Galbraith on Greece

[gnk]

Re: Greece / Suicide Rate Surges 35% In 2 Years

Here in Greece, we're in full-blown circus mode. I'm watching Parliament debate the issue of a referendum. Meanwhile, the Eurogroup today will decide if Greece gets a 5 day extension.

Without the extension, a referendum next Sunday is pointless. Greece would have already defaulted after Tuesday, capital controls implemented, the ECB cuts ELA, that is supporting the banks, and Greece is on its own.

[jpatter666]

Re: Greece / Suicide Rate Surges 35% In 2 Years

Here in Greece, we're in full-blown circus mode. I'm watching Parliament debate the issue of a referendum. Meanwhile, the Eurogroup today will decide if Greece gets a 5 day extension.

Without the extension, a referendum next Sunday is pointless. Greece would have already defaulted after Tuesday, capital controls implemented, the ECB cuts ELA, that is supporting the banks, and Greece is on its own.

“Greeks will vote on an offer that is no longer on the table…Time for Plan B,” -- unnamed ECB official
Also, all 18 countries apparently need to agree to the extension. Good luck with that by Tuesday.
I'm hearing that the Greeks are in shock -- didn't think it would really come down to this. What's the local atmosphere there gnk? Thanks for the on the ground updates.

[dcarrigg]

Re: Greece / Suicide Rate Surges 35% In 2 Years

“Greeks will vote on an offer that is no longer on the table…Time for Plan B,” -- unnamed ECB official
Also, all 18 countries apparently need to agree to the extension. Good luck with that by Tuesday.
I'm hearing that the Greeks are in shock -- didn't think it would really come down to this. What's the local atmosphere there gnk? Thanks for the on the ground updates.

We're really seeing it come to a head now. Capital markets and ratings agencies are going to dole out maximum punishment no matter what. The way I look at it, either Tsipras can lead or he can passively accept failure. And few leaders ever choose the latter option. Little reason left if the Grexit happens not to simply declare all debts of Greece while it was party to the single currency null and void and stop paying banks entirely. Take what you would have handed them and invest as much as possible in the military and suck up to a new big brother, since the banks are liable to try to come looting to recoup losses.

No matter what happens, looks like the shape of Greece's 'new normal' is going to be decided this summer.

Total Greek debt is only equal to about 6 months of US military spending. It could be smart for Tsipras to play up the potential Putin friendly angle. Risking an 11 million person ally in a strategic location over a couple billion dollars - especially when Erdoğan's acting squirrely in Turkey - is a stupid move for NATO. Maybe once the brass stars start seeing things that way, someone will smack a little sense into the pinstripe penthouse boys.

[don]

Re: Greece / Suicide Rate Surges 35% In 2 Years

Total Greek debt is only equal to about 6 months of US military spending. It could be smart for Tsipras to play up the potential Putin friendly angle. Risking an 11 million person ally in a strategic location over a couple billion dollars - especially when Erdoğan's acting squirrely in Turkey - is a stupid move for NATO. Maybe once the brass stars start seeing things that way, someone will smack a little sense into the pinstripe penthouse boys.

When has the hegemon since the end of WW2 allowed an underling independence? Greece threatening to begin a breakup of NATO - Greece, a geopolitical linchpin - can only mean regime change. A safe assumption is the jackals are now in-country. Will Athens kneel or be martyred?

[Woodsman]

Re: Greece / Suicide Rate Surges 35% In 2 Years

... It could be smart for Tsipras to play up the potential Putin friendly angle. Risking an 11 million person ally in a strategic location over a couple billion dollars - especially when Erdoğan's acting squirrely in Turkey - is a stupid move for NATO. Maybe once the brass stars start seeing things that way, someone will smack a little sense into the pinstripe penthouse boys.

The last independent European leader whose loyalties to NATO were suspect didn't do so well.

