Are the Germans about to give up on the Greeks? Are they about to allow the Greeks to leave the euro? It certainly feels like that. The EU has just issued an ultimatum to Greece. All the talk of a friendly deal is gone. Greek politicians say they need more time to examine the austerity attached to the release of the next tranche of the €110bn loan.
But austerity isn’t working and the Greeks know it. Athens adopted the troika’s strict budget targets in May 2010 — nearly two years ago — in return for a €110bn rescue. Last year the Greek economy shrank by 6pc and the country’s budget deficit is still close to 10pc of GDP. Its current account deficit is also stuck at 10pc of GDP and anyone who could have got their money out of Greece will have done so ages ago.
With no credit, unemployment has risen to 18pc. As we pointed out in this column last week, over half of young Greeks are out of work. This can’t go on. And as the great American economist Herbert Stein observed, “when something can’t go on forever, it will stop”.
Leaving the euro now must be an option for the Greeks, because they are looking down the barrel of what they see as years and years of indentured slavery to foreign creditors. Maybe they will vouch for the uncertainty of a new drachma rather than the absolute certainty of 10 years of contraction. Who wouldn’t?
At the highest level in Europe the cracks are beginning to appear.
In Brussels, Jose Manuel Barroso — maybe thinking that his native Portugal will be next — insisted that eurozone leaders would continue to strive to keep Greece in the euro. This was in contrast to Neelie Kroes, the Dutch commissioner who suggested to the Dutch press that a Greek exit wouldn’t be a big deal.
The Portuguese should be worried because with the latest round of cheap ECB financing, the Germans may be confident that they could allow Greece to go overboard without capsizing the project. The language has changed in the past week. Up to now, the deal was to quarantine Greece on a drip-feed of money, keeping it barely alive but sending the message out that while Greece is different, the family will look after it.
The Greeks are gambling that they can get cash without having to cut yet more.
They are hoping that they can just borrow more and more to maintain their standard of living. The Greek threat is if you don’t give us cash, we bring the whole thing down around you. The Greek position or ace is that Germany will blink first. Up to now this might have been the case.
But much has changed over the past week. The ECB is now lending enormous quantities to European banks at 1pc for the next three years. By the end of this month it will have lent close to €1 trillion. The banks are getting a free 5pc carry on this and are delighted.
The Germans might now be thinking that we have enough liquidity from the ECB to call the Greeks’ bluff.
Emboldened by the fall in Italian and Spanish bond yields, what if the Germans see beyond the Greek threat?
If they cut Greece off and inject money into every other nook and cranny of the eurozone, maybe they can get rid of Greece and manage the shock. If this could be achieved, the Germans would be delighted. This would allow them to get rid of a delinquent member and send a strong signal to the rest of them that more messing won’t be tolerated.
If this is an accurate interpretation of the last few days, then it will be reminiscent of the demise of the Gold Standard in the 1930s.
Back then the French behaved like Germany now. The French wanted to punish the Germans when the Germans, like the Greeks, desperately needed to roll over huge borrowing they owed to the Americans.
While the Greeks now are a different proposition to the Germans in 1932, the end game was the same. The Germans abandoned the Gold Standard but the French couldn’t control the consequences.
In fact the Swedes were the first to see through the Gold Standard. They abandoned it, printed money, allowed their exchange rate to fall and slashed interest rates. And guess what? Sweden was the first country to come out of the Great Depression.
Could the Greeks do the same as the Swedes? Yes why not? At the moment, Greece is facing a generation of austerity. It has to borrow 10pc of its GDP just to pay for its imports each year. Its economy is in freefall. The deal with the euro is that every country has to become more German to survive. Greece will never be Germany, so what’s the point?
Leaving the euro would lead to months of chaos as savings were converted to the new drachma. The local banks would see their balance sheets wiped out, if they were to pay their foreign creditors, so guess what? They won’t pay. They will pay in drachma. Inflation will take off and wipe out the debts, which have been converted from euros. The government will balance its books overnight or will borrow heavily from its central bank, which is printing the new drachmas.
It will be the cheapest place in Europe to go on holidays. And like all the other countries that abandon a strict currency regime that they can’t bear — such as Iceland a few years back — the economy will start to grow again. They will fall back on the IMF to stabilise the economy with a big loan, which will be senior to all the defaulted stuff. This worthless debt they will buy back at some ridiculous price. And life will start again.
On the 20th anniversary of the Maastricht Treaty, that’s the way things are likely to work out.
Once the world sees that there is life after the euro, as there was after the Gold Standard and lots of other now defunct currency arrangements, the financial markets will ponder who is next.
