Greek default seems to be inevitable...what's the fallout?

[Terr]

@up_the_junction

It’s being nicely set up for an emotional Parliamentary response, that’s for sure.

I’d burn in hell before accepting this, which I guess is the idea …

@Donnerwetter

If I were a Greek MP, I wouldn’t accept this either.

Greek MPs have the choice:

(1) accept the agreement that is “humiliating” but does a lot of good things for the economy at the expense of immediate financial pain to the citizens, and if implemented properly has a chance of bringing some prosperity to Greece.

(2) reject the agreement, and bring much worse immediate financial pain to the citizens, with same old continuing financial and economic policies and no prospects of any improvement.

But (2) provides for “dignity”. Can’t eat dignity though.

[Rune]

@CarnalK

People must have a pretty damn poor impression of German democracy if they think a sitting finance minister can hold a profiting position with a bank.

It’s silly because the exact reason Germany is rich and Greece is poor is that Germany doesn’t tend to collude those two as much as Greece.

[XT]

@Donnerwetter

If I were a Greek MP, I wouldn’t accept this either.

What choice do they have at this point? Their banks will run out of money if not today sometime this week. At that point their entire financial system will collapse, and unless they have been secretly creating a new monetary system on the sly AND have it ready to go they are fucked. They let this crisis get to the point where they have no other choices and no time left. I’ll be shocked if the Greek MPs ae stupid enough to vote against this at this stage (some will, no doubt, they they will be ones who are confident that enough others will vote for it that they can safely vote against to make a political statement/gesture).

[QUOTE=up_the_junction]
It’s being nicely set up for an emotional Parliamentary response, that’s for sure.

I’d burn in hell before accepting this, which I guess is the idea …
[/QUOTE]

Good thing you aren’t in charge then, as you’d merrily be taking Greece off a cliff cursing the Germans the whole way down to the bottom.

[camille]

Interesting take on the deal in FT:

If anybody has capitulated, it is Germany. The German government has just agreed, in principle, to another multibillion-euro bailout of Greece — the third so far. In return, it has received promises of economic reform from a Greek government that makes it clear that it profoundly disagrees with everything that it has just agreed to. The Syriza government will clearly do all it can to thwart the deal it has just signed. If that is a German victory, I would hate to see a defeat…

The Greek referendum on July 5 was in essence a vote that the rest of the eurozone should continue to lend Greece billions — but on conditions determined in Athens. That was never realistic…

Much of the comment about the loss of Greek sovereignty, in the outline deal just agreed, has focused on the idea that Greece will now have to privatise €50bn worth of assets, and that foreigners will supervise the Athens-based fund. Given the record of corruption and clientelism of successive Greek governments, that sounds like a very good idea. But Syriza’s deep opposition to privatisation makes it unlikely that anything like €50bn will be raised.

I wish them luck trying to squeeze 50bn out of the Greeks. Even the IMF thinks that is unrealistic. They’ll be lucky to see 20bn.

[up_the_junction]

I don’t believe there is a straighter, more insightful daily publication anywhere - if that is FT journalism rather than an opinion piece I wouldn’t argue with it.

[Terr]

@camille

Interesting take on the deal in FT:

I wish them luck trying to squeeze 50bn out of the Greeks. Even the IMF thinks that is unrealistic. They’ll be lucky to see 20bn.

Is FT arguing that Germany “capitulated” because Greeks do not intend to hold up their end of the bargain? Greeks are given their last chance. If they do not follow the agreement they sign, there will be no more chances.

[camille]

@Terr

Is FT arguing that Germany “capitulated” because Greeks do not intend to hold up their end of the bargain? Greeks are given their last chance. If they do not follow the agreement they sign, there will be no more chances.

Even if they (Schnaeble et al) have succeeded in toppling Tsipras and SYRIZA and can then deal with a more amenable govt, the agreement is unsustainable in the long run - and they know that - just as they knew the last two agreements were unsustainable.

So what is the long game? Kto Kovo? They don’t take the rap for the inevitable default, which will happen to an even more debilitated Greece, increasing the chances of failure. The last thing they want is a successful GREXIT. The humiliation and destruction of Greece is the only way to keep the others in line.

Is that too hyperbolic?

[sleestak]

NM

[Hiker]

@camille

Even if they (Schnaeble et al) have succeeded in toppling Tsipras and SYRIZA and can then deal with a more amenable govt, the agreement is unsustainable in the long run - and they know that - just as they knew the last two agreements were unsustainable.

So what is the long game? Kto Kovo? They don’t take the rap for the inevitable default, which will happen to an even more debilitated Greece, increasing the chances of failure. The last thing they want is a successful GREXIT. The humiliation and destruction of Greece is the only way to keep the others in line.

Is that too hyperbolic?

Hyperbolic? I don’t know. Probably not true though.
Merkel and Schäuble will need to sell this deal pretty hard at home. A lot of pundits - many in their own party - are singing to the same tune as the Financial Times. So they need to make a case that they are in fact not just shoveling German money to Greece, that it will really make a difference this time. If that whole deal explodes, it will explode in their faces. Hard.
They must know that the road ahead will be bumpy. Very bumpy in fact. But they must believe that they can get the boat to float or else they would not do it.

