Octopus Overlords

Greece threatened to miss a loan repayment to the IMF this week, opening the way for possible default, just hours before creditors were expected to present an ultimatum offering Athens funds in return for economic reform.

Prime Minister Alexis Tsipras visits Brussels later on Wednesday to see senior European officials, where he is expected to hear the terms of the plan drawn up this week at a meeting of top leaders, including German Chancellor Angela Merkel.

He called on creditors to show some "realism", saying he wanted a deal that would let Greece escape from "economic asphyxiation" and put an end to "doomsday scenarios", including his country being ejected from the single European currency.

With time running out, and looking to draw a line under months of acrimonious negotiations, Greece's creditors have effectively come up with a take-it-or-leave-it offer.

BBC.com wrote:EU Commissioner Pierre Moscovici has said a Greek debt deal is close but needs a "happy ending", as Greek Prime Minister Alexis Tsipras pushes for an agreement in Brussels. After a late-night meeting with French and German leaders, Mr Tsipras said they had decided to intensify talks. He was due to meet European Commission head Jean-Claude Juncker on Thursday. Greece is seeking a cash-for-reform deal, to avoid defaulting on a €1.5bn debt repayment to the IMF. But the EU and IMF are unhappy with the extent of economic reforms the Athens government is offering in exchange for the release of a final €7.2bn (£5.3bn) in bailout funds. The president of Germany's Bundesbank, Jens Weidmann, emphasised that time was running out for a deal, and that "the risk of insolvency is increasing by the day". And ratings agency Standard and Poors pushed Greece's credit rating into junk territory, warning that without a deal it could default on commercial debt within a year.

Greece may have staved off a plunge into new financial crisis and a forced exit from the Eurozone – for now – as a package of new taxes and reforms received a grudging welcome in Brussels.

Monday was billed as crunch-day for the Greek economy, as the government's cupboards are bare and multi-billion-dollar loans come due, the first at the end of the month.

Greece took a new package of proposals, written up on the weekend, to Brussels, to a lunchtime meeting of Europe's finance ministers followed by an evening meeting of country leaders.

The new proposals were only received by some European finance ministers hours before they were due in Brussels, causing many to grumble ahead of the meeting.

In the end, they refused to give their final stamp of approval, saying they needed to see the details.
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In an interview with the BBC, Greece's Economy Minister Giorgos Stathakis said his country's new proposals had broken the deadlock: money-making measures including a new tax on large businesses, higher taxes on the wealthy (the so-called 'solidarity tax'), and some increases in consumption tax (VAT) on selected items.

Greece's Syriza government, led by Alexis Tsipras, had not crossed any of its "red lines", avoiding further reductions in pensions or public sector wages.

Max Peck wrote: EU says time for Greek 'happy ending' (Double-double entendre FTW!)

BBC.com wrote:

GreenGoo wrote:So you're saying now is a good time to buy a Greek island.

GreenGoo wrote:Even if prices dropped through the floor, can you imagine the resentment from the locals? You'd be seen as a vulture/scavenger, and they'd be right. Ugh.

If I could guarantee that no one would burn the place to the ground, I'd consider looking closer.

El Guapo wrote:

GreenGoo wrote:Even if prices dropped through the floor, can you imagine the resentment from the locals? You'd be seen as a vulture/scavenger, and they'd be right. Ugh.

If I could guarantee that no one would burn the place to the ground, I'd consider looking closer.

Well, they're still better off with you coming than not coming. You would be spending money.

Isgrimnur wrote:The less said about the giant wooden horse on the doorstep of the IMF, the better.

Isgrimnur wrote:The less said about the giant wooden horse on the doorstep of the IMF, the better.

GreenGoo wrote:Even if prices dropped through the floor, can you imagine the resentment from the locals? You'd be seen as a vulture/scavenger, and they'd be right. Ugh.

Drazzil wrote: 2. Float a new currency, call it the "New Drachma" Pay all outstanding debts in the new currency. Old debt-holders are now invested in Greece's success. If they abandon Greece their shiny new currency becomes worthless.

EK: Why is this happening right now though? What's changed from, say, six months ago?

AP: What has changed since a year ago is a breakdown in trust and a change in politics. The economic fundamentals really haven’t changed. But you have this new government in Greece that is taking a harder line with its creditors. They’re saying, basically, we can’t pay all this back, you need to be more realistic. And the European leadership has reacted to this first by saying, sorry, that deal is not on the table, and second, by saying, we basically just don’t trust you. You’ll tell us one thing and then go do something else.

So that’s the key: the economics didn’t change. It was a change in the Greek government, and then a change in the relationship between that government and the rest of Europe.

EK: One thing that makes this hard to follow from the US is it's not entirely clear which outcome to be rooting for. Greece can stay in the euro and try to endure grinding depression for years and years or they can leave the euro and endure a financial crisis. Which outcome is better?

