It is hard to write about this on current time lines as they are now working up to a real crisis that may change global central banking forever as needs to happen anyway. The Greeks are vbeen placed in an impossible situation and the banks are actually demanding their own failure.
One looks vainly for alternative explanations beyond stupidity. Such suggestions all lack evidence while stupidity is abundantly evident. The only true certainty is neither I nor some other visionary who understands public banking is going to be allowed in the room to end the music.
True public banking delegated down to the community level and guided through the rule of twelve completely ends this ongoing cycle of credit crash and burn once and for all. There are examples out there often misrepresented by the greedy who all want to snap up the book of business and tax it.
The Greek Vote and the EU Miscalculation
July 7, 2015 |
https://www.stratfor.com/weekly/greek-vote-and-eu-miscalculation
In a result that should surprise no one, the Greeks voted to reject European demands for additional austerity measures as
the price for providing funds to allow Greek banks to operate. There
are three reasons this should have been no surprise. First, the ruling
Coalition of the Radical Left, or Syriza party, is ruling because it has
an understanding of the Greek mood. Second, the constant scorn and
contempt that the European leadership heaped on the prime minister and
finance minister convinced the Greeks not only that the scorn was meant
for them as well but also that anyone so despised by the European
leadership wasn't all bad. Finally, and most important, the European
leadership put the Greek voters in a position in which they had nothing
to lose. The Greeks were left to choose between two forms of devastation
— one that was immediate but possible to recover from, and one that was
a longer-term strangulation with no exit.
The Europeans' Mistaken Reasoning
As the International Monetary Fund noted (while maintaining a very
hard line on Greece), the Greeks cannot repay their loans or escape from
their economic nightmare without a substantial restructuring of the
Greek debt, including significant debt forgiveness and a willingness to
create a multidecade solution. The IMF also made clear that increased
austerity, apart from posing an impossible burden for the Greeks, will
actually retard either a Greek recovery or debt repayment.
The Greeks knew this as well. What was obvious is that austerity
without radical restructuring would inevitably lead to default, if not
now, then somewhere not too far down the line. Focusing on pensions made
the Europeans appear tough but was actually quite foolish. All of the
austerity measures demanded would not have provided nearly enough money
to repay debts without restructuring. In due course, Greece would
default, or the debt would be restructured.
Since Europe's leaders are not stupid, it is important to understand
the game they were playing. They knew perfectly well the austerity
measures were between irrelevant and damaging to debt repayment. They
insisted on this battle at this time because they thought they would win
it, and it was important for them to get Greece to capitulate for
broader reasons.
No other EU country is in a condition as bad as Greece's.
However, a number of EU countries, particularly in Southern Europe,
carry a debt burden they would like to renegotiate. They are doing
better than Greece this year, but with persistent high unemployment —
for example, 22.5 percent in Spain as of May — two things are not clear:
first, what shape these countries will be in next year or the year
after that, and second, what governments would come into office, and
what the new governments' positions would be. Greece accounts for less
than 2 percent of the European Union's gross domestic product. Italy and
Spain are far more important. The problem of restructuring debt is once
it is done for one country, others will want to restructure as well.
The European Union did not want to set any precedents for future crises
or anti-EU governments.
In Greece, Europe's leaders had a crisis and a hostile government. It
was the perfect place to take a stand, they thought. They became
inflexible on debt restructuring, demanding prior increased austerity
measures in a country where unemployment exceeded 25 percent and youth
unemployment was over 50 percent. The EU strategy in the past had been
psychological: spreading fear about what default might mean, spreading
fear of the consequences of leaving the eurozone and arguing that it was
the European Union that lacked the ability to make concessions. In the
past, the EU strategy had been to make agreements that it never thought
the Greeks would be able to keep in order to kick the problem down the
road. Europe's leaders demanded austerity measures but tied them to
postponing repayments. They expected Greece to continue playing the
game. They did not realize, for some reason, that Syriza came to power
on a pledge to end the game. They thought that under pressure, the party
would fold.
But Syriza couldn't fold, and not just for political reasons. If
Syriza betrayed its election pledge, as the European leadership was sure
it would, the party would split and a new anti-European party would
form in Greece. But on a deeper level, the Greeks simply could not give
any more. With their economy in shambles and Europe insisting that the
solution was not stimulus but austerity — an increasingly dubious claim —
the Greeks were at the point where default, and the short-term
wrenching crisis that would ensue, would be worth the price.
The European leaders miscalculated. They thought Greece could be more
flexible, and they wanted to demonstrate to any other country or party
that might consider a similar maneuver in the future just what the cost
would be. The Europeans feared the moral risk of
compromising with the
Greeks. They created a more dangerous situation for themselves.
New Threats to the European Union
First, in its treatment of Greece, the European Union has driven home
— particularly to rising Euroskeptic parties — that it is merely a
treaty organization and in no way a confederation, let alone a
federation. Europe was a union so long as a member didn't get into
trouble. As I have said, the Greeks were irresponsible borrowing money.
But the rest of Europe was irresponsible in lending it. Indeed, the
banks that lent the money knew perfectly well the condition Greece was
in. The idea that the Greeks pulled the wool over the bankers' eyes is
nonsense. The bankers wanted to make the loans because they made money
off of transactions. Plus, European institutions that bought the loans
from them bailed out those that made the loans. The people who made the
loans sold them to third parties, and the third parties sold them to EU
institutions. As for the Greeks, it was not the current government or
the public that borrowed the money. And so the tale will help parties
like Podemos in Spain and UKIP in the United Kingdom make the case
against the European Union. The European Union appears both protective
of banks and predatory to those who didn't actually borrow.
