Massenbach-Letter: NEWS 03/07/15

Massenbach-Letter. News

· Vatican signs first treaty with Palestine, Israel angered * The Jihadist Trap of Here and Now

· NYT: Debt Talks May Be Defining Moment for Greece, and for Angela Merkel

· European oil majors hold Tehran talks * The case for a specialist energy bank

· STRATFOR: Beyond the Greek Impasse * On Greek debt — with apologies to John Maynard Keynes in the Economic Consequences of the Peace (1919)

· Der Zusammenhang zwischen Nichtwählen und sozialer Lage ist eindeutig

· Barandat: WATERINTAKE 5/2015

Massenbach* *NYT: Debt Talks May Be Defining Moment for Greece, and for Angela Merkel*

BERLIN — With Greece embroiled in civil war and the shadow of Soviet domination looming over Europe in 1947, President Harry S. Truman called for “immediate and resolute action,” putting up hundreds of millions of dollars to keep Greece in the Western camp.

A failure to aid Greece “in this fateful hour,” Mr. Truman warned, would have repercussions “far-reaching to the West as well as to the East.”

Almost 70 years later, the present bears echoes of the past. Its politics deeply divided, Greece is mired in a terrible depression, and President Vladimir V. Putin of Russia is doing his best to fan the embers of a new East-West standoff.

But this time, the critical player is Chancellor Angela Merkel of Germany. As the de facto leader of the European Union, she is a crucial voice in deciding whether, in 2015, Greece is worth the cost — 240 billion euros, or about $270 billion, and counting in bailout money — to keep it in the European fold.

The brinkmanship over Greece’s finances is now entering what officials on all sides say is a decisive phase, with a meeting late Wednesday of eurozone finance ministers in Brussels and a two-day summit meeting beginning on Thursday of European Union leaders, where Ms. Merkel will once again be first among equals.

Beyond finances, the outcome of those negotiations will have lasting ramifications for European unity and security, raising profound questions about Ms. Merkel’s leadership and about her legacy as a primary driver of five years of austerity policies that Greeks blame for pushing them to a precipice.

It is a signature moment that may well define Ms. Merkel’s nearly a decade in power, and reveal whether her vision for the bloc transcends Germany’s penchant for rules and its domestic politics, and even whether Berlin is prepared to play a leadership role on the global stage.

Some financial experts say that Europe could absorb a Greek exit from the eurozone, despite the many questions that departure would raise for creditor nations forced to write off hundreds of billions of euros.

But, political analysts warn, a Greek exit from the euro could set off a chaotic switch to a largely devalued currency. That could almost instantly create a disgruntled and impoverished Greece, run by a far-left government already friendly with Mr. Putin, providing the Russian leader with an even firmer handhold to divide Europe.

“Russia uses every opportunity to divide and weaken the European Union,” Rosen Plevneliev, the president of Greece’s northern and poorer neighbor, Bulgaria, said in an interview on Wednesday.

“What is happening in Greece is geopolitical as well as economic,” he added. “Of course we worry. We follow very closely what is happening.”

Ms. Merkel is also no doubt worried. Germany “is being forced to widen the prism through which it looks at the crisis,” said Mark Leonard, head of the London-based European Council on Foreign Relations. “It’s not just about the economic rules anymore.”

Ms. Merkel finds herself confronted with at least three crises in Europe: a potential exit from the euro currency by Greece, the danger that Britain might leave the European Union, and a newly assertive Russia.

Often accused by critics of preferring tactics over strategy, or a cool approach over emotional commitment to Europe, Ms. Merkel is trying to bolster European unity in each case.

Keeping Greece in Europe has been a strategic consideration since 1947, when Mr. Truman declared his commitment — as NATO was being formed — to Greece and Turkey in what became known as the Truman Doctrine.

Greece went through a brutal three-year civil war that erupted after World War II. In the late 1960s and early ’70s, it was ruled by a military junta. In 1981, the country was readmitted into the European fold, joining what was then called the European Community.

In 2001, it entered the eurozone without European, German or other officials raising serious questions about what Athens acknowledged in 2009 were cooked figures.

At a conference last weekend in the Slovak capital, Bratislava, Greece found its way onto an agenda originally focused on threats to the post-Cold-War order, like Russian muscle-flexing and the rise of the Islamic State.

Asked about the risk of Greece’s leaving the eurozone, and possibly even the European Union, Alexander R. Vershbow, deputy secretary general of NATO, said: “This could have repercussions for us. We are worried about this.”

