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Greek Banks To Remain Closed Monday As Debt Negotiations Head To The Wire

Greek European Union Flags

I honestly haven’t been paying much attention to the latest round of negotiations between Greece and European lenders, but it would appear that things are about to get very, very serious:

ATHENS — Greece will keep its banks and stock market closed on Monday and place restrictions on the withdrawal and transfer of money, Prime Minister Alexis Tsipras said in a televised address on Sunday night, as Athens tries to avert a financial collapse.

The government’s decision to close banks temporarily and impose other so-called capital controls came hours after the European Central Bank said it would not expand an emergency loan program that has been propping up Greek banks in recent weeks while the government was trying to reach a new debt deal with international creditors.

Mr. Tsipras said on Sunday night that the European Central Bank’s decision was an attempt to “blackmail” Greece.

The debt negotiations broke down over the weekend after Mr. Tsipras said he would let the Greek people decide whether to accept the creditors’ latest offer. That referendum vote is to be held next Sunday, after the current bailout program will have expired.

By closing banks and imposing other controls on the movement of money, Greece is taking steps similar to those by Cyprus in 2013 to avoid a bank collapse.

But in that case, the Cypriot government acted in concert with other European governments as part of a new bailout program. In Greece, the emergency banking measures were be a result of a breakdown in talks with other eurozone countries. The breakdown has intensified pressure on cash-poor banks as jittery Greeks withdraw their savings.

There is still a chance that Greece and its creditors — the European Central Bank, the International Monetary Fund and the other eurozone countries — can come to terms before its current bailout program expires on Tuesday. On Sunday, the European Commission and I.M.F. issued statements indicating the door to further discussions might still be ajar.

And in Washington, the White House issued a statement saying that President Obama and the Chancellor Angela Merkel of Germany had spoken by phone Sunday. “The two leaders agreed that it was critically important to make every effort to return to a path that will allow Greece to resume reforms and growth within the eurozone,” the White House statement said.

But the European Central Bank, for its part, declined on Sunday to raise the limit on its emergency funding for Greek banks — a level currently said by banking officials and analysts to be around 89 billion euros, or about $100 billion — even though businesses and consumers have withdrawn billions of euros in recent weeks.

That rate of withdrawals appeared to increase over the weekend, as long lines formed at A.T.M.s around the country, threatening a bank run that the Greek government could try to avoid by imposing capital controls. But at the same time, the European Central Bank did not cut off support entirely, giving the Greek government some extra flexibility in the coming days.

Greece’s own central banker, Yannis Stournaras, said in a statement after the European Central Bank decision on Sunday that the Greek central bank would “take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances.”

It is also being reported that the stock exchange in Athens will be closed tomorrow and that capital controls will be imposed to prevent Greek banks from being drained of foreign deposits.

As a preliminary matter, if you’re looking for an explanation of what’s going on with this latest chapter in what seems like an eternal crisis in Greece at this point, The New York Times does a good job of laying out how we got where we are and what’s at issue in the current negotiations.

Based on some of the reporting about the negotiations over the past week, it does seem as though there will ultimately be some kind of resolution to the current crisis involving Greece, but it’s unlikely to be easy getting there and the fact that some reports are indicating that the deal may all hinge on a referendum to be held in Greece later this year makes the entire thing ephemeral in some sense in any case. The shape of that final deal, though, is almost secondary to the potential short term and long term impact of what Greece is talking about doing here. Closing banks even for a short period of time is a serious step. When it happened here in the United States in the 1930s it set off a financial crisis that shook the system to its core even more than the already ongoing Great Depression had done. Fortunately, in that case, we had leadership that was able to restore confidence in the financial system in relatively short order and, well, even in the depths of the Great Depression the United States of the 1930s was in far better shape, and had a far brighter future, than Greece does today. The situation does not to be anywhere near the same in Athens, where the leadership seems to be running around like a chicken with its head cut off and these moves seem to be designed to avert the rather rational actions of Greek citizens who are realizing that their banks are no longer safe. It’s likely to have the exact opposite of its intended effect.

Closing banks under circumstances like this, which are quite different from Roosevelt’s actions in 1933 or what happened in Cyprus several years ago, seems bound to have disastrous consequences for a nations economy and its political system. To a large degree, the entire idea of banking itself is built on the maintenance of some degree of confidence on the part of the people. After all, if you turn all your money over to a guy in a building that says “bank” on it, you have to have some belief that you’ll be able to access it when you need it. Otherwise, the entire logic of the system begins to collapse. If this were part of some kind of planned reform where the Greeks were closing the banks for a day or two in order to implement a reform plan, then perhaps it wouldn’t be a big deal. But that’s not what’s happening here. This is very much a last minute thing that was announced late in the day on a Sunday. According to reports, lines at ATMs around the country, which were already growing because of the overall sense of distress, began to grow when the announcement went public. Eventually, of course, those machines will run out of cash and won’t be replenished right away. At that point, people will be left with whatever cash they had on them when banks closed. Even if the crisis is only short-lived, the promise of reliability upon which every system of banking is built will have been punctured, and it’s hard to see how the Greek economy and political culture won’t be deeply shaken by it. Add that kind of uncertainty into an economic situation that has been dire for years, and things could get quite nasty in Greece in the future.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. Ben Wolf says:

    It should be noted the suspension of ELA by the European Central Bank is a violation of its charter requiring policies for price stability and employment. This is, in keeping with its pattern of behavior, an attempt to force what it considers an acceptable political solution.

    “Acceptable solution” meaning to break any semblance of democratic resistance to technocratic rule.

    Like or Dislike: Thumb up 11 Thumb down 2

  2. Ron Beasley says:

    The Euro was always a really bad idea and designed only to empower Germany, large European Banks and the IMF. Germany tried to do economically what they were unable to do militarily in two wars.
    The smartest thing Britain has done since WWII was refusing to join the Euro.

    Like or Dislike: Thumb up 4 Thumb down 2

  3. grumpy realist says:

    @Ben Wolf: Wrong. According to the rules, ELA is not to be provided if a country if bankrupt and there’s no ongoing negotiations to fund it. The ECB was already on thin ice with what they had been providing, given that everyone’s pretty certain the Greek government has already walked over into the red, but everyone was willing to look the other way That’s what the announcement of the referendum did–it cut off the negotiations and that was it.

    In fact, the referendum is even crazier than described. The Greeks are going to be voting on a referendum that is talking about an offer which has already expired. (Date of expiration is June 30th, vote is July 5th.)

    As everyone knows, I’ve been following this for the last several weeks, and this has turned into the craziest case of sh*t-your-own-bed-and-lie-in-it that I have seen. I would have more sympathy for Greece (as against the “evil banksters”) except for the fact that Tsipras and Varoufakis seem to have broken every single rule of negotiation; in fact, have gone out of their way seemingly to tick off the other side. Certain commentators are starting to wonder whether they were trying to engineer a Grexit from the beginning.

    Like or Dislike: Thumb up 6 Thumb down 2

  4. Ben Wolf says:

    @grumpy realist: I’m sorry but that’s incorrect:

    Euro area credit institutions can receive central bank credit not only through monetary policy operations but exceptionally also through emergency liquidity assistance (ELA). ELA means the provision by a Eurosystem national central bank (NCB) of

    central bank money and/or
    any other assistance that may lead to an increase in central bank money

    to a solvent financial institution, or group of solvent financial institutions, that is facing temporary liquidity problems, without such operation being part of the single monetary policy.
    https://www.ecb.europa.eu/mopo/ela/html/index.en.html

    Nothing in the statute forces the ECB to suspend the program.

    Like or Dislike: Thumb up 4 Thumb down 1

  5. grumpy realist says:

    P.S. expect the stock markets to go haywire tomorrow and for a few days after. I’m looking to pick up some bargains, especially since the Euro will probably crater for a bit, then recover.

    P.P.S. I think the rest of Europe is so sick and tired of the whole Greek thing that they’re hoping Greece will just slither out of the Eurozone after a big “NO!”. If Greece votes “YES!” on the referendum I expect a collapse of the Greek government, an election for a new, more moderate crew, and a brand-new shiny offer from the ECB and the IMF, probably with a fat piece of debt relief added. Tsipras and Varoufakis will be screaming “no fair!” but that’s what happens when you keep pissing off the other side.

