Greece, not again?

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Capital controls imposed by the Greek government are taking a heavy toll on Greek businesses, according to a new report from Endeavour Greece. With over two-thirds of respondents reporting a "significant drop in revenues," and 1 in 9 firms forced to suspend production due to shortages of raw materials (unable to buy due to capital controls), the problems created by The Greek government's action seem asymmetric as almost a quarter (23%) of firms are now "planning to transfer their headquarters abroad for security, cashflow, and stability reasons."

The Greek Economy Is Finished! A Quarter Of Firms Shifting Abroad | Zero Hedge

The introduction of a national currency would also be disruptive, with a chance of severe shortages of hard cash during a transitional period. Greece would not have the advantage of the long planning period that went with the introduction of the euro. There is also a question about whether the government could finance its spending. Last year and the year before Greece had a "primary surplus" in the government's finances. That means if you take out interest payments, it spent less than it received in revenue. So you might think it could simply carry on spending. Well actually the primary surplus has now probably gone as the economy has weakened again which hits tax revenue.

Would Grexit have been a better deal? - BBC News

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If Mr. Tsipras was an idealistic young radical six months ago, dedicated to the overthrow of the Greek establishment and austerity policies, he is emerging from the showdown with the creditors as something else entirely: a popular, canny and pragmatic politician with a stake in the success of the very measures he came to power vowing to eradicate.

Alexis Tsipras transforms himself as he sells Greek bailout terms

In its latest assessment of Germany's economic strength, even the IMF (seen in many German circles as chief disciplinarian against the errant Greeks) urged Berlin to carry out "more ambitious action ... and contribute to global rebalancing, particularly in the euro area."

It's time for Germany to leave the eurozone - Business Insider

A measure of the economy's position in relation to the rest of the world, Germany's current account hit a euro-area record of 7.9%, or €215 billion, in 2014. It is now expected to hit more than 8% of gross domestic product this year, according to the International Monetary Fund.

It's time for Germany to leave the eurozone - Business Insider

Not the Germans. In late 2008, Peer Steinbrück, an SPD member, and Germany’s then-finance minister, denounced Gordon Brown’s stimulus package, saying “the switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking.” Early the next year, under the watch of Steinbrück, Germany launched its own €50 billion stimulus package, amidst much “wailing and gnashing of teeth” in the Bundestag.[1] But this brief encounter with Keynesian fiscal policy was an aberration. Throughout the financial crisis and subsequent Euro crisis—and in fact throughout much of it postwar history—Germany has been obsessively focused on fiscal restraint, lest it lead to inflation.

Why German Economic Thought Made the Greek Crisis Inevitable – Tropics of Meta

Greece's most influential think tank warned on Thursday of a sharp drop back into recession in a report that came hours after parliament approved a second package of reform measures aimed at securing a new bailout from international lenders. In its quarterly report, the IOBE institute said that capital controls imposed last month to stop a bank run pushing the financial system into collapse would exact a heavy toll across the economy.

Greece faces recession warning as bailout talks set to open | Reuters

It's more-or-less universally agreed that if Greece still had its own currency, devaluation could help the country recover from its current economic depression.  It's also agreed that, lamentably, this is not possible without Grexit. But there may be a way. Consider:  devaluation works by raising the prices of imports (in the local currency) while reducing the prices of exports (in foreign currency).  That is, a devaluation acts like a tariff -- a positive tax on imported goods and services and a negative tax (i.e. a subsidy) on exports. Do you know what else acts like tariffs?  Tariffs.

Mean Squared Errors: Easier than you think: How to devalue the Greek Euro

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Professor James Galbraith from Texas University - who played a key role in the Greek plans and is now himself under fire - said Syriza's experiment over the past five months has demonstrated for all to see that it is impossible for a state on the EMU periphery to change the policy regime by force of argument alone, even if the prescriptions of debt-deflation and fiscal overkill imposed upon them have been self-evidently calamitous.

European 'alliance of national liberation fronts' emerges to avenge Greek defeat - Telegraph

Although the European Financial Stability Facility had officially declared Greece bankrupt on July 3, the eurozone’s leaders kicked the insolvency can down the road yet again. The latest agreement did halt, or at least interrupt, the eurozone’s biggest crisis to date, culminating in an unprecedented period of antipathy, opprobrium, humiliation, pestering, and blackmail within Europe. Indeed, Greece came within a hair’s breadth of leaving the eurozone.

Don’t Lend to Your Euro Friends by Hans-Werner Sinn - Project Syndicate

Europe will face many such conflicts in the future if it continues to apply the same approach to its debt problems that it used in the Greek case. The fundamental error occurred in April and May 2010, when official lenders – in the form of other eurozone member states – replaced Greece’s private creditors.

Don’t Lend to Your Euro Friends by Hans-Werner Sinn - Project Syndicate

For the last eighteen months or so, Berlin appeared to be the calm and resolute eye of a perfect storm brewing over Europe: persistent economic distress and mass youth unemployment in the southern EU states, an undeclared war between Ukraine and Russia, and conflict in North Africa and the Middle East driving record waves of refugees onto the shores of the continent. After the rancorous third Greek bailout last week—and torrents of recrimination heaped on Germany from around the world—the weather front hit the capital. It turned into what Germans call ein shitstorm.

Germany's big fat Greek angst | Brookings Institution

Rehabilitating the country's banks poses a difficult question. Should the euro zone take a stake in the lenders, first requiring bondholders and even big depositors to shoulder a loss, or should the bill for fixing the banks instead be added to Greece's debt mountain? Answering this could hold up agreement on a third bailout deal for Greece that negotiators want to conclude within weeks.

Debt conundrum to keep Greek banks in months-long freeze - Yahoo Finance

Former Greek Finance Minister Yanis Varoufakis has acknowledged his part in plans for a parallel currency system to be introduced by hacking into the Greek finance ministry's software.

Yanis Varoufakis' plan to bring back the drachma - Business Insider

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Worrying in his re-election campaign about the one-fifth of U.S. exports going to Europe, President Obama called in vain a number of times on the German chancellor to withdraw her devastating austerity diktat to the sinking euro area economies. Repeated appeals of the American president were not only turned down; they were also publicly ridiculed. The German leader bristled that "adding more debt to an already large debt" made no sense.

IMF, US failure on German austerity stance damned Greece

As a result, the euro area was left to bleed as the German chancellor ordered that "those who violated the budget rules (French, Italians, Portuguese and Greeks), and those who failed to supervise their banks (the Spanish), had to be taught a lesson." Predictably, deepening recessions and rising unemployment swept away from power the incumbents in France, Italy, Spain, Portugal and Greece.

IMF, US failure on German austerity stance damned Greece

Much after the damage was done, the I.M.F. eventually denounced the obvious: Austerity measures imposed by Germany under conditions of euro area's declining demand, output and employment were wrong. Growth was better, they said. And then, after months of bruising scuffles with the Greeks, the I.M.F. recognized another fairly obvious issue: Greece needed debt restructuring to give some oxygen to its asphyxiated economy. That was another grotesque reversal, because the request for debt restructuring was consistently denied to the Greek government since last January.

IMF, US failure on German austerity stance damned Greece

July saw factory production in Greece contract sharply amid an unprecedented drop in new orders and difficulties in purchasing raw materials. The headline seasonally adjusted Markit Greece Manufacturing Purchasing Managers’ Index® (PMI® ) – a single-figure measure of overall business conditions – registered 30.2, well below the neutral 50.0 mark and its lowest ever reading.

Shocking Greek thirtysomethings | FT Alphaville

In fact, from an economic perspective, Grexit no longer represents the potential catastrophe that it once did. After all, the main short-term cost – financial-system disruption – has already materialized in Greece: banks and the stock market have been shut down, and capital controls have been imposed. While those actions were needed to stem large-scale capital flight and prevent the banking system’s collapse, they also caused the Greek economy to contract sharply.

Why Greece Declined a Euro Holiday by Daniel Gros - Project Syndicate

When push came to shove, Varoufakis faced the difficult choice of going along with more of the same, despite knowing that it would fail, or trying to pivot to a new approach. He bravely opted for the latter. While his brash style undermined outcomes, it would be a real tragedy to lose sight of his arguments (which have been made by many others as well). If Greece is to have any realistic chance of long-term economic recovery and meeting its citizens’ legitimate aspirations, policymakers must recast the country’s austerity program, couple pro-growth reforms with greater social justice, and secure additional debt relief.

In Defense of Varoufakis by Mohamed A. El-Erian - Project Syndicate

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The International Monetary Fund (IMF) has determined it cannot offer funding toward a third bailout for Greece, citing astronomical levels of debt and a poor record of government follow-through on reforms.

IMF Rejects Greek Bailout Package, Widening European Rift On Greece

"The cost of bearing the debt is very low for Greece, precisely because much of the interest and repayment has already been postponed. The only debt which is particularly expensive, except for short term bills, is the IMF debt," he said.

Why the IMF is wrong on a Greek debt haircut

When the ECB buys a Eurozone member’s bonds, the government pays interest to the ECB but the ECB rebates it to the government. If Greece repays its ECB-held bonds, it loses this ‘free borrowing’. This column argues that repayment is like ‘reverse QE’. To maintain its QE targets, more bonds from other EZ members must be bought – thus shifting the free borrowing from Greece to other EZ members. To avoid this perverse outcome, the ECB could extend the maturity of the Greek bonds.

