Tuesday, June 30, 2015

Joseph Stiglitz: how I would vote in the Greek referendum

Tuesday 30 June 2015

Neither alternative – approval or rejection of the troika’s terms – will be easy, and both carry huge risks

Alexis Tsipras, leader of the radical left main opposition party Syriza, greets supporters after a rally of the party in the northern Greek port city of Thessaloniki, January 2015. Alexis Tsipras, leader of the radical left main opposition party Syriza, greets supporters after a rally of the party in the northern Greek port city of Thessaloniki, January 2015. Photograph: Sotiris Barbarousis/Sotiris Barbarousis/epa/Corbis

The rising crescendo of bickering and acrimony within Europe might seem to outsiders to be the inevitable result of the bitter endgame playing out between Greece and its creditors. In fact, European leaders are finally beginning to reveal the true nature of the ongoing debt dispute, and the answer is not pleasant: it is about power and democracy much more than money and economics.

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Of course, the economics behind the programme that the “troika” (the European Commission, the European Central Bank, and the International Monetary Fund) foisted on Greece five years ago has been abysmal, resulting in a 25% decline in the country’s GDP. I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece’s rate of youth unemployment, for example, now exceeds 60%.

It is startling that the troika has refused to accept responsibility for any of this or admit how bad its forecasts and models have been. But what is even more surprising is that Europe’s leaders have not even learned. The troika is still demanding that Greece achieve a primary budget surplus (excluding interest payments) of 3.5% of GDP by 2018.

Economists around the world have condemned that target as punitive, because aiming for it will inevitably result in a deeper downturn. Indeed, even if Greece’s debt is restructured beyond anything imaginable, the country will remain in depression if voters there commit to the troika’s target in the snap referendum to be held this weekend.

In terms of transforming a large primary deficit into a surplus, few countries have accomplished anything like what the Greeks have achieved in the last five years. And, though the cost in terms of human suffering has been extremely high, the Greek government’s recent proposals went a long way toward meeting its creditors’ demands.

We should be clear: almost none of the huge amount of money loaned to Greece has actually gone there. It has gone to pay out private-sector creditors – including German and French banks. Greece has gotten but a pittance, but it has paid a high price to preserve these countries’ banking systems. The IMF and the other “official” creditors do not need the money that is being demanded. Under a business-as-usual scenario, the money received would most likely just be lent out again to Greece.

But, again, it’s not about the money. It’s about using “deadlines” to force Greece to knuckle under, and to accept the unacceptable – not only austerity measures, but other regressive and punitive policies.

But why would Europe do this? Why are European Union leaders resisting the referendum and refusing even to extend by a few days the June 30 deadline for Greece’s next payment to the IMF? Isn’t Europe all about democracy?

In January, Greece’s citizens voted for a government committed to ending austerity. If the government were simply fulfilling its campaign promises, it would already have rejected the proposal. But it wanted to give Greeks a chance to weigh in on this issue, so critical for their country’s future wellbeing.

That concern for popular legitimacy is incompatible with the politics of the Eurozone, which was never a very democratic project. Most of its members’ governments did not seek their people’s approval to turn over their monetary sovereignty to the ECB. When Sweden’s did, Swedes said no. They understood that unemployment would rise if the country’s monetary policy were set by a central bank that focused single-minded on inflation (and also that there would be insufficient attention to financial stability). The economy would suffer, because the economic model underlying the Eurozone was predicated on power relationships that disadvantaged workers.

And, sure enough, what we are seeing now, 16 years after the Eurozone institutionalised those relationships, is the antithesis of democracy: many European leaders want to see the end of prime minister Alexis Tsipras’ leftist government. After all, it is extremely inconvenient to have in Greece a government that is so opposed to the types of policies that have done so much to increase inequality in so many advanced countries, and that is so committed to curbing the unbridled power of wealth. They seem to believe that they can eventually bring down the Greek government by bullying it into accepting an agreement that contravenes its mandate.

It is hard to advise Greeks how to vote on 5 July. Neither alternative – approval or rejection of the troika’s terms – will be easy, and both carry huge risks. A yes vote would mean depression almost without end. Perhaps a depleted country – one that has sold off all of its assets, and whose bright young people have emigrated – might finally get debt forgiveness; perhaps, having shrivelled into a middle-income economy, Greece might finally be able to get assistance from the World Bank. All of this might happen in the next decade, or perhaps in the decade after that.

By contrast, a no vote would at least open the possibility that Greece, with its strong democratic tradition, might grasp its destiny in its own hands. Greeks might gain the opportunity to shape a future that, though perhaps not as prosperous as the past, is far more hopeful than the unconscionable torture of the present.

I know how I would vote.

Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University. His most recent book, co-authored with Bruce Greenwald, is Creating a Learning Society: A New Approach to Growth, Development, and Social Progress.
Copyright: Project Syndicate, 2015.

Joseph Stiglitz: how I would vote in the Greek referendum | Business | The Guardian

Greece fiercely divided as referendum campaign gets under way

Helena Smith Athens Tuesday 30 June 2015

Caught between a history of resistance and defiance and fears of being cast out of the Eurozone, Greeks are facing a dilemma of immense proportions

A woman at an anti-austerity rally in Athens makes her feelings felt

A woman at an anti-austerity rally in Athens makes her feelings felt. Photograph: Aristidis Vafeiadakis/Zuma Press/Corbis

Greece’s fate hangs in the balance, its government is on the line and its people face a dilemma that no nation would want to confront.

Did Alexis Tsipras, the firebrand leftist in power in Athens, really intend this? Was his decision to call a referendum impetuous or even bone-headed? Or was Europe’s first democratically elected anti-austerian playing at such dark arts when he decided to put the terms of further financial assistance to the popular vote, that he will ultimately go down as a master tactician?

These were among the questions Greeks were asking on Monday as they surveyed the wreckage – both inside and outside their country – prompted by his potentially cataclysmic move.

After five years negotiating their worst crisis in modern times, the appetite of Greeks for more drama is limited. Five turbulent months of sparring with international creditors over the conditions of a reform package that will keep debt-choked Athens afloat has left the economy deadened and most Greeks drained.

Joseph Stiglitz: how I would vote in the Greek referendum

Neither alternative – approval or rejection of the troika’s terms – will be easy, and both carry huge risks

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With banks closed, capital controls imposed and, it seems, the entire EU against him, Tsipras and his Syriza party now have a battle on their hands that makes those to date look trivial.

On Monday night, as thousands of government supporters poured into Syntagma Square, armed with placards that proclaimed “no”, it was clear the battle lines had been drawn.

Greece, not long healed from the horrors of civil war, is now deeply divided. Overnight, fault lines between left and right have opened up with a ferocity that has shocked many, and which harks back to the bloody 1946-49 internecine feud.

Supporters of the no camp, backed by the government, are denounced as anti-European and proponents of the drachma lobby; supporters of the yes camp as quislings of Wolfgang Schäuble and the German finance minister’s austerity brigade in Berlin.

How the adventure – for that is what the referendum is now being called – will end, nobody knows. How long it will take, and at what cost, nobody knows either.

When the clock strikes midnight on Tuesday, Athens’ access to bailout funds offered by its troika of creditors will officially expire. There is no one, either inside or outside the country, who now believes the Tsipras government will honour a €1.6bn (£1.15bn) debt to the IMF that must also be met before the end of Tuesday.

“Greece finds itself facing disorderly default, the collapse of the banking system, inability to pay its bills, exit from the euro and the European Union,” the political commentator Ioannis Pretenderis said.

“It is confronting an immediate threat to its economic, social and political system which it has elected to live [and] is confronting the ghost of national catastrophe.”

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In short, the country had embarked “on the worst nightmare” imaginable, he said.

