The horizon is not so far as we can see, but as far as we can imagine

ECB Is Trying to Break Greece: Buckle or Leave the Euro

So: The ECB has both decided not to extend any more money to Greek banks AND appears to have increased the haircut they give on Greek collateral (possibly to 75% from 50%).

I agree with Edward Harrison: This is an attempt by the ECB to force a decision—Greece can deal or leave. And pretty much now. The haircut is particularly brutal, reducing the amount of credit already available.

If the ECB wanted Greece and its creditors to have time to make a deal it could do so. All Tsipras asked for three billion. Pocket change.

This is an abrogation of the ECB’s responsibilities as lender of last resort, and appears to me to be a blatant political act. It will be noticed not just by Greece but by all other countries who use the Euro.

Greece’s one possible fudge is to start producing Euro denominated notes itself. They won’t be worth what the official ECB ones are, but this can buy them some more time to see if a deal with “institutions” is possible.

In other news, Varoufkis stepped down as finance minister at Tsipras’s request because he was hated so much by the negotiators on the other side. If negotiations fall thru, however, Tsipras might want to bring him back.

I may write a bit more on Varoufkis and what his experience tells us about politicians, bureaucrats, and the EU at a later point. In the meantime, understand that the pressure is on and that developments should keep moving fast thanks to the ECB cutting off Greece’s money supply.

If you enjoyed this article, and want me to write more, please DONATE or SUBSCRIBE.


Meanwhile, in China, There’s a Huge Stock Market Crash


Where Greece Should Go from Here


  1. On the other hand, wasn’t it Varoufakis who predicted a 48h deal after an Ochi? We aren’t at the 48h mark!

  2. Ian Welsh

    Yeah, I don’t know if he meant that or not, but… well, I hope to be surprised, let’s put it that way. Indications seem to be hardening that a lot of folks don’t want a deal on the other side any more, especially in Germany.

  3. The politics of this are incompetent on their part. Forcing a Grexit right after the vote is the direct appearance of punishment. Rivers of drool must be flowing down Marine Le Pen’s jowls.

  4. S Brennan

    If there ever was a time for a consumer boycott; this is it. Let me mention some names; VW, Bosch, Krupp. The US accounts for almost 4/5ths of Germany’s trade surplus.

    Germany’s trade surplus was about $250 billion (in dollar terms). That continues an upward trend that’s been going on at least since 2000 (see below).

    Why is Germany’s trade surplus so large, other countries make good products without running such large surpluses? There are two more important reasons for Germany’s trade surplus.

    First, although the euro is too weak (given German wages and production costs) to be consistent with balanced German trade. In July 2014, the IMF estimated that Germany’s inflation-adjusted exchange rate was undervalued by 5-15 percent (see IMF, p. 20). Since then, the euro has fallen by an additional 20 percent relative to the dollar. The comparatively weak euro is an underappreciated benefit to Germany of its participation in the currency union.

    Second, the German trade surplus is further increased by policies (tight fiscal policies, for example) that suppress the country’s domestic spending on imports and subtle trade barriers.

  5. Ian Welsh

    Cleary the ECB has decided to make an example of Greece. From their POV, not sure that’s the wrong decision. It’s wrong for the well-being of most Greeks or Europeans, I think.

  6. Lisa

    No they do not, or at least the US doesn’t (and that is what really matters) Greece to leave.
    They do not want Greece doing any deals with Russia.

    Therefore (and John Helmer confirms this, probably via Russian intelligence leaks to him) the Germans/EU/US/UK will go for a coup. probably quite soon now.

    If Helmer is correct (and he has a pretty good record) then they were going to undertake the coup just after the referendum. The size of the NO vote took them by surprise and has set them back….for a little while.

    They will replan then execute their coup, probably fairly soon.
    On this the Germans, the EU and the US are as one.

    Going to be a lot of blood on the streets.

  7. Well, these whole past few months, the whole issue has been one of pass the buck, because no one wants to actually be seen as the bringer of Grexit, even if they actually want Grexit.

  8. Ian Welsh

    A coup will, for various reasons, be an even bigger mistake, imo. We’ll see.

  9. Sally

    I agree with Lisa. A coup is on the cards.

