Monday, July 6, 2015

This Weekend’s Greek Referendum

As usual creditors remain blindingly stupid. You cannot create profits and wealth by straggling the debtor(s). What you bring about is price deflation resulting in a collapse of collateral value.

This does allow the astute to acquire that ten million dollar hotel carrying $8,000,000 in debt for the very attractive $2,500,000 stranding $5,500,000 of debt for the creditor who must then book the loss. This is the hard way of resolving the Greek debt crisis and it ends up stranding the bulk of all Greek eurodebt.

This referendum result has done just that.

I would then inform creditors if they want to recover the appropriate $2,500,000 on offer, they must provide a matching $2,500,000 loan facility to private industry restoring significant credit.

What no one truly understands is that in a default, it is the debtor who dictates the resolution terms. It may be merely by walking away. The creditor is then stuck with finding his own buyer in the middle of a distressed market. Like to own a 2007 mortgage in Phoenix?

The bottom line for Greece is that you stop paying the bankers and make them pay to recover their losses mostly generated by wishful thinking with the banks. This way the government learns to cash flow properly and collect taxes until it is completely turned around.

This weekend’s Greek referendum: nobody wins, at least in Greece

July 2, 2015 4.05pm EDT

So, after five years of interminable rounds of negotiating and posturing, Greece’s status in the eurozone appears to have reached the endgame. It may be premature to pronounce the matter in any way settled, but there seem few options left.

The referendum scheduled for this weekend appears to be disingenuous to some, and apparently inconsequential to others, notably IMF Director General Christine Lagarde in an interview published on Wednesday.

Two prongs to the Greek campaign

A resilient, often truculent left wing Greek government has tried to frame their country’s debt around two issues.

Their first offensive focused on the issue of identity: that the troika of the European Commission, the European Central Bank and the IMF have made it their mission to subjugate them because they are Greeks.

More pointedly, the problem to many Greeks is the Germans – who have been repeatedly portrayed by them as the power behind the throne in Europe. German notions of the “lazy Greeks” have been met with reminders of Nazi Germany’s persecution and plundering of Greece during their occupation during World War II.

Prime Minister Alexis Tsipras has belatedly attempted to calm the explicit hostility used in these mutual accusations. But the damage has been done and the atmosphere has remained tense. It often boils over into personal hostility on both sides, with German Finance Minister Wolfgang Schäuble being the current focus of Greek hostility. And if it isn’t the Germans, somewhat ironically, it is the Jews who are the source of their problems, as the results of a public opinion survey published this week makes clear.New/Reuters

The second, belated offensive has been the attempt by the Greek government to expand the scope of debate to focus on the general issue of austerity in Europe.

As Greece’s governing left wing party, Syriza officials have portrayed austerity measures as self-defeating, a “Catch-22” from which no country can escape because they dramatically reduce the prospects for future growth.

Essentially, the Greeks have endured staggering cutbacks in public expenditures on things such as retirement pensions and government jobs in the last seven years. Unemployment is at over 25% and the resulting reduced consumption means that even optimistic forecasts suggest that Greece will never grow at a fast enough rate to repay its debts.

According to a new report, for example, “Greece would face an unsustainable level of debt by 2030 even if it signs up to the full package of tax and spending reforms demanded of it.”

The obsession with austerity policies in Europe

But Greece is only the extreme example of the obsession with austerity in Europe, what noted academic Mark Blyth called “a grand experiment that aims to find out if it is possible for an economically stagnant country to cut its way to prosperity.”

Even in countries like Britain, which has largely recovered from effects of the Great Recession and has an unemployment rate comparable to the United States, the recently elected conservative government continues to implement major cuts in public services. And all this despite the fact that many notable economists like Paul Krugman have suggested that government expenditures were not the source of the crisis, nor is austerity the appropriate solution.

A failed campaign

As things stand today, both parts of the Greek offensive have failed.

They have garnered little sympathy in Europe and have failed to shift the debate about a new path for Europe. Like the Irish and Cypriots before them, they are expected to bear the costs of these cuts and eventually reemerge with a more resilient economy, although when that will be is anyone’s guess.

The referendum therefore offers Greeks a tortured choice.

The first option is to abandon their defiant stance against the kind of global economic policies that have held supreme since Margaret Thatcher and Ronald Reagan in the 1980s. With that choice comes the loss of any sense of national independence and a lasting sense of humiliation.

Alternatively, they can choose to reject the demands placed upon them, be classified as an economic pariah, and endure years – if not decades – in the economic wilderness.

But with Greece’s banks currently shuttered, their prized tourist industry in disarray, and protests in the street, the smart money is that the referendum will support Greece’s acceptance of creditors’ demands.

One thing is for sure: whatever the result of the referendum, the outcome will be abject poverty in Greece for years to come.

Greeks defy Europe with overwhelming referendum 'No'

By Karolina Tagaris and Lefteris Papadimas

ATHENS (Reuters) - Greeks voted overwhelmingly on Sunday to reject terms of a bailout, risking financial ruin in a show of defiance that could splinter Europe.