Why the ECB should not insist on repayment of its Greek bonds | VOX, CEPR’s Policy Portal

On the economics of the eurozone, Thimann argues that the problems have microeconomic roots, not just macroeconomic ones. Here are a couple of intriguing figures. Thimann points out that since the inception of the euro, some economies have consistently run trade surpluses, while others have consistently run trade deficits. This figure shows the cumulative trade surpluses and deficits over time. What's especially interesting to me is the relative steadiness of these lines: countries with trade surpluses tend to add surpluses every year, countries with deficits tend to add deficits every year.

CONVERSABLE ECONOMIST: Europe: When the Macro Overshadows the Micro

With a large fiscal deficit during the cycle peak, it means you as a government have much less fiscal space to play with when a downturn hits. It means that the fiscal adjustment path to a primary surplus is enormous. And given the debt deflation this policy path creates, the adjustment will be even larger because debt and interest costs will soar as a percentage of output as the economy shrinks.

Here's what contributed to the downfall of Greece - Business Insider

This is prima facie evidence that fiscal management issues were a primary cause of the problem for Greece — in stark contrast to Ireland and Spain. Yes, private debt soared in Greece in the period up to the financial crisis. But it started from a low base and was not at levels in other developed countries where you would expect a financial crisis. However, once the fiscal adjustment began, these private debts became toxic as debt deflation set in and the economy and banking system collapsed.

Here's what contributed to the downfall of Greece - Business Insider

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Leaving the euro might help struggling Greece, according to Otmar Issing, the former European Central Bank (ECB) board member and chief economist who is known as one of the euro currency's architects.

Grexit may be better for Greece: Euro architect

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Varoufakis: "No one believed that the compromise would be of any use, neither IMF chief Christine Lagarde, nor German Finance Minister Wolfgang Schäuble. Chancellor Angela Merkel didn’t believe it and neither did Greece’s Prime Minister Alexis Tsipras. It was just a show that revealed that Europe is not working. We are throwing money, which we are taking from the poorest, at the problem.

YANIS VAROUFAKIS: Europe isn't working - Business Insider

Greece and its creditors ended talks on Sunday without reaching an agreement on terms attached to a bailout, even as Europe’s most-indebted state stands at the forefront of handling the continent’s biggest-ever wave of irregular migration.

Greek Bailout Talks End Without Deal as Migrant Challenges Grow - Bloomberg Business

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The IMF agrees that Greece’s debt burden is far too high and the stipulation that the country should run an underlying budget surplus of 3.5% a year is unrealistic. The Fund is warning that the debt could become “highly explosive” and will not financially back the latest rescue attempt without meaningful debt relief. But it is also insisting that Greece sticks to a reform programme that the Fund believes will improve growth prospects. Europe, for its part, is less hardline when it comes to Greece’s reform programme and would be inclined to ignore any backsliding. But it thinks Greece should stick to its budget plan and is resistant to the idea of deeper debt relief. These are seemingly irreconcilable positions but unless they are reconciled Greece faces another period of turmoil. Politics is part of the problem.

Greek debt crisis: an existentialist drama with no good end in sight | Larry Elliott | Business | The Guardian

Last week, the IMF delivered its gloomiest assessment yet of Greece’s debt burden, arguing that it was not only unsustainable but eventually likely to become “explosive”. The IMF’s board will formally discuss the issue on 6 February but has already hinted that without a commitment of debt relief from the EU it will be unable to contribute further loans. Germany, the biggest contributor to the nearly €300bn of emergency funds assigned to Greece, insists further aid depends exclusively on IMF participation... That is what worries Panagopoulos, the pollster, most. What was once a minority view is changing fast, with the majority of Greeks in a recent Alco survey saying it was wrong to have joined the euro.

Grexit? Greece again on the brink as debt crisis threatens break with EU | World news | The Guardian

Between 2000-7, Greece, Italy and Spain’s trade deficits with Germany doubled, while Portugal’s quadrupled. Germany’s trade surplus with the rest of the EU tripled in the same period. The Eurozone countries running a trade deficit with Germany no longer have recourse to monetary policy to protect themselves from a more competitive economy. In addition, Germany benefits as their creditor, recycling surplus Euros as loans to the deficit countries. The recycling of capital from Germany back to her Eurozone export markets was a major driver of the Spanish and Irish property asset bubbles. And it is no coincidence that when the Greek crisis broke in 2010 the majority of privately-owned Greek government debt was held by German banks.

The Greek Economic Crisis, The Social Impacts of Austerity. Debunking the Myths | Global Research - Centre for Research on Globalization

Thanasis Maniatis, Associate Professor in Economics at the University of Athens (3), has shown that Greek Labour – defined as persons who earn or earned their livelihood from the sale of their labour power, whether currently active or retired, together with their dependents – is a net creditor to the Greek state. In other words, when you factor in all the income and benefit flows and discount all the tax flows, the working class give more to the state than they receive. In the course of this proof, Maniatis shows that, according to OECD figures for social expenditure as a percentage of GDP, Greece spent 10.3% in 1980, 19.3% in 2000 and 23.5% in 2011. The equivalent figures for Germany are 22.1%, 26.6% and 26.2%. The EU average in in 2011 was 24.9%. When it comes to social spending, far from being bloated, Greece has only just caught up.

