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Latest Greece Talks End in Confusion, Dissent

Monday, March 23, 2015 By Yves Smith, Naked Capitalism | News Analysis
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It's hard to fathom Greece's approach to its dealings with its oppressors, um, creditors. As we've indicated from the outset, Greece was in a weak negotiating position and traded away its best card, that of the threat of a Grexit. Its only real hope was if outside forces applied pressure on its behalf. The US acted as if it might, but then backed off. Municipal and regional elections in Spain, if anti-austerity party Podemos performs well, could help the Greek cause, but Greece also needs to have enough of a financial runway to have the negotiating space to use any such gain to its advantage.

The reality is that the government's situation is only becoming more dire. Its fiscal surplus has dwindled and is close to zero. That means it has had to rob Peter to pay Paul, or in this case, the IMF to make payments due in March, by using pension reserves to meet those obligations.

The negotiations over Greek's reform package were at loggerheads, with Greece not putting forward the sort of granular proposals that the IMF wanted, leading the IMF to make derogatory leaks to the press. That was astonishingly tacky nevertheless one of many indicators of how terrible the dynamics are between the two sides. And another spat erupted when Greece passed a €200 million humanitarian relief bill, leading a European Commission official to object that Greece had agreed to no unilateral measures and that they needed to put forward an entire reform package, and not implement measures piecemeal. Eurogroup chief Jeroen Dijsselbloem also said that Greece should consider implementing capital controls (which as Rob Parenteau points out by e-mail, Greece should have imposed long ago, now is too late in the game to do all that much good). But he also mentioned that Cyprus had gone this route, and Cyprus got there by the ECB having threatened to yank the ELA, its banking system support. Cyprus also had to go through a bail-in, forcing many of its depositors to take losses. Greece howled that Dijsselbloem was engaging in blackmail.

Athens sought and won a meeting with the main players ex the most recalcitrant party, the IMF: Merkel, Draghi, Dijsselbloem, EC head Jean-Claude Juncker, French President Francois Hollande and EC council head Donald Tusk. Unfortunately, the talks appeared to resolve nothing. Each side declared victory and presented irreconcilable versions of what was agreed to.

From ekathimerini:

Tsipras insisted that his talks….had resulted in an agreement that Greece does not have to complete the bailout program and review that the previous government was not able to…

The Greek prime minister insisted that none of the measures would be "recessionary." Merkel, however, appeared to give a different interpretation of what is expected from Greece, suggesting that the basis for the reform program should be the most recent troika review, which took place on December 10.

"The Greek government has the possibility of replacing individual reforms outstanding from December 10 with other reforms if these… have the same effect," she told reporters, adding that Ireland had done something similar.

Peter Siegel of the Financial Times described the negotiations as ending in "disarray":

Greece's prime minister and fellow eurozone leaders emerged from a meeting early on Friday morning touting a breakthrough agreement to unlock much-needed bailout funds for Athens - only to fall into disagreement hours later about what it all meant….

Angela Merkel, the German chancellor, made clear at a post-summit news conference that the starting point for Alexis Tsipras, Greek prime minister, was a December 10 inventory of incomplete reforms promised by the previous Greek government. "The Greek government has the opportunity to pick individual reforms that are still outstanding as of 10 December and replace them with other reforms if they . . . have the same effect," Ms Merkel said.

It is a potentially incendiary demand since the document Ms Merkel referred to - a letter written by Greece's then centre-right prime minister Antonis Samaras and his finance minister Gikas Hardouvelis - was the focus of particular scorn for Mr Tsipras's far-left Syriza party on the campaign trail.

Mr Tsipras insisted at his own press conference that Ms Merkel was mistaken. "Forget the commitment of the former government. There are no austerity measures. There is no letter of Hardouvelis," Mr Tsipras argued. "I asked [the other leaders]: do you expect me to . . . go through this evaluation and implement measures that Mr Samaras was not able to implement? The answer was no."

As much as I sympathize with the Greek position vis-a-vis the Eurozone, that both for Greece and the project itself, Greece needs to have its debts restructured and to have "reforms" that focus on growth, not austerity, it has been clear from when the February memorandum was agreed that all Greece had gotten was at most a bit more latitude in timing and a tiny loosening in its choke chain.

