The Eurozone’s Damaging Deal for Greece


JULY 13, 2015

In the end, after trying every possible tactic, Prime Minister Alexis Tsipras of Greece threw in the towel and accepted the toughest demands yet made by creditors to extend life support for Greece and keep it in the eurozone. That may avert an immediate catastrophe, but there is little to celebrate since it will do little to address, much less repair, the slow-moving disaster of the Greek economy.
The Greek Parliament has to approve the main portions of the package by Wednesday just to start negotiations on a new three-year bailout of up to 86 billion euros ($96 billion). Despite pleas from the Greeks for debt relief, the creditors gave only vague indications that they might consider easing terms on Greece’s total debt of more than 300 billion euros, which it cannot possibly repay.
Mr. Tsipras certainly didn’t help his cause with the European leaders by calling for a confusing last-minute referendum, in which Greek voters rejected an earlier bailout deal. And now his capitulation has enraged members of his left-wing Syriza party, raising the possibility of another national election, with the attendant unknowns, or at least a thorough reshuffling of the government.
The guiding notion behind the creation of the European Union was to resolve problems like this through consensus and cooperation. Instead, the final 17-hour negotiating session was marked by acrimony not only between Greece and the European leaders, but also between Germany and France; between the German finance minister and the head of the European Central Bank; between north and south, east and west.
So the tragedy is not only that the Greek debt crisis has no end in sight, but that instead of the one-for-all-and-all-for-one ethic that was supposed to govern Europe, the rancorous talks showed a roomful of national leaders with sharply differing conceptions of what to do about a bankrupt fellow member. 

The Greek Parliament is likely to accept the deal, if only because there is no choice. Austerity will remain firmly in place, and the increased taxes and reduced pension payments imposed in the package will only further erode the demand that the Greek economy needs to avoid a deepening depression. The deal also requires that a fund be created to sell off public assets worth 50 billion euros to repay debts and recapitalize banks, a condition hard for a socialist government to swallow, and continued monitoring of Greece’s adherence to bailout terms by the International Monetary Fund.

Chancellor Angela Merkel of Germany, the one who should be most dedicated to European unity, declared after the deal was sealed that its “advantages far outweigh the disadvantages.”
The one advantage of the agreement reached early Monday is that it buys some time. But unless that time is used to discuss how to really reduce the Greek debt and restore its moribund economy to life, it will not be long before eurozone leaders are locked in another agonizing debate about what to do. Germany and its allies have driven a hard bargain, but in forcing Greece to submit they have not resolved the crisis of the monetary union or advanced the European project.

Saving Greece, Saving Europe

Barry Eichengreen

JUL 13, 2015

Merkel Tsipras

BERKELEY – Whatever one thinks about the tactics of Greek Prime Minister Alexis Tsipras’s government in negotiations with the country’s creditors, the Greek people deserve better than what they are being offered. Germany wants Greece to choose between economic collapse and leaving the eurozone. Both options would mean economic disaster; the first, if not both, would be politically disastrous as well.
When I wrote in 2007 that no member state would voluntarily leave the eurozone, I emphasized the high economic costs of such a decision. The Greek government has shown that it understands this. Following the referendum, it agreed to what it – and the voters – had just rejected: a set of very painful and difficult conditions. Tsipras and his new finance minister, Euclid Tsakalotos, have gone to extraordinary lengths to mollify Greece’s creditors.
But when I concluded that no country would leave the eurozone, I failed to imagine that Germany would force another member out. This, clearly, would be the effect of the politically intolerable and economically perverse conditions tabled by Germany’s finance ministry.
German Finance Minister Wolfgang Schäuble’s idea of a temporary “time out” from the euro is ludicrous. Given Greece’s collapsing economy and growing humanitarian crisis, the government will have no choice, absent an agreement, but to print money to fund basic social services. It is inconceivable that a country in such deep distress could meet the conditions for euro adoption – inflation within 2% of the eurozone average and a stable exchange rate for two years – between now and the end of the decade. If Grexit occurs, it will not be a holiday; it will be a retirement.
Early Monday morning, European leaders agreed to remove the reference to this “time out” from the announcement of the latest bailout deal. But this door, having been opened, will not now be easily closed. The Eurosystem has been rendered more fragile and subject to destabilization. Other European finance ministers will have to answer for agreeing to forward to their leaders a provisional draft containing Schäuble’s destructive language.
Economically, the new program is perverse, because it will plunge Greece deeper into depression. It envisages raising additional taxes, cutting pensions further, and implementing automatic spending cuts if fiscal targets are missed. But it provides no basis for recovery or growth. The Greek economy is already in free-fall, and structural reforms alone will not reverse the downward spiral.
The agreement continues to require primary budget surpluses (net of interest payments), rising to 3.5% of GDP by 2018, which will worsen Greece’s slump. Re-profiling the country’s debt, which is implicitly part of the agreement, will do nothing to ameliorate this, given that interest payments already are minimal through the end of the decade. As the depression deepens, the deficit targets will be missed, triggering further spending cuts and accelerating the economy’s contraction.
Eventually, the agreement will trigger Grexit, either because the creditors withdraw their support after fiscal targets are missed, or because the Greek people rebel. Triggering that exit is transparently Germany’s intent.
Finally, the privatization fund at the center of the new program will do nothing to encourage structural reform. Yes, Greece needs to privatize inefficient public enterprises. But the Greek government is being asked to privatize with a gun held to its head. Privatization at fire-sale prices, with most of the proceeds used to pay down debt, will not put Greek parliamentarians or the public in a mood to press ahead enthusiastically with structural reform.
Greece deserves better. It deserves a program that respects its sovereignty and allows the government to establish its credibility over time. It deserves a program capable of stabilizing its economy rather than bleeding it to death. And it deserves support from the ECB to enable it to remain a eurozone member.
Europe deserves better, too. Other European countries should not in good conscience accede to this politically destructive, economically perverse program. They should remind themselves that Greece had plenty of help from its European partners in getting to this point. They must continue to push for a better deal.
These partners should not allow the European project to be sacrificed on the altar of German public opinion or German leaders’ insistence on “rules.” If Germany’s government refuses to see the light, the others should find a way forward without it. Franco-German solidarity would be irreparably damaged, but Franco-German solidarity is worth nothing if the best it can produce is this agreement.
Last but not least, the German public deserve better. Germans deserve a leader who stands firm in the face of extremism, rather than encouraging it, whether at home or abroad. They deserve a Europe that can play a greater role in global affairs. Above all, given Germany’s stunning political and economic achievements since World War II, they deserve their fellow Europeans’ admiration and respect, not renewed resentment and suspicion.

