Showing posts with label eurogroup. Show all posts
Showing posts with label eurogroup. Show all posts

Sunday, 5 April 2015

Who is the pilot on the GreekWings flight

The flight deck door is locked, autopilot is set, the passengers are frantically banging on the cabin door but can Greece bank before it crashes into the immovable Alps. And, more importantly, will we have to wait for recovery of the black box to discover who was really at the controls.

In these final few hours before impact the Eurogroup is steadfast in its position of total and complete capitulation by the Greek government before it will consider releasing €7.2 billion bailout funds. After reviewing Athens’ proposals for reform, the guardians of the purse strings have deemed them inadequate and even amateurish. So, what are the options for the eurozone if Greece does not satisfy their demands and defaults on the €450 million payment to the IMF on 9th April and who or what is driving those decisions.

The suspects are:


Alexis Tsipras, 40 year-old ‘Radical’ leader of left-wing coalition party, Syriza who has seen a meteoric rise in the last two years but has been in activism and politics since University. His mandate from the Greek electorate is the lifting of Austerity measures imposed by the Troika of creditors and to keep Greece in the single currency.



Jeroen Dijsselbloem, 49 year-old Dutch Labour party finance minister and president of the Eurogroup, the select committee of European finance ministers who since 2015 have jurisdiction over the Euro. His role is to maintain stability of the single currency.



Angela Merkel, 60 year-old German chancellor. She is the leader of the centre-right Christian Democratic Union. Germany’s position in the union makes it the de facto leader in negotiations but she has expressed a desire not to have the Euro fail under her watch.



Jeroen Dijsselbloem
If Greece defaults and a Grexit occurs then in the short term, the bond markets could go bear and the euro would go into free fall. In this age of bond market sycophancy, this is a big deal.

That said, any concessions given to the Greeks would become a precedent for other struggling Eurozone nations and while the band-aid needed to plug the hole in Greece is relatively small, Italy and Spain or even France could be far more damaging.

The austerity strategy appears to be working for some members such as Portugal and Ireland, both have exited the bail-out programme and re-entered the international credit market, the latter is now the fastest growing economy in Europe. However this is just balance-sheet understanding, many Irish and Portuguese are not seeing the benefits.

Many Eurozone nations would be watching Greece to see how it dealt with the divorce and depending on how painless it turned out or what could be learned from the experiment, there could be more departures from the single currency which could well lead to complete devolution.


Alexis Tsipras
In the event of an ill-prepared and messy Grexit the already fatigued Greek people would loose faith in the young prime minister, not only ending his career but sparking chaos and possibly an opening for the far-right fascist groups to seize control. Greeks have hankered for state reform for as long as I can remember but the reality would cause more collateral damage than they are prepared for.

An unnamed Syriza official recently said that as a left-wing government, faced with the choice of defaulting to the creditors or their own people it was a no-brainer. Brave words indeed but also damn straight, given the choice of paying the mortgage and feeding your kids, what would you do. No-brainer, right?

But his choice is not just death or dishonour.


Greece could gain support from Russia. Syriza harbours within its ranks some far left idealists who may still hold romantic notions of allegiance to Russia. They may not have realised that Putin’s Russia has bypassed communism to revert back to the days of the Tsars. 

However, Russia has its own liquidity problems and would not bailout Greece without some pretty heavy caveats whether declared or implied. Recent events in Ukraine are very telling of Putin’s ambitions. Russian gas supplies to Greece which are used for domestic use and electricity generation have already given it a significant political foothold.

Russians also represent a huge growth in tourism for Greece who are also buying up holiday property. In some tourist areas English has been demoted to third place on menus and shop signs.

Angela Merkel
Germany’s motives have much in common with the Eurogroup’s, but Angela must play to the home audience. Germany is running a sizable surplus due to its reluctance to take advantage of cheaper than cash credit which is available to it and the austerity measures it has been imposing on its own people, which it systematically blames on Eurozone slackers like Greece. Bending to Greece would be a domestic disaster for Merkel. While a short-term fall in the Euro could hurt but foreign currency holdings and cheap exports would buffer the blow and she would be seen as a saviour.

The Euro is significantly undervalued compared to the German economy. It is the only economy that could withdraw from the Euro with money in the bank but a return to the Deutsche Mark would mean more expensive German exports and it would go back to being another European nation rather than the epicentre of an EU empire.
If Greece were to be cut loose this would mean a constriction of the European borders especially in a very strategic area of the Mediterranean.

