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(Final Update) Greece: What is Tsipras doing?

Final Update: What a crazy ass day. Greek prime minister Tsipras appeared on television and promised that the referendum would be held as scheduled. He railed against “blackmail” in reference to the situation I described in Update #2. The ECB has not triggered its collateral requirements and has also stated that it has no plans to do so, but the threat of such action certainly appears to be unspoken, but recognized. (You may see this referred to as a “haircut” or as its official acronym the ELA policy, for Emergency Liquidity Assistance). The ELA policy has been altered. Up until this week, through this policy the ECB provided liquidity assistance (with the below mentioned collateral agreement) to Greek banks, preventing them from running out of money. Although they have not triggered the collateral requirements, they have stopped providing this liquidity assistance, so there is no more money available to Greek banks beyond what they have on hand. During his appearance, prime minister Tsipras also urged a “no” vote, and stated that this would put Greece in a better negotiating position. This seems to imply that should the vote go his way, he is going to go back to the EU and ask for concessions. This seems contradictory to me because I read the referendum as either accepting EU conditions or turning away from them. Not going back (again) and asking them to relent. If the idea of a “no” vote is to return to a Greek currency (which is the way I think most seem to interpret it) then every day that postpones the transition will make the transition worse. I see no evidence that the EU is willing to make anything other than minor concessions.

Here is my take away: I think it is very possible that Tsipras’ actions over the last several days will create a huge loss of confidence in him. I suspect many people are going to turn away from him, and to me the loss of confidence in him is going to equate to a loss of confidence in voting “no”. I suspect the chances are pretty good that his government could collapse. I have seen almost no information to suggest whether or not a new government could be formed, so we might see elections. Were this to happen, there seems to be some fear that the Golden Dawn party could rise in power, they are a right wing nationalist party that has been tied to violent activity within Greece. Either way, this could get dragged out much longer. Angela Merkel and Joreon Djisselbloem (the Eurogroup president) have both indicated that they wish to postpone action until the referendum is held, and should a change of government occur, they may postpone things even longer. No additional funding or financing of any kind seems to be on the table at this time, so the Greeks have basically been cut off.

There have been several commenters, and several news articles that have discussed the possibility of Greece being forcibly removed from the EU/Eurozone. I have read in multiple places that this is basically an impossibility because it requires a unanimous vote of all members, and this includes the vote of the nation up for expulsion. I have seen it stated in many articles that integration was designed to be irreversible. That being said, I do not know how a nation could be prevented from leaving on its own.


What are the penalties for an IMF default? Well, there are none actually, beyond being basically blackballed from the IMF. Greece would lose their voting privileges and access to IMF financing. I have seen it speculated that IMF members could impose sanctions of their own, but this is outside of the IMF’s control. I have stated previously that although Greece is in arrears, the IMF has as of yet not declared a default. An extension has been requested and nobody seems to know when the IMF will make a decision.

Now, here is a wild ass curveball I am going to toss out for people to consider: Last year the organization known as the “BRIICS Bank” was formed. This organization was formed by the so-called BRIICS nations as an alternative to the IMF and World Bank for developing nations. I thought that its formation was a huge challenge to the western system of exploitative economic policies. (Of course, it could turn out to be another method of exploitation with different masters, but lets hope not) Anyway, it is not slated to start making loans until 2016, but I suspect that Greece could possibly join the BRIICS bank and get assistance from them. I have not seen this idea floated anywhere else (although it certainly could have been) and I think it is a possibility. It would be a huge political coup for this organization to be seen as helping a nation seen as failed by western institutions. A big propaganda score indeed. Please note that this is HUGELY SPECULATIVE on my part, but it is a thought that I keep returning to when I think about the Greek situation.

I probably will not post again until after the referendum. In the meantime if anyone wants to follow the story I recommend reading Naked Capitalism, which is run by a woman who has a Harvard MBA and is a former Goldman Sachs employee, now turned activist blogger. She is kinda awesome, so I have no qualms about giving her a plug. Naked Capitalism is a bit more technical than what I write, but I am certain anyone here can follow them.