Three unedifying lessons of the Greek deal

Gasp at hubris of EU leaders who think they can overrule domestic politics, writes Martin Sandbu

by: Martin Sandbu

epa04843942 Greek Prime Minister Alexis Tsipras (C) talks with German Chancellor Angela Merkel (L) and French President Francois Hollande at the start of eurozone leaders' summit on the Greek crisis at the European Council headquarters in Brussels, Belgium, 12 July 2015. Greece is teetering on the edge of default, cut off from bailout aid, in arrears to the International Monetary Fund (IMF), owing large debt repayments this month and fending off suggestions that it could soon exit the eurozone. EPA/OLIVIER HOSLET
Greek Prime Minister Alexis Tsipras (centre) talks with German Chancellor Angela Merkel (left) and French President François Hollande

At least Alexis Tsipras avoided having to send Greece’s fairest one hundred maidens in tribute to Berlin. Apart from that, the Greek prime minister has had to concede on pretty much everything the other members of the euro demanded.

The details are still trickling out about the political agreement struck by the all-night eurozone summit, and there are a lot more decisions to be made in the coming days. But we can already draw three lessons. None is particularly edifying.

First, the decisions Europe’s busiest politicians find it appropriate to make are outright bizarre. The draft document that the eurogroup of finance ministers prepared for leaders on Sunday contains, among other things, a specific requirement to improve competition among … bakeries.

Perhaps the bakers of Greece need more competition. Perhaps, at a stretch, we can find some reason why this would contribute to a higher Greek growth rate. But we should gasp at the hubris of a class of European politicians who think both that their time is well spent doing this kind of micromanagement and that their preferred micro-policies are so conducive to growth they can overrule the domestic political process.

Greece unquestionably needs reform. But remember where the country was just a year ago. Austerity was paused in 2014, which allowed growth to return. Athens was in a primary surplus and needed no further financial aid — only extensions to smooth out the steep repayment cliffs in 2015 and 2016 that the eurozone and the International Monetary Fund recklessly left unchanged in the 2012 restructuring. Would it really have been so hard to simply grant the extensions (without haircuts), let the growth rebound continue (which would have increased the ability to service the debt) and leave Greeks to fight out whether and how to fix their country (or not)?

Second, the one constructive party in the past few weeks has been France. After five years of playing second fiddle to Germany — and to Berlin’s tune at that — Paris rediscovered its status as coequal leader of the European project. For all its sternness, Germany does not want to go it alone. The health of the euro would have been stronger today had France retrieved its confidence sooner.

But note what it took. Once Grexit was publicly contemplated at the highest levels in Berlin, the scene was being set for a return to speculative attacks on France itself — not tomorrow, not the day after, but certainly one day. This, we must recall, was the main French motivation for monetary union in the first place. Grexit would have eliminated the main raison d’être for the single currency as seen from Paris.

Finally, Greece capitulated because the European Central Bank forced it to do so. In flagrant defiance of its treaty obligation to support the general economic policy of the eurozone — which includes since June 2012 a requirement to separate the health of the banking system from the solvency of sovereigns — the ECB forced a shutdown of the Greek banking system and made clear it would only let it function again once a deal on sovereign finances had been struck.

This has established beyond any doubt that the independence of the eurozone’s central bank from politicians is nothing of the sort. Far from being independent, the ECB does governments’ bidding. But its dependence is selective — and that is something that should worry the citizens of eurozone nations beyond Greece.

