Crunch Time as Greece’s Terrible Deadlines Loom
by Don Quijones, Wolf Street Since the election of Syriza, the pressure on Greece has been cranked up to almost unbearable levels. The first shot across the bow came from the European Central Bank’s Master of Ceremonies, Mario Draghi, who warned that if Greece didn’t start behaving itself (i.e. stop all this silly talk about representing voters and restructuring or auditing the country’s wholly unpayable debt), the ECB would, as of February 11th, sever a large chunk of the country’s monetary supply lines. Should Draghi follow through on his threat, Greek banks will, as of next Wednesday, have to get their daily dose of liquidity from the Bank of Greece instead of the ECB – and of course at much higher interest rates! Draghi’s threat is a stark reminder of just how dependent Greece now is on the whimsy of a wholly undemocratic, unaccountable, non-independent, Goldman Sachs-infiltrated banking institution – an institution that, thanks to the banking union hurriedly and stealthily rushed through last year, is now the sole supervisory force of over 80% of Europe’s banking industry. If Draghi’s MAD threat is not enough to force the Greek government back into strict compliance of the Troika’s law, the Eurogroup Chairman Jeroen Dijsselbloem came up with his own 10-day ultimatum: if Greece did not apply for a bailout extension by February 16th, it would be cut off from access to Euro Zone funding. The ever-dependable US rating agencies Standard & Poor’s and Moody’s then chipped in with even more negative than usual outlooks for the Greek economy. According to the FT’s James Robinson, despite all his expert knowledge of game theory, Greece’s finance minister, Yanis Varoufakis, has been “heavily outplayed by the acknowledged master of the financial bluff, Mario Draghi.” He may have a point: this time around the continent’s financial institutions appear to be more insulated from future Greek tragedies, thanks in no small part to the hundreds of billions (in total, 92%) of EU taxpayer-funded “Greek” bailouts already sent their way. As a result, the markets seem, at least on the surface, barely perturbed by Greece’s latest threats to leave the euro, as WOLF STREET noted. That’s not to say that tensions aren’t rising. As Greece’s various deadlines approach, two closely interlinked questions are on the mind of many Europeans, in particular Greeks:
- Are the EU authorities – led by a politician notorious for once claiming, in a rare fit of honesty, that “when the going gets tough, you have to lie” – really, truly, thinking of biting the bullet and finally ejecting Greece from the Euro Zone?
- If they are, will Greece’s new heroes of democracy eventually fold and kowtow to the Troika’s demands, as just about every national leader and government has done since the crisis began?
Both of these questions will be answered in the fullness of time; meanwhile, one question that particularly interests me is what Greece’s new democratically elected government should do (rather than what it will do)? To answer that question requires careful weighing of the potential pros and cons of Greece’s exit from the Euro Zone as opposed to its continued membership. Pros and CONs of Staying Put / Leaving
1) Economically speaking, Greece is doomed whatever course of action its government takes. If it swallows the Troika’s bitter pill, the most it can hope for is to prolong and almost certainly deepen Greek suffering. No doubt it will be allowed to extend its repayment schedule, giving its already “bankrupt” economy (not my words, but those of Varoufakis) just enough slack to continue subsisting on a day-to-day basis and in a state of complete economic dependence – until the day, of course, that it finally defaults. Before that happens, all of Greece’s remaining assets of value – the ports, the islands, the roads, the hospitals, the new-found gas and oil fields and lastly, of course, the people (through slashed salaries) – will be auctioned off into private hands for cents on the euro.
Alternatively, if Syriza chooses the seemingly hard way out – that is, to push both Germany and Troika over the edge of their patience and to the point that they feel they have no other option but to cast the country adrift – the economic pain will be excruciating. Demand will collapse and unemployment – already over 25% – will surge. But at least it would be swift, as opposed to drawn out. Whether or how fast the economy is able to get back on its own two feet will depend primarily on the Greek people’s ability to get their act together (à la Iceland), build a more effective system of political and economic governance and take responsibility – and that includes fiscal responsibility – for their collective future. After all, with greater independence comes not only freedom but responsibility. The government will also have to attract new trading partners and forge new alliances. The fact that the EU is now locked in a new Cold War with Russia – at the U.S.’s behest, of course – could well be a boon. After all, the Hellenic Republic has a tradition of close ties with Russia that far predates the creation of the EU. It also occupies a perfect geo-strategic location for Russia’s latest proposed gas pipeline route into Europe (under the Black Sea and then through Turkey and Greece). It’s no coincidence that the first foreign official Alexis Tspiras met as Greek PM was the Russian Ambassador in Athens. Whether it was meant merely as a bluff, time may soon tell. A newly independent Greece could also attract the attentions of the world’s ascendant superpower, China, which has recently got into the habit of bailing out some of the world’s more economically challenged non-aligned nations, starting with Venezuela and Argentina. Such financial assistance could prove to be an essential lifeline for Greece, but it would come at a price. Continue Reading>>>