. How is that a win?

          Greece is smaller than New York state and has a total population barely larger than New York City. The debt problem of a country that size was easily manageable by Europe. Now that a temporary deal has finally been reached, the slow motion collapse of the EU is simply going to continue, with the collapse of political support all across Europe. Greece is not the big fish.

          Now this tiny problem has been escalated into a huge rift in the EU that has threatened the stability of the world economy. And it’s only the first crisis of an ongoing series, one that Germany has shown zero ability to manage. The EU simply cannot exist without public support, and that is eroding badly.

          Just ask yourself how you would have handled this crisis if you were Merkel and simply wanted to extend German dominance long-term? You would have agreed to some face-saving formula to manage the Greek debt back in October 2014 by instituting a write-off, which everybody agrees will be necessary anyway. A way could have been found to issue new debt to cover the losses, which would be repaid over a sufficiently long time that EU taxpayers wouldn’t have noticed anything.

          Nothing fundamental about the EU would have changed, which benefits Germany since they continue to dominate it, and Greek debt would have been managed. This all would have been a blip on the radar few people would even know about and even fewer would care about.

          The Germans have “won” nothing they could not have “won” a year ago at almost zero cost. The deal is still unsustainable, and reality has still not been faced. Negotiations will now continue amid massive publicity. Greece was forced to capitulate, but the Greek crisis is only going to get worse, and now Germany owns it.

          They have lost an utterly massive amount of political support throughout Europe, all quite needlessly. Even worse, like marching on Poland, they’ve exposed themselves openly as tyrants. This is worse for them than an own-goal. This is a victory in the same sense that the “Charge of the Light Brigade” was a “victory” since the British ultimately won that battle.

          1. Yves Smith Post author

            Schauble is 71 and believes deeply in austerity. Germany is hostage to a particularly retrograde school of economics called ordoliberalism. So his school of thinking goes over well in what passes for elite circles in much of Germany.

            The Germans care about Germany. It’s now clear they are going to milk the Eurozone project as long as they can. They believe, correctly or not, that this display of brutality will deter any rebellion for a few years, and if they are lucky, many years.

            Merkel was never in control of this situation. Even in February, before Greece was perceived as being uppity by the creditors, Merkel needed Schauble’s support to get the Eurogroup memo passed. His position became stronger as the German press reported on Greek press demonization of Germany. Numerous German press stories on a rift between Schauble and Merkel over Greece all depicted him as having more influence than her with the parliament on this issue, and she needed the parliament to approve any deal.

            However, Merkel independently became more hostile to Greece. Merkel’s remarks about Greece changed from equivocal to less than friendly as of early June (it may be a coincidence, but it appears to be right after the Le Monde op-ed, in which he poked her in the eye). The moderates in Merkel’s coalition turned against Tsipras. From the FT< "Alexis Tsipras loses Sigmar Gabriel, his last best hope in Germany" on July 8:

            When Greece infuriated its creditors by abandoning bailout talks and instead calling a national referendum, the most blistering German condemnation came not from chancellor Angela Merkel or her tough finance minister, Wolfgang Schäuble.

            Instead, it was voiced by Sigmar Gabriel, the leader of the centre-left Social Democrats, who told the Tagesspiegel newspaper that Greek premier Alexis Tsipras had “pulled down the last bridges over which Europe and Greece could have moved to a compromise”.

            Mr Gabriel’s remarks were all the more stinging since he and his party — a junior member of Germany’s governing coalition — had for months encouraged a somewhat more conciliatory approach to the Greeks, and Mr Tsipras, even as other European leaders became exasperated.

            His shift reflects both the degree to which Mr Tsipras and his radical Syriza party have alienated potential partners in Europe as well as the German public’s hardening stance against granting any further concessions to Greece. It has also bolstered Ms Merkel and her tough line in negotiations.


            Authoritarian regimes can often survive much longer than they ought to. There’s been no show of solidarity from the left on Greece any time before it was way too late, and even then the European left is so small and feeble I am not sure it could have had any impact.

            1. OpenThePodBayDoorsHAL

              I think Merkel and Schauble have perfectly calculated the mood of the times, the elite know they can press harder and harder with the jackboot to enforce whatever policy suits them and the supine population just finds new ways to rationalize, ignore, and endure the pain. The referendum was a death gasp, but everywhere you look, whether it’s the zombie-walk to Hilary, ObamaCare premiums, all manner of destroyed civil liberties, enshrinement of Permanent War, unprosecuted bank criminals, or suicide by Greek pensioners, We The People have collectively decided it’s All Ok By Us.

          2. IsabelPS

            Let me play the devil’s advocate (someone has to). You (Cugel) say:

            “You would have agreed to some face-saving formula to manage the Greek debt back in October 2014 by instituting a write-off, which everybody agrees will be necessary anyway. A way could have been found to issue new debt to cover the losses, which would be repaid over a sufficiently long time that EU taxpayers wouldn’t have noticed anything.”

            If I understood well, this was Merkel’s main miscalculation. In hindsight, and if one thinks of numbers only, it is obvious. But there are other things at play:
            I wasn’t following this saga at all, but as far as I can tell, Samaras was stuck at some difficult “reforms” and asked for leniency, which as refused. Again in hindsight, that was a stupid thing to do because we were talking peanuts then, instead of elephants now. But consider this:
            Not all “reforms” deserve to be put between inverted comas. We speak of pensions, salaries and, in general, austeritarian measures. But aren’t we talking, all the time, of tax evasion and pervasive difficulty in collecting taxes in Greece, for example? Consider this: at the time that Merkel took that fateful decision, Portugal had already implemented quite a few measures that broadened enormously its tax base (by bringing into the fold of law lots of wayward taxpayers) and greatly enhanced its tax collection, which was already showing in the budget. (I haven’t mentioned it yet because I have been trying to find the numbers, without success). OK, the first steps towards a modernized and efficient tax system were taken some 10 years ago but it was the sheer pressure of the bailout and its conditionality that forced the recent changes that were, indeed very successful (although much decried by the opposition, including on moral grounds because they include Audi lotteries and the like). Isn’t it understandable that Merkel thought “no more postponing of difficult measures!”?

            I honestly don’t know how to get out of this conundrum. But it is obvious to me that most commenters don’t seem to bet fully aware of how much a disfunctional State sucks resources form the economy and how difficult it is to fight vested, entrenched interests.

        3. Fair Economist

          This will indeed be a horrorshow (10% increase in VAT? Unbelievable…) but the horrorshow will be for staying in the Euro and that will be understood very quickly. To be precise, the horrorshow will be for trying to get back on the Euro – Greece is on a separate currency now, that of electronic transfers within Greek banks. You can use those Greek Euros for all normal currency operations within Greece but you can’t turn them into European Euros except under stringent conditions. It’s a typical situation for a country with a significantly mis-valued peg.

  2. Garrett Pace

    How hard would a paperless currency system be? Aren’t we practically there right now in many nations? Not easy for these guys – sounds like they aren’t really ready for anything. But it doesn’t strike me as sensible to compare Iraq when that was twelve years ago.

    1. Yves Smith Post author

      We’ve published a lot of posts on this already. You have to have the ability to process payments in drachma. That’s not anywhere near as easy as it sounds.