Martin Sandbu writes Free Lunch, the FT’s daily premium newsletter on global economics

Greek deal poisons Europe as backlash mounts against 'neo-colonial servitude'

'It is now perfectly clear to a lot of people that the only way out of neo-colonial servitude is to break free of monetary union,' said one Syriza rebel

By Ambrose Evans-Pritchard

9:08PM BST 13 Jul 2015

The shadow of a Greek Presidental Evzoni guard falls on the parliament building as protesters gather to demonstrate against austerity after an agreement for a third bailout with eurozone leaders on July 13, 2015 in Athens, Greece

The terms imposed after marathon talks through the night on Sunday are far harsher than those rejected by Greek voters in a landslide referendum a week ago Photo: Getty
Greek premier Alexis Tsipras faced a furious backlash from own Syriza party on Monday night after yielding to draconian demands from Europe’s creditor powers, and agreeing to let foreign surpervisors to take control of his country.
The bitter climb-down clears the way towards an €86bn rescue package and the renewal of emergency liquidity for the Greek banking system, once Greece’s parliament has voted for pension cuts, tax rises and a raft of other measures by Wednesday. This is the first of a series of deadlines as the country is kept on a tight leash.
The terms imposed after marathon talks through the night on Sunday are far harsher than those rejected by Greek voters in a landslide referendum a week ago, and risks shattering democratic consent in Greece. It has left Europe bitterly divided along North-South lines of cleavage, severely testing the political cohesion of monetary union.
“Greece has been devastated and humiliated. Europe has showed itself Pharisaical, incapable of leadership and solidarity,” said Romano Prodi, the former Italian prime minister.
An independent fund will take control of €50bn of Greek state assets, collateral to prevent Syriza reneging on the deal at a later date. Three-quarters of this will be sued to recapitalise the Greek banks and repay debt.

International inspectors will have the power to veto legislation. The radical-Left Syriza government will be forced to repeal a raft of laws passed since it took power in January, stripping away the last fig leaf of sovereignty.

“It is unconditional surrender. We get serious austerity with no debt relief. We will have foreign supervisors crawling over everything,” said Costas Lapavitsas, a Syriza MP and one of 40 or so rebels who plan to abstain or vote against the deal, mostly from the Left Platform.

“They are telling us that from now on, they are going to govern the country. I am afraid there is going to be a real fight about this. There is a groundswell of anger and it is now perfectly clear to a lot of people that the only way out of neo-colonial servitude is to break free of monetary union,” he said.

The Independent Greeks party (ANEL) in the ruling coalition called the deal a “German coup” and said it would not have anything to do with it. The government is close to collapse.

Mr Tsipras gave in after being locked in all-night talks with German Chancellor Angela Merkel and French president Francois Hollande, an ordeal described by one EU official as psychological “water-boarding”.

He was left with a grim choice as Greek banks ran out of cash and after two weeks of capital controls had brought industry to a halt. Food companies warned that the country will start to run out of beef and other imported meats within days and could face serious food shortages by the end of the month unless the banking system is reopened, and firms can pay foreign suppliers once again.

The European Central Bank has yet to lift its freeze on emergency liquidity for the Greek financial system. The banks will remain shut through Wednesday.

Yanis Varoufakis, the former finance minister, said Greece had been forced to accept a latter day “Versailles Treaty” that will leave the country languishing in perma-slump for years to come.

There is no guarantee yet that Greece will receive a fresh tranche of funds. The first raft of measures merely open the door for another set of gruelling talks to secure a package from the eurozone bail-out fund (ESM), with yet more sweeping demands.

In the meantime, Greece will need €12bn in bridging finance to clear its arrears to the IMF – now €2bn after missing a fresh payment - and to cover debt repayments in July and in August.

This is likely come from the European Commission currency stabilization fund, which ropes in Britain and other non-euro states.

Mr Tsipras sought to put the best possible face on the deal, insisting that he had prevented “the transfer of public property abroad, financial asphyxiation and the collapse of the banking system”.

He claimed that Greece had secured a debt restructuring, yet the summit text offers no more no more than a vague promise, despite intense pressure from the US Treasury and the International Monetary Fund for serious relief.

The creditors mention a “possible” extension of maturities at a later date, but only once the Greeks have delivered on a long string of prior measures. The creditors made similar noises in 2012 but failed to deliver.

Mr Tsipras will have to rely on centrist and conservative MPs to carry the deal through parliament, and may ultimately be forced to form a national unity government – leaving him in an invidious position as the "Ramsey MacDonald" of the Greek Left.

Christian Odendahl and John Springford from the Centre for European Reform said the new bail-out “resolves nothing” and is likely to fall apart even if it gets through the Greek parliament. It repeats the errors of previous packages that imposed self-defeating levels of fiscal contraction. “A fresh round of consolidation will raise the Greek debt-GDP ratio, not lower it,” they said.

“Germany’s strategy is clear: impose harsh conditions on any government that seeks to change the austere rules of the game, knowing that electorates in Greece and elsewhere are terrified of the leap into the unknown that would be exit from the euro,” they said.

“The bailout’s economic incoherence will lead the agreement to unravel eventually. Grexit is still very much on the table."

Alexis Tsipras, Greece's prime minister

Peter Kazimir, the Slovak finance minister, said Greece is paying the price for indulging in a “Greek Spring” under the Syriza movement, a view widely shared in the former Communist states of central Europe and the Baltics, as well as in Finland, Holland and Germany.

Yet this is matched by a widespread feeling in Italy and France that Germany abused its hegemonic power in the eurozone to push a narrow, mean-spirited agenda, a regret shared by much of the German Left and the country’s pro-European wing.