    The fact America sent Victoria Nuland to Greece to lecture about how they must do no deals with Russia, and they must not leave NATO. Oh, and they must pay their creditors. This is about much more than just debt.

    The stakes are high, and threats are being dished out. As long as the Greek people demand to stay in the Euro the Greek govt may have no option but to capitulate because the govt may face being overthrown. This will not end well.

  10. Lisa

    Oh I agree Ian a coup will be disasterous in the long term, they usually are. But that hasn’t stopped them in the past and will not stop them now.

    Their ideal will be a ‘soft coup’, technocrats taking over to ‘restore order’ sort of thing. The reality is that it will be very bloody indeed.

    But the ‘sunk costs’ fallacy will work here. The coup will be more difficult than they imagine, even start to fail, so they will double up on it and it will escalate. The Germans/EU/US/UK have backed themselves into a corner where they cannot change direction now.

    They have to ensure total economic, domestic and foreign policy control of Greece. There is only one solution they can think of to achieve that.

    There is always a chance of cooler heads prevailing…just not seen any sign of it yet. So I put that probability as low, much less than 10% say. The smart money would be on an attempted coup.

    If Helmer is correct, Greece just dodged that bullet a day ago….. But the other side will reload and fire again.

    In the end it will come down to how loyal the armed forces are to the Govt and democracy. Greeek history and a reasonable analysis of the US domination of European militaries does not provide much optimism on this.

    While a multi time loser at actual wars, the US is genius class at subverting economic/poltical/military/national security elites. They own the European (inc the EU) ones lock stock and barrel.
    If you don’t believe that then just look at what happened with the German and French buggng scandals.

    Plus Putin’s comment about European leaders being afraid to talk openly, which is because they actually are. In every European country their own national security people spy on their leaders and send everything to the US.

    The hypothetical question, would NATO send troops into Greece if it all goes pear shaped? Yep is my answer. The miltary leaders are so subverted to US control that there could be little doubt of that.
    It would take an East German level of national security/military members rebellion to change that course.

  11. Ian Welsh

    In Canada I know from someone in the Mulroney Govt. that the Privy Council itself received surveillance reports on the PMO in the 80s. I assume it still does. Of course, with the American embassy right across the road I don’t think there’s any question of parliament hill not being lit up.

    At some point there’s going to have to be a bloodbath over American dominance of security elites in other countries. It’ll take a brave leader to try it, and a smart and lucky one to pull it off, however.

  12. Albertde

    The British Privy Council or the Canadian one? The British Privy Council killed French in the West in 1890 by overruling the Canadian Supreme Court decision to force Manitoba to adhere to its agreed bilingual status. Overturned in the ’70s by the Supreme Court of Canada based on a monolingual parked ticket issued in Boniface “ward” of Winnipeg.

  13. Ian Welsh

    The Canadian privy council. My friend (a senior aide) and her boss did a test of saying something only in one place, talking to no one else, nothing recorded, etc… the Privy Council knew about it the next time they met.


    Remember also that Canada is part of Five Eyes, our air defense system is part of NORAD, etc… While I don’t believe the Canadian army wouldn’t fight a US invasion, or would launch a coup, it also true that they are completely compromised.

    The only country in the world which is an actual existential threat to Canada (based on capabilities) is the US. We don’t have any plan to deal with that except “roll over on back, expose tummy and urinate” as best I can tell.

    (Well, in a very big stretch, Russia, but our subject state status to the US makes us off limit to them. If that happens, its because we’re in the middle of a war between the US and Russia: we’re secondary.)

  14. Greg T

    I agree with Lisa on most points. Frankly, I’m surprised it got to the referendum. Papandreiou called a referendum five years ago and he ” resigned ” in favor of a more compliant stand-in, and was told where to put the referendum. The Troika is already turning up the heat. They’ve decided Greece must be crushed into submission and so its banks will be denied liquidity. This they hope will break the Tsipras government once and for all. If Tsipras holds out, the U.S. will engineer a color revolution to incite regime change. They’ll stop short of outright military coup unless softer, less violent methods fail.
    I wish the Greeks well. The track record of small nations defying the U.S. Empire is not inspiring.

