Grexit is something to welcome rather than be afraid of for Greece

Over the past few years there have not be many subjects which have come up on this website more often than the travails in Greece which led to its current economic depression. Yesterday in an echo of the brilliant line from the film Snatch we discovered that all bets are now off at least with one bookmaker. From Digital Look.

Bookmaker William Hill has suspended betting on Greece leaving the Eurozone in 2015 after heavy betting on the ‘Grexit’.

Many see this as something to fear but I do not as I started on this road a long time ago. From May 3rd 2010.

Should her economic growth disappoint over the next 2/3 years, and there are grounds for supposing that they will, then this package will make her position worse and she will be less solvent at the end than at the beginning.

And the next day.

I still feel that a restructuring of Greece’s debt has only been postponed and it would have been better to do it now.

Of course both were right and the latter was something from my deepest fears then as it turned out a restructuring was delayed until 2012 to give Euro area banks time to unload their liabilities -in every sense of the word- mainly onto Euro area taxpayers but also world taxpayers via the International Monetary Fund (IMF).

By Christmas 2011 it had become clear to me that default and devaluation or what has become called Grexit was the best way forwards for Greece.

If I was Greece I would default and devalue this Christmas

Of course the official story was believe it or believe it not was that the Greek economy would collapse. Oh the shame of it for those who argued thus as of course it was their plan which plunged Greece into an economic depression. Later it emerged that US Treasury Secretary Timmy Geithner was troubled by the discussions taking place back then.

We’re going to teach the Greeks a lesson. They are really terrible. They lied to us. They suck and they were profligate and took advantage of the whole basic thing and we’re going to crush them.’ [That] was their basic attitude, all of them.

That excerpt is from a November 2014 article by Yanis Varoufakis, whatever happened to him?

Why is Grexit presented as something to be afraid of?

The IMF

This is because for the establishment it would expose one of the misrepresentations which they have pushed for years and indeed decades. It concerns the IMF and some of you have noticed the panicky way that even the merest suggestion that Greece may not repay the IMF is treated by officialdom and by much of the media. Back on November 28th 2011 in an explainer article on Mindful Money I pointed out a fault line.

Politicians should stop implying that the help provided by the IMF is in effect free. For example US Treasury Secretary Geithner suggested that moves to expand the IMF “wouldn’t cost a dime”. This is one of those superficially true statements that are very dangerous. If you are liable for something it does not cost anything until it goes wrong. Any proper accounting system allows for the possibility of things going wrong.

Of course proper accounting systems are in very short supply these days! But as I also pointed out there is another problem as the role of the IMF was changed under the French politician Dominique Strass-Khan to allow the Euro area bailouts.

It has plainly changed from an organisation which helps with balance of payments problems to one which helps with fiscal deficits. Whilst this may suit politicians, taxpayers and voters should in my view be concerned about the moral hazard of one group of politicians voting to increase funds available to help another group of politicians which increasingly includes themselves.

The situation got even more intertwined when the next leader of the IMF was not only yet another French politician but in Christine Lagarde one who was explicitly involved in the “shock and awe” disaster.

Underlying all this is the fact that the IMF has increasingly been gaining funds from developing and emerging nations who no doubt would be as a minimum underwhelmed to find out that it was used to facilitate a first world stitch up! This from Euobserver highlights the hard bargain it is driving.

On Thursday (16 April), IMF chief Christine Lagarde ruled out giving Greece more time to pay back the €1 billion it owes to the fund in May.

You might think that the IMF should feel that it owes Greece a favour but apparently not on Christine Lagarde’s watch.

Greece versus Germany

This is somewhat unfair in a way as Germany is only a little over a quarter of the capital of the Euro area rescue mechanisms so it could be outvoted. Indeed it often is on the European Central Bank Governing Council. Also the IMF has been run by the French for some time. However you spin it though the Greek Finance Minister Yanis Varoufakis was correct to point this out at the Brookings Institute yesterday.

The problem with the take or leave it resolution is that we tried that medicine and it didn’t work…..We have the right to be heard, and we have the right to challenge the logic of a program that has clearly failed.

And perhaps the most uncompromising statement of all.

Greece went from Ponzi scheme of unsustainable borrowing to the scheme of Ponzi austerity.

