Europe's Populist Left

[garbon]

lol, Polish clock

Per usual, I read Polish cock.

[Razgovory]

Well, as sovereign as any Eurozone state is...

According to the narrative, everybody but the silly Germans always knew that austerity wouldn't work. That would presumably include the Greek politicians. Yet "immense pressure" somehow made them sacrifice their countrymen on the altar of French and German bank stability despite them supposedly knowing that it wouldn't work. Were they really this powerless? If so, why? What mechanism of the EU or Eurozone takes away so much sovereignty from the member states that they would ever be forced to go through what Greece went through against their better knowledge? I am not aware of any such mechanism. The EU must be the weakest federal government anywhere - which happens to be part of the problem. If there is no such mechanism either the Greek politicians are all traitors or they seriously believed what they did was the best out of many bad alternatives.

They can't print their own money.

[Sheilbh]

Greece has been a sovereign nation throughout this whole mess and had ample opportunity to go a different route if they had thought that was better for them. I don't buy that any Greek politician had the interests of German or French banks in mind. Immense pressure alone cannot explain the policy accepted by Greece's politicians. They must have been convinced this is in their best interest as well.
I said it three years ago and will say it again: They should have defaulted. Unilaterally if necessary.

I agree it wasn't keeping French and German banks in mind that caused the bailouts - but they were the beneficiaries. It wasn't even their interests that Eurozone leaders had in mind. The issues - which are still fundamentally unresolved - arose from an incomplete currency union. One that is still at risk of contagion, that still hasn't broken the link between sovereigns and banks and still doesn't have a proper lender of last resort - politically it's more under threat than ever, I can't think of a country without rising opposition to the Eurozone and what it's come to mean. The ECB has managed to calm this down - except for the political issue, the civil revolt across Europe - but that's being questioned and isn't enough on its own.

Immense pressure was placed on Greek and Irish politicians. I know Yi dismisses it as a call but I think it is uncomfortable from a European perspective to see leaders working with the leader of the opposition and head of state of another country to unseat a constitutionally appointed Prime Minister and it's happened twice.

The rhetoric of Europe in those two years was entirely based on 'there is no alternative'. When Papandreou said he was going to go for a referendum Paris and Berlin explicitly said the choice would be between bail out or leaving the Euro. Even now I probably agree with Martin Wolf on a local scale that joining the Euro's the second worse decision Greek leaders could make, leaving it is probably the worst.

I was wrong three years ago, but I think they need a negotiated default now.

Incidentally how much of the hard-line from Germany is to do with some local elections I think you've got coming up in February and a desire to keep AfD well away from success in them? I find Schaeuble's over the Troika inspections oddly categorical for example given that they have no legal standing and are under immense doubt after Advocate General's opinion (Juncker had already admitted they couldn't continue if that opinion was followed).

Apparently the Eurogroup have run out of patience with Djisselbloem after his day in Athens. He's cocked up a few times before and, from what I can see, isn't seen as the sharpest. So the EcoFin of the Eurogroup will be represented by Juncker at the next stage of negotiations (which seems a bit dodgy to me, I know he previously chaired it so knows it better than anyone but he is now Commission President).

Varoufakis' interview with the FT (shamelessly stolen  ):

Greece finance minister unveils plan to end debt stand-off
Tony Barber in London

Greece's radical new government unveiled proposals on Monday for ending the confrontation with its creditors by swapping outstanding debt for new growth-linked bonds, running a permanent budget surplus and targeting wealthy tax-evaders.

Yanis Varoufakis, the new finance minister, outlined the plan in the wake of a dramatic week in which the government's first moves rattled its eurozone partners and rekindled fears about the country's chances of staying in the currency union.

After meeting Mr Varoufakis in London, George Osborne, the UK chancellor of the exchequer, described the stand-off between Greece and the eurozone as the "greatest risk to the global economy".

Attempting to sound an emollient note, Mr Varoufakis told the Financial Times the government would no longer call for a headline write-off of Greece's €315bn foreign debt. Rather it would request a "menu of debt swaps" to ease the burden, including two types of new bonds.