We forget though, there is a new wave of Eurozone candidate nations in the wings including Iceland, Albania, Montenegro and Turkey. Turkey gives access to the Med and the middle east, Albania and Montenegro who give access to the Ionian across from Italy and who along with Serbia and Macedonia go to bridging the northern members to Bulgaria and ultimately Turkey and beyond.

These candidates may be seen as more manageable than Greece and not to mention, a Greek withdrawal would make Macedonia and Turkey’s integration easier.

So who is in the driving seat then? 

Well, Merkel does seem to have the most options.

Tsipras is between a rock and several hard-places. Threats have been thrown of everything from Russia to opening the roads for Islamist extremists but ultimately his hand is bluff. Varoufakis’ and his post-election European road trip found few allies. His only option may be to steer into Russian and Chinese ploughed fields.

Dijsselbloem represents the auto pilot, his role is the result of programming. He can only prepare for the fallout.

And all the while the bond markets are licking their lips with glee, fail or fly the euro will make many hedge funds even more obscenely rich.

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Friday, 20 March 2015

What will Greece do after the GREXIT

Last night Alexis Tsipras entered talks with Angela Merkel, Francois Hollande and select members of the Eurogroup for yet more discussion on what is essentially how to do what fewer and fewer people want and what more and more fear; keeping Greece in the Eurozone. The result wasn't much different to the previous summits; we'll wire the money if you play ball. Tsipras has not played ball and it seems just a matter of time before one side or the other calls time on this game of ping pong. So what will Greece do after this push/jump scenario plays its logical conclusion.
Eurozone tug o' war
Game Theory: Candy Crush vs World of Warcraft
In a recent interview with Costas Lapavistsa, Economist at London's SOAS and Syriza MP he said they were 'Flogging a dead horse'  he added that Syrizas' strategy had come to an end and it was time to negotiate an amicable departure from the Eurozone. Indeed, after a huge show of strength by Tsipras and Varoufakis it seems that Yanis' famous game theory has been but Candy Crush to the Eurogroup's World of Warcraft. The question on everyone's lips now is what will the bankrupt nation do after default or a negotiated withdrawal from the single currency system. The one would leave Greece with cleared debt but no line of credit with international financiers, the other with a huge debt hanging but maybe some line of credit. Recent example of these scenarios being played out are Argentina and Iceland, two quite different cultures that resulted in very different outcomes. 
Yanis Varoufakis, Greek finmin and self proclaimed Erratic Marxist subscribes to the theory of growth through massive public investment, the Keynesian approach to economic development. This is the same strategy that brought the US's New Deal which many believe brought the country out of the Great Depression in the 1930s under Roosevelt. But this was a programme implemented by a country with huge resources in a time very different from now, when people's expectations from the state were almost non-existent. We now live in a world of state benefits, healthcare and education, undeniably progress but also costly. Varoufakis believed that this strategy could be successful from within the Eurozone but it is obvious that this is not compatible with the Eurozone's strategy. In fact, Germany has been tightening its purse strings with its own people. Their idea of a New Deal is Quantitative Easing (QE), pumping money into the top and preying that it will reach somebody grateful. The Keynesian approach is to pump money into projects that put money in the public's pocket so they will share it with each other and industry.  
The common misconception with Keynesian capitalism is that it is a spendfest. The Greek government is historically bad at making free with capital. Tsipras has already committed to re-bloating the public sector and while this may put a few more Euros (or Drachma) on the high street it will do little to stimulate industry or entrepreneurial activity. On the contrary, a more populous public sector tends to increase bureaucracy to keep the bodies busy. This has traditionally been Greece's major obstacle for foreign investors as well as local entrepreneurs. 
So, where could the money, if there were any, be spent to get the country's economy moving.
AGRICULTURE: Investment in farming could boost the economy, there are few places as fertile and the quality of its produce is world-class. But, the industry will need to change fundamental attitudes. This has already begun but years of unrealistic state compensations have made it more viable for many producers to be less competitive. A turnaround in approach with higher productivity could well save the country’s ailing fortunes. Farming has traditionally been viewed as peasantry but food technology is a growing and the world needs food, not just from mass consumption but also premium quality, something that Greece could do very well at.
RENEWABLE ENERGY: Greece has more than twice the sun-hours per year than the UK. While there has been huge investment in solar farms in recent years, changes in policy and the national electricity company reneging on contracts has made this area much less attractive. Farming and domestic waste could also be a good source of fuel for anaerobic digestion plants that may not be an export but they would take the pressure off imports of oil and gas from Russia.
MINERAL RESERVES: Greece has untapped reserves of gold, rare-earth metals while speculation of oil and gas reserves have yet to be fully explored. The exploitation of these may be another way forward but this must be approached cautiously as there is a lot of resistance from groups that maintain that the ecological impact could damage tourism, Greece’s major income. It must also be ensured that profits find their way into the Greek coffers and not Swiss banks.
NEW TECHNOLOGY: Greece has one of the highest levels university graduates in Europe and a thriving entrepreneurial community but the lack of jobs and funding has caused a huge haemorrhage of graduates and young entrepreneurs abroad. Their startups ultimately contributing to the GDP of other countries, their skills acquired and paid for by Greece, working for foreign interests. This trend needs to be reversed with support, funding and stripped-down bureaucracy for new ventures. 

