Jun 272015
 June 27, 2015  Posted by at 10:45 am Finance Tagged with: , , , , , , , ,

Harris&Ewing Woodward & Lothrop dept. store trucks, Washington DC 1912

While many voices will be seeking to define the precise terms of the referendum announced last night by Alexis Tsipras for July 5, I think perhaps the general gist is more important. It’ll be a vote between being governed by Tsipras, and Greeks in general, on the one hand, and being governed by Germany, the ECB and IMF on the other. “Who do you want to decide your future?”

And the Greek population will have to understand that voting to go with the latter, voting yes to the troika proposals, will mean there will be no getting out of the stranglehold of the institutions, there will be no more sovereignty, and there will be far more severe austerity, all for years to come. All that must be caught in the exact wording of the referendum question, but what lies underneath is what really counts.

In a similar vein, I don’t think it’s all that interesting to go through the precise text and numbers of the latest troika proposal, the one Tsipras labeled ‘blackmail’ and which led to the referendum announcement. This is not about those numbers. It never was.

It’s about two things: the battle for power in Europe, all of Europe, and the refusal by the troika members to admit to their past failures. I see the word ‘failures’ as fundamentally different from ‘mistakes’, because the latter indicates a lack of intent, and I am very hesitant to suggest there was no intent involved in the handling of the crisis over the past 5 years.

I would also suggest that unless one or more troika members admit to past failures, and honestly and openly work to correct them retroactively, there will never be a solution to the Greek issue that does not involve huge defaults and political fall-out. They should not want that, but their notion of the battle for power seems to have them too entrenched to get out.

Still, for the neutral observer, there is no way not to realize that the troika has to a large extent been responsible for creating the Greek problem. Which is a whole other problem all by itself, since the troika consists of three entirely different institutions, who often don’t agree. If just one of the three would admit to past failures, and look at and propose ways to correct these failures, the entire Greek issue could be resolved in no time.

I said a while ago that the IMF could be the one to break the chains, (How The IMF Can Save Greece And Itself), by insisting on ‘retroactive debt restructuring’, an applying the losses and write-offs for French, Dutch and German banks that should have been applied in 2010. But the IMF sits a lot closer to those banks than it does to the people of Greece.

The problem with that is that it makes the Fund’s position a political one, and it should stay away from politics at all costs. It ostensibly is part of the troika only because it has more experience in restructurings than the ECB and EU. But the so-called restructuring that has taken place in 2010 and 2012 could just as well have been done by the other two members. It’s what Varoufakis called the difference between a meat cleaver and surgery.

Still, the IMF did sign off on what happened, and that means a large risk to its credibility and the trust it can expect to encounter in subsequent cases. There are elections in Spain and Portugal later this year, and people there have duly noted how Greece has been handled even just so far.

Lagarde and her staff may still think they’re above everyone else on the planet, that they’re even more omnipotent than central banks, but the cracks are showing. The Fund’s own researchers have recently issued quite a few reports critical of the course set in recent events, and the Asian Infrastructure Investment Bank looms on the horizon as an IMF alternative. The IMF’s position, and future, may be much better served by opening up on its failures than by digging in. But hubris is a powerful incentive.

As for the ECB and EU and their ability and willingness to eat their hats and their crows, there is little hope. The ECB, like the IMF, has veered far too deep into political territory, blindly following the example set by the Fed and other central banks. And as long as Goldmanites like Mario Draghi lead the dance, there’ll be no moving away from power politics. It’s what these people feed on.

This has put the ECB into a place where the more political power it seeks, the less independent it becomes. Draghi wouldn’t dream of doing anything that might upset Berlin and Paris, for example. But that’s exactly what he should do, and should have done. Granted, Draghi didn’t get his seat until late 2011, but he could and should have turned things around, and insisted on a -much- better deal for Greece, and a worse one for French and German banks. He did nothing of the kind.

Karl Whelan came with an interesting scenario yesterday that describes what could have happened, had the troika made the right choices in dealing with the Greek crisis. That is hasn’t speaks volumes about the political agendas of the three-headed beast:

An Alternative Version Of How The Greek Crisis Could Have Played Out

The Grexit scenario relies crucially on the Eurozone not having a proper lender of last resort or a functioning banking union. It is easy to imagine an alternative scenario to the current one. Consider the following alternative version of how the Greek crisis could have played out.