BTW - I believe the “successful Grexit” is a myth. If that were a real option, Greece would have taken it by now.

[Donnerwetter]

Getting this deal through the German parliament won’t be problematic for Merkel since the grand coalition of CDU and SPD has a solid majority and even the Greens have signalled their agreement. She will be criticized for her heavy-handed negotiation style though and Wolfgang Schäuble is under fire because he didn’t disclose his “temporary grexit” option before he flew to Brussels.

[camille]

A little levity: Culture Clash - Why Greece Doesn’t Belong in the EU.

Arrogance aside, if you believe anything Varoufakis says (and I do, with a generous sprinkling of salt), even he couldn’t guarantee to Tsipras they could pull off a successful GREXIT:

If we manage to get out of this mess united, and handle properly a Grexit … it would be possible to have an alternative. But I’m not sure we would manage it, because managing the collapse of a monetary union takes a great deal of expertise, and I’m not sure we have it here in Greece without the help of outsiders…

We had a small group, a ‘war cabinet’ within the ministry, of about five people that were doing this: so we worked out in theory, on paper, everything that had to be done [to prepare for/in the event of a Grexit]. But it’s one thing to do that at the level of 4-5 people, it’s quite another to prepare the country for it. To prepare the country an executive decision had to be taken, and that decision was never taken.

Once Tsipras accepted there could be no GREXIT, capitulation was a done deal. The leaders of SYRIZA are academics, not politicians. They have charisma, but they weren’t prepared for the realities.

[Diceman]

@Hiker

Hyperbolic? I don’t know. Probably not true though.
Merkel and Schäuble will need to sell this deal pretty hard at home. A lot of pundits - many in their own party - are singing to the same tune as the Financial Times. So they need to make a case that they are in fact not just shoveling German money to Greece, that it will really make a difference this time. If that whole deal explodes, it will explode in their faces. Hard.
They must know that the road ahead will be bumpy. Very bumpy in fact. But they must believe that they can get the boat to float or else they would not do it.

Sounds to me like Merkel and Schäuble’s interests are best served by kicking the can down the road again, juuuuuuuuuust far enough for them to be out of office when the shit hits the fan, and there is absolutely no place left to hide from it.

[ralph124c]

12 months from now, the $80 billion will be all gone…and Greece will be back looking for another bailout. this will never end.

[Donnerwetter]

I forgot: Another factor that is working in Merkel’s favor is that the eurosceptic AfD party completely disintegrated last week and will soon disappear from the political scene in Germany.

[Hiker]

@Diceman

Sounds to me like Merkel and Schäuble’s interests are best served by kicking the can down the road again, juuuuuuuuuust far enough for them to be out of office when the shit hits the fan, and there is absolutely no place left to hide from it.

Most observers believe that Angela Merkel has every intention to run for office once more in 2017. Which means that, if she gets elected, she might be around until 2021. She cannot hope to kick the metaphorical can that far.

[Diceman]

@Hiker

Most observers believe that Angela Merkel has every intention to run for office once more in 2017. Which means that, if she gets elected, she might be around until 2021. She cannot hope to kick the metaphorical can that far.

Desparation doesn’t take a long-term view. If she can’t stave off disaster now, there won’t be a 2017 as far as she’s concerned.

[Donnerwetter]

It is not Merkel’s intention to kick the can down the road. All mainstream politicians in Germany traditionally are deeply committed to European cooperation and integration. It is very difficult for these politicians to admit that the project of a common European currency is doomed. I’m sure that Tsipras and Varoufakis were well aware of this and that is the reason why they gambled so recklessly.

[CarnalK]

@Diceman

Desparation doesn’t take a long-term view. If she can’t stave off disaster now, there won’t be a 2017 as far as she’s concerned.

This is just generic skeptcism of politicians, right? Not a real estimate of Merkel’s motives or strategy?

[XT]

Wow, what a roller coaster ride this has all been. And now all the politicians will need to go home and convince their voters that this is a good idea. It seems no one is really happy with the current compromise with the possible exception of the French, who were pretty instrumental in bringing the two sides together for any sort of agreement.

This is CNN’s current take on where things stand, fwiw:

Here is an uncomfortable truth: The deal Greece ended up with is much harsher than the one it had been rejecting for months.

The Greek government has caved to the pressure of its creditors. It signed up for tough economic reforms in exchange for a new bailout worth between 82 and 86 billion euros, or as much as $96 billion.

But not much has changed for the Greeks. The banks are still closed and will remain shut until at least Wednesday. The country is still on the brink of economic collapse. Its future within the eurozone remains uncertain.

And a lot of work has to be done before it gets any real rescue money.

What are the next political steps?

The all-night summit ended with an agreement, but more approvals are needed. The deal is the first step in a process that will likely take weeks.

First there are some key political decisions to be made across Europe.

Greece has to swiftly pass a series of new laws. Prime Minister Alexis Tsipras has until Wednesday to convince Parliament to pass the first few, including pension cuts and higher taxes.

