Jul 042015
 
 July 4, 2015  Posted by at 9:35 am Finance Tagged with: , , , , , , , ,
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Walker Evans Waterfront in New Orleans. French market sidewalk scene 1935

The IMF Debt Sustainability Analysis report on Greece that came out this week has caused a big stir. We now know that the Fund’s analysts confirm what Syriza has been saying ever since they came to power 5 months ago: Greece needs debt relief, lots of it, and fast.

We also know that Europe tried to silence the report. But what’s most interesting is that this has been going on for months, as per Reuters. Ergo, the IMF has known about the -preliminary- analysis for months, and kept silent, while at the same time ‘negotiating’ with Greece on austerity and bailouts.

And if you dig a bit deeper still, there’s no avoiding the fact that the IMF hasn’t merely known this for months, it’s known it for years. The Greek Parliamentary Debt Committee reported three weeks ago that it has in its possession an IMF document from 2010(!) that confirms the Fund knew even at that point in time.

That is to say, it already knew back then that the bailout executed in 2010 would push Greece even further into debt. Which is the exact opposite of what the bailout was supposed to do.

The 2010 bailout was the one that allowed private French, Dutch and German banks to transfer their liabilities to the Greek public sector, and indirectly to the entire eurozone‘s public sector. There was no debt restructuring in that deal.

Reuters yesterday reported that “Publication of the draft Debt Sustainability Analysis laid bare a dispute between Brussels and [the IMF] that has been simmering behind closed doors for months..

But that’s not the whole story. Evidently, there was a major dispute inside the IMF as well. The decision to release the report was apparently taken without even a vote, because it was obvious the Fund’s board members wanted the release. The US played a substantial role in that decision. Why the timing? Hard to tell.

The big question that arises from this is: what has been Christine Lagarde’s role in this charade? If she has been instrumental is keeping the analysis under wraps, she has done the IMF a lot of reputational damage, and it’s getting hard to see how she could possibly stay on as IMF chief. She has seen to it that the Fund has lost an immense amount of trust in the world. And without trust, the IMF is useless.

And while we’re at it, ECB chief Mario Draghi, who is also a major Troika negotiator, made a huge mistake this week in -all but- shutting down the Greek banking system, a decision that remains hard to believe to this day. The function of a central bank is to make sure banks are liquid, not to consciously and willingly strangle them.

How Draghi, after this, could stay on as ECB head is as hard to see as it is to do that for Lagarde’s position. And we should also question the actions and motives of people like Jean-Claude Juncker and Jeroen Dijsselbloem.

They must also have known about the IMF’s assessment, and still have insisted there be no debt relief on the negotiating table, although the analysis says there cannot be a viable deal without it.

One can only imagine Varoufakis’ frustration at finding the door shut in his face every single time he has brought up the subject. Because you don’t really need an IMF analysis to see what’s obvious.

Which is exactly why there is a referendum tomorrow: Alexis Tsipras refused to sign a deal that did not include debt restructuring. It would be comedy if it weren’t so tragic, most of all for the people of Greece. Here’s from Reuters yesterday:

Europeans Tried To Block IMF Debt Report On Greece

Euro zone countries tried in vain to stop the IMF publishing a gloomy analysis of Greece’s debt burden which the leftist government says vindicates its call to voters to reject bailout terms, sources familiar with the situation said on Friday. The document released in Washington on Thursday said Greece’s public finances will not be sustainable without substantial debt relief, possibly including write-offs by European partners of loans guaranteed by taxpayers. It also said Greece will need at least €50 billion in additional aid over the next three years to keep itself afloat. Publication of the draft Debt Sustainability Analysis laid bare a dispute between Brussels and the IMF that has been simmering behind closed doors for months.

Greek Prime Minister Alexis Tsipras cited the report in a televised appeal to voters on Friday to say ‘No’ to the proposed austerity terms, which have anyway expired since talks broke down and Athens defaulted on an IMF loan this week. It was not clear whether an arcane IMF document would influence a cliffhanger poll in which Greece’s future in the euro zone is at stake with banks closed, cash withdrawals rationed and commerce seizing up. “Yesterday an event of major political importance happened,” Tsipras said. “The IMF published a report on Greece’s economy which is a great vindication for the Greek government as it confirms the obvious – that Greek debt is not sustainable.”

At a meeting on the IMF’s board on Wednesday, European members questioned the timing of the report which IMF management proposed at short notice releasing three days before Sunday’s crucial referendum that may determine the country’s future in the euro zone, the sources said. There was no vote but the Europeans were heavily outnumbered and the United States, the strongest voice in the IMF, was in favor of publication, the sources said.