 

A story of bond yields

Yes these are merely a financial instrument but we do learn something from the fact that the ten-year sovereign bond yields are currently 0.08% for Germany and 12.4% for Greece. A world apart! However there is another clear difference as you see Germany is funding itself at such levels but Greece is not as it is much cheaper to take bailout cash. Although the story twists again as of course new bailout cash looks as though it may be in short supply or not available at all.

If we continue with the German theme we see that it has gained substantially over the Greek bailout period from this. What do I mean? Back in the “shock and awe” days it was paying 3% for ten-year borrowing. It would be interesting to do the mathematics of how much it has gained would it not? Could it also borrow for say five-years at a negative yield and give the money to Greece? Of course the problem is one from another sphere the likelihood of repayment as Mariah Carey reminds us.

It’s so deep in my daydreams
But it’s just a sweet sweet fantasy baby

Comment

Things are going badly right now as the new government in Greece is dithering. It needs to make up its mind as whilst it is so doing the Greek economy is continuing to struggle and the Greek people suffer as shown by this report into medical care from rural Crete.

Patient 179 said “During the pharmacists’ strike I realised my symptoms got worst, but I couldn’t buy my inhalers so in the end I had an asthma attack.’’ Patient 183 said “I didn’t have the money to buy the medications for my hypertension and diabetes and this made me even more stressed.’’ Patient 246 said “I couldn’t buy my medications, and I felt my old depression reappear.’’’ Patient 283 said ‘I often have the dilemma do I pay the taxes and the electricity bills or
do I pay for medications. I know I will suffer no matter what I decide. ’’ Patient 286 said “ Doctor I really can’t afford the medication costs anymore, my bank account is close to zero, and if this continues for long I will have to ask you to select for me the most important ones to continue.’’

Whilst it would have been better to have done so before my advice is the same as I think it is the only way to shatter the Greek establishment which has done so much harm to the rest of the population default and devalue. As Hotel California puts it.

Last thing I remember, I was
Running for the door
I had to find the passage back
To the place I was before.

 

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26 thoughts on “Grexit is something to welcome rather than be afraid of for Greece

  1. Hi Shaun

    You are no doubt right about the implications of a Grexit; for Greece it would in fact be a good thing in the not too long run either.

    However, despite the nonchalance shown by some, I think the contagion fears underneath are much more substantial than is admitted by people such as Schauble. Let’s face it with the mountain of derivatives around in the World today who knows how anything will end up?

    Secondly I think the Eurocrats, despite what some have said, may see a Grexit as the short end of a terrifying wedge. If it were successful (God forbid!) it would encourager les autres to do the same to get out out from under the dreadful social consequences of austerity, some of which you quote above, but, and I think much more seriously, it would set many people off thinking that maybe the Euro and the EU project in toto maybe needs a rethink, having got us into this mess in the first place, because mess it most certainly is.

    How on earth people can think that inflicting the sort of punishment on ordinary people in the name of warped ideas about financial rectitude is part of the great European vision towards which we are supposed to be marching is completely beyond me.

    • Totally agree. I cannot see any other option for Greece. Its debts can never be repaid – and everyone knows that. In Euro fantasy land it’s just pretend and extend.

  2. question : if the greeks cannot pay their debts , is this not also true of the USA ?

    Crete and Greece would be

    “better off alone ” as Alice DeeJay sang

    As for the Franko-German empire , or the United States of Europe as its better known, its a political project of great harm to the economies of Europe as its based on all being like Germany

    never the twain

    the LMU comes to mind again.

    The contagion is real Shaun, think of not just Spain but Portugal then of the 600lb gorilla , Italy !

    A two speed europe is needed , a Northern one and the southern one and to be joined on financial and tax grounds first . – that would be more stable than the leaky life boat we have

    Forbin

    PS: isnt Greece still paying part of its own bail-out anyway ?

  3. HI Shaun, very interesting to see the birds coming home to roost with Greece’s lenders. Some of us.. actually forget that as it was almost everyone who left a comment after your articles on Greece… knew the bailouts and austerity were simply making a bad case worse, and finally Will.I.Am Hill appears to agree.

