Tsipras in the crucible

The atmosphere in the Greek standoff is turning ugly. On Tuesday, after new Greek finance minister Euclid Tsakalotos turned up to Eurogroup talks with nothing but hastily-drafted notes written on hotel paper, Eurozone leaders told the Greek government in no uncertain terms that if it did not produce credible proposals by Sunday 12th July Greece would be thrown out of the Eurozone. "We have a Grexit scenario prepared in detail", said European Commission president Jean-Claude Juncker.

The President of the European Council, Donald Tusk - one of the very few consistently sane and reasonable voices in this drama - said that inability to find agreement may lead to the bankruptcy of Greece and the insolvency of its banking system. And he warned that there would be serious - possibly irreparable - geopolitical repercussions for the European Union. "If someone has any illusion that it will not be so," he said, "they are naive".

Others have also warned about the geopolitical risks and the threat to the Euro project that a Grexit would create. In an interview on BBC Radio 4, the former head of the ECB, Jean-Claude Trichet, warned that Grexit would cause a "loss of credibility for Europe" and increase instability in a geopolitically sensitive region. The US has also expressed concern: on Tuesday evening President Obama telephoned both Angela Merkel and Alexis Tsipras, and today the Treasury Secretary Jack Lew warned that a deal was essential for the economic and geopolitical stability of Europe. In his Budget speech, the UK's Chancellor George Osborne described Grexit as the biggest risk facing the UK economy. And France's Prime Minister Manuel Valls, warning of geopolitical risks from Grexit, insisted that Grexit would be an indication of "impotence". "France refuses this", he said adamantly.

But despite all these warnings, Grexit now appears to be the default position of most European leaders. Eastern European leaders, particularly, are strongly opposed to any more help for Greece, while Germany would apparently consider money for humanitarian relief after a Grexit but not for debt restructuring to avoid it. France and Cyprus appear to be Greece's only friends.

Germany's position is the same as ever: no debt relief, no bridge finance, reforms must be delivered before any money is released, and the IMF must continue to be involved. If it sticks to these, Grexit is a certainty, since the IMF's involvement is incompatible with lack of debt relief. Christine Lagarde, speaking in Washington DC, reiterated the IMF's position that debt relief is required in addition to further cost cutting by Greece:
The other leg is debt restructuring, which we believe is needed in the particular case of Greece for it to have debt sustainability. That analysis has not changed. It well may be that numbers may have to be revisited but our analysis has not changed.
Lagarde's repetition of "our analysis has not changed" is clearly aimed at Angela Merkel. Continued involvement of the IMF is impossible unless the creditors agree to debt relief. Unless Merkel agrees to debt relief, she may go down in history as the German leader whose intransigence destroyed the Euro project. It is perhaps not surprising that this week there have been pieces in the German magazines Der Spiegel and Handelsblatt that are highly critical of Angela Merkel's handling of the Greek crisis. For now, she is popular - but would she remain so after a disorderly Grexit?

I fear we may soon find out. Watching Alexis Tsipras's address to the European Parliament this afternoon, I was filled with a terrible sense of foreboding. The tension in the room, the antagonistic attitude of a sizeable proportion of the audience and the angry interventions by several MEPs reminded me of the courtroom scene in Arthur Miller's The Crucible. There was little sense in evidence: fear and anger ruled the roost. One MEP even suggested that Greece needed a "General Pinochet" to take over and sort the place out. A military coup, for a country whose people remember the "colonels" with fear and loathing. What kind of union is this?

Nor is the sense that the lunatics have taken over the asylum limited to the European Parliament. Lagarde's comment a few weeks ago that there needed to be adults in the room in any negotiations was not aimed only at Greece. The Eurozone leadership is beginning to resemble the feral boys in William Golding's Lord of the Flies. Gone is any idea of working together to achieve the best outcome for everyone. The "no bailout" faction led by Germany's Schaueble is so intent on hunting down and killing the PIIG that the warnings from outsiders pass unnoticed.  It is a completely unedifying spectacle.

