Euro crisis: “It might be something which would allow Greece also to at least, to some extent, get a new start.”

Have the Greek coalition partners in Government, led by the technocratic former Greek and European central banker, Lucas Papademos, done enough to meet the demands of Germany their eurozone partners?  Maybe… and maybe not.  As the Guardian’s live-blog noted today

Jean-Claude Juncker, who is also prime minister of Luxembourg, says the Eurogroup was still missing information from Athens on how it plans to save promised €325 million.
He says he also did not receive assurances from the leaders of the two main Greek parties that they will implement the program even after elections expected for April.
He said Tuesday the ministers will instead have a teleconference Wednesday and meet next Monday.

Yes, that Jean-Claude Juncker.  As Willem Buiter, with assistance from Ebrahim Rahbari, said in the FT yesterday [free reg req]

If the present agreement holds out, the hope in about eight years’ time is that Greece is in a similar position to that of Italy today. But without Italy’s high level of private wealth.

If that does not sound daunting enough, remember that the previous agreements between Greece and the Troika were not short of over-optimistic projections and unfulfilled promises. What was missing? The determination and capability to implement the agreed fiscal and structural reforms and privatisation measures. The current agreement does little to resolve the implementation problem. It is therefore highly unlikely to materially address the lack of effective control by the Greek government over public spending, fundamental weaknesses in public administration (including but not limited to the tax bureaucracy), insufficient savings by Greek households and an uncompetitive non-bank corporate sector. Expecting the agreement to correct these longstanding weaknesses would be a tall order.

The experience with the first Troika programme in Greece over the past 18 months has shown that a solution to the challenges Greece faces cannot be imposed from abroad. It would have to be supported by a broad coalition of the willing in Greece, of which there is little evidence. But until such a coalition materialises, Greece will at best live from review to review in the eurozone. Over the next few days and weeks, investors will undoubtedly greet signs of a greater likelihood of a final signing off on the second bail-out agreement and a completion of the debt swap with minor relief rallies, while retreating at each sign of possible breakdown.

But even with a debt swap, the Greek situation is likely to return to the markets’ attention in a few months at the latest.

At The Irish Economy blog, John McHale points to a recent longer article by the same two authors [pdf file]

[T]he positions of the main EA policymakers seem to have evolved and now suggest a greater willingness by EA creditors and the ECB to support vulnerable, but compliant EA member states under attack. In our view, EA leaders have come to the understanding that the financial, economic and political cost to the whole EA (and indeed to the EU and the global economy) of material EA break-up (that is exit of other nations than Greece) is substantially larger than the cost of extending conditional support. But EA creditor countries have also made increasingly clear that they no longer believe that the costs to the creditor countries of EA break-up or EA exit by one EA country would exceed the costs of creating a one-side fiscal union, a transfer-Europe without a commensurate quid pro quo as regards fiscal austerity and structural reform in the beneficiary countries, underpinned if necessary by far-reaching and unprecedented transfer of fiscal and wider economic sovereignty by the beneficiary countries. The EA creditor countries undoubtedly view the cost of providing unconditional and/or unlimited or open-ended fiscal and financial support to fiscally vulnerable EA countries as a price not worth paying to keep a single non-performing EA member state in the club.

And it would appear that is a growing sentiment…

Luxembourg became the latest of the eurozone’s wealthy “core” countries on Monday to suggest that if Greece left the single currency, it wouldn’t be the end of the world. In fact, finance minister Luc Frieden even broke another taboo, suggesting Athens could actually benefit.

“It might be something which would allow Greece also to at least, to some extent, get a new start. It would help Greece to create an economy that can create jobs,” he said, before adding that of course, as a eurozone finance minister, that wasn’t a scenario he would “prefer”.

The latest figures show that the Greek economy contracted by 7% in 2011 – more than a year after the country was “bailed out” by its eurozone neighbours. By 2013, Greece is expected to have been in outright recession for five consecutive years. That’s not just a downturn, it’s an outright collapse. Yet far from standing shoulder to shoulder with Athens, eurozone ministers are imposing ever more impossible demands. Even if the €130bn (£109bn) bailout Greece needs to meet a bond repayment is released hammering its economy with fresh cuts could push social and political tension to boiling point. “Grexit”, as it’s become known, is looking more likely by the day.

Well, it is serious…  [And “the political trilemma”? – Ed]  Ask Frau Bundeskanzlerin.

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  • wild turkey

    “Luxembourg became the latest of the eurozone’s wealthy “core” countries on Monday to suggest that if Greece left the single currency, it wouldn’t be the end of the world.”

    Does Luxembourg have a finance/bank based economy? i do not know.

    what the current crisis seems to be about is not greece per se. but the ecb’s previous decisions to purchase greek sovereign debt to…. get us to the current situation. which in turn seems to be that the ECB is potentially exposed to toxic greek debt, and if the greeks go belly up, so does the ECB… and so does the Euro.

    Bottom line? the bailout is not on behalf of Greece; its people, its civilisation, its history. The bailout is to save the ECB and financial institutions that, amongst others, the Germans have previously thought sound.

  • Pete Baker

    “Bottom line? the bailout is not on behalf of Greece”

    Doh!

    “The bailout is to save the ECB and financial institutions…”

    Try again.

  • DC

    ‘Try again’

    Maybe you should try again Pete Baker, try writing – for the purposes of clarity – about what you actually think is going on rather than hyper-linking other people’s work all the time and poking fun at others who disagree with your take on those hyper-linked views and opinions (of others).

  • Pete Baker

    “Maybe you should try again Pete Baker…”

    Everyone’s a critic…

  • DC

    Listen, I’ve bigger things on my mind tonight, the future of Rangers FC, can’t hang about here.

  • Pete Baker

    Bye then…

  • Alias

    “But EA creditor countries have also made increasingly clear that they no longer believe that the costs to the creditor countries of EA break-up or EA exit by one EA country would exceed the costs of creating a one-side fiscal union, a transfer-Europe without a commensurate quid pro quo as regards fiscal austerity and structural reform in the beneficiary countries, underpinned if necessary by far-reaching and unprecedented transfer of fiscal and wider economic sovereignty by the beneficiary countries. The EA creditor countries undoubtedly view the cost of providing unconditional and/or unlimited or open-ended fiscal and financial support to fiscally vulnerable EA countries as a price not worth paying to keep a single non-performing EA member state in the club.”

    Willem Buiter is very persuasive (in the PDF file) but he surely knows that such sentiments, if they are widely proffered, are unfounded.

    He refers to the leaked document (Assurance of Compliance in the 2nd GRC Programme) in that file, but doesn’t appear to grasp that its content undermines the alleged sentiment that “EA creditor countries” view their actions towards Greece as a selfless act:

    “Greece has to legally commit itself to giving absolute priority to future debt service. This commitment has to be legally enshrined by the Greek Parliament. State revenues are to be used first and foremost for debt service, only any remaining revenue may be used to finance primary expenditure.”

    It is explicit that they regard their actions (or the lead creditor state, Germany) as entirely selfish, serving the singularly purpose of extracting money from Greece and transferring it to the creditor states.

    The primary functions of a sovereign parliament are to be constitutionally binned, with absolute priority to be given to the new role of parliament as a debt collection agency for foreign creditors. Only is any “remaining revenue” that may be used for the benefit of the Greek nation.

    The proposed fiscal transfers from Greece to these foreign states cannot be guaranteed if Greece is not within the eurozone and therefore not subject to this parliamentary coup by Germany. Unless it is the case that the creditor states can use this control to make it constitutionally impossible for Greece to default should it leave the eurozone, the logic is that it should be kept within it and under German control.

    What we are seeing here is Germany benefiting from transfers of wealth within the closed monetary system, from the smaller states to the larger states. It has long been argued that one of the primary flaws of the eurozone was that there was no system in place to ensure that wealth flowed from the larger states to the smaller states to counter the pull of wealth from the periphery to the core.

    What we are now seeing are systematic transfers of wealth, not from the larger states to the smaller states but from the smaller states to the larger states. However, we are seeing it presented to the public as the altruistic reverse.

    Only 19% of the ‘bail-out’ funds that went to Greece stayed in Greece as public sector spending. The other 81% went to bail-out French and German banks who would have massive losses from their reckless lending to Greece if the bail-out did not enable Greece to repay those (otherwise bad) loans. That 19% is also provided to enable Greece to fiscally transfer from public sector spending in its budget to debt repayment, so every cent of the bail-out fund (and more on top) is a bail-out for banks in those creditor states and is not in any way provided as aid to the Greek people.

    Willem Buiter, as Citi Bank’s economist, is not going to be in a position to make political observations that show the EU to be operating as self-serving predators who have abandoned democracy and the welfare of a member nation in order to protect wealthy banksters so he has to follow his own paid logic…

  • Alanbrooke

    You see we didn’t join Europe just so we could take orders from the Belgians; we take orders from the Luxemburgers instead.

