Tag Archives: grexit

Refugee crisis brings EU back to ‘familiar’ level of dysfunction

munichPhoto credit to Corbis.

A quick take on what’s going on as Europe deals with a growing crisis of refugees and migrants.

Greece to vote in September snap elections

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Ballot-worn and crisis-weary Greeks will go to the polls for the third time in nine months in what amounts to a fresh referendum on the country’s third European bailout.Greece Flag Icon

Facing a growing insurgency in his own government as he implements the terms of a new European Union-backed bailout of up to €96 billion, prime minister Alexis Tsipras will dissolve the Hellenic Parliament and call early elections for September 20 — in an autumn where Turkey, just across the Aegean Sea, is also likely to hold snap elections after the apparent failure of coalition talks.

There’s already been a disproportionately large amount of ink spilled on poor Greece in 2015. With the first disbursement of the country’s third bailout accomplished, though, there’s probably no better time for Tsipras to go to the electorate. The early expectation is that Tsipras will survive the elections and govern with a more stable and likely centrist majority. But if you’ve learned anything about Greek politics this year, it’s that you should expect the unexpected twists and turns of a country that’s struggling culturally, economically and politically to exit crisis mode.

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RELATED: Both Greece and Turkey could be headed
for autumn snap elections

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From anti-austerity crusade in January to a third bailout in July 

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Tsipras (pictured above), the leader of SYRIZA (Συνασπισμός Ριζοσπαστικής Αριστεράς, the Coalition of the Radical Left), won election in January on a pledge to reduce the terms of Greece’s memorandum and provide relief from the effects of a half-decade of austerity imposed on Greece’s fiscal policy — all without endangering Greek membership in the eurozone. After months of talks, headed by his outspoken one-time finance minister Yanis Varoufakis, it became clear that Greece did not have the political leverage that Tsipras hoped would force a more lenient deal for his country. By the end of June, it was clear that the eurozone’s finance ministers had no appetite for extending Greece’s second bailout program without additional concessions to cut Greece’s still-bloated public sector and to reform its economy.

Tsipras then hastily called a referendum for July 5, campaigning against the latest deal on offer by the Europeans, and the ‘no’ campaign (‘oxi‘) won a stronger-than-expected victory, despite closing Greece’s banks and imposing capital controls that restricted daily ATM withdrawals, at their nadir, to just €60.

Despite the referendum, Tsipras returned to the negotiating table and ultimately accepted a proposal for the third bailout — with terms even tougher than those rejected in the July 5 referendum. Tsipras, who dismissed Varoufakis as his finance minister hours after the referendum, argued that Greece had to choose between two tough choices — austerity tied to yet another bailout program or the insolvency and financial chaos that would result from a disorderly exit from the eurozone. Tsipras essentially admitted at the time that he had no ‘plan B,’ and that his country lacked the foreign reserves to establish a new currency in the event of ‘Grexit.’

Leftist rebels increasingly split from SYRIZA over bailout

SYRIZA, until recently a loose coalition of leftists ranging from mildly anti-austerity centrists to former communists, almost immediately split over whether to accept the third bailout, in spite of the chaotic alternative. In particular, Varoufakis and then-energy minister Panagiotis Lafazanis, the leader of Left Platform (Αριστερή Πλάτφορμα), have been vocal critics of the deal, and parliamentary speaker Zoe Konstantopoulou attacked it vociferously in several key votes.

For the past month, however, Tsipras has pushed through the terms of the third bailout with dwindling support from his own party, and opposition MPs have kept his government and the bailout afloat. SYRIZA controls 149 of 300 seats in the parliament, and its junior governing partner, the nationalist right-wing and anti-austerity Independent Greeks (ANEL, Ανεξάρτητοι Έλληνες), control just 13 more seats. But by last week, support from within Tsipras’s coalition dropped to below 120.

Ultimately, Tsipras wants to call snap elections because he can’t function indefinitely with a government that refuses to deliver him a majority. By calling a fresh vote, Tsipras hopes to win a mandate for his new approach and for the new bailout program, though even Tsipras himself has grumbled that its terms will continue to retard Greek GDP growth and employment, keeping Greece stuck in its six-year economic depression.

There are no reliable August polls, but surveys from the summer show that SYRIZA, under Tsipras’s leadership, still commands a massive majority of around 40% compared to just 20% for the center-right opposition, New Democracy (ND, Νέα Δημοκρατία).

But we have no polls that show what might happen if, as seems likely, Left Platform splits formally from SYRIZA. This is a crucial question because the party that wins the most votes in an election also wins a ‘bonus’ of 50 MPs. So if Left Platform steals a significant share of SYRIZA’s voters, another third party — most likely New Democracy — could win the election with a much smaller share of the vote.

Tsipras is a wily campaigner, though, and he should benefit from the fact that for the first six months of his premiership, he engaged in substantial brinksmanship in pursuit of a better deal for Greece.

He failed.