The United States and NATO, he added, “are not putting on blinders and seeing this as only an economic issue.”

Since taking power in January, Greece’s leftist government has played up the wider stakes involved in the debt crisis, a move that some dismiss as a negotiating tactic but that others see as an indication of the readiness of Syriza, the party of Prime Minister Alexis Tsipras, to tilt away from the West.

“Nowadays, the role of geopolitics is more important than before,” the Greek foreign minister, Nikos Kotzias, said in a recent speech at the University of Oxford in England.

He accused the European Union of abandoning its “culture of compromise” and evolving “into an empire in which the bureaucracy in Brussels, the financial markets and Berlin — the so-called New Rome — play a special role.”

The European bloc, he added, must look beyond narrow financial calculations and at the bigger geopolitical picture. “It needs to learn to see beyond the end of its nose, as we say in Greece,” Mr. Kotzias said.

François Lafond, the executive director of EuropaNova, a research group based in Paris, said that European countries were particularly concerned that failure to stabilize Greece could unleash a torrent of migrants, both Greeks and refugees from the Middle East who continue to flood into the country.

Germany has consistently said that Greece and others must abide by European Union rules, and that exceptions in themselves fray the bloc’s unity. But, seemingly to give herself some political cover, perhaps for a compromise, Ms. Merkel has left much of the haggling to her finance minister, Wolfgang Schäuble.

She has also emphasized that Greece’s troika of creditors — the other eurozone countries, the International Monetary Fund and the European Central Bank — must sign off on any deal.

If Greece eventually tumbles out of the eurozone, however, Ms. Merkel would suffer the blow, not only to her legacy, but also potentially to a range of other policies aimed at preventing the unraveling of European unity, so painstakingly assembled since 1945.

Not least, without a new Greek deal, Ms. Merkel’s leadership on sanctions against Russia, and on keeping Britain in the European Union, could also wobble significantly.

Emmanuel Macron, the French economy minister, made clear in an interview this week that Ms. Merkel had an eye on the geopolitical landscape.

“The chancellor is completely aware of the situation and the consequences, both politically speaking and economically speaking, of a Grexit,” he said, referring to a Greek exit from the eurozone.

“I think the Germans now will push with us to find a compromise in the coming days if the Greeks decide to accelerate and work for a credible package,” he added.

But there is still no certainty of a deal this week that would allow the Europeans to release €7.2 billion in credit to enable Greece to pay the International Monetary Fund the €1.6 billion it owes by June 30.

Even then, Ms. Merkel needs the German Parliament to approve a deal — just as Mr. Tsipras needs the Greek legislature to do the same. Approval is not certain in either case.

The stern line of Mr. Schäuble, Ms. Merkel’s finance minister, reflects the skepticism of scores of deputies in the Christian Democratic bloc who will need to be brought on board for any deal.

German and other European politicians feel they have been treated brusquely by Athens, whose harsh speech has forced European Union officials out of their usual mode of woolly compromise forged in closed-door debate.

Norbert Röttgen, head of the foreign affairs committee in Parliament and a deputy for Ms. Merkel’s Christian Democrats, said, “The whole way the Greek government has behaved has really damaged the mood” in Berlin.

Still, he expressed confidence that “a large majority” in the German Parliament would vote for a new Greek deal, if one could be reached, though amid much dissent.

The geopolitical worries could tip that balance.

Mr. Lafond, of EuropaNova, said such concerns had prodded even European leaders thoroughly fed up with what they see as the broken promises and histrionics of Greek negotiators to keep pushing for a deal to keep Greece in the eurozone.

“If it were not for the geopolitical context,” Mr. Lafond said, “they would have let them leave long ago.”


Information from the European Commission on the latest draft proposals in the context of negotiations with Greece

Brussels, 28 June 2015

In the interest of transparency and for the information of the Greek people, the European Commission is publishing the latest proposals agreed among the three institutions (European Commission, European Central Bank and International Monetary Fund), which take into account the proposals of the Greek authorities of 8, 14, 22 and 25 June 2015 as well as the talks at political and technical level throughout the week.

Discussions on this text were ongoing with the Greek authorities on Friday night in view of the Eurogroup of 27 June 2015. The understanding of all parties involved was that this Eurogroup meeting should achieve a comprehensive deal for Greece, one that would have included not just the measures to be jointly agreed, but would also have addressed future financing needs and the sustainability of the Greek debt. It also included support for a Commission-led package for a new start for jobs and growth in Greece, boosting recovery of and investment in the real economy, which was discussed and endorsed by the College of Commissioners on Wednesday 24 June 2015.

