The Eurozone has “saved” Greece from a Grexit. In the past few days, the Eurozone finance ministers have pulled an all-nighter to come to an agreement that has prevented Greece from a painful exit from the Eurozone. A series of votes have passed through national parliaments (still needing Germany to agree) which is confirming the acceptance of the deal. Jean-Claude Junker (EU President) has secured €7bn of bridge financing from the EU-wide EFSM (European Financial Stability Mechanism) to help pay off Greece’s immediate creditors (€3.5bn to the ECB on Monday and also paying off the IMF debt arrears); whilst the ECB has stepped in to raise the ELA ceiling. All good then, problem solved…
However, I still feel a sense of dismay as to how this is playing out. In the ECB meeting press conference, Mario Draghi (ECB President) was almost taking pleasure in dragging out the announcement of a €900m extension of the Emergency Liquidity Assistance for Greece (which now stands at €89.9bn – the Greek central bank suggested it needed an extra €1.5bn). On a crude calculation, taking the population of Greece to be around 11.1m people, that is an extra €80 for every man, woman and child. Considering this is meant to be an extension that lasts a week, with the withdrawal limit per person increased to €120 per day, let’s just hope they don’t all rush to the bank at once. Capital controls also remain in place. It seems to be nothing more than a token move by the ECB.
If I were Greek, I would be asking several questions over why I am still unable to go about my life with some sort of normality. Greece is part of the Eurozone, the deal confirmed that. Greece has done pretty much everything asked of it to secure the deal in recent days. Tsipras has bent over backwards to give away any strong cards he may have held (completely going against the result of the referendum). For what? The potential for a re-profiling of the debt (extended maturities and lower rates of repayment) which is akin to shifting around the deck chairs on the Titanic. Battered and bruised, Greece has opted for more austerity, as if it ever really had a viable alternative.
Despite this, the capital controls will still be in place on Monday morning. If the ECB is meant to be a-political, then what more could Greece have done to satisfy the demands of the creditors? So then why does the ECB continue to punish the Greek population by a mere drip feeding of the liquidity?
You have got to ask, who is this deal really rescuing? Greece or the Eurozone? The asphyxiation of Greece will continue with this deal, piling more on debt without any relief. It is only really the Eurozone that has been saved, from the significant uncertainty of the future impact of the structural impact of a member leaving a supposed “one way” currency bloc.
The IMF is now quite openly talking about the need for a debt writedown in order for Greece to claw its way out of this huge €320bn black hole of debt. Germany (specifically Schaeuble) continues to maintain the chokehold on Greece by claiming that a writedown was not legal within the Eurozone constitution. This will put the IMF at loggerheads with the Eurozone, which may mean that ultimately that it does not take part in a 3rd bailout (as the IMF knows that it has little chance of ever getting its money back). This will leave Greece with even less leeway as it becomes a lone voice in the argument for a debt writedown as the German government that appears to have a complete lack of empathy leads the negotiations for a 3rd bailout.
Greece may have been saved, but for how long? This is an unsustainable situation whilst there is no debt writedown. Everyone knows it, but whilst Germany and its cronies fail to accept this to be the case, then Greece will never be able to drag itself into the light.
Rant over… for now! (I promise I will try to be more upbeat next week…)