So the challenge for Varoufakis and Left Platform will be to describe how they would otherwise succeed — and how a eurozone exit would make life easier for Greece’s poor and its shrinking middle class. After all, Varoufakis and Lafazanis were key players in Tspiras’s government until July. At some point, voters will realize that the SYRIZA rebels have little more to offer than Greece’s Communist Party (KKE, Κομμουνιστικό Κόμμα Ελλάδας), which won only 5.5% in the January election. Tspiras, having followed Varoufakis’s advice, brought his country to the edge of Grexit. Tsipras will argue that Left Platform and the Greek Communists offer no solution that will keep Greece in the eurozone, and he’ll have the political scars of the last six months to prove it.

The state of Greece’s center-right and center-left opposition

Ultimately, however, Tsipras’s greatest threat may come from the right, which encompasses not just the traditional Greek right, but the center and the center-left as well. They will argue that Tsipras’s hardball negotiation tactics not only failed, but needlessly disrupted a nascent economic recovery and led to the flight of billions of deposits from Greek banks. And that’s not incorrect. But Tsipras will argue that, unlike his predecessors, conservative Antonis Samaras and leftist George Papandreou, he fought for Greek sovereignty in the face of the eurozone’s unelected officials and tried to reintroduce the democratic voice of the Greek people into the debate over Greece’s economic future.

Moreover, by calling snap elections so soon, Tsipras also hopes he can win a mandate before even more economic pain befalls voters from the additional pension cuts and an increase in Greece’s VAT required under the new bailout.

With former prime minister Antonis Samaras’s resignation after the July referendum, New Democracy has removed one of the most toxic figures in Greek politics from its leadership. But its acting leader, Vangelis Meimarakis, in office for six weeks, hardly seems prepared for the sudden challenge of unseating Tsipras. Nor does Fofi Gennimata, the leader of Greece’s once-dominant center-left party, PASOK (Panhellenic Socialist Movement — Πανελλήνιο Σοσιαλιστικό Κίνημα). She’s held the PASOK leadership only since June 14.

Theodorakis

Tsipras’s most credible opponent will be centrist Stavros Theodorakis, a former television reporter and commentator who founded To Potami (Το Ποτάμι, which means ‘The River’), a centrist, pro-European party, in February 2014. Theodorakis (pictured above) harshly condemned Tsipras’s decision to call a referendum over extending Greece’s bailout, but he has nevertheless supported Tsipras’s efforts to enact Greece’s new bailout since mid-July. As a more pragmatic and centrist ‘Tsipras 2.0’ is emerging, the distance between him and Theodorakis is shrinking.

If Tsipras wins, that means he will look towards To Potami as a coalition partner in his next government; until then, however, he will be fighting with Theodorakis over the same pool of centrist and center-left voters.

Though the Independent Greeks have backed Tsipras throughout the ups and downs of the last seven months, it’s not clear how such an anti-austerity party will hold onto its support after having embraced a new bailout memorandum. Its leader, defense minister Panos Kammenos, could face an uphill battle in selling the bailout deal. If ANEL collapses, however, it could be to the gain of Golden Dawn (Χρυσή Αυγή), a eurosceptic, anti-bailout, anti-immigrant and neo-fascist group that vies with To Potami for third place in the polls, typically with between 5% and 8% support.

Four reasons why Puerto Rico won’t become a state anytime soon

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For all the comparisons to Greece’s debt crisis, there’s one simple solution that many Puerto Ricans and mainland policymakers are prescribing to solve the commonwealth’s own financial crisis — and it’s not available to Greece or any other eurozone members. PR

Puerto Rico could simply become the 51st American state.

For the past 63 years, it’s been an estado libre asociado — a self-governing commonwealth that lies uncomfortably between a state and a territory, with bespoke elements unique to Puerto Rico, both good and bad.

Republican presidential contender and former Florida governor Jeb Bush supports statehood and in 2012, both US president Barack Obama and his rival, former Massachusetts governor Mitt Romney said they would support it if a clear majority of Puerto Ricans want statehood — Puerto Rico held a status referendum in the same election year. Pedro Pierluisi, Puerto Rico’s Democratic-affiliated non-voting delegate to the US  House of Representatives, made the case for it in an op-ed in The New York Times earlier this month.

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RELATED: The next debt crisis in the United States may
require a Puerto Rico bailout

RELATED: Could Puerto Rico really become the 51st US state?

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It’s true that both the Greek and Puerto Rican crises share much in common. Both governments are tethered to monetary policies that aren’t necessarily optimal. Functionally, that means neither Athens nor San Juan have a currency that they can depreciate to spur exports. Neither the European Central Bank nor the Federal Reserve can realistically be expected to tailor monetary policies to local needs. That, in turn, has exacerbated the effects from the economic forces of the past decade — the 2008-09 subprime crisis in the United States and the 2009-10 sovereign debt crisis in Europe, along with the economic pain of a nearly decade-long recession, rounds of tax increases and spending cuts, and accompanying rises in unemployment and downward pressure on wages. Lower growth, of course, means lower revenues and higher budget deficits — and more borrowing means higher yields that are now sucking Puerto Rico into a downward spiral. Alejandro García Padilla, its governor, made clear in late June that he believes the island’s $72 billion in debt is unsustainable.

