Yanis Varoufakis writes: The feud between the International Monetary Fund (IMF) and the European side of Greece’s troika of creditors is old news. However, Wikileaks’ publication of a dialogue between key IMF players suggests that we are approaching something of a hazardous endgame.
Ever since the first Greek ‘bailout’ program was signed, in May 2010, the IMF has been violating its own “primary directive”: the obligation not to fund insolvent governments. As a result, the IMF’s leadership has been facing a revolt from its staff members who demand an exit strategy arguing that, if the EU continues to obstruct the debt relief necessary to restore the solvency of the Greek government, the IMF should leave the Greek program.
Five years on, this IMF-EU impasse continues, causing a one-third collapse of Greek GDP and fuelling hopelessness to a degree that has made real reform harder than ever.
Back in February 2015, when I first met Poul Thomsen (the IMF’s European chief) in a Paris hotel, a fortnight after assuming Greece’s finance ministry, he appeared even keener than I was to press for a debt write off: “At a minimum”, he told me “€54 billion of Greece’s debt left over from the first ‘bailout’ should be written off immediately in exchange for serious reforms.”
This was music to my ears, and made me keen to discuss what he meant by “serious reforms”. It was a discussion that never got formally off the ground as Germany’s finance minister vetoed all discussion on debt relief, debt swaps (which were my compromise proposal), indeed any significant change to the failed program.
What new light does the leaked dialogue between Thomsen and Delia Velculescu (the IMF’s Greek mission chief) throw on this saga? [Continue reading…]
The New York Times reports: Greece called on the International Monetary Fund on Saturday to explain whether it was seeking to usher Athens toward bankruptcy ahead of a pivotal referendum in June on Britain’s membership in Europe. Greece’s comments came after I.M.F. officials raised questions in a private discussion published by WikiLeaks about what it would take to get Greece’s creditors to agree to debt relief.
The transcript, which captures what WikiLeaks said was a teleconference conversation in March between Poul Thomsen, the head of the I.M.F.’s European operations, and the I.M.F.’s Greek bailout monitor, underscored a widening rift between the I.M.F. and Greece’s European creditors that could jeopardize Greece’s new 86 billion euro bailout. It also exposed the fraught behind-the-scenes political machinations that have led to a deadlock on how to deal with a country still regarded as Europe’s weakest link.
The I.M.F. declined to comment on the WikiLeaks transcript, but said in a statement that Greece needed to be put “on a path of sustainable growth” supported by reforms and further debt relief. The document touched off a fresh political frenzy inside Prime Minister Alexis Tsipras’s government, which accused the I.M.F. of trying to “politically destabilize Europe.” [Continue reading…]
Andrew Ross Sorkin writes: On Monday, market participants steeled themselves for a steep decline, but the indexes in the United States were up more than 1 percent, and markets in Europe were close to flat.
But that reaction — and the reaction to previous attacks — may belie the true cost of terrorism and, more important, underestimate the potential cost of the Paris killings.
“The aftermath of the Nov. 13 Paris attacks may not in itself prompt extensive market-based volatility,” Citigroup wrote in a report, suggesting that financial markets “treat such developments as idiosyncratic and the unfortunate reality of a world where large-scale carnage has become an almost daily, if sickening, development.”
The report, however, said, “We think this time is different.”
That view is consistent with the opinions of some security experts, who in recent days have said that the attack in Paris represents just one in a continuum.
“We have upgraded the risk of terrorist attacks not only in the Middle East but also in the West, as well as the likelihood of increased international military intervention in IS strongholds in Syria, Iraq and Libya,” Citigroup said, referring to the Islamic State.
The attack in Paris could have far-reaching implications for the future of the eurozone and for companies doing business there. The events in Paris could add to the pressure to close borders in the eurozone. It is also reigniting a debate about privacy and surveillance that could have big implications for technology companies.
Over the weekend, Evercore ISI, the research arm of the investment bank Evercore, published a note to its clients suggesting that the events in Paris could threaten the political support inside Germany for its chancellor, Angela Merkel, who has been a big supporter of open borders, of the Syrian migration and of limiting electronic surveillance on civil liberty grounds.
“The connection between the terror threat and migration flows threatens to rupture the border-free Schengen zone,” the note said, describing the borderless, passport-free zone known as the Schengen area. “It challenges Merkel’s position at home and in the wider E.U., nudging higher the tail risk that Europe’s indispensable leader could fall from power.”
The economic implications of this are significant, to say the least. Evercore ISI even speculated it was possible that Ms. Merkel could ultimately be replaced by Wolfgang Schäuble, Germany’s finance minister, who has seemingly been inclined to let Greece leave the eurozone.
Policy makers and investors estimating the cost of terrorism often miss the larger picture: While the stock market quickly rebounded after Sept. 11, the true economic damage may have been as high as $3.3 trillion. [Continue reading…]
Many perspectives have been shared about the social and economic repercussions that the third EU bailout proposal for Greece may have. The impact of these tough austerity measures is yet to unfold for the country, for the other southern states, or indeed Europe as a whole.
But moving beyond a purely economic lens, there is already evidence about the extent of deprivation and youth unemployment of more than 50% during the past five years of the first and second bailout programmes, meaning that the likely effects of the third are easier to predict, at least for this generation.
The links between poverty and a range of risk factors for child mental health problems and related outcomes is well established. Nevertheless, the reality hit home a few weeks ago when I joined the Children’s SOS Villages in Greece in training their prospective new carers, or “mothers” and “aunts” as they are widely called. These carers work in a similar way to foster carers and residential care staff in other welfare systems. The villages were established in Austria after World War II to care for orphan children and since then their model has successfully spread across more than 120 countries.
Yanis Varoufakis writes: On July 12, the summit of eurozone leaders dictated its terms of surrender to Greek Prime Minister Alexis Tsipras, who, terrified by the alternatives, accepted all of them. One of those terms concerned the disposition of Greece’s remaining public assets.
Eurozone leaders demanded that Greek public assets be transferred to a Treuhand-like fund – a fire-sale vehicle similar to the one used after the fall of the Berlin Wall to privatize quickly, at great financial loss, and with devastating effects on employment all of the vanishing East German state’s public property.
This Greek Treuhand would be based in – wait for it – Luxembourg, and would be run by an outfit overseen by Germany’s finance minister, Wolfgang Schäuble, the author of the scheme. It would complete the fire sales within three years. But, whereas the work of the original Treuhand was accompanied by massive West German investment in infrastructure and large-scale social transfers to the East German population, the people of Greece would receive no corresponding benefit of any sort. [Continue reading…]
Chris Arnade writes: One of the first lessons I was taught on Wall Street was, “Know who the fool is.” That was the gist of it. The more detailed description, yelled at me repeatedly was, “Know who the fucking idiot with the money is and cram as much toxic shit down their throat as they can take. But be nice to them first.”
When I joined in Salomon Brothers in ‘93, Japanese customers (mostly smaller banks and large industrial companies) were considered the fool. My first five years were spent constructing complex financial products, ones with huge profit margins for us — “toxic waste” in Wall Street lingo — to sell to them. By the turn of the century many of those customers had collapsed, partly from the toxic waste we sold them, partly from all the other crazy things they were buying.
The launch of the common European currency, the euro, ushered in a period of European financial confidence, and we on Wall Street started to take advantage of another willing fool: European banks. More precisely northern European banks. [Continue reading…]
Almost as soon as the Greek deal was agreed, it began to come apart at the seams. Passage of the necessary legislation through the Greek parliament led to Syriza splitting in two as Alexis Tsipras, the Greek prime minister, drew on the votes of the right to force through a deal which is worse than anything that was on offer before the referendum on July 5.
Germany’s finance minister, Wolfgang Schäuble, revealed that many in the German government actually want Greece to leave the euro, effectively admitting that the deal was deliberately designed to be as tough as possible to force Tsipras to reject it. The deal’s passage through the German parliament will not be straightforward, and Finnish politicians have also expressed deep scepticism.
Meanwhile, the International Monetary Fund (IMF) has been engaging in a propaganda battle against its European partners in the Troika, leaking a memorandum in which it argues that Greece’s debt is unsustainable and implying that the agreement will fail.
Bloomberg reports: The hardliners who reject a Greek debt writedown to keep it in the euro are willing to pay much more to drive it out.
A “Grexit” would cost creditors almost 100 billion euros ($110 billion) more than keeping Greece in the currency union, reckons Alberto Gallo, head of macro credit research at Royal Bank of Scotland Group Plc. Zsolt Darvas at the Bruegel institute estimates that about 75 percent of the debt would not be paid to creditors following the return of the drachma.
“What this tells you is that policy makers are following politics instead of rational economics,” Gallo said. [Continue reading…]
Josh Barro writes: It reads like a dry, 1,184-word memorandum about fiscal projections. But the International Monetary Fund’s memo on Greek debt sustainability, explaining why the I.M.F. cannot participate in a new bailout program unless other European countries agree to huge debt relief for Greece, has provided the “Emperor Has No Clothes” moment of the Greek crisis, one that may finally force eurozone members to either move closer to fiscal union or break up.
