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Monday, February 20, 2017

This Time It May Be Different, After All!

It has literally become routine since 2010: negotiations of new programs; followed by reviews; each review accompanied by high drama with anticipation of a possible Armageddon; and finally - agreement for the next several months. Against this background, the present phase of uncertainty comes across as déjà-vu all over again.

Perhaps it's because President Trump is now capturing all the headlines, perhaps it is for other reasons but somehow there is no real excitement this time around. Yes, various papers have tried to incite panic by publishing panicky articles with panicky headlines but one doesn't sense the nervousness as on previous occasions. Even when Greek depositors withdraw 2,5 BEUR in less than 2 months (and that in times of capital controls!), the pulse remains at rather regular levels.

Could it be that nobody really cares any more? Could it be that even the Greek population does not care any more? The threat of Grexit has been posed to them so many times that perhaps they are now feeling "Ok, get it over with! It can't get much worse!" Finance Minister Schäuble doesn't say much but for some reason no one has forgotten his proposal that Greece should exit the Eurozone, albeit temporarily, with a satisfactory alimony in the form of a haircut.

My sixth sense tells that that this time it may be different, after all. Everyone warns that the longer things draw out, the greater the risk that an 'accident' may happen along the way. I have no idea what they have in mind by way of 'accident' because Greece seems to have enough cash to meet its obligations for quite some time, at least until July. But, for sure, the longer things draw out, the more the energy to really make it one more time will decline. At some point, déjà-vu all over again may just not be déjà-vu all over again.

Has the likelihood that the Greek economy will ever make a turn-around within the Eurozone increased in recent years? I do not have that impression. As a champion of the idea that Greece should stay in the Eurozone (back in 2010/11) because it would be the lesser of 2 evils, I now have to admit that the social costs involved with that over the last 6 years are so high that I have trouble seeing that they would have been equally high (not to mention even higher) if Greece had exited the Eurozone back in 2010.

Bottom line: if PM Tsipras is prepared to sign on the dotted line, everything will probably fall into place and, before long, we will be talking about a 4th program. If, however, sand gets into the machine and negotiations become as difficult as back in 2015, I think there is a high probability that Greece will end the year 2017 with a new local currency.

Nobody seems to be fighting for Greece to remain in the Eurozone any more, not even the Greeks.

35 comments:

  1. You should not be addressing your concerns to Tsipras, rather to this odd couple of the IMF and the euroclowns. Because the surest thing is that the only thing Le Pen needs is an unresolved Greek situation so that Greece could become the poster child of political abuse with the eurozone during her winning campaign which with Greece unresolved will surely give her the French presidency.

    Now, let's turn to the topic of 2.5 Billion withdrawals with capital controls in place. Because it's impossible to withdraw such cash within a capital controls regime my best bet is that these are the withdrawls of debit and credit cards which are linked to individual accounts because the payment of taxes or other obligations to the state are not restricted by capital controls. In other words, the vast majority of such withdrawl has to do with meeting tax obligations or other settlements with the state.

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  2. As a champion of the idea that Greece should stay in the Eurozone (back in 2010/11) because it would be the lesser of 2 evils, I now have to admit that the social costs involved with that over the last 6 years are so high that I have trouble seeing that they would have been equally high (not to mention even higher) if Greece had exited the Eurozone back in 2010.

    The social costs required for the adjustment to a new local currency, however, would be added to the ones of the 7 year long period of the three programmes. Even the most pessimistic scenarios for Greece foresee a modest growth in the years to come. No doubt, Greece needs strong growth in the forthcoming years to recover, but even modest growth is preferable compared to a new cycle of recession. On the strong possibility of a new cycle of recession during the first period after exit from the EMU agree even drachma advocates. I don't know how things might turn eventually after grexit, but I believe that the transition period will be so rough that it has the potential to undermine any positive side-effect of a national currency.

    Nobody seems to be fighting for Greece to remain in the Eurozone any more, not even the Greeks.

    I do not know if this is true. For sure there is an increasing number of people in Greece who seem to believe that a national currency might be a solution* to the problem that the country faces, but they are still a minority. None of the political parties supporting grexit gather significant popular support (>10% of the electorate) though. Nea Dimokratia which is most likely to win the next elections, whenever they may happen, is strongly against grexit.

