Tuesday, February 17, 2015

No Time for Games in Europe?

Jame Kanter and Liza Alderman of the New York Times report, Meeting on Greek Debt Produces an Ultimatum:
The standoff between Greece and its European lenders appeared to reach a new low on Monday as European officials handed Athens an ultimatum: Agree by Friday to continue with a bailout program or risk the funding that the country needs to avoid a default.

The demand appeared to be part of a strategy by eurozone creditors to get Prime Minister Alexis Tsipras of Greece and his finance minister, Yanis Varoufakis, to back away from the anti-austerity pledges that swept them to power last month. In exchange, eurozone officials said they would consider rolling back some of the austerity terms at a later date.

But the strategy appeared to have backfired. Mr. Varoufakis expressed outrage at a briefing with reporters late Monday, saying that the other countries appeared to be effectively holding a gun to his head.

“In the history of the European Union, nothing good has ever come out of ultimatums,” Mr. Varoufakis said. “I have no doubt that in the next few days any notion of an ultimatum is going to be withdrawn.”

The European part of Greece’s bailout program is to expire at the end of the month, raising the risk that the country could default on loan repayments and become the first member of the euro currency union to leave. An emergency meeting of the same group of finance ministers from the 19-country currency union also ended in failure last week.

The urgency of Greece’s financial situation was underscored on Monday by a report from JPMorgan Chase indicating the Greek banks were losing deposits at the rate of 2 billion euros, or $2.27 billion, a week. If that pace continued for the next 14 weeks, the banks would not have enough reserves on hand to issue new loans, according to the report.

Greece, meanwhile, has suggested that it could turn to Russia or China for help if its talks on debt relief and a rollback of austerity measures break down. American officials have expressed concern about the implications of any breakdown in the discussions, since that could propel Greece further away from Europe.

Jeroen Dijsselbloem, the president of the group of ministers from euro area countries, said that an accord could be reached “immediately” to roll back some of the harsher austerity terms that have infuriated Greek citizens — but only if Athens agreed by Friday to continue with Greece’s €240 billion bailout. That would unlock €7 billion of sorely needed funds.

Mr. Varoufakis said Athens viewed such promises as “nebulous,” and he accused Greece’s European partners of reneging on an earlier proposal that would have formed the basis of an accord. He said he was ready on Monday afternoon to sign a deal that was apparently put forward by Pierre Moscovici, the European commissioner for economic and monetary affairs. That deal recognized Greece’s humanitarian crisis and spoke of a four-month intermediate program that would form a transition until a “new contract for growth” was provided for Greece.

“Unfortunately, that splendid document that I was prepared to sign was withdrawn minutes before the Eurogroup began by the Eurogroup president,” Mr. Varoufakis said, referring to Mr. Dijsselbloem and the ministers’ group he heads. It was then “replaced by another document” that pressured Greece to sign an extension of the bailout, Mr. Varoufakis said.

An agreement would be impossible, he added, because the new Greek government was elected specifically to reject the bailout and its austerity terms.

“We have a substantial disagreement on whether the task is to complete a program that this government was elected to challenge the logic of, or to sit down with our partners with an open mind and rethink this program from scratch,” Mr. Varoufakis said.

“This program is part of the problem, not part of the solution,” he added. “It would be an act of subterfuge to promise our partners” that Greece would complete it, he said.

The Europeans, for their part, continued to view the demands by Athens as intransigent.

Earlier Monday, the German finance minister, Wolfgang Schäuble, told German radio that he was “very skeptical” about the chances of a deal. He also accused the anti-austerity Greek government of behaving “pretty irresponsibly.” Mr. Schäuble said Mr. Tsipras was “insulting those who have helped Greece in the past few years.”

Those comments played a role in the 4 percent decline in Greece’s benchmark stock index on Monday. Three-year Greek government notes fell for the first time in three days.

In response to Mr. Schauble’s remarks, the Greek government spokesman, Gavriil Sakellaridis, told a Greek radio station, “I could also say that Germany’s behavior is irresponsible, but I don’t want to trade characterizations.” He added, “Who is irresponsible and who is responsible is subjective.”

Athens wants “a solution on the political level,” Mr. Sakellaridis said. “We don’t see this like a game of poker. Neither are we bluffing.”

Characteristically combative, and wearing his coat collar upturned, Mr. Varoufakis denied on Monday in Brussels that he was risking financial havoc by behaving as if the crisis were an academic exercise or a board game like Monopoly, with artificial cash. “I have never played Monopoly with fake money. I always played Monopoly with genuine Monopoly money,” he shot back, generating a peal of laughter at the news conference.