The I.M.F. memo amounts to an admission that the eurozone cannot work in its current form. It lays out three options for achieving Greek debt sustainability, all of which are tantamount to a fiscal union, an arrangement through which wealthier countries would make payments to support the Greek economy. Not coincidentally, this is the solution many economists have been telling European officials is the only way to save the euro — and which northern European countries have been resisting because it is so costly.
The three options laid out by the I.M.F. would have different operations, but they share an important feature: They involve other European countries giving Greece money without expecting to get it back. These transfers would be additional to the approximately 86 billion euros in new loans contemplated in Monday’s deal. [Continue reading…]
Paul Mason writes: One of the most touching aspects of Greek life is people’s obsessional respect for parliamentary democracy. Syriza itself is the embodiment of a leftism that always believed you could achieve more in parliament than on the streets. For the leftwing half of Greek society, though, the result is people continually voting for things more radical than they are prepared to fight for.
I asked one of Syriza’s grassroots organisers, a tough party cadre who had been agitating for a “rupture” with lenders for weeks, whether he could put his members onto the streets to keep order outside besieged pharmacies and supermarkets. He shook his head. The police, or more probably the conscript army would have to do it.
When it comes to the now-abandoned Thessaloniki Programme, the radical manifesto on which Alexis Tsipras came to power, there is always talk of implementing it “from below”: that is, demanding so many workers’ rights inside the industries designated for privatisation that it becomes impossible; or implementing the minimum wage through wildcat strikes. But it never happens. When strikes are called, it’s by the communists. When riots happen, it’s the anarchists. The rest of leftwing Greece is mesmerised by parliament.
Little does it understand how scant was the power its ministers actually wielded from their offices. And now the realisation dawns: the Greek parliament has no power inside the eurozone at all. It has the power only to implement what its lenders want. [Continue reading…]
Marina Prentoulis writes: After five months of negotiations, Sunday evening brought a moment of painful realisation: democracy has left the EU building. The proposals put forward by the German government and its allies were preposterous – a clear message that any government opposing neoliberalism and austerity should be brought to its knees at all costs.
Their agenda completely ignores the human suffering the proposals will inflict, while also disregarding the political cost of dividing the European community and the economic cost of proposing a “temporary” Grexit. An economic solution to the crisis – a crisis that was inevitable in a monetary and economic union structured to create winners and losers – was never the primary objective. Instead, the deal with Greece has been seen as an opportunity for declaring a two-speed Europe.
Despite 11th-hour attempts by France, Italy and others to keep the eurozone – and effectively the broader EU – united, the damage has already been done, and now we have to deal with the aftermath of that blow. For the Greek government the next few days are critical: it has to explain why it ever made the assumption that the neoliberal eurozone could be reasoned with. Caught between a rock and a hard place, blackmailed and threatened for months, it eventually had to accept a very painful deal and more austerity. With an impossible mandate – to stop austerity and stay within the eurozone – the government could go only as far as the European directorate would let it. For the Greek people, the glimpses of hope to be gleaned from the prospect of some measures of debt restructuring and investment are of little comfort. [Continue reading…]
Wolfgang Münchau writes: A few things that many of us took for granted, and that some of us believed in, ended in a single weekend. By forcing Alexis Tsipras into a humiliating defeat, Greece’s creditors have done a lot more than bring about regime change in Greece or endanger its relations with the eurozone. They have destroyed the eurozone as we know it and demolished the idea of a monetary union as a step towards a democratic political union.
In doing so they reverted to the nationalist European power struggles of the 19th and early 20th century. They demoted the eurozone into a toxic fixed exchange-rate system, with a shared single currency, run in the interests of Germany, held together by the threat of absolute destitution for those who challenge the prevailing order. The best thing that can be said of the weekend is the brutal honesty of those perpetrating this regime change.
But it was not just the brutality that stood out, nor even the total capitulation of Greece. The material shift is that Germany has formally proposed an exit mechanism. On Saturday, Wolfgang Schäuble, finance minister, insisted on a time-limited exit — a “timeout” as he called it. I have heard quite a few crazy proposals in my time, and this one is right up there. A member state pushed for the expulsion of another. This was the real coup over the weekend: regime change in the eurozone. [Continue reading…]
When Alexis Tsipras walked into the meeting with the remaining 18 eurozone leaders at the weekend, he may have had in mind, not a line from Greek antiquity, but perhaps one from the Italian middle ages. Dante Alighieri’s version of hell had a simple message at its gate: “Abandon all hope, ye who enter here”. It was a very difficult, and very long, meeting for Tsipras, but my first impression is that he managed the best he could under extremely difficult circumstances.
