Greece Climbs Down

Seems like Greece has caved:

Greece’s Left-wing Syriza government has agreed to draconian austerity terms rejected by the Greek people in a landslide referendum just five days ago, capping one of the most bizarre political episodes of modern times.

Prime minister Alexis Tspiras sought to put the best face on a painful climbdown, recoiling from a traumatic fight that would have led to Greece’s ejection from the euro as soon as Monday. He implicitly recognised that the strain of capital controls and economic collapse has been too much to bear.

“We are confronted with crucial decisions. We got a mandate to bring a better deal than the ultimatum that the Eurogroup gave us, but we weren’t given a mandate to take Greece out of the eurozone,” he said.

Hopes for a breakthrough set off euphoria across Europe’s stock and bond markets, though Greece still has to face an emergency meeting of Eurogroup ministers on Saturday, and probably a full-dress summit of the EU’s 28 leaders on Sunday.

A top Greek banker close to the talks said there is now a “90pc chance” of clinching a deal, thanks both to intervention behind the scenes by a team from the French treasury and to aggressive diplomacy by Washington.

Inflows of tourist cash means that there is still €2.75bn of liquidity available, enough to keep ATM machines stocked until Monday night. Greeks will be able to withdraw the daily allowance of €60. Pensioners will continue to draw €120 a week.

That means that the crisis will be renewed once more in a few months time. Not often I quote William Hague:

Economics has few laws, which is why economic forecasts are so maddeningly unreliable. If it has one law, it is this: that if you fix together some things which naturally vary, such as interest rates and exchange rates, other things, such as unemployment and wages, will vary more instead. And in a single currency zone, which has exactly this effect, you can only get around these problems by paying big subsidies to poorly performing areas, and expecting workers to move in large numbers to better performing ones.

This is what happens in the US, or indeed within Britain. In general it works. In the eurozone it does not work, because either Greeks have to cure their poor economic performance or Germans have to pay them big subsidies, and neither are willing or able to do so. This, in a sentence, is the problem of the eurozone, and continued denial of it will only make it worse.

But maybe there’s another twist in the plot yet.

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About Frank Davis

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29 Responses to Greece Climbs Down

  1. ‘Just take the f——g picture!’

  2. waltc says:

    That outcome is what I feared. And I fear they’ll go on and on with this charade. And knowing it’s a charade. Or liars’ poker. Seems to be the earmark of politics these days: lying fantasists meet lying fantasists and agree on a false fantastic deal, each claiming Victory. Exuent all.

  3. waltc says:

    OT: feds spend $2 mil to get wives to nag husbnds. Best line here: gut suggests they’d need to soend another $2 mil to help husband to cope with a “hostile home environment.”

    http://www.washingtontimes.com/news/2015/jul/9/golden-hammer-feds-spent-2-million-to-have-wives-n/?page=all

  4. Joe L. says:

    Another failure of modern “democracy.” Very depressing. This simply prolongs the inevitable. I can only imagine things will be uglier this time around, as now some 60% of the population of Greece must feel slighted by their own government. The road out of the eurozone definitely looked long and daunting, but at least it seemed like the people of Greece would be going into it united with their leaders. Imagine trying to rebuild an economy under a new currency with a cynical and unruly population. That appears to be the direction things are heading. Hopefully this is a lesson to the other EU nations: get out before the shit hits the fan.

    • harleyrider1978 says:

      Its anything but Democracy at work. Its pure SOCIALISM. The EU is at the bursting point we all can agree. Might be that Germany itself being the host body being sucked dry by all the other countries will end the whole thing itself by existing or possibly by internal revolts within Germany over them holding the bag for everyone else. It cant be sustained all it will do is bankrupt the big boyz left standing unless they finally end the whole damned fiasco once and for all.

      A temporary reprieve for Greece will do little as all the other southern countries all need future bailouts too. Likely as not in a few months or in the next several months we will have a dozen greeces happening all at one time………..

  5. Bemused says:

    In the language of diplomacy does “aggressive diplomacy” mean what I think it means?

    • smokingscot says:

      Possibly.

      What brought the Americans into the spat is their belief that Greece, should they have been shunted out of the Euro and possibly the EU, might have withdrawn their permission for the US to use their airbases.

      And quite possibly re-ignited the long standing Turkey / Greece sources of irritation.

      And perhaps, should Russia or even China helped with short term loans, a complete change of direction in Greek foreign policy.

      It was also a crucial issue with the talking head of NATO.

