Monday 6 July 2015

The "O'crapalypse"

It's really hard to see how Greece can stay in the Eurozone and even the EU from here on in:

1. There is only around €500 million of cash in Greek banks  and even with allowances of €60 euros per person that is only 1 days supply left.

2. The ECB is not a political unit and Draghi hates being seen as partisan so it will not do anything ahead of agreement by the EU leaders.

3. The EU leaders are not meeting until tomorrow - so good luck in Greece trying to live for at least 48 hours with no money.

4. The IMF loans are sub-ordinate to the EU ones and the Greeks have defaulted anyway.

Basically, by the middle of this week Greece will have no money left, let alone trying to pay €3.5 billion in a couple of weeks time to the EU.

So, even if the Euro leaders try hard - which initial reactions suggest they are not minded too anyway, the chances are that Greece will have to issue its own scrip sometime this week in order to keep any semblance of the economy going. Medicines and food are running low with the Banks shut - the Country maybe struggling but ordinary Greeks can afford to buy goods - it is the EU via the ECB that is creating an artificial shortage.

As I have maintained for years, the sooner they do this, bite the bullet of a hefty devaluation and get on with it the better - The Country will be a much better place in 3 years, versus the 7 years of disaster that have accompanied trying to pay the debts.

As for the Eurozone, ECB and all that - there is nothing positive to be said at all. The actions to create the crisis in Greece are sickening, the lack of vision and judgement to design an easy path to exit or a parallel 'soft euro' for Italy, Spain and Portugal too is pathetic. The UK can also see clearly where attempts to negotiate or change the will of Germany get you - nowhere and worse.

The sooner we can leave the better, when is that Referendum?


hatfield girl said...

"The ECB is not a political unit and Draghi hates being seen as partisan..."

The ECB has many of the characteristics and all and more of the attitude of a (late 20th century) central bank but has no sovereign - unique in the world and history. Partisan? Moi? as Draghi might exclaim.

All this (Bravissimi the Greek people!) is really showing up the EU, as you say.

Blue Eyes said...

The ECB is a rules-based institution, deliberately set up so that it could not bow to political pressure from its member countries. It has achieved exactly what it was supposed to: price stability in the Eurozone.

Would London/Scotland/The Frozen North be catered for in the BoE's ratesetting policy? Not on their own.

Of course we British voters have the power to get that policy changed if we collectively don't like it, by electing a new government....

We all knew that the EU had overreached when it allowed Greece, Italy, France, et al. into the Euro. It is amazing it has taken this long for anyone to physically run out of money.

Let's hope this leads to a more pragmatic Europe, where countries like Britain can be semi-detached.

Lord T said...

One thing the Greeks did show is how quickly you can set up a referendum when politicians really want to.

When exactly is camorons again?

tolkein said...

In or out of Euro, Greece can only save itself with reforms - even according to the Guardian
"The reality is that Greece has a highly uncompetitive economy and no credible tax collection system. The problems mostly are in the product, capital and housing markets that remain unaddressed. According to the World Bank’s Doing Business rankings, Greece ranks 61st, just behind Tunisia. Greece is 155th in the ability to enforce contracts, just ahead of Laos and Botswana. There has been no reform to speak of. Greece is characterised by endemic tax evasion, a poor tax collection infrastructure, parochial patronage policies, corruption and huge delays in the administrative courts dealing with tax disputes. Greece also has deep structural problems, mostly in product markets with oligopolies in almost every industry, closed professions, administrative and bureaucratic impediments to entrepreneurship alongside barriers to trade and exporting, none of which have been addressed."
If this isn't tackled a return to the drachma won't help. If these are tackled then creditors are likely to be responsive.

Anonymous said...

In the Bruxelles brown trouser department, it is all systems, "F*ck me I need a change!" But no change available for Greece.

'Le grand projet',

How are they going to pull this one out?

Could it be......debt forgiveness - try that one out on die Deutsch menschen of the Fatherland.

