Greece default

Will Germany Shoot Down the Greek Proposal And Force Grexit?

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The thing that really annoys me about all this elitist bull where the media constantly reports about vague snippets about “proposals” and “negotiations” and “give and take” with absolutely no specifics about what is being negotiated is..well, just that. We have no idea what the politicos are really talking about behind closed doors, and nothing is clear.

Greece made a proposal. What’s in it? How is it different from past agreements? What are the hard numbers? What are the objections? What the hell is going on? Nobody can give a clear answer. Only talk in vague generalities about “concessions” and “compromise” but never about what!

So Greece made some kind of deal with Germany. What was it? The only place that tells you anything even meager is Zerohedge, and you never know when the guys over there are being totally crazy or they have real info. So, here’s what they’re reporting.

Greece is demanding that private residences in mortgage default be protected from foreclosure, which will of course clog and paralyze the banking system. Also a gradual raise of minimum wage, which will clog and paralyze the labor market. As well as restoration of collective bargaining rights for unions, which will constrict the labor supply and increase unemployment. As well as wage hikes for the bureaucrat sector. Which will increase the debt load that Germany is paying for.

And Germany, apparently, is going to say nein, according to Zerohedge, tonight.

Let’s see what happens.

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Varoufakis Holding his Own, Germans want him replaced!

rafifarber Eurozone Crisis, The Jewish Libertarian Blog ,

The Greek talks with the Eurozone just broke down again. There currently is no way forward. Greek bank runs may start as early as tomorrow. If they do, the Eurozone will disintegrate fast. Most people did not see this coming and thought Greece would cave. But I did. I felt Greece would not cave, at least strongly suspected it. Here’s why.

I don’t have much investment in Yanis Varoufakis other than fascination and an inkling he can hold his own. He’s showing the Eurozone leaders that he’s not a yes man, not a politician, but a guy with principles that won’t break.

Most commentators on my side of the spectrum, the libertarians, armageddonists, preppers and those folk simply assumed that Greece will cave to Troika demands sooner or later, but that’s because they haven’t been following Varoufakis for three years like I have. Or maybe it’s just a 6th sense I have or something that I recognized with Ron Paul and Feiglin, and to a certain extent with Varoufakis. This harks back to my Ron Paul article about soul.

Varoufakis is wrong about a lot of stuff, even about basic stuff, but he has a soul. And he will not break from what he sees as right. Tsipras and the rest of Syriza are all a bunch of politician monkeys and they’ll cave. But Yanis Varoufakis won’t. Interestingly, Varoufakis is not even a Syriza party member.

Bob Wenzel recently quoted Tyler Cowen, a mainstream economist, as saying this:

The Greek government will cave so cravenly on the substance that they want to have it on the record books that they supplied some expressive goods for a few weeks’ time, namely insulting the Germans and claiming that the Troika is dead and buried.

See, that would be true of any Greek politician except Varoufakis. He won’t cave on anything, unless absolutely ordered to do so, in which case he will resign, as he has said explicitly that he keeps his resignation letter in his inside pocket and will submit it the moment he feels he can no longer speak truth to power. Or his version of it anyway.

Even the bloggers on my side of the aisle like Wenzel simply don’t understand this. I covered this in my column two weeks ago at CalvinAyre, where I said the following:

In a nutshell, it’s like this. If just another politician occupied the Greek FinMin seat, eventually he’d be bought off by the Troika, that trifecta of acronyms like ESM and EFSF that hold all the bailout funds, and the proverbial can would be kicked down the road again. But Varoufakis is not just another politician, and that’s what political mainstreamers, as well as Eurozone leaders themselves, just don’t understand. He’s serious. He wants to default, he’s been saying it for years, and he is the only one with the guts and independence to mean what he says and do it.

Varoufakis still may cave. I don’t have as much faith in his strength of character than I do of Ron Paul or Moshe Feiglin, but so far he has been holding up. How much longer I don’t know. But we can safely assume that since he has not yet resigned, he has not caved.