  15. Lisa

    Looking at it ‘big picture’ Greece is just the frontline of a much bigger strategy. TPP, TISA and TIPP, Ukraine and the China ‘containment’, even the US ABM systems and ‘terrorism’ laws are just of a larger neo-liberal/neo-con strategy to eliminate national sovereignty, democracy, freedom and entrench oligarchs and large corporations into having absolute and permanent power.

    In this the nearly all the western economic/poltical/national security/military elites are united (by fear at least).

    “Imagine a boot crushing faces forever”…to paraphrase 1984.

    In the end it will fail of course, because in every case the ‘logic’ of their beliefs means impovershing and terrorising all western populations and in the end people will have nothing to lose and will rebel. But the damage they will do in trying (and the risks of nuclear war) will be horrific.

    Watch the UK, I long ago predicted (Fabius Maximus site) that it would be the first major European country to completly embrace fascism (without an external supported coup) and they are well along that way now. I’d give it 50:50 that the current Cameron Govt will be the last elected Govt there.

  16. Hairhead

    This will get really ugly. The doofuses in charge of this stupid exercise know nothing of history, have no knowledge of the Greek junta of the ’60’s, nor of the 8-year Greek civil war following WWII and the longstanding grudges that resulted. Individuals and families there (Greece) have LONG memories; if it comes to an armed conflict, it’s going to NATO-and-the-Tar-Baby and white people will be shooting white people.

    And there it is, WWIII, started in Europe, again.

  17. jump

    Sorry Lisa, I do not think a coup could work now. 62% will say, ‘wait a minute’.
    Thumb screws will be applied in a last ditch effort to hurt democracy. How dare you?

  18. After the degree of dumbth that was the Iraq war, anything is possible I suppose. I think it will be economic thumbscrews more than coup. I don’t think that there is a strong chance that Greece will truly become an important Russian in-road. But we’ll see.

  19. Everythings Jake

    Assuming a plan is being executed, I’d imagine the planners will want to foment some kind of revolution to give legitimacy to the coup. (I’m imagining the coup is Greek military “taking over” with U.S. in an “advisory role.”) Some PR entity like the Rendon Group will have advised an “entirely necessary to restore order” and “grown-ups stepping in taking responsibility” frame is necessary psy-ops to give cover.

  20. Daize

    Perhaps I give our leaders too much credit, but I just don’t think a coup is in the cards. If it is though, Tsipras has made all the right moves to head it off so far (referendum, and then national unity government). I believe that he did this to strengthen his position in the Greek parliament and head off the possibility of being replaced by a technocratic government though and not to head off a coup. If ever there was a coup, I also get the feeling that Greece’s army would be split, and this is also why I think the Greek army won’t/can’t attempt it. Do not forget he took on a right wing party with strong army contacts into his coalition right from the start. Is there a possible risk? I won’t deny it. But I think the chances are extremely low and Tsipras has done very well in heading off the possibility.

  21. Everythings Jake

    Daize –

    It’s a lovely vision. I want to believe and then I think about Italy and Greece in WWII where the U.S. helped to restore fascism because leftist forces had defeated the Nazis, but there was no way Western elites were going to let those principles rule (e.g., in Italy, there was suggestion that factories might not need managers, interestingly, an idea shared by a leftist 19th century U.S. working class). I recommend, if you have not seen, the Power Principle at It’s not that I want to despair (frankly, I probably do too much of that), but, in Chris Hedges’ words, I want to be realistic about what the weaponry is down the road being used against the position where those who dream a better world are standing.

  22. I think there be at least one more round of deals, before we start talking a bloody coup.

  23. markfromireland

    I’ll refrain from commenting on this other than to say that some people are utterly amoral and that I think that in the final paragraph the word “scabs” should be replaced with “traitors”. All emphases are in the original:

    A radical idea to bypass the Greek government

    Citi’s Willem Buiter-headed team of economists provides an interesting external solution for the Greek debt crisis in an opinion piece late on Monday: bail out Greek banks but not the Greek government.

    Remember, the problem for eurozone banks is part of their core capital is supposed to be made up of liquid instruments like government bonds, but in the case of Greece these bonds are as toxic as subprime securities and depreciating quickly.