The reason why all Troika negotiators should face very serious scrutiny is that they have willingly kept information behind that should have been crucial in any negotiation with Greece. The reason is obvious: it would have cost Europe’s taxpayers many billions of euros.

But that should never be a reason to cheat and lie. Because once you do that, you’re tarnished for life. So in an even slightly ideal world, they should all resign. Everybody who’s been at that table for the Troika side.

And I can’t see how Angela Merkel would escape the hatchet either. She, too, must have known what the IMF analysts knew. And decided to waterboard the Greek population rather than be forced to explain at home that her earlier decisions (2010) failed so dramatically that her voters would now have to pay the price for them. No, Angela likes to be in power. More than she likes for the Greeks to have proper healthcare.

Understandable, perhaps, but unforgivable as well. Someone should take this entire circus of liars and cheaters and schemers to court. They’re very close to killing the entire EU with their machinations. Not that I mind, the sooner it dies the better, but the people involved should still be held accountable. It’s not even the EU itself which is at fault, or which is a bad idea, it’s these people.

But fear not, there’s no tragedy that doesn’t also have a humorous side. And I don’t mean that to take anything away from the Greek people’s suffering.

Brett Arends at MarketWatch wrote a great analysis of his own, and get this, also based on IMF numbers. Turns out, the biggest mistake for Greece and Syriza is to want to stay inside the eurozone. The euro has been such a financial and economic disaster, it’s hard to fathom that nobody has pointed this out before. Stay inside, and there’s no way you can win.

I find this a hilarious read in face of what I see going on here in Greece. It makes everything even more tragic.

Stop Lying To The Greeks — Life Without The Euro Is Great

Will the euro-fanatics please stop lying to the people of Greece? And while they’re at it, will they please stop lying to the rest of us as well? Can they stop pretending that life outside the euro — for the Greeks or any other European country — would be a fate worse than death? Can they stop claiming that if the Greeks go back to the drachma, they will be condemned to a miserable existence on the dark backwaters of European life, a small, forgotten and isolated country with no factories, no inward investment and no hope? Those dishonest threats are being leveled this week at the people of Greece, as they gear up for the weekend’s big referendum on more austerity.

The bully boys of Brussels, Frankfurt and elsewhere are warning the Greek people that if they don’t do as they’re told, and submit to yet more economic leeches, they may end up outside the euro … at which point, of course, life would stop. Bah.

Take a look at the chart. It compares the economic performance of Greece inside the euro with European rivals that don’t use the euro. Those other countries cover a wide range of situations, of course – from rich and stable Denmark, to former Soviet Union countries, to Greece’s neighbor Turkey, which isn’t even in the EU. But they all have one thing in common.

During the past 15 years, while Greece has been enjoying the “benefits” of having Brussels run their monetary policies, those poor suckers have all been stuck running their own affairs and managing their own currencies (if you can imagine). And you can see just how badly they’ve suffered as a result.

They’ve crushed it. Romania, Turkey, Poland, Sweden, Croatia — you name it, they’ve all posted vastly better growth rates than Greece. The data come from the IMF itself. It measures growth in gross domestic product, per person, in constant prices (in other words, with price inflation stripped out). Greece adopted the euro in 2001.

And after 14 years in the same club as the big boys, they are back right where they started. Real per-person economic growth over that time: Zero. Meanwhile Romania, with the leu, has only … er … doubled. Everyone else is up. The Icelanders, who suffered the worst financial catastrophe on the planet in 2008, have nonetheless managed to grow.

Yes, all data points have caveats. Each country has its own story and its own advantages and disadvantages. But the overall picture is clear: The euro has either caused Greece’s disastrous economic performance, or at least failed to prevent it.

What I find amazing about the euro-fanatics is that they just don’t seem to care about facts at all. They carry on repeating the same claims about the alleged miracle cure of their currency, no matter what happens. You can hit them over the head with the latest IMF World Economic Outlook and they carry on droning, unfazed.

I was in England during the 1990s when those people were warning that if the Brits didn’t give up the pound sterling and join the euro, they were doomed as well. For a laugh, I just went through news archives on Factiva and refreshed my memory.

Britain without the euro would be an “orphan country,” petted, humored but ignored, warned one leading figure. Britain would lose all influence and status. It would become a marginal country outside the mainstream of Europe. It would lose “a million jobs.” Factories would close. The car industry would collapse. Foreign investors would walk away because of Britain’s isolation.

