Contributor Post Created with Sketch. Greece Gets the Worst of Both Worlds

 

greek facepalm-225x300It appears Greece has ended up paying two costs. It chose first to spurn the EU through a referendum and has suffered a banking system shuttered and a major contraction in its economy. It then spins around and takes a deal that is to most observers worse than the one it turned down the previous week. So it pays for a financial crisis and for more austerity.

Heckuva job, Alexis.

So while the European and US stock markets were having fun and the euro was trading down — never mind what happened in the Athens stock exchange — here is some of the mishegas happening in Greece as they approach nighttime.

One of the preconditions imposed on Greece for a deal is that it signs into law European rules that would put euro zone authorities at the ECB and in Brussels, rather than Athens, in charge of identifying and closing or breaking up sick banks.

This in turn could lead to a shake-up of the sector that could see some banks close, with losses pushed onto bondholders and possibly even large depositors. In such circumstances, there would be little that Athens could do to prevent this.

One European official had told Reuters that the number of big banks in the country could be reduced from four – National Bank, Piraeus, Eurobank and Alpha – to as little as two.

  • You could be the proud owner of a Greek island. Want to buy a Greek asset pledged to help pay off its loans? Call the Germans. They’re in charge of privatizing Greek assets. I’m sure they’ll hold out for top dollar, er, I mean, euro.
  • There are provisions in the agreement to get Greek stores to stay open on Sunday, something not necessarily allowed in Germany.

It is hard to imagine the Tsipras government survives this; it will be impossible without a shakeup that creates a unity government that passes the weekend’s deal… and then may as well go on vacation. Angela’s got this, Alex, don’t you worry about a thing.

And for all his trouble, there is not a promise of a single euro of debt forgiveness, just vague promises of letting Greece pay back over a longer time. The Germans may as well buy some property. It looks like they plan to be there a while.

In the end though, the mistake was Greece’s: If you were going to hold a referendum and campaign for “no” and vote resoundingly for it, you had to have a plan for when the Germans called your bluff. Instead, they showed weakness and were steamrolled. Syriza is unfit to govern the country, and the sooner the Greeks figure this out, the sooner they can find a better way out of this mess. And that might include saying “no” once more, finally and for all.

There are 19 comments.

  1. Valiuth Member

    Vae Victis.

    • #1
    • July 13, 2015, at 2:50 PM PST
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  2. Eric Hines Inactive

    In the end though, the mistake was Greece’s: If you were going to hold a referendum and campaign for “no” and vote resoundingly for it….

    The error began much earlier than that, although by the the time of the referendum, I’m not sure it was a mistake: Greece was so far in that they had little left to lose, so they tapped and rolled the dice.

    The first error (assuming, arguendo, that accepting Greece into the EU and the eurozone wasn’t the original error) was Greece’s lying about its national finances to get in. Then they welched on the first bailout terms, then they welched on the second bailout terms.

    Most of the last week’s and last weekend’s…discussions…centered on Europe saying, “How can we trust you?” The terms of the deal and their order of execution are designed at least to put some fresh lipstick on the pig of trust: the Greek government must enact four specific actions agreed Sunday night/Monday morning by Wednesday and “endorse” the rest of the agreement by Thursday or Friday. Control over much of Greek finances transferred to various EU agencies was intended to ensure that the agreed items actually would get carried out and not, once again, reneged on by a…recalcitrant…Greek government.

    The agreement also requires EURO 50 billion in Greek assets (although no one in Europe seems to think these include Greek islands–some banks, and most likely the assets the Greeks had agreed in prior bailouts to sell to raise loan payback money and have been finding excuses ever since for not actually getting around to selling–into a trust fund to ensure repayment of at least some of the new loans. In a major concession to Greece, these assets (or title to them) and that fund will not reside in Luxembourg, nor be under the direct control of a European agency; they’ll reside in Athens, under Greek government control, with European agency oversight. The whole agreement was set up to try to force an expulsion of cronyism from the Greek government.

    Such a thing may well bring down the Greek government. Oh well. At least that will give the Greeks a chance to elect honest men to their government. Could the Greeks never have been able to repay these loans, and so should have gotten them written off to a large degree? That’s likely, but when you can’t trust the men sitting across the table from you, that’s a possibility that’s hard to accept.

    Still, as King suggests, the Greeks got the worst of both worlds.

    They’d be better off outside the EU.

    Eric Hines

    • #2
    • July 13, 2015, at 3:08 PM PST
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  3. King Banaian Contributor
    King Banaian Post author

    I’ll stipulate to two things in Eric’s comment above: 1) I do think the original mistake was admitting Greece to the eurozone; 2) the Greek island comment was a bit tongue-in-cheek, though there are a bunch of private islands that might be going on sale.

    It is one thing to ask for a surety bond from a credit risk; it’s another to pledge a country’s treasure to extend a loan you have little chance of repaying. On this I think we can agree that Tsipras actually did more damage this weekend than doing what I think the Germans had thought he’d do: walk away.

