Greek brinkmanship

So far so good. The new Greek government has been touring the capitals of the EU, seeking to reassure and to push others to support them in a bid to extend the repayment dates of their debt and to make it easier to service. They have come up with sophisticated lines on how with agreement they could live with their debts, and all could believe they will ultimately meet the obligations, but not anytime soon.

They have also promise to live within their means month by month so they do need additional borrowings to pay for current spending. This forecast relies on getting in more tax revenue, and is despite their wish to increase certain spending programmes as part of their relief of austerity. Some will think this is feasible, others will worry lest the wish to spend outweighs the passion for prudence.

Meanwhile the day to day expenses of the government need cash. This is coming from issues of Treasury Bills as well as from revenue. The commercial banks can help by buying some of them. Germany is concerned, as the ECB is lending to the commercial banks, who in turn may be lending to the Greek government. That is not what Germany has in mind to continue Greece’s march to sound finance. The ECB’s decision to disallow Greek bonds as collateral for loans turns up the pressure and makes it more difficult for the Greek government to finance itself.

The Greek government has a point when it seeks a breathing space to construct new spending and taxing plans compatible with all the past debts. The EU and IMF have a point if they say there is to be no more additional borrowing for new spending, and there must be a sensible agreed plan for servicing and repaying the inherited debts. The irresistible force of Syriza has not yet directly hit the immovable object of German resistance to debt cancellation or rescheduling in effective partial cancellation. It is still too difficult to call how it will go, though much is riding on it for the EU economies and for the future of the Euro itself. If the lenders agree to some version of what Syriza wants, lengthening the repayment date and lowering the service charges, that is in effect cancelling some part of the debts. Why wouldn’t other states then want similar relief?


  1. Gary
    February 5, 2015

    “The state is
    that great fiction by
    which everyone
    tries to live at the
    expense of
    everyone else.”
    Frédéric Bastiat

    we can all look forward to the day when peer to peer encrypted networks puts an end to all that and we are forced to live on our own skills and hard work, not someone elses. The state is the most efficient looting and killing machine ever devised.

    1. Bazman
      February 5, 2015

      “Ah, you miserable creatures! You who think that you are so great! You who judge humanity to be so small! You who wish to reform everything! Why don’t you reform yourselves? That task would be sufficient enough.”
      ― Frédéric Bastiat
      David Cameron is going to put a stop to encryption anyway he says..

  2. Lifelogic
    February 5, 2015

    Indeed – the other states will indeed want (and surely will insist) on similar reliefs?

    1. Roy Grainger
      February 5, 2015

      Indeed other states will insist on such reliefs – and they will get them too. History shows the EU will fudge the “rules” and cave in.

  3. Leslie Singleton
    February 5, 2015

    Did I read correctly that the furthest maturity is already 2054 (I think I did) in which case why muck about pretending the debt will ever mature? Perpetual bonds sound like Way To Go at negative rates of course to provide some ready

  4. Peter van leeuwen
    February 5, 2015

    With genuine thanks that my foreign comments were allowed on these pages, I’ll now “opt out” until after UK elections, wishing everybody success with their soon to start campaigns (and learning to bite my tongue for a few months).

    1. Ian wragg
      February 5, 2015

      Why would that be Peter. etc ed
      Greece is right to default. They should never have been allowed to join the Euro in the first place so it serves Germany right. How many more years of misery are the Greek people expected to endure. There could well be a military coup.

    2. Mondeo Man
      February 5, 2015

      Thank you, Peter.

    3. Martyn G
      February 5, 2015

      PVL – you won’t be alone in biting ones’ tongue, though I suspect that here in the UK there will be lots of incidents of people shouting rude words and throwing things at their TV as the campaigns get under way!

      1. Mondeo Man
        February 5, 2015

        Martyn – I’ve heard all I want to hear. I shan’t be watching any of it or listening to any of it either.

        Our problems have gone way beyond politics and I am just sick of the lies and being sneered at and insulted by people who are supposed to be on my side.

        Who gets in ? Who cares. In the long run it won’t make any difference.

        Fortunately we are not the people we are accused of being and our disaffection is levelled at the political class and not the minorities. words left out ed

        Who ran Rotherham council by the way ? The BBC don’t tell us. We’d certainly know about it if it was Ukip !

        etc ed

        1. Mondeo Man
          February 5, 2015

          Thanks for moderating, John (sincerely)

          The keyboard ran away with me.


    4. formula57
      February 5, 2015

      I would not the election get in the way of commenting: I will not for anyone else. I hope you will stay and if not resume as soon as you feel able for I enjoy your comments.

      1. formula57
        February 5, 2015

        Auto-miscorrect and other mishaps! Apologies – my words should read – “I would not let the election get in the way of commenting: it will not for anyone else.”

    5. John E
      February 5, 2015

      I think you should stay. You already I think limit your comments to European issues as opposed to purely UK domestic ones. Also you comment on the issues rather than promoting any UK party agenda. It’s good to read your perspective on things and to enjoy the debate at a less insular level.
      We would miss you. The campaign will be tedious enough as it is.