[dcarrigg]

Re: Greece / Suicide Rate Surges 35% In 2 Years

The last independent European leader whose loyalties to NATO were suspect didn't do so well.

Touche. You and Don got a point there.

[dcarrigg]

Re: Greece / Suicide Rate Surges 35% In 2 Years

When has the hegemon since the end of WW2 allowed an underling independence? Greece threatening to begin a breakup of NATO - Greece, a geopolitical linchpin - can only mean regime change. A safe assumption is the jackals are now in-country. Will Athens kneel or be martyred?

Piketty had an interesting take on this situation in Die Zeit today. [Sorry, not English]

He titles it "Germany has never paid."

He reminds Germany that their economic miracle (Wirtschaftswunder) began in 1953 when Germany's war reconstruction debts were forgiven and/or restructured. Basically says you can do for Greece what the Allies did for you and pass forward a favor, or you can let a disaster happen.

Not new news by any means. But something good to remember. We have not always been so unforgiving.

[astonas]

Re: Greece / Suicide Rate Surges 35% In 2 Years

I suspect Piketty might be asking for something that is already in the works, perhaps even baked into the mysterious "Plan B".

I think Germany will still assist Greece in minimizing the extent of any humanitarian crisis, and that will probably include direct financial transfers or writing off large chunks of remaining debt. The issue from the germanic perspective was never as much about getting their money back as about ensuring that whatever "Europe" it was in (however large or small that winds up being) plays by the rules they see as essential for long-term economic success. That's precisely why they didn't see Grexit as being such a big threat. Yes, of course all the money owed them would be lost, and that would cause huge short-term turbulence. But their principles would be retained in full, perhaps even strengthened, in the Europe that eventually remained. And that's the part they care about.

It is the nations that have a stronger anglo-saxon monetary culture that are driving the demands for repayment, while the ordoliberal germanic ones have been obsessing about retooling Greece's structures.

A Grexit would mean that those weak structures would no longer have a direct long-term impact within the Eurozone. So as far as the germanic block is concerned, they would no longer have any remaining fundamental conflict with Greece, and would therefore be free to act more charitably concerning the mere money. For them, the governing principles were primary, and the actual money secondary, if not tertiary.

From the Anglo-Saxon perspective, however, the money IS the central conflict. This is why the US in particular has been lobbying so hard (and also so unsuccessfully) to avoid this very proximity to a Grexit. Protecting their banks is their substitute for principles. Grexit resolves the conflict of principles between mediterranean and germanic, at the expense (literal and figurative) of the anglo-saxons' "principles" (lenders).

Having thus resolved to their satisfaction the current manifestation of this conflict of principles with the south, I would expect that Northeastern Europe will pretty much accept the fact that they aren't going to get the money owed with comparatively good graces, or at least resignation. For one thing, that would infuriate the anglo-saxons further, which they're probably more than happy to do.

In the struggle for determining the monetary culture of a united Europe, it is not just the mediterranean culture, but also to a lesser extent the anglo-saxon one, that gets dealt a blow by a Grexit. Britain (especially the political elements driven by the City of London) might just increase the volume of their recent fits. If so, an EU Brexit may eventually follow the EMU Grexit, leaving a largely germanic monetary culture in a smaller Europe. (Imagine those Merkel-as-Hitler posters that were seen in Greece appearing next at UKIP rallies, to summon a mental image of what I'm describing.)

If France and Britain can finally find common cause again, the story could end differently. Unfortunately for the anglo-saxon perspective, those nation's leaders' relationship with one another is not exactly at its best.



There were three monetary cultures trying to rise to dominance in Europe. A grexit essentially takes the mediterranean one out of the running for dominance (and perhaps even relevance). The remaining question would be how the other two (germanic and anglo-saxon) would continue the reduced struggle, or alternatively, find compromise.

Within this framework, I would to first order expect each to try to insinuate that the majority of "blame" for grexit lies with the other, perhaps even through a competition to appear generous to the now-even-more-troubled Greece.

