Sunday, July 12, 2015

Today's eurozone summit

Matt O'Brien describes the current Greece-Troika standoff this way: "Greece has offered an almost unconditional surrender on its bailout, but Germany might not accept anything less than a Carthaginian peace. In other words, a deal that not only forces Athens to submit, but also humiliates it in the process."

The eurozone heads of government are meeting as I write to decide on the latest round of pressure against Greek democracy. We won't know until we know. But things have looked very ugly this past week.

Yanis Varoufakis, who until a week ago was still Greek Finance Minister, wrote about the situation in The Guardian, an op-ed he says at his blog he wanted to be title Behind Germany’s refusal to grant Greece debt relief 07/11/2015. The Guardian's title is, Germany won’t spare Greek pain – it has an interest in breaking us 07/10/2015.

In the op-ed, he writes, "Based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone."

Varoufakis also explains why a "Grexit" and the return to a separate Greek currency could be significantly disruptive:

Greeks, rightly, shiver at the thought of amputation from monetary union. Exiting a common currency is nothing like severing a peg, as Britain did in 1992, when Norman Lamont famously sang in the shower the morning sterling quit the European exchange rate mechanism (ERM). Alas, Greece does not have a currency whose peg with the euro can be cut. It has the euro – a foreign currency fully administered by a creditor inimical to restructuring our nation’s unsustainable debt.

To exit, we would have to create a new currency from scratch. In occupied Iraq, the introduction of new paper money took almost a year, 20 or so Boeing 747s, the mobilisation of the US military’s might, three printing firms and hundreds of trucks. In the absence of such support, Grexit would be the equivalent of announcing a large devaluation more than 18 months in advance: a recipe for liquidating all Greek capital stock and transferring it abroad by any means available.

With Grexit reinforcing the ECB-induced bank run, our attempts to put debt restructuring back on the negotiating table fell on deaf ears. Time and again we were told that this was a matter for an unspecified future that would follow the “programme’s successful completion” – a stupendous Catch-22 since the “programme” could never succeed without a debt restructure.
Varoufakis adds as a preface in the blog post:

Tomorrow’s [Sunday July 12] EU Summit will seal Greece’s fate in the Eurozone. As these lines are being written, Euclid Tsakalotos, my great friend, comrade and successor as Greece’s Finance Ministry is heading for a Eurogroup meeting that will determine whether a last ditch agreement between Greece and our creditors is reached and whether this agreement contains the degree of debt relief that could render the Greek economy viable within the Euro Area. Euclid is taking with him a moderate, well-thought out debt restructuring plan that is undoubtedly in the interests both of Greece and its creditors. (Details of it I intend to publish here on Monday, once the dust has settled.) If these modest debt restructuring proposals are turned down, as the German finance minister has foreshadowed, Sunday’s EU Summit will be deciding between kicking Greece out of the Eurozone now or keeping it in for a little while longer, in a state of deepening destitution, until it leaves some time in the future. The question is: Why is the German finance Minister, Dr Wolfgang Schäuble, resisting a sensible, mild, mutually beneficial debt restructure? [my emphasis]

Eleftheria Kourtali and Christian Oliver repot Greek politicians accuse EU hardliners of blocking deal Financial Times 07/12/2015)

... Greek politicians are arguing that the opposition to Syriza is based on a political agenda that runs far deeper than calculations about whether the reform proposals stack up.

In a briefing about Saturday’s negotiations, government officials told Greek media: “While there was agreement in principle at the eurogroup yesterday, a group of countries brought up the issue of ‘credibility’, but without specifying what exactly should be done. It is clear that some countries, for reasons not related to the reforms and the programme, do not want a deal.”

In a thinly veiled swipe at Germany, Nikos Kotzias, foreign minister, said “powerful countries in the EU and its recent members” were pandering to vested interests at home.
If this Reuters report is correct, the eurozone ministers seem to be still negotiating with Greece in Dick Cheney style: first you surrender unconditionally, then we begin negotiations (Renee Maltezour and Andreas Rinke, Euro zone leaders: Greece must do more to earn rescue 07/12/2015):

Euro zone leaders told near-bankrupt Greece at an emergency summit on Sunday that it must enact key reforms this week to restore trust before they will open talks on any new financial rescue to keep it in the European currency area.

Leftist Prime Minister Alexis Tsipras will be required to push legislation through parliament to convince his 18 partners in the euro zone to release immediate funds to avert a state bankruptcy and start negotiations on a third bailout program.

Six sweeping measures including tax and pension reforms will have to be enacted by Wednesday night and the entire package endorsed by parliament before talks can start, a draft decision sent by Eurogroup finance ministers to the leaders showed. ...

... German Chancellor Angela Merkel, whose country is the biggest contributor to euro zone bailouts, said the conditions were not yet right to start negotiations, sounding cautious in deference to mounting opposition at home to more aid for Greece.

"The most important currency has been lost and that is trust," she told reporters. "That means that we will have tough discussions and there will be no agreement at any price."

If Greece meets the conditions, the German parliament would meet on Thursday to mandate Merkel and Finance Minister Wolfgang Schaeuble to open the talks on a new loan. Then Eurogroup finance ministers would meet again on Friday or at the weekend to formally launch the negotiations. [my emphasis]

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