      And as we have discussed:

      1. Greece is heavily cash based and would be more so since pretty much everyone who had any money now has a mattress stuffed full of euros

      2. Greece has very low smartphone penetration (32%) so the notion of using smartphones as an alternative to cash is close to a non-starter. And that would still require development on the bank side, and the banks will have much higher priorities. Plus with the economy taking another huge leg down, you can expect smartphone penetration to decline.

      1. OpenThePodBayDoorsHAL

        If Ecuador can do it so can Greece, given some more time, which they do not have unfortunately. But between now and a year from now when the new ELA money dries up and “Greece is un-fixed” again they do have time.

        The best part about the Ecuador program is that the central bank took over the money creation process:


        My favorite quote: “There isn’t a great deal of opportunity for either the mobile operators or the banks in the new scheme”. Music to my ears.

        1. Yves Smith Post author


          Ecuador is not comparable. It always had its own currency.

          And Greece has low smartphone penetration by global standards. It’s a very cash based economy, in part to facilitate tax evasion.

  3. EmilianoZ

    If they have any sense and courage left, France, Italy, Spain and Portugal must prepare to leave the euro asap. They’re in the position of a bride who married Dr. Jekyll and now find herself in bed with Mr. Hyde. A divorce is gonna be extremely costly. But staying in the marriage is much worse.

    1. addicted

      It will be morbidly funny when a beggared Greece is still part of the Euro as an indentured servant 3 years from now, and France is not.

      I still find it hard to believe that Syriza did absolutely no contingency planning for leaving the Euro.

      1. cabjoe

        According to Varoufakis here
        they had a small group of 4 to 5 people considering it but it wasn’t implemented because in his words:

        ‘Of course, there is a conundrum here. Once this plan begins to be implemented, once you go from five people working on it to 500—which is the minimum you need to implement it—it becomes public knowledge. The moment it becomes public knowledge, the power of prophecy creates a dynamic of its own … We never made that transition from five to 500. We never felt we had a mandate to do it. We never planned to do it. We had the design on paper but it was never activated.’

        1. Yves Smith Post author

          I have to tell you, Hank Paulson also has a Treasury staffer, Neel Kashkari, draw up plans for dealing with a systemic crisis. He probably spent the same man hours (and he’d be more efficient, already having expertise). You can see how well those plans worked. No one even looked at them when things started unraveling.

    2. So-called Just-us War-pig

      But this has been obvious for years. Will latte-liberals finally admit that Marine Le Pen has been correct all along?

  4. randalms

    Germany certainly seems like they are trying to intimidate the rest of the EU members. If I were a member of one of the more southern EU countries – I would be seriously re-evaluating the REWARD, and now quite real RISK of belonging to this currency zone.

    I will be hosting a few spanish in laws in a few days, it will be interesting to hear their take on this.


  5. Matt

    I suspect the plan has been to Cyprus the Greek banks and Greek depositors all along. Whether that
    happened in January if the Grexit occurred or in July is what? A 50 billion Euro difference? The ECB will get to price mark the Greek bank assets and sell them to their masters. Any further signing over of Greek assets will be icing on the cake for the Germans.
    At least the last 6 months have 60 percent of the Greek people realizing where this is going. Some are angry at the current government for continuing spending, but where has it gone? Not to the hospitals, not to the schools, not to the pensioners, people have been waiting for a pension for years now and not drawn one payment.

    1. jfv

      You asked where the money has gone.

      According to this analysis about 11% went to support the Greece state. About 50% was used to prop up the creditor organizations.
      So helping out served creditor interests a lot more than Greek interests.

      From : http://www.macropolis.gr/?i=portal.en.the-agora.2080

      The brutal belt tightening meant that only just over 15 billion euros of troika loans were used for state operations. Combined with some other government financing needs (mostly relating to repayments of arrears that accumulated in the first two years of the crisis) the combined allocation to the Greek state’s operating needs was just 11 percent of the total funding, at circa 27 billion euros.

      Roughly half of the financing was provided for debt servicing. From the loans, 81 billion was used to meet maturing debt obligations and for interest payments that exceeded 40 billion euros, almost 122 billion euros in total.

      At the bottom of this are the source data references.

      1. Yves Smith Post author

        One part that is missing is that the Greek banks held 59 billion in Greek bonds. That’s considerably more than German banks held (40 billion) but less than French banks (93 billion euros). And the Greece has no meaningful deposit insurance (only a 3 billon euro fund as of 2013), so once you got past bank equity, the depositors get hit next (by contrast, most of the French and German banks were larger and issued bonds, so you’d have equity wiped our first, then some of the debtholders. You’d need to do a real analysis, but I suspect depositors in France and Germany were not at risk in a bail-in, but it would have been a systemic event, so no one was willing to go that route).

        That is a long-winded way of saying that Greece got more out of the rescues than is widely depicted, even though it is still accurate to say that parties outside Greece in total benefited more.

        1. Stelios Theoharidis

          I think it may be even worse than that. I seem to recall part of the bailout that went to Greek financial institutions went to support subsidiaries in Cyprus, with prior knowledge of the imminent Cypriot bail-in core financial institutions got out of Cypriot banks before the bail-in. Then there is the Greek pension funds which had money in Greek banks and took significant write downs.

          1. Yves Smith Post author

            Aha, not surprising that there are lots of layers that makes looking at the top level incomplete and therefore potentially misleading. In the Cyprus bail-in, the branches in Greece were sold at such distressed prices that a lot of observers have argued they amounted to transfers to the Greek banking system (that the ECB was basically stripping Cyprus banks of assets where they could and letting Greek banks have them). This article from Tagesspiegel has some of the data without making the case as crisply as other did during the Cyprus bail-in (apologies for citing a less than ideal source, but Tagesspiegel does have a good account of the bail-in and given how lousy Google has gotten over time, it was easier to find a source that was directionally correct):

            Cypriot banks were forced to sell their Greek branches for just 524 million euros. The buyer was Piraeus Bank. The Bank of Cyprus lost more than two billion euros, its total equity capital. That was the sole reason for its bankruptcy, as predicted by the ECB scenario as early as January.


            This looks like a smaller-scale version of what happened to Greece relative to the French banks: using a smaller, weaker player to the advantage of the bigger and then perceived to be more important to protect/salvage. The ECB would of course claim this was a “market” price as its excuse, when it had considerable influence over where the assets traded. And your issue means in the unlikely event this transaction ever got questioned, the officialdom could handwave about the previous transfer to Cyprus.

  6. Dugh

    Some seriously brutal, hardcore reality. Unloaded latte to a gunfight indeed. The partisan saboteurs are made an example of and strung up as in the not too distant past. Can the world tolerate that kind of calculating, malevolent disregard for humanity and strategic control based on fear and intimidation.

        1. ambrit

          Now the trick will be to see how he deals with defeat on the political front. This horrorshow isn’t over yet.

          1. NotTimothyGeithner

            This is the most perplexing. The “no” vote from last week is young and likely to grow. Of course, Merkel may want Greece out and is trying to force Greece to leave on its own. It might be easier politically to raise the money to bailout German linked banks if she can blame Greece. The domestic situation in Greece will explode.

        2. Robert dudek

          He wasn’t the prime minister. In the end, he did all he could to convince Tsipras to put plan b into action and Tsipras refused.

            1. Ulysses

              Here in the U.S., those of us unhappy with the current trends desperately need a plan B– if Bernie Sanders doesn’t get elected President, and our billionaire overlords don’t suddenly develop consciences.