“Even if a deal can eventually be reached to keep Greece in the euro area, the ramifications of this weekend’s incredible bloodletting will have long-term consequences,” said James Nixon from Oxford Economics.

“The damage done to relations between France and Germany may prove irredeemable, while the German suggestion that Greece be granted a short term euro area surely shatters the principle that membership of the euro area is irrevocable.

“The sight of Greece effectively being hung out to dry will surely trigger a popular backlash against austerity. That fault line may now become more exposed with the political establishments of the European south lining up against the governments of the North."

Read This, Spike That

What’s Next for Greece?

U.S. stock indexes were up strongly on news of an 11th-hour bailout. But several articles suggest the euphoria could wear off soon.

By John Kimelman           

July 13, 2015 5:58 p.m. ET

When the broader U.S. stock market can move by a more than two percentage points over a two-day period on news tied a Greek bailout, it’s fairly evident that Greece’s fate matters to U.S. investors.

Granted, it probably doesn’t matter as much as the barrage of stories about the deal Monday might suggest. Still, it matters.

I have had a chance to quickly scan more than a dozen Greece stories in the past couple of hours. Easily the best of the lot are the ones that at least seek to advance the ball on the story.

And for those who are looking beyond today’s seemingly good news, the story isn’t nearly as celebratory.

A piece on The Wall Street Journal’s site quotes economists and analysts who worry that the latest European bailout of Greece isn’t likely to work any better than previous deals in 2010 and 2012.

“It’s just a continuation of failed policy packages, and if anything it’s worse,” the Journal quotes Charles Wyplosz, professor of economics at the Graduate Institute of International Studies, Geneva. “It hasn’t worked, it won’t work.”

The Washington Post weighed in with an excellent piece both explaining the crisis for those who need to be brought up to speed and also looking ahead.

“In the end, Europe’s wealthy powers decided to grant Greece a new lifeline in exchange for new budget-cutting and tax-hiking measures, and Greece is slated to avoid a sudden banking collapse that would probably have forced it out of the 15-year-old currency pact,” writes the Post’s Matt O’Brien.                  

But looking forward, O’Brien writes that risks remain that could undermine the deal.

”The main dangers ahead appear to be political,” he writes. “The latest round of the crisis, after all, began after Greece elected Syriza, an anti-austerity party, to form the government. It is possible that domestic political upheaval in Greece could, in coming days or months, unravel the agreement with Europe. And given that Greece is now likely to undergo a period of long economic pain, that might increase the risk of political instability.”

More immediately, the process for reopening the banks or easing capital controls, which prevented Greeks from moving money offshore, still needs to be worked out.

Though there are potential storm clouds looming over this deal, the markets for now seem to believe that a deal is a deal and that Greece will remain in the European union.

Not only have stocks rallied, so has the dollar.

As CNNMoney’s Paul La Monica wrote today, some market watchers had been suggesting that the Fed might hold off on an interest rate hike in September if Greece left the eurozone because that event could destabilize the global financial markets.

“But Steven Englander, a currency strategist at Citigroup, wrote in a report Monday morning that the market is viewing the Greece news as a sign that a September rate increase is still likely,” writes La Monica. “If the Fed raises interest rates in September, then the dollar should continue to gain value against the euro. Higher rates usually lead to a stronger currency.”

In other words, a Greek deal that sticks should translate to greater optimism about the U.S. economy, which would give the Fed the green light to raise interest rates sooner rather than later. A strong U.S. economy coupled with rising short-term rates should help the greenback.

But if that rising dollar scenario plays out, will it help the stock market? Writes La Monica: “It could hurt profits for big multinational companies with significant exposure abroad. That could be a problem for the stock market.”

Why Isn't My Gold Shining?

 by: Nikhil Gupta            

  • Gold underperforms in times of economic crises, down 3% for the year.
  • Demand failing to pick up as investors rush towards US dollar and equities.
  • Technicals suggest that price may head down to $1100-$1130.
Gold bulls have been left perplexed with the grave underperformance (down nearly 3% for 2015) of the "safe-haven" asset even as the global financial markets continue to be hit by one turmoil or the other on a timely basis. What's worse is that there are no significant indications -fundamental or technical - which point to a swift reversal in the price of the precious metal.

Over the past year, we have had several global events which would have usually contributed to a rise in the price of gold. However, the bullion markets have rejected all of these events, including the recent Greece crisis, the geopolitical tensions, and many others, as insignificant factors.

This has prompted every gold bull - prospective or current - to think, "What will cause an uptick in its price?"

Reasons why gold has failed to climb

There are several reasons contributing to the underperformance of gold.

Greece Crisis Is Nothing - Mayhem is usually the world which gets the gold bulls ticking, however, this time the market looks in no mood to entertain the repetitive scenarios in the ongoing Greece drama. The bullion market has probably priced in that even if Greece exits (I believe the chance of a Grexit is very less), it won't cause a major disruption in the global financial market. This is, in a way, good news for the world economy and also suggests that the fears of the impact of a Grexit on the global financial system are blown out of proportion.

According to the latest development reported byThe Washington Post, the Greek government has sought 50 billion Euros over the next 3 years from the creditors in a last-ditch effort to retain its spot in the Eurozone. In exchange, the Tsipras-led government has offered to carry out painful spending cuts and hike taxes which total to significantly more than the previous commitments.

