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So is the Greek Crisis Over? Well…
So Greece — in a “pre-chaos state,” according to France’s finance minister — is choosing the depression it knows over the depression it doesn’t. By all accounts, the new fiscal proposal from Greek Prime Minister Alexis Tsipras pretty much meets creditor demands in exchange for a $60 billion bailout to cover debt repayments between 2015 and 2018. The voters said “oxi,” but their leaders are saying “nai.”
As outlined by Bloomberg, the Tsipras government more or less conceded on budget targets, conceded on sales and corporate taxes (with some tax changes starting a year later), conceded on eliminating early retirement benefits for pensioners, and conceded on the sales of state assets. What’s more, according to the Financial Times, “none of the documents submitted to creditors, including Mr Tsakalotos’s letter and a separate missive from Mr Tsipras, contain any mention of debt relief.” And if debt relief does comes, it seems more likely Greece will be given more time to pay rather than less debt to pay.
Sounds like a mega-blink.
So the apocalyptic “Zimbabwe in the Balkans” scenario has been averted, yes? Maybe now is a good time to recall the words of my colleague Desmond Lachman:
The sad reality is that, politically, Greece is in no position to meet the budget and structural economic reform dictates of its creditors. To pretend otherwise is to engage in gross self-delusion. Rather than do so, the IMF and European Union should come to terms with the fact that Greece can no longer remain within its euro straitjacket. They should also now be carefully thinking about a plan B, which might help Greece execute an orderly euro exit and which might ring-fence the rest of the European economic periphery from any contagion emanating from such an exit.
A different take from the Daily Telegraph:
Germany is at last bowing to pressure as a chorus of countries and key institutions demand debt relief for Greece, a shift that could break the five-month stalemate and avert a potentially disastrous rupture of monetary union at this Sunday’s last-ditch summit. In a highly significant move, the European Council has called on both sides to make major concessions, insisting that the creditor powers must do their part as the radical Syriza government puts forward a new raft of proposals on economic reforms before a deadline expires tonight.
That analysis is based on comments from Donald Tusk, the European Council president. But extensions rather than haircuts still seem more likely based on what I am reading right now.
Published in Economics
So if this really is a case of Tsipras caving to creditors, rather than the other way around… as Drudge indicated… then how does Tsipras square this with his voters, the people that put him in office to essentially tell the creditors to go to hell?
Greece saying new taxes or spending cuts will come a year or two down the road is functionally equivalent to saying they won’t happen at all. If those cuts are politically unpalatable now, they’ll still be that way a year from now. This is just another political way of kicking the can down the road.
A bailout for Greece makes it much less likely that Portugal, Italy, Spain, and other troubled EU countries will be able to build the political capital needed for their own structural reforms. The dynamic has now been set that all you need to do is scream about human dignity and stamp your feet and demand ‘compassion’, and billions of dollars in ‘free’ money can be yours too. Expect similar behaviour when the next round of fiscal crises show up elsewhere in the EU.
This is fiscal appeasement that can do no less than make the problem worse in the EU overall. Count on Europe to fail to learn the lessons of its own past.
Just had an idea — maybe the Greeks could sell their bonds to the Chinese. If they’ll buy our bonds, they’ll buy anybody’s.
So they are giving the Greeks another 60 billion dollars and more time? Well we can mark our calendars then. In, what, two years we will get to relive this whole fracas again? Who knows maybe the Greeks will do it. But if they can’t pay off what they owe now I doubt they will be able to pay off more later.
Also I noticed that one of the things they are supposed to cut is their military budget. How does that square with their NATO obligations?
Also a key part of the ruling coalition in Greece demands that Greece does not cut defense at all. If they leave government over that Syzira won’t have the votes to stay in power. Interesting times….
Now that the French and Germans have shifted most of the default costs to tax payers they can play hardball, but not too hard. Greece would almost certainly adjust faster and prosper, in Greek terms, if they leave the Euro. Thats the real threat to the Euro because the adjustment would just happen as things re ravel outside the control of European or Greek politicians and technocrats. Can’t have that. And then there’s Putin.
Kick the can down the road, keep the fiction alive…Now, where can we go for lunch?
GREECE IS U.S.
Apparently Greece is still not out of other peoples’ money.