    One might say that the prospect of Grexit has gained popularity among the other Eurozone countries, but (assuming that there will not be any radical election outcomes in France and/or in the Netherlands) would they wish to deal with grexit at the very same time that they are concerned with brexit?

    *For various reasons: e.g. they might believe that this will be eventually the end, so it's better now than later; they might believe that if the debt would be converted to national currency, it would be more manageable employing tools like inflation; they might have debts in the country and savings abroad, therefore they believe that with a currency devaluation they will manage to save their properties/companies etc.; they might simply not care anymore, as they have had substantial deterioration of their living standards in the previous years.

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    1. My understanding is that there has been, all along, a very strong pro-Drachma lobby in Greece. I suppose those would be the upper few percent who have the tools available to profit from a Grexit.

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    2. You are putting forward a catastrophy argument already discredited as the Brexit, Trump and Italian referendum have proven already. In all of the these 3 cases catastrophy was forecasted and actually nothing happened.

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    3. I fail to see how Greece changing currency can be compared to Trump, Brexit or the Italian referendum. The United States are the most powerful country in the world. It will take more than a GOP candidate winning the elections for the end of the world to come. The Brexit referendum result meant that a long period of negotiations about the EU-UK relations would start. The very next day of the referendum nothing actually changed. Even today Article 50 hasn’t been triggered. The Italian referendum is hardly relevant. Greece is powerless and its people are exhausted after 7 years of depression. Let alone that in the case of Grexit the luxury of time will not be available. The transition to the new currency would have to be done as soon as possible to avoid panic.
      The point of my previous comment was not to be involved in a “fear project” but to ask: Would a currency devaluation added to a 7 year long internal devaluation benefit the Greek society and economy? This is the real Grexit question in my opinion. A counterfactual discussion on what could have been done in 2010 or 2001 is interesting, but does not offer any useful lessons at the moment as the Greek problem and Greece today are different than they were in 2010.

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    4. Christo:

      It would not be a big deal. The euro itself has lost 30% of its value since 2014 and it will probably lose another 30% within the eurozone until this nonsense is over. I would think a new currency for Greece pegged to the dollar would be a piece of cake at this point. The fear scenarios would have you believe in catastrophe but nothing of the kind will occur. It would be a big relief and abused Greeks could breath again.

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    5. @ Anonymous at 12:15 AM

      Delusional from start to finish:
      1. The Euro lost aginst the USD 23.3% not 30%.
      2. Within the Eurozone the Euro lost more or less nothing (Inflation rate is very low) and will
      3. not lose "another 30%".
      4. How on earth would Greece be able to finance a peg to a raising (your assumption) USD? Hilarious.
      5. What you describe as "fear scenarios" was quite real the last time Greeks considered a Grexit probability > 50%.
      6. As air is free breathing will be one of the few things Greeks will be able to do after a Grexit.
      Bottom line: Completely unfounded wishfull thinking. Don’t take my word ask Alexis.

      Urs

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    6. @ kleingut:
      Quote: "My understanding is that there has been, all along, a very strong pro-Drachma lobby in Greece."

      Maybe in words but not in deeds. The Greeks may be crazy but they are not stupid enough to risk that their savings will be converted into a currency that is backed only by their own economy.

      Urs

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    7. Urs:

      I am forced to believe from the evidence you continuously provide us on a daily basis that you are basically a blind Swiss man who lost his guiding dog somewhere in the marches of lake Zurich (this disgusting german speaking part of the swiss mountain you call the Alps but you better rename to the Pulps to match the condition of your swiss brains which by the way are non-existent).

      Goldman Sachs has calculated that the euro will end at $0.65 from a high of $1.45 in 2014. So you do the math and please spare us with your "accurate calculations". We are not buying irrelevant swiss watches here and we are not interested in calculations of milliseconds. We are interested in the big picture here.

      Why should ask Alexis about things that I know much better than him? I am 20 years his senior. Do you think that a kid could give me advice on matters within my scope of competence? Is this another swiss trait or some malady endemic to lake Zurich?