Assuming that happens, Greek lawmakers have another week, until July 22, to enact another batch of economic changes. These include adopting European Union rules on how to manage banks in crisis, and do a major overhaul to make Greece’s civil courts faster and more efficient.

Meanwhile, the deal must be endorsed by national parliaments in several other eurozone countries, including Germany, Finland and Portugal.

When will Greece get start getting bailout money?

Greece is so close to collapse it needs some financial help ASAP.

The eurozone finance ministers are already back at work to figure out a “bridge financing” plan – cash Greece needs to make immediate payments. The document agreed to Monday morning estimates Greece needs 7 billion euros by next Monday (July 20) and another 5 billion euros in August. That money would come from the European bailout fund.

Also, a decision has to be made when to reopen the banks. The European Central Bank, which has been propping them up for months, could restart money flows and help Greek banks reopen – but only if it’s convinced the reform process is progressing. The ECB said Monday that it was not ready to do so yet.

What’s in the deal?

The bailout agreement also calls for tough austerity measures – some tougher than Greece has previously been asked to endure.

For instance, the Greek government agreed to transfer up to 50 billion euros worth of Greek assets to an independent fund that will raise money from privatization.

According to the document, 25 billion euros from this fund will be poured into the banks, 12.5 billion will be used to pay off debt, and the remaining 12.5 billion to boost the economy through investment.

The fund will be based in Greece and run by the Greeks, but with supervision from European authorities.

Tsipras also agreed to push for broader economic reforms.

Greece’s pensions system will be reformed in order to make it more sustainable. The country spends more on pensions as a proportion of its economy than any country in the European Union – more than double that of some, such as Slovakia, Estonia and Ireland.

The new agreement asks for higher standard retirement age to 67. The current standard is 65 – but the complex Greek pension gives a high proportion of workers the option to retire much earlier than that. That too has to change as part of the reform. Some benefits given to the poorest pensioners on top of their pensions will also be cut.

Greece will also have to reform its tax system to make it more efficient. The government had to give in on some of the key battlegrounds of the last few months, and agreed to raise the VAT on restaurants and other items to the top rate of 23%, and committed to abolishing the lower VAT rate on Greek islands popular with tourists. It is also going to raise corporation tax to 28%.

Under the new deal, Tsipras also signed up to new budget targets in line with those of other European countries, and to even more spending cuts.

The deal will be difficult to swallow for Greek voters, who were promised the exact opposite by their government.

Here is the BBC’s take on the current ‘deal’:

After some 17 hours of summit talks eurozone leaders announced a new deal to rescue Greece - a third bailout.

There are still significant hurdles to clear, however. And after months of argument and delay between the Greek government and the lenders, the eurozone wants the new sense of urgency to be maintained.

The risk of Grexit - a Greek exit from the euro - has not gone away. So what are the key points of the deal? (You can read the full text of the agreement here.)

The Greek parliament must immediately adopt laws to reform key parts of its economy - by Wednesday. The reforms include: streamlining the pension system and boosting tax revenue - especially from VAT
A commitment to liberalise the labour market, privatise the electricity network and extend shop opening hours
The eurozone agrees in principle to start negotiations on a loan package for Greece worth €82bn-86bn (£59bn-£62bn; $91bn-$96bn)
The loan will come mainly from the European Stability Mechanism (ESM) - the eurozone bailout fund. But the International Monetary Fund will also be asked to make a contribution from March 2016

A new trust fund will be set up, managed by Greece, with €50bn of Greek assets. It is a mechanism for paying off part of the total ESM loan. Half of the €50bn will be used to fund recapitalisation of Greek banks, the other half will go towards reducing Greece's debt mountain - by privatising assets - and investing in Greece.
Greece will get short-term bridge financing to avoid bankruptcy - separate from the ESM. The amount is estimated to be €7bn by next Monday and another €5bn by mid-August
Out of the total ESM loan about €10bn will be used immediately to recapitalise Greek banks - but the banks may need €25bn in total
The European Central Bank, eurozone finance ministers and the IMF will tightly monitor Greek compliance with the bailout conditions
Negotiations on the ESM bailout will begin only after the plan is approved by the parliaments of Finland, Germany and Greece
The eurozone is ready if necessary to extend the repayment period of Greek debt (by debt rescheduling), but debt will not be written off (so no "haircut")
The European Commission will try to mobilise €35bn - outside the ESM loan - to help Greece with growth and job creation.

[Measure_for_Measure]

@Donnerwetter

It is not Merkel’s intention to kick the can down the road. All mainstream politicians in Germany traditionally are deeply committed to European cooperation and integration. It is very difficult for these politicians to admit that the project of a common European currency is doomed. I’m sure that Tsipras and Varoufakis were well aware of this and that is the reason why they gambled so recklessly.

Ok, let’s say Greece, Spain and Portugal exit the Euro and the European banking system survives. Big assumption. Could the Euro survive? Could France, Germany and Italy agree to fund an international facility during good times and have transfers committed to Eurozone countries whose unemployment rises above its 10 year average? (Or ditto for an inevitably and appropriately more complicated formula.) I’m assuming if the big 3 agree that Benelux and Austria would sign up as well.

Italy would remain a problem. Is it manageable?