Greece confronts the final deadline (again!)

So here we are again. D-day for Greece…. until the next one. Well maybe not this time.

The Eurogroup has called meeting for 3pm Monday ahead of emergency EU leaders summit to be held 7pm. There is obviously further negotiating occurring in the lead up to that event in the hope of a last minute deal

Alexis Tsipras, the prime minister, met senior officials on Saturday in an attempt to devise a package of reforms that would secure emergency funds and avoid the nation defaulting on its massive debts. It will be the third such proposal that Athens has made to its creditors in as many weeks.

“We will try to supplement our proposal so that we get closer to a solution,” Greece’s minister of state, Alekos Flabouraris, told broadcaster Mega TV. “We are not going [to the summit] with the old proposal. Some work is being done to see where we can converge, so that we achieve a mutually beneficial solution.”

One wonders whether they would even be bothered to read it,  or allowed to be, after reading this publication in the Irish Times from Yanis Varoufakis over the weekend:

Perhaps the most telling remark by any finance minister in that meeting came from Michael Noonan. He protested that ministers had not been made privy to the institutions’ proposal to my government before being asked to participate in the discussion.

To his protest, I wish to add my own: I was not allowed to share with Mr Noonan, or indeed with any other finance minister, our written proposals. In fact, as our German counterpart was later to confirm, any written submission to a finance minister by either Greece or the institutions was “unacceptable”, as he would then need to table it at the Bundestag, thus negating its utility as a negotiating bid.

I also note that Yanis had previously reported that his attempts to explain his government’s plan to the Troika were met with a similar level of bureaucratic red-tape. After 5 months of back-and-forth and with little to show its not hard to be cynical about the point of last minute negotiations, but these things have a habit of being decided in the last seconds before midnight so you never know.

At this point, 24 hours out from the latest EU emergency summit,  there does not appear to be much news about a deal. Greece has less than 14 days to work out a creditor plan or it looks like it will default on its €1.6bn bundled IMF loan repayment. There are also rumors of a bank holiday circulating with some €4bn being withdrawn from the Greek banking system over the last week. Some entities are making preperations for just such an event:

THE Bank of Cyprus  is preparing for an extended bank holiday in Greece as continuing deposits outflows in the Greek banking system may force authorities to take this type of step and impose capital controls, reports the Cyprus Mail.

The unspecified amount of money loaned to Greece by the ECB is meant to hold banks over until Monday night

The ECB raised the funding cap to the Greek banking system over the weekend to provide some stability, but if we do see a bank holiday it’s hard to see how they can re-open without capital controls in place if there isn’t a solid deal announced early this week.

The ECB may appear to be supporting the Greeks on the surface, but don’t be fooled,  it is once again up to its old tricks. Check out this wonderfully timed piece of fictional overreach on the eve of the crisis through the BoG:

Failure to reach an agreement would, on the contrary, mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country’s exit from the euro area and – most likely – from the European Union. A manageable debt crisis, as the one that we are currently addressing with the help of our partners, would snowball into an uncontrollable crisis, with great risks for the banking system and financial stability. An exit from the euro would only compound the already adverse environment, as the ensuing acute exchange rate crisis would send inflation soaring.

All this would imply deep recession, a dramatic decline in income levels, an exponential rise in unemployment and a collapse of all that the Greek economy has achieved over the years of its EU, and especially its euro area, membership. From its position as a core member of Europe, Greece would see itself relegated to the rank of a poor country in the European South.

This is why the Bank of Greece firmly believes that striking an agreement with our partners is a historical imperative that we cannot afford to ignore. From all the evidence available so far, it seems that a compromise has been reached on the main conditions attached to this agreement and that little ground remains to be covered. Besides, the lowering of the primary surplus targets is a decision of paramount importance that significantly extends the time needed for fiscal adjustment and allows for additional degrees of freedom in the conduct of fiscal policy. Equally important will be the reaffirmation and articulation in more specific terms of our partners’ willingness to provide debt relief, as initially stated at the Eurogroup meeting of 27 November 2012. What we need today is a viable debt deal which will spare future generations burdens that we have no right to saddle them with.

