EUCOM Economic Analysis - Part I

[Firn]

It is not yet certain that there will be a referendum nor the exact question it asks is known, but the supporters of a Greek membership in the Euro turned out in large numbers, just like those opposed did yesterday. Not surprisingly there were more not-so-bad-offs today then before.

Anyway it looks like there will be all sorts of talks and actions in the next days but everybody knows that every day with this sort of economic deadlock will inflict deeper damage. The stories are quite shocking and are excellent examples what happens if a cash economy suddendly lacks it. Personally I think that we will have a referendum written by Syriza and it might be a very close thing.

BTW for the first time a developed country will miss an IMF payment, bar a miracle solution.

P.S: The markets reacted not too badly for the large change in odds of a Grexit

[Firn]

The Greek Manufacturing PMI has fallen considerably since Syriza was poised to win the elections, reversing a strong upward trend. Correlation is no causation but there has been lots of reports in fall that many of the haves feared their victory and investments and business slowed.




The Guardian, with it's excellent live coverage brought my attention to a handy list of Mr. Varoufakis, which is obviously fully imerged in the referendum campaign.

Greece’s finance minister, Yanis Varoufakis, has published a short’n’snappy bullet point list of reasons to vote no on Sunday.

It includes the fact that Greece’s debt is unsustainable and should be restructured, and a promise that a No vote won’t lead to Greece leaving the euro.

So what does he state?

Greeks should say “a big NO, he concludes. Here’s why:

1. Negotiations have stalled because Greece’s creditors (a) refused to reduce our un-payable public debt and (b) insisted that it should be repaid ‘parametrically’ by the weakest members of our society, their children and their grandchildren
   
2. The IMF, the United States’ government, many other governments around the globe, and most independent economists believe — along with us — that the debt must be restructured.
   
3. The Eurogroup had previously (November 2012) conceded that the debt ought to be restructured but is refusing to commit to a debt restructure
   
4. Since the announcement of the referendum, official Europe has sent signals that they are ready to discuss debt restructuring. These signals show that official Europe too would vote NO on its own ‘final’ offer.
   
5. Greece will stay in the euro. Deposits in Greece’s banks are safe. Creditors have chosen the strategy of blackmail based on bank closures. The current impasse is due to this choice by the creditors and not by the Greek government discontinuing the negotiations or any Greek thoughts of Grexit and devaluation. Greece’s place in the Eurozone and in the European Union is non-negotiable.
   
6. The future demands a proud Greece within the Eurozone and at the heart of Europe. This future demands that Greeks say a big NO on Sunday, that we stay in the Euro Area, and that, with the power vested upon us by that NO, we renegotiate Greece’s public debt as well as the distribution of burdens between the haves and the have nots.

My take:

1. I agree pretty much, although he does of course just focus on the pensions while ignoring other stuff like much needed reforms.

2. Fully agreed.

3. Have to check it.

4. Misleading at best, only a few players out of many have.

5. At least in part it is due to Syriza and his unique negotiating and neither are deposits safe, nor is Greece certain to remain in the Eurozone or EU even if there a lots of legal questions about the latter.

6. We don't know what a No or a Yes will mean and it is of course politically expedient to tell the Greeks that a No just means better terms with the creditors.

All in all I'm still not sure if the duo just wants to get the Greek people to vote to have a pretext to exit the Euro while telling them a No will also mean that they will remain in. The creditors will then be blamed by them because their offers were humilating and stupid (partly true) and twice didn't respect the democratic voice of the Greek people.

As I said a Grexit will be mean much suffering but is at this point in time highly likely the best outcome for Greece. It's more difficult to gauge the impact on the Euro zone.

[Firn]

So tomorrow is decision-day, at least sort of. While the Greeks won't and can't know what oxi or nai will exactly mean the tensions are obviously running high with both sides pretty much tied. Attacks abound and rumours run while some statements like the one by the radical right-wing defense minister sitting by his radical left-wing pm about the army and internal security. Obviously this quickly used by the oppositions among which are also men and women who fight against the military regime.

The campaigns have been very short and the oxi mobilized quicker then the nai but we will see how gets more votes. Some stunning graphs to remind oneself about the fertile ground Syriza grew in:










All from the RBS Economics twitter feed. Great and important stuff but it doesn't quite show the misery like that photo and it's story:

When he was told at the fourth that he could not withdraw his 120 euros ($133), it was all too much and he collapsed in tears.

The 77-year-old told AFP that he had broken down because he "cannot stand to see my country in this distress".

"That's why I feel so beaten, more than for my own personal problems," Chatzifotiadis said.

[Firn]

So I was wrong and Syriza had not Grexit as Plan B and didn't prepare accordingly. With their bluff called and no more fresh money for the Greek banks with all the obvious consequences national politics in badly constructed groups dominated the European idea and economic logic. And it was far from a pretty sight.

Indeed, the strong do what they can and the weak suffer what they must. It's not war but it certainly wasn't my idea of Europe.


P.S: I'm surprised that hardly anybody compared the recent events with those in Cyprus in which the MPs rejected, among 'a sense of pride', the bailout terms only to cave in to even harder ones later.

As a side note capital controls were expected to last only four days - only to last two years. Iceland with it's five years at that time might have indicated a somewhat longer timeframe...

[Firn]

So I was wrong about being wrong, there was at least some planning towards a Grexit. Perfectly understandable, treason at worst it would have been not to prepare in such fashion. Sadly it was still a path the Greek government didn't want to walk, perhaps fearing the vast pro-euro majority after they managed to isolate themselves completely.

The stand-off which induced the ECB pouring more liquidity into the Greek banks starved of cash by a bank run followed by the painful capitulation did obviously great harm to a very weak economy:



With the market opening and it's 20+% crash those are just numbers which I don't recall seeing in an European country. Shocking stuff and I anticipated worse then most.