Generosity to a Greece within the Eurozone was impossible for both these parties. It would have compromised their interests in the overarching struggle to define the texture of Europe. But that is a separate question entirely from what generosity is likely to be available after a Grexit. In the second case, actions taken no longer set precedents for how Europe will resolve internal conflicts, but rather set precedents for how an eventual united Europe should respond to external friends in distress.

The playing field changes considerably, with the elimination of a player, and so will the strategies.

Plan B is ready. We haven't seen what it consists of yet.

It'll be interesting to see exactly how it unfolds. Piketty may or may not get everything he's asking for. But I think that the thrust of his argument won't be ignored. (Though, strictly speaking, his exact argument should be.*)

* This is more of an aside to the question of Greece, so I've set it in quotes to make it easy for people who tire of my pedantry to skip. (It's mostly on how Picketty really steps in it during the interview dcarrigg kindly linked. I've never seen such rubbish.)

Saying the Wirtshaftswunder began by forgiving German debt in 1953 is simply factually wrong. My reading of the interview you linked is that even Picketty doesn't go quite so far as to make this false claim explicitly. Perhaps he knows it is incorrect.

Instead, he words his statements very carefully, referring to a timespan starting in 1945 to an approximate "ten years later" as one including both amazing growth, and debt forgiveness. This misleads the reader, but isn't quite specific enough to be an outright lie. Here's his exact words:

Der deutsche Staat war nach Ende des Krieges 1945 mit über 200 Prozent seines Sozialproduktes verschuldet. Zehn Jahre später war davon wenig übrig, die Staatsverschuldung lag unter 20 Prozent des Sozialprodukts. Frankreich gelang in dieser Zeit ein ähnliches Kunststück. Diese ungeheuer schnelle Schuldenreduzierung aber hätten wir nie mit den haushaltspolitischen Mitteln erreicht, die wir heute Griechenland empfehlen. Stattdessen wandten unsere beiden Länder die zweite Methode an, mit den drei erwähnten Komponenten, inklusive Schuldenschnitt. Denken Sie an die Londoner Schuldenkonferenz von 1953, auf der 60 Prozent der deutschen Auslandsschulden annulliert und zudem die Inlandsschulden der jungen Bundesrepublik restrukturiert wurden.

The turnaround, the growth explosion, of the Wirtshaftswunder is usually listed as being from 1949-1955. He uses the range 1945-1955, though he blurs the last date with a vague description. But the debt forgiveness happened in 1953. What Picketty doesn't mention is that at that point, the economy had already begun shifting toward a more stable and sustainable growth pattern. Picketty is stretching the facts to the breaking point, deliberately using the "ten years later" time range, when a more precise description would clearly make the point opposite to his own:

He's insinuating that growth was caused or aided by debt forgiveness. Being more clear and precise shows that almost the whole of the turnaround happened in spite of the presence of the full load of debt, which even he states was far greater, percentage-wise, than that of Greece today. 200% of GDP.

Clearly, debt forgiveness could not have caused an economic expansion that largely preceded it. The debt forgiveness did not travel back in time by eight years, to stimulate the economy. But that is exactly the proposition, made in response to the previous question, that he is defending in the quote above.

There may be a valid point to make in terms of a moral argument. But he certainly hasn't made a valid economic argument here. His own facts, when parsed in detail, prove his assertion to be dead wrong. Furthermore, his wording is so carefully not-quite-a-lie that it is hard to imagine he doesn't know this.

His only remaining argument is that debt forgiveness is always morally equivalent, and Germany has in the past had debts forgiven. But one has to ask: Is the tortured language in the above quote consistent with the author being a valid arbiter of the moral equivalence of two situations? He is not able to achieve consistency with his own cited data!

I haven't read Piketty's book yet. I was actually rather predisposed to like it, to be honest. The thesis did not seem too crazy to me. But the obvious misrepresentations in this interview have caused me to have serious doubts about his intellectual honesty.