And we’ve also had a recent leak about some more dirt on the IMF supposedly using the Greek media to spread some of their own propaganda:

The Greek authorities want to investigate alleged misconduct by a number of journalists who attended seminars organized by the IMF and were allegedly instructed to promote the organization’s advice to Greece.

The accusations were voiced by Greece’s former representative to the International Monetary Fund Panagiotis Roumeliotis, who testified Tuesday in front of a special parliamentary committee on the country’s debt. Newspaper Proto Thema published excerpts from the testimony on its website.

And lets not forget to add the Russians to the mix as well:

… amid speculation that Russia could come to Greece’s rescue, potentially pulling an American ally and EU member state more firmly into Moscow’s orbit. Russian Deputy Prime Minister Arkady Dvorkovich said his country was considering giving Tsipras the money to pay back the IMF. Russian officials also announced Greece had signed an agreement for Gazprom, Russia’s state-owned energy giant, to build a pipeline in the Mediterranean nation.

So this all brings me back to the original question I posed yet again back in January:

Obviously the big question now is what next ?

With political leaders like Front National leader Marine Le Pen in France looking on in delight and the ever-crazy Italian political system watching on avidly in the corner, Brussels and Berlin are sure to be concerned about this latest development. Germany, through the Troika,  has always been hard-line with the Greeks , even in the face of evidence that it knew its plans were faulty; but this is a new beast. Sure Syriza isn’t running an anti-Euro campaign like Le Pen, but this is a very clear political shift in that direction from the Greeks . If Syriza fails on its own anti-austerity mandate because of what is seen as bullying from the rest of Europe the next step is surely Grexit via a party even further disconnected from the EU. Europe may believe it has it’s firewalls in place to deal with such a thing, maybe it does, but it’s a very slippery slope , especially if the Greeks took it in their stride and came out the other end better off. What then for the likes of Italy ?

Obviously that needs to be offset with the reality ( see here for more ) that neither Greece nor the Eurozone can really just walk away from this. That is maybe a fantasy in a few economic academic’s minds but the reality is now far more of a mess. It didn’t need to be that way, in 2010 Greece could have far more cleanly defaulted on its initial round of private creditors, restructured and moved on while staying within the Euro. But for what now can only be seen as face-saving political reasoning Greece was shunted into taking on IMF/EU loans in order to pay back private creditors even though everyone knew they were completely insolvent.

More recently, I said at the time that Yanis Varoufakis became the Greek Finance Minister that I thought he was too politically naive. He seemed to believe that if he presented a credible plan, his plan, then it would instantly accepted by the rest of the EU, but that was never going to happen.  The IMF knowingly lied, the ECB, as it did with Ireland, Spain and previously in Greece continues to throw petards at elected governments, those above the northern line continue to stonewall, and much of the media is just playing along.

The game over the last 5 years has been to insure Greece can’t be allowed to escape their creditors because then France, Spain, Portugal and Italy could too, instantly destroying the credibility of the Euro experiment. At least that’s been my sense of what those in Brussels and Frankfurt have believed they are playing at.

There is no doubt, however, that this situation is now dire. No one in their right mind believes Greece is ever going to come out the other side of this without a massive default and the situation continues to deteriorate. The question now, as it ever was,  is not will Greece default, but when and how it will it be allowed to do so.

If there is no resolution shortly I would expect the ECB to start saber rattling over the ELA and forcing the Greeks to implement capital controls to stop the banking system collapsing completely. This would inevitably bring on yet another political crisis and force Alexis Tsipras’ hand. This isn’t a new trick for the ECB and I have no doubt they will use it again.

I’ve been asked a number of times in recent weeks if this will finally be the Grexit, but I can’t give a definitive answer about what happens next. Unfortunately this is a political decision made in the minds of a bunch of old white mostly male EU bureaucrats, completely displaced from reality with a history of overstepping their own mandates in order to get keep their hands on power. With Russia in the mix and the NATO/America alliance in play there is a lot more at stake than just a few old Greek assets so it’s very hard to definitely say where to from here.

As one of our old MB bloggers used to say “money is just rules” and, most unfortunately for the EU citizenry, these guys make them up as they go along.

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