    I have long offered the opinion that Herr Schauebel would never see a single pfennig of his bailout money back I think this will make him very angry and we’ll soon learn to what extent he has a vindictive streak to go with his cold dead eyes and heartless soul. I know we don’t really “do politics” on here but my view is the Troika will do their level best to see Greece gets the roughest possible ride post-Grexit.
    .
    The most prescient nugget in your article, for the future at least, is your last statement regarding a default/devaluation “shattering the establishment”. I think this proposition would make a fascinating subject for a future blog. One wonders to what extent the professions will suffer. I’m no expert but the country seems to me to be run by a series of closed shops, from taxi drivers to pharmacists, who all seek to protect their sinecure by barring competition and fixing prices.

    • As the spouse of a disabled person, I feel that I can say this without being accused of disability prejudice:
      Schaeuble isn’t just parsimonious, he’s an utter, utter bastard, as all neo-liberals are, who has the blood of many Greeks on his hands, and doesn’t care a jot.
      He deserves a hell as cold as him.

      • From the Daily Telegraph:

        Mr Schauble admitted that the EU-IMF Troika measures may never restore Greece to solvency, dismissing it as a “problem for future decades”.

        An absolute admission that Greece isn’t being bailed out, it’s deliberately being kept comatose, and has been all along, for the “security” of others.

    • Don’t forget the Greek politicians, many of whom have mansions far greater than feasible on their taxable incomes.

      As for Herr Schaubel, I have some sympathy for his position – I think it is reasonable to try protect German beneficiaries while trying to prevent banksters defrauding European taxpayers. Remember that “the bailout” only benefits banksters – it does not help ordinary Greeks.

      Follow the money – who stole it ? who ruled to rescue banksters at taxpayer expense ?

        • Please try to supply proofs to back up your baseless claim.

          Where’s your proof that Schaubel stole anything ? German tax people are fairly efficient, just ask Uli Hoeness ….

          The leading organisations who support the illegal cross border bailouts are the EC, ECB and IMF. I’d suggest names like Strauss-Kahn, Lagarde, Juncker, Trichet ……

  4. What amazes me is how long TPTB have managed to carry on with their shenanigans while everyone else knows how it’s all going to end and the sooner the inevitable Grexit happens the less damage in the long run. It’s akin to burying ones head in the sand and hoping your problems will magically disappear instead of facing up to them. Much of current politics/economics is like that at the moment in all the western countries.

    • Jan , I think its a case of the man falling of the 10 storey building

      passing 5th floor

      “doing alright so far ! ”

      the real issue is the Kan has been kicked so many times and without a black swan event , that the TPTB think they are immune to reality !

      Of course when the correction comes it will be a Cilla moment ….

      “surprise, surprise !! ”

      and MSM will believe them all ……..

      best buy some popcorn and join me on the sofa

      “this is going to be quite the ride ! ” Zues – Tron legacy

      Forbin

      • Jan , I think its a case of the man falling of the 10 storey building

        passing 5th floor

        “doing alright so far ! ”

    • Jan

      The answer is that there is too much at stake; so goes Greece so goes the Eurpean project. That’s why TPTB are so desperate to keep the show on the road; the fact that the Greek people are suffering is, as the US used to say in Vietnam, “collateral damage”.

  5. Hi Shaun.

    I saw the fragrant Ms Lagarde on the Beeb today opining that UK Government policies were “obviously” the cause of the current state of play in the UK economy. No further explanation followed, no journalist raised any objection and one was left with the distinct impression that increased GDP follows on from austerity as surely as night follows day.

    I can only assume that the phrase Post hoc ergo propter hoc doesn’t apply to the rarefied world of Global Finance?

    • If central bankers and their ilk had to demonstrate real cause and effect they would all be out of a job. They say what they want to happen or how they want us to view circumstances, not what reality actually is! Growth has returned to the Euro zone is one of their best lines. Lumped together maybe (in a meaningless figure) but Italy? Greece? Portugal? – annoying anomalies.

    • Hi Jim M

      Seeing your comment I was reminded of Ms Lagarde’s tenure as Minister of Finance in France. As following its end the French economy entered its present malaise, or her involvement in the “shock and awe” bailout of Greece as following it guess what? One day people will write about the damage to the IMF on her watch too……..

      So a record of failure for the institutions she is involved in but of course success for her!