Aye all well and good to forgive..... but the alternative [Greek return to Drachma] is also a financial calamity for the German banks.
Next, France is white knuckled screaming blue murder, this will put incredible pressure on their precious, holy Brussels Empire crucial [they deem it] central axle of the Eurozone, ie France/Germany.
Thinking thus, if Greece goes, the markets may well go for France - with it's insanely bloated public sector, stagnant industry - a basket case economy and living on fumes, it wouldn't take much of a push to crash the French economy [again]. Italy, Portugal, Spain, Ireland and the other ghost economies in the east [Hungary, Romania and Bulgaria] - French banks are still on the hook to these economies for €billions. A rosy picture, it is not.

As for Greece,

The islands will dance on, for they are semi autonomous and please themselves and always have done so, cash rich economy and no questions asked and drachma or, euro it bothers them not much, as for the public officials now pensioned off - they will not be very happy.

Greek banks, surely must be filled with new drachmas.

OUT - it is coming and is the only way for Greece, and like Romania, Croatia, Bulgaria and various Baltic efforts - they should never, ever, ever have been allowed into the EU....... let alone allowing the Greeks into the Euro.

"As you sow, so shall ye reap" - someone should shout and tell that one to the Godless heathen - the Empire builders of Brussels.

Anonymous said...

The solution is a simple and yet popular one. Throw Germany out of the Eurozone and you can devalue the Euro to everyone's satisfaction. After all the BoE has been trashing sterling since it was set up.

Only the Germans are wedded to the hard currency concept.

hatfield girl said...

@ Blue Eyes
Frances Coppola says it best:

'The issuer of the Euro is, of course, the ECB. It decides how much money each of the member states can have. This is not unique to Greece: money creation in all the member states is limited by the ECB. So we have supposedly sovereign states allowing their money supply to be determined by an unelected supranational body that is above the law and accountable to nobody. ...

For the central bank of a currency union to deliberately restrict the money supply in regions within the currency union is bizarre. No other currency union central bank on earth does this... the ECB has denied liquidity to Greece’s banks, not because they are insolvent (which is a reasonable reason to deny liquidity to banks) but because the sovereign won’t toe the fiscal line. It has taken on a political role that it should not have.

Of course, the ECB’s shareholders are the member state governments. But those governments have bound themselves by laws and treaties that prevent them interfering with or in any way controlling the ECB. So the Eurozone is in reality a financial dictatorship run by bankers.'

hatfield girl said...
This comment has been removed by the author.
andrew said...

Wynne Godley called it in 1992

Basically the central bank (ECB) must be balanced by a central govt (ECG).

Quite a brainwave for the time.

If the germans let the greeks get away with it, the price will be a federal govt - so next time well, there won't be a next time.

Blue Eyes said...

Racy but wrong. The Greek banks are beyond bust. Their only "assets" are worthless bits of Greek government paper. The Greek government paper could be worth more, but only if the German taxpayer says so.

What is weird is that anyone signed up for the Euro at all. We KNEW this would happen.

Blue Eyes said...

(In reply to Frances Croppola, rather than Andrew.)

Anonymous said...

Varoufakis is a fully paid up member of the European project - and they have thrown him out of the discussion.

See 8 minutes in.

andrew said...

What is weird is that anyone signed up for the Euro at all. We KNEW this would happen.

... how wrong and right at the same time.

Back in '92 you got to do something really world changing.
You thought back then :-
- it isnt perfect
- it will work for a while
- someone else will fix the nasty problems
- I will be retired by then

In exactly the same way that over 60% of greek voters decided they would like someone else to pay their bills on sunday,

Eleven of the leaders of the western road decided that the more difficult issues of the euro would be solved by someone else.

dearieme said...

There will be violence. It's all utterly bloody shameful.

Anonymous said...

Will be beaten into submission 'pour encourage les autres'

When the Euronuts get their next big treaty imposing economic governance on all (including more tax raising) I just hope to Gawd we are out of it

Phil said...

I think Andrew you are rather missing the point of the Greek position. The Greeks are in much the same position as I might be, should I find myself in huge debts which, as a result of changed circumstances, I find myself unable to pay back. I can simply declare myself bankrupt and then decline to repay my debts. The "punishment" I would get for not paying my debts would be the inability to raise credit in the future. This is exactly the problem for Greece.

