Greek Referendum on IMF/Troika deal

[jaichind]

ANEL calls for a vote of No on the Referendum.

[jaichind]

German finance minister Schäuble said last month that a referendum might be the right way to resolve the deadlock — though he will no doubt be furious to see the Greeks using this device to avoid a final
decision by June 30.

[jaichind]

Accommodating a referendum would be challenging. First, the ECB would have to be willing to maintain ELA to the Greek banks between now and the vote taking place. Second, creditor governments and parliaments would have to be ready to either extend the current program by a week or, be willing to retrospectively re-authorize the program upon a Yes vote. I think the ECB would not maintain or expand the current level of ELA to the Greek banks unless there was either a guarantee from the Eurogroup and / or banking restrictions — a Bank Holiday or limits on withdrawals — that would cover the period leading up to the vote. Perhaps both. This could all be done, if there is a spirit of cooperation. What is clear is that a referendum in defiance of the creditors, without agreement to stabilize the banks in the interim, would be a very different matter and would risk much more instability over the coming week.

[jaichind]

The announcement from Tsipras saw ordinary Greeks rush to withdraw cash from ATM's in the early hours of the morning. Greece's Alpha Bank seemed to stop all online transactions according to its website on Saturday morning.

[jaichind]

Two senior Greek retail bank executives said as many as 500 of the country’s more than 7,000 ATMs had run out of cash as of Saturday morning, and that some lenders may not be able open on Monday unless there was an emergency liquidity injection from the Bank of Greece.  

How this plays out will have a large impact on the results of the vote.  Those that have nothing to lose will vote no. Those with something to lose will vote yes if they see tangible signs that what they have will be gone if they vote no.

Of course 20% of Greek deposits (mostly those of the top 1%) are already out of the country.  It is the broad middle class that now has a stake in what happens next.

[jaichind]

“We no longer have a basis for negotiation,” German Finance Minister Wolfgang Schaeuble says.  Most likely then there will be no program extension which means that next week we will see the collapse of the Greek banking system.  The Greek voter next week will now see what a disorderly transition out of the Euro looks like.  

If that is how next week plays out then we will have a chance to test out Professor Donald Kagan's theory on war.  I attend several lectures by Donald Kagan when I was in college and he was one of my favorite professors in college.  Donald Kagan main theory is "Unlike what Marxist historians claim, nations fight not for material interests but they fight for honor."  His theory is mostly developed from his study, ironically, of the relationships of Greek city states in the Classical period.  

If the Greek people votes on honor they will vote no.  If they vote on, to be fair, short term material interests, then they will vote yes.  Donald Kagan theory says they will vote no to preserve their honor.  We will see if Donald Kagan was right.

[jaichind]

A 'plain-text' reading of Greece's constitution suggests that the referendum is not legal.  Fiscal matters are specifically exempted from referendum under Article 44: "A referendum on Bills passed by Parliament regulating important social matters, with the exception of the fiscal ones shall be proclaimed by decree by the President of the Republic ...."

This point has been raised by several opposition leaders in Greece, including former Deputy Prime Minister Venizelos. However, Tsipras has argued that the vote is to validate negotiations with lenders, not the government's fiscal policy. Ultimately, President Pavlopoulos will need to make the final call, based on arguments put forward in an extraordinary parliamentary session today.

[jaichind]

"We believe that there is a strong chance of capital controls being imposed in Greece through the ECB increasing haircuts on the ELA it provides the Greek banking system (even though Greek officials expressed confidence on Friday night that Greek banks would open on Monday)," Barclays analysts said in a client note published today.

[jaichind]

Eurozone finance ministers refused Saturday to extend Greece's bailout program past June 30 after Athens called a referendum on reform proposals by creditors.

[jaichind]

The latest news is that Eurozone finance ministers will now meet again without the Greek Finance minister present.  In the meantime they called off their press conference. 

[jaichind]

Just under half of Greeks, or 47.2%, would vote yes in a referendum on a deal  to unlock aid for the country, compared with 33% who would vote no, according to a Kapa Poll for To Vima newspaper.