It cannot be stated too strongly that Grexit is NOT the best outcome. Not for anyone. It would be terrible for Greece, of course: the Greek government is very aware of that. But it would also be terrible for Europe, possibly spelling the end of the Euro and even of the European Union. What sort of message does the sight of a group of countries ganging up on a weaker one to force it out of their club send to the world? And with the current turmoil in the Chinese stock market, and the instability and conflicts along the EU's eastern border and in the Middle East, the consequences for the whole world of an economic and political disaster in the Balkans could be severe.

The Greek negotiations have become a classic "prisoner's dilemma". The best outcome FOR EVERYONE - even for those currently in favour of Grexit - is a negotiated restructuring of debt coupled with sensible and achievable reforms. But that means that everyone involved must put aside their anger, their fear and their pride so that they can cooperate. I don't see any signs of this at the moment, and I fear for Greece, for Europe and for the world.

Greece has now formally requested a third bailout, and will present its proposals to the Eurogroup tomorrow (Thursday). The letter from Euclid Tsakalotos is more conciliatory than previous letters from his predecessor Yanis Varoufakis, and offers to commence reform of tax and pensions immediately. Greece, therefore, has made the first move. It is blurring its "red lines" in an effort to seek a negotiated solution. It is now up to the creditors to respond in kind.

Donald Tusk has called a European summit for Sunday July 12th. This summit will involve the leaders of all 28 European Union nations, not just the Eurozone leaders. Given how bad relationships between the Eurozone leaders and the Greek government appear to be at the moment, this is a wise decision. I sincerely hope that there will be sufficient adults at this meeting for an agreement to be reached.

This insanity must end.


  1. "What sort of message does the sight of a group of countries ganging up on a weaker one to force it out of their club send to the world?"

    Playing devil's advocate, it sends a message of quality control. Ye poor countries of the East are welcome, as long as you are trending teutonic in your governance.

    1. Or, your credit card still has plenty of space to buy our goods, but Greece's doesn't, so hello to you and buy to them.

    2. "Cutting off an infected limb to preserve the integrity of the whole body" seems to me a better analogy than that of the bullies.

      It shows EU is ready to do what it needs to be done, for a change, and either there is respect the rules or there are other groups to join.

    3. Except that for the poorer countries in the eurozone it means that, inevitably, they are next. Because for all the parroting of the "success" of countries like Spain, let's not forget that they too have 50+% youth unemployment.

    4. so the EZ has now decided to apply "Quality Control" to a 5-month Government, having coalesced/aided/abetted the spending spree of the previous Greek Governments for more than a decade?

    5. And let's not forget Italy. Can anyone imagine the euro could possibly last for very long after kicking out Italy?

    6. "Cutting off an infected limb to preserve the integrity of the whole body" seems to me a better analogy than that of the bullies.

      In Nazi discourse the cutting of unhealthy limbs to preserve 'the whole' was very common to metaphorically describe the unwanted social groups and their exclusion. Which whole are you talking about? Is there a possibility of a whole without all parts?

    7. "In Nazi discourse the cutting of unhealthy limbs to preserve 'the whole' was very common to metaphorically describe the unwanted social groups and their exclusion. Which whole are you talking about? Is there a possibility of a whole without all parts?"

      My country is probably next in line to be kicked out but there is a whole continent separating the neglecting attitudes of the "suffering" greek (who have the highest minimum wage and median wage of the bottom third of the eurozone) and those of other countries who endured austerity, carried out relevant reforms and got themselves in the path to growth.

      There's a difference between helping someone who doesn't want to be helped (and insults you) and helping someone who clearly want to move forward.

    8. "... other countries who endured austerity, carried out relevant reforms and got themselves in the path to growth"

      It can't be said often enough that losing 10-20% of your GDP and then returning to below trend growth is not a success story.

    9. "Path to growth" is no synonym for success.