    • #3
    • July 13, 2015, at 3:15 PM PST
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  4. Misthiocracy grudgingly Member

    King Banaian: It appears Greece has ended up paying two costs. It chose first to spurn the EU through a referendum and has suffered a banking system shuttered and a major contraction in its economy. It then spins around and takes a deal that is to most observers worse than the one it turned down the previous week. So it pays for a financial crisis and for more austerity.

    My non-expert hypothesis is that prior to the referendum they were expecting to get on the ground floor of the new alternative “world bank” being promised by Russia to be paid for with oil money and Chinese savings.

    Once it was apparent that this alternative “world bank” wasn’t going to materialize any time soon, that’s when Greece started to back-pedal.

    • #4
    • July 13, 2015, at 3:17 PM PST
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  5. King Banaian Contributor
    King Banaian Post author

    Misthiocracy: Once it was apparent that this alternative “world bank” wasn’t going to materialize any time soon, that’s when Greece started to back-pedal.

    Yes, possible. Very possibly Putin double-crossed Tsipras, but more likely the cost of fixing Greece was beyond Russia’s budget and the Chinese were busy blowing their own bubbles.

    • #5
    • July 13, 2015, at 3:21 PM PST
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  6. Misthiocracy grudgingly Member

    King Banaian:

    Misthiocracy: Once it was apparent that this alternative “world bank” wasn’t going to materialize any time soon, that’s when Greece started to back-pedal.

    Yes, possible. Very possibly Putin double-crossed Tsipras, but more likely the cost of fixing Greece was beyond Russia’s budget and the Chinese were busy blowing their own bubbles.

    Maybe Putin thought his promises were feasible but then the Chinese stock market crashed at just the wrong time.

    • #6
    • July 13, 2015, at 3:48 PM PST
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  7. Paul A. Rahe Contributor

    To those familiar with modern Greek history, all of this is all too familiar. If Tsipras is a clown, who has played cards in the great game that he does not possess, he is not the first such clown. You should not issue threats unless you are willing to follow through. And the people of Greece? Like Italians at the opera, they applaud the bombast.

    • #7
    • July 13, 2015, at 3:58 PM PST
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  8. Valiuth Member

    Misthiocracy:

    King Banaian: It appears Greece has ended up paying two costs. It chose first to spurn the EU through a referendum and has suffered a banking system shuttered and a major contraction in its economy. It then spins around and takes a deal that is to most observers worse than the one it turned down the previous week. So it pays for a financial crisis and for more austerity.

    My non-expert hypothesis is that prior to the referendum they were expecting to get on the ground floor of the new alternative “world bank” being promised by Russia to be paid for with oil money and Chinese savings.

    Once it was apparent that this alternative “world bank” wasn’t going to materialize any time soon, that’s when Greece started to back-pedal.

    Ha! I doubt anyone in Greece is that clever to think of such a strategic move. Even if it were possible.

    Let me explain the Balkan mindset. If a yell and make a big scene perhaps I will make the uptight German feel scared and uncomfortable enough that he will pay me to leave him alone. Sadly for them the German woman was unimpressed. Heck they will be lucky if the German parliament actually approves this deal. I listened to a BBC interview of a German congressman who basically said the Greeks should have just left the Euro and that he couldn’t justify to his people why they should pay for Greece.

    • #8
    • July 13, 2015, at 4:50 PM PST
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  9. Seawriter Member

    Greece (and Greeks) have never missed a chance to miss a chance. This has been true throughout Greek history (one reason the Romans, not the Greeks dominated the Mediterranean in ancient times), but they have been even more enthusiastically never missing a chance to miss a chance since 1918. They could give Palestinians lessons in how to do it.

    I am sooooo glad my grandparents moved to the United States instead of remaining in Greece.

    Seawriter

    • #9
    • July 13, 2015, at 5:12 PM PST
    • 1 like
  10. Umbra Fractus Lincoln

    Valiuth: I listened to a BBC interview of a German congressman who basically said the Greeks should have just left the Euro and that he couldn’t justify to his people why they should pay for Greece.

    That is one important party that’s being left out of this discussion. We’ve heard from the German government, the Greek government, and the Greek people, but no one’s reporting on what the German people have to say about all this.

    • #10
    • July 13, 2015, at 5:16 PM PST
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  11. Valiuth Member

    Seawriter:Greece (and Greeks) have never missed a chance to miss a chance. This has been true throughout Greek history (one reason the Romans, not the Greeks dominated the Mediterranean in ancient times), but they have been even more enthusiastically never missing a chance to miss a chance since 1918. They could give Palestinians lessons in how to do it.

    But of course all of these missed opportunities are because of some historical conspiracy to keep the Greek people down.

    • #11
    • July 13, 2015, at 5:19 PM PST
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  12. Marion Evans Inactive

    I feel sorry for the Greek people. The “elites” ran away with the billions and the people, who only saw marginal benefits from the Euro, are left with $400bn of debt.

    • #12
    • July 13, 2015, at 5:24 PM PST
    • 1 like
  13. King Banaian Contributor
    King Banaian Post author

    Valiuth: Let me explain the Balkan mindset. If a yell and make a big scene perhaps I will make the uptight German feel scared and uncomfortable enough that he will pay me to leave him alone. Sadly for them the German woman was unimpressed. Heck they will be lucky if the German parliament actually approves this deal.

