“The stark reality is that we only have five days to find the ultimate agreement,” said a visibly irritated European Council President Donald Tusk, the former prime minister of Poland. “Until now I have avoided talking about deadlines. But tonight I have to say it loud and clear — the final deadline ends this week.”
Standing at his side at E.U. headquarters in Brussels, European Commission President Jean-Claude Juncker of Luxembourg pounded the lectern as he announced that Europe has detailed plans for Greece’s exit from the euro zone — known as “Grexit” — and for delivering humanitarian aid to Athens.
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Greek Prime Minister Alexis Tsipras had a starkly different account of the meeting, saying it was “positive” and that he had outlined proposals for a “socially just and economically viable agreement.”
The wildly different accounts suggested how difficult it will be to reach a deal in time to pull Greece back from the edge of an abyss that both sides have said for months they are desperate to avoid.
I am wondering, though, what Greece is going to do if they run out of cash for the ATMs before the 5 days are over.
Last question first, there’s no reason why there has to be hyperinflation if Greece takes control of their own currency. I think that scenario is unlikely, though not impossible.
I would prefer to simplify things this way. We’ve seen countries in debt crisis before. What happens is that foreign capital leaves suddenly, the currency depreciates, and that last effect forms the basis for economic recovery. Greece doesn’t have access to that cushioning mechanism.
US states share a common currency. Sometimes certain regions suffer when their local industry takes a hit: think about Oklahoma and Texas when oil prices collapse. What saves them is a) lower incomes means they send less taxes to the Feds, b) higher welfare payments from the Feds follow and c) some of their residents migrate to more prosperous states. Greece can only do c) and that mechanism is weaker due to language barriers. Greece could sensibly stay in the Euro if the countries involved pursued much greater fiscal integration. But Germany, France, Netherlands et al don’t really want that.
Over in the US South Carolina routinely receives $5 of federal money for every $1 they send back. It’s a nonissue in US politics.
Are you sure they don’t? I was under the impression that the opposite is the case. These countries want greater fiscal integration. - Then again it probably comes down what “fiscal integration” means to you. If it only means that the entire Eurozone vouches for credits given to its members, while each government can freely decide how much it borrows and what it spends the money on, then you are right. But fiscal integration would have to also mean that individual countries hand part of the control over their fiscal policy over to a central governing body. The problem is to agree on what that governing bodies guiding principles would be. The strict fiscal discipline preferred by most of the northern countries or a more “Keynesian” approach to stimulate economy?
As I see it, noone is opposed to greater fiscal integration. There just is no agreement on the terms of it.
The notion that any politician goes into a referendum with no plan B in case it doesn’t go the way they would like is laughable.
He’s about to walk into a negotiation where the people on the other side of the table probably have much more to lose then him. He’s been given clear permission by his electorate to not negotiate, to default on their debt and drop out of the Euro.
Of course if they do that they’ll be facing some extremely tough times ahead, but they would have been facing those if they’d gone with the deal the Eurozone had dictated to them. At least this way they’re not expected to say thank you to others for the shit they have to swallow. They can do a deal with Russia for oil supplies, which is the main import good they can’t do without, put some 5 year plan of their own in place, and start rebuilding. A good politician, if he can spread the pain around enough to make people feel they’re really all in it together, could spin the them vs us aspect of this to actually end up a hero.
Whereas the other side of the table have got some much messier crap to deal with. If they let Greece go, the Euro is going to have a very difficult time of it. The main politicos at the table, particularly Germany and France, are going to be seen as responsible for this body blow to the Euro. $200 billion will have to be written off by the Eurozone. Britain will be able to play this card for years ahead, saying tighter integration of the European Community is clearly not possible in such unsettled times. Concerns over possible defaults by the rest of the PIIGS will lead to greater costs of debt. Messy, messy stuff.
So Syriza is effectively walking into a meeting where he doesn’t have to say anything beforehand. He’s dismissed the person most likely to derail any meeting. All he has to do is walk in, sit there, and wait to see what improved offer the other side makes. If there isn’t one, he walks out and tells his people the EZ stuck to their unacceptable deal, leaving him with no choice. Same story if they don’t improve their terms enough.
Basically this situation is a real life version of the old joke: if you owe your bank a thousand pounds, you have a problem. If you owe them a million, they have the problem.
You’re right, MfM is wrong. The main lead countries for the EU barring Britain have been pushing for greater financial integration - and it would have to be as part of the EU constitution.
One thing to keep in mind is the nature of the European Union. For most of its history, the EU was (and to a large extent still) is a giant mechanism for distributing subsidies. Members countries pay huge amounts of (tax payer) money into a large pot from were the money is sent to all four corners of the EU, for building roads, highways, bridges, airports, infrastructure, for all sorts of cultural and social projects etc. A very significant chunk of this money, especially in the olden days, are subsidies for agriculture. Scamming the European bureaucracy for payments for cattle or crop fields that only exist on paper is a time-honored activity in many European countries.
Some countries have been paying much more into the pot than they receive out of it for decades. Others have benefited extensively, for instance Greece, which joined the European Union in 1981 and must have received many, many billions of Euros over the years. I wonder if anybody has ever done the exact math.
I do not believe that the situation of Prime Minister Tsipras is as comfortable as you describe it.
