EU: Uncharted Territory

[Rogue]

Rift With Greece Sets Europe Into Uncharted Territory
Reuters  |  By Alastair Macdonald
Posted: 06/27/2015

BRUSSELS, June 28 (Reuters) - Europe's grand project to bind its nations into an unbreakable union by means of a common currency lurched into uncharted waters after EU governments refused funding to save Greece from defaulting on its debts.



While finance ministers of the other 18 euro zone states chorused their insistence that Greece would remain inside the bloc, exasperation with the leftist government's decision to reject creditors' final offer and instead call a referendum was manifest and some officials spoke privately of expelling Athens.

"They were playing poker," said Austrian Finance Minister Hans Joerg Schelling after the Eurogroup that runs the currency met on Saturday without their Greek counterpart to discuss how to limit the fallout. "But in poker, you can always lose."

After five months of negotiations with a Greek government elected to end the pain of austerity measures, EU leaders left a summit in Brussels on Friday believing a deal was close to roll over bailout funding and let Athens meet a repayment to the IMF on Tuesday and further obligations over the coming months.

But Prime Minister Alexis Tsipras provoked consternation by returning home to call a referendum for next Sunday on the offer and urging voters, weary of years of debt crises, to reject it.

Not for the first time, EU officials said Greek negotiators across the table were themselves taken by surprise by news from Athens. "They heard about the referendum on Twitter," one said.

"Tsipras messed up," a euro zone official said. "We did everything possible. They chose to blow up when we were so close to settling this in a way that would allow them to sell it."

Amid political drama in Greece, where a clear majority wants to remain inside the bloc, the next few days present a major challenge to the integrity of a 16-year-old currency bloc, which many blame for massive unemployment in countries outside Germany and its neighbors in the richer north and west of Europe.

RISK MANAGEMENT

"We must do everything we can to fight any conceivable threat of contagion," German Finance Minister Wolfgang Schaeuble said after a meeting at which the group effectively called for capital controls to ring-fence Greek banks hemorrhaging cash.

While acknowledging that only Greece - or possibly banks themselves - can instigate such a shutdown, the ministers said the European Central Bank, whose management meets on Sunday, should use its powers to stabilize markets.

"You have to count on Greece getting into acute problems in the coming days because of this decision," said Schaeuble, some of whose conservative allies have made no secret of preferring to see Greece forced out of the euro zone. "That is difficult as we do not know how it will live up to its commitments."

He and others, however, stressed their faith in stability mechanisms put in place after skepticism among investors pushed the euro zone to breaking point following a run of national bankruptcy scares in the wake of the global crash of 2008.

And, echoing his French Socialist counterpart, Michel Sapin, Schaeuble insisted after the fifth such deadlocked ministerial meeting in just over a week: "Greece remains a member of the euro zone and Greece remains part of Europe."

But there is a divergence, certainly in tone, between Berlin and Paris. Sapin insisted the Eurogroup at least discuss the Greek request for an extension on Saturday but Schaeuble and most others had lost patience, sources close to the talks said.

Afterwards, Sapin said he was still ready to negotiate, a view repeated on Sunday in Paris by Prime Minister Manuel Valls.

But few EU leaders now trust this Greek government, whose calls for debt relief and criticisms of the bailout's deadening effect on growth have been echoed by some leading economists.

When representatives of the three creditor institutions - euro zone governments, the ECB and IMF - met after Greek Finance Minister Yanis Varoufakis had left, participants quoted one senior official as joking that at least they could refer again to the lenders as the "Troika," a term Varoufakis had insisted be dropped because Greeks associated it with external diktats.

Dutch Finance Minister Jeroen Dijsselbloem, the Eurogroup chairman, repeatedly referred to the possibility that the Greek parliament might reject Tsipras's call for a referendum. But lawmakers dashed any prospect of a quick shift in Greek politics before markets open on Monday by voting for it to go ahead.

Still, Dijsselbloem insisted: "The process has not ended. It will never end probably. We will continue to work with Greece. Many things could happen, many scenarios are conceivable."

As Greeks lined up to take cash from ATMs, it remained to be seen how financial mechanisms would work. If Greece fails, as it has said it will, to repay 1.6 billion euros to the IMF on Tuesday, that default can have knock-on effects.

Greece could stay in the euro zone but also issue a local currency to pay bills -- a form of "Grexit" recommended on Sunday by influential German economist Hans-Werner Sinn of Ifo.

The ECB must also decide whether to keep supplying liquidity to Greek banks, once the government whose debt makes up a large chunk of their assets is no longer meeting its obligations and once the bailout program formally expires on Tuesday.