  1. As tension builds up in Greece prior to the Greek election in early 2015, Mario Draghi assures depositors in Greece that the ECB has fully tested the Greek banks and they do not have capital shortfalls. For this reason, their money is safe.
  2. Draghi announces that the ECB will thus provide full support to the Greek banks even if the government defaults on its debts, subject to those banks remaining solvent.
  3. Eurozone governments agree that, should Greek banks require recapitalisation to maintain solvency, the European Stabilisation Mechanism (ESM) will provide the capital in return for an ownership stake in the banks.
  4. Provided with assurances of liquidity and solvency support, there is no bank run as Greek citizens believe there banking system is safe even if the government’s negotiations with creditors go badly. The ECB stays out of the negotiations for a new creditor deal for Greece (because they are not a political organisation and are not involved in directly loaning money to the government) and its officials assure everyone that the integrity of the common currency is in no way at stake.

There are no legal impediments to this scenario. Despite the constant blather from ECB officials about how it is constantly constrained by its own persnikety rules, it is well known that the ECB can stretch these rules pretty much as far as it likes. Supporting banks that you have deemed solvent is pretty standard central banking practice. So Draghi’s ECB could have provided full and unequivocal support to the Greek banks if they wished. They just chose not to.

Similarly, procedures are in place for the ESM to invest directly in banks so a credible assurance of solvency could have been offered. Why did this not happen? Politics. European governments did not feel like providing assurances to Greek citizens about their banking system at the same time as their government was openly discussing the possibility of not paying back existing loans from European governments. Indeed, the ability to unleash the bank-driven Grexit mechanism has been the ace in the creditors’ pack all along.

Faced with massive political opposition in Germany and other Northern European countries to their existing monetary policy programmes, Mario Draghi and the ECB Governing Council have decided it is better for them to play along with the creditor country squeeze on Greece than to stabilise the Greek banking system. Imagine the hue and cry in Germany now if the ECB were refusing to threaten cutting off credit to Greek banks, thus undermining Angela Merkel’s leverage in negotiations.

This is what could have been done. That it hasn’t tells you all you need to know about the motives behind the troika’s stance.

The more I look at it, the more it seems that the Greeks on July 5 will vote not only on their own position and their own sovereignty, dignity and independence, they will also cast a vote on the future of the troika members. And that makes this a dangerous ‘experiment’, because the three will not give up without a fight.

The propaganda showered over Greece in the next week will be an exercise in absurdism. Attemps at instigating bank runs are a certainty. If the ECB wants to get even more political, it could cause one with the flick of a switch. But what credibility and trust it has left would fly out the window with that same flick.

There are already comments I see that miss the boat by a mile. :

Greeks will be voting under “extremely difficult conditions of national division and extreme economic conditions,” said Nicholas Economides, an economics professor at New York University’s Stern School of Business. “Tsipras is gambling with the future of Greece.”

I’m sorry, but that’s just dumb. It’s the ‘partners’ in the negotiations that gamble with that future. The only thing Tsipras has done is to refuse to get on his knees with his pants down his ankles. In what setting do we call that a gamble?

Something Tyler Durden (with whom I agree in 99% of cases) said on the Zero Hedge page today also struck me as worthy of a comment:

Greek PM Tsipras just delivered the biggest Friday night bomb in recent European history: he stunned the Troika and his peers in Europe with the biggest shocker of all – a referendum announcement, aka the Greek “nuclear option”, something which cost his predecessor George Papandreou his job. At this point there is no turning back, and the Greeks – of which 80% want to stay in the Euro even as 80% want an end to austerity – will get to choose their own fate. Whatever choice they make, they will now only have only themselves to blame.

You know, that makes me think of a schoolyard bully giving his victim the choice between a punch in the stomach or a blow to the head. However that would play out, can the victim be saddled with the blame for it?

It’s not as if the Greeks volunteered for their current misery. It was imposed upon them. And it’s not as if Syriza didn’t offer substantial concessions in the troika talks, they only said ‘there are limits to what we’ll do, imposed upon us by our mandate’.