In both scenarios, Greeks (through the Schengen zone) and Puerto Ricans (through the universal grant of US citizenship made in 1917 to allow Puerto Ricans to fight in World War I) can relocate to more economically prosperous European and American regions with ease. Migration means that fewer Puerto Ricans are left to service the growing debt — or build businesses and communities that can provide the revenues to fund schools and infrastructure. The island’s population is creeping downward; from a peak of 3.83 million in 2004, it was down to just 3.55 million last year. The pace of emigration is rising — to about 50,000 annually.

There are key differences as well between Greece and Puerto Rico.

Puerto Rico’s status is a relic of the late colonial era, and the United States acquired the island in 1898 as a result of its war against Spain (in Cuba, the Philippines and elsewhere). From the beginning, full-fledged independence has never been a popular option among Puerto Ricans. But nationalist sentiment rose so strongly by 1950 that two pro-sovereignty activists, Oscar Collazo and Griselio Torresola, attempted to assassinate US president Harry Truman.

The US policy response, Operation Bootstrap, adopted throughout the following decade to industrialize the island, transformed Puerto Rico into a more modern, urban place, even as American businesses consolidated the island’s farmland. But it never whisked Puerto Rico into a miraculous Caribbean Singapore, and it decimated small-scale agriculture.

Puerto Rico also suffers from the classic ‘island effect’ that economists sometimes describe of countries where dependence on imports and higher transport costs artificially increase the cost of living — a condition that’s often found throughout the Caribbean and islands, but that also affects Israel, a country surrounded by hostile Arab states with virtually no cross-border trade.

Most important of all, there’s no real talk of ‘PRexit,’ because no one believes that Puerto Rico could just abandon the ‘dollarzone.’ There’s no plan sitting in US treasury secretary Jack Lew’s desk that outlines the potential steps because it’s so much more implausible than a ‘Grexit.’

García Padilla is right that the crisis, decades in the making, is due to political factors as well as economic. Default may come soon — the Puerto Rican government says it doesn’t have enough cash to make a scheduled August 1 payment of nearly $170 million. That could launch a messy years-long default process, with the island trying to force haircuts on its bondholders. If San Juan can’t demand debt relief, protracted litigation might result in court rulings forcing Puerto Rico’s government to prioritize creditors over the salaries of public servants — galvanizing so much economic suffering that it would draw international condemnation over America’s neocolonial version of Greece.

There’s no effective Chapter 9 process for Puerto Rico, unlike for US municipalities, so the alternative of an orderly Detroit-style restructuring, isn’t available. The Obama administration, moreover, has made it clear that it doesn’t support a bailout — and it’s not clear that Republicans in Congress would be willing to provide the funds for any bailout.

So calls for statehood, in both Puerto Rico and on the mainland, and on the left and right, are on the rise, and predictably so. But as genuine as those calls might be, it’s a very, very unlikely result– and that will likely be true for a long time.

Here’s why. Continue reading Four reasons why Puerto Rico won’t become a state anytime soon

Has Germany (and Europe) reached peak Merkel?

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In the span of six days, German chancellor Angela Merkel has made a teenage Palestinian refugee cry with her government’s stand on refugee and immigration policy (then tried to pet her, in what must be one of her most cringe-worthy moments as chancellor), reiterated her increasingly isolated position in Europe in opposition to LGBT marriage equality and almost allowed her finance minister Wolfgang Schäuble to force Greece out of the eurozone, in the process undermining Merkel’s authority both at home and within the wider eurozone.Germany Flag Icon

Some week.

Merkel, who won a narrower-than-expected victory in the 2005 election, reached the apex of her political power in September 2013, when her governing Christlich Demokratische Union Deutschlands (CDU, Christian Democratic Union) nearly won an absolute majority in the country’s parliamentary elections. Despite being forced back into a ‘grand coalition’ with the rival center-left Sozialdemokratische Partei Deutschlands (SPD, Social Democratic Party), Merkel’s popularity crested. At long last, she had won a clear personal mandate for her cautious, seemingly ideology-free leadership.

But when faced with policy issues — like Greece, LGBT rights and immigration — featuring such sharp contrasts, Merkel’s popularity was always going to fall from those stratospheric levels.

The crisis over Greece’s future highlighted the limits of Merkel’s conciliatory governing style — to sit back, wait for a consensus to emerge and follow public opinion, even (or especially) if it means co-opting a rival party’s positions. That’s how Merkel has handled everything from nuclear power to raising the minimum wage. But there’s a limit to that kind of governance. Continue reading Has Germany (and Europe) reached peak Merkel?

