By Don Quijones, Spain & Mexico, editor at WOLF STREET.
“The bailout programs that were proposed for Greece and approved for Greece were much too one-sided. They relied too much on sacrifices on the part of Greece and not enough sacrifices on the part of Greece’s creditors.”
These words belong to a Brazilian economist called Paulo Nogueira Batista Jr. who represents 11 Central and South American countries on the IMF board. During a recent interview with private Greek television broadcaster Alfa TV, he made the following rather startling — but much ignored — assertions (none of which will be to the German government’s liking):
- The first Troika-sponsored program, in 2010, was presented as a bailout of Greece but was in reality a bailout of Greece’s private creditors. Greece received enormous amounts of money but almost all of it was used to allow the exit of French, German and other Northern European banks from their positions, which were paid at par without any contribution to the restructuring of the Greek economy.
- Any solution to Greece’s debt crisis should include a significant restructuring of debt with its official European creditors. Without a restructuring, it’s very hard to envisage Greece extricating itself from its economic and social crisis.
- The Greek government should respect the IMF’s preferred creditor status. Any debt restructuring should affect other creditors that do not have this preferred creditor status. In other words, whatever Greece tries to do, it should forget about attempting “to restructure its debt with the IMF.”
Rising Divisions
It doesn’t take much reading between the lines to realize that what Batista is essentially advocating is for European taxpayers to be left holding a bag of worthless, cancelled Greek debt while the IMF continues to get paid – to borrow Batista’s own words – “at par.” This is an offer that would completely obliterate the strict conditions recently set for Greece by Germany, the Eurozone’s biggest creditor nation, and supported by all other Eurozone nations. They include fellow Club-Med nations like Portugal and Spain whose governments Greek PM Alexis Tspiras recently accused – with some justification – of seeking to sabotage talks on extending the Greek bailout program.
This is particularly true in the case of Spain. Threatened by the rise of Podemos, an anti-austerity movement with close links to Syriza, Spain’s beleaguered, scandal-tainted government is determined to block any attempt at giving Greece more breathing space. As Spanish premier Mariano Rajoy recently told journalists in Brussels, Madrid expects Greece to repay every single cent of the €26-billion loan that Spain has lent it. “The important thing for us is that Greece, which already started growing, sticks to the rules and the commitments they signed up for in exchange for loans,” he added.
All of which makes you wonder what the heck is happening in euro land? What was actually solved last month if a) Greece will soon need a new bailout to the tune of roughly €50 billion; and b) divisions continue to rise all over the place? Even the Troika’s already fragile unity may finally be crumbling. Or is this just another variation on the good-cop, bad-cop, bad-cop routine? Is the IMF finally abandoning the largely German-written script on Europe’s bailout regime? Or was Batista merely speaking in a personal capacity, off the cuff and off message?
Granted, the Brazilian economist has a reputation for straight-talking and veering off the script. In 2013 he accused the Fund’s own economists of making “over-optimistic” assumptions about Greece’s economic growth and the sustainability of its debt:
Never-ending economic depression and severe unemployment levels have led to political discord. The widespread perception that the hardship brought on by draconian adjustment policies is not paying off in any way has further undermined public support for the adjustment and reform program.
If Batista’s latest pronouncements are to believed — and for the moment there’s been no official denial from his Washington-based employer — they could represent a complete departure from traditional IMF policy on Greece. While he urged the new Greek authorities to “continue working with the Fund’s technical staff,” he also invited much closer collaboration with the Fund’s “political authorities.” When representatives of the Greek government come to Washington, he said, they should “present their view directly to the executive director of the Fund” and “perhaps even invite executive directors of the fund to visit Greece.”
With Friends Like These…
It all sounds remarkably cozy. According to Batista, the Fund is willing to be a lot more accommodating with Greece – provided, of course, the insolvent nation continues paying its obligations to the Fund. The question: Is Syriza prepared to dance to a tune arranged by the IMF, an institution that, as former Fund economist Davison L Budhoo once put it, makes or breaks “human life every day of every year as probably no other force on earth has ever done in the past or will ever do again.”