With nearly half of the votes counted, official figures showed 61 percent of Greeks rejecting the bailout offer. An official interior ministry projection confirmed the figure as close to the expected final tally.

The astonishingly strong victory by the 'No' camp overturned opinion polls that had predicted an outcome too close to call. It leaves Greece in uncharted waters: risking financial and political isolation within the euro zone and a banking collapse if creditors refuse further aid.

But for millions of Greeks the outcome was an angry message to creditors that Greece can longer accept repeated rounds of austerity that, in five years, had left one in four without a job. Prime Minister Alexis Tsipras has denounced the price paid for aid as "blackmail" and a national "humiliation". 

Hundreds of Greeks began pouring into the central Syntagma square in front of parliament to celebrate, after a week of building desperation as banks were shut and cash withdrawals rationed to prevent a collapse of the Greek financial system.

"This is an imprint of the will of the Greek people and now it's up to Europeans to show if they respect our opinion and want to help," said Nikos Tarasis, a 23-year-old student.

Officials from the Greek government, which had argued that a 'No' vote would strengthen its hand to secure a better deal from international creditors after months of wrangling, immediately said they would try to restart talks with European partners.

"I believe there is no Greek today who is not proud, because regardless of what he voted he showed that this country above all respects democracy," Labour Minister Panos Skourletis said.

"The government now has a strong mandate, a strong negotiating card, to bring a deal which will open new ways."

But euro zone officials shot down any prospect of a quick resumption of talks. One official said there were no plans for an emergency meeting of euro zone finance ministers on Monday, adding the vote outcome meant the ministers "would not know what to discuss".

Many of Athens' partners have warned over the past week that a 'No' vote would mean cutting bridges with Europe and driving Greece's crippled financial system into outright bankruptcy, dramatically worsening the country's economic depression. 

The result also delivers a hammer blow to the European Union's grand single currency project. Intended to be permanent and unbreakable when it was created 15 years ago, the euro zone could now be on the point of losing its first member with the risk of further unraveling to come.

"I believe such a result can be used as a strong negotiating tool so that Europeans can understand that we are not a colony," said Nefeli Dimou, a 23-year-old student in Athens.

Greek banks, which have been closed all week and rationing withdrawals from cash machines, are expected to run out of money within days unless the European Central Bank provides an emergency lifeline. Finance Minister Yanis Varoufakis is due to meet top Greek bankers later on Sunday and State Minister Nikos Pappas, one of Prime Minister Alexis Tsipras's closest aides, said it was "absolutely necessary" to restore liquidity to the banking system now that the vote is over.

However the European Central Bank, which holds a conference call on Monday morning, may be reluctant to increase emergency lending to Greek banks after voters rejected the spending cuts and economic reforms which creditors consider essential to make Greek public finances viable, central bankers said.

First indications were that any joint European political response may take a couple of days. German Chancellor Angela Merkel and French President Francois Hollande will meet in Paris on Monday afternoon. The European Commission, the EU executive, meets in Strasbourg on Tuesday and will report to the European Parliament on the situation. 

"EU leaders must get together immediately, even on Monday. The situation is too serious to leave to finance ministers," said Axel Schaefer, a deputy head of the Social Democrat (SPD) group in the German parliament. 

"You have to have confidence in the ability of the ECB to act. We must use all the possibilities in the EU budget to help Greece, which is still a member of the euro and the EU."


A 'No' vote puts Greece and the euro zone in uncharted waters. Unable to borrow money on capital markets, Greece has one of the world's highest levels of public debt. The International Monetary Fund warned last week that it would need massive debt relief and 50 billion euros in fresh funds. 

Greek officials see the IMF report as a vital support for their argument that the bailout terms as they stood would merely have driven Greece further into depression.

Tsipras called the referendum eight days ago after rejecting the tough terms offered by international creditors as the price for releasing billions of euros in bailout funds.

He denounced the bailout terms as an "ultimatum" and his argument that a 'No' vote would allow the government to get a better deal appears to have convinced many Greeks, particularly among younger voters who have been ravaged by unemployment levels of nearly 50 percent.

"I have been jobless for nearly four years and was telling myself to be patient," said 43-year-old Eleni Deligainni, who said she voted 'No'. "But we've had enough deprivation and unemployment."

Opinion polls over the months have shown a large majority of Greeks want to remain in the euro. 

But, exhausted and angry after five years of cuts, falling living standards and rising taxes imposed under successive bailout programs, many appear to have shrugged off the warnings of disaster, trusting that a deal can still be reached.

For a graphic:

(Additional reporting by Noah Barkin and Madeline Chambers in Berlin, Isla Binnie in Rome, Paul Taylor in Brussels, Renee Maltezou, Lefteris Papadimas, Karolina Tagaris; Writing by James Mackenzie, Editing by Alessandra Galloni; Editing by Peter Graff)

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