Analysis - If Greece falls, no one wants their prints on the murder weapon
The Rumble in Riga: How the EU Lost Patience With Varoufakis
When Yanis Varoufakis warned his fellow euro-area finance chiefs of the dangers of pushing his government in Athens too far, Peter Kazimir snapped.
Kazimir, Slovakia’s finance minister, launched a volley of criticism at his Greek counterpart, releasing months of pent-up frustrations among the group at the political novice. They’d had enough of what they called the economics professor’s lecturing style and his failure to make good on his pledges.
The others at the April 24 gathering in Riga, Latvia, took their cue from Kazimir -- they called Varoufakis a time waster and said he would never get a deal if he persisted with such tactics. The criticism continued after the meeting: eight participants broke decorum to describe what happened behind closed doors. A spokesman for Varoufakis declined to respond to their descriptions.
“All the ministers told him: this can’t go on,” Spain’s Luis de Guindos said the following day. “The feeling among the 18 was exactly the same. There was no kind of divergence.” The others who provided an account of the meeting in interviews asked not to be named, citing the privacy of the talks.
Varoufakis’s isolation raises the stakes, which include a potential default and keeping the euro indivisible. After more than five years as a ward of the European Union, Greece is virtually out of cash. The aid pipeline is shut until Prime Minister Alexis Tsipras, elected Jan. 25 promising to push back against budget cuts, bends to EU policy demands.
Alluding to the political conflict, Varoufakis borrowed a line from a 1936 speech by U.S. President Franklin D. Roosevelt. “They are unanimous in their hate for me; and I welcome their hatred,” Varoufakis said on his Twitter account on Sunday. The quotation is “close to my heart (& reality) these days,” he wrote.
Looming Payments
The breakdown came as Greece heads into a week of heightening fiscal tension. The first of two International Monetary Fund payments is due on May 6 and the government still doesn’t know if it has enough money to pay pensioners and state employees this week.
Varoufakis sought to squeeze aid from the rest of the euro area accepting the full slate of EU demands, a gambit rejected by the group’s leader, Jeroen Dijsselbloem.
Varoufakis described the talks as “intense” and said his country is ready to make “big compromises” for a deal.
“The cost of no solution would be enormous not only for us but also for all,” he said.
Varoufakis cut a lonely figure on Friday morning as he prepared for the meeting. The 53-year-old academic walked with no entourage through the lobby of the Radisson Blu Daugava Hotel clutching a mobile phone and a newspaper.
Pension Stalemate
In remarks to the assembled ministers, he defended protecting public pensions, a key sticking point in the negotiations. He threatened to walk away from talks if creditors pushed too hard.
When Dijsselbloem invited the group to respond, he was greeted by silence. He asked again, and Kazimir spoke up.
Varoufakis’s refusal to accept the conditions of its creditors particularly riled the Slovakian because his government has slashed the budget deficit and cracked down on tax evasion. His position also may have fallen on deaf ears among his hosts in Riga.
Latvia’s economy shrank by more than a fifth in 2008 and 2009 when the country was led by Valdis Dombrovskis, now vice president of the European Commission and a participant in the Friday meeting. Dombrovskis pushed through some of the world’s harshest austerity measures -- equivalent to 16 percent of gross domestic product. The Greek economy has shrunk by about a quarter since 2008.
Nobody believes that Greece will grexit. All this is a game meant to fool us
Germany says surprise Greek referendum plan shuts door on negotiations
Germany all but buried negotiations on Saturday to keep Greece from default, saying a surprise decision by Greek Prime Minister Alexis Tsipras to call a referendum had left nothing to discuss but how to cope with failure.
Worried the country could default and even leave the euro zone, some Greeks queued up at cash machines to withdraw funds, though there were no signs of panic in Athens. Many sounded defiant, saying Tsipras had offered them an important chance to determine their own fate.
Euro zone finance ministers met in Brussels for what had been intended as a final negotiation for a deal to rescue Greece from defaulting on a big debt payment on Tuesday, when an international bailout expires.
But after they were blindsided by Tsipras's surprise middle-of-the-night announcement that he rejected their offer and would put it to voters only after Tuesday's deadline, one after another said all that remained to discuss was "Plan B" - how to limit the damage of default.
"We have no basis for further negotiations," German Finance Minister Wolfgang Schaeuble said. "Clearly we can never rule out surprises with Greece, so there can always be hope. But none of my colleagues with whom I've already spoken see any possibilities for what we can now do."