Don’t be fooled that this European debt story is over. It is not; in fact the interesting bit hasn’t even started yet.
For a new way of looking at tricky economic stuff, check out Punk Economics on YouTube. Also, David McWilliams will be speaking at Ballymun’s Axis theatre tomorrow night, tickets at axis-ballymun.ie
One thing I can’t figure out Greece needs this bail out but if it gets this money now and defaults any way is this not throwing money down the drain,because the Greeks can stick to agreements for what ever reason ,I know one thing what they are being ask to agree to is next to impossible.
This is the same here we are benign asked to carry the can ,kick the can,I would like to stick the can where the sun does not shine.
Who is next ?….well its Ireland of course. Remember our deficit is above 10% just like Greece but the real difference is attitude . The Irish have accepted their fate , the Greeks have rebeled and are unwilling to make changes ( austerity ) . The Irish are well informed and the only place you get the Greek attitude in Ireland is on this site but those deficit denyers are getting quieter and quieter . Moan all you want , put on the poor mouth it wont get you anywhere , its just denial. Greece wont recover Mr McWilliams it… Read more »
Well you couldn’t put it much simpler David. And like you keep saying, there’s nothing markets like better than a fresh gamble. This is all getting very stale now mainly due to the Xanadu policies of nuclear europhiles in too deep to even think straight. Yon game is up. Great to see our fundamentals here throwing a shape. Agri in particular. We`re well capable of boxing above our weight on the international commerce stage. In fact, with all the talk of markets and multi billion funny money funds, no-one has a word for people of commerce who actually add real… Read more »
I have no idea who originally coined the concept of The PIIGS but clearly it was someone who has more than the combined brain of the EU.One of the “I”s is already on the road to recovery, the “G” could have saved themselves a lot of aggrivation if they jumped two years ago.We know where the “P” and “S” are going and the other “I” will hang on till everone else has gone home and turned off life-support.
Yes that is quite a credible scenario of how it will go. “Who will be next?” asks Lyndon Jones Right question, wrong answer. but perhaps he jests. It definitely won’t be Ireland. Ireland is the poster child for the troika austerity programme, and isn’t she so admirably following orders as instructed? No way she will be pushed. And Ireland won’t jump ship either, until there is regime change, and even then (if its back to the previous lot) maybe not. But its not about denial (or rather the lack of it as suggested by LJ) that keeps Ireland subservient to… Read more »
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Excellent article. Listened to the Podcast. A1. The herd are being excited, it is Spring time. In their collective memories the traders and investment bankers have moments of joy from their past when Greenspan, King and Trichet let ‘er rip with absurdly low interest rates, money creation and bank subsidization. They have those happy memories. And as soon as easy credit is released, the inner idiot takes over and the urge for euphoria with bonuses attached takes over. This is apart of psychology. And the politicians and the central bankers exist to please it. Just like Bertie and that “feel… Read more »
It seems to me Greece are playing Russian roulette again with the Germans. I heard a comment by Merkel the other day commenting on Greeces inability to accept the bailout in utter disbelief.This will go on and on I reckon. The Germans may decide to let Greece go but I think they will play it safe. Its in their nature, they love organisation and order. Its an awful pity we dont seek some real concessions
The Maandarin Replay
When its Irelands turn the above cartoon will be located at the cliff edge inside the middle of Dun Aengus very high above the angry ocean waves awaiting the offerings to the Gods of War.
I think Greece is playing the Prodigal Son card.
Germany is the father, France the elder son and Greece the younger son who has spent his inheritance, become a swineherd and returns to call on his father’s charity.
Greece apparently expects Germany to fall on his neck, kiss him and prepare a Welcome Home feast. –France resents this.
Trouble is, compassion isn’t one of Germany’s virtues.
I wonder?
[…] http://www.davidmcwilliams.ie/2012/02/08/greece-gets-an-ultimatum-from-eu-but-there-is-life-after-th… […]
How can Greece live with these so-called “deals”? It just does not seem possible.
Anyone who thinks Germany will “blink” first is delusional.
DMcW is right this time. The eurozone creditor countries, led by Germany, are not going to let the Greek “tail” wag the eurozone dog for much longer.
