Today as on so many days it is fair to say that Greece is the word to misquote the Gibb brothers. The situation seems to stumble on with both sides seemingly unable to comprehend the other as the deadline of June 5th for the next repayment to the International Monetary Fund (IMF) gets ever nearer. Over what was a holiday weekend in the UK and other parts of Europe the situation saw a couple of Greek ministers add to the rhetoric. First the Interior Minister give us his view on Sunday. From the Guardian.
The four instalments for the IMF in June are €1.6bn.This money will not be given and is not there to be given.
This began to look ever more like a part of the play Can’t Pay? Won’t Pay! By Dario Fo. The fevered atmosphere was added to by the Energy Minister Panagiotis Lafazanis who told us this.
It would not be a catastrophe to exit the euro, (nor) a terrorist act not to pay the next instalment to the IMF.
He and his Left Platform group took matters further by suggesting this according to the New York Times.
A faction known as the Left Platform proposed that Greece stop paying its creditors if they continue with “blackmailing tactics” and instead seek “an alternative plan” for the debt-racked country.
They lost 95-75 but that indicates that there is already a fair amount of support for such views.
The Euro area establishment
They have a type of push me pull me attitude to this. The push me is the way that they opened the bailout of Greece according to US Treasury Secretary Timmy Geithner. From the Financial Times Brussels Blog.
I said at that dinner, that meeting, you know, because the Europeans came into that meeting basically saying: “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,” was their basic attitude, all of them….
A completely different attitude to the “Shock and Awe” public proclamations of individuals like the then French Finance Minister Christine Lagarde is it not? Indeed even the fromer Treasury Secretary was surprised at how long this went on for.
I completely underweighted the possibility they would flail around for three years. I thought it was just inconceivable to me they would let it get as bad as they ultimately did.
The other side of Euro area policy is a strong pull towards federalism which has been seen overnight in the new Franco-German pact which has suddenly appeared. Another was of looking at it is the fact that it is the unelected European Commission President Jean-Claude Juncker currently negotiating with UK Prime Minister Cameron. Mind you with the election results in Spain and Poland the Euro area establishment is looking ever more like some form of Ancien Regime. Perhaps like the Irish the British,Spanish and Polish will be asked to vote again until they give the “right” result.
Panic at the IMF and ESM
Another factor at play is the bailout mechanisms themselves who are beginning to some to terms with the fact that the proclaimed genius of an “off-balance sheet” approach faces the IED (Improvised Explosive Device) of a default. This is presumably why the head of the European Stability Mechanism Klaus Regling has been opining in Bild today.
Also a non-payment of a tranche to the IMF would be dangerous. That would have implications on other creditors like us.
As Klaus is a regular boaster about the lending given to Greece it will be a case of the biter bit if it does not repay.
So far, the EFSF has disbursed €141.8 billion in financial assistance to Greece. (as of February).
Back in February Klaus Regling gave Greece another four months as the can was kicked to June 30th. But now in his quieter moments Klaus will be mulling how he will explain to Euro area taxpayers he lost some or much of their money as he morphs from a self-proclaimed financial genius to more of a financial terrorist. Such news will be particularly unwelcome in Italy (19.22%) which has its own risk of default which would be exacerbated by sourness in the loans to Greece. On that day the word “Stability” in the European Stabilty Mechanism would become an oxymoron and might not need the oxy bit! As well as refining its entry in my financial lexicon for these times.
Still perhaps Klaus Regling can get some solace from listening to Muse as he told us.
Time is running out
Perhaps for you too Klaus.
A Strongly Worded Letter
Fan of the Yes Minister series will be aware that the response of the apocryphal civil servant Sir Humphrey Appleby to even the most dire circumstances was a strongly worded letter. Surely that was satire and jest?!
Here is the IMF response to non-payment
Staff sends a cable urging the member to make the payment promptly;
But wait there is more as after two weeks it sends this.
Management sends a communication to the Governor for the member stressing the seriousness of the failure to meet obligations and urging full and prompt settlement.
Six weeks?
The Managing Director notifies the member that unless the overdue obligations are settled promptly a complaint will be issued to the Executive Board.
So it would appear that what was considered satire is in fact reality as the IMF would send a succession of ever more strongly worded letter to Greece. At this point the critique offered by Josef Stalin of the Pope comes to mind.
The Pope? How many divisions has he got?
As of the date of the IMF review of “overdue financial obligations” in August 2012 it has around 1.3 billion Special Drawing Rights of them. Greece according to the IMF website currently owes some 17.4 billion SDRs. Who wants to explain losses on those to places like China and India who in recent times have been taking a larger role in the IMF? As to the UK our share is 4.5% but the United States retains much the largest share at 17.7%.
