Tuesday, July 24, 2012

Greece and the euro crisis today

Representatives of the Troika (EU, IMF, ECB) are in Athens negotiating the next steps in the ongoing Greek bailout. More specifically, the provision of funds to the Greek government for the purpose of paying back sovereign debt obligations whose default could drive the shaky European financial system into deeper crisis.

Γιάννης Ιωάννος (Yannis Ioannou) in his 07/22/2012 Sunday Gulag cartoon picturing German Chancellor Angela "Frau Fritz" Merkel shows camp commandant Frau Fritz arriving with the Troika:


In his 07/19/2012 cartoon, Iannou pictures the leaders of the Greek government coalition parties arriving to operate on patient Greece on behalf of the Troika:


Opposition Syriza Party leader Alexis Tsipras demanded that the Greek government break off the Troika negotiations and instead insist on a new EU summit to develop a solution that doesn't drive the Greek people into poverty (Tsipras calls for government to end troika talks Athens News 07/23/2012):

Addressing the Syriza parliamentary group on Monday, Tsipras voiced his party’s determination to engage in dynamic action against privatisations and made a special reference to the case of ATEbank, calling it a “premeditated crime”.

He also referred to the Hellenic Postbank, stressing that “private interests and their stooges” will be met with his party’s strong reaction.

The Syriza leader further lashed out at the three-party government, accusing it of letting time pass instead of negotiating, effectively accepting the country's "total isolation", as he claimed.

He spoke of "imminent bankruptcy measures," adding that “the programme has failed.” He also said that the memorandum has gone bankrupt and “its architects, like the IMF, are the first to jump ship.”
His reference to the IMF bailing out is a reference to a report that the IMF is going to, well, bail out of aiding Greece. Patrick Donahue reports in Euro Crisis Deepens With New Spain Woes, Short Sale Ban Bloomberg News 07/23/2012:

The Washington-based IMF has signaled to European officials that it will stop paying further rescue aid to Greece, bringing the country closer to insolvency in September, Der Spiegel magazine cited unidentified European Union officials as saying in this week’s edition, published yesterday. It’s “already clear” to the troika that Greece won’t reach the 120 percent target, Spiegel said.

The fund responded to the Der Spiegel report, saying today in a statement it is “is supporting Greece in overcoming its economic difficulties.”

Missing the targets means Greece would need between 10 billion euros and 50 billion euros in additional aid, a potential outcome that the IMF and several unidentified euro- area states are not prepared to accept, Spiegel said.

Once taboo, the possibility that Greece could exit the 17- member monetary union has been voiced this year by European officials who consider the fallout from such a scenario would be the lesser evil against a seemingly perpetual crisis.
Some leading politicians in Frau Fritz' coalition have been basically threatening Greece with outsting them from the eurozone, though that isn't yet official German policy. Most notable so far this week was her Deputy Chancellor and Economics Minister Philipp Rösler (FDP). (Rösler erwartet baldigen Euro-Austritt Athens Spiegel Online 22/07/2012; German Minister Criticized for Greece Comments Spiegel International 07/24/2012)

Conservative Greek Premier Antonis Samaras protested in a pitiful tone. (Antonis Samaras. Griechenklage – "Sie tun alles, damit wir scheitern" Welt Online 24.07.2012) But Frau Fritz' government has no respect or pity for him or his country. After his government fails and he eventually leaves the country because everyone there despises him, he'll may land some nice corporate or investment banking job sinecure for being a loyal toady to One Percenter demands. But who could take him seriously at this point as a spokesperson for Greece?

Paul Krugman warns the German officials that they might want to think this through before they insist on kicking Greece out of the eurozone, because a euro collapse will cost Germany big-time. In A Foolish Lack Of Terror 07/23/2012, he writes:

I’m not saying that Greece should be kept in the euro; ultimately, it’s hard to see how that can work. But if anyone in Europe is imagining that a Greek exit can be easily contained, they’re dreaming. Once a country, any country, has demonstrated that the euro isn’t necessarily forever, investors — and ordinary bank depositors — in other countries are bound to take note. I’d be shocked if Greek exit isn’t followed by large bank withdrawals all around the European periphery.

To contain this, the ECB would have to provide huge amounts of bank financing — and it would probably have to buy sovereign debt too, especially given the spiking yields on Spanish and Italian debt that are taking place as you read this. Are the Germans ready to see that?

My advice here is to be afraid, be very afraid.
But it's probably too late to avoid the disintegration of the eurozone. This week we see the chronic crisis conditions: Greece on the brink, Spain and Italy facing unsustainable bond prices. One of these times, the [landslide starts, dam breaks, or insert your favorite metaphor here]. Krugman thinks the timing of the next major phase of the euro crisis, which most likely will start with a run on Spanish banks, will follow what he calls Dornbusch’s Law after this quote from the late economist Rudi Dornbursch: "The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought, and that’s sort of exactly the Mexican story. It took forever and then it took a night." (Krugman, Dornbusch’s Law And The Euro 07/20/2012)

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