Wheres BONBON these days i love reading his posts
Bloomberg reports that at almost 1 am local time, the Greek government meeting has broken up, and the head of LAOS is speaking, and by the looks of things, is not going along with the program: KARATZAFERIS SAYS HE DID NOT HAVE ENOUGH TIME TO STUDY MEASURES KARATZAFERIS SAYS HE NEEDS LEGAL ASSURANCES ON MEASURES KARATZAFERIS SAYS HE MIGHT CONTINUE TO SUPPORT THE GOVERNMENT DESPITE NOT AGREEING TO DEAL KARATZAFERIS SAYS HE MADE HIS POSITIONS CLEAR EARLY IN MEETING KARATZAFERIS SAYS HE APPRECIATES THE PREMIER’S EFFORTS KARATZAFERIS SUPPORTED ND LEADER ON ISSUE OF PENSIONS Translation: no deal. And, dum dum… Read more »
A Ponzi by any other name
http://www.businessspectator.com.au/bs.nsf/Article/names-policies-European-parliament-LTRO-Greece-Por-pd20120207-R9535?OpenDocument&src=sph
Hobbesian War Man’s life in a state of nature, said Thomas Hobbes in Leviathan, is a “war of all against all:” And in that state of nature, no arts; no letters; no society; and which is worst of all, continual fear and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short. In the Hobbesian view, there can ultimately be no cure for violence; it is in our wiring; in fact, it is in the bones of the universe in which we live. You can counteract or punish it–you can shoot the shooters–but it will… Read more »
David, just one nit-picking point, but perhaps an important one. My understanding is that Greek debt wil continue to be denominated in Euros. When we all signed up to this thing we gave a guarantee that this would be our currency in perpetuity. Anybody holding Greek (or Irish) bonds has a guarantee that this debt will be repayed in Euros, even if we decide that the national currency is the banana. Is this the case? What would have to happen I suppose is default on a substantial part of their sovereign debt, and that’s a messy business. At least in… Read more »
EU/ECB Desperately Try To Postpone Explosion of Greek Bomb The ECB announced a “discount” of EU11 billion on Greek debt, while at the same time German Finance Minister Wolfgang “Brüning” Schäuble announced that Greece will receive only a first installment of EU30 billion from the second bailout package of EU130 billion. The plan is supposed to allow Athens to refinance a EU14.5 billion bond coming due in March and avoid insolvency, but keep up the pressure on the ongoing debt negotiations with the Troika, wrote {Financial Times Deutschland} today. Only once the deal is settled will the rest of the… Read more »
Hi,
What is obvious from this article is that the Euro isn’t going anywhere. It would appear that if the last country standing after all of this is Germany then they will have the euro rather than the Mark and life will go on thank God. At least the situation is becoming as clear as mud rather than the total white out of the last few years.
Correct me if I am wrong, the cartoon seems to depict Merkel and Papademos?
Then it is totally wrong – Goldman Sachs boy Papademos is doing the EU’s BIDDING, and the people of Greece are being offloaded into abject poverty.
It should show Merkel arm-linked to Ackermann and Papademos, kicking people over the cliff into a Stygean pool.
David you are falling for a commonly held misconception in relation to the gold standard. The gold standard was ended in 1913, first by the Germans and then all the other combatants, in order to pay for the upcoming war WW1. If they had stayed on the classical gold standard the war would have only lasted a few months as none of the countries could afford a longer war. Millions of lives would have been saved but the governments abandoned the classical gold standard and simply printed vast amounts of unbacked paper money to pay for this horrendous war. When… Read more »
In all the madness being visited on Europe in general and Ireland in particular, LIVE 8 sprang to mind.All that talk of debt forgiveness for the third world six years ago. At the height of the boom in Ireland there we were sipping Bolinger paying lip service to the poor unfortunates in the Sub-Sahara crying crocodile tears and demanding “justice” for the third world while lobbing another €50 across the bar for the next round. All laudable of course but in the short space of three years the European myth was unravelling right before our very eyes.Here we are witnessing… Read more »
‘Are the Germans about to give up on the Greeks?’
Probably…recent description of Greece by a colleague in Bonn working for the Foreign Office as ‘Rausschmeissland’ [country to be thrown out] seems to reflect opinion on the ground there, whether that’s right or wrong. Mind you, they said that Ireland was too, but that is not how the average punter sees it.
FAZ and Handelsblatt don’t say so directly, but recent articles certainly have examined the possible consequences.
Even if 20 March passes without default, seems like Greece has a Herculean battle ahead.
Germany’s exports are now past 1Trn. 2nd largest exporter in the world after China. You got to hand it to them. 90Million of them versus 1.4billion Chinese versus 300Million Americans. Amazing. And all of this against a stagnant backdrop some 10 years ago. Makes me wonder why do they bother staying in the EU at all? Why do they not simply cut loose? No one is stopping them except themselves and the euro devaluing capability of the PIIGS. As for the horse$h1t being peddled on this board about the deceitful nature of the Greeks. Are we to seriously believe that… Read more »
You dear Leader:
“It’s very clear that Ireland has not sought and will not seek any writedown,” Mr Kenny said in an interview with Bloomberg Television yesterday in New York. “We’ll pay our dues in full and on time.”
David, Firstly gold standard is not as bad as people usually think. It was making business more predictable with fixed exchange rates and no inflation. Entrepreneurs could do their calculation better and could do better job for consumers. In the current environment it is understandable how nobody want to risk anything as things are unknown while politicans and central bankers are creating their own reality. And gold standard can only work properly with full-reserve banking and no credit expansion. Bear in mind that central banking is making the mess with low interest rate and credit expansion all the time. Gold… Read more »
I feed you…that is wealth. I give you a gold coin..you starve – simple. The financial crisis has merely crystallised the fact that we are unable to employ everyone who is capable of generating wealth. Even if we threw all the credit at the world at it, the system will not sustain itself…becasue we simply do not need to employ everyone to generate the goods and services needed. Growth is the key some say. But you can grow without an extra net job being generated – so clearly that is wrong. Greece is a tertiery industry country. It’s just tourism.… Read more »
Greek Trajedy
We need a collective for an infinite number of political fudges ….any takes?
– According to EUROSTAT, 28% of Greeks (around 3 million) live under the poverty line. Now, that was in 2010!
– Athens has 25,000 homeless people.
– In Europe, Greece used to have the lowest suicide rates. In 2011, 6 suicides for every 100,000 people occurred
Is David pissing on an electric fence? Article 140 Eu legislation, the euro is irreversable? Did anyone see Hardtalk on BBC News 24? Would like to see David under the cosh in this program!
‘Uneconomics’: sounds like something that’d go well with punkeconomics as an approach that challenges institutional assumptions at their very routes –
http://www.opendemocracy.net/ourkingdom/collections/uneconomics
It really is amazing what was once considered outlandish can become normal and accepted . There was NAMA . It caused outrage at the time but is now just accepted . The same with the IMF taking control of Ireland . Not only has Ireland accepted it but seems to have developed Stockholm Syndrome . Listen to all of the negitive reporting on Greece . ” they don’t pay taxes , they shoud never have joined the Euro , should be booted out , need for massive reforms ” it is an interesting contrast with Kenny in NY . http://bloom.bg/yG8rA0#ooid=ZmaWJoMzp1QvBoOdoDPjaouXfT43z8VV.… Read more »
Mario Monti arrived in the US today, Time magazine ran its international edition dedicated to the Italian puppet Prime Minister. Mister “M.” has an illustrious predecessor on an apologetic cover of {Time}: another Mr. “M” in 1936. Both “Mr. M”s have been presented as Men of Providence, Who Can Save the World. Like Mussolini, who wanted to turn Italians “into a people of warriors,” Mr. M. says in his {Time} interview that he wants to change the character of the Italians. Asked whether his government wants to change “the culture and a certain way of living and of working of… Read more »
Apparently Ireland has no prearranged funding for 2014. Thats seems to be the ultimate end game and we will be having days and sleepless nights like Greece.I have heard that the Govt are now trying to do a deal with the EU regarding repayments of Anglo Bonds. If they can save the nine billion owed then they can pay back the ten billion owed in 2014.We in fact owe 19 billion at that point give or take a billion. Maybe someone can comment on these figures. I was correct with the figure of ten billion owed by the end of… Read more »
Bye Bye Greek Euro Hello Drachma………
We will need a second bail out Molly based on the scientific conclusion that the Government claims we won’t !
Greece’s largest police union has threatened to issue arrest warrants for officials from the country’s European Union and International Monetary Fund lenders for demanding deeply unpopular austerity measures.
In a letter obtained by Reuters on Friday, the Federation of Greek Police accused the officials of “…blackmail, covertly abolishing or eroding democracy and national sovereignty” and said one target of its warrants would be the IMF’s top official for Greece, Poul Thomsen.
I read that article in the Independent recently about Enda and Sarkozy and the so called Horseplay episode.I reckon there will be alot of Horseplay in Europe yet. It wont be the type of Horseplay Enda Kenny is used to.