    I don’t think it was crazy for Tsipras to think “well, they will not let us go down. The French will have our back, the Americans don’t want us to get closer to Russia, they’ll twist Merkel’s arm for me.” It turned out to be wrong. Merkel may have had no choice because welcoming home the prodigal Greek would have cost her the chancellery. So Valiuth could be right. And it could be right that the Greek parliament will not pass the measures — as I’ve argued today, if I was a Greek parliamentarian I would not vote for it and accept the consequences of the financial crisis, since that bill is already due payment. It’s a sunk cost. But I don’t have to do austerity with one arm — devaluation — tied behind my back. Let the drachma plunge and let the Germans sell their exports to somebody else. A hideous outcome, but less than the one if I vote to take the deal. If I want to do more austerity, I can do it on my own terms.

    • #13
    • July 13, 2015, at 6:29 PM PST
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  14. Seawriter Member

    Valiuth:

    Seawriter:Greece (and Greeks) have never missed a chance to miss a chance. This has been true throughout Greek history (one reason the Romans, not the Greeks dominated the Mediterranean in ancient times), but they have been even more enthusiastically never missing a chance to miss a chance since 1918. They could give Palestinians lessons in how to do it.

    But of course all of these missed opportunities are because of some historical conspiracy to keep the Greek people down.

    If you ask any Greek, that is exactly what they will tell you.

    Seawriter

    • #14
    • July 13, 2015, at 7:26 PM PST
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  15. Seawriter Member

    Two words: Mr. Panos. Not COC compliant, but wonderfully funny examination of the Greek character.

    Παρακαλώ (Parakalau)

    Seawriter

    • #15
    • July 13, 2015, at 7:33 PM PST
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  16. Valiuth Member

    Seawriter:

    Valiuth:

    Seawriter:Greece (and Greeks) have never missed a chance to miss a chance. This has been true throughout Greek history (one reason the Romans, not the Greeks dominated the Mediterranean in ancient times), but they have been even more enthusiastically never missing a chance to miss a chance since 1918. They could give Palestinians lessons in how to do it.

    But of course all of these missed opportunities are because of some historical conspiracy to keep the Greek people down.

    If you ask any Greek, that is exactly what they will tell you.

    Seawriter

    I know because that is how Romanians think too.

    • #16
    • July 13, 2015, at 8:11 PM PST
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  17. Instugator Thatcher

    King Banaian:And for all his trouble, there is not a promise of a single euro of debt forgiveness, just vague promises of letting Greece pay back over a longer time. The Germans may as well buy some property. It looks like they plan to be there a while.

    The Greeks could do debt forgiveness unilaterally.

    1. Quit paying the pensions and you have the money needed to pay the debt.
    2. Start collecting property taxes based on the entire sq footage of a house and not just the first floor.
    3. Start collecting property taxes immediately instead of waiting decades for dwellings to be “completed”.

    Why do they need Europe?

    • #17
    • July 14, 2015, at 7:15 AM PST
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  18. Mendel Member

    Umbra Fractus:

    Valiuth: I listened to a BBC interview of a German congressman who basically said the Greeks should have just left the Euro and that he couldn’t justify to his people why they should pay for Greece.

    That is one important party that’s being left out of this discussion. We’ve heard from the German government, the Greek government, and the Greek people, but no one’s reporting on what the German people have to say about all this.

    Mixed opinions. The German electorate has both a strong left-leaning and right-leaning component when it comes to macroeconomics, and a nearly unified (yet often unspoken) sense of collective guilt regarding their past.

    As a result, there are many Germans who balk at the notion of continuing to pay Greek bills, there are a few who would be happy to do so in the name of solidarity and Keynesism, but there are almost none who cherish the thought of Germany directly telling Greece to take a hike from the Eurozone.

    • #18
    • July 14, 2015, at 9:36 AM PST
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  19. Mendel Member

    I do think Germany botched this process as well.

    It’s patently clear from the negotiations that Merkel and Schäuble wanted Greece out of the Euro, and they had plenty of justifiable reasons to back them up. However, it is also very clear that Merkel was too cowardly to actually open state this preference, for both domestic and international political and social reasons (as I alluded to above).

    The honorable thing for Germany to have done would have been to propose a clean and orderly exit from the Euro, probably in conjunction with a generous package of debt writeoffs, emergency funding, and long-term assistance. It could have structured the offer in a manner which gave Greece everything it wanted (except for the Euro membership) and dangled a number of other carrots to ease the political tensions.

    But Merkel was too cowardly to be the first German chancellor to openly call for a country to leave the Euro, and instead she opted to try to strong-arm Greece into “self-deporting” through punitive measures which, realistically, will most likely be even more unproductive than previous attempts at Greek reform. As a result, both Greece and the rest of the Eurozone will be worse off than had she been able to man up and say what was actually on everyone’s mind.

    • #19
    • July 14, 2015, at 9:43 AM PST
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