The Greeks are now negotiating seriously

by on February 12, 2015 at 6:04 pm in Current Affairs, Games | Permalink

So says my Twitter feed.

For the last few weeks there have been three models in the running:

1. The Greek government is calling the Germans Nazis because they figure Grexit is coming no matter what and they want to get the populace riled up as a distraction from the disasters, or

2. The Greek government will cave so cravenly on the substance that they want to have it on the record books that they supplied some expressive goods for a few weeks’ time, namely insulting the Germans and claiming that the Troika is dead and buried, or

3. The Greek government is simply full of out-of-control, ideological maniacs.

Right now it is looking like #2 — however unlikely it may sound as a model of retrospective voting and intertemporal substitution — is closest to reality.  What the relevant legislatures will go along with, however, still remains to be seen.  Arguably the insults and posturing have narrowed the possible bargaining space by hurting feelings all around.

1 Just an Australian February 12, 2015 at 6:15 pm

I favour #4: the greek government is full of enthusiasm and not thinking things through.
Occam’s Razor…

2 Anon February 13, 2015 at 6:50 pm

Isn’t that #3

3 Jan February 12, 2015 at 6:18 pm

They should make the EU kick them out. Then, deflation city. What’s wrong with that?

4 JWatts February 12, 2015 at 6:23 pm

That’s option #1 on the list.

5 Jan February 12, 2015 at 7:12 pm

The end game is the same, but under #1 the Greeks can’t do anything about being kicked out if even if want want to. I say that even if they think they can prevent being kicked out, they shouldn’t try.

6 Thomas February 12, 2015 at 7:34 pm

What can Greece do if it leaves the EU? The people of Greece can’t support their own lifestyle so they’ll have little choice but to become a paid ally of Western opposition. So you opt for violent opposition instead of debt repayment. Why am I not surprised?

7 Jan February 12, 2015 at 10:40 pm

If they exit Euro, they choose their own destiny. But no violence, Thomas. I am quite surprised you’d jump to that conclusion.

8 Thomas February 15, 2015 at 7:17 pm

But the cause of their exit is the very fact that they have a lifestyle which they could not afford in the past, will not pay for in the present, and will not decrease in the future. To maintain the aforementioned, Greece must acquire a patron. As a patron, who beside western opposition? And which western opposition does not spell it’s intentions out today with rifles?

9 prior_approval February 13, 2015 at 4:08 am

No, it isn’t – belonging to the eurozone is not the same as being a member of the EU.

A fact that the commenters here are certainly aware of, right?

10 Rahul February 12, 2015 at 7:17 pm

Reminds me of a sub-contractor who quoted too low on a project, then realized his folly; if he had requested to exit he would have faced a penalty.

So he just annoyed all the other site contractors with just enough shoddy, tardy work (but nothing blatent) that the owner asked them to quit. Win win.

11 Thomas February 12, 2015 at 7:35 pm

No. Lose-lose. Eliminating the penalty would have produced a better outcome.

12 Rahul February 12, 2015 at 8:22 pm

@Thoma: Agreed!

13 John February 12, 2015 at 8:26 pm

If it truly was just an error in assessing costs resulting in too low a bid win-win might be to leave the penalty but offer some incentives/compensation to get the quality work that was expected going in.

14 Rahul February 12, 2015 at 8:35 pm

True. Win win wasn’t the right description.

From the contractors POV it was the only recourse I guess.

PS. One problem is assymetric info.

15 BigFire February 13, 2015 at 1:25 pm

One of the outcome of this win-win is that the subcontractor will be black-listed and not invited to any future bid. Eating the penalty would’ve been preferable to no future business.

16 Thomas February 15, 2015 at 7:19 pm

@Bigfire: That depends on the status of the client, which hopefully our wise contractors have taken in to account.

17 genauer February 12, 2015 at 6:30 pm

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/819b6b00-b2cf-11e4-b234-00144feab7de.html#ixzz3RZnrDxkW

On Sunday Tsipras made fiery speeches, and tomorrow Greece will talk to the troika, or whatever they want it to be called,

http://news.yahoo.com/greek-officials-meet-eu-ecb-imf-prepare-mondays-173403040–business.html

How about we do a caption contest for the new troika ?

my suggestion is “welfare commitee” : – )

http://www.ft.com/intl/cms/s/0/819b6b00-b2cf-11e4-b234-00144feab7de.html

18 So Much for Subtlety February 12, 2015 at 6:36 pm

I am assuming no one here has ever dated a Greek girl or has had a Mediterranean mother. Because loud insult is kind of a default setting. They probably think calling Merkel a Nazi is like foreplay or something.

Also, of course, they are not Northern Europeans. They do not have that sort of Protestant conscience that means insults like this hurt. Everyone in the Med was a Nazi. Everyone then became a Stalinist. They didn’t care about the victims of one, they don’t care about the victims of the other – and they feel no shame about their enabling of either.

19 Nigel February 12, 2015 at 6:42 pm

Deploying some fairly loud insults there yourself.

You a Southern European, too ?

20 Nick Pappas February 12, 2015 at 7:09 pm

I am Greek American and the largely agree with the sentiments expressed

21 constr February 12, 2015 at 7:22 pm

Some of the most vapid, reductionist comments on here today.

22 So Much for Subtlety February 12, 2015 at 8:12 pm

Where is the insult? It ought to be a basic assumption that Greece and Germany do not share a culture. Have you ever seen the way that many southern European mothers talk to their children when angry? Which brings us back to my main point – because White Americans tend to regard being called a Nazi as beyond the pale, it does not follow that every culture in the world agrees. The Greeks may not realize how it sounds to Germans.

Whatever else you can say about Germany, they are really really sorry about the war. Southern European countries? Not so much. Italians don’t express much regret because it had nothing to do with them. All evidence to the contrary. They still have a Fascist Party. Two in fact. Both very popular. Nor do they express any regret over most of their intellectuals being unrepentant Stalinists. As with France. Why should they? These are not cultures that feel a great deal of guilt.

Which brings us back to the Greek government. These are not naive fools who did not know what Stalin and Mao did. They know. They knew. They supported one or other anyway. They feel no shame about the logical consequences of their politics, about supporting genocide when it took place, and about supporting the people who did it. Otherwise they would not be in Syriza.

That is a major difference between north and south Europe.

23 Sorts February 12, 2015 at 8:22 pm

The Greeks and Italians weren’t coddled a comparable amount of reconstruction aid after WW2 as West Germ was.

24 Rahul February 12, 2015 at 8:32 pm

Were Greeks, Italians as badly damaged?

25 So Much for Subtlety February 12, 2015 at 8:38 pm

There were about 50 million West Germans. They got 1.448 billion dollars. There were about 50 million Italians. They got 1.2 billion.

There were about 8 million Greeks. And they got 375 million dollars. Even though the country was not bombed or fought over to the same extent as either Germany or Italy.

I could be wrong, but it looks to me like Greece got more per head of population.

26 Chip February 12, 2015 at 8:38 pm

Coddled?

Or given loans that were fully repaid by 1971.

27 asdfG February 12, 2015 at 8:39 pm

If it is all about culture, how come the Austrians are completely unrepentant?

“Us Nazis, what? We are the first victims of the Nazis. Don’t look behind that anschluss curtain!”

28 So Much for Subtlety February 12, 2015 at 8:42 pm

Why would Catholic Austria behave like Catholic Italy and Catholic France but not Protestant Prussia?

I think you under-estimate Austrian guilt though.

29 Aus dem Hollerbusch February 13, 2015 at 2:47 am

Austrian guilt is nowadays a fixed part of the Austrian school curriculum and politicians frequently take part in events remembering this dark moment of Austrian history. I, however, never understood how collective guilt makes sense, especially across generations. The funny thing is: Many members of the first Austrian governments after WW2 were imprisoned, in concentration camps or in exile during the Nazi era. Now they are faulted for feeling as victims of the Nazis…

30 asdfG February 13, 2015 at 11:23 am

Thanks for proving my point, AdH. You hear that sentiment all the time in Vienna, and never in Berlin.

31 Just Another MR Commodore February 13, 2015 at 11:36 am

Well of course the Australians are guilty. They’re all convicts – that’s how they ended up there in the first place!

32 Jan February 12, 2015 at 11:10 pm

I take it you don’t see the irony in skewering southern European cultures that use bad words and don’t pay their debts by comparing them to a northern European culture that brought the world…actual Nazism. As if the Greeks were the real masterminds behind last century’s genocide. Or, more likely, you’re just trolling.

33 So Much for Subtlety February 13, 2015 at 3:24 am

But there is no irony. I am just not saying what you want me to say and what you think I am saying. I am saying something else.

The southern Europeans are too disorganized to carry out the Holocaust. For that you need efficient, honest, incorruptible government. Only the Germans could do it. The southern Europeans could carry out a genocide-like crime – and the Italian conquest of Libya was one of the more brutal colonial conquests that may have killed a third or more of the population – but it would not be so well organized. They lack an identification with the State. They do not trust it. They do not serve it with dedication.

34 Art Deco February 13, 2015 at 12:46 am

They still have a Fascist Party. Two in fact. Both very popular.

This is a fantasy.

35 Locke February 13, 2015 at 3:04 am

you obviously dont watch much Italian football

36 Art Deco February 13, 2015 at 12:48 am

They supported one or other anyway.

Actually, red haze parties in Greece have historically collared less than 15% of the ballots.

37 prior_approval February 13, 2015 at 4:13 am

‘The Greeks may not realize how it sounds to Germans.’

