The ECB Tightens the Choke Chain on Greece

We said that the ECB held the trump cards in dealing with Greece, via being able to impose conditions on its access to the Emergency Liquidity Authority. We thought the ECB would send an initial signal as to how opposed it was to Finance Minister Yanis Varoufakis’ bold proposals in whether it imposed conditions and how severe those were on the Greek Central bank’s request to access ELA funds, which it is sure to approve to tomorrow.

It turns out the ECB isn’t waiting that long to let its views be known. One important, but not widely recognized bone of contention is how quickly both sides need to reach a deal. Varoufakis was trying to push the timetable out until June, when Greece has to have a deal in order to avoid defaulting on maturing loans. Greece also had an earlier deadline it thought it could circumvent, that of an end of February deadline to access additional bailout funds. Varoufakis said it would not take that money (needed to pay off some maturing IMF loans) because Greece could work carefully within its existing sources of funds to meet the IMF payment and squeak by until June.

The extra time was critical to Varoufakis and Greece, both to try to win over doubts and opposition, as well as to get more support on the street and in polls in periphery countries. The longer the negotiations stay in play, the more it looks like Greece is acting like an equal, which would embolden other periphery countries.

The ECB moved today to force Greece to negotiate a deal by the end of the month. That timetable virtually assures that none of the creative measures that Varoufakis has proposed are up for discussion, that the talks will stay within the existing bailout framework. That means all the Troika is prepared to discuss on Greek debt is extensions of maturity and perhaps an interest rate reduction. While that will provide some relief in real economic terms, it is likely to fall well short of what Varoufakis and Greek voters had wanted to achieve.

:

The European Central Bank is resisting a key element of the Greek government’s new rescue plan, potentially leaving Athens with no source of outside funding when its international bailout expires at the end of the month.

Yanis Varoufakis, Greek finance minister, had proposed to European officials that Athens raise €10bn by issuing short-term Treasury bills as “bridge financing” to tide the country over for the next three months while a new bailout is agreed with its eurozone partners.

But the ECB is unwilling to approve the debt sale. It will not raise a €15bn ceiling on t-bill issuance to $25bn as requested by Athens, according two officials involved in the deliberations. “The Greek plan relies fully on the ECB,” said another eurozone official briefed on the talks. “The ECB will play hardball.”…

Another potential source of short-term cash being sought by Mr Varoufakis is €1.9bn in profits the ECB and eurozone central banks earned by holding Greek bonds to maturity. Under a deal agreed in 2012, that cash was to be returned to Athens, but has not been.

But officials said eurozone ministers are unlikely to allow those funds to be released without a broader agreement, complete with tough conditions.

“That will be a no go — one of many — for the member states; not without conditions,” said one official involved in the talks.

With a bank run underway and funds unlikely to return any time soon, Greece is utterly dependent on ECB support unless it is willing to have its banking system collapse. And that blow in an already prostrated economy is something that Syriza cannot responsibly inflict on voters, particularly when it shifted its campaign in the weeks before election to a moderate, pro-Eurozone posture. The ECB has issued its diktat and Greece has no choice but to fold. Varoufakis may still win some concessions around the margin, but the message is clear: he will get no big breaks on any of his major issues. The most he can hope to get is whatever the Troika is willing to trade for the Syriza’s commitment to taking on the oligarchs and reforming its tax system.

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106 comments

  1. ambrit

    So, the ECB has resorted to the Thermonuclear Option. All I can think of off the top of my head is for the Greeks to try and make a deal with Russia. Would the Russians trade a bridge loan for a warm water port concession for the Russian Navy? This would be a perfect stick in the eye to the West. Russians would love it. Putin could garner immense domestic support in Russia for something on that order. Then, if the West urges the Generals to ‘intervene,’ Russia could ship arms and advisors in to Greece to help the valiant Greek freedom fighters.
    It all boils down to what the present Greek government considers the best interests of the nation. Long term thinking or short term thinking is the ultimate choice. There is going to be pain either way.

    1. Yves Smith Post author

      The Greeks have already effectively ruled that out. The joined the rest of the EU in sanctions against Russia.

      And if you think the Troika is being mean now, it would be a pale shadow of what Greece would get if it tried making overtures to Russia. The US would make sure all its NATO poodles, um, allies turned up the heat big time. Oh, and who has the best relationship with the Russians? The oligarchs that Syriza has said it is going to go after.

      The problem is that financial time (the speed of a bank run and a market rout) is way faster than real world time (which is what Greece would need to cut a deal with Russia). That puts Greece under the ECB’s boot.

      1. ambrit

        (Curious day. This was the third comment to disappear down the rabbit hole today. Try, try, again.)
        Since the Greek government has joined the Russia bashing, and taken Grexit off the table, I must wonder what they are thinking. I thought that rule one of negotiating strategy was to stay vague and noncommittal as long as possible. VY is supposedly a Jedi Master of Games Theory. Is his advice being ignored? Something smells fishy here.
        I can see Nationalists like Le Pen in France making political hay out of the Greeks humiliation. That brings up the main observation that the Eurozone Project can be seen as a pilot project for Internationalism. But, Nationalism has never really gone away. The Germans can be shown to be hypocritically using Internationalism as a mask for German Nationalism. When the Greeks, the people, not the banks, need help, Germany has no resources available. All available money seems dedicated to saving mainly German banks. This inner tension could be the force that destroys the Eurozone Project.
        Greece may yet earn the dubious honour of being the first Western nation to collapse under the weight of the Austerity policies.

        1. NoFreeWill

          I’m sure that they’re doing everything they can, but the scales of power are tilted absolutely against them, which is why it’s not surprising they are forced to concede.

          1. ambrit

            True as far as it goes, but, when does caving in to demonstrably cruel and inhumane demands good for the people of Greece? All it does is postpone the Day of Reckoning.
            I know I’m entering the realm of “outside the box” but, why not jump off the scales completely? At some point, someone is going to go before the Greek people and say; “We will take this no longer. It is going to be very painful. When it is all over, you can tell your grandchildren that you fought for the right to be Greek first, and Slave never.”
            Histrionic nonsense? Wars have been started, and won, with less. What is Greeces’ breaking point? I think we are soon going to find out.

            1. Doug Terpstra

              Good insight. I agree with the fishy smell. Syriza evinced conviction and determination — this far and no farther — eerily reminiscent of “hope and change” in 08. And look how well that turned out — premature capitulation in record time — betrayal with whiplash.

              1. ambrit

                “Hope and Change” as Attic tragedy.
                Backlash is going to be unpredictable, and not confined to Greece alone. The other populist movements in Europe will be watching the Greek experience to learn what to expect themselves when the crisis comes to their town. The smart ones will plan accordingly.

            2. Jack King

              It would appear that you are blaming the Greece Problem on everyone except the Greeks. This country’s economy has been managed like a bunch of kids playing monopoly. The average government job pays 3 times the average private sector job. A typical example of how screwed up things are is the national railroad which collects about 100 million euros in revenue, but has a annual wage bill of 400 million euros….. another 300 million in expenses. The former Minister of Finance, Stefanos Manos, pointed out that it would be cheaper to put all of Greece’s rail passengers into taxi cabs.

      2. plantman

        The last few posts on Greece have been brilliant as far as analysis, but sadly lacking in any constructive advice. What should Varoufakis do; that’s the question isn’t it? How’s he going to improve the lives of the 60% of unemployed youth who will have no future, if he doesn’t do something radical??