              How can we effectively resist an openly violent and kleptocratic regime– without being swept up into its enormous gulag, that now houses more than 25% of the entire world’s prisoners?

              We need to start facing reality here and recognize that the struggle to gain democratic rights, social, and economic justice will, of necessity, involve more than simply choosing between Coke or Pepsi, in an entirely kayfabe national electoral charade.

  7. Ensign Nemo

    The word “Schrecklichkeit” seems to be the only appropriate one to use to describe Herr Schäuble’s attitude. “Schäuble’s Schrecklichkeit” makes an alliterative turn of phrase.

    The Germans once again seem to think that they can simply dictate terms to small countries. This seems to be a cultural blind spot in the German view of the world. Belgium, 1914. The Netherlands, 1940. Greece, 2015.

    If I were a citizen of a small country in the Eurozone, even a relatively solvent and prosperous country such as Denmark, I would take one look at the current mess and agitate for a referendum to exit the Euro in an orderly fashion, perhaps even to exit the EU.

    I think that recent events virtually guarantee that the British will vote to leave the EU next year. The key question is whether or not the democracies of other EU nations have been castrated and rendered unwilling or unable to let their citizens vote on similar referendums.

    It’s instructive to look at the names of the European Union and its predecessors and chart the gradual change from a free trade zone into an imperial bureaucracy.

    1952 – European Coal and Steel Community
    1958 – European Economic Community
    1967 – European Communities
    1993 – European Union

    Perhaps the next name change should be to the “European Soviet Union” to properly indicate the attitude that Brussels shows to small nations on the periphery of the empire.

      1. Larry

        Isn’t that the rub? It probably wouldn’t have been too bad for Greece to have been in the Euro with the Drachma. This is one of the aspects of the EU that I am completely naive on. Why was a country like Denmark given the ability to retain it’s own currency while countries like Italy, Greece, and Ireland had to be all in on a monetary union?

        If anyone has interesting reading on this topic, I hope you’ll share links/book titles.

        1. NotTimothyGeithner

          To start, the EU has three membership tiers. A country can only join as a full member or join with the intent of full membership. They have three governing councils with nebulous responsibilities. The EU central government doesn’t collect taxes but dues from the member states. Since the Euro went live, they’ve had two major treaty changes. The 2nd wealthiest member of the EU is the UK.

          Needless to say, the EU is a hodgepodge of different treaties made by unequal members, and treaty changes need to be unanimous. Country X will only sign if they are grandfathered in, so they get grandfathered in. Italy, not Ireland which had to delay entry after a failed referendum, chose to give up its currency. They could have kept it, but they wanted the tourist money and ease of transaction. Ireland and Greece joined after new members had to join the Euro. Denmark didn’t, and they can’t be outvoted. Yes, it’s a terrible system of government. Even worse than our Senate.

        2. washunate

          That question actually has a straightforward answer. Denmark asked for opt outs, while Greece wanted to join the euro. National sovereignty in action.

    1. washunate

      That’s the thing. Germany didn’t invade Greece and force them to join EMU and ERM and so forth. If Greece doesn’t want Frankfurt to be monetarily sovereign over Athens, all Athens has to do is say so. The fact that rich people in Greece cannot decide whether they want to be a sovereign nation or akin to a US state isn’t Germany’s fault.

      If we’re placing geopolitical fault anywhere, the present arrangement is mostly the fault of international institutions influenced by the US, such as NATO and the IMF.

      John and Robert point out Denmark. In addition, I’m curious why you invoke the UK. They are the most extreme example. The pound sterling actually floats against the euro. You might like reading up a bit more at Wikipedia.


      If you’re going to be all hyperbolic over names for European integration, the proper American English term is the United States of Europe, a much less provocative expression than European Soviet Union.

      1. MyLessThanPrimeBeef

        I would add that the blind spot to dictate terms to small countries is not unique to Germans.

        Look around, and it’s easy to find other examples.

  8. vidimi

    well, Yves, you have been vindicated in full with your reporting on greece.

    syriza have now without a shadow of a doubt proven to be criminally incompetent and have donemore damage to greece than any of the previous greek governments.

    1. Ahimsa

      Yes, but to what extent is the Syriza government’s damage to the Greek economy a reflection of their ideological opposition to the predominant neoliberalism and austerity economics of German-led Europe? That is to say, the Greek economy has suffered badly under every government during the intervening crisis years and yet it seems that this time round (as promised) the austerity/punishment dished out by Europe has been massively more severe in the face of greater ideological opposition to its ways.

      Brussels continues to effectively say, “We told you so. If you stand up to us and vote no, we will have to beat you down so badly that you can’t stand up to us again. Either that or you can crawl away right now with your economy facing imminent destruction.” WTF? What sort of Europe is this?

      1. Yves Smith Post author

        Syriza was far more a confused exercise in optics than most of its supporters seem able to recognize.

        Despite its bluster, Syriza had VOLUNTEERED to continue austerity as early as February. Varoufakis offered, under no pressure, and proudly, that Greece would always run a primary surplus. That is contractionary in a healthy economy and disastrous in a deeply depressed one. Bill Mitchell has estimated that Greece needs to run primary deficits of 10% of GDP for a while to get back to health.

        Moreover, Varoufakis committed to continue to pay the creditors, when defaulting when the government still had cash would have left Greece with more runway and more options. Instead, they stripped every government coffer bare, including borrowing against them, meaning raiding pensions, even when they said they were preserving them. And they lost credibility with the creditors by not being serious about collecting taxes.

        All Syriza stood for was trying to shift the burden of austerity more onto the wealthy, as opposed to ending it. That would still have been an important accomplishment but falls well short of what they had promised. But even then it is not clear how real they were. For instance, one sore point with the Samaras government was a program to collect back taxes. It wanted to let delinquents pay in installments. That’s not unreasonable. But the Troika wanted the top 6500, all of whom were rich and owed over 1 million euros each, to be exempted. The old government refused.

        The program was not implemented and the new government under Syriza went to put in place their version of it. The Troika said fine but repeated its demand that the top 6500 be exempted. Syriza also rejected the request. Syriza similarly failed to go after the easy-to-get at oligarchs, the ones with media licenses, where it could have suspended or cancelled them for tax evasion. In its proposals, the government similarly has refused to cut military spending as much as the creditors have requested. Syriza also handed out plum patronage jobs just like predecessor governments, and flew government jets at huge cost to many of its meetings rather than flying commercial. The last move really pissed off other Eurogroup ministers.

        So as much as the creditors are dreadful, Syriza did not walk its talk.

        1. dla

          The Troika said fine but repeated its demand that the top 6500 be exempted. Syriza also rejected the request.

          ? What is that doing in a comment meant to show Syriza did a bad job? I would think not agreeing to tax exemptions for the rich is a good thing?

        2. Matt Usselmann

          “Syriza also handed out plum patronage jobs just like predecessor governments, and flew government jets at huge cost to many of its meetings rather than flying commercial. The last move really pissed off other Eurogroup ministers.”

          They just handed out jobs, probably as any government must, when it takes over the adminsitration. That they are “plum patronage” is probably due that all government jobs are “plum patronage”.

          And of course they must fly in their own planes, they are at the bottom of Europe, always a three hour flight from Brussels, not just a quick 45 minute air-hop to Berlin. Or a quick one hour train ride to Paris. You want the Greeks to hand around airports waiting for the next commercial flight, given the uncertainties of negotiations?