    For a so-called genius in game theory, Varoufakis never seemed to understand that the rules for a productive negotiation are completely different when the other side has to get a ratification from his/her population. Playing chicken doesn’t gain you anything–it just convinces the other side that a) they’re going to have to nail you down on every single point because you’re such a hard-ass negotiator, and b) they NEVER want to negotiate with you again.

    Like or Dislike: Thumb up 3 Thumb down 1

  6. grumpy realist says:

    @Ben Wolf: From the Economist:

    As its name implies, ELA is an exception to the rule. The rule is that the 19 national central banks in the euro zone, which implement the ECB’s monetary policy, provide liquidity to banks at interest rates set by the council, provided that the banks post eligible collateral, such as government bonds with acceptable credit ratings. In these standard monetary operations the 19 central banks share the risk of any losses, in proportion to the size of their economies and populations. But what happens if banks run out of acceptable collateral? Then they must draw upon ELA. They still get the funding they require, but it is provided by the national central bank at its own risk and at a higher interest rate. Although the central bank in question can instigate such help, it must inform the ECB within two working days—and the provision of ELA is vetted by the governing council. If it decides that such support is at odds with “the objectives and tasks” of the Eurosystem (the ECB together with the 19 national central banks), the council can restrict the ELA, provided that a majority of two-thirds backs such a step.

    Last week’s decision by the ECB will push the Greek banks into ELA, because it removes a concession allowing them to get liquidity in the usual way, despite the fact that they were presenting collateral that was formally ineligible. That collateral was debt issued or guaranteed by the Greek government, which was junk-rated and therefore barred by the ECB’s collateral rules, which insist on an investment-grade credit rating. The ECB was prepared to waive that requirement provided that Greece was complying with the terms of its bail-out; but since that no longer seems to be the case, the ECB will no longer make this concession.

    Like or Dislike: Thumb up 0 Thumb down 0

  7. Ebenezer_Arvigenius says:

    @Ben Wolf: Well if you actually managed to convince yourself that the Greek banks are “solvent financial institution” and suffering from a “temporary liquidity problem” that was to be solved without ECB money then it probably wasn’t a lot of work to make the additional mental step to assume a “violation of its charter” too.

    Like or Dislike: Thumb up 2 Thumb down 0

  8. Ben Wolf says:

    @grumpy realist: Exactly. The ECB is “determining” whether to continue the program, it is not required to terminate.

    @Ebenezer_Arvigenius: Separate clause. The solvency reference is for financial institutions other than a central bank.

    Like or Dislike: Thumb up 2 Thumb down 0

  9. grumpy realist says:

    There seems to be a limit on the amount of ELA the ECB can give Greece at this point: $90B or so. Changing that limit would require a round of approvals, which the rest of the ECB members don’t seem very eager to provide after have having had insults thrown at them by the Tsip & Var comedy show for the last several weeks.

    (I mean–honestly–what were these guys THINKING?! Insult “Mutti” Merkel in public, call her a “blackmailer” and a “Nazi”, piss off all the Germans, and then turn around and whine that the whole problem is a “political problem” and it’s up to good old “Mutti” to save their asses?)

    Like or Dislike: Thumb up 2 Thumb down 1

  10. michael reynolds says:

    @grumpy realist:

    Isn’t the question is who’s ass is being saved? Is it Greece? Or is it German bankers? Is it the Euro? Is it the idea of a unified Europe?

    Like or Dislike: Thumb up 2 Thumb down 2

  11. Ben Wolf says:

    FYI, euro and currencies sensitive to it are being hammered as we speak.

    Like or Dislike: Thumb up 0 Thumb down 0

  12. Ben Wolf says:

    @michael reynolds: That’s exactly the point, Michael. The ECB is taking actions that are going to drive the currency union out of business and they can’t or won’t see it. They and the finance ministers in the Eurogroup seem to be stupid as they look.

    Like or Dislike: Thumb up 2 Thumb down 0

  13. OzarkHillbilly says:

    @grumpy realist: Paul Krugman disagrees, to some extent at least. Not sure where you are getting your info, but from what I read, Greece has given the bankers 95% of what they want. The thing about negotiations is that both sides have to give a little. Sounds to me like Greece is giving more than a little. The Euro union (read, Germany), the banks, and the IMF aren’t giving at all. That’s not a negotiation. It’s suicidal.

    Oh, one more thing, we are well within shrapnel range.

    Like or Dislike: Thumb up 4 Thumb down 2

  14. @michael reynolds:

    It’s mostly the bankers and the Eurozone.

    Greece is screwed, but that’s going to be true whether they are part of the EU or not.

    Like or Dislike: Thumb up 1 Thumb down 0

  15. grumpy realist says:

    @michael reynolds: Kicking Greece out of the Euro would probably be no big deal for the EU economy; it’s what it implies about the weaker economies such as Portugal, Spain, and Italy. That people shouldn’t be thinking about a “euro” but a “Portugal-euro” and a “German-euro” split since the “Portugal-euro” could go PFFFT the same way the Greek-euro looks to be doing.

    Hence the jitters. Everyone’s on edge, but whether Greece falls out of the Eurozone or not I’m afraid the cracks over this crazy monetary union have already bust open. Even if the ECB and the IMF somehow manage to cobble something together with the more intelligent Greek politicians, no one’s going to trust the EU on its unified currency image again. In order to keep the monetary union strong, they’re going to have to be able to keep the euro strong all over the place…which means monetary transfers from stronger parts of the EU to weaker parts of the EU. Which nobody is going to go for when it means Germans voting to send money to prop up Greece because Greece has a ridiculously high level of tax evasion and sufficient money to run the place isn’t being collected.

    The only thing that’s going to save the Euro now (as far as I can tell) is a much stronger fiscal union, which countries aren’t going to go for since they want to be able to run their own economies.

    The reason we put up with our transfer payments within the US (as far as I can tell) is a) a sizable chunk of authority has already been handed over to the Federal Government anyway b) we get to vote on our federal representatives, c) plus the tax deduction we get on our state taxes makes us vaguely feel it more or less evens out. Plus, we fought a goddamn WAR over the question of keeping the whole union together

    Like or Dislike: Thumb up 4 Thumb down 0

  16. @Ron Beasley:

    The Euro makes sense on a macro level. Common currencies reduce transaction costs, make trade and travel easier, and contribute to the overall post-World War II goal of uniting Europe in a way that would prevent a return to the conflict that has been a part of its history since, well, forever.

    The problem, I think, came when they started adding in countries like Greece, Spain, Italy, and Portugal that had economies completely different from Germany, France, and other states.

    Like or Dislike: Thumb up 2 Thumb down 0

  17. gVOR08 says:

    One of the big mysteries of history is how the European powers stumbled down the path into WWI. We can understand it better after watching them stumble through the financial crisis into a disaster that supposedly no one wants, but no one has the will or imagination to avert.

    Like or Dislike: Thumb up 6 Thumb down 0

  18. @gVOR08

    Add in the Balkan crisis in the 90s, which ended up requiring the United States to get involved to bring about something like the Dayton Accords.

    Yea, Europeans haven’t really managed their affairs very well, have they?

    Like or Dislike: Thumb up 4 Thumb down 0

  19. grumpy realist says:

    @OzarkHillbilly: What’s holding the ECB/IMF side up (at the moment, the differences between the two packages are honestly minute) is no one outside Greece trusts Greece to accomplish any of the things they’re claiming they’ll be able to do. Which is why the ECB/IMF package is insisting on VAT increases and cuts in pensions while Greece is pushing a package more geared towards increasing taxes. (No one believes Greece can collect the taxes it claims it will.)

    If Syriza had spent its time since getting elected in really cracking down on tax evasion and taking a swing at the corruption and oligarchy Greek is infested with, it could have built up enough good will within the EU that when it said “this austerity stuff won’t work, we suggest higher taxes instead” the other side would have said:”OK!” Unfortunately, it became pretty obvious after Syriza was elected that the same old sleeze and tax avoidance was going to continue, with little improvement on collection.