And don't forget: Greece is a fabulous winter destination with history, clement climate and even skiing. Visit this site for ideas 
It is painfully obvious that the Euro has failed on so many levels but mostly it has failed the people it was supposed to serve, the European citizens. Instead of unifying a continent it has bred mistrust and acrimony. 
The Greek exit will be traumatic, as will be the exit of other members. But, it is good management that will make the difference. Iceland made a quick turnaround but Argentina continues to suffer and I fear that Greece has more in common with the latter.
I believe that the Keynesian approach is the way forward, Hayak/Friedman's free market neo-liberalism has already devastated many nations at a social level (let's forget the markets for one moment). Good management is the key, funding needs to find its way to stimulation of GDP not the deficit.


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Monday, 23 February 2015

Is Greece ready for the New Drachma

On Friday 20th February Tsipras, Varoufakis and the Greek people found themselves between a rock and a hard-place. The rock was supplied by Wolfgang Schäuble who has been quite gloating in his intentions to break the Greek delegation and continue with EU's strategy for the Eurozone. The hard place was supplied by the Greeks themselves as the announcement on Greek media that around €20 billion had hemorrhaged from Greek bank deposits since December and the scene was set for a full-on run on the banks. Of course, telling people that their deposits may not be safe can have but one result; their deposits will not be safe. An insolvent banking system would be politically disastrous for the most popular government since ousting the junta in 1974. Finally Tsipras ad Varoufakis had no choice but to capitulate and return home with their tails between their legs.

           

Tsipras has vowed that if he doesn't get a fair deal he will leave slamming the door so hard that the whole house will fall in. Has that time come. The win that has be lauded, in lieu of anything else to say is that the Eurogroup has agreed to see a list of proposals for exactly how they intend to bring the economy into check, this is seen as a positive but we must also consider that while the knot has been loosened, it is also possible to wriggle the noose tighter still. There is no way that the Eurogroup (Schäuble) will be satisfied with the proposals this whole exercise is a last ditch demoralisation tactic, maybe even to force Tsipra’s to play his hand. The backlash has begun with the most audible coming from within Syriza’s own ranks, Manolis Glezos has accused Tsipras of trying to get away with calling meat fish with reference to the lexical realignment of the Eurogroup agreement.

Are the Greeks finally ready to bite the bullet and embrace the Drachma again.

There have been no reliable domestic polls on a Grexit and return to the Drachma and none could possibly done as merely putting the question to the people would cause the mother of all runs and a collapse of the economy before anything could be done. I have been trying to gauge public opinion here on the subject and the first impression took me by surprise, people are reluctant to talk about it. This is strange for a people who have always had a preoccupation with politics, taken relish in criticising the government and more recently the governments of its European partners but now starting the conversation provokes nervous fiddling with smart-phones, shoulder-shrugging or irritated changes of subject. So tired by hope against hope, so weary of broken plans, many have shut down completely. Their last burst of excitement spent, they are resigned to a new status quo and are trying to get on with breathing again. The world outside the political rallies and euro zone negotiations is calm detachment. According to Robertson and Bowlby’s attachment theory Greece has come to the third stage of ambivalent attachment, a survival stage that avoids any further emotional investment and the pain that accompanies disappointment.