Wait a second – do you think that the Germans aren’t aware of who the Nazis were? Or have you actually ever listened to any Germans talking about the need to avoid ever acting like Nazis – because that is a quite broad spectrum in German politics, from the conservative Christian Socialist Union in Bavaria to the Left Party stronghold of East Germany.

38 Hazel Meade February 13, 2015 at 9:06 am

That is his point. The Greeks don’t take the word “Nazi” nearly as seriously as the Germans do.

39 Albigensian February 13, 2015 at 10:14 am

“The Greek government is calling the Germans Nazis …”

Well, that’s fair enough: Germany is the nation of Auschwitz; the stain is permanent and ineradicable.

BUT what does that have to do with the price of eggs, or Greece’s inability to reform its economy? Are they asking for reparations?

40 Hazel Meade February 13, 2015 at 3:40 pm

Are they asking for reparations?

Yes. If you have not been paying attention, I believe the number was something like $236 billion.

41 Jan February 12, 2015 at 7:16 pm

I’d be interested in learning more about the pathology of Greek culture.

42 Rahul February 12, 2015 at 7:23 pm

I sure hope your mom / gf aint reading this. 🙂

43 constr February 12, 2015 at 7:23 pm

Those are some of the most vapid, reductionist comments on here today.

44 So Much for Subtlety February 12, 2015 at 8:06 pm

Thank you. I do try to please.

But are they wrong?

45 Arblet February 12, 2015 at 8:23 pm

You always seem to try to wedge in your prejudices about different regions of Europe.

46 So Much for Subtlety February 12, 2015 at 8:41 pm

The most important fact about this crisis is that there is a cultural divide between those countries in crisis and those countries that are doing well. Right down traditional lines too.

Culture matters. Except now it looks like we are not allowed to talk about culture if it makes northern Europeans look good because that has been re-defined as racism. That is where the real pathology lies.

Just a simple question – what criticism can you make about the Greeks that is not racism in your opinion?

47 derek February 12, 2015 at 9:15 pm

The sun is too bright making the azure sea difficult to see.

My solarphobia manifests itself.

48 Merijn Knibbe February 12, 2015 at 6:40 pm

Which insults etcetera? Tspiras actually states very sensible things, many of which have, mutatis mutandis, bipartisan backing in the USA. Returning the interest paid on bonds owned by the central bank to the government… Not returning to the deficits of the past but also not choking the economy by the combination of a 4,5% primary surplus and large transfers to other countries… Mending an imploding health care system… A little extra money for the poorest pensioners (mind that there have been very large cuts). Madmen? Not in Greece.

49 Anon. February 12, 2015 at 6:50 pm

>Returning the interest paid on bonds owned by the central bank to the government

You realize this is already happening, right?

50 Millian February 12, 2015 at 7:06 pm

“Not returning to the deficits of the past”

LOLhow.

51 Nick_L February 12, 2015 at 7:55 pm

You do know that you’re using Latin to describe a Greek crisis, right? Surely you could have at least thrown a ‘Molon labe’ in there somewhere esp. when referring to Greek debt transfers

52 Tom Warner February 12, 2015 at 6:55 pm

I guess they really had no idea what was coming, and now they are realizing that unless they play along with some kind of adjustment program, Europe will let them get crushed by a bank run. The banks are probably very close to running out of cash.

http://globalizedblog.com/2015/02/europe-girds-for-greek-default.html

53 genauer February 12, 2015 at 7:07 pm

The Greek banks got last week a 10 bn Euro cash injection from the ECB, called ELA (emergency liquidity assistance).

Today another 5 bn were necessary. That should be enough until Monday 2/16/2015 for the final showdown in the Eurogroup meeting.

54 Tom Warner February 12, 2015 at 8:23 pm

No, the Greek banks actually had the ceiling lowered.

Prior to last week’s Varoufakis-Draghi meeting, Greek banks could borrow ECB-authorized refinancing against their quality foreign assets (mostly EFSF notes), plus their Greek government debt, plus their Greek government-guaranteed debt. And on top of that they could borrow €50b of ELA.

After the ECB council decision that evening, Greek banks can only borrow ECB-authorized refinancing against their quality foreign assets. They got the limit on their ELA boosted to €59.5b, but they lost more than €30b of ECB-authorized refinancing that had been backed by government debt or government-guaranteed debt.

55 Art Deco February 13, 2015 at 12:50 am

Europe will let them get crushed by a bank run

Exchange controls are great stuff.

56 prior_approval February 13, 2015 at 4:21 am

Yeah, it is pretty hard to move euros through the eurozone. But then, maybe Detroit or Puerto Rico should also impose currency controls, as a response to the current debt problems.