      Stacks of terribly important reasons shunted around, but what sticks with me is it’s the first time I’d heard the word GEOSTRATEGIC (so new is it that the WordPress spell checker tells me they’ve never heard of it either.

      Bear in mind the Yanks want Turkey in the EU and would love for them to be lots more helpful to their effort to lob missiles at ISIL, so having Greece leave the club is a very serious issue, leaving them with either having to use aircraft carriers, or spend several more hours in the air from Italian airfields.

      Under the circumstances it probably was the diplomatic equivalent of a boot up the bum for the EU and a case of “spread ’em and don’t squeal” to the Greeks.

    • Some French bloke says:

      Bemused: does “aggressive diplomacy” mean what I think it means?
      smokingscot: Possibly.

      Well, certainly, if it be true that “diplomacy is the art of saying ‘nice doggie’ while looking for a rock” (bumper sticker humour).

  6. Jim says:

    So its pretty simple to work out when the sh*t will hit the fan next – take whatever cash the Greeks are ‘loaned’ in the deal that will now get, add up the repayments due to the ECB/IMF etc going forward, and when the two equal, thats when the crisis kicks off again.

    Because there is no way a) that the Greeks will implement the promised tax rises/spending cuts/structural reforms and b) even if they did the Greek economy is a bombsite anyway, so there will be no growth, so no extra tax revenue. It’ll just be another ‘kick the can down the road, throw good money after bad, and hope something turns up’ deal.

  7. Rose says:

    At least there’s hope for Wales.

    “The Welsh government has raised eyebrows after responding to a Conservative politician’s formal question about UFOs in the Star Trek language Klingon.

    Tory Welsh assembly member Darren Millar asked economy minister Edwina Hart whether any alien craft had been spotted over the skies of Cardiff airport since it was brought back into public ownership.

    But the Clwyd West AM was surprised when he was given the reply: “jang vIDa je due luq. ‘ach ghotvam’e’ QI’yaH-devolved qaS.”

    Which, in English, translates as: “The minister will reply in due course. However, this is a non-devolved matter.”
    http://www.theguardian.com/uk-news/2015/jul/10/star-trek-welsh-assembly-ufo-question-prompts-dip-into-trilingualism-with-klingon

  8. Rose says:

    I just knew it.

    Earth heading for ‘mini ice age’ within 15 years
    11th July 2015

    “River Thames could freeze over in 2030s when Northern Hemisphere faces bitterly cold winters, scientists say”

    ” Solar researchers at the University of Northumbria have created a new model of the sun’s activity which they claim produces “unprecedentedly accurate predictions”.

    They said fluid movements within the sun, which are thought to create 11-year cycles in the weather, will converge in such a way that temperatures will fall dramatically in the 2030s.

    Solar activity will fall by 60 per cent as two waves of fluid “effectively cancel each other out”, according to Prof Valentina Zharkova.”

    “We predict that this will lead to the properties of a ‘Maunder minimum'”.

    Maunder minimum, indicating low sunspot activity, was the name given to the period between 1645 and 1715, when Europe and North America experienced very cold winters.”
    http://www.telegraph.co.uk/news/science/11733369/Earth-heading-for-mini-ice-age-within-15-years.html

    • nisakiman says:

      This should be interesting. Are we about to see a sort of rerun of the Wars of the Roses, with the University of Northumbria facing off against the University of East Anglia? The Warmists versus the Ice-Agers? All sorts of delightful images spring to mind! :)

  9. jaxthefirst says:

    “But maybe there’s another twist in the plot yet.”

    I’d like to share your optimism, Frank, but in all honesty I don’t think so – apart from the same thing happening a few months’ down the line, which is hardly much of a “twist.” I always believed, deep down inside (as I think I mentioned on here when it all kicked off), that the EU would ultimately get its way. True, I thought that they’d bring some new, tempting offer out of the bag at the 11th hour to persuade Tsipras round to their way of thinking, whereas in truth it just amounted to a Mexican stand-off and, ultimately, Tsipras just didn’t quite have the courage to bite the bullet and cut Greece free from the European dictatorship shackles. What a shame.