Given the paucity of prospects available, Greece’s new government will have few other options. On Monday representatives of its finance ministry will attend yet another make-or-break meeting with the Eurogroup, as the Troika, in Tsipras’ words, slowly tightens the noose around Greece’s neck. As such, if the IMF were to offer a last-minute reprieve (a sizable “if”), you can bet your bottom dollar that Syriza will seize it with both hands. Indeed, Greece’s Finance Minister Yanis Varoufakis has already admitted as much – not in the last few days, mind, but way back in 2013 during the Q&A session of a university lecture titled “Confessions of an Erratic Marxist”:
Of the two pillars of the Troika, the IMF is less keen on austerity… than Germany is. They expressly state that austerity has gone too far, that reductions in pensions should stop…
Where I think there is clear ground for a… short-term opportunistic agreement [with the Fund] is concerning the banks. At the moment, the bankrupt Greek taxpayer is borrowing €50 billion from the European taxpayer to give it to [Greece’s] bankrupt banks. And that money is simply going into a black hole and disappearing…
That we should stop and the IMF would be with us because it is completely against the way the banks have been recapitalized in Europe. And they will be able to use that as a bulwark against the way the Germans and French are clinging on to this cozy and corrupt relationship between local political elites in France and Germany and local banks such as Paribas and Deutsche. This is something Syriza should utilize.
Whether Varoufakis is right and the IMF can be trusted as a temporary ally in its battle with Greece’s own bankrupt banks, time will certainly soon tell. If it can’t and there is no last-minute reprieve from a fragmented Troika, time will soon run out for Syriza’s Greece — at least as a member of the Eurozone. Don Quijones, Raging Bull-Shit.
But what do Greeks know that others don’t? Read… If Greeks Did This, the Terrible Crisis Would Be Over
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Good article. But its rare to read anything that speaks to exactly why the Germans gave the Greeks the money in the first place.
It’s funny, but until I read the below link, I’d never thought of Germany as the ‘sick man of Europe’.
The German ‘model’ of suppressing wages and generally exporting deflation can never be reproduced by Greece. Germany purposely indebted the Greeks in a futile attempt at stimulating its own growth. It was reckless to give them the money in the first place!
So whose example are the Greeks supposed to follow?
http://europesworld.org/2015/02/23/germanys-sickly-economy/
Two good pieces. This one on Greece the supposed “bad man” of Europe and the linked one on Germany the supposed “Übermensch” of Europe. If Europe was to adopt the German economic model then who in the world could or would import all the exports thus produced?
Global trade is a zero sum game. Whilst imbalances are inherent they cannot remain constant are else there will be a blow-up. Any country running a long-term deficit will eventually collapse. What the Germany’s of this world need to consider is that the collapse of an export market has a blow back on export (surplus) countries.
The problem with the Greek bailout program and it’s failure to fix the Greek economy was that it is policy dictated by private financial sector interests. Something applicable to central bank monetary policy, where a policy of giving “money” to banks in the hope that it would trickle down to the “real” economy was at best seriously misplaced. The policy is merely laying the foundations for the next financial crisis.
As for Greece also for the rest of the world there will come a point where today cannot be postponed until tomorrow. The fallout will leave the 2008 crisis looking a mere hiccup.
Silly rabbit, the precious euro = gasoline.
No euro = no gas. No gas = no cars. Nobody in Europe will give up their cars so nobody will give up the euro nor will they give up the nightmarish administrative apparatus that goes along with it.
The Greeks, Italians, Spanish, Irish, etc. will obediently borrow whatever many trillions of euros they have to in order to pretend to be solvent. So they can drive, so they can pretend to be modern, so their governments can bomb the desert, so they can fool themselves into believing there is some future that does not involve subsistence farming, ultra-violence, war, breakdown, starvation, more war, decline and ultimate collapse.