        What advice would Yves Smith would give Varoufakis, that’s what I want to know? Should he allow himself to be slapped around by the thugs in Frankfort or go nuclear? Or something else altogether?

        1. MarcoPolo

          Greece need do nothing for things to go nuclear. Varoufakis is doing exactly what needs to be done to prevent that. Remove that northern monetarist bloc from a dominating position within the EC.

        2. norm de plume

          I’m with you, great analysis and predictive power here, but what of the alternative routes? Just as an exercise, mind; I understand the reluctance to entertain hopes and dreams and the impatience with those who do, but if explicitly cast as a thought experiment?

          I hope after these latest disappointments – one step forward, two steps back – that Tsipras allows YV (if he is not keen himself) to at least make sharp criticisms of the ECB/Troika approach even as he implements their demands. Make his reluctance, his disagreement with what he is being forced to do plain, at least as front and centre as his willingness to accede in order to prevent further misery being inflicted upon his nation. There should be no forced-smile, I’m on board with the bosses rhetoric… he is in a position where his views, even if they don’t ‘count’ will be absorbed by millions of people and even if a worst case sacking scenario occurred, it is likely that over time he would be seen as a prescient voice of sanity and reason, which could pave the way for an eventual return with greater opportunity to force change.

        3. Ned Ludd

          After the election, the new government and its ministers should have shut up. They could make the European leaders nervous by being quiet about their specific plans. Then:

          1. Vote to neither extend nor expand sanctions against Russia, which required to extend.
          2. Announce the end of border patrols and halt all enforcement of drug criminalization since times are tough, requiring more judicious use of law enforcement.
          3. Send a trade delegation to Moscow, with a lot of ship builders. Panos Kammenos, leader of the Independent Greeks, is Greece’s former shipping minister. He should go along, too.

          Greece could then emphasize how much it would hate to get pushed out of the euro, especially since Germany borrowed money from Greece during World War II, owes Greece $95 billion dollars (not including reparations), and has irresponsibly defaulted on its debt obligations.

          Send high-ranking ministers to Russia, including the (new) finance minister (since Yanis Varoufakis would resign by this point). Sign more deals like this one, from :

          Russia and Greece signed an intergovernmental agreement Tuesday on military cooperation, Russia’s defense minister said. […]

          A Russian deputy defense minister, Anatoly Antonov, said after the talks that Shoigu had proposed that Avramopoulos consider working out an agreement to streamline the procedure for Russian navy vessels calling at Greek ports.

          Antonov said the two defense ministers had also discussed the possibility of holding personnel training events…

          Or follow through on this, from April 2012: “There is also talk about stationing Russian naval vessels in Piraeus, Athens’s main port.”

          Panos Kammenos, a former ND deputy who opposes austerity and admires Mr Putin, says Greece should turn to Russia if, as expected, it needs yet another bail-out… Mr Kammenos’s new party, Independent Greeks, is predicted to sweep into parliament with around 10% of the vote.

          I wonder which party in the governing coalition is obstructing such a turn to Russia.

          1. James Levy

            The one that doesn’t want the CIA to pay the army to mount a coup and shoot them all. You do remember that Greece was ruled by right-wing army officers within many of our lifetimes. Look at the situation in Ukraine–you think Washington is going to concede warm water ports in the Med to the Russians? As Sinatra said, use your mentality and wake up to reality. That’s a bridge too far.

      3. MarcoPolo

        Nuts. Greece agreed to extend current sanctions. They objected to imposing new sanctions without being consulted. Read the papers. Greeks are Europeans. They want a deal with Europe.,

        1. ambrit

          Yeah, but according to the Germans, not “real” Europeans. Check into the degrading treatment of Turkish workers in Germany if you have any doubts.

          1. shinmeguro

            What are you talking about, where’s ‘degrading treatment of Turkish workers in Germany’? That’s puzzling. Have you ever been there?

            1. ambrit

              I would have to look it up, but I read an English translation of an investigative journalism piece from a German magazine in which the author posed as a Turk ‘guest worker’ in businesses in Germany to discover how they were treated. His conclusion, backed up by personal experience, was that Turks were treated as semi civilized second class citizens. It caused quite a stink in Germany at the time.
              Here he is:

              1. Uwe Ohse

                That was 1985, can hardly be taken as current, and things changed in germany since then.

                We did not integrate the turkish immigrants perfectly, and both german and turkish tend to not come together socially often, but it is wrong to state that the turkish are second class citizens today.
                That does not mean that everyone gets the same nice treatment, tough.

                1. Tsigante

                  While not all Germans are racist by any means, your society has not rid itself of historical xenophobic attitudes. I remind you of the neo-nazi group that went on trial in Germany 2 years ago for 9 carefully targeted murders over several years – of 8 Turks and one Greek. The group were caught years after the murders because the German police preferred to see view therse murders as something that Turks (and Greeks) regularly commit among themselves, a racist & most unscientific assumption.

                  1. Uwe Ohse

                    your society has not rid itself of historical xenophobic attitudes.

                    This is correct, but i don’t think that this has anything to do with the slavery-like abuse wallraff detected in/before 1985.
                    The majority of the people who profit from misery do so regardless of race – this is just naked and irresponsible capitalism showing it’s worst side.

                    The group were caught years after the murders because the German police preferred to see view therse murders as something that Turks (and Greeks) regularly commit among themselves, a racist & most unscientific assumption.

                    This is correct, too, but only one part of the problem. I think an even more important reason for not searching among the right wing extremist is that the police and secret services are institutionally blind on the right wing – simply because it’s not the right which is dangerous to police and secret services (the right always want more police, which certainly cannot be said about the left extremists).
                    And then the secret services thought they knew everything important about the right extremists because they had lots and lots of informers in the far right parties. Well, they had, but obviously not at the right places.

                    btw: The very same terror group is said to have killed a german police woman, too. Up to date the reasons for that are totally unknown.

                    Regards, Uwe

        2. Ned Ludd

          Greece voted to both the sanctions, even though “decisions on sanctions require unanimous approval, meaning that Athens could torpedo any efforts to expand the list and block any move to impose wider economic restrictions”. The European establishment was worried that Greece had some leverage, but the Syriza-led government is always quick to toss away its bargaining chips.

          In the end, however, Greece backed away from strong statements denouncing sanctions and joined other countries in the 28-member bloc in a unanimous vote in favor of expanding a list of sanctioned individuals, mostly Russians…

          Greece also joined other countries in endorsing a six-month extension of sanctions imposed last March that would otherwise have soon expired.

          The acquiescence of Greece’s new leftist government was greeted optimistically as a sign that, despite the tough words issued from Greek officials in recent days, Athens would continue to work with its European Union partners, including, perhaps, on its debt obligations.

          The government also humiliated their newly appointed energy minister, who last Wednesday said, “Greece has no interest in imposing sanctions on Russia.”

          1. norm de plume

            ‘but the Syriza-led government is always quick to toss away its bargaining chips’

            Fast becoming characteristic, as are the climb downs, another of which Yves describes below.

            The chaos seemed early as if it could have been calculated, a la Surkov’s strategy for Putin, i.e. ‘confuse the hell out of ’em’, but now it just looks like garden variety chaos. Entirely understandable, but very disappointing.