Thanks to everyone that participated in the comments.

Update #2: It appears that Tsipras is going to capitulate and agree to the terms that were offered over the weekend. One thing that I have not previously described is that the previous bailouts included collateral agreements between the European Central Bank, and Greek banks. This is important because for the last year or more, in anticipation of higher rates of tax collection within Greece and/or a switch to an alternate currency, those who could do so have moved their money out of Greece. This has seriously depleted bank reserves within Greece. Over the last few weeks, capital flight intensified, and many less economically well off Greeks withdrew and began hoarding what cash they could in anticipation as well (a bank run). Even though capital controls are in place, Greeks can still withdraw up to 60 Euros a day, so the bank run is still in progress. Now, the ECB actually has the legal ability to call in its collateral. Should they do so, many banks in Greece could be liquidated. This is the gun barrel that Tsipras is staring down. The Greek people would be limited to the cash they had on hand, and their bank accounts would disappear. The Greek version of FDIC is very poorly funded, and the EU version of this program is not functioning yet, so the people would be lucky to get just a few percent. Greek people are already struggling terribly, but this would cause mass panic and a fight for basic survival. Tsipras seems to have no option but to give in to the EU. The can is going to be kicked down the road once again. Leaving the Euro requires Greece to at least have some capital to operate until they can make a switch, and they just do not have it, and what little they have is in private banks and can be yanked back to Frankfurt any time the ECB chooses, and it looks like that is about to happen.


Wow I already have an update: The Wall Street Journal is reporting that the IMF payment was not made and are declaring a default. This is in conflict with the reports I also read that stated that an extension was granted. If a default is actually declared, it will be the largest single missed payment in IMF history. I cannot read the entire Wall Street piece because it is behind a paywall, so I do not know the details of their interpretation. Again, I will update as I can. I would also like to add that I seem to recall there is some sort of 30 day “period of grace” that can be activated on IMF payments, but Lagarde has already denied this in reference to Greece. (The IMF can play favorites when it wants to, it certainly has with Ukraine). So they may very well have defaulted, we will see what the IMF has to say today. According to the IMF themselves, they did in fact receive an extension request yesterday, but there is no word on whether or not it was granted. There is a great deal of conflicting information to wade through, so I apologize for any confusion that occurs.

At almost literally the last minute, before defaulting on an IMF payment, Greek Prime Minister Tsipras asked for an extension and what amounts to a new bailout with a two year agreement with the Eurozone. You can read Tsipras’ request here at Naked Capitalism.


Moreover it seems that the Greek people figured out that the referendum was a farce and there was some anger that the government actually tried to alter the rules that govern referendums as well. (My interpretation is that they tried to stack the deck in favor of a “no” vote).

News agencies reporting right now are saying that an extension ONLY was granted, and that Greece will receive no additional loans (or bailouts).


Some important questions:

Was the extension granted simply to prevent default prior to the referendum?

Is the referendum still being held?

The request made by Tsipras requested additional loans, but according to very recent reports, loans are not included, only an extension. Did the Eurozone refuse to grant the loans, or did Greece refuse to accept the loans (and the conditions that went along with them)?


Also, why declare a referendum on whether or not to continue with the current situation, and then attempt to perpetuate the current situation?

I am of course not a Greek citizen, but I really wonder how Tsipras and the current government are going to maintain credibility after this week. Unless something changes, I would not be surprised if we saw a change of government after this. I have no idea what they are trying to do at this point. Granted, threats were probably made yesterday that may have frightened the government of Greece, but on the surface this appears to look like incompetence. I guess we will see what other information turns up today.


I will update this evening if I can.

Several people asked who was holding Greek debt. Here is a graphic (also found at Naked Capitalism):


(sorry it is so small)

Here is our previous post and discussion:

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