I don’t think we can get away from a broader, pretty unforbidding, perspective such as that offered by Paul Craig Roberts in an article I read earlier this week, and which I think must be a part of the entire discussion.

Greek Democracy Is Failing

The Greek debt is unpayable. It is simply too large to be repaid. The austerity that the EU and IMF have imposed on Greece has worsened the problem by driving down the Greek economy, thus making the burden of the debt even heavier. Despite the obvious fact that the EU’s austerity policy is a failure and cannot succeed, the Greek “debt crisis” drama continues.

A solution was possible at the beginning of the “crisis” prior to the economy being driven down by austerity. The debt should have been written down to the amount that the Greek economy could service or pay. This traditional solution was unacceptable to creditors, to the EU, and to the ECB.

[..] the EU and the ECB have agendas unrelated to Greece’s ability to pay. The creditors are determined to establish the principle that they can over-lend to a country and force the country to pay by selling public assets and cutting pensions and social services of citizens. The creditor banks then profit by financing the privatization of public assets to favored customers.

The agenda of the EU and the central bank is to terminate the fiscal independence of EU member states by turning tax and budget policy over to the EU itself.

In other words, the Greek “sovereign debt crisis” is being used to create a precedent that will apply to every EU member government. The member states will cease to exist as sovereign states. Sovereignty will rest in the EU. The measures that Germany and France are supporting will in the end terminate their own sovereignty, very little of which actually remains as they do not have their own currency and their foreign policy is subservient to Washington.

Default and a turn to Russia is the only possible way out for Greece. The entire world would benefit from this course of action as Greece’s departure from the EU and NATO would begin the unraveling of NATO, Washington’s principal mechanism for creating conflict with Russia. In the end, all of Europe and the rest of the world would thank Greece for derailing the violence that will result from Washington’s effort to assert hegemony over Russia.

As a Greek default and a turn to the East is the only workable solution for Greece, the EU’s agents inside Greece have launched a huge campaign against a Greek turn to the East.

I fear that the Greek people are too brainwashed to be able to avail themselves of the opportunity to rescue themselves from the clutches of the One Percent, who will drive the Greek population into the ground. The Greek voters did not have sufficient judgment to give their current government a large enough percentage of the vote for the government to have any credibility with the EU and Greece’s creditors. What we are witnessing in Greece is the failure of democracy due to the people themselves.

I don’t agree with Roberts’ conclusion, or let me put it this way: we’re not there yet. I would tend to be more worried about what awaits the Greeks if they support Tsipras and Syriza on July 5, through a big fat OXI (no!). But they haven’t given in yet.

And perhaps unfortunately from them, their decision will have a much wider impact than only in Greece, politically, economically, and even morally. The way Europe is presently structured is certain, over time, to take ever more powers away from people, and the people they elect to represent them, and centralize them in the hands of far-away, only semi-elected, career politicians in Brussels and bankers in Frankfurt and Washington.

Nobody should choose that last option. It can only lead to disaster.

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    Harris&Ewing Woodward & Lothrop dept. store trucks, Washington DC 1912 While many voices will be seeking to define the precise terms of the referendum
    [See the full post at: OXI]

    John Day

    This abruptly changes the game, upsets the board, pulls the pin on a live grenade and puts it down, saying “your move”.
    The ultimatums given in recent days, and given very harshly, are now empty threats, and can be seen as such. There is a huge loss of face for the Troika. Their power to bully elected representatives and banks was at crescendo peak, absolute.
    In Sun Tzu’s Art of War, to which you refer sometimes (most read military book ever), this is War by Fire. https://en.wikipedia.org/wiki/The_Art_of_War
    Fire is the most powerful weapon of war. It trumps everything, and it is unpredictable.
    This is really ancient game theory, 2500 years old.


    Raul, who would have thought that you would be in Greece while History is in the making, right?

