There’s quite a bit of fulmination this morning over the Greeks’ rejection of what Mish Shedlock has referred to as “perpetual slavery” in favor of what they apparently think is calling the European finance ministers’ bluff but nobody knows for sure what. The remarks of the editors of the Wall Street Journal are pretty representative (it’s the second item down, or thereabouts):
It’s true the Greeks were given two bad choices, but they still chose the worst. Europe was offering more money to forestall a crisis in return for pension cuts and other reforms. Greek Prime Minister Alexis Tsipras claimed a “no†vote would help him extract better terms—by which he means even higher growth-killing taxes in return for fewer pension cuts. The Greeks chose the Tsipras ultimatum strategy, so they can’t blame the Germans for what comes next.
The big question now is whether German Chancellor Angela Merkel and other Europeans will flinch. Mrs. Merkel has not wanted to be seen as driving Greece from the eurozone, and the referendum means that the Greeks will have driven themselves out, if that’s what happens in the coming weeks. Mr. Tsipras will claim he has a mandate to demand more European concessions, but that mandate ends at the Greek border. He has no open-ended claim on the other taxpayers of Europe.”
Well, not exactly. The European Central Bank and the IMF (i.e. non-members of the eurozone) are actually picking up a lot of the tab at this point. Meanwhile, breathes there a man with soul so dead who will not be incensed over what emerges from this interview at Die Zeit with the most famous living French economist, Thomas Piketty, the gist of which is that the prescription the Germans are offering the Greeks is one they’ve never followed themselves:
DIE ZEIT: Should we Germans be happy that even the French government is aligned with the German dogma of austerity?
Thomas Piketty: Absolutely not. This is neither a reason for France, nor Germany, and especially not for Europe, to be happy. I am much more afraid that the conservatives, especially in Germany, are about to destroy Europe and the European idea, all because of their shocking ignorance of history.
ZEIT: But we Germans have already reckoned with our own history.
Piketty: But not when it comes to repaying debts! Germany’s past, in this respect, should be of great significance to today’s Germans. Look at the history of national debt: Great Britain, Germany, and France were all once in the situation of today’s Greece, and in fact had been far more indebted. The first lesson that we can take from the history of government debt is that we are not facing a brand new problem. There have been many ways to repay debts, and not just one, which is what Berlin and Paris would have the Greeks believe.
What’s missing from the bitter criticisms of the Greeks is a solution. With worldwide slow growth, low interest rates, and in the absence of substantial foreign investment in the Greek economy, what are the Greeks to do? Since the imposition of the IMF’s formula their economy has nearly collapsed. Are we to believe that there is some floor for the Greece economy and, once it hits it, Greece will begin to grow again? Or is the idea that the Greeks be permanent debt slaves?
What the Wall Street Journal and others like to forget is that the Greeks were known to be deadbeats when they were being lent the money, and the only reason they are being given bailout after bailout is to keep the idiot co-signers from having to repay the loans.
For people who are supposed to be business savvy, it does not make any sense to keep loaning money to a deadbeat, especially a deadbeat who could never pay back the original loan and will never be able to pay back the subsequent bailouts.
It is almost as if the people lending the money thought that they had the Greeks by the balls, and there was nothing the Greeks could do about it. A few kicks to the Greek’s groin are going to be a lot less painful than the pain of their creditors.
As with most things, the WSJ is clueless, and when the crisis hits, they will claim nobody could have seen it coming.
The financiers and most other members of the world’s ruling elites seem to want everyone to be debt slaves. Makes it easier for the rentiers to control things, I’m guessing.
As I was trying to suggest through the title of this post, I think the Germans are just pursuing their objective of a Germanized Europe via other means.
Also, I don’t think that the European bankers are so much interested in getting the Greeks by the short and curlies as they are getting the ECB and the IMF ditto. So far they’ve been extremely successful. Private debt has been offloaded to public debt on the part of German, Dutch, and Luxembourger banks. Pretty sweet deal.
Seems to me this negotiation has arrived at its logical position right on schedule. All the moral preening surprises me. It certainly is useless.
I hope you don’t think that what I’m doing is “moral preening”. There were only two possible resolutions. Either Germany was going to agree to more funding for Greece while allowing “austerity” to be relaxed or the Greeks would react as they have.
As I see it it’s the Germans who’ve been doing the “moral preening”. That they’ve pulled themselves up by their bootstraps is part of their foundational myth. As Piketty points out, it ain’t necessarily so.
It seems that any time you try to point out that the German/Swiss/French bankers are also at fault, people assume that what you really mean is that the Greeks are completely innocent. Not so. Their corruption and poor governance is extremely well documented. It is so well documented and so well known, it is hard to believe that those banks loaned to them. So, both parties are at fault, but many people want to hold only the Greeks at fault. (Interesting that these are mostly the same ones who defend the US banks as blameless in our crash.)
Steve
Dave
Sloppy writing on my part. Anyone interested in lowbrow entertainment need just go over to OTB and skim through the 150ish long thread. The banks and Krauts are dirty no goods acting in a selfish manner. No, the the Greeks are lazy bums acting in a selfish manner. Tastes great. Less filling. Well, yeah. Reynolds had a good quip about arguing whether the drug dealers or the junkies were morally superior.