Given the choice between the biting austerity that has already brought the country to its knees and leaving the euro, Greeks are the first to say they are stuck between a rock and a hard place. In an ideal world, many would vote neither yes or no.

Tsipras is boxed in and may well be regretting his decision, but unless he is granted major face-saving concessions and a ground-breaking pledge by both the EU and IMF to tackle Athens’ unsustainable debt burden, he will not back down.

The young leader, whose election in January was itself an expression of the no vote, is riding high in the polls, with both his personal popularity ratings and Syriza’s at record levels.

He can count on deep wells of anti-German, anti-European and anti-western sentiment that five years of relentless austerity have done much to fuel. Unions big and small, irate Syriza militants and the fast growing anti-capitalist left have announced strikes, protests, gatherings, factory visits and leafleting expeditions to rally support for the no vote.

The new poor, created by the crisis and attracted to the shrill anti-austerity rhetoric of the neo-Nazi Golden Dawn and the populist right-wing Independent Greeks party, Syriza’s junior partner in government, can also be relied on for support.

Greece debt crisis: Thousands of no supporters protest, as EC urges yes vote - as it happened

Governments of France, Germany and Italy all warn that Greeks are voting on their Eurozone membership on Sunday, as banks remain shut

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It remains to be seen which way the orthodox communist KKE party will sway, if it will tell followers to abstain or come out in favour of a no vote – but militant unionists have already hinted they will do the latter.

“The no camp will also be nurtured by the underdog complex of Greeks and their traditional sense of victimhood,” says Nikos Dimou, author of the bestselling book On the Unhappiness of Being Greek.

“Greeks always blame others for their problems. In my own life, I have seen the English, Americans and Germans blamed for all our woes,” he said.

“This ‘no’ that we are seeing has been deliberately cultivated by Syriza’s masterful propaganda machine from its first day in office.”

Greece’s fate has more than once been decided by its people saying no. In a nation whose history has been defined by resistance, almost no word is as historically charged, starting with the heroic oxi that pushed the country into the second world war.

On that occasion the Greeks, reacting to an ultimatum from Mussolini, valiantly repulsed invading Italian forces. Unlike the Spanish, Irish and Portuguese, Greeks see rejectionist almost as a way of life.

Resistance to austerity is now running at an all-time high, with widespread consensus over the failure of the foreign-imposed measures adopted so far, but Tsipras will also face the wrath and determination of those who rightly fear their country has almost everything to lose if it leaves the euro.

“If Greeks sense that what is at stake is their place in the EU, they will vote yes,” said Harry Papasotiriou, professor of international relations at Panteion University. “The chaos of banks being closed will show that much is at stake. It will focus minds.”

Tsipras has vehemently denied that the referendum is about deciding whether Greece will remain in the euro or re-embrace the drachma. For the leftist government it is simply about austerity.

That is not, however, how it is seen in Europe. In the days ahead he will be up against the full force of European solidarity backing the yes camp – and if on Sunday he fails to get his vote, he will resign and take the back seat that so many in Europe now want him to take.

Greece fiercely divided as referendum campaign gets under way | World news | The Guardian

Europe's big guns warn Greek voters that a no vote means euro exit

Larry Elliott, Graeme Wearden, Nicholas Watt and Helena Smith in Athens

Tuesday 30 June 2015

Germany, France and Italy joined the European commission in insisting that Sunday’s poll is about continued Eurozone membership

European commission president Jean-Claude Juncker

The European commission president, Jean-Claude Juncker, warns Greeks of the consequences of voting no in the referendum. Photograph: Julien Warnand/AFP/Getty Images

The Eurozone's three biggest countries have raised the stakes in next Sunday’s Greek referendum with an orchestrated warning to voters that a no vote would mean exit from the single currency and the return of the drachma.

As the Greek economy suffered on its first day of stringent capital controls, politicians from Germany, France and Italy joined the European commission in insisting that the poll was not about whether Athens could secure more favourable bailout terms but was about continued euro membership.

The stark assessment was shared by George Osborne who told MPs that the UK economy would be affected by the chaos that would result from Greece leaving the Eurozone.

The chancellor’s comments came as ratings agency Standard & Poor’s issued a grim analysis of the repercussions that could follow an euro exit, the chances of which it has raised from 33% to 50%. S&P said there could be “a serious foreign currency shortage for the private and public sectors, potentially leading to the rationing of key imports such as fuel”.

Greece in chaos: will Syriza’s last desperate gamble pay off?

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S&P added that without continuing European Central Bank support for Greek banks, the country’s “payment system would shut down and its banks would not be able to operate”.

Eurozone leaders sought to exploit pictures of cashpoint queues and empty Athens restaurants to stress what was at stake if Greeks supported the decision of their prime minister, Alexis Tsipras, to reject the fresh austerity measures being demanded by the country’s creditors for continued financial support.

At the end of a day that saw sharp falls in share prices around the globe, Tsipras used a TV address to ask a public still stunned by the imposition of a €60 daily limit on bank withdrawals to back his resistance to a new round of tough tax increases and spending cuts demanded by the troika of the commission, the ECB and the International Monetary Fund.

Tsipras urged Greeks to vote no in the forthcoming referendum, saying the plebiscite would be a strong “negotiating tool” in talks with lenders. Denying that Greece had walked away from negotiations, he told state-run TV: “The greater the number of no [votes], the greater the weapon the government will have to relaunch negotiations. Greece never left the negotiating table, it is still at the negotiating table. ”

Appearing by turns combative and nervous, the 40-year-old leader suggested, for the first time, that he and his radical left Syriza party would resign if the yes vote triumphed in the referendum.

“We will respect the result but we will not be there to serve it,” he told the station.

Greece’s international creditors clearly did not want a no vote because they wanted to kill “the hope” of enacting policies against austerity, he claimed. “They want to kill democracy in the place where it was born,” he said, adding that the “negative decision” to close banks was aimed squarely at thwarting Sunday’s vote.

“Greek people have experienced more difficult moments and they will survive,’ he said.

With polls showing Greeks in favour of remaining inside the Eurozone, the Greek government made no mention of exit from the single currency in the wording of Sunday’s referendum. This will ask Greece whether they support the “plan of agreement” drawn up by the troika and will put the no option Tsipras wants at the top of the ballot paper.

The publication of the wording coincided with Greece admitting that it would not meet the Tuesday deadline for making a €1.6bn (£1.1bn) payment to the IMF in Washington and new evidence of the parlous state of Greek banks following the referendum announcement. It emerged that the Bank of Greece asked in vain for the ECB to increase its emergency funding by €6bn in order to cover panic withdrawals.

Greece fiercely divided as referendum campaign gets under way

Caught between a history of resistance and defiance and fears of being cast out of the Eurozone, Greeks are facing a dilemma of immense proportions

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Sigmar Gabriel, Germany’s vice-chancellor, voiced concerns that a so-called Grexit could start to unravel six decades of closer integration. He said the crisis was the most serious faced by Europe since the signing of the Treaty of Rome in 1957. He added that if the Greeks voted no on Sunday, they were voting “against remaining in the euro”.

He was supported by French president François Hollande, who came under strong pressure from US president Barack Obama to find a solution to the deepening crisis before it caused more damage to a still-fragile global economy. Hollande said: “It’s the Greek people’s right to say what they want their future to be. It’s about whether the Greeks want to stay in the Eurozone or take the risk of leaving.”

Jeroen Dijsselbloem, the chairman of the Euro group of finance ministers from the 19 nations using the single currency, said the door was still open for negotiations to resume despite time running out before Sunday’s referendum.

But the hardening stance among Greece’s partners was evident from a tweet by Matteo Renzi, Italy’s prime minister and hitherto seen as one of the European leaders closest to Tsipras. The referendum, Renzi said, was not a question of the commission versus Tsipras but of “the euro versus the drachma. This is the choice”.

