Tuesday, July 14, 2015

Greek Debt Deal Not Done + Agreement Reached on Iran's Nuclear Program, Get Ready for Plenty of Netanyahu

Everywhere there are deadlines. Deadlines come and deadlines go. Deadlines are breached; then deadlines reappear. There was a Sunday deadline for Greece to reach an agreement with her creditors. The deadline was extended until Monday morning at which time the government of Alexis Tsipras found it expedient to surrender the sovereignty of the Greek nation.

Now the new deadline is tomorrow. The Greek Parliament has to pass components of the new debt deal by July 15. Then the remainder by yet another deadline, next Wednesday, July 22.

Already obstacles are beginning to appear. Yves Smith reports ("Greeks Rebel Against Bailout, Risk Collapse") that Greek Speaker of Parliament, Zoi Konstantopoulou, on record opposing the austerity package that Tsipras schlepped to Brussels this past weekend, might not be willing to expedite voting on the new agreement, effectively upending the deadlines established at the Euro Summit.

Public-sector unions have called strikes; Syriza's coalition partner, Independent Greeks, sounds as if it might not support the latest bailout; and, last but not least, Greek banks, still waiting for the ECB to turn the spigot back on, are likely insolvent.

Yves Smith's post this morning features Wolf Richter's "It Starts: Greeks Rebel Against Bailout, Risk Collapse." It is definitely worth reading because it shows even if everything goes according to schedule and the Tsipras capitulation is legislatively solemnized by the Greek Parliament, Greek banks are insolvent and will require a Cyprus-type bail-in:
Greece’s union of civil servants, Adedly, called for a 24-hour strike on Wednesday, and for a series of demonstrations, the first one tonight at Syntagma Square, just below the Parliament, and another one on Wednesday evening, when Parliament is expected to vote on the new, even tougher, and immensely hated bailout package. 
The union for local government employees, Poe-Ota, also called for a 24-hour strike on Wednesday, the AFP reported. Two other demonstrations against austerity and the “euro” are planned for Monday night, one organized via social networks, the other by Antarsya, an anti-euro party that didn’t make it into Parliament.
It would be the first strike against the leftwing Syriza coalition since it came to power six months ago. An ironic plot twist in this tragedy.
Syriza was the big force in the demonstrations against the two prior bailout packages, totaling €240 billion from taxpayers in other countries, conditioned on economic reforms pushed through Parliament by the conservative governments at the time. Now Syriza is looking at having to pass even tougher measures, including an increase in the Value Added Tax and pension reform, in return for only €86 billion in new money from taxpayers in other countries.
Syriza’s junior coalition partner, the Independent Greeks, is already getting cold feet.
“The agreement speaks of €50 billion worth of guarantees concerning public property, of changes to the law including the confiscation of homes… We cannot agree to that,” explained Panos Kammenos, the party’s leader, adding that the party would nevertheless remain in the coalition. With “confiscation of homes” he probably meant foreclosing on homes with defaulted mortgages.
Prime Minister Alexis Tsipras is already struggling with strong dissent within Syriza. But ironically, the pro-euro opposition parties, those maligned creatures that ran the show before, may support him in getting these despised measures passed.
Just how bad is the financial situation? Greece will default on a €450-million loan repayment to the IMF today, two sources told Reuters, on top of the €1.6 billion in debt to the IMF it defaulted on in June. For July alone, Greece faces debt payments of €8 billion, including the IMF payment, none of which it can pay without new money.
And the banks are closed. At first, it was going to be for six days, to prevent them from collapsing on the spot when the ECB decided not to raise the Emergency Liquidity Assistance (ELA). They’re illiquid and insolvent. They’re toast, but complicated toast [read… The Biggest Greek Banks “Have Failed,” and “Resolving” Them Won’t Work: Fitch].
Now they’ve been closed for two weeks, and there is still no reliable indication when they might reopen, under what conditions they might reopen, and how much of their deposits people will get back.
The €25 billion to recapitalize the banks as part of the bailout is supposed to be guaranteed by privatizations. Good luck, given Greece’s history with privatizations. Even the prior conservative governments and technocrats had trouble privatizing these government-owned enterprises that have long provided reliable opportunities for corruption and vote-buying. And now the leftwing Syriza, which swore up and down it would never privatize any of them, is supposed to vote to privatize them and then actually follow through?
But they will have to be privatized to guarantee the recapitalization of the banks. If not….
Even if it works out, the holes in the banks’ balance sheets will be much larger by the time the banks reopen, if they reopen. About two-fifth of their loans were already bad before capital controls were imposed. But here’s the thing: given the capital controls and Greeks’ distrust in their own banking system, only an idiot would still make loan payments.
So the loans are now deteriorating at lightning speed. And that €25 billion won’t be enough. But don’t worry, depositors….
“The recapitalization is so secure that it fully safeguards deposits,” Economy Minister George Stathakis told his compatriots on Monday to soothe their nerves. The ELA would be increased once Parliament approves the reforms, he said, thus pointing his own gun at Parliament.
Alas, the Greeks themselves know better than anyone else to never believe anything that their government publicly says about Greek banks. Hence, the near incessant withdrawals that have now lasted for years and that have finally helpto ed topple the banks.
Turns out, one of the measures to be passed by the Greek parliament no later than July 22 is Europe’s new directive on the resolution of banks. It provides that even senior creditors, including depositors, get haircuts before taxpayers are called in to pick up the tab. The fact that the Greek Parliament has to pass this law in a hurry shows that the dreaded bail-ins of depositors may be part of what’s next.
Eurozone officials like to lecture about a dearth of trust between Brussels and Athens. What about the lack of trust between voters and their elected representatives? Government heads don't seem to factor this into a calculation of how this all plays out. If an honest appraisal were to be made, one would have to conclude that the failure of Syriza is going to erode Greek institutions even more, and the crisis will deepen.

The P5+1 talks concluded today with an agreement. Obama has promised a veto of any Congressional override, which is likely in the next 60 days, putting it on a parallel track with the federal budget impasse and looming government shutdown in September.

The politics don't favor Netanyahu and the neocons on this one. Possibly in a world where people were not constantly reminded about the savagery of ISIS, Iran might be demonized and enough voters made afraid that Congress could muster veto-proof numbers to scuttle the nuclear deal. But we are on the runway to a presidential election year, and the most popular policy positions are the ones that embrace peace not war.

People are exhausted with open-ended war. They might not have a firm grasp on the various sects and takfiri groups or how to distinguish the GCC from Iran, but most know by now -- after Afghanistan, Iraq and Libya --  that bombing a country into submission does not create peace and prosperity; it just makes things incalculably worse.

Hillary will have to support the deal because to do otherwise within the Democratic Party with its ample peace wing would be extremely damaging to her standing in the polls.

As for Congress, we shall see the extent to which it is Israeli- and Saudi-occupied territory. Coming so soon after TPP and so close to a presidential election, I don't think it has the ability to override a veto. But it is still too early to say.

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