    What I don’t understand (although I probably should), and what all you knowledgeable folk on here can probably tell me is (a) who, exactly, does Greece owe all this money to? I know it’s probably lots of different places/countries, but who is it exactly? (b) Why did they lend to Greece in the first place, when for several years now they have clearly been a very bad risk for any lender? And (c) why is the prospect of a default such heresy? I understand that it would pretty much rule them out for future lending but, to be honest, their credit-rating as a country is probably already at rock-bottom, so what would be the difference there? Were there (non-financial) conditions attached to the loans, like selling all their people into slavery or handing over all their sovereign territories to their creditors or something? Why all the “shock, horror!” at the prospect of a default? Surely, if they simply defaulted and refused to pay up, their creditors would then have to renegotiate the loans (or lose out altogether) – which (if they are to be believed) is what Syriza claimed they wanted all along.

    Any (simple, words of one syllable-only) insights gratefully received!

    • harleyrider1978 says:

      the EU would ultimately get its way

      FOR NOW!

      The EU Is working itself into becoming the WEIMAR REPUBLIC of the EU………Its economics plan is no plan but for str8 oblivion for everyone concerned and likely so big ith contangion will create the biggest world depression ever seen. The EU is totally unsustainable.

    • waltc says:

      I’m not all that”knowledgable,” and would welcome correction from those who are, but here’s my understanding. They owe the money to the European central bank which collects forced contributions from all EU members. They knew when they attempted to harmonize the currencies of disparate nations that some would need a temporary propping up but likely didn’t plan on “temporary” lasting for generations when they planned, unrealistically, that national characters could somehow be engineered to meld and conform. Therefore, they got themselves into a pickle through throgh their own hubris. The stability of the euro depends on the continued membership of all. Therefore, they desperately need to keep their members or the enterprise fails. That it’s already failed is what they can’t, or arrogantly refuse to, accept. It’s like shoring up a sand castle with more and more sand, even as the waves keep breaking on the shore.

      • harleyrider1978 says:

        walt all the worlds countries are in the same pickle all broke and their GDP to debt ratios are so fucked up none of them will ever get out of debt until a total reset happens and that means literally everybody goes broke. It doesn’t matter what Greece did or even who they owe money to as everyone else owes everyone else too……….what they are all worried about is when one guy goes bust and cant pay then suddenly all the rest cant pay either and the whole damned one world experiment collapses on its head………..that’s why Greece wont be left to falter and for no other reason. Problem is before long all the others will need bailouts just like Greece right now and the IMF the world bank and all the rest don’t have the cash to do anymore bailouts for anyone unless they start printing more fake money on top of unlimited amount they’ve already don’t worldwide.

        Its a powder keg lit 7 years ago and it wont be long before it goes off be it Greece or whomever decides to say screw it we aint playing no more as austerity only brings disparity and rioting along with governments collapsing.

        All the EU is doing is patching a leaking dike they will never be able to fix. Just a matter of time and you will see an independent Europe again.

    • smokingscot says:

      That’s perfectly understandable Jax. As simply as I can (though it’s an hellish complex subject).

      a) The Troika.

      The three outfits that make up the troika are the IMF, the ECB and the EU itself. The ECB’s role is primarily to do with keeping the Greek banking system liquid, the IMF is essentially overseeing the entire country and the EU Commission is involved because they control various stability funds that in turn are financed by other countries that use the Euro.

      Britain has no funds involved with the ECB, nor with most of the stuff coughed up by the EU Commission, but it is involved with monies lent by the IMF.

      b) Overspending.

      The Greek government was doing the same as all governments and running a budgetary deficit. (In short spending more than they took in in taxes). So they issued bonds (exactly the same as our gilts).

      As you pointed out they’ve been known to be a very high risk for many years, however things got very silly when they joined the Euro. Same currency, but the Greeks found they had to pay well over the odds if they issued them in their name.

      Here’s an example, though it’s hugely time sensitive. Two days ago the yield on TWO year Greek bonds was a staggering 57.5% and today it’s still a completely stupid 34%.

      http://www.investing.com/rates-bonds/greece-2-year-bond-yield

      The Greeks can’t pay this sort of money, so they sought to borrow funds from those who could get better rates. The Troika.

      That’s not a problem for Germany (who’s really the power behind the throne in the EU and the ECB). Today German bonds actually yield MINUS 0.212%. So investors are paying to hold German debt!!!!!

      http://www.investing.com/rates-bonds/germany-2-year-bond-yield-historical-data

      When this all started Greece had a whole bunch of things on their books. Their railways, airports, airline, ports, electricity, rail tracks, even some television stations and several other things were in State hands (I think they even owned the fixed line telephone company).

