Greece General Discussion

[Foucaulf]

BK and I specifically advanced the SYRIZA blackmail theory of debt negotiations a while back. Turns out Dan Davies, a former BoE guy, got to that idea first and with much more detail.

Here's an argument: the only way SYRIZA can launch a massive stimulus program would be to drop out of the Eurozone, since every Greek government agency and bank will be squeezed out of the credit markets and the Europeans wouldn't keep funding. Ditto for any of their attempts to repatch the Greek labour system. The Greek government has been forced to keep a primary surplus, but that may not last very long as Greek tax revenues are already falling.

The only reasonable concessions I see SYRIZA getting is a lowering of the primary surplus to allow for a smoother transition in the crumbling health sector, and maybe some for migration policy. But that won't be enough for voters.

[Foucaulf]

After Greek energy and finance ministers aired off their grievances about sanctions to Russia, any observer worth their salt has realized Syriza is also threatening a rapproachment with Russia as part of its negotiations - "the Russia card," so to speak.

There is something very clever about this move. Though Syriza's alternative foreign policy was telegraphed during the campaign, it does not seem like to me that people took it seriously. Now, a day before negotiations, the press is taking it very seriously. What Syriza is doing is compelling national decision makers to make a tradeoff between getting their money back and national security. While this is not enough to actually pressure the ECB into a debt writeoff, the hope would be to cause enough dissension among European leaders such that the ECB loses the pressure to play hardball with Greece.

While debt lended by the ECB itself is not up to negotiation (a member of the executive reiterated this fact this morning), a third of the package is debt from other Eurozone countries.

Of course, clever isn't enough for victory. All the meetings and press rumours right now are just gossip, really. The negotiations start on Friday, when Finance Minister Varoufakis meets with ECB chief Draghi. We'll see who makes the initial offer.

[Foucaulf]

Varoufakis has a pretty full itinerary starting today - after meeting with Eurogroup President Djisselbloem today, he's meeting with George Osborne next week, as well as the French and Italian Finance Ministers and EU Commissioner Juncker.

The problem is that his first meeting is already a bit of a farce. At the press conference, Varoufakis announced his plan: negotiating with all partners (i.e. not with the Troika) to come to some negotiated end to the bailout schemes. Djisselbloem shot him down right after.

A picture says a thousand words, really.




EDIT: A year ago, Greece had surplus demand for their 3-year maturity government bonds. Now the yield rates are at 19%. Not as bad at 2011, but we're getting there.

[Foucaulf]

http://www.bloomberg.com/news/articles/2015-01-30/greece-shuns-eu-bailout-cash-before-dijsselbloem-visit

Finance Minister Yanis Varoufakis set the clock ticking on Greece’s standoff with the euro area on Friday saying he’s ready to take his chances without a financial backstop rather than submit to more austerity.

For the sake of balance, Varoufakis characterizes his views in English on Newsnight. (start at 3:30)

Varoufakis says he did not say he will stop negotiating with the Troika institutions, but wants a "new agreement" without "representatives here ... to enforce and oversee the implementation of a programme that has utterly failed"

Nor did he say he wants to stop privatizations, but for the new government to begin a new auction.

[Foucaulf]

See

http://www.reuters.com/article/2015/02/02/greece-politics-bonds-swap-idUSL6N0VC4GU20150202

It seems Varoufakis is proposing something somewhat similar to my compromise above he "will seek a "menu of debt swaps" including two types of new bonds - one indexed to nominal economic growth and one he called "perpetual bonds" to replace European Central Bank-owned Greek bonds "

Not really, since this deal has nothing to do with equity or government assets (and if Varoufakis did propose such a thing people will call for his heads). Basically, barring any inclinations of a writedown from debtors, Greece wants to renegotiate when their bonds reach maturity. The growth one basically reaches maturity at "when the Greek government can deal with it," and the perpetual ones reaches maturity at "never".

Greece will still pay interest/coupons on all the debt with their primary surplus, but essentially vows never to have another situation where the government is short several billion near the end of the month and have to max out another credit line from the Troika to fix it. To convince their creditors of this plan's credibility, Greece can pull out the Krugman argument: "we will have to be forced to collapse and default at this rate, so this is the best scenario where you won't get implicit writedowns through default."

Consider this Varoufakis making the first offer, I guess. Given the Europeans' cool reception and only a few more weeks of solvency, he has to bite his tongue and put something out. This is one of three proposals from him: the other two are the elimination of the Troika auditors and ability to negotiate with individual creditors, and reduction of Greece's mandated primary surplus to 1.5%, down from 4.5% now.



EDIT: Varoufakis's itinerary so far:
Friday, met with Eurogroup head Jeroen Djisselbloem; Sunday, met with French FM Michel Sapin; Monday, met with British Chancellor George Osborne; Tuesday, met with Italian FM Pier Carlo Padoan; Wednesday, will meet with ECB chief Mario Draghi; Thursday, will meet with German FM Wolfgang Schaeuble; meeting with EU Commission President Jean-Claude Juncker TBD.

[Foucaulf]

I agree.  I am saying they are similar in the sense that both my idea and his tries to link performance of the economy as a whole to the payout which could mean even higher over-payout if the Greek economy does very well down the road.

That's right regarding the GDP-indexed bonds most people talked about, where the coupon is some function of GDP growth or levels relative to a baseline (the Greeks actually tried this in 2012). The question remains: is this what Varoufakis is proposing?

Since this is breaking news, the details are frustratingly vague. But Varoufakis is, I think, proposing something different: bonds with a "bisque clause"

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Emphasis mine. "Inversely related" isn't really the right word here either - "monotonically decreasing step function" would be more accurate, but also hard to say.