Greek Prime Minister Appears To Concede, But Europe Holds To A Hard Line
Greece's Prime Minister seemed to give in to some of Europe's demands today, but bankers are continuing to hold to the strict conditions they set last week.
Three days after closing banks and the Athens stock exchange, and after defaulting on a payment to the International Monetary Fund that was due yesterday, Greece’s Prime Minister appears to be signaling that he’s ready to concede to most of the changes that his nations creditors are looking for:
ATHENS — An unexpected new effort by Greece to compromise with its creditors on a bailout package prompted a cool response from most of the rest of Europe on Wednesday as the financial pressures on Athens intensified and efforts to find a way out of the crisis remained chaotic.
On another day of twists and turns, Prime Minister Alexis Tsipras’s government reversed course and said it would be willing to accept many of the terms of a bailout package that it had previously rejected, if they are part of a broader deal to address the country’s funding needs for the next two years.
While reviving hopes for a deal to end Greece’s latest financial crisis, the seeming reversal by Mr. Tsipras further underscored the confusion over his strategy as well as over where the monthslong muddle of negotiations now stood. The sudden turn of events raised questions about what offer was actually still on the table for Greece, whether Mr. Tsipras would still go ahead with a referendum scheduled for Sunday on a deal and, if so, what deal Greeks would actually be voting on.
In a letter sent on Tuesday to the creditors — the European Central Bank, the International Monetary Fund and other eurozone countries — Mr. Tsipras said Greece was “prepared to accept” a deal set out publicly over the weekend by the creditors, with small modifications to some of the central points of contention: pension cuts and tax increases. In the letter, released publicly on Wednesday, Mr. Tsipras linked Greece’s acceptance of the terms to a new package of bailout aid that would need to be negotiated.
The development initially raised the prospect of progress in resolving a financial crisis that has sent shudders through global markets and deeply strained European unity. President François Hollande of France called for talks in the hopes of getting a deal by the weekend, saying, according to Agence-France Presse: “We need to be clear. The time for a deal is now.”
But other European leaders, fed up with Mr. Tsipras and in no mood for quick compromise, dashed any hopes of an immediate breakthrough.
Chancellor Angela Merkel of Germany responded by repeating her position that there should be no further negotiations until Greece holds the referendum on Sunday — a vote that many European leaders hoped would amount to a rebuke of Mr. Tsipras.
Any further talks are likely to be complex and contentious. An existing bailout agreement expired at midnight Tuesday, meaning that Greece and its creditors would have to start over in assembling a package of aid and budget cuts. Moreover, many European officials remain deeply skeptical about whether Mr. Tsipras’s leftist government would implement the more painful elements of any agreement. The initial responses from European officials to the latest Greek proposal ranged from cautious to dismissive.
(…)
Mr. Tsipras went on public television Wednesday afternoon, telling Greeks that they should vote no on the referendum to improve his negotiating position.
He said that despite European characterizations, the vote was simply about a deal on how to manage the country’s debt crisis and not a vote on whether to leave the euro as the country’s currency.
“No does not mean a rift with Europe,” he said. “But a return to a Europe with principles.”
With shelves full of leather-bound books in the background, he also assured his country that he would continue to negotiate this week and after the referendum. And he thanked Greeks for staying calm in hard times. “This situation is short term and will not go on for long,” he said.
Finance ministers from the countries using the euro were scheduled to confer later on Wednesday. They had turned aside a last-minute plea for help Tuesday night from Greece but left open the possibility that they would take up Greece’s request for a new round of aid.
The change of tone from Mr. Tsipras, who in recent days had vehemently opposed the terms sought by the creditors, came hours after Greece missed a debt payment to the I.M.F., leaving Greece effectively in default and raising the pressure on the country to find a solution to its rapidly escalating financial squeeze. With its banking system shut down and access to more aid cut off, Greece faced the prospect of further debt defaults and the possibility of being forced to abandon the euro as its currency.
The letter from Mr. Tsipras was first reported by The Financial Times. The report sent stock prices in Europe higher.
News of the letter emerged ahead of a meeting of the European Central Bank’s Governing Council to consider whether to cut off entirely the line of credit that has kept the Greek banking system from collapsing.
In the letter, Mr. Tsipras said he was prepared to accept the European Commission’s proposal last Sunday, with five amendments on issues that had been particular sticking points.