Did Greece deceive its people on this? Maybe yes. Did Greece bluff the gold market? Definitely Not!

The Ever-eluding US Fed Rate Hike - The Chair of the US Fed, Janet Yellen said on Friday that the world economy should be prepared for a rise in the interest rates later in 2015. Earlier, the market was expecting the same in Fed's June policy which but the action later shifted to the September meeting. And now, even September has been ruled out!

Investors are, however, sure that a rate hike is coming, sooner or later, and hence, they are more attracted towards the greenback and shunning gold as a safe-haven investment.

Equities Have Become Attractive - There is no doubt that global financial markets are in a risk-on mode which makes equities as an investment class far more rewarding. Or in better terms, "global markets are much less fearful now."

Nasdaq is up ~5%, DAX is up >10% and Hang Seng is up ~4% YTD.

Equity investors are now on the lookout to buy good stocks on dips instead of investing the same dollars in an "unattractive metal" such as gold.

The China Story - I believe that Gold is mostly sentiment-driven. Many would have expected the slowdown in the world's biggest economy China (on PPP valuation) to cause a stir and buoy the price of the yellow metal. Gold, has instead, shrugged off these fears completely, indicating that the slowdown is not as acute as was earlier thought.

The recent rout in the Chinese stock market was also seen as a precursor to the good times for gold bulls. However, the reverse has happened. According to a recent WSJ report, "investors in China have resorted to heavy gold-selling in order to raise cash in the aftermath of the stock market collapse, further depressing the value."

Lower Oil Prices - Oil prices are still significantly lower now than in earlier half of 2014, and there are heightened expectations that oil will remain lower for the next one year.

The International Energy Agency sees lower oil prices as the world remains massively oversupplied.

It forecasts that the prices need to trend lower to curb excess supplies or else oil will fail to rally.

Market Action - According to the latest data from the US CFTC, US futures market has seen a cut of 8% in long positions in Managed Money while short interest advanced by 17 % in the week to June 30.

But Has Gold Lost Its Sheen For Ever?

Well, I wouldn't dare go that far to say that gold will never become attractive again. It is a metal which has wide applications, and it will stage a comeback sooner or later, or when the market realizes that all other asset classes have been highly overbought and it's time to book profits in those and invest in an undervalued asset class.

Please take a look at the Weekly Gold Spot price chart below. According to the chart below, gold has been trading in a downward range since early 2014. But the latest price action suggests formation of a bearish Head and Shoulders pattern (marked in the chart).

(click to enlarge)
Image: FXStreet

As can be seen, gold is at a crucial point at $1160, below which it may witness a strong selling pressure. The downside target for this trade would be $1100-$1130.

It must also be noted that since early 2014, the Money Flow Index has also been in a downward pattern, according to which, the next support would be a sub-20 level. Levels below 20 signify extremely oversold conditions and may attract huge inflow in gold ETFs. The physical demand for gold is also expected to pick up near those levels, at least in China and India which have emerged to be the biggest consumers of the yellow metal.

The Relative Strength Index value of 41.8361 is also at the neckline of a small Head and Shoulders Pattern. A break in the underlying strength reading could be ominous for the bulls.

Why am I stressing over the small H&S patterns? Because, such patterns are completed most of the time. This suggests that investors can postpone their purchase program and wait for cheaper, low-risk levels to enter the bullion market.

Humiliation; Arrogance; Crucifixion; Demolition of Eurozone Project

By: Mike Shedlock

Mon, Jul 13, 2015

As I further ponder on the Breathtaking Political Capitulation of Greek prime minister Alexis Tsipras I still seek an explanation for his stunning reversal. Here is a short recap.

Shockingly Stupid Sequence of Events 
I am seldom stunned by political stupidity. In fact, I am surprised when I don't see it. 
Yet, I have never witnessed a political reversal so shockingly stupid as we saw tonight from Greek Prime minister Alexis Tsipras. 
For months on end Tsipras claimed he would not accept blackmail by Germany. He rejected Germany's "final offer" in favor of a referendum. 
He encouraged Greek citizens to vote "no" to the bailout referendum. Then they did, by an overwhelming majority. 
Tsipras then reversed himself 180 degrees, and accepted the newest "final offer" that was far worse than the one he turned down a short while ago.

The deal was so harsh that I agreed with Paul Krugman's description of "grotesque".

I retyped most of the four-page proposal here because the document copied about one character at a time thanks to some weird PDF encoding: Tsipras' Choice: Total Capitulation or Grexit; Text of 4-Page Eurozone Demands.

 Telegraph Explanation

Ambrose-Evans Pritchard explained in advance that Tsipras did not expect to win the yes-no referendum and had to change course when he did.

Six days ago, In Europe is blowing itself apart over Greece - and nobody seems able to stop it, Pritchard wrote "Prime Minister Alexis Tsipras never expected to win Sunday's referendum. He is now trapped and hurtling towards Grexit. He called the snap vote with the expectation - and intention - of losing it."

Pritchard's explanation makes for good copy, but does not pass the Mish "smell test". If Tsipras really wanted to lose, he would have made a lukewarm endorsement for 'no'. Instead, he threw every word in the book at Germany including a demand for Nazi war reparations while making overtures with Russia.


