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Pure quality by John, as usual.

There are a few points I'd like to add, in order of appearance.

5:10 – Greek default or Grexit could be manageable by the rest of the EZ, economically. Italy looks a bit shaky and Spain still looks like shit, so things could spiral out of control, but chances would be better now than they were in, say, 2010.

However, Grexit would be a political nightmare. EZ membership is supposed to be irreversible, so Grexit would reduce the Euro from a common currency to a peg when viewed from the outside. That's open season on the rest of the PIIGS. If Greek then rebounds, other people might very well decide to give Germany the finger and leave as well. If Greece fails, you have a NATO member turn into a failed state, which not only gives NATO the shivers, but also buries any notion of solidarity within the EU. This union survives because of the promises it makes, which include increasing standards of living and solidarity among different peoples. Without it, we're left with... what exactly?

And nevermind the humanitarian catastrophe taking part in Greece. We've conditioned ourselves to block out the pain and suffering of people in Africa. We even manage to shrug at the cesspool of corruption that is Kosovo. But if we do that to Greece as well, what little moral authority Europe might still have left would be gone then.

5:32 – The last payment Greece received was in August, long before Syriza took over. The previous government was in disagreement with the Troika and therefore transfers were frozen.

5:57 – Troika payments are required to service previous debt obligations. They are separate from what the Greek banks require to maintain their liquidity. That would be Emergency Liquidiy Assistance (ELA) from the ECB, which is a different thing entirely, even though it comes from a member of the Troika.

The ECB is bound by law to maintain and ensure the stability of the banking system(s) within the EZ. If a bank runs into liquidity problems, support is provided by the national bank of the respective country, which funnels funds from the ECB to the troubled bank. That's ELA, and a limit on ELA is a limit on the amount of funds that banks can draw from through this process. If an illiquid bank is cut off from ELA, it goes belly up. Bad idea.

Some argue that the ECB should not provide ELA to those Greek banks anymore, since they are insolvent, and ECB rules forbid ELA to insolvent banks. But as Varoufakis said, even the ECB's own Single Supervisory Mechanism (SSM) department, which is the new banking oversight, declares the four large Greek banks to be solvent. So there is no reason for the ECB to cut ELA to Greek banks. It's all political, and the ECB is designed to be outside of politics. That's also a reason why its membership in the Troika is so controversial.

The political argument for cutting off ELA is that Germany et al. are on the hook for the total amount should Greece itself go belly up. Somewhere along the line, someone made the glorious decision to install the ECB as a currency issuer without providing it with the attributes of a regular currency issuer. If the Bank of Japan or the Bank of England racks up losses, noone cares. They issue their own currency, they cannot go bankrupt, whatever debt they have in their books is irrelevant, for this discussion anyways. But the ECB has to balance its books, it has to receive funds from its members to balance losses, and in proportion to their economic size.

They made sure that politicians can scare the demos by pointing out how they have to foot the bill for this shit, even though it's the one entity where debt truly doesn't matter at all.

By the way, the funds that Greece is hoping to acquire are meant, primarily, for two purposes: making debt payments and to provide financial room to convert ECB(?) debt into EFSF debt (4% interest down to 1%). That's all. No spending.

6:54 – "Printing" money is generating demand out of thin air. There is a shortage of demand throughout the entire continent. So yeah, if the folks at the ECB could type in a few numbers, that would be swell.

Even Germany has a shortage of demand. We are merely hiding it behind the €200b+ of demand that we steal from other countries, i.e. our current account surplus. But the infrastructure and investment spending over here is at all time lows. We'd need an additional €200b+ just to get the infrastructure back to the state it was in a decade ago.

There is no productivity growth in Europe. The UK actually lost a lot of productivity by its introduction of zero hour jobs and other forms of slavery. Without sufficient demand, there is no need to improve production capacities – they can't even sell what they could produce right now.

Haven't seen this one in circulation yet:

Dear Chancellor Merkel,

The never-ending austerity that Europe is force-feeding the Greek people is simply not working. Now Greece has loudly said no more.

As most of the world knew it would, austerity has crushed the Greek economy, led to mass unemployment, a collapse of the banking system, made the external debt crisis far worse, with the debt problem escalating to an unpayable 175% of GDP. The economy now lies broken with tax receipts nose-diving, output and employment depressed, and businesses starved of capital.

The humanitarian impact has been colossal – 40% of children now live in poverty, infant mortality is sky-rocketing and youth unemployment is close to 50%. Corruption, tax evasion and bad accounting by previous Greek governments helped create the debt problem. But the series of so-called adjustment programs has served only to make a Great Depression the likes of which have been unseen in Europe since 1929-1933. The medicine prescribed by the German Finance Ministry and Brussels has bled the patient, not cured the disease.

Together we urge you to lead Europe to a course correction before it is too late for Greece and for the Eurozone. Right now, the Greek government is being asked to put a gun to its head and pull the trigger. Sadly, the bullet will not only kill off Greece’s future in Europe. The collateral damage will kill the Eurozone as a beacon of hope, prosperity, and democracy, and could lead to far-reaching economic consequences across the world.

