Greek PM Alexis Tsipras brings the EU to its knees

Can the Eurogroup count?

For your information I include this piece from an EU thinktank. www.bruegel.org-linky

Now before you think that this is some wimpy old marxist Greek sympathiser, this is the guy who designed the Troika "bail-out" of Ireland, as he was head of the IMF's European department at the time.

So when he says that the IMF and Eurogroup have just spent the last few months negotiating in bad faith, and that the IMF should actually be forced to take losses on their Greek lending as a punishment (losing their super-seniority for the first time ever), you should listen.

Basically the trajectory of this crisis is as follows. Corrupt Greek policians ran their country horribly badly. Given they were buying votes with government jobs, and few people paid their taxes, the Greek voters can't just get away with blaming their politicians either. But they were allowed into the Euro anyway, because it was a political project. And those of us who pointed out the flaws at the time were ignored/laughed at.

I'd say that William Hague's description from the 90s was rather prescient. He said that in a crisis, the Eurozone was "like a burning building with no exits". As you can see from the Greek crisis, where they have the choice of totally fucking their economy by leaving, or slowly fucking it by staying in.

When the crisis hit it was then decided to bail out the crisis countries. But in the most retarded way possible. They would be loaded up with unsustainable levels of debt in order to save the Eurozone banking system. In reality it was the French and German banks that were most exposed to Ireland and Greece. Spain were later forced to bail out their own banks, but the Germans and the French preferred to get other people to bail theirs out. Although actually Germany spent more than the UK did in its own bank bail-out, and still their Landesbanken are in a horrible mess.

However various people wanted the IMF involved. Partly as a body to duck behind for political cover. But also because the Eurosystem didn't have much crisis expertise.

However, again, the IMF's rules only allow bail-outs of countries if they're sustainable. This is normally done by making the creditors take haircuts, in exchange for some IMF loans to tide the country over until they can borrow from the markets again and tough reforms. This is also accompanied by devaluation to give a burst of inflation (and avoid the risk of deflation) and a chance of export-led growth.

There was no creditor hair-cut whatsoever! There was no devaluation. The ECB refused to reflate these countries with QE, and even raised interest rates in 2010/11!!!!! Plus no QE. And even when they finally did QE this year, they specifically designed the program not to include Greece who have 2.8% deflation at the moment, and therefore need it most.

This breaks all the IMF rules, but they re-wrote them for saving the Eurozone. Which to be fair, was probably sensible - as collapsing the Eurozone in 2010 would have buggered the world economy. Although the IMF board minutes got leaked and there were lots of objections given how awful this would be for Greece. Even the Swiss delegate said the austerity would be too harsh...

The IMF predicted the Greek economy would shrink by 5%. It shrank by 11% that year. And the same the next year. Hence the 2012 second Greek bail-out. Because the first one had failed. All the governments refused to take any losses. So the few remaining private creditors of the Greek government took the brunt of the hit. This was basically the Greek pension and banking system. Which then needed bailing out, and is one of the reasons they're now saying the Greek pension system is unsustainable. Because they buggered it up in the last bail-out.

BTW this is also what buggered up the Cypriot economy. And led to their bail-out. They were promised help, as many of their (actually well run) banks had lots of Greek government debt, as there wasn't enough Cypriot debt for them to hold as reserves. That help was never given, and they were given a deliberately crap bail-out to punish them for having too much Russian money on deposit. Interestingly the Greek and Cypriot banks were cautious, with lots of savings on deposit and reasonably high interest rates. Unlike the French, Italian, German or our banks - who had to be rescued due to their own incompetence...

In 2013 the IMF admitted that they'd screwed up on their calculations on Greece. The Greek economy had now shrunk by 26%, government spending had been cut by 25%, unemployment was 27% and youth unemployment was 50%. This is 1930s territory.

They also calculated that the Greek fiscal multiplier was more than 1. That means that for every euro of spending cuts or tax rises, the Greek economy would shrink by more than one euro! That means that the only way for Greece to pay off its debts is to stop cutting government spending (or raising taxes) until after the economy has started growing again. With debt to GDP of 180%, Greece would need to be running huge government surpluses until the mid 2020s, and their economy to be growing to get this paid down. The IMF tried to pretend that this was possible up until June this year, after the fucking negotiations had broken down, then admitted that Greeece needed €50 billion of debt relief. When it was too late.

The IMF has been run by two French politicians with ambitions for later advancement in French politics, and both of them have ignored guidance from the technical (i.e. economically literate) department. I'm sure this is just a co-incidence though...

Syriza have negotiated badly, and are inexperienced. On the other hand, the required debt relief has been refused discussion by the Eurogroup until after the referendum finally forced them to. Hence the original article I quoted, about negotiating in bad faith.

The economic argument is unarguable. Greece needed debt relief in 2010, or it would never be able to pay back its debts. Surprisingly enough it's still failing to cover them. It's made the biggest cuts of any economy in modern peacetime history. It's had the deepest depression of any economy in modern peacetime history. The programme offered it by the Troika in recent negotiations is designed in such a way that it can't do anything but fail. So leaving the Euro is Greece's only option, as the Troika program would have put Greece back into recession by now even if Syriza had accepted it in January this year.

This will go down as the biggest economic fuck up in modern history. Because everyone involved knew the Troika programs would fail, but did it anyway.

Re: "This live broadcast cock-up is a failure of democracy by the EU"

This is getting way off-topic but let's look at the facts.

I object to people being used as pawns and threatened in political games.

I do, too, for what it's worth. Doesn't stop it happening.

The proposal wasn't expired at the time the referendum was called.

But it was called for a time after the proposal would have expired. This is what made the referendum a farce. Clever politicking by Tsipras: "I'm doing what the people want me to do.", but a terrible way to negotiate.

There was a concerted effort by the EU to change the terms of the referendum from a vote on the proposal to a vote on whether or not to stay in the eurozone.

It was hardly concerted. I agree it was ill-advised but they were basically telling the truth: with the expiration of the bailout programme at the end of June, it would no longer be possible to offer such good terms again. Nevertheless, it would have been smarter to say nothing.

Merkel said that there would be no further talks until the referendum was over

She did the smart thing: wait for the result of the referendum and be seen not trying to affect the outcome of it.

Since the referendum it's perfectly okay for the democratically elected representatives in other countries to express their opinion of it. Nobody should be surprised if patience is wearing thin. The Lithuanian president and the prime minister of Slovakia are no longer mincing their words.