      However, being able to achieve primary fiscal superavits, balance foreign trade balance, constitute a relevant financial buffer,reduce unemployment by 5pp, invert GDP trend, among several other milestones despite widely accepted recessionary austerity measures in 3 years can be considered a success story by any realistic and informed person.

    10. Has nobody considered that this whole crises has it's roots in Germany. When East and West German reunified back in the early nineties it became very convenient for the German banks to lower interest rates in order to make the re-unification more affordable for the German government. The rest of Europe were soon borrowing money hand over fist because of these reduced interest rates, and began to invest in so-called developing european countries, greece and ireland being two big ones on the list. The banks in these countries having access to cheap money, began to lend to people on a massive scale and ultimately they took their eyes off the ball as things were so good. As a result, we had 110% mortgages being handed out, developers who knew there was ready money hiked up property prices to match the available money and soon we had the famous"Bubble". Then, it became obvious that a lot of the people who were lent these massive amounts of money simply could not make the repayments, and a slight increase in interest rates would make them homeless. Now I'm no prophet, or account or politician, but i saw it coming ten years ago, and these mupppets say they didnt! BULLSHIT, every one of them knew the consequences of their actions but chose to move on with it anyway. Now we have a situation where the whole european project is under threat, and they blame the Happless Greeks. If fingers are to pointed, point them straight at the German Government, and it's lax controls over it's banks, not the poor people of the so called PIGS and ireland. Oh, and an accountant friend told me as far back as 2006 that we were already "18 months" into a recession. And they "didnt know",, LIARS the lot of them and they are now looking for scapegoats.

    11. Mike, I'm pretty much in agreement with you. The seeds of this crisis were sown in German reunification, which causes a decade-long slump in Germany, and the fiscal reforms undertaken in the early 2000s to end the slump.

  2. There might also be the issue of sustainability of the current euro affecting to these negotiations. It's not really reasonable to require primary surplus from Greece from economical perspective. What about other "weak" eurozone countries. What happens if most of the current unemployment levels and output gaps in periphery becomes permanent and the inflation target finally motivates ECB to tighten.

    The most important lesson from the current events is that they should immediately start planning controlled restructuring of the eurozone before bigger countries become dysfunctional. The optimal solution would had been ECUXIT before current events, it's the best plan I've seen:

    Now it seems that there might be badly coordinated grexit first. After that there might not be much time to lose before implementing ECUXIT or something similar.

    1. Clearly, the structure and operation of the eurozone are the problem. The logical solution is to restructure this, instead of making ludicrous and impossible demands on the Greek economy. However, I do not think the idea is even discussed. Why? First, the Germans have benefited massively from the low euro and have no intention of losing that benefit. Secondly, the euro has been cast (in the Treaties) as the cornerstone of the European project: none is prepared to give that up. They prefer to allow the southern economies to collapse and then complain that "they refused to reform" and become like Germany. Now, we are at the point where at least one country cannot continue in the eurozone without massive support -- so the eurozone will slowly fall apart, piece by piece. And Greece will collapse into an humanitarian disaster -- for no reason at all other than the pigheaded stupidity of certain countries.

  3. There really was no excuse for Euclid Tsakalotos arriving to talks without a plan. A credible plan should have been ready prepared.

    1. Well he is new to the job !!. Nevertheless Greece old Government cooked the books to get into the Euro, got a lot of cheap credit in the beginning and when the world crisis (caused by the US banks) hit they were unprepared Without a common fiscal policy in place at the moment the only way out for Greece is to leave the Euro until fit to re-enter they can still be part of the EU without being in the Eurozone.

    2. Credibility is in the eye of the beholder, and some parties have clearly decided no bloodletting could be sufficient. In any case, negotiations don't typically go:
      -Take out the right organ to prove you're serious
      *Takes out spleen*
      -I'll keep that, but that's not what I was looking for
      *Amputates right arm*
      -I'll keep that too, but that wasn't the right one either.

