Are The Parties Dragging Their Feet Because they Don't Want to Face The Music From Voters ?

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'Greek Party Leaders Begin Crucial Debt Talks'

We thought we had seen it all by now. We're not kidding you, the above is an Associated Press headline from today. They are only 'beginning' with those 'crucial talks' it seems. What did they do over the past several months?

„After three days of delays, Greek coalition leaders began crucial debt talks Wednesday with the prime minister to review a draft deal on steep cutbacks demanded by creditors in return for a €130 billion ($170 billion) bailout.

Leaders of three parties backing the three-month-old coalition are under intense pressure to accept the new austerity demands and shield the country from a looming bankruptcy.

Their decisions will be announced at a meeting with Prime Minister Lucas Papademos, after the parties were handed a 50-page English-language draft agreement, drawn up with international debt inspectors late Tuesday. Athens has already accepted a demand to fire up to 15,000 workers in the public sector in 2012, but is under pressure to impose deeper cuts, including reductions in pension payments and the minimum wage.

A disorderly bankruptcy by Greece would likely lead to its exit from the eurozone, a situation that European officials have insisted is impossible because it would hurt other weak countries like Portugal, Ireland and Italy.

It was still not clear whether the parties — the majority Socialists, main rival conservatives, and small right-wing LAOS — would accept the austerity demands, particularly ahead of national elections provisionally set for late April.

"Austerity measures are like shoes that are too tight. Sooner or later, you want to kick them off," LAOS leader George Karatzaferis was quoted as saying by state TV.“

(emphasis added)

Eurocrats have 'insisted' a Greek default and exit from the euro area is 'impossible'? That has to be the joke of the week, if not the month.

Evidently there will be a political price to pay for those Greek politicians supporting more austerity. Thus the most recent delays in their 'crucial talks'. Nobody wants to be booted from the trough. Even if the pressure is intense and they most probably wouldn't know what to do if the flow of bailout funds were to suddenly cease.

As the WSJ reports, the fact that new elections are close (they are scheduled for April), plays havoc with the deliberations. Obviously Greece's population is at the very end of its tether patience-wise. Austerity, fine -  but not without a light at the end of the tunnel. No such light currently exists. Support for Greece's ruling political parties has crumbled to such an extent that they could no longer even form a coalition with a parliamentary majority if elections were held today.

“The political leaders backing interim Greek Prime Minister Lucas Papademos are right now only €600 million away from having the cuts they need to meet the deficit-reduction demands that will secure Athens a new bailout.

The road leading here was built with higher taxes, pay cuts and lower pensions that have crippled households and have seven out of 10 Greeks saying enough is enough.

In most other countries, that would spell certain death for political parties supporting so much concentrated pain. With new Greek general elections as early as only two months away, the political landscape could become as dysfunctional as an austerity-trapped economy now in its fifth year of recession.

Of the three parties now backing Mr. Papademos’ deeply unpopular cutbacks, the Socialist, or Pasok, Party that ruled the country for most of the past 30 years has sunk to 11.1% in the polls according to the latest poll by the Star television channel in late January. The center-right New Democracy party claims 21.7%. What is left is LAOS, a right-wing nationalist party, which at 5% is seeing its supporters melt away because of its compliance with decisions that have handed away Greek sovereignty to its creditors.

So, if elections were held today, the parties supporting Mr. Papademos and the reform program would be hard-pressed to form a workable parliamentary majority.

Another party would have to be brought into the coalition, and that would mean a party that hasn’t joined with current coalition members in signing an agreement to strictly adhere to everything Greece is promising creditors today. This is the stuff of rifts and political blackmail.”

(emphasis added)

According to Reuters, the party leaders are using feeble excuses to justify the delay. They are in fact saying that the dog ate their homework:

“One party official blamed Tuesday's delay, which is likely to enrage euro zone leaders desperate to tie up the 130 billion euro rescue after months of argument, on missing paperwork – the same reason given when the meeting was postponed from Monday to Tuesday.”

As a recent WSJ article noted, 'beware of Greeks meeting deadlines'. There is however one deadline looming that can not be ignored: March 20. That is when € 14.5 billion in Greek bonds mature. If no bailout funds are wired before that date, there will be a default. And indeed, why shouldn't there be one? Greece deserves to be released from its agony. At least the country's citizens do. They are being asked to pay an increasingly heavy price for the failings of the political class. And it is not only Greece's political class that has failed them, but also the Eurocracy. As we pointed out yesterday, at no time was Greece's public debt within the limits imposed by the misnamed Maastricht 'growth and stability' pact. Greece should never have been allowed to accede to the euro. The eurocrats knew about the shady derivatives deals with Goldman Sachs that helped hide the extent of Greece's deficits. We know that they were told beforehand. There simply is no excuse. Alas, now everybody expects Greece's hard pressed citizens to make good on the demands of creditors whose lending decisions were ill-conceived, to put it mildly. Meanwhile the retrogressing Greek economy has begun to transform Greece into a third world country in many respects. It is time to put an end to this never-ending farce and actually do something that helps Greece.