    And honestly, Syriza hasn’t managed to offer any better strategy to fix the problem aside from “loan us more money and maybe we’ll manage to not piss away quite so much of it.” It’s really a bit too much when you loudly yell about your “dignity” and “right to self-government” and then stick a hand out demanding more money from the rest of the EU because you can’t get your act together enough to collect your own taxes.

    Like or Dislike: Thumb up 2 Thumb down 2

  20. OzarkHillbilly says:

    @grumpy realist:

    What’s holding the ECB/IMF side up (at the moment, the differences between the two packages are honestly minute) is no one outside Greece trusts Greece to accomplish any of the things they’re claiming they’ll be able to do.

    Time for Grexit then, because Greece didn’t get here all on their own*, but they are the only ones paying the price for it**.

    *seriously, the rest of Europe was just fine and dandy with whatever Greece did, as long as they were making money*** off of it.

    ** so far. soon the pain will spread, europe is not immune, and to repeat myself, neither are we.

    ***and yes, they were, that’s why they call it an “integrated economy”.

    Like or Dislike: Thumb up 5 Thumb down 0

  21. JohnMcC says:

    I assign myself to ‘back of the class’ status on large economic issues but compensate somewhat by being a bit of a pedant about history. So may I point out that the bank holiday that I suppose Mr Mataconis refers to (“set off a financial crisis that shook the system to it’s core”) actually saved the system from widespread bank runs and bank failures. According to the Federal Reserve’s history:
    “On average, more than 600 banks failed annually between 1921 and 1929. Those failures led to the end of many state deposit insurance programs.” There was no federal deposit insurance, of course.

    Further, “(c)onfidence in the banking system began to erode, and bank runs became more common….1350 banks suspended operations during 1930.” The collapse of ‘Sterling’ caused a liquidity crisis as foreigners with deposits in American banks made withdrawals “…that caused the failure of 2,293 banks in 1931. “The crisis reached a peak…during the first three days of March 1933 following the failure of an estimated 4,000 banks so far that year.” http://www.fdic.gov/bank/historical/managing/Chron/pre-fdic/

    The four day bank holiday proclaimed by FDR and some other measures (Glass-Steagall for one) saved the banking and financial system.

    Thanks, everyone. I feel better now.

    And in other news the Guardian is reporting that the ‘capital controls’ of the Athens gov’t are to last until 7 July.

    Like or Dislike: Thumb up 5 Thumb down 0

  22. JohnMcC says:

    In one of those ‘no one would take it seriously if it was fiction’ moments, the Governor of Puerto Rico has announced that “the island’s debts are ‘not payable'”.

    Like or Dislike: Thumb up 2 Thumb down 0

  23. MBunge says:

    @Doug Mataconis: in all the obvious craziness on the Right, it’s useful to remember that systemic dysfunction is just as possible on the Left. And yes, everyone agrees that Europe is “on the Left” by American standards.

    Mike

    Like or Dislike: Thumb up 1 Thumb down 0

  24. Wr says:

    @grumpy realist: maybe this terrible deficiency in the Greek government has something to do with the fact that they were elected by the Greek people, not the German banks. And the Greek people are tired of starving in poverty, even if comfortable Americans think they deserve to.

    Like or Dislike: Thumb up 7 Thumb down 2

  25. michael reynolds says:

    If a Grexit causes too much pain we’re going to want to step in. I don’t trust the Turks with Erdogan in charge and I certainly don’t trust the Russians. Greece is geographically speaking a sort of fall-back line of containment against Russian naval force projection. A little charity now could go a long way to keeping Greece on the side of the angels.

    Like or Dislike: Thumb up 3 Thumb down 0

  26. HarvardLaw92 says:

    Which nobody is going to go for when it means Germans voting to send money to prop up Greece because Greece has a ridiculously high level of tax evasion and sufficient money to run the place isn’t being collected.

    Exactly this – Greece quietly announced in 2009 that it had been understating its deficit numbers – massively understating – for years. Many, including me, regard that as having been a deliberate strategy of fraud to keep the lending tap open. Some €240 billion – with a B – has been pumped into Greece, and existing lenders agreed to a 50% haircut in 2011 as well, yet Greece still teeters on the edge of bankruptcy.

    The place is a fiscal disaster, and it’s not surprising that the rest of the EU (read: Germany) isn’t that willing to keep throwing money down a bottomless hole without some tangible evidence that Greece’s government has changed how it does business (it hasn’t IMO). Greece is the equivalent of the relative who is drowning in credit card debt, but still heads to the mall every afternoon to go shopping, but who expects the limits on the cards to just keep going up. Eventually reality comes to pay a visit.

    Like or Dislike: Thumb up 5 Thumb down 2

  27. HarvardLaw92 says:

    Just as an FYI – Greece’s structural deficit in 2010 was 18% of GDP, and that figure apparently wasn’t unusual (which is why they creatively hid it for so long). An equivalent situation in the US would have us posting deficits close to $2 trillion every year. That is the extent of their problem.

    Like or Dislike: Thumb up 0 Thumb down 1

  28. Ben Wolf says:

    I never give investment advice, but if you’re exposed on this, reduce it. The potential downside is enormous .

    Like or Dislike: Thumb up 0 Thumb down 0

  29. grumpy realist says:

    Oh, the Euro is now down 0.8 PERCENT against the dollar and all the news media are running around screaming about a “collapse” of the Euro.

    That’s not a collapse, zit-heads. A collapse is when your currency goes down 10%.

    Guess financial reporters like to go after shiny things as well….

    Krugman has written an article deploring the “strictness” of the ECB/IMF in light of the fact that the Greek economy has basically collapsed. Yes, but he isn’t talking about the major problem, which is that Greece has been living on borrowed time for quite a few years, being propped up from lending from abroad. The outside lenders have simply gotten tired of the never-ending drain and have removed the support. Does the Krugman really expect that Europe and the IMF were going to continue this on forever?

    Supposedly the culture of tax-evasion in Greece comes from Greek’s history, where it was under the thumb of the Ottomans and tax-evasion was seen as a way to stick it to the occupier. Unfortunately, Greeks don’t ever seem to have quite realized mentally that their present government is now their own and that its funding comes from the taxes they pay. (No payment==no funding for government services.) And now, they’re perfectly happy to treat the EU as being the “nasty outsider” that they’re being oppressed by.

    P.S. It’s not just tax evasion. It’s the whole nine yards of the system (corruption, inability to get contracts implemented if one side decides he just wants to blow off the other, the “little envelope” system, etc.) Whoever thought that yanking this together with, say, Germany in a monetary union was a good idea has rocks in his head.

    Like or Dislike: Thumb up 0 Thumb down 0

  30. grumpy realist says:

    @Wr: To be brutally frank, the Greek people were going to starve in poverty either way as soon as the rest of the world wised up and realized they never were going to fix their system.

    If you are, in fact, an independent country, you work on raising sufficient taxes to cover your expenses. You plug the financial leaks due to corruption. You don’t keep sitting with your hand out whining about baksheesh and accusing everyone of blackmail when they decide they don’t want to play your little game anymore.

    In the eyes of the rest of the EZ, Greece has behaved, in fact, like the annoying cousin who has mooched off his family for years and years and years and is now having a temper-tantrum because the family has cut off the financial drip-line.

    Like or Dislike: Thumb up 2 Thumb down 2

  31. Mu says:

    5 years ago the Greek debt was mainly held by private institutions, banks, pension funds etc. They couldn’t be allowed to go under without risking a major upheaval in the EU financial sector. Now most of this money has been converted to state backed debt. It’s still a total write-off for the EU, but it won’t hit the private economy nearly as hard as it would have in 2010. Greece lost its capacity for blackmail, and with the new government’s attitude even the most supportive EU politicians are losing their patience.

    Like or Dislike: Thumb up 0 Thumb down 0

  32. stonetools says:

    On economic issues, I go by the rule that Krugman may not always be right, but that’s the way to bet. And he thinks the euro is unsustainable, and that Greece should bite the bullet, and leave if it has to.
    He says that Greece should stay only if the EU agrees to end the austerity program, which would keep Greece in a state of permanent depression:

    This is, and presumably was intended to be, an offer Alexis Tsipras, the Greek prime minister, can’t accept, because it would destroy his political reason for being. The purpose must therefore be to drive him from office, which will probably happen if Greek voters fear confrontation with the troika enough to vote yes next week.

