Is this The Final Countdown for Greece and the Euro?

In normal times we would be entering the usual summer lull just about now. Instead we find ourselves in what the military would call a target rich environment as we see more falls in Chinese equity markets and indeed commodity markets and more parochially today’s UK Budget.Of course the South China Territories (Australia) will be in the news later for sporting reasons as well as economic ones as the Ashes cricket series fires up. However some extraordinary events in Europe have taken centre stage one more time as the Greek saga finds ever more twists and turns.

The European Central Bank

The trend towards having a “mission statement” has spread even to central banks and the section relevant to the Greek crisis is shown below with the emphasis being mine.

The European Central Bank is responsible for the prudential supervision of credit institutions located in the euro area and participating non-euro area Member States, within the Single Supervisory Mechanism, which also comprises the national competent authorities. It thereby contributes to the safety and soundness of the banking system and the stability of the financial system within the EU and each participating Member State.

Thus we see that the ECB defines itself as the very model of a modern central banker. However we know that its behaviour in Greece has diverged from the ideals of its mission statement and this has reached what I consider to be extraordinary heights this morning. Let me hand you over to Christian Noyer who is also head of the Bank of France as well as being on the ECB Governing Council. From Daily FX.

ECB’s Noyer said it seems impossible for Tsipras to reopen banks now and the only possible solution for Greece is political accord.

So the ECB is trolling the Greek banking system now? Lest we forget its mission statement says that it is supposed to promote “safety and soundness”! Perhaps Monsieur Noyer will explain to us how encouraging a further bank run fits with that part of the ECB mission statement. How does he think that Greek depositors will respond to being told such news?

Actually he was not finished according to Agency-France Press (AFP).

“The Greek economy is on the edge of catastrophe. A deal absolutely must be found on Sunday because it will be too late after that and the consequences will be serious,” he told French radio, adding that “there could be riots… and chaos in the country”.

The air must be very rarefied at the top of the Bank of France because he appears un aware that the Greek economy has already seen quite a catastrophe. Perhaps Monsieur Noyer’s sub-conscious mind has blocked off thoughts of his part in this disaster due to it being too painful. He was clear however that the new deadline of Sunday will be the final one.

Our rules oblige us to stop immediately at that point when there is no prospect of a political accord on a programme, or at the point when the Greek banking system crumbles – which would happen if it enters generalised default on all its debts.

I am not sure I can ever recall a central banker threatening the banking system he or she is supposed to protect before but I think we can be pretty clear that all my warnings about the ECB not being a true “lender of last resort” have – sadly for Greece – come true.

European President (one of the five) Donald Tusk joined in with the rhetoric that is some countries would find the speaker in court for encouraging a bank run.

Our inability to find agreement may lead to the bankruptcy of Greece and the insolvency of its banking system. And for sure, it will be most painful for the Greek people.

It is revealing that the banking system gets a mention before the people of Greece as it would appear that the priority list goes French/German banks then Greek ones then maybe the Greek people. It also leaves the “independent” ECB in an awkward place as it supports what are political objectives. Indeed it is the “muscle” that is being applied by the Euro area to Greece.

Meanwhile Mr. Tusk might well mull the song of the same name and apply it to Greece.

Why don’t you ask him if he’s going to stay?
Why don’t you ask him if he’s going away?
Why don’t you tell me what’s going on?

The end is apparently nigh!

Sunday’s meeting is apparently it. From President Tusk.

But tonight I have to say loud and clear that the final deadline ends this week.

There has been considerable inflation in proclamations of final meetings on this subject to say the least! Some Might Say Definitely Maybe about that…..

The Greek economy

It is easily to forget amongst all the political machinations and power-plays the impact all this must be having on the economy of Greece. If you set out to crash an economy this is exactly how to do it. Raise all sorts of political and economic uncertainty, crunch the banking system and make dark threats about the future complete the set. Today’s official trade figures from Greek statistics confirm this.

