Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Sunday, January 12, 2014
Greece updates January 12 , 2014 - Yanis Varoufakis: Greek Finance Minister Reveals Advanced Case of Stockholm Syndrome ........ Troika arrival likely to be postponed Target date for an agreement with the country’s creditors will be deferred to February as talks hit snags..... Greece's industrial output continues to suffer - suffering since 2008 !
By Yanis Varoufakis, professor of economics at the University of Athens. Originally posted at his blog
This is a stupendous story. Possibly for the first time in its tainted history, the International Monetary Fund had a major change of heart and tried to do the right thing by a ‘program’ country, only to be turned down by that very same country’s finance minister!
The summer of 2012 had just ended and Greece was, once again, facing a ‘funding gap’; a euphemism by which to cover up for the fact that, unsurprisingly, the bankrupt Greek government’s insolvency had not been addressed by new gigantic loans and fresh income-sapping austerity. Around that time, the IMF’s Ms Lagarde was being put under pressure from non-European member-states of the IMF to stop lending more money to Greece until and unless Germany and the European Central Bank came to their senses and accepted the simple premise that Greece’s solvency could only be resolved through a deep debt restructure (or, alternatively, by an enforced exit from the Eurozone).
Ms Lagarde was, in this manner, encouraged to ‘take her leave’ from the European club and to enter the Eurogroup meetings during the latter part of 2012 confrontationally, and with an aggressive agenda of restructuring Greek public debt. Alas, there was a snag: The Greek government, the main beneficiary of the IMF’s change of heart, was unwilling to forge an alliance with the IMF, disinclined to imagine the very possibility of siding with the Washington organisation against the mighty Mr Schäuble. Here is an extract from an article by Peter Spiegel and Kerin Hope from yesterday’s Financial Times:
Indeed, Mr Stournaras said he bucked pressure from Christine Lagarde, IMF managing director, and Poul Thomsen, the IMF’s Greece mission chief, to ask other eurozone leaders – including German finance minister Wolfgang Schäuble – to accept “haircut” losses on their bailout loans. “Poul and Lagarde said I had to [stand] by their side,” he recalled. “I said: ‘OK, but if I come by your side, it is what would really help Greece, but it’s something which is totally out of the question.’ Schäuble told me: ‘Yannis, forget it.’ So it cannot be done, so what can I do?”
Never perhaps in the history of the European Union has a better example seen the light of day of the complete and utter subjugation of proud nations to the tyranny of the leading surplus nation. Never before have we had such a vivid confirmation that the European Union is no longer an association of sovereign nations and that a rational debate is ruled right out. Think about it:
1. Greece’s national interest, as well as the IMF’s, was to effect this restructure as soon as possible.
2. There was no risk to Greece from the IMF’s proposed alliance: Mr Stournaras had nothing to lose by forming the alliance requested by Ms Lagarde so as to push for a restructuring of the Greek debt. The very worst outcome of such an IMF-Greece alliance would be that the joint IMF-Greek position might be rejected by the rest of the Eurogroup and that Greece would end up with the same rotten deal it ended up getting anyway. In other words, under no circumstances would a joint IMF-Greek proposal lead to an outcome worse than the one Greece got after having rejected Ms Lagarde’s overtures.
3. Europe’s collective interest was that the Greek debt is restructured sooner rather than later – since the slow, Chinese-drop-torture-like process guarantees that no sane investor will invest in a country whose public debt remains hopelessly unsustainable (especially in the absence of a banking union), thus ensuring that European taxpayers will have to lend and lend and lend a permanently insolvent government, thus pushing through the roof the eventual costs of the restructure in particular and of the ‘Greek program’ in general.
4. Mr Stournaras, perhaps unwittingly, admitted to the Financial Times that he informed the German finance minister of Ms Lagarde’s and Mr Tompsen’s offer before the crucial Eurogroup meetings, thus voiding any surprise-move advantage that an IMF-Greek common position could have enjoyed. As we all know, from the experience of the past five years, when confronted unexpectedly by a determined large ‘player’ (e.g. the IMF), the German position suddenly becomes more flexible. Thus Greece stood to gain at least some benefits from accepting Ms Lagarde’s overtures. (But as the main beneficiary of the IMF’s readiness to confront Berlin, Greece that is, refused to join in, there was nothing that the IMF could do.)
5. Given the previous four points, it is hard to avoid the conclusion that Mr Stournaras was far more interested in maintaining a cosy relationship with Mr Schäuble than to pursue the interests of both Greece and of the Eurozone.
Yannis Stournaras happens to be a valued colleague and a good friend of mine (see the open letter I sent him upon his appointment as finance minister). It is with great personal sadness that I write these lines. Greece needs a finance minister that will re-negotiate forcefully the terms and conditions of a misanthropic, irrational, unworkable ‘bailout’ package (especially now that a Mk3 version is on the boil). Given the way he, by his own admission, squandered this remarkable opportunity to increase Greece’s bargaining power, he lacks the credibility amongst Greece’s polity to lead these negotiations. He should thus resign. Effective immediately.
Target date for an agreement with the country’s creditors will be deferred to February as talks hit snags
By Sotiris Nikas
February 17 will probably be the new target date for a deal between the government and the representatives of the country’s creditors – known as the troika – as the differences existing since December are yet to be bridged.
Finance Ministry officials and troika sources say that the heads of the missions of the European Commission, the European Central Bank and the International Monetary Fund will likely not return to Athens next week, which means that the January 27 target date for the completion of negotiations will be missed – even though there still are some who say a deal by that date cannot yet be ruled out.
The most likely scenario at the moment favors a convergence after the January 27 Eurogroup meeting of eurozone finance ministers and up to February 17, with a view to the disbursement of the next tranches from late February to early March.
The new delay illustrates the difficulty of the negotiations, with the troika signaling to Athens it will not return unless it is clear that an agreement can come out of the talks. In this context, it is all but certain that the troika will not arrive in Athens next week as the data the Greek government has sent to its creditors on a series of issues are considered insufficient and their assessment has not been completed yet.
There are three main fields of disagreement, concerning the fiscal gaps and promotion of structural reforms. The troika estimates this year’s fiscal gap at 1 to 1.5 billion euros and expects the government to present measures to bridge it. The Finance Ministry counters that it has already sent the creditors a list of measures of permanent character to that effect.
Then there is the fiscal gap anticipated for 2015, which the troika puts at 2 to 3 billion euros, while Athens estimates it at 1 billion euros. The exact amount will depend on whether Greece takes permanent measures this year, taking the gap to 2 billion euros, or temporary ones that would allow the gap to open up to 3 billion, according to troika estimates.
There are also certain planned reforms such as the abolition of levies in favor of third parties, numbering between 150 and 200, of which some 50 to 60 are destined for the scrap heap.
Greece’s industrial slump deepened further as output contracted in November for a fifth consecutive month, to the tune of 6.1 percent, Hellenic Statistical Authority (ELSTAT) data showed on Thursday, highlighting the ravages of a six-year recession even as the debt-laden economy is showing tentative signs of recovery elsewhere.
The revised figure for the previous month pointed to a 4.7 percent contraction.
The reduced production of wood, petroleum, carbon and metal products led to a 5.8 percent decline in manufacturing output in November.
The drop brings the overall decline in Greek industrial output to an annual pace of 3.9 percent in the first 11 months of the year, compared to a 3.4 percent drop for the whole of 2012.
Greek industrial production has been on the wane since 2008, and has dropped by about 30 percent since its peak.