    But they shouldn’t, for three reasons. First, we now know that ever-harsher austerity is a dead end: after five years Greece is in worse shape than ever. Second, much and perhaps most of the feared chaos from Grexit has already happened. With banks closed and capital controls imposed, there’s not that much more damage to be done.

    Finally, acceding to the troika’s ultimatum would represent the final abandonment of any pretense of Greek independence. Don’t be taken in by claims that troika officials are just technocrats explaining to the ignorant Greeks what must be done. These supposed technocrats are in fact fantasists who have disregarded everything we know about macroeconomics, and have been wrong every step of the way. This isn’t about analysis, it’s about power — the power of the creditors to pull the plug on the Greek economy, which persists as long as euro exit is considered unthinkable.

    So it’s time to put an end to this unthinkability. Otherwise Greece will face endless austerity, and a depression with no hint of an end.

    If Dr. K is right on this, then the Greeks should vote no.

    Like or Dislike: Thumb up 5 Thumb down 1

  33. JohnMcC says:

    @HarvardLaw92: I see directly above that Dr Krugman has been invoked so I’ll just add that he disputes the computation of the IMF that the Greek structural deficit.

    And I’ll add that this current crisis-of-the-Euro falls on a very bad time if you hold stocks on the Chinese markets. They’ve had a stock bubble inflating for the past year or more and are now in a ‘correction’. The CNN headline of 5 hours ago (thank you Mr Google) is ‘China stocks free fall into a bear market’.

    Oh boy, oh boy!

    Think I’ll turn on Fox and remind myself that the REAL problems are caused by hippies and liberals and muslims. So much better that way.

    Like or Dislike: Thumb up 6 Thumb down 0

  34. Avid sportman says:

    @Doug Mataconis: Actually, It’s mostly European nations. Most of the european banks have off loaded their exposure to Greek debt (courtesy of the ECB) to countries like France, Spain, Italy, and Germany. http://www.theguardian.com/world/datablog/2015/jun/19/the-greek-debt-what-creditors-may-stand-to-lose

    http://www.bloomberg.com/news/articles/2015-01-05/european-banks-have-limited-exposure-to-greece-jpmorgan-says

    http://www.bloombergbriefs.com/content/uploads/sites/2/2015/01/MS_Greece_WhoHurts.pdf

    Like or Dislike: Thumb up 0 Thumb down 0

  35. JohnMcC says:

    @michael reynolds: Hah! I love the Churchillian thinking. On to Gallipoli!

    Like or Dislike: Thumb up 2 Thumb down 0

  36. Ben Wolf says:

    @JohnMcC: Bad to be anywhere risky when everyone is pulling back. Currencies regarded as safe are where the action is right now.

    Like or Dislike: Thumb up 0 Thumb down 0

  37. Grumpy Realist says:

    Chinese stock market was already collapsing. Greece has bog-all to do with it.

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  38. Grumpy Realist says:

    @stonetools: I don’t understand what the Krug is thinking–unless he expects Greece to deal with its deficits by printing drachmas to cover the gap?

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  39. wr says:

    @grumpy realist: “In the eyes of the rest of the EZ, Greece has behaved, in fact, like the annoying cousin who has mooched off his family for years and years and years and is now having a temper-tantrum because the family has cut off the financial drip-line.”

    All of which sounds remarkably like the tone of the big American banks which, having made billions pushing risky and often fraudulent loans to people who couldn’t afford them, suddenly (after taking more billions in bailouts from taxpayers) found the root of the crisis in the immorality of borrowers who took loans they couldn’t afford.

    I guess you can turn this into some kind of morality play if you really want, with the lazy, rapacious Greek grasshoppers righteously punished by the industrious German ants. That’s certainly how the bankers choose to see it. Still, cheerleading for the terrible misery that’s been inflicted on the Greek people over the last few years so that German bankers can enjoy every cent of their profit feels like an odd choice to me.

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  40. stonetools says:

    Not sure what Dr. K’s plan is, but it seems he thinks the Greeks can get a better deal from the Germans. His advice is if they can’t get that better deal, grexit and go back to a national currency.

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  41. wr says:

    @Grumpy Realist: “I don’t understand what the Krug is thinking–unless he expects Greece to deal with its deficits by printing drachmas to cover the gap?”

    Perhaps he remembers when Iceland was under threat by international banks, but because they had their own currenct they were able to tell them to go screw — and despite a few months in which olive oil became scarce in Reykjavik, saw the fastest recovery in Europe. And perhaps he remembers that Ireland’s government dedicated itself to beggaring its citizens to protect thir corrupt banks and remains mired in bleak times.

    What’s good for the bankers is not automatically good for a nation’s people, and if we have to measure a haircut for billionaires against the lives of millions, that’s not a hard choice for me.

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  42. JohnMcC says:

    @Grumpy Realist: You are correct of course. Apologies if I seemed to imply that one caused the other. Still, even an econ-deficient old fart like myself can see that there will be a different course for the Euro because of Chinese weakness and a different course in China/East Asia because of the Euro crisis. Just what that specifically amounts to, I have no solid knowledge (and thus no firm opinion).

    We peasants wait to hear from the scholarly classes to tell us what to believe.

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  43. gVOR08 says:

    @wr: It’s been a disappointment to me to see that apparently European banks have even more influence over their governments than ours do. I expect that under a President McCain or Romney this might not have been the case.

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  44. JohnMcC says:

    @wr: Having filled my bald head with international finance and economics poured in without organization or foundation I cannot recall where I read this but apparently the Tsipras government is planning to pay gov’t employees and pensioners with script.How is that not an alternative currency? They might as well call them ‘Drachmas’.

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  45. JohnMcC says:

    @wr: “…(I)f we have to measure a haircut for billionaires against the lives of millions, that’s not a hard choice…” If only I could give more than one thumbs-up for that.

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  46. grumpy realist says:

    @wr: Iceland was totally different. It was the BANKS that were insolvent because of silly lending. The Iceland government was totally fine. And when the Euro (mainly UK) banks started squawking at the Iceland government for not back-stopping the losses at the Iceland banks, the Iceland government said “see if we care.” So a lot of Iceland banks went under with the expected effect on the economy, resultant effect on taxes, Iceland government had to cut stuff, etc. etc. and so forth, but when the whole mess was over, the Iceland economy started growing again and the Iceland government has been collecting taxes in line with expenses. So everything’s re-equilibriated.

    Here the problem is that the Greek GOVERNMENT is not taking in enough money in taxes to cover all its expenses and its only way of trying to cover the deficit is by incessant borrowing from the outside. This technique can only go on as long as the outside world is willing to lend it money.

    As said, Greece really should have charged ahead on improving tax collection before anything else. The rest of the (banking) world is now convinced that Greece doesn’t want to fix matters.

    Now, the US may decide due to geo-political reasons that Greece should be bailed out and put pressure on the IMF and on the ECB to find a way to support Greece, but we might as well admit to ourselves that we’re going to have to be supporting Greece for a long, long time–perhaps forever.

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  47. grumpy realist says:

    How the whole mess got started:
    (Vanity Fair)

    When Papaconstantinou arrived here, last October, the Greek government had estimated its 2009 budget deficit at 3.7 percent. Two weeks later that number was revised upward to 12.5 percent and actually turned out to be nearly 14 percent. He was the man whose job it had been to figure out and explain to the world why. “The second day on the job I had to call a meeting to look at the budget,” he says. “I gathered everyone from the general accounting office, and we started this, like, discovery process.” Each day they discovered some incredible omission. A pension debt of a billion dollars every year somehow remained off the government’s books, where everyone pretended it did not exist, even though the government paid it; the hole in the pension plan for the self-employed was not the 300 million they had assumed but 1.1 billion euros; and so on. “At the end of each day I would say, ‘O.K., guys, is this all?’ And they would say ‘Yeah.’ The next morning there would be this little hand rising in the back of the room: ‘Actually, Minister, there’s this other 100-to-200-million-euro gap.’ ”

    This went on for a week. Among other things turned up were a great number of off-the-books phony job-creation programs. “The Ministry of Agriculture had created an off-the-books unit employing 270 people to digitize the photographs of Greek public lands,” the finance minister tells me. “The trouble was that none of the 270 people had any experience with digital photography. The actual professions of these people were, like, hairdressers.”

