15 Feb 2012

Eurozone reaches its Lehman moment as Germany ‘insults’ Greece

News has just dropped of an extraordinary speech from Greece‘s President at the Defence Ministry in Athens. According to Reuters, the normally apolitical Papoulias, a veteran of the Greek resistance movement against German WW2 occupation, said this of Germany’s finance minister Wolfgang Schaeuble:

“I cannot accept Mr Schaeuble insulting my country… who is Mr Schaeuble to insult Greece? Who are the Dutch? Who are the Finnish?” he said.

I don’t know what the specific insult was. Perhaps it was Mr Schaeuble’s suggestion that Greece should suspend elections and install a non-political Italian-style technocratic Government, to help Greece’s isolated technocrat PM, Mr Papademos.

But offence was certainly being taken by the likely post-election PM of Greece, Antonis Samaras, who was obliged to write a letter to the ECB President Mario Draghi for the second time.

The deal that was voted through as Athens burned in the early hours of Monday morning, suddenly looked like unravelling after the €-donor nations took fright at Mr Samaras’ suggestions that the deal could be renegotiated post-election. That led to the cancellation of today’s Eurogroup meeting. A teleconference took place instead, meant to steady nerves, and reassure.

But some damage has been done, particularly because as a leak of the draft deal to the FT has shown,  it will require ratification in parliaments in the Hague, Helsinki , Berlin etc. As the FT points out, these parliaments could well have to vote blind on this deal, ie before Greece has actually enacted its side of the deal.

These euro bailout negotiations have always been pieces of politics, of economic diplomacy, rather than economics alone. To square off the voting public of one country is difficult enough. When you have diplomatic negotiations like this with a backdrop of angry historical differences, you need a giant vat of goodwill at the top.

The President’s remarks, and some others emanating from Germany and smaller AAA nations such as Holland and Finland suggest that the goodwill is beginning to run dry. The € ‘mini-me’s seem particularly aggrieved about their ability to trust Greek politicians. When you throw in the fact that Greece’s hard left parties now command 42.5 per cent of the polls – more than the ND/ Pasok mainstream coalition that voted through the deal – you can start to see how an election might throw up an “inconvenient” result for the Troika.

Indeed Greece’s finance minister has just said that the Eurogroup asked for commitments from the hard-left parties on backing the deal after an election. No chance, surely.

All the while, the chatter in euro policy circles, as I wrote on Monday, is that the Greek rot will not infect the rest of the euro area. A default could be managed. Even the odd French bank has managed to dispose of much of its exposure. We’ve had months to prepare. And, so the Lehman moment comes full circle. Three and a half years ago we were told exactly the same by Hank Paulson and co re Lehmans: The system, we were told, was strong enough. Finns, Dutch and some Germans increasingly think the same about a Greek default.

*So the statement from the President of the Eurogroup after the teleconference has just dropped: Basically the Greek finance minister has just promised 325m euros of cuts further to those identified ion Sunday, that presumably no Greek gets to have a say in. He “is confident” that all necessary decisions will be taken at the in-person Eurogroup on Monday. But this is the key sentence:

“Further considerations are necessary regarding the specific mechanisms to strengthen the surveillance of programme implementation and to ensure that priority is given to debt servicing. This will strengthen debt sustainability further.”

This could mean a special Troika authority in Athens to oversee payments – some sort of Escrow account so that debt repayments are separated from Greek spending. Perhaps the collateral debate will re-emerge.
In theory these negotiations are solvable. But when you throw in open discussion amons the € AAAs that Greece should postpone its elections – then in practice, the atmosphere just got poisonous.

18 reader comments

  1. Dutch says:

    I am pleased with the views of Mr. Schäuble. The remarks of the Greek president is a disgrace.
    They have themselves to blame by not paying taxes, and those who helped
    them creating these debts, and these
    rating agencies like Moody’s, S&P, Fitch. We have to work till 67 and have to economize to
    support Greece. Please don’t belittle us in your article and be
    glad you British have the pound.

    1. christos says:

      you talk so much crap dutch

    2. christos says:

      Well done Papoulias, a veteran of the Greek resistance movement against German WW2 ,!!!! who the hell are the double dutch?????

    3. I remember german aggression says:

      get stuffed, Dutchman capitulator to Germany. The Greeks resisted the Germans with their blood… what did your country do?

  2. Sidewalker says:

    A phrase with the words “bite, hand and feeds” springs to mind

  3. pierregonzalez says:

    On one side you have the fact that it is clear that Greece didn’t do all what they were supposed to implement in order to obtain the first bail out ( like selling for 50 billions of state assets ) and it is clear that they will not.
    The consequence is that it is logical to be suspicious of their intentions to do what they are promising now to obtain the second bail out.
    On that aspect of the problem , I am afraid that the only reasonable option is to accept that the money of the first bail out is lost and say sorry but we shall not help anymore.
    On the other side Germany should not forget their share of responsibility in the creation of the problem.
    Their salary deflation policy sunk down the economy of all south European countries , not to mention the fact that they were the first ones to break their commitment to respect the first Stability Pact.
    As I said it many times ; why don’t they start by paying to the Greeks the 15 billions they owe in concept of war damages ?
    I am afraid is that the Germans are used of never paying the war damages ( they did the same with the WW1 payments ).