The memo was dictated to Greece, not negotiated, presented as a fait accompli with Tsipras reported as being allowed to change only one word. The memo clearly reaffirmed, repeatedly, the existing (and deservedly hated) structural reforms. When Greece provided its initial list of reforms, which merely serve as a basis for negotiation,both the ECB and the IMF made clear that they regarded them as deficient. The IMF was more extreme, saying that it expected Greece to stick with the existing structural reforms, while the ECB indicated it would allow Greece to swap out existing reforms for new ones, provided that the new reforms had no worse fiscal impact than the current ones.

Now mind you, as we pointed out yesterday in Links, some of the reforms sound like neoliberal hogwash. For instance, Greece has the highest electricity costs in Europe. So what is the remedy? Privatize the system. But as we've written, studies in the US have found that privatizing electricity has not lowered costs and in many cases has resulted in cost increases. But Syriza is not arguing against specific reforms on their lack of merit. It is making a more general case that its overlords have not regarded with much sympathy: that selling assets at bargain basement prices does not make a lot of sense. Unfortunately, that is the position bankrupts are often in, and their lenders are typically not very nice about liquidating assets either.

So the big issue is that no matter how unpalatable and unsound the Troika position is, it's been clear what it is. Thus it's hard to fathom what the Greek government is smoking. Do they really believe, when they come out of these sessions, that they've actually won big concessions when there's no basis for taking their claims seriously? Is this simply messaging to their voters, which unfortunately for them is also picked up by international media? Every time one of these outtrades happens and the Troika keeps sticking to its guns, the Greeks lose credibility and sympathy with some of their supporters.

Mind you, it does appear that Tsipras scored one win: at least the IMF extreme version, that the old package has to be honored in full, appears to be no longer operative and the less stringent ECB view (Greece can swap reforms as long as the overall fiscal impact is no worse) will govern. But other elements of the Financial Times account make clear that Greece hit a brick wall:

According to people briefed on the talks, Mr Tsipras opened with demands for additional cash with few strings attached, acknowledging his government may not make it to the end of April without an injection of bailout funds. But his push lasted only the first 10 minutes before the other leaders convinced him it was unachievable.

Instead, much of the session focused on logistical arrangements in Athens, where Greek officials have thrown up hurdles to international bailout monitors seeking to access data to evaluate the country's reform efforts.

Mr Draghi was particularly incensed, telling Mr Tsipras he believed the inspectors — from the ECB, European Commission and International Monetary Fund — had been badly treated by their hosts. Mr Tsipras countered that allowing such access would be a violation of Greek sovereignty. But he relented after Ms Merkel noted all IMF members are subject to annual reviews involving access to a country's books.

Having Draghi upset is not a hot idea, since he has been the one at the ECB reining in the hardliners who'd love to cut Greece loose by refusing to authorize increases in the ELA as the deposit run continues.

Greece acts as if it believes that its creditors will relent and will throw it a rescue line, since even a mere default on the ECB debt coming due this summer would be explosive politically, since most analysts believe losses would be paid via budgetary allocations from member states, meaning charges to taxpayers. The Troika, by contrast, seems to think at a minimum that it if keeps starving Greece, it will be forced to capitulate well before then. And enough people in high places may believe that the ECB has done a good enough job of ring-fencing Greece that it can deal with the disruption of a default or Grexit.

As we've said, similar misjudgments led to the Lehman default. The Bush administration could not have been more clear that no rescue was forthcoming, yet Dick Fuld was convinced that the fact that Bear Stearns had gotten a bailout meant Lehman would get one too. Greece will not even get to talk about renegotiating the debt due this summer if it can't reach a deal over the bailout funds that it desperately needs. Perhaps Greece is secretly planning for a Grexit, but this government is so lacking in discipline it's hard to think that they could keep an initiative like that under wraps. And lacking a Plan B, the execution of its Plan A is sorely wanting.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Yves Smith

Yves Smith has been in and around finance for more than 30 years as an investment banker, management consultant to financial institutions across a large range of wholesale banking and trading markets businesses, and a corporate finance adviser. She has also written for The New York Times, Al Jazeera, the New Republic, Salon, the Conference Board Review, the Australian Financial Review and other financial publications. Her TV appearances include NBC News, CNBC, Fox Business, PBS, Bill Moyers, The Real News Network, Democracy Now!, Russia TV, ABC (Australia), Al Jazeera and BNN (Canada). Follow her on Twitter: @yvessmith.