An up-to-date chat showing the 'Greek dilemma' – the gap between public debt and economic keeps growing. If not for the euro, Greece would likely experience hyper-inflation by now – click chart for better resolution.

Greek government debt in detail, via Der Spiegel - click chart for better resolution.

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It's Time to End the Greek Rescue Farce

The German-speaking press is slowly but surely coming around to the idea that what is being done with Greece simply makes no sense whatsoever. The latest example can be found in the German news magazine 'Der Spiegel', which demands an 'end to the rescue farce' in a recent opinion piece.  We should perhaps have trademarked the term 'Greek rescue farce' a year ago, alas, it is of course an almost self-evident description of the situation – perhaps more so today than it was a year or two ago, but still. The 'Spiegel' editorial begins by stating the obvious:

“For the past two years, Greece has wrangled with the euro-zone states and the International Monetary Fund (IMF) over its so-called "rescue." Austerity measures have been agreed to, aid has been paid and private creditors have been forced to accept "voluntary" debt haircuts. Despite all this, Greece is in even worse shape today than it was then. Its economy is shrinking, the debt ratio is rising and the country and its banks have been cut off from capital markets. There isn't even the slightest sign that the situation might improve. Something has gone very wrong with this rescue.”

As blindingly obvious as all of this is, it seems the dramatis personae in this rescue kabuki remain blissfully unaware of reality:

“But none of the protagonists seem to have grasped this. They continue to negotiate as if things are business as usual, they let one "final ultimatum" after the other pass and they persistently fail to realize that their discussions have started to verge on the absurd. It would be a lot better to end this farce.

For weeks now, the Greek government has been negotiating with private creditors and the troika comprised of the IMF, European Union and European Central Bank (ECB) over a second bailout package. But it is already clear that this aid package will not save the country. It appears it will only delay a Greek insolvency — and it will serve to create new hardships for the country's population.

(emphasis added)

One could not possibly hit the nail on the head more squarely. The entire article is well worth reading, although we disagree with the suggestion that Greece needs a 'Marshall plan' type interventionist program to get back on its feet after the default, as such statist ventures are as a rule apt to waste even more scarce resources. Alas, we certainly do agree that a default is the only viable option. Tabula rasa is the only thing that makes sense. In fact, it has been the only thing that made sense from the very beginning of the crisis. 

As we have pointed out in the past, the use of a common medium of exchange does not preclude defaults and debt restructurings. Nor does it require a 'fiscal union' in order to work. What it requires is the abolition of central monetary planning and the introduction of a free banking system based on traditional legal principles, with loan and deposit banking run as two distinct businesses, eschewing the practice of fractional reserve banking. That's what is really required to make a common medium of exchange 'work' between nations that are at different stages of economic development.

The Spiegel editorial concludes:

“Perhaps, the Greece rescuers on both sides of the negotiating table should try being honest for a change.Here's the truth: If the country is to lastingly reduce its mountain of debt and, at some point, be able to borrow money on the capital markets again, then it needs a comprehensive debt haircut. In other words, it needs to go bankrupt.

And it's not just private creditors who will have to forego a large part of their outstanding Greek debts. It is also other European countries and the European Central Bank. That would be expensive for taxpayers across Europe, and it would also be economically risky. Indeed, no one knows what consequences a Greek bankruptcy would have for other crisis-ridden countries like Portugal, Ireland or Italy. But at least it would be an honest solution.”

Indeed, it is high time to admit to the reality of the situation and face the consequences. Throwing more good money after bad while impoverishing the Greek citizenry ever more is not a sensible course. One must also recognize that the Greek State is dysfunctional: it does not even matter if its political leaders want to comply with the bailout conditions. It is impossible to implement them with Greece's corrupt and inefficient bureaucracy.  That's simply a statement of fact – Greece's administrative bodies are hopelessly beyond any attempts at reform at this point in time. It would take many years to change their culture and organization. 'Deadlines' of days and weeks are entirely empty concepts in this context. 

Greek Stocks May Be Worth Considering Anyway

As we have pointed out several times as Greece's stock market approached the '90% down from the highs' level, with its average p/e ratio falling below 6 (!), one should perhaps consider that this market may represent a long term buying opportunity in spite of all the well known problems. It was and remains a high risk, but potentially high reward situation. After all, when the DJIA was down by av similar percentage in the depths of the Great Depression, the time to buy had also arrived, in spite of the complete collapse of the economy and in spite of the fact that the height of the banking crisis was still to come a year later (by that time, stocks were already up by 100% from their lows).

It seems we were not entirely wrong about that. Although the market initially fell further after we first mentioned the idea, the Athens General index has in  the meantime risen by almost 30% from its recent lows: