Alexis Tsipras, Greece’s charismatic prime minister, has shown a fascinating talent for political maneuvering.
Greece's Fiscal Odyssey
When an impressive electoral victory carried him to office in January, he inherited a horrid economic and financial situation. He initially struggled to gain control, and relations with creditors collapsed in an acrimonious mess. But as Greece teetered on the edge of an economic and institutional abyss, he repeatedly caught everyone off guard by taking charge of a narrative that was slipping away both at home and abroad.
Now, he may be able to deliver what many (including me) thought improbable: a policy deal .. http://www.bloomberg.com/news/articles/2015-07-10/greece-bailout-plans-compared-june-vs-july .. that is acceptable to the majority of Greeks, the country’s European partners and the International Monetary Fund. Yet, as brilliantly as he appears to have navigated the crisis so far, he still faces an uphill battle that will determine his political legacy.
Last month, Tsipras surprised (and angered) Greece's creditors by calling a snap referendum asking Greeks whether the government should accept the tough terms of a bailout deal, with the understanding that a "No" vote could mean the country's exit from the euro .. http://www.bloombergview.com/articles/2015-07-09/what-greece-can-expect .
Surprising many, he secured an impressive "No" victory; and he did so despite the burden imposed on Greeks by bank closures and capital controls. Then, on Thursday .. http://www.bloomberg.com/news/articles/2015-07-10/greece-seeks-eu53-5-billion-bailout-as-tsipras-bows-to-demands , he seemingly did a U-turn, proposing policy measures to his creditors that were similar to those rejected by his citizens in the referendum (and that don’t yet emphasize debt forgiveness, which is central to assuring a sustainable economic recovery for Greece).
Through it all, Tsipras obtained the support of other Greek political parties, strengthening his bargaining position .. http://www.bloomberg.com/news/articles/2015-07-10/france-hails-greek-plan-as-tsipras-seeks-lawmaker-support .. both at home and abroad. In addition, he is now drawing some support from other peripheral European countries, which had been hostile to the idea that Greece could receive preferential treatment within the euro zone.
The net result is that Tsipras may be close to delivering a policy proposal that could be approved by the Greek Parliament and prove acceptable to European creditors and the International Monetary Fund.
That alone might secure Tsipras's place in the history books. But it is not yet clear whether his ultimate achievement will be to restore Greece as a fully functioning and viable member of the euro zone, or simply delay its exit until the government is in a better position to manage the disruption caused by a Grexit.
In the next few days, Tsipras needs to prevail .. http://www.bloombergview.com/articles/2015-07-07/only-pragmatic-compromise-can-save-greece .. with his creditors and obtain the resumption of European financing and greater Emergency Liquidity Assistance from the European Central Bank. At the same time, he needs to maintain calm in Athens now that a wing of his Syriza party (and some others) feel they have been betrayed. And he must move very quickly to reopen the banks, clear the debt arrears to the IMF and begin to reverse his country's highly damaging economic implosion.
The Tsipras government then faces a much more difficult feat that has eluded all of its predecessors: the sustained implementation of an economic policy package that involves continued budgetary austerity (including higher taxes), pro-growth structural reforms (yet to be clearly specified), as well as debt forgiveness from official European creditors (still opposed by some governments).
The prime minister has dazzled more than once by pulling a few rabbits out of his hat, but his grand finale lies ahead. His ability to pull it off will determine whether his reputation for political brilliance will be enduring.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the author on this story: Mohamed A. El-Erian at melerian@bloomberg.net
To contact the editor on this story: Max Berley at mberley@bloomberg.net
-- A lamentable feature of the Greek crisis of the past few months is the extent to which it has restoked national antipathies, on the part of both the Greeks and the Germans....But it is not just political damage that the referendum has done to Greece’s cause. The decision to call it and the extraordinary uncertainty that generated at home as well as abroad inflicted a body blow to the economy by causing the banks to be closed now for two weeks as the ECB capped the emergency central-bank lending that was allowing cash to be withdrawn by anxious Greeks fearing a return to the drachma that would slash the value of their deposits. As a result Greece now needs more money and over a longer period — €53.5 billion ($60 billion) until 2018.
