Greece and its international lenders are speeding toward each other with demands that can’t really be met by either, world press reports say.
Why Greece May Be The New Lehman
Politico – Bill Emmott
emember when in 2008 Hank Paulson’s U.S. Treasury Department decided to let Lehman Brothers go down, pour encourager les autres, and then found that it brought les autres crashing down too?
Well, Germany and the other euro-zone members are now trying to repeat that brilliant trick with Greece. If you were looking for where the next big financial meltdown might begin, you need look no further. Chances are, it is about to happen in Europe.
If it does, the political consequences could be even worse than last time. Strangely enough, the political risks are easier to evaluate than the economic ones.
The risk of a Greek default or exit from the euro begin in Greece: If the left-wing party that runs the new government, Syriza, is discredited, following the discrediting of the old establishment parties, this risks strengthening the fascist alternative, Golden Dawn …
Back in January, when Greek voters elected Syriza on a mandate to get a better deal from its euro-zone partners and the International Monetary Fund over its vast public debts, the favored metaphor of most commentators was the game of chicken.
Greece’s photogenic prime minister, Alexis Tsipras, and especially its economics professor-turned-sex-symbol finance minister Yanis Varoufakis talked tough, and their German counterparts Angela Merkel and Wolfgang Schaueble talked tough in return. But everyone assumed that in the end there would be a compromise and not a car crash …
It was a comforting fiction. But now, three months later, reality is about to reassert itself. The car crash is looking the much likelier outcome. And the scary thing is that both sets of drivers appear as if they might even want it.
Which means that they are both assuming that the political and economic consequences of Greece either defaulting on its sovereign debts, or leaving the euro, or both, would be bearable and even worth bearing.
It would be nice if this pessimistic analysis were to be proved wrong, and that a compromise were about to be unveiled. The reason why that at present looks unlikely is not just that there is no sign of it happening: such is always the nature of bargaining, at any level.
No, the reason for pessimism about a compromise is that as time has gone on, the two sides appear to have found themselves with less room for manoeuver, not more. They both look trapped.
Europe’s Collision Course With Greece
Bloomberg – Clive Crook
The brinkmanship over Greece and its debts continues. A meeting of finance ministers in Riga on Friday is likely to pass, like many previous make-or-break moments, without resolution.
The European Union isn’t deviating, and neither is Athens. Before much longer, though, something really will have to give — and it seems ever more probable that, when it does, the news will be bad.
Confidence has firmed across Europe that a Greek default won’t much harm any other country — indeed, that the rest of the EU might actually be stronger if the Greeks are taught a lesson.
This theory is wrong. If it’s pressed into action, Europe will come to repent its biggest miscalculation since the creation of the euro.
EU governments are hardening their insistence on an overt Greek surrender. The terms of the existing bailout program, they say, must be honored in full before talks on a new one can start — and meanwhile, there’ll be no more money.
In plain terms, the Syriza government led by Prime Minister Alexis Tsipras must not only break its promise to voters but be seen by all to have broken it.
Tsipras, to be sure, commands little sympathy. He has served his country poorly. His government’s initial take-it-or-leave-it posture looked calculated to offend. Having started badly, how to make matters worse?
Press for war reparations from Germany — an altogether strange way for a distressed borrower seeking new debt relief to approach its creditors. Athens thought it was negotiating from a position of strength — that Europe wouldn’t dare call its bluff. This now looks like a losing bet….
If all this comes to pass, Europe will have shown it meant business. That’s fine. Aside from scoring this gallant victory over mighty Greece, what will it have achieved?
If Greece defaults, the IMF and the ECB will lose more than if they agreed right now to forgive much of the debt.
That’s to say nothing of the risk of contagion, and a widening crisis of confidence. Governments and the ECB seem to believe that this danger is contained. The U.S. Treasury and the Federal Reserve thought the same about Lehman Brothers. …
Europe and the IMF have chosen not to lift that threat unless Tsipras surrenders unconditionally.
It is Europe, not Tsipras, that has set its face against compromise — by enshrining the current bailout program, which its own authors acknowledge to be a failure, as a sacred object.
Instead of helping Greece to its feet, Europe is telling Greece to kneel. Instead of helping Tsipras to climb down, the EU demands he abase himself. Instead of expressing solidarity with the Greek people, who have suffered inordinately, Europe says: “Election? What election?”
Tsipras has done a terrible job. Compared with the rest of Europe’s leaders, he looks like a statesman.
Politics Beats Experience: Greece Will Still Default
The Independent – Hamish McRae
It is hard to know what to think about Greece. Some things are quite clear. It cannot pay its debts. Its costs are too high to be competitive compared with most of the eurozone and its neighbour, Turkey. And its economy is held back by the difficulties it has to push through structural reforms.
Were this a typical similarly indebted country there would be an established programme to put the country back on its feet. It is the tried formula applied by the International Monetary Fund for scores of countries since the Second World War …
the two bail-outs, both of which have failed, were poorly constructed. Debt relief was inadequate, fiscal consolidation too vicious, structural reform too weak and, crucially, there was no devaluation.
The result was that instead of creating the conditions for a solid recovery, the programme led to a 25 per cent contraction of the Greek economy, and a debt repayment schedule that stretches to 2054 …
What is upsetting is that failure was inevitable. Many of us said or wrote that at the time. You did not have to be very clever to see that.
But common sense was pushed aside by the political objectives of avoiding a formal default of a eurozone country and keeping the eurozone intact.
Political will trumped economic experience. It has taken a populist government to say this cannot go on, albeit in a rather incoherent way.
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