Greece: the sin-eaters

Greece: the sin-eaters

by digby

Nobody knows what will happen. But it's probably screwed no matter what.

This piece by interfluidity is a must read in its entirety. Here's the conclusion:

The fact of the matter is no country, not Germany, not France, would voluntarily put up with the sort of “adjustment” that has been forced on Greece, for the good reason that gratuitous great depressions are not actually helpful to an economy. Creditors have had five years to mismanage Greece and they’ve done a startlingly effective job. Syriza has had five months to object. However much you may dislike their negotiating style, however little you think of their competence, Greece’s catastrophe was not Syriza’s work. If creditors respond to Syriza’s “intransigence” with maneuvers that cause yet more devastation, that will be on the creditors. Blaming victims for having insufficiently perfect leaders is standard fare for apologists of predation. Unfortunately, understanding this may be of little comfort to the disemboweled prey.

Europe’s creditors are behaving exactly as one might naively predict private creditors would behave, seeking to get as much blood from the stone as quickly as possible, indifferent to the cost in longer-term growth. And that, in fact, is a puzzle! Greece’s creditors are not nervous lenders panicked over their own financial situation, but public sector institutions representing primarily governments that are in no financial distress at all. They really shouldn’t be behaving like this.

I think the explanation is quite simple, though. Having recast a crisis caused by a combustible mix of regulatory failure and elite venality into a morality play about profligate Greeks who must be punished, Eurocrats are now engaged in what might be described as “loan-shark theater”. They are putting on a show for the electorates they inflamed in order to preserve their own prestige. The show must go on.

Throughout the crisis, European elites have faced a simple choice: Acknowledge and explain to electorates their own mistakes, which do not line up along national borders of virtue and vice, or revert to a much older playbook and manufacture scapegoats.

Such tiny, tiny people.

And this by John Cassidy in the New Yorker:

Just when you thought that the Greece saga had run out of plot twists, another one emerged on Thursday—and it was an important one. A few days before a referendum that will probably decide the fate of Greece’s Syriza government, one of the country’s creditors, the International Monetary Fund, came out and acknowledged that the stricken country is unlikely to recover until a good portion of its huge debt load is wiped out.

Echoing the argument that Yanis Varoufakis, Greece’s controversial finance minister, has been making for months, the I.M.F. published an internal analysis that described Greece’s debt dynamics as “unsustainable.” At a minimum, the analysis said, the maturity dates of Greece’s loans, which total more than three hundred billion euros, “will need to be extended significantly.” And if Greece doesn’t push through all of the structural and fiscal reforms that the Fund believes are necessary, “haircuts on debt will become necessary.” (A “haircut” is the financial term for reducing the face value of outstanding debt. If you owned a $1,000 bond and it was subjected to a haircut of ten per cent, it would entitle you to collect just $900 when it became due.)


I should stress that these conclusions weren’t based on the assumption that Syriza, or any future Greek government, would fail to carry through the policy reforms that its creditors are calling for, which include a relaxation of labor laws and a cut in pensions. To the contrary, the I.M.F’s analysis assumes that Greece accepts and meets the terms of the latest offer from its creditors, which the Prime Minister, Alexis Tsipras, rejected last weekend. This deal would involve the Greek government running a primary budget surplus of one per cent of G.D.P. this year, two per cent in 2016, three per cent in 2017, and 3.5 per cent thereafter. Even if this were to happen, and the Greek economy were to expand at a rate of 1.5 per cent annually, a fifty-per-cent improvement on its historical trend, Greece’s debts are so large that “further concessions are necessary for debt sustainability,” the report says.

One option the report considers involves extending the terms of Greece’s loans from twenty years to forty years, and doubling, from ten to twenty years, the grace period during which it doesn’t have to make any principal repayments. This, in itself, would amount to a significant hit to creditors. But what if the best Greece can manage over the long haul is to run a primary surplus of 2.5 per cent (rather than the 3.5 per cent called for in the latest offer), which seems a bit more realistic—and the economy grows in line with the historical trend? Then, the report concludes, in addition to doubling the grace period for principal repayments and extending the maturities on Greece’s loans, the country’s creditors would have to write off more than fifty billion euros’ worth of debts.

Much more at both links.