[jaichind]

If the Greek people votes on honor they will vote no.  If they vote on, to be fair, short term material interests, then they will vote yes.  Donald Kagan theory says they will vote no to preserve their honor.  We will see if Donald Kagan was right.

Do you think so? Is there some "honor" to protect after years of being trampled by the Troika? Greek people has a dignity, but if they vote "no" it will be probably due to weariness and exhaustion. From a materialistic perspective they have very little to gain voting "yes", because the deal is basically more of the same medicine whose effects they now well. Thus, there's not an actual choice between "honor" and "material interests". They are condemned to suffer anyway and the path of austerity does not represent a promise of a better future. If they choose "no", even if they are motivated by "honor" and "dignity", I'm afraid that won't prove the theories of a certain Kagan.

The economic adjustment Greece must go through will be born by the middle and lower classes.  One way or another the standard of living will fall to 1980s if not 1970s levels.  That is already set in stone.  The only question now is how should that adjustment take.  Should it be a slow girding process with the help and financing of the EU or will be a sudden catastrophic event?  One the long run it might be that shock therapy is better but from the view of a typical middle class Greek a slow but  will be better on the short run.  So the vote will be for a slow humiliating process of adjustment or a fast but honorable exit with massive short term economic dislocation.  If the EU, as it seems it will, cuts off funding then the Greek banks will blow up next week giving the Greek middle and lower-middle class a taste of what shock therapy will look like.  Then they have a choice between that and a slow humiliating process toward the same result with an adjustment period financed by those that are the source of the humiliation.    So when I speak of the trade-off between honor and material interests I am really talking about short term interests.

[jaichind]

Greek Finance Minister Varoufakis does not answer the question if Greece will make the June 30 payment to IMF.  This is so sad. 

[jaichind]

ECB said to review Greek bank' emergency liquidity (ELA) Sunday.  I do not see why they will extend it.  All the collateral in the form of Greek bonds now should be valued at zero or near zero unless ECB see some polls that show that Yes will win in a landslide.

[jaichind]

   I'm still wondering if Grexit will really happen, if only because of the precedent it would be setting.  If it goes ahead, and Greece actually starts rebounding economically in a few years, would that not be a clear examples to other weak economies in the eurozone that leaving it isn't the end of the world.  Or perhaps its the case that Germany and other strong economies in the eurozone are now thinking that a smaller eurozone, precedent or not precedent, is a good thing.

I am not sure sure that a separate currency will lead to an economic boom.  For sure it will be better than today where the Greeks has priced themselves out of the market.  Greece will be shut out of the international debt markets so that will hold back development.  For sure service industries like tourism will boom.  But unless Greece has its own capital good industry it will have to import capital goods for its industry to take advantage of the price advantage of a weaker currency.  But it does not so it will have to import capital goods from places like Germany or even PRC where its weaker currency will actually act as a detriment.  I suspect Greece post-Grexit a few years from now will still be struggling economically with a rising tourist sector and a industrial sector that is still struggling with overall standard of living much lower than today and stagnating.  A decade or two from now I do see chances of solid economic recovery as the economy adjusts to the new reality.

[jaichind]

First poll?

Greece [KappaResearch/@tovimagr poll]:
· 47.2% vote Yes (for agreement)
· 33% No
· 18.4% undecided
https://twitter.com/YanniKouts/status/614896548791590913

Lets be clear.  This poll, which I also posted earlier, was done BEFORE Tsipras announced the referendum.  I suspect the No's will be higher now since Tsipras brought national honor into it.  I still feel that Yes should have the upper hand.

[jaichind]

The economic adjustment Greece must go through will be born by the middle and lower classes.  

For what reason? Why the 'adjustment' must fall on middle and lower classes? Are upper classes exempted in completion of some divine law? Are you sure that there are no other options? Defaulting on the IMF and ECB, for instance? Have you considered the moral and political implications of your assertion?