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    8. "Goldman Sachs has calculated that the euro will end at $0.65 from a high of $1.45 in 2014."
      Nobody can CALCULATE what the USD/EUR WILL be in future. You many have an opinion and make calculations ending with the result you want.
      GS is talking about pari EUR/USD since at least one year... has it come. May be we will see 0,65 may be 1,20 - time will tell.
      The main difference between GS guay and the most here is that GS people are better paid.

      Sutje

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    9. @ AnonymousFebruary 22, 2017 at 2:24 PM

      You must be KKE.

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    10. KKE? What's that?

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  3. @kleingut:

    Everybody in this game cried wolf too often to raise anyone’s blood pressure any more. Having said that, the withdrawl of 2.5 Billion EUR speaks louder than any warnings from politicians or headlines in the media. Maybe one can develop a routine in panicking.
    Regarding Greece‘ faith outside the EZ I am far more pessimistic than you are but maybe the majority of the Greeks would at least realize that austerity is not a choice but a necessity when you accumulated so much debt that you can’t service it.
    Anyway, I don’t think that Tsipras will lead Greece out of the EZ. He promised in his campaign to end austerity while keeping Greece within the EZ. By leaving the EZ he would have failed on both accounts and i don’t think he would survive politically the following financial chaos.
    Urs

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    1. As predicted:

      http://www.ekathimerini.com/216364/article/ekathimerini/news/greek-govt-in-damage-control-mode-after-brussels

      Urs

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    2. The withdrawls are consistent with the timing of payment of tax obligations.

      Quoting Kathimerini, which is ground zero of the terror campaign of fruitless opposition is actually a contrarian indicator. Whichever Kathimerini analyzes as being black there is a great chance that is actually white.

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    3. Actually if Tsipras remains in the dead-end eurozone it would be for sure the end his political career.

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    4. Quote: "The withdrawls are consistent with the timing of payment of tax obligations."

      "Because it's impossible to withdraw such cash within a capital controls regime my best bet is that these are the withdrawls of debit and credit cards which are linked to individual accounts because the payment of taxes or other obligations to the state are not restricted by capital controls. In other words, the vast majority of such withdrawl has to do with meeting tax obligations or other settlements with the state."

      Doesn’t make sense. If the money would have been used for tax payments the banks (as reported) would not be alarmed. And btw. can’t you pay your tax by bankwire in Greece?

      Urs

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    5. Of course you can pay your taxes by bankwire but most people pay them with debit cards directly connected to their accounts. The use of debit cards is not subject to the cash withdrawl limites of the capital controls. You can use your debit card to pay for all the utilities, shopping and tax obligations and they only limit that exists is the size of your bank account.

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    6. @Anonymous at 2:04 PM:
      Quote:"Of course you can pay your taxes by bankwire but most people pay them with debit cards directly connected to their accounts."

      So it is obvious that the withdrawls are not tax related as the banks would be well aware of this and would not be alarmed.
      Urs

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  4. And there i was, thinking you would mention that not even the IMF believes that the greek program is viable. I was wrong again.

    Anyway, it matters not. The sequence of events is clear: Tsipras-> Mitsotakis-> Grexit under unknown PM. Whether Mitsotakis will make it to the end of his term or not, is uncertain. However, while the drachma camp has been mostly dormant and marginalised politically and by the media until now, there are now signs of gathering forces and organizing a counterattack. It won't be long until they gain ground. What they lack is political cohesion and a leading figure that appears half-credible. If they find it, grexit will happen sooner rather than later.

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    1. Why do you think Mitsotakis will be given a chance in governing Greece? His party was tried and rejected 2 years ago and there is a great deal of dead wood in said party. How could you possibly think that ND has the qualifications to do a better job because it doesn't. Unless you think obedience to Berlin is a virtue which would make Greek voters furious at this point.

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    2. Dear friend,

      I know better than to try to convince someone who obviously thinks the opposite about whether ND is better than SYRIZA. Recently in this blog, someone proposed the idea that SYRIZA isn't really 15% behind ND, but it is all a setup from the media. Needless to say, i didn't reply. So i will not reply to you either. I do not care about who you think is better. I simply state what polls say, that ND will win the next elections.