I don't accept Pritchard's explanation. To directly campaign, and campaign exceptionally hard, for an outcome one does not want makes no sense.

Instead, I offer a simpler explanation: Tsipras is an arrogant fool. He had far too much confidence in his own ability to make the world see things his way.

Stupidity alone does not provide the answer, but an amazing amount of arrogant belief in oneself to the bitter end, that Germany would eventually bow down and kiss his feet is the likely answer.


Tsipras has humiliated himself while destroying any hope Greeks had. He refused to resign and it's highly likely his coalition splinters to smithereens in short order.

It would be best for Greece if it splinters now, but the likeliest outcome is the coalition busts apart after the Greek parliament votes for servitude and pledges €50 billion in assets.

Tsipras should resign, but arrogant fools don't do that.

 Pledged Assets

Inquiring minds may be wondering What Assets Will Greece Pledge?

The Wall Street Journal explains ...

The statement merely requires that they be "valuable." After six years of recession and counting, Greek liquid assets are scarce; presumably hard assets like beautiful Islands and national treasures are off limits. One likely source of said assets are the new bank shares that the Greek government will acquire with the money it will borrow from the eurozone's bailout fund to recapitalize the country's banks.

Islands off limits? We will see. Greek banks are not worth €50 billion for sure. In fact, they are bankrupt, with negative worth. Ten years from now will they be worth something? What about airlines, airports, bus terminals, and electrical companies?

The Journal did not state so but any infrastructure assets owned by the government will surely be on the block.

 Defeat Snatched From Jaws of Victory

The Financial Times reported the deal nearly fell through at 6:00AM this morning when after 14 hours of negotiation, when both Merkel and Tsipras headed for the door.

Donald Tusk, the president of the European Council snatched defeat from the jaws of victory with ‘Sorry, but there is no way you are leaving this room'. Next up ....


"They crucified Tsipras in there," a senior eurozone official who had attended the summit remarked. "Crucified."

 Demolition of Eurozone Project

With crucifixion of Tsipras, and more importantly of the Greek people, Wolfgang Münchau accurately assesses the developments this way: Greece's Brutal Creditors Have Demolished the Eurozone Project.
A few things that many of us took for granted, and that some of us believed in, ended in a single weekend. By forcing Alexis Tsipras into a humiliating defeat, Greece's creditors have done a lot more than bring about regime change in Greece or endanger its relations with the eurozone. They have destroyed the eurozone as we know it and demolished the idea of a monetary union as a step towards a democratic political unión. 
In doing so they reverted to the nationalist European power struggles of the 19th and early 20th century. They demoted the eurozone into a toxic fixed exchange-rate system, with a shared single currency, run in the interests of Germany, held together by the threat of absolute destitution for those who challenge the prevailing order.
On Saturday, Wolfgang Schäuble, finance minister, insisted on a time-limited exit -- a "timeout" as he called it. 
I have heard quite a few crazy proposals in my time, and this one is right up there. A member state pushed for the expulsion of another. This was the real coup over the weekend: not only regime change in Greece, but also regime change in the eurozone. 
The fact that a formal Grexit may have been avoided for the moment is immaterial. Grexit will be back on the table when you have the slightest political accident -- and there are still many things that could go wrong, both in Greece and in other eurozone parliaments. Any other country that in future might challenge German economic orthodoxy will face similar problems. 
This brings us back to a more toxic version of the old exchange-rate mechanism of the 1990s that left countries trapped in a system run primarily for the benefit of Germany, which led to the exit of the British pound and the temporary departure of the Italian lira. 
What should the Greeks do now? Forget for a moment the economic debate of the past few months, over issues such as the impact of austerity or economic reforms on growth. 
Instead ask yourself this simple question: do you really think that an economic reform programme, for which a government has no political mandate, which has been explicitly rejected in a referendum, that has been forced through by sheer political blackmail, can conceivably work? 
Previously, the strongest argument against any forecasts of break-up has been the strong political commitment of all its members. If you ask Italians why they are in the eurozone, few have ever pointed to the economic benefits. They wanted to be part of the most ambitious project of European integration undertaken so far. 
"We will soon be asking ourselves whether this new eurozone, in which the strong push around the weak, can be sustainable". 
But if you take away the political aspiration, you may end up with a different judgment. From a pure economic point of view, we know that the euro has worked well for Germany. But for Italy, it has been an unmitigated economic disaster. The country has seen virtually no productivity growth since the start of the euro in 1999. If you want to blame the lack of structural reforms, then you have to explain how Italy managed decent growth rates before then. Can we be sure that a majority of Italians will support the single currency in three years' time? 
Once you strip the eurozone of any ambitions for a political and economic union, it changes into a utilitarian project in which member states will coldly weigh the benefits and costs, just as Britain is currently assessing the relative advantages or disadvantages of EU membership. In such a system, someone, somewhere, will want to leave sometime. And the strong political commitment to save it will no longer be there either.
Final Thoughts

In my opinion, that is the best article Wolfgang Münchau has ever written.

Like Economist Paul Krugman, and unlike myself, Münchau was a strong supporter of the eurozone "project".

I maintain that the eurozone has too many flaws to possibly work. That Tsipras caved in at the last moment changes nothing, and it even appears that Münchau has come to grips with that reality.