          1. Yves Smith Post author

            The Greek government has a history of what is called clientilism.

            These jobs went to relatives of officials, and not to people that were qualified. And this in a government that is resource-starved.

            Other European finance ministers were taking commercial flights. And there are tons of flights between capitals in Europe.

            I don’t see the reason to defend Syriza. The fact that the creditors are monsters does not mean Syriza gets a free pass.

        3. Ahimsa

          Thanks Yves, So as much as the creditors are dreadful, Syriza did not walk its talk. I guess that sums it up.

          Can you shed any further light on the contradictions, for example, in Varoufakis’ handling of things (e.g. why offer to run budget surpluses and yet at the same time make such antagonising statements). In his writings he seems to see things so clearly. Did he really not see this Troika intransigence coming? Surely he understood the ECB’s ultimate power to strangulate the Greek banking system, so why bleed all state coffers dry in the run up? When did he conclude Schauble actually wanted a Grexit? I can only imagine that he was hoping the whole sorry spectacle would somehow shift popular sentiment of the European public, but if that was the case, then Syriza did a very poor job.

          1. Robert Dudek

            In recent interviews,V says within the first week he was told bluntly that anti-austerity is completely off the table. Diesel said that any kind of show of anti-austerity would lead to the ECB “crashing” the banks. So at that point, not a week into his tenure as FinMin, V had the choice of pushing for as little austerity at the troika were prepared to allow, or else break off negotiations and prepare for Grexit.

        4. Ulysses

          “Syriza did not walk its talk.”

          That is very true, but perhaps not entirely fair. How many of us find a way to actually “walk our talk?” In a world dominated by greedy sociopaths, it is almost impossible to always behave in a decent, kind, responsible fashion– and not be eaten for lunch by predators.

          At a much lower level I see this all the time with well-intentioned people– who get involved in union politics, or the school-board, or whatever. They do their homework, make great arguments, and, when that doesn’t work, start compromising to show their strong desire to “get something accomplished.” Invariably they are either co-opted and corrupted, or they resign in disgust because they simply aren’t allowed to have any integrity and a “seat at the table” at the same time.

          1. washunate

            Yeah, it’s difficult.

            And that, in a nutshell, is why we are at where we are at. Comfortable people have made easy choices to extend inequality and oppression, justifying to themselves that it’s no big deal or there’s nothing that can be done, and the cumulative effect of all those little decisions is that our institutions have rotted from the inside out.

            The challenge is that appeasing the predators actually makes things worse. It’s just that there’s a time delay on the consequences. I think that last part is what we are witnessing, the only outlet left. People are resigning from the system that is organized civil society in ever growing numbers because there are no seats at the table.

            Power is so concentrated at this point there is essentially nothing for the great majority of citizens to do within institutions as they presently exist other than weed out extreme bad outliers. Take that school board. Even if you achieve a majority of competent and fair-minded locals, schools are now subjected to fundamentally different unfunded mandates today than a couple decades ago, from testing to attendance. Common Core isn’t a development of the public commons. It’s a development of Bill Gates. Or take unions. Some of the most powerful unions in America today are corrections unions specifically and law enforcement/public safety more generally. Our two-tiered justice system is at the very heart of contemporary inequality and oppression. There are retired police chiefs who make more money than most working Americans.

            But I’m fundamentally optimistic, because we have to reach this realization about how bad things are before we can deal with that reality and move forward. It appears to me at least we are much closer to accepting reality than we were five or ten years ago.

        5. Jerry Denim

          When Syriza announced the surprise referendum on June 27, it looked like a crazy political stunt that could only muddy the waters and achieve nothing at the negotiating table, but I was mistakenly still willing to give Syriza the benefit of the doubt. I was hoping they knew something the rest of us didn’t and still might be able to pull a rabbit out of a hat with some sort of 3-D political calculus I was not privy to. Boy was I wrong and Yves was incredibly right about Syriza. By the time Varoufakis told the Australian BBC on July 2nd the Greeks had smashed their Drachma presses and could never go back to a sovereign currency I realized Syriza was most likely completely inept both politically and as negotiators, but I held out slim hope that this was some kind of clever disinformation tactic. Sadly it was not. It is no longer premature to call Syriza a complete and miserable failure. Sure they were dealt a very tough hand but all of Yves criticisms are fair and valid. Syriza bought into the Troika’s very clever lie early on, “A Grexit would be worse for us than for you” and failed to alter their course when it became increasing obvious that this was not the case. Syriza attempted to pull off a bank heist without even the pretext of a gun in their pocket believing that the Troika bank guard would blink at the last second and not gun them down (a ugly forced Grexit) because it would be too bad for Eurozone business at large. They were suckers. How could they put all of their eggs into that one dubious basket with no contingency planning for a “what-if” Grexit scenario? That’s a total abdication of leadership and complete political malpractice in my opinion. By the time Syriza came on the scene last January the Greek negotiations had already entered the endgame phase as the northeren EU bankers were satisfied they had ring-fenced their banks and managed their exposure to a Grexit. I believe the Troika realized they had squeezed about all of the blood they were going to get from the dried up stone of Greece using extend and pretend bailout tactics.

          Without the threat of any credible alternative currency Syriza had zero leverage with cruel Troika who had already decided that Greece was an expendable EU member. This is getting very hard to watch.

        6. Robert dudek

          V disagrees with you about the “no pressure”. He was told from the get go by diesel that it was austerity or we crash your banks.

    2. BillC

      Damage to Greece? How about any surviving genuine social democrats in the EU (if any still exist)? My level-headed, taciturn brother has long maintained, “The right is evil and the left is incompetent.” Notwithstanding the blind obstruction of the Republicans and the perfidy of the Obama administration, the last 5 months in the EU have provided the single most graphic demonstration of his point since 1939.

      I expect near collapse of the current, sold-out “center-right” ruling parties in the southern EU at their next elections and a Golden Dawn-led Grexit in 2-3 years.

    3. Legendary bigfoot

      How did Syriza destroy Greece in five months and not years PASOK, who made the deals in the first place?

      Five months is an eyeblink and eternity in government.

      1. MyLessThanPrimeBeef

        It’s a human thing that being stabbed by someone whom you thought were on your side or maybe your savior hurts more than being cut by a known enemy.

        Even for the same wound, the former is more painful and even more lethal.

    4. salvo

      syriza has not only betrayed its own people but has weakened the position of anyone in europe opposing the german dominance, indeed they have contributed in enforcing it

  9. Jeremy

    Agreement reached. It includes the E50 billion transfer of assets that Tsipras was holding out on.

    Cave City.

    Interesting times ahead for the Greek Parliament.

    1. Newtownian

      Just saw it too. But is it real or just another unsustainable can kicking exercise?

      Logic demands the latter unless the EU have caved in on forgiving debt which appears as likely as flying pigs.

    2. Ben Johannson

      It’s a deal that delays Grexit until the country has been more thoroughly trashed. Greece won’t be able to meet conditions that come from any agreement approved by the Germans, Fins, Slovaks etc.