    3. It was a bit surprising but think tactically: they needed to calibrate the opposition post-referendum and having what may this time be a real deadline puts them in a better negotiating position now than on Tuesday.

  4. Frances, in your list of worrying developments, you overlooked a big one, the mass migration flow into the EU from the Mediterranean, affecting Greece, but also Italy and Spain. Finally, if Greece leaves the Euro, there will be great hardship, but with a real possibility of a quick, Icelandic style, recovery. This could cause a real credibility issue for the Euro area, if in 3-4 years time Greece achieves alone what all the "Programmes" and "Troikas" couldn't deliver after more than 5 years...

  5. Sadly, economic crisis seems to lead to a collapse of moral and intellectual standards amongst those who should know better. I am thinking of the 1930s and how the Germans (and others) made the Jews the scapegoats -- the cause of problems -- and acted with vicious impunity for some time. This animalistic style of "thinking" and behaving is now very obvious amongst Germans and East Europeans - this time, directed at Greeks.

    They are going to destroy the post-war stability of Europe (and the world) with their crude stupidity and arrogance. There is nothing logical that can be said to deter them: as you can see -- even in the above comments -- they come up with all manner of stupid analogies such as cutting off limbs as a good medical cure. There is little hope for rationality when masses of people utter nonsense like this, almost in unison.

  6. "Eastern European leaders, particularly, are strongly opposed to any more help for Greece"

    Contrary to what people think and what the leaders of these countries apparently claim, these countries are not poorer than Greece. In the last years they have surpassed Greece in GDP per capita in purchasing power parity. Greece´s nominal GDP per capita is higher due to the higher price level in Greece. Only Latvia is still poorer than Greece, but probably not for long.


    1. Poland had 50% debt forgiveness

    2. Poland is not in the eurozone, unlike the Baltic states, Slovakia and Slovenia, it has no say in the matter.
      And debt relief for Poland was granted under totally different conditions. Poland had just endured almost half a century of communist dictatorship. It was an unelected government backed by the Soviet Union that had amassed that debt. At the same time Poland was undergoing a wrenching transition from a centrally planned economy to a free market economy.
      Greece probably also needs debt forgiveness, but the Polish situation was very different and cannot be used a precedent.

  7. " Thanks to the Internet and the Crash of 2008, people are beginning to wake up to reality. The Promise of Reality is Freedom "

    The ECB / EU Final Ultimatum to the Greek Government/People means that Democracy in Europe is Officially Dead ...

    The EU Post Mortem Results will be released soon and is expected to show and prove that Sovereign People's Democracy's in Greece, Italy, Spain, Portugal and Ireland were Murdered and Premeditated and Duly Sanctioned by Design by Financial Strangulation from the EU Finance Ministers and Unelected Banking Bureaucrats of the ECB/ESM.

  8. No, Tsakalotos making an oral presentation without submitting a written proposal was deliberate. Greek sources mentioned that they wanted to avoid a rejection of a written proposal by the Eurogroup, which would mean that there would be no object for the summit. Bild also reported that, based on Greek sources.

  9. 'It cannot be stated too strongly that Grexit is NOT the best outcome. Not for anyone. It would be terrible for Greece, of course: the Greek government is very aware of that. But it would also be terrible for Europe, possibly spelling the end of the Euro and even of the European Union.'

    Greece needs to remove itself from the Euro. Only then can prices adjust to its position. If this leads to the ending of the asinine attempt to fix prices across of such productively different regions better still. If it leads to the ending of the distorting, protectionist and illiberal edifice of the EU that will benefit all Europe and the world beyond.

    There is no choice. Greece can not recover until it frees itself of the shackles that preclude economic adjustment from taking place. Any other plan will merely delay what is inevitable.