The Greek Economic Crisis, The Social Impacts of Austerity. Debunking the Myths | Global Research - Centre for Research on Globalization

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The latest round of Greek debt negotiations could have repercussions beyond the country's borders and impact politics across the European continent, one finance expert has suggested. Tim Edwards, a senior director of index investment strategy for S&P Dow Jones Indices, told CNBC on Monday that there are "continual crunch points" in negotiations between the euro zone and the International Monetary Fund (IMF) on the sustainability of Greek debt. Edwards suggested that, "most importantly, if the IMF withdraws will the European sovereign nations be required to themselves fill the gap and give more money to Greece?"

How Greece could destabilize the French election

The IMF said in a report Monday that "most (IMF) directors agreed that Greece does not require further fiscal consolidation at this time, given the impressive adjustment to date which is expected to bring the medium-term primary fiscal surplus to around 1.5 percent of GDP, while some directors favored a surplus of 3.5 percent of GDP by 2018." However, this split is along international lines, the official told CNBC. The current stalemate is mainly between the European creditors and Greece. The former wants to see reforms on Greece's labour and product markets as well as on the energy sector and a higher fiscal surplus, while the rest of the world is happier to cut the Athens government some slack. European officials also want an agreement on the country's fiscal strategy after the current bailout program concludes in 2018.

Greece, the never-ending crisis in Europe

After meeting his euro zone counterparts in Brussels, Finance Minister Euclid Tsakalotos said that last year's primary surplus - which excludes debt servicing costs - reached 2 percent of gross domestic product, beating a target of 0.5 percent of GDP set in its bailout plan. A Greek government official said earlier that due to this over-performance Athens was "making a much better start in 2017" in terms of state revenues.

After stronger 2016, Greece hopes lenders will drop austerity demands | Business | ekathimerini.com

Without Greece implementing reforms , further disbursements are at risk. Without Greece's legislating for after the program, debt relief doesn't happen. Without a clear deal on debt relief, the IMF will not participate in the program, as least financially – something that countries such as Germany, Austria, the Netherlands and Finland want. "Patience, especially in Germany, is wearing thin," Vistesen said in the note. "Greece can't be kicked out of the euro zone, but we think that the EU will push Syriza towards the edge quicker this time. Giving Greece "a break" from the euro would not be easy to manage, but some EU politicians might prefer it," he added.

Greece, the never-ending crisis in Europe

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The European commission wants Greece off the political agenda before elections in the Netherlands next month: that much is clear at the end of a turbulent week of claim and counter-claim that appears to be ending in yet another messy compromise. Greek finance minister Euclid Tsakalotos dashed to Brussels last Friday to hear about a deal that appears to delay any punishment for Athens’s lack of reforming zeal until next year, when the Dutch, French, German and possibly Italian elections will be out of the way. To call it a sticking plaster would be to do disrespect to the healing powers of the humble Elastoplast.

Calling the latest Greek deal a sticking plaster does disrespect to the Elastoplast | Business | The Guardian

Half a decade on from the first rescue, the economy has now shrunk by 27pc, close to the 32pc drop in output in the US in the Great Depression (which, it is worth noting, had bounced back strongly six years later). Unemployment now stands at more than 25pc of the workforce and double that for young people. Of the 10 EU regions with the highest unemployment rate, four are in Greece. The economy shrank by another 0.6pc in the latest quarter, and the debt-to-GDP ratio has climbed above 180pc, at which point there is no hope of it ever being repaid.

Britain must back the IMF to free Greece of its punishing austerity

It's been seven years since the outbreak of the Greek debt crisis, yet Greece -- the country that gave birth to democracy -- is still stuck in a vicious cycle of debt, austerity and high unemployment. Three consecutive bailout programs have deprived the nation of its fiscal sovereignty, transferred many of its publicly owned assets and resources into private hands (virtually all of foreign origin), produced the collapse of the public health care system, slashed wages, salaries and pensions by as much as 50 percent, and led to a massive exodus of its skilled and educated labor force. As for democracy, it has been seriously constrained since the moment the first bailout went into effect, back in May 2010, as all governments that have come to power have pledged allegiance to the international actors and agencies behind the bailout plans -- the European Commission, the European Central Bank and the International Monetary Fund (IMF) -- and follow closely and obediently their commands, irrespective of the needs and wishes of the Greek people.

Greece Under Continuous Siege: Syriza's Disastrous Political Stance