However, neither this latest version of the document, nor an outline of a comprehensive deal could be formally finalised and presented to the Eurogroup due to the unilateral decision of the Greek authorities to abandon the process on the evening of 26 June 2015.

(26 June 20h00) List which takes account of the proposals of the Greek authorities received on 8, 14, 22 and 25 June (see attachment)


STRATFOR: Beyond the Greek Impasse*

By George Friedman

The Greek situation — having perhaps outlived the term "crisis," now that it has taken so long to unfold — appears to have finally reached its terminal point. This is, of course, an illusion: It has been at its terminal point for a long time.

The terminal point is the juncture where neither the Greeks nor the Germans can make any more concessions. In Greece itself, the terminal point is long past. Unemployment is at 26 percent, and more than 50 percent of youths under 25 are unemployed. Slashed wages, particularly in the state sector, affecting professions including physicians and engineers, have led to massive underemployment. Meanwhile, most new economic activity is occurring in the untaxable illegal markets. The Greeks owe money to EU institutions and the International Monetary Fund, all of which acquired bad Greek debts from banks that initially lent funds to Greece in order to stabilize its banking sector. No one ever really thought the Greeks could pay back these loans.

The European creditors — specifically, the Germans, who have really been the ones controlling European negotiations with the Greeks — reached their own terminal point more recently. The Germans are powerful but fragile. They export about a quarter of their gross domestic product to the European free trade zone, and anything that threatens this trade threatens Germany’s economy and social stability. Their goal has been to keep intact not only the euro, but also the free trade zone and Brussels‘ power over the European economy.

Germany has so far avoided an extreme crisis point by coming to an endless series of agreements with Greece that the Greeks couldn’t keep and that no one expected them to keep, but which allowed Berlin to claim that the Greeks were capitulating to German demands for austerity. This alleged capitulation helped Germany keep other indebted European countries in line, as financially vulnerable nations witnessed the apparent folly of contemplating default, demanding debt restructuring and confronting rather than accommodating the European Union.

Greece and the Cypriot Situation

For the Germans, Greece represented a dam. What was behind the dam was unknown, and the Germans couldn’t tolerate the risk of it breaking. A Greek default would come with capital controls such as those seen in Cyprus, probably trade barriers designed to protect the Greek economy, and a radical reorientation of Greece in a new strategic direction. If that didn’t lead to economic and social catastrophe, then other European countries might also choose to exercise the Greek option. Germany’s first choice to avoid the default was to create the illusion of Greek compliance. Its second option was to demonstrate the painful consequences of Greece’s refusal to keep playing the first game.

This was the point of the Cyprus affair. Cyprus had reached the point that it simply could not live up to the terms of its debt repayment agreements. The pro-EU government agreed under pressure to seize money in bank accounts holding more than 100,000 euros (around $112,000) and use that money to make good on at least some of the payments due. But assigning a minimum account balance hardly served to lessen the blow or insulate ordinary Cypriots. A retiree, after all, may easily have more than 100,000 euros in savings. And hotels or energy service companies (which are critical to the Cypriot economy) certainly have that much in their accounts. The Germans may have claimed the Cypriot banking system contained primarily Russian money, but — although it undoubtedly contained plenty of Russian funds — most of the money in the system actually represented wealth saved and used by Cypriots in the course of their lives and business. The result of raiding those accounts was chaos. Cypriot companies couldn’t pay wages or rent, and the economy basically froze until the regulations were eventually eased — though they have never been fully repealed.

The Germans were walking a fine line in advocating this solution. Rather than play the pretend game they had played in Greece, they chose to show a European audience the consequences of genuine default. But those consequences rested on a dubious political foundation. Obviously the Cypriot public was devastated and appalled by their political leaders‘ decision to comply with Germany’s demands. But even more significant, the message received by the rest of Europe was that the consequences of resistance would be catastrophic only if a country’s political leadership capitulated to EU demands. Seizing a large portion of Cypriot private assets to pay public debts set an example, but not the example the Germans wanted. It showed that compliance with debt repayments could be disastrous in the short run, but only if the indebted country’s politicians let it happen. And with that came another, unambiguous lesson: The punishment for non-compliance, however painful, was also survivable — and far preferable to the alternatives.