Jean-Claude Juncker, the commission president, said: “It’s the moment of truth ... I’d like to ask the Greek people to vote yes ... No would mean that Greece is saying no to Europe.”

In a sign of how relations have been soured by last week’s rejection of what was seen by Tsipras as a take-it-or-leave-it final offer, Juncker accused the Greek prime minister of telling lies about the proposals and said they did not include plans to cut pensions. A government spokesman in Athens accused Juncker of telling a “preposterous lie”.

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Greece’s stock market was closed but a share price fall that began in Asia spread to Europe and later the US. London’s FTSE 100 lost almost 2% of its value, with drops of 3.5% in Frankfurt and 3.7% in Paris. New York’s Dow Jones Industrial Average was down 2%, the biggest one day decline this year, while the Nasdaq tumbled 2.4%. The euro slid to its weakest level against the pound since 2007 and now stands at almost €1.40 to the pound. Twelve months ago it was trading at €1.25.

On global markets, the interest rate on Greek 10-year bonds rose by four percentage points to 15%, a sign that financial markets fear the country’s days in the euro are numbered. About 850 Greek banks could open for business on Thursday in order to pay pensions, the government said.

Osborne said British holidaymakers travelling to Greece should carry enough cash for the whole trip and to cover emergencies. After the chancellor held a contingency meeting with David Cameron and the governor of the Bank of England, Mark Carney, he said he was “hoping for the best but preparing for the worst”.

The chancellor said British taxpayers could be liable for hundreds of millions of pounds if Greece fell out of the Eurozone and relied on an emergency loan scheme supported by the EU’s budget which is funded by all 28 member states.

He said that an early decision by the coalition government was to exempt the UK from Eurozone bailouts, dramatically reducing the “direct exposure” of the UK. But Osborne added: “Of course we are part of the financial system of Europe and we will be affected if there is a Greek exit.”

The chancellor’s remarks referred to the EU’s balance of payments support system which is open to non-Eurozone members of the EU. The scheme has been used in recent years to release billions of euros to Romania, Hungary and Latvia when they were hit by the global financial crash.

If Greek falls out of the euro, it is expected that the IMF would become its main lender of emergency. Under the arrangements for Hungarian and Romanian, the EU balance of payments scheme provided about 40% of their loans.

Europe's big guns warn Greek voters that a no vote means euro exit | Business | The Guardian

Greek debt crisis: Five things you need to know about Greece's deepening economic woes

By business editor Ian Verrender Mon 29 June 2015

Greek Prime Minister Alexis Tsipras Photo: Greek PM Alexis Tsipras has sought to negotiate a new bailout deal with Greece's creditors. (Reuters: Alkis Konstantinidis)

With the worsening economic situation involving Greece heading further into uncharted territory, resolution to the country's deepening debt crisis seems nowhere near sight.

Fears of a default, and the consequences it could have on regional stability, have been heightened in the Eurozone after the European Central Bank (ECB) said it would not increase support for Greek banks.

But who would be the real losers, how extensive will the fallout be and should Greece leave the European Union?

1. Who will lose?

Greece, as the founder of modern democracy, will spread the pain far and wide but the greatest impact will be felt by ordinary Greeks.

Presuming it is even possible, if Greece leaves the European Union it will have a devastating impact on its already shattered economy.

Asset prices will plummet, inflation will soar, unemployment will be rampant and its economy will collapse.

In terms of the pure cash effect, Greece's exit will crystallise losses on all outstanding loans from EU nations – through the European Central Bank and emergency funding – currently standing at about 331 billion euros ($480 billion).

Germany and France between them account for 176 billion euros ($255 billion), almost half the total.

Then there is the private debt held by banks. Greece owes German, French and British banks roughly 30 billion euros, and the IMF holds a similar level of debt.

If the nation goes into default and is forced out of the Eurozone, these countries would have to write off Greece's debts; that is a pretty strong motive to keep Greece in the tent.

2. Why does it matter?

With a gross domestic product of $US242 billion, Greece's economy is about half the size of NSW, and while its debts are substantial, alone they are not enough to plunge Europe into crisis.

But that was the same argument used during 2007 when America's property market began to implode.

Finance is global and the linkages are often hazy, breeding suspicion and fear about who is exposed and for how much. When that happens, no-one will lend and finance grinds to a halt.

The merest hint of bank collapses sends fear through financial markets.

Then there is the prospect of contagion, that other European nations could follow Greece and fall foul of repayment commitments.

Should that happen, the EU would face collapse.

3. How did it get to this?

Greece should never have been allowed into the European Union. Like many of its neighbours, it has never adhered to the rules governing member's debt levels.

But when compared with the size of its economy, Greece's initial debt was somewhere west of Pluto.

For years, it managed to hide its real debt courtesy of a complex financial instrument organised by Wall Street powerhouse Goldman Sachs. That ruse came unstuck when the Global Financial Crisis hit and left the country and the single currency bloc exposed.

Rather than deal with the crisis in 2010, or the latest flare up in 2012, European Union officials instead perfected the art of obfuscation.

Greece will never be able to repay its debt. At 178 per cent of GDP, it is simply unsustainable. Austerity has caused the economy to shrink, blowing out the debt even further.

There are only two choices. Either a good chunk of the debt needs to be written off or Greece needs to leave the European Union.

Even after all this time, no-one has the stomach for either.

4. Why is default so catastrophic?

Under normal circumstances, a default is not catastrophic.

Iceland did it in the aftermath of the financial crisis and Argentina went into default last year.

In fact, Google "Argentina default" and you end up with "Argentina default history". The South American nation has defaulted seven times since independence from Spain in 1818.

A default will put a nation in banking's bad books. The currency will collapse and the cost of imports normally soars, but a default allows a fresh start as Iceland has proven.

The problem for Greece is that it relinquished its currency and recreating it would be a logistical nightmare. It would be a little like Adelaide or Sydney defaulting on a debt to Canberra.

Mechanisms exist for nations to join the single currency, yet no plan exists for a nation to exit.

5. Can Greece and the EU survive?

Greece has exposed the shaky foundations of the European Union. After centuries of brutal conflict and war, the idea of a single currency as a means of unification was brilliant.

From an economic standpoint, however, the euro has worked to the advantage of the rich and powerful nations, such as Germany, but to the detriment of poorer nations like Greece.

The poor economic performance of the southern European nations drags down the value of the euro. That is great for a country exporting BMWs and Mercedes Benz cars to China.

But the robust economic performance of a country like Germany makes the poor nations uncompetitive because of the euro's relative strength.

Greece, along with Italy, Spain and Portugal would be much better off with a weak currency that spurred their home industries and made them globally competitive.

So what is the answer? There is not one.

From other news sites:

Greek debt crisis: Five things you need to know about Greece's deepening economic woes - ABC News (Australian Broadcasting Corporation)

The cradle of democracy has betrayed its principles

By Ben Wright, Group Business Editor 28 Jun 2015

The Greek government was elected to make tough decisions and is now hiding behind a shotgun plebiscite. But it's not the only one in the wrong

Greece’s radical leftist leader Alexis Tsipras told a final campaign rally on Thursday night that his party represented the new Europe and German Chancellor Angela Merkel the old.

Alexis Tsipras, the Greek prime minister Photo: AFP

Just because you invented something doesn’t necessarily mean you are any good at it – look at how bad we Brits are at almost every sport we have ever dreamed up.

Yes, Greece is the birthplace of democracy but, no, it is not a master of the art, regardless of what Yanis Varoufakis, the Greek finance minister, might claim. Quite the opposite in fact.

Late on Friday night, Alexis Tsipras surprised everyone – including his own team of negotiators in Brussels who learned of the news on Twitter – by announcing a referendum.

We don’t yet know the exact wording of the question that will be put to the Greek people. But, according to Tsipras, it will be on whether Greece is prepared to accept the proposals for reforms its creditors have set as a condition of unlocking new bailout cash.

There are literally dozens of problems with this.

Let’s confine ourselves to some of the main ones, like, for example, the fact that there are no proposals. The two sides were still working on them on Friday night when Tsipras dropped his bombshell. On Sunday afternoon, the European Commission released the draft text. The key word there is “draft”.

On Saturday Jean-Claude Juncker seemed to suggest that even these nascent plans had been whipped off the table in a fit of pique. The Sunday statement left open the possibility that they could still form the basis of future discussions. Let’s just say the status of the proposals is extremely uncertain at best.

Nevertheless, I am not sure that the Greek people are going to enjoy reading this highly technical document over the next few days.

It’s also worth remembering that the bailout programme ends on Tuesday; the referendum is due to be held next weekend. As was pointed out on Twitter, the Greek government has effectively asked its creditors to extend the bailout programme just long enough to secure a vote rejecting it.

Carl Bildt


Greek leftist government is asking for extension of EU loan program in order to be able to reject it in referendum. Logic used to be Greek.

1:28 AM - 28 Jun 2015

Even if it was clear what the proposals were and the programme was still in existence, it’s hard to see what a referendum would achieve. A No vote would only take us back to square one – we already know that Greece is fed up with austerity; a Yes vote would likely lead to Tsipras’s resignation. Why not cut to the chase and just hold elections?

There is nothing wrong with referendums per se. But they need to be clearly framed and long debated. The Greek government was elected to make tough decisions (yes Greece is a democracy – a parliamentary democracy); it now appears to be hiding behind a shotgun plebiscite.

Greece’s problems can’t be solved by a one-question referendum. That is because they boil down to the tension between two different questions. The first is: should the country submit to more austerity to meet the terms of its bail out? The second is: does it want to stay in the euro?

As Varoufakis points out, you can’t ask the second question – it would be a violation of EU treaties and EU laws; indivisibility was one of the founding principles of monetary union (principles that a democratically-elected Greek government signed up to).

But that is not an argument for holding a referendum that will solve nothing; rather it highlights the futility of the whole exercise.

The Greek government must know this. So what is it up to?

The conspiracy theories are now running rampant. Did Syriza want to quit the euro all along? Were its negotiations a charade and its tactics deliberately designed to infuriate the creditors (and nothing is more likely to annoy a eurocrat than holding a referendum)? Did it want to get pushed out of the Eurozone so that it could lay the blame for Grexit at the door of its paymasters?

John Maynard Keynes, whose philosophy Varoufakis espouses, said: “When the final result is expected to be a compromise, it is often prudent to start from an extreme position.”

But perhaps Syriza’s extreme position wasn’t a starting point – perhaps it is the finish line.

Be in no doubt, this failure, should it transpire, will have many fathers. The original sin was the creation of the euro, which spliced monetary unity to political disparity; the IMF have played a bad hand appallingly; European governments have failed to acknowledge that the pain Greece has suffered makes it a special case when it comes to debt relief.


But Syriza has taken what was one of the fastest growing economy in the Eurozone at the end of last year and driven it into the wall. They have taken what was expected to be primary budget surplus this year and turned it into a deficit. Why? To end austerity, yes. But the Greek economy was already turning a corner.

It's likely that various ulterior motives will emerge from the chaos of the next few days.

On Sunday, Varoufakis tweeted to say that “capital controls within a monetary union are a contradiction in terms” and that “the Greek government opposes the very concept”. A few hours later Greek banks announced they won’t be opening today and likely all week.

Yanis Varoufakis @yanisvaroufakis

Capital controls within a monetary union are a contradiction in terms. The Greek government opposes the very concept.

9:59 PM - 28 Jun 2015

The whispers coming out of Greece suggest that senior bankers believe shutting up shop may be the only way to get the public to properly understand the gravity of the situation and the dangers of listening to Syriza. This is a pretty explosive state of affairs: it indicates that relations between the Greek government and the country's financial system have totally disintegrated.

And, if that’s true, it means the Greek banks are locking the doors on a burning building in an attempt to undermine a government that, whatever its faults, was democratically elected.

If this is how democracy is supposed to work then perhaps Winston Churchill was wrong about it being the least bad option.

The cradle of democracy has betrayed its principles - Telegraph

Greece crisis: markets begin to tumble as investors flee

Justin McCurry in Tokyo and agencies Monday 29 June 2015

Markets across Asia slide and $35bn is wiped from Australian stock market on what is expected to be a torrid day following the closure of Greek banks

Greeks queue at ATMs as country’s banks close for a week. Link to video

Markets suffered across Asia on Monday as Greece shut down its banks for a week ahead of an increasingly likely debt default.

Oil prices declined and the euro edged down against the dollar, while Tokyo’s Nikkei 225 index fell 2% to 20,283.98 points. The Shanghai Composite Index was off 0.4% at 4,178.56 despite China’s surprise weekend interest rate cut.

Hong Kong’s Hang Seng lost 1.7% to 29,192.67. Seoul’s Kospi shed 1.6% to 2,057.52 and Sydney’s S&P/ASX 200 was off 1.8% to 5,447.80. Market benchmarks in Taiwan, Singapore and New Zealand also fell sharply.

Turmoil in Asia had been widely expected after the failure of 11th-hour talks in Europe over the weekend raised the possibility of a Greek exit from the Eurozone.

More than $35bn was wiped off the Australian stock market in the first hour of trading on Monday as investors braced for what could become a torrid week.

Earlier the euro dropped more than 3% to 133.80 yen, its lowest level for five weeks. The common currency fell as much as 1.9% to $1.0955, its lowest level in almost a month.

Greek debt crisis: the key points of Athens bank controls

All banks closed for at least a week, cash withdrawals capped at €60 a day and foreign money transfers banned ahead of referendum on bailout terms

Read more

The US Treasury secretary, Jack Lew, stressed the need for Greece “to take necessary steps to maintain financial stability” ahead of the referendum.

He told the Greek prime minister, Alexis Tsipras, on Sunday that Athens and its creditors needed to continue working toward a resolution ahead of a Greek referendum on 5 July on the creditors’ demands for austerity.

US stock futures dived 1.8%, hitting a three-month low, while US Treasuries futures price gained almost two points.

A cash-strapped Greece looks certain to miss its debt repayment on Tuesday as Greece’s European partners shut the door on extending a credit lifeline after Greece’s surprise move to hold a referendum on bailout terms.

Fear of an imminent default by Greece hit Greek banks, a major buyer of Greek government bills, triggering bank runs at weekend and forcing Tsipras to announce a bank holiday on Monday and capital controls.

IHS Global Insight economist Rajiv Biswas said: “Even if a deal is somehow reached, the ability of Greece to implement agreed reforms is doubtful.”

He said Greek withdrawal from the euro could lower Asian economic growth by 0.3% in 2016 due to disruption in trade and financial markets.

In a brief televised address to the nation, Tsipras threw the blame onto the leaders of the Eurozone. But he did not say how long the banks would remain shut, nor did he give details of how much individuals and companies would be allowed to withdraw once they reopened.

All over Athens people queued at cash machines, particularly outside National Bank branches because the National Bank supplies the banknotes, and lots of other Greek banks, by midnight on Sunday, had no more of those.

Alexis Tsipras addresses the nation.

Other European banks have limited exposure to Greece.

Any speculative selling in debts of such countries as Italy, Spain and Portugal, will likely be countered by the European Central Bank, which started buying Eurozone sovereign debts from markets in March to shore up the economy.

Australian shares plunge as $35bn wiped off stock market over Greek crisis

S&P/ASX 200 and All Ordinaries fell 2% in first hour of trading on Monday although gold kept its allure and crept ahead

Read more

Yet the perception could change if investors grow more worried about the future of the currency union.

Yasunobu Katsuki, a senior analyst at Mizuho Securities, said: “Financial markets will say ‘it’s all Greek to me’. Markets will reset their trend until last week and will start the week with risk aversion.”

Mitsuo Shimizu, deputy general manager at Japan Asia Securities Group in Tokyo, told Bloomberg News: “In the face of pressure from the Eurozone to accept austerity measures, the Greeks answered that it’s hard to live just on water.”

“Carrying out a referendum buys the Greek side some time. Digesting the worst possible scenario of a Greek default, global stock markets could fall 1 to 2% today.”

Reuters and Associated Press contributed to this report

Greece crisis: markets begin to tumble as investors flee | World news | The Guardian

Monday, June 29, 2015

Greek debt crisis: PM Alexis Tsipras orders closure of banks as cash machines run dry


Greek prime minister Alexis Tsipras has announced the country's banks will be shut until July 6, pleading for calm after anxious citizens emptied ATMs in a dramatic escalation of the country's debt crisis.

People stand in a queue to use ATM machines to withdraw cash at a bank in Athens Photo: Greeks have raced to find functioning cash machines in an increasingly anxious run on the banks. (AFP: Aris Messinis)

Related Story: Asian shares slump as Greece teeters on brink of default
Related Story: Greece bailout program will not be extended, Euro group says
Related Story: Greek PM calls referendum to decide on bailout agreement
Related Story: Greek talks 'go backwards' as default looms
Map: Greece

In a statement, Mr Tsipras said the Bank of Greece had recommended a 60-euro ($87) restriction of bank withdrawals after international creditors refused to extend the nation's bailout beyond its June 30 expiry date, sparking default fears over an IMF loan repayment due the same day.

Amid growing concern the country was headed for financial collapse and a possible Eurozone exit, the European Central Bank (ECB) said it would not increase its financial support to Greek banks.

In a bid to stave off panic, Mr Tsipras said the stock market would remain closed on Monday and he added that Athens had again requested a "prolongation of the [bailout] program".

Urging calm, he assured Greeks their deposits were "totally safe".

"Equally safe is the reimbursement of salaries and pensions," he said.

What do you think of the Greek prime minister's decision to close the country's banks and stock exchange?

"Any difficulties that may arise must be dealt with with calmness. The more calm we are, the sooner we will get over this situation."

Uncertainty over how events will unfold in coming days prompted long queues of up to 100 people to form outside some ATMs in Athens.

"I tried many machines — five, six, eight, 10 — I am not sure," said Voula, who was on the lookout for a working ATM in central Athens.

"I feel anxious, sad, angry about the government," she said.

"They put Greece on a very dangerous adventure."

Since Friday night alone, 1.3 billion euros ($1.88 billion) had been withdrawn from the Greek banking system, according to the head of the bank workers' union Stavros Koukos.

A banking source in Greece said only 40 per cent of cash machines had money in them and a host of European governments including London and Paris advised citizens travelling to Greece to carry money with them.

As well as the 60-euro ATM limit applied to Greeks, online transactions will be allowed within Greece but foreign transfers will be prohibited.

The government said there was no limit on ATM withdrawals for foreign tourists.

Two sides remain at odds over economic reforms

The Frankfurt-based ECB's governing council earlier held a crisis telephone conference and pledged to maintain emergency liquidity assistance — keeping open its life-support for Greek banks and, by extension, the Greek state.

But it pledged no extra cash for banks, amid signs a bank run was gathering pace.

Greece's repayment schedule
  • June 30: IMF repayment, 1.5 billion euros
  • July 10: Greek Treasury T-bill redemption, 2 billion euros
  • July 13: IMF repayment, 450 million euros
  • July 17: Greek T-bill redemption, 1 billion euros
  • July 20: ECB and national central banks repayments, 3.5 billion euros
  • August 1: IMF coupon payment, 175 million euros
  • August 7: Greek T-bill redemption, 1 billion euros
  • August 20: ECB and national central banks repayments, 3.2 billion euros
  • September 4: IMF repayment, 300 million euros
  • September 4: Greek T-bill redemption, 1.4 billion euros

The long festering crisis took a sharp turn for the worse on Friday night after months of deadlocked negotiations between the new hard-left government of Mr Tsipras and the country's creditors.

The two sides have been at odds over the economic reforms demanded by the creditors in exchange for fresh cash needed to keep the Greek state afloat.

Mr Tsipras stunned Europe with a surprise call for a July 5 referendum on the latest cash-for-reforms package and advised voters against backing a deal that he said spelled further "humiliation".

For Mr Tsipras, austerity has been a "humanitarian catastrophe" for his country of about 11 million people, which has endured five years of recession, turmoil and skyrocketing unemployment.

Exasperated Eurozone members, suspecting a further play for time, responded by refusing to extend the EU's funding program beyond a Tuesday deadline.

This will almost certainly mean Greece will be default on more than 1.5 billion euros due to the International Monetary Fund on Tuesday.

French prime minister Manuel Valls warned of a "real risk" of Greece leaving the Eurozone if it citizens vote against the EU's bailout proposals in the referendum planned for next weekend.

From other news sites:

Greek debt crisis: PM Alexis Tsipras orders closure of banks as cash machines run dry - ABC News (Australian Broadcasting Corporation)

There’s method in Greece’s madness – it could pay off

Iain Martin

By Iain Martin 27 June 2015

With his call for a sudden referendum, Alexis Tsipras outraged Europe’s elites, who detest nothing more than to be reminded of the will of the people

Alexis Tsipras's task is to sell a deal to his restless Left-wing party at home

In the upper reaches of the Euro elite, where leaders are forever driving up to summit meetings in shiny German cars and looking grave and self-important for the cameras, where smooth diplomats know that the way to get business done is to do it discreetly with fellow officials, there is no surer sign that a colleague has gone stark raving mad than him announcing that he is going to hold a referendum on matters European.

It is bad enough that David Cameron has decided to put Britain’s future in the EU to the voters. But at least the UK Prime Minister has given warning several years in advance and has enlisted the support of the British business establishment to win his vote in 2017. By contrast, the Greek leader, Alexis Tsipras, announced on Friday that he wants to hold a referendum in Greece on the Eurozone crisis on July 5.

In the eyes of the Euro elite, this momentous decision made Mr Tsipras the instant winner of the European madman of the year competition. Several years ago, when his now forgotten predecessor in Athens attempted a similar manoeuvre, demanding a public vote, the Germans ordered Georges Papandreou not to be silly. Indeed, the then French president, Nicolas Sarkozy, told President Obama that the Greek leader was a “madman”. Truly, that was the pot calling the kettle noire.

Now, Mr Tsipras wants his own vote. What does he think he is doing? Does he realise that this is not how the Eurozone and the European Union work? Who knows what will happen if Greek voters are asked whether they approve of the final offer of new terms from stricken Greece’s creditors. Goodness, the voters might say no. So exasperated were the other Euro group leaders that on Saturday they decided that the referendum move means their latest offer is void and Greece is on its own. It looks as though the referendum will go ahead regardless.

That fear of referendums on the part of EU leaders and officials is rooted in bitter experience, of course. The messy attempt to smuggle the integrationist Maastricht Treaty past European electorates in the early Nineties was followed by the long-running wrangle over the abandoned EU constitution and the Lisbon Treaty. Voters are awkward. Sometimes they do not do as they are told by the leaders and officials who do the deals. Why take the risk?

