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Monday, April 20, 2015

The Writing on the Wall: Grexit, Graccident, Grone. Is that Greek to You?

Haaretz Writing on the wall Greek

The writing on the wall may now be in Greek (“Grexit, Graccident, Grone”), but its meaning may not have changed much from Daniel 5:25–28: מנא, מנא, תקל, ופרסין
Mene, Mene, Teqel, Upharsin

Only now have commentators and the markets woken up to the fact that a Greek default and possible exit from the Euro might really be impending. They seem to have been lulled into complacency by the conviction that the Eurozone powers that be (EC, ECB, IMF, the EZ creditor countries, revolving submissive EZ debtor governments) have always been able to pull a rabbit out of the hat at the last minute since Greece initiated the sovereign debt crisis in 2010. Yet the writing on the wall has been visible for all to see since the end of the Samaras government in Greece and its replacement by the Syriza anti-austerity coalition, that is, since February.

Thus in yesterday’s Financial Times Wolfgang Münchau proposes that Greek default necessary but Grexit is not. Münchau ruminates

[I] wonder whether one or more people on both sides of these discussions may simply be miscalculating. We may be on the verge of one of those sleepwalking moments in European history.

“Sleepwalking” will be an expression familiar to the readers of this blog.

And today’s New York Times brings us Paul Krugman’s Greece on the Brink, a remarkably conciliatory piece for Paul implying that the negotiations between the Eurogroup and Greece have really been conducted in good faith on both sides. And if only men and women of good will would sit down together over retsina, it could all be worked out to the satisfaction of both parties.

While I cannot claim to have special insight into the minds and especially the subconsciousnesses of the negotiators, I read the present situation much more direly. As I already pointed out on April 1 (no joke), I think we have long ago moved from a game of chicken (i.e., irresponsible brinksmanship) to a game of turkey (i.e., a post-mortem blame game). And that the negotiations have long since ceased to be in good faith.

So why have the parties been keeping up appearances nevertheless? Let me answer by going over the points raised in Paul’s NYT op-ed.

1. “Don’t you think they want us to fail?” Paul was asked by many Greeks during his recent trip there. Maybe the answer really is yes, and for the reason Paul also gives: as an example for other opposition parties like Podemos in Spain against bucking the austerity line. And don't underestimate how much pure pique may be driving someone like Wolfgang Schäuble, who undoubtedly resents having to deal with deja-vu 1968 leftist types like Tsipras and Varoufakis publicly flouting the Eurocratic rulebook. Maybe “they” really intend to hang Greece out to dry as a warning to other obstreperous populists. The “success” of the Eurozone in containing the Cyprus crisis by imposing currency controls (but who ever heard of a currency union with currency controls on one of its constituents?) and depositor haircuts may have emboldened some into thinking a much larger containment exercise can also be surgically performed on Greece. After Lehman Bros. one is entitled to have some doubts.


Can Greece avoid a symbolic economic hanging out to dry? (Picture: Krakow civilians publicly hung in 1942 to deter resistance. Wikimedia Commons)

2. Paul sees the main problems as mostly already solved:

By late 2014 Greece had managed to eke out a small “primary” budget surplus, with tax receipts exceeding spending, excluding interest payments. That’s all that creditors can reasonably demand, since you can’t keep squeezing blood from a stone. Meanwhile, all those wage cuts have made Greece competitive on world markets — or would make it competitive if some stability can be restored.

Despite the immense internal devaluation (wage cuts), Greek exports, unlike in Ireland, Portugal and Spain, have decidedly not increased, nor have export prices declined (see the recent paper by Daniel Gros). Contrary to what Paul claims, Greece’s international competitiveness has not been restored despite all the suffering. Thus Greece really is a special case and a mystery to even fanatical adherents of austerity and internal devaluation. At least Ireland, Portugal and Spain can claim to see some light at the end of the tunnel, especially after the ECB’s QE (“Querency Easing”) Program, which has very effectively devalued the Euro (its very thinly veiled intention). But unemployment remains so high that the incumbent governments of these states still need to fear being voted out of office.

And one can attempt to squeeze blood from stone: the creditors still insist that Greece raise its primary surplus to the previous government’s promise of 3.5% this year (original troika target 4.5%) and 5 4.5% next year. But without a restructuring of Greece’s nominal debt and export surpluses Greece remains the German government’s worst nightmare—a bailout bottomless pit.

3. One can really question whether the Greek government is also actually negotiating in good faith (I have no doubt that the creditors aren't) and not rather rolling in self-righteousness as the valiant but doomed Don Quixotes tilting against Euroausterity windmills (see my taxi driver post). Of course the "taxi driver" slander may just be the limited prejudicial stereotyping of Greeks by northern European Eurocrats whose only knowledge of the country derives from contentious taxi trips between the airport and Athens hotels (while the Greek Finance Ministry hastened to dismiss this report).

There is a pipe dream current in Brussels that Tsipras can still prove his statesmanship in a volte-face, expel the leftwing of his party, form a new government with centrists, and in an act of brutal realism accept the same bailout terms his predecessor Samaras agreed to but also could not implement, the bailout terms that got Samaras voted out of office in the first place and were the bugbear that got Tsipras where he is today. But it is hard to see how he could preserve his self-respect if he did so, let alone the respect of the Greek electorate.

Thus I think many people are clutching at straws when it comes to repressing the Greek nightmare. But I have been proven wrong before.

Let us only hope that Daniel’s reading of the writing on the wall does not turn out to be the epitaph of the Eurozone:

And this is the writing that was inscribed: mina, mina, shekel, half-mina. This is the interpretation of the matter: mina, God has numbered the days of your kingdom and brought it to an end; shekel, you have been weighed on the scales and found wanting; half-mina, your kingdom is divided and given to the Medes and Persians.


No one knows what a Grexit/Graccident would look like, but Gustave Doré’s vision seems as good as any.


Update April 21, 13:18: European Commission President Jean-Claude Juncker, in an interview today in Politico, “ruled out a Greek debt default or exit from the eurozone…[He] said his main reason for optimism rests less on any tangible progress than on the simple fact that the alternative is unimaginable.”

I assume that until recently he and his colleagues in Brussels would also have ruled out the possibility that a copilot employed by a leading European airline would deliberately crash his plane with 149 passengers onboard as “unimaginable.”

This Eurocratic faith in human reason is immensely reassuring and now puts to rest the budding suspicion that at least some Europeans in responsible positions might actually have acquired a taste for suicidal self-destruction or ‘Götterdämmerung’ (European privacy laws prohibit us from giving full names at this point).

Update April 22, 15:26: It looks like the ECB’s Mario Draghi has been delegated to give Greece the coup de grâce after all: “European Central Bank Squeezes Greek Banks, Tightening Access to Loans,” New York Times April 21. None of the elected officials seem to have the b***s to do it (with apologies to Angela Merkel), despite Draghi’s insistence that it was ultimately their call. It is not the first, and undoubtedly not the last time Draghi will have to do the heavy lifting in the Eurozone. And EC President Juncker, as we have seen above, is still out in “unimaginable” lala land. And you thought the 2013 Tea Party Shutdown in the US was the height of government self-destruction!

1 comment:

  1. In order to explain the curious behavior of European political leaders and financial experts and bankers and journalists: we should ask the question: WHO BENEFITS from the Greek debt, and from the so called "reforms" that are the condition to further loans ?