Such is the bad blood on both sides, particularly the Greeks and the Germans, that there is still scepticism about whether they can come together at this latest eleventh hour. --
Hmmm. Here's a Slatepitchy suggestion. Maybe it's all going according to plan. Consider this. It's late June and prime minister Alexis Tsipras is trying to negotiate an agreement with the Europeans. It doesn't go well, but he knows he has no choice but to swallow hard and accept their terms. As galling as it is, it's the only way to save Greece. But he knows that if he simply signs off on the agreement, his party will revolt and parliament will reject it. So he comes up with a cunning plan.
The plan is this: piss off the Germans beyond the bounds of reason. Step 1: denounce the European proposal and call a referendum. Step 2: Go home and campaign loudly for a No vote on the proposal. Step 3: The Germans, now so angry they're practically shaking with rage, press the ECB to cut off Greek banks, causing economic chaos. Step 4: Tsipras wins the referendum, thus getting the backing of his people. Step 5: Tsipras cools his heels for a day or two to let the economic chaos really sink in. Step 6: Tsipras heads to Brussels. After making everyone wait a few more days just to show that he can't be pushed around, he tables an austerity plan that essentially caves in completely to the European proposal that he knew he'd have to accept eventually. Step 7: Tsipras returns home to Athens, where economic chaos has become so severe that no one cares anymore what's in the damn proposal he just agreed to. They just want the banks to open and the local pharmacies to have stocks of insulin. Step 8: He signs the proposal. Step 9: The ECB opens the spigots, life gets back to normal, and Tsipras is a hero.
Not likely, you say? Tsipras isn't that smart? Probably so. Still, it's quite likely that Tsipras isn't as stupid as some people are making out. He knew perfectly well that defaulting would lead to economic chaos and an exit from the euro, but he also knew that Greeks didn't really believe this in their guts. They needed a demonstration. So he gave them one. If his goal all along wasn't Grexit, but (a) an agreement with Europe that (b) would be accepted by the Greek population, he did a pretty good job.
Greece's nightmare was their own doing. They choose to join the Euro cook the books and not collect taxes. To think that they did not play a part in their own economic downfall is naïve.
Greece became the epicenter of Europe’s debt crisis after Wall Street imploded in 2008. With global financial markets still reeling, Greece announced in October 2009 that it had been understating its deficit figures for years, raising alarms about the soundness of Greek finances.
Now that is hardly anyone's fault but their own.
As far as exiting the Euro they really can't. Their banks are broke. No country is going to do business with a BK nation. Borrowing from Russia was just a sideshow since Russia doesn't have the money to lend them.
And you can't compare them to Iceland simply because Iceland is not part of the Euro. Iceland swallowed a couple of bitter pills to recover. They let their banks fail and devalued their currency in order to receive the loan from the IMF. Spelled a different way they agreed to austerity measures and cleaned up their act.
Greece simply could not go hat in hand to the rest of the EU time and time again, (This will be the 3rd bailout.) without agreeing to clean up their corrupt tax collection.
The International Monetary Fund and Greece’s other creditors have argued for years that the country’s debt crisis could be largely resolved if the government just cracked down on tax evasion. Tax debts in Greece equal about 90% of annual tax revenue, the highest shortfall among industrialized nations, according to the Organization for Economic Cooperation and Development.
During the country’s centurieslong occupation by the Ottomans, avoiding taxes was a sign of patriotism. Today, that distrust is focused on the government, which many Greeks see as corrupt, inefficient and unreliable.
“Greeks consider taxes as theft,” said Aristides Hatzis, an associate professor of law and economics at the University of Athens. “Normally taxes are considered the price you have to pay for a just state, but this is not accepted by the Greek mentality.”
Follow the Money: Behind Europe’s Debt Crisis Lurks Another Giant Bailout of Wall Street
ROBERT B. REICH, Tuesday, October 4, 2011
.. please note, liabilities have obviously shifted much since 2011, and i haven't been able to find anywhere anything to, even a wheensy bit, confidently update the liability to Wall Street that Robert Reich outlines here ..