How Schäuble’s failures shape the eurozone fight

German Finance Minister Wolfgang Schaeuble attends a German-Greek chamber of industry meeting in Athens, on July 18, 2013. Local authorities stepped up security in the capital for the visit, as Schaeuble is seen by some in Greece as a champion of the tough austerity policies that have gripped the country for the past four years. AFP PHOTO / Angelos TzortzinisPhoto credit to Angelos Tzortzinis /AFP.

Though it’s Yanis Varoufakis, the Marxist economist and recently deposed Greek finance minister, who is typically painted in the media as the drag on the long-running negotiations to avoid a Greek default and keep the country within the eurozone, his intransigence has been met at every step of the way by Germany’s finance minister Wolfgang Schäuble, whose sneering impatience for Greek demands has been no less personal than Varoufakis’s over-the-top denunciations of European ministerial colleagues as ‘terrorists.’Germany Flag Icon

Schäuble’s sharp-tongued wit has been a constant through five years of negotiations that stretch back long before prime minister Alexis Tsipras and the far-left SYRIZA (Συνασπισμός Ριζοσπαστικής Αριστεράς, the Coalition of the Radical Left) took power in January. On Thursday, Schäuble joked to an increasingly concerned US treasury secretary Jack Lew that he would be willing to swap Europe’s Greece troubles for Puerto Rico’s debt crisis.

When it comes to Greece, Schäuble is in many ways Germany’s opposition leader, even though he’s a stalwart of chancellor Angela Merkel’s governing Christlich Demokratische Union Deutschlands (CDU, Christian Democratic Party). He’s made it clear throughout the course of negotiations that he favors pushing Greece out of the eurozone, a result that other European leaders worry could destroy the single currency’s credibility — not to mention plunge Greece into an even more painful depression. Back in 2011 and 2012, few German politicians — just a handful of grey-haired Bavarian conservatives — were willing to call for Greece’s eurozone exit. Today, however, it’s a mainstream position, even on the center-left.

Germany is currently governed through a ‘grand coalition’ between the center-right CDU and the Sozialdemokratische Partei Deutschlands (SPD, Social Democratic Party) that includes around 80% of the entire Bundestag, the lower house of the German parliament. Nevertheless, Merkel is limited in her maneuverability — if she gives too much to Greece, there’s a chance Schäuble could lead a revolt of CDU backbenchers who already worry Merkel has transformed the party into a political amoeba that sways to the path of political expediency.

As Tsipras and his new finance minister Euclid Tsakalotos wait for Greece’s creditors to evaluation the government’s probable last proposal for debt relief, there’s a lot that lies in Schäuble’s hands. Even as French president François Hollande has directed his entire economic leadership — prime minister Manuel Valls, finance minister Michel Sapin and economic minister Emmanuel Macron — to help save Greece’s place in the eurozone, German doubts about the deal, a three-year bailout of over €50 billion, could still derail Saturday’s deadline. A full summit of the European Union’s leaders has been scheduled for Sunday. With banks running out of money and Greece banks nearing insolvency, European leaders have made it clear that if they don’t reach a deal with Tsipras on Saturday, they will spend Sunday addressing how Greece will exit the single currency.

Germany, as the largest member-state, is the largest contribution to any stability funding that comes from the European Commission and/or the European Central Bank. It’s currently on the hook for around €90 billion of Greece’s €5320 billion public debt. Merkel, despite doubts in her own party, has supported Greece’s two bailouts in the past, though she’s done so by demanding harsh strings that satisfy her own conservative flank and, of course, German taxpayers, who are ultimately on the hook for nearly one-third of Greece’s bailout debt.

Back in 2010, with a nod to moral hazard, Merkel cruelly told then-prime minister George Papandreou that she had to make the bailout as difficult as possible:

Mr. Papandreou says that when he asked German Chancellor Angela Merkel for gentler conditions in 2010, she replied that the aid program had to hurt. “We want to make sure nobody else will want this,” Ms. Merkel told him.

In principle, it was Merkel’s nod toward moral hazard — she couldn’t give the Greeks terms that Spain, Italy, Ireland, Portugal or the Baltic states might soon want. But in practice, it was a sop to the German right, which was growing ever more disgusted at consecutive Greek governments, which haven’t had the strongest reform record.

But Schäuble makes Merkel look relatively welcoming. The 72-year-old finance minister, according to reports, apparently asked Greek negotiators how much money it would take to get them to leave the eurozone. Continue reading How Schäuble’s failures shape the eurozone fight

Three ways Europe and Greece could blow their last chance at a debt deal

varoufakiseuclidPhoto credit to EPA/BGNES.

The world woke up to the news Monday morning that outspoken Greek finance minister Yanis Varoufakis had, at long lost, been dismissed by his prime minister, Alexis Tsipras.Greece Flag Icon

Varoufakis (pictured above, right, behind Greece’s new finance minister, Euclid Tsakalotos) had become, to say the least, a brake on negotiations with the Eurogroup, even though his widespread popularity and strident anti-austerity boosted Tsipras’s government to a stunning victory in Sunday’s debt negotiations referendum, whereby 61.31% of voters rejected a prior plan offered by Greece’s European creditors.

