Greece deal under intense assault

The IMF raised the heat on the Greek bailout last night releasing a statement that they want out of the deal, maybe pressured by the US, unless there is debt relief. They also said they informed the EU of their position prior to negotiations with Greece and it would appear they were openly ignored.

Without the IMF, the current situation for funding the bailout doesn’t add up. The financing needs are €82-86bn, the ESM has only €40-50bn meaning privatizations (that is flogging expropriated assets) would need to be an astonishing €32-46bn. Surely that is not going to happen.

Despite this, the EU appears to be pushing ahead with using the formerly dead EFSM for bridging finance even though the UK is screaming blue murder and Prime Minister Cameron is telling them where to go. Its actually a majority decision so there maybe nothing he can do about it, but that won’t stop the shouting.

In Greece the parliament is under siege from within and without as riots surround the place and Syriza falls apart under the betrayal of its principles, from Reuters:

The ruling Syriza party, elected in January on an anti-austerity platform, has been deeply split by the bailout deal that a reluctant Tsipras was forced to accept after gruelling negotiations in Brussels this week.

More than half of the party’s 201-member central committee, signed a statement rejecting the “humiliating” terms of the bailout, saying it was not compatible with the principles of the left. “This proposal cannot be accepted by the people of Syriza,” they said.

With pro-European opposition parties set to back the bailout, the measures are expected to pass some time after midnight. But around 30-40 Syriza lawmakers are likely either to abstain or vote against the government, raising a question mark over how long Tsipras can remain in office.

Former finance minister Yanis Varoufakis, who was sacked by Tsipras last week, denounced the bailout as “a new Versailles Treaty” – the agreement that demanded unaffordable reparations from Germany after World War One.

Deputy finance minister Nadia Valavani resigned and Energy Minister Panagiotis Lafazanis said he would not back the deal.

The deal is under intense pressure on all fronts and it’s still odds-on for an imminent Grexit.

Updated: Greek parliament approves deal

  • 229 for
  • 64 against
  • 6 abstained

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

Latest posts by Houses and Holes (see all)

Comments

  1. One has to wonder what a weakened EU does for the States wrt to NATO et al and possibly all things financial.

    • G-BRICS, that way they could have Snoop and Dre’s ‘Nuthin’ but a ‘G’ Thang’ as their theme.

  2. St JacquesMEMBER

    It seems that what’s behind German frustration is that although Greece slashed recurrent spending it seems to have done little in the last four years to carry out structural reforms such as raise the age of retirement to EU norms and slash the massively bloated (and corrupt) public sector. If I’ve understood that correctly, then the German hardline postion on debt restructuring begins to make more sense, ie, they are trying to force the necessary reforms. Unfortunately, the Greek population simply sees German aggression and nothing else. Human nature. Looks like Grexit then. Meanwhile Ireland, Spain, Portugal, the Baltic states and a number of other countries that have gone through the wringer are now recovering and even boasting high rates of productivity growth.

    • Very true. Everyone seems to be thinking of the Germans as being the baddies but neglecting the fact that the Greeks are not doing enough on their side either.

    • Annoying Devil

      Greece raised the retirement age to 67 back in 2012 as part of austerity measures, and I believe they raised it again recently. Meanwhile Germany has lowered theirs to 63.

    • Even StevenMEMBER

      That seems a pretty accurate assessment to me. Greece has not yet undertaken the necessary reforms.

      But some public recognition by the Germans of Greece’s inability to pay back the full amount of debt should – you’d think – promote better negotiations.

      But… On basis of history, the Greeks will try to weasel out of whatever reforms they can.

      • St JacquesMEMBER

        Thanks Delusional. Maybe it’s the Germans simply don’t trust the Greeks not to go back to their old ways or fear of setting off a precedent in the other stressed countries to ask for more leeway or just simply German hard-headedness or something else
        Love the pic.

    • St Jacques, this is not correct. Greece has passed many of the reforms asked of them over the last 4 years (see DE’s links), the problem is they have made the situation worse, not better. The Greeks are fed up, and elected Syriza on a no-austerity program. Yanis Varoufakis, who was pushing an eminently sensible proposal that involved plenty of reform and liberalisation, was elected with the most votes of any MP in the current parliament.

      Syriza did exactly what it was elected to do, it stopped enacting further austerity, reversed some previous austerity measures (hiring cleaners back) and brought the Troika back to the negotiating table.

      The Greeks are not the ones who have been acting unreasonably here.

      • The problem here is not Greek debt as such. The problem is the structure of the Greek economy that has resulted in that debt. Let’s be clear. The Greeks live way beyond their means. They relied on a subsidy of some $70 BillionEuros average per year. Greece has made NIL debt NOR interest repayments in the last five years. In fact they have again been subsidised by about $20Billion Euros per year – no net interst or debt repayments.
        How can this continue? Who will keep paying? How would Europe place any control on other European states? From a German viewpoint how would they then put pressure on France to exercise some control before they blow the whole European idea to smithereens?