Exports would plummet because of exchange-rate fluctuations. The City of London, Britain’s financial district, would lose out to Frankfurt. The London Stock Exchange would be reduced to a local backwater. Tumbleweeds would blow in the streets. (OK, I made that one up.)

And here we are today. Since 1992, when the single currency project began taxiing for takeoff, the countries on board have seen total economic growth of 40%, says the IMF. Poor old Great Britain, stuck back at the departure lounge with its miserable pound sterling? Just 67%. Bah.

This currency that Greece is fighting so hard to be part of is in fact strangling it. The reason for this lies in the structure of the EMU. Which makes it impossible for individual countries to adapt to changing circumstances. And circumstances always change. As a country, you need flexibility, you need to be able to adapt to world events.

You need to be able to devalue, you need a central bank to be your lender of last resort. Mario Draghi has refused to be Greece’s lender of last resort. That can’t be, that’s impossible. there is no valid economic reason for such an action, it’s criminal behavior. But the eurozone structure allows for such behavior.

In ‘real life’, where a country has its own central bank, the only reason for it to refuse to be lender of last resort would be political. And it is the same thing here. It’s about power. That’s why Greece’s grandmas can’t get to their meagre pensions. There is no economic reason for that.

In the eurozone, there’s only one nation that counts in the end: Germany. The eurozone has effectively made it possible for Angela Merkel to save her domestic banks from losses by unloading them upon the Greeks. This would not have been possible had Greece not been a member of the eurozone.

That this took, and still takes, scheming and cheating, is obvious. But that is at the same time the reason why either all Troika negotiators must be replaced, and by people who don’t stoop to these levels, or, and I think that’s the much wiser move, countries should leave the eurozone.

Look, it’s simple, the euro is finished. It won’t survive the unmitigated scandal that Greece has become. Greece is not the victim of its own profligacy, it’s the victim of a structure that makes it possible to unload the losses of the big countries’ failing financial systems onto the shoulders of the smaller. There’s no way Greece could win.

The damned lies and liars and statistics that come with all this are merely the cherry on the euro cake. It’s done. Stick a fork in it.

The smaller, poorer, countries in the eurozone need to get out while they can, and as fast as they can, or they will find themselves saddled with ever more losses of the richer nations as the euro falls apart. The structure guarantees it.

Home Forums This Is Why The Euro Is Finished

This topic contains 15 replies, has 11 voices, and was last updated by  Dr. Diablo 10 months, 3 weeks ago.

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July 4, 2015 at 9:35 am #22101

Raúl Ilargi Meijer

Walker Evans Waterfront in New Orleans. French market sidewalk scene 1935 The IMF Debt Sustainability Analysis report on Greece that came out this wee
[See the full post at: This Is Why The Euro Is Finished]

July 4, 2015 at 10:48 am #22102

phil harris

This is a serious moment – even allowing for the farce – even for us crowd in more comfortable seats with our bags of popcorn.

In the wider EU context we remember that these were the stage managers who were willing to transition a risk to a certainty of civil war in Ukraine after colluding with ‘regime change’ outside of democratic procedures. Behind that were the shadowy forces of political ‘triangulation’ internal within a less than competent US administration.

I left this as part of a comment at Ugo Bardi’s blog a few days ago:
“It seems clear – and again from the media reports of the incoherent ‘dinner’ the other night at ‘EU Summit’, where UK PM Cameron was allowed a 5 min “commercial break” which at least in its irrelevance lowered the temperature a little – that they have ‘lost the plot’. That is; the ‘narrative’ is separate from reality. They fail at technocratic financial/ economics, at military understanding and do not grasp the meaning implicit in any real response to ‘climate threat’. They have no idea to manage the coming unstoppable flood of refugees from war and contagious breakdown. They even fail at knowing who Europe is. (I think of Russia as an essential part of Europe.)

best
Phil

July 4, 2015 at 1:30 pm #22109

papicek

I’ll grant everything about the euro’s effect on Greece that is said here, but I think I understand why why Greeks want to remain in the EMU.

A chance to escape from this: http://www.forbes.com/sites/andrewcave/2015/06/25/why-grexit-is-not-greeces-biggest-problem/

July 4, 2015 at 4:03 pm #22110

Sage Eurasian

Raúl Ilargi Meijer still remains fooled by Greece’s Syriza fake ‘leftist’ frauds Tsipras & Varoufakis, funded by & with clear ties to George Soros etc…. Syriza are the leading gangsters preventing Greeks from realising the real truth, that default & drachma are the only exit. Whether Yes or No on the vote, Greeks lose and will be under more ‘austerity’ & brutal impoverishment for banksters.