The total value of imports-arrivals, for the 5-month period from January to May 2015 amounted to 18446,6 million euros (20444,0 million dollars) in comparison with 19454,2 million euros (26627,4 million dollars) for the corresponding period of the year 2014 recording a drop, in euros, of 5,2%.

The drop in imports accelerated to 10.2% in May which indicates what a squeeze is going in domestic consumption there. I fear for what the numbers from then to now will be and what they imply for the Greek economy.

Ironically this will improve the trade figures and via them the Gross Domestic Product data. But as we note that exports are flat (strictly 0.02% higher) we see that not only has there been no genuine or welcome boost but a disappointing performance considering the pick-up in the Euro area economy.

Greece has some market access

Something really rather extraordinary was released today by the Public Debt Management Agency. It was that some 6 month Treasury Bills were sold at a yield of 2.97%. Would you want only 2.97% to cover you not only Sunday but the likely turmoil and possible exit of Greece from the Euro area going forwards.

Some care is needed as this is in essence a roll-over and the Greek state is in effect only dealing with the Greek banks here but nonetheless it happened. It could be a race between both sides to see who declares insolvency first…….


This is a race which has had the bell rung on the final lap some many times that we would have 1500 metre runners completing a marathon by now. We find ourselves reviewing a Euro area establishment blaming the new Syriza government for just about everything having apparently wiped their minds of the period 2010-14 when they enforced policies which collapsed the Greek economy. Now they wish to enforce a new austerity plan which on the 23 rd of June would have this effect.

The impact will be to reduce GDP by 1.5% to 2% this year and to reduce it by 3-4% next year!

Just to add to the air of unreality Euro area leaders and officials continually tell us that debt restructuring is not a possibility for Greece. Makes you wonder why Greece would want to stay in the Euro doesn’t it? This returns me to my original policy prescription that Greece should leave the Euro and default and devalue. Sadly even such a move is less favourable than it was back then but as we stand it represents the only hopeful course of action in my opinion.


30 thoughts on “Is this The Final Countdown for Greece and the Euro?

  1. It seems to me that, since the whole political establishment (except KKE) has signed up to supporting Syriza’s attempts to deal the creditors in the wake of the referendum, the EU is fomenting such civil unrest in Greece in order to tempt the army into staging a coup d’état.
    They are gambling the European Union to beat Greece, and for what?
    Merkel and her gang wanted to continue to kick the can down the road long enough to end their careers “successfully”.
    It is, however, their stupidity which could end up in WAR.
    It was obvious that Greece was bankrupt in 2010, and would be unable to repay its debts.
    It was GLARINGLY obvious that Greece was bankrupt in 2012 & nowhere near able to repay its debts
    In both cases, their stupid answer was socialisation of private losses.
    Well all that has done is to set European against European, Greek against German, and has probably increased the likelihood of an “OUT” vote here.

    Self-serving, amoral idiots!

    • buzzin

      it was from the day one a political project and political decision to allow Greece in

      But we cannot unelected these bozos who took what could have been a good idea and SNAFU’ed it up

      who is held to account ?

      well as Bankers are impossible to convict here I’d say send them to Iceland

      why do you think our HMG hates Iceland so much ?


      PS: it will be a politcal desicion to fix the Greek issue – they can check put any time they like , but they can never leave!!

    • There is a massive political miscalculating going on by everybody on the left here. Their starting assumption is that: –
      1. The Greek debts cannot be repaid AND they are uniquely wise in spotting this
      2. Letting the Greeks suffer is undermining the EU

      … actually only the first half of the first point is correct. The rest is completely wrong.

      Greek debt cannot be repaid, but what you can do is keep rolling them up, pushing out deadlines and providing low interest loans which in effect amounts to reducing Greek debt! This is essentially what the eurozone are doing and has the advantage that it is politically more palatable in Germany and other creditor nations. It also puts pressure on the Greek government to reform (which is no bad thing either). Equally given there is no mechanism for fiscal transfers in the Eurozone its probably the best that can be done at the moment.