Mr. Moscovici said there was little room for maneuver. “There is no alternative to a request for an extension to the program,” he said.

Christine Lagarde, the managing director of the International Monetary Fund, which has a lending agreement with Greece until early 2016, also prodded Greece to accept a continuation of the bailout.

“If an extension is sought by the Greek authorities from the Eurogroup and addressed with a commitment to continue to consider the current program, then we continue to work together,” she told the same news conference. But by failing to stick to commitments that the I.M.F. still needed to assess in a coming review, Greece would risk not receiving its loan disbursements, she suggested.

Mujtaba Rahman, who oversees coverage of Europe at the Eurasia Group, a political risk consulting firm, wrote in a briefing note on Monday that a deal might only be done closer to the Feb. 28 expiration of the current bailout program. He said that Greece and Germany remained far apart, and that both had incentives to let the negotiations play out for some time.

“Even if the Greeks were to back down over some red lines, which is possible, the political atmosphere in Europe will need to be more dramatic to justify what is essentially going to be a ‘flip’ by the Greek government,” Mr. Rahman wrote, referring to the pressure on Greece to make concessions.
Renee Maltezou and Ingrid Melander of Reuters also report, Greece defies creditors, seeking credit but no bailout:
Talks between Greece and euro zone finance ministers over the country's debt crisis broke down on Monday when Athens rejected a proposal to request a six-month extension of its international bailout package as "unacceptable".

The unexpectedly rapid collapse raised doubts about Greece's future in the single currency area after a new leftist-led government vowed to scrap the 240 billion euro ($272.4 billion) bailout, reverse austerity policies and end cooperation with EU/IMF inspectors.

Dutch Finance Minister Jeroen Dijsselbloem, who chaired the meeting, said Athens had until Friday to request an extension, otherwise the bailout would expire at the end of the month. The Greek state and its banks would then face a looming cash crunch.

How long Greece can keep itself afloat without foreign support is uncertain. The euro fell against the dollar after the talks broke up but with Wall Street closed for a holiday, the full force of any market reaction may only be felt on Tuesday.

The European Central Bank will decide on Wednesday whether to maintain emergency lending to Greek banks that are bleeding deposits at an estimated rate of 2 billion euros ($2.27 billion) a week. The state faces some heavy loan repayments in March.

Seemingly determined not to be browbeaten by a chorus of EU ministers intoning that he needed to swallow Greek pride and come back to ask for the extension, Finance Minister Yanis Varoufakis, a left-wing academic economist, voiced confidence that a deal on different terms was within reach within days.

"I have no doubt that, within the next 48 hours Europe, is going to come together and we shall find the phrasing that is necessary so that we can submit it and move on to do the real work that is necessary," Varoufakis told a news conference, warning that the language of ultimatum never worked in Europe.

He cited what he called a "splendid" proposal from the European Commission by which Greece would get four to six months credit in return for a freeze on its anti-austerity policies. He said he had been ready to sign that - but that Dijsselbloem had then presented a different, and "highly problematic", deal.

A draft of what Dijsselbloem proposed, swiftly leaked by furious Greek officials, spoke of Athens extending and abiding by its "current programme" - anathema to a government which, as Varoufakis said, was elected last month to scrap the package.


Commission officials denied offering a separate plan and the man Varoufakis said presented it, Economics Commissioner Pierre Moscovici, stuck to the same script as Dijsselbloem.

Greece must extend its bailout on the current conditions, he said, even if that could be couched in language that did not embarrass Prime Minister Alexis Tsipras before his supporters.

"We need more logic and less ideology," Moscovici said as EU officials fretted about how seriously the novice Greek leaders were taking their finances and how far concerns about semantics and saving political face might trump pressing economic needs.

Dijsselbloem, who insisted he was willing to be flexible on terminology that has become highly charged for Greek voters, said further talks would depend on Greece requesting a bailout. Varoufakis and the other ministers will remain in Brussels on Tuesday for a routine meeting on the EU economy.

"The general feeling in the Eurogroup is still that the best way forward would be for the Greek authorities to seek an extension of the programme," Dijsselbloem told a news briefing.

Echoing that, Moscovici insisted there was no "Plan B", a phrase bounced back in his turn by Varoufakis, who invoked the language of high stakes poker: "It's not a bluff," he said.

"It's Plan A. There is no Plan B."