For a start, the Greek prime minister had to explain to eurozone leaders why he was pushing for an economic agreement which, at the end of the day, had been overwhelmingly rejected in a referendum by his own people. This raised a significant issue of trust and credibility. Despite Tsipras having won Greek parliamentary support (251 out of 300 Greek MP’s gave him the “green light” to strike a deal; perhaps any deal that would keep Greece in the euro) was he trustworthy to implement what was about to be agreed?
Mark Mazower writes: At the heart of the European project is a deep ambivalence towards nationalism. Nineteenth-century theorists of nationalism saw no incompatibility between love of country and international solidarity. But that was before two world wars. Twentieth-century fathers of federalism, such as the Italian Altiero Spinelli, had a barely disguised loathing for the excesses of nationalism, which they associated with fascism and war.
We can have a little more confidence than that. Even the No vote in the Greek referendum was, so the polls suggest strongly and as the prime minister, Alexis Tsipras, has acknowledged, a vote for Europe and even for continued membership of the euro itself. And if, after five years of the worst depression since the 1930s, the Greek public still recognises the merits of participating in Europe, we can be sure public opinion in most other countries contains a solid core of pro-European sentiment. This is for historical reasons (memories of the world wars), geopolitical (fears of Russia and of fallout from the Middle East), and also because people can see that the real problems ahead lie well beyond the capacity of single states to tackle – global warming, endemic conflict in Africa and the Middle East that is generating hugely destabilising movements of people.
But we should not push things too far, which is precisely what the euro, at least as administered until now, has done. For one thing, it has too often been presented as just a question of signing up to rules, as if central bankers and not the elected representatives of member nations should make the fundamental decisions in any kind of democratic confederation. For another, it has lacked any redistributive or solidaristic dimension. [Continue reading…]
Yanis Varoufakis writes: Greece’s financial drama has dominated the headlines for five years for one reason: the stubborn refusal of our creditors to offer essential debt relief. Why, against common sense, against the IMF’s verdict and against the everyday practices of bankers facing stressed debtors, do they resist a debt restructure? The answer cannot be found in economics because it resides deep in Europe’s labyrinthine politics.
In 2010, the Greek state became insolvent. Two options consistent with continuing membership of the eurozone presented themselves: the sensible one, that any decent banker would recommend – restructuring the debt and reforming the economy; and the toxic option – extending new loans to a bankrupt entity while pretending that it remains solvent.
Official Europe chose the second option, putting the bailing out of French and German banks exposed to Greek public debt above Greece’s socioeconomic viability. A debt restructure would have implied losses for the bankers on their Greek debt holdings.Keen to avoid confessing to parliaments that taxpayers would have to pay again for the banks by means of unsustainable new loans, EU officials presented the Greek state’s insolvency as a problem of illiquidity, and justified the “bailout” as a case of “solidarity” with the Greeks.
To frame the cynical transfer of irretrievable private losses on to the shoulders of taxpayers as an exercise in “tough love”, record austerity was imposed on Greece, whose national income, in turn – from which new and old debts had to be repaid – diminished by more than a quarter. It takes the mathematical expertise of a smart eight-year-old to know that this process could not end well. [Continue reading…]
Jeffrey D. Sachs writes: The Greek catastrophe commands the world’s attention for two reasons. First, we are deeply distressed to watch an economy collapse before our eyes, with bread lines and bank queues not seen since the Great Depression. Second, we are appalled by the failure of countless leaders and institutions – national politicians, the European Commission, the International Monetary Fund, and the European Central Bank – to avert a slow-motion train wreck that has played out over many years.
If this mismanagement continues, not only Greece but also European unity will be fatally undermined. To save both Greece and Europe, the new bailout package must include two big things not yet agreed.
First, Greece’s banks must be reopened without delay. The ECB’s decision last week to withhold credit to the country’s banking system, and thereby to shutter the banks, was both inept and catastrophic. That decision, forced by the ECB’s highly politicized Executive Board, will be studied – and scorned – by historians for years to come. By closing the Greek banks, the ECB effectively shut down the entire economy (no economy above subsistence level, after all, can survive without a payments system). The ECB must reverse its decision immediately, because otherwise the banks themselves would very soon become unsalvageable.