      They had to modernise, they had to get rid of all these public sector workers and in the early days many of the marches and emonstrations were organised by unions who feared being taken over by the private sector.

      Trouble is they were massively overstaffed as indeed is the Greek public sector and with layoffs there emerged this classic downward spiral.

      You might be interested to know that the Greek State is now actually running a primary surplus. The State has shrunk, they have done many of the things they needed to do, but the debt they have to service is huge – and there’s the overriding problem of having to pay social security to more than 26% of the population who are without jobs – with up to 60% youth unemployment in some parts of Greece.

      You could say that the really tough stuff’s almost finished, but there’s no growth and there’s very little faith in the Greek banks, so there are next to no deposits left, so very tough to get loans for anything, especially business start-ups and it’s actually in depression with falling prices going on for some time now.

      (So if you can hold on to your Euros in (say) a bank in France it may not earn any interest but that doesn’t matter because your Euro buys more each year in Greece. It’s a terribly bad thing and can spiral downwards, as Germany well knows – that happened post WW2).

      c) Euro rules

      You borrow, you pay back. Finish. Full stop. Under the EU rules that’s it.

      Bear in mind the 2012 “Greek haircut” where private holders of Greek debt “agreed” to take a writedown of 53% of the face value of their holdings was that. Private bond holders (almost all of them banks). And let’s face it they did not agree at all, they were forced to write off Euro 100 billion.

      (This by the way is one reason why banks in the EU are still “rebuilding their balance sheets” and why Laiki Bank in Cyprus had to close).

      So Greece has already defaulted once, but by shafting the banks and by saying it was a voluntary agreement they got round the rules that do not allow defaults!

      Now Greek debt is almost exclusively held by governments – and if they have to go to their electorate to say their taxes have gone into this black hole, then the dung could hit the fan.

      Every single outfit that goes to make up the Troika have rules that do not allow defaults. But Greece did that at the end of June 2015 when it missed a payment to the IMF. Under their rules, Greece gets nothing else. But so far the IMF has not officially declared Greece in arrears.

      ______

      You’ve probably grasped that this is 100% politics. Usually the currency and investment markets force governments to sort things out. The Euro isn’t a currency like any other, the only reason any fund manager invests in Euros is because it’s backed by Germany – and as you can see from the bond yields, Germany doesn’t have a thing to worry about. They can recycle funds to Greece at 3% with great ease, but they’re not.

      They really want Greece to quit horsing around and get their act together about things like daft pensions tied to final salary and index linked as well as tax collection and actually some tangible way to pay back their loans.

      Greece knows their culture considers anyone who pays all their taxes is absolutely bats. And consider the row our lot had when they tried to reform public sector pensions. It’s political suicide.

      ——–

      On a slightly different note, the depreciation of the Euro and low rates of interest are helping the EU periphery, however it’s not helping Germany at all. There interest rates should be closer to 3%. What you are watching is a classic EU failing, dumbing down to the lowest common denominator.

      One example I can give you are pension funds. They have obligations they must fulfil, but with an ageing population – as they have in Germany – the 30 year German bond yield was 1.35% on 9 July.

      While Merkel and others are helping this basket case, there’s a 16 wheeler careening their way. Rock – hard place.

      • jaxthefirst says:

        Many thanks for these explanations. It certainly helps to have it explained in good old-fashioned English. But I have one further question. I know it’s “against the rules” and all that, but what happens (or would have happened) if Greece had simply shrugged its shoulders and said: “Sorry chaps. Got no money. Can’t stick to the agreement as planned. Will get back to you once we’ve got some cash.” What could the creditors have actually done about it, except make (essentially empty) threats about not lending Greece any more money?

        And why does Europe need Greece in the Euro in order to maintain stability? Surely, given Greece’s present woes, it is, if anything, a destabilising, rather than a stabilising, influence? Wouldn’t the Eurozone countries have breathed a small sigh of relief if Greece had decided to quit the game and go it alone, returning to use the Drachma and essentially having no more to do with the Euro than any other currency does (i.e. either a little or a lot, depending on trade).

        • Frank Davis says:

          I think the reasons for wanting to keep Greece are political rather than economic. It would be a setback for the ‘project’ to lose a country.

        • smokingscot says:

          d)

          Greek banks are closed. They’ll continue to be closed until Greece gets money from the ECB.

          If Greece says “F… U” we’re out (and the deal still hasn’t been agreed to or signed off on yet) then their banks will close doors by the end of this week.