European officials struggled to reach consensus with Varoufakis, who just last week, in the middle of the rushed referendum campaign, referred to his European ministerial colleagues as ‘terrorists.’ Tsakalotos, an Oxford-trained economist, is expected to take a more mild-mannered approach, and he already supplanted Varoufakis as Greece’s chief negotiator back in April. That was, however, only to the extent anyone could supplant the motorbike-riding, free-wheeling Varoufakis, who gave his final press conference as finance minister Sunday night in a t-shirt.

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RELATED: If Grexit comes,
Greece will have wasted five years in depression

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Varoufakis’s resignation, along with a pledge of national unity across Greece’s mainstream domestic political spectrum, breathed new life into hopes for last-minute talks for a third bailout, allowing the country to reopen its illiquid and perhaps insolvent banks, lift (at least partially) capital controls that have limited daily cash withdrawals to €60, restore liquidity to ATMs that have run out of cash altogether, address Greece’s €1.6 billion default on June 30 to the International Monetary Fund and meet a July 20 deadline to make a €3.5 billion payment to the European Central Bank.

For all the celebration that followed the resounding ‘no’ vote in Sunday’s referendum, the coming Sunday could bring financial austerity far more severe than Greece has known in the past five years, marked by a nearly 30% drop in GDP growth and a 26% unemployment rate. Failure to reach a deal could result in a shortage of cash, food, medicine and so many other necessities to the extent that European leaders are whispering that Greece could require humanitarian aid.

Notwithstanding the dire consequences, a deal is not necessarily likely — or even possible. If they’re lucky, the European Union has five days to prevent Grexit. Here are four reasons why it will be so difficult in the hours ahead.  Continue reading Three ways Europe and Greece could blow their last chance at a debt deal

If Grexit comes, Greece will have wasted five years in depression

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Photo credit to Orestis Panagiotou / EPA.

If you think the past nine days have been tense, just wait.Greece Flag Icon

For all the uncertainty and mistrust that have characterized Greek-EU relations since Greek prime minister Alexis Tsipras suddenly announced a snap referendum last Friday, the week ahead promises to reach ever dizzying heights of suspense after Greek voters delivered a strong endorsement to Tsipras by rejecting the terms of the most recent deal on offer from the Eurogroup — over 61% of the electorate voted no (or ‘oxi’). The result, whether Tsipras admits it or not, essentially begins the process by which Greece will eventually leave the eurozone.

There are no winners here.

Tsipras and the far-left SYRIZA (Συνασπισμός Ριζοσπαστικής Αριστεράς, the Coalition of the Radical Left) took power after January’s parliamentary elections on the mutually incompatible pledge of keeping Greece in the eurozone while demanding more lenient conditions from the country’s creditors. In so doing, Tspiras miscalculated European goodwill. It wasn’t unreasonable for Tsipras and finance minister Yanis Varoufakis to argue that Greece’s debt load is unsustainable. Moreover, even plenty of orthodox economists, including many at the International Monetary Fund, one of Greece’s creditors, admit that years of austerity have exacerbated economic conditions — GDP contraction of nearly 30% since 2008, a 26% unemployment rate and a nearly 50% youth unemployment rate. But the erratic and amateurish approach of the Greek government, capped by Tsipras’s 11th-hour decision to call the July 5th referendum, destroyed what little goodwill remained for his government.

There’s still time — even now — for Greece and the rest of Europe to reach a deal. But the complete lack of trust between Tsipras’s government and the entirety of the rest of the eurozone’s leadership makes it much less likely to happen. The complete breakdown in trust between Tsipras and even sympathetic European leaders must certainly rank among the most troubling casualties of the past nine days. Continue reading If Grexit comes, Greece will have wasted five years in depression

Greek referendum — the right step at a dangerously wrong time

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For the past 48 hours, the rest of Europe and, indeed, the rest of the world have watched Greece come unhinged. Greece Flag Icon

In a speech shortly after midnight Friday night, prime minister Alexis Tspiras announced that instead of continuing negotiations between the Greek government and the Eurogroup of eurozone finance ministers, he would call off talks to hold a referendum next Sunday, July 5, thereby putting the question to the Greek people — will they accept the terms of the latest deal with Greece’s creditor institutions or will they reject it?

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RELATED: Seven lessons from the Greek election results
RELATEDMeet Greece’s new economic policymakers
RELATED: As Schäuble sneers, Greeks agree four-month debt deal
RELATED:  What are the chances of snap elections (again) in Greece?

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Never mind that the creditors’ offer could be moot by next Sunday.

Never mind that Greece faces, at best, a technical default on Tuesday.

Never mind that the referendum caught everyone else in Europe off guard, eliminating what little goodwill Greece had left.

