Greece and Creditors in Showdown Again

Sadly, we’ve seen this movie before. The creditors have the means to crush Greece and have no compunctions about inflicting pain.

Greece had struck a deal with its creditors, which in this iteration includes the European Stability Mechanism (ESM). The agreement on December 5 included an interest rate reduction on the country’s over €300 billion of borrowings.

Three days later, prime minister Alex Tsipras announced that he would give a special Christmas bonus to the poorest pensioners, those receiving less than €800 a month, and would not put through a scheduled increase in the VAT for the outermost Greek islands that had been hard hit by dealing with migrants from the Middle East. The ESM reacted harshly, saying the debt relief agreement was off. From the BBC:

Earlier, eurozone lenders suspended their recently agreed short-term debt-relief plan for Greece.
They said they had not been asked to approve the bonuses plan.

The European Stability Mechanism (ESM), the body that helps eurozone governments in trouble, said it would now be scrutinising the proposed handout.

“Following recent proposals by the Greek government to spend additional fiscal resources for pensions and VAT, our governing bodies have put their decisions temporarily on hold,” a spokesman for the ESM said.

The Guardian gives Tsipras’ rationale for the extra, unapproved spending: he was ahead of targets and by his calculation, had extra cash in the till:

The prime minister, Alexis Tsipras, was taken by surprise on Wednesday when the European Stability Mechanism announced it would not honour an accord to ease the burden of Greece’s debt pile. The decision, taken in direct retribution for a series of surprise social welfare measures unveiled by the leader, is likely to put Athens on a war footing with lenders amid mounting signs of the Greek crisis flaring again…

The announcement followed a statement by the Euro group of finance ministers, representing members of the single currency, which also suggested that Athens had acted out of line. Earlier on Wednesday Germany – the single biggest contributor to the three bailouts Greece has received since 2010 – said the benefits were incompatible with programme targets…

Despite the outcry he has categorically refused to rescind the special pension supplement, saying the €617m required for the bonus will be drawn from the budget surplus his government has managed to achieve.

Visiting the northern city of Thessaloniki on Wednesday, he ratcheted up his anti-austerity rhetoric, announcing that Athens would spend €11.5m next year extending free meals to 30,000 underprivileged schoolchildren.

“This programme has been factored in to the budget of 2017,” he told local mayors, denying the aid would derail the programme of tough fiscal targets Greece has agreed to meet.

“I think everyone has to respect the Greek people, who for the last seven years have made huge sacrifices in the name of Europe. We have carried the weight of the refugee crisis. In the name of Europe we have, in recent years, implemented an extremely hard policy of austerity. There has to be respect from all.”

Greece has become an internment center for refugees. The implicit threat is that Greece would send them into the rest of Europe. I doubt that is easily done from Greek islands, but there are also detainment centers on the mainland, such as on the border of Macedonia.

Tsipras called for a Parliamentary vote Thursday to approve the special pensioner bonus in light of the ESM withdrawal of the debt relief agreement. One assumes he has the votes.

Tsipras will be meeting with Merkel on Friday and he is certain to pump for more relief in light of the migrant burden. From Associated Press. However, notice that Germany continues to insist that Greece wear the austerity hairshirt:

The German government says Greek Prime Minister Alexis Tsipras will travel to Berlin this week to discuss the migrant situation, Cyprus and Greece’s financial issues with German Chancellor Angela Merkel…

She said that major issues would include negotiations on the future of Cyprus; migrants and relations between the European Union and Greece’s eastern neighbor, Turkey; and “on the margins,” the financial and economic situation.

The International Monetary Fund has argued strongly in favor of big debt relief measures for Greece. Germany in particular has been hesitant to offer anything substantial until Greece has delivered on reforms demanded by its international creditors.

Tsipras has the moral high ground. But trying to shame the creditors hasn’t been a winning strategy. I hope thing work out better this time for the sake of the long-suffering citizens of Greece.

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  1. vlade

    Well, the difference now is that Greece has a lever – the migrants. It would be ironic if EU proved the power (as a common opponent) that would get Turkey and Greece cooperating after 100+ years of hostilities..

    1. fajensen

      Not Possible. Turkey and Greece have very different cultures – Orthodox Christian and Islamic, they simply don’t get along to begin with, and, at least one of them (probably both) carries a huge chip on its shoulder over who should be The Law of The Land.

      Turkey being the barbaric invader is an ancient thing in Europe and pretty much part of the gene pool – the EU / US can try to ignore the realities of the land, but, it doesn’t work. Trying to force an alignment or even integration will only make the “forcers” into the “uniting enemy” for the Europeans, that is how most people here think.

      The Greeks on my team are fully convinced that if they dare to borrow the money from Russia, in return for maybe an airbase on an Island perhaps (Putin is a Quid pro Quo kind of guy), NATO would let Turkey attack Greece. I think that would be correct, especially with the current team of nut-bar “regime changers” in place.

      The Russians probably, somewhat justified by recent events, feels the same way about Europe – always up to something even when we are “friends”.

      After some generations have passed without “change”, the ideas and thinking about “the other” will change too. Even then, the former warring people like the Danes and the Swedes (ever the backstabbers, to us) will keep seeing the same things very differently. Peacefully this time, but, still very different views of the world.

      Recent example: The Danes are observing with amusement the Swedes panicking over Russia – Everything in Sweden that collapse or burn or break or sink or is stolen is now somehow Russian sabotage, according to the not-false media. The Danes think that, knowing how the Swedes build things with cheap Lithuanian and Polish contractors on zero-hour contracts, Putin needs to do Nothing at All because Sweden will collapse faster that way.

      My Greek colleagues, they are Modern people. They are convinced that whatever Turkey does is part of some eternal plot against Greece and not only that, apart from Turks, then there is Macedonia, Albania, Germany …. other Greeks (they are weak and useless people).

      All up to Something. Macedonia is using the name to lay claim to a part of Greece who is called Macedonia.

      The only people my Greek colleagues do not have a problem with are the Russians. My colleagues think the Russians are all rude and uncultured people, but they pay the price asked and in cash too. Meaning there is an instinctive level of understanding there, on the business side of keeping government bureaucracy in check ;-).

      Then we had a young, modern female Turkish intern. She had a similar (long) history story of lamentable double-crosses and defeats, except with the names of the same “perps” reordered, she told even had had a schoolbook where part of Greece and some of Europe is drawn up included in Turkey.

      So – yup – Confirmed: The Turk is always up to something ;-).

  2. Larry

    They really need to reinforce that debt as morality play don’t they? Europe has lost it’s mind. I just don’t see how the elites can continue to kick down like this and think it ends well for them.

  3. Paul Art

    Scrooge had a name and everyone knew who they hated and wanted to take out but here it is the ESM. The bankster water carriers have done a masterful job in hiding behind acronyms and institutions.

    1. susan the other

      It is as if the ESM is really only another German political party because it only serves to keep Deutschebank on life support without bail-ins from German taxpayers.

  4. Sound of the Suburbs

    We changed all the assumptions and I think we got it wrong.

    Neo-liberalism, and its underlying neoclassical economics, rely on debt to paper over the cracks, when debt. maxes out it stops working.

    A system that re-cycles the surplus can carry on working indefinitely.

    With Thatcher and Reagan we bought in a new type of capitalism and changed most of the fundamental assumptions.

    Francis Fukuyama in 1992 said it was “the end of history” and Capitalism had been the only successful economic system to stand the test of time.

    But we had just changed the fundamental assumptions about capitalism.

    1) 40 years ago, most economists and almost everyone else believed the economy was demand driven and the system naturally trickled up.

    2) Now most economists and almost everyone else believes the economy is supply driven and the system naturally trickles down.

    These assumptions are the total opposite of each other.

    When we believed the economy was demand driven and trickled up, we used strong progressive taxation to compensate for the inherent trickle up of capitalism.

    Inequality reached its lowest levels in recorded history in the developed world; there were no demand side problems.

    Now we believe the economy is supply driven and trickles down, we lowered taxes on the wealthy and inequality soared; the demand side problems grow worse as the sticking plaster solution of debt. maxes out for individual consumers.

    When we believed the economy was demand driven and trickled up, we thought fiscal stimulus was the answer to get the economy going again as it created jobs and wages to be spent into the economy and trickle up. We are just getting back to this way of thinking.

    Now we believe the economy is supply driven and trickles down, we thought monetary stimulus was the answer to get the economy going again as the money given to the banks would trickle down to everyone else. After eight years we are just starting to realise this didn’t work and are heading back to fiscal stimulus based on assumption one.

    1) 40 years ago, most economists and almost everyone else believed income was just as important as profit. Income looked after the demand side of the equation and profit the supply side.

    2) Now most economists and almost everyone else believes maximising profit is the only thing that matters.

    The IMF, Larry Summers and others are commenting on the chronic lack of demand in the system, it looks as though assumption one was right all along. We had been relying on the sticking plaster solution of debt to keep assumption two working but this maxes out.

    1) 40 years ago, most economists and almost everyone else believed Capitalism tends to polarise and you need to recycle the surplus

    2) Now most economists and almost everyone else believes capitalism naturally reaches stable equilibriums

    Wealth is polarising at an alarming rate and demand is suffering.

    2016 – “Richest 62 people as wealthy as half of world’s population”

    Keynesian capitalism used strong progressive taxation to compensate for the inherent trickle up of capitalism.

    The sticking plaster solution of debt maxes out, recycling the surplus can keep the whole thing going forever.

    When Keynes was involved in putting together the new international order after the Second World War, mechanisms to recycle the surplus were put in place in the Bretton-Woods agreement.

    When the Euro was designed we assumed the Euro area would naturally reach a stable equilibrium and there are no mechanisms to recycle the surplus.

    The Euro-zone is polarising and the poorest nation, Greece, has collapsed under its debts and the other Club-Med nations are heading that way.

    The sticking plaster solution of debt maxes out, recycling the surplus can keep the whole thing going forever.

    Neo-liberalism was rolled out across the world, only debt has kept it running and the world is now maxed. out.