AP: It’s easy to say what people should want to happen in Greece. It’s just impossible to get there. The Northern Europeans should write a check and make this go away. They should accept the fact that Greece is not going to pay most of its debts. They also need to accept that these debts are partly their fault. These loans were made by Northern European financial institutions, and the Northern Europeans should suffer for making stupid loans, too.

But that won’t happen. Northern European governments like Germany, Finland, Austria, the Netherlands, and Sweden don’t want their banks to lose money and they don’t want to tell their voters that they’re handing money to the Greeks.

LawBeefaroni wrote:

Drazzil wrote: 2. Float a new currency, call it the "New Drachma" Pay all outstanding debts in the new currency. Old debt-holders are now invested in Greece's success. If they abandon Greece their shiny new currency becomes worthless.

Or they just say, "No, we won't accept New Drachma. Enjoy destitution and revolt." The amount Greece owes is a lot by their standards but it's only about 2% of the Eurozone GDP.

Here's a [possibly over]simplistic take:

EK: Why is this happening right now though? What's changed from, say, six months ago?

AP: What has changed since a year ago is a breakdown in trust and a change in politics. The economic fundamentals really haven’t changed. But you have this new government in Greece that is taking a harder line with its creditors. They’re saying, basically, we can’t pay all this back, you need to be more realistic. And the European leadership has reacted to this first by saying, sorry, that deal is not on the table, and second, by saying, we basically just don’t trust you. You’ll tell us one thing and then go do something else.

So that’s the key: the economics didn’t change. It was a change in the Greek government, and then a change in the relationship between that government and the rest of Europe.

EK: One thing that makes this hard to follow from the US is it's not entirely clear which outcome to be rooting for. Greece can stay in the euro and try to endure grinding depression for years and years or they can leave the euro and endure a financial crisis. Which outcome is better?

AP: It’s easy to say what people should want to happen in Greece. It’s just impossible to get there. The Northern Europeans should write a check and make this go away. They should accept the fact that Greece is not going to pay most of its debts. They also need to accept that these debts are partly their fault. These loans were made by Northern European financial institutions, and the Northern Europeans should suffer for making stupid loans, too.

But that won’t happen. Northern European governments like Germany, Finland, Austria, the Netherlands, and Sweden don’t want their banks to lose money and they don’t want to tell their voters that they’re handing money to the Greeks.

Drazzil wrote:
Of course they would accept. Something of something is better then nothing of nothing. There is everything to lose by walking away. Say the creditors do walk away. Now there is an angry basket-case of a country that would descend into civil war or despotism rapidly. How does the rest of Europe win that game? Refugees. I doubt that the rest of the EU would want to see a Somalia on their southern border. I read somewhere that Greece has Europe's fourth largest military.

Really think Europe is going to allow that?

LawBeefaroni wrote:

Drazzil wrote:
Of course they would accept. Something of something is better then nothing of nothing. There is everything to lose by walking away. Say the creditors do walk away. Now there is an angry basket-case of a country that would descend into civil war or despotism rapidly. How does the rest of Europe win that game? Refugees. I doubt that the rest of the EU would want to see a Somalia on their southern border. I read somewhere that Greece has Europe's fourth largest military.

Really think Europe is going to allow that?

And you're proposing that they would they accept funny money instead? That's what I was responding too. That faced with the "New Drachma" scenario, they would call Greece's bluff.

Sure refugees streaming across your border sucks. But you know what sucks worse? Being the country they are fleeing from.

The new drachma would never take, USD would be the de facto currency, and the EU would never get paid. They know that. Greece knows that. It's just a game of poker right now.

Drazzil wrote:See thats where we differ. I think a new Drachma would work, if accompanied by real financial reforms, start with a new tax code.

Drazzil wrote: See thats where we differ. I think a new Drachma would work, if accompanied by real financial reforms, start with a new tax code.

Drazzil wrote:Cheap new drachma.

Isgrimnur wrote:

Drazzil wrote:Cheap new drachma.

The Drazzma.

Drazzil wrote:Cheap new drachma. Tourism and manufacturing.

LawBeefaroni wrote:If I can read between the lines, I think Drazzil is saying that a cheap currency will lead to lots more tourism and new manufacturing industries.

But I don't see that happening.

I see breakdown in public services and infrastructure, which would make tourism and manufacturing less appealing. And the cheap currency will just lead to high inflation with the Euro or USD being preferred.

The only way that the New Drachma would work the way Draz envisions is if they announce it far in advance and everyone immediately speculatively invests in manufacturing and tourism before it is rolled out. Which no one is going to do. They'll wait and see and by the time they do, Greece will be in the throes of hyperinflation.