The talks, which had been expected to last late into the night, broke up in less than four hours - less even than a previous meeting last Wednesday after which EU officials voiced concern and astonishment at the Greeks' lack of preparation.

The euro dropped nearly a U.S. cent on word of stalemate, though edge back to $1.1350, about 0.5 percent down on the day.

Both sides showed signs of fraying patience, with several ministers complaining of disappointment and fearing "disaster". Dijsselbloem and Varoufakis spoke of a need to rebuild trust.

Asked what would happen if Greece did not request a bailout extension, Edward Scicluna, the finance minister of the smallest EU state Malta said: "That would be it; it would be a disaster.

"Greece has to adjust, to realise the seriousness of the situation, because time is running out."

Germany, the euro zone's main paymaster and Greece's biggest creditor, stuck to its hard line.

German Finance Minister Wolfgang Schaeuble said before the talks that Greece had lived beyond its means for a long time and there was no appetite in Europe for giving it any more money without guarantees it was getting its finances in order.


As the meeting in Brussels broke up, a senior Greek banker said Greece's stance boded ill for the markets and the banks.

"It is a very negative development for the economy and the banks. The outflows will continue. We are losing 400-500 million (euros) every day and that means about 2 billion every week. We will have pressure on stocks and bond yields tomorrow," he said.

Varoufakis spelled out in a combative New York Times column Greece's refusal to be treated as a "debt colony" subjected to "the greatest austerity for the most depressed economy", adding: "The lines that we have presented as red will not be crossed."

An opinion poll showed 68 percent of Greeks want a "fair" compromise with euro zone partners while 30 percent said the government should stand tough even if it means reverting to the drachma. The poll found 81 percent want to stay in the euro.

Deposit outflows in Greece have picked up. JP Morgan bank said that at the current pace Greek banks had only 14 weeks before they run out of collateral to obtain funds from the central bank.

The ECB has allowed the Greek central bank to provide emergency lending to the banks, but a failure of the debt talks could mean the imposition of capital controls.

Euro zone member Cyprus was forced to close its banks for two weeks and introduce capital controls during a 2013 crisis. Such controls would need to be imposed when banks are closed. Greek banks are closed next Monday for a holiday.
Lastly, Rebeca Christie, Corina Ruhe and Jonathan Stearns of Bloomberg report, Greek Talks With Euro-Area Finance Ministers Break Up:
The risk of Greece exiting the euro was raised to 50 percent by Commerzbank AG after European Commission President Jean-Claude Juncker’s effort to strike a deal was thwarted by euro-area finance ministers who sought to extend an austerity program in exchange for financial support.

Talks in Brussels ended abruptly and Greek Finance Minister Yanis Varoufakis claimed a bait-and-switch, saying Juncker’s commission offered a path forward that finance ministers then refused to put on the table. Instead, Dutch Finance Minister Jeroen Dijsselbloem offered a different statement tying Greece to its current agreement. Varoufakis rejected that proposal out of hand, and the euro weakened on the impasse.

Time is running out: The current aid agreement expires at the end of February. Failure to reach an accord could see Greece stumble out of the euro, and while Europe’s defenses are stronger than when the country flirted with exit from the single currency three years ago, a departure could ultimately trigger a flight from risk, bank runs and a downturn in European demand.

According to seven European officials with direct knowledge of the talks, Monday’s meeting quickly unraveled. The 19-nation euro, which lost ground Monday, was little changed at $1.1353 Tuesday.

Commerzbank said in a note the chance of Greece leaving the euro had risen from 25 percent. “After the euro-zone finance ministers again failed to find an agreement with Greece today, the euro membership of the country hangs in the balance,” it said.
Running Short

Dijsselbloem, who leads the finance ministers’ group, eventually halted the proceedings, saying ministers could reconvene on Friday if there’s a breakthrough.

“The next step has to come from the Greek authorities,” Dijsselbloem told reporters. “They have to make up their minds whether they will ask for an extension.”

Varoufakis said Greece had no choice but to refuse the statement on offer. “In the history of the European Union nothing good has ever come out of ultimatum,” he told reporters after the meeting.

Greece is willing to extend the current aid program as long it’s done on the right terms, Varoufakis said. Prime Minister Alexis Tsipras’s government will now return to the bargaining table and “we are ready and willing to do whatever it takes to reach an honorable agreement over the next two days,” he said.
‘Splendid’ and ‘Happy’

Monday’s impasse came a day after Juncker took a personal stake in the Greek negotiations. Tsipras requested a call with Juncker that took place as the commission chief made a “last-ditch effort” to find common ground, an EU official said Sunday.

