It was Greece’s “last chance,” again. But Sunday, it too fell apart, as they always do. European Commission President Jean-Claude Juncker broke off his attempts to mediate between Greece and its creditors. The differences were too large, a spokesperson said.
Now there’s a new “last chance” in this mutual extortion racket. The 19 finance ministers of the Euro Group will meet this Thursday in Luxembourg. The spokesman said that Juncker “remains convinced that with reinforced reform efforts on the Greek side and political will on all sides, a solution can be found by the end of the month.” So probably not.
“Last chance,” because otherwise there wouldn’t be enough time for the parliamentary processes required by other countries to approve the new bailout deal before the payments come due.
But even before this “last chance,” the ECB will meet to decide, once again, the fate of the Greek banks, and thereby Greece.
It doesn’t help that the financial markets aren’t swooning every time “Grexit” appears in the media. Greece has lost its negotiating power. The financial markets have other things to worry about. But the markets in Greece have crashed, and Greek banks have been reduced to penny stocks.
Even supporters of the Greek positions are losing patience with Greek game theory. In an interview published on Sunday, Italian Prime Minister Matteo Renzi told the Corriere Della Sera: “We all want Greece in the Euro, but they have to want it too.”
German Vice Chancellor Sigmar Gabriel, head of the center-left Social Democrats (SPD), who has been largely supportive of Greece’s efforts, chimed in more forcefully via the tabloid Bild:
We want to help Greece and keep it in the euro. But time is running out, and so is patience all over Europe. Everywhere in Europe there is a growing sentiment of ENOUGH.”
Repeated, supposedly final attempts at an agreement are beginning to make the whole process look ridiculous. More and more people feel that the Greek Government is leading them around by the nose.
So all eyes are on Thursday. But on Wednesday is the ECB Governing Council’s “non-monetary policy meeting.” This is typically when the ECB decides to extend the Emergency Liquidity Assistance (ELA) for Greece, without which Greek banks are instant toast.
Last Wednesday, the Governing Council decided by teleconference to raise the limit of the ELA by €2.3 billion to a total of €83 billion. Every week, it raises the limit. The Greek central bank provides the dough, but when the banks collapse, that dough will be gone, yanked out by the Greeks themselves.
Greeks trust their banks – or any of their institutions – only as far as they can throw them. So private-sector bank deposits have plunged to a new 10-year low, from their peak of nearly €240 billion in 2009 to €134 billion by the end of April. Over the five months through April, Greeks had yanked out €31 billion! This process has likely continued at an even more frenetic pace to this day, with cash largely provided by the ELA.
When Cyprus reached a point similar to this, the ECB had a meeting that sealed the fate of Cypriot banks and their depositors, many of whom were Russians. Putin, who’d been trying to repatriate Russian money, got a good kick out of it. The ECB’s bone-dry, infamous press release:
21 March 2013 – Governing Council decision on Emergency Liquidity Assistance requested by the Central Bank of Cyprus:
The Governing Council of the European Central Bank decided to maintain the current level of Emergency Liquidity Assistance (ELA) until Monday, 25 March 2013.
Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks.
Cut off ELA, and it’s over. A bank holiday followed. On March 25, the Troika announced a bailout that bailed in depositors, imposed capital controls, locked up whatever funds were left in the banks for months, forced “reforms” on Cyprus, and did all kinds of other things.
If this sort of press release is issued for Greek banks this Wednesday, or really any day, it’s over. Capital controls, bail-ins, a parallel currency… a whole smorgasbord of “solutions” come to mind. That doesn’t mean that Greece would have to – or even could – exit the Eurozone. But just like Cyprus, it would exit the extortion racket. Then perhaps, the Greek government and the Greek people could focus on how to rebuild their economy.
But here is the thing: the Greeks could solve the crisis on their own, if they wanted to. Or do they know something that others don’t? Read… If Greeks Did This, the Terrible Crisis Would Be Over
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Why should the financial markets jump every time the little boy cries wolf? They’ll find him eaten some morning. But by then it will be too late, and THEN they’ll panic.
As long as Greece uses the Euro as its fiat currency it will be under Brussels’ (Frankfurt’s really) thumb. Look at Hungary as a contrast. Hungary kept their own currency, bit the bullet and told off the IMF. Athens is never going to succeed until they step aside from the EU.
I was in Budapest 3 times last year on business and was puzzled initially to see that newer car plate showed EU symbols like the rest of Europe but did not use Euro. The boutique hotel I stayed on the 1st visit only accepted Euro. Restaurant prices were displayed in Euro and Hungarian Forint. Drove thru Slovenia on the way to and was surprised to see that their currency was Euro.
I was in Budapest last August and everyone accepted Forints. It was fun to use bills with “20,000” on them but watch those zeros. I almost gave someone a HUF 5,000 instead of a HUF 500.
I spoke with people there about the economy. One waitress was furious that Hungary didn’t join the EZ. I asked her if she noticed an uptick in tourism and she said yes. I told her if they were on the euro that wouldn’t have happened and my wife and I wouldn’t be sitting there. Thanks to the weak HUF Hungary has been booming. 2014 was a record year.
“So private-sector bank deposits have plunged to a new 10-year low, from their peak of nearly €240 billion in 2009 to €134 billion by the end of April. Over the five months through April, Greeks had yanked out €31 billion! ”
What! people still have money in Greek Banks, what is wrong with them?
IMHO – EU will fold and give into the GrEEK socialists with lots of chutzpah as EU cannot afford the contagions to rest of the PIIGS and more importantly loss of confidence in Euro.
Thus the commies have been playing this brinkmanship all along as its hard to believe but EU has lot more to lose as GrEEK economy has been crawling bottom for years and commies in power know that they have an upper hand. Guess this is 1 way for the “repatriating” the GrEEKs for the Naz occupation or something. Suck it up Angie…
At this point it’s more than a possibility, though Greece will have to make some small concessions to save Merkel’s face at home.
Whether the outcome, Germany and the EU came out with their credibility in tatters: economic superpowers, but political microbes.
For some it will look like they have been played for fools by a peripheral bankrupt nation, for other like they gave in to the hissy fits originating in the not so solid German banking system. Both points are valid.
I am convinced the true problems haven’t started yet. Greece is literally nothing compared to Italy. Italy’s sovereign debt is the third largest in the world in absolute terms after the US and Japan and keeps on growing by sheer momentum.
To compound the problem, over 20% of loans on Italian banks’ books are non-performing and the country is mired in a decades long economic stagnation.
In short, if you want the true Sick Man of Europe, look no further.
If Greece gets any deal, expect Italy to demand nothing less. Very much like France’s (more on which in a minute) her economy is State-driven: over 50% of the GDP is government spending, and you cannot have that without piling more debt day in, day out.
Like Greeks aren’t learning a single thing from this farce, so are Italians. Instead of promising to be more careful with tax money, not to hire people they really don’t need, to wean society from welfare, Tsipras and his allies are actually promising to get back to the golden days of the 2004 Olympics. I have no doubt of their personal honesty and integrity, but honesty and integrity alone don’t fix budgets. That requires spending less than you take in. And if you want to spend more, you either raise taxes (which across the eurozone are already extremely high) or allow society to produce more.
And now France. I am a well known Francophile so forgive me beforehand.
France has two serious issues right now: first is runaway government spending, now accounting for a staggering 57% of the GDP.
Second is an explosive political situation.
Those two issues are very closely intertwined in the person of the most formidable enemy the EU (and the French Socialists, who carry a large part of the blame for the present form of the Union) has ever faced: Marine Le Pen.
Le Pen has made no mystery she doesn’t like the EU in its present form. She made no mystery she doesn’t like the unrestrained immigration favored by Brussels to drive the price of labor down and attempt keeping overgenerous welfare systems somewhat solvent. Most of all, she has made no mystery runaway public spending must cease. While no free-marketer or libertarian, she seems to understand the private sector is the Shire horse pulling the wagon, not the other way around.
And people took notice.
That has made her a formidable contendant for the 2017 presidential election, especially if the economy continues to stay very weak (with the blame being squarely pinned on François Hollande) and Les Républicains get rocked by more scandals.
While no savior (to paraphrase Che Guevara: “Saviors do not exist: the people save themselves”) she has a more solid program than wide eyed idealists such as Italy’s M5S and Spain’s Podemos. More critically, she’s aprt of nation with still a shred of self-respect left, a rare commodity these days.
MC- thanks for the insights.
I have little clue about the situations in Italy and France. Was in France and Italy on family vacations in 2012 and 2014. I was also in Grenoble in 2014 for business. Was surprised by French view of the unions, the ever proud card carrying memebers even the white collar workers, and to see so many .immigrants from ex-French colonies especially North African muslims. Grenoble the once the hub of the high tech indistries is shedding jobs and indignant entitled worker attitude is probably not helping as well as social nets welfare system – chalk it to the damn socialists I suppose.
10k question is will Le Pen be able to reform the French society addicted to bloated public servants and socialist welfare nany state?
France’s problems with labor go back a very long way.
In a way it can be said they harken back to the Third Republic and the turmoil which followed France’s Great Depression in the 30’s (the country was hit late but very hard).
When De Gaulle was called back from his countryside retreat to put the Fourth Republic out of its misery, many believed he would somehow solve these problems.
For all of De Gaulle’s personal prestige and charisma, it was something well beyond his ability. Very much like France herself, De Gaulle was old, tired and much tried by personal losses. He chose to compromise to keep the large and politically dangerous Socialist and Communist Parties at bay. Some decisions (pulling France out of NATO and getting out of Algeria as fast as possible) were wise, others (the tight government and by extension union grip on the economy) catastrophic.
I consider France a nation of individualists which periodically succumb to bouts of insanity known as collectivism.
This exemplified by her often overlooked political theorists and economists: French contribution to free market theories are enormous. Say, de Molinari, Bastiat… you name them. But so are her contributions to collectivism: Babeuf, Saint-Simon, Proudhon…
The needle has swinged back and forth since the dying days of the Bourbons, often in incomprehensible fashion for outsiders: for example Napoleon Bonaparte enacted conscription but was completely opposed to paper currency.
The Fourth Republic was known for its enormous State-owned conglomerates (Saint-Gobain, Framatom, Renault etc) but was also home to Michelin, at the time the largest privately owned firm in Continental Europe (Volkswagen was, and still is, partly owned by the local government).
In a way it can be said this split is exemplified by the split between the cities and the countryside: the former collectivist, the latter individualist.
The problem is not welfare for the common people. That isnt what is bleeding the nation dry. The problem is the massive welfare program in place for big business and big finance. The result is a never ceasing flow of wealth from the great majority to the few at the top. The result is the strangling of the flow of money through the economy that keeps it alive and the withering up of investment in genuine productivity in favor of creation of fictitious wealth through rampant speculation.
Greece has already defaulted, twice. The troika just doesn’t want to admit it because they don’t want to trigger the credit default swaps. The whole situation is ridiculous, Greece has no money to pay old debts unless they borrow more money. They call that bankrupt.
Exactly. But everyone knows this. I think the politicians are just worried about how to explain this to their constituents. I hope the default is real this time and cause a contagion. It would be truly nice if it causes Deutsche Bank to collapse, that should wipe the smirk off the Germans’ faces.
I am getting a little tired too of the constant “blame the victim” attitude towards the Greek people and the idea of “punish the Greeks, they arent suffering nearly enough”, as well as the notion that they need more austerity. they just dont have enough. The relentless insistence of austerity on the part of the Troika has resulted in ruin in destitution to a very large part of the Greek populace. It has also resulted in the collapse of the Greek economy. Imposing more austerity will simply make things worse as anyone can clearly see. The current policies of the Troika make Greece’s debts unpayable. I think the Troika knows this perfectly well. As far as I can tell, their real goal is to set an example of what can happen to anyone who dares not to knuckle under to their extortion.
Who’s extorting whom? It seems to me this is a two way street.
I can think of 160 billion reasons why the creditors don’t have the upper hand here.
Ultimately, Greece will not pay back these loans. It’s best for them to just end the Chinese Water Torture now. Any new bailout money will just go to the creditors – who are really the party being bailed – and little or none to Greece itself. I see little long-term upside for Greece if they cave in.
Meanwhile the rest of Europe (and other countries through the IMF) is on the hook whether Greece defaults or gets write-downs. All that’s left is the timing.
Most Greek GDP is internal and the external trade is largely tourism, which would benefit from a cheap currency.
Meanwhile, Greece continues to bleed the EZ through the ELA and that ups the ante every banking day. If the EZ turns off the faucet the Greek government can blame Brussels for any disruption that happens.
Then Greece pivots to Russia. Game, set, match.
Greek elit desperately needs euro and Greek citizens are succesfully hyped to want it too. Of course EU politicians and beaurocrats need Greece in eurozone, each for their own separate reasons. (keywords: Deutche Bank, Podemos, separatists, Euro value). So the thing is that they would happily pay the extra f…en ~30b Euros, but they have sold scrap to their voters about the “lazy Greeks blah-blah-blah”. It’s e real mess.
Greece has to back to the drachma, its the only way for finance freedom, otherwise they will keep on looting it. Remember how germany settled their war reparations? By printing money.
But wait…. the drachma was always seen by the Greeks as one of the ways their government tried to loot their wealth. That’s why the Greeks love the euro and don’t want to go back to the drachma.
Too true! You have to have SOMETHING to back your currency or it is effectively worth nothing. The drachma would only be worth as much as the Greeks have faith in it and you can imagine how much confidence they would have in a renewed drachma.
I remember how Germany settled its war reparations. Hyperinflation, then a series of defaults that led to the French invasion of the Ruhr Valley, then the Dawes Plan, then more defaults, then Hitler came along and repudiated all the debt, then World War 2, then the London Agreement where West Germany agreed to pay some of the debt but not all of it until Germany was reunited, then Germany reunited in 1995, and then finally paid off the WW I debt in 2010.
Simple.