In Critics Flock to Site "ThisIsACoup"; Killing the European Project; Illusions; Who's Going to Pay?, I offered my take on why the eurozone would fail.

Prior to that, in From ZIRP to NIRP: Virtues of Germany vs. the Vices of Greece; What About "Speece" and Gold? I explained in detail why blaming Greece alone was entirely wrong.

Crucifixion Does Not Change Reality

I still stand by my analysis. The eurozone remains fatally flawed. Humiliation, even crucifixion, does not change reality.

Indeed, it likely assures an even more violent eurozone breakup sometime down the road.


by Jeff Thomas

July 13, 2015

Recently, we’ve witnessed the bank holiday in Greece, the limitation as to how much the Greek people can withdraw from their accounts each day.

Not surprisingly, the mainstream press have focused on images such as the one above - a queue at an ATM - and discussed the difficulty of the Greek people in trying to run their lives on the €50-€60 that they’re allowed to withdraw each day.

The press then comment poignantly that “Something needs to be done.” The implication is that “someone”, either the banks or the government, need to find a way to deliver these people more money, so that they can continue to function economically.

Of course, the problem, and the very reason for the bank holiday in the first place, is that the money simply doesn’t exist.

For many years, governments have been attempting to expand the economy by encouraging debt. Governments (most notably the EU and US) have borrowed far more than they ever have in history, to the point that they’re now facing insolvency.

Further, the average citizen has been programmed to think that he can get ahead through increased debt. As a result, personal debt has risen to an unprecedented level.

But in order for someone to borrow, someone must offer to lend, and, of course, the banks have been the lenders. Banks typically make their profits by taking in deposits, then loaning out that money to others, making their profits on the interest.

This is a system that began in Europe hundreds of years ago and, although it has repeatedly resulted in disaster, continues to be the standard by which banks operate.

Theoretically, it’s a workable idea.

The banks maintain, say, 10% of the deposits in order to service daily transactions by depositors, and they loan out the rest. As long as depositors do not lose faith in the system and arrive in droves to take out their deposits, the system continues to work.

But today, when a bank provides a loan, it doesn’t hand over stacks of paper bills to the borrower. It simply processes a credit to his account. This allows the bank to offer far more loans and far larger loans.

If a bank holds, say, $10 million in deposits, it could conceivably offer $100 million in loans. That money, of course, does not exist, except as an electronic credit, but it allows the bankers to increase their profits tenfold.

Quite a temptation.

And it’s a temptation that has, at this point, become the norm in much of the world. What we’re witnessing is the greatest credit bubble/debt bubble that mankind has ever seen. What we’re seeing in Greece is not merely a country of socialistically inclined people behaving very foolishly. We’re seeing a small pin pricking a very large balloon.

(Editor's Note: Doug Casey recently wrote a very relevant article on this topic. Click here to read Unsound Banking: Why Most of the World’s Banks Are Headed for Collapse.)

As Goes Greece, So Goes the World

The tedious drama that we’ve been observing in Greece in recent years is far from over. Greek debt is tied to EU debt. EU debt is tied to world debt. The coming debacle may unfold in this manner:

• Greeks try to adjust to subsistence living, on what little the banks allow them daily.

• They make no payments on their own debt, as even mere subsistence is difficult.

• Companies do the same, as they’re having a hard time just paying wages and other overheads and can’t afford to pay interest on their loans.

• Greek banks continue to provide depositors with an “allowance”, whilst their income source (interest on loans) dries up.

• Banks become insolvent and cease paying “allowances” altogether. (And remember, this is the depositors’ own money that will be denied them.)

But, as stated above, Greece is not alone. Other EU countries that are on a similar precipice will be similarly affected. Each country, each “domino”, will fall more quickly than the one before it, as its people, having observed the pattern in other countries, lose faith in the system.

Meanwhile, governments will side with the banks, giving them free rein to do whatever they wish to save themselves, at the expense of depositors. Cashtration has begun in Greece but will spread to every country where banks have overstepped the mark and gone on a loan-provision spree in recent decades.

Further, a country such as Canada, which has not been so cavalier as the EU and US, is so inextricably linked with the US through banking and commerce, it will find itself equally impacted, even though they themselves tried to take a more responsible approach to loans.

In the midst of this, the populations of all affected countries will cry out for their governments to “Do something!”

Governments will respond by trying to cover their own responsibility in this debacle, as they have, for decades, been, not only the enablers of the bank debt spree, but have additionally run the governments themselves into debt beyond what can be repaid.

There will be no “solution”, as such. There will be an economic collapse and a Greater Depression.

At this point the reader may say to himself, “So, that’s it; we’re all toast. If this analysis is correct, there’s no hope for anybody.”

Not so. For anyone who has ever been a guest at a really great party, where the food and wine were seemingly endless and the mood infectiously jubilant, the outside world seemed not to exist. At a great party, the world outside appears unimportant.

Still, there are those who were either not invited, or chose not to go. They continued their lives soberly. In the aftermath of the party, they watch as the hung-over revellers leave. Although they may look upon the partygoers with disdain, they get on with their lives, relatively unaffected.