Never mind that Greece’s constitution seems to forbid direct referenda on fiscal matters.

Never mind that it seems to be accelerating a financial crisis now mandating extraordinary measures in Athens.
Continue reading Greek referendum — the right step at a dangerously wrong time

What are the chances of snap elections (again) in Greece?

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It’s a sign that fiscal affairs in Greece are bad when the sensible Plan B to cover the Greek government’s looming shortfall involves loans from Moscow (despite protests to the contrary).Greece Flag Icon

Greek prime minister Alexis Tsipras has dismissed European sanctions against Russia, and he met Russian president Vladimir Putin in Moscow earlier this week, signaling to the European Union that Greece is keeping its options open if ongoing debt talks fail. Though Tsipras didn’t seek any financial assistance from Putin, he failed to convince Putin to lift a ban on Greek agricultural exports.

The even more outlandish Plan B involves demanding reparations from Germany for World War II damages, amounting to €278.7 billion. Perhaps not coincidentally, that’s just a little more than the €240 billion in financing that Greece has received in the last half-decade under two bailout programs from the European Commission, the European Central Bank and the International Monetary Fund.

Today, Greece’s government, not even three months old, will repay a €460 million portion of its debt to the International Monetary Fund. But that doesn’t mean that all is well in Athens, where last year’s green shoots of economic recovery are now obscured by the uncertainty of a leftist administration that’s engaged in brinksmanship over Greece’s financing and, ultimately, over the wider question of national fiscal sovereignty in today’s eurozone.

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RELATED: EU should give Tsipras a chance to govern

RELATED: What a Eurogroup-brokered deal with Greece might look like

RELATED: Seven lessons from the Greek election results

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 Why Tsipras can’t (and won’t) make a deal on Berlin’s terms

Without a deal, Tsipras will go down in history as the prime minister who led Greece out of the eurozone, willingly or not. Politically, however, Tspiras can’t agree to any deal that the Eurogroup seems to be offering. That’s increasingly a recipe for Tsipras to call fresh elections early this summer, but there’s no guarantee the results will solve the Greek-EU political quagmire.

Tsipras and his anti-austerity SYRIZA (the Coalition of the Radical Left — Συνασπισμός Ριζοσπαστικής Αριστεράς) were elected three months ago on a pledge to renegotiate the terms of Greece’s debt with its European lenders and end the harsh austerity measures that have exacerbated Greece’s contracting economy and growing unemployment. But the EU’s leaders, including Commission president Jean-Claude Juncker, German chancellor Angela Merkel and, presumably, ECB president Mario Draghi, no longer fear the ‘contagion’ effect of a Greek eurozone exit.  Continue reading What are the chances of snap elections (again) in Greece?

As Schäuble sneers, Greeks agree four-month debt deal

schaublePhoto credit to Bloomberg News.

If you want to know which side ‘thinks it won’ in today’s temporary deal between Greece and the Eurogroup, you need look no further than the extraordinary statement from German finance minister Wolfgang Schäuble, who essentially spiked the ball in Greece’s face after winning a key concession from its new anti-austerity government that it would honor existing Greek commitments to its creditors in exchange for a four-month extension of its bailout program:Greece Flag Icon

“Being in government is a date with reality, and reality is often not as nice as a dream,” the conservative veteran said, stressing Athens would get no aid payments until its bailout program was properly completed. “The Greeks certainly will have a difficult time to explain the deal to their voters.”

Even if you think the Greek government had little leverage to force the Eurogroup to accept its demands and even if you think today’s temporary deal is at least a step on the path to a stronger Greece within the eurozone, I can’t think of a statement from any European leader more at odds with reality and basic political acumen since the out-of-touch musings of former French president Valéry Giscard d’Estaing in 2004 and 2005, when he was in charge of the process to enact a constitution for the European Union, a process that died when France itself rejected the constitution in a referendum.

It’s as if Schäuble (pictured above with Greek finance minister Yanis Varoufakis) actively wants to feed the notion that Germany dominates European policymaking. His comments might play well in Munich or Stuttgart, but they’ll be poisonous in Madrid and Athens, and cause some amount of indignation in capitals like Paris and Dublin. 

Imagine a different response, whereby German chancellor Angela Merkel delivered a statement that, even while holding steady against concessions to the Greek government, acknowledged Greece’s economic suffering and acknowledged that the Berlin-led bailouts have caused more harm than anticipated — an admission, by the way, that the International Monetary Fund was already making years ago.

A German Europe, and a divided Europe

Greece is in a depression that’s now lasted six years and runs deeper than the Great Depression of the 1930s in either Europe or the United States. Unemployment is rife in Spain, so much so that an untested anti-austerity group, Podemos, now leads polls for the general election later this year. Italy, for now, has placed its trust in its young Tuscan prime minister Matteo Renzi, who seems to have far more commitment to reform than ability to carry it out. Romania and Bulgaria, despite responsible budget policies, are being hollowed out by depopulation and migration to wealthier EU countries.