Syriza spent months looting billions from Greek pension funds etc to pay ECB / IMF, & waited till ECB choked the banks shut to have a ‘vote’, whilst Greeks are in full terror that ATMs will stay empty, terror that Syriza helped create (knowing ECB tactics very well) … Syriza’s referendum is a game distracting from how Syriza is not acting for the welfare of Greek people, Syriza instead is pushing Greeks into a helpless box in order to achieve bankster goals.

The Trotskyite World Socialist Web Site is, surprisingly, one of the few venues in English to recognise Tsipras & Varoufakis as frauds: “Political fraud of Syriza’s referendum on EU austerity in Greece … designed to engineer a further capitulation to the EU’s demands, regardless of the outcome of the vote”.
http://www.wsws.org/en/articles/2015/07/03/pers-j03.html

July 4, 2015 at 4:35 pm #22111

matt_us

Pretty good summary of why the IMF report was not published – thanks

So clearly Greece has some further negotiating power for debt relief if one party of the troika now says yes to debt relief.

Why it would make sense for all concerned is set out below:

https://radicaleconomicthought.wordpress.com/2015/07/04/shock-horror-greece-needs-another-50-billion/

July 4, 2015 at 4:51 pm #22112

Mcatter

Can you tell me how it was that Germany was able to transfer the Greek debt from German Banks back on to the Greeks. What was the transfer mechanism? Is it all back in Greece or is it held by the ECB?

July 4, 2015 at 5:04 pm #22113

Mcatter

It seems to me that Brussels maintains authoritarian rule over its members via the press and courts. It has successfully survived the Scottish NO vote, thwarted the separatist movements in Spain with favourable court rulings preventing separation, they some had Berlusconi removed from office after he threatened to pull out of the Euro. Now they say that even if the No wins, the referendum is illegal and will not be accepted as the referendum was not given enough time from its announcement to vote.

No offense to the Greek people, but you are blind if you cannot see that you are being manipulated into a life of debt servitude. You are being controlled by an unelected body in Brussels. Are you that ignorant not to be able to understand what is happening to your country? You are going to face hardship with whatever decision you make, at least take control of the situation and fix the problem NOW! Although it seems clear the Yes will prevail, your hardships will continue for much much longer than is required, sad but true!

July 4, 2015 at 6:28 pm #22114

Professorlocknload

This, like any crisis, won’t likely be allowed by some very dark forces, to go to waste. What should be more concerning is, what happens after all the can kicking ends, border gates reappear and assorted Neo National Socialists occupy various halls of governance?

Of course the Euro is toast, as are all fiat mediums of exchange. It was doomed from the start. At this stage of debt collapse, there is simply no fix. Any attempt at such is not much more than a further waste of time/resources.

Here, again, is the crux, though no one wants to believe it. Especially egotistical anointed Statist Apparatchiks.

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” Ludwig von Mises

I know,,,too simple, and it might put some pundits onto the EBT rolls. I mean, hell, hope is cheap provided one has nothing to lose, but lots to sell.

July 4, 2015 at 6:40 pm #22115

Professorlocknload

,,,nothing to lose, but lots to sell? I heard somewhere, that during the Great Depression, in Oklahoma, bullshit was a dime a bail, but no one had any money.

July 4, 2015 at 6:46 pm #22116

Professorlocknload

But, rich countries like Denmark already know all this. http://www.nationaldebtclocks.org/debtclock/denmark

July 4, 2015 at 7:24 pm #22117

Raleigh

The “broken-hearted” in the following song might symbolize the people of Greece. You could substitute “broken-vested who had love that’s now arrested” (for the Troika). Exceptionally good cover of a classic Motown song, with former Motown musicians and one h-e-l-l of a good singer.

As I walk this land of broken dreams
I have visions of many things
But happiness is just an illusion
Filled with sadness and confusion

The fruits of love grow all around
But for me they come a tumblin’ down
Everyday heartaches grow a little stronger
I can’t stand this pain much longer

I walk in shadows, searching for light
Cold and alone, no comfort in sight
Hoping and prayin’ for someone to care
Always movin’ and goin’ nowhere

July 4, 2015 at 7:59 pm #22118

matt_us

That will stir them up a bit.