      1. John E
        February 5, 2015

        I realised that you opted out exactly three months before the election, so it occurs to me this may be a matter of policy set for example by your employer as opposed to your choice, in which case best wishes and let’s hope the world is in a better state in three months when you rejoin us.

      2. Peter van leeuwen
        February 5, 2015

        @John E: Between the elections and a possible 2017 referendum will be the interesting period, and that issue is of interest to the Netherlands as well, being a UK neighbour and ally.

    6. stred
      February 5, 2015

      Peter. If your employer requires that you do not interfere in the electoral process that would be a shame, as we enjoy arguing with reasonable points fromm opposite points of view and a bit of knockabout. Could I suggest that you invent a new name with a Dutch connection, such as Fingerinthedyke or Tulip. Your state police should not be able to find out, providing GCHQ doesn’t snoop and shop you.

      Reply IT seems you are welcome to other users, but don’t break any rules for us!

      1. Peter van leeuwen
        February 5, 2015

        Reply to reply: at the age of 68 I can set my own rules. I’ll be tedious enough after the May elections.

        1. ChrisS
          February 6, 2015

          I’m sure that there are many of us here who would welcome an objective view on all matters from the other side of the channel !

          Carry on and let us know you perception on UK domestic matters as well !

    7. DaveM
      February 5, 2015

      No need to go – the rest of us pretty much just agree with each other – we need someone to argue with!!!

    8. Mark B
      February 5, 2015


      Please do not take my views as anti-European. We were mislead by our then political leaders into believing the EEC was just about trade. Some did try to warn us, but we were naive and foolish and did not listen.

      So when someone who is obviously very pro-EU comes here and pulls our tail, we react.

      What I am saying is, it isn’t personal and I for one welcome your views, even if I strongly disagree with them.

      See you soon, and take care.

    9. Qubus
      February 5, 2015

      It would be a pity to stop commenting just because of the GE. I find your comments interesting and generally well-informed.

    10. acorn
      February 5, 2015

      Peter, frankly this site needs more EU member state involvement; don’t give up now when it is starting to get interesting, both in the UK and in the EU. I still reckon the Conservatives will win the UK election. Even though the “UK middle class”; the households that spend the money to grow the economy; the traditional Conservative voters; have been hit hard by Osborne’s badly misguided, neo-liberal “austerity” pogrom.

      Frankly, if I were Cameron, I would put Osborne into a job where he can’t do any more damage. Defence Secretary would be appropriate for such a neo-con. The next Treasury boss should learn to love the current budget deficit, it is keeping the UK economy afloat at the moment.

      Can you imagine what state the UK economy would be in now, if Osborne had achieved his zero budget deficit; his Plan A; by this coming election!!!

  5. Richard1
    February 5, 2015

    Far too much of the commentary on Greece, particularly from ‘Keynesian’ economists, leftist politicians esp in the Labour party adopts the line that the problem is austerity and blame bad German policy being imposed on Europe. Far too little points out the simple truth that Greece’s problems are the result of over spending by leftist – and corrupt (the 2 so often go together) – governments. All the euro did was enable bad over spending (that’s the policy pursued by the Labour party when in office in the UK and advocated again by them now) to continue much longer than would have been possible had Greece had her own currency and had to stand on her own 2 feet in the markets.

    1. William Long
      February 5, 2015

      But do not forget that the EU made itself complicit in this when it let Greece in, presumably in full knowledge of how Greece ran its affairs, not just to the ‘Union’ but to the Euro. Therefore, to a great extent the Eurocrats deserve whatever Greece chucks at them.

      1. Richard1
        February 5, 2015

        True Greece should not have been admitted. This is quite an interesting situation. its as if the shareholders of a large company had bought a new small subsidiary for shares and then found they had no way of stopping that subsidiary draining value by incurring liabilities without limit. Now the top company shareholders are trying to cap the liability and plug the hole. I think the best solution would be for Greece to leave the euro, sort herself out on her own 2 feet and become competitive again. This combination of begging and blackmail is demoralising and damaging for both sides.

  6. Bazman
    February 5, 2015

    Chances are it will be taken up by other countries. Any government has to explain why the average person should take the hit for a corrupt elite who live in luxury without and penalties for the decisions they made. Until this is answered and right wing conservatives can just whistle. Rule by a financial aristocracy telling us we need to pay more and have lower wages from tax haven castles whilst paying in some cases nothing themselves will come to an end one way or another and if this is the start then so be it. The peasants will only take so much boiling oil on their heads.

    1. Matt
      February 5, 2015

      All of us on above average incomes accept that we subsidise those who are not doing so well. We’re generally content to make sure that they have a decent standard of living, but if they want more than that, surely they should make the effort to be more productive and get it for themselves. Benefits for the unemployed and underemployed, or those with more children than they can afford themselves are, after all, state organised charity. It’s not an entitlement, but a generous gift we make to the less successful.
      Problems arise when we are mandated to be so charitable that they recipients of our charity end up better off than us, but I digress.

      Many are not entirely happy to pay much more into the state than we get out of it. Especially when much of the state organised charity is abused as some of the recipients don’t make reasonable effort to contribute to supporting themselves and their children.

