Greek Referendum on IMF/Troika deal

[Torie]

What happens to Greece, and to the Eurozone,  if Greece gets no more cash from its lenders, so it can only spend what it takes in? What I am asking is assuming Greece never pays a dime back of its debt, but gets no more loans, what happens? What percent of its spending at the moment is red ink? I mean at the end of the day, nobody can force Greece to repay anything, but on the other hand, Greece can't force anybody to lend it more money either. So that to me seems the stalemate endgame.

[Torie]

What happens to Greece, and to the Eurozone,  if Greece gets no more cash from its lenders, so it can only spend what it takes in? What I am asking is assuming Greece never pays a dime back of its debt, but gets no more loans, what happens? What percent of its spending at the moment is red ink? I mean at the end of the day, nobody can force Greece to repay anything, but on the other hand, Greece can't force anybody to lend it more money either. So that to me seems the stalemate endgame.

What happens? Greece will have to print money, which means it has to leave the Euro. Officially, no one wants to get there. Unofficially, Schäuble and his fellow austerity hawks seem bent on doing anything in their power to make sure it happens.

It's totally impossible for Greece to cut spending enough to balance the cash flow?  Leaving the Eruo would effectively do the same thing, no - just via slashing spending through inflation in real "dollar" terms?

[Torie]

Greek supreme administrative court will rule on the legality of the bailout referendum Today.

The court just ruled it's legal.

[Torie]

What happens to Greece, and to the Eurozone,  if Greece gets no more cash from its lenders, so it can only spend what it takes in? What I am asking is assuming Greece never pays a dime back of its debt, but gets no more loans, what happens? What percent of its spending at the moment is red ink? I mean at the end of the day, nobody can force Greece to repay anything, but on the other hand, Greece can't force anybody to lend it more money either. So that to me seems the stalemate endgame.

What happens? Greece will have to print money, which means it has to leave the Euro. Officially, no one wants to get there. Unofficially, Schäuble and his fellow austerity hawks seem bent on doing anything in their power to make sure it happens.

It's totally impossible for Greece to cut spending enough to balance the cash flow?  Leaving the Eruo would effectively do the same thing, no - just via slashing spending through inflation in real "dollar" terms?

The problem of Greece is not only spending, but competitivenss. They are simply far too expensive. They either have to deflate (lower costs): which they cannot, really do politically. Or they have to devalue, which they can only do if they leave the euro.

They are already around what is known as "primary surplus" - before debt payments. So, theoretically, they could just default and go on in euro. But in reality this would be simply torture. They would be completely cut off credit. They would still be too expensive. The economy would still be in a horrid depression (cutting the tax revenue further)...

But even that is a mute point. Because what will happen first is that the day that the banks are reopened without an agreement there will be the mother of all runs on the banks.  No Greek will believe for a second that the banks will survive - and they will not. Hence, the only thing they can really do is reopen the banks, while keeping capital severe controls for an indefinite future. But that, really, means that a euro in a Greek bank is not freely convertible into a euro in cash or a euro in a German bank. At that point, even if you continue calling it a euro, it is a different currency, really.  And, of course, such capital controls make running a business very difficult, further depressing the economy.

Should I continue?

No, except that if Greece is too expensive as you put it, and they refuse to just slash wages and all, then they need to do that through inflation to get there, and/or devaluation, which means Grexit, does it not? How else do they get out of the "too expensive" box?. Thanks for telling me that Greece has a "primary surplus," and teaching me a new economic term.

It's "moot" btw.

[Torie]

No, except that if Greece is too expensive as you put it, and they refuse to just slash wages and all, then they need to do that through inflation to get there, and/or devaluation, which means Grexit, does it not? How else do they get out of the "too expensive" box?. Thanks for telling me that Greece has a "primary surplus," and teaching me a new economic term.

It's "moot" btw.

Greece will wind up out of hte euro, most likely. Or else, they will elect something completely neonazibolshevik in the process of trying to deflate, I am afraid. But there is a big difference between a negotiated transition, with debts partially forgiven, with a European comitment to help mitigate the social consequences, borders kept open, etc., etc. - and what is on track for happening right now.

This is why I have long been advocating a negotiated abandonment of the euro in Greece. It is not that it is impossible for Greece to stay in. It is, rather, that in the process the Greek democracy is likely to be destroyed. The current government is, by far, not the worst that could happen - and, I am afraid, it will happen.