What is happening today?
Greek Finance Minister Yanis Varoufakis is meeting his Euro area counterparts again. He must have a lot of frequent flyer and hotel booking points! But the situation seems as log jammed as ever. He has written an article in Italy’s Il Sole saying that austerity is out but Greece is willing to reform. On the other side of the coin the Euro area establishment seems to have been suggesting a rise in the rate of Value Added Tax to 23%. That is breathtaking when we consider the contractionary effect on the economy of past rises!
There is plenty of advice available as this from Louise Mensch indicates.
Greece after all is beautiful fertile and full of treasures. She has assets, if bought by Germany or others. Why not do that? Anyone?
When I enquired as to whether she could see any problems in Germany buying up Greece she replied thus.
@notayesmansecon well what could go wrong with Germany giving Greece loads of money for sod all?
Those “assets” depreciated fast!
Comment
This saga has so many contradictions with both sides simultaneously needing a deal and making efforts to make one impossible. To my mind the Euro establishment and the IMF are playing with a very weak deck of cards as they have lent the money and as the strongly worded letter episode indicates have no real way of enforcing it. The Euro area could expel Greece but that would represent a failure for its federal plans. Accordingly I expect it to blink first but then as that poor battered can gets another kick there is this.
The world is drowning in debt, warns Goldman Sachs
Well if somewhere is drowning in debt right now it is Greece with its national debt to GDP ratio of 175% and rising. After all Goldman Sachs should know that as it helped to put it there. But another episode of can kicking would put Greece in even more debt although it would allow the IMF to exit the scene and leave the debts in the Euro area.
Ironically therefore the best thing for Greece would be what would be called an accident as it would then be free to start again. After all you cannot run a country at weekly or fortnightly notice. But Syriza has also failed so far as if it was going to default it should have already done so. The status quo has involved everybody apart from the banks losing….
Meanwhile some form of capital controls appears ever more likely.
Varoufakis wants 15% tax on (interest) on deposits abroad. (h/t @TradeDesk_Steve )
Notayesmanseconomics's Blog 
Excellent assessment again,m Shaun. I believe the next holiday in Greece is June 1… will that be the in or out day, I wonder?
I postulated Pentecost some months ago.
hello Shaun ,
The status quo has involved everybody apart from the banks losing….
umm, what solution for the Greeks will allow the Banks not to loose and for Greece to become rich again ( or atleast not bankrupt ) ?
anyone ?
just keep kicking that can then ……
the Banks are still bust , so now are Western governments and their tax payers ……. if the Greek issue is not solved by massive QE injections then the edifice falls……
Forbin,
Brent drops a little on profit taking but the trend this year is upwards – seeing possible $70
at that price some of those fracked wells will be coming back online – we shall see 🙂
Hi Forbin
A default and devaluation kind of fits your theory as of course the banks passed the vast majority of their problems onto the Euro area taxpayer and the IMF. Thus for Greece to win the other Euro area taxpayers will end up paying for it….
As to crude oil is it now trapped in a range? It seems to have some upwards pressure as you say but rises from here will see the scale of fracking increase again thereby holding it down. The better phase for sterling against the US Dollar helps us in the UK as the drop from 1.70+ to the mid 1.40s was expensive.
Hi Shaun
Greece is like Dallas in the eighties which started off as fairly straight but eventually descended into Pam(?) being abducted by aliens. We must be getting quite near to the alien abduction stage now with Greece as tragedy descends into farce.
Grexit to my mind is inevitable and has been for some time; the Eurocracy are more concerned than they admit but this saga cannot continue forever with the progressive impoverishment of the Greek peoples (are we headed to an ever closer union of despair?).
Re Goldman Sachs telling us the World is drowning in debt I’m on the point of telephoning my doctor – my ribs hurt through laughing!
You have to give it to these people – the chutzpah!
Hi Bob J
The Vampire Squid is on the march with Mark Carney at the Bank of England and Jim O’Neil now seemingly almost everywhere. What could go wrong?
Greece of course can tell a tale of the influence of the Vampire Squid. As to Dallas didn’t someone die in the shower only for it to be later transformed into a dream? The Greek bailout has been like that if you replace dream with nightmare.
I say again. I agree with the general tenor, but the present Greek Government was elected on a platform of NOT exiting the euro. Advice to it on what it should do has to deal with that, as it certainly does.