    3. gardener1

      Perusing the pdf agreement further there is this:

      (We knew the plunder was coming)

      “On top of that, the Greek authorities shall take the following actions:
      • to develop a significantly scaled up privatisation programme with improved governance;
      valuable Greek assets will be transferred to an independent fund that will monetize the assets through privatisations and other means. The monetization of the assets will be one source to make the scheduled repayment of the new loan of ESM and generate over the life of the new loan a targeted total of EUR 50bn of which EUR 25bn will be used for the repayment of recapitalization of banks and other assets and 50 % of every remaining euro (i.e. 50% of EUR 25bn) will be used for decreasing the debt to GDP ratio and the remaining 50 % will be used for investments.
      This fund would be established in Greece and be managed by the Greek authorities under the supervision of the relevant European Institutions. In agreement with Institutions and building on best international practices, a legislative framework should be adopted to ensure transparent procedures and adequate asset sale pricing, according to OECD principles and standards on the management of State Owned Enterprises (SOEs);

  10. anothe_anon

    This can mostly be summed up by the old saying
    that one way to scare the monkeys is to kill the chicken.

  11. Christoph

    If Germany’s aim is to “dominate Europe and global trade by artificially suppressing its real exchange rate”, why are so many of its politicians so viscerally opposed to the ECB’s quantitative easing and asset purchasing programs, which have, in fact, been amongst the major factors contributing to the weaker euro? This analysis doesn’t make a lot of sense, frankly.

    1. Yves Smith Post author

      Germany now runs most of its trade surplus with the rest of Europe. And the “real exchange rate” is AFTER INFLATION. You need to wrap your mind around that.

      China kept the RMB hard pegged and later dirty pegged to the dollar. It was widely seen (2007 or so) as having an artificially cheap currency. It is not seen as having one any more. How can that be?

      Drumroll….pretty high inflation in China! Wages and prices in nominal terms in China were rising way faster than in the US. To keep it simple, you translate that at the same fixed rate and your prices are much higher in foreign currency terms.

      Germany believes QE will create inflation. That would make its goods uncompetitive unless it was sure the currency would depreciate at least as much to counteract that.

      1. Nameful

        Germany now runs most of its trade surplus with the rest of Europe.

        Yves, this is correct, but incomplete. About 55% of Germany’s net export goes to Europe (from the 2014 data). However, if (as I think you meant to) you’re talking about euro area only, the percentage goes down to slightly less than 30% (the top non-euro destinations, UK, Russia, Switzerland and Sweeden amount to about 21% of Germany’s exports. Thus the within-euro-area trade surplus, while significant, is not a majority.

        Now, correct me please if I’m wrong, but I think that a comparison with China is tricky. China does not have a truly free exchange rate, and IIRC foreign access to RMB was quite tightly regulated. This would allow an easier to control peg in a period of large monetary expansions (QE). The ECB does not quite have a similar way to control the exchange rate when doing unsterilized market operations, hence Mr. Trichet’s insistence on sterilization of ECB interventions in the early crisis days. My understanding is that the relevant objection to QE is not inflation, but precisely euro depreciation (well, there are other objections as well, scarcity of high quality collateral for one, since the ECB would have to buy from all countries, including Germany and France, so maintaining the same level of AAA availability for banks to use as collateral would force AAA countries to issue more debt).

  12. drugstoreblonde

    These privatization concessions are going to be devastating. Not exactly the Ruhr Valley ca-1920s in terms of industrial importance, but still a useful analogue.

  13. salvo

    yep, I have to admin that I was wrong, probably because I didn’t want to give up the hope I had put into syriza, als it turned out Yves was right, syriza (perhaps with the exception of the left platform) has been utterly naive and incompetent or simply criminal.

    1. Patrick Peeters

      Germany bashing. As a tourist and a businessman i know who i prefer to deal with. an alfa Romeo was great design but unreliable. A greek hotel tourists are there to be annoyed and taken advantage of. German engineering and business attitudes you can count on. US gangsters imposing their rules on the rest of the World. germans should work and be fleissig, shut up and pay for the others? At least they showd Thatcher they can get their house in order fi east german integration! Fi effectively taking measures to become competitive Again in the 1990s. I dont idiolise them but who else ?

    2. Clive

      I think what a lot of Syriza supporters have been doing is perfectly understandabe. Misguided, maybe, and perhaps putting hope before reality. But definitely understandable. It was very — very — easy to be taken in by Syriza. Not least because, like Peter Pan and Tinkerbelle, you so wanted to keep believing because as soon as you stop believing, you’ve got nothing. It was only Yves’s judgement which has historically proved to be very accurate — backed up with consistent coverage and cold, hard fact-based analysis — that made me think “hey… wait a minute”.

      And I think too that we should at least acknowledge the profound and essential lesson I guess we all needed to learn here. Which is: everyone on the progressive / left / socialist / put-your-own-moniker-here side of politics has to appreciate that it is simply not sufficient to merely make the right noises, espouse the ideologies or do convincing-sounding PR to attract popular support and sentiment. These things are worth diddlysquat without being backed up by effective, competent governance. As someone said, and I wish it had been me* “progressives have to learn to walk and chew gum at the same time”.

      Talk about learning a lesson the hard way. But I for one won’t be forgetting in a hurry and it doesn’t sound like you will either.

      I can’t be my usual Pollyanna-ish self here though. Syriza has set the progressive cause back, in my estimation, a decade. The people of Greece have been set back a lot longer than that.

      *It was of course Lambert, who else could have turned such a good phrase.

      1. TheCatSaid

        Allan Savory has a keynote speech when he addresses communication, especially when what one wants to communicate is contrary to the popularly-held views (austerity in this case). He said that beliefs are tied to emotions. Presenting facts and evidence does not change hearts and minds–in fact, research has shown that if anything, presenting facts hardens people in their opinion.

        YV may have believed that educating people about the economics, by facts and logics, would change peoples’ minds. But that’s not the way things work. Savory refers to Lord Eric Ashby’s work, showing that new understandings typically take 150-200 years before they are incorporated into institutions (being taught at schools, or embraced by governments or policy), and this only occurs after the majority of the common people have embraced the new understanding, thus eliminating the political risk.

        With the internet & social media the time frame may now be less than 150 years to convince the greater populations of France, Italy, Spain, Port., Ire., Greece (& Germany?) that austerity is not the way. It was naive of Syriza to expect that explaining the economic facts–no matter how true–would be sufficient to change 1) widespread hearts & minds of large populations; and 2) the minds of high-level EU politicians and bureaucrats who benefit from the austerity system as it is.

      2. flora

        “everyone on the progressive / left / socialist / put-your-own-moniker-here side of politics has to appreciate that it is simply not sufficient to merely make the right noises, espouse the ideologies or do convincing-sounding PR to attract popular support and sentiment. These things are worth diddlysquat without being backed up by effective, competent governance.

        Yes, where governance is the force to represent all your citizens’ interests and effect change. I think the Army-McCarthy hearings in the early 1950s – the political, career destroying witch hunt for suspected or rumored communists in government, education and entertainment – has cast a long shadow on the American left. By 1960 the left had resigned itself to talk and embroidery around the edges but has never dared to reach for effective action or govt power again. The fear of being labeled a fellow traveler of Stalin (absurd as that charge may be) took the fight out of the left for a couple of generations.

        1. flora

          A sadly perfect example is VY talking, persuading, but not taking action to prepare a plan B to challenge or counter the troika’s demands.

          1. Robert Dudek

            He claims that early on in Syriza government tenure, after dealing with the troika, he went to Tsipras and the inner circle trying to convince them that a robust plan b (parallel currency, taking control of banks and central bank of Greece and other measures) had to be formulated. They looked at many of the technical issues in detail but in the end V could not guarantee its success and so plan b was voted down 4-2 by the inner circle with Tsipras rejecting it.