          They have no plan b – and that’s the underlying problem… the EU know that.

          e)

          Frank says it all.

  10. harleyrider1978 says:

    Denazification

    https://en.wikipedia.org/wiki/Denazification

    Denazification (German: Entnazifizierung) was an Allied initiative to rid German and Austrian society, culture, press, economy, judiciary, and politics of any remnants of the National Socialist ideology (Nazism). It was carried out specifically by removing from positions of power and influence those who had been Nazi Party members and by disbanding or rendering impotent the organizations associated with Nazism. The program of denazification was launched after the end of the Second World War and was solidified by the Potsdam Agreement.

    The term denazification was first coined as a legal term in 1943 in the Pentagon, intended to be applied in a narrow sense with reference to the post-war German legal system. Soon afterward, it took on the more general meaning

    Denazification in Germany was attempted through a series of directives issued by the Allied Control Council, seated in Berlin, beginning in January 1946. “Denazification directives” identified specific people and groups and outlined judicial procedures and guidelines for handling them. Though all the occupying forces had agreed on the initiative, the methods used for denazification and the intensity with which they were applied differed between the occupation zones.

    Denazification also refers to the removal of the physical symbols of the Nazi regime. For example, in 1957 the West German government re-issued World War II Iron Cross medals, among other decorations, without the swastika in the center.

    About 8.5 million Germans, or 10% of the population, had been members of the Nazi Party. Nazi-related organizations also had huge memberships, such as the German Labour Front (25 million), the National Socialists People’s Welfare organization (17 million), the League of German Women, Hitler Youth, the Doctors’ League, and others.[2] It was through the Party and these organizations that the Nazi state was run, involving as many as 45 million Germans in total.[3] In addition, Nazism found significant support among industrialists, who produced weapons or used slave labour, and large landowners, especially the Junkers in Prussia. Denazification after the surrender of Germany was thus an enormous undertaking, fraught with many difficulties.

    The first difficulty was the enormous number of Germans who might have to be first investigated, then penalized if found to have supported the Nazi state to an unacceptable degree. In the early months of denazification there was a great will, especially among the Americans, to be utterly thorough, to investigate everyone and hold every supporter of Nazism to account; however, it turned out that the numbers simply made that goal impractical. It soon became evident, too, that pursuing denazification too scrupulously would make it impossible to create a functioning, democratic society in Germany, one that would be able to support itself economically and not become a burden on the victorious nations. Enforcing the strictest sanctions against lesser offenders would prevent too many talented people from participating in the reconstruction process. The Morgenthau Plan had recommended that the Allies create a post-war Germany with all its industrial capacity destroyed, reduced to a level of subsistence farming; however, that plan was soon abandoned as unrealistic and too likely, because of its punitiveness, to give rise to German anger and aggressiveness.[4] As time went on, another consideration that moderated the denazification effort in the West was the concern to keep enough good will of the German population to prevent the growth of communism.[5]

    The denazification process was often completely disregarded by both the Soviets and the Western powers for German rocket scientists and other technical experts, who were taken out of Germany to work on projects in the victor’s own country or simply seized in order to prevent the other side from taking them. The U.S. sent 785 scientists and engineers from Germany to America, some of whom formed the backbone of the U.S. space program.[6]

    In the case of the top-ranking Nazis, such as Göring, Hess, von Ribbentrop, Streicher, and Speer, the initial plan was to simply arrest them and shoot them,[7] but that course of action was replaced by putting them on trial for war crimes at the Nuremberg Trials in order to publicize their crimes while demonstrating that the trials and the sentences were just, especially to the German people. However, the legal foundations of the trials were questioned, and the German people were not convinced that the trials were anything more than “victors’ justice”.[8]

    Many refugees from Nazism were Germans and Austrians, and some had fought for Britain in the Second World War. Some were transferred into the Intelligence Corps and sent back to Germany and Austria in British uniform. However, German-speakers were small in number in the British zone, which was hampered by the language deficit. The Americans were able to bring a larger number of German-speakers to the task of working in the Allied Military Government, although many were poorly trained.[9] They were assigned to all aspects of military administration, the interrogation of POWs, collecting evidence for the War Crimes Investigation Unit and the search for war criminals

  11. Alan Perrow says:

    Tsipras and the coalition government have been in office for around 6 months, and time is desperately needed. Reminds me of ‘peace in our time’ when we too needed that. Throughout this affair Tsipras has shown intelligence, he is unlikely to have suddenly lost that quality.

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