Merkel’s insane policy of Greece-bashing Angela Merkel has made her the “fall guy” for the British Empire. The FAZ {Frankfurter Allgemeine Zeitung} today reprinted the front page of yesterday’s Greek daily {Dimokratia}, whose headline read in German: “Memorandum Macht Frei” featuring a picture of Merkel in an SS uniform right next to it. The paper’s main commentary, as in today’s {Der Spiegel}, is that everybody should be clear that none of this can work, if for no other reason than that the Greek economy is collapsing. Senior {FAZ} journalist Günter Nonnenmacher writes that it’s just a matter of calculation, whether… Read more »
Here is an initiative that must interest Eire. The Arctic is opening up at the the same time things are falling apart. Apparently this came up during the defense conference last week in Munich.
http://carnegieendowment.org/2012/01/31/euro-atlantic-goals/9bwd
Empires always collapse – look at the archaeo record. We need a better way.
The focus on Sweden has appeared here a few times now. Is it supposed to be some kind of model for Europe? Or Greece?
It looks more like Argentina is the model for Greece to follow (mentioned here a few times too).,
While U.S. Senators refuse to match House Bill HR 1489 for Glass-Steagall bank seperation, Italy’s Senator Peterlini has submitted one : … Senate of Italy XVI Legislature Bill No. 3112 Presented by Senator PETERLINI Communicated to the President’s Office on January 25, 2012 Delegation to the Government for the Separation of Ordinary and Speculative Banking Activities. …. With Draghi, “Mr M.” Monti, Papademos, all of Goldman-Sachs, installed one after the other, carrying out here British policy to erase even a trace of sovereignty world-wide, Senator Peterlini, opposes this and defends Italy’s sovereignty. Like the 1933 FDR Glass-Steagall bill it is… Read more »
Morning David ,
When [If] Greece defaults or withdraws from Euro next Week ,how many French / German Banks could be collapsed ? or will the “borrowed” trillion euro rescue fund provide the firewall it was set up to do anyway
Appreciate your thought on this……
Best
RR6
Italy’s Tremonti Pushes FDR and Glass-Steagall on ‘Servizio Pubblico’ Talk Show, the same talk show where Claudio Giudici first raised the Glass-Steagall issue. Giudici was reported in the FT. Tremonti hammered on the FDR example, explaining clearly that the two actions to be taken must be 1) Banking separation after the Glass Steagall model 2) A New Deal-like program of state-financed infrastructure investments. Tremonti said that when he wrote the book “Emergency Exit”, he thought he would stand alone with those ideas, but luckily, things have moved a bit, so that now in both Germany and France, the Social Democratic… Read more »
Minister for state, Brian Hayes T.D on rte Radio this morning repeats the mantra “Ireland is in a better place then it was 12 months ago”!!!!!!!!!!! How are these people allowed to contiue these lies unchallenged ? Regarding Retirement Transition teams to deal with mass retirement of Public workers……… Enda states their are teams in place to deal with this. Alan shatter says he is not aware of any term in his Department Brian Hayes says teams in place since last Autumn. Enda says Teams will ne organised,set up and finalized in Dail meetings next Tuesday !!!! Enda claimed last… Read more »
http://link.ft.com/r/EB8122/GDLVEZ/TPHSSY/FKJKF9/VLMD6E/6C/h?a1=2012&a2=2&a3=12
check it out from ft
“Once the world sees that there is life after the euro, as there was after the Gold Standard and lots of other now defunct currency arrangements, the financial markets will ponder who is next.” I agree there is life after the Euro, but the Gold Standard item that keeps cropping up needs some elaboration. AFAIK in 1971/72 Nixon killed the Bretton-Woods system because of perceived pressure by Britain and the Gold Standard. 1972, the Inter-Alpha banking group was formed starting the derivative snowball now hitting. I think there is confusion about what Nixon did and what Bretton-Woods meant. For instance… Read more »
ITS NOT WHO HAS THE VOTE
ITS WHO OWNS THE DEBT…..
AAA GONE PENSION + INSURANCE FUNDS DUMPED LONG AGO
SOLD FOR LOSS TO BOTTOM FEEDERS
BUY FOR PEANUTS…. GET TOP DOLLAR FROM BAILOUTS!
WHAT A BARGAIN
PROFITS RISE..MARKETS SOAR ATHENS BURNS
If I may re-state a wondeful article in the weekend’s IT – IT’s NOT THE ECONOMY STUPID. We are going to have years and years of growth….lots of it. We’ll be 50-100% bigger in economics/ accounting terms in 10 year’s time…3-5% growth….JOBLESS GROWTH. The fact that the youth of much of the developed world (30% and rising – depending on where you look) will remain unemployed and become more unemployable is a very dangerous development and one which demands a histrionic level of attention. It is a profoundly disgusting state of affairs that with so much to do, we cannot… Read more »