by Summary:
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.
Topics:
Frances Coppola considers the following as important: Debt, EU, Eurozone, Greece, Grexit
This could be interesting, too:
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.
Topics:
Frances Coppola considers the following as important: Debt, EU, Eurozone, Greece, Grexit
This could be interesting, too:
Merijn T. Knibbe writes In Greece, gross fixed investment still is at a pre-industrial level.
Robert Skidelsky writes Britain’s Illusory Fiscal Black Hole
Michael Hudson writes All Of Our Wealth Has Been Coming From You
Michael Hudson writes Gold as the Peace Currency
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.