It is not true that the Greek electorate has given him permission to drop out of the Euro. In fact the “No” camp has stressed during the campaining before the referendum that it was not about saying no to the Euro and that in fact the “No” would help ensure that Greece gets to keep the Euro. If I am not mistaken, one minister claimed that after the “No” a favourable agreement with the EZ would be reached “within 48 hours” and that the banks would reopen on Tuesday.
You say that after a “grexit” Tsipras just needs to weave a skillful tale in order to come out a hero? Maybe that’s true. He would not be the first politician to pull this off. But the Greek opposition will surely remind him of his promises. As for the Greek people: If the EZ have it their way, they will be in much the same place that they were in before Syriza got elected. Obviously not a situation they liked much in the first place - but if the banks do not reopen sometime soon, they might well feel that it was the lesser evil.
Question: What makes you think that Tsipras can get Russia to supply Greece with the much needed oil? Greece would hardly be able to pay market prices for that oil, and for all I know Russia has as yet shown no inclination to grant Greece a generous credit line.
He has been given full permission to say no to the proposed cash-for-austerity offer from the Eurozone. That means if they do not significantly improve their terms, he can decline it with absolute authority.
The mood in Greece is quite clear, as you can see from the overwhelming vote of No. The people there have been confronted with two flavours of shit sandwich, and have opted for the one where they don’t have to feel pushed around by Germany and other countries. It would not take much exploitation of that feeling of unfair treatment for Tsipras to remain very popular.
Why would Russia give a generous credit facility on a commodity that is trading at a very low current price, when by doing so it would help to destabilise a political block that are imposing sanctions on Russia?
Yes - at first glance that looks like it could be tempting for Russia: supply Greece with oil on a credit basis and in return gain a Greek veto when it comes to extending EU sanctions. That concept has been thrown around for some time now - especially after Tsipras met with Putin. The thing is: It has never materialised. I think it is safe to assume that both parties have explored whether they could strike a deal along these lines. But so far they have not. Russia never even lifted the ban on Greek agricultural imports. We cannot know for sure why that is so but for both parties there are considerable risks involved:
Russia’s economy is currently not in the best place. The EU sanctions and (much worse) the low oil price are putting quite a strain on it. And Greece would not sell its vote cheaply so Russia would have to go in with a sizeable chunk of money that may or may not ever be repaid. Much worse: Any control over the Greek vote in the EU would only last as long as the Syriza government. So to Russia the whole deal might appear a little shaky.
From the Greek perspective the “Russia-option” is not all shiny either. Brazenly selling their vote to Russia would make them a pariah within the EU. It would also strongly alienate the US. I cannot say that I am sure, but I doubt that Tsipras is ready to take that step.
They’re going to be a pariah in Europe anyway, and it’s not like the US has done much for them lately. And frankly, it’s a much less shitty offer than the Eurozone’s “get yourself in even greater debt and accept a whole raft of imposed austerity measures” idea.
“…and facing the elimination round this week is…”
<drumroll as camera cuts to faces of housemates one by one>
“Greco!..Greco, you failed your collect taxes challenge, and once again need to pack your things and prepare to leave The Mansion. In the meantime, your housemates must decide what your next challenge will be.
If you fail that, you could face the elimination round.”
Greece has formally filed a proposal for financial aid under the ESM. The good news about that is that there are still attempts being made to avoid the Grexit (which I believe would not be the best solution for anyone). But of course filing a proposal is the easy part.
The EZ members expect Greece to lay out a detailed reform plan by Thursday, and they have made it clear that under the circumstances those reforms would have to be tough. Problem is that the referendum has effectvely taken away Tsipras’ mandate to agree to such reforms. To ignore that would be a very bold move on his part. One he can only make, if he gets something to show for it. He must get the EZ members to also cross one of their own red lines. The debt write-off could be that red line. If Greece agrees to the reforms demanded by the EZ, implements them and follows through with them for a few years, grant them the much discussed “haircut”.
For Syriza that would be a major victory. One of their key demands would be met. That should allow them to stand before their electorate and justify why they decided to agree to the reforms in the end.
The EZ would see Greece walk the path of consolidation as they have long asked them to. Plus they would have reassurance that the write-off will only happen, if Greece sticks with the programm. Beyond that, placing the write-off at a defined point in the future will enable EZ members (especially the poorer ones) to prepare their own budgets for the loss that a write-off inevitably means.
I cannot say that I am too optimistic that it is going to play out this way - too many parties would have to move too far. But one can always hope.
So does anyone actually talk about how they’re going to imlrove the Greek economy. It’s kind of ridiculous how debt relief and government spending is the sole focus of this crisis. If you can’t get a real economy working none of this will help, even if the debt was completely forgiven and the gov slashes to the bone. No?
Exactly. A lot of the discussion (not just here but in Europe) is distracted by the blame game, instead of examining the abject failure of troika-recommended austerity measures to help Greece’s economy recover.
To make a parable of it: If you have a debtor who can’t pay you back, and you forgive 75% of his debt; do you let him get a good-paying job to pay you back the 25%, or do you call his employers and get him fired all the time so he can suffer? Are you motivated by vindictiveness or a desire for better outcomes for all?
The Eurogroup/ECB/IMF troika, and the various European governments who bought the bad debt from the banks who lent the money in the first place, demanded a level of austerity that to all appearances worsened the depression in Greece to nigh-catastrophic levels. Why? Did they really think it would help? It didn’t. Was it spite? Well, what does that help?
In that context, I certainly don’t blame the Greeks for their reaction. I understand the Greek finance minister for calling his counterparts in the EZ “terrorists.”