Naked Capitalism's Yves Smith's writing on Syriza's efforts to beat back austerity, though pessimistic, has been superb. Her "Will the Cavalry Ride Over the Hill in Time for Greece?" is a must read:
We’ve cautioned readers that Greece is in a very weak bargaining position relative to its financial overlords in the Troika. As much as Finance Minister Yanis Varoufakis is making sound, logical arguments and presenting proposals that if anything are too accommodating, despite initial cool reactions, many of Greece’s soi disantpartners are diehard neoliberals and/or are politically constrained. Varoufakis is approaching them as if they can deal in good faith, when their idea of “good faith” comes from a punitive parallel universe.
While Varoufakis and presumably Tsipras are unwilling to deploy the one realpolitik tool at their disposal, a threat of Grexit, other parties who have influence on the recalcitrant actors are more sensitive to the fact that much more is at issue than just the fate of Greece. The ongoing game of extend and pretend has managed to forestall what amounts to an existential crisis for the Eurozone. Its founders knew its structure was incomplete and imperfect, but they believed the logic of preventing future wars was so compelling that the inevitable future crises would be resolved by further integration.
Unfortunately, as we’ve been chronicling off and on since 2010, the northern bloc, and most important, Germany, have not wanted to give up its catbird seat. It has influence in excess of its population, continues to run trade surpluses with the rest of the Eurozone, which is tantamount to stealing demand, yet it is unwilling to accept the inevitable consequence of running sustained trade surpluses, which is that you must finance your trade partners (or to put it in the terms of petrostates, recycle your surpluses). Moving toward integration, particularly more powerful governance at the Eurozone level, and having more fiscal transfers to allow countries like Greece to have enough demand to have manageable levels of production and employment, means that Germany will have to cede power. And Europe still has strong nationalistic impulses, another obstacle to cementing the alliance.
But it has also been clear, with the rise of ultra-right, anti-Eurozone parties, and to a lesser degree, anti-austerity parties like Syriza and Spain’s Podemos, that this unsustainable status quo is if anything past its sell-by date. Thus for the more forward-thinking technocrats and politicians, Greece’s efforts to free itself from failed austerity policies serve as a focus point for their own agendas to move away from anti-growth, anti-democratic policies.
The problem for Varoufakis and Syriza generally is that the magnitude of the task before them, of negotiating what they hope is a deal with significant new components, is already difficult to accomplish by June, the longest time frame they are likely to have, even if their interlocutors were more receptive. With limited knowledge of the power structures in the key governments with which they are dealing, it’s well nigh impossible for them to find, let alone work with, mid level and senior level figures who are their natural allies.
Thus Varoufakis (at least for now) is forced to broadcast his messages when narrowcasting would be better. Broadcasting means he will almost inevitably offend some key audience, given if nothing else how far apart Syriza’s voters and German officials are in their expectations for the negotiations. But the broadcasting is critical to communicating and rallying both insider allies as well as voters in periphery countries, since shifts in poll results increase pressure on the Eurozone reactionaries. Perversely, the best thing for Syriza’s chances were the Hebdo murders, since the boost it gave to anti-Eurozone Front National leader Marine Le Pen is a big wake-up call for the Eurozone elites.Today, after ECB announced that it will not accept Greek government debt as collateral for new loans, Smith writes in "ECB to Greece: Drop Dead":
Even by the standards of bank thuggishness, the move by the ECB against Greece last night was a stunner. Americans have become used to banks taking houses under dubious pretexts when both the investors and borrowers would do better with a writedown. But to see the ECB try take a country is another matter entirely. As one seasoned pro said, “If anyone had tried something like this against a country with a decent sized military, the tanks would be rolling.”
The ECB’s bombshell was to put Greece at risk of an intensification of its ongoing bank run in order to pressure it to agree to a deal with the Troika under an impossibly tight timetable, even shorter than the February 28 pre-existing deadline that Greece Finance Minister Yanis Varoufakis had planned to extend until June. As we’ve discussed at length previously, a longer negotiation timetable would be necessary to meet Greece’s objective of restructuring of the relationship with the Troika. Greece wanted that to be based on the recognition that Greece could never pay off its debts and that it was in both side’s interest to let Greece implement more growth-oriented policies. But the message from the enforcers at the ECB was unambiguous: Greece has no rights and needs to accept its debtcropper status.
The ECB has thus also effectively said that it would rather have fascists like Golden Dawn running Greece, which is what will eventually occur if it succeeds in breaking Syriza. It also just handed France’s Marine Le Pen, head of the nationalistic, anti-Eurozone Front National fantastic fodder for her campaign.
The February 28 date was the result of Greece presumably needing access to so-called bailout funds to pay off an IMF obligation coming due. Varoufakis said he would refuse those funds, and could get by until June, when more loans came due, by relying on existing tax receipts and getting what he regarded as minor waivers from the central bank. He also had some creative ideas for restructuring Greece’s debts and said that he wanted the OECD rather than the Troika to provide auditors on behalf of the lenders.
Even though we warned that the ECB was likely to use its control over liquidity facilities to stymie Syriza’s plans and force Greece to the negotiating table sooner rather than later, the smackdown was even more brutal than we imagined possible.
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As we have said before, Greece is in a weak bargaining position. It may be able to go beyond February 28, but probably not very long. Some readers have suggested appealing to Russia, but not only would that unleash even more brutal treatment from the Troika, but the German press has also reported that Russia is not interested.
Varoufakis has ruled out a Grexit as ultimately hugely detrimental to Greece. Even if the Tsipras government were to decide to reverse course (likely leading Varoufakis to resign), he would probably want a referendum to make sure it had popular support. Most governments have procedures that don’t allow for them to be launched on short order. So even with this averse development, a Grexit seems unlikely.
The Greek government can implement emergency measures, like capital controls and restrictions on daily bank withdrawals, to reduce the bank run. Measures like nationalizing all domestic banks and implementing a plan to allow foreign banks to leave the country in an orderly manner works only if the Greek central bank can backstop the domestic banks, and that in turn works only in the event of a Grexit, since the central bank needs to be a currency issuer.
And of course, Greece can default.
In response to an e-mail tonight, Varoufakis wrote, “One thing we will not do is capitulate.” I hope readers will wish him and his fellow citizens good luck. But the Troika seems determined to destroy Greece if that is what it takes to show that their authority remains unchallenged. But the cost of discipling Greece is likely to be far greater than they imagine, not just in financial terms, but to the Eurozone project itself.
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