  10. What importance is that finance minister went or not with a detailed proposal? What's new? Don't worry: Europe will rollover indefinitely it's red line. No problem. I bet that Sunday or will be rollover another time. Greece government is no responsable, only Europe. Terrible the ambiance in the euro an parliament, you said. I understand it.
    On the other hand, I don't understand why it'll be so terrible that Greece exit the euro. Is not the euro the main reason of all these problems? Exiting the euro, Greece would win a no trivial freedom degree of internal/external policy, added to its default.
    So, why worring, of is just that what they have voted? Are you not simpatheing with it? You will two quite contradictory points: back this government and impeach the Grexit, Whit is a curious explosive position.
    The "only" problem with Grexit, is that this leftwing government will be incapable to manage the new situation -as they have been incapable all its predecessor. Probably, its incapacity will end in a extreme right or left regime, with the congratulation of Venezuela & Russia. Bingo! Up to them.
    Frances: not all is macroeconomic, but your political argument have an irresistible attraction for the esteem left,, nowadays its incompetence and corruption. You are making a sorry service to the political stability in Europe, that is being fagocited by Syrizas, Podemos, Le Pen, and all the extremism. Thanks very much. Easy to see the war from UK, with a touch of elegant leftwing nonchalance, a cup of tea iat hand, when Europe is on the verge of a Big Implosion.

    1. The NO vote was not a vote to leave the Euro. It was a vote for more negotiation. I personally think that Greece would do best to negotiate exit: indeed I have been saying this for the last five years. But I respect the fact that Greeks have not voted to leave. You should respect that too.

      It is not me that is undermining political stability in the Eurozone, but the stupidity and intransigence of the Eurozone leadership.

      I remind you too that UK is a member of the EU and a part of Europe. Our Prime Minister will be part of the EU Summit on Greece this Sunday. And if it all goes horribly wrong, our economy will be hurt too, since half our trade is with the rest of the EU. We have skin in this game.

  11. Why is Grexit such an evil to be avoided at all costs? Yes it would be very painful in the short run. But it would sow the seeds of a recovery well within a decade. The alternative is grinding austerity for decades and decades to come, with no prospect of any boost to growth either. Sometimes the long term gain is worth the short term pain. There is no long term gain if Greece stays in the Euro. It would be long term pain.

    1. grexit is bad on two levels at least.

      first internally, people will lose all the money as once banks open there will be drachma. state nor industry will have no foreign currency to buy oil, medicine, raw materials and it will halt the industry and recovery at least for some time. it would probably get greece out of reach of any credit as well. however greece will recover better than under current eurozone if there will be no changes to the way euro works.

      outside of greece it will destabilize europe. as eurozone states had taken the burden of toxic debt off the back of too big to fall french and german banks, they will lose everything they put in the greece. we are talking about the states as italy that didn't recover from recession. this will force eurozone to pump money there and might lead to disintegration of eurozone and eu.

      in the end, we know why eu was created, to prevent more wars....

    2. Oh yes, the "peace currency".

      If it hadn't been such a tradgedy i would have ROTFLMAO.

    3. well, that was one of the official purposes not only for euro but EU as well. it was also the way to kickstart united germany's exports as well ;D

  12. Where is the United States in this?

    The States has invested so much is Europe (I mean, during and since the second world war). Yet it ignores these massive economic problems which threaten those investments (not just Greece: low growth threatens so many countries in Europe), and instead focuses on Afghanistan, Iraq and Iran, which, really, have little strategic value relative to the amount of attention paid to them.

    Hiding behind an institution like the IMF is a cop-out. And having Jack Lew (who the hell is he?) mutter something into his handkerchief isn't a worthwhile strategic policy. No one is going to accuse Obama of paternalism after saying nothing while watching this debacle for nearly 7 years of his presidency. He should have a plan to do something.

    Talks. Diplomacy. It's obvious there needs to be a neutral presence between Greece's and the troika. The US should play that role.

    1. It is evident that the U.S. administration is applying considerable pressure behind the scenes. I think it took the IMF's withdrawal to wake them up, but I don't see them as hiding behind the IMF.