Collapse is where the cars go, that is where they always have been going, they cannot pay for themselves and never have … they are why Europe is trillions in debt in the first place … the pensioners and school-children are robbed blind for the cars.
This is what we do. We hate our children and our parents we love our cars. Death to the parents and children; it’s like we have surrendered our countries to Islamic State.
Politics is the continuation of economics by other means, war is the continuation of politics by other means. War is drawing inexorably closer.
One of Europe’s greatest “hidden in plain sight” problems is her banking system. By comparison US banks are healthy and well able to stand on their own legs.
These European banks have feasted on sovereign bonds with complete abandon for almost a decade now. Greek and other “peripheral” bonds had two huge advantages: they carried relatively high yields and were assumed to be as safe as German and Dutch bonds: a win-win situation.
The problems started when the ECB started to wage a merciless war on yields: right now 10-year Spanish bonos yield less than T-bills.
Banks need yields: NIRP and ZIRP are good and all, but their bondholders, shareholders and customers want to see a return.
Now, it’s often said that due to “deflation” even 2% yield is good. One has to be a fool to believe that: deflation exists only in official propaganda. Anyone buying groceries will attest to that (bananas here grew an average 29% in the first two months of 2015). To that add capital gain taxes. 2% is not even enough to stay in the same place. Customers and bonholders are starting to demand better yields but banks have nowhere to turn: Mr Draghi will soon push yields in negative territory. Turkish-lira denominated junk yields 5.6% after taxes: you don’t need to look any further to see what a mockery this is. What will happen when all those skyscrapers presently under construction in Istanbul, Konya and Izmir , financed by German and Italian banks and “repackaged” in those “high yield bonds”, won’t find buyers? It will be 1997 Thailand all over again.
The present buyback of sovereign bonds by the ECB, saluted by everybody and his aunt as some incredible feat of financial wizardry, amounts to nothing more than yet another bailout of far from solid European banks. The program is being “sold” to the average Fritz, Mario and Pierre in the street as a noble sacrifice by the ECB to provide much needed liquidity to European economy. Really now? Santander and other consumer-oriented banks have had no problem finding liquidity to ignite yet another automotive boom in Europe. Basket case Italy has been seeing car sales grow by two digits a month in face of the same old fundamentals for almost a year now. Lending criteria have been loosened and any yield resulting from those car loans can be repackaged and sold to investors all over the world driven to the point of insanity by the most brutal financial repression in living memory.
Greece, by comparison, is just a side show of the big show.
At this moment it serves exclusively psychological and political purposes.
First to “avoid sending markets the wrong signal”, whatever that may be. This wrong signal would probably cause financial markets to plummet all of 5% and to take a massive two working days to get back at racing to unheard of heights. Better be careful.
Second. German lawmakers and bureaucrats, just like their homologues in France, Italy and Spain, have much to answer both to their own citizens and to Europe as a whole. To avoid even being asked the crucial questions, better to draw attention on Greece with an extremely overplayed “bad cop-good cop” routine.
In the meantime I hope the Greek people learned their lesson: never trust left wing corner cafe orators with the future of your country.
Steve, what’s with this cars are the root of all evil meme? Cars have only been around for a little over a century, while war has been with us since time immemorial. You present it as an axiom, without ever explaining your obvious hatred of automobiles. You are a one-trick pony on the subject. Did you lose someone you loved to a crash, or something? Logically it makes no sense whatsoever. Believe me, I think we would all feel empathetic to you if we understood it. Only by acknowledging it can you break up its power over you.
Regards, Julian
Sigh! I think the Europeans are a lost cause. As the saying goes, “They are old cold and set in their ways.” There is absolutely no real feeling of European nationalism despite all sorts of attempts to artificially create one. European authorities can always be counted on to promote their national interests while ignoring the common good of the continent. The fall of the European Union and the Euro is inevitable, it is just a matter of time. I wonder when they are finally going to do away with pretense?