      This leads onto the second point, actually doing an adhoc fiscal transfer to Greece right now would do much more to undermine the EU than any amount of austerity in Greece. Why? Because It would upset every nation that’s put its citizens through austerity. It would send out the message to all member states that you simply need to elect a nationalist or socialists and you will get an ad-hoc fiscal transfer.

      Indeed you specifically mention the UK. I very much doubt the EU would get any more popular support if it were seen as a socialist union wasting money on nationalistic member states with no desire to reform. As things stand its lead to Owen Jones and various left wing blowhards speak out against the EU…. which is probably a good thing because they are wrong on everything and most of the public knows that anyway!

  2. Hi Shaun

    I know this is an economic blog but what this debacle shows is the almost complete bankruptcy of the EU project – not just the Euro.

    We have Merkel musing about the possibility of humanitarian aid the Greece; humanitarian aid to a member of a club of the World’s most developed economies! This is surreal! and just shows how dysfunctional the EU project has become!

    As for the economics there is no way that Greece can remain in the Euro unless it is subsidised by the rest; tell that to a German who will have to work until he is 68 to ensure that a Greek can retire at 50 and you see the utter absurdity of it all.

    However, this may not be the last act or even the penultimate act because the Eurocrats know full well that this show has done tremendous damage to the EU project and may well precipitate the ultimate breakup of the union. They will move heaven and earth to resolve this.

    I have long questioned what sort of Europe we will be asked to stay in by the time for the UK referendum comes around and, the more this farce/ tragedy goes on the more I think it may have changed somewhat by the end of 2017 or whenever.

  3. Brilliant article Shaun.
    I am thinking that down the line there may be a court action against the ECB and EU with the Court of Human Rights.
    What is being played out here is un-holy.
    Just hope Tspiras hangs on till they kick Greece out, which is what they have been planning all along.
    I believe that many Countries will help Greece in its hour of need.
    In my humble opinion the biggest loser of this debacle will be the EU itself.
    People have seen now exactly how un democratic it is. Who will be next.
    A United Europe, I think not, people all over will remember the treatment of Greece for years to come.

    • Hi Elaine

      Thank you and welcome to my corner of the web. As to lawsuits we have seen a few of them so far especially to the German constitutional court but the establishment has found ways of getting the answer it wanted. Also the ECB changes its rules rather often sometimes with not far off dizzying speed so it has hard to pin down. But you are right that much of what has gone on here has been wrong and some of it has been based on outright lies.

      As to the way it works well it reminds me of 1992 when the UK crashed out of the ERM and nobody came to our aid. I hope that Greece gets a similar result as things then turned for the better for us.


    The former Warsaw pact countries had much harsher economic reforms following their freedom from the Soviet Union. None of them received the billions Greece has. Even now the Average Polish wage is under 1000 euro, compare that to Greek pensions. Or try asking a Bulgarian teacher earning 250 Euro per month for to pay for Greece’s unwillingness to balance it’s finances.

    Default, devaluation and fiscal discipline worked in Bulgaria and Iceland. IMF technical help was valuable for Bulgaria. Greece wants to follow the same procedure, but the IMF’s involvement in the 2010 fiasco discredits it in the eyes of Greeks. Sadly this makes things even more difficult for Greece.

    Congrats Shaun, your calls for Greece to default in 2010 have been vindicated !

      • Yes – Scotland and it’s oil are in the EU, so put your money where your mouth is and contribute it to Romanian social welfare. Reduced benefit payments in Scotland, increases in Romania and you enjoy the socialist solidarity !

  5. Why the surprise about M. Noyeau. it’s in the name, you must expect nutty pronouncements. Have you heard Frau Merkel is printing the next batch of €50 notes on Greece-proof Paper?

  6. Hi Shaun,

    I not sure that either party wants a deal and they are both maneuvering to try and place themselves on a higher bit of the moral low ground! The Troika where they have finally realised that Greece is going to be a never ending money pit and the Greek Government where it may be the case that they will personally be very well rewarded for causing the biggest EU crisis in its history. The Greek government where they are facing a major crisis seem to be very laid back about doing much about it in a timely manner, like when people have a preferred plan B?