      Imagine yourself in a situation where you pay ten or even a hundred times more into the state than you get out of it. You’ve made the effort to acquire skills which are of great value to the economy and you expect to pay more in state charity than most, but your work already makes a great contribution to the country’s finances and you you think it only reasonable to benefit from that.
      Instead you get told on a daily basis that your hard work, and the time you spent learning the skills to do such productive work, is not at all appreciated. That you’re in fact taking more than your fair share of the country’s wealth and you should be ashamed. The people benefiting from your charity, far from being grateful, are angry and you’re supposedly the bad guy. The government should take still more of the money you earn and you should be grateful for whatever they leave you.
      I think I would be inclined to feel hard done by in that position and seriously consider telling those which receive my charity where to go, then either cease bothering to work so hard or moving to a country where I would be appreciated.

      1. Edward2
        February 5, 2015

        But socialists do not think like us Matt.
        Their dream is an all consuming, all controlling State which citizens work for.
        Returning to the individual a small amount of pocket money.

      2. Narrow Shoulders
        February 5, 2015

        @Matt a well argued and reasonable post.

        As one of the grumbler although in no way subsidised, my gripe about the wealth creators is not the fact they earn more or have more. My complaint is that many of them play to a different set of rules to the rest of us and thereby have advantages not open to all. These advantages can then be used to further enrich themselves at little risk.

        I, like Peter Mandelson, have no truck with great wealth so long as it is gained by fair play and risk taking.

      3. Mondeo Man
        February 5, 2015

        Matt – I’m sure Bazman agrees with you. His gripe seems to be with very rich people who make money in a country (enabled by tax funded infrastructure) but refuse to pay taxes there.

        1. Matt
          February 5, 2015

          Narrow Shoulders and Mondeo Man –

          I get as cross as anybody about people playing outside the rules. It would help if the rules were clear in the first place. I’m not sure that’s a significant thing in the UK, and we do often see prosecutions for exactly this behaviour. Perhaps you could offer some examples?

          If the state chooses to involve itself in industries that are mostly private sector, for example banking, then we get into quite a mess. The state then finds itself in competition with the private sector for the most qualified people to do a particular job. If they want people capable of running a large bank, which will be in competition with the private sector banks, they’ll end up paying private sector rates.
          The same applies to TV and radio. The BBC is supposed to compete for management and on screen personnel, in a mostly private sector industry prepared to pay very highly for such people, so we end up paying stupid amounts of money for them.
          I’m the first to say that public servants should not be on 7 figure incomes. So let’s keep the state out of any industry where that’s the going rate for the top jobs.

          A large state always ends up involving itself in private sector industries and paying out of taxes for things that the private sector also does. Get the state out of these industries and the problem goes away.

          As for tax exiles, in my view it’s a mess created by the fact that for political reasons the state wants to appear to be collecting over 50% of the incomes of the wealthy and handing it out to people without due care. The wealthy often won’t pay that much for reasons I stated earlier so silly complicated exceptions appear so that they pay something closer to what they’re actually willing to accept. They’re still paying a hell of a lot more actual money in tax each than the rest of us.

          As our host has argued so many times before, a large state has to get as much money out of the rich as possible, since that’s the only way it can finance itself. You can either set a reasonable rate in the first place or pretend to set a very high rate and then fill it with loop-holes. If you try to actually get the very high rate, they’ll either go on strike or leave in which case we’re all screwed.

          1. Mondeo Man
            February 5, 2015

            Matt – The government collects well over 50% of middle earners’ incomes – and then charges them 20% on most of the things they buy.

            Examples ?

            Well high street coffee shops which love to employ EU labour and then avoid the taxes needed to pay the services that those employees are entitled to – and the dole of those workers who have been displaced.

      4. Bazman
        February 5, 2015

        Its a fair point that many do see it this way. Having three or more children and not working has been for thirty years or more an option albeit a poor one for most.
        Ironically its the middle classes with their rich helping ideas that have taken the biggest hit the seeing their incomes and job security decline rapidly in the last thirty years.
        The average person has also seen massive declines in job security with a stagnation of wages combined with ever rising prices and loss benefits which are often need to top up low wages paid by employers making large profits.Most benefits are paid to the employed or retired With many benefit recipients such as Ex shipyard workers having children when in well paid jobs. These are the selfish scroungers who should be ashamed?
        This idea that the rich have made their money without the state and and its structures and are handing out charity for the above people is for the birds. You are just wrong. How would they do in more corrupt countries with poor infrastructure such as Russia? It just who you know there, being in the right place at the right time and sharing with the other (rich ed)Most are just scum that got lucky. The middle classes blew out years ago.
        Many more advanced countries are also in the main middle class with higher and more complicated rates of tax Germany, Switzerland and Norway to name just a few. How do you square that one off. They are deluded socialists or are you going to argue their taxes are in fact lower? A tenner for a beer in Norway tells different. German TV licence? Take a look at that one. The list goes on.

      5. ChrisS
        February 6, 2015

        I think the whole principle of lifting lower earners out of income tax and NI is misguided.

        The very substantial number of people employed in the public sector plus all those not paying tax have a vested interest in increasing public expenditure rather than reducing it.