  6. Hi Shaun

    So is this the end of the beginning or the beginning of the end moment?

    The Who Baba O’reilly

    Out here in the fields
    I fight for my meals
    I get my back into my living
    I don’t need to fight
    To prove I’m right
    I don’t need to be forgiven

    Don’t cry
    Don’t raise your eye
    It’s only teenage wasteland

    Quite apt don’t you think?

    JRH

    • Hi JRH

      If it is merely the end of the beginning that is horrible! So let us hope it is the beginning of the end. As to The Who well they offer a rich vein of lyrics.

      I’ll tip my hat to the new constitution
      Take a bow for the new revolution
      Smile and grin at the change all around
      Pick up my guitar and play
      Just like yesterday
      Then I’ll get on my knees and pray
      We don’t get fooled again
      No, no!

      Let us also hope that the Greeks do not find themselves singing this bit.

      Meet the new boss
      Same as the old boss

  7. Hi Shaun,

    I think you do sterling work – long time reader of your thoughts, but first time commentator.

    If there is a Grexit then what, if anything, happens to the mountain of derivatives. For example the $75 trillion of Deutsche Bank exposure.

    Also there must be a chance that a Grexit would become entangled in geo-politics especially if Russia were to provide any help. Is it not slightly odd that a bankrupt Greece is negotiating to purchase advanced Russian air defence missiles?

    • Hi Anon and welcome to the comments section

      The last 5 years or so have been a desperate effort to shore up the banks derivative and other books against a Greek default but by the rhetoric I suspect the establishment still fears what might happen. If you look at the costs over the pas five years it would have been much better to have a proper reform involving large losses if necessary than the can kicking mess we are in now.

      As to the Greece defence position this is one of the most tangled webs of all. The missile system is a product of the 1990s but I doubt the timing is a coincidence. As to what is happening with the German submarines I have lost touch but it could easily turn out to be the biggest individual scandal of all. Oh and maintaining a familiar cast list there is the issue of the French frigates….

      • This inexplicable (to me) ECB QE may have an explanation in the ECB paving the way for a Grexit because the liquidity squeeze following a Grexit would be immense, but not as bad if the ECB was already there priming the pump with QE as, for me at least , there was always going to be an EZ recovery of sorts from Spring/Summer 2015 onwards. If I could see it in the money supply numbers, the ECB economists must have seen it and must have reported it to Draghi- so why QE? Well….Grexit??…

  8. Hi Shaun,

    Thanks for shining a light on the human cost of this protracted mess. Every time I read something like this I find it staggering that this is taking place in a European country. In my eyes it devalues the European Union as a whole regardless of where the blame lies and that will not be forgotten by many of it’s citizens even if it could all be magically fixed overnight.

  9. Hi Shaun, I agreed with you back in 2010 re Grexit. Greece was in muchbetter condition than now thanks to the continual weakening effects of the “bail outs”. This is the problem, if there is a Grexit now Greece will not recover as it is too weak. The second and third order global effects will be horrendous whilst Europe will exact it’s revenge on Greece for daring to leave.

    On the poliotical side the politicos wil be sheet white with fear that Spain, Portugal and Italy follow suit as will the Fed, BOJ, BOE and BOC to name a few as this would take down the world financial system so every one will band together to make an example of Greece if it leaves and defaults.

    I have no answer for it now as the current “solution” has obviously had the effect of turning a fire into a raging inferno.
    Grexit is now completely political as another dimension to a Grexit is that following the total collapse of the country it would become efrtile ground for middle and far east terrorist groups to move into guaranteeing Greeks steady food supplies in return for being allowed to live in Greece using it as a launch pad for attacks across Western Europe. I am certain the politicos are aware of this and so will probably keep making last minute backdowns on their ultimatums eventually creating a 2 speed Europe described by Forbin for purely political reasons as I am certain the EZ is doomed to complete failure in the next 10 years if it continues in it’s current guise.

    • Hi Noo2

      Actually it is the status quo which I think other countries should fear the most as Greece must be a fertile breeding ground for terrorism right now. As for Greece it may bring the “30 years of hurt” of the Three Lions song.

      Much better to start anew or as Orange Juice put it.

      Rip it up and start again
      Rip it up and start again

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