In the 1950s Europe was founded on the forgiveness of past debts, notably Germany’s, which generated a massive contribution to post-war economic growth, peace, and democracy. Today we need to restructure and reduce Greek debt, give the economy breathing room to recover, and allow Greece to pay off a reduced burden of debt over a long period of time. Now is the time for a humane rethink of the punitive and failed programme of austerity of recent years and to agree to a major reduction of Greece’s debts in conjunction with much needed reforms in Greece.

We urge you to take this vital action of leadership for Greece and Germany, and also for the world. History will remember you for your actions this week. We expect and count on you to provide the bold and generous steps towards Greece that will serve Europe for generations to come.

Yours sincerely,

Heiner Flassbeck, former State Secretary in the German Federal Ministry of Finance;

Thomas Piketty, Professor of Economics at the Paris School of Economics;

Jeffrey D. Sachs, Professor of Sustainable Development, Professor of Health Policy and Management, and Director of the Earth Institute at Columbia University;

Dani Rodrik, Albert O. Hirschman Professor of Social Sciences at the Institute for Advanced Study in Princeton;

Simon Wren-Lewis, Professor of economics, Blavatnik School of Government, Oxford University

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That system looks really good, and exactly what Greece needs... provided they can come up with a way to get everyone to use it.

I've been reading each update, but only getting more puzzled... why do Syriza seem so unprepared? What's the deal with the announced billion euros of EU aid for the "humanitarian crisis"?

The Latin American countries have some other qualities in common with Greece, I agree they are a good example.

The thing is though that the humanitarian crisis caused by The Austerity has been either almost as bad, or as bad as these disorderly collapses.

Apart from that one point, I largely agree with you here.

As much as I would love to see Syriza pull off a miracle, even with the will of the people to end the culture of patronage I wonder how on earth they would manage it.

I don't actually think Tsipras or Varoufakis really understood how difficult Schäuble or Dijsselbloem would be to deal with, but based on their party platform they were quite compelled to act as they did, so I vote politics.

It's a bit hard to say whether the fabled Grexit would have been more damaging than The Austerity, has anyone actually done the calculations?

What we can see, fairly clearly, is that the projected outcome of The Austerity by the Austerity freaks has been completely the opposite of what actually happened. Somewhere there was a nice graph showing projected growth vs actual, but the summary is that where they projected growth in year 4, in actual fact the Greek economy actually just kept contracting. (@radx, did you see the graph?)

The reports I saw of the reform proposals were exactly what you suggest, a credible plan to tackle corruption and to use some of the savings to fund social programs and tackle the humanitarian crisis caused by The Austerity. The Grauniad summarised reactions to the proposal as a sensible compromise between the Greek government’s promises and the demands of its creditors.

You are absolutely right, the results of elections in Greece do not create an obligation for fiscal transfers from other European countries.

But that plays right into what Varoufakis has been saying for years, doesn't it? The program over the last seven years has reduced Greek output by a quarter, and thereby its ability to service and reduce its debt. The troika is offering more loans, loans that cannot be payed back, in return for a further reduction in Greece's ability to pay back those loans in the first place. Extend and pretend, all the way. Nevermind the humanitarian cost or the threat to democracy itself.

It is either counter-productive or aimed at a different goal entirely. Greece wants an end to those loans, and all the loss of sovereignty that comes with it, while the Eurogroup in particular wants to stick to a program that only increased Greece's dependency to a point where they can throw the entire country into unbearable misery at a moment's notice (e.g. cut ELA access).

Take the privatisation demands as an example. The program demands that Greece agrees to sell specific property at a specific price. Both parties are keenly aware that this price cannot be realised during a fire sale, yet they still demand a promise by the Greeks to do so. Any promise would be a lie and everyone knows it.

Same for the demanded specificity of Greece's plans. After decades of nepotism, a fresh government made up entirely of outsiders is supposed to draw up plans of more detail than any previous government came up with. And they cannot even rely on the bureaucracy, given that a great number of people in it are part of the nepotic system they are trying to undo in the first place.

Taxes, same thing. The first king of Greece (1832'ish) was a prince of Bavaria who was accompanied by his own staff of finance experts, and they failed miserably. Greece went through occupation, military junta and decades of nepotism, and the new government is supposed to fix that within months.

Those demands cannot be met. The Greeks know it, the troika knows it, the Eurogroup knows it.

Zizek called it the superego in his recent piece on Syriza/Greece:

"The ongoing EU pressure on Greece to implement austerity measures fits perfectly what psychoanalysis calls the superego. The superego is not an ethical agency proper, but a sadistic agent, which bombards the subject with impossible demands, obscenely enjoying the subject’s failure to comply with them. The paradox of the superego is that, as Freud saw clearly, the more we obey its demands, the more we feel guilty. Imagine a vicious teacher who assigns his pupils impossible tasks, and then sadistically jeers when he sees their anxiety and panic. This is what is so terribly wrong with the EU demands/commands: they do not even give Greece a chance – Greek failure is part of the game."