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RELATED: What a Eurogroup-brokered deal with Greece might look like

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Europe’s best and brightest are leaving economically depressed regions and countries, and they’re heading to London. To Amsterdam. To Frankfurt. That’s left national governments responsible for fiscal commitments to social welfare, education and health care. While its most ambitious citizens look abroad for careers, these national governments find their revenues shrinking and their obligations increasing. Continue reading As Schäuble sneers, Greeks agree four-month debt deal

What a Eurogroup-brokered deal with Greece might look like

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At times this week, it has felt nearly like the European Union was brokering a bailout of Ukrainian debt, while working to negotiate a ceasefire with Greece.European_UnionGreece Flag Icon

But as Greece’s new left-wing government and the Eurogroup, the collection of eurozone finance ministers, work over the weekend for a new Greek debt deal to float Greece’s treasury for the next two years (or thereabouts), there are glimmers of hope on both sides that a deal might possibly emerge. Negotiations continue as the February 28 deadline approaches, when Greece’s current bailout program is scheduled to end.

So what might that deal ultimately be? Above all, any deal that attempts to put Greece on a long-term path to prosperity needs to start from the notion that its debt burden of nearly 175% of GDP growth is simply unsustainable. You might not hear that in public from figures like German chancellor Angela Merkel, German finance minister Wolfgang Schäuble, European Commission president Jean-Claude Juncker or Eurogroup president and Dutch finance minister Jeroen Dijsselbloem, but it’s likely another story in private.

No matter how many cuts successive governments make to future budgets, the cost of servicing that debt will cripple its ability to provide the same level of public services to Greek citizens — especially at a time when unemployment remains so high. (Not everyone has the view, however, that the Greek debt burden is so incredibly unsustainable).

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RELATED: A Russian bailout may have always been Plan B for Tsipras

RELATED: Seven lessons from the Greek election results

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Here’s an outline of what to expect — perhaps as soon as early Monday morning: Continue reading What a Eurogroup-brokered deal with Greece might look like

Meet Greece’s new economic policymakers

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With the Greek far left set to take power after Sunday’s staggering parliamentary elections, its next prime minister Alexis Tspiras will be just one of many key figures who will now become the central players in the latest chapter of the European Union’s economic policy debate.Greece Flag Icon

After Tspiras, no one will be more important than the economic advisers to whom the new government will entrust its attempt to reverse Greek economic policy and to negotiate debt relief from skeptical European Union leaders and international bondholders.

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RELATED: EU should give Tsipras a chance to govern

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Among the chief economic advisers to Tsipras and the soon-to-be-governing SYRIZA (the Coalition of the Radical Left, Συνασπισμός Ριζοσπαστικής Αριστεράς) are a handful of colorful personalities, from moderates to Marxists, all of whom will shape Greek economic policy in the years ahead.

Varoufakis: the political neophyte and telegenic economics professor

Yanis Varoufakis, an economics professor at the University of Athens, is widely tipped to become Greece’s next finance minister or, at the very least, lead the new government in negotiations with the troika — the European Central Bank, European Commission and the International Monetary Fund — and other EU leaders. Until very recently, Varoufakis was an outsider to Greek politics. He’s not a politician and, until recently, was a visiting professor at the University of Texas in Austin.

Varoufakis, however, was invited to run for a parliamentary seat by SYRIZA’s leaders. His international profile (Varoufakisis half Australian) and fluent English skills mean that he could soothe international markets as the chief economic spokesperson for Greece’s new government. A former adviser to George Papandreou in the early 2000s, Varoukakis has been a strident critic of the austerity measures that, first Papandreou and, since 2012, outgoing prime minister Antonis Samaras have accepted as conditions for Greece’s two bailouts, totaling €240 billion. In his announcement that he would stand as a candidate for the Hellenic Parliament, he compared that austerity to ‘fiscal waterboarding’:

Instead of discussing, in the European Union’s fora, the nature of our systemic crisis, the powers-that-be were busy fiscally waterboarding proud nations, letting them take a few short breaths before submerging them again into the waters of illiquidity.

Somewhat unusually for a European finance minister, Varoufakis has not shied away from criticizing the United States. Three years ago, Varoufakis wrote a book, The Global Minotaur, that paints a menacing portrait of the role of US economic policy vis-à-vis the rest of the world and American workers. Continue reading Meet Greece’s new economic policymakers

EU should give Tsipras a chance to govern

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With his sweeping victory today in Greece, Alexis Tspiras has led the far left to its only victory since his country’s return to democratic rule in 1974.Greece Flag Icon

In so doing, Tsipras (pictured above) and the socialist SYRIZA (the Coalition of the Radical Left, Συνασπισμός Ριζοσπαστικής Αριστεράς) have upended the political order in a country that, for more than four decades, shifted between the rule of political elites on both the center-right and the center-left, often hailing from two or three dozen well-connected families. Tsipras’s victory today is as much the defeat of that Greek political elite on both the left and right, which cumulatively share responsibility for irresponsible budget policies and widespread corruption in government.

