In February, I penned a piece on how and why Greece will exit the eurozone since there seemed to be so much chatter about the coming Grexit. However, as I have said in the past, a Grexit will not happen any time soon. I strongly believe that for the time being all eurozone policy makers are committed to the single currency with Greece in it. Therefore, I have always found it hard to believe therefore that a Grexit is imminent – during an existential crisis without an exit mechanism in place no less. And the latest Greek bailout deal cements this belief.
Here’s how I put it in May:
I gotta tell you you. I am getting pretty sick of talking about Greece and the euro zone. But the reality is that this is the defining issue of the global economy right now. So I am forced to spend a lot of time on it here. The issue at hand is the how and why of Greece’s leaving the euro zone, the so-called Grexit.
Let’s be honest. I am a eurosceptic. If it were me making policy, I never would have formed the euro because I believe currency sovereignty is important. But now that we are here, breaking up in the middle of a debt crisis is not a good option. The right thing to do would be to see the euro zone through this via some ECB backstops balanced by some sovereign defaults and some bank recapitalisation balanced by some bank resolution and creditor haircuts. Afterwards, when growth was better, gauging the political will for further integration to support a single integration would decide who would leave the euro zone and how to break the euro apart. Greece should definitely leave at that point.
As I also wrote in a weekly post during the May Grexit meme, Greece was never going to hit its targets. Everyone knew that from the word go. The whole Greek situation is a political situation as to how to deal with this. The two or three things that impinge upon the political calculus are:
- that voters in the eurozone core are against bailouts especially because they want to see countries do hard work in trying to regain competitiveness before they allow defaults or bailouts and this is important in the upcoming German elections;
- that the ECB is undercapitalised and cannot countenance an official sector haircut without the ECB being recapitalised which would entail taxpayer money, and;
- that no mechanism for eurozone breakup now exists so an imminent Grexit would be disastrous politically and institutionally making default within the eurozone preferable to breakup (Silver and Gold members, see here on my disbelief over the Greek exit chatter from May)
Can you explain to the citizens of Germany, why they should be liable for deficit countries?
It is loans and guarantees that have been granted. Up to now, the rescues have not cost German taxpayers one euro, but of course there are risks. Germany is the biggest beneficiary of monetary union and the single market. Millions of jobs depend on exports to Europe. If our neighbor are in a bad way, it affects even Germany in the long run.
So the deal worked out on Greece deals with these various political realities as best it can. The interesting bit is that the IMF under Christine Lagarde is acting as the change agent here, forcing the Europeans to recognize that the austerity course lowers growth and makes Greece’s situation unsustainable. I agree with the Guardian headline that this is a classic fudge for political reasons. It will work for now. I should have more comprehensive thoughts in a non-daily post later.
“There was something for everyone in the latest Greek debt deal. Athens gets enough money to stop the country going bust, Angela Merkel has done enough to keep Greece in the euro until after next year’s German elections. The European Central Bank has fended off calls for it to take a haircut on its holdings of Greek bonds. Last but not least, the International Monetary Fund has forced Europe to get real about Greek’s unsustainable debt position.”
“The Greek government and financial markets were cheered on Tuesday by an agreement between euro zone finance ministers and the International Monetary Fund to reduce Greece’s debt, paving the way for the release of urgently needed aid loans.”
“from Brussels to Oslo, government leaders are fretting about another issue that imperils the integrity of free access across an entire continent: porous Greek borders.
The country quietly has become a steppingstone for a wave of Middle East and South Asia workers fleeing job markets ravaged by years of government turmoil. In 2011, an extraordinary year because of the uprisings in North Africa, 140,980 people were detected entering the EU illegally, up 35% from the year before, according to Frontex, the EU’s border-control agency. Of those, 40% came through Greece. Through July this year, 23,000 people were apprehended crossing the border illegally, roughly 30% ahead of last’s year pace.
Border control in Greece isn’t a new problem. But the country’s economic malaise and budget restrictions are hampering many of its efforts to reduce the flow of illegal immigration.”
“Greece will aim for a primary surplus before debt service of 1.1pc of GDP next year, the first positive balance since 2002, after a 1.5pc deficit in 2012. But the economy will continue to shrink for a sixth year by 3.8pc.
Economic output will have declined by a quarter since 2008 in a vicious spiral of austerity and recession, with the most heavily indebted eurozone nation repeatedly missing targets set under its EU/IMF bailouts and at risk of being forced out of the single currency area.
Analysts said even the recession scenario set out in the budget appeared optimistic, given Greece’s slow reform efforts and a weakening eurozone economy.”