What Greece has realised is that it has almost balanced its books, but it cannot realistically pay back the debt without it being a huge burden on the citizens, so in practice it would likely be better for Greece to simply declare itself bankrupt. By defaulting on ALL the debt, the Greek politicians will have significantly reduced the burden on the citizens for several decades - this is actually a GIVEN. The only concern is that in the short-term the upheaval caused by default and a new currency might cause more harm than the undoubted benefit of unburdening the Greek citizens of their public debt. In this sense, the current Greek government is only doing what any good democratic government should o - taking care of the people that voted for it.

Of course, from an EU perspective this is infuriating. The Greek government is doing what is best for Greeks and not what is best for the broader EU.

Now the Greek government has tried to meet the EU half-way, by requesting and then outright demanding that the EU cut back on the level of Greek debt. This the EU simply refuses to countenance, which is odd, given that private holders of Greek debt have already been told by the EU to take a 50% haircut.

Having refused to negotiate a reasonable compromise on the debt the EU now finds itself in the position of standing back and watching whilst the Greeks default on the whole thing. Given that it is entirely within the power of the Greek government to default on 100% of the debt it is strange that the EU didn't itself see the need for compromise. Naturally this will not go down well with the readers of Bild who have been enjoying a daily dose of anti-Greek propaganda.

The real problem will be what happens next. You see, the EU can't allow the Greeks to get away with a default. If the Greeks default and come up smelling of roses then Spain, Italy, Portugal and Ireland will be tempted to do the same. So, the EU will need to find a way to punish Greece when it defaults, and whatever punishment the EU manages to inflict on Greece after default must be far worse than anything the PIIGS have endured so far.

CityUnslicker said...

Phil - the EU are an arrogant lot, they think that expelling Greece from the EU is the most harsh punishment they could give out.

Of for it to be the UK!

Phil said...

Hi CU. I would like you to consider what would happen if Liverpool had got itself into so much debt that it couldn't repay. Would the rest of the country have said "Go to hell, you're on your own". Would we be thinking of forcing Liverpool to be independent and introducing its own currency? It may seem like a joke question but similar issues have arisen real-life in the US.

Fundamentally the way the Troika has treated Greece has proven that the EU is not, and will never be, a single country.

Paula Jinks said...

When the world panicked and world leaders feared revolution in the streets, gordon Brown said "I have a solution..nationalise the debt."
And all the world leaders went "brilliant! Brilliant! Give this man a prize!"

But did no one ask "nationalise the debt ...and then do what with it?"

andrew said...


The more accurate analogy is that your dad got a mortgage by lying when he filled in the forms, then got another one, then got another one etc.
indeed, when someone questioned him about the numbers, your dad threatened him. (

Some time later he declares he cant pay

You are still living at home, and declare that the house cannot be reposessed.
As there are no jobs nearby you dont need start a business
Your dad, who has now retired should not have to part with any of his pension to repay the loans.

The thing that really gets me is that they have spent the last 5 years not reforming or doing anything much to solve their problems

- no significant labour reforms, business reforms, land ownership reforms, reduction in corruption, reform of the civil service, improve collection of taxes.

These people will be back in 10-20 years whether in or out of the euro.

This is what upsets the germans/poles etc. Of course france has no morals.

hovis said...

Andrew - poor anology as for mortgage there is an asset which you have claim on by deed. In the case of sovereign debt there is no direct claim. So if we are using incomplete anologies it's more like the council trying to send the bailiffs around for a Parking ticket that is rubber stamped by an administrative court that has no legal a power to impose anything.

I'm afraid I can't agree with what "gets" you, that they Greeks have done nothing for 5 years. So deflationary policies as direct result of requests by the Troika resulting in the shrinking of the economy by 25 - 30% and increasing debt/GDP ratios as a direct result, is nothing? I would agree it is madness, but one imposed by the very people and paradigm you appear to support.

There are other reforms that should have been acheived but there was a lot of moronic nonsense imposed by the Troika that no rational person would accept - hypothecated taxes for example. I have mentioned before, real reform costs money not less. The obsessives such as Schauble with his magic austerity medicine can't countenance that.

Why not for example consider defense spending which is running ar 2% of GDP and protected by teh Troika, is cut? Perhaps those Submarine/tank contracts should have been cancelled, but of course Siemens et al might lose out then.

andrew said...

I completely agree that the austerity imposed on them was v.v. stupid.