Is Greece ready to embrace a new drachma. According to Bowlby, Robertson and even Naomi Klein’s Shock Doctrine, Greece is neither ready nor resistance to anything any more and those who feel powerless will just get on with breathing regardless of the flavour of air they are given. 

The one thing I have realised is that for the first time the Greeks have leaders to rally behind and that could just make the difference. 


UPDATE: WHAT WILL GREECE DO AFTER THE GREXIT


Thursday, 19 February 2015

Europe needs counselling


Forget game theory, what is going on in Brussels is an acrimonious divorce with Germany playing the stoical male role while Greece is the emotional wife trying to get the best for her kids. The passion has gone and it is a relationship that has been reduced to mere financial dependence, a situation that will be familiar with many frustrated spouses. The eurozone is a dysfunctional family that is in desperate need of reconciliation counselling if it is not to pull itself apart causing generations of bitterness and trauma.


If this divorce goes through, the Fatherland will keep the house and cars.
Twitshot


She just won't listen!
We, especially in northern Europe are are conditioned to rely on the head to make important decisions, logic is good. The financial institutions are playing this role, crunching numbers and coming up with plausible reasons why Greece is being histrionic and unreasonable to expect concessions that might allow the family to flourish as a stable and contented union. Wifey just doesn’t understand the pressure that he is having at work and needs to get on with keeping a thrifty home. But Dad’s work has become an obsession with him and while it was originally intended to be a good source of income to feed and clothe his family, it is now beginning to take the place of the family. He has become so defined by this role that it has blurred all perception of purpose. The Euro is a medium of exchange, a facilitator existing only to service the family unit and yet as it fails to satisfy this purpose it is the family who are made to adapt, it has become the only thing of importance.

In 2011, I had he pleasure to meet the now Belgian finance minister, Johan Van Overtveldt. In his 2011 book The end of the Euro, he points out that the single currency was doomed from the outset as an economic union was foisted on a group of nations that had not established a political union on which to base it. Like a marriage of convenience where the couple had not had adequate time to establish a sound understanding and mutual admiration before deciding that his job prospects were sufficient to base a life long bond. So arrogant have the world’s bankers become that they really feel that money makes the world go round. They expected the common currency to be the leverage in European political unification under the logical auspices of the German banking system. This, as Overveldt predicted is blowing up in their faces now and Greece is being offered up as the unstable mother, unfit to care for her children.

The Fatherland is presenting a face of maturity that casts aside the humanistic aspect of government as folly and whimsy. Their focus is on balance sheets and policy that has been (badly) designed to support a currency system that will eventually condition the population of Europe to serve it. This is an autistic mindset that cannot contemplate the uncountable. We are being expected to side with the validity of this argument as it is irrefutable with logic.

The mother of democracy is harping on about how badly she has been treated and that she cannot support her children. She is not getting the right kind of support from her partner. Yes, he gives her money for the home but it’s how he gives it, the demands he makes on her, the disapproving frowns when she tries to make herself nice, the silence at the dinner table when she serves something a little simpler because she has evening classes. She has a point but her argument can get a little confused with ideas that are less easy to quantify as they are off-balance sheet considerations.

We sympathise with Mum but Dad makes more sense because he is logical.


What is needed is a mediator who can reconcile this difference of language. Yanis Varoufakis is arguing socio-political aspect of the relationship, a strategy for growth while the Eurogroup president Jeroen Dijsselbloem insists on strict adherence to the austerity programme, a financial paring intended to support the medium of exchange at all costs.

Relationships of all kinds are dependent on understanding and evolution. I spoke to psychiatrist, Dr. Alexios Lappas, he said that successful relationships are based on similarities and differences, the prior form the core of shared goals while the differences maintain interest. However, as the responsibilities and strains of routine bite, the interest begins to wane and they regress into survival mode. The differences begin to be viewed as betrayal, by the anxious survival mode mind and they look for endorsement from friends (common ground relationships) who will tend to agree with their friend and support an exit from the relationship. It will not be long before irrevocable differences are cited and the family will split into those on dad’s side and those who support mum.



It is too late to impose a retro-fit political framework to underpin the eurozone’s fiscal policies but if the relationship is to develop through the present crisis it will need to be forward facing. The present negotiations in Brussels is an opportunity for growth but in order for that to happen Dad is going to have to loosen his tie and open himself up to some uncomfortable new feelings.  

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