        We already have the grotesque distortion of the top 10% of earners paying almost 59% of all income tax and the top 25% paying 75% of it !

        Almost everyone should pay some income tax so that they have a real interest in keeping the rates as low as possible. If voters want to support Labour in it’s spending binges they should take a share in for it.

        Ditto with Council Tax. All those that get council services without paying for them should have their benefits increased to cover the cost and then be charged. Even if Council Tax were then to be deducted at source, everyone would look at their gross and net benefits and would then know exactly what the state is costing them.

        1. Bazman
          February 7, 2015

          Overall, the poorest 10% of households pay substantially more tax as a proportion of their incomes than do any other income group if you include indirect taxation and the rich pay the most, but also benefit the most by having the highest income and pay the least as a percentage in indirect that puts that deluded argument to bed.
          Council tax is tapered by many councils so when the benefit recipient increases their income they pay more council tax, this offers very poor incentives for low-income workers to increase
          their hours of work or find better-paid employment.

          1. Edward2
            February 8, 2015

            It doesnt put that argument to bed as you claim Baz.
            The poorest do not pay proportionately more tax than richer people.
            An absurd statement.
            The poorest ten percent pay little or no income tax and get tax credits as well as housing benefit and relief on council tax and child benefit.
            VAT is 20% but food which makes up a large proportion of spending by poorer families is zero rated.
            The poorest 10% are net recipients of tax not payers.

          2. Bazman
            February 10, 2015

            The poorest do pay proportionately more tax on their income than richer people as they pay more indirect taxes as percentage of their income.
            Food is not VAT rated and you have has this one explained to you before. As rule of thumb any food that has been proceed in some way is VAT rated as well a takeaways and as the poor are the biggest consumers of this type of food it is a lies.

    2. formula57
      February 5, 2015

      Indeed so but we must recognize that the Eurozone has remarkably tolerant peasants. Syriza may well be the first and fatal hole in the dam wall. If Podemos in Spain and the National Front in France follow, the avalanche of water will be a tide big enough to sweep the Euro and perhaps the EU away. As I have noted hitherto, je suis Syriza.

    3. Mondeo Man
      February 5, 2015

      Bazman – According to reports the Greek people were living the socialist Utopian dream. This is why their country got into trouble.

      1. Bazman
        February 5, 2015

        A corrupt tax dodging state is not utopia.

  7. Andyvan
    February 5, 2015

    When will people get it? ALL of the economic problems we face are directly the result of government and it’s theft of peoples wealth. There’s nobody else to blame except those that vote to sustain political parties.Without votes they have no legitimacy and we would get to see their real agenda exposed to daylight.

  8. petermartin2001
    February 5, 2015

    I would have thought it should be apparent to all the Greek debts cannot be repaid in euros for the simple reason Greece doesn’t have anywhere near enough! Just like German debts after WW2 couldn’t be paid in US$. They could be paid in VW cars though! Similarly Greece has to repay, if it is going to repay, in goods and services. There is no other option.

    Germany has to give Greece and the other less affluent Euroland countries a similar opportunity. It needs to run its economy more like the US and USA run their economies – by running small trade deficits. That way Greece can pay Germany in Feta cheese, Ouzo, olives and anything else that it makes. Those exports will provide jobs for Greek workers, and allow greece to grow its economy, just as the German export industry provided jobs for German workers and allowed Germany to grow.

  9. alan jutson
    February 5, 2015

    Clearly Greece must have no family silver left to sell or to pledge to set against the loan or new terms.

    We have a number of friends who have been to Greece on holiday in the past 18 months, all have returned saying it has become a very, very expensive Country to visit.

    Given the lack of tourists visiting (many hotels and restaurants near empty), they would have thought prices would have been lowered to encourage tourists to spend and visit again.

    Allow Greece exceptional terms and many other Countries will stand in line to follow.

    As they say, if you owe the Bank a few thousand then you have a problem, owe a few million and the Banks have a problem.

    The solution, if one can be found, will not be easy for either side.

  10. Narrow Shoulders
    February 5, 2015

    Much of the Greek electorate voted for renegotiation or default not capitulation.
    Greece’s fledgling government can not blink without consequences.

    The ECB has upped the ante as it knows the moral hazard of renegotiation. Greece must surely leave the Euro and sink or swim especially after its debt rose over 10% this morning. I feel that ultimately Germany and the EU fear Greece succeeding outside the Euro more than moral hazard. If Greece doesn’t blink she will get much of what she wants. Mr Cameron are you watching, this is how you negotiate with a tyrant even if Greece does give in we should not. Fear and greed drive EU decisions.

  11. Bert Young
    February 5, 2015

    I am certain that Germany will resist all efforts to allow Greece off the hook . The contagion resulting in the countries of the Southern EZ following a similar route is enough of a threat for Germany to shut its doors . The ECB have already reacted , and although there are gaps in making further loans to the Greek Banks , the facilities are not enough . The stand off is now in place .

    The focus has shifted to France and the Greeks are seeking some sort of relationship with Hollande to strengthen their overall bargaining position . If the French seize this as a means to receive more help to their ailing economy , then Germany has to give in or allow a break up of the EZ . The consequences are dire ; Grexit is more of a possibility now than ever .

  12. Paul
    February 5, 2015

    “Chances are it will be taken up by other countries. Any government has to explain why the average person should take the hit for a corrupt elite who live in luxury without and penalties for the decisions they made.”

    Well, that’s obvious. The average person made those decisions when voting for the party (in our case, the Labour party) that was prepared to throw money at them willy-nilly. Most of the money was wasted, the overrun is not due to “Banks” or the “Elite” but overspending on the public sector and ridiculous PFI schemes.

    It always infuriates me when I hear some fantasist go on about Bankers, asking questions like “okay, how much was spent on the Banks and Bankers and when” never gets any sort of answer.

  13. Paul
    February 5, 2015

    “Much of the Greek electorate voted for renegotiation or default not capitulation.
    Greece’s fledgling government can not blink without consequences.”

    This is not quite right. They voted for renegotiation or …. staying in the EU. They voted to have their cake and eat it at someone else’s expense.

    The problem is a large proportion of the electorate is stupid. If they weren’t they’d vote for people like John Redwood – you might not always agree with him but he doesn’t tell lies to buy cheap votes. These sorts of politicians are in regrettably short supply.

    The sad reality is that an honest politician saying “we now have to pay for the good times we bought with other people’s money” (for example) will tend to lose to the dishonest politician who says “everything will be fine, there is money to throw around, it’s all the fault of the EU elite/evil bankers”.

    I don’t doubt for a minute that these sorts of politicians (who all seem to be called Edward ?) know they are lying through their teeth, but the voters are too tribal or too dim to pick it up.

    1. Narrow Shoulders
      February 5, 2015


      I would contend that voting to stay in the Ez without renegotiation with the state of Greece’s finances was akin to voting for a default. Stupid or not the consequences were explained to the electorate by the opposition.

      You are correct about lying politcians getting voted in. Tax cuts in the next parliament while reducing our government’s deficit anyone?

  14. M Davis
    February 5, 2015

    Good luck to Greece’s’ new Government, I wish them well. In the meantime, what about Britain? A comment from the Slog:

    Simon Reay Feb 5 at 12:56 am
    After 30 years running a manufacturing business in the UK, dealing personally with the stupidest regulations ever invented in the history of the galaxy, made by Brussels, gold plated in Whitehall, I am giving up. … If people in the UK knew how little manufacturing and farming, wealth creation, was left in Britain they would be so very, very, worried. There is now no place on the UK statistics annual return to a state how much you manufacture or export. Government do not ask so cannot tell, under the freedom of information act … I am retiring to sunny Cyprus. Good luck to Debt, Debt, Debt, Britain.

    (Apologies, if needed, to Mr Reay, if he minds me posting this partial comment.)

  15. acorn
    February 5, 2015

    It has got to be time for the Greeks to pull the plug on the Euro. The ECB is playing political silly buggers. This is not going to end well.

    Meanwhile, with JR’s permission, before the EU blows up, this is a must read if you want to understand primary fiscal balance and what needs to happen for Mr Osborne to achieve his in the next parliament. The chart in this link, shows Greek sectoral balance and shows a slight budget surplus (red line), which is the difference between the blue and the green lines. The private sector is spending more than its income and foreigners are saving less Greek Euro cos the Greeks have, more or less, stopped importing stuff.

  16. Martyn G
    February 5, 2015

    Tsipras been fairly consistent about what he wants for Greece i.e. continued bailout support and a looser fiscal policy. Here, Mr David Cameron has made vague and contradictory hints about getting a better deal from the EU, none of which really stand up to close scrutiny.
    My bet is that Greece stands a better chance of getting the concessions it seeks than David Cameron because, given that the UK is a net contributor to the EU budget and one of the largest economies in the world, the EU is unlikely to kill the goose that lays golden eggs for it. Economies like the UK that grow get fined by Brussels and those that flounder receive hand-outs and concessions. Interesting times eh?

    1. Mark B
      February 5, 2015

      From each according to their ability, to each according to their needs.

      1. Max Dunbar
        February 5, 2015

        Mark, sorry to nit-pick but it should be ‘his’ not ‘their’.

  17. oldtimer
    February 5, 2015

    The Greek government`s weak hand appears, so far, to have been played well. Playing for time is a persuasive argument when accompanied by promises of real reform from a left wing government with no obvious vested interests in the old Greek oligarchy. Yet even if they do stretch the maturity debts to infinity and beyond they still face the issues of an overvalued currency and a low productivity economy. The can to be kicked down the road, both for the Greeks and the Germans, is heavier than ever.

  18. javelin
    February 5, 2015

    On the 4th the ECB voted to disallow Greek Government Debt as collateral (starting 11th Feb).

    This seems like an entirely political move. I do not think that Central Banks should jump into the political pond like this. They claim it was because of uncertainty but they are immersed in politics.

    The EU is now run on behalf of the ECB and debt holders interests and not the democratic nations that make up the EU.

    Greece is now left with abandoning their democratic mandate after two weeks or exiting the EU and on boarding with Russia. How is that in the interest of European peace?

    1. Denis Cooper
      February 5, 2015

      The statute of the ECB, laid out in a protocol which forms part of the EU treaties, states that it and also the national central banks may conduct lending operations against “adequate” collateral.

      That is the word which is used, “adequate”, as may read in Article 18 of Protocol (No 4) here:

      It is then down to the ECB to decide what is “adequate” collateral.

      Now nobody would doubt that bonds issued by the German government would be very good collateral; but equally nobody would say the same about anything issued by the Greek government if they were being traded under the free market conditions mandated by several other provisions of the EU treaties; they would then say that Greek bonds were worthless junk and not acceptable as collateral.

      It is only because of the gross rigging of the market by the EU and the IMF for the best part of the past five years, stretching the EU treaties up to and arguably beyond their breaking point, that those Greek government instruments can be said to have any value; and it has only been by similarly stretching its own statute that the ECB has been accepting those bonds as “adequate” collateral.

      After all, the new Greek Finance Minister has openly said that since 2010 the Greek government has been not only “insolvent” but “bankrupt”, so how can he expect the ECB to continue to accept its bonds as “adequate” collateral?

      I note also that he said that Greece only needed a few billion euros to tide it over for the next weeks, and compared that to the trillion of new euros which the ECB is proposing to create under “quantitative easing”; so I take it that he is one of the “If the government is short of money it’s perfectly OK for it to arrange to have new money printed for its use, as much as it may want to spend” school.

    2. Mark B
      February 5, 2015

      This is, and always has been, a political project. The Euro, and by extension the ECB is part of the project and therefore heavily influenced by it.

      Nothing in Euroland is without reason, and nothing is done that may inhibit the march to EVER CLOSER UNION.

  19. formula57
    February 5, 2015

    The only thing evil empires understand is power and, as luck would have it, Syriza is in a position to wield much power if it can hold its nerve.

    The borrowings repayments due by it at the end of the month (that the EU wishes to see rolled-over in some extended agreement and that are trumpeted as a big problem for Syriza) it should simply say are cancelled, perhaps pending some satisfactory negotiation about their future, likely as zero coupon perpetuals to fool the German taxpayers. That sorts out the immediate long term debt position.

    As for day to day liquidity, the unfriendly action by the ECB in refusing eligibility for collateral now forces the Bank of Greece to provide Euros (i.e. create them) as it is permitted to do under the Emergency Liquidity Assistance programme. Very well, Greece can rely upon that and to what measures bar impotent outrage can the ECB and EU resort when Greece disregards an ECB order to cease using the ELA? Quarantine money flows with Greece if it does not like Greek-minted Euros? A doubtful proposition. So that sorts out the immediate short term debt and liquidity position.

    The EU risks a second Lehman if it pushes Syriza too far. Greece will survive that, perhaps not with very much more pain than it would suffer anyway. The EU and the Euro may find the price very high.

  20. agricola
    February 5, 2015

    Both sides are guilty. The EU for following the political imperative with little or no financial scrutiny of the Greek economy before they were allowed into the Euro. Greece for running a basket case economy with little connect with reality, before they joined and afterwards until it became unsustainable. There has been an element of similar in the economies of Italy France, Spain ,and Portugal.

    There will have to be an accommodation between both sides. The EU because the political dream is paramount and Greece because like it or not the market place rules. The EU must water down it’s austerity demands and Greece needs to start behaving responsibly. If seen to be responsible they might be able to attract some wealth creating industry. The alternative is for both sides to accept that they have screwed up big time and walk away from each other as painlessly as possible.

    1. Mark B
      February 5, 2015

      Yes, but you are forgetting one small tiny detail. What goes for Greece, must also go for the others. No exceptions ! I hope I do not need to extrapolate that any further.

      1. agricola
        February 5, 2015

        I am all too aware of the implications for all the other debtor nations. You are quite right, any survival package must apply to all, proportional to their indebtedness. I am unaware of the extent of the problem across all the debtor nations so I do not know what the cost will be , or put another way, how much money would need to be printed. After such a solution the market would have to make the final judgement on the value of the Euro.

        Assuming you got agreement to take this step, it might reduce pressure on the various countries, but beyond this it does not deal with the basic need to make the various countries competitive, or earning enough money to pay for what government might wish to spend. No political system, left , right, or centre can work without a successful economy. Only a thriving economy can employ the 26% unemployed or the 50% youth unemployed in the European country in which I reside.

        Germany being the largest country showing a profit in the EU will have to decide how this might affect her. On the face of it a lower value Euro would help her export performance, but beyond that I am not qualified to speculate on the overall effect on her economy or citizens.

        My conclusion is that there is no quick fix and that all involved in the EU would have been better off without the Euro until such time that there was economic balance across the nations who wished to be involved in it. There are enough problems with the harmonisation of trade and the professions to keep Europe busy for the next fifty years without the burden of the Euro.

  21. Roy Grainger
    February 5, 2015

    Apparently the first foreign minister who met the new Greek PM was the Russian one. I read that all the leading nationalist/populist parties in the EU, except UKIP, have links to or are directly supported by Putin. Interesting.

    1. stred
      February 5, 2015

      One of the first places visited by the Greek finance minister was 11 Downing Street. If they have to plan for an overnight exit, then they will be needing a big print run of new Drachma. They will risk the secret leaking in Greece. An export opportunity for the UK?