    1. Sound of the Suburbs

      The international elite had a cunning plan of the Baldrick variety.

      Globalisation was accompanied by an ideology, neoliberalism, that was guaranteed to fail.

      Globalisation isn’t really the problem, it’s neoliberalism.

      The problems were there at the start but were ignored, it was always going to go wrong in exactly the way it has.

      Francis Fukuyama talked of the “end of history” and “liberal democracy”.

      Liberal democracy was the bringing together of two mutually exclusive ideas.

      Economic liberalism – that enriches the few and impoverishes the many.
      Democracy – that requires the support of the majority.

      Trying to bring two mutually exclusive ideas together just doesn’t work.

      The ideas of “Economic Liberalism” came from Milton Freidman and the University of Chicago.
      It was so radical they first tried it in a military dictatorship in Chile, it wouldn’t be compatible with democracy.

      It took death squads, torture and terror to keep it in place, there was an ethnic cleansing of anyone who still showed signs of any left wing thinking.

      It was tried in a few other places in South America using similar techniques.

      It then did succeed in a democracy but only by tricking the people into thinking they were voting for something else, severe oppression was needed when they found out what they were getting.

      Margaret Thatcher bought these ideas to the West and the plan to eliminate the welfare state has only recently been revealed. Things had to be done slowly in the West due to that bothersome democracy.

      The West has now seen enough.

      It was implemented far more brutally in the developing world where Milton Freidman’s “Chicago Boys” were the henchmen of “The Washington Consensus”. The IMF and World Bank acted as enforcers insisting on neoliberal conditionalities for loans.

      Global markets punished those not towing the neoliberal line and kept nations in their place.

      As Nelson Mandela was released from prison the South African Rand fell 10%, someone like this was going to be pushing up wage costs and would be bad for the economy.

      Looking back it was a grand folly of an international elite whose greed overcame even a modicum of common sense.

      Naomi Klein’s “The Shock Doctrine” will take you through all the gory details.

      Underlying neo-liberalism is a different economics, neoclassical economics, which is heavily biased towards the wealthy.

      Inequality and a lack of demand in the global economy were also guaranteed from the start.

      1. susan the other

        Because the EU did not construe a mechanism for recycling surpluses but instead preferred to run like mercantilists (Germany mostly) you can almost conclude that they intentionally knew they were going to cause this problem which has been understood since at least Keynes. It’s odd because Germany wants the EU to stay together but only offers disintegration with the ESM conditions. Which seem to be that Germany will help other nations who want to stay in the Union and agree to austerity to help themselves. And because there was no mechanism anymore for these crises which threaten the Union, it appeared that Germany quietly sold bunds to China and laundered the money thru the ECB to be sent to Greece and immediately sent straight back to Germany. It’s money recycling without any economy to back it up. If this is true and this money is being used to keep the EU glued together it means the German taxpayers are already paying for it. And it is all economic nonsense – per neoliberalism.

        1. Ed

          Agree, and they don’t like it! But the Germans have a real problem. First, exports are very important to their economy and having a cheap currency helps that (the Euro is cheaper than the DM would be, if it still existed, because the euro includes places like Greece). But second, they are the biggest economy in the Euro gang, so they will have to pay the biggest share of all these ‘extra’ costs. The German voter (taxpayer) does not like that, and may revolt, but that would cost them in other ways, so for now they just are angry.

          Greece (and others) also have a real problem because the euro is stronger than the drachma would be, if it still existed. Thus the euro hurts Greek exports unless Greeks are paid less, but that makes imports expensive, relative to Greek incomes. Greece cannot do anything about it short of leaving the Euro, which would have other large consequences, so for now they just are angry.

          The same is true to some extent for Italy, and who knows what will happen there. France seems closer to the German situation, but some are agitating against the EU and Euro, so again who knows.

          All this was forecast when it was proposed. Enough of the Brits, for example, understood so they did not join the Euro gang. Now they want out of the whole thing.

          All I know for sure is that it will be an exciting time in Europe until they get this all sorted out.

    1. witters

      I forgot the Dems standing on the moral highground of ‘popular vote’ advocacy. So could you link me to the relevant HRC speech? If not, then quit the fake news.

  5. ChrisPacific

    The ironic thing is that the proposed payment would probably make it easier for Greece to repay debts in the long run. If it’s targeted to the poorest pensioners then they can be expected to spend all or nearly all of it, so it would make for a very cost-effective stimulus, thereby contributing to economic growth and increasing government tax receipts.

  6. Kolyn Phlabyn

    KeepTalkingGreece this report would seem to indicate Dijsselbloem & Schaeuble might be slightly over-playing their hand. While I doubt there will be a full scale public rift between EU players over Greece this report leads one to the impression the Commission, and in particular Moscovici isn’t at all best pleased with the Eurogroup 2 (Schae-bloem) unilaterally suspending the short term debt-relief measures. The Commission is flexing, slapping those naughty 2 sadists ever so gently.

    Is there a slither of light that Greece can exploit, do they even have the political nouse if there is. Possibilities, perhaps..?

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