Finland's Alexander Stubb called it "potentially a very sad day, specifically for the Greek people. I think with the announcement of this referendum we're basically closing the door for any further negotiations."
"There is pretty much a consensus inside the Eurogroup that we cannot extend the program as it stands and consequently I would argue that Plan B becomes Plan A."
Greek Finance Minister Yannis Varoufakis said he would press for an extension of the bailout to give time to hold the referendum.
"We are going to suggest to them that under these circumstances we should have an extension for a few weeks to ensure that the people are heard," he told Reuters.
But several of his euro zone counterparts appeared to rule out any such grace period. Germany's Schaeuble said: "Greece has left the negotiating table and so we are in a situation where on Tuesday the program ends, because there are no more negotiations."
With most Greek banks closed for the weekend, there was no sign of panic on the streets of Athens. Government officials said there was no plan to impose capital controls that would limit withdrawals.
But police tightened security around bank teller machines as lines formed at some in the darkness almost as soon as Tsipras's early hours televised speech was finished.
IMF's Lagarde says its preferable Greece moves toward reforms before debt relief prov
Comments from IMF head Lagarde:
- Preferable greece move toward reforms before Europeans provide debt relief
- Unclear where Greek negotiations stand
- Hopes Greek referendum provides more clarity, certainty about situation
- Says IMF balance sheet strong, solid despite missed Greek payment
Headlines via Reuters
EUR doing little (good morning and welcome to the Asian timezone ....)
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added:
Lagarde was asked if she trusts Greek partners ... she responded that the IMF has 'no choice' who represents a country. I.e. 'No'
Is This Why 'Europe' Is Now Trying To Crush Greece?
* * *To the Editor:
If, as Paul Krugman suggests, Greece leaves the euro and returns to the drachma, and if it is then successful at reconfiguring its economy and managing to re-establish a functional government that collects taxes and pays debts, wouldn’t this encourage other economically struggling states like Italy, Ireland, Portugal and even France to abandon the union?
Won’t a successful Greece show others that — much as many young people who cannot afford to pay their rent return home — they, too, can return to the way things used to be?
If Greece does what seems so difficult, won’t it encourage a dissolution of the European Union?
MARTIN BRAUN
New York
Simply put - Europe can't 'afford' anything positive to come of Greece...
Europe can nit aford anything any more - the boss have told them
NSA Leak Reveals Both Merkel And Schauble Saw Greek Debt As Unsustainable Even After Haircut
Several days ago, we posted a NSA cable leaked by Wikileaks, in which then French finance minister Moscovici (currently a European commissioner) was admitted that the French economic situation was "worse than anyone [could] imagine and drastic measures [would] have to be taken in the next two years." It has not improved since then.
Overnight, in another perhaps even more relevant to the current quagmire in Greece leak, Wikileaks has released another intercepted NSA communication between German Chancellor Angela Merkel and her personal assistant reveals that not only Merkel, but Schauble, were well aware that even with a debt haircut (which took place in 2012 but only for private creditors and whose impact was promptly countered with the debt from the second bailout) Greek debt would be unsustainable. Technically, she did not use that word: she said that "Athens would be unable to overcome its problems even with an additional haircut, since it would not be able to handle the remaining debt."
She was right. And yet here she is, telling Tsipras and the Greek people that all Greece needs is to comply with the existing program when she knows well by her own admission that Greece is insolvent in its current state - precisely what Syriza is arguing and demanding be part of any deal.
Because why bother making a deal if Greece will once again be in default a few months down the line, just as Varoufakis said earlier today.
But where it gets really humorous is where the cable notes that even "Finance Minister Wolfgang Schaeuble alone continued to strongly back another haircut, despite Merkel's efforts to rein him in... with IMF Managing Director Christine Lagarde described as undecided on the issue."
Fast forward to today and now Lagarde is decided, and the IMF admits a 30% Greek haircut is necessary. So, one wonders, why is Syriza getting hell for pushing what both Germany in 2011 and the IMF now admit has to happen in order to have a viable Greek nation. Unless, of course, they don't want a viable Greek nation, and instead want a vassal state that is constantly on the brink of collapse and thus creating enough systemic risk to constantly push the EUR lower.
Becuase, just in case anyone has forgotten, the real issue here is not the fate of Greece or even the rest of the PIIGS,but how can Germany continue enjoying a currency that is substantially weaker than what a far stronger, and export-crushing Deutsche Mark would be at this very moment.
