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June 18, 2015

What's Next In The Grexit Drama?

The Man They Hate with a Passion

Euro area politicians and IMF bureaucrats really hate Yanis Varoufakis’ guts with a passion. The media are full with denunciations of the man as “unprofessional”, negotiators of the euro-group let it be known (anonymously, natch) that “it got to the point where eyes roll”, that they were “sick and tired of being lectured about austerity and the effects of the crisis”, in short, it was “impossible to do business with him”.

Europe according to the Greeks, via Yanko Tsvetkov

Why do they hate him so much? Allegedly ,“any sympathy for Greece was eroded by his failure to draft concrete proposals.” Typical Mediterranean lazy bum is the message, in other words. Big on vacuous emoting, but doesn’t want to waste time on doing his homework (plus, he wears no tie…you have to be clad in the technocratic uniform if you want to be taken seriously). Forgive us if our BS meter starts twitching when they are quoting unnamed officials with such pronouncements all over the mainstream press and are hammering the message home with unwavering regularity on Europe’s state-controlled TV stations. The reality is probably this: they hate him because he isn’t one of them.

Varoufakis is no politician, and apparently has no intentions of becoming one. His economic views may be a bit blue-eyed given his alliance with a bunch of lefties, but where and when has he said anything about the Greek situation that was not substantially correct? As far as we recall, his main points always were: 1. the debtberg is unpayable (check…everybody knows this), 2. European/IMF style “austerity” has worsened an already catastrophic situation in Greece after the bust (check, but see our qualifications below). 3. There has been and continues to be a lot of suffering, and that needs to change (check) On the second point, we have added “European/IMF style” to the term austerity on purpose. Contrary to Varoufakis we don’t believe that cuts in government spending are the problem, least of all when the government and bureaucracy is as wasteful as Greece’s. The problem is that EU style “austerity” programs are mainly relying on tax hikes, under the erroneous assumption that a shrinking of the State must be forestalled, and hence the bloodless turnip called the private sector must be squeezed ever more. They tried this nonsense in Italy and France as well, predictably to little avail (in France the tax-hike and regulation-happy socialists continue to preside over an economic black hole that threatens to swallow the country whole; unemployment just hit another record high).

Socialism or the Free Market – There is no Third Choice

One must keep in mind in this context that professional politicians live in a completely different world from the average tax serf. They have no idea about the struggles of those who generate wealth, they’re only getting paid by them and are daily inventing new ways of milking them and putting obstacles in their way. They have just as little idea of the struggles of the common laborer, pensioner, or anyone else in society who’s not a member of the politico-bureaucratic class. They see these people simply as voting blocks, nothing else.

Whenever professional politicians profess their “understanding” for the man on the street, they are trying to pull the wool over his eyes. That’s all. Personally, these people have no worries whatsoever – even though for some of them the job is no doubt at times stressful, especially the ones at the top of the food chain. But those at the top of the food-chain are as a rule power-hungry sociopaths who love what they are doing and therefore deserve no sympathy whatsoever. Anyone with a job in the machinery of the Brussels Moloch is literally drowning in money and perks compared to the average citizen/tax cow.

This makes it quite ironic that these gentlemen are so “sick and tired about being lectured about the effects of austerity and the crisis in Greece”. Really? When Varoufakis frequently stresses that there is a humanitarian crisis in Greece, he is absolutely correct as well. What should one call more than 25% unemployment for five years running, a near complete breakdown of health care and other basic services, and a more or less rubbed out middle class? Shouldn’t this be the major issue that should be tackled? Of course a lot more reform is indeed required, and the leftist Syriza is unlikely to deliver what is necessary in this respect. On the other hand, neither was the utterly corrupt clique of establishment politicians that ruled Athens previously.

Anyone who thinks the above assessment is too cynical is hopelessly naïve. In any case, our conclusion remains that they hate Varoufakis mainly because he is not one of them and because he has insisted from the beginning that it simply makes no sense to let Greece carry forward its €360 billion debt load. This is however a crucial element of the extend and pretend scheme. As Mish correctly remarks, if the EU had allowed Greece to default right away, the cost would have been large, but manageable (especially in a world in which major central banks print tens of billions in new money every freaking month). By now it has become a truly monstrous problem.

However, the eurocrats felt they couldn’t allow that to happen. Why? Probably not because anyone really believes it makes economic sense to drag unsound debt around for all eternity. We believe the reason is essentially ideological: allowing a developed Western welfare state to go bankrupt would have been an enormous blow to the confidence game the entire system is based on. The three card Monte of irredeemable currency, unpayable government debt and central economic planning crucially depends on maintaining confidence at all costs.

As Ludwig von Mises pointed out, long term government debt is alien to a market economy. The current “third way” economic system, allegedly a mixture between a market economy and socialism, is a contradiction in terms. Over time, it has tilted more and more toward becoming a centrally planned economic system, something that is quite vividly demonstrated by the enthusiastic adoption of Anglo-Saxon central banking socialism all over the world. Mises always averred that this system is just as doomed in the long run as the Eastern Bloc’s full-scale command economies were, and we tend to agree. There is no “third way”; welfare/warfare statism and its confetti money is ultimately doomed. The choice is simply between free market capitalism and socialism – and the latter doesn’t work, because it literally cannot work.
Capitalism means free enterprise, sovereignty of the consumers in economic matters, and sovereignty of the voters in political matters. Socialism means full government control of every sphere of the individual’s life and the unrestricted supremacy of the government in its capacity as central board of production management. There is no compromise possible between these two systems. Contrary to a popular fallacy there is no middle way, no third system possible as a pattern of a permanent social order. The citizens must choose between capitalism and socialism
 (emphasis added)

Regime Change Plans?

The Mexican stand-off between the “institutions” and Greece continues in the meantime, as neither party wants to abandon its “red lines”. On Sunday, the IMF’s negotiators walked out of the talks, citing a complete lack of progress – translation: the Greeks didn’t relent and meekly accept every demand without further debate. Both parties are evidently intent on continuing to play chicken.

The FT has published a very interesting comment on the situation by Aristides Hatzis. Readers my recall that we reported several months ago about the Marxist wing of Syriza, and a number of powerful figures behind Mr. Tsipras’ throne, who have zero intention of compromising with the troika (See “Has Syriza Really Given Up?” for details – you’ll have to scroll down to the end of the post, where we presented several of the most important people).

Hatzis mentions this aspect as well. Here are a few excerpts from his op-ed:

Despite his wooden language, Alexis Tsipras has matured more in the past few months than the rest of his party. The Greek prime minister understands the stakes and he knows his options. His problem is that they are all dreary.
[…]
Mr Tsipras cannot use “Grexit” — a Greek departure from the euro — as a bargaining chip, or he risks creating severe hardship in a country that imports such essential items as food, energy and pharmaceuticals. An exit would be detrimental economically but also socially. Any improvements in competitiveness will be annihilated by political turmoil and civil strife. He cannot accept a new bailout agreement because that would signify that before the general election he was either mistaken, opportunistic or fooled. Even a watered-down version of the creditors’ proposal would embarrass him before the Greek people who gave him a clear mandate: no more austerity. 
Yet the Greek public, most of whom do not wish to jeopardize their membership of the euro zone, are not the people who should worry Mr Tsipras most. Far more problematic is his party. Many of his leading ministers are luddites. They live in the 1970s, dreaming of transforming Greece into a mix of Cuba and Venezuela. They cannot seem to understand how a globalized economic system works. Their dogmatism make them unsteady allies. He cannot trust them for an additional reason: some of them have their own designs on power.
One could wonder then, why the rest of the eurozone is taking so much trouble to negotiate with someone who, whether by choice or necessity, will not compromise. For two reasons. The first is geopolitical; indeed, geography is Greece’s only solid ally. The EU has no desire to alienate a country on its southeastern flank. The second is economic. European finance ministers sound confident these days that the fallout from a Greek exit can be contained. But no one knows for sure
[…] This does not mean that a compromise is out of the question. There is a lot to be gained if some ill-advised red lines are discarded. The Greek government is trying to avoid the bitter pill of pro-market structural reforms and the restructuring of its rickety retirement system. This is one of the most rigid and least open economies in the EU, yet some Greek ministers consider it a neoliberal paradise
[…] Disillusioned by the reluctance of successive Greek governments to cut spending, some in the euro zone insist on unreasonable tax hikes and more labor reforms. Yet high taxes have already strangled the private sector and the middle class, the Greek labour market is more flexible than ever and labour costs have fallen sharply since 2009, and are well below the European average. Greece’s partners fail also to empathize with the pain that five years of a futile austerity has inflicted on the average Greek citizen.”
(emphasis added)

Hatzis is quite right with his assessment we believe. Syriza does have a number of powerful far-left members who are dreaming of creating yet another socialist “success story” a la Venezuela or Cuba. And indeed, Greece is anything but a “neo-liberal paradise”. Its bureaucratic red tape is almost as legendary as the corruption of its political and bureaucratic classes.

Ironically, the statism and socialist leanings of Syriza are probably the least concern of Greece’s creditors though. They are definitely not eager to establish an unhampered free market order in Greece. They just want to kick the can down the road, and they want the Greek private sector to be put through the wringer some more, to see if a few more coins will perhaps fall out.

So what is the state of play? Mr. Hatzis mentions Greece’s geo-strategic importance, and we believe he is on to something there. For this reason alone, the “institutions” are highly unlikely to let Greece go. Otherwise, this might happen:

So given the fact that the Greek government is likely to default on its IMF payments by the end of the month unless a highly unlikely agreement can be struck in the nick of time, what is the plan? If Greece defaults, it would be technically in breach of the bailout agreement, and the ECB would likely cut off ELA to Greek banks as a result. Capital controls would probably be imposed at that juncture. And yet, why should Greece adopt a different currency? Zimbabwe uses the South African Rand and the US dollar, and hasn’t asked anyone for permission as far as we are aware. It merely can no longer fund its government with monetary inflation, and what’s left of its destroyed banking system had to adapt (no more fractional reserve banking). Of course Syriza won’t be able to keep any of its election promises without a printing press, so there is that.

The EU, which is reportedly going to hatch out an “emergency plan” this Thursday is probably going to allow just enough chaos in Greece for regime change to happen. We actually do believe that this is the allegedly non-existent “Plan B”. They want one of their guys in the saddle – not a non-politician like Varoufakis, or someone hamstrung by his party’s left wing like Tsipras, but someone they see as one of their own, someone similar to Antonis Samaras. In short, they probably won’t kick Greece out of the euro zone even if the supposed worst case scenario of a default comes to pass at the end of June.

The hope is probably that it will simply be impossible for Syriza to continue after a default without calling new elections or at least holding a referendum and that Greece can be brought to heel thereafter. This might actually work, and if it does, the can will be kicked down the road once again.

Conclusion

Things are getting a bit more interesting now, as the deadline at the end of June is looming ever larger and should bring about a turning point one way or the other. Still, in spite of the stand-off continuing with no solution in sight, we simply cannot believe the euro-group will really drop Greece. Instead, the eurocrats may well be gambling on being able to drop Tsipras and his merry gang of would-be revolutionaries.

Courtesy Pater Tenebrarum at Acting-Man.com (Article Archive Here)


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