But Mr Tsipras is certainly not mad, or not in the sense that he has lost his marbles. Despite his Marxist beliefs and trainee demagogue antics, there is something rather compelling about the cunning way in which he has handled this crisis and declined to be railroaded by the corporatist EU powers-that-be, even though he has been slapped in the face (literally, last week) by the atrocious Jean Claude Juncker, the president of the EU commission. This is to say nothing of the ineffective behaviour of the over-rated German chancellor, Angela Merkel, cooed over by diplomats and the foreign policy community despite no one ever being able to name a single great achievement or convincing act of leadership in her career other than the knifing of her mentor Helmut Kohl.

Greeks queue outside banks in Athens

But surely the real madmen here are not the Greek Marxists at all. The real madmen are those who created the euro, this cock-eyed construct, who thought political dreams and vanity could trump economic sense and cultural and national differences, by creating a currency union on a vast continent without the necessary safeguards.

Yet instead of facing these realities, and accepting that the EU model as currently constituted has had it, the Europhile leaders intone pompously about European Union values being agelessly sacrosanct. It is as though these men and women believe themselves to be functionaries of the Holy Roman Empire, rather than representatives of a modern botched-together political experiment that was only created in its latest form when German and French politicians misdiagnosed the consequences of the end of the Cold War as recently as 1989 and prescribed the euro.

This weekend, as those in the markets brace for the likelihood of Grexit, and a mammoth default on debts of more than 300 billion euros, it seems likely that Mr Tsipras has wanted Greece out of the Eurozone all along, pretending throughout the negotiations that he is trying for an accommodation and debt relief when really he wanted to leave. That is what observers of Syriza, his party, believe.

But Mr Tsipras had a problem when he came to power. Although many Greek voters like his style, they also liked the euro because it meant membership of a supposedly democratic club that confers respectability. That is why he had to be seen to try for a deal, to create the illusion of good faith, so that he can say to the Greek electorate that while he did his best, the wicked architects of austerity – the central bankers and International Monetary Fund technocrats who want to make poor Greek pensioners (age: 57) homeless – would not see sense.

There’s method in Greece’s madness – it could pay off - Telegraph

Greece crisis: Bank Under the Bed becomes last hope for many as ATMs run dry

Colin Freeman

By Colin Freeman, Athens 28 June 2015

As EU finance chiefs pull plug on bail-out, panicking Greeks empty ATMs amid fear of banking collapse

Greeks queue in front of the National Bank to use ATM to withdraw cash

Photo: Getty Images

• Greece crisis live: banks 'to close' on Monday as ECB caps funding at current levels

The message for anyone trying the cashpoint at the National Bank of Greece in downtown Athens was curt and to the point. "This ATM is unavailable for withdrawals," it read. "Sorry for any inconvenience."

Its empty vault, however, was not due to the brisk weekend trade in the nearby tourist cafes, but to the large numbers of locals withdrawing cash while they still could. And with fears now rife that Greece's banks could collapse in coming days, "inconvenience" was perhaps an understatement.

That, though, was the grim prospect facing Greece on Sunday, after finance chiefs running its €240bn bail-out program ruled that they too were "unavailable for withdrawals. Bereft now of any means to pay a $1.5bn debt instalment to its other big creditor, the IMF, on Tuesday, Athens is finally in breach of its overdraft on an epic scale.

"I heard that the banks were going to shut this week so I came to take out some money," said Evi Costas, 40, just after her bank card was swallowed by a Euro bank ATM just off Syntagma Square. "I wanted to withdraw €500, but what will I do now?"

An anti-austerity protester burns a euro note during a demonstration outside the European Union (EU) offices in Athens, Greece (REUTERS)

Her card having vanished, Ms Costas was planning to return the bank on Monday morning to seek its return. But therein lay further uncertainty. As of Sunday night, no one was quite sure when the banks would be opening again, be it on Monday or indeed any day next week.

With nearly half a billion euros removed from the banks between Saturday night and Sunday morning alone, the government has been forced to bow to pressure and enforce at least a week long bank holiday effective from Monday.

With nearly half a billion euros removed from the banks between Saturday night and Sunday morning alone, the government is under mounting pressure to keep the banks shut to stop them being emptied completely.

Yet even that basic measure is now a point of contention between Greece's Left-wing government and its bank managers in Brussels. While the European Central Bank has strongly advised it, Yanis Varoufakis, Greece's firebrand finance minister, said on Sunday that it mean admitting that Greece's Eurozone days were over.

Hence the continuation on Sunday of the long lines of people outside the few ATMs that still had cash in them. True, many of those queuing were simply anxious about having cash in hand for the next few days, rather than trying to remove their entire life savings and stash them at home.

But with confidence in Greek financial institutions at an historic low, the "Bank Under the Bed" is about the only one doing well at the moment. Since Mr Tsipras's government was elected on its radical, anti-austerity ticket back in January, anxious Greeks have withdrawn an estimated €30bn in savings accounts, adding to the general sense of a 1930s-style meltdown.

A security worker brings money to a National Bank branch in Athens, Greece (REUTERS)

"If we default and go back to using the drachma it will be like going back to the wartime era," added Ms Costas. "Only this time round, the drachma will be like some useless Third World currency with no value."

The fear that Greece might eventually bow out of the Euro has been around in Athens for months now, but on Saturday night, what had once just seemed like a worst-case scenario suddenly loomed as the most likely outcome.

That was when Mr Tsipras, having argued to the wire with Eurozone leaders over the terms of the continued bail-out program - which is also due to expire on Tuesday - suddenly announced that he would put the matter to a national referendum this coming Sunday.

For a country that was the birthplace of democracy, that might sound like a reasonable plan. It did not go down well, though, with Eurozone's finance chiefs, who saw it as yet more brinkmanship by Mr Tsipras in his bid to make them blink first.

Yet in playing this latest hand of Greek financial poker, Mr Tsipras also seems to have forgotten that the bank always has the upper hand. For in postponing the decision on the bail-out program until next Sunday, he gambled that Brussels would extend the deal itself for a week, allowing it to make its the €1.5bn payment due to the IMF on Tuesday. It was at that point that the Eurozone's finance ministers shook their heads, saying that as Athens had "unilaterally" ended the talks, there would be no extension, not even for a few days.

Greek Prime Minister Alexis Tsipras (Getty Images)

While the European Central Bank later said that it would continue to throw Athens a financial lifeline, allowing local banks to continue withdrawing, the only thing both sides now agree on is that nobody really knows what will happen next. The decision of the bookmaker, William Hill, to stop taking bets on a Grexit due to the rapidly shortening odds, seem as informed a prediction as any yesterday.

In the meantime, those waiting at the ATMs pass the time debating how they will vote in Sunday's referendum, not that it offers much of a choice either way. Even those who favour leaving the Eurozone seem to fear that Greece may end up like Afghanistan, or at the very least, neighbouring Albania.

"Europe is a club of cannibals that is trying to strangle Greece," said Lambros Stamoulis, 29, one of the 25 per cent of Greeks currently unemployed. "I will vote 'No' to the bail-out in the referendum. It would be nice to stay in the Euro, but the debt is so huge it would be best to return to the drachma."

"I will vote 'Yes'," said pensioner Costas Papadopolous, 75, after failing to withdraw his monthly pension at the National Bank of Greece ATM in Syntagma Square. "Tsipras has been far too confrontational and he needs to go. In fact, if Europe stops giving us money, that might be a good idea, it might mean we get new elections."

With that he sauntered off, joining two friends who were whiling the hot Sunday afternoon away in a cafe. With the future now so uncertain, that seems about as much of a plan as anyone can make.