Second, having played hardball, the Europeans must either continue
the game, incurring the criticism discussed above, or offer a compromise
they wouldn't offer prior to the Greek vote. One would lead to a view
of the European Union as a potential enemy of nations that fall on hard
times, while the latter would cost the bloc credibility in showdowns to
come. It is likely that the Europeans will continue discussions with
Greece, but they will be playing with a much weaker hand. The Greek
voters have, in effect, called their bluff.
It is interesting how the European leaders maneuvered themselves into
this position. Part of it was that they could not imagine the Greek
government not yielding to the European Union, Germany and the rest.
Part of it was that they could not imagine the Greeks not understanding
what default would mean to them.
The European leaders did not take the Greeks' considerations
seriously. For the Greeks, there were two issues. The first issue was
how they would be more likely to get the deal they needed. It was not by
begging but by convincing the Europeans they were ready to walk — a
tactic anyone who has bargained in the eastern Mediterranean knows.
Second, as any good bargainer knows, it is necessary to be prepared to
walk and not simply bluff it.
Syriza campaigned on the idea that Greece
would not leave the eurozone but that the government would use a "no"
vote on the referendum to negotiate a better deal with EU leaders.
However, all political campaigns are subject to geopolitical realities, and Syriza needed all options on the table.
The EU leadership was convinced that the Greeks were bluffing, while
the Greeks knew that with the stakes this high, they could not afford to
bluff. But the Greeks also knew, from watching other countries, that
while default would create a massive short-term liquidity crisis in
Greece, with currency controls and a new currency under the control of
the Greek government, it would be possible to move beyond the crisis
before the sense of embattlement dissolves. Many countries do better in
short, intense crises than they do in ordinary times. The Greeks
repelled an Italian invasion in October 1940, and the Germans didn't
complete their conquest until May 1941. I have no idea what Greece's
short-term ability to rally is today, but Syriza is willing to bet on
it.
Greece's Options in Case of a Grexit
If Greece withdraws from the European Union, its impact on the euro
will be trivial. There are those who claim that it would be catastrophic
to the euro, but I don't see why. What might be extremely dangerous is
leaving the euro and surviving, if not flourishing. The Greeks are
currently fixated on the European Union as a source of money, and there
is an assumption that they will be forced out of the global financial markets if they default. But that isn't obvious.
Greece has three alternative sources of money. The first is Russia.
The Greeks and the Russians have had a relationship going back to at
least the 1970s. It was quite irritating for the United States and
Europe. It was quite real. Now the Russians are looking for leverage to
use against the Europeans and Americans. The Russians are having hard
times but not as hard as a couple of months ago, and Greece is a
strategic prize. The Greeks and the Russians have talked and the results
of the talks are murky. The BRICS (Brazil, Russia, India, China and
South Africa) summit began July 6 in Russia, and the Greeks are sitting
in as observers — and possibly angling for some sort of deal. Publicly,
Russia has said it will not give a direct loan to Greece but will take
advantage of the crisis to acquire hard assets in Greece and a
commitment on the Turkish Stream pipeline project. However, bailing out
Greece would give Russia a golden opportunity to put a spoke in NATO
operations and reassert itself somewhere other than Ukraine. In Central
Europe, the view is that Russia and Greece have had an understanding for
several months about a bailout, which could be why the Greeks have
acted with such bravado.
Another, though less likely, source of funds for Greece is China and
some of its partners. The Chinese are trying to position themselves as a
genuine global power, without a global military and with a weakening
economy. Working alone or with others to help the Greeks would not be a
foolish move on their part, given that it would certainly create
regional influence at a relative low cost — mere tens of billions.
However, it could come with the political cost of alienating a large
portion of the European Union, making Chinese assistance a slight possibility.
Finally, there are American hedge funds and private equity firms.
They are cash-rich because of European, Chinese and Middle Eastern money
searching for safety and are facing near-zero percent interest rates.
Many of them have taken wilder risks than this. The U.S. government
might not discourage them, either, because it would be far more
concerned about Russian or Chinese influence — and navies — in the
eastern Mediterranean.
Having shed its debt to Europe and weathered the genuinely difficult
months after default, Greece might be an interesting investment
opportunity. We know from Argentina that when a country defaults, a wall
is not created around it. Greece has value and, absent the debt, it is a
high-risk but attractive investment.
The European leaders have therefore backed themselves into the corner
they didn't want. If they hold their position, then they open the door
to the idea that there is life after the European Union, and that is the
one thought the EU leaders do not want validated.
Therefore, it is
likely that the Europeans, having discovered that Syriza is not prepared
to submit to European diktat, will now negotiate a deal Greece can
accept. But then that is another precedent the European Union didn't
want to set.
Behind all this, the Germans are considering the future of the European Union.
They are less concerned about the euro or Greek debt than they are
about the free trade zone that absorbs part of their massive exports.
With credit controls and default, Greece is one tiny market they lose.
The last thing they want is for this to spread, or for Germany to be
forced to pay for the privilege of saving it. In many ways, therefore,
our eyes should shift from Greece to Germany. It is at the heart of the
EU leadership, and it is going to be calling the next shot — not for the
good of the bloc, but for the good of Germany, which is backed into the
same corner as the rest of the European Union.
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