            This is based on V’s recent interview. If true then the lack of plan b preparation is all down to Tsipras and the other three who voted against having one.r

            1. MyLessThanPrimeBeef

              Wouldn’t it be all down to not being able to guarantee its success (assuming he meant, reasonably guarantee, as nothing in life is guaranteed)?

      3. Jamil

        Oh my, Yves, you have actually convinced your readers that the REAL problem is “effective, competent governance.” Congrats.

  14. Idiosyncrat

    Yves, you usually call things exactly and this has turned out to be no exception. Your (quite understandable) closure of comments came just as I was forced to admit this.

  15. kemal erdogan

    They reached an “agreement”. Greece is officially a debt colony now whose assets are to be confiscated.

    Tsipras must resign now for his incompetence and bringing a defeat that could not have been worse than if a right wing party was to negotiate. The damage to the greece and the broader european left is so big I cannot find words for it.

    The Syriza flip flopped so much that I thought they actually did not want an agreement, had a plan for grexit, and had their preparations under way. Indeed, the latest referendum would have been a super cover for letting the people to collect some euro cash before pulling the plug. Alas, they had no plan, no wisdom, no guts. It appears they are shameless, too.

    I feel so sorry for the Greek people and can’t contain my disgust against these idiots.

    1. Jerry Denim

      “The Syriza flip flopped so much that I thought they actually did not want an agreement, had a plan for grexit, and had their preparations under way. Indeed, the latest referendum would have been a super cover for letting the people to collect some euro cash before pulling the plug”

      I was thinking the same thing, well hoping at least. It was not to be. Crazy they weren’t even close to being spooled up with an alternative currency. They at least needed a whisper campaign for leverage.

  16. Andrew Foland

    How long until the Germans rename the EU as the Greater West European Co-Prosperity Sphere?

    1. different clue

      It doesn’t matter. Once China gets its New Silk Road built, the fun times will be over for Germany too as Germany joins the rest of Europe on the periphery of the Sino-Russian Greatest Ever Eurasia Co-Prosperity Sphere.

      1. MyLessThanPrimeBeef

        First they have to rebuild the Shanghai stock market.

        Then, they build their New Silk Road.

  17. ewmayer

    Here is the current headline article of the online Sydney Morning Herald business section:

    Greece debt crisis: Eurozone clinches deal with Greece after all-night haggle:

    However the tough conditions imposed by international lenders led by Germany could bring down Prime Minister Alexis Tsipras’ leftist government and cause an outcry in Greece. Even before the final terms were known, his labour minister went on state television to denounce the terms.

    EU officials said Mr Tsipras finally accepted a compromise on German-led demands for the sequestration of Greek state assets to be sold off to pay down debt. The terms of the agreement were not immediately known.

    The Greek leader also dropped resistance to a full role for the International Monetary Fund in a proposed €86 billion ($95.78 billion) bailout, which German Chancellor Angela Merkel has declared essential to win parliamentary backing in Berlin.

    However, in a sign of how hard it may be for Mr Tsipras to convince his own Syriza party to accept the deal, Labour Minister Panos Skourletis said the terms were unviable and would lead to new elections this year.

  18. Vikas Saini

    The lesson here is that analysis without strategy is play-acting. As much as I admire Varoufakis’ clarity in his explainer messaging, this was not serious leadership commensurate with the challenge in front of them. If you offer leadership to people and seek power, you ought to know how to wield it.

    1. Glorious Kataifi

      If you offer leadership to people and seek power, you ought to know how to wield it.

      Syriza were the only game in town to fight the Troika. It’s not like they usurped the place of some other more competent anti-austerity movement. I agree with all the criticism regarding their mistakes, but at least they tried at a time when nobody else would.

      So you either have corrupt pro-austerity insider politicians or naive, idealistic, incompetent outsiders who are incompetent exactly because they were never associated to the governing racket.

      1. Yves Smith Post author

        So you believe in sending unarmed people into machine gun fire for the cause? That’s what lefties who were urging Syriza on were doing. We said for months that this would end badly for Greece and that it would set the left back ten years.

        Only Italy and France can stand up to the Eurozone. You may not like hearing that but that is where it stands.

  19. FedUpPleb

    In relation to this article and the previous, the scarier thought is, have the rest of the Eurozone states drawn up their plans for euro-exit? My gut says… No. I don’t think there’s a single country on the whole continent that has so much as one man in a back room working on a currency exit. Outside of side remarks on PWC and KPMG reports, I don’t think any of them are ready to go, at a moment or a months notice.

  20. blue

    Thank you for a great article.
    Like others I can’t believe that they never made any move to put some kind of plan into action. It is pure stupidity.
    In retrospect it seems that V, as brilliant as he is, was only ever debating. And like any intellectual never considered that once the debate was over there would be real world consequences.

    This 5min interview with Alexis shows that he too never even remotely entertained the idea that Germany might really kick Greece out. https://www.youtube.com/watch?v=5gV7ZZlngYI

    It seems they never had any kind of bargaining power other than a personal belief that the EU would do the ‘morally right’ thing. Extraordinary.

    1. NotTimothyGeithner

      One, every member has to agree for a member to be kicked out. Two, the ’69 treaty is somewhat nebulous, but nebulous means one country needs to invade another or block borders as in commit an act of war against a member state. My guess is Europe decided the treaty was quaint.

      Merkel knows the various courts have only kicked the can. European courts are still dealing with a violation of a treaty between Czechloslavakia (the Slovakia part now) and Hungary from the 1970’s.The EU still has 3 tiers of members. Kicking one out (Greece is/was a full member) might cause consternation especially since Greece has never harmed another member state and always paid it’s EU dues. Germany is acting on behalf of private entities not a member state which is how I believe Varousfakis may have seen things.

      1. TheCatSaid

        One of the contradictions I didn’t notice being mentioned is that, as you mention, for one country to leave (eurozone and/or EU) all the others must agree. But for a bailout, the same thing–all the other countries have to agree.

        So what happens when there isn’t 100% agreement, for either scenario?

        And as NTG mentions, the “rules” as applied in practice is not the same as what the rules say, given that court challenges can take decades. So when do the treaty “rules” matter, and when can they be ignored? Does it depend on the economic power one yields? This appears to be the case.

        1. NotTimothyGeithner

          It’s unclear. The 68 treaty has nothing on the matter, and the subsequent treaties are about voluntary exits. Even then, I think those exist purely to win support among domestic voters than to provide a process for leaving. I skipped the 09 treaty.

          Much of the European Union and the Eurozone were designed by people who thought Francis Fukuyama’s “End of History” was brilliant. Greed aside, the actors at every step assumed the prosperity would be so great every problem would be considered minor and never dreamed of an even less than satisfactory scenario. Everyone had stock in the company with those commercials with a sock puppet.

          Greece joined by cooking the books with the help of the Germans. The Second Continental Congress an the successor Articles of Confederation Government didn’t cook the books. They assumed the debts, and they still had a Civil War.

      2. Yves Smith Post author

        There is no mechanism for expulsion. There is a mechanism for suspending a member, and it’s less than unanimous. Suspension is worse than expulsion, since you have the responsibilities but don’t get the bennies.

    2. washunate

      And what’s great is that thanks to Yves’ coverage, we knew this in real time. You only have bargaining power if you are willing to walk away, if you can credibly threaten to blow up a deal.

