The Eurozone Crisis Thread

More from the IMF report, too hard to report so I am going to click in The Guardian instead: http://www.imf.org/external/pubs/cat/longres.aspx?sk=43044

too hard to read, ugh.

there was a good summary on FT Alphaville. some synthesis:
- it shifts part of the blame to prev. and current Greek government (no ambition to hit primary surplus targets, no commitment to privatization or reforms). market interest rates were low, so if program had been implemented we would be in a pretty good shape.
- it offered a politically feasible (well, up until last Friday) solution, namely doubling of maturities (would have been very easy to accomplish) and adding a sizable 3rd bailout, without imposing haircuts.
- no more "systemic exception" for Greece
- time to stop talking about debt/GDP ratios, since loans are on very sweet ("extraordinarily concessional") terms
- haircuts phrased in very careful way: needed *if* primary surplus of ~3% of GDP not hit, but not needed if it gets to 3-4% over medium term. this is dangerous territory: aiming for low surpluses = not requiring future governments to impose any austerity measures = "moral hazard". aiming for high surpluses is probably delusional?
anyway, the numbers are probably pretty worthless since last week? how many billions would be needed to recapitalize the banks, clear arrears etc.?

"moral hazard" lol

http://www.interfluidity.com/v2/5965.html?utm_source=dlvr.it&utm_medium=twitter

http://www.nytimes.com/2015/06/30/world/europe/greeces-troubles-attract-little-sympathy-from-poorer-neighbors.html

Good news then that they'll soon be poorer than Bulgarians, well done Europe! Trebles all round!

Speaking in Brussels last week before the start of a European Union summit meeting, Prime Minister Boiko Borisov of Bulgaria complained that he was fed up with so much time being spent on Greece’s need for bailout funds to pay its bills when other countries had so many problems of their own.

Problems like having Boiko Borisov as Prime Minister perhaps?

"Soviet-imposed penury" is an interesting interpretation of the Baltic states' financial worries.

The Latvian government was struggling to avert a financial meltdown today as ministers convened emergency talks with Scandinavian banks to discuss a bold and controversial plan to slash mortgage-holders' liabilities to lenders.

The scheme could mean billions in losses for the big Swedish banks most exposed by the small Baltic state's financial and economic crisis.

Valdis Dombrovskis, the embattled Latvian prime minister, said he was confident he could get his proposal through the parliament in Riga, but was still examining the legal implications of the scheme. But the powerful Latvian central bank delivered an unusually blunt attack on the prime minister, saying that his budget and bank policies were feeding a fresh "wave of distrust" towards the small and highly vulnerable state.

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Banking sources in Riga warned that the radical proposal on mortgages, which could see borrowers repaying only a fraction of their loan, would backfire, deterring foreign investment, bringing already low bank lending to a complete standstill and wrecking international confidence in Latvia.

Dombrovskis said the foreign banks, which hold controlling stakes over 90% of the Latvian banking sector, shared the blame for the crisis and would also have to share the costs. "Some balance has to be found between the interests of borrowers and the interests of lenders," the prime minister told the Guardian. "The real incomes of people are diminishing and it is getting more difficult to repay loans."

From 2009. Wonder what happened to that Dombrovskis guy...

http://i.imgur.com/mA8xYBk.png

^ Soviet-imposed penury in action.

early returns have it at 60:40 no

Pretty decisive.

didn't expect that tbh

decisive > indecisive no matter which way it went imo

http://www.ekathimerini.com/198826/article/ekathimerini/news/declaration-of-professors-of-economics-at-greek-universities-on-the-referendum

Better luck next time, guys.

i don't know what to make of all this. the referendum was a hypothetical counterfactual: if this offer were still on the table, would you have liked for us to vote for it? like.. what? now the answer is "no," well what does that mean? it's a mandate to not accept a deal that they didn't accept that is no longer on offer. tsipras is counting on them getting offered a better deal with these results, varoufakis promised one within 24 hours if the result was "no" (although he conveniently claimed to have been misquoted after the results were in.) maybe that will happen, but if so it would be marginally better, nothing radically different. does "no" mean "yes to a marginally better deal"?

even experts seem to be saying "no one knows what's going on, the next few days will be an insane shit show, hopefully everything snaps into place"

i'm not sure the narrative of rejecting austerity some ppl who are currently rejoicing are pushing is apt. there will likely be brutal austerity now... from the link mordy posted above

Short-run consequences: Bank closures, cut in the value of deposits, sharp decline in tourism, shortages of basic consumer goods and raw materials, black market, hyperinflation, firm bankruptcies and a big rise in unemployment, rapid fall in real wages and the real value of pensions, deep recession and serious problems in the functioning of public health care and defense, social unrest.