Greece crisis: Bank Under the Bed becomes last hope for many as ATMs run dry - Telegraph

Markets set for turmoil as Greece hurtles towards financial collapse and capital controls

By Mehreen Khan, & Matthew Holehouse in Brussels 28 June 2015

Euro plummets to eight-year low as government is forced to back down and implement draconian bank holiday after ECB freezes funding

An anti-austerity protester burns a euro note during a demonstration outside the European Union (EU) offices in Athens, Greece June 28, 2015

An anti-austerity protester burns a euro note during a demonstration outside the European Union (EU) offices in Athens today Photo: Reuters

Markets were poised for their worst period of turmoil since the height of the Eurozone crisis four years ago, after Greece temporarily shut down its banks and suspended trading on its stock market, putting the country on the perilous path of a banking collapse and the issuance of a parallel currency.

Members of left wing parties hold placards that read in Greek: ''There is no future in the European Union'' during a protest in Athens

The Greek government announced it would be imposing capital controls and enforced bank holidays following a drastic decision by the European Central Bank to freeze the life support it had been drip feeding banks for the last five months.

The problem with Greek capital controls

Athens main stock index will also remain closed from Monday, as Greece hurtles towards the final stages of a traumatic five-year euro crisis.

The euro tumbled by more than 1.5pc against the dollar in early Asian trading and futures markets pointed towards heavy falls on Wall Street on Monday.

Perceived "safe havens" such as government bonds and the Swiss franc are set to see fresh inflows as investors fret over what may result in a fatal rupture of monetary union.

The Greek government is now all but certain to default on a €1.6bn loan to the International Monetary Fund on Tuesday and will also see its €240bn bail-out expire at the end of the day.

In his second televised address in three days, Greek prime minister Alexis Tsipras said he had taken the measures after the country's lenders had attempted "to stifle the will of the Greek people."

He added that all bank deposits would remain "completely safe" during the transitionary period and urged Greeks to show "patience and composure".

"It is clear that the objective of the Euro group's and ECB’s decisions is to attempt to blackmail the will of the Greek people and to hinder democratic processes, namely holding the referendum," said the prime minister."

"They will not succeed."

Greece has been in the throes of a slow moving bank run after snap referendum was called for Sunday July 5.

More two-thirds of the the country's cash machines ran dry this weekend after Greeks rushed to withdraw their savings. Bank deposits have now fallen to an 11-year-low.

The bank holiday should allow the financial system to stay afloat at least until the vote is held and are likely to re-open on July 7. Cash machine withdrawal limits are set to stand at €60, according to Greek media.

In a sign of the contagion fears that will now ripple across Europe, Macedonia's central bank ordered all of its banks to pull their deposits from the country.

Greece is now careering down a path of a disorderly exit of the Eurozone, which could result in the issuance of an alternative currency as early July, said Chris Scicluna, head of economic research at Daiwa Capital Markets.

With the government all but bankrupt, "public sector workers and pensioners might well have to be paid with IOUs as soon as end-July," said Mr Scicluna. "That would likely represent the first steps to issuing a parallel currency."

Greece just days away from fatal Eurozone rupture
How the ECB became the real villain of Greece's debt drama

The decision to impose the draconian measures came after the European Central Bank froze the level of emergency liquidity (ELA) it is providing to keep the financial system afloat on Sunday.

This funding, which is the last remaining financial link between Greece's banks and the Eurozone, stands at around €89bn, but has been burnt through at record rates as Greeks have amassed outside ATMs.

The ECB could go further on Tuesday and announce it will withdraw ELA all-together as the country's bail-out programme officially expires.

Should the ECB take the nuclear option, it would be evidence that "Europe has failed,” said Greek finance minister Yanis Varoufakis.

"It has failed in its duty to preserve in parallel a democratic process and a monetary union. It should be a union whose banks are guaranteed by a central bank doing what it can to keep people’s deposits accessible to them."

Mr Tsipras said on Sunday he had requested once again that the Troika extend the bail-out for another month.

Capital controls would not effect tourists or foreigners using cash machines in the country, said the government.

Alexis Tsipras @tsipras_eu

The recent decisions of the Eurogroup & ECB have only one objective: to attempt to stifle the will of the Greek people. #Greece

4:02 AM - 29 Jun 2015

Mr Varoufakis said before the decision, he was fundamentally opposed to carrying out draconian Cypriot-style controls.

"Capital controls within a monetary union are a contradiction in terms. The Greek government opposes the very concept," Mr Varoufakis said on Twitter.

Yanis Varoufakis @yanisvaroufakis

Capital controls within a monetary union are a contradiction in terms. The Greek government opposes the very concept.

9:59 PM - 28 Jun 2015

The Greek government declared the controls after meeting with the Bank of Greece and the country's financial stability board. Greece's central bank governor will now spend the night with the heads of the country's banks to begin implementation from Monday morning.

With events having spiralled out of control this weekend, Washington again intervened to urge Greece’s creditors to finally provide the country with some form of debt relief as part of any new rescue package.

Treasury secretary Jack Lew echoed the IMF’s Christine Lagarde, saying it was "important for all parties to continue to work to reach a solution, including a discussion of potential debt relief for Greece.”

The question of an alleviation of Greece’s 180pc debt mountain has been absent from the country’s current negotiations, with European creditors insisting it was a matter only to be addressed once Greece signs up to a package to cut spending and hike taxes.

Mr Varoufakis said he was thrown out of talks with finance ministers on Saturday

The ECB said it stood "ready to reconsider its decision" on ELA. "The ECB will work closely with Bank of Greece to maintain financial stability," said a statement.

Mario Draghi, ECB president, said: “We continue to work closely with the Bank of Greece and we strongly endorse the commitment of Member States in pledging to take action to address the fragilities of euro area economies.”

Capital controls were last seen in the Eurozone in Cyprus in 2013. The move came after the ECB threatened to pull the plug on the country's banks unless the government submitted to a bail-out package.

Once implemented, capital controls are difficult to remove. Cyprus only began shaking off its control measures last month, while Iceland is only returning to free capital movement seven years from its crisis.

The introduction of capital controls could now harden Greeks against European authorities, pushing them towards a ‘No’ vote in next weekend’s referendum.

It “would likely mark a first step towards Grexit as there is no indication that the Troika stands ready to offer Greece a better deal,” said Michala Marcussen of Societe Generale.

Markets set for turmoil as Greece hurtles towards financial collapse and capital controls - Telegraph

Sunday, June 28, 2015

Greece is doomed


Greek Prime Minister Alexis Tsipras ANGELOS TZORTZINIS/AFP/Getty

Things seem to have reached Desperation O'Clock in Greece, where Prime Minister Alexis Tsipras is now seeking a referendum as a way to avoid a choice between agreeing to the kind of austerity budget he promised to avoid and the Greek exit from the Eurozone that he also promised to avoid. For the latest developments, you should probably check a dedicated financial news service like Bloomberg, the Wall Street Journal, or the Financial Times. For a sophisticated and well-informed account of what Greece's European partners have done wrong, you should read Karl Whelan. For an analysis of the specifics of Tsipras' gambit, you should read Hugo Dixon.

But to understand the deeper causes of what's been going on since Tsipras' government swept to power in January, you really need to set the finance and economics aside and focus on the politics. Greece has been drawing dead this whole time, and the future outlook appears bleak for one simple reason — nobody else in Europe who holds power has any interest in making things anything other than painful for Greece.

1) Giving Greece a better deal would be a political disaster

Tsipras' fundamental miscalculation has been that he thought that by cloaking his specific requests for more lenient terms in the larger cause of anti-austerity politics, he could build a coalition of political support throughout Europe for his position. The reality was just the opposite. While politicians in Europe's creditor nations were naturally reluctant to grant Greece a better deal, politicians in Europe's debtor nations were even more opposed.

After all, if electing a bunch of far-left types to parliament so they can demand a better deal actually worked, then voters in Portugal and Spain and Italy and Ireland would take note of that fact. And the last thing the current crop of elected officials in Lisbon and Madrid and Rome and Dublin want is to all be turned out in favour of a bunch of far-left types.

