Many feel that Greece's fate, including its continued membership of the eurozone, rests in the hands of the Troika -- officials from the European Commission, European Central Bank and the International Monetary Fund charged with evaluating Greek's reform efforts, its financing needs and how they should be met. But this is not the entire story by any means.
The country's fate is also closely linked to what happens in Italy and Spain, and in a manner that is yet to be sufficiently understood by many.
Domestic political stability and economic reforms are clearly critical for Greece's continued membership of the eurozone. Many are thus interested in how the Troika, acting on behalf of official creditors, will react to the government's request to stretch out the budgetary adjustment over an extra couple of years.
Will they agree? If they do, how will the accompanied structural reforms be tweaked? And who will pony up the additional financing, either explicitly or through indirect methods (such as the refinancing undertaken recently by the ECB?
Important as they are, these questions are just part of the required analysis. You see, Greece's triple problem -- of way too little growth, much too much debt, and a political elite that has lost popular credibility and legitimacy -- cannot be solved by adding a couple of years to the adjustment program and finding a bit more money.
A sustainable solution requires a major reset of the country's parameters -- economic, financial political, and social.
Domestic conditions are of course key here. Without common vision and a sense of shared responsibility -- both of which are lacking in Greece today -- it is virtually impossible for the country to regain its employment engines, realign its cost and revenue structure, and regain Eurocentric and global competitiveness.
Yet it is not all about internal challenges. Greece's continued membership of the Eurozone depends also on the evolution of the situation in Italy and Spain -- two countries that will have an important impact on what the Greek reset looks like and when it would occur.
If the situation in Italy and Spain were to deteriorate further, Greece would get even less sympathy from the Troika; and certainly less money.
Any relaxation in policy conditionality would be viewed by the Troika as giving the wrong signal to other vulnerable Eurozone members. And creditors would be even more reluctant to pour good money after bad.
With the social fabric of Greek society already highly stressed, the government there would find it even more difficult, if not impossible, to implement an approach that promises the population greater austerity and pain. A disorderly exit (or "Grexit") from the eurozone would only be a matter of time. To make things worse, it is likely that this would occur in the context of an increasingly unstable Eurozone.
What if collective European efforts were to succeed in stabilizing Italy and Spain? You may think that this would be unambiguously good for Greece as a more robust Eurozone would be more willing to support its weakest member. But it is not that simple.
The stronger the eurozone firewalls protecting Italy and Spain, the greater the inclination for some European officials to de facto push Greece out.
This is not just about the difficulties that Greece faces to deliver on its policy commitments, regain competitiveness and create jobs within the confine of the single currency. It also goes beyond the realization that Greece would require another major debt restructuring which, this time around, would likely involve money owed to official creditors.
There are several member countries that believe that Greece never belonged in the Eurozone to begin with. Moreover, its membership was enabled only by questionable numbers.
Up to now, their desire to create conditions that would accelerate a Grexit has been held back by the fear that this would significantly disrupt other peripheral economies -- something that strong eurozone firewalls would overcome.
Greece's future thus depends on the outcome of both domestic events and developments in Italy and Spain. Greek officials should certainly hope that collective European action will succeed in stabilizing these other two countries' economies. But they should also realize that too great a success could, ironically, map into a higher probability of a Grexit.
It could well be that continued muddle through for the eurozone as a whole, rather than full resolution or fragmentation, is what would deliver the most official support for Greece. This may be attractive for the current Greek government. It certainly won't be for the rest of the eurozone.
Cross-posted from CNBC.com.
How can a remotely positioned, loaded gangster work an economy without willing henchmen, such as your fuedal, corrupt, nepotic, political system? America sees even newcomers allign themselves irrespective of party, to the outside money.
The gem that is Greece is the perfect theatre for what needs to be done to rid a dangerous scourge from world economies. Our vote for Obama was to rid WS and Washington of such a progress and productivity leeching element. We see Dimon slink into the White House, and untaxed, racketeering bankers walk with stuffed coffers.
If nothing BIG happens, and more central bank pirating and bailing out prolongs these DEBT MECHANISMS, we will be at the lifeless, subjugated state intended by the tyrant bankers. WE WILL be the socialist/communist/marxist begging public, while they revel in a gluttonous orgy of citizens property.
Someone has to be a net importer for the others to be net exporters since more than 70% of European trade is internal.
How does a state like Greece the others in the Euro zone which run a negative balance of trade replace the money drained from their economies even if their government spending were zero?
Thank you very much, OUR governments, From Citizens of the World.
Europe and Greece's technocrat politicians will keep stringing Greece along as long as they can seeking to milk it for as much as they can and for as long as they can. They won't offer any real debt relief but instead will often even more loans and debt and allow Greece to dig itself in even deeper.
Eventually the Greek people will have had enough. They'll either vote in a new government or they'll create so much civil unrest that the current bailouts cannot stand. Either way it's when the Greek people have taken all they can take and force a change that things will change.
There is worse. Aside from Draghi, who was a Goldman Sachs banker, the leaders of the troika have a political, not a civil service, background. Barroso and Lagarde were prominent politicians. Their careers did not orient them towards public service but towards power. Both were moreover right-wing, and therefore likely to place business concerns above popular ones - and I would argue the same is true for any alumnus of the Goldman Sachs school.
Greece is not really being bailed out. Bailouts lead to lower debt, not higher debt. What really happened was that rightwing politicians masquerading as apolitical civil servants shielded big banks from the consequences of their bad bets on Greek bonds at taxpayer expense.
