Tuesday 10 February 2015

Greece; Decline and Fall

This picture in no way looks to me as if the Greeks will shortly be accessing Russian funds

It was all looking so optimistic last week, Greece's new unsuited finance minister came to London and the European Capitals with a plan to reduce Greece's payments and also to get back some money from the ECB which it had made buying Greek bonds.

All sounded so good until he went to Germany. The German Minister, Wolfgang Schauble, was not happy at the idea of further Greek reduction and an end to the Troika policy. He was open to relaxing some of the terms and coming to a deal, but only with the ECB/IMF remaining in charge or Greek finance.

However, it has all deteriorated quite rapidly in the past few days. The ECB has restricted funding to Greek Banks and the Prime Minister in Greece, Alex Tsipras has gone on record to end austerity and co-operation with the Troika agreement.

This, in the colloquial, is squeaky bum time.

It is going to be interesting to see what happens from here. My hunch has been that the QE from the ECB was a quid pro quo deal to allow Germany to force Greece out of the Eurozone. This is a big deal for the EU though as it make the Euro an exclusive rather than inclusive club- completely against the political grain of the EU.

The markets won't like it either and it will do nothing for the Eurozone's weak growth but in the long-term it is the right way forward for all parties.


Bill Quango MP said...

So many reasons for the EU to make concessions to Greece. Not the debt write off they want, but some restructuring and long, long long repayment terms. Getting the interest down to bugger all .. etc.

It would be wise , if you were in favour of EU, to keep Greece in.
It keeps the idea that no one can ever leave alive. It shows strength of the union to maintain cohesion.
The Greeks want to remain in the Euro.
The Russians are going to make all sorts of mischief for the EU and for NATO if the Greeks do decide its time to leave.
Russian politicking in Greece would be a constant worry for the EU. And Turkey.
China might sense that here is an easy area ready for some spending for various trade puposes. Might fancy reviving geek shipyards in exchange for .. ? Med ports? Who knows.

But the fact remains because its rational for the EU to want Greece to remain in,and the Greek people want to remain in the EU, that it will.

Its probable {though debatable} that in the long run Greece's best path lies in the EU, but that doesn't mean that it will.

Nations make very irrational decisions sometimes.
100 years ago today the Imperial German empire was debating the use of unrestricted submarine warfare. Despite being well aware that might bring the USA into the war.

Sebastian Weetabix said...

The Krauts have a long track record of self-defeating decisions of great ideological purity. Expect Grexit.

Timbo614 said...

This article from Naked Capitalism is long but goes some way to explaining what is inevitably going to happen to the periphery of the Eurozone.

No-one is going to come out of this stupidity well.

Nick Drew said...

Might fancy reviving geek shipyards

I once did a deal in Greece - sold a greek asset to the government - the payment was in shipping repair credits!

the Greek shipyards did good work, the credits were (almost) as good as cash

Greece-in-EU will survive, not so sure about the new greek government though

hovis said...

BQ - the proposals on the table from Varoufakis have never been for a write down, a restructing to align debtor and creditor interests - see the GDP to replayment ideas floated. You may counter that is semantics, I ssee it as making it a sustainable substance.

One of the reasons Greeks are pro EU is cuturalnot for any lovef Brussels but because of their location on the continent and the historical wary eye on Turkey. Indeed the reason they were brought ito the EU was cold war strategic politics, times have changed,, so now the standard refrain is oh why oh why did we ever let the Greeks in blah blah blah, which of course shows lack of history and forgets the EU is not an economic project.

I think the new government will survive, for the next year at least, I don't see the CIA engineering another coup yet. The sea change in attitude is large. There is much support from those who you would not easily fit in to "radical left wing" narrative we are being fed here. We have several more cycles of posturing to go before the deadline shows us part of the truth.

Btw You really should Varoufakis blog to get the backstory of his views, I don't always agree with him but he is considered and certainly not doctrinare.

CityUnslicker said...

I have read his blog BE - it is interesting and refreshing.

His naivety in international negotiations is astonishing however and Sebastian above makes a great point about Germans being inflexible for the sake of it.

I am against the grain I know in thinking Greece will Grexit, but this was always the logical outcome of lelecting Syriza. I doubt russia will be involved - a coup will be organised well before that becomes reality.

Anonymous said...

o/t CU, but would I be crazy to put a few K into EMED at 4.5p ?

Anonymous said...

There are parts of Greece where you hear a lot of Russian spoken already. (You can buy a mayor for not much EUR - or even a prefecture)

hovis said...

Anon, I think you are meaning Cyprus

Anonymous said...

Both, I'm sure.

Ravenscar. said...

" in the long-term it is the right way forward for all parties."

Indubitably correct.

There is no easy way out of this colossal financial man made calamity.

Grexit is the only 'out'!

Otherwise and even, despite Obama and the federal reserve, China and the world's financiers sticking plasters and all - the markets: like the Universal law of Gravitational force, they, it, cannot be denied.

Then it will be very hard for a while and not just for the Greeks.

Suffragent said...

It’s a credit to this blog and the commenters, that the views are so varied and the references intelligent and an education. (Now I’m going to spoil it)
Normally I would agree with Bill that a deal would be found to kick the can so the thievery could continue but I think the situation is coming to a head. From the financial view point if the Germans let this go then then the Spanish, Portuguese, Italians and then the French are waiting in the wings.
BUT this is not about the payment of debts.
All across the EU NEW parties are rising in popularity who are questioning the status quo. The media are painting them as hard right/ left, racist etc and this only spurs the population to make a stand. Most people, in all countries, given the option would mark their ballot paper “none of the above”. In all countries (apart from the obvious dictatorships) the largest majorities have been “couldn’t be arsed voting cos their all thieving liars and it doesn’t make a difference party”. Now these people (and the” I’ll vote for them cos their not as bad as the other” voter) have an alternative.
This is a real “squeaky bum moment” for the EU and the “vote for me cos I’m not as bad as him” brigade. These people didn’t get to where they are through their charm and people skills. When the population are asking “could it be any worse outside the EU, than it is now”? Watch and learn. A woman scorned has no fury like a politician removed from his teat.
The Greeks won’t be allowed to simply walk away from Europe and devalue their currency. Every trade/political blockade and financial instrument will be thrown against them. The political elite and the financial markets won’t be happy until they are shown as an example to all the other doubters. Then and only then will a coup peace keeping force be arranged.
It’s the Machiavellian thing to do.
As a political statement, I’ll be Holidaying in Greece this year and paying for everything in Cash.

PS why can't I make a comment on my IPhone is there a setting I should fix

Bill Quango MP said...

I'm also choosing Greece. I've warned Mrs Q.. but she won't listen to me.
Try and get it over with quickly. Before the collapse.

CityUnslicker said...

Anon _ i have far too much invested in EMED (a lot less than I started with, as usual). I make no recommendations as I have no idea at all as to why permitting was not followed by a swift re-rating.

I am terminally afraid of AIM now as it has no rationality in a world with such huge short positions, machine trading and momentum plays. the illquid aim stocks are putty in the machines hands.