      Mitsotakis, will be the last euro PM of Greece, assuming that the pro-drachma camp will find a commonly accepted leading figure. This isn't in the polls, it's what i think.

      I am too old to think that the majority of voters vote based on fury. This is a characteristic of young ages, but most voters have a family. However, i also think that, after trying all "doctors" and "german healing recipies", they will start to wonder whether the writing "austerity liberates" is real or whether they must try to escape.

      P.S.: What happened to the famous Juncker investment plan?! I read shocking theories about it being blocked by Berlin!

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    3. Dear friend that you didn't reply to my comment:

      Polls which have 25% undecided are not polls. They are fan club surveys. The fans of a particular team (in our case political party) say that they will vote for their team no matter what. So these are not polls. These are loyalty expressions. It's the 25% undecided which will determine the outcome of Greek elections. And no matter what the pollsters say they have the slightest clue as to which way the undecided will vote.

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  5. NATO was created to be a defense alliance. Defense requires military forces. Alliance means deploying those forces to protect or support an ally. Alliances usually involve countries with varying power and capabilities, some weak and some strong. This is to be expected. But sharing the burden is also expected in an alliance. Each partner gives what it can for the greater good.

    By all these measures, NATO is not currently a coherent alliance. It is instead a collection of states disproportionately dependent on the US for security guarantees. This arrangement is significantly less valuable to the US than an alliance.

    The world is more unstable today than at any point since the Soviet Union’s fall. The US is still the only global power, but it is not all-powerful. The US must have the support of its allies to meet challenges such as Russia and China, as well as in the ongoing war with radical Islamism. Other NATO members also must have the support of the US.

    Mattis has called attention to an unpleasant truth: NATO military capabilities are not adequate to meet all the challenges facing NATO members. This lack of capability can be attributed to three factors: the disproportionate level of NATO members’ defense spending, the decline in NATO members’ defense spending over the last seven years, and the unequal sharing of the alliance’s burdens relative to individual members’ resources.

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  6. In 2006, NATO states agreed at a summit in Riga that all members should spend 2% of GDP on defense. In that year, six countries met that threshold: Bulgaria, France, Greece, Turkey, the UK, and the US. In 2016, only five countries met this threshold: Estonia, Greece, Poland, the UK, and the US.

    In 2014, some NATO countries reaffirmed their commitment to increase spending to requisite levels by 2024. But NATO member states had already agreed to those spending levels in 2006. “Reaffirming a commitment” is code for not having fulfilled a previous promise and insisting this time will be different. Promises lose their worth when they have been broken in the past. A decade is a long enough time to wait for an ally to live up to a promise. And 18 years is an unreasonable amount of time.

    The US cannot fight wars and defend NATO’s varied interests with promises. The US cannot honor commitments unconditionally. Its power has limits. The US faces a broad array of challenges in different parts of the world, and this makes having dependable allies a crucial part of US strategy.

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  7. The war has began and it's time for Greece to choose the right side (US):

    "A senior aide to Donald Trump has warned the European Union that it can expect "hostility" after Britain leaves the European Union, according to reports.

    Steve Bannon, the White House chief strategist, is understood to have informed Germany's ambassador to Washington that the new US administration hopes to conduct future relations with Europe on a bilateral basis.

    The President's aide also told Peter Wittig that he viewed the EU as a flawed construct, sources have told Reuters.
    The meeting happened just a week before U.S. Vice President Mike Pence traveled to Brussels to reassure leaders that the Trump administration will maintain and develop decades of partnership in trade and security.

    Sources who were briefed on the meeting said the talks between Mr Bannon and Mr Wittig had confirmed the view that European leaders should prepare for a policy of "hostility towards the EU".

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  8. This time is different due to the realization that there is no more anything left of the eurozone.

    "The Target2 system is designed to adjust accounts automatically between the branches of the ECB's family of central banks, self-correcting with each ebbs and flow. In reality it has become a cloak for chronic one-way capital outflows.

    Private investors sell their holdings of Italian or Portuguese sovereign debt to the ECB at a profit, and rotate the proceeds into mutual funds Germany or Luxembourg. "What it basically shows is that monetary union is slowly disintegrating despite the best efforts of Mario Draghi," said a former ECB governor."

