Greek voters have voted no on agreeing to austerity measures for additional bailouts. Since Greece is broke without additional bailouts, times in Greece are about to get very interesting indeed.
Also, Greece’s finance minister Yanis Varoufakis has resigned.
A member of the European Central Bank’s governing council says “Greek debt held by the European Central Bank can’t be restructured as doing so would contravene the eurozone’s founding treaties.”
And if Greece won’t be forced to pay its debts, voters in Spain, Portugal and Italy will start to wonder why they should pay theirs.
But without additional loans, things in Greece are going to get very bad indeed. How bad? Greek banks are drafting plans to confiscate 30% of bank deposits over €8,000. Greece’s middle class has spent they last decade enjoying spending other people’s money, only to wake up and find that they are now Other People.
Breaking: Greece votes for invisible money to rain from the skies
Greece’s leftwing Prime Minister Alexis Tsipras wants more negotiations. Because, you know, Europe just hasn’t had enough of those over Greek debt.
Mr. Tsipras said Greece was “prepared to accept” a deal set out publicly over the weekend by the creditors, with small modifications to some of the central points of contention: pension cuts and tax increases.
In other words: Groundhog Day on the Aegean. Yet again.
More Greek crisis links:
“Socialism is a one-way ticket to misery and failure.” Also: “The Greeks are simply the vanguard in a long line of nations who have buried themselves under mountains of unpayable debt.”
Greece lost its financial lifelines Tuesday, as the country missed a crucial payment to the International Monetary Fund amid growing questions about whether it would be able to remain in the euro zone.
Greek leaders had made a last-ditch attempt to come up with the necessary cash, asking European countries for a new bailout hours before its last ones were set to expire, but E.U. finance ministers rejected the request as unrealistic. The missed payment, confirmed by the IMF, was a landmark moment in Europe’s five-year battle to preserve its common currency.
A few more Greek tidbits:
Greek banks are about to enjoy some ECB-mandated haircuts. He who pays the piper calls the tune…
The bureaucrats in Brussels and their counterparts in Europe’s national governments are furious with the Greeks for daring to consult their own people. Daniel Hannan, a British member of the European parliament, sarcastically tweeted, “Calling a referendum is, to Eurocrats, the most offensive thing a politician can do.” Stripped of their veneer, Eucrocrats’ arguments against all referendums amount to saying that referendums are a bad idea because they shift power from small cliques of unelected but wise rulers to an unsophisticated, nationalistic mob that might fall prey to populism
Today is the day Greece defaults: “Greek Finance Minister Yanis Varoufakis confirms Greece will not pay the International Monetary Fund debt due today. The European part of Greece’s international bailout expires Tuesday and with it any possible access to the remaining rescue loans that it needs to pay its debts of about $1.9 billion to the IMF.”
And what happens after Greece defaults to the IMF? That’s when things get interesting. First, on Sunday, July 5, the Greek people vote on a badly worded referendum. If they agree to Europe’s terms, they’ll impose additional budget-cutting measures and pension reform, and presumably get a new loan to pay their IMF arrears.
And if they vote no? Then they’ll have no euros to keep paying for their welfare state, and presumably start printing drachmas. But their debt stays denominated in euros, and there’s no guarantee foreign companies will be willing to deal in drachmas instead of euros, or that European foreign exchanges will even allow drachmas to be traded until Greece comes to some sort of agreement with the European Central Bank and other creditors. (I am largely ignorant of European foreign exchange regulations.) Either way, expect a nice dose of hyperinflation to add to Greece’s myriad coming economic woes.
The Eurozone is far more likely to survive Greece’s exit than Greece is. Then again, Greece now has so much debt that it’s screwed no matter what happens. Deficit financing to prop up your bloated welfare state is a horrific idea that destroys economies, and Greece looks to follow Venezuela in providing this generation’s example.
Other Greek tidbits:
Tsipras “thinks Greek voters, by making delusional promises to themselves, obligate other European taxpayers to fund them.” More: “Since joining the Eurozone in 2001, Greece has borrowed a sum 1.7 times its 2013 GDP. Its 25 percent unemployment (50 percent among young workers) results from a 25 percent shrinkage of GDP.” Gee, you can’t borrow your way to prosperity? Who knew?
Greece actually needs €275 billion to pay its debts between now and 2057.
Looks like that optimism over Greece caving in to reality was a bit premature, since Alexis Tsipras is back to his old tricks again, proclaiming loudly that he won’t be “blackmailed.” Because we all know that agreeing to cuts in your bloated welfare state to pay for the loans you already agreed to is “blackmail.”
He’s called for a national referendum on bailout agreement terms. The problem is, that vote is July 5 while $1.7 billion payment Greece owes the IMF is due June 30, and the IMF can’t offer extensions, and Greece is too broke to make its debt payment.
Greek banks are closed until July 7, and the “European Central Bank (ECB) said it was not increasing emergency funding to Greek banks.” ATMs are running dry and withdrawals are bveing limited to 60 euros.”
Stocks in Europe and China are in freefall, with bank stocks in Europe particularly hard hit. Greek stocks are off 17% despite their stock market being closed.
The bill for Greece’s profligate spending and fake austerity was always going to come due sooner or later. Tsipras’s disasterous term in office merely ensured that it would come sooner and with a maximum of economic pain for the Greek people…
At least that’s what Zero Hedge has taken away from the various news stories on Greece’s latest proposal to beat the looming end-of-month deadline for making the payment they owe to the IMF.