POLITICAL FALLOUT

The central bank, under its president Mario Draghi, has been reluctant to take such a highly politicized decision. At the same time, political leaders have been reluctant to override the decisions of finance ministers lest that appear to be a signal that the rules of the common currency are open to manipulation.

Donald Tusk, a former Polish prime minister who chairs meetings of the 28 EU leaders, made clear at two summits in the past week that heads of government must nonetheless take their responsibilities in a crisis that affects the Union as a whole.

Early on Sunday, he was in contact with leaders again: "Greece is and should remain euro area member," Tusk tweeted.

The Greek government's demands have alienated its euro zone partners - from Germany and its northern allies, to southern states and Ireland whose governments face critics of their own bailout terms to easterners much less prosperous than Greece.

But with Britain already planning a referendum on leaving the EU, a breach in formal institutions worries those who fear economic drift. Complaints it lacks democratic accountability threaten the EU's survival in its present form.

One official close to Saturday's Eurogroup discussions said the issue of Greece leaving the euro, or the EU, was not raised - there is no obvious legal way to force it out of either. But, the official said, a "Grexit" could not be entirely ruled out.

Leaving Brussels on what he called a "sad day for Europe," the outspoken Varoufakis warned that the rift with Athens would damage the euro zone's credibility as a "democratic union" - "And I'm very much afraid that that damage will be permanent."
http://www.huffingtonpost.com/2015/06/27/greece-parliament-referendum_n_7679198.html

[Rockhopper]

The Euro is an artificial currency that is used across many states. That in itself, is a disaster as each state can't dig their way out of trouble with it.

Whatever happens in the next week or two will define the Euro.

Tim.

[Lenzabi]

This is certainly the quagmire others were predicting it to be.

[Rockhopper]

Aye Len it surely is! Going to be a bloody fascinating time ahead!

Tim.

[Lenzabi]

And after WWII, they decided to make all economies in some way linked to each other, if EU collapses, it can drag others with it

[Rockhopper]

Yeah. The plan was a United States of Europe Len. Supposedly to stop another war there.

The mistake is having the one currency for all those differing states. When the crap hits the wizzy bit the individual countries can't trade their way out of the doo-doo!

The UK, Czech Rep, Latvia joined the Union but not the Euro and they are generally getting out of the crap.

Tim.

[Lenzabi]

Yeah the British Pound Sterling is stronger currency than the Euro, which in turn is a tad stronger than the Dollar.

[Rockhopper]

The real problem with the Euro as it stands is that it has a fixed value across many countries. When a country has it's own currency and finds itself in the doo-doo their currency devalues downwards. That makes the products of that country cheaper and so they sell more. That allows them to trade their way out of trouble.

Greece can't do that because the Euro is fixed in value so they can't trade their way out.

Germany is the quality manufacturing country, Italy is the Arty, lower value manufacturing country, Ireland was the Tech country (still stuffed), Portugal, Spain and Greece are the playground countries and because of the Austerity people are not playing anymore so they are suffering.

Tim.

[Lenzabi]

Proof that Oligarchies play out sooner than most countries

[Stargate]

I think we are possibly looking at a split in NATO, if Greece decides to go "BRICK".
The country that has the most to loose is England. If NATO edges toward a currency war, the United States will have a problem. I guess the gold value is very important at the moment.
There are now problems, no matter where you look. Things are changing faster and faster.
Some of these problems were created when the world was divided up into 1st, second, and third world. Sadly the first and second world could not develop as was necessary for the whole thing to have adequate balance. We have been getting drunk on profit. All kind of things have wondered off, taken on lives of their own. There is always a price to pay.

[Rockhopper]

Paul Krugman has something to say on the subject of Greece over at the NYT

The problem with Grexit has always been the risk of financial chaos, of a banking system disrupted by panicked withdrawals and of business hobbled both by banking troubles and by uncertainty over the legal status of debts. That’s why successive Greek governments have acceded to austerity demands, and why even Syriza, the ruling leftist coalition, was willing to accept the austerity that has already been imposed. All it asked for was, in effect, a standstill on further austerity.

But the troika was having none of it. It’s easy to get lost in the details, but the essential point now is that Greece has been presented with a take-it-or-leave-it offer that is effectively indistinguishable from the policies of the past five years.

But they shouldn’t, for three reasons. First, we now know that ever-harsher austerity is a dead end: after five years Greece is in worse shape than ever. Second, much and perhaps most of the feared chaos from Grexit has already happened. With banks closed and capital controls imposed, there’s not that much more damage to be done.

