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Grexodus: Die Gans ist gekocht (Greece’s Goose is Cooked)


Soap, rinse, repeat. That has been the monotonous cycle of the Greek negotiations with “the Creditors” (a.k.a. the Institutions, a.k.a. the Troika…) for weeks. In fact, since the Greek elections that brought Syriza to power. How does it work?

  • 0900 Talks between Greece and Creditors have resumed
  • 1100 Anonymous Greek source states that there has been “substantial progress” in common
  • 1115 Anonymous Eurogroup source states that negotiations are “proceeding slowly without much progress”
  • 1330 Anonymous IMF source states the EU should relax “fiscal constraints” on Greece
  • 1345 Anonymous IMF source states that Greece must meet all creditor conditions including primary fiscal surplus
  • 1500 Talks between Greece and Creditors have concluded
  • 1515 PM Alex Tsipras says both parties in “fundamental alignment” on all outstanding points
  • 1520 Eurogroup Chairman Jeroen Djisselbloem laments that “fundamental disagreements” still exist and that Greece must do its homework

Each ridiculous repetition serves to underline the enormous lack of sincerity on both sides of the table and to create wonderful arbitrage opportunities in the EURUSD, EURJPY and EURGBP trades. At least someone is making some money rather than wasting their time.

Today was no different. Market movements began early with the Wall Street Journal breathing a sigh of relief that the Creditors had done their homework and reached consensus on a package for Greece (something akin to ‘pick your poison’):


Apparently no one told the Greek government that a package was on the way, because in the interim, they sent their own proposal to the Creditors:


Not to be outdone by the Europeans, the IMF decided to get into the game:


Wait… I thought the IMF was one of the “Creditors”….


Hadn’t they worked all night, doing their homework, so they could present a unified proposal to the Greek government? What was in the proposal anyway if the talks have been deadlocked for weeks precisely on pensions and debt sustainability?


You think???

Of course, it didn’t matter that the IMF and Eurogroup plans were FUBAR, unaligned and fundamentally unchanged from their position since January. The Greeks rejected them out of hand…just as they were meant to:


You can imagine just how well that went over in Brussels. Having now moved markets enough for the traders to have made their money for the day, it was time for the Finance Ministers to bring the hammer down:


Shocking news, but of course it is all the fault of those naughty Greeks, radical leftists that they are:


Apparently the Dutch count differently than the rest of the human species, because Greece has caved in on 95% of all the Eurogroup demands. That seems pretty far from “half way”. Even pensions reform has been agreed upon in principle though Mr. Tsipras wants to deal with it after the summer. The only real block is the continuation of austerity, with the Creditors demanding a strangulating 2.5% primary fiscal surplus in 2016 in perpetuity (because of course, the Greeks will never pay off their outrageous debt).

To remove any lingering doubts, Mr. Djisselbloem delivered the coup de grace:


That’s it folks. Greece’s goose is cooked. The week ends on the 5th of June and guess what is due on that date: a 301 million dollar payment to the IMF. Given that the Greeks had to borrow 600 million dollars from the IMF’s emergency liquidity fund to make last month’s 700 million repayment, it seems very unlikely that the government will be able to raise the money.

Unless Mr. Djisselbloem knows something the rest of the world doesn’t, which is certainly a possibility, Greece is in pre-default. He may have information that the Greeks actually can make the June 5th payment; which buys the negotiations another week of hardball. But that’s it: on June 12th, Greece has to pony over another 339 million dollars to the IMF and redeem 3.6 billion dollars in T-bills. Of course a default on the T-bills would be slightly less bad than a default on the IMF, since the latter could activate the acceleration clauses on the ECB and ESF loans outstanding, meaning Greece would default on all of those as well.


What’s likely to happen now? With no deal this week and Greece in pre-default, the ECB might decide to begin reducing the Emergency Liquidity Assistance to the Greek banks. This would be the warning that the ECB was about to crash the Greek financial system, just as was threatened during the Cyprus crisis. The goal would be to force Mr. Tsipras to accept everything: the whole Creditor package of reforms.