Second, deep debt relief must be part of the deal. The refusal of the rest of Europe, and especially Germany, to acknowledge Greece’s massive debt overhang has been the big lie of this crisis. Everyone has known the truth – that Greece can never service its current debt obligations in full – but nobody involved in the negotiations would say it. Greek officials have repeatedly tried to discuss the need to restructure the debt by slashing interest rates, extending maturities, and perhaps cutting the face value of the debt as well. Yet every attempt by Greece even to raise the issue was brutally rebuffed by its counterparties. [Continue reading…]
Bloomberg reports: In an 11th-hour bid to stay in the euro, the government of Greek Prime Minister Alexis Tsipras offered to meet most of the demands made by creditors in exchange for a bailout of 53.5 billion euros ($59.4 billion).
European and U.S. equity-index futures jumped on Friday after the proposal was submitted to creditor institutions late on Thursday. The package of spending cuts, pension savings and tax increases almost mirrored that from creditors on June 26, which was rejected by Greek voters in a July 5 referendum. It will face its first hurdle in the Greek Parliament on Friday.
Though Tsipras ceded ground, he insists long-term debt needs to be made more manageable to allow Greece to recover from a crisis that has erased a quarter of its economy. He has a growing support base that includes the U.S., European Union President Donald Tusk and the International Monetary Fund. [Continue reading…]
Alex Andreou writes: This is my initial reaction to the deal proposal by Greece: it is more austerity -harsh austerity at that – and many of the measures are recessionary. Distribution of the burden seems to me fairer than before. If the upside is access to a significant stimulus package (front-loaded), a smoothing of the measures (back-loaded) and substantial restructuring of debt, to make it definitively viable, it will probably be seen as worth it. It is certainly capable of being sold as worth it.
Essentially, everyone managing to keep their position/perks/income in the context of an economy which is in the middle of a death spiral, is meaningless. If the economy begins to recover, then things which were unbearable, become bearable. Austerity becomes a background noise, rather than a preoccupation and a progressive government will be able to offset the damage. It is a delicate balance.
Market confidence is a strange creature. There is a lot of money sloshing around at the moment, taken out of China which is in free-fall. Money which is bulging to be invested. All it takes is an intangible notion that Greece has hit the low point, for investment to return. Whether this package achieves that balance or not, will have to be assessed over time, as the detail of each measure becomes known and away from the adrenaline and hysteria of negotiation fever. [Continue reading…]
Joseph E. Stiglitz writes: As the Greek saga continues, many have marveled at Germany’s chutzpah. It received, in real terms, one of the largest bailout and debt reduction in history and unconditional aid from the U.S. in the Marshall Plan. And yet it refuses even to discuss debt relief. Many, too, have marveled at how Germany has done so well in the propaganda game, selling an image of a long-failed state that refuses to go along with the minimal conditions demanded in return for generous aid.
The facts prove otherwise: From the mid-90’s to the beginning of the crisis, the Greek economy was growing at a faster rate than the EU average (3.9% vs 2.4%). The Greeks took austerity to heart, slashing expenditures and increasing taxes. They even achieved a primary surplus (that is, tax revenues exceeded expenditures excluding interest payments), and their fiscal position would have been truly impressive had they not gone into depression. Their depression — 25% decline in GDP and 25% unemployment, with youth unemployment twice that — is because they did what was demanded of them, not because of their failure to do so. It was the predictable and predicted response to the austerity.
The question now is: What’s next, assuming (as seems ever more likely) they are effectively thrown out of the euro? It’s likely that the European Central Bank will refuse to do its job—as the Central Bank for Greece, it should do what every central bank is supposed to do, act as a lender of last resort. And if it refuses to do that, Greece will have no option but to create a parallel currency. The ECB has already begun tightening the screws, making access to funds more and more difficult.
This is not the end of the world: Currencies come and go. The euro is just a 16-year-old experiment, poorly designed and engineered not to work—in a crisis money flows from the weak country’s banks to the strong, leading to divergence. GDP today is more than 17% below where it would have been had the relatively modest growth trajectory of Europe before the euro just continued. I believe the euro has much to do with this disappointing performance. [Continue reading…]
The New York Times reports: As Greece hurtles toward a Sunday deadline for either reaching a bailout deal or risking a hasty exit from the eurozone, the one certainty is that its economy is already on the brink of collapse.
Businesses and humanitarian organizations are warning that the social and commercial damage now evident could become deeper and longer lasting if Greece and its international creditors cannot finally come to terms on a new bailout package.
“Greece already has a humanitarian crisis, and we’ll have to prepare for a harder aftermath if a deal collapses,” Nikitas Kanakis, the president of the board of directors of the Athens chapter of Doctors of the World, a health care charity, said on Wednesday. “I’m not sure how proud we should feel about letting social destruction return within Europe.”
With banks closed and the government virtually out of money, Greece has become isolated from the international economy — a big problem for a country that relies on imports for 65 percent of its goods. [Continue reading…]