Europe's Populist Left

[The Minsky Moment]

Schaeuble's overreached I think. France and Italy have publicly supported Greek letter as, I believe, have some in Germany.

50 minute Tsipras-Merkel conversation this afternoon which is the key.

Schäuble hasn't overreached. Other than France and Italy who are lukewarm about the Greek letter, he has lots of backing from Spain, Portugal, Finnland, Netherlands, the Baltics etc.

He's overreached in this sense.  He's now put Germany way out on front in responding to Greece.  The hardliner policy is a German policy and would not exist without Germany taking the lead.  And it is a bone headed policy.  It is increasingly likely Greece will exit the EZ and even if the fallout can be contained that is a bad policy outcome, a lot worse than taking up the Greek government's pretty reasonable proposal.

[The Minsky Moment]

BTW Shelf, it would now appear that your line about Greece not wanting any more money was totally wrong.

There have been a lot of verbal formulations but the policy has been the same since election day: reduce the primary surplus to around 1-1.5% yearly and adjust the interest payment schedule to reflect that.

[Admiral Yi]

What is reasonable about the Greek proposal?

And I don't see how simply "adjusting the interest payment schedule" gets them to 1.5 primary surplus, unless they are proposing conditional bonds with the possibility of negative interest.  They're only paying 2.04 at the moment.

[The Minsky Moment]

What is reasonable about the Greek proposal?

And I don't see how simply "adjusting the interest payment schedule" gets them to 1.5 primary surplus, unless they are proposing conditional bonds with the possibility of negative interest.  They're only paying 2.04 at the moment.

As I've said a bunch of times, in substance there are asking for a write-down, period.
It's reasonable because the debt is too high and austerity+ tight money has killed growth.
Just as the write-offs of Latin American debt in the 80s were reasonable.  Although then as now the right thing was done only after exhausting all the other alternatives.  This time there may be real negative consequences to European institutions.

[Admiral Yi]

And given that, how is the Greek proposal reasonable?  We will at some point be giving you a haircut, but in the meantime please lend us some more money, because it will make our voters happy, if only in the short term.

[Admiral Yi]

I also find it very odd that you describe a situation in which Germany is paying 1.4% and Spain 2% as "tight money."

[celedhring]

It's tight money if your MoU doesn't allow you to borrow.

[Admiral Yi]

MoU?

[celedhring]

MoU?

Memorandum of Understanding. Mainly the guidelines you're expected to adhere to in exchange of bailout money.

[Admiral Yi]

Then it's not the money that's tight, it's the individual risk that is too high.

[The Minsky Moment]

And given that, how is the Greek proposal reasonable?  We will at some point be giving you a haircut, but in the meantime please lend us some more money, because it will make our voters happy, if only in the short term.

The underlying proposal to reschedule the debt and lower payments is reasonable; indeed not to do would be unreasonable.

Since the EU partners were not prepared to agree on that it was also reasonable to extend the EU backstop given that principal payments are coming due and an outright default is not considered desirable.

[The Minsky Moment]

I also find it very odd that you describe a situation in which Germany is paying 1.4% and Spain 2% as "tight money."

The ECB was running positive nominal rates for years when other central banks were at or near zero, notwithstanding the fact the Europe's deflation problems were worse.  See other thread.  Even now, nominal rates in excess of 2 percent translate into real rates also in excess of 2 percent.  Which sadly appears well above the norms for actual or even potential growth in the Eurozone.

[Admiral Yi]

The underlying proposal to reschedule the debt and lower payments is reasonable; indeed not to do would be unreasonable.

Since the EU partners were not prepared to agree on that it was also reasonable to extend the EU backstop given that principal payments are coming due and an outright default is not considered desirable.

How have you learned that Greece requested a debt reduction and the creditors refused?  All I've been reading is dueling euphemisms.

And to clarify, agreement is not required for a debt reduction/default; that can be done unilaterally.  What is dependent on the creditors' agreement is the repercussions that attach.

[The Minsky Moment]

How have you learned that Greece requested a debt reduction and the creditors refused?  All I've been reading is dueling euphemisms.

I'm reading the same thing but translating the euphemisms.  All the Syriza proposals amount to the same thing - reducing the debt.   Whether that is done by straight write-down or by "rescheduling" in any number of ways so that the NPV of the payment flow is lower is economically speaking six of one, half dozen of the other.

And to clarify, agreement is not required for a debt reduction/default; that can be done unilaterally.  What is dependent on the creditors' agreement is the repercussions that attach.

Sure that's always the case in these situations.  And usually an agreement is preferable to default if it can be reached.  The additional factor present here is the possibility of Greek exit from the entire monetary union, which makes cooperation more desirable than usual.

[Admiral Yi]

My guess is the real sticking point is whether Greek banks will qualify for emergency ECB lending after a default renders them insolvent.