  • tuatha

    WildTurkey, re Luxembourg’s industrial prowess – would you believe that they are the world’s largest manufacturer, for export, of false teeth? And of course their ‘service sector’ as a tax haven. Not unlike the unlikeness of mayo being the world’s largest manufacturer of Viagra… errr.. ummm…
    HUBRIS update – the ECB has “warned” (WTF!?!) Greece that their forthcoming elections CANNOT alter the terms of financial surrender. And NEMESIS follows Hubris.
    I, for one, welcome their Alien Overlords if it means that I might again be able to buy ten shots of ouzo for the price of a loaf of bread.
    In kommunist Russia, sausage was cheap and vodka expensive. Now vodka is cheap but sausage expensive.. gotta be a moral there… somewhere.
    Does anyone recall our last budget which increased prices, taxes and every other charge under the sun… except alcohol?

  • Greenflag

    @ Alias ,

    ‘The other 81% went to bail-out French and German banks who would have massive losses from their reckless lending to Greece if the bail-out did not enable Greece to repay those (otherwise bad) loans.’

    As well as German and French banks -some American banks are also lined up for massive losses .Some 450 approx American Banks have gone ‘bust’ over the past few years and there’s another 850 on the edge of the abyss . A Greek default would be enough to send a number of these over the edge and drag some more ‘lemmings ‘with them a prospect not favoured by President Obama’s re-election team.

    Meanwhile the Wall St ‘banksters ‘ win again and before even the ink is dry (it has’nt dried yet on the new ‘deal’ for Americans . More Orwellian by the day at this stage

    http://www.democracynow.org/2012/2/10/50_state_25b_mortgage_settlement_relief

    And the numbers

    What makes the situation completely surreal are the numbers. Greek debt in 2008 was approximately 260bn Euro. The first bailout was 110bn, the current one, that appears to be tearing the country apart, is 130bn. Add in the PSI+ haircut of approximately 100bn ( after sweetener deduction ) and you realized that Europe could have simply paid the entire bill in 2008 and saved itself 80bn Euro. Ok, that is an oversimplification of the problem but you can see my point.

    However now, after 340bn Euros, Greece is still has an unmanageable debt, is in a far worse position than it was 3 years ago and it appears the country itself is coming apart at the seams.

    So basically the Greek politicians and the other Eurocrats took a quarter of a billion euro problem and turned it into a existential trillion Euro one. Worst still their refusal to work cooperatively and misguided policies based around “expansionary fiscal contraction” have plunged Greece into a depression which threatens contagion to other weak economies. Yet at this point I can see absolutely no data suggesting the country is in any way more competitive than it was 3 years ago.

    http://www.nakedcapitalism.com/2012/02/the-killing-of-greece.html#comments

  • Harry Flashman

    I mentioned in a previous post that in the near future the fight in Greece would be between the far Right and the Communists. Greece is after all a nation that has been in a barely concealed state of civil war since the 1940’s, only the massive subventions, now finished, from the EU gave it an air of stability.

    This is an interesting article from Forbes

    http://www.forbes.com/sites/billfrezza/2011/07/19/give-greece-what-it-deserves-communism/

    Maybe it is a time for the Communists to take over in many countries, after all they’re so damn convinced that it is capitalism that has brought us to this pass, let’s see those Commie geniuses have a go at running things for a change.

    I mean look at Castro, Chavez and Jim Kim Dong or whatever his name is now, what could possibly go wrong?

  • Greenflag

    Again Harry you fail to distinguish your ‘capitalisms ‘ Your Commie geniuses have their counterparts in Wall St and the City of London and we see what a mess they have made . Financial services dominated capitalism is just the other side of the coin from communism in that both ideologies offer the same pack of goods -power and extreme wealth for a small minority and various degrees of emisseration or powerlessness for everyone else . Here’s the BBC explaining to you why you are better off where you are instead of having a 16 to 1 chance of getting a job in that bastion of the free market in the UK i.e Hartlepool.

    http://www.bbc.co.uk/news/business-17037635

    And heres the real secret to Germany’s relative economic success

    http://www.bbc.co.uk/news/business-17017217.

    It seems that while the UK was wrapping up Empire and devaluing it’s currency and begging to be allowed to join the EEC the Germans saw the China ‘opportunity’. They also did’nt make the mistake of electing an anti trade union Thatcher and putting all their eggs in the services and financial sectors.