Aside from all that, the entire continent is in a recession. Not enough demand, not enough investment, unsustainable levels of unemployment. Greece was hit hardest, Greece was hit first. It's not the cause of the problem, it is the canary in the coal mine. And Italy is already looking very shaky...

@RedSky

Selling assets and, to a certain degree, the reduction of public employment is an unreasonable demand. There's too much controversy about the effects it has, with me being clearly biased to one side.

Privatisation of essential services (healthcare, public transport, electricity, water) is being opposed or even undone in significant parts of Europe, since it generally came with worse service at much higher costs and no accountability whatsoever. Therefore I see it as very reasonable for Syriza to stop the privatisation of their electricity grid and their railroad. There are, of course, unessentials that might be handed over to the private sector, but like Varoufakis said, not in the shape of a fire sale within a crisis. That'll only profit the usual scavengers, not the people.

Similarly, public employment. There's good public employment (essential services, administration) and "bad" public employment. Troika demands included the firing of cleaning personnel, who were replaced by a significantly more expensive private service. And a Greek court decision ruled the firing as flat out illegal. For Syriza to not hire them back would not only have been unreasonable financially as well as socially, it would have been a violation of a court order. Same for thousands of others who were fired illegally, according to a ruling by the Greek Supreme Court.

Troika demands are all too often against Greek or even European law, and while the previous governments were fine with being criminals, Syriza might actually be inclined to uphold the law.


On the issue of reforms, I would argue that the previous governments did bugger all to establish working institutions. Famously, the posts of department heads of the tax collection agency were auctioned for money, even under the last government. Everything is in shambles, with no intent of changing anything that would have undermined the nepotic rules of the five families. Syriza's program has been very clear about the changes they plan to institute, so if it really was the intent of the troika to see meaningful reform the way it is being advocated to their folks at home, they would be in support of Syriza.

Interventions by the troika have crashed the health care system, the educational system and the pension system. Public pension funds were practically wiped out during the first haircut in 2012, creating a hole of about 20 billion Euros in the next five years.

I would like to address the issue of taxation specifically. Luxembourg adopted as a business model to be an enabler of tax evasion, even worse than Switzerland. In charge at that time was none other than Jean-Claude Juncker, who was just elected President of the European Commission. He's directly involved in tax evasion on a scale of hundreds of billions of Euros every year. How is the troika to have any credibility in this matter with him in charge?

Similarly, German politicians are particularly vocal about corruption and bribery in Greece. Well, who are the biggest sources of bribery in Greece? German corporations. Just last week there was another report of a major German arms manufacturer who paid outrageous bribes to officials in Greece. As much as I support the fight against corruption and bribery, some humility would suit them well.


As for the GDP growth in Greece: I think it's a fluke. The deflation skewers the numbers to a point where I can't take them seriously until the complete dataset is available. Might be growth, might not be. Definatly not enough to fight off a humanitarian crisis.

Surpluses. If everyone was a zealous as Germany, the deficit would in fact be considerably narrower, which is a good thing. Unfortunatly, it would have been a race to the bottom. Germany could only suppress wage growth, and subsequently domestic demand, so radically, because the other members of the Eurozone were eager to expand. They ran higher-than-average growth, which allowed Germany to undercut them without going into deflation. Nowadays, Germany still has below-target wage growth, so the only way for Greece, Spain, Portugal and Italy to gain competetiveness against Germany is to go into deflation. That's where we are in Europe: half a continent in deflation. With all its side effects of mass unemployment (11%+ in Europe, after lots of trickery), falling demand, falling investment, etc. Not good. Keynes' idea of an International Clearing Union might work better, especially since we already use similar concepts within nations to balance regions.

Bond yields of Germany could not have spiked at the same time as those of the rest of the Eurozone. The legal requirements for pension funds, insurance funds, etc demand a high percentage of safe bonds, and when the peripheral countries were declared unsafe, they had nowhere to go but Germany. Also, a bet against France is quite a risk, but a bet against Germany is downright foolish. Still, supply of safe bonds is tight right now, given the cuts all over the place. French yields are at historic lows, German yield is negative. Even Italian and Spanish yields were in the green as soon as Draghi said the ECB would do whatever it takes.

The current spike in Greek yields strikes me as a bet that there will be a face-off between the troika and Greece, with very few positive outcomes for the Greek economy in the short run.

QE: 100% agreement. Fistful of cash to citizens would not have solved any of the core issues of the Eurozone (highly unequal ULCs, systemic tax evasion, tax competition/undercutting, no European institutions, etc), but it would have been infinitely better than anything they did. If they were to put it on the table right now as a means to combat deflation, I'd say go for it. Take the helicopters airborne, as long as it's bottom-up and not trickle-down. Though to reliably increase inflation there would have to be widescale increases in wages. Not going to happen. Maybe if Podemos wins in Spain later his year.

Same for the last paragraph. The ECB could have stuffed the EIB to the brim, which in return could have funded highly beneficial and much needed projects, like a proper European electricity grid. Won't happen though. Debt is bad, even monetised debt during a deflation used purely for investments.