More recently, they have also shared responsibility for the Greek bailout that ceded significant control over Greek fiscal policy to the ‘troika’ of the International Monetary Fund, the European Central Bank and the European Commission. Center-left prime minister George Papandreou (himself the son of a prime minister) accepted the first bailout in his term, between 2009 and 2011. Since 2012, a grand coalition headed by center-right prime minister Antonis Samaras and center-left deputy prime minister Evangelos Venizelos, have also accepted the increasingly onerous demands of the troika in exchange for the funding that has floated Greece’s treasury since the eurozone crisis of 2010.

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RELATED: What to expect from Greece’s January 25 snap elections

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Tsipras, at age 40, emerged in the lead-up to the 2012 parliamentary elections, by consolidating support on the Greek left in his denunciations of the grinding course of austerity that accompanied Greece’s humiliating bailout. Then, Greece was only in its third consecutive year of recession and, remarkably, the unemployment rate was actually lower then (24.8%) than it is today (25.8%), with the country nominally back on the path to GDP growth.

But for all the smoke of the election campaign, and for all Tsipras’s fiery rhetoric, the reality is that Tsipras and SYRIZA have spent the past three years moderating their positions and preparing for the day when Tspiras would lead the next Greek government, which may prove more ‘pragmatic left’ than ‘radical left.’

In 2012, Tspiras was ambivalent (at best) about Greece’s eurozone membership. Today, however, Tspiras is adamant, along with a wide majority of the Greek electorate, that Greece must retain the single currency. Whereas SYRIZA once mused about defaulting on greek debt and ripping up the ‘memorandum’ of stipulations that governs the country’s two bailouts, which totals €240 billion, the party now pledges to renegotiate Greece’s debt burden with EU leaders in an orderly manner. Though Tspiras and other SYRIZA leaders are committed to reversing the grinding austerity of the past six years, they will seek to do so in the context of a balanced budget (as opposed to the 4% to 5% surplus that outgoing prime minister Antonis Samaras hoped to achieve).

Tsipras, in short, will govern more like a social democrat than a democratic socialist. As prime minister, with the full weight on government on his shoulders, Tspiras will be hard-pressed to deliver appreciable relief from six years of austerity, recession and unemployment. To devote more funding for public services and boost growth will require a very different skill set than the campaign oratory of the past three years.  Continue reading EU should give Tsipras a chance to govern

Merkel’s incredibly stupid New Year Grexit bluff

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It’s understandable why German chancellor Angela Merkel doesn’t want to cut any deals with Greece — no matter who wins the snap elections later this month.Greece Flag IconGermany Flag Icon

Making concessions, especially to a far-left, anti-austerity figure like potential prime minister Alexis Tspiras, could embolden every recession-weary country from Portugal to Romania to demand relief from Brussels and Berlin, and it could give substantive figures on the European left, including Italian prime minister Matteo Renzi, French president François Hollande and even German social democrats in Merkel’s own grand coalition, a platform to doubt the Berlin-dominated approach to fiscal policy throughout the eurozone.

According to Merkel (pictured above, right, with incumbent Greek prime minister Antonis Samaras) and much of the German electorate, the troika of the European Commission, the European Central Bank and the International Monetary Fund has already been too soft on Greece, lowering the interest on over €240 million in bailout funds and extending the repayment schedule.

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RELATED: What to expect from Greece’s January 25 snap elections

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Nevertheless, it’s incredible that Merkel and her aides take such a cavalier attitude to a potential Greek eurozone exit, which they apparently haven’t ruled out in the event that Tsipras’s leftist SYRIZA (the Coalition of the Radical Left — Συνασπισμός Ριζοσπαστικής Αριστεράς) wins national elections in 18 days. Three years after ECB president Mario Draghi promised to do ‘whatever it takes’ to save the eurozone, Merkel now believes that Greece is expendable, that the eurozone is no longer subject to the domino theory that would make a ‘Grexit’ calamitous and that the eurozone is now governed by a chain theory that suggests a Greece-less eurozone will be rid of its weakest link.

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It may be smart domestic politics in Germany, where the anti-euro Alternative für Deutschland (Alternative for Germany) is gaining support on Merkel’s right flank in both state and federal politics, but it’s an incredibly tin-eared intrusion three weeks before Greeks vote. It certainly won’t help the beleaguered coalition government of center-right, pro-bailout prime minister Antonis Samaras, whose New Democracy (Νέα Δημοκρατία) narrowly trails SYRIZA in most polls. Greeks already realize that a vote for Tsipras (pictured above) brings with it greater uncertainty, so Samaras has some hope that the electorate will have doubts about handing power to SYRIZA. He certainly doesn’t need Merkel to make that point for him.  Continue reading Merkel’s incredibly stupid New Year Grexit bluff