    By the final day of discovery, after the last little hand had gone up in the back of the room, a projected deficit of roughly 7 billion euros was actually more than 30 billion. The natural question—How is this possible?—is easily answered: until that moment, no one had bothered to count it all up. “We had no Congressional Budget Office,” explains the finance minister. “There was no independent statistical service.” The party in power simply gins up whatever numbers it likes, for its own purposes.

    Once the finance minister had the numbers, he went off to his regularly scheduled monthly meetings with ministers of finance from all the European countries. As the new guy, he was given the floor. “When I told them the number, there were gasps,” he said. “How could this happen? I was like, You guys should have picked up that the numbers weren’t right. But the problem was I sat behind a sign that said GREECE, not a sign that said, THE NEW GREEK GOVERNMENT.” After the meeting the Dutch guy came up to him and said, “George, we know it’s not your fault, but shouldn’t someone go to jail?”

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  48. Ben Wolf says:

    @Grumpy Realist: That’s what it did before joining the euro — without problem.

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  49. HarvardLaw92 says:

    @wr:

    The problem for Greece comes with the next act. Sure, they can pull out of the EU and go their own way. They can default (which is what would happen), but the next installment of that drama isn’t pretty.

    Given Greece’s structural economic problems and current account deficit, a reconstituted drachma would inevitably inflate, if not hyperinfalte, and that leaves Greece in the position of paying any subsequent lending that it is able to obtain with a devaluing currency. Beyond that, a good sized chunk of Greece’s export economy relies on imported raw materials, which will become more and more expensive from a Greek vantage point as the drachma declines in value (which it will). You can expect inflation, layoffs, capital flight, shortages of imported commodities and civil unrest. All you need to predict what would happen in a post-Euro Greece is to examine a post-dollar peg Argentina.

    With one caveat – Argentina is rich in raw materials, Greece isn’t. Greece largely doesn’t have the Argentinian option of a massive shift away from imported goods to domestically produced goods – because the country doesn’t make much of anything, and what it does make is dependent on imported raw materials to produce. It took Argentina a decade to recover, and even in recovery its currency continues to deflate while its dollar reserves shrink and it suffers through annual inflation approaching 28%.

    In short, Greece certainly has the option of leaving the Euro, but the next episode on the drama will not be an improvement in Greek standard of living. Things will get much worse for the Greeks, not better.

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  50. HarvardLaw92 says:

    @grumpy realist:

    The rest of the (banking) world is now convinced that Greece doesn’t want to fix matters.

    Exactly. The last time that I checked, existing Greek debt was trading somewhere around 38 cents on the dollar, and a Greek government which isn’t underwritten by the EU might as well forget about floating new bond issues. Assuming anyone even got in line to buy at all, which is a big assumption, they’ll be eating enormous discounts just to get the paper to move – and that’ will put them right back where they were with the EU.

    Until they fix their structural problems, which are largely of their own making, they’ll keep declining.

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  51. Ben Wolf says:

    Europe is reaping what it has sown. It was well known by elites that Greece was an institutional mess and still they enthusiasticslly courted its membership in the eurozone. Now faced with the consequences of their stupidity they have abandoned economics in its entirety for a policy of punishing “sneaky” Greeks who tricked them by keeping their track record of poor governance out in the open.

    What is the difference in Greece and Germany, which repeatedly and vastly exceeded the deficit limits imposed by the Maastricht Treaty? Well, Germany is powerful and so it gets a pass from those who insist Greece must be made an example for violating “rules”. But we have seen over and again the “rules” only apply when elites want them to — which is to be expected when even the semblance of democratic control does not exist.

    Technocrats can’t be held accountable as politicians can.

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  52. Ben Wolf says:

    @HarvardLaw92: Greece doesn’t have structural problems; it has a monetary system problem. People were warning a decade ago the first demand shock would produce this very result due to the flawed structure of the eurozone. The sector acxounting simply does not work out to what the euro elites want to see, (assuming they give a damn about the money at all, which is quesrionable.)

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  53. HarvardLaw92 says:

    @Ben Wolf:

    I will agree that Greece was an exceedingly poor candidate for a pan-european currency and never should have been admitted to the euro in the first place. I’ll also agree that ECB and IMF should have been a little less intransigent, but neither of those factors really mitigate the fact that Greece has created the bulk of its own problems, and shows little, if any, real interest in fixing them.

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  54. grumpy realist says:

    @HarvardLaw92: Yes, if you look at the timeline for Greece over the next month or two, they’re going to be trying to issue sovereign bonds right after they’ve had a string of defaulting on payments to the IMF, the EU, and the sovereign bonds already out there.

    I swear, I don’t understand what the Tsip and Var comedy show are thinking of, but considering that at least a percentage of the Greek population is convinced that a NO on the referendum is going to somehow magically produce a “better” offer from the Troika I see where they get their magic thinking from. (The possibility that the Troika might just say:”oh well, we tried, come back when you’re willing to be realistic” never seems to cross their minds.)

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  55. JohnMcC says:

    @grumpy realist: Yes, Ma’am. Up until 2009 the Greek gov’t had been using the Euro as your spendthrift cousin treated the family — pretty much like a pipeline to Fort Knox. Got that. I’d call it fraud, myself.

    After 2009, a harsh austerity was imposed on Greece and we can all sympathize with the Troika for that. What those of us who express sympathy for Syriza are saying is that the punishment has kept the Greek economy from reforming itself. If I had my pension reduced by 25% it would not make me more diligent about paying taxes. Possibly your reaction would be different?

    According to the indispensable Dr Krugman, “Greece has been running a primary surplus since 2013, and according to it’s agreement with the Troika it’s supposed to run a surplus of 4.5 percent for many years to come.” (From his column of 01/26/15)

    Based on good-faith attempts to meet their obligations Syriza says, in effect, ‘trust us, Uncle Euro, we’ve learned our lesson and will pay back what you say we owe just slower than you want.’ They need some relief to get a new suit or tires for the car.

    As I understand your comments you don’t believe them. And you’re making it sound as if they have done nothing and only wish to party on. I know very little economics and perhaps you could explain how the picture I have drawn is wrong; I’m certainly willing to listen. But I’d appreciate some of the kinds of figures and graphs that the side you are opposed to presents.

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  56. HarvardLaw92 says:

    @Ben Wolf:

    Yea, it does. It has, and has had, a current account deficit for decades – to the extent that a brief swing to the positive in 2013 was the first time since 1948 that its trade balance was net positive. Even then, much of that was due to a one-time benefit enjoyed when lenders took a haircut on interest payments. It has since swung negative again.

    The simple fact is that Greece doesn’t, in a relative sense, make much in the way of goods & products, and what it does make is heavily dependent on imported raw materials, which will only become more prohibitively expensive under an independent currency. Some 80% of their economy is services, and even much of that is related to tourism. You don’t grow a competitive economy, and you certainly don’t dig your way out of a Greek sized hole, by being a national equivalent of Fort Lauderdale.

    People are talking as though Greece is a competitive economy being held back by unfair demands from its lenders, which would otherwise thrive were those demands to be retracted. I think that we both know that scenario leaves quite a bit of what will happen out.

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  57. HarvardLaw92 says:

    @grumpy realist:

    That’s my take on it. They are facing a € 3.5 billion repayment to ECB on July 20, which they have no hope of making unless (yet) another round of capital injection takes place. That’ll be the lynchpin moment, I think. ECB would be forced to terminate that facility at that point, and the Greek state would be bankrupt. Their banks will become insolvent and they’ll have no choice but to redenominate their liabilities in a new Greek drachma. Anyone familiar with the history of the drachma knows what happens next.

