Negotiations with Greece Close to Breakdown as Budget Strains Worsen

Written on March 19th, 2015 in politics Comments Off

Published on naked capitalism, by Yves Smith, March 18, 2015.

Things are not looking good for Greece.

When Greece and the Eurogroup signed a four-month deal delineating how Greece could get access to desperate needed, so-called “bailout” funds, our reading of the agreement was that it reaffirmed the so-called Memorandum of Understanding, meaning the structural reforms that were part of the IMF loan program. That was very much a minority view at the time.  

It has proven to be correct. But Greece, which has a very different interpretation of the same text, is refusing to move forward with the discussion of the reform program, at least as envisaged by the Troika and the Eurogroup. That in turn is pushing already-strained relations to the breaking point. And notice that this is consistent with another early reading, that the two sides had no overlap in their bargaining positions. That meant unless one side or the other decided to capitulate on a key point, the negotiations would fail. That is the current trajectory.

That means the inertial path is that Greece does not in fact get much or any of the bailout funds it had hoped to obtain by the end of April at the latest. While the government is scrambling to find cash to make payments to the IMF and perversely, on a Goldman swap this month, it is borrowing from the pension kitty to do so. That means if tax collections do not improve, it may come up short on pension payments in upcoming months. It is not clear whether Syriza will be able to maintain public support if it fails to meet its pension obligations in full … //

… Understand what is happening: if Greece proceeds with its humanitarian relief plan and violates the February 20 memorandum, the ECB would have a ready excuse for withdrawing the ELA. In fact, some former central bankers believe that in the absence of a refinancing deal being at least arguably on track, the ECB would be required to withdraw it. That would force Greece to impose capital controls and nationalize its banks. And to recapitalize them, it’s not clear that Greece could do so adequately with scrip like TANs. If Greece were to reintroduce the drachma, that would amount to a de facto Grexit. How the authorities react to that is very much open to question. Past legal analyses (the most germane is by the ECB) finds that there is not exit mechanism from the Eurozone; it is described as “irrevocable.” The EU, by contrast, does have a sketch of an exit process defined in the Lisbon Treaty: a member can ask to leave, and if the EU and the member can’t negotiate how to do it, it nevertheless becomes official two years later. Needless to say, two years is an eternity in financial time. And the ECB analysis hand-wrings that that provision contradicts other sections of the treaty.

As we have said, the best solution for Greece would be to default but stay in the Eurozone. But it is not clear that its creditors would tolerate that. A default will trigger politically costly loss recognition on the ELA and on Target2 balances, and those losses would almost certainly trigger assessments to taxpayers in Eurozone countries (even though the ECB could monetize the losses, like the Fed, the Bundesbank is allergic to that approach, so the ECB would need to get new capital from taxpayers). The creditor countries or the ECB on its own could get bloodyminded and force a de facto Grexit by removing the ELA pour decourager les autres.

Greece seems to believe that the Eurocrats would not dare go this route, that the cost of not giving them new money is far too high for them not to relent. But so far, the Troika is not budging. The authorities are acting as if their commitment to austerity, in the form of structural reforms, is so deep that they are prepared to put the Eurozone at risk to enforce them.

This is far from the first time we’ve seen this movie, where practical considerations were at odds with the political calculus. And in the cases of Creditanstalt and Lehman, politics won out.

(full text, many hyper-links and links to related articles).

Links:

The realpolitik of revolution, on Intrepid Report, by William T. Hathaway, March 18, 2015;

ECB protesters clash with Frankfurt police, tear gas deployed (PHOTOS, VIDEO), on Russia Today RT, March 18, 2015;

Canada: Income guarantee has its detractors, March 18;

Income guarantee has its detractors, on The Chronicle Journal, March 18, 2015: Should Canada provide its citizens with a guaranteed annual income?

Secret history of my geography teacher, also cofounder of Hamas, on Intrepid Report, by Ramzy Baroud, March 18, 2015: This is not my geography teacher, or, more accurately it is not at all how I remember him … a series of APA images published by the British Daily Mail and other newspapers showed Hamad al-Hasanat lying dead in a mosque, surrounded by a group of Hamas fighters …;

Thierry Crouzet a décidé, officiellement, de se faire des amis, il l’a ouvertement revendiqué en publiant son billet, dans ActuaLitté, le 17 mars 2015;

SPAIN: Popular Initiative for Basic Income Ends with 185,000 Signatures, on BIEN, by Stanislas Jourdan, March 16, 2015;

Drover, Moscovitch and Mulvale: Promoting Equity for a Stronger Canada, the Future of Canadian Social Policy, on BIEN, March 16, 2015;

UK: who should go into drawdown – and who should not? on FTadviser, by Jonny Paul, March 16, 2015: There is no deadline, expiry date or obligation to withdraw from pension pots when 6 April comes around. Most over-55s are likely to be in bed or getting rained on with their grandchildren on a beach somewhere when the pension freedoms come into effect on Easter Monday , if they heed the advice of pensions minister Steve Webb …;

UK: Defining drawdown in the new retirement world, on FTadviser, by Ruth Gillbe, March 16, 2015: Anyone already in flexible drawdown post-April 6 will move automatically to the new regime. With the radical overhaul of the pensions system a matter of weeks away, the income drawdown market is ramping up for significant and complex changes …;

A Universal Basic Income Is The Bipartisan Solution To Poverty We’ve Been Waiting For, on Co.Exist, by Ben Schiller, March 16, 2015: What if the government simply paid everyone enough so that no one was poor? It’s an insane idea that’s gaining an unlikely alliance of supporters. There’s a simple way to end poverty: the government just gives everyone enough money, so nobody is poor. No ifs, buts, conditions, or tests. Everyone gets the minimum they need to survive, even if they already have plenty …;

All eyes on Egypt, on Al-Ahram weekly online, March 12, 2015: The Egypt Economic Development Conference, marketed as the key to Egypt’s future, kicks off on Friday amid much anticipation;

… und noch dies:

von Kabarett seit anfangs 2015 hochgeladen:

Comments are closed.