Medium-term consequences: international isolation of the country, no access to international capital markets for several years, low growth and anemic investment, high unemployment combined with high inflation rates, suspension of the flow of EU structural funds, significant decline in the standard of living, poor provision of basic public goods and services.

as irresistible as a narrative of the people against the banks may be, what are the pros will be to offset these cons, all of which have severe human costs? anyone needs to answer that before celebrating

The victory celebrations are like "yay, we just voted against paying off our debt and there will be no consequences!" - ok, I don't think foreclosing the Parthenon is on the table, but still

paul mccartney / big bankers who got 90% of the IMF's greek bailout money ~

I remember making a very conscious choice: “OK, we’re getting really famous now, you’ve got to decide, whether or not to go for it.” For some reason Marilyn Monroe came into my mind. Like: this could be horrible. It was actually after a trip to Greece. We weren’t famous in Greece, and I’d hung out with the hotel band and was chatting to them: “I’m in a band, too, you know? We’re called The Beatles.” And I got a glazed look from them. I thought, “This is OK, if the fame gets too much we can always come to Greece.” Then, of course, the next year it was like, “Oh, no, you’re famous in Greece, too. Oh, God.” And I remember thinking, “Do you want to do this or don’t you?” And it was, “I like it too much to stop.”

http://www.esquire.co.uk/culture/music/8511/paul-mccartney-interview/

tsipras is counting on them getting offered a better deal with these results... maybe that will happen, but if so it would be marginally better, nothing radically different.

Well, he was counting on them getting offered a better deal with a simple 'No' majority but the margin is 20% (and seems to be rising) so I imagine he'll be looking for something more than marginally better.

i guess we'll find out

When Iceland voted against paying what they owed, they came out of it really well. Yeah, this is going to be fucking tough on the Greeks, but at leat it will be tough on their own terms. Short term and middle term will be rough, but the bullshit provisions french and german banks kept getting in these deals would have kept the suffering eternity-termed. So yay Greece!

greece != iceland

the referendum was a hypothetical counterfactual: if this offer were still on the table, would you have liked for us to vote for it?

This is about strengthening his government's position in the country more than it's about strengthening the government's hand in the negotiations.

The central bank and IMF were no doubt curious to see if the greeks would repudiate their government, which would have strengthened their own hand in dealing with that government, but with the greeks backing tsipras it either solidifies the stalemate and leads to default and grexit, or the bankers must make concessions to break the stalemate. Either way, tsipras stays in power now and has political cover for the national consequences of the outcome - whatever it is.

And whatever happens, it must happen pretty quickly. I hope the greek parliament is primed for quickly passing the kind of currency controls needed under grexit.

The risk is that German public / political opinion has become too entrenched for any substantially better offer to happen. Leading politicians across Europe, but particularly Germany, are framing this as a rejection of an offer of help and suggesting there can't be any way back to negotiations. There's a chance that the risk inherent in having Greece leave with popular momentum behind it might be too great for the wider European project to bear but the deals on the table were never about finding workable, pragmatic solutions. That political culture isn't going to change overnight because the Greek public wants it to.

otm

French resolve is wobbling though? If not, I expect it to.

France has always been open to a better deal, i think.

french not enough though

This is about strengthening his government's position in the country more than it's about strengthening the government's hand in the negotiations.

Either way, tsipras stays in power now and has political cover for the national consequences of the outcome - whatever it is.

otm
imf/cental bank aren't accountable to or obligated by greek vote

what's the current take on whether Greece will (have to) leave the EU as well?
and will they stay in the Schengen zone?
thinking about hot new airport chaos if they're gone from the Schengen zone (can't imagine Spanish tour properties would be unhappy with that)

echoing shari's last point

https://pbs.twimg.com/media/CJLMeV-WgAAcCcf.jpg

Le Monde's take : this is a defeat for Merkel and Germany, and her vision of a German Europe.

