Wednesday, June 17, 2015

Greek cliffhanger

German Chancellor Angela Merkel has stayed true to her previous negotiating style in the acute phases of the euro crisis: hold out on an agreement until the last minute.

Paul Krugman, as one of the world's leading economists and commentators, decided this week he should be quiet on the subject for now (Shouting Grexit in a Crowded Theater 06/17/2015): "Some readers have noted that I haven’t said much about the Greek crisis in the past few days. Indeed. It’s crunch time, and right now everyone involved needs to engage in quiet, cool deliberation. There’s really nothing more outsiders can say, at least in public, that we haven’t already said. So it seems to me that for now I should hold back a bit."

Timothy Garton Ash has a good piece on how a sudden attack of realism and pragmatism would be a very responsible thing for Merkel and the EU elite about now, Europe must save Greece to save itself The Guardian 06/15/2015. He talks about "two dangerous illusions" over the situation observable among many in northern Europe:

First, there is still a widespread assumption that this Greek-German game of “chicken” will somehow end in a last-minute, classic Brussels-style incomprehensible compromise. Second, and sometimes alternatively, there is the view that Grexit would not matter that much anyway: Greece represents less than 2% of the eurozone’s economic output, and the eurozone now has firewalls to prevent the flames spreading to other southern European countries. ...

Let’s take these two illusions in turn. First, it could happen tomorrow. Greek bank deposits are sinking like water from a cracked water tank: reduced by more than €500m (£362m) on one day alone, 5 June, after the government had aborted a scheduled payment to the International Monetary Fund. The rich have already taken much of their money out of the country and the poor are stashing it under their mattresses. One more panic, a run on the banks, and you would have capital controls and a bankrupt government issuing IOUs to pay wages and pensions. Zeus alone knows what would follow. Perhaps it could still be saved, with a kind of negotiated default inside the eurozone, but only the most irresponsible playboy game theorist would count on it. Grexit could happen by Graccident.

And why would it matter if it happened? For starters, the markets would know that eurozone membership is not irreversible. Contagion to the government bonds of the next weakest eurozone debtor nation would probably not be immediate, but any new crisis in a weak economy could potentially trigger aggressive speculation.
Not forgetting that the European Union is ultimately a political entity, Garton Ash also notes some of the complications that Greece could create as still a member of NATO and maybe the EU, too, even if they exit the eurozone. He notes that "a post-Grexit radical Greek government could, for example, start by vetoing a further extension of sanctions on Russia over Ukraine."

Or they could do stuff like this: Tsipras, Putin to sign preliminary deal on gas pipeline Ekathimerini 06/17/2015.

My favorite Finance Minister Yanis Varoufakis is keeping up the rhetorical pressure, saying that Greece's negotiating partners are exhibiting "sadism" and that the IMF bears "criminal responsibility" for the situation. (Varoufakis wirft Gläubigern Sadismus vor Süddeutsche Zeitung 16.June.2015) (Update: Apparently it was actually Prime Minister Alexis Tsipras who made the "criminal" remark about the IMF, or "nearly criminal"; see: Werner Mussler, Tsipras wirft IWF kriminelle Politik vor FAZ 16.06.2015)

PBS Newshour reported on the Greek cliffhanger in Impoverished Greeks fearful as default deadline looms 06/15/2015.

Among others, the report quotes Varoufakis:

For five years now, the international community and the Greek people in particular have had enough of the Greek crisis.

There have been extensions of the problem. We have been extending and pretending, extending the problem and pretending we solved it. And it’s about time that we had one agreement which is comprehensive, which compromises of three aspects, firstly, serious reforms, secondly, a serious debt management program or debt restructuring program, and, thirdly, an investment package, so that the Greek crisis goes away.
Austrian Chancellor Werner Faymann made a relatively friendly visit to Greek Prime Minister Alexis Tsipras. In this context, "relatively friendly" means he didn't say he wanted to grind Greece into the dirt and keep their people in a depression forever. (Markus Bernath und Thomas Mayer, Faymann drängt Tsipras behutsam zu Kompromiss Der Standard 17.Juni.2015)

An English-language paper reports (Austrian chancellor sides with Greece in debt row Ekatimerini 06/17/2015):

Austrian Chancellor Werner Faymann expressed solidarity with Greek Prime Minister Alexis Tsipras before meeting the leader in Athens on Wednesday in a bid to end a standoff with international creditors over a rescue package.

Faymann, a Social Democrat who has taken a relatively lenient line with Greece, told broadcaster ORF that Athens had to live up to commitments under its current bailout plan but needed support to keep it from leaving the euro zone.

"I know there were a number of proposals, also from the (creditor) institutions, that I also don't find in order," Faymann said in the radio interview.

"High joblessness, 30-40 percent (with) no health insurance and then raising VAT on medicines. People in this difficult situation cannot understand that."

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