G.G. Bain Bazaar and Greek pageant at Manhattan Trade School for Girls 1909
On January 22, the ECB has another meeting, and investors – as well as EU governments – are still thinking Draghi will announce full-blown QE. With the Germans resisting the way they consistently have for years now, I wouldn’t count on it. It’ll be extremely hard to push through the German court system. But Merkel’s government still ‘leaked’ to Der Spiegel yesterday that a Grexit would have limited consequences. That’s just bluff, they’re scared sh*tless. They have no way of overseeing anything at all, no more than you or me.
But three days after the ECB meeting, on January 25, there are general elections in Greece, because PM Samaras wasn’t paying attention last month. And everyone’s very nervous about a Syriza victory, since that party is supposed to be extremely marxist, communist, Leninist, you name it. They will be called a lot worse names over the next three weeks, and if g-d forbid they win, much worse still. Syriza is calling the EU-ECB-IMF troika’s bluff. And they don’t like that one bit. And lest you forget, they’ve forcibly installed technocrat governments before. We can’t have the people speak.
The German government believes that the euro zone would now be able to cope with a Greece exit if that proved to be necessary, Der Spiegel news magazine reported on Saturday. Both Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble believe the eurozone has implemented enough reforms since the height of the regional crisis in 2012 to make a potential Greece exit manageable.”The danger of contagion is limited because Portugal and Ireland are considered rehabilitated,” the magazine quoted one government source saying.
In addition, the European Stability Mechanism (ESM), the eurozone’s bailout fund, is an “effective” rescue mechanism and was now available, another source added. Major banks would be protected by the banking union. It is still unclear how a eurozone member country could leave the euro and still remain in the European Union, but Der Spiegel quoted a “high-ranking currency expert” as saying that “resourceful lawyers” would be able to clarify”. According to the report, the German government considers a Greece exit almost unavoidable if the leftwing Syriza opposition party led by Alexis Tsipras wins an election set for Jan. 25.
But that’s by no means a generally accepted opinion.
A decision by a new Greek government to leave the eurozone would set off devastating turmoil in financial markets even worse than the collapse of Lehman Brothers in 2008, a leading international economist warned Saturday. A Greek exit would likely spark runs on Greek banks and the country’s stock market and end with the imposition of severe capital controls, said Barry Eichengreen, an economic historian at Berkeley. [..] The exit would also spill into other countries as investors speculate about which might be next to leave the currency union, he said. “In the short run, it would be Lehman Brothers squared,” Eichengreen warned.
He predicted that European politicians would “swallow hard once again” and make the compromises necessary to keep Greece in the currency union. “While holding the eurozone together will be costly and difficult and painful for the politicians, breaking it up will be even more costly and more difficult,” he said. [..] Jeffrey Frankel, an economics professor at Harvard, said that global investors “have piled back into” European markets over the last years as the crisis ebbed. Now, there will likely be a repeat of the periods of market turmoil in the region and spreads between sovereign European bonds could widen sharply.
Kenneth Rogoff, former chief economist at the IMF and a Harvard professor, said the euro “is a historic disaster.” “It doesn’t mean it is easy to break up,” he said. Martin Feldstein, a longtime critic of the euro project, said all the attempts to return Europe to healthy growth have failed. “I think there may be no way to end to euro crisis,” Feldstein said. The options being discussed to stem the crisis, including launch of full scale quantitative easing by the European Central Bank, “are in my judgment not likely to be any more successful,” Feldstein said. The best way to ensure the euro’s survival would be for each individual eurozone member state to enact its own tax policies to spur demand, including cutting the value-added tax for the next five years …
Sure, let’s bankrupt the governments, their deficits ain’t high enough yet. The overall idea is clear though: there’s no way of knowing how high the tensions will rise, which countries will also want out, to what extent bond markets will target (more) eurozone nations. That German confidence is hollow. I fully agree with Rogoff on this, the euro is a disaster that needs to be halted as soon as possible, before the damage it’s done gets out of control. Yes, a break-up is hard, but continuing on the existing broken path is a lot worse.
Syriza leader Alexis Tsipras has an interesting take on the situation:
Greek leftwing opposition leader Alexis Tsipras said the ECB could not exclude Greece if it decides to move to a full quantitative easing programme to stimulate the euro zone’s faltering economy. [..] Tsipras also said his Syriza party would ensure much of Greece’s debt was written off as part of a renegotiation of its international bailout deal.
Tsipras said he hoped ECB President Mario Draghi would decide to go ahead with the programme and said Greece could not be shut out, as some economists and politicians from countries including Germany have suggested. “Quantitative easing by the ECB with direct purchases of government bonds must include Greece,” Tsipras said. The comments underline the pressures facing Draghi ahead of the decision, with many in Germany opposed to full-scale QE which they fear will create asset bubbles and remove incentives for reform-shy governments to act. Syriza has moderated its tone in recent months, pledging to keep Greece in the euro and not to unilaterally repudiate the bailout deal.
