Greece To Be Granted A Bailout Extension; Eurozone Lacks Credibility

MAY 22, 2015 @ 1:22 AM

Stephen Pope

CONTRIBUTOR

Forbes

Since the general election of January 25th when the Syriza led coalition government  was elected it has has failed on six occasions to present to its international creditors a meaningful set of reforms that would have paved the way for the next tranche of bailout money to be advanced and so avoid a default.

The far left of centre government has known the timetable and yet has been totally shambolic in the propositions its has offered to the European Union. It has argued against austerity whilst expecting international sources of finance to simply let the struggling nation off the hook.

Syriza won the election by playing a populist card without any regard for the reality of life which is that he who pays the piper is allowed to call the tune.  However, perhaps Greece has been the smarter party as right now, just when the debt and default clock is ticking ever louder it appears that the European parties Greece has to satisfy have themselves rolled over to have their tummies tickled.

It looks as if  a four month extension of Greece’s current bailout is being put on the table?

There are rumours circulating in the European capitals that such a proposition will be discussed tonight by German Chancellor, Angela Merkel and Greek Prime Minister, Alexis Tsipras. No wonder the Greek Prime Minister can afford to grin like a satisfied cat…he is getting everything he wants. Greece will be saved from default even though it has done next to nothing in the past 16 weeks to help itself.

The word is that highly placed German officials that have detailed knowledge of the debt and bailout negotiations as well as the scenarios on offer have said that the prospect of Athens being given a four month extension would allow it to drum up a detailed list of reforms.

I am sorry, but would someone please tell me just what the Syriza led government have been doing since January 25th?  They have submitted proposals, each of which has been rejected as  inadequate and unfit for consideration.

This just means that the Greek government will never take any deadline from the Eurozone, ECB or IMF seriously. The Eurozone is making itself look to be weak willed and allow the worst serial debtor in the single currency group to get away with one charade after another.

Lack of trust

Of course whilst the meetings at the top European tables are meant to be private there is often a few snippets that leak out to keep the press engaged. However, it has emerged tonight that the Greek Finance Minister, Yanis Varoufakis has caused a  furore after telling a newspaper he taped a private meeting of his Eurozone counterparts. Mr Varoufakis has proven himself to be so confrontational that the Prime Minister removed him from the negotiating team. Mr Varoufakis said  he could not release the recording due to confidentiality rules. What about the rules of not taping the meeting?

This situation, if true should see him removed from office for he has compromised the integrity and freedom of those meetings and as an individual Mr Varoufakis has proven himself to be completely untrustworthy. Rather like the government he serves.

Greek tail wags the Eurozone toothless dog

In terms of allowing Greece an extension it is just unbelievable that the Europeans appear to believe that this is an excellent solution, after all the Greek government has said that it will not back down on election pledges to end austerity.

Nikos Filis, a spokesman for the parliamentary group of the Syriza Party said on Sunday, May 17th:

“We’re striving for a mutually beneficial agreement by Friday …Our mandate from the Greek people is to reach an agreement where we stay in the euro area without harsh austerity measures,”

It is simply unbelievable how the Europeans are able to let Greece issue such statements and then propose that Greece be allowed more time when it done nothing but waste time.

A senior German official said in a measured tone

“It would be entirely logical. If it doesn’t happen we’re looking at a scenario like Cyprus with capital controls and banks closed….as close as you can get to euro exit.”

My view is that it is over four months since the Greek people elected Syriza and Tsipras and co  were well aware as to how serious the situation was for Greece…what it had to pay, to whom and by what date. Instead of bringing the new government to book. Letting it know in no uncertain terms that all the campaign posturing was pointless. Monies were due and what the conditions were for the next bailout trance to be paid Europe has caved in.

If Greece was unable to hold up its end of the bargain it should have been cut adrift.

Greece has a huge debt repayment schedule being this year and it has to pay EUR6.2 Billion to the ECB in July and August. So this really was a golden opportunity to make it crystal clear to Mr Tsipras that he had to play by the Euro rules or he would be ejected from the Euro game.

There has already been on extension given in February, so I will say right now that in four months’ time, i.e. September this situation will be no closer to a resolution. Hmm…seems that I have been saying this same thing over and over again in a Forbes column since 2010!

The Greek debt can will be kicked down the long and winding road once again. It has been kicked along the rod so often it must be suffering terrible metal fatigue.

I have exhausted my patience for the diplomatic niceties  that are appearing from Europe. I do not believe it when I hear that this time it will be different. Admit it Europe…it will not be different at all.

Another pointless item of Eurospeak is that  there’s only one point in creating a financial bridge like this and that is because the European side genuinely believe it will lead to reform.  Let’s make an agreement to discuss that in September.

The optimists say that this is a stop-gap solution that makes sense as it allows the Greek government sufficient time to either hold a referendum or call fresh elections.

That would allow Prime Minister Tsipras to deal with the hard left in his party and move to the centre stage. Goodness only knows Europe is desperate straights it is trying to re-brand Alexis Tsipras as a moderate politician of the centre. He as a deep a red socialist as one is ever going to find in Europe and as is the case with people of such political persuasion somewhat naive as the way economics and finance really works.  However, say he wins a referendum on staying in the Euro or wins a second general election; how is he ever going to reconcile the gap between his incompatible aims:

To ensure Greece stays in the Eurozone

Eradicating austerity

I really believe that if Europe gives way over this then they are opening a can of worms that will show other anti-austerity groups across the continent that they can play game theory with the Euro and get away with creating a perpetual Nash disequilibrium.  I know there may e fallout if Greece quit the Euro, such is the nature of unintended consequences but the single currency bloc could move on instead of being distracted over and over again. Almost half a year has been wasted ion this and the situation is no better than in January.

One sound voice of reason is  German Finance Minister, Wolfgang Schäuble. He appears to be the only sane and level headed individual in any position of power right now. He stuck to his position that progress between officials from Greece and its creditor’s remains slow.

“What I know from discussions with the three institutions does not back up the optimism arising from announcements from Athens. There is not yet any substance to the mere announcement that we are closer to an agreement. This is still within the realms of atmosphere.”

For Europe the election of Syriza in January was an opportunity to be radical and publicly admit that  Greece was insolvent and stop the process of  delaying and denying the process of declaring insolvency which would be illegal if it was a private company. This is a financial farce of the grandest proportion. People have gone to jail for lesser crimes. Giving more money to Greece, and then giving Greece more time is a sovereign Ponzi scheme and is as serious a distortion of the market .

Stephen Pope ~ MarketMind