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    1. And disintegrating at an extremely high (and continually increasing) cost to those countries which have target2 surpluses. That will become VERY painful if and when it becomes painful!

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    2. Whether Italy can survive the loss of the ECB shield is an open question. Mediobanca says the Italian treasury must raise or roll over €200bn a year, and Frankfurt is essentially the only buyer.

      Greece could be cowed into submission when it faced crisis. The country is small and psychologically vulnerable on the Balkan fringes, cheek by jowl with Turkey. The sums of money were too small to matter much in any case.

      It is France and Italy that threaten to subject the euro experiment to its ordeal by fire. If the system breaks, the Target2 liabilities will become all too real and it will not stop there. Trillions of debt contracts will be called into question.

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  9. Different? No, the plot thickens.
    Europe and Greece have again agreed and can not agree what they have agreed to, until they agree (June) my take on it is:
    The tech team will return to negotiate (supervise) the implementation of the outstanding points of the regular review. There are some rather heavy ones like energy markets, bad loans and labor market.
    They will further negotiate reductions of pensions and tax free limits, to be voted into law now, but implemented in 2019. It will be implemented regardless of progress until then. Should Greece in 2018 achieve a budget surplus of more than 3,5%, then, whatever is over and above the 3,5% can be used for growth enhancing measures to be agreed upon by the parties.
    When all that has happened the next tranche can be paid.
    So, peace in our times, or at least until 2019? Not quite, Syriza lawmakers will have to swallow that, more important, once the final figures for 2016 are out IMF will analyze them, they have probably started. IMF look at the 2016 figures with deep suspicion, they think Greek statistics have again strayed from the straight and narrow. It's anybody's guess what the ECB will do with Greek QE, now that final debt sustainability analysis and debt relief has been postponed to 2019.
    Lennard

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    1. Not so fast.

      For starters the IMF in order to stay will require surpluses in the 1.5% to GDP range. Then Lagarde wants Merkel's precommitment to the restructuring of the debt.

      You make it sound like the Troika is unified on the measures needed and the truth is that it is not.

      The main reason that this review will not close soon and probably will drag right into French election season is that Ytoika is divided and its so called "unity statements" are purely for appearances purposes.

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  10. The IMF may get the surplus and restructuring they wish. A new German and Dutch parliament may accept that. It is your bet, do you feel lucky?

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  11. "Until they agree, my take on it is": that is not fast.
    I share your observation that the negotiations will drag on. that leads me to believe that: In June there will be a partial agreement , in order for Greece to pay her obligations, but the review will not be concluded. If you have watched the election calendar you will have noticed that Europe is unable to take political decisions from nov until the end of the year.
    General elections in Holland at 15 March may have to be repeated or will require time to form a coalition government.
    Presidential elections in France at 23 April may have to go an extra round at 7 May.
    German federal elections at 24 September will require negotiations regarding the coalition government they will have to form. These negotiations take time, that's the reason their coalition governments function smooth, after the last elections it took 3 months to form a government. Unlike Greece, German governments are not in the habit of committing incoming governments on their way out of the door, it's considered bad form.
    All told, it will be past Christmas before decisions regarding the review and debt relief can be taken. Meanwhile the tech team can proceed with their audit, until Tsipras demand a political solution, whereupon they will bid him goodbye and a merry Christmas. The ECB can of cause not make a debt sustainability analysis, and consequently not include Greece in the QE, neither can IMF decide on their participation.
    The delaying tactics have not served Greece well, I do not think there is enough time to change them.
    Lennard

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  12. IMF did not have to wait for the final 2016 figures before it start leaking out that ELSTAT do not get the right figures from the ministries, latest regarding the pension calculations. I don't think IMF's suspicions were very specific, just gut feelings that the overall figures were wrong. The last years experiences also show that Greece will lie, if caught she will ad a bigger lie to cover it. I think IMF is fed up with being polite and pretending to believe the lies, Europe would do well to adapt that policy.
    Lennard

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  13. And the economy contracted 0,1% in 2016, instead of February's flash prediction of 0,3% growth. We have not seen the last figure yet and we will see many other fanciful prediction fail.

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