Greece deal was designed not to be accepted

German Finance Minister Wolfgang Schäuble had a plan to push Greece out of the euro zone. Chancellor Merkel wasn’t sure what to do about it. The result is widespread resentment of Germany and a damaged Franco-German relationship.

There are days when Wolfgang Schäuble’s staff would prefer to be somewhere else. In Timbuktu perhaps, or up on the Acropolis. In any case, far, far away.

Last Thursday, the German finance minister rolled into an elevator in the Reichstag in Berlin. He was irritated, for he soon had to appear before the Affairs of the European Union Committee to defend a bailout plan for Greece that he didn’t even believe in. “Grottenfalsch,” as he would say — “dreadfully wrong.”

In his wheelchair, Schäuble leaned to one side and rubbed his face. “What about the appointment at 5:30 p.m.?” he wanted to know. “It’s in the schedule,” a staffer responded, immediately wishing he was somewhere else. “In the schedule?” When Schäuble gets irritated, he doesn’t raise his voice. Instead he stretches out his vowels like a rubber band. “Scheeeeeeedule,” he said, and then issued an order: “Call the chancellor’s secretary and ask where it is.”

He then inhaled, flashing a pugnacious smile and turned his wheelchair around. He then prepared for battle of a kind he had never before fought in his long political career — a battle against the Greek government, against American economists, against large swathes of European public opinion and also, to some extent, against the chancellor herself.

Had it been up to Schäuble, Germany would have shown the Greeks the euro-zone door long ago. His problem, however, is that the chancellor doesn’t share this sentiment. Merkel rejects his insistence because she doesn’t want to go down in history as the government leader responsible for the disintegration of Europe.

Lees verder op Der Spiegel >>>

A spectre is haunting Europe — the spectre of Grexit

And, as Marx would have noted with a smile if he were still alive, Europe’s leaders are now, unusually, openly worrying about whether the high cost of the Greece bailout might lead to “violence” or “revolution.”

German Chancellor Angela Merkel on Friday urged the Bundestag to pass the bailout and keep Greece in, using these words, the Financial Times said: She emphatically rejected the alternatives of stretching further the EU laws until they lost their meaning, and a sudden Grexit which could bring “chaos and violence” to Greece.

Late Thursday night, European Council leader Donald Tusk told the Financial Times: “I am really afraid of this ideological or political contagion, not financial contagion, of this Greek crisis,” said Mr Tusk. … “For me, the atmosphere is a little similar to the time after 1968 in Europe,” he said.
“I can feel, maybe not a revolutionary mood, but something like widespread impatience. When impatience becomes not an individual but a social experience of feeling, this is the introduction for revolutions.”

That is extraordinary.

It was one thing when the Greeks, internally, began wondering aloud whether the fight over staying in the European Union would lead to a second Greek civil war. The Greeks have always had a strong leftist side to their internal politics, a flank Britain and Germany discarded 15 or 20 years ago.

But now politicians are starting to worry that the anti-EU threat comes not from the right — where nationalist parties such as the UK’s UKIP get their votes — but from the left.

Lees deze column van Jim Edwards verder op Business Insider >>>

Grexit remains the likely outcome of this sorry process

Unless the economy behaves very differently than in the past, it will be trapped in a vicious circle.

Alexis Tsipras should never have hired Yanis Varoufakis as his finance minister. Or he should have listened to him, and kept him on. But instead the Greek prime minister chose the worst of all options. He followed Mr Varoufakis’ advice of rejecting the offer of the creditors — until last week. But having done this, Mr Tsipras committed a critical error by rejecting Mr Varoufakis’ plan B for the moment when the country’s banks closed down: the immediate introduction of a parallel currency — IOUs issues by the Greek state but denominated in euros. A parallel currency would have allowed the Greeks to pay for their daily transactions when cash withdrawals were limited to €60 a day. A total economic collapse would have been avoided.