      The lack of that willingness, paradoxically, means you are going to end up with as terrible a deal as possible.

    3. Pookah Harvey

      Kudos to Yves. I could not believe that Syriza could be this naive. Tsipras apparently was to the very end. Varoufakis just gave an interview where he states he tried to convince Syriza they should prepare for forced bank closures for the past month (I had thought naively that Syriza was preparing before even taking office after studying Cyprus and Ireland) He couldn’t convince them.

      My view was – and I put this to the government – that if they dared shut our banks down, which I considered to be an aggressive move of incredible potency, we should respond aggressively but without crossing the point of no return.

      We should issue our own IOUs, or even at least announce that we’re going to issue our own euro-denominated liquidity; we should haircut the Greek 2012 bonds that the ECB held, or announce we were going to do it; and we should take control of the Bank of Greece. This was the triptych, the three things, which I thought we should respond with if the ECB shut down our banks.

      … I was warning the Cabinet this was going to happen [the ECB shut our banks] for a month, in order to drag us into a humiliating agreement. When it happened – and many of my colleagues couldn’t believe it happened – my recommendation for responding “energetically”, let’s say, was voted down.

      It was after the vote V resigned.

    4. Jerry Denim

      They were suckers to believe it, but it wasn’t a personal belief of Syriza’s leadership rooted in nothing, it was a clever lie feed to them by the Troika. The Germans told Greece, ‘no really, we want to find a way to keep Greece in the Euro, a Grexit would be worse for you than us.’ This statement was true five years ago but by the time Syriza was elected it was not. The debt negotiaions had entered its end game phase but Syriza was blind to the cold hard reality that Greece had become an expendable member of the EU. German and French banks had been back-door bailed out by the first two Greek bailouts and the more healthy northern european banks had reduced their Greece exposure to what was believed to be an acceptable level. The Troika kept repeating the lie that they wanted Greece to stay in, and Syriza kept believing it thinking the Troika would blink at the last second if Syriza just held fast and took the country right to the edge of a default/Grexit. And here we are, the Troika played Syriza like a violin. With no plan B and no alternative currency Tsipras painted himself into a corner and has now been forced into a complete and total capitulation.

      “Instead of saying that Grexit is illegal, they [the creditors] say that it’s as destructive and disastrous for us as it is for you. That was wrong. ”

      http://www.mediapart.fr/en/journal/international/080715/we-underestimated-their-power-greek-government-insider-lifts-lid-five-months-humiliation-and-blackm?onglet=full NC Links 7/10/2015

      1. MyLessThanPrimeBeef

        The Troika includes the IMF, the ECB and the European Commission.

        The latter, EC, consists of 28 member nations.

        It’s hard to say the Troika lied about wanting to keep Greece in.

        Over the weekend, at one time, the member-nations were split on exiting/keeping Greece.

      1. Yves Smith Post author

        Varoufakis has every incentive to shift blame onto Tsipras.

        Varoufakis has told repeated blatant public lies, like saying right on the eve of the election that the banks would reopen the next Tuesday no matter what and that there were four months of pharmaceutical supplies in the country. I don’t consider him to be reliable.

  21. financial matters

    I think that if money can be seen as a social and political construct we could see how to use it better. Basically in an anti-austerity mode and a way to fund much needed climate change projects etc.

    I think it’s interesting that Marx sees labor as the foundation for the value of money. I think this is a big step forward from a gold standard. But I think the problem with it is that it still sees labor and thus money as a commodity.

    I like Polanyi much better with his idea that labor should not be considered a commodity. I really like Inghams book The Nature of Money in that he sees money as being a social and political construct and not neutral but giving the people who control its production and distribution much power.

    We are certainly seeing that now in how much control the ECB has over Greece.

    1. Jamil

      Marx argued that labor becomes a commodity under conditions of capitalist social relations. Even the labor theory of value—as Marx presented it in Capital—is only applicable to capitalist social relations. To understand his point of view you have to understand that he saw capitalism as a “mode of production”—and one that is by no means eternal, Francis Fukuyama notwithstanding. It follows that a socialist society (or a post-revolutionary society like Cuba, China, etc.) will not have the same “laws of motion”. So your distinction here between Polanyi and Marx does not exist, or at least cannot be made logically.

      1. financial matters

        Polanyi had trouble with Marx’s focus on economic class interests.

        He thought these were trumped by social forces.

        From ‘The Great Transformation’

        “But the interests of a class most directly refer to standing and rank, to status and security, that is, they are primarily not economic but social.

        An all too narrow conception of interest must in effect lead to a warped vision of social and political history, and no purely monetary definition of interests can leave room for that vital need for social protection, the representation of which commonly falls to persons in charge of general interests of the community – under modern conditions, the governments of the day. Precisely because not the economic but the social interests of different cross sections of the population were threatened by the market, persons belonging to various economic strata unconsciously joined forces to meet the danger.”

  22. IsabelPS

    Is it only me that finds this bit terrible and terribly telling?:

    “At one point a fellow minister turned to Tsakalotos and told him to ignore the rows raging around him: “Don’t worry Euclid,” he said. “It’s not your problem any more, it’s theirs.””


    Also, a measure of the sheer size of the amounts necessary:

    “And in a reflection of annoyance among other states that imposed painful austerity in exchange for help, the Portuguese minister told Tsakalotos that the third bailout he needs – possibly up to 86 billion euros – was bigger than the only one given to Portugal, a source familiar with the talks said.

    A nation of similar size, Portugal received a 78-billion euro bailout in 2011. Greece has already had 240 billion euros.”

    1. TheCatSaid

      Is the difference in needed bail-out size between Portugal and Greece a proxy reflection of the relative size of German & French banks’ exposure?

        1. TheCatSaid

          Thank you, that is a great resource. According to the tables in the link, German banks’ exposure to Greek sovereign debt in 2011 was €17.3 bn vs €11.4 bn exposure to Portuguese sovereign debt.

          I can’t tell which bailouts had already occurred at the time Goldman Sachs created these tables. The bailouts would have decreased foreign banks’ exposure; I’m not certain if a bail-out country’s own % of exposure would then increase. (For example, in Ireland the bailouts shifted both the country’s domestic bank debt and its foreign bank debt to Irish sovereign debt. Understanding how Goldman made these tables and their timing would be important.)

          1. IsabelPS

            As per wikipedia, Greece’s first MoU as signed in May 2010, Ireland’s in December 2010 and Portugal’s in May 2011.

    2. Nameful

      A nation of similar size, Portugal received a 78-billion euro bailout in 2011. Greece has already had 240 billion euros.

      Bear in mind that Greece also received debt relief amounting to about 100 billion euros in the 2012 bailout.

  23. Carla

    Many thanks to David Llewellyn-Smith for requesting that comments be enabled for his article.

    1. Yves Smith Post author

      I hate to say it, but did you read the post? They already tried getting 50 billion euros of assets out of Greece in privatizations in the 2012 bailout. I never saw a good summary, but as the tweet in the post suggests, they fetched a fraction of the targeted prices, I believe only 15 billion, and plenty got no bidders,

      There is not a hungry list of buyers for Greek assets. This is just creditor abusiveness + the worst sort of bureaucrats trying to make their bogus math on Greek austerity add up.