    Even if the ECB continues accepting Greek bonds as collateral for Emergency Liquidity Assistance, the terms would no doubt involve much larger haircuts, bringing us back to a 2011 capital hole scenario very quickly. So, it actually makes more sense for Greek banks to start swapping government bonds into different types of assets.

    Those assets could be foreign government bonds but it could also be quasi-private securities — or alternatively, specially contrived securities designed to rescue Greece that are more of an obligation between external creditors and the country’s banks, than they are between external creditors and the country’s government.

    In other words, it’s possible to bailout the banking sector on private conditions without bailing out the government. In Silicon Valley they’d call that “disrupting” the state.

    Here’s the background recapped by Buiter in their Global Perspectives & Solutions note (our emphasis):

    ELA, provided by the Bank of Greece (the Greek central bank) at its own risk but subject to the approval of the Governing Council of the ECB, has been the only material source of funding for the Greek banks since February 2015. The total amount of ELA funding was capped on 28 June, even before the Greek government failed to pay the IMF the €1.5 billion that was due on 30 June.

    Greek banks hold a considerable amount of Greek sovereign debt (€13.6bn according to ECB data as of end-April, of which perhaps more than half would be bills) and Greek sovereign-guaranteed financial instruments (an amount of perhaps around €30bn).

    With no prospect of new funding by the creditor institutions (and having gone into arrears to the IMF), the value of the Greek sovereign and sovereign-guaranteed debt instruments held by the banks would fall markedly. Even if the ECB did not require the Greek ELA facility to be wound down, haircuts on the collateral offered by the banks would rise.

    Even if the Greek banks did not become insolvent immediately, they would be unable to roll over their maturing liabilities. So the fifth element of the plan would entail recapitalizing and restructuring these banks, to enable them to function without relying on Greek government-issued or government-guaranteed collateral. The need for additional collateral would be for potentially up to €45 billion, even though restructuring of the banks (potentially bailing in some time deposits in Greek banks) and higher collateral valuations than for the existing collateral could bring the total amount of capital needed from external sources down significantly.

    But here’s how they see the potential solution coming about:

    The restructuring and recapitalization should be carried out by the European authorities, probably through the [European Stability Mechanism], which would likely require a capital increase to make up for the increased exposure to Greece. The ESM would thus become the main (perhaps the only) shareholder in the Greek banks. These banks would continue to have access to routine ECB funding, and to ELA if necessary, provided they are deemed solvent and can offer adequate collateral, unrelated to the government.

    For this plan to work, once the Greek banks have been recapitalised with ESM paper, Buiter and team say the ECB would have to bar Greek banks from making new loans to the state or providing new funding in any way. Existing bank holdings of Treasury bills and other Greek sovereign debt and sovereign guaranteed instruments would run off as they mature.

    As far as the banks are concerned the government would be shunned.

    Any attempt by the state to extract additional money from the banks via a capital levy or other tax would be treated as a hostile act. Should the Greek authorities change the taxation of the Greek banks without the consent of the institutions, the official creditors would have the right to accelerate their own claims on the Greek sovereign. The ECB/SSM could also make it clear that such capital levies would drastically impair the ability of the Greek banks to lend to the Greek economy.

    The core point of the proposal, say the economists, is that the plan returns ownership of Greek policies to the Greek population and side-steps the government.

    In reality, however, the government is also the publicly elected representative of the people. Disintermediating it is a bit like disintermediating the will of the people, thus a whole lot like staging a stealth coup on the country by making the country’s core financial system obligated to foreign benefactors.

    In that sense it could end up as stifling a move as when Ecuador’s financial system took up an external unit — the US dollar — to be its core capital unit.

    Or that matter…remember when a private syndicate decided to lend capital to the British sovereign crown back in 1688 because no-one else would lend to it, and how these debt securities inadvertently — because the growth-focused conditions imposed — became the most liquid and trusted securities in the country against which all other money became priced? More so, how the equity founders of that syndicate ended up turning into the core equity holders of the Bank of England?

