Greece, not again?

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Rampant inflation, political unrest, debt defaults and a possible "contagion" within Europe's financial sector — that's what Greece's new government might trigger if it does not get its way in its negotiations with the rest of Europe's finance ministers right now.

Grexit: if Greece leaves the euro - Business Insider

As more details roll out about the Greek position, it is increasingly looking like a massive climb-down for the radical new government. It is a request for an extension of the existing bailout, which Athens had refused to sign up to since its government was elected in late January. But even though Athens appears to be giving up a huge amount of ground, Germany will not accept the proposal, according to Reuters.

Greece just asked for a 6-month loan extension - Business Insider

The Economist disagreed. Greek voters may want debt restructuring and fiscal relaxation, it said -- but what about voters in Germany and the rest of the euro area? Their opinions count too, and there are more of them. If democracy matters, maybe  majority opinion across the EU ought to decide. Jacob Funk Kirkegaard of the Peterson Institute agreed and went further. Pooling of economic sovereignty within the euro area isn't consistent with the notion of an overriding national mandate:

What Germany Owes Greece - Bloomberg View

Under its four-year-old bailout program, Greece has dragged itself from a primary deficit of 10 percent to a 3 percent surplus, at great cost in jobs lost. The terms of the bailout demand that Greece reach a surplus of 4.5 percent and hold it for the length of the program. There’s little reason to believe that’s possible.

Why Greece Won't Ever Be Able to Pay Off Its Debts With Austerity - Bloomberg Business

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There is a paradox in Germany's financial Puritanism: this theological commitment that all debts must be repaid on the originally specified terms could be much more expensive for it than cutting Greece some slack. If Greece were to leave the euro, Germany's losses would be greater than any other country's, as Greece's biggest indirect creditor via bailout loans and European Central Bank support.

BBC News - What will Germany pay for not compromising with Greece?

The Greek debt crisis was reportedly close to coming to physical blows earlier this week. The French paper Libération reported Wednesday that Greek Finance Minister Yanis Varoufakis got into a heated confrontation with Eurogroup president Jeroen Dijsselbloem on Monday afternoon at the meeting of European finance ministers trying to hammer out a deal on the Greek bailout.

Report: German and Greek finance ministers not on speaking terms - Business Insider

If Greece is forced out of the euro in acrimonious circumstances - a 50/50 risk given the continued refusal of the creditor core to acknowledge their own guilt and strategic errors - the country will not only default on its EMU rescue packages, but also on its "Target2" liabilities to the European Central Bank.

ECB risks crippling political damage if Greece forced to default - Telegraph

“We have already done more fiscal tightening than has ever been done by any country in peace-time, and Greece is still in depression with declining nominal GDP. There is no macro-economic argument that can be made for further tightening,” said Mr Varoufakis. “The only reason for doing so is out of ideology or on punitive grounds. All we are seeking is a way to end the debt-deflation cycle and restore the credit circuits of the Greek economy,” he said.

Greece defiant as Germany tears up last-ditch EMU compromise on austerity - Telegraph

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Greek leaders scrambled on Sunday to come up with a list of proposed changes to the nation’s austerity program that would be acceptable to their creditors by a Monday deadline, even as they faced a revolt by members of their own radical-left party, angered that the government had bent to demands by Brussels.

Greek Leaders Face Revolt at Home as They Try to Appease Creditors - NYTimes.com

High in a Morgan Stanley office tower, Paul B. Kazarian, one of the largest holders of Greek government bonds, was recently trying to persuade a room full of investors that Greece’s debt load of 318 billion euros was actually a tenth that size.

Greek Debt Vastly Overstated, Investor Tells the World - NYTimes.com

There’s almost no upside to a eurocrisis. You become part of a rolling maul of politicians, journalists and economists ripping and gouging at each other, both in private and on Twitter. The only advantage of being there is that it forces you to think laterally about money. Soon – if the Greek crisis is not resolved – one of the most audacious pieces of lateral thinking ever could get a try-out: a parallel digital currency, issued by the Greek government, modelled on Bitcoin, but with a crucial difference.

Can a Bitcoin-style virtual currency solve the Greek financial crisis? | Comment is free | The Guardian

The European Commission said that it had reviewed the Greek government’s reform proposals and found them “sufficiently comprehensive” to work toward a conclusion of the country’s current bailout program.

EU Commission Tells Eurogroup Greek List Is Comprehensive - Bloomberg Business

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Even before the ink was dry on the extension of its current bailout program, speculation is growing that embattled Greece is on the verge of asking for yet more cash. "The Greek need for a third program is extremely high," Carsten Brzeski, a senior economist at ING told CNBC via email. "There will be new negotiations. And these negotiations will be tough."

Does Greece need a THIRD bailout?

Greece's Left-wing Syriza government has vowed to block plans to privatise strategic assets and called for sweeping changes to past deals, risking a fresh clash with the eurozone's creditor powers just days after a tense deal in Brussels.

Greece to stop privatisations as Syriza faces backlash on deal - Telegraph

The interview is extremely juicy, for many reasons. First and foremost, it gives a good indication of the rhetoric employed by the Greek government at this moment, domestically. As you will see, the rhetoric (even) of Varoufakis – who is supposedly a moderate within the party – is a tad bit more heightened  than in his appearances on international media. Secondly, it gives a very clear idea of what the Greek government intends to do (and what it intends not to do) in the short-term (i.e. the four-month extension period of the loan agreement), as well as the medium- to long-term (i.e. what happens after June).

The juicy interview of Greek Finance Minister, Yanis Varoufakis – The Greek Analyst

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But the place to start thinking about fiscal policy is not with the gory details, but with the state of the economy. The Office for Budget Responsibly (OBR) makes an estimate of the size of the so-called output gap, that is to say the amount of spare capacity that there is in the economy.