My point is simply that neither side is going to change their behaviors, and since this isn’t a football game, change policy for the better, willingly. It’s a hard nosed negotiation process that is ticking along and has reached a predictable place, at least based on the significant negotiations in which I’ve participated. The parties will now have to abandon the theater of posturing and decide if they want to cut a deal. It’s now officially interesting, and in a position where real negotiating can occur. That’s all. What I’m looking for, since it is a political venue and not a business exercise, is whether one side has mispositioned itself into an intractable stance given the nature of its constituents. I think it’s more likely the Greeks may have done that.
Of course it would have been easier if one side had negotiated like Obama. Give the other side what they want and declare victory.
Would you like 3 nukes or 6??
The Greeks have been in an ECB+IMF-induced depression for the last four years. The IMF had predicted one year. Their economy has shrunk by 30%, substantially more than the IMF had projected. The European foreign ministers offered Greece nothing that would do anything for Greece other than letting people draw a few more of their deposits out of the banks. I can’t imagine they really think that will turn the Greek economy around.
I doubt anybody at OTB has a clue as to what is really going on in this drama. The people I follow (including the voluminous ZeroHedge & company) do not necessarily like the Greeks or dislike the Germans, but they do recognize that this has nothing to do with the Greek people or the German people.
These deals were put together by various powerful and wealthy entities. The deals were designed to use the system the way the system was designed to be used – screw the powerless & non-wealthy. They were not doing anything much different than should be expected. The difference is that the music stopped, and they wanted it to keep playing.
The Greeks bailouts were similar to the AIG bailout. Greece is a conduit. @Dave Schuler alluded to in in a previous comment. Greece has decided to not play the game, and a lot of powerful and wealthy people are scared. The useful idiots think it is about Germany and Greece, but that is how a good hustle works. Ask any Wall Street billionaire.
Greece needs to declare bankruptcy and start over. If it were Donald Trump declaring bankruptcy, he would be hailed as a financial genius, but the Greeks are deadbeats.
Will the Greeks reform, probably not, but it will be their decision. They can always lease naval bases to Russia and China. I suspect that the US and Europe may believe there is some value in keeping Russia and China out of Greece, and being good free-market capitalists, the US and Europe believe in voluntary value for value transactions.
The question is: “How much are you willing to pay to keep Russia and China out of Greece?” Actually, the Greeks are not the deadbeats. The US and European hawks who want a free ride on the backs of the Greeks are the deadbeats.
Dave, I haven’t followed it closely but it seems to me they just want the Greeks to take a haircut and set a new trajectory. It’s what all financial restructuring negotiations are about. I don’t think the Greeks will escape this reality. It’s only the Greek people’s fault in that they bought into their political leaderships bull. Their leadership should have been dealing with Germany and bankers on a realistic basis long ago. That leadership should be hung in the town square. (Did I just say that?).
This is Chicago, or IL, or Detroit and the Madigans of the world in Europe. I’m afraid it’s just the tip of the iceberg in national and local economies all over the world. The left has told us not to worry, infantile fiscal policy can go on forever. Well.
“The deals were designed to use the system the way the system was designed to be used – screw the powerless & non-wealthy. ”
You have a bit of a logic problem here. Progressive taxation is at relative highs. Receipt of transfer payments by the powerless and non-wealthy are at relative highs. Doesn’t seem like a well designed system as you envision.
I suspect the banks will take a haircut as well. As I noted at OTB – rhymes with stuck’m.
This is a financial, trade and transfer payment structural imbalance that is finally going to be addressed. People would be wise to observe carefully, because it’s going to become standard fare.
Receipt of transfer payments by the powerless and non-wealthy are at relative highs.
And how much of that is deficit financed?
I haven’t followed it closely but it seems to me they just want the Greeks to take a haircut and set a new trajectory.
Yo, G, the Greek economy has shrunk by 30%. How much of a hair cut can they take when they’ve already been scalped and decapitated?
The one thing that’s missing from your exposition is the currency angle. Greek depositors have accounts denominated in euros deposited in banks. The ECB is denying those banks access to euros so that withdrawals can’t be made. It’s like the Federal Reserve denying dollars to depositors in Alabama.
When Greeks buy products made in Germany they buy them with euros and the Germans take those euros out of Greece and spend them in Germany. It’s a siphon; there’s no way for the Greeks to recover.
In other words, a haircut doesn’t really do it. The Greeks really need to get out of the euro.
@Drew
You do not have the foggiest idea of what is going on. You should pop over to your favorite site (Zero Hedge) and get up to speed. The guys you love to cite seem never really agree with your world view.
I cannot even begin to post links because the spam filter would send out a hitman for me, but here is one for you:
Greece Fallout: Italy & Spain Have Funded A Massive Backdoor Bailout Of French Banks
This is a repost of a post at The Council on Foreign Relations, but maybe, you think the ZeroHedge guys/gals are passing along Fear, Uncertainty, & Doubt. If so, stop quoting and posting links.
For those interested in what @Dave Schuler is saying about German exports, here is a Zero Hedge post (repost) with graphics:
Ragin’ Contagion: When Debtors Go Broke, So Do Mercantilist Exporters
The graphic is a flowchart that makes it easy to understand the process.