    Well, it’s a bit like that. Except… this time the private syndicate doesn’t think the government has half as good a chance of restructuring the economy and extracting rents from the improved growth incurred from wise management (a.k.a. taxes) as the bank network does. Which probably makes sense if you consider in Greece it’s harder to get people to pay tax than interest payments. But still, it’s a system which — unless capital controls are imposed to prevent capital flight — would see wealthy Greeks play no part in the cost of the restructuring. It’s also a system which would see the ESM syndicate become the de facto operator of the financial system, hence the true Greek national central bank. The old one would effectively become inconsequential and as good as ejected from the Eurosystem.

    The cost of keeping the euro and avoiding a major devaluation, in other words, would be the Greek people surrendering control over their national central bank and freezing out their own government from euro-system credit. Public services as a result would from then on literally have to be crowd-funded by the government on a tax-first spend-later basis so as to ensure all euro funds obtained by the government were fully cleared and not obligated to anyone else.

    (As an aside, there’s a presumption here that the private sector — a.k.a wealthy Greeks or foreign investors — would not be prepared to lend the Greek government directly, which we’re not sure is entirely the case. At the moment the Greek government can’t borrow because of debt ratio concerns not necessarily because of closed markets.)

    Of course, Buiter & co. put it differently. As they state (our emphasis):

    Our proposal returns ownership of Greek policies to the Greek population. It establishes a drastic form of banking union for Greece, making it possible to rescue the banks without rescuing the government. It reinforces the principle that monetary union is no obstacle to an orderly restructuring of the sovereign debt of one of its members. We hope it will motivate the creation of a sovereign debt restructuring mechanism (SDRM) for the Eurozone member states.

    This would be given the task of determining the debt sustainability of governments requesting financial support from the ESM. Such ESM funding would only be forthcoming if the sovereign in question is deemed to have debt sustainability with high probability. The ESM and the SDRM together would constitute the European Monetary Fund, or EMF. It would be an IMF with teeth. An independent body of experts would be charged with performing the debt sustainability exercise on behalf of the SDRM. Its findings, and the analysis supporting it, would be in the public domain. The creation of an SDRM permitting rapid and radical sovereign debt restructuring would fill a gaping hole in the architecture of the monetary union. Future sovereign insolvencies in the Eurozone would be handle.

    But the core point really is this. If the Greek banking sector was to go for the plan, eurozone taxpayers would take on ownership of Greek debt on a shareholder basis via the ESM. This Buiter and team say is a much more transparent way to go about things:

    Eurozone taxpayers would end up holding, via the ESM, a large number of Greek bonds bought from the ECB/Eurosystem – bonds that may never be repaid. But they already hold most of these bonds anyway, via Eurozone monetary authorities, the Eurosystem. The profit and loss-sharing arrangements across Eurozone member states for the ESM are identical to those for the ECB, and for the Eurosystem as a whole (except for losses on ELA, public sector debt purchases under the asset purchase program and some idiosyncratic collateral accepted by an individual NCB but not by the Eurosystem as a whole). The purchase of the SMP bonds from the Eurosystem by the ESM simply turns an obscure quasi-fiscal exposure of the Eurozone taxpayers into a transparent fiscal exposure.

    Not to say the plan is entirely merciless on the sovereign disempowerment side either. If over time the Greek economy improves, government tax receipts will obviously grow and thus debt ratios will allow for more borrowing…

    If this proposal works as expected, reforms are implemented in Greece, confidence is restored, growth resumes and the government regains market access — good for the institutions and for Greece. It would probably still take some time before capital controls and restrictions on bank withdrawals could be lifted entirely — trust in the soundness of the banks and the safety of one’s deposits once broken will take time to be restored — but if and when they are, at least the banks would be paying out in euros. Replication elsewhere is not likely, but not necessarily undesirable.

    Which is nice. But let’s conclude on the core point. This ultimately is a recommendation from Citi for the Greek people to circumvent the government entirely and to form unilateral agreements with foreign creditors directly — via their private (probably soon-to-be foreign owned) banking system.

    What we’re talking about really is replacing one form of foreign conditionality on use of borrowed funds — that being state funds — for another, that being for private funds.

    A good way to think of that is: just because the government in the name of the people isn’t prepared to use external funds the way external creditor would like them to doesn’t mean there aren’t individuals in Greece who will take funds on those terms.

    This, consequently, is a plan that aims to hunt out the scabs in the system: those Greeks prepared to take foreign money with conditionality that appeals to foreign creditors, regardless of what the state does/says in its name.