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Latest Greece Talks End in Confusion, Dissent

Monday, March 23, 2015 By Yves Smith, Naked Capitalism | News Analysis
  • font size decrease font size decrease font size increase font size increase font size
  • Print

It's hard to fathom Greece's approach to its dealings with its oppressors, um, creditors. As we've indicated from the outset, Greece was in a weak negotiating position and traded away its best card, that of the threat of a Grexit. Its only real hope was if outside forces applied pressure on its behalf. The US acted as if it might, but then backed off. Municipal and regional elections in Spain, if anti-austerity party Podemos performs well, could help the Greek cause, but Greece also needs to have enough of a financial runway to have the negotiating space to use any such gain to its advantage.

The reality is that the government's situation is only becoming more dire. Its fiscal surplus has dwindled and is close to zero. That means it has had to rob Peter to pay Paul, or in this case, the IMF to make payments due in March, by using pension reserves to meet those obligations.

The negotiations over Greek's reform package were at loggerheads, with Greece not putting forward the sort of granular proposals that the IMF wanted, leading the IMF to make derogatory leaks to the press. That was astonishingly tacky nevertheless one of many indicators of how terrible the dynamics are between the two sides. And another spat erupted when Greece passed a €200 million humanitarian relief bill, leading a European Commission official to object that Greece had agreed to no unilateral measures and that they needed to put forward an entire reform package, and not implement measures piecemeal. Eurogroup chief Jeroen Dijsselbloem also said that Greece should consider implementing capital controls (which as Rob Parenteau points out by e-mail, Greece should have imposed long ago, now is too late in the game to do all that much good). But he also mentioned that Cyprus had gone this route, and Cyprus got there by the ECB having threatened to yank the ELA, its banking system support. Cyprus also had to go through a bail-in, forcing many of its depositors to take losses. Greece howled that Dijsselbloem was engaging in blackmail.

Athens sought and won a meeting with the main players ex the most recalcitrant party, the IMF: Merkel, Draghi, Dijsselbloem, EC head Jean-Claude Juncker, French President Francois Hollande and EC council head Donald Tusk. Unfortunately, the talks appeared to resolve nothing. Each side declared victory and presented irreconcilable versions of what was agreed to.

From ekathimerini:

Tsipras insisted that his talks….had resulted in an agreement that Greece does not have to complete the bailout program and review that the previous government was not able to…

The Greek prime minister insisted that none of the measures would be "recessionary." Merkel, however, appeared to give a different interpretation of what is expected from Greece, suggesting that the basis for the reform program should be the most recent troika review, which took place on December 10.

"The Greek government has the possibility of replacing individual reforms outstanding from December 10 with other reforms if these… have the same effect," she told reporters, adding that Ireland had done something similar.

Peter Siegel of the Financial Times described the negotiations as ending in "disarray":

Greece's prime minister and fellow eurozone leaders emerged from a meeting early on Friday morning touting a breakthrough agreement to unlock much-needed bailout funds for Athens - only to fall into disagreement hours later about what it all meant….

Angela Merkel, the German chancellor, made clear at a post-summit news conference that the starting point for Alexis Tsipras, Greek prime minister, was a December 10 inventory of incomplete reforms promised by the previous Greek government. "The Greek government has the opportunity to pick individual reforms that are still outstanding as of 10 December and replace them with other reforms if they . . . have the same effect," Ms Merkel said.

It is a potentially incendiary demand since the document Ms Merkel referred to - a letter written by Greece's then centre-right prime minister Antonis Samaras and his finance minister Gikas Hardouvelis - was the focus of particular scorn for Mr Tsipras's far-left Syriza party on the campaign trail.

Mr Tsipras insisted at his own press conference that Ms Merkel was mistaken. "Forget the commitment of the former government. There are no austerity measures. There is no letter of Hardouvelis," Mr Tsipras argued. "I asked [the other leaders]: do you expect me to . . . go through this evaluation and implement measures that Mr Samaras was not able to implement? The answer was no."

As much as I sympathize with the Greek position vis-a-vis the Eurozone, that both for Greece and the project itself, Greece needs to have its debts restructured and to have "reforms" that focus on growth, not austerity, it has been clear from when the February memorandum was agreed that all Greece had gotten was at most a bit more latitude in timing and a tiny loosening in its choke chain.

The memo was dictated to Greece, not negotiated, presented as a fait accompli with Tsipras reported as being allowed to change only one word. The memo clearly reaffirmed, repeatedly, the existing (and deservedly hated) structural reforms. When Greece provided its initial list of reforms, which merely serve as a basis for negotiation,both the ECB and the IMF made clear that they regarded them as deficient. The IMF was more extreme, saying that it expected Greece to stick with the existing structural reforms, while the ECB indicated it would allow Greece to swap out existing reforms for new ones, provided that the new reforms had no worse fiscal impact than the current ones.