The first type, indexed to nominal economic growth, would replace European rescue loans, and the second, which he termed "perpetual bonds", would replace European Central Bank-owned Greek bonds.

He said his proposal for a debt swap would be a form of "smart debt engineering" that would avoid the need to use a term such as a debt "haircut", politically unacceptable in Germany and other creditor countries because it sounds to taxpayers like an outright loss.

But there is still deep scepticism in many European capitals, in particular Berlin, about the new government's brinkmanship and its calls for an end to austerity policies.

"What I'll say to our partners is that we are putting together a combination of a primary budget surplus and a reform agenda," Mr Varoufakis, a leftwing academic economist and prolific blogger, said. "I'll say, 'Help us to reform our country and give us some fiscal space to do this, otherwise we shall continue to suffocate and become a deformed rather than a reformed Greece'."

His visit to London was part of a tour of European capitals aimed at building support for a new approach to the Greek debt crisis. After their meeting Mr Osborne urged him "to act responsibly", adding that it was also important that the eurozone had a better plan for jobs and growth.

"It is a rising threat to the British economy. And we have got to make sure that in Europe as in Britain, we choose competence over chaos," he said.

Mr Varoufakis said the government would maintain a primary budget surplus — after interest payments — of 1 to 1.5 per cent of gross domestic product, even if this meant Syriza, the leftwing party that dominates the ruling coalition, would not fulfil all the public spending promises on which it was elected.

Mr Varoufakis also said the government would target wealthy Greeks who had not paid their fair share of taxes during the nation's six-year economic slump. "We want to prioritise going for the head of the fish, then go down to the tail," he said.

The minister anticipated difficulties in clamping down effectively on tax evasion and "rent-seeking behaviour" among Greece's business oligarchs and other wealthy people, but vowed: "We will not cease until we succeed. If we are snuffed out by the vested interests, it will be our honour to have fallen in fighting the good fight."

Asked if he thought Greece's eurozone partners were right to be concerned about the government's plan to rehire thousands of public-sector workers, Mr Varoufakis said: "If you look at what has happened over the past five years, there has been a massive reduction in the public sector. The problem is that it's not efficient — it's a kind of Public Enemy Number One, the Greek bureaucracy."

Syriza's election victory had created an opportunity "to strike at the cosy relationship between vested interests in the public sector and vested interests in the private sector that act as a drag on creativity, competitiveness, liberty and democracy," he said.

The government planned to present its proposals in detailed form to its European partners before the end of February.

"Whatever our partners think about our being from the radical left, we're serious about reform, serious about being good Europeans and serious about listening. The only thing we shall not retreat from is our view that the current unenforceable programme [agreed with our creditors] needs to be rethought from scratch," he said.

Mr Varoufakis was on the second leg of a European tour that started in Paris at the weekend and is aimed at winning support for a renegotiation of the €245bn bailout programme that began in 2010 with emergency help from the EU and International Monetary Fund.

The minister said Greece hoped to secure a four-month "bridging programme", to stretch from now until June 1, under which the ECB would promise to keep Greece's financial system afloat by continuing to supply liquidity on favourable terms.

Rather than ask for €7bn in aid that was to have been paid to Greece last year if it had met fiscal policy and structural reform conditions set by its creditors, the government would request only €1.9bn — equivalent, Mr Varoufakis said, to the profits earned by the ECB from its purchases of Greek government bonds after the 2010 rescue.

"Our mandate gives us a right to do one little thing — to have a few short weeks to propose our own ideas to the ECB, the eurozone partners and the IMF," the minister said. "The notion that previous Greek governments signed on the dotted line on programmes that haven't worked, and that we should be obliged to just follow that line unswervingly, is a challenge to democracy.

"We have the disadvantage of being inexperienced. We are also a broad church," he added, referring to the fact that Syriza rules in coalition with a junior rightwing partner. "But we have the advantage that we have not sold our soul to the devil yet, and we do not plan to. Syriza is the only party that's never been funded by the oligarchs."

Edit: Incidentally the BofE did some research on GDP-linked bonds here - they concluded that countries in currency unions may be among those that benefit the most:
http://www.bankofengland.co.uk/research/Pages/workingpapers/2014/wp484.aspx1

[Sheilbh]

But under the EU state aid rules, any aid given by a government to an enterprise must be approved by the European Commission. Obviously, this does not apply to aid given by a government to another government.

The treaties also prohibited bail outs of sovereigns. I think they got around that by using an exception for emergency aid that was meant to be used during, say, a natural disaster

And given that Ireland was able to bail out their banks without any Euro-opposition I don't think it would be a major issue.

[Zanza]

They can't print their own money.

Yes, they can. They can just not print Euros.

[The Minsky Moment]

Recall that last time around Italy, Spain, Portugal were wobbling and the belief was that Greece would be just the first pin to fall.  So as sheilbh says contagion.  There was huge pressure not from the EU qua EU but in the form of intergovernmental pressure.   It's easy to second guess the Greek decision-making then but really they faced no good options.

The only question that matters now though is what now? 

[Admiral Yi]

What now is Fakis puts a debt foregiveness number on the table and tells what he's willing to do in return.

[Sheilbh]

What now is Fakis puts a debt foregiveness number on the table and tells what he's willing to do in return.

Mr Varoufakis said the government would maintain a primary budget surplus — after interest payments — of 1 to 1.5 per cent of gross domestic product, even if this meant Syriza, the leftwing party that dominates the ruling coalition, would not fulfil all the public spending promises on which it was elected.

'We want to entrench and deepen structural reforms.'

[MadImmortalMan]

Personally, I would like to issue some perpetual bonds. Maybe a hundred billion should be enough.

[Zanza]

Immense pressure was placed on Greek and Irish politicians.

What exactly did they threaten them with? As you wise Anglosaxons with perfect foresight and probably everybody except a few dumb Northern Europeans knew even back then, Greece would suffer atrociously from the prescribed austerity. How much worse could any other policy have been? Where the Greeks just as dumb as the Northern Europeans not to see it?

The rhetoric of Europe in those two years was entirely based on 'there is no alternative'. When Papandreou said he was going to go for a referendum Paris and Berlin explicitly said the choice would be between bail out or leaving the Euro.

That is literally an alternative. Not a good one of course, but worse than the failed German-Troika policy? And suggesting there were other alternatives that were just not offered disregards the immense pressure that Sarkozy and Merkel were under during that time. I know Merkel is perceived as the all-powerful politician that can single-handed decide the fate of Europe, but she is not and certainly wasn't back then.

Even now I probably agree with Martin Wolf on a local scale that joining the Euro's the second worse decision Greek leaders could make, leaving it is probably the worst.

Worse than what they have now? How so?

Incidentally how much of the hard-line from Germany is to do with some local elections I think you've got coming up in February and a desire to keep AfD well away from success in them?

My impression is that Germans don't give a shit about this anymore. AfD seems to be more about being anti-islamist these days than about anti-Euro.

[Zanza]

'We want to entrench and deepen structural reforms.'

Well, that can't be very hard considering their progress so far.

[Zanza]

Recall that last time around Italy, Spain, Portugal were wobbling and the belief was that Greece would be just the first pin to fall.  So as sheilbh says contagion.  There was huge pressure not from the EU qua EU but in the form of intergovernmental pressure.   It's easy to second guess the Greek decision-making then but really they faced no good options.

Of course they didn't have good options, but did they pick the one they picked out of concern about contagion or French and German banks or because they figured it was the best for Greece?

[Admiral Yi]

'We want to entrench and deepen structural reforms.'

"We are deeply committed to improvement."

[MadImmortalMan]

'We want to entrench and deepen structural reforms.'

Well, that can't be very hard considering their progress so far.

At some point, someone is actually going to get their legs broken.

[Zanza]

Just read on Spiegel that the Greek debt that is due in the next weeks is either to IMF (which is not too bad) or very short-term t-bills. The latter will be very hard to refinance apparently as private lenders are not interested at this time. That means Greece would run out of money at the end of March...
The money they borrowed from EFSF or ECB is apparently interest free for the next few years.