    Trying to float sovereign debt issues in that environment as well? Best of luck.

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  58. grumpy realist says:

    @JohnMcC: What I’m saying is that the goodwill for the rest of the Eurozone to support the burden of an unproductive Greece and pump money into it until it finds its feet again is now gone. Here’s an article pointing out how the present troop of clowns running Greece has screwed up everything.

    Playing chicken with the other side only works once, even if you win. After that, people will either make damn sure they never get into such a stand-off with you or refuse to negotiate with you, period.

    The rest of Europe may also decide to simply write off all of the debt and walk away. What does Greece do then?

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  59. grumpy realist says:

    http://news.wbfo.org/post/greeces-tax-collectors-face-public-hostility an article about Greek tax collection.

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  60. HarvardLaw92 says:

    @grumpy realist:

    I think that Athens has misread the tea leaves, in that public sentiment in Germany with regard to continued bailouts for Greece continues to spiral further negative. Some 62% of the German electorate is opposed to further bailouts. Heck, they have had calls on the floor of the Bundestag for abandoning Greece entirely, and they aren’t coming from the far right. Without German participation, Greece defaults and exits the euro. There is no other outcome for Greece with the withdrawal of German participation that I can fathom.

    Given the size of the write-off relative to Germany’s economy, and the fact that Merkel & Co. would like to keep their jobs, I see it as becoming more and more likely that Greece will default and exit the euro.

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  61. Ebenezer_Arvigenius says:

    Given the size of the write-off relative to Germany’s economy, and the fact that Merkel & Co. would like to keep their jobs, I see it as becoming more and more likely that Greece will default and exit the euro.

    Merkel would hate to be the one under whose era the Euro splits. So Greece actually had quite a lot of leeway. In her stoic way she actually unwrote quite a lot support despite internal pressures.

    The real whammy was twofold:

    First the failure of Greece to improve its tax collection. This is politically devastating. On the one hand it sends the signal that German taxpayers would have to finance Greek tax evasion, on the other hand it also signals that no improvements are likely forthcoming and that, no matter how much money you sink into Greece, it will never be enough. That was a serious error in messaging.

    The second was the referendum. Had they simply said “we understand that there has to be an agreement but we have been elected to prevent something like this so we need a democratic votum” they would have gotten an extension without problems. But saying “please lend us some money so we have time to convince voters not to pay you back” simply wasn’t going to fly.

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  62. wr says:

    @grumpy realist: “Here the problem is that the Greek GOVERNMENT is not taking in enough money in taxes to cover all its expenses and its only way of trying to cover the deficit is by incessant borrowing from the outside.”

    Except that the prime reason the money the Greek government takes in is not enough to cover all its expenses is because the biggest chunk of those expenses is interest paid to the very same bankers who insist on further impoverishing the Greek citizenry.

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  63. wr says:

    @HarvardLaw92: “In short, Greece certainly has the option of leaving the Euro, but the next episode on the drama will not be an improvement in Greek standard of living. Things will get much worse for the Greeks, not better.”

    There’s no doubt about it, with the banks refusing to negotiate at all, Greece’s only choices are bad ones. Which is why I believe it’s a good thing to hold a referendum and let the people decide which future they choose to gamble on.

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  64. grumpy realist says:

    @Ebenezer_Arvigenius: Yes, and then on top of that the Tsip & Var comedy show decided that the best method of negotiation was to insult everyone on the other side and play a game of chicken. Which has managed to piss off the other side and cause the other side to hang close together, whereas if Tsip & Var had negotiated more carefully, they probably could have split off the French and a few other quasi-supporters.

    I swear, where did Varoufakis learn his negotiating techniques? From Nurse Ratchett?

    (You see why some commentators are starting to think that they deliberately engineered this cock-up.)

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  65. wr says:

    @HarvardLaw92: “Greece has created the bulk of its own problems, and shows little, if any, real interest in fixing them.”

    What do the last few years of punishing austerity inflicted on the Greek people show if not an interest in fixing the problems?

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  66. HarvardLaw92 says:

    @Ebenezer_Arvigenius:

    In her stoic way she actually unwrote quite a lot support despite internal pressures.

    I disagree. Were Greece to be negotiating with a room full of economists, then yea, maybe they would have some hope, but they aren’t. They are negotiating with national governments – especially Germany – who have to sell ongoing bailouts to their voters and their legislatures, and their tactic in that negotiation is incomprehensibly to act in ways that irritate the very voters and legislatures that will have to sign off on these deals. That’s the part that many people miss – any further German participation will have to be approved by the Bundestag, and they’re not exactly dim bulbs. They know that their various electorates are overwhelmingly opposed to further bailouts, so Greece’s conduct here gives them the perfect excuse for saying “no thank you” and voting to walk away.

    Oddly, I don’t think that a Greek exit would be the death knell for the euro, primarily because what will happen in Greece post such an exit will be a vivid cautionary tale for the other teetering economies still resident in the euro. Spain might be in a mess, but it would be in much more of one were it to exit the euro and move back to the peseta. Contra accepted wisdom, a Greek exit may prove to be the example that motivates the rest of the eurozone to coalesce.

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  67. wr says:

    @grumpy realist: “I swear, I don’t understand what the Tsip and Var comedy show are thinking of, but considering that at least a percentage of the Greek population is convinced that a NO on the referendum is going to somehow magically produce a “better” offer from the Troika I see where they get their magic thinking from.”

    It’s this astonishing Greek invention called “democracy.” Since the Greek people are going to be severely impacted by either option, the government is asking them to choose for themselves. Why is that such a “magical” idea? Should they just let the technocrats decide everything and assume everyone else will just follow along meekly?

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  68. HarvardLaw92 says:

    @wr:

    What do the last few years of punishing austerity inflicted on the Greek people show if not an interest in fixing the problems?

    That the Greek government was willing to do what it had to to in order to keep the capital injection tap flowing, but unwilling to fix the underlying problems that put it in this position in the first place.

    Greece will eventually be faced with the fact that its domestic economy can not support its government spending. That is not a temporary state of affairs – it has been the reality in Greece for close to 80 years now, if not longer. The history of the drachma – i.e. repeated cycles of inflation and devaluation – makes that abundantly clear. Yes, ECB / IMF could have been a little less intransigent with respect to the conditions it imposed on the funding, but that produces a temporary fix. It doesn’t solve the larger problem.

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  69. michael reynolds says:

    If they default and exit they’ll be a good bet for some limited credit. You want to loan money to the guy who is hopelessly underwater so that you’re tenth in line to collect? Or do you want to loan money to the guy with zero debt who is desperate to convince the world he can be trusted? Granted neither is attractive, but of the two I’d loan to the guy with zero debt.

    We have the resources to give some support to a new drachma and thus perhaps avoid hyperinflation and the inevitable political instability and extremism that would follow. Germany may care only about money, but the United States has different problems. A radicalized (right or left) Greece is not good. Greece is in NATO. We have a base on Crete. Greek islands are strategically-located in the eastern Med. It’s a small country but with a very interesting set of locations.

    I have no idea whether its practical but if it is do-able we should do what we can to ease the transition. It would have the side benefit of rubbing the EU’s nose in its own incompetence, ensuring Greek loyalty to the US, and put that Islamist, ISIS-coddling, Kurd-hating prick Erdogan on notice that we have means other than Turkey’s hospitality to extend our reach.

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  70. Ebenezer_Arvigenius says:

    @HarvardLaw92: Dang sausage fingers. *Underwrote* quite a bit support it was meant to read. Between Merkel and the SPD the Greek government actually had every chance. Both were willing to prop up the Greek membership as long as there was any way to justify it to the public.

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  71. HarvardLaw92 says:

    @wr:

    Why is that such a “magical” idea?

    Because the outcome for an independent Greece will be far worse over the longer term for the average Greek, and because just the suggestion of a referendum motivated the other 18 members of the eurozone to walk away from the negotiating table.

    Greece is acting as though it is an equal partner in these negotiations, with the capacity to make and enforce demands on the rest of the eurozone – when in reality it is more akin to a terminal patient effectively demanding that the hospital keep giving it treatment despite its inability to pay. That’s borderline insanity.