Not that it matters a wit what I think, but your rather depressing little analysis rings true to me. It's tough for democratic governments to slash everyone's income and wages and so forth except perhaps via inflation by Draconian (notice the little Greek derived term I threw in here, just to show off ) amounts in a short period of time. The de jure, along with the de facto, social contract, however imprudent it was to enter in the first place, just needs to be thrown in the trash to get the job done.

Meanwhile I read somewhere that about 500K Greeks have decamped in a relatively short period of time, a big number given its population, presumably mostly the "producer" class, leaving behind an ever higher percentage of the pensioners and so forth, in a sort of downward spiral into the abyss.

[Torie]

In other news, some economist opine as to how they would vote, with some leading names (on the left mostly), saying they would vote no, with others saying yes. So I guess one cannot easily relegate the "no" voters to the economically illiterate luddite nutter category, or even mere Machiavellian game theorists (the economics minister has been characterized as a game theorist, I guess reading too many political science books on the topic or something). Life is complicated. But in the end, the subsidies cannot go on forever, and Greeks are going to have to work harder and longer for less money, or emigrate, it seems to me. And the fissures of economic union sort of, without political union, are laid bare. Can this complex hybrid structure really work for Europe?

[Torie]

Is there any merit to the suggestion that the Greek voters understood that the vote was next to meaningless as to what its creditors/Germany/Eurozone power brokers end up doing, and the vote was more about, given the inevitable trajectory, it was about who they want the government to be going forward as their standard of living substantially declines? I know that by the end of this, I was quite confused about what a no versus yes vote really meant. The mistakes made by the current government cannot be undone. It's spilt milk.

[Torie]

ECB adjusts the haircuts for ELA for Greece. This is to reflect the qualify downgrade of Greek bonds as a result of recent events.  ELA for Greece is maintained at 6/26 level.  So in other words, no extra money for Greece.  So unless there is some sort of deal tomorrow or wed which would change ECB's haircuts for ELA Greece is looking at a complete collapse of its financial system later this week.

Is the term "complete collapse" another way of saying immediate Grexit?

[Torie]

ECB adjusts the haircuts for ELA for Greece. This is to reflect the qualify downgrade of Greek bonds as a result of recent events.  ELA for Greece is maintained at 6/26 level.  So in other words, no extra money for Greece.  So unless there is some sort of deal tomorrow or wed which would change ECB's haircuts for ELA Greece is looking at a complete collapse of its financial system later this week.

Is the term "complete collapse" another way of saying immediate Grexit?

It is also the manner in which it is going to be done. They cannot, possibly, reopen the banks issuing actual euros. They may not even have enough cash to much longer continue giving out the 60 euro a day, they are doing now. They will have to start issuing iou's as provisional currency. But, I am afraid, nothing is ready for that.

Who is going to accept IOU's as currency, other than the government itself? I mean, would I sell a suit to someone in exchange for Greek IOU's? In fact, I think during this unpleasantness, I would just shut my clothing store down, and take a vacation on the Dalmatian coast or something, assuming I have a foreign bank account. One would think anyone with half a brain, to the extent they had it, would have put most of their money other than that needed for short term needs in foreign bank accounts long ago.

[Torie]

Maybe the Greeks were trying to find out what would fly first today. Anyway, when the Greeks do put a plan on the table, then what happens? Do the Euros then put some other plan on the table? Is making the Greeks put up something first for cosmetic purposes? Or is the idea that they are being told you need to put up a plan with this or that content, and if you don't we will just say no, because the only plan that will fly is one that you propose yourself, so this chat about bullying you, is put to an end?  None of this makes much sense to me. Maybe part of the answer is that the Euros themselves can't agree on anything, and thus need something concrete to talk about first. But there seems to be quite a bit of agreement (France and Italy perhaps being the exceptions) on one thing:

[Torie]

Unnamed Greek official said that Tsipras presented Greek proposal to Obama.  If he can do that why did not bring such a plan in writing to the meeting today ?

Good, maybe the US will now bail out Greece

Even better, maybe the US will join the Eurozone. Anything is possible.

[Torie]

Merkel: Greece hasn't done enough yet to start negotiations about a new bailout program.