        This is just reality. Allocating blame for it is another matter. The EU has ignored its own rules on fiscal deficits by member countries. Greece has had to operate in an environment of a waaaayyyy over-valued currency for its economy. Long term stupid interest rate policy that has created an environment of debt debt and more debt the consequences of which were and STILL ARE ignored (they don’t have that alone!) All that is true but nevertheless the Greeks themselves chose to live way beyond their means despite the obvious fact that it couldn’t go on forever.

      • Jason, a large chunk of the Greek economy was based on credit. The only way to get out of that situation requires less credit so if feels worse and it is worse right now. The alternative is getting more credit but nobody will give it because Greece will never return any of it. The IMF is literally asking the rest of Europe to go back to the old arrangement where Greece gets money forever in exchange for nothing at all. Why isn´t the US doing that to its failing states?
        The funny thing is that the US tried to enact a real coup via the IMF during the elections last year when it started withholding payments and Yanis is not saying a word about who was behind that. He is either biased (for sure), naive (I think not), incompetent (my personal take) or its own variety of crook. Instead we have the US playing chess in Europe and screwing everything. The sooner Ms Merkel realises this and sits down with Putin to come to some sort of face-saving arrangement, the sooner this charade will be over.

    • This is a sad situation but a warning on what happens when a country goes for decades on a credit-based growth binge.

      • bolstroodMEMBER

        @ JasonMNan
        “…a warning on what happens when a country goes for decades on a credit based growth binge”
        Reminiscent of another debt stuffed country? planet?
        None of this will end well.

    • If you go back to one of Varoufakis’ earlier articles (where he describes himself as a ‘reluctant Marxist’) he states that the reason he is reluctant is that there is no one on the left who is competent to run the economy.

    • Per YS

      “First, Varoufakis has lied repeatedly and blatantly, and he is highly motivated to burnish his record.

      Second, there was a discussion that was leaked via Ambrose Evans-Prtichard a couple of weeks ago regarding this “plan”. It was so sketchy as to be a napkin doodle. To treat it as anything more than a rough and initial set of idea is misleading. Moreover, Varoufakis effectively admits he looked into this only late in the game which is way too late.

      The much higher functioning Paulson Treasury similarly had a plan for dealing with a crisis. They never consulted it or acted in accordance with it when the criss actually hit.

      Third, there is no evidence that Varoufakis consulted with anyone who had expertise in banking or payment systems. As indicated with the napkin-doodle comment above. that means what little time was spent on it was probably garbage in, garbage out. The leaks are consistent with it being high level and not well informed.”

  3. * Greek PM says Greece needs debt restructuring to exit the crisis – RTRS
    * MinEcon Stathakis says: “I openly admit that this is a negative agreement,” which will not bring any growth potential to the country.
    * Tsipras just voted Yes for an agreement he admits will damage the economy and probably won’t work
    * Yanis votes ‘No’
    EU has a new negotiator in the case of a No vote in Greece tonight

    • The Germans won’t be happy – they would have wanted them to vote No…

      The irony of this whole situation – it now comes down to the fact that Greece goes – or Germany does with a bunch of northern countries… the EU in its present form is finished. People just don’t recognise that fact yet. Everyone thinks that if Greece delays, or says yes now – that in a week, month, six months, a white knight appears… and a certain lame duck president wants to be gone before this all inevitably blows up.

      Don’t underestimate kicking this can down the road a few more years yet!

      In the mean time – in the Middle Kingdom!!!

      • Germany isn´t going anywhere with a bunch of northern countries. It wants a middling Euro not a powerful DM. Also the Northern block includes several recessionary nations so that won´t help either. It is just beating the bull in the China-shop (France) back into its corral.

      • True – but Germany doesn’t want wealth transfers either without a say. Remember the EU isn’t a country. Imagine if NSW just kept its revenues, instead of transfers to Tasmania or the NT? It would be a good day to be a New South Welshman for sure. Whilst in Tasmania you would be walking bare foot, living in a cave and praying for global warming…

        Germany has probably taken the inevitable step of kicking Greece out. If it is not allowed to do that – it will walk. It will probably take the Netherlands, Czeck Rep., Austria, Poland and the Baltic States, Finland and try and talk Sweden in joining the currency too. In the longer term, if N. Italy splits it would join as well. That currency would be dominated by Germany, but it would have sufficient developing nations to lower it by 30-40% as well – still giving them that manufacturing edge, with more LT currency sustainability without the liabilities. And I suspect the germans would like their chances against other manufacturing powers, leaning of their quality edge. Their only real competition is Japan in that respect.

        Germany has to do something, France will have a bigger economy than Germany in 10-15 years because of population growth (immigration mainly), and in 15-17 years (on current trends), the UK’s economy will be biggest in Europe by some margin.

        From an Anglo-Saxon point of view, we don’t tend to look too far down the road and plan. A weakness some may say (I say not because the future is unpredictable anyway, better to be flexible). The Germans, Finn’s, even the Swedes, however, do forward plan, decades in cases. And I suspect they don’t like what they see (in fact some prominent German economists saw what is happening today as inevitable as far back as the late 1990’s – and their opposition to the Euro). Hence Germany’s actions now, and the reasons why they are blatantly ignoring the IMF and the US in this instance. I suspect they are plotting their own direction – and it doesn’t involve France IMHO.