Sunday, June 28, 2015

Greece: a drama out of a crisis

Here is my fragmented and incomplete understanding of the situation: The problem for Greece is that the country has been between a rock and a hard place for too long, and we can't be surprised when extreme pain leads to extreme measures. In this case the extreme measure was when the Greek people voted for a hard line party (Syrzia) to take rule. Perhaps the people had reached their limits of suffering so painfully from the austerity measures already in place. The consequence is that when it came to hard choices and bailout negotiations, the Greek PM tried what looks like a kind of ultimatum approach. This is fully expected. However, just as governments don't like being seen to caving in to kidnap ransom requests largely because it sends a positive signal to future kidnappers, so the rest of the Eurogroup can't be seen to giving in and being taken advantage of by a member state. With billions of euros of debt payments due around the corner, I can only see one solution. It's time for Greece to leave the euro and default. Pain will be suffered in every scenario. It seems like all of this was kind of decided the moment the Greek people voted Syrzia in at the elections.

Here are some recent developments:

  • Earlier in the week the Greek PM surprised the rest of the Eurogroup by announcing a Greek referendum on the bailout package. Talk about leaving it late. Some ministers learned about the referendum announcement via Twitter. They cannot be too pleased.
  • The Greek Finance Minister, who has found the time to keep his blog going during the crisis, writes, 'Ministers turned down the Greek government’s request that the Greek people should be granted a single week during which to deliver a Yes or No answer to the institutions’ proposals – proposals crucial for Greece’s future in the Eurozone.' I haven't been following events in detail but I think it's pretty poor form springing this thing at the last minute. A referendum proposition several weeks ago may have garnered a bit more support. Me thinks it's a nice idea in principle but the reality is that the rest of the eurozone must be tired with the hard line the Greek PM has taken. Also, there is the small matter of a 1.6bn euro payment due to the IMF on Tuesday, which has always been marked on the calendar. 
  • The Greek FM also added to his blog post, 'POSTSCRIPT – The day the Eurogroup President broke with the tradition of unanimity and excluded Greece from a Eurogroup gathering at will
    ..the Eurogroup President ...announced that the Eurogroup would be issuing a statement placing the burden of this impasse on Greece and suggesting that the 18 ministers (that is the 19 Eurozone finance ministers except the Greek minister) reconvene later to discuss ways and means of protecting themselves from the fallout. At that point I asked for legal advice, from the secretariat, on whether a Eurogroup statement can be issued without the conventional unanimity and whether the President of the Eurogroup can convene a meeting without inviting the finance minister of a Eurozone member-state. I received the following extraordinary answer: “The Eurogroup is an informal group. Thus it is not bound by Treaties or written regulations. While unanimity is conventionally adhered to, the Eurogroup President is not bound to explicit rules.” I let the reader comment on this remarkable statement.'
  • CNBC is hosting a live blog of events as they transpire. In the last few hours, we learned that the bailout package is still on the table until Tuesday. Also, the EC published details of their bailout (it's just a handful of pages) and state, 'Discussions on this text were ongoing with the Greek authorities on Friday night in view of the Eurogroup of 27 June 2015. The understanding of all parties involved was that this Eurogroup meeting should achieve a comprehensive deal for Greece, one that would have included not just the measures to be jointly agreed, but would also have addressed future financing needs and the sustainability of the Greek debt. It also included support for a Commission-led package for a new start for jobs and growth in Greece, boosting recovery of and investment in the real economy, which was discussed and endorsed by the College of Commissioners on Wednesday 24 June 2015. However, neither this latest version of the document, nor an outline of a comprehensive deal could be formally finalised and presented to the Eurogroup due to the unilateral decision of the Greek authorities to abandon the process on the evening of 26 June 2015 (my bolding).' Ouch. In other words, what they are saying is 'It's all on you Greece.'
UPDATE: It looks like the Greek bank and Greek stock market will not open on Monday. Up until now the global markets have been taking Greek developments in their stride (i.e. willful ignorance?). Me thinks it will be a different story next week, starting tomorrow.

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