There are several reasons for this.  First the top 1% are the top 1% for a reason.  They are very good with money and have the financial resources for various financial engineering to shift their assets outside of Greece where they will not be affect by all this as well as shift their assets to hedge against such an event.  Of course this is not to say that the rich in Greece will be untouched.  They will take losses of course but they will be well hedged.  Furthermore there are just not enough of the rich to go around.  Once we factor in how much money they have which is "available" to the government from the rich, the hole is so massive that the only way to dig your way out is to make the middle and lower income population pay.  Of course Greece and always just default on the entire loan, but understand that the economy is so bad now that even a primary surplus is out of reach.  Greece will be locked out international debt markets so get money the government will have to borrow from, guess who, the 1% who will attached conditions on how the economic adjustment will work.  Of course there is the even bigger factor that the wealth held by the middle and lower middle income as a result of devaluation will be worth a lot less while the 1% already have most of their assets out of the country and any assets they have in the country would be structured to hedge against such an event.

So in summery, continue with status quo means massive cuts in welfare state and pensions which impacts middle and lower middle class.  Go for devaluation means non-1% Greeks will have lower wealth will now have real wealth and real incomes much lower than today while the 1% will be affected a lot less, certainly in percentage terms. 

[jaichind]

http://www.bloomberg.com/news/articles/2015-06-27/greeks-working-on-deal-blindsided-by-twitter-post-on-referendum

"No one was more surprised about Greek Prime Minister Alexis Tsipras calling a referendum than his team of negotiators in Brussels."

Wow.  Just wow.  I have no idea why Tsipras wants to do this in a way that only serves to anger the rest of the the EU for no real benefit for Greece, other than perhaps the political angle of himself as tragic hero defending the honor of Greece.   Tsipras  could have at least told his counterparts earlier yesterday what he was about to do.  There were plenty of chances even yesterday.  

For example, this might been a good time to mention it to Merkel and to explain why it would be necessary to save his political skin and get a deal.

She seems to be in a good mood.

Perhaps his own party is so divided on this and the extremists so radicalized that any deal will destroy him political so he might as go down as a hero fighting for Greek honor.

[jaichind]

They should have been asking for social programs helping to deal with the dislocation. It should have been a negotiated exit from euro. Of course, it would have required certain humility.

This will not work.  What Tsipras promised was that Greece can stay in the Euro and somehow the austerity program go away and the debt forgiven.  So to start down the path of Euro exit on his own will destroy him politically just as agreeing to more austerity with the EU will do the same.

[jaichind]

Greek Parliament to vote in 10 minutes to vote on Referendum. 

[jaichind]

Greek Parliament to vote in 10 minutes to vote on Referendum. 

Ooops.  I got this wrong.  It seems the ND MPs walked out of the debate so a 10 minute recess is called. Of course it is almost 1am in Athens so I am sure a vote has to come soon.

[jaichind]

At the Greek Parliament debate Samaras makes a point that I am also confused about as well.  It seems yesterday the two sides were actually getting close to a deal.   The EU asked for a primary surplus of 1% of GDP this year and 2% 2016, compared with 3% and 4.5% in the original bailout plan. Greece agreed.  If so the rest is mostly details on how to get to this primary surplus.  So why did Tsipras throw this last minute bomb?  Only thing I can thing of is his own party would agree to this and that Tsipras will be destroyed if he tries to bring this deal up for a vote.

[jaichind]

Some of the things Tsipras says in his speech just makes me laugh.  Such as

1) he did all he could to find a “mutually beneficial” agreement -> as in I am going renege on what my predecessors promised in in return you guys keep on paying
2) Greece negotiated with “open cards” -> so open that he forgot to tell everyone including his own team that he will call a referendum
3) only thing Greeks need to fear is fear itself -> Tsipras as new FDR ?

[jaichind]

Greek Officials Warn "Some Banks May Not Open Monday" and "Stock exchange might not open Monday"

[jaichind]

Referendum Proposal passed 178 vote for 120 against.