“European Central Bank President Mario Draghi dismissed calls for the central bank to help Greece reduce its crushing debt burden, putting the onus on euro-zone governments to find the money needed to give Athens more time.
Mr. Draghi’s stance could complicate efforts to find as much as €30 billion ($38 billion) Athens may need to plug a financing gap that Greece would face if Europe and the International Monetary Fund agree to give the country more time to meet its fiscal targets.”
“Greece and Spain give the evidence on “fiscal consolidation” – or as much evidence as living and breathing humans should be expected to provide. Those countries have had austerity imposed upon them by politicians (who have followed the advice of delusional neoclassical economists) and have had by far the worst economic outcomes. “
“The IMF simply lost its political way in Greece. It knew – or should have known from dozens on rescue operations around the world – that Greece would crash into a self-feeding spiral without a rapid debt restructuring and a devaluation.
Both channels were blocked because of the sanctity of the EMU Project. (Though default would come later, in a capricious fashion, singling out pension funds, insurers, and private creditors only).
The policy never had any chance of working for Greece. The IMF under Strauss-Kahn went along with the EMU agenda, pretending all was well, sacrificing the Greeks to gain time for the European financial system to build up safety buffers.”
“Germany, Holland, and the creditor states of northern Europe have not lost a single cent on eurozone rescue packages, so far.”
“what matters more for Greece: a debt to GDP ratio nearing 200 per cent or an interest burden of “only” 5-6 per cent of GDP? The answer depends on the maturity of the debt. For the next few years Greece will not be in a position to repay much principal. Nor will it be able to refinance any debt in the market. The official creditors will therefore have to be patient, and extend the duration of their low-interest loans.
It is possible for the official creditors to show such patience because their own refinancing costs are low. The eurozone’s rescue mechanisms – the European Stability Mechanism and the European Financial Stability Facility – can finance themselves for very long terms at a lower interest rate than the one charged to Greece.”
“A public clash between Greece’s international lenders over how Athens can bring its debts down to a sustainable level has reignited fears that Europe’s troubles could flare up anew.”
“Greece has become an increasingly dangerous place for immigrants. A spate of brutal attacks against dark-skinned migrants in recent months was recently highlighted in the Human Rights Watch report, “Hate on the Streets: Xenophobic Violence in Greece.” The report, released in July, accuses police officers of turning a blind eye to racist assaults and discouraging victims from filing reports.
As the ultranationalist party Golden Dawn maintains third place in the polls behind New Democracy and radical left SYRIZA, it is clear that what started as a small and very potent movement has gained plenty of supporters. One of the mainstays of their campaign is the expulsion of immigrants from Greece.”
“Even if the EMU machine succeeds in keeping Greece in the system, is this any longer a remotely desirable goal? Has it not become a vicious and immoral policy in itself?
I agree with the IFO Institute’s Hans-Werner Sinn that upholding euro membership has by now become an act of cruelty. It not being done in the interests of Greeks. It is being done for the Project, by enforcers of the Project. Only by breaking free can Greece restore a minimum of economic vibrancy and national dignity.”
“Pushing a fresh austerity package (the price of financing the next stage of the country’s bailout) through parliament on Wednesday night cost the Greek government and Antonis Samaras, the centre-right prime minister, dearly. And while there is no guarantee a repeat performance can be staged, there is every probability the boulder will slip and one will be demanded.”
“Thugs wearing the black T-shirts of the neo-Nazi Golden Dawn party are carrying out attacks on immigrant markets and in public squares, according to the United Nations, with victims speaking of areas in the capital which are now strictly off limits.
Malik Abdulbasset, an Egyptian-born shopkeeper, found himself the target of one of the mobs on Wednesday night after the barber across the road was stabbed during a robbery.
Golden Dawn members led a crowd of enraged locals in a protest on Mikhail Voda St that turned violent despite the presence of riot police.
While no one witnessed the attack on the barber, residents were adamant the assailant was black.”
“Greece’s parliament has been asked to investigate why two former finance ministers did not pursue possible tax evaders on the so-called “Lagarde list” of 2,000 Greeks with Swiss bank accounts.
George Papaconstantinou and his successor Evangelos Venizelos, who held the finance portfolio from September 2009 until June this year, could face charges of criminal negligence if parliament referred them for trial, according to legal experts.”
“Details of the budget cuts remain sketchy, but Mr Samaras is seeking broader powers to privatise public services.
However, given the dissent among members of the three-party coalition government, the delay in voting on the package will give Mr Samaras more time to reach a consensus.
He has warned that Greece will run out of cash next month unless it receives 31.2bn euros in loans from the EU-IMF bailout fund.”