He continued to ask for a lower value-added tax on Greek islands, for instance, to help bolster tourism and compensate for the high price of delivering goods to such areas. And he still objected to a system of automatically adjusting pension payments according to the financial strength of the underlying pension funds rather than relying on government assistance to maintain the payments.
But he accepted the bulk of what the Europeans had asked for in their last proposal, including creating strong disincentives to early retirement.
At this point, everything seems to hinge on the outcome of the referendum on Sunday:
The situation left unclear what Greeks would be voting on in Sunday’s referendum, assuming it goes ahead as planned. The wording was to ask Greeks to vote yes or no on whether they supported the terms offered by creditors last week — an offer that in effect expired with the existing bailout package on Tuesday night, and that appears to have been supplanted in any case by the offer put forward by Mr. Tsipras.
A recent poll found majority support for Mr. Tsipras’s call to vote no in the referendum, though that support shrank after the banks were closed and a cap of 60 euros per day was put on the amount that Greeks could withdraw from A.T.M.’s.
The poll, by ProRata, conducted from Sunday to Tuesday, found 57 percent of Greeks said they would vote against the deal the creditors proposed, with about 30 percent saying they would vote for it, and about 13 percent saying they were not sure. After the banks closed on Monday, the gap narrowed, with about 46 percent saying they would vote against the proposals, 37 percent said they would vote yes, and 17 percent said they were not sure.
In Berlin, Ms. Merkel indicated that Germany no longer considered the offer that the Eurogroup of eurozone finance ministers made to Greece over the weekend to be valid, telling lawmakers in an address to Parliament that the proposal had been coupled to the aid program that expired at midnight on Tuesday.
“With the expiration of the program, the basis for the offer has been removed,” Ms. Merkel said.
So basically, the Greek people could be voting on Sunday to accept or reject an offer that isn’t even really on the table anymore, which could make the dynamic quite interesting. As it stands, it seems as though the bank crisis, which has restricted Greeks to withdrawing no more than 60 Euros, about 66 U.S. Dollars, per day has had at least some impact on public opinion on the referendum. This would certainly explain not only the Prime Minister’s comments today, but also statements he made yesterday in which he tried to reassure Greek voters that rejecting the referendum wouldn’t mean that Greece would automatically be kicked out of the Euro, although one wonders whether those words had any impact since it isn’t necessarily a decision that’s up Greece alone.
For his part, Tsipras obviously believe that a no vote would give more leverage in future negotiations but it’s not at all clear that this is the case. One analyst on CNBC last night suggested that Europe has reached the point where they’ve decided that it’s time to take a hard line with the Greeks rather than treat the nation as they’ve done in more recent years because of the fear that allowing a Greek default and subsequent expected withdrawal from the Eurozone would lead to a financial panic and economic downturn. The thinking behind this strategy seems to be that investors and bankers outside Greece have had more than enough time in recent years to either take their losses on Greek bonds or prepare to offset those losses when they come such that the shock would not be as bad today as it might have been three or four years ago. I’m hardly enough of an international finance expert to opine on whether or not this is smart strategy, but it’s worth noting that, after taking a dive on Monday, financial markets in the United States and Europe have been relatively stable over the last two days notwithstanding the continued bad news out of Greece. This could mean that investors have indeed prepared themselves for the shock of the worst of the “Grexit.” If that’s the case, then Europe may not be willing to stray very far from the outlines of the package that Greek voters will be considering on Sunday. If it’s accepted, then perhaps a deal can still be reached. If the voters reject the deal, then Greece could be in for some painful times ahead, but in the long run Europe will likely be better off getting rid of this particular Sick Man of Europe.
The problem is that any deal would necessarily involve money now for future Greece concessions, and no one believes Greece will actually stick to those concessions a second past the money arriving.
In 2011 Europe and the IMF made austerity demands that helped get Greece where it is today…and now they are making more austerity demands? More austerity like the last 5 years of austerity will be devastating.
I’d say screw you and leave the Euro. It can’t possibly be as bad as it will be if they accept the deal.
Meanwhile in Athens:
Greece’s Tsipras digs in against bailout
Margaret Thatcher saw this coming 20 years ago — and warned us.
@C. Clavin: I largely skimmed it but I don’t see a lot of ruinous austerity in here.
On again, off again, Finnegan….
The reason why nobody is listening in Europe is because Tsipras says one thing to them in Brussels, then turns around and says another thing on Greek TV.
He’s not trusted. And it’s not a “hey, I can’t get this through parliament” sort of thing–it’s a “I’ll say anything you want to hear just to get a deal going, but don’t expect me to live up to it at all.”
All the time talking about Greek “honor” and “dignity”.
To all those who have been lambasting the banks for loaning money to Greece in the first place because “they should have known Greece wouldn’t have been able to pay it back”, would you continue in “negotiations” with this man?
@Ebenezer_Arvigenius:
Keep in mind that public sector employment has already dropped 25%.
@Stormy Dragon:
Yes, it is very simple, there is not a single government in Europe that trusts the Syriza government given their incompetent schoolboy activist antics (such as sudden declarations of surprise referendum, asking for more bailout money 1 hour and hours later cursing the source of said money and asking for a no vote, etc.)
@C. Clavin: Sheer economic illiteracy in this comment
No, actually a Euro exit is far, far worse than quasi austerity.
Greek tradeable sector is small and competitiveness boost from a NeoDrachma in free fall is trivial.
Closed out of capital markets, Greeks will go into massive effective austerity as they are simply unable to fund their current levels of spending out of domestic receipts.
A massive wealth haircut will suck the oxygen out of the non-tradeable economy.
Overall economic hit 30-50% worse than limping along under quasi austerity and EU. This ignoring the probable collapse of the banking sector.
Had this been prepared for an orderly exit it might have been prettier, but now it is buggered.
@grumpy realist: Quite right overall
Indeed, he (and Syriza and general) is the very picture of an unreliable partner that is clearly lying to get your money with zero intentions of applying promises.
But that is what essentially got the Greeks where they are, contra say the Iberians.
The reason there is such rigidity from the Europeans – including notably the lower income East and Central Europeans – is that is quite clear that the Greeks have been cheating from day one rather than giving honest tries at reform.
They could have gotten flexibility or even support for Exit from quasi austerity had they shown any degree of real engagement.
Yes and democratic will…. as if the dignity and democratic will of the other European elected governments rather doesn’t matter.
Given the Greeks were outright (unlike any other EU Eurozone country) fabricating statistics, it is rather a bit rich to put this entirely on the head of the banks c. 2009.
But the crisis is long past commercial lenders (who now have effectively zero exposure to Greek sovereign debt) but the actions of the successive Greek governments from crisis start to date, of which Syriza is clearly the worst.
From the FT:
If you want to know why the rest of Europe is going: ???
@grumpy realist: Playing “Amateur Hour” with a nation’s economy. It’s terrible, and sad.
@Mikey: Syriza seems to be formed of the worst type of half-baked lunatics who were student radicals 10 years ago and have never grown up.
I’m surprised Varoufakis has mismanaged this so badly except that it might be a case where you’ve got one of those academic types who have never stepped into the real world.
I mean, I would have been able to negotiate better than these idiots….
@C. Clavin: 1. does not prescribe methods so it could be reached via taxation. 2. is problematic due to secondary effects but primarily concerns pensions which are simply unsustainable on the current income.
I’ll give you 3 though.Reforms should be targeted at goals, not GDP percentage at this point.
OT, but I think I’m rooting for injuries.
Supposedly the analysis by which Varoufakis talked himself into his game of chicken.
(Dude, it won’t work. You can’t at the same time argue that the troika are sneaky evil geniuses and that they won’t merrily hop over legal lines. Not and not get laughed at, that is.)
Oh, and those military cuts that were on the table? Well, those are dead as well.
Conservatives have an obsession with the Gold Standard because that would force governments into austerity. For Greeks, the Euro is similar to the Gold Standard, and they can´t keep the Euro if they don´t enact austerity measures.
@Andre Kenji de Sousa:
Some US conservatives may well, but the global gold bug obsession is more about an atavistic fantasy about ‘hard money’ and a householder & small business driven populism that is incorrectly anti-inflation at any level. This is simply an effect of economic illiteracy and Money Illusion.
The Euro is not substantively similar to the gold standard, and they could indeed keep Euro in non austerity scenarios. However, those require outside funding from rest of EU and rest of EU would have to have confidence that Greeks are insituting economic reforms to end their License Raj economy and generally liberate it from the extensive corrupting influence of Bad Regulation (note, not all Regulation is bad, contra the extremist American views, but the Greeks clearly suffer from too much regulation and regulation whose primary purpose is corruption and protection of guild-like clan interests).
Since the EU partners rightly have zero confidence in the Greeks instituting any such reforms in a scenario where they are getting funding (the post-Crisis – never mind the pre-Crisis – history shows that rather clearly), other paths have to be taken.