I guess Obama's phone call to Merkel did not have the effect that he desired. I sort of get this feeling that she wants Grexit. She's done.

[Torie]

Renzi: all EU leaders will meet on Sunday, waiting for new Greek proposals then.

Sunday? Seriously? Does nobody (and yeah, that includes Tsipras) understand the urgency of the situation?

All leaders are needed to effect Grexit, and thus the scheduled meeting. So as said above, I think if some deal is cut, there does not need to be a meeting of all 28 members. I assume that Greece understands that the Sunday meeting is a gun pointed at its head, and it was called to put pressure on Greece to cry uncle, and do it now. I would not be surprised if by back channel, Greece has been informed as to what it needs to "propose" to avoid a Sunday Grexit meeting. All of this is mere speculation by me of course.

Addendum: Perhaps not so speculative after all.

[Torie]

Maybe the Greeks were trying to find out what would fly first today. Anyway, when the Greeks do put a plan on the table, then what happens? Do the Euros then put some other plan on the table? Is making the Greeks put up something first for cosmetic purposes? Or is the idea that they are being told you need to put up a plan with this or that content, and if you don't we will just say no, because the only plan that will fly is one that you propose yourself, so this chat about bullying you, is put to an end?  None of this makes much sense to me. Maybe part of the answer is that the Euros themselves can't agree on anything, and thus need something concrete to talk about first. But there seems to be quite a bit of agreement (France and Italy perhaps being the exceptions) on one thing:

Well, it would be nicer if Greeks were to propose an acceptable plan, rather having a German-proposed plan imposed on them. It is that, or...

So far Greece has proposed nothing, other than to ask for more money.

[Torie]

Maybe the Greeks were trying to find out what would fly first today. Anyway, when the Greeks do put a plan on the table, then what happens? Do the Euros then put some other plan on the table? Is making the Greeks put up something first for cosmetic purposes? Or is the idea that they are being told you need to put up a plan with this or that content, and if you don't we will just say no, because the only plan that will fly is one that you propose yourself, so this chat about bullying you, is put to an end?  None of this makes much sense to me. Maybe part of the answer is that the Euros themselves can't agree on anything, and thus need something concrete to talk about first. But there seems to be quite a bit of agreement (France and Italy perhaps being the exceptions) on one thing:

Well, it would be nicer if Greeks were to propose an acceptable plan, rather having a German-proposed plan imposed on them. It is that, or...

So far Greece has proposed nothing, other than to ask for more money.

Well, but would it not be nice?

More than nice, perhaps the coming of the Jubilee. Well, tomorrow they will propose what they proposed before that was rejected per the Telegraph article, so alas the word "acceptable" is missing from your little equation.

[Torie]

Give such low level of trust I think the only way to get to a deal is a variation of a double blind single round auction.  EU will be told "if the Greeks came up with a good multi-year austerity plan put the best debt reduction via extension of maturity you can ever agree to and put that plan in a sealed envelope."  The Greeks will be told "if the EU came up with a good debt reduction plan what is the most aggressive austerity you can agree to and put it in a sealed envelope."  Then we open both envelopes at the same time.  EU and Greeks have to agree to a deal where both items are part of a linked deal with no adjustments.  If either side does not agree to the package then the whole thing is off and we go for a Greek exit of the Euro.

 

That's very good, but don't both items have to be in each envelop? Otherwise, the Greeks could say the debt reduction plan is inadequate, and/or the EU could say the austerity plan was inadequate. In other words, what the Greeks considers a "good reduction plan," and what the EU considers a "good multi-year austerity plan," needs to be defined in advance.

[Torie]

OK. I am not sure the EU is ready to agree to the details of the debt restructure however. I think they want the austerity in place before going there, and may not have game played all of that out adequately. Just a guess.

[Torie]

This guy reads the riot act to Tsipras, starring him in the eye. Tsipras seemed rather entertained by it all. We need a Constitutional amendment right now to make Verhofstadt eligible to be POTUS. We need him far more than Belgium does.

[Torie]

It does seem now as if Tsipras is going to cry uncle and swallow the hard medicine, and that as a fig leaf for him in exchange, the Euros will say something reassuring about debt restructuring now, rather than sometime later over the horizon, maybe. That assumes however, that Tsipras still has control over the situation in Greece, and that the Greek parliament, etc., does not rebel. Just my guess.