But the prospect of a Syriza-led government has set financial markets on edge and caused alarm in Germany, where a succession of politicians and economists have argued the euro zone could cope with Greece’s exit. In a speech laced with barbs against German Chancellor Angela Merkel and finance minister Wolfgang Schaeuble, Tsipras said his party would roll back many of the austerity policies imposed by the bailout «troika». “Austerity is both irrational and destructive”.
To pay back debt, a bold restructuring is needed, he said. Repeating many policy pledges first laid out last year, he promised to do away with a real estate tax, freeze house foreclosures, raise the minimum wage and reinstate a €12,000 ($14,400) tax-free threshold to help low earners. He said he would abandon the goal of achieving primary budget surpluses, aimed at cutting Greece’s debt burden equivalent to more than 175% of gross domestic product. But he pledged to protect bank deposits and ensure public finances remain on a sound footing.
That sounds almost a bit too Keynesian, and Merkel certainly won’t like any of it, if only because she could never get debt forgiveness passed at home, let alone buying Greek bonds with German money in the year of the Lord 2015.
In yet another curious twist, Deputy PM Venizelos talks today in Greek paper Kathimerini about a September 2011 meeting (he was Finance Minister at the time) with Schaeuble in a Polish hotel basement bar, where the latter proposed a friendly Grexit, with financial support and all. Venizelos claims he convinced Schaeuble it would be too risky.
That seems weird. I have the idea Venizelos doesn’t tell the whole truth here (I know, get in line). I’m sure the meeting took place, you don’t make that up. But Schaeuble could not have made the proposal without Merkel’s full advance consent, and that means they talked it over, a lot. They would have covered a lot of angles on the risks in those talks. So Venizelos couldn’t have told Schaeuble all sorts of things the entire German government overlooked, in a meeting in a dark hotel bar.
Moreover, the proposal would have come at a time when everyone was saying, as they officially still are, that no country would be able or permitted to leave the eurozone.
I’m also curious as to why Venizelos tells the story the moment he does, 3 weeks before the election. To picture himself as the savior of the nation? To put more pressure on Germany? Venizelos has plenty issues on his plate. He heads PASOK, Papandreou’s former party, but it’s only third in the polls, well behind Syriza and PM Samaras’ New Democracy. And then Papandreou announced this weekend that he will cause more trouble:
Former Prime Minister George Papandreou launched his new party on Saturday, as current Deputy Prime Minister and PASOK leader Evangelos Venizelos insisted that his party would play a pivotal role in political developments after the January 25 elections. Papandreou said his party would be called the Movement of Democratic Socialists. If the former PASOK leader’s new grouping is able to gain more than 3% in the polls in three weeks’ time, he might gain enough seats in Parliament to have a say in the formation of the next government.
Ahead of the party’s launch at the Benaki Museum, Deputy Prime Minister Evangelos Venizelos said he was deeply saddened by Papandreou’s move and accused him of “trying to break up” PASOK. He said his party was “saddened but determined” to do well in the upcoming elections. Venizelos suggested that PASOK is likely to have a vital role to play after Greeks go to the polls. “Many people believe that the main issue at stake in these elections is whether they will be won by New Democracy or SYRIZA. Clearly, that is crucial but not as crucial as the issue of how the country will be governed,” Venizelos told Kathimerini, pointing out that if neither party has a parliamentary majority, a coalition will have to be formed.
The deputy prime minister argued that Greece could not afford to go to second elections a month later, as it did in the summer of 2012. “If the first elections are a mistake, the second ones would be a crime against the economy and the country’s prospects. There cannot be a lack of governance.”
It crystal clear: we’ve got a very entertaining three weeks of news coming up from Brussels and Athens. It won’t be pretty, but it’ll be amusing. To top it off, the euro just fell to its lowest level in almost 9 years.
Oh, and just in case you thought only Greece has poor young people, how about this?
The share of people under age 30 who own private businesses has reached a 24-year-low, according to new data, underscoring financial challenges and a low tolerance for risk among young Americans. Roughly 3.6% of households headed by adults younger than 30 owned stakes in private companies,[..] That compares with 10.6% in 1989 and 6.1% in 2010. [..] The decline in young entrepreneurs is part of a broader drop in private business ownership over the past 25 years. [..] The average net worth of households under 30 has fallen 48% since 2007 to $44,354.
Not terribly lovely either, is it? I think we can call this the Anglo model. The UK does it too, talk about how great the recovery is going, and completely ‘forgetting’ to mention that its young people, and women, and children, are being squeezed dry just to be able to paint that recovery picture. If a number like that one above falls by half in just 7 years, something’s really going off a cliff.
I’ll leave you with Anthony Quinn dancing the sirtaki in what must have been better days: