A Greek Tragedy

A brief post tonight on the unfolding debt drama in Greece. I’m sure the financial press has ably documented mechanics related to credit tranches and hypothecation. Though, as always, the most fundamental aspects are the ones considered unmentionable. Simply put, Greece can not natively maintain its overhead. Its standard of living is in excess of its capacity. That is not to imply extravagance, only a beyond-the-means situation. It is a country that wants to drink Sam Adams but can only afford Horse Piss. What goes politely unstated is that Greeks are not Germans.

Though in attempts to maintain pretense, they have accrued a handsome debt resulting from consistent deficits of income to expenditure. You may be aware of a much larger country with even more striking accounts in the red. Though in that case, dollars can be conjured from incantations for any irritating debt service requirements. Greece is not similarly at liberty, with euros created by the European Central Bank and not its own insolvent financial institutions. And Germans look unfavorably on debasing their currency to accomodate perceived Greek profligacy. So they simply extend Greece additional loans to pay back their earlier loans. But what does that help? You obviously don’t understand banking.

Yet here is Greece’s problem: the country has a swollen civil service and huge pension obligations. Its creditors want both slashed, in addition to tax increases and labor cuts. Higher taxes, eviscerated retirements, and fewer lower paying government jobs–that’s austerity. It sounds ignoble, but the Greek government has an alternative: keep giving us money, and we’ll keep spending it. You would be correct to assume creditors are unimpressed.

And that is the impasse. Greeks want to live the lifestyle of their German and Scandinavian fellows, all of whom have well compensated bureaucrats and pensioners. But someone has to pay for those luxuries, and Greeks can’t. Thus the question becomes do Northern Europeans pretend that Greeks are Somalis and agree to provide for their every creature comfort? If not then Greece must choose to pay or go.

Greek submission to creditor demands would consign they and their posterity to debt slavery. If they renounce austerity, they will default (the first to the IMF having already occurred) and subsequently be jettisoned from the union (including the euro). This leaving the government to begin paying recipients in devalued drachmas. TANSTAAFL is coming to dinner.

Many are predicting that a “yes” vote (stay and pay) in the upcoming referendum will bring down the Syriza (an acronym meaning Coalition of the Radical Left) government. And might the Greek radical right succeed them in such a scenario?

No, because the leadership of Golden Dawn was summarily imprisoned.

For what?

For being in the same political party as a man who killed a rapper.

Obama is in the same political party as many men who have killed rappers.

Let’s get back to discussing credit tranches.

While interesting for its intrigue, the issue is much larger than one small migrant-swarmed country. Many predict an exit would portend an eventual unraveling of the entire union project. And that prospect should bring a peaceful easy feeling to every European who longs to live in a sovereign state–perhaps even one that controls its borders. So I’ll be hoping for a big fat Greek fuck-you to its creditors. Austerity is coming either way, may as well greet him on feet rather than knees.

25 thoughts on “A Greek Tragedy

  1. Best observation on the situation I’ve read in quite a while. Only one further point; Greece is an example of extreme socialism run amok.

  2. If you will forgive some quick off-topic navel gazing:

    June was easily the highest traffic month ever for this site. Hopefully we can leverage our audience into victory for Jeb in 2016. I enjoy the comment interaction and am gratified that some find value in visiting. I wish the Earth turned a bit slower so more hours were available in a day. Though as it is multiple other projects remain sealed in amber while blogging. I’ll shift to another one at some point–hopefully in advance of a Hate indictment. Though for while the Kakistocracy endures, welcome new readers and thanks to the stalwarts.

  3. The BotB comments on research that links race to behavioral traits. Could this be possible? We’ve been warned against our lying eyes for so long, that the words are beginning to reform into another message entirely: “Scientists fired from research facility for recent Hate findings.”

    • Your blog is the best of its kind. It’s a pity it’s so pessimistic, but that’s not your fault. Anyway, you have a gift for invective that might be wasted in a world that didn’t supply such an abundance of targets.

    • Funny you ask, ICR. When BTC was spiking north of four figures, a friend asked my opinion of a proposed business venture whereby he would build out a small data center for the sole purpose of mining bitcoins. He gave me the proposed specs and I ran the numbers. My conclusion: run away…don’t walk. It was sound advice, particularly as the unit price has cratered 75% since that time.

      Though that is probably not what you’re asking. And in regard to that, I am fully supportive of any competitive erosion to the Federal Reserve’s currency monopoly. The value of both BTC and fiat are wholly premised on the willingness of others to accept them in exchange for goods or services. Neither are buttressed by anything of value, with one caveat: the dollar has the mititary and taxing power of the USG in support. And those are not small things.

      One other contradictory element to consider: the dollar is fundamentally inflationary while bitcoin is deflationary. This means (absent war or imprisonment) a dollar holder will lose purchasing power over time as a bitcoin holder gains it. This also is not a small thing.

      Greeks are looking for two qualities at the moment: a relatively constant store of value and liquidity. BTC probably isn’t ideal, but is much more so than a bank teller shrugging at your withdrawal request and saying “sorry.” So to conclude with apologies to Scalia…
      I concur.

      • Perhaps even more interesting than Bitcoin the currency are the numerous so-called “Bitcoin 2.0″ technologies currently under development. Some notable ones include Openbazaar, the decentralized online marketplace, decentralized record keeping/data storage endeavors such as Factom and Storj, and the smart contracts/”programmable money” made possible by Ethereum/Counterparty.

        Widespread adoption of any of these technologies should prove extremely bullish for Bitcoin. And quite frankly I don’t see any of them not taking off, given that they will all, in time, render obsolete the respective legacy systems they’re competing with. With that said…

        Obligatory disclaimer: cryptocurrency true believer. I encourage everyone to do their own research.

  4. The facts don’t support the simpleminded moralizing pushed in the media.The Greeks work longer hours and are much less statist politically than the Germans. The Germans defaulted on the debts they owed to Greece from WWII, when the occupying forces insisted that Greece lend Germany everything in the central bank. The modern Greek debt was initially the result of oligarchs cooking the books and looting the treasury, and the subsequent IMF and ECB bail-outs were of TBTF investors in Greek debt who knew that the Greece could not pay the interest without continuously borrowing more.See this interview between Michael Hudson and William Black for more details on the circumstances of the debt and the actions of the IMF and ECB.

    Despite (or because of) the fact that the Greeks have been insolvent at least since 2008, the actual market value of the debt has been quite low. I calculated at the time that at the market prices in 2010, all the outstanding Greek debt could have been bought for $50-100B (less than already spent on bailouts), refinanced at the rates given to banks, and the entirety of the debt would have been paid off somewhere between now and three years from now, while at the same time increasing government domestic spending and reducing the amount spent on debt service.

    The entirety of the financial siege against the Greek people has been a deliberate act of war by the bankers The Greek Government could simply declare the ECB and its co-conspirators terrorists and snatch as many of its executives for trial in Greece as they can. Greece is a sovereign and the ECB isn’t, and even if it were , Greece has ample cause for defending itself with force against these acts of war.

  5. Greece says no. They are undoubtedly praying this is an act of canny brinksmanship, rather than a final farewell. The people want to remain in the union while forcing dramatic creditor concessions. The problem for them is that they remain beggars to even open their banks. The book remains open, though lenders have to be drawing very close to viewing the situation as a full write-off. And that would probably be best for everyone.

  6. Pingback: This Week in Reaction (2015/07/05) | The Reactivity Place

  7. This was about the worst possible outcome.

    The structural integrity of the European suicide project remains intact. The radical left gets hailed as hellenic heroes for their successful brinksmanship. The Greek right remains forgotten political prisoners. And the surge of third world flotsam continues apace. But Wall Street approves…so I figure we’ve got that going for us.

    • I wouldn’t exactly call it successful brinkmanship. The Greek people voted overwhelmingly against the terms of the proposed bailout, then a couple days later Tsipras accepts basically the exact same offer from the creditors: more austerity, more cuts to public spending (including pensions), higher taxes, and no commitment to shave even a single euro off Greece’s total debt. This guy couldn’t negotiate his way out of a paper bag.

      And the leftwing of his party still might vote against this deal. So after all these months of dithering, Greece is poorer, with higher unemployment, even deeper in debt, and now SYRIZA is divided. Way to go, dumkopf. So I think the Greek people will reserve the term ‘Hellenic heroes’ for brave Leonidas and his 300 Spartans rather than hapless Tsipras and his tie-less Trotskyites.

      This is hilarious. Some Belgian dude in the European Parliament tears Tsipras a new one while he’s forced to sit there through the mockery and abuse with a sour look on his mug, like a little boy being lectured to in the principal’s office.

      • The piece I linked to cited German acquiescence to debt relief, which was a huge point of contention. Who knows whether it will be substantial or token, though it’s face saving for Tsipras regardless.

      • “But the new proposal, if approved by Greece’s international creditors, will provide longer-term financial support for a nation that has endured six years of recession.

        If approved, Greece would in turn get a three-year loan package worth nearly $60 billion (53.5 billion euros) as well as some form of debt relief.

        In that ambiguous phrase is everything.

  8. Sorry to split hairs with you, Porter, but this is what the article said:

    A report by the IMF said a debt haircut of 30pc of GDP “would be required” to meet the original debt targets agreed in 2012. This could be achieved be stretching out the maturities of bonds to forty years and lowering the interest rate, sparing EMU governments the political pain of having to crystalize direct losses for their taxpayers.

    So it’s unlikely that Germany or other Northern and Central European countries will agree to forgive any of the Greek debt.

    But you’re right, the longer maturities and lower interest rates will help Tsipras save face. Although after this week’s capitulation I don’t think he’s got a lot of face left to save.

    • My 11:12 comment was quoting a more recent piece, though if it is true that debt restructuring is now being called “relief” then I won’t disagree with your assessment.

      I have no idea what their average duration or interest carry is, though if it was already extended they’ll find little solace in moving to 40 years. Here’s a sample. Calculate a random repayment schedule at 30 years, then recalculate at 40. The difference is practically nothing. On the other hand, a 10% to zero rate reduction would be very substantial.

      But none of that can be prettily packaged to his public. He needed actual debt write-offs to have his “privation in our time!” moment. If he doesn’t get one euro of concession, then I’ll retract the Hellenic heroes speculation.

  9. Here’s a good summary:

    What has Alexis Tsipras achieved for the Greek people?

    Monday morning, after 14 hours of talks among the euro area’s finance ministers and an additional 17 hours among the group’s leaders, the Greek prime minister came away with a much worse deal than the one he just persuaded Greek voters to reject. Now he must sell it to his parliament and people.

    To be clear, for all the previous overheated talk of Greece’s “humiliation” by the euro area countries that were bailing it out, this deal is indeed humiliating for Tsipras and Greece. The decision to set up a fund into which the country has to place 50 billion euros ($55 billion) worth of assets for privatization is the kind of thing that courts do to bankrupt companies ruled no longer competent to manage their own recovery.

    The demand that Greece’s parliament must, within three days, legislate for measures the government has in the past described as “criminal” and “terrorist” only underscores the degree to which Greece’s economic sovereignty has been suspended. [snip]

    Syriza’s false promises have brought the erstwhile fringe party once-unimaginable political success. Yet after gaining power, the party eviscerated an already weak economy, bankrupted the financial system and caused untold needless hardship to the very people Syriza claimed to speak for: the poor.

    Tsipras gambled with his country’s fortunes, betting that the rest of the euro area would be so fearful of creating a precedent for an exit that they would capitulate to his demands and write him a blank check. The strategy reached its apogee with his absurd July 5 referendum, in which he asked Greeks to vote against the latest bailout proposal, while again promising that this would not put Greece’s euro membership at risk. He has now capitulated, apparently aware that he has no mandate to leave the euro. And so his lie is exposed, together with its cost to the Greek people.

    Greeks have ample reason to be mad at their euro area partners, but they should hold their own prime minister responsible for destroying their economy in a reckless political experiment. Regrettably, this is not over. As a result of the prime minister’s actions and Europe’s brutal response, Tsipras — or a successor Greek government — may yet get a mandate to abandon the euro.

    http://www.bloombergview.com/articles/2015-07-13/tsipras-has-vandalized-greece

    Merkel et al didn’t give Tsipras even the tiniest face-saving gesture. There will be absolutely NO debt reduction, and any lowering of interest rates might–MIGHT–be discussed some time down the road. The only way Greece’s humiliation could be more complete is if Panzers were rolling through Syntagma Square and the Schwarz-Rot-Gold was fluttering above the Parthenon.

    • Yes, it looks quite brutal if that’s accurate. Though I have read other pieces suggesting full repayment isn’t even possible. Which makes me think the books are actually so bad that Tsipras feared full revolution and possibly whatever the Greeks would use in lieu of the guillotine if they attempted a return to the drachma.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s