      1. Mark B
        February 5, 2015

        Which will be missed or messed up !

    2. Max Dunbar
      February 5, 2015

      Good point Roy. The ‘soft underbelly of Europe’?

  22. John E
    February 5, 2015

    Greece is bankrupt. Their new Economics minister knows it. The Ango Saxon financiers in London know it. It’s the Germans that can’t come to terms with it.

    Every system of capitalism needs some form of debt relief to work. This goes back to Babylonian times. Whether it’s declaring a debt jubilee or wiping the slate clean, it has to be done from time to time, as it was on four occasions for Germany last century. The current Greek plan is the only one that makes sense and can work. If it is not implemented the results will be chaos in Greece and the Russians will take advantage. A Russian naval base in Piraeus anyone?

    For the Euro to work, the countries must move forward with political and economic union. If they cannot, they must disband it.

    1. A different Simon
      February 5, 2015

      John E ,

      Regarding debt , I agree with you ; debt that can’t be paid won’t be paid .

      The system needs to be purged . Part of this is lenders bearing the cost of default .

      Many of us wish Mr Putin success in his battle against establishment of World Govt and EU expansionism .

      It was the EU/U.S. which caused the Ukrainian crisis by it’s expansionism ; something which the Russian’s were assured would not happen before they agreed to the wall being taken down .

    2. petermartin2001
      February 6, 2015

      Yes , indeed Greece is bankrupt. Yanis Varoufakis the new Greek finance minister has said as much. It is insolvent. That’s different from being illiquid . That means there’s no point throwing good money after bad, either from a German or Greek perspective. It isn’t going to do any good.

      What are the Germans hoping to achieve? How do they think it is ever going to be possible to get blood out a stone? I’m sure Yanis Varoufakis has told them there is little point squeezing harder and harder.

      There needs to be a complete change of direction. It is in everyone’s interest that the Greek economy should be allowed to recover rather than be slowly strangled. The best way is for a controlled exit from the Euro with support from the EU. This would mean that everyone who has Euros should be allowed to keep them. The Euro is an EU currency and the EU should honour all issued Euros and all bank accounts denominated in Euros. From a certain date the Greek Government conducts its spending and taxation in New Drachma and redenominates its debt in ND.

      Even then Germany probably won’t get everything it thinks it is owed, but it would probably get something. Carrying on the way they are means they’ll likely get nothing.

  23. Tad Davison
    February 5, 2015

    Greece is going to have to produce a hell of a lot more olives if they truly wish to extricate themselves from this mess. And then they’ve got to find people who actually want to buy them. And therein lies the clue to it all. A country can’t keep paying themselves more money than they earn indefinitely. No matter which socialist promises the most, and cons the people into voting for them, at some point the electorate needs to wake up and face reality. Utopia is undeliverable unless it is properly costed.


    1. alan jutson
      February 5, 2015


      I seem to recall that olive trees were subject to some sort of payment subsidy from the EU years ago.

      Think it turned out that so many people were claiming for so many trees, that the whole of Europe would need to be covered in them if that was actually fact.

      Perhaps goes some way to explain why the EU, and or Greece amongst others, is failing.

  24. bluedog
    February 5, 2015

    Intriguing to read that Greek finance minister Dr Yanis Varoufakis is a fan of Game Theory, as one might expect from a professor of economics. However, in a situation where the outcome is binary and where one party dwarfs the other, the smart money has to be on the larger player, irrespective of elegant theory. In Varoufakis, Greece may have found a one man 300, but even he cannot finance the Greek banking sector, which the EU seems determined to destroy.

    Now what if certain countries in the Anglo-sphere, such as the US, UK, Canada and Australia were to throw Greece a lifeline? We would then be spared a global banking crisis and the break-up of the EMU would begin on an orderly basis. Win-Win.

    February 5, 2015

    The EU, now it has become a military power in some respects and a geo-political entity, should consider the possible consequences of a failure on its own part to meet Syriza’s requests.:-

    1. Further increase in anti-EU sentiment in Greece
    2. Lowering in Greece of the trust and allegiance which Greeks place on Syriza. or
    3. Heightening of the trust …

    The EU if it fails, should think of the possible next steps within Greece of :-
    1 The Syriza Party
    2. Other Greek political parties
    3 The next intention of the Greek electorate

    The EU ,if it fails, should consider the much wider consequences to its economic and geo-political position if just one country, Greece, looks for fresh allies. Whether others would follow. What percentage of its much diminished GDP say Russia would pile into Greece and the advantage to Russia of it becoming a Fairy Godmother to poor little brow-beaten southern European nations as a whole.

  26. margaret brandreth-j
    February 5, 2015

    It sounds as though Greece wants to be a European student and pay back deferred loans, although the EU needs to address the position now and not hark back to the cause of the problems.

    Shall we spend or shall we save? They can spend if hey speculate well , but the track record isn’t there.

    Who though is going to invest in shaky bonds?