Without a deal, Greece could run out of money by the end of March, forcing Tsipras to consider abandoning his promises to the electorate or even leaving the single currency.

Greek bond yields are being whiplashed as investors try to gauge progress. Yields on Greek three-year notes fell 34 basis points Tuesday to 17.2 percent after surging 174 basis points Monday. The benchmark stock index fell 3.8 percent on Monday.

Varoufakis said his government had been “happy” with a “splendid,” separate draft communique that was produced by European Economic Affairs Commissioner Pierre Moscovici before the meeting.

Moscovici, speaking after the meeting, called on euro-area finance ministers to be “logical, not ideological” as negotiations continue. He urged Greece to request an extension and said concessions so far leave ample room for a deal.
‘Absurd’ Demands

“We both agreed that it could be possible to keep 70 percent of the current program and to replace measures, but which have to be fully financed, up to 30 percent” of current requirements, Moscovici said. “Thirty percent is not a minor room for politics.”

From Athens, the Greek government lashed out at Dijsselbloem’s demands, saying it was “absurd” and “unacceptable” to ask the country to request an extension.

Euro-area officials focused on the terms of the previous bailouts “are wasting their time,” the Greek statement said. “The insistence of some circles that the new government enforce the memorandum is absurd and unacceptable.”

Austrian Finance Minister Hans-Joerg Schelling said euro-area nations must be fully on board with any aid pledges made on behalf of their taxpayers, citing public resentment toward Tsipras’s election promises.

“It’s unacceptable that Greece raises pensions funded by the other countries even as in other countries’ pensions may be just half of what’s paid out in Greece,” he said.
Closer to Bankruptcy

Some finance chiefs countered that Greece didn’t put enough specific plans on the table. Greece did not present any new data or numbers in between when finance chiefs gathered last week and Monday’s meeting in Brussels, Pierre Gramegna, Luxembourg’s finance minister, told reporters after the meeting.

“Greece finds itself now closer to a new bankruptcy within the euro and potentially” leaving the currency union, Nicholas Economides, professor of economics at Stern Business School, New York University, said in an e-mail. “Greece could run out of money in March.”

Amid all the frustration, Italian Finance Minister Pier Carlo Padoan said Greece leaving the euro zone remains “out of the question,” in comments to reporters Monday night.

“I am not worried,” Padoan said. “I am convinced that we will ultimately reach a common ground and a common decision.”

Greece has so far been promised 240 billion euros ($274 billion) under two bailouts. Any deal might have set the stage for a follow-on aid program or credit line that would maintain oversight by the European Commission, the ECB and the International Monetary Fund.

IMF Managing Director Christine Lagarde said Greece will need to follow the rules to tap into more of its bailout. Any review would take weeks, if not months, to see if Greece could qualify for another aid disbursement, she said.

Dijsselbloem said flexibility “could commence immediately” if the Greeks ask to extend the current program. He said talks can’t take place if there’s no program or if certain areas are seen as off-limits before talks start.

“Within the program there is room to discuss,” Dijsselbloem said. As for any funds from the bailouts so far unused, “if the program expires, the money simply flows back,” he said.
My reaction to the latest euro dithering? A big, fat Greek yawn! I'm growing increasingly tired of the nonsense being thrown out from all sides of this "Greek debt crisis." It's nothing but a continuation of political posturing at its worst at a time when the global economy is in a very precarious state.

First, I read Varoufakis's NYT op-ed, No Time for Games in Europe, and while I agree with him that the current path of austerity in Greece has been an abysmal failure and will indeed turn the country into a "debt colony," I find it equally "absurd and unacceptable" (to borrow his words) for creditors to sit back and watch the newly elected Greek government demand cuts in austerity measures while they increase the minimum wage, raise the benefits on pensions when the pension system is at a breaking point, halt privatizations, and hire public sector workers that were fired because the country simply can't afford to expand its ever bloated public sector.

In other words, why should creditors remove austerity measures so the new Greek government can basically continue doing what successive Greek governments have done over the last 30 years, expand the bloated public sector, effectively buying votes, so they can continue to rule and abuse public finances?

Second, German finance minister Wolfgang Schäuble is absolutely right, Greeks have been living way beyond their means for years and now that the party is over, they want creditors to forgive their debts and remove austerity measures.