    Instead of comparisons with Cuba , Venezuela or North Korea why not compare with Denmark , Sweden , Norway , Netherlands , France , Germany , Switzerland etc all countries in which educational standards , life expectancies , standards of living , and health care provision all exceed USA, UK and ROI standards .

    As for your Forbes ‘article ‘ the writer ignores the most pertinent fact because his ’employer’ would’nt want it mentioned .

    Here’s the quote

    ‘Why the E.U. extended credit to a nation whose governments have been in a chronic state of default since the country gained independence from the Ottoman Empire in 1832 is a fitting subject for a News of the World expose. Perhaps they were being advised by Fannie Mae’

    Everybody with half a brain knows by now that the Greek entry into the Eurozone yes it was a rear one was wholly prepared and financed by short term ‘loans’ by that most prestigious and pillar of integrity financial institution known as Goldman Sachs and not Fannie Mae . What role the Germans and French played in the subterfuge is not yet known . I find it difficult to believe they were wholly ignorant of the true state of Greek national finances at the time .

    As I write theres another snag with the Greek bailout and it looks indeed like they are being hung out to dry/die who gives a shit eh ? Not financial services capitalism anyway 🙁

  • The Greeks have had 5 years of recession. The drop in GDP is now higher than in the UK in the 1930s and is continuing.

    The people in Greece are suffering, to such an extent, that it is unacceptable for the posturing in Europe to continue any longer. I think it is time for our Government to start demanding that Greece has to leave the Euro in its own best interests. Keeping them in gives them no hope of growth. Greek society is collapsing into a banana republic.

    Maintaining the status quo is alien to a European Community which is supposed to be a model of civilisation. Greece needs to leave the Euro to give them the oxygen for their economy to grow. They also need some provision to help them to adjust to life outside the Euro.

    I suspect most of those selfish Eurocrats still would prefer to ignore the reality. For the Greeks, meanwhile, the status quo of them continuing in the Euro is more harsh, more cruel and more aggravating than Landlordism was to ordinary Irish people during the 19th century Famine.

  • Greenflag

    ‘ For the Greeks, meanwhile, the status quo of them continuing in the Euro is more harsh, more cruel and more aggravating than Landlordism was to ordinary Irish people during the 19th century Famine.’

    Rubbish SM – A million Greeks haven’t starved to death or succumbed to famine related deaths by cholera or typhoid etc . Neither have a million others fled Greece -well not yet anyway .

    The selfish Eurocrats are NOT alone in this ‘rescue’. They and their back up politicians and front men in Berlin , Paris and New York are merely the proxies for the German , French and American and other banks who want their money or the requisite pound /kilo of flesh .

    In mid 19th century Ireland the word ‘landlordism’ obscures the multilayered (up to seven ) hierarchical levels of parasites (rentiers) who lived off the labour and produce of the cottiers.Land was apart from a few areas in the north east and Dublin the only source of wealth and sustenance .

    Greece will survive -in or out of the Eurozone . They always have .

  • Greenflag

    And so too will Ireland .

    Joan Burton finally manages to speak up and out against the Merkozy less than dynamic duopoly who have been can kicking this euro crisis down the road now for years 🙁

    In her speech in Brussels, Ms Burton said the European Central Bank also needed to be self critical regarding its monetary policy and how this played in fuelling the credit bubble in Ireland.

    While noting that the ECB had given substantial assistance recently to Ireland, and the interest rate on Irish government bonds was dropping, it also had a major responsibility in allowing enormous flows of credit into Ireland.

    That said, she said Ireland needed also to recognise its failings in decisions made by banks, developers, regulators and the former government.

    end

    Mrs Burton made no reference to the 9% of Irish mortgage holders who have chosen to eat and clothe their children instead of paying mortgages into a bottomless pit of negative equity.

    German Finance Minister Schauble has called Greece a ‘bottomless ‘pit. Schauble never mentions that at the bottom of the pit there be German, French and American banksters with ‘insatiable’appetites.

    Greek writer Petros Markaris through his Inspector Haritos novels sees another ‘bottomless’pit.

    “The turning point in the European crime novel, Markaris says, was the fall of communism in the east and the opening up of borders.

    “It’s a globalized crime, it’s all over the world, and governments are just looking away. The cleaning process of this money, then the flow of this cleaned money into the regular financial system, is so big that nobody dares to touch it, and this is the big topic of the modern European crime novel,” he says.

    Governments just looking away .

    http://www.npr.org/2011/09/01/139718830/athens-cop-on-the-trail-of-modern-greece