The point remains that the greeks have done very little to solve their problems in terms of any labour reforms, business reforms, land ownership reforms, reduction in corruption, reform of the civil service, improve collection of taxes, privatisation etc etc etc.

If they had set defense spending to 0, that would have been something.
Of course that would not happen as the greek army would go home with no jobs to go to and siemens would simply take the greek govt to court.

They could have (picking a rather unoriginal idea) done an Ireland/ Luxembourg and made themselves corporate head office friendly and brought some money in through low taxes.

Or privatised some of their assets

Or made it easier to set up a new small business (athens is cheap and sunny and has good internet access)

All small boring things which are cheap and might have helped.

Phil said...

Andrew, Greece has made huge strides in a very short time reducing its budget deficit from 16% to less than 5%. Large numbers of people were thrown out of work as a result. Somehow, amongst all this turmoil, with several changes of government, you expect the Greeks to have sorted themselves out on the private sector in some way???

Yes, Greece was a profligate spender, but this was well known before the EuroZone was created. Economists warned multiple times it was a bad idea to let Greece enter the Euro. Loaning money in Greece normally meant relatively high interest rates because there was higher RISK. RISK. An important word to remember here. Greece needed and deserved higher interest rates (cos it's a risky place to make loans), but Germany needed lower interest rates - and that's really where the problem starts. So Germany got its lower interest rates (even though the greedy buggers were already benefiting from being in a monetary union which protected it from the old problems of the strong DeutscheMark.

Now, after the PIIGS joined the EU, the risk premium was reduced by the loan sharks (sorry, I mean international merchant banks), because THEY ASSUMED THE ECB WOULD ALWAYS BAIL OUT GREECE. They were wrong. Consequently their risk calculations were wrong and their interest rates too low, which encouraged reckless borrowing.

Now of course, maybe if Greece was the only nation that suffered, the loan sharks (sorry, banks) would not be pooping their pants all over the EU, but we had a SYSTEMIC failure because the loan sharks had been handing out money hand over fist for several years all over the EU, and never once thinking "hold on, is this new paradigm actually supportable, or is the SYSTEMIC risk now massive?". Well, why should they? Banks only need to turn a profit this year for the bankers to get their fat bonuses - they don't need to make a habit of it. That's where the ECB (and for that matter the BofE) should have stepped in - because they should be taking a long-term view. Strangely the ECB was actually the organisation doing most to put EU lending on steroids (they were actually warned by some economists that it might not be a good idea - but then most economists work for.....BANKS - and banks love unfettered lending).

So basically you have a bunch of loan sharks and a nation with huge gambling debts. I don't have much time for either of them but the Greeks have suffered enough - time for the loan sharks to take some medicine (after all, they can afford it). Germany is just loving that devaluing of the Euro, it's making it so much easier for Siemens to turn a profit. Time for the Germans to pay as they are so keen on EU integration. Being in the EU has benefited the Germans immensely. Time for them to help out their fellow countrymen in Greece (well, the EU is supposed to be just one big country isn't it?) instead of disparaging the Greek national character (if the Germans thought so little of the Greeks before Maastricht, why the hell did they let them in the EZ?). Time for the ECB to take control, instead of being controlled by the Germans, and time for the Germans to submit to the EU yoke - yes, I mean the GERMANS have to be brought under control (again) in Europe instead of being given free reign to run around screwing everybody else (like they usually do).

Phil said...

The EU really needs to stop listening to German propaganda. The Germans aren't rich because they are super efficient and highly skilled. If that were in any way true Siemens would be highly profitable and not a massive evil capitalist corporation hell bent on buying up its competitors all over the world. No, the Germans are rich because they are a bunch of conniving, sneaky, thieving, underhand c*nts with a global domination obsession that would happily sink the whole of Europe if it meant they were better off by a fiver. They are every bit as bad as the worst of the Greeks. They need to be brought under control because not one of them has believed in basic human morals since the time of Niestche. Alternatively we could just nuke them, because frankly they don't deserve yet another chance.

andrew said...


What do you think of the French?

Budgie said...

Come on Phil, don't be coy, say what you really mean about the Germans.

But you are right about the benefits Germany enjoys by being in the low value euro - essentially it is mercantilism, together with their blinkered political clout fortuitously due to their economy's size.