    Source: Financial Times: A radical idea to bypass the Greek government | FT Alphaville

  24. Got this off the Crooked Timber comments, although I had known he had given the interview. From Piketty in Die Zeit:

    ZEIT: Und jetzt wollen Sie uns erklären, dass unser Wirtschaftswunder auf Schuldenschnitten beruhte, die wir heute den Griechen verweigern?

    Piketty: Genau. Der deutsche Staat war nach Ende des Krieges 1945 mit über 200 Prozent seines Sozialproduktes verschuldet. Zehn Jahre später war davon wenig übrig, die Staatsverschuldung lag unter 20 Prozent des Sozialprodukts.

    “And you now want to tell us [asks the interviewer incredulously] that our economic miracle is owed to debt haircuts that we’re refusing Greece?”

    Picketty responds: “Precisely. At the end of the war in 1945, the German state was indebted up to 200 percent of its GDP. Ten years later, little of this was left, the state debt was under 20 percent of GDP.”

    ZEIT: Viele Deutsche glauben, dass die Griechen ihre Fehler bis heute nicht eingesehen haben und einfach weitermachen wollen mit ihren hohen Staatsausgaben.

    Piketty: Wenn wir euch Deutschen in den 1950er Jahren erzählt hätten, dass ihr eure Fehler nicht ausreichend eingestanden habt, wäret ihr immer noch dabei, eure Schulden zurückzuzahlen. Glücklicherweise waren wir intelligenter.

    “Interviewer: Many Germans believe that the Greeks still haven’t recognized their mistakes and want to continue with their high state expenditures.

    Piketty: If we had told you Germans in the 1950s that you hadn’t paid enough for your mistakes, you would still today be paying back your debt. Fortunately, we were more intelligent.”

    Later he says: anyone who today wants to drive Greece out of the currency union will end up on the garbage heap of history.

    There’s a whole lot of denial in the comments.

  25. bob mcmanus

    I really doubt there will be a coup, but if there were, the next step to imagine is the diaspora of very well-educated intelligent radicalized and very very angry young people to the capitals of Europe.

    It is about time for some propaganda of the deed.

    Looking up Tsakalotos I found him typical in for instance childhood in Brussels, education at Oxford and Sussex, teaching at Kent, British wife. These young people on all sides are much more cosmopolitan and European than previous generations and I think a major part of the problem is an outrage at differential treatment based on borders. This story is less about “nationalism and sovereignty,” I think than it looks. What it is about or will be about is still a little unclear.

    Nationalism as a tool for globalized elite domination and the source of physical violent control of localized bodies, and that this is its last justification, is becoming clear.

  26. gtg

    Papandreiou called a referendum five years ago and he ” resigned ” in favor of a more compliant stand-in, and was told where to put the referendum.

    And the media buried the whole affair, while this is getting wall-to-wall coverage. Stories can still get buried now, so nothing seems to have changed in the reality-distortion department.

    Are wee seeing an intramural manoeuvre here? The U.S. setting up their Euro satraps for a fall so they can move in and cut out the middle-men?

  27. Lisa was mentioned at agonist.

  28. Lisa

    Agree overall that the new coup (the old one being disrupted) will try and have some sort of ‘legitimacy’. That tame western media will then tout it as a ‘victory for democracy and freedom’……

    Using the Ukainian example, getting lots of extremists to ‘riot’ might do the trick. A ‘colour revolution’ is probably unrealistic, they depended on a lot of dumb kids to demonstrate for the right to buy iPhones and the like.

    But the Greek youth have rejected such a thing, so it will be some sort of extremists (maybe even imported ones) to provide the political cover for a coup now. Fake terrorist attacks might be another way, bombing of EU (etc) assets and the like, requiring an intervention or military takeover to ‘ protect the people’. Easy for the US (etc) to rustle up some ‘terrorists’ (ummm special forces) to do the dirty deeds.

    They (US/EU/Germany/UK) will be feverishly planning away right now and it will probably take a couple of months or so to put things into action.

    One way or another (or a combinaton) they will have a go, they are trapped in an internal logic trap that allows no other options.

Powered by WordPress & Theme by Anders Norén