57 Art Deco February 13, 2015 at 10:10 am

The Euro coins have signature designs for each member country. The Euro notes have an alphabetic code on the back indicating the country of origin. Shut the banks for a few days, sort the vault cash, ship the notes and coins of foreign origin to the central bank in return for reserves on deposit, and stamp the remaining notes as a mnemonic aid. Re-denominate the bank accounts one-to-one, require exporters to deposit foreign exchange earnings with the central bank, and have the central bank auction tranches of foreign exchange earnings each month to set the official exchange rate between the new domestic currency, foreign euros, and everything else. If someone shows up at your bank with foreign-origin Euros, exchange them for domestic currency at the month’s official rate.

58 Losremt February 12, 2015 at 7:28 pm

The Germans want to keep as many countries in the Euro, so they can artificially prop up their exports. They complain about having to loan money to the weaker economies, but they don’t really want everyone to leave the eurozone. They don’t want France, Italy, Spain, or any other countries exports getting cheaper or better values than theirs. It’s trying to have it both ways.

59 Dan February 12, 2015 at 9:23 pm

Michigan and Pennsylvania both use dollars. Does that mean that Cadillac sales are “artificially propped up” in Philadelphia?

60 Losremt February 13, 2015 at 6:49 am

Does Michigan loan money to Pennsylvania or vice versa?

61 ila February 13, 2015 at 8:35 am

http://sers.pa.gov/
http://www.michigan.gov/orsstatedb

Couldn’t find a list of all holdings for the Michigan pension plan, but I did see some notably Michigan-based firms on the Pennsylvania pension plan holdings list.

62 Losremt February 13, 2015 at 2:42 pm

Ok, so you found some pension holdings, maybe. Hardly comparable to the dynamic between the the countries in the Eurozone.

63 Judah Benjamin Hur February 13, 2015 at 12:00 am

Many years ago it seemed clever to offer an economic explanation for just about every decision. Now it just looks simplistic. Financial considerations should always be taken into account, but rarely offer a full explanation. In fact, one could argue that Germany would be much better off financially without the Euro. In either case, their support for the Euro and the EU generally is significantly motivated by idealism.

64 prior_approval February 13, 2015 at 4:24 am

‘one could argue that Germany would be much better off financially without the Euro’

Well, if one ignores the opinion of those Germans involved in manufacturing, which remains Germany largest perceived source of financial benefit.

And if the U.S. was dumb enough to allow the dollar to rise above parity, German manufacturers would be one of the loudest groups cheering America’s strong dollar fetish (with Dean Baker sobbing quietly in the corner).

65 Judah Benjamin Hur February 13, 2015 at 9:33 am

Not ignore, but balance it against the costs to taxpayers and consumers. Also keep in mind the number of German factories outside of Germany.

66 Moreno Klaus February 13, 2015 at 4:38 am

“Singnificantly motivated by idealism”…Are you trolling?

67 Judah Benjamin Hur February 13, 2015 at 9:44 am

Support for the Euro has always been motivated more by idealism than sound economics.

68 Larry February 12, 2015 at 7:35 pm

I like #1. They thought that if they threw some new ideas out there (NGDP-linked bonds), somebody might bite. Nobody did. Plan B is Grexit. No amount of caving to the troika can fix what’s wrong with Greece. They need to leave, default and start over. One more miserable year and then things start to improve. They’ve asserted their sovereignty and the Euro isn’t that good a place to be anyway, these days, given the ECB’s insane inability/unwillingness to loosen their money supply so they can hit their nominal macro targets.

69 Hazel Meade February 12, 2015 at 8:04 pm

If you asked me Europe is much better served by inviting Ukraine into the club while showing Greece the door.
They should take the money Greece is asking for and turn it into an economic restructuring plan to help Ukraine integrate itself into the European economy.

70 So Much for Subtlety February 12, 2015 at 8:15 pm

Maybe Merkel can arrange a swap? We get the Ukraine with Crimea, and the Russians can have Greece.

Perhaps the worst deal for the Russians since they sold Alaska for some blankets and a handful of wampum, but as they really want some sandy beaches, warm sun, a lax banking regime and a warm water port, they might go for it.

71 Hazel Meade February 13, 2015 at 3:39 pm

Plus then we get the amusement of watching the Greek interactions with their new creditors.
Something tells me the Russians are not nice people to borrow billions of dollars from.

72 The Anti-Gnostic February 12, 2015 at 9:47 pm

Ukraine is hilariously corrupt. Probably even more than Greece.

73 Rahul February 12, 2015 at 11:02 pm

As if Greece isn’t corrupt.

Besides Ukraine might actually have more to show by way of actual industrial, exportable output.

74 carlolspln February 12, 2015 at 11:39 pm

UKR is not a European country, and never will be.

Ask SMSF above.

75 Michael February 12, 2015 at 7:38 pm

I’ll take #4 instead: Cowen has no idea what he’s talking about and Syriza is the best thing to happen to Greece since tzatziki.