Martin Armstrong: Troika Is Maneuvering To Rig The Greek Referendum
In a TV interview, Mr. Varoufakis said very clearly, “This is a very dark moment for Europe. They have closed our banks for the sole purpose of blackmailing what? Getting a ‘Yes’ vote on a non-sustainable solution that would be bad for Europe.”
I must admit, most politicians do not come even close to the truth, but Varoufakis seems to be the ONLY finance minister who understands the demands of the Troika are not plausible for any nation. Merkel has tried to skirt any responsibility by saying this is a Troika decision. One must seriously ask, are those in the Troika just totally brain-dead? Their blackmail and economic war against Greece will be evidence to ensure that Britain leaves the EU. The ONLY thing that saved Britain was Maggie Thatcher’s effort to keep Britain out of the euro for she knew far too well where it would lead. The view in Poland is also now anti-euro. Any Brit who now does not vote to get out of the EU and the grips of the Troika is ignorant of world events and the political power play going on.
The EU leaders will not travel to Athens until after the referendum. Suddenly they realize that their powers are so off the wall that they dare not expose their own schemes. Hollande of France wants a resolution for he fears a Frexit is gaining momentum. Obama wants a resolution, fearing Greece will be forced into the arms of Russia, breaking down NATO.
Yet through all of this, there is no hope because those in power are clueless. The Troika refuses to solve the euro crisis because they only see their own self-interest and assume they can force their will upon all the people. The Troika is doing everything in their power to rig the Greek referendum to make it appear that the Greek people want Brussels. The Troika deliberately closed the banks to punish the people of Greece, and to show them what exiting the euro means. This appears to be their only way of diverting the crisis with orchestrating a fake “YES” vote to economic suicide. The Troika will attempt to rig the referendum as they did with the Scottish elections. So expect biased vote counting in favor of a “YES” vote to stay in the euro. As Stalin said, “Those who vote decide nothing. Those who count the vote decide everything.”
The Troika Turns Europe Into A Warzone
So now they do it. Now the IMF comes out with a report that says Greece needs hefty debt restructuring.
Mind you, their numbers are still way off the mark, in the end it’s going to be easily double what they claim. Not even a Yanis Varoufakis haircut will do the trick.
But at least they now have preliminary numbers out. The reason why they have is inevitably linked to the press leak I wrote about earlier this week in Troika Documents Say Greece Needs Huge Debt Relief. If that hadn’t come out, I’m betting they would still not have said a thing.
It’s even been clear for many years to the IMF that debt restructuring for Greece is badly needed, but Lagarde and her troops have come to the Athens talks with an agenda, and stonewalled their own researchers.
Which makes you wonder, why would any economist still want to work at the Fund? What is it about your work being completely ignored by your superiors that tickles your fancy? How about your conscience?
Why go through 5 months of ‘negotiations’ with Greece in which you refuse any and all restructuring, only to come up with a paper that says they desperately need restructuring, mere days after they explicitly say they won’t sign any deal that doesn’t include debt restructuring?
By now I have to start channeling my anger about the whole thing. This is getting beyond stupid. And I did too have an ouzo at the foot of the Acropolis, but I’m not sure whether that channels my anger up or down. The whole shebang is just getting too crazy.
For five whole months the troika refuses to talk debt relief, and mere days after the talks break off they come with this? What then was their intention going into the talks? Certainly not to negotiate, that much is clear, or the IMF would have spoken up a long time ago.
At the very least, all Troika negotiators had access to this IMF document prior to submitting the last proposal, which did not include any debt restructuring, and which caused Syriza to say it was unacceptable for that very reason.
Tsipras said yesterday he hadn’t seen it, but the other side of the table had, up to and including all German MPs. This game obviously carries a nasty odor.read more
EU Preview: Nasty Odor in Euro Zone
It is doubtful whether Sunday's referendum in Greece will bring any relief from last week's chaos emerging in the euro zone as the result of the Greek crisis. Even with focus likely remaining on Athens, market watchers will wait for the BoE policy meeting, and some insight from the real economy, as major euro zone economies will report results of their industrial production.
Greeks will vote in a referendum on whether to accept creditors’ proposals for receiving more financial aid. The plebiscite follows a week in which the country failed to pay its dues to the International Monetary Fund (IMF), the international bailout program expired, and banks in Greece were closed due to the lack of liquidity.
Opinion polls ahead of the voteindicate the result is too close to call.