        3. Yves Smith Post author

          Yes, Greece did not veto the sanctions, as it could have. And when Varoufakis complained on his blog that the press had misreported the story and the objection was (by implication strictly) about procedure, Reuters wrote about it and asked the Greek foreign ministry for comment. They got none. So if the foreign ministry wanted to try to have it both ways (not buck the sanctions but voice some objection to the substance, as in make a weak gesture to Russia), they chose not to avail themselves of an opportunity. This amounts to a climbdown by the Foreign Minister, BTW, who did make a stronger statement earlier. Per Reuters:

          However, the impression that the government of Prime Minister Alexis Tsipras is at odds with the rest of Europe over the issue was reinforced by comments from Energy Minister Panagiotis Lafazanis, who said Athens was against sanctions and “had no differences with Russia”.

          Tsipras himself met the Russian ambassador to Athens on Monday, the day he was sworn into office.

          Whether Varoufakis won a power struggle or it was foreign pressure that led to the climbdown is not knowable, but Reuters finds bread crumbs that foreign pressure played a role:

          The speaker of the European parliament Martin Schulz, who is due to meet Tsipras in Athens later on Thursday, said Greece could not at the same time seek to negotiate with Europe over its debt and strike a dissident line on Russia.

          “You just cannot, on the one hand, demand from Europe to show solidarity with your own country like Mr. Tsipras does and then, as a first official step, split the joint European position,” he told German television.

          This story ran on the 29th.

      4. MartyH

        Odd. The Hard Deadline is usually a sign of weakness. It is a symbol of caring too much.

        Yanis V. surely understands the implications. Of course, you have to have the nerve and the will to play it out. Fortunately, I don’t get asked to play for these stakes with a Country in the balance.

        The last guys who tried that found out that we didn’t cave. We survived. They are asking for a new quote.

        1. Yves Smith Post author

          Huh? The hard deadline is used all the time, to great effect, by the party that thinks it does not need a deal. And this hard deadline was pre-exiting. Varoufakis was trying to get waivers from the ECB to go past it, and the leaks to the FT say that that is not on.

      5. Gaylord

        Russia about-face option — offer the Greek oligarchs big contracts to expand ports for Russian Navy?

        1. Lambert Strether

          Takes too long to get the contract done in real time. And if the Russians just park their ships in Greek ports (with Greek approval, paperwork to follow) that looks an awful lot like an act of war. Has a feel a bit like the Bremen episode before World War I…

      6. Lambert Strether

        I think the distinction between financial time and political time is especially important and needs to be thought about. It means that finance is inside democracy’s , every time. No wonder they don’t want any regulation. Maybe we should return to paper-based back office operations in finance. That would slow them down!

    2. zapster

      While I realize that Varoufakis has not considered it, has anyone at all discussed the option of issuing a parallel currency? I’m guessing the EU agreements are agin’ it, but if default/grexit/revolution is the inevitable ultimate result of troika intransigence (and it certainly appears to be), what would be the downside if Greece printed drachmas to pay workers and accept in taxes while not rejecting the Euro outright? It would seem to be a way of reversing the imbalances and get some growth going again, while not repudiating their debt entirely. They really are pretty much at the point where they have to say “hey, you are simply going to have to wait until we’re working again.”
      Some speculation on possible effects: tourism would pick up, because the new currency would be worth much less. Businesses would be able to hire with drachmas, and may be able to accept euros as well, helping to decrease the trade deficits. While it would amount to a “low wage economy” relative to the euro, it would also give people something to trade for domestically-produced food, pay rent (unless the properties are owned by foreign bankers, I suppose). And if those foreign owners must have the new drachmas to pay property taxes (my knowledge of the financial internals in Greece are nil, unfortunately), it might actually be a solution to the vast European trade-imbalance problem.
      Anyway, forgive my cluelessness on this; I’m just kind of feeling my way into the potential complexities. Depression scrip isn’t a new idea, and Greece certainly has need. And I wonder why they can’t have national currencies *and* an overall, separate trade currency, a la Keynes’ Bancor. They’re really halfway there anyway.

  2. Gee

    The only way Syriza was going to win was for itself to threaten the nuclear option (default, exit, etc.) But as was written here earlier today, no single person could bring them self to be the one who goes down in history as the destoyer of the eurozone and GD 2.5 in europe, even if just potentially. It would take major cajones and a more unified front, which they never had when they started already with the good cop bad cop routine. The only way they could have gotten what they wanted was full on brinkmanship from the get go. “Here’s what we want – we dont get it, then system fail.” The problem with that is you can’t contain the damage to your enemies, so doubly difficult was bringing that pain to your people, in direct opposition to what you had promised them. Could absolute defiance assured that the ECB would cave first on the ELA funds, or would the ECB allow a full meltdown because it didnt want to do the right thing? (which is what they patently refuse over and over — fiscal union, etc.) It’s sad to see the Troika and Germany have so far found it utterly impossible to accept any responsibility for Greece’s plight. Nor will they acknowledge the massive benefit it brough them to lend so foolishly to the periphery. But hey, it was nice sellin those mercs and bimmers, wasnt it? So, I guess Greece figured, if the euro goes down the toilet (where it belongs) in the end, even if it proved the ECBS stubborn fault, it would ultimately be blamed on the Greeks, and they’d end up the one that pays most dearly. Absolute power I guess truly does corrupt absolutely. It’s really a shameful mess, but when bankers are the only thing that matters in the world, this is what you get. Bow on the altar of high finance, or be crushed to bits.

    1. paul whalen

      “People of privilege will always risk their complete destruction rather than surrender any material part of their advantage.”
      John Kenneth Galbraith

  3. paul whalen

    Is it likely that the ECB, a ruling club for Euroligarchy, sacrifices its Greek brethren? Sets a precedent for Spain and Italy? Not in this world

    1. Yves Smith Post author

      Go read Varoufakis. He has written numerous times, at length, why this is a terrible idea for Greece. It’s not obvious to someone who has thought about it far more deeply than you have.

      1. Kyle

        Good God Yves,

        Doesn’t this remind you of the aftermath of Versailles, except that all the players have swapped positions?

        1. Yves Smith Post author

          You mean that Greece is acting against its own interests? This is a hugely complex problem, in that Greece can get leverage only through third parties that are hard to mobilize, and of its terrible options, it is really hard to know ex ante which is worse.

          I’m not saying these positions are correct. I think Greece should not have discarded the Grexit option. They could have diffused that threat as much as possible, say by making clear that they regarded it as unpalatable and dangerous but that not getting enough rescue relief could be worse (as in keep what a triggering event would be kept vague).

          But I keep telling readers that you need to take Syriza for what is it. Despite its “radical left” label, it is an avowedly pro-European party with roughly 2/3 of its members as moderates. Varoufakis has nevertheless tried playing a bolder game than I expected and he deserves credit for that, but him or Syriza pursuing a Grexit was never on.

          1. Santi

            I think Varoufakis and Tsipras have a serious set of “Plan B” alternatives if the negotiators play hard ball. I also think they should not show evidence that they are not going to lower their head until they are ready. Specially since, as you said, financial time runs so fast… I would look for local information on how things are developing internally, as the support of the Greek people is of paramount importance if the government has to take bold measures to resist.

            That the ECB shows so much lack of economical knowledge is appalling, but the moment to break their authority is slowly arriving.

          2. Kyle

            No. I meant the insistence of the Allies on Germany’s onerous war reparations. President Wilson did his best to try to get England, France, Russia to moderate their expectations fearing it would lead to failure of Germany to remit and further friction in Europe but to no avail. Now the positions are switched but onerous debt is still the focus with poor Greece the object.

