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.

Share with the buttons below and follow me on twitter @A Crop Of... Go on, I dare you!


2 comments:

  1. As an Englishman living in Crete, I found your analysis rather interesting though your first paragraph's analogy unfortunate. A couple of weeks ago, I likened the EU to an old, warm overcoat in winter; totally flea and vermin infested but throwing it off leads to the big freeze. It is widely recognised now that Greece should never have joined the Eurozone and it will not do to blame the Greeks' use of Goldman Sachs for their entry into the quagmire. Any of the other Eurozone States could see with both eyes closed that Greece could not properly qualify. It was only the political insistence of having as many countries as possible within the zone that caused them to keep their eyes closed.

    For seven years Greece has suffered austerity and crisis and nothing they can do while constrained by the euro will improve matters significantly. In the next seven years, there will be votes, there will be changes of government, there will be strictures, there will be orders from the EU that must be followed for bailout cash, yet that is what it will be - bailout - just enough to stop the ship of state sinking but never enough to get it underway again. In those seven more years, the ship, if still afloat, will not have moved forward.

    The Greek people on the decks threw Captain Samaras overboard and appointed midshipman Tspiras to take the helm. He offered hope that he would steer a new course and the people believed him. But the new chief engineer Varoufakis failed to restart the engines without which the helmsman could do nothing but cry and twiddle the wheel. As the water laps at the gun-whales of the stricken ship, the people's belief in their early-promoted midshipman is evaporating fast. Standing alongside now is an EU pilot-ship waiting for the people to throw Syriza overboard en bloc, so that the EU appointee can take charge.

    Salvation will come for the stricken ship once the EU jettisons those people that are a burden and expendable. Then and only then, with much cash injected for new engines, will the ship get underway. With luck and continued benevolence from its EU benefactors, the ship of state should dock safely in Piraeus circa 2022 with people aboard who have abandoned all hope.Tsipras should not have offered to re-float the ship of state on the back of EU funds and demands. Far better to seek a commission from Thor Heyerdahl and build a modern day Kon-tiki, but named The New Drachma. With this he could rescue the bulk of his people and sail slowly but surely along a course to better times. Better times? Nothing could be worse than the slow, painful drowning this once great nation currently faces.

    ReplyDelete
    Replies
    1. I like the coat analogy, Richard.

      What worries me more than anything is whether there is a default or even if the debt was expunged completely, is there the culture to ovoid it just happening again.

      Delete


“In a hyper-real postmodern world, fact and fiction have become confusingly indistinguishable” Hunter S. Thompson

Throw in your two-pennies worth

From Under Dark Clouds

The Century of DIY