Greece is being forced into purgatory to save the euro - Telegraph

So these should be the factors that figure in the debate about the Greek predicament: what is the size of the output gap; what is the cyclically- adjusted budget position; and, given that growth is all important, how can Greece generate it?

Greece is being forced into purgatory to save the euro - Telegraph

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Strapped for cash and under pressure to deliver on reforms, Greece's new radical government has ruffled feathers in Brussels by not respecting the diplomatic niceties of the negotiating table. From 40-year-old Prime Minister Alexis Tsipras downward, Greek officials have gone into EU meetings in a fighting mood, their hard talk taking many by surprise and leaving some aghast.

Greeks bearing grudges rip up Brussels diplomatic rulebook - Business Insider

Europe's voters head to the polls this year against a backdrop of rising populism, worries about Russia's renewed aggression and dissatisfaction with austerity.

After Greece, these elections will shake up Europe

That seems like a distant memory now. In the final three months of 2014, as elections loomed, output fell by 0.2%. The political turbulence has buffeted the economy and public finances in three main ways. First, anxieties about a possible “Grexit” from the euro and the forced conversion of bank accounts into less valuable drachmas caused a massive drain of deposits (see chart). In December and January Greek households and businesses pulled €17 billion ($19 billion) out of banks; astonishingly, the outflows over these two months were bigger than those in May and June 2012, when two elections were held and fears of a Grexit also loomed large. The withdrawals continued in the first three weeks of February, reportedly at a weekly rate of between €2 billion and €3 billion.

Greece’s economy is running on empty - Business Insider

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Greece’s provisional agreement with creditors to avert a default started to crack as European officials said the country’s latest proposals fell far short of what was put forward two weeks ago and Greek ministers floated the prospect of a referendum if their reforms are rejected.

Creditors Reject Greece's Reform Proposals - Bloomberg Business

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Greece's new government is "radically opposed" to the privatization of certain businesses, particularly in the energy and infrastructure sectors, a senior cabinet minister said Wednesday as reforms talks with creditors were due to begin.

Greek minister: 'radically opposed' to some privatizations - Yahoo Finance

Relations between Greece and its creditors reached breaking point on Thursday as the country's finance minister accused the European Central Bank of "asphyxiating" the cash-strapped economy.

Greco-German relations reach breaking point as ECB warned to stop 'asphyxiating' Athens - Telegraph

One might expect that the negotiations between the Greeks and the "troika" (the European Commission, the European Central Bank, and the International Monetary Fund) would be mainly about reaching an agreement about the economics of the situation. But that would be wishful thinking. The Germans, along with smaller creditor countries, are dead-set against any relaxation of austerity and are adamant that “structural reform" must remain a condition of further financing. They think that offering easier terms would be economically counterproductive, not least because it would give the Greeks an opportunity to go back to their bad old ways.

Reforming Greek Reform by Dani Rodrik - Project Syndicate

The effectiveness of the Grexit threat depends on two conditions. First, Germany and other eurozone members must regard Grexit as a significant risk to themselves. Second, a return to the drachma must offer the prospect that the Greek economy will eventually do better on its own than in the currency union (and under the existing economic program). In the absence of the first condition, the eurozone will respond to Greece by saying, "Be our guest, leave." In the absence of the second condition, Greece's threat will not be credible.

Reforming Greek Reform by Dani Rodrik - Project Syndicate

Since the onset of the crisis, Greek wages have dropped by more than 15% – a process called, appropriately enough, internal devaluation. Yet the response in terms of exports has been disappointing. Though the country's whopping current-account deficit is gone, this reflects a collapse of imports – a result of austerity – rather than an export boom.

Reforming Greek Reform by Dani Rodrik - Project Syndicate

Resolving the crisis over Greece's funding needs is a job for policymakers and Athens—not the European Central Bank (ECB), the President of the German Bundesbank told CNBC on Thursday.

Saving Greece is not the ECB’s job: Weidmann

In an exclusive interview, Roubini Global Economics Co-Founder Nouriel Roubini discusses what a Greek exit from the euro would look like. He speaks to Bloomberg's Jonathan Ferro from the Ambrosetti Spring Workshop in Cernobbio, Italy.

Roubini: Massive Contagion If Greece Leaves the Euro - Bloomberg Business

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The European Commission warned of "catastrophe" if Greece has to abandon the euro and its chief executive, Jean-Claude Juncker, urged EU governments to show solidarity as Athens struggles to secure more credit.

EU executive warns of Grexit 'catastrophe', urges euro solidarity | Reuters

Borrowing costs would soar for nations such as Italy and Spain and Europeans would race to withdraw cash from their bank accounts, according to Roubini, a professor at New York University’s Stern School of Business. Even Germany -- Greece’s main nemesis as it negotiates a new financial aid package from European leaders -- recognizes this risk, he said in a Bloomberg Television interview Friday.

Roubini Greek Doom Scenario’s So Bad It May Keep the Euro Intact - Bloomberg Business

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A poll published March 13 by public broadcaster ZDF found 52 percent of his countrymen no longer want Greece to remain in Europe’s common currency, up from 41 percent last month. The shift is due to a view held by 80 percent of Germans that Greece’s government “isn’t behaving seriously toward its European partners.” The hardening of German opinion is significant because the country is the biggest contributor to Greece’s 240 billion-euro ($253 billion) twin bailouts and the chief proponent of budget cuts and reforms in return for aid.

Germans Tired of Greek Demands Want Country to Exit Euro - Bloomberg Business