But Mr Tsipras did not go for this, or indeed any other plan B. Instead he capitulated. At that point, he was no longer even in a position to choose a Grexit — a Greek exit from the eurozone. The economic precondition for a smooth departure would have been a primary surplus — before debt service — and an equivalent surplus in the private sector. Greece has no foreign exchange reserves. If the Greeks were to reintroduce the drachma, they would have had to pay for all of their imports with the foreign exchange earnings of their exports. These minimum preconditions were in place in March but not in July.

So, like his predecessors, Mr Tsipras ended up with another very lousy bailout deal. And this one suffers from the same fundamental flaws as its predecessors. This leads me to conclude that Grexit remains the most likely ultimate outcome after all. There are three principal ways in which this can happen.

Lees deze column van Wolfgang Münchau verder op The Financial Times >>>

Greece should seize Germany’s botched offer of a velvet Grexit

The Versailles terms imposed on Germany in 1919 were vindictive and narrow-minded, but not beyond reach. Greece is being told to do the impossible.

One day we will learn the full story of what went on at the top levels of the German government before the villenage of Greece last weekend.

We already know that the EMU accord – if that is the right word – is an economic and diplomatic fiasco of the first order. It does serious damage to the moral credibility of the EU but resolves nothing.

There is not the slightest chance that Greece will be able to stabilize its debt and return to viability under the Carthaginian settlement imposed on Alexis Tsipras – after 17 hours of psychological “water-boarding”, as one EU official put it.

The latest paper by the International Monetary Fund has torn away the fig-leaf. The country needs a 30-year moratorium on debt payments and probably outright subsidies to recover from the devastation of the past six years.

Instead it gets pro-cyclical fiscal contraction of 2pc of GDP by next year.

Some are already comparing the terms to the Versailles Treaty but this does not quite capture the depravity of it. The demands imposed on Germany in 1919 were certainly vindictive and narrow-minded – as Keynes rightly alleged – but they were not, on the face of it, beyond reach.

France was forced to pay reparations after the Franco-Prussian War in 1871 that were roughly equivalent to Versailles, albeit in very different circumstances. It dutifully did so, while plotting revenge.

What Greece is being asked to do is scientifically impossible. Almost everybody involved in the talks knows this. Yet the lie goes on because the dysfunctional nature of EMU politics and governance makes it impossible to come clean. The country is dishonestly kept in a permanent state of crisis.

Lees deze column van Ambrose Evans-Pritchard verder op The Telegraph

The Eurocrats are punishing Greece to scare other countries

The EU evidently means to make an example of Greece. Yesterday, the European Central Bank, far from extending emergency credit to the Greek banks as had been hoped, toughened its conditions further. Thus did Brussels respond to an unwelcome referendum result.

Eurocrats, after all, could hardly have been clearer in their instructions to Greek voters. The Hellenes had been told, in no uncertain terms, to accept the EU’s offer and, indeed, to oust the Syriza-led government. The President of the European Parliament, Martin Schulz, called openly for Alexis Tsipras to be replaced by “a technocrat”.

But, not for the first time, those pesky Greeks had other ideas. They turned out in huge numbers to reject the ultimatum. Euro-enthusiasts intend to make them pay for that act of defiance.

There is more to the ECB’s behaviour than petulance – though bankers and finance ministers are as prone to that vice as anyone else. Supporters of the European project are terrified that Greece will end up making a successful go of monetary independence, and so inspiring other countries to follow.

Oh, sure, it’ll be very tough in the short term. There will be bank failures and lost deposits, lay-offs and shortages. But, frankly, after the hell of the past five years, Greeks are a lot more stoical about that prospect. The question now is whether, with a new drachma, Greece might finally edge out of its nose-dive.

It could; indeed, in theory, it should. A clean default would lift the debt burden than has been the main drag on growth; and a competitive devaluation would be a huge boost to Greece’s two largest economic sectors, shipping and tourism. The trouble is, as I argued on CapX a couple of months back, that Syriza will be temperamentally opposed to pursuing the pro-enterprise policies needed to make a success of a new currency.