This Greek government has very clearly shown itself to be an unreliable – even actively dishonest – negotiator with the delusion that they have a right to other people’s money – that includes the working stiffs money up in Netherlands, Latvia, Germany, etc.
They don’t.
Greece had an occasion to build an anti-austerity case, but Syriza pissed it away with school-boy antics and sheer gross incompetence.
@Ebenezer_Arvigenius: An increase in taxation and a reduction in spending are the same thing. Once multipliers are accounted for this proposal looks like another 5% contraction in GDP, which in the U.S. would equate to about $900 billion.
Tsipras is clearly an incompetent fool incapable of taking a position and accepting responsibility for what comes. Calling for a last-minute referendum and then attempting to negate with capitulation before it occurs is proof enough of this. Unfortunately, if the left can’t end austerity it’s likely an outfit like Golden Dawn will.
Looking around European sources for news on the Greece crisis, I came upon this in Der Spiegel, which asserts it’s more than Greece at risk, it’s the very idea of Europe as a unified, and unifying, entity.
Opinion: We Are Living in the Anti-Europe
@lounsbury: I tiptoe carefully on this issue because so many here, and in particular yourself, seem so knowledgeable and I am not. But during the entire time since the start of the Great Recession I have read and been convinced by people who find the Euro playing the same role that gold played during the Great Depression of the ’30s. That is, a nation is not able to control the value of it’s currency. I’ll not look up citations because they’re pretty far back in time and are no doubt covered over with detritus from recent controversies and you’ve certainly seen them. But the timing and rate at which national economies were able to pull out of the deepest depression is pretty much identical to the speed with which they disconnected their currency from gold and de-valued.
Unfortunately the Tsipras gov’t (and to a lesser degree the Euro poohbahs) seem to have taken a bad situation and made it amazingly worse (compare & contrast to 1914 if you wish) so it’s not a discussion with much meaning to the present status in Greece and Euro-land. But if the Greeks had been forced to take some kind of Euro-Lite which could have had it’s value manipulated up & down compared to the fully-charged Euro that could (in my VERY humble opinion) have given a clever government the tools to avoid the crisis we see.
@Mikey: Thank you for the link. The drive to pull Europe into a more united community of nations has been one of the greatest peace-building campaigns of my lifetime. Be a damn shame to see it fail.
Ah, no, since spending cuts and taxation have completely different multipliers. Heck, tax increases have completely different multipliers depending on the tax bracket.
Trying to tax, for example, the Greek shipping industry (or at least their proceeds) regardless of registration in Cyprus would have a completely different impact than cutting grandpas pension.
Given how vague the terms are at this point (“in line with best practices …”) any calculation about GDP impact is little more than guesswork at this point.
If you have some good numbers let us know :-).
@lounsbury:
@Ebenezer_Arvigenius:
What you guys are missing is that Greece has increased taxes and cut spending significantly…but just like failed Republican economic theories here…the austerity program is only hampering growth…which is Greece’s real problem right now. That and being hamstrung by the Euro. The austerity imposed by Europe has caused Greece to lose 25% of it’s GDP over the last 5 years. Why sign on to more of what hasn’t worked??? As for austerity….it did work for Canada and Iceland in recent years…but only because they could, and did, devalue their currency. Greece doesn’t have this option…unless they leave the Euro.
@Ben Wolf: That’s really only true in the Platonic world where 100% of the tax charged will result in 100% of the taxes actually being raised. The reason no one believes Syriza’s comments about taxation is because tax evasion is still the national sport in Greece. So even if the numbers add up on paper the most likely real scenario is that the Greek government would come back hat in hand next year “gee, we didn’t raise as much money as we thought we would, golly gee how could that have happened?”
Greece will remain a basket-case until its population actually starts realizing that tax evasion is stealing from themselves and that no one else has the responsibility to bail them out.
I do not understand why the Greek economy matters very much outside of Greece. The GDP for Greece in 2013 was around $260 billion; for comparison the revenue for Volkswagen AG during that time was $219 billion. Greece is too small to threaten much of anything in my view. How can this tail wag the dog?
Also, I don’t understand how getting off the euro would help them. The second they start with a new currency their credit will disappear. No one will invest money in a small country with an untested currency for years. Who in their right mind will accept some new pieces of paper for their products? I can’t imagine bankers in Frankfort or Zürich accepting credit instruments in some new currency. If anyone would, let me know; I have some freshly printed Sluggerbucks that I would be glad to pledge in exchange for a billion euros.