Now mind you, as we pointed out yesterday in Links, some of the reforms sound like neoliberal hogwash. For instance, Greece has the highest electricity costs in Europe. So what is the remedy? Privatize the system. But as we've written, studies in the US have found that privatizing electricity has not lowered costs and in many cases has resulted in cost increases. But Syriza is not arguing against specific reforms on their lack of merit. It is making a more general case that its overlords have not regarded with much sympathy: that selling assets at bargain basement prices does not make a lot of sense. Unfortunately, that is the position bankrupts are often in, and their lenders are typically not very nice about liquidating assets either.

So the big issue is that no matter how unpalatable and unsound the Troika position is, it's been clear what it is. Thus it's hard to fathom what the Greek government is smoking. Do they really believe, when they come out of these sessions, that they've actually won big concessions when there's no basis for taking their claims seriously? Is this simply messaging to their voters, which unfortunately for them is also picked up by international media? Every time one of these outtrades happens and the Troika keeps sticking to its guns, the Greeks lose credibility and sympathy with some of their supporters.

Mind you, it does appear that Tsipras scored one win: at least the IMF extreme version, that the old package has to be honored in full, appears to be no longer operative and the less stringent ECB view (Greece can swap reforms as long as the overall fiscal impact is no worse) will govern. But other elements of the Financial Times account make clear that Greece hit a brick wall:

According to people briefed on the talks, Mr Tsipras opened with demands for additional cash with few strings attached, acknowledging his government may not make it to the end of April without an injection of bailout funds. But his push lasted only the first 10 minutes before the other leaders convinced him it was unachievable.

Instead, much of the session focused on logistical arrangements in Athens, where Greek officials have thrown up hurdles to international bailout monitors seeking to access data to evaluate the country's reform efforts.

Mr Draghi was particularly incensed, telling Mr Tsipras he believed the inspectors — from the ECB, European Commission and International Monetary Fund — had been badly treated by their hosts. Mr Tsipras countered that allowing such access would be a violation of Greek sovereignty. But he relented after Ms Merkel noted all IMF members are subject to annual reviews involving access to a country's books.

Having Draghi upset is not a hot idea, since he has been the one at the ECB reining in the hardliners who'd love to cut Greece loose by refusing to authorize increases in the ELA as the deposit run continues.

Greece acts as if it believes that its creditors will relent and will throw it a rescue line, since even a mere default on the ECB debt coming due this summer would be explosive politically, since most analysts believe losses would be paid via budgetary allocations from member states, meaning charges to taxpayers. The Troika, by contrast, seems to think at a minimum that it if keeps starving Greece, it will be forced to capitulate well before then. And enough people in high places may believe that the ECB has done a good enough job of ring-fencing Greece that it can deal with the disruption of a default or Grexit.

As we've said, similar misjudgments led to the Lehman default. The Bush administration could not have been more clear that no rescue was forthcoming, yet Dick Fuld was convinced that the fact that Bear Stearns had gotten a bailout meant Lehman would get one too. Greece will not even get to talk about renegotiating the debt due this summer if it can't reach a deal over the bailout funds that it desperately needs. Perhaps Greece is secretly planning for a Grexit, but this government is so lacking in discipline it's hard to think that they could keep an initiative like that under wraps. And lacking a Plan B, the execution of its Plan A is sorely wanting.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Yves Smith

Yves Smith has been in and around finance for more than 30 years as an investment banker, management consultant to financial institutions across a large range of wholesale banking and trading markets businesses, and a corporate finance adviser. She has also written for The New York Times, Al Jazeera, the New Republic, Salon, the Conference Board Review, the Australian Financial Review and other financial publications. Her TV appearances include NBC News, CNBC, Fox Business, PBS, Bill Moyers, The Real News Network, Democracy Now!, Russia TV, ABC (Australia), Al Jazeera and BNN (Canada). Follow her on Twitter: @yvessmith.

Related Stories

Greece and Its Lenders Agree on Austerity Plan
By Rachel Donadio, Niki Kitsantonis, The New York Times News Service | Report
Greece and the Euro: Fifty Ways to Leave Your Lover
By Ellen Brown, Truthout | News Analysis
Greece and the Crisis of Europe: Which Way Out?
By Marjolein Van Der Veen, Dollars & Sense | News Analysis