My Greek-Canadian friends and I have been traveling to Greece every year and we saw firsthand the excesses Schäuble is talking about. And he doesn't know the half of it. Greek governments were borrowing to expand the public sector (to buy votes) and Greeks were borrowing from banks (who were more than happy to lend them) to finance conspicuous consumption like buying big villas by the sea, German Porsche Cayennes, English Land Rovers, and trips to their favorite European, Asian and Caribbean destinations (like London, Thailand and Cuba).

It was a complete and utter travesty. Public sector workers getting bonuses for showing up to work on time, generous and often lavish pensions at the age of 50, cheap mortgages from banks, tax evasion run amok, insane regulations (to create more jobs in the public sector), and Greeks taking out "special vacation loans" in Easter and Christmas to travel to their favorite destinations. At one point, my buddies and I were looking at each other thinking do these people realize they're living on borrowed time?

However, now that the debt party is over, the majority of Greeks, especially the poor and working class, are suffering as six years of austerity has ravaged their economy. And as I explained here, the disproportionate burden of this depression has fallen on the Greek private sector as it bore the brunt of the economic shock. This is what worries me the most because an economy cannot thrive without a strong, vibrant private sector.

Having said this, while Greeks are still in denial and not taking responsibility for their public and private debt profligacy, I find their creditors are equally in denial about who benefits the most from Greek bailouts and the ongoing euro crisis and how austerity (especially the asinine way it is being implemented) has wreaked havoc not only in Greece but throughout the periphery, exacerbating the euro debt crisis, making it impossible for these countries to grow their way out of debt.

Worse still, all this euro dithering is distracting policymakers from an even bigger problem that can really sink the global economy. The slowdown in China is very real, so real that the Telegraph's Ambrose-Evans Pritchard is rightfully worried a devaluation by China is the next great risk for a deflationary world. I've been warning my readers to prepare for global deflation, which is why the White House is now getting involved in a very public way to end this eurozone crisis.

This is why I take all articles and blog comments discussing the 'Greek pivot toward Russia and China' with a shaker of salt. It will never happen because the U.S. will never let it happen. This is pure nonsense and anyone who understands Greece's geopolitical significance, understands why the U.S. won't allow such a pivot (not to mention that while Greeks publicly complain about U.S. foreign policy, privately they prefer being tied to America even more so than their European counterparts).

Finally, there are endless opinions on the Greek crisis. Paul Krugman, Joseph Stiglitz, two Keynesian heavyweights, have opined on the insanity of austerity and the dangerous and foolish stance the Eurogroup is taking (read Krugman's latest, Athenae Delenda Est). Other economic commentators have (foolishly) questioned Greek austerity and claim Greece is playing to lose. Nobody understands the complexity of this issue and how there are excellent arguments to be made on the left and right side of the economic spectrum.

One thing is for sure. I don't agree with those who think the only way for Greece is out of the eurozone and neither do most Greeks. Going back to the drachma will be an even bigger disaster because it will make fuel, medication and other items exorbitantly expensive, drive unemployment higher (they won't be able to devalue their way out of this crisis), and encourage more public sector debt profligacy that got Greece into this mess.

But there is something else that's for sure. Anyone claiming "contagion from Grexit will be contained" doesn't have a clue of what they're talking about. Go back to read my comment, Checkmate For Greece?, where I quoted a passage from Ken Rogoff's comment, What Is Plan B For Greece?:
Some eurozone policymakers seem to be confident that a Greek exit from the euro, hard or soft, will no longer pose a threat to the other periphery countries. They might be right; then again, back in 2008, US policymakers thought that the collapse of one investment house, Bear Stearns, had prepared markets for the bankruptcy of another, Lehman Brothers. We know how that turned out.
This is why I strongly doubt Germany will push Greece over the edge and why even though the Varometer is rising in Europe, the reality is Greece, Germany, the U.S. and definitely China can't afford to risk another Lehman moment, which is why I expect cooler heads will prevail and we will see some resolution to this Greek impasse.

Below, Sonia Legg reports that talks between Greece and euro zone finance ministers over the country's debt have broken down as Athens rejected a proposal to request a six-month extension of its international bailout as ''unacceptable''.

Also, CCTV America's Elaine Reyes interviewed Nicholas Economides, a professor of economics at New York University's Leonard N. Stern School of Business about Greece's current situation with the Eurozone and how Greece can cut it's losses to manage their financial crisis.

Update: The Associated Press reports that hopes of Greek deal remain despite tough talk. Also, Bloomberg reports that Greece may request an extension of its loan agreement for six months. As I stated, cooler heads will prevail and they will find some compromise to this impasse.

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