@C. Clavin: Greece may have increased taxes; it just hasn’t collected them.
There’s supposedly something like 30 Billion euros in arrears on taxes that should have been paid to the Greek government. Think they might want to do something about that before screaming for more money from the EU?
Why hasn’t the Greek government put out a call for help from the expatriate Greek community? Why do they continue to insist that the EU and the IMF have to bail them out?
This is like having a spendthrift cousin who continually asks to be bailed out while refusing to give up his smokes, expensive gym pass, and dinners at three star restaurants.
And the craziest thing is: so what if the Greeks vote NO in this referendum? How is that supposed to drag the other side back to the negotiating table? Ok, you don’t like austerity, we get that. You don’t want to continue down the present pipeline. We know that. Why does the troika have to come back at all?
The fact is, I can get my entire family together and vote that I want a lower rate on my mortgage. That doesn’t mean that my bank is going to make me a better offer. Either I take what they offer, or I go try to find another mortgage somewhere else.
Greece can have as many democratic referendums as they want. This doesn’t mean that any of their votes will be binding on anyone outside Greece.
@grumpy realist: “The fact is, I can get my entire family together and vote that I want a lower rate on my mortgage. That doesn’t mean that my bank is going to make me a better offer. Either I take what they offer, or I go try to find another mortgage somewhere else.”
Perhaps you’ve never come across the old chestnut that if owe the bank a million dollars and can’t pay, you have a problem, but if you owe the bank a billion dollars and can’t pay THEY have a problem.
And while conservatives love to pretend that managing a national economy is exactly the same as running a household, anyone with a shred of intellectual honesty knows what a false equilvalence that is. But I guess it makes it easier to turn this into a morality play if you go that way.
Now that’s a bit much. Greece has made significant cuts. Much deeper ones than I would have considered prudent in that short a timeframe. At this point they are do have austerity.
The real problem is that, for over a decade, they have made absolutely no moves at improving their situation. Which means that we are not talking about Keynesian Stimulus here but about permanent alimentation.
If there were a visible path towards them getting off the help they would have no problems getting new credit. But at this point nobody is willing to agree on permanent transfer payments.
That is the real disagreement here.
And that is why I disagree with C.Clavin who tends to view this through a US-centric policy prism.
@Ebenezer_Arvigenius: Well, the problem is they went for the austerity stuff, the “causes problems to kittens and old grannies” cuts, and DIDN’T go after the stuff that would have really helped matters, namely the tax evasion and the corruption.
As one commentator over at the FT pointed out, about the only thing that would really help matters is if Greece turned over its entire civil service to be run by the Finns.
They’re going to have to replace their court system as well, which is whacko as well. You have about as much chance of getting a judgment on a defaulted contract as you do in Laos. Considering that the bones and sinews of trade depend on contracts and having a legal system to enforce said contracts, this is a problem. No wonder no one wants to set up anything in Greece.
And at present, importers are asking that funds not be sent to their Greek offices because the banks are grabbing everything.
It’s a total mess.
IMF has basically come out and said: gotta cut the debt for Greece. Has also however said: no cutting of debt until you guys reform.
@Ebenezer_Arvigenius: IMF research indicates austerity measures have averaged a multiplier of 1.5.
@C. Clavin:
I am missing nothing of the sort, although your idiotic call to your domestic political party rather does indicate that you’re seeing this through stupid home-party political games.
The Greeks have made any number of half-steps on paper. In actual applied practice, they have done virtually nothing, and what they have done in practice has largely been gamed to implement in a fashion that is intended to be rolled back.
Your foolish harping on “devaluation” of currency rather shows you don’t have the slightest understanding of what I wrote with respect to the Tradeables and Non Tradeables. The Greeks get near no oomph from mere devaluation, you ignorant knee jerking twit.
The Europeans are quite right to be pounding on the Greeks to force reforms, since pouring more hard working European tax payer monies into an empty pit is pointless.
It is not more government spending the Greeks need, it is economic modernization first and foremost. The reduction of opportunities and incentives to corruption. Else you’ve done nothing more than subsidize an unsustainable economy and model. Priming the pump is fine when there is an actual basin for the water to go into. Priming the pump to pump the water into the bloody sand is an exercise in idiocy, whatever your Knee Jerking ideological tribalism would have you maunder on about.
@grumpy realist:
Yes quite right regarding the court system. In fact virtually all things about the Greek government operate rather as if they were an emerging / frontier market.