From the troika’s perspective, breaking Greece and forcing PM Alexis Tsipras to concede to pension cuts and a VAT hike is paramount, and not necessarily because anyone believes these measures will put the perpetually indebted periphery country on a sustainable fiscal path, but because of the message such concessions would send to Syriza sympathizers in Spain and Portugal. In short, the troika cannot set a precedent of allowing debtor nations to obtain austerity concessions by threatening to expose the euro as dissoluble.
The pension changes are evidently types of “austerity” that let Greek PM Alexis Tsipras claim he didn’t actually cut pensions:
Under the proposal submitted to eurozone ministers, the Greek government would raise just under €2.7 billion in extra revenue this year, followed by a further €5.2 billion in 2016.
The blueprint, which will now be assessed by Greece’s creditors ahead of a second meeting of finance ministers on Wednesday and an EU leader’s summit the following day, includes concessions that go far beyond previous offers made by the left-wing Syriza government.
Greece’s main concession is on pensions, long regarded as the major sticking point by its creditors, where it has unveiled plans to make almost €2.5 billion in savings.
Having vowed not to reduce state pensions during his successful election campaign in January, Tsipras’ government has proposed to raise €645 million over the next two years by increasing health contributions to 5 percent. Other savings will come from restricting early retirement and increasing state pension contributions.
Greece has also agreed to raise the retirement age to 67 by 2025.
The pension savings are equivalent to 0.37 percent and 1.05 percent of GDP in 2015 and 2016, moving closer to, but still below the 1 percent each year demanded by the eurozone.
On top of these savings, a regime of government payments to the poorest pensioners – known as Ekas – will be replaced in 2020. Public spending on pensions currently amounts to 16 percent of Greece’s GDP.
The fact that more than 2/3rds of the savings are back-loaded into 2016 suggests we’ll end up doing this same dance sometime next year. Greece may have (finally) agreed to enough reform that, if implemented (a big if) would at least keep it afloat until next year. But until they stop racking up debt to keep funding their welfare state, more economic pain inevitably lies ahead…
The economic collapse of Greece is unfolding pretty much exactly as observers predicted it would: “Greek banks have imposed an unofficial ceiling of €3,000 on walk-in withdrawals, the commercial banker added.”
More capital controls are most likely coming, especially since bank runs have meant that Greek banks “will soon exhaust eligible assets they can pledge to the Bank of Greece for cash under the Emergency Liquidity Assistance (ELA) scheme.” The ECB backstopping of Greeek banks has been extended for today only. And today’s Eurozone talks have already broken off.
Despite that, Greece’s feckless ruling Syriza Party is still insisting on ignoring reality: “I repeat: The deal will either be compatible with the basic lines of Syriza’s election manifesto, or there will be no deal.”
Translation: “Europe must continue to throw money down the rat-hole of our bankrupt welfare state, or else!” What the “or else” might be when the country is already too bankrupt to pay pensions and keeps the lights on remains a mystery. The problem with holding a gun to your own head is that eventually someone will call your bluff.
Greece is finally finished with the “gradually” phase of their bankruptcy and is now in the “suddenly” phase…
Even though this whiteboard animation is from 2012, it’s still mostly accurate.
My only quibbles would be:
It doesn’t mention how Greece lied about it’s finances to get into the Euro in the first place.
It doesn’t discuss what that debt was spent on, i.e., mainly an overly generous and unsustainable welfare state.
Because it was made in 2012, it overstates how exposed European banks will be to a Greek default. By now, banks and insiders have managed to offload the vast majority of their default exposure to Greek default onto the European taxpayer (which, of course, was the real primary purpose of the bailout).
But it gets the big picture right, namely how out-of-control debt destroys nations…
The bank runs have started in Greece. Why the Greek peeople would even keep their money in banks, having the example of Cyprus’s bank “bail-ins” before them, would keep any but the most minimal amout of cash in a Greek bank is a mystery.
There’s talk of a “new” Greek proposal, which could mean Tsipras and Syriza are finally coming to their senses and giving in to EU demands, or it could be just another smokescreen. I mean, we’ve only seen about a dozen “new” Greek proposals this year that didn’t offer meaningful reform. What’s one more?
Stop me if you’ve heard this before, but Google News is once again filled with Greece on the Brink headlines and the Telegraph has started a live update page for the Greek debt crisis. Today’s Eurogroup meeting ended without any deal, Merkel says she won’t budge, and Greece admits they have no money to make their bundled payment to the IMF at the end of the month.
And the IMF has said there will be no grace period if Greece misses their June 30 deadline.
Also, tomorrow Greece owes €85 million to the European Central Bank. Since the ECB backstop is the only reason Greek banks aren’t already insolvent, I suspect Greece will find some way to make that payment, even if it means raiding the Emergency Transplants for Crippled Orphans fund.
Other than that, things are going swimmingly.
The sticking point, as always, is Greece’s insistence that the rest of Europe lend it more so as to allow Greece to continue spending insanely more money than it actually has on its bloated welfare state, and that it absolutely will not cut government pensions (the pensions it will be unable to pay without a loan anyway) at all. But “Greece still spends more than any other country in the European Union on pensions as a proportion to GDP – with the country shelling out a whopping 17.5 percent.”