      2. jgordon

        Knowing too much can lead to not being able to see the forest from the trees. Greece will leave the Eurozone unless the troika suddenly become a lot more accommodating than they have been so far. Syriza came to power because the Greeks are fed up with the bullshit, and consequently the Greek people are expecting a significant rise in their living standards, starting now. If Syriza won’t come through for them, the slow grind of misery and decay that the EU has prescribed for the Greek people will see the Golden Dawn et al in power before long.

  4. wroblon

    This is, essentially, a game of leverage. As long as Grexit is not on the table, Greece has none of it and ECB has NO REASON to back down and enter any form of negotiations.

    Here’s the thing: if Syriza truly represents the interests of the greek society, the option of returning to drachma has to be considered by Tsipras/Varoufakis; it will either end up softening ECB’s stance or, if push comes to shove, it will put Greece back on the road to full recovery (albeit with painful beginnings). I’m still not convinced that Merkel/Schauble will let that happen, so don’t think that Grexit is out of the question yet (despite Syriza’s initial, pro-euro attitude).

  5. Judd

    I see the comments here yet again pointing the finger at everyone except the Greeks themselves. What utter bullshit. There is a section of the Greek population (private sector employees, self employed and small businesses, hereafter referred to as the working people) who are absolutely innocent in this mess. However, the other people (the corrupt politicians and their big business and media chums, and all those lazy public sector workers who were appointed by their friends, who did no work, treated everyone else like shit and collected big fat pensions) who are wholly responsible for this. Nobody forced Greece to run up these debts, those in power cooked the books and used the money for personal gain. I feel sorry for the innocent working people, even those who didn’t pay all their taxes (why the fuck would you want line the pockets of the political elite when the public services are of third world standard?) The fault does not lie with them, nor does it lie with the banks, the ECB, the IMF or the other countries of the Eurozone; it lies with the political elite and their buddies who have been screwing Greece and its creditors for the last 40 years.

    1. Yves Smith Post author

      Lordie. 90% of the bailout money went to rescue French and German banks. The Greeks got virtually none of it.

      Greece may have been in a mess before the crisis, but the explosion in government debt levels all over the world was the DIRECT result of the crisis. Tax receipts fell and social safety net spending rose. And that post-crisis money laundering to the bank operation was forced on them. Leaving the Euro then would most assuredly have created contagion and brought the Eurozone down, causing a Great Depression.

      Your ire is off base in a pretty serious way.

    2. jgordon

      No one forced the French and German banks to lend money to such known spendthrifts as the Greeks. If you found a homeless bum on the street and gave him ten dollars so he could buy a 40 with the promise that he’d give you fifteen dollars the very next day, no one is going to take you seriously when you whine and moan about not getting your fifteen dollars the next day. For whatever reason these banks found it profitable in the short term to extend credit to Greece. Now its time for them to pay for their stupidity.

      1. Yves Smith Post author

        The problem is that the banks are out of the picture. That was one of the big points of all the sovereign bailouts, to shift the liabilities for countries like Greece from banks to national governments, the IMF, and the ECB.

        1. jgordon

          Eh, that’s true. The sovereigns will eat the losses then. You can’t bet blood from a corpse, and that is apparently what the troika is demanding for Greece’s continued membership in the EU. However there is still no moral ambiguity here whomever the Euros are “owed” to, with regards to the parent post. Creditors charge interest on money because there is at least some expectation that it won’t be paid back. And if the debtor finds the loan too onerous to pay back, then it won’t be.

          But I believe the OP was saying that the Greek people have no moral obligation to be responsible for the debts of the corrupt elites, and I’m on board with that. Although the corrupt elites as well have no moral obligation to pay it back either, since morality has nothing to do with things like debt and money. Money will be paid back if the benefits outweigh the costs, and that’s it.

    3. norm de plume

      ‘all those lazy public sector workers who were appointed by their friends, who did no work, treated everyone else like shit and collected big fat pensions’

      It’s true that the public sector there has been bloated, petty corruption (the ‘little envelopes’) rife, salaries for years too high in many jobs and pension arrangements too generous – a problem BTW not limited to Greece; in days of yore it was thought we could afford early retirement en masse, but that predated the massive shifting of profits offshore and out of licit tax collection. But one thing I don’t think you can say is that public sector workers in Greece are as guilty of income tax fraud as the private sector. AFAIK they are taxed PAYG (withholding) and therefore cannot engage in the evasion common in the private sector.

      ‘There is a section of the Greek population (private sector employees, self employed and small businesses, hereafter referred to as the working people) who are absolutely innocent in this mess’

      On the contrary:

      ‘Greece has one of the highest concentrations of small businesses in the world – close to 2.5m. There are 1.5m self-employed people in Greece, representing a third of all Greek employment. They are also the source of most tax evasion in Greece. They do not pay any Value Added Tax and “naturally” they do not pay income tax. The cost of auditing them exceeds any tax revenue benefit.’

      ‘the political elite and their buddies who have been screwing Greece and its creditors for the last 40 years’

      That I can go with. I read the other day that the shipping industry for example pays virtually no corporate tax, despite most vessels nowadays being staffed by Filipinos. And its only recently that withholding tax has been applied to dividends and interest, not income streams most public sector workers would have access to.

      There’s plenty of blame to go around; the private/small business sector is not exempt.

  6. Synoia

    This is the game of letting the other side be the person who pushes you off the cliff, instead of one jumping voluntarily.

    Don’t threaten, just do in the face of obstruction.

    It’s either the Brear Rabbit ‘Don’t throw me into the briar patch” method, or complete capitulation by Syrizia.

  7. steelhead23

    Is there no other nation that could rescue Greece – or at least give Varoufakis a bit of time by offering the big Greek banks a bit of liquidity? Even if Varoufakis wished to exit the eurozone, he would need time to print currency, etc. Yes, I know he very much does not wish to Grexit – but that threat is about the only leverage he has – and in the short run, that threat is not credible. Too bad the rich Greeks have abandoned the nation to the Visigoths. I hope the Greek people remember.

  8. mpr

    I’m a little confused by this. Is the T-bill proposal for interim funding of the Greek government, or does it have to do with debt payments, or bank liquidity ? I can imagine the ECB might squeeze government liquidity, although since Greece is running a primary sur their ability to do that is limited. I don’t believe they will withdraw ELA.

    Of course at this point its too early in the game for the ECB to be making unilateral concessions. We aren’t close enough to the Feb 28 deadline for them to be feeling serious political heat.

    1. Ben Johannson

      Greece has debt which will mature soon and needed additional funds to pay it back. The troika had made additional bailout funds available for this purpose but the new Greek government wanted to avoid that, so they floated the idea of issuing their own Treasurys in sufficient quantity to keep creditors at bay untul a long-term finance restructuring could be agreed to. The ECB has vetoed this and Greece now has the choice of accepting the bailout funds or default.

      1. pebird

        He should tell them and the public what everyone already knows, Greece is unable to repay their debt.

        It’s just of matter of when it will not be paid, better to get it over with sooner rather than later.

        After all the Troika has already engineering one default, what’s another between friends?

  9. Doug Terpstra

    How maddening. So it only remains then for Tsipras and Varoufakis to prostrate themselves at the Versailles surrender ceremony. It will be devastating if, after all its promises, Syriza simply bends over for the bratwurst.