Now, at the prospect of Greece being kicked out of the Euro, Varoufakis could get fired. Once he’s out, if that happens, you can be sure Greece will cave. Tsipras is a nobody, that I’m sure of. Zerohedge is reporting now that the Germans want Varoufakis out. Why? Because he literally is the only obstacle in the way of continuing this disgusting bailout. There is no one else in the way. Just him. Quoting Keeptalkinggreece:

An SPD politician from Merkels’ social-democrat coalition suggested s that Prime Minister Alexis Tsipras should replaces Finance Minister Yanis Varoufakis as he apparently creates lots of confusion, German politicians cannot understand.

SPD executive board member, Joachim Poß, wrote in an e-mail for his party colleagues:

“Greek Finance Minister Varoufakis has best demonstrated with his performance  until now, that he is not up to the demands of such an office. In the interest of the Greek people and in view of the difficult situation, Prime Minister Tsipras should consider to replace Mr Varoufakis with a political experienced, realistic-efficient person.”

Let me take that last bold paragraph out of Orwellian Newspeak and translate it into Human:

“Greek Finance Minister Varoufakis has best demonstrated with his performance until now that he is not up to simply caving to our demands for fear of being kicked out of the Euro. In the interest of the German government oligarchy and in view of the difficult situation, Prime Minister Tripras should consider to replace Mr. Varoufakis with a politician.”

Watch Greek capital flight tomorrow. It could get intense.

Greek Domino Effect – Does Italy Guarantee Greece Bonds?

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There’s a Mises.org article circulating now about how the recent Greek elections could end up shattering the Eurozone. This really is uncharted territory because nothing like the Eurozone has existed before, with separate sovereign states sharing a fiat currency controlled by a central bank.

The article is titled “How Greek Default May Still Unravel the EU“. Despite a few strange contradictions between the beginning and the end of the article, what I found most interesting was this part:

Greece currently owes a little over 300 billion euros to various creditors. About 200 billion is owed to the Eurozone institutions, the European Financial Stability Facility (EFSF), and the European Stability Mechanism (ESM), that raised funds based on Eurozone guarantees…Spain, Italy, and France have guaranteed about 50 percent of this debt. A default would mean an important increase in the debt load of each of these countries. This would likely be the tipping point for Italy which has a current debt to GDP level of over 130 percent and several decades of essentially no growth. Italy is too big to bail out.

I did some cursory Googling of anything about Italy guaranteeing any portion of Greek debt. I couldn’t find anything, but I didn’t really put much effort into the research. There are no footnotes to the article, so I see no source for this, though that doesn’t mean it isn’t true.

Let’s assume it is though. Tsipras and Varoufakis together are a pretty formidable force for getting out of the current debt stranglehold. Varoufakis wants to default and hates politicians. Tsipras wants to maintain his fiery appeal and may just be crazy enough (in a good way) to listen to Varoufakis, who is probably the only honorable person in the entire Hellenic Parliament to have any grasp of economics at all.

If Tsipras can’t get a good deal enough to appease his voters – and nothing will appease them because their expectations are ridiculous – then Varoufakis will egg him on to default within the Euro. Now, whether this actually increases Italy’s debt burden due to guarantees through the ESM and EFSF seems rather unimportant, because if Greece defaults, I’m willing to bet that Italian bonds are going to plummet the next day with Italian interest rates skyrocketing. That will be enough to push Italy overboard.

If Greece defaults at 175% debt to GDP with bond investors losing everything, Italy is not far behind at 133%. Nobody is going to want Italian bonds in the event of a bona fide Greek default. If Italy goes down, then so do the rest of the PIIGS – leaving Portugal, Ireland, and Spain. What happens then is really up in the air. Nobody knows.

But yes, a Greek default will fundamentally alter the Eurozone if not destroy it.