    Greece is betting that the other members of the Euro are so afraid of it leaving that it is in a position to make demands. For a variety of reasons, as delineated above, it is badly, and potentially fatally, misreading the tea leaves. I have come to the conclusion that the other members of the eurozone, in the face of domestic opposition to further bailouts, are more in the position of beginning to look for an excuse for exiting this mess entirely. Greece is handing them that excuse on a silver platter.

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  72. Ebenezer_Arvigenius says:

    What do the last few years of punishing austerity inflicted on the Greek people show if not an interest in fixing the problems?

    You will note that this was largely done by the government that was voted out of office for it and got replaced by people campaigning on undoing the “fixes”.

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  73. HarvardLaw92 says:

    @michael reynolds:

    Three words – Republican controlled Congress. You’d never, IMO, get an assistance package of the magnitude necessary to keep Greece above water through this Congress.

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  74. HarvardLaw92 says:

    @michael reynolds:

    If they default and exit they’ll be a good bet for some limited credit. You want to loan money to the guy who is hopelessly underwater so that you’re tenth in line to collect? Or do you want to loan money to the guy with zero debt who is desperate to convince the world he can be trusted? Granted neither is attractive, but of the two I’d loan to the guy with zero debt.

    The problem will be that the credit markets will still price the risk of default into any lending package. Loan packages that did get extended would come with ruinous interest rates, and bond issues will sell at such an enormous discount that Greece would be setting itself up to fail yet again. It would be postponing the inevitable / buying a little time, but little else.

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  75. grumpy realist says:

    (@wr: What I’m pointing out is the assumption that a vote for “NO” is going to magically produce a better offer on the table from a third party.

    Greece can vote however it likes; that’s democracy. It doesn’t mean the rest of Europe has to say “oh, because you voted NO we’re going to magically produce a better offer.” The rest of Europe may say: “ok, you have democratically voted to refuse the offer that was on the table a week ago. That’s nice. Bye-bye, hope you enjoy your new drachma. Ta-ta.”

    It’s sort of like the State of New Jersey voting that the rest of the US pony up for all of the pension deficit in New Jersey. You know what the rest of the US would do if New Jersey voted that way? They’d just laugh.

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  76. Ebenezer_Arvigenius says:

    It would be postponing the inevitable / buying a little time, but little else.

    Well if they defaulted on every single loan and kept financial discipline of the kind so far constantly described as “ruinous and humiliating” they could make it given the current financial data. But I wouldn’t bet on that personally.

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  77. HarvardLaw92 says:

    @HarvardLaw92:

    Or, to put it in a simpler light, how much less likely do you think it would be that New York and Connecticut (just as an example) would continue to devote their domestic tax revenues to underwriting fiscal black holes like Mississippi if every extension of funding had to be approved by the NY and CT legislatures?

    It works here in the US for one reason – we have a central authority with the ability to seize capital and redistribute it. There is no equivalent central authority with that ability in the eurozone.

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  78. HarvardLaw92 says:

    @Ebenezer_Arvigenius:

    Nor would I. Given Greece’s history, and the fact that the current leadership was elected largely on the premise that it would undo austerity, I see a resounding kaboom in its future.

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  79. JohnMcC says:

    @grumpy realist: Thank you for the citations. I agree with both of them. The negotiations have been as screwed up as my first marriage turned out! And I bet Greeks owing taxes (and probably having trouble paying them) are difficult clients.

    Speaking for myself, it seems that the domestic U.S. political dispute over federal debt and austerity vs stimulus colors this controversy. It does not seem to me that the Greek economy can produce the surplus needed to pay back what they owe under the standards imposed. I’m sure that I’m mixing apples and oranges here, yes?

    I was astonished by the fact that 80% of their economy is services and only 16% industry. Shouldn’t have been; I live in FL and wonder what our mix would be. It seems their largest industry is refining petroleum; which must create problems since the oil market is in dollars (very strong and growing stronger as we speak) on the supply side and is in surplus on the demand side. Bad luck for them! They have a very large investment in shipping; more bad luck that Chinese exports are slipping, eh? A weak Drachma might encourage tourism. With 30-some vacationers shot dead in Tunisia, Greek tourism might be a growth prospect but hard feelings between Greeks and Germans would not be the way to manage that as a start-up. And it seems there’s no history of using anything like ‘withholding’ to collect taxes or controlling gov’t payrolls and expenses.

    So I guess they’re just screwed. Mr HarvardLaw is right, I suppose.

    The loss of Greece to the EU doesn’t seem like a crippling blow. Any thoughts on what to look for on the day after tomorrow? People starving on the streets? Spanish voters recoiling in horror and voting for continued EU austerity despite a 25% unemployment rate?

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  80. wr says:

    @grumpy realist: ” What I’m pointing out is the assumption that a vote for “NO” is going to magically produce a better offer on the table from a third party.”

    And where do you draw this assumption from, aside from your personal contempt for every Greek citizen?

    You make up a version of what people are thinking and them condemn them for it.

    Quite possibly there is a rational thought process of trying to decide whether it’s better to continue an untenable situation or roll the dice.

    Which, by the way, is exactly what the bankers are doing. But somehow they are pure good and the Greeks are pure evil. I don’t understand your loathing for this nation.

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  81. grumpy realist says:

    @HarvardLaw92: Plus the fact that when the Eurozone was created the Powers That Be swore up and down and sideways that joining such a currency as the euro did not AT ALL sign them up for transfer payments to weaker countries, unh-unh, not at ALL.

    So of course now we’re fifteen years down the pipeline and discovering that whoops, the only way to keep the whole thing together is, cough, in fact–TRANSFER PAYMENTS.

    Anyone remember the Articles of Confederation? I swear, it is so true that “those who do not learn from history are doomed to repeat it.”

    (Which is also why I really doubt that even if we had let the South go its separate way and not have a Civil War that there would be a “Confederacy” on our southern border. They would have squabbled just as much as the original states did and fallen apart.)

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  82. HarvardLaw92 says:

    @JohnMcC:

    And it seems there’s no history of using anything like ‘withholding’ to collect taxes or controlling gov’t payrolls and expenses.

    Greece does have tax withholding from employee paychecks. The problem is that businesses simply report that they pay their employees the minimum wage and withhold based on those reported earnings,but then supplement employee income under the table, thereby avoiding taxation.

    Greece has an enormous underground economy (estimated to be as much as 25% of its GDP). Beyond that, fully 1/3rd of Greece’s economy consists of self-employment, the highest rate by far in the eurozone, and those folks, to put it bluntly, simply lie about their income to avoid paying taxes. They’re secure in the knowledge that they will likely never be audited, so the attitude is “Why not lie?”

    To really fix their tax problem, they have to change the attitude of the average Greek regarding taxation in general, and IMO that is unlikely to happen.

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  83. grumpy realist says:

    @wr: Nope, from what has been reported in interviews with Greek citizens. It seems every single European newspaper has a reporter running around Athens sticking a microphone under the noses of people asking them how they’ll vote.

    Plus there’s Varoufakis, claiming that a “NO!” is how they’ll generate a better offer from the Troika.

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  84. JohnMcC says:

    @HarvardLaw92: Roger, copy that about attitudes and underground economy, HarvardLaw. And thanks. JohnMcC out.

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  85. grumpy realist says:

    @JohnMcC: Plus you’ve got stuff like the tax-free status of Greek shipping has been written into the Greek Constitution. So people like Onassis (were he alive) don’t pay taxes but the poor slob working as a janitor does.

    What’s really infuriating is that it’s the poor who are really getting clobbered by this while the oligarchs have already undoubtedly taken all their euros abroad and have dumped it in areas like London real estate.

    Supposedly the other chunk of society that is extremely active in tax evasion are the self-employed doctors/lawyers/whatever professional class. The mentality seems to be “we don’t receive anything from the government anyway, so why pay for it?”

    When a populace has the attitude that paying taxes is for chumps, you gotta a problem. I honestly don’t see how to get a different attitude developed, unless the government were to decide to go whole hog libertarian and say: “fine, you don’t want to pay taxes. So don’t pay taxes. But we’re going to charge for every single action you demand of us. You want to submit a patent application? $5000 euros, toute suite off the top. And since we otherwise can’t figure out how to get you bozos to cough up for the Army, each person has to do two years of donated labor, period.

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  86. HarvardLaw92 says:

    @grumpy realist:

    swore up and down and sideways that joining such a currency as the euro did not AT ALL sign them up for transfer payments to weaker countries, unh-unh, not at ALL.

    I rolled my eyes at that proposition back then, and still do today. When you have a few strong economies lumped in together with disasters like Italy, it’s going to happen. It’s unavoidable.

    Anybody else remember paying something like 100,000 lire for lunch in Rome back in the day and not thinking “this is Monopoly money”?

    Transfer payments were, of course, going to be an unavoidable part of making a pan-European currency viable. Any nimrod with a third grade education could have seen that one.

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  87. JohnMcC says:

    @grumpy realist: Waxing philosophical, it’s always the poor that pay and suffer. We in the U.S. should reflect on how rare a thing our national aspirations are.

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  88. Modulo Myself says:

    I lived in Greece in the late 90s and there was a huge degree of contempt on the part of the educated Greek for a life that was spent being efficient or productive. There was also an enormous suspicion of anything associated with western Christianity. My feeling is that few Greeks felt they needed to change their ways because they felt their way of living to be superior to that of, say, an overworked Belgian banker.

    Also: I’m sure the fact that the Germans are running this or seem to be has done nothing to make the situation better from a Greek point of view.

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  89. wr says:

    @grumpy realist: “When a populace has the attitude that paying taxes is for chumps, you gotta a problem. ”

    Well, then, thank God that we don’t have an attitude anything like that in this country… and that our billionaires proudly stand up and pay every penny they owe… and never purchase legislators to lower their tax bills while sticking it to the poor.

    Yup, America is exceptional!!!!!!!

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  90. grumpy realist says:

    @wr: Nope, we got the same problem, obviously. Carried interest getting taxed at 15% rather than at standard OI? Yuck.

    (I’m enough of a grump that I want ALL income from capital taxed at the same rate as income from labor. So what if it’s “taxed twice”? And I’d lose considerably if such a rule were implemented.)

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  91. grumpy realist says:

    Will wonders never cease. Ms. Pink Himalayan Salt has actually written an article on the whole Greece debacle that makes sense.

    I especially liked her pointing out that currency controls aren’t a magic way of self-disciplining yourself if you don’t have the self-discipline in the first place.

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  92. grumpy realist says:

    Well, now that we’ve insulted the hostess and set the family cat on fire, what else can we do to make ourselves well loved?

    Ok, this isn’t planned. This is sheer bloody incompetence on the part of a bunch of radical ex-students who think that beaning their college professor with a copy of Das Capital is sufficient to cause a revolution.

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  93. gVOR08 says:

    @wr:

    if we have to measure a haircut for billionaires against the lives of millions, that’s not a hard choice for me.

    Unfortunately, the billionaires have all the lobbyists.

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  94. wr says:

    @grumpy realist: “(I’m enough of a grump that I want ALL income from capital taxed at the same rate as income from labor. So what if it’s “taxed twice”? And I’d lose considerably if such a rule were implemented.)”

    We’ll probably never agree on Greece… but nice to see there are some places we are in complete accord.

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  95. wr says:

    @gVOR08: “Unfortunately, the billionaires have all the lobbyists.”

    Not to mention the “liberal” media.

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  96. lounsbury says:

    @Ben Wolf: No it is not a violation of its charter – that is a massive overreach of interpretation.

    ECB rules relative to extension of lines to banks in technical solvency however are right bloody clear.

    Well pointless really, the economic and financial sector illiteracy will rather overwhelm

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  97. Mikey says:

    @HarvardLaw92: When the Eurozone was created, my first thought was “they are sticking Germany and Greece in the same monetary boat? This isn’t going to end well at all.”

    I’m far from the most perceptive analyst, but even I could see anyone who thought this was going to turn out any differently than it has was wearing rose-colored glasses with blinders attached and drinking a whole jug of delusion-flavored Kool-Aid.

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  98. Barry says:

    @grumpy realist: “As the new guy, he was given the floor. “When I told them the number, there were gasps,” he said. “How could this happen? I was like, You guys should have picked up that the numbers weren’t right. ”

    Considering that the big money boys in Europe have lots of money to pay consulting fees for retired civil servants, the idea that they really didn’t know is ridiculous.

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  99. stonetols says:

    @grumpy realist:

    I think the problem here is dissonance between science and conventional morality. As you know, GR. if you throw a thin, healthy man and and a fat smoker off a tall building at the same time , they will hit the ground at the same time and suffer traumatic injury. Nature simply doesn’t a give a sh1t how well each were behaving when they fell off the building. Similarly, telling the fat smoker that he needs to go a diet and stop smoking , while it is good advice ( and will be popular with judgmental onlookers) doesn’t actually fix the main problem of tramatic injury.
    The way the fat smoker will heal has much more to do with spending a lot of time in the hospital,having his broken bones set, getting lots of drugs, physical therapy, etc., than with his giving up smoking and eating right.
    Now hospital stays are expensive and it sucks to have to pay for the hospital stay, especially, if the fat smoker is a diifficult patient who unfortunately can’t give up smoking. Yet there you are.
    Now is it going to help with you tell Difficult Patient “OK,, we’re throwing you out of the hospital unless quit smoking and really, really go on a diet.!”
    Now to be honest, I don’t know how to fix the Greek economy. Both I do know that there has to be realistic expectations on BOTH sides of the table.GR, you seem much more interested in beating sense into the Greeks, while being very forgiving with the bankers and the Germans. I understand why you would take that attitude, but I don’t think it actually helps much (Dunno if ANYTHING will help much).

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  100. stonetools says:

    Krugman on the way forward, assuming realism from both sides:

    This ought to be a negotiation about targets for the primary surplus, and then about debt relief that heads off endless future crises. And the Greek government has agreed to what are actually fairly high surplus targets, especially given the fact that the budget would be in huge primary surplus if the economy weren’t so depressed. But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we’re still in the business of dictating domestic policy.

    The supposed reason for the rejection of a tax-based response is that it will hurt growth. The obvious response is, are you kidding us? The people who utterly failed to see the damage austerity would do — see the chart, which compares the projections in the 2010 standby agreement with reality — are now lecturing others on growth? Furthermore, the growth concerns are all supply-side, in an economy surely operating at least 20 percent below capacity.

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  101. stonetools says:

    @michael reynolds:

    Germany may care only about money, but the United States has different problems. A radicalized (right or left) Greece is not good. Greece is in NATO. We have a base on Crete. Greek islands are strategically-located in the eastern Med. It’s a small country but with a very interesting set of locations.

    Yep. You could say the same thing about Syria too [ I did :-)] but that’s for another thread. If Greece collapses into civil disorder, that isn’t going to be good for the money guys, either.

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  102. Ebenezer_Arvigenius says:

    But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we’re still in the business of dictating domestic policy.

    Um no. The reason nobody takes this seriously is the fact that the allegedly ultra-left government in Greece has, in about six months, not even managed to implement a tax increase in the top tax bracket, let alone increases in the lower brackets or improvements of the collection procedures.

    Instead they fired their head of “IRS” when he became too good at his job and the wealthy started to complain.

    Saying Greece would like to make up deficits by increased tax revenues is, as far as I can see, the same as them saying “give us free money”.

    On a related note Spiegel today confirmed what I suspected earlier above: Merkel was actually willing to offer Greece terms exceeding both the offers by the EU and the upper negotiation limits set by her own party. But then Greece sprung the referendum and all bets were off.

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  103. grumpy realist says:

    Ok, now that they’ve said loud and clear that they’re going to default to the IMF and have no intention of paying back the ECB, Greece is now asking for a third bailout package.

    I don’t think they understand how pissed off the rest of Europe is.

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  104. Ebenezer_Arvigenius says:

    One of the more ironic aspects of this is that the Greek banks who are in the epicentre of the crisis are ultra-solid consumer banks. They are among the only financial institutions worldwide unaffected by the financial crisis due a lack of securities speculation.

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