  27. Denis Cooper
    February 5, 2015

    Off-topic, opinion poll charts updated to the end of January, with the addition of a new line for the Greens:

    Labour still trending down, getting close to the Tories who are bobbing along with a flat trend; UKIP still trending up, just; LibDems sort of drifting down slowly; Greens have had a big jump and are still trending up, probably more at the expense of Labour and the LibDems than that of the Tories or UKIP.

    Predicted result for general election: Labour biggest party but 28 short of majority.

    Reply a very dubious interpretation of recent trends if you look at the lines more carefully. I agree about the Greens!

    1. Mondeo Man
      February 5, 2015

      Hopefully the LibDems will be knocked into 5th place.

    2. Mondeo Man
      February 5, 2015

      Clearly Green voters didn’t see the Andrew Neil interview.

    3. Denis Cooper
      February 6, 2015

      Labour support peaked at around 43% two years ago at the end of 2012, since when it has been on a consistent downwards trend, albeit with small short term fluctuations, and it is now only 33%. It had previously gained greatly from the collapse of support for the LibDems in the months after the general election, putting it well ahead of the Tories, but now that it has lost 10% and it is still following the same downwards trend towards similar ratings to the Tories.

      Over the same period support for the Tories has varied up and down but at present it is more or less where it was two years ago, at about 32%. Just over the past year it has been essentially flatlining at around that level albeit with the usual small short term fluctuations. The gap between Labour and the Tories has closed, but primarily because of Labour losses rather than Tory gains.

      The broad upwards trend for UKIP has not been broken but it may be weakening; we will see over the coming months whether the fall of a few per cent over the past three months is just another short term dip or the start of a reversal of the longer term upwards trend. But even if the continuation of the previous upwards trend is confirmed it now seems unlikely that it will be strengthened to the point where UKIP will win more than a few seats next May, as that would require its support to be well above 20% not just a bit higher than the present 16%.

      As has often been pointed out over past months it is clear that UKIP has been taking support away from Labour as well as the Tories; in fact some sizeable chunk of the 10% fall in support for Labour over the past two years is directly attributable to the rise of UKIP, which has gained 6% over the same period while the Tories have more of less stood still.

      The LibDems quickly dropped from 24% support at the 2010 general election to about 10%, mainly to the benefit of Labour, and then continued to drift along and slightly downwards until about ten months ago when it seems that they started to be hurt by the Greens, even though only to the extent of a few per cent, who it seems likely have also been hurting Labour and so adding to the effect of UKIP pulling down Labour’s poll ratings down towards that of the Tories.

      However while 16% support for UKIP would not be enough to give them more than the odd seat in the Commons, and similarly with the Greens on their 6%, unfortunately the concentration of the residual 8% support for the LibDems would still be enough for then to retain a significant number of their present seats, maybe 16:

      Although that would not be enough for the LibDems to form a majority coalition government with Labour, which is predicted to be 28 short of a majority.

  28. BobE
    February 5, 2015

    All politicians of all countries only seem to count money. Money that is man made. None think of there people anymore. Is this what the Greeks are doing now?

  29. Jon
    February 5, 2015

    The message the politicians in the Mediterranean area give the public there is different to the one the Northern politicians give theirs. Just like Ed Milliband in Scotland recently promoting the idea that a mansion tax will take money from southerners to pay for nurses in Scotland. Not a message he will repeat when down here.

    What the politicians in Germany etc will be working hard with is how to find the correct words and slogans to fool their public further and kick this down the track. The choice they face maybe fairly straight forward to understand, cross subsidy, political centralisation and a central treasury. What will really happen in the next few years depends on how stilled they are in fooling the people of the richer nations, or not.

  30. Terry
    February 5, 2015

    “The EU and IMF have a point if they say there is to be no more additional borrowing for new spending”.

    So, why didn’t they declare this BEFORE Greece was accepted into the Eurozone. I cannot believe for one second that Brussels were not aware of the (Greek government approved ed) fiddle. No, they chose to ignore it so that their pet project would have one more member, regardless of the predictable consequences.
    Thank goodness ‘Iron Fist’ Brown was Chancellor and had sway over the doey eyed Blair, who wanted us to join the Euro currency. Had that been the case, we would be in a similar position as the Greeks. In this case, Brown certainly did ‘save us’ -from the ravages of the Euro world.

    The new Greek government is quite right to throw out the existing austerity package as it is helping nobody. In a real world, the lending banks would have had to write off the lot as a bad debt and take the pain.
    Instead the lending banks were bailed out by the ECB and that is where it all started to turn pear-shaped. Just like the BoE and QE.

    Where will this end? Answers in a Bankruptcy court of appeal.

  31. Richard
    February 6, 2015

    The story of the EU, the Eurozone and Greece and is all a re-enactment of the story of Adam and Eve (Greece) in the Garden of Eden (Eurozone) with the EU acting as God.

    1. James Matthews
      February 6, 2015

      Fascinating. Who or what is the snake?

      1. Richard
        February 9, 2015

        The snake is the EU currency whose low rates of interest (for the Greeks) and relatively high value (for the Greeks) tempted the Greek people and the Greek nation to over-spend and over-borrow.

  32. stred
    February 7, 2015

    The EU had a snake which got the UK into a lot of trouble when we were trying to follow the EMU. We escaped fortunately.

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