    David Stockman adamantly disagrees, insisting that Greece has the historic responsibility and the means to defy the Troika, repudiate much of its debt, and survive … without a call to Moscow, however fitting that would be (military ports and missile bases to spark the spontaneous combustion of Obama neocons!)

    1. MyLessThanPrimeBeef

      Never say never.

      A good politician can always explain why he/she needs to do what he/she said would not do earlier.

      ‘Here is my Big Fat Greek Divorce.”

    2. Yves Smith Post author

      Stockman is also exhibiting the fallacy of wanting Syriza to be something it is not.

      And as I wrote on the earlier post on the negotiations:

      Moreover, in asking Varoufakis to engage in Eurozone brinksmanship, a policy to which he is firmly opposed, is asking him to push the markets into a panic and risk a Eurozone Great Depression. If you think Varoufakis is being roughed up by the media now, it would be a pale shadow of the vitriol he would get if he were depicted as pushing the Eurozone into crisis. And if he succeeded by accident (remember, markets can move faster than policymakers can manage events), he’d go down in history with his name besmirched forever the same way Hoover is now. Hoover came into office as literally one of the most accomplished men of his era. Not only was he a completely self-made man from a poor background, but he could legitimately lay claim to be one of the most successful humanitarians in history. His tireless and amazing well organized relief efforts after the devastation of World War I are credited with saving much of the population of Belgium from starvation. He may have saved as many as a million lives.

      That remarkable accomplishment has been relegated to the dustbin of history. All he is remembered for, and not entirely fairly, is having pursued policies that made the Great Depression more severe than it needed to be. Why should you ask Varoufakis to risk being the person to push the Eurozone into the abyss?

        1. vidimi

          don’t know about that, but he should care more about his legacy for greece than his legacy for europe

  10. Caoilte O'Connor

    A long time ago I heard Varoufakis talk about another option (albeit one that will take time). I wish I could find it and see if it can still be made to work now that this gambit has largely played out.

    He talked about getting out from under the ECB thumb by building a parallel currency. Require some taxes to be paid in this new currency and then use that money to fund stimulus. Circulate, wash, rinse, repeat.

  11. MyLessThanPrimeBeef

    When the Bolsheviks overthrew the Tsar, or when the PLA defeated the KMT, what happened to their debts back then?

    Did the old ones go into default and new nations were born?

  12. Bobbo

    Yves, you present it as a situation where the Greeks have no choice. Not true!

    “unless it is willing to have its banking system collapse. And that blow in an already prostrated economy is something that Syriza cannot responsibly inflict on voters”

    Is a banking system collapse really worse than dying a slow death from austerity? Would Syriza be acting more responsibly if they inflict permanent servitude on voters? I think not.

    Even when you think you have no choice, you always have a choice.

    1. MyLessThanPrimeBeef

      Does a smart bank prefer a dead building like the Parthenon or living working serfs?

      Of course, a slow death is better for the banksters – you get a reliable income stream from captive taxpayers.

      They know taxpayers are the prime source of the vibrancy, energy and living force of even a partially sovereign country…not governments – they can all go the way of the Tsarist regime.

    2. Yves Smith Post author

      Syriza campaigned on a promise of making life better for Greeks, not throwing them into even more severe distress. If they were to go the route you suggest, they’d be out in short order and Golden Dawn would have its position strengthened considerably. Is that the future you want for Greece?

      Greece has only bad choices. No one here wants to hear that.

      1. Bobbo

        Yes, two bad choices. One would involve intense distress over the short to mid term. The other would involve intense distress over the long term. Though both choices are bad, there *is* a real choice here.

        1. alex morfesis

          you have obviously never been to greece…realistically, economically it is a mix between zimbabwe and lebanon…on their worst days…
          example…sofia vergara…she has an acting career but she also has this little company of hers in miami…there is a real greek yogurt company…as in really from greece with yogurt made from goats milk, the way it is supposed to be made,…mevgal…

          called the company a half a dozen times…forget emails…or faxes…they never responded to those…finally get some woman who could not be bothered to get the cigarette out of her mouth as she spoke with me…purporting to be the person who might handle ex-greece license or exporting…she was not paying attention…she could not be bothered…I was not trying to arbitrage…just find myself annoyed eating this junk labeled as “greek yogurt” in the US which is not even made with goats milk…greeks allow greek olive oil to be reprocessed in Spain and Italy and sold in the USA under those brands…

          up until 7 years ago, most people did not even use ATM cards in greece…there was no monthly statements to send in to pay your utility bills…people stood in line to pay monthly bills…no one used checks…at least not the way we used to..the post office does not deliver your mail into your mailbox if you live in an apartment building or condo…they just dump the mail in a box and everyone has to scramble through to find what is for them…allowing the nosy neighbor to know about your life…there are no landesbanks, no credit unions, in fact per capita, the number of financial institutions per capita in greece is probably one tenth of that of germany…

          as to blowing up the system like a 5 year old and taking home the kickball…syriza is doing a whole lot better than I could have imagined…people don’t ever pay off their debts…inflation does that for most people…the same for countries…syriza will be able to free up 15 billion dollars a year in cash flow between lowered interest rates and dispersion of capital payouts…they have a majority control of the government for now and the next three years. Once they get past the next 18 months, the capital outflows needed reduce to almost nothing. They will get the job done.

          and realistically, Tsipras needs to forget Mutti and get inside the head of Gauck. Merkel was forced to accept Gauck despite her purported control of the politics in Germany. Tsipras needs to get Gauck to acknowledge the obvious…that there is no constitutional conflict in restructuring the debts of the Hellenic Republic, especially considering 1953 and that the last payment made on reparations even by their own warped sense of paying bills was finally made by Germany in 2010…

          Mutti might be the Chancellor, but Guack has the hearts and minds of Germany…

          and greece is different…

          Portugal, Ireland, Spain and France have banking systems that supported multinationals that had operations in Brazil, North America, South America, Africa and Asia. Supporting them without a “rent” was tantamount to funding jobs outside of Europe, either directly or through government export financing guarantees.

          Greece has no such enterprises. Any lending done by Greek financial institutions were all for entities in Greece or in Countries of Europe near and surrounding Greece. There are no former colonies to finance for the elites of the former colonizers.
          Tsipras will go to the belly of the beast. He will do a charm offensive in Germany, appear on media there and may end up with his own…”Ich bin ein berliner” speech which would destroy any cheap excuses…

          I was not a fan until I was totally taken aback and impressed at how he has handled the daily work of government. The greek people will give him some slack…there will not be protests on the street just because 30 days after being elected he could not pull off a miracle…

          and I think Merkel knows that…she is playing too tough considering her political career might be over in a few weeks if she looses her grip the way she lost the battle of trying to prevent Gauck from becoming president…

          1. Bobbo

            alex, This is not uniquely a Greek problem. The underlying problem is the structure of the Eurozone and the unchecked power of bureaucratic institutions and banks to trump democracy. The circumstances in Greece that you describe help explain why Greece is the first country to reach the critical point. But others will follow. Do you really want to wait around and watch a slow motion train wreck?