James that is correct
but their pollies need to come clean on this and have another vote – or resign
the united states of europe or the Franko-German Empire will not force an exit
it’s Hotel California – you can never leave……..
until the rest of the USof E gets fedup or the people revolt ? why do we see such lack of leaderships
interfering Banks like Golden Sacks? theres money still to be made for them
Forbin
A referendum. Now. Minds on all sides would focus . The issues, including the underlying, unmentionable (except in blogs like this) issues, would surface, widely, get a proper public airing. The Greeks would have to decide what they want.
agreed but will they ? I dont think so
F.
Isn’t that why they can’t jump, James – they have to be seen to be pushed. Then Yanis can claim it wasn’t the Government’s fault.
Hi Eric
Do we not hit a problem here? Everybody wants to be able to go back to their electorate and say it was the other side’s fault!
Hi Shaun,
I like your diggings, lots of intersting asides. I don’t feel it is the right time to sort out the debts which means that we need to kick the can again. What will be interesting is the narrative that accompanies it, let me guess:
1) “The Greek people have suffered and deserve our continued support”
2) “The Greek economy is positioned for a turning point in 2016, despite our earleir ambitions we think there are real prospects if we keep them in the union a while longer”
3) “The IMF have taken too larger role in what is Euro area issue, the club of Europe will use QE money to extricate the IMF from this difficult position and take responsiblity for it’s own members”
4) A new social-contract that enrols the young and disadvantaged of Greece in a new-start deserves European support, this together with the new lowered austerity settlements of the main population provide a real chance for change.
…we shall see.
Paul C.
re-write part 3
3) “The IMF have taken too larger role in what is Euro area issue, the ECB will now take over responsibility for it’s own members along with stronger , closer fiscal union”
There , a bit more like it .
Forbin
Well done Forbin, you could be the mouthpiece of the EU with that kind of writing, if only you would sign-up for the civil servants lot instead of scoffing pop-corn. 😉
A deal is not possible; one side has to capitulate.
The only things blocking a deal are pensions entitlement and labour “reform”, and they are red lines for both sides, even if the Brussels Group will not admit it, as no labour “reform” in Greece, no labour “reform” elsewhere.
Reform is in quotes because reality is the troika wants Dickensian labour conditions.
if the troika want ” Dickensian ” labour laws then they should be all fired for the crooks they are
if they want labour laws like Germany /France then the Greeks should do so
same as to adopt their corruption laws and the like
now that would be an interesting thing to see
Forbin
Hi Shaun,
I’m not a lawyer, but I’d guess that the Greek PM can VETO any changes permitting Greece’s ejection.
Financially the ECB can refuse extra credit and void Greece’s ECB voting rights. To quote Tammy Winnette “That don’t impress me much”
Hi ExpatnBG
That is an interesting thought! You would think that this would have been covered off but of course the Euro area planners were only thinking of expansion. As to the ECB it likes unanimous votes but would presumably find Greece alone in its opposition unless of course Cyprus joined it. If it wanted to be really sneaky it could have a vote in the 4th or 5th meeting in 2016 when neither of those have a vote. That opportunity in 2015 has already passed it by.
Wasn’t it Shania Twain by the way?
Doh! Homer Simpson
Hi Shaun, I’ve been monitoring this building storm since January.
I think it’s a show stopper, clearly, the Troika did the bailouts to allow the exposed European banks to dump their Greek bonds and the ECB now boasts that any default may be contained – really? Now comes QE (when it’s not required) or maybe it is if the ECB anticipates Grexit with the attendant liquidity squeeze that will cause and the ECB will be there, finally delivering on it’s “anything it takes” promise. Will it be enough? I worry about the global repercussions and loss of confidence.
I wass reading areport a couple of weeks ago which said the Greek Government had raided all it’s local Government coffers to pay the end of Masy civil servant and pensioner payroll, after that there’s nothing. This month seems to be the crunch month – either Greece defaults or someone blinks and I have no idea which is most likely, have you?
Meanwhile in another area of disagreement it is now too late for Grexit – the Greek people will simply die. It should have been done any time before 2013. One final thing – On the other side of the coin the Euro area establishment seems to have been suggesting a rise in the rate of Value Added Tax to 23%. That is breathtaking when we consider the contractionary effect on the economy of past rises!” Unfortuinately, I’ve seen language like this in the IMF WEO April edition and in Country specific reports and countries generally seem to take the view that if the IMF says it’s OK then it must be OK…..
Hi Noo2
I think that both sides are like unguided missiles like now with one side out of cash and the other thinking it can raise VAT without what it did last time. So whilst I expect a blink or two they may well not be enough this time around.
Why would the Greek people die with Grexit? They default and devalue and in essence press the reset button. At least that way there is some hope…
The EZ will exact it’s revenge and who else could Greece trade with in any real volume? Asia maybe, the US at the outside, but what can Greece do that any of these countries want?
who else could Greece trade with in any real volume?
Russia.