    At the end of the day, the Greeks were lent the money on the basis of reforms by the Troika and what I don’t understand is why so much money has been released to them for so little in return, until you think letting French and German banks off the hook. Other countries when they have not complied with the IMF medicine of reforms have simply been refused any further money until they do.

    Greece as a country always was and always will be an unsuitable candidate for the constraints of the Euro and it is now a question of how long and how much before they crash and default.

    • Hi Rods

      In the end the operations of what were called the troika and are now called the institutions were a cynical effort at deception. They used the infamous “on track” phrase to convince their taxpayers that Greece was improving for long enough to allow their banks to escape. The Euro area taxpayers have not only been deceived about the truth they are left holding the bill. A very unpleasant strategy indeed.

  7. Hi Shaun,
    I think one of the most important points you make Shaun is the one about the role of the ECB in the Greek crisis. The body in charge of monetary policy killing one of its own members surely will scare any other stable country from joining and might lead to some countries leaving the EZ. It really is a scandal to see this happening as the citizens of Europe were mostly skeptical about the Euro, I lived in France at the time and most of the people I spoke to were not in favour of the Euro but had no way to express the views. In Ireland the people voted twice against treaties they were uneasy about, yet these treaties were still rammed through.
    Here as some lyrics from a hellacopters song called nothing terribly new which sums it all up.

    I may not be clever I may not be wise
    but a deaf, dumb and blind man would see through the lies
    They say hang on tight- the future brings hope
    but we`re all hanging at the very same end of the rope
    They keep preaching the same gospel the do`s and the don`t`s
    Man says he will but man you know he won`t
    It`s nothin` new
    Best listened to on spotify
    Thanks for all the great blogs, I am a daily visitor,

  8. Great column, Shaun, as usual. It is a target-rich environment indeed. I just got issue #41 of the Canadian satirical magazine Frank in the mail. It speculates on CBC News boss Jennifer McGuire being fired over the Evan Solomon scandal: “When Evan Solomon told the Corpse [as Frank likes to call the Canadian equivalent to the BBC] in April that FourTProductions, the company he owned with his wife, was involved with ‘an art dealer,’ his disclosure landed on the des of none other than McGuire…Given the CBC’s recent controversial history (Ghomeshi, Lang, T-Rex, et al) [all CBC media scandals; the latter two involved CBC media personalities also involved in conflicts of interest, who have kept their jobs], you’d think McGuire would have her bullshit detector dialed up to 11. But when Solomon said there was no conflict of interest, well…that’s alright then! No further questions. Nothing to see here. Carry on.” Of course, Mr. Solomon was involved in an obvious conflict of interest in selling to the Governor of the Bank of England, and Governor Carney was also involved in a conflict of interest in buying art from someone who had interviewed him several times and spoke effusively about him to the Financial Times while he was waiting to take over at the Bank of England.

    Frank goes on: “Now CBC supremette Heather Conway is looking for a patsy, and as she doesn’t much care for McGuire anyway, the wheels are being greased”. It would be strange indeed, if this scandal takes down not only Evan Solomon but Ms. McGuire while Mark Carney never even gets asked about it by the British press. No-one asked him anything about it at the press conference for the Financial Stability Report on Canada Day, even though one of the sections of the report was labelled “Misconduct”.

  9. Thanks for your reply dated 9 July Rods2 but it does 2 things that you don’t seem to be aware of:

    1. It demonstrates that Greek part time workers work much longer hours than German part timers (besides the obvious that Greek full timers work slightly longer hours)

    2. Given that the 2 sets of data from Therrawbuzzin’s source and the ONS contradict each other so comprehensively, notwithstanding the 2 year gap between the 2 sets of data, it calls into question one more time the reliability of “statistics” which is what I was really getting at with my question to Bob J.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.