According to the Greek government, the referendum is a vote on the creditors’ proposals, mainly featuring increases in taxes of about €8 billion over the next two years and further austerity measures including cuts in spending, especially in the pension system. The creditors also insisted on committing to a primary budget surplus target (the budget balance excluding interest payments on debt) of 1% in 2015 and rising to 2% next year.
What has been more important, Athens' lenders showed no inclination for any further debt reduction or restructuring. Such a measure would mean a considerable haircut on their debt holdings. The official creditors -- the EU, ECB and IMF -- now own 90% of Greek state debt of €320 billion and amounts to more than 170% of GDP.
"A 'Yes' vote does not necessarily mean, in our view, that the current Greek administration would necessarily be replaced by a new 'creditor-compliant' government that would quickly sign up to any fresh proposals made by the creditors," Neil McKinnon of VTB Capital Research wrote in an analysis note emailed to clients on Friday.
"A 'No' vote implies that the creditors would think it pointless to resume negotiations with the Greek government. A Grexit would beckon and the ECB would pull the plug on the Greek banking system, which is close to insolvency."
The international credit ratings agency Fitch said in its analysis published on Thursday that the big four Greek banks would have already defaulted if it was not for the imposition of capital controls at the beginning of this week.
In the short term, a Grexit would undoubtedly have severe consequences for the economy. In the medium term, the Greek economy could somewhat recover, considering the over-all experience of post-default developments in Russia (1998) and Argentina (2002), McKinnon reminds.
Unsustainable debt
Currently, almost every economist agrees that the massive Greek debt load is unsustainable. On Thursday, the IMF said that Greece needed another €50 billion over the next three years to stay afloat. In addition, it also needed significant debt relief.
The preliminary assessment of the IMF's latest debt sustainability report shows the overwhelming scale of the problems facing Athens, whatever the outcome of Sunday's referendum.
And it is exactly the latest IMF draft report that points not only toward Greece's dismal state of affairs, but to much deeper problems in the euro zone and, broadly, in the European Union. There are innumerable unanswered questions.
Why go through 5 months of bitter talks with Greece, in which they refused any and all debt reduction or debt restructuring, and then come up with a report showing that the debt-ridden country desperately needs restructuring? Now the IMF explicitly says that it won't sign any deal that doesn’t include debt restructuring.
Anyway, the IMF has known this already for a long time, its former chief Dominique Strauss-Kahn admitted last Saturday.
Intimidation, blackmail and lies...
However, the bigger chaos and confusion come from the EU itself. Europeans have now seen Greeks lining up in front of ATMs, struggling grandmothers and grandfathers collecting their pensions at the shattered banks, the despair of the scores of unemployed youth forced to leave their country in search of better lives somewhere else.
Is that normal in a so-called advanced economy, in the Union that claims that "alle menschen werden bruder" in its anthem? How can they think that such scenes are not connected to their own lives? What happens to Greece may perhaps happen to any of us. They are part of the same Union.
And they also see Europe's political elite accusing their Greek counterpart of intimidation, blackmail and lies. And vice versa.
Despite the bad blood, the politicians left the door slightly ajar for talks after the referendum.
Whatever the outcome of the Greek crisis, one thing is clear: Europe badly needs some fresh air.
BoE monetary policy decision
- The Bank of England (BoE) will announce its Monetary Policy Committee’s (MPC) July decision on the benchmark interest rate and asset-purchase facility.
Policymakers will consider the need to leave borrowing costs at a record-low 0.5% as the economy shows positive trends, inflation concerns fade, and wage growth accelerates.
"The Bank of England is once again certain to keep interest rates at 0.50% at its July MPC Meeting which ends on Thursday," Howard Archer, Chief UK & European Economist at IHS Global Insight wrote in a note to clients on Friday.
"Even if the Bank of England was close to an imminent interest rate hike (which we doubt it is), it would be highly unlikely to act the day after the budget as the MPC will want to closely study Chancellor George Osborne’s plans and how they are likely to affect the growth and inflation outlooks."
Moreover, Archer also noted broader geopolitical considerations: "Wariness over just what will happen in Greece and how badly the rest of the Eurozone could be hit will also likely foster near-term caution within the Bank of England in raising interest rates."
"It is becoming increasingly less certain that the Bank of England will hold off from raising interest rates until 2016," he concluded.
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"We're going bust." "No, you're not." "You're strangling us." "No we're not." "You owe us for World War Two." "We gave already."
The game of chicken between Greece and its international creditors is turning into a vicious blame game as Athens lurches closer to bankruptcy with no cash-for-reform agreement in sight.