The troika is led by die-hard believers in supply-side economics, aided by a German chancellor who also leans that way. We in Europe have to wake up to the fact that none of this is neutral, bipartisan or independent. It is intensely political.
This IS NOT Greece's problem.
They don't have "too little" growth, they have a contracting economy, now in it's fifth year, caused by the credit collapse of 2007/2008 and intensified by the mindless unaccountable ideologues of the Troika.
They do NOT have too much Public debt, they have too much Public debt denominated in a foreign currency, the Euro. More importantly, the citizens of Greece and Europe have too much PRIVATE debt.
The government lost legitimacy several years ago, when the unelected and undemocratic Troika imposed inane policies as well as appointed a hand picked Prime Minister, bypassing the democratic process. They also imposed German viceroys to administer Greece's public finances, giving FIRST preference to any Public monies for the benefit of a handful of private bankers.
The Troika has the power to boost the Greek economy and restore growth, in jobs and advance the well-being of the citizenry, however, for purely ideological reasons, they choose the anti-thesis, austerity. Austerity has undermined all hope of economic recovery, prosperity, solvency and national dignity.
The mindless ideologues of the Troika are completely to blame.
If only it was that simple, then the problem would have been solved years ago, would it not?
The US, is not in any way analogous to Greece or any member country of the EMU.
The US has currency sovereignty and the EMU members do NOT.
It has nothing to do with Liberals, it has to do with the factual construct of monetary systems.
You can educate yourself on the differences, of course that is your choice.
that would get Greece out of the Euro union for sure.
In the meantime Greeks can raise goats. Goat meat, goat milk, goat skins. Those islands are just great for goats. Yep. get out of the EuroZone. Their women have a reputation for being very pretty. Sell some to the Arabs or Chinese or Indians or Germans if they need money. The Arabs will probably take a couple of boys too. Yes sir, splendid isolation for the Greeks. Should work out fine unless the Goats get sick.
Alfred Thayer Mahan
"If you take a look at a map, you will discover that Greece protects what the navy calls a line of communication through the Mediterranean to the Middle East and to North Africa. It is no accident that the Russians have always tried to exercise their influence in that area. It is no accident that the British resisted a hostile power taking control of that particular area, and it is no accident that when the U.S., back in the '70s, was looking for strategic home ports outside the United States, the U.S., Navy settled on Athens as the place."
Lawrence J. Korb (The Brooking Institution)
Nazi Germany and its allies during World War II.
- He was quick in anticipating the rise of the Soviet threat (Iron Curtain).
- He was well cognizant of Greece's strategic importance to the West.
- I believe that Merkel said that she wants Greece in the eurozone.
- Though they have the strongest economy on the continent, the Germans cannot lead Europe because of their past history (World War II; the Holocaust; 50 million deaths).
Greece is the most hopeless case. What Afghanistan is to Washington, is Greece to Brussels: a failed state that promises improvements continuously, but cannot improve itself, because it depends on corruption and nepotism.
Brussels demands of Athens, in order to avoid a 'Grexit' two things: it significantly reduces spending and increases revenue sharply. Neither will happen, because it is socially impossible.
Substantial reduction of expenditure, eg by mass layoffs in the public sector, would lead to popular revolt (if not already already the case), until the collapse of government and the victory of the opposition party SYRIZA, that promised to create an additional 150,000 government jobs. Hence the Greek government immediately wants to renegotiate after saying 'yes' to European conditions.
Also significant revenue increase can be forgotten. That would require three things. First, taxation should function properly, so the individual tax officer no longer accepts bribes to accepts the annual income of his neighbor as true. Theoretically, the tax official recognizes this, but he also has to maintain a family, and so desperately needs the bribes. Honesty in a corrupt country is pointless.
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Greek shipowners have threatened to relocate to tax havens. This is a crucial issue: many countries facilitate tax evasion elsewhere. This also applies to my country: 120 Greek luxury yachts sail undisturbed under the Dutch flag. It's been estimated some 17 trillion euros owed to tax authorities is evaded worldwide.
The third European requirement is Athens widely privatizes. However, anybody who sells off state assets encounters much resistance, as it goes against national pride. SYRIZA has threatened with expropriation and criminal prosecution of any buyers after an election victory.
This is probably contrary to scenarios dictated by Brussels, but those sort of things happened more often. Would EU chairman Barroso want a war, such as the UK and France did in 1956, after Nasser's nationalization of the Suez Canal?
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This means that there are only two real scenarios.
Either Brussels lets Greece go bankrupt and default, so it leaves the euro. Apart from chaos, this means the other European countries will loose money they lent. European politicians must openly recognize and admit their mistakes. That means for the proponents of European integration a tremendous psychological defeat and fuel for Eurosceptics. Voters will see their suspicions confirmed.
Therefore, this decision is postponed for as long as possible, which Athens knows too.
Like the generals in World War 1, continued fighting is pointless, but this fact cannot be told, because all the sacrifices were then made for nothing. So the fight continues, a sunken cost fallacy.
And so another scenario rules supreme for the moment: knowingly providing money to Greece and accepting their promises officially, which is also fuel for Eurosceptics, because a corrupt system change is not changed in two months.
That requires at least two generations. One of the first countries in Europe that ever succeeded doing so, was Prussia: one of Germany's ancestral states, the oldest European country with rule by law, but simultaneously an army barrack, ruled by iron fist. Only a "military" occupation by "Prussian" tax officials would be able to enforce a thorough reform of Greece.
Only that means, it is the end of the European democratic idea. Ultimately, it will be a choice between sacrificing the euro and saving democracy or vice versa.