Former IMF director saying the IMF has acted in bad faith, is incompetent, and following the austerity medicine will make Greek situation worse.

Great stuff:

http://www.bruegel.org/nc/blog/detail/article/1669-in-bad-faith

July 4, 2015 at 10:10 pm #22119

rapier

July 4, 2015 at 11:54 pm #22120

John Day

To return to an earlier part of today’s essay, it should be clear that in 2010, again in 2012, and continuing now, there has been an elite perception that Greece should be sacrificed/amputated/whatever to shield the European banks from collapse.
That must have been exquisitely clear in 2010, and has been carried forward without much internal debate.

July 5, 2015 at 5:47 am #22123

Raleigh

rapier – “My sense is that most of them are trying to get stuff into their lifeboat.” Yeah, I think that’s what the reinflation was all about, giving them time to get stuff into their lifeboat. Because you can see that they’ve all got each other’s backs, making excuses as to why the economy is not getting better, pretending that it is. The media, economists, analysts, politicians, corporate CEO’s, hedge funds, mutual funds – all of them are flim-flamming.

Same thing with Greece. They needed time to get their stuff.

July 5, 2015 at 1:15 pm #22137

Dr. Diablo

@Mcatter

The transfer was pretty straightforward: when you start a monetary union with a big credit expansion, the PIGS, periphery, south, –someone– mathematically gravitates toward debt, while the core, north, –someone– ends up being the creditor. Where the cutoff between the states (or elements) would be is fluid, but we know where it turned out in this case. Important note: Germany is ONLY rich because they are OWED money by countries/people who were bad credit risks and couldn’t pay. That is, their “good” choices, power, etc is also an illusion, because in reality Greece, Spain, Italy cannot pay, and the loans should never have been made, and therefore Germany will never receive the wealth they have written on their books. This German illusion wouldn’t be possible without the credit expansion, and preventing the illusion of Germany’s wealth from popping back to a much poorer reality is what the war is all about.

Anyway, once the debtor nations had a crisis–which was mathematically inevitable–the debts could have been written off, reality conceded, balance restored. It was not. If not, then it’s a matter of choosing–politically–WHO takes the loss. Well obviously the taxpayers, not the bank corporations, otherwise, what are all your lobbyists for? To do this, the banks needed several HUNDRED BILLION, minimum. And you bet that taxpayers of Germany, Austria, Spain, are not going to go lightly into paying more trading losses and big bonuses. So how to hide a $300B transfer as the minimum to save this pig? Easy: you say Greece needs a “bailout”, which sounds plausible, sounds like help, doesn’t it? I mean they’re in a crisis, right? Until you realize–as argued today–that it was NOT a bailout, was NEVER a bailout, it was selling $300B in additional debt to a country that already couldn’t pay its $80B in debt–and everyone knew it since before the Euro began. Ok now you added the $300B, and when Greece tried to have any parliament, Democracy, discussion, referendum, you illegally remove their government and put in a Goldman Sachs rep, oh and in Italy too.

So who is owed the $300B you just added? Well, back then lots of people–soon to be solved. You have Greece default on the unimportant outsider bondholders to reduce the pressure, then have your pals determine that it is not a “default” so your bond insurance (part of the derivatives you hear about) doesn’t have to pay out. P.S. They’ve already decided that Greece’s July ’15 default is also not a default, no matter how long they refuse to pay. Then you use the ECB “stimulus” to rapidly buy all the bonds so they are now owned by the TAXPAYERS of the EU and not the private banks of the EU. So now no matter what happens, the taxpayers now take the loss.

End state: smaller bondholders illegally screwed, banks have garbage dumped on the EU taxpayers, Greece $300B in debt that still can’t be paid. –But way more plausible than saying “Let’s liquidate Greece, kill 5,000 people, to bail out UBS and DeustcheBank.” That’s the short process of how the EU/ECB bailed out the wealthy and the private banks at the expense of Greece and the working taxpayer of Europe.

Next step is–when sucking more blood is too expensive–to let Greece inevitably fall, then have a “crisis” that the ECB can only cure by printing even MORE money and handing to their friends while watching the EU taxpayers suffer the further loss you’ve already arranged for them. We could of course use technical financial language to describe all this. But why bother? It’s not that complicated. The wealthy and influential are using the violence of governments to transfer the wealth and assets from the poor to themselves. The only obstacle is to create enough plausible crises, and “solutions” that provide stories to cover their actions of raw power and violence. So if their public narrative no longer makes sense, that’s why: their violence and greed has outrun their credibility.

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