[jk]

Re: Greece / Suicide Rate Surges 35% In 2 Years

here come the capital controls
Greece Will Close Banks to Stem Flood of Withdrawals

When Greek officials huddled before Mr. Tsipras addressed the nation, it had not yet been decided how long the banks would remain closed or what cap would be placed on daily withdrawals from A.T.M.s, according to a person briefed on the discussion. But the person, who was not authorized to speak publicly, said that the daily limit could end up as 50 euros.

[lektrode]

Re: Greece / Suicide Rate Surges 35% In 2 Years

and.. things are really heating up over at 0C

Reuters is also reporting that the Greek stock market will not open on Monday

Ahead Of The Open: Deer In Headlight "Traders" Pray For The Plunge Protection Team To Arrive

EURUSD Opens Down 150 Pips, Breaks To 1.09 Handle

and - just to keep things REALLY interesting (and wondren what the backroom boyz are betting/shorting on)

Goldman Explains Who Gets Stuck With The Bill When Greece Leaves The Party

[gnk]

Re: Greece / Suicide Rate Surges 35% In 2 Years

Tsipras does not represent 100% of the people. To some Greeks, he is a savior, to others, the antichrist.

Too many people are generalizing here.

Anyway, life is getting difficult here for many. But I live on an island, not Athens. Athens is another story. It's getting crazy there. Gas station lines, supermarket chaos, and still lines outside closed banks as pensioners wonder when will they get paid.

This should have never reached this point. Greece is staring down two paths, one much worse than the other. And to think, things were improving last year.

I have spoken to many people here about the referendum. There is a lot of confusion, many have no idea what the yes/no really means and what the consequences are. I think by week's end, there will be a clearer picture. Either people come to their senses and vote yes, or the populists stir up some manufactured patriotic duty to fight the Germans.

Tsipras, I fear, is really just a Chavez in the making, a 40 year old Marxist with a Messiah complex. But whatever he is, his career will end badly. The question is, how much damage will Greece suffer as a result?

Here's the real story for all you "bankster v. people" bloodthirsty viewers:

Greece is a net importer. If it goes drachma, what do you think the value of that drachma will be especially after the antics of this Marxist government? How will Greece pay for two of its biggest imports: petroleum and pharmaceuticals? Will we have price controls?

All you cheering the "bankster" conflict in Greece need to get a grip. It's much more nuanced, and Greece right now is not some David fighting Goliath. There are real repercussions here, and people will pay dearly for them.

So, to the the bloodthirsty viewers eagerly watching chaos unfold: get a grip, do something useful, and fix the country you live in.

This is the best take I have seen recently: http://www.bloombergview.com/article...e-of-disasters

[don]

Re: Greece / Suicide Rate Surges 35% In 2 Years

PIMCO on Greece:

Greece is heading for a “massive economic contraction” and is likely to be forced out of the euro zone, according to Mohamed El-Erian, the former chief executive at Pacific Investment Management Co.

Greece shut its banks and imposed capital controls in a dead-of-night announcement designed to avert the collapse of its financial system after a weekend of turmoil. People rushed to line up at ATMs and gas stations following Prime Minister Alexis Tsipras’s shock announcement late Friday of a July 5 referendum on austerity measures demanded by the country’s creditors.

“There’s an 85 percent probability that Greece will be forced to leave the euro zone” in the next few weeks, El-Erian said in an interview from New York. “What we are seeing here is what economists call the sudden stop, when the payment system stops. The logic of a sudden stop is a massive economic contraction, social unrest and it’s going to make continued membership of the euro zone very difficult for Greece.”

The euro dropped more 1 percent and Treasuries surged by the most since 2011 as the collapse of Greek rescue talks roiled global markets. The lack of trust on both sides now makes it very hard to see how there can be an agreement that would resolve the impasse, said El-Erian, who worked at the International Monetary Fund from 1983 to 1997. He is now chief economic adviser at Allianz SE and chairs President Barack Obama’s global development council.

No Compromises

“This has been an accident in the making for a number of years,” said El-Erian, who is also a Bloomberg View columnist. “It reflects an inability to understand each other’s point of view and an inability to compromise. Europe should have been much more forthcoming on debt reduction and Greece should have been much more forthcoming on implementing reforms.”

El-Erian said the European Central Bank will be a key player in trying to contain fallout across the region as the crisis threatens to undo much of the work that President Mario Draghi has done to shore up confidence in the euro as a leading currency of global trade.

While Greece accounts for less than 2 percent of the euro zone’s output, its exit would hurl the bloc into unknown territory by setting a precedent for other nations to reconsider membership.

Volatility Surges

Volatility in the euro jumped by the most since the 2008 global financial crisis and the currency dropped 1.4 percent top $1.1013 as of 5:43 a.m. in London.
Tuesday marks the expiry of Greece’s current bailout package as well as the deadline for a payment to the IMF.

While there’s no rule to say Greece would have to leave the euro if it skips that payment or fails to extend its financing arrangements, it may prove difficult to stay in if, for example, the country has to start printing its own currency to keep its financial system afloat.

El-Erian said that some sort of parallel currency may well be issued by Greece because the government has to find some way to pay its bills.

The former Pimco head’s pessimism on Greece’s chances for staying in the euro isn’t shared by the economist who coined the term “Grexit” in 2012.

Grexit Doubted

“We expect the referendum to result in a comfortable majority for the ‘Yes’ camp, and expect no Grexit this year and a lower risk of Grexit in subsequent years,” Citigroup Inc. economists including Ebrahim Rahbari wrote in a research note for clients on Sunday.

The Greek government’s determination to resist fiscal measures its creditors are asking stems from the devastating impact on the nation of five years of austerity. Unemployment has been at Great Depression levels for years and the country has seen a quarter of its gross domestic product wiped out.

The challenge is that the events of the past few days will further damage the crippled Mediterranean economy, even if it somehow hangs on to its place in the euro zone, El-Erian said.

“This is a tragic situation -- we must not forget that there are Greek citizens that have already been suffering for five years,” El Erian said. “They’ve seen their living standards cut, unemployment is running at 26 percent, youth unemployment is over 50 percent and they’re about to face an even bigger depression.”


Panic Sets in Among Hardy Hedge Fund Investors Remaining in Greece

By LANDON THOMAS Jr.JUNE 28, 2015


Most of the hedge fund money in Greece is invested in about 30 billion euros of freshly minted Greek government debt securities that emerged from the 2012 restructuring of private sector bonds.

ATHENS — For investors around the world looking at Greece, there was but one question Sunday: What is going to happen when the markets open?

On Sunday night, the prime minister, Alexis Tsipras, said in a televised address that Greece’s banks and stock market would be closed on Monday, as Athens tries to avert a financial collapse.

But the question of what happens when the markets do open is particularly acute for the hedge fund investors — including luminaries like David Einhorn and John Paulson — who have collectively poured more than 10 billion euros, or $11 billion, into Greek government bonds, bank stocks and a slew of other investments.

Through the weekend, Nicholas L. Papapolitis, a corporate lawyer here, was working round the clock comforting and cajoling his frantic hedge fund clients.

“People are freaking out,” said Mr. Papapolitis, 32, his eyes red and his voice hoarse. “They have made some really big bets on Greece.

But there is no getting around the truth of the matter, he said. Without a deal with its European creditors, the country will default and Greek stocks and bonds will tank when the markets open.

On the ground here, the surprise decision of Mr. Tsipras, to hold a referendum has turned what was a bank jog into more of a sprint, with most Greeks anticipating the move to close the banks on Monday.

Panicky depositors spent the weekend pulling an estimated one billion euros from the banking system, stashing the cash in their houses or exchanging them for bulging bags of gold coins.