Finally, acceding to the troika’s ultimatum would represent the final abandonment of any pretense of Greek independence. Don’t be taken in by claims that troika officials are just technocrats explaining to the ignorant Greeks what must be done. These supposed technocrats are in fact fantasists who have disregarded everything we know about macroeconomics, and have been wrong every step of the way. This isn’t about analysis, it’s about power — the power of the creditors to pull the plug on the Greek economy, which persists as long as euro exit is considered unthinkable.

So it’s time to put an end to this unthinkability. Otherwise Greece will face endless austerity, and a depression with no hint of an end.

Tim.

[Stargate]

You know I was thinking the EU would find a solution in the end, we still have one day as they tell us.

[Lenzabi]

Austerity measures are no solution. In fact the 2 professors who came up with that flubbed their math, so it is indeed scientifically flawed, it got caught, yet some here in America want to do austerity, austerity for the poor and middle class while the Rich, corporates, and Military are not put on austerity measures.

The situation with Greece may also help end such calls for austerity here.

[Stargate]

Austerity measures are no solution. In fact the 2 professors who came up with that flubbed their math, so it is indeed scientifically flawed, it got caught, yet some here in America want to do austerity, austerity for the poor and middle class while the Rich, corporates, and Military are not put on austerity measures.

The situation with Greece may also help end such calls for austerity here.

I agree with you, austerity is not the answer.

[Rockhopper]

The ECB is trying to punish Greece's Leftist Govt. They're afraid that such a stand-off will spread. They are talking of a "negotiation" but they are demanding Greece pay up.

The problem is that Greece has no money to pay so it's a stalemate.

Tim.

[Rogue]

Yes the ECB has to stay firm. They can't leave the door open for this being accepted and spreading.

[Rockhopper]

Podemos in Spain has made a good comment in the Crisis:

(via Google translate)Given the ultimatum and the blackmail of its creditors, the Greek government has reacted in an exemplary manner (by) giving the floor to the public to decide in a democratic and sovereign way their own future. Unlike what the government of Spain did in 2011 and 2012, the Greek government has refused to violate the popular mandate it received from the polls last January…
With its continued intransigence the [Eurozone] creditors have demonstrated that their primary interest is not to solve the Greek debt crisis, but to subdue and to overthrow the democratically elected government – in order to demonstrate that there is no alternative.”

Source (Spanish).

And this comment in the Guardian from a demonstrator

This sentiment from a demonstrator in Athens quoted by the Guardian is worthy of support:
Rallying in front of the Greek parliament on Monday night, supporters of the Syriza-led government of prime minister Alexis Tsipras demanded an end to the “economic asphyxia” and “social catastrophe” of austerity – and the return of dignity.
“I’m here to support my country,” said Katherine, a psychologist.
“I want freedom for my country and dignity for its people, because right now my country does not have its freedom and its people do not have their dignity. It might be very hard work after Sunday, but freedom needs hard work.”

Tim.

[Stargate]

This whole Greek crisis reminds me of countries joining the IMF. They read the fine prints but did not understand them. When a country sees another country doing well their only wish is to be as successful as the other, however there is always a price to pay. I think this is a wake-up call for all the EU countries.

[Rogue]

"Forgiving debt, if done right, can get an economy back on its feet. The International Monetary Fund certainly thinks so, according to a new report in which it argues Greece should get help. But Germany, another major creditor to Greece, is resisting, even though it knows better than most what debt relief can achieve. After the hell of World War II, the Federal Republic of Germany — commonly known as West Germany — got massive help with its debt from former foes."

Among its creditors then? Greece.

Fully story>http://www.huffingtonpost.com/2015/07/02/greece-germany-debt_n_7718736.html

[Stargate]

"Forgiving debt, if done right, can get an economy back on its feet.  The International Monetary Fund certainly thinks so, according to a new report in which it argues Greece should get help.  But Germany, another major creditor to Greece, is resisting, even though it knows better than most what debt relief can achieve. After the hell of World War II, the Federal Republic of Germany — commonly known as West Germany — got massive help with its debt from former foes."

Among its creditors then? Greece.

Fully story>http://www.huffingtonpost.com/2015/07/02/greece-germany-debt_n_7718736.html

To how I followed the story, every one of the EU members knew Greece was not in a good enough economical position to match the EU contributors. However it was convenient to allow them to join, knowing full well there was going to be trouble down the road if Greece did not perform well, truth is based on the way the EU is set up Greece could not do well. they had an answer to that, it is called bullyism. One the other hand Greece knew it was not ready to join the EU, so in one since they were greedy, now the chicks have come home to roost

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