Varoufakis may sound delusional in that statement, but it's his job not to slam the door on reopening negotiations right now, even if it means sounding foolish. I give it about two, maybe three days before everyone realizes it's game over. First, the markets have to open and have their say. Losses need to be in a non-panic-inducing range. I expect they will be modest.

i would be curious what the result would have been if this had been a eurozone/eu-wide poll

'Not tough enough on those damn lazy greeks!!!!' Would be my guess.

if the answer is to have wealthier european countries subsidize poorer european countries then europe is going to have to become a lot more like the US. some ppl here complain about NY sending so much money to Alabama or whatever down south but it's not a real political stream.

The risk is that German public / political opinion has become too entrenched for any substantially better offer to happen.

the fact that this is now a decisive factor is one of the increasingly evident straining points in the architecture of the eu. fiscal union is at the avant garde of further EU integration, and at the moment, as it is threatened, there just doesn't seem to be the imagination to try to find a solution that isn't a retreat. if greece leaves I don't see how it could reenter, it jeopardizes the whole nature of serious political union. but it still seems incredible to imagine them leaving. if there are still followers of jean monnet in the eu, you would hope they would copy his methods and seize the crisis as the moment to open the discussion on reform. otherwise this is treated as an isolated problem when it clearly isn't.

"if greece leaves I don't see how it could reenter, it jeopardizes the whole nature of serious political union"

yeah I don't see this. the political union is to make sure that Germany and France don't declare war on each other anymore, and to a lesser but still important extent, on their immediate neighbors. *fiscal* union is there to serve that political end.

the political union is to make sure that Germany and France don't declare war on each other anymore

europe is so weird

Old habits are hard to break

An unnamed but apparently "senior and influential" German politician was quoted in The Times as saying that the CDU and CSU had privately agreed to veto any deal proposed while Syriza was still in office in the event of a no vote.

The risk of 'contagion' seems pretty high to me. If Greece goes, i could see Portugal, Spain and maybe Italy following over the next few years unless there is some kind of miraculous upturn in the global economy. Already in Italy, the 2nd, 3rd and 4th biggest parties have been actively cheering on a 'no' vote. Podemos seems to have been emboldened by it as well. The Greek exit from the Euro will either have to be soft enough for other countries to be able to leave the currency without compromising their membership of the EU or so appalling that everyone is scared back into line.

Tusk has called an emergency meeting for Tuesday.

the political union is to make sure that Germany and France don't declare war on each other anymore, and to a lesser but still important extent, on their immediate neighbors.

there has always been a much more ambitious vision of european integration than this, otherwise we'd have stopped at the coal&steel community (& nato)

this is crazy

https://pbs.twimg.com/media/CJLm3xMWEAACqif.jpg

do you want more of whatever that is or less of it

(xp) Yeah, for the economically illiterate (me) could you explain what that means... also I see Ireland1 on that graph but where how are Ireland2 doing?

between the hellenic republic ("greece", to the obtuse imperialists), spain, italy, and portugal, perhaps there is political will for a southern european union. a confederacy, if you will

This is a guess, but I think the graph shows how much of a country's theoretical gdp-growth would become a surplus? So a country like Greece is already amazingly austere compared to rest of Europe, but since it's in an IMF-mandated gdp recession, they get nothing out of it.

Is that close to correct?

silby: less

primary surplus is just gov revenue minus gov expenditure expressed as a % of gdp. "cyclically adjusted" means you adjust for the business cycle, basically saying "what would the primary surplus be if the economy were at full employment?" (which is pretty non-trivial and that's why smart people at the IMF compute tables like that--btw IMF research economists & bankers are m/l independent, that's why you've seen all these headlines saying "new IMF research show austerity doesn't work" but fruitless negotiations) so in 2014 the greek government raised 5% of "potential" gdp in taxes that it didn't spend. here's a picture with both

http://www.ispionline.it/FOTO/grecia_fig1.png

the cyclically adjusted thing sounds like a weird trick but it's necessary bc otherwise countries in recessions would have low govt revenue simply because their output is (temporarily) low, even though it would even out over the business cycle

so greece is the most fiscally conservative country in europe lol