  13. Gary Orton

    Varoufakis said from the outset that Greece would not accept any more loans, eschewing “extend and pretend.” In a very short time, he’s convincingly educated many people the problem is one of insolvency and not illiquidity. (It registered with most people that if you are chronically unemployed, you shouldn’t use your credit card to pay off the mortgage.) Sure, he said he would work to get some more time from the February 28 deadline to work out a more comprehensive deal, but it looks like the troika fell into the trap he set. In its haste to hammer him, it looks like the troika is the one who will be recklessly collapsing banks. How could an insolvent country with a constrained currency act as a lender-of-last resort for a failed banking system? The piling on would rightly be perceived as bullying, which may ultimately cause it to back off or cause others to come to the weaker party’s aid. Part of game theory?

    1. Yves Smith Post author

      He also said Greece would not default. He made that promise repeatedly before he made his “no bailout” pledge. Moreover, when he said “Greece is not taking any bailout money” at that time he explained how his plan would work, and it was clearly dependent on getting waivers from the ECB.

      Defaulting would mean that the ECB would withdraw its support for the banking system. It may even be required to unless the ECB governing council overrules that, and I believe that would take a 2/3 vote.

      I sincerely doubt Varoufakis either wants to or would be allowed by Tsipras to default.

  14. MarcoPolo

    Yves, there are always precursors to great changes and we seldom recognize them for what they are. Perestroika, Glasnost; then the wall fell. Remember last summer, we were talking about some surprise from the ECB. So unimportant that I don’t remember what that was. And I, being cynical, said that it only represented a few basis point change in the political currents between Berlin and Paris.

    This Greek thing is a sea change. Forget the Germans. This will be done without them. In fact, it will have to be done without them. “Progress in Germany comes one funeral at a time”. I think that was Max Planck. Only a German (I know I’ll be starting something with this. So, forgive me but I want to be plain.) would blow a $50,000 deal over $150 in maritime insurance. Don’t just take my word for it. Ask around. The Turks know this too.

    Greece can form an alliance without Germany. And I’m convinced it will. It will be a struggle, for sure. It will take time. The power is entrenched. But it’s coming. France is in. Italy too, though they will be more circumspect publicly. Spain will be too, but IMO, only after Rajoy is gone. Ask Santi. He will know better than I.
    Austerity is done. Everything else is detail.

  15. DJG

    Marco Polo: Interesting comment. I think that much of Yves’s analysis has been very good, but the question isn’t that the ECB has put the leash on Greece. Tsipras and Varoufakis knew in advance that they would get the back of the hand. The question is what the Greeks will do next. And the Greeks will come up with something. Time for a new Okhi Day?

    1. Yves Smith Post author

      How can you be sure they “knew” that? Neither has been in a major government role nor interacted with any of these officials in a formal capacity. I believe they are flying blind. Moreover, Varoufakis is approaching the situation like a smart technocrat, trying to explain technocratic realities (like austerity does not work) in terms that are accessible to the general public. But many of the key players and the electorate in their countries are wedded to their existing beliefs and not open to new information and ideas.

      There is a solid literature on cognitive biases that says that when people have a strong existing belief, they reject contradictory information. Some will even double down on their priors. See this as an example:

      Key statement:

      In this paper, we report the results of two rounds of experiments investigating the extent to which corrective information embedded in realistic news reports succeeds in reducing prominent misperceptions about contemporary politics. In each of the four experiments, which were conducted in fall 2005 and spring 2006, ideological subgroups failed to update their beliefs when presented with corrective information that runs counter to their predispositions. Indeed, in several cases, we find that corrections actually strengthened misperceptions among the most strongly committed subjects

      So it may be that Varoufakis assumed he was dealing with counterparties who would see that their course of action was destructive, as in it would yield less financial payback from Greece and increase stress within the Eurozone. But what is best for the Eurozone may not be in the interest of many of these politicians and bureaucrats personally. And they may also have ego issues with someone they regard as a less than equal from Greece demanding that Greece be treated as an equal.
      .

      1. DJG

        Good response (although as worrisome as your analysis elsewhere on this thread as well as the responses by the commenters). By “knew,” I thought that Tsipras would be fully aware of the tremendous prejudices against his coalition, even from ostensible leftists in northern Europe. I also thought that Yaroufakis would have a fallback position: maybe an audit of debt, ideas of a moratorium, use of the Cyprus banking crisis as a counterexample (to be avoided). Yet it is true that we are witnessing EU expansion and bureacratization that is disastrous: Romania (basket case), Ukraine adventure (EU-destroying basket case), Hungary (political collapse), Baltic States (demographic collapse). Not to mention Portugal, a country with finances that weren’t all that messy but that was turned into a crisis. So we agree that much of the late-capitalist paradigm is rotten, yet you’re saying that the ECB folks are no savvier than Jamie Dimon. Would you say that the result here is that the troika is expropriating Greece?

  16. This is a real thinker. It’s time for the SYRIZA government to start nationalizing stuff, and quick. Or they could just fold, and wait for the public to elect the Communists or something like that.

  17. For what is sure to be a lively discussion of all this Greek drama, you are all cordially invited to hear Richard D. Wolff tomorrow night, 7:30, at the Judson Memorial Church (Washington Square) in NYC. The title of Wolff’s presentation is: “GREEK POLITICS MAKES STRONG LEFT TURN: POSSIBILITIES, OBSTACLES, AND GLOBAL EFFECTS.”

    It ain’t over till the fat lady sings!!

    1. Andrew Watts

      Keep dreamin’. What Syriza is to Greece was what the Social Democrats were to Weimar Germany. When the depths of Varoufakis’ betrayal or incompetence is known I reckon he won’t find a very welcoming audience here on Cfdtrade. Which if judging by most people’s comments seems to have descended into another full blown case of “Hope and Change”.

      When you’re aiming for an unattainable goal the last thing you can afford to do is bluff. At the very least it’ll make your opposition think you’ve gone crazy. I’m beginning to think wussy academics/intellectuals don’t have the stomach nor the fighting spirit for the clashes of will that politics requires. Which is why I never had that much faith in Varoufakis/Syriza in the first place.

  18. Tuolumne

    A good call, with a high probability of coming true.

    But there are other elements in the situation in addition to the bargaining at the top — especially Greek domestic politics. How are Varoufakis’s proposals and the ECB/German stonewalling playing in Greece? From here the Greek position appears flexible and accommodating, and the others appear wedded to the past. If, as Varoufakis contends, Greece is insolvent, and ultimately cannot pay off the debts, and cannot generate the GDP growth under present conditionality to pay off the debts (recall the IMF’s “incorrect multiplier” responsible for their bogus GDP growth predictions) — what does choosing to remain with the status quo mean for Greeks? How will that play politically with the segments of the population already in desperation? Will the anti-euro left and right parties benefit? Will Syriza go anti-euro? If the Germans keep blocking renegotiation, will any support remain in Greece for the Memorandum of Understanding restructuring?

    And assurances in the press notwithstanding, it appears no one really knows what the contagion risk may be after Greek default.

  19. Brooklin Bridge

    The opening moves were wobbly and the Troika/Germany cum media have given the classic response of the vile who know they are guilty; hit back with blind violence and ignore the harm and human suffering thus caused.

    1. Brooklin Bridge

      The issue for Varoufakis now is to thread the needle so he does not look weak like he is selling out the Greek people but rather the blame falls squarely where it is due and each day of pain visited on Greece highlights that inhumanity more starkly than the previous one, particularly for France and Spain, but ultimately for all to plainly see.

      1. Brooklin Bridge

        Yves has pointed out the mistakes (giveing ground before necessary and without concessions) and she has underlined her observations with astute and sympathetic recognition of the incredible difficulties facing Greece and the alarming but likely outcome – a horrible price for victory.
        This is intensely painful to watch unfold. We are watching civilization savage itself.

      2. Brooklin Bridge

        The above nesting was the only way I could find the “trip wire” that had been eating the comment when it was all one piece.

      3. Yves Smith Post author

        Agreed. What is being done is brutal but you have to watch the details to see why and how.

        If this all gets done by February 28, which is what the Troika appears to be pushing to have happen, the belief is that this will all fade from memory quickly and to the extent that anyone remembers, the “right” lessons will be drawn. Greece tried bucking the Troika and the current bailout framework and was quickly brought to heel. And Varoufakis and Tsipras will be forced to treat the results of their negotiation as a success no matter how little they get in the way of concessions.

        Now Varoufakis may resign. He said he would if he did not think he could be effective. But the Troika would position that as a success, that a stroppy academic was over his head and was replaced by someone more compliant.

        1. Brooklin Bridge

          Germany and the Troika would probably be wrong about one thing at least. People will not forget, at least not all of them – public displays of punishment have a way of backfiring, but this looks to be headed towards a really bad ending for Greece at this time.

  20. Linus Huber

    Freedom is not free of charge at all times. To escape from enslavement it often is a matter of radical action accompanied with temporary suffering. However in the long run, the sovereign (being the citizens of a country in a democracy) will certainly have their own wellbeing at heart whereas otherwise the interests of the “conqueror” becomes the deciding factor.

    The change in attitude depends on the pain threshold, changes gradually until it arrives at a critical point when a phase transition takes place. I second herewith MarcoPolo’s comment.

    1. Ned Ludd

      “This struggle may be a moral one, or it may be a physical one, and it may be both moral and physical, but it must be a struggle. Power concedes nothing without a demand. It never did and it never will. Find out just what any people will quietly submit to and you have found out the exact measure of injustice and wrong which will be imposed upon them, and these will continue till they are resisted with either words or blows, or with both. The limits of tyrants are prescribed by the endurance of those whom they oppress.”

      Frederick Douglass, an address on West India Emancipation, speech delivered at Canandaigua, New York, August 3, 1857

  21. kcramer

    Capital flight is easy, but real estate flight is not. If they can pull it off, Syriza should massively increase property taxes and offset the cost to households with property tax credits. The tax credits could be made transferable if desired to create a sort of pseudo currency or the credits could simply be distributed in short supply to increase net revenue such that owners or tenants of modest dwellings see no net loss (or perhaps even a net gain) but that absentee owners or owners of sur property see a huge tax bill. Just for kicks, the property tax credits, if transferable could only be deposited with the Greek government. (e.g. a postal bank state bank, or some equivalent entity) I doubt this could be done in time to avoid accepting the next bail out, but it could help end austerity.

    1. Doug Terpstra

      Sound policy advice, for the US as well. It would change the entire RE market from casino speculation to productive investment. 15 million indefinitely vacant houses would become homes as banks, foreign owners, and speculators would be forced to lease or sell.

    2. Robert Frances

      Not sure what “massive” means, but a property tax increased to a modest 1% of the value of all Greek real estate would raise substantial revenues that could be used for government spending and debt pay-downs. But rather than using a crypto-currency, progressive tax credits could be used by lower and middle-income households to apply against other onerous taxes that hurt their spending power such as VAT, income and payroll taxes. This would give more disposable income to many households and boost their economic consumption, likely creating more jobs and taxes in the process.

      When the term “property tax” is used, I think it’s important to distinguish whether we’re talking about a property tax based solely on land value or based on land, building value. Using the latter system rewards speculators and long-time oligarchs, whereas imposing a property tax on just the land value applies the tax equally on those using it productively as well as the speculators and land-hoarders. A property tax based on both land and building values punishes families and businesses that use their land wisely and efficiently and rewards the worst economic players, the speculators and blight-creators.

  22. Calgacus

    As far as I can see, the costs of Greek exit from the Eurozone are generally exaggerated, just as the cost of remaining in it are minimized. Greece is already in punishing austerity. Greece is already in a Great Depression. Most treatments of the question, seem to “prove” the assertion of unprecedented, unavoidable “unmitigated disaster not just for Greece, but for the whole Eurozone”- so obviously worse than the current real ongoing catastrophe killing real people in real time – by simply repeating the assertions, by circular logic. By the nearly universal practice in economics of grossly overestimating the power and importance of a foreign sector & belittling domestic agency as impotent – which in turn derives from bad monetary theory and accounting that then makes this craziness into a self-fulfilling prophecy. Even people like Mosler, Pilkington, Coppola who I cite below, as well as Varoufakis go along with this. (Among MMT thinkers, Mitchell & Wray, maybe Kelton seem to be less fazed by the prospect.)

    The obvious question #1 about Grexit is rarely even broached: Can Greece Feed Itself? The real experts say yes. . From all the talk of catastrophe, one would think Germans have tanks and planes poised at a border. People eat food, not money. They live in houses, not in computer storage on bank servers. Within living memory (barely) the USA survived a “banking system collapse” – before/during FDR’s bank holiday. It is not the end of the world. The US went on to the strongest and most equitable peacetime growth it ever had during the First New Deal. It would be rough for a while, but the Eurozone just isn’t the first unworkable monetary union to collapse. Greece will be able to trade – it will not be under an Iraqi style sanctions regime, which would be even less workable to impose on Greece. But the malign trade consequences to Greece that so many predict seem to be more appropriate as predictions of exactly such a enormous UN enforced regime than anything at all likely to occur.

    Whether a Grexit sparks a Eurozone Great Depression – is up to the rest of the Eurozone, not Greece. “There is no financial crisis so deep that a sufficiently large tax cut or increase in public spending cannot deal with it.” If the Eurozone decides to continue to be a suicide pact, a slaughter-bench of nations – they will probably get what they wish for, a Great Depression. If not, not. Like the gold standard, the first to exit the Euro may have a temporary but real advantage. As Mosler & Pilkington made the point here several years ago “should a nation exit the Eurozone in the manner we have outlined, a worldwide deflationary collapse might actually work to their advantage.” Mosler/Pilkington: Response to Yanis Varoufakis Regarding Our Eurozone Exit Plan

    I like Frances Coppola’s Forbes summary I quoted yesterday: See also . I think thinking of this as like a business negotiation (embedded in a working society, governed by intelligible rules) is a mistake. The Greek position is sane and honest. The German / Troika position is neither. No matter how many times Eurocrats say 2 + 2 = 5, it will not be 5. The ECB’s Christian Noyer is after all right – “Greece can quickly reduce its public debt ratio by boosting economic growth” – That would be a dandy solution and is perfectly feasible. The ECB just has to behave with minimal sanity and allow Greece to grow and stop making terroristic threats against Syriza’s eminently rational New Deal program. The ECB needs to stop sadistically saying that they will support Greece – as long as it tortures itself. The Greek idea to not leave the Euro unless forced out makes perfect sense. It is the parallel to the prelude to many wars: maneuvering to be the one who does not fire the first shot – to claim self-defense, to rally domestic population. The main task, the solution, as always is education, knowledge. Get people to see the truth: that the ECB, the German establishment, the Eurocrats and financial elitists are the freedom-hating terrorists extorting them, threatening their lives, not Greece, which just wants to live a normal national life. Of course support from other movements for common sense & numeracy like Podemos in Spain etc is welcome. It might even be decisive, it often is in such struggles. But the absolute essential is the Greeks themselves, and I don’t think Syriza is a walkover or has caved, or that the people of Greece elected them to submit to terrorists in business suits.

    1. The real problem is that capitalism sucks, especially for Greece (which apparently suffers through an especially kleptocratic version of it), and that the austerity cult the ECB has piled on top of capitalism is there to please the banking elites. Completing the conundrum is the fact that SYRIZA has staked out a position, so far, that isn’t really radical enough to force the banking elites to back off.

      Mark Weisbrot argues in today’s Counterpunch that what they’re really concerned about is the possibility that Greece could quit the Euro and recover more quickly than the rest of the EU. Too bad we won’t get to find out:

      1. charles 2

        Varoufakis is like Thomas J. Jordan of SNB fame, he will swear that he wants to stay in the Eurozone and not unilaterally default… as long as needed, and not minute more !

        “When it becomes serious, you have to lie”
        Jean-Claude Juncker, Current Head of the EU Commission

      2. ScottTx

        How much pull does Varoufakis have within the new Greek government? Everyone keeps talking about YV as if he were more than the finance minister. In the end, he is not the only decision maker in how to handle this crisis.

      3. Calgacus

        Well, what I believe matters to me at least. If it happens to be true, it might even matter to other people. It is not clear to me what it is that “Varoufakis believes otherwise” about. I do think he is quite wrong about some things as stated above, but they are not immediately relevant, for YV’s & my positions are closer than I had suspected.

        For the interpretation of his & Syriza’s statements is not as clear as Cfdtrade is making out. Coppola is more on the mark.

        IMHO, I think the exchange below from last year decisively confirms this. Syriza’s wavering, caving and ultimate opposition to Grexit (as an event, opposed to their action) is greatly exaggerated:

        I like the insightful title too for it is exactly what I said yesterday:
        That Greece recognizes its moral duty as a member of the Eurozone. The question is: Does Germany?

        Roger Strassburg: Yeah, I was going to say that I’ll believe that Merkel’s going to change when I see it.

        Yanis Varoufakis: Yes, me too.

        Roger Strassburg: I don’t think she will. I don’t think Schäuble will, either.

        Yanis Varoufakis: Well, you know what? In that case, the Eurozone is going to bid us farewell.

        Roger Strassburg: It will, but I think this is what’s kind of behind Heiner Flassbeck’s position that the peripheral countries should get out of the euro. That really isn’t his preference, but I think he has reached the conclusion that there’s not going to be any other choice, that it’s not going to get better.

        Yanis Varoufakis: He’s probably right. Where he’s wrong, and where I disagree with Heiner, is in his conclusion that we should simply get out of the Eurozone or, at the very least, threaten to do so. What we should do is veto the present policies. And bring things to a head. If I were the Greek prime minister I would declare that I would never going to get out of the Eurozone. “If you want to throw me out, go ahead and do it. Do your worst. Switch off ELA support to the banks and let everything go to hell. But I’m not getting out of the Eurozone. I’m also not going to fire 4,000 public sector workers in December. I’m not going to redeem the ECB for the bonds that it’s holding. And I’m not going to be talking to the Troika until and unless we have a European Union and Council in which we sit down and discuss reasonably and rationally what needs to be done. Now if you want to dismantle the Eurozone in the process by unilaterally discontinuing ELA support to my banks go ahead. If you want to get out of the euro yourselves, be my guest.”

        It seems to me that this outlines exactly the strategy Greece is following, and like some others, I think it is exactly the right one. It is quite premature to assess its immediate success or failure.

  23. The larger question is this: are Syriza and Varoufakis playing a game here where they try to exhaust all possible options by looking like they are willing to cut a reasonable deal on the debt, before they are forced to take another path? While Syriza has said it doesn’t want a Grexit, unless they are willing to betray all their election promises and vanish overnight as a political force they will soon have to choose between default/Grexit and simply becoming another transmission belt for austerity (unless an outside creditor steps in to save the day). It’s not that reformist left parties haven’t been known to betray their voting blocks when faced with the structural problems put in front of them by the capitalist world-system, but I do wonder if that’s the direction Syriza is headed (I hope not).

  24. charles 2

    All Varoufakis is doing, and I think the whole Syriza team is on the same page, is to try to save the face of Eurozone Creditors despite themselves. In that, he is truly a supporter of the EU.

    It is only when the eurozone will actually go nuclear (by restricting the ELA) that he will launch his counterstrikes :
    a) Increase the ELA notional despite ECB opposition. ECB can huff and puff and cry for murder and sue at the ECJ, there will be nothing else they can do than cut the cord of the Target2 system, I.e. implement capital control that Greece wants to have implemented anyway.
    b) Print Euros, REAL euros with Mario Draghi’s signature on them, to make sure ATM are always running full. To paraphrase Bernanke, the Bank of Greece has this technology called the printing press in a warehouse somewhere in Greece :-) . Again, what can the ECB do? Tell all retailers of the eurozone that they should not accept banknotes with a serial number starting by an X, except for a a range of serial numbers ? That would kill the currency and the ECB knows it.
    Also understand that it is a graduated response : the two above measures are reversible after an agreement on the debt. Last but not least, the ECB will no doubt sue the Greek State or the National Bank of Greece for alleged breach of EU rules, and the Greek government will fight it on grounds of “force majeure” because letting a domestic banking system implode is blocking the whole economy. Whether it is legally or morally valid is not relevant (even if I think it is morally valid), the point is that it will have to be fought on the ECJ, with the time and publicity that such processes implies, ample time to demonstrate that the situation is serious and to find a solution.

    This is a like a chess match between Gary Kasparov (the Eurozone Creditors) and Mike Tyson (Greece). As long the latter is willing to allow the chess match to continue, the former may think it will win a crushing victory until the other side decides to change the format of the match into boxing…

    1. Bobbo

      “Everyone has a plan until they get hit in the mouth.”
      – Mike Tyson

      (Quoted over at Ben Hunt’s Epsilon Theory blog)(Mike Tyson: Master Game Theorist – Nov 6, 2014)

  25. Swedish Lex

    Varoufakis will be meeting with both Schäuble and the ECB today.
    The situation is evolving as we speak so difficult to guesstimate what will happen.
    Greece has won the PR campaign 100% and Obama’s explicit support over the weekend was a game changer.
    If the ECB now says that Greece will not get any new cash, would it not be interesting to see Putin grant Greece 10 bn euro from his (dwindling) reserves pronto, with one or two Mediterranean ports as collateral…….
    I am not a friend of Russia’s, but the Europeans are playing this so terribly that they do not deserve any better.

    1. Yves Smith Post author

      It’s hard to buy that argument. Obama is a lame duck who can’t even get his top priority projects, the TTP and TTIP, done. And we’ve already learned on the EU big time with the Russian sanctions. The US is not in a position to call in favors, and Greece is not important enough to do anything more than make a gesture.

      Geithner was firmly and vocally opposed to austerity, and actively involved in those talks, and it cut no ice. And the US had way more leverage then by not having made the currency swap lines to the ECB permanent.

      Moreover, Obama is just using the austerity line for domestic purposes. He’s trying to use that to brand the Republicans. So this is just a new messaging strategy here and the Greeks are the accidental beneficiaries.

  26. Noonan

    It is extremely interesting to observe the international turmoil caused by Greece, which has a GDP equivalent to the state of Tennessee. Welcome to the new world order.

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