  4. Caliban says:

    Surely, just because the Greeks have consistently not done what they said they were going to do – (right back to the original stability pact when they faked their figures to get into the Euro) – surely, that’s no reason to suppose they will not do what they say they are going to do.

    No wonder they were so affronted!

    I blame those nasty suspicious Germans, and the Dutch, and the Finnish, and well, just about everybody else who knows them.

  5. pierregonzalez says:

    In addition to my previous post about the war damages , a European MP from the German Green Party said that furthermore Germany never gave back to Greece the gold which was stolen from the Greek Central Bank by the German army.
    He values the total of the money owed to Greece by Germany to 81 Billions Euros.
    Come on Merkel , pay your debts !

  6. Yiannis says:

    If the initial amount was, let’s say pierrgonzalez, 45 billion, we got 65 years, continuous compounding, and, let’s say, 4.5% flat rate, this makes us 1 trillion euros German debt to Greece. That’s why Merkel doesn’t want to talk about it.

    1. pierregonzalez says:

      Hi Yannis , the official amount based on the calculation made at the London Conference after the war at 4% interest makes 15 billions .
      To that , if you add the value of the gold stolen from the Bank of Greece during the occupation makes , according to Cohn Bendit around 81 billions Euros.
      The highest amount ever mentioned by Greek people was 161 billions , so quite far from your trillion.
      Surely 81 billions would already improve quite a lot the pictures but if you compare it with the estimated amount of fraud by the super rich which is 360 billions , it is still a small amount.
      I think that it could be easier th get that money because everybody knows from the WW1 that the German never pay their debts.

    2. Yiannis says:

      Everything depends on the compounding Pierre. If the years are 65 and the interest flat at 4.5%, then with continuous compounding you get this value using an initial amount of 45 billion if I remember correctly. I don’t remember the exact numbers because it’s been a while but I remember the astonishing number of 1.06 trillion euros. And trust me, it can’t be only 161 billions. This is just TOO low.

      This thing with tax evasion and the Greeks really gets me started because it’s such a stereotype. It happens everywhere around the world but everybody seems to focus quite a lot on the Greek version of it. I wonder if one could say to a salary-compensated employee in Greece that he doesn’t pay taxes…Perhaps someone should move to Greece for a year and see how taxes are…

  7. pierregonzalez says:

    Hi Yannis : if you take the official numbers as decided after the war Germany owed 7,1 billions US $ value 1938.
    It was alose decided that Germany would start paying only after the reunification. That was decided to help the Germans to avoid paying because after the war nobody believed the communist system would collapse and Germany be reunified.
    So technically speaking Germany owes the money only since 1990.
    Offical calculation with a 3% interest limits the debt at 13 billions US $.
    In January the Greek government presented a c;aim against Germany at the European Court of Justice based on a calculation of 162 Billions Euros including the war damages , the stolen gold , a forced loan never paid back to Greece and damages for massacres and destruction.
    The last request is not very clever as the European Court of Human Rights already ruled after a claim by families of victimsthat individual actions are not legally valid.
    We see what will happen , even if it takes many years and eventually a new German government will decide in 2013 to have a different approach. In any case we are far from your 1 trillion. Good luck.

    1. Yiannis says:

      I like the way you trust the technical version of the information Pierre. I’m also good in C++ but this is real life we’re talking about and real people who lost everything including their lives.

      Nothing seems clever these days and everybody seems quite covered by some law, the way I see it. Ethics have gone out the window obviously so I must be the only romantic around. Bad for me.

      The “deals” that took place after the war so that Germany doesn’t pay, if true because I’m not familiar with that historical item, are just ridiculous. History got born in Greece and at least people there study and remember it. I would suggest some private tuition to all those ignorants in Germany, relying on the “European Court of Justice” and on “after war deals”.

      Anyway, forgive my caustic tone but politeness and discreteness seems to be taken as weakness these days and the German government has always been a very good example of this particular attitude. History tends to repeat itself so the Germans will end up rebuilding ruins again at some point. The EU is the EU not the USE (United States of Europe). PLEASE wake up, those of you sleeping in your nice leather…

  8. pierregonzalez says:

    Hi Yannis , Don’t misunderstand me . The fact that I am trying to explain the legal and historical background of today’s situation doesn’t mean that I agree with it.
    It is more than true that the German got used of never paying their debts since after the WW1.
    By that time they were back by the US who were only worried by the communist threat so they preferred to set up the rest of Europe and keep Germany strong , which meant not paying.
    We ended up with Hitler claiming he had no money to pay France while he was building the most modern army in Europe. Germany finally paid to France 17% of the amount agreed after the war and last payment took place in 2010.
    The same happened after WW2 ! The US were only worried about Stalin and they didn’t want to have Germany to spend a Dollar to repay any war damages !
    And be alsoconvinced that the US would have never entered WW2 if they would not have been attack by the Japanese. For them Hitler was a protection against communism.
    I agree with you that normal people pay for that the same way Spaniards stayed with Franco because the US didn’t want a risk of a communist government in Spain.
    World is rules by the US for the US. Sorry.

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