The yields on Greek government bonds, now around 12 percent, are expected to soar as investors rush to unload their positions in a market that of late has become extremely hard to trade.

Bank stocks, when the stock market opens, will also be hit with a selling wave, as they cannot survive if the European Central Bank withdraws its emergency lending program.

There are not as many hedge funds in Greece as there were a year ago, when it is estimated that around 100 foreign funds were sitting on big investment stakes. Their bet was that the previous Greek government would be able to complete the arduous process of economic reform in Greece that started five years ago.

When it became clear that a radical Syriza government under Mr. Tsipras would come to power, many investors quickly turned heel, dumping their Greek government bonds and bank stocks in large numbers before and after the election.

But a brave, hardy few stayed put — around 40 to 50, local brokers estimate — taking the view that while the new left-wing government could hardly be described as investor friendly, it would ultimately agree to a deal with Europe. It would be a bumpy ride for sure, but for those taking the long view that Greece would remain in the eurozone, holding on to their investments as opposed to selling them in a panic seemed the better course of action.

For now, at least, that seems to be a terrible misjudgment, especially if Greece defaults and leaves the euro.

[don]

Re: Greece / Suicide Rate Surges 35% In 2 Years

Most likely scenarios?

After 5 years the neoliberal template seems to have run its course, at least from the business end of austerity.

If Greece exits the EU it seems probable it will become the poster boy of all the bad things that will happen if you attempt to exit the global debt paradigm, serving as an example for a few years of abject misery.

If Greece moves towards Russia, threatening NATO hegemony and flirting with Russian energy pipelines, look for the return of the Colonels, along with 'generous' new loans that temporarily set Greece's middle class back on a somewhat normal footing, followed by asset stripping.

Or Greece is allowed to leave and is left to its own financial devices, becoming a nation somewhere between a European and a Third-World country, discharging most of its debt, lowering living standards for most, and carrying on. This may be too 'positive' an alternative in a TINA world.

Of course these are broad strokes - there's bound to be day-to-day nuanced questions and maneuverings - but what other mid-term scenarios are plausible in our geopolitical climate?

[GRG55]

Re: Greece / Suicide Rate Surges 35% In 2 Years

Most likely scenarios?

After 5 years the neoliberal template seems to have run its course, at least from the business end of austerity.

If Greece exits the EU it seems probable it will become the poster boy of all the bad things that will happen if you attempt to exit the global debt paradigm, serving as an example for a few years of abject misery.

If Greece moves towards Russia, threatening NATO hegemony and flirting with Russian energy pipelines, look for the return of the Colonels, along with 'generous' new loans that temporarily set Greece's middle class back on a somewhat normal footing, followed by asset stripping.

Or Greece is allowed to leave and is left to its own financial devices, becoming a nation somewhere between a European and a Third-World country, discharging most of its debt, lowering living standards for most, and carrying on. This may be too 'positive' an alternative in a TINA world.

Of course these are broad strokes - there's bound to be day-to-day nuanced questions and maneuverings - but what other mid-term scenarios are plausible in our geopolitical climate?

- enough time has passed to allow sufficient amounts of Greek debt to be transferred to the public ledger, thus removing most of the consequences of default from the European banking system

- a default was always inevitable; unlike some years ago the consequences for Greece are now much greater...the present government can't be held responsible for that.

- I still see no logical or rational reason for Greece to leave the currency union; if it happens it will be a political mistake rather than a calculated economic decision.

[jk]

Re: Greece / Suicide Rate Surges 35% In 2 Years

- I still see no logical or rational reason for Greece to leave the currency union; if it happens it will be a political mistake rather than a calculated economic decision.

right, default doesn't necessarily imply changing currencies. otoh, greek banks would have no relationship with the ecb, so it would be like the dollarization of panama or ecuador. otoh, it will need liquidity domestically, so it could run a domestic-only currency in parallel, like costa rica or uruguay.