Unfortunately, it is probably too late for that to work anyway. Assuming the ECB made its announcement on Wednesday morning and the Greek government caved in by mid-day, they wouldn’t have time to draft the reforms into the necessary legal language, submit it to Parliament and actually get sufficient support for the measure to be passed by Thursday night. It would have to be approved by then for the ECB to be convinced of the Greek acceptance of the diktat in order for some kind of backstop arrangement to be reached: probably the ECB buying an emergency issue of Greek government bonds to the exact amount of the IMF payment. This is necessary because there is already no time to get the remaining Tranche 3 bail-out funds approved and disbursed, regardless of what the Greeks do. That would come at the earliest next week, in time for the next big redemption.

What is more likely is a revolt of Syriza’s left wing and a collapse of the government. Well done. Enjoy negotiations with Golden Dawn.


It looks like Europe has actually done it, as inconceivable as it may appear to rational people[1].  The European elite have convinced themselves that they can firewall the continent’s financial systems from the fall-out of the Greek default. But this is not a financial decision, it is a political decision: taken to destroy a small government that has dared to question the insane policies of austerity. Policies which have imposed the greatest human suffering since the Great Depression, kept much of Europe from economic recovery – not Mitteleuropa though – and dragged down the world economy, thank you very much.

After 5 years of unimaginable suffering and privation, the Greeks have been told that it is not enough. They are being thrown under the bus as a salutary lesson to the other PIIGS: be good little boys and girls and vote like we tell you to, or this is what will happen to you to. Not only is this a brazen violation of national sovereignty and democracy, it isn’t even working very well:

  • Spain held municipal and regional elections where voters pummeled the pro-austerity, lapdog Partido Popular. Given the state of denial the conservative party continues to live in, they are likely to be thrashed even worse in the upcoming general election[2];
  • This week, Italy also held local elections. Prime Minister Renzi’s Democracy Party – the EU Establishment’s party – was similarly manhandled by the ultraconservative Liga Nord and the anti-austerity 5-Star Movement of Beppe Grillo[3];
  • David Cameron has vowed to negotiate a better deal prior to holding a 2016 or 2017 referendum on Britain’s membership in the European Union. The current tactics favored by the EU don’t augur well for a happy ending to that discussion, and there is always perpetual gadfly Nigel Farage waiting in the wings in case Mr. Cameron fails to live up to his electoral promise;
  • Marine Le Pen has also called for a French referendum on EU membership[4]. Her National Front polls well ahead of incumbent French President François Hollande and the hapless Socialists, though it still trails Nicolas Sarkozy’s conservatives in a head-to-head comparison. However, Ms. Le Pen’s message of immigration control and national sovereignty resonates well with French citizens who are fearful of their economic future, disgruntled with the poor governance of the current government and wary of a Europe that is “too much Germany and too little France.” The example of the poor Greeks being browbeaten by les Boches and the unaccountable Eurogroup will be grist for her mill. Not that Pierre Moscovici hasn´t done his share of Greek browbeating.

And the Europeans may just find that even their firewall isn’t going to do a good job of containing financial contagion risk.


Now we are going down the rabbit hole, along with the whole continent, to see just how deep it goes.

So much for “every closer Union”: the project may be defunct after just fourteen.

Congress had better start budgeting a very large sum of aid for Greece and hope that we can somehow keep them in NATO. Greco-American ties are very deep and strong, with a large Greek diaspora in our country who have contributed tremendously to our culture: but when their economy collapses – even more – then they’re not going to be choosy about their friends, and Russia is waiting in the wings. Somehow we need to salvage this train wreck created: we didn’t sacrifice such copious amounts of blood and treasure over 73 years so that it could be destroyed in 6 months by monumental blundering and monstrous callousness.

Sources and Notes

[1] Martin Wolf, “Greece teeters on the edge of a cliff,” The Financial Times, 02 June 2015

[2] Javier Casquiero, “El PP pierde 500 mayorías absolutas en toda España,” El País, 25 May 2015

[3] “Italy’s Renzi stumbles in local elections,” Hurriyet Daily News, 31 May 2015

[4] “Following Cameron, Marine Le Pen pledges EU exit referendum,” EurActiv.com, 25 March 2015

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