      1. John F. Opie

        Yves, the Greek assets are only worth their discounted cash flow. Without the Greek economy as a going concern, those assets – largely ports and airports – are worth a fraction of their nominal values. What value can you put on a port that has no business because ships are heading elsewhere to dock, given that the unloading facilities aren’t being run?

        Yep. Thought as much. :-)

  24. washunate

    Great read. This is going to be a sad but useful case study for a long time.

    he displayed an impressive grasp of economics and political naivete in equal measure

    This is just spot on. Varoufakis has been demonstrating the incompetence of comfortable Anglo-American academics on a truly impressive scale. Jonathan Gruber is grateful every morning for Varoufakis taking the limelight.

    If there is any real world exercise showing plainly why economics as a highly paid field of study separated from political economy is little more than irrelevant navel gazing, this has got to be it. I love that Varoufakis couldn’t even be bothered to vote in parliament. Doesn’t everyone travel to their holiday home instead of going to work to decide the future of their country?

    1. grayslady

      If there is any real world exercise showing plainly why economics as a highly paid field of study separated from political economy is little more than irrelevant navel gazing, this has got to be it.

      Yes. This reminds me of the scene from Citizenfour when a group of pro-bono attorneys for Snowden are sitting around a table listening to Ben Wizner of the ACLU lay out the US laws under which Snowden has been charged. Summarizing, Wizner says, “However, we all know that what we’re facing will be decided 95% politically and 5% legally.” That’s the kind of realism required these days.

  25. digi_owl

    The basic problem here is that you are looking at the social left debating the economic right. The social left believe in the EU project as some kind of kumbaya project for European peace and unity. The economic right on the other hand see it as just another way to extract profit.

    Ever since the crisis of ’07-08 the social left has been splintered and confused, while the economic right has been laser focused on “contracts must be upheld”.

    This in turn binds the hands of the national politicians from enacting counter-cyclical measures, as it would violate the contracts the Euro is founded on.

  26. CSTH

    “All Syriza stood for was trying to shift the burden of austerity more onto the wealthy, as opposed to ending it. That would still have been an important accomplishment but falls well short of what they had promised.”

    Spot on. Syriza the hammer, Europe the anvil. Greek society in the forge.

    As alway, if you’re having a hard time understanding someone’s behavior, it is probably because you have faulty assumptions about their objectives…..

    1. Robert dudek

      I believe that Syriza’s belief in antiausterity was genuine, but they were told in no uncertain terms that austerity it would be if they wanted to stay in the Eurozone. They have consistently chosen Eurozone over antiausterity, even to reductio ad absurdism of this latest deal.

      1. MyLessThanPrimeBeef

        Could he have gotten a better deal less than a month ago?

        And that deal less than a month ago was probably what he could have gotten from the start.

        And he knew this all the time after he was told in no uncertain terms?

        1. Robert Dudek

          Maybe not. V claims euro group was playing cat and mouse, never proposing a deal with debt restructuring. If v is being truthful, we have to doubt whether any deal offered wouldn’t have been yanked back on some technicality or be immediately voted down by the Bundestag.

          I am prepared to believe v that Schauble would not have accepted anything less than total surrender. Thst said, the referendum ploy and the subsequent refusal for Tsipras to entertain plan b gave the green light for schauble to tighten the screws. And we see the results at present.

    1. Yves Smith Post author

      As I said earlier, Varoufakis has a history of telling flat out lies, ones that were obvious when he was telling them. I don’t trust anything he says, particularly now as he is trying to position himself as not being responsible for the disaster being visited on Greece.

  27. hemeantwell

    Richard Seymour via Twitter reports that a general strike has been called for Wednesday. This is apparently follow through on this announcement by a speaker announcing at the July 11 UK Socialist Workers Party conference that planning will begin today, Monday. The core will be civil service workers. The announcement is at 53″

    The opening speech by Kouvelakis is very good, and it is relevant to discussions here that 1. refer to Syriza in ways that ignore the longstanding internal disagreements over negotiations and 2. talk rather loosely about betrayal, crimes, etc.

  28. Eric377

    The “superb” piece by Varafoukas starts like this: “In 2010, the Greek state became insolvent.” That’s the total discussion in this “superb” piece of the heart of the problem from many creditors’ perspective. Why was Greece insolvent? That their borrowing rate converged remarkably towards Bundesbank rates ought to have been a huge windfall for competent Greek governments. Greece can’t even claim that their property markets got hugely unbalanced like Spain, or that their outsized financial industry was decimated by the events of 2007-9 and was backstopped to ridiculous lengths like Ireland could. Much simpler than these: they saw some easy money and decided to spend it with no true intention of paying it back. It’s clear if you examine the lack of interest in successive Greek national governments had in modernizing the revenue side of their Treasury. Yes, the anger of the creditors is driving dumb policy right now, but their anger is understandable. And who cares whether or not the bailouts recycled to German and French banks? That is only an issue if Greece says it never intended to pay it back, but if that’s the case, what do they care what kind of fig leaves other governments choose to hang on this pile of dung?

    1. MyLessThanPrimeBeef

      German banks and other banks made bad loans to Greeks.

      They should have let those banks take the losses and fail if applicable.

      The bad loans?

      The bad loans would have been sold to Repo-men.

      Repo-men would then go to Greece to seize assets, private or public, backing those loans.

  29. Mickey Hickey

    Having worked for Greek shipping companies and with lots of experience dealing with Germans, the following is how I see it through my green tinted lenses. Yanis Varoufakis brought a world view to the table, that is he understood that Germany was treating Greece in much the same way the USA deals with weak countries. They do it because they can. The Greeks in Syriza are much like the Irish in Ireland, that is to say parochial, naive, inexperienced. When Ireland was faced with Bank failure they caved immediately thus setting the precedent that ensnared Greece, Portugal, Spain, Italy and soon France. Ireland had never had a bank failure or a property boom collapse and behaved like a rabbit in the headlights under the double whammy. The Greeks are tougher nuts as evidenced by their repulse of the Mussolini invasion and guerrilla tactics during the German occupation. They have had US backed military dictatorship 1967-1974 as well as CIA interference post 1944. Syriza would be well aware that the oligarchy in collusion with the military could paint Syriza as the Left Loonies and mount a Coup D’etat. The referendum avoided that scenario. Clearly a lot of Greeks do not want to revert to the Drachma. When I worked for Greeks I was paid in Amsterdam and New York by companies registered in Switzerland, England, Panama and indirectly Greece.
    Before we make negative comments about YV, Tsipras and Syriza we should realise that we know very little about the conditions on the ground in Athens. I am of the opinion that in the circumstances nobody in Greece could have done better than YV and Tsipras.
    Recently the Kaisers address in 1914 to the troops departing to China and the 500+ towns/villages burned to the ground in Belarus during WW2 have been getting play in the anti German Press. To that I would say that the Germans are quite civilised by today’s standards. I applaud Hollande’s stance he is doing France proud.

    1. MyLessThanPrimeBeef

      No one better is no option, as Tsipras came into power promising better.

      Was there an offer at some time better than the one he signed just now?

      Could Tsipras have done better himself?

  30. Skippy

    This is what you get when you morph Locke and Hayek together…. and sprinkle with elite bondholders….

  31. Fiver

    I cannot imagine a worse outcome for Greeks, or for the few remaining functioning pockets of democracy struggling away around the globe as we head into fast-track TPP and its European sister agreement, effectively creating supra-national decision-making on a raft of issues.

    The first overt battle against the forces of globalization is a rout by Money.

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