    The symbolism of OCHI (no) is of great significance to Greeks. It refers to the refusal of PM Ioannis Metaxas (a Fascist nonetheless!) to Mussolini’s ultimatum to surrender while the Italian Fascist troops were entering Greece in 1941. (Of course, don’t expect Tsipras’ left government to have this appear in their political lingo.) It also refers to the recent refusal of President Anastasiades of Cyprus, who called for the refusal of turning the Greek controlled Cypriot Democracy to a confederation with the Turkish controlled Northern Cyprus via a referendum organized by the UN.

    On the other hand, the symbolism of NE (yes) refers to a recent period in the Greek History, when the majority of MP’s from ND and PASOK with a clear happy smirk on their gloutonous faces, were voting “AYE TO EVERYTHING”, an expression used in the Parliament to indicate their total support to austerity and unquestioning verification of “Memorandums 1 & 2”, the policy of blind cooperation and submission to Troika and Germany. “Aye to everything” has become the expression to describe the collaborators, during the previous government era.

    The choice of NE (yes) is very difficult to defend. Austerity has failed and this is clear to the vast majority of Greeks. Furthermore, during the early austerity period, people blamed the collaborating politicians for this destructive policy. Ironically, it is now their own turn to either reject austerity forever or become accomplishes to the crime committed against their own country, families and their own selves.

    Junker, Merkel and their local representatives will definitely try to turn this to a pro or con Euro and European Union voting, in an effort to turn the pro-EU crowd to vote en masse for the new austerity measures and policy (aka “Memorandum 3”), just for the immense privilege of remaining vassals of the Eurogang and being b*ttf***ed by them on a daily basis. And of course claiming the higher moral ground and putting the blame on Tsipras and the lazy-evil-Greek-scoundrels-who-live-beyond-their-means in any case.

    However, their task is a very difficult one. First of all, unfortunately, propaganda is a tool incapable of forcing people killing themselves. It has it limits and even Dr. Goebbels tells us so. His modern students however, seem to forget that, given their initial success and all that. The same goes for blackmailing or terror tactics. Good at first, useless as the time goes by.

    Secondly, there isn’t enough time for them to act. Tsipras took them by surprise and they don’t have the opportunity nor the luxury of time to turn the public opinion to their favor via lies, terror, more lies and more terror. Tthat is the reason why Tsipras didn’t go for general elections, as expected and chose the referendum – declaring elections requires an announcement at least a month in advance, which would allow Junker and his minions to scare the s&*t out of the Greek pensioners, the largest pro-EU conservative group of voters, into “voting for Europe and the common good”.

    Thirdly, the preliminary polls show a high percentage against the Troika’s ultimatum and demands. The vast majority of Greeks seems to prefer the heroic stand and not the shameful unconditional surrender, without a fight. I won’t go into details, but if this is true, it is safe to assume that Tsipras has prior knowledge to this before making his move.
    As a result, should Greeks choose to say Nay to Troika’s ultimatum, things will never be the same in this country, any more. Austerity would be dead in the water and the conditions for a Grexit would open up. The old policies and politicians would suddenly become old news. If on the other hand, if they say Aye, then things will also never be the same again. Greeks won’t have anyone else to blame for but themselves and it will be very entertaining to see how Troika, plus Merkel and the good Dr. Schäuble will be able to implement their 15.5 billion euro austerity policy in a highly volatile and chaotic environment. The answer is they won’t be able to and they know it. They only care in scoring one to that cheeky Tsipras and the “Bolsheviks” and nothing else. In the process, they would destroy Greece out of whim, to “make an example” for the rest of their victims.

    PS. There is a question should Troika chooses to retract their ultimatum and final demands, just to trap Tsipras, leaving him with his own 8 billion euro austerity proposals (the one he used to trap everyone and make Junker grab Dieselboom’s @$$ on camera claiming “We did it!” ). I wonder how “serious” and “adult” would this make them, then. And how fast, in how many picoseconds, would their illusion of power collapse before the eyes of the whole world. History is in the making, folks! Grab a seat and lots of popcorn!


    Greek One

    do we get to meet in Athens?


    When do the flight of Greeks heading north with other refugies get a name?


    We can only hope that the Greeks will vote for Greek government as a pivotal first step leading to the implosion of the globalist “revolutionary” agenda. The “power of the purse” has always been the ultimate energy source propelling this movement forward. Mass default is the best weapon to use against it.

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