76 prior_approval February 13, 2015 at 4:26 am

The general director and chairman of the Mercatus Center may or may not understand Syriza, but he is in a classically Upton Sinclair style position regarding the source of his center’s donor funding.

77 rayward February 12, 2015 at 7:50 pm

German Nazis? Are Germans still using that excuse?

78 Hazel Meade February 12, 2015 at 8:01 pm

Or #4, they are playing chicken. How crazy are YOU Germany? Are you crazier than ME? ARE YOU? If I’m THIS CRAZY, do you think you can beat me at chicken? I don’t think so!

79 Larry February 12, 2015 at 8:41 pm

Germany has decided to call their bluff, if that’s what it is. The end game approaches.

80 Mark Thorson February 12, 2015 at 11:42 pm

So, how do I make a buck off this? Buy a truckload of retsina? Or, will the crisis lead to a collapse in retsina prices?

81 pda February 13, 2015 at 12:23 am

Buy a crap-load of Euro-VIX ETF and sell it when they get real close to the edge, e.g. Feb 27.

82 Red February 12, 2015 at 8:12 pm

The Greek government is simply full of out-of-control, ideological maniacs.

Not the only one in Europe. I don’t think it would be a “disaster” if Greece left the Euro. It would create a short term shock to the system but would be better for all parties in the long term. Still, the Euro and European integration has never been an economic question.

83 DCBillS February 12, 2015 at 8:47 pm

Need jubilee. That which can’t be repaid won’t. Putin will see that Greece lands on its feet.

84 Kevin February 12, 2015 at 8:48 pm

At times today, it felt almost like the EU was working through a bailout of Ukraine and coming closer to a ceasefire with Greece.

There is probably a #4, which requires that all sides privately acknowledge the Greek debt burden is unsustainable over the long run (though Ferdinando Giugliano and other folks way smarter than me say it might not be).

The deal looks like this: (i) no face-value haircut for the Greeks, which gives Merkel necessary political cover, (ii) extending the long-term repayment period at low or zero interest, which amounts to a huge back-door haircut, (iii) Tsipras agrees to a crackdown on tax evasion and other corruption matters, which is fine by SYRIZA since they’re not part of the crooked five dozen families in the ND/PASOK elite that’s governed Greece for 40 years (and much longer, really) and (iv) Tsipras gets enough policy flexibility on public-sector employment and minimum wage to declare ‘end of austerity’ without too much laughter.

Let the natural business cycle and Draghi’s QE do the rest of the work. Greece is already promising to grow faster than the rest of the eurozone in 2015.

#5 (or perhaps #1b or #3b) would be “make a deal with the Russians,” which perhaps EU policymakers aren’t taking seriously enough. The Kremlin knows this is a good deal, and both the Russian foreign minister and finance minister have telescoped Russia’s willingness to play. Putin’s already invited Tsipras for a May sit-down in Moscow. Both SYRIZA and ANEL are opposed to EU sanctions, and Kammenos can play the nationalist/Orthodoxy link to Russia.

85 bigtime February 12, 2015 at 9:17 pm

Whatever happens, evil commies to blame.

86 Bill February 12, 2015 at 9:22 pm

Re: The Greeks Are Now Negotiating Seriously

The previous Greek regime did not negotiate at all, and “negotiation” requires another party who is also willing to negotiate, so what the headline should really read is:

The Germans Are Now Negotiating with the Greeks.

Seriously.

87 Rahul February 12, 2015 at 9:43 pm

If we go by north-south heuristics what about the recent crises in Ireland, Iceland etc?

Is culture relevant there? Are you making Catholic vs Protestant distinctions or just saying that northern europeans are whiter than the others?

88 So Much for Subtlety February 13, 2015 at 3:40 am

It is hard to know whether some people become Protestants because of their culture or their culture shapes the way that Protestantism turns out.

What about the crisis in Ireland? Is it any surprise that the feckless Catholics of Ireland should have the same economic problems as the feckless Catholics of Italy, Spain, and Portugal? I would be looking closely at Belgium.

As for Iceland, they followed the austerity of northern Europe. They may have been run by a lesbian Communist but her policies, by and large, would have made the burghers of Darmstadt proud.

89 prior_approval February 13, 2015 at 4:41 am

‘Is it any surprise that the feckless Catholics of Ireland should have the same economic problems as the feckless Catholics of Italy, Spain, and Portugal?’

And it is a surprise that the feckless Catholics of Bayern and Baden-Württemberg are basically living in the richest part of the eurozone? Anfd you might really want to look again at just how feckless the Catholics of Nothern Italy are – not that I expect you to be buying a Ducati or Italian made fashion any time soon.

90 Art Deco February 13, 2015 at 10:13 am

The feckless Catholics of Ireland have a per capita income which is close to being the world’s highest.