  13. The problem with all the arguments you and the left put forward is they take no account of moral hazard: -
    - If the Eurozone give money to the poor Greeks then what about the other poor countries in the Eurozone?
    - If the Eurozone start making adhoc payments to Greece because they elected the intransigence SYRIZA then what incentive is there for other countries to elect pragmatic governments?

    The reality is there is no mechanism for fiscal transfers or debt forgiveness at present because there isn't the political support for them. Therefore an adhoc arrangement for Greece would actually be far far worse for the Eurozone because it would essentially indicate that any socialists or nationalist government could blackmail it (which would do more damage to the EU's long term credibility than a GrExit).

    Given this the choice for everybody is relatively straightforward accept the Troika's terms or leave the EURO. Interestingly even SYRIZA don't want latter that because (I suspect) they know that it would lead to devaluation, inflation and significantly more austerity. Indeed the Greek trade figures show such an outcome is all but inevitable: -

  14. No this insanity will not end.

    If everyone votes as they are suppposed to - and these days were do you find any brave person who darte not to? - there will be no GREXIT neither coordinated nor uncoordinated. Instead Greece will run full steam ahead with the same idiotic policies. Expected (no, strike that) Promised primary state budget surpluses 2015 - 1%, 2016 - 2%, 2017 - 3%, 2018 - 3.5%.

    And the EZ, ECB will fork out another €53bn that Greece in the end will not be able to pay back. Debt relief foreseen first 2022. Could just as well have been 2222 for all the good that will do.

    1. Debt relief will happen no doubt about it. only difference will be that Troika is counting that it will happen when they see it fit. In conditions more favorable to them (certainly not before tricky elections in Spain) and with rougue greek government.

      It is not the solution for euro problems but it is for Germany and institutions atm.

    2. Yes, I agree with both comments. Germany is abusing the eurozone for its own national interests, and will at some point be forced into policy change. But they will do it when it suits them. This is not about the Troika though: the basic problem is Germany.

    3. @partizan,

      You are quite right.

      For political reasons there is an advantage for the Eurozone countries to kick the can along for another couple of months/years. But politics is a difficult game, full of so called "events". Once the Spanish election is out of the way there may be other reasons why it is not a good time to carry out debt relief. The French presidential election for instance.
      I think it will be difficult for the EZ to find a favourable time, and in the meantime Greece will have to pay its rents and mortgages, and suddenly we are back to the present situation, just "a little" worse.

  15. The thing is there is already debt relief. Firstly the banks took a hardcut. Secondly Greeks are getting a VERY good interest rate from the Eurozone (particularly when you consider what the risk premiums on Greek debt must be like at the moment). Discounted interest rates are (in payment terms) the equivalent of reducing the principle anyway!

    Frankly this is the best option available
    - Offering debt relief in any other form would not be politically expedient for EU countries that suffered austerity and EU creditor countries.
    - Offering debt relief without any conditions would almost certainly lead to a SYRIZA reverting to type and implementing some crazy socialist policies at the expense of the rest of the Eurozone.

  16. If Germany prefers a Grexit to accommodation, then it's not a prisoner's dilemma anymore.

  17. This is comparison of the Greece vs. USA current account (perhaps the most important metric of fiscal responsibility). A hands down superior performance by Greece:


    Greece also handily beats the UK in comparative current account performance:


    Greece is also more fiscally responsible than Australia looking at the same metric:


    And Greece is also in line with the rest of the euro area:


    Therefore what is this never ending negotiation’s ultimate purpose? Because it surely does not look that it’s economics based unless someone is really mean spirited about it.

    So could one please point out – by using the language of meaningful economic metrics – what is Schauble’s and the IMF’s problem? What reforms and what sort of improvement more than the one already achieved are we shooting for? And for what purpose really?


Post a Comment

Popular posts from this blog

WASPI Campaign's legal action is morally wrong


What really happened to Signature Bank NY?