Today Ben Bernanke added his voice to those who are worried about Europe’s debt crisis.
But why exactly should America be so concerned? Yes, we export to Europe – but those exports aren’t going to dry up. And in any event, they’re tiny compared to the size of the U.S. economy.
If you want the real reason, follow the money. A Greek (or Irish or Spanish or Italian or Portugese) default would have roughly the same effect on our financial system as the implosion of Lehman Brothers in 2008.
Financial chaos.
Investors are already getting the scent. Stocks slumped to 13-month low on Monday as investors dumped Wall Street bank shares.
The Street has lent only about $7 billion to Greece, as of the end of last year, according to the Bank for International Settlements. That’s no big deal.
But a default by Greece or any other of Europe’s debt-burdened nations could easily pummel German and French banks, which have lent Greece (and the other wobbly European countries) far more.
That’s where Wall Street comes in. Big Wall Street banks have lent German and French banks a bundle.
The Street’s total exposure to the euro zone totals about $2.7 trillion. Its exposure to to France and Germany accounts for nearly half the total.
And it’s not just Wall Street’s loans to German and French banks that are worrisome. Wall Street has also insured or bet on all sorts of derivatives emanating from Europe – on energy, currency, interest rates, and foreign exchange swaps. If a German or French bank goes down, the ripple effects are incalculable.
Get it? Follow the money: If Greece goes down, investors start fleeing Ireland, Spain, Italy, and Portugal as well. All of this sends big French and German banks reeling. If one of these banks collapses, or show signs of major strain, Wall Street is in big trouble. Possibly even bigger trouble than it was in after Lehman Brothers went down.
That’s why shares of the biggest U.S. banks have been falling for the past month. Morgan Stanley closed Monday at its lowest since December 2008 – and the cost of insuring Morgan’s debt has jumped to levels not seen since November 2008.
It’s rumored that Morgan could lose as much as $30 billion if some French and German banks fail. (That’s from Federal Financial Institutions Examination Council, which tracks all cross-border exposure of major banks.)
$30 billion is roughly $2 billion more than the assets Morgan owns (in terms of current market capitalization.)
But Morgan says its exposure to French banks is zero. Why the discrepancy? Morgan has probably taken out insurance against its loans to European banks, as well as collateral from them. So Morgan feels as if it’s not exposed.
But does anyone remember something spelled AIG? That was the giant insurance firm that went bust when Wall Street began going under. Wall Street thought it had insured its bets with AIG. Turned out, AIG couldn’t pay up.
Haven’t we been here before?
Republicans and Wall Street executives who continue to yell about Dodd-Frank overkill are dead wrong. The fact no one seems to know Morgan’s exposure to European banks or derivatives – or that of most other giant Wall Street banks – shows Dodd-Frank didn’t go nearly far enough.
Regulators still don’t know what’s happening on the Street. They have no clear picture of the derivatives exposure of giant U.S. financial institutions.
Which is why Washington officials are terrified – and why Treasury Secretary Tim Geithner keeps begging European officials to bail out Greece and the other deeply-indebted European nations.
Several months ago, when the European debt crisis first became apparent, Wall Street banks said not to worry. They had little or no exposure to Europe’s problems. The Federal Reserve said the same. In July, Ben Bernanke reassured Congress the exposure of U.S. banks to European nations in trouble was “quite small.”
Now we’re hearing a different tune.
Make no mistake. The United States wants Europe to bail out its deeply indebted nations so they can repay what they owe big European banks. Otherwise, those banks could implode – taking Wall Street with them.
One of the many ironies here is some badly-indebted European nations (Ireland is the best example) went deeply into debt in the first place bailing out their banks from the crisis that began on Wall Street.
Full circle.
In other words, Greece isn’t the real problem. Nor is Ireland, Italy, Portugal, or Spain. The real problem is the financial system – centered on Wall Street. And we still haven’t solved it.
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