2) Letting Greece default gracefully would be a disaster

Even if Greece's European partners weren't inclined to give Greece a better financial deal, they could have at least smoothed the path to default. A Greece that doesn't pay what it owes would be instantly cut off from credit markets and forced to run a very austere fiscal policy.

It's in Europe's interest to make things as hard as possible for Greece

Things could have been left at that. Instead, throughout the year, the European Central Bank has been saying that it will cut the Greek banking system off from emergency funding if Greece doesn't keep paying its debts. That means default will lead to the collapse of Greek banks, and the end of Greek membership in the euro.

That's a political decision the ECB isn't legally required to make. But politically it's the only possible decision. After all, if a default works out non-disastrously for Greece then other countries could be tempted to default. And international investors might worry that other countries could be tempted to default, raising interest rates and slowing the European economy. Only making default as painful as possible can safeguard the interests of other countries.

3) Letting Greece leave the Eurozone gracefully would be a disaster

Here's where the news gets really bad for Greece. Leaving the Eurozone could, in theory, go better or worse. But Europe needs it to go as badly as possible. After all, if Greece leaving goes pretty well, then other countries might be tempted to leave. And that raises the prospect of debt defaults, higher interest rates, and slowing European growth.

Once again, it's in Europe's interest to make things as hard as possible for Greece.

4) This is the time to fold 'em

The tragic irony, if you are Tsipras, is that his plan very well might have worked back in 2010 when his predecessors originally agreed to the terms of a bailout. Back then, the whole situation was considerably more fluid. Greece could have threatened to default and essentially commit a murder/suicide on the entire European economy unless it got better terms. That would have been a very risky strategy and you can see why the Greek government didn't pursue it. But it might have worked.

Yet as the song says, you need to know when to hold 'em and know when to fold 'em.

Five years ago was a good time for a risky bet. Today, Greece has no cards, and their best bet would have been to surrender months ago and hope to quietly score some small concessions down the road after building some good will.

Tsipras couldn't very well sweep to power promising to tear up the old deal and then agree to basically the same old deal. He had to make a great months-long show of trying for something better, even though it's always been impossible for him to get something better.

Greece is doomed - Vox

Rift with Greece sets Europe into uncharted territory

By Alastair Macdonald

* Euro zone, Greece face off after months of "poker"

* Anger at Greek government evident, despite fear of risks

* Unclear how coming days will affect currency bloc

* Wider concerns raised about future of European Union

BRUSSELS, June 28 (Reuters) - Europe's grand project to bind its nations into an unbreakable union by means of a common currency lurched into uncharted waters after EU governments refused funding to save Greece from defaulting on its debts.

While finance ministers of the other 18 euro zone states chorused their insistence that Greece would remain inside the bloc, exasperation with the leftist government's decision to reject creditors' final offer and instead call a referendum was manifest and some officials spoke privately of expelling Athens.

"They were playing poker," said Austrian Finance Minister Hans Joerg Schelling after the Euro group that runs the currency met on Saturday without their Greek counterpart to discuss how to limit the fallout. "But in poker, you can always lose."

After five months of halting negotiations with a Greek government elected to end the pain of austerity measures, EU leaders left a summit in Brussels on Friday believing that a deal was close to roll over bailout funding and let Athens meet a repayment to the IMF on Tuesday and further obligations over the coming months.

But Prime Minister Alexis Tsipras provoked consternation by returning home to call a referendum for next Sunday on the offer and urging voters, weary of years of debt crises, to reject it.

"Tsipras messed up," one EU official said. "We did everything possible. They chose to blow up when we were so close to settling this in a way that would allow them to sell it."

Amid political drama in Greece, where a clear majority wants to remain inside the bloc, the next few days present a major challenge to the integrity of a 16-year-old currency bloc, which many blame for massive unemployment in countries outside Germany and its neighbours in the richer north and west of Europe.


"We must do everything we can to fight any conceivable threat of contagion," German Finance Minister Wolfgang Schaeuble said after a meeting at which the group effectively called for capital controls to ring-fence Greek banks haemorrhaging cash.

While acknowledging that only Greece - or possibly banks themselves - can instigate such a shutdown, the ministers said the European Central Bank, whose management meets on Sunday, should use its powers to stabilise markets.

"You have to count on Greece getting into acute problems in the coming days because of this decision," said Schaeuble, some of whose conservative allies have made no secret of preferring to see Greece forced out of the euro zone. "That is difficult as we do not know how it will live up to its commitments."

He and others, however, stressed their faith in stability mechanisms put in place after scepticism among investors pushed the euro zone to breaking point following a run of national bankruptcy scares in the wake of the global crash of 2008.

And, echoing his French Socialist counterpart, Michel Sapin, Schaeuble insisted after the fifth such deadlocked ministerial meeting in just over a week: "Greece remains a member of the euro zone and Greece remains part of Europe."

But few EU leaders now trust this Greek government, whose calls for debt relief and criticisms of the bailout's deadening effect on growth have been echoed by some leading economists.

When representatives of the three creditor institutions - euro zone governments, the ECB and IMF - met after Greek Finance Minister Yanis Varoufakis had left, participants quoted one senior official as joking that at least they could refer again to the lenders as the "Troika," a term Varoufakis had insisted be dropped because Greeks associated it with external diktats.

Dutch Finance Minister Jeroen Dijsselbloem, the Euro group chairman, repeatedly referred to the possibility that the Greek parliament might reject Tsipras's call for a referendum. But lawmakers dashed any prospect of a quick shift in Greek politics before markets open on Monday by voting for it to go ahead.

Still, Dijsselbloem insisted: "The process has not ended. It will never end probably. We will continue to work with Greece. Many things could happen, many scenarios are conceivable."

As Greeks lined up to take cash from ATMs, it remained to be seen how financial mechanisms would work. If Greece fails, as it has said it will, to repay 1.6 billion euros to the IMF on Tuesday, that default can have knock-on effects.

Some experts speculate that Greece could formally remain in the euro zone but issue its own IOUs to pay immediate bills.

The ECB must also decide whether to keep supplying liquidity to Greek banks, once the government whose debt makes up a large chunk of their assets is no longer meeting its obligations and once the bailout programme formally expires on Tuesday.


The central bank, under its president, Mario Draghi, has been reluctant to take such a highly politicised decision. At the same time, political leaders have been reluctant to override the decisions of finance ministers lest that appear to be a signal that the rules of the common currency are open to manipulation.

Donald Tusk, a former Polish prime minister who chairs meetings of the 28 EU leaders, made clear at two summits in the past week that heads of government must nonetheless take their responsibilities in a crisis that affects the Union as a whole.

Early on Sunday, he was in contact with leaders again: "Greece is and should remain euro area member," Tusk tweeted.

The Greek government's demands have alienated its euro zone partners - from Germany and its northern allies, to southern states and Ireland whose governments face critics of their own bailout terms to easterners much less prosperous than Greece.

But with Britain already planning a referendum on leaving the EU, a breach in formal institutions worries those who fear economic drift. Complaints it lacks democratic accountability threaten the EU's survival in its present form.

One official close to Saturday's Euro group discussions said the issue of Greece leaving the euro, or the EU, was not raised - there is no obvious legal way to force it out of either. But, the official said, a "Grexit" could not be entirely ruled out.

Leaving Brussels on what he called a "sad day for Europe," the outspoken Varoufakis warned that the rift with Athens would damage the euro zone's credibility as a "democratic union" - "And I'm very much afraid that that damage will be permanent."

(Additional reporting by Jan Strupczewski, Robert-Jan Bartunek and Andreas Rinke; Editingn by Steve Orlofsky)

Rift with Greece sets Europe into uncharted territory | Reuters