Not that Brussels wants to take any risk. Iceland, after all, prospered following its devaluation and the collapse of its banking system, despite having by far the most Left-wing government in its history. Given the constraints that will follow debt repudiation – a government in default cannot borrow a penny on the bond markets – even Syriza ministers will have to find ways to live within their means. It will take longer than in Iceland, but Greece will eventually bounce back.

Lees deze column van Daniël Hannan verder op CapX

A stealthy route to Grexit

In Berlin, the belief is hardening that no deal can be reached with a government led by Tsipras.

I admire Alexis Tsipras’s sense of humour. By replacing Yanis Varoufakis as finance minister with Euclid Tsakalotos, the Greek prime minister swapped a supposedly Marxist economist trained at the University of Essex for a supposedly Marxist economist trained at the University of Oxford. Surprisingly, a few people see this as a reason to be optimistic.

What we know about Mr Tsakalotos is that he is a tough negotiator who believes in debt relief just as his predecessor did. So does Mr Tsipras himself. The fundamental obstacle to a deal thus remains unresolved: Greece continues to say No to the old agreement, and Germany says No to everything else. The Germans clearly did not replace their finance minister yesterday. On the contrary, Berlin on Monday reaffirmed its position that, at present, there is no basis for a deal.

A new agreement between Greece and its creditors would require a series of political shifts to happen simultaneously over the next few days. For starters, the Greeks would need to accept an austerity programme and structural reforms very similar to the one they rejected in the referendum. And the Germans would need to accept debt relief. On the former, agreement may be easier now Mr Varoufakis is gone. When you compare the final offer of the creditors, now rejected by the Greek electorate, with Athens’ last offer, you would struggle to spot the actual differences. If everyone wanted a deal, I am sure an agreement could be fudged, and sold at home.

The trouble is I am no longer sure whether all the creditors — specifically Germany — still want a deal. In Berlin, the belief is hardening in official circles that no deal can be reached with a government led by Mr Tsipras. Some of the most aggressive comments come from the leadership of the SPD, Angela Merkel’s junior coalition partner, until recently a moderating influence in German politics. They are now a leading pro-Grexit force because they see an opportunity to mark out a populist political territory as their own.

Lees Wolfgang Münchau verder op The Financial Times

Waarom Griekenland zijn eigen geld maar vast moet gaan drukken

The gaps between Greece and creditors look too large to bridge.

Following the No vote in yesterday’s Greek referendum, the battle lines are being drawn around Europe. The Greek crisis is forcing the eurozone to face up to the existential question which it has dodged since the crisis hit – whether to integrate further or whether to adjust its membership. However, not unexpectedly, a number of countries have different reactions to this question and the splits are already emerging.

One thing all sides agree on is the need for more talks – they do love a good emergency summit in Europe. Of course, it would be nearly impossible to reject new talks out of hand, as it would seem as if eurozone leaders were rejecting the democratic vote in Greece, which would play into Greek Prime Minister Alexis Tsipras’ game of blaming the creditors for all of Greece’s woes.

The substance of the talks is an entirely different matter though. A German government spokesman drove this home saying the “preconditions have not been met” for a new bail-out deal for Greece and debt restructuring is not on the table. France’s Finance Minister Michel Sapin went a bit easier saying there is “nothing automatic” with regards to Grexit, adding that there is “a basis for” negotiation. The Baltics and the Dutch unsurprisingly rallied around the German hard line, while Italian Prime Minister has tempered his initially tough tone somewhat.

The fault lines and divisions across Europe have once again been exposed by the crisis. The difference this time is that papering them over will prove much harder. There is little wiggle room in these current talks. Tsipras has made it clear he believes Greece needs some kind of debt relief and is unlikely to budge after being emboldened by the strong No. Given that 76 per cent of Greek debt is held by taxpayer-backed institutions this would inevitably involve some kind of transfer, which will have to be explained to taxpayers across the eurozone. It is clear there is no consensus around such a prospect and pushing it through would be democratically and legally impossible.

Lees deze column van Raoul Ruparel verder op The Telegraph