91 Moreno Klaus February 13, 2015 at 4:37 am

The crises in Iceland and Ireland have little to do with Greece, Portugal, etc…

92 Rahul February 13, 2015 at 11:37 am

Was one set more culpable than the other?

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94 seb flex February 13, 2015 at 7:51 am
95 Boonton February 13, 2015 at 9:23 am

Let me annoy everyone with my proposal yet again:

1. New bonds are created; 0% interest rate with balloon payment due in 15 years or so. They do require principal payments of, say, 1-2% of Greece’s current GDP.

2. The new bonds are swapped out for old ones owned by Europe’s central bank and governments. An administered sinking fund is created to either buy old bonds back from the market at par or retire the old debt as it comes due.

3. Initially the ECB will fund these bonds but over time a portion of them will be sold off to the general market. This is to ensure that in 15 years there won’t be carping that the huge balloon payment is only to put money in the hands of a German influenced Central Bank. It will also ensure there will be private sector bond owners who will have an interest in ensuring Greece does not then suddenly default on the whole thing.

4. It is understood after that point any new borrowing by Greece is entirely on its own with no guarantee by the ECB or the rest of Europe. Any new bond issues by Greece would be treated by the European banking system as no different from any type of corporate bond…only as good as its credit rating and how safe the market thinks it is.

Assuming 2% principal payments over 15 years and Greece’s debt will decrease by 30% of its current GDP. If GDP growth is even a bit positive it could decrease by a lot more than that. If Greece is currently running a surplus of 4% it can cut that in half which should help its damaged economy. Germany & the rest of Europe does suffer slightly less in interest payments but it isn’t like those countries need the interest to keep their lights on. What they gain is two key benefits:

1. They don’t have to worry about a mass default, which would represent a much larger write off than simply less interest income…in an environment where interest rates are zero or negative.

2. They can exit the game of guaranteeing Greece’s future debts. Greece can remain in the EU but it will do so as fiscally responsible and unable to borrow unless its economy dramatically improves and debt levels are dramatically paid down.

Might Greece wait out the 15 years and then just default? Perhaps but if all goes well Greece’s standing will dramatically improve over time and the financial markets will appreciate a good decade and a half break from constant ‘default criseses’. At that point it may very well not want to ruin the credibility built up over that period.

96 Boonton February 13, 2015 at 9:33 am

AS an added plus, this proposal can be scaled to other troubled nations in the EU like Spain or Italy. The problem with the ‘kick Greece out’ idea is if Greece leaves and defaults and then sees their unemployment fall and GDP rise (as it would almost certainly play out since they ditch debt payments and return to their own currency which they can let fall to induce exports). How exactly will that play out to the other problem nations whose debts are much larger? At what point will their voters demand to know what benefit is there to running austerity during a recession?

97 TallDave February 13, 2015 at 11:01 pm

The problem is 4. Every agreement stipulates “no more borrowing. Ever. Period. For reals this time, no takebacks,” Often these promises are also made before the bailouts. They spend the money they don’t have anyway.

98 Boonton February 14, 2015 at 7:49 am

Greece can do as much additional borrowing as it pleases. Such bonds would not be treated as collateral by the ECB and Europe wouldn’t be guaranteeing them. If the market is still comfortable lending to Greece after that so be it.

99 TallDave February 15, 2015 at 12:03 am

“We’re not bailing you out again” was always the deal in every bailout.

100 Boonton February 15, 2015 at 3:32 pm

Greece isn’t getting bailed out, the EU is.

101 Turpentine February 13, 2015 at 10:10 am

#4 – Grece strongly believes that despite all their posturing, even the Germans won’t let Grexit happen, if only for the “unknown unknowns” issue.

Come on guys. If the Germans are as careful and prudent as they like to make everyone believe, why wouldn’t that trait extend to their attitude towards the unknown consequences of letting Greece exit?

102 Miguel Madeira February 13, 2015 at 11:03 am

“The Greek government is calling the Germans Nazis”

When the Greek government called the German Nazis?

If anything, the Greek government called THE GREEKS nazis (what Varoufakis said was that the nazis are the third biggest party IN GREECE, and, it the economic crisis is not solved, Greece could become nazi).

103 Yancey Ward February 13, 2015 at 11:38 am

The key is to make sure the Greeks don’t openly default. That is the Troika’s only real goal- not having to mark the debt down. The Greeks are willing to play along if the EU is willing to take zilch in return. Hell, the Greeks may even get some more loans to spend on themselves if they don’t really have to do anything to repay it.

In other words, people have this backwards- the Greeks aren’t caving. They know they have the Troika bent over a desk. The Greeks can’t pay and won’t pay.

104 Anthony February 13, 2015 at 11:48 am

Is it possible for the Greek government to default on its debt without expressly leaving the Euro (or the EU)?

105 Miguel Madeira February 13, 2015 at 12:15 pm

Formally, yes.

However, if Greece unilateraly defaults, probably the ECB will not lend more euros to the greek banks, meaning that these banks will become very vulnerable to a bank run.

For other hand, ECB does not lend euros to Montenegrian and Kosovar banks, and Montenegro and Kosovo still use the euro (and Ecuador the dollar).

106 Boonton February 13, 2015 at 1:56 pm

Why are the two linked? If a state in the US defaulted on its bonds, the Federal Reserve wouldn’t try to punish banks inside that state by cutting them off.

107 Adrian Ratnapala February 14, 2015 at 2:26 am

I think the point is those banks are using Greek bonds as collateral. So if Greece starts defaulting on those bonds, it makes no sense to accept them as collateral.

108 Miguel Madeira February 14, 2015 at 7:16 am

There are two different issues there:

One are the loans that the ECB gives accepting Greek bonds as collateral – these loans ended last week, because of the risk of default.

The other are the loans that the Bank of Greece gives (with the permission of ECB) to the Greek bans (accepting something – perhaps Greek bonds, perhaps other thing – as collateral); it is these loans that, eventually, could stop if Greece defaults.

109 ckb February 13, 2015 at 2:46 pm

It’s completely possible, and it’s very important to understand this. The thinking is that the ECB will stop supporting Greek banks if Greece defaults, and that would force Greece to abandon the Euro and print their own currency. But that’s a choice the ECB would make, and as far as I can see, they don’t have to make it.

If Greece is kicked out of the Euro, it will be because of an explicit act of retaliation. I’m not saying that’s right, and I’m not saying it’s wrong. But it will change, profoundly, what the “European Project” means.

Another thing to consider is that there is no mechanism–none–for forcing a country in the Eurozone to abandon the Euro. So what happens if Greece defaults, the ECB retaliates against Greek banks, Greece runs the expected playbook (bank holiday, convert all accounts to New Drachmas, repudiate all government debt, etc.), but also says: we have NOT left the Euro. The unprecedented actions of the ECB have forced us to take unprecedented actions to defend our economy, but we are still a part of the Eurozone, Euros will still circulate as currency, and we will redeem Drachmas for Euros at some point in the future. Remember California’s IOUs five years ago?

(But that’s against the rules! Yeah, ’cause Germany never broke the rules.)

Germany seems to keep forgetting that they admitted Greece to a union, not a social club. This eludes many commentators as well. Greece has no obligation to leave quietly because the Germans are having second thoughts.

110 Miguel Madeira February 13, 2015 at 3:01 pm
111 Barkley Rosser February 13, 2015 at 2:45 pm

Sigh… Time for some more from Pollyanna Rosser, who has yet to be proven wrong on this matter, although one would not know it from either Tyler’s post (hopefully he made it over the RR tracks in Birmingham to that good BBQ joint), much less most of the commentary here, with a few exceptions above later on (Boonton and Kevin and some others). So, I would agree with those who do not think any of the three Tyler poses are what is going to happen, although one or another of them might. Indeed, the one thing he said correctly was the headline, that the Greeks are negotating, but assuredly most of this is going on behind the scenes.

Why is it unreasonable to pose as most likely outcomes either “Grexit” (which both sides have consistently decalred they do not want, despite some rumblings in both natinos by some not in either government), or a Greek “cave”? Despite lots of noise and strutting abou by both parties in recent days, the only real actions appear to cut both ways, in short a stalemate for the moment while negotiations continue. On the one hand we had the ECB shutting down one of the ELFs for Greek banks, although it was not the one most use and several observers noted that this may have been a move directed as much at the Germans as gthe Greeks (perhaps incorrectly). But then we have now had an extension of the fiscal deadline for Greece that was sorely impending and that most of those forecasting a near term collapse by Greece were jumping up and down about. Bottom line is that the Greek stock market was up slightly toeday, while 10-year bond yield was also up slightly, although below the 10% level it has exceeded quite often recentlyl. This does not look like either an impending Grexit or cave at all. It is still a tough game of chicken that is still in play, very much so.

Furthermore, as one commenter noted, but which really must be made clear, Tyler has really seriously erred here in his account. Nobody in the Greek government to my knowledge has called the Germans nazis. I just went on a google serach for this. I see a bunch of newspaper cartoons that have done so and some street demonstraters. These are not the governmnet. What the government did do was to demand reparations for WW II as of several days ago. Unsurprisingly the Germans have rejected this demand, although they did pay other nations such reparations in the past, so this is not quite as unreasonable or “ideologically maniacal” as Tyler suggests. Looks like another move in the game of chicken to offset the demands from the Gremans. In making the demand they most definitely did not say the current government is nazi, even if there are political cartoonists and people in the streets saying so.

