20 June 2015

Greek Bankers and former MPs are going to jail

This might just be Syriza's "way out" of the Grexit, and the way they can stay in the Euro, while destroying PASOK and Nea Democratea's (ND) ability to regain power. Earlier this week, on 17th of June 2015, a special committee of the Greek Parliament released their report, and in so doing, have put Greek bank executives, Finance Ministry heads and MPs from the former ruling parties on notice: you have iron bars in your future.

Rewind to earlier this year, when Syriza established a Parliamentary Committee, the “Debt Truth Committee” to determine how much of the 320 billion debt is legal, and recommend how much of that debt to unilaterally cancel as illegal. On the 17th the committee reported their findings. In perhaps the biggest non-surprise of the saga, the committee has reported that the "Troika’s arrangements is a direct infringement on the fundamental human rights of the residents of Greece. Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate, and odious."

This provides the Greek Parliament with a legal opinion to allow them to abrogate the loans. Wipe the slate clean. Clear the ledger. Stop the payments. Thank you, it's been fun.

This also gives the Greece government the authority to arrest Greece Finance Ministry officials and politicians. And under EU law, the Greek government could issue an arrest warrant for IMF and ECB officials. Would an EU arrest warrant for IMF chief Christine Lagarde be honored next time she gets off an airplane in Europe?

The Troika's objective

As I posted a couple of days ago, the "end of history" crowd needs the elected government of Greece to fall, to ensure the myth of the eternal victory of liberal western capitalist democracy as the sole survivor of Cold War One (CW1).

"If we want to date the moment when the Atlantic liberal order lost its authority – and when the European Project ceased to be a motivating historic force – this may well be it. In a sense, the Greek crisis is the financial equivalent of the Iraq War, totemic for the Left, and for Souverainistes on the Right, and replete with its own “sexed up” dossiers." (from Ambrose Evans-Pritchard at the Telegraph of 19 June 2015) 

It is easy to listen to the Troika's rhetoric of Greece the Failed State and to assume that more and deeper cuts and systemic changes are required. It is also easy to assume that Greece has not changed, and is the laggard in Europe. Yet looking at the numbers and we see a country that has implemented systemic changes that would destroy any ruling party in any Western country, from France or the UK, to the United States.

Could France, Germany, the UK or the USA cut its government payroll by 28%? Could any of them cut their average pension by 61%?

As Evans-Prichard goes on to say "We all know the argument. The EU is worried about political “moral hazard”, about what Podemos might achieve in Spain, or the eurosceptics in Italy, or the Front National in France, if Syriza is seen to buck the system and get away with it." All the while forgiving and forgetting the Moral Hazard that is incumbent in the IMF, ECB enforcement of the original loans and lending (investing) in Greece.

The price

With the loans being declared illegal, Syriza now goes into negotiations early next week looking to see what the Troika is willing to bring to the table. If the only things on offer are more years of hardship and continuing a program that "directly affected living conditions of the people and violated human rights, which Greece and its partners are obliged to respect, protect and promote under domestic, regional and international law" (Exec summary, Chapter 6) , then Syriza walks away, declares the loans void, and says "see you in court".

Greece would not even need to leave the Euro, as it will still be the legal currency of the country. There will be no need for a New Drachma with an instant 50% devaluation. Euros would continue to flow through the economy, and Greece's primary budget surplus would make it, theoretically, one of the better performing governments in the Eurozone, if not the world.

Suddenly, while Greece will be locked out of international capital markets, the immediate need to access those markets to service the debt will disappear. Not that simple of course, but a much stronger negotiating position.

Syriza's "get out of jail" card

For Syriza to stay in power, they will need an "out" to demonstrate to two constituencies that they represent the break from the past.  

They also need to deepen their roots throughout the Greek bureaucracy. After all, after 40 years of sharing power between PASOK and ND, all ministries, especially Finance, are stocked with bureaucrats who know how to please moderate socialists and moderate conservatives, but most of all know how to outlast whatever political party is in power. Just like almost every Western capital city.

Syriza needs to clear out the functionaires more closely aligned with the two (formerly) major political parties, and replace them with economists and functionaires aligned with a leftist socialist economic agenda. 

Syriza's "go directly to jail" card

What better way, then to frog-march to jail the ministry functionaires who wrote the papers that supported the politicians who negotiated the deals that the functionaires in Athens and Brussels (and Washington) then agreed. As long as those functionaires remain in place, more papers will be written demonstrating why the previous papers represented the only way forward. For syriza to make any progress, they must ensure those papers are never written. How better than to fire the functionaires (on the grounds of course, of #1 the functionaires committed illegal acts and #2 Greece still needs to streamline the bureaucracy and therefore must cut heads).

Of course, this is not exactly in the individual best interests of the functionaires - thus the importance of the “Debt Truth Committee”.

If the Committee states that the loans were illegal, as they have, then Syriza has all it needs to remove the functionaires pending trial. And to arrest and smear any sitting MP from PASOK or ND who was in any way involved in negotiating, speaking in favour of, or voting for the bailouts. 

So Syriza, the legitimately elected representatives of the Greece people, will negotiate for reductions in the debt burden, while at the same time shoring up their longer term position in Greece itself by surgically removing the functionaires who work to undermine them from within the ministries. They will try the politicians and former MPs who voted for the bailouts. As with Iceland, we will see what democracy really means, the democratically expressed will of a people translated into real pain for those who screwed the people.

18 June 2015

Wolf! Wolf! Wolf, and Moral Hazard

Having been wrong about the Grexit date of 9th May 2015, and having written again about why it is actually in the best interests of Greece based on other countries' experiences, it is time to call "Wolf!" again. Boring, I know, but "Wolf! Wolf! Wolf!".

Or, "Grexit! Grexit! Grexit, and Moral Hazard!"

There, I've said it. Now why do I keep saying it?

Syriza was elected, and they are a political party, and they will implement to the extent that they can, their agenda. From the Syrisa perspective, the ongoing Greece-Troika-EU dance that has become oh so tedious has two purposed; ensure that the Germans will reject or refuse to put any viable plan on the table, and ensure that EU's  (and Toika's) willingness to inflict massive and almost perpetual pain on the Greek people finally reduces the percentage of Greeks who say they want to stay in the Euro.

From the Troika perspective, it is clear that, like good loan-shark enforcers, the Troika will be happy to see every last penny extracted, every last asset liquidated, before in the end suggesting that there is one way-out left; suicide. According to the New York Times reported on 25 May 2015, "As for the hospitals, even though they are taking in twice as many patients now, their budgets have been cut to the bone. In the first four months of this year, health officials say that the 140 or so public hospitals in Greece received just €43 million from the state — down from €650 million during the same period last year."

The suicide that the Troika would like to see is the suicide of Syriza, those nasty, far-left socialist / communists who also happen to be Greek nationalists. So we are now in a battle of wills between the "End of History" with it's ultimate victory of liberal capitalist democracy and a miserable rearguard of that failed socialist philosophy that has no future.

The problem with this narrative, like all simplistic narratives, is that the situation is of course far more complex, and is one that strikes at the heart of the presumptive winner in the game of history. Capitalism is failing. Liberal democracy is failing. Sure, it remains the now-dominant political-economic narrative, and will remain so probably though the coming crisis (no, not the Greek one, the real one).

Moral Hazard

Greece is a reflection of the Moral Hazard that has engulfed the capitalist system, with Too Big To Fail (TBTF) banks, but Not Big Enough To Save countries. When the final choice must be make, the Troika and virtually all Central Banks will  impoverish and force a country to fail, rather than allow the poor lending decisions of the banks and IMF to reap the reward of poor investing decisions.

Moral Hazard is the concept that if an entity (or an individual for that matter) knows that they will be able to "get away with it", be it murder, theft, or simply poor lending and investment decisions, then there are not impediments to that unacceptable behaviour. In central banking and regulatory context it means the importance of demonstrating that no business is TBTF, because to admit that the business will not be allowed to fail will simply encourage "Moral Hazard" or behaviours that are ultimately counterproductive to the business (or the counter-party) to the point of damaging the business.

In the case of Greece, one side of the Moral Hazard has been the implicit expectation that no matter what happens, the money "loaned" to Greece will be repaid. The other side of Moral Hazard is that Greece sought and took loans when it knew that it was taking out loans that were well beyond the ability of the Greek economy to repay.

Until the IMF, ECB, national Central Banks and national governments print money, buy bonds, and run their countries at significant budget deficits, there will be Moral Hazard. With Greece, all can see the future, they just aren't willing to look.