Europe's political leaders and central bankers and Greek politicians agree on only one thing: if Greece goes down, they don't want their fingerprints on the murder weapon.
If Athens runs out of cash and defaults in the coming weeks, as seems increasingly possible, no one wants to be accused of having pushed it over the edge or failed to try to save it.
Greece's leftist government has already identified its culprit of choice - Germany, Europe's main paymaster, accused of having inflicted toxic austerity policies on Greeks, causing a "humanitarian crisis".
Euro zone governments are preparing the ground to blame the novice government of Prime Minister Alexis Tsipras for having blustered, obstructed, failed to meet commitments and evaded hard choices while Athens burned.
"We are doing everything we can to save Greece from itself, but in the end, it's up to them," is the message pouring out of Berlin, Brussels and IMF headquarters in Washington.
Tsipras and outspoken Finance Minister Yanis Varoufakis tried at first to mount a coalition against Berlin, touring France, Italy, Britain, Brussels and media studios after their election. They found no allies outside the media.
Tsipras revived demands for reparations for the Nazi German occupation of Greece in 1941-44, which his government put at 279 billion euros ($303.5 billion) - more than its 240 billion euro bailout from the euro zone and the International Monetary Fund.
Berlin responded that it had already compensated victims and a 1990 agreement with the four victorious World War Two powers on German unification had put an end to war claims.
German Chancellor Angela Merkel has been careful to express goodwill and tried to build a relationship of trust with Tsipras while insisting Greece must meet its lenders' reform conditions, which include fiercely resisted pension cuts and labour reforms.
"Everything must be done to prevent" Greece running out of money, she said after talks with Tsipras last week. "On the German side, we are prepared to provide all the support that is asked of us. But of course reforms must be done," she added.
Investors briefly hoped her pledge might be a turning point, similar to European Central Bank President Mario Draghi's 2012 vow to do "whatever it takes to preserve the euro".
But Merkel's comments could also be interpreted as an exercise in pre-emptive blame avoidance. Unlike Draghi, she did not say who should do everything to stop Greece going bust.
Her finance minister, Wolfgang Schaeuble, is openly sceptical of whether Athens can avoid crashing out of the euro zone.
Angry euro zone finance ministers made clear they were far from a deal with Greece, rejected Varoufakis' plea for early cash in return for partial reform and told him they would not even discuss longer-term funding and debt relief until Greece signed and implemented a full reform plan.
While Greece's leaders insist Europe must heed and respect the democratic will of the Greek people, its creditors reply that they too have democratic mandates from their voters.
In Varoufakis' narrative, euro zone countries did not lend all that money to save Greece in the first place but to protect their own banks, which had imprudently lent Athens billions.
Nonsense, say euro zone officials. Those banks took losses in 2012 when Greek debt to private bondholders was restructured.
Varoufakis has widened the circle of blame to the ECB, accusing it of "asphyxiating" Greece by starving its banks of liquidity and severely limiting their short-term lending to the government.
That prompted an indignant response from ECB President Mario Draghi, who told the European Parliament the central bank's support for Greece amounted to some 110 billion euros, but it was barred by treaty from monetary funding of governments.
For weeks Greek officials have been telling their euro zone counterparts they have run out of money, only to find spare cash to make the next debt payment. "They have cried wolf so often that when they are really going bust, no one will believe them," one EU negotiator said on condition of anonymity.
Insiders say the ECB is determined that the central bank will not be the institution that pulls the plug. If it considers support for Greek banks is no longer tenable, it will seek a political decision by European Union governments.
"This is not something unelected central bankers should decide," a source in the Eurosystem of central banks said.
European Commission President Jean-Claude Juncker is eager to hold Tsipras' hand until the last minute in the hope that he will impose an unpalatable economic reform deal on left-wingers in his Syriza party before it is too late.
For Juncker, one of the fathers of Europe's single currency, the departure of a single member from the 19-nation euro zone would be a grievous blow to the bloc's global standing and could set a dangerous precedent, encouraging investors to speculate against other member states in future crises.
Even if it stayed in the euro zone, a Greek default on other European governments or the ECB would be one of the most acrimonious moments in the history of the European Union.
Amid mutual recrimination over ruined Greek savers and cheated European taxpayers, some fear demonstrations by Greek pensioners or hospital patients and violence in Athens.
If it happens, there will be plenty of blame to go around, but no one to take responsibility.
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