Really, Tyler, you shojuld avoid overstating stuff like this. The people in the streets may be getting hysterical in Greece. After all, they have had several years in a row of severe economic decline with an unemploment rate well over 20%. Maybe they deserve this because past governments were naughty naughty, but telliing them this is not exactly likely to make them not make unpleasant accusations against the Germans, who did do some pretty nasty stuff in Greece in WW II and never did pay any reparations for any of it. But, the government has not played this game, despite making the reparations demand they know would nto be met. They are a bit smarter than that, even if Varoufakis is naughty naughty fo rnot wearing a tie to meet with his “superrors” in Berlin, much less tuch in his shirt.

112 ChrisS February 14, 2015 at 10:42 am

Unfortunately you are incorrect in stating that Germany never paid Greece reparations for WWII. They paid in excess of 54 million dollars in the 1950’s and 60’s. This would be nearly 500 million in todays dollars.

113 Barkley Rosser February 14, 2015 at 1:03 pm

Chris,
I just looked at the Wikipedia entry on this, accept it might not be correct. According to it the Greek central bank was forced to make a zero interest loan to Germany in 1942 of 426 million Reichsmarks. In 1960, West Germany paid them 115 million marks, which they considered covered everything, but no Greek government has accepted that it was the full amount and has said that this was a down payment. As of German reunification in 1990, Germany basically said, “We are not paying anybody any more for WW II.”

So, the current Greek government’s demand is not going to be met, but it is not out of line with the position of past Greek governments. If you want to say that the 1960 payment was sufficient, fine, you can make that argument. But this is not quite the open and shut case you suggested, as the question obviously is not what the amount that was paid is worth today but what the amount that was properly owed is worth today compared to that.

114 Douglas Levene February 13, 2015 at 3:13 pm

Well, at least as of today (2/13) it looks like the Greeks are talking. The evidence? The CDS spread on Greek sovereigns dropped 400 bp overnight to 1,684 (19.22% drop). By way of comparison, CDS on Swedish sovereign debt is at 15.

115 Quite Likely February 13, 2015 at 6:15 pm

I’ve got to say, I’d be pretty shocked if any of those three options were the case.

#1 comes the closest to being a possibility. I doubt anybody has resigned themselves to a Grexit, but clearly it’s something that’s sufficiently possible that it should be prepared for.

#2 Doesn’t look likely. If Syriza had any interest in caving they wouldn’t have formed their coalition with the Independent Greeks, whose only policy point in common is being anti-austerity. Caving on the negotiations would almost certainly lead to a collapse of the government as both the IGs and half of Syriza walked out in protest.

#3 Don’t even know what to say about this one. Syriza’s policy positions are all pretty standard rational moves, only seeming radical in the face of the insanity that has taken over the European governing elite.

All of this is really overthinking it: they’re calling the Germans Nazis because the Germans are their opponents in the negotiations, and the more people are riled up against the Germans, the more popular Syriza will be. Plus it’s not exactly a crazy thing to bring up, given that the founding experience of the modern Greek left was resistance to the German occupation, and that now Greece is once again getting screwed over by Germany.

116 jon livesey February 13, 2015 at 10:15 pm

I have seen one suggestion that unlike other European politicians, Tsipiras and Varoufakis have no prospect of cushy EU jobs and pensions if they fail at home. So they have no incentive to charm the EU, and every incentive to rally as much domestic Greek support as they can. Calling the Germans Nazis, while wrong, meets both.

FWIW, I’d go for #1, but I have to admit that Europe has surpirsed me before.

117 Miguel Madeira February 14, 2015 at 7:10 am

“Calling the Germans Nazis, while wrong, meets both”

Citation needed for greek government “calling the Germans Nazis”

118 Barkley Rosser February 14, 2015 at 12:55 pm

I second that. Bad enough that Tyler put that in his post when there appears to be zero evidence of it. Asking for reparations from the Germans for WW II may be a big silliy show, but that is not the same thing as calling the current bunch nazis. Newspaper cartoonists and people in the streets are calling them nazis, but not the Greek government. Let us not have people posting here repeating Tyler’s inaccurate claim.

119 ckb February 14, 2015 at 2:53 pm

Don’t mention the war! We’ve decided that the Germans should be allowed to draw a line under the whole business and move on.

But don’t even mention that we’ve let the Germans draw a line under the whole business and move on, because that deal is certainly NOT on offer to the Greeks, and we don’t want to give them any ideas.

I mean, the Germans only invaded half of Europe and killed millions of people. The Greeks BORROWED IRRESPONSIBLY. We obviously have to have some standards here!

120 TallDave February 13, 2015 at 10:57 pm

Isn’t it obvious what will happen next? This Greek government will be thrown out for doing exactly what it promised not to do — and castigated its opponents for doing.

Eventually someone crazy enough to actually do what the voters want will be elected.

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