It’s the same with an “economic party”. Not everyone attends. Which is to say that there are presently countries where it is, and has always been, difficult to get a loan, either to buy a car or house, or to start a business.

Presently, these countries are looked upon as “backward”, as they are not charging ahead, as the more “prosperous” countries are. However, in the aftermath of The Great Economic Party, these countries will continue, relatively unaffected.

It’s left to the reader to determine to what degree his own country is involved in the party and to what degree his country will be impacted as the balloon pops. His assessment will suggest to what degree he will personally be “cashtrated”: forced by emergency conditions to be placed on an “allowance” by his bank and, eventually, to have that allowance end altogether as funds run out.

Sorry to say, it’s likely that the great majority who live in such jurisdictions will, as suggested above, be “toast”.

But there will be some who observe Greece and realize that the condition will spread and that there will be no solution by governments. They will take advantage of the brief time available and internationalise themselves as much as they are able.

It’s not the end, except for those who choose to remain at the party too long.

That Pluto Probe Just Might Save the Earth

It will give us new insights into planet-threatening comets, so humans won’t go the way of the dinosaurs.

By Michio Kaku

July 13, 2015 6:36 p.m. ET

The dwarf planet Pluto.         
The dwarf planet Pluto. Photo: Getty Images/NASA

Imagine shooting a rifle at a target 130 miles away and scoring a bull’s-eye. That is the remarkable achievement of NASA’s historic New Horizons mission to Pluto, the last major celestial body in the outer reaches of the solar system to be visited by NASA space probes. One chapter in the exploration of space is now ending.

A miracle of modern technology, the New Horizons probe will buzz by Pluto on July 14 at 30,800 miles an hour from a distance of 7,800 miles. Launched in 2006 and costing $723 million, it has traveled a staggering 3 billion miles in nine years. Pluto is so distant that a radio signal takes about nine hours to get there and back. From Pluto the sun appears to be a minor star, lost in the Milky Way.

The New Horizons spacecraft weighs 1,052 pounds, is about the size of a piano, and is crammed with scientific instruments that will give us the closest look at the surface and atmosphere of this distant object and answer a host of astronomical mysteries. New Horizons will send back historic pictures of Pluto and photograph Charon, the largest moon of Pluto, and four other moons discovered recently.

Pluto is fascinating because it is a space oddity that seems to break all the rules. It is the black sheep of the solar system. When discovered in 1930, Pluto caused a media sensation as the first planet to be discovered in the 20th century. The sensation was so great that Walt Disney DIS 1.38 % apparently decided to name a cartoon dog after it.

But the more astronomers studied the planet, the smaller and stranger it seemed. Pluto is so small that it only has one-sixth the mass of our moon. Its orbit is so elliptical that it travels inside the orbit of Neptune during part of its year.

For decades, Pluto gave astronomers headaches because it didn’t fit the tidy categories of astronomical bodies. This maverick was much too far from the sun to be considered part of the inner Rocky Planet belt (which contains Mercury, Venus, Earth and Mars). Farther out, compared with the Gas Giants (Jupiter, Saturn, Uranus, Neptune) Pluto is a mere speck. It actually has more in common with the outer Kuiper belt of comets, since they are small, beyond Neptune, and mainly made of ice and rock.

The last straw came in 2005, when an object slightly larger than Pluto (subsequently called Eris) was discovered beyond the orbit of Pluto, raising the possibility of scores of distant icy Pluto-size objects. This sparked an identity crisis that split the astronomical community and even sparked public debate. In a vote of the International Astronomical Union, Pluto was unceremoniously demoted from a planet and became a Kuiper-belt object, formally called a “dwarf planet.”

Even today, some rogue astronomers cling to the idea that Pluto is really the ninth planet. Alan Stern, leader of the New Horizons mission, believes that Pluto is really a planet.

But anything so distant and alien may cause many readers to ask: So what? Of what possible use could Pluto have for us? Is this the best way to spend tax dollars?

The answer is that Pluto could give us a wealth of information about the origin of the solar system. It is like a time capsule, a frozen remnant of our early solar system preserved for more than a billion years. For example, astronomers once believed that Pluto was a moon of Neptune that somehow escaped its gravity. A newer theory proposes that the Gas Giants can migrate in their orbits, once considered a heretical idea, and that the expansion of the orbit of Neptune pushed Kuiper-belt objects like Pluto into their present orbits.

Pluto is also important because the Kuiper belt is still poorly understood but may hold a key to ensuring the safety of Earth. Most of the time, comets in the Kuiper-belt orbit safely around the sun. But occasionally something nudges them from their orbit, and they come tumbling toward the inner solar system. If one of them struck our planet, it would be a catastrophe unequaled in human history.

One theory holds that a renegade Kuiper-belt object about 6 miles wide slammed into Mexico 65 million years ago, so altering the planet that dinosaurs became extinct. Unfortunately, the dinosaurs didn’t have a space program.

The information gleaned from the New Horizons mission to Pluto is thus essential: It will give us a better understanding of the solar system’s origin and the nature of Kuiper-belt objects, and it will give us new insights into comets that might one day hit the Earth.

Mr. Kaku is a professor of theoretical physics at the City College of New York and the author of “The Future of the Mind: The Scientific Quest to Understand, Enhance, and Empower the Mind” (Doubleday, 2014).