The Rise of Syriza

Enter the Coalition of the Radical Left party, known as Syriza, one of the numerous Euroskeptic parties that have emerged in recent years. Many forces combined to drive pro-EU factions out of power, but certainly one of them was the memory of the behavior of pro-EU politicians in Cyprus. The Greek public was well aware Athens would not be able to repay outstanding debt on anything even vaguely resembling the terms set by the pro-EU politicians. Cognizant of the Cypriot example, they voted their own EU-friendly leaders out, making room for a Euroskeptic administration.

Syriza ran on a platform basically committing to ease austerity in Greece, maintain critical social programs, and radically restructure the country’s debt obligations, insisting that creditors share more of the debt burden. EU-friendly parties and individuals — and the Germans in particular — tended to dismiss Syriza. They were used to dealing with pro-EU parties in debtor countries that would adopt a resistant posture for their public audience while still accepting the basic premise put forth by Germany and the European Union — that in the end, the responsibility to repay debts was the borrower’s. Regardless of their public platform, these parties therefore accepted austerity and the associated social costs.

Syriza, however, did not. A moral argument was underway, and the Germans were tone deaf to it. The German position on debt was that the borrower was morally responsible for it. Syriza countered that, in effect, the lender and the borrower actually shared moral responsibility. The borrower may be obligated to avoid incurring debts that he could not repay, but the lender, they argued, was also obligated to practice due diligence in not lending money to those who were unable to repay. Therefore, though the Greeks had been irresponsible for carelessly borrowing money, the European banks that originally funded Greece’s borrowing spree had also been irresponsible in allowing their greed to overwhelm their due diligence. And if, as the Germans have quietly claimed, Greek borrowers misled them, the Germans still deserved what happened to them, because they did not practice more rigorous oversight — they saw only euro signs, just as the bankers did when they signed off on loans to Greece rather than restraining themselves.

The story of Greece is a tale of irresponsible borrowing and irresponsible lending. Bankruptcy law in European and American culture is a system of dualities, where expectations for prudent behavior are placed on both the debtor and creditor. The debtor is expected to pay everything he can under the law, and when that is ability is expended, the creditor is effectively held morally responsible for his decision to lend. In other words, when the debtor goes bankrupt, the creditor loses his bet on the debtor, and the loan is extinguished.

But there are no bankruptcy laws for nation-states, because there is no sovereign power to administer them. Thus, there is no disinterested third party to adjudicate national bankruptcy. There are no sovereign laws dictating the point where a nation is unable to repay its debt, no overarching power that can grant them the freedom to restructure debts according to law. Nor are there any circumstances where the creditor is simply deemed out of luck.

Without these factors, something like the Greek situation emerges. The creditors ruthlessly pursue the debtor, demanding repayment as a first priority. Any restructuring of the debt is at the agreement of creditor and debtor. In the case of Cyprus, the government was prepared to protect the creditors‘ interests. But in Greece’s case, Syriza is not prepared to do so. Nor is it prepared, if we believe what the party says, to simply continue crafting interim lies with the country’s creditors. Greece needs to move on from this situation, and another meaningless postponement only postpones the day of reckoning — and postpones recovery.

The Logic and Repercussions of a Grexit

A Greek withdrawal from the eurozone would make sense. It would create havoc in Greece for a while, but it would allow the Greeks to negotiate with Europe on equal terms. They would pay Europe back in drachmas priced at what the Greek Central Bank determines, and they could unilaterally determine the payments. The financial markets would be closed to them, but the Greeks would have the power to enact currency controls as well as trade regulations, turning their attention from selling to Europe, for example, to buying from and selling to Russia or the Middle East. This is not a promising future, but neither is the one Greece is heading toward now.

Many have made a claim that a Greek exit could lead the euro to collapse. This claim seems baffling at first. After all, Greece is a small country, and there is no reason why its actions would have such far-reaching effects on the shared currency. But then we remember Germany’s primordial fear: that Greece could set a precedent for the rest of Europe. This would be impossible if the rest of Europe was doing well, but it is not. Spain, for example, has unemployment figures almost as terrible as Greece’s. Some have pointed out that Spain is now one of the fastest-growing countries in Europe, which would be impressive if growth rates in the rest of Europe weren’t paralyzed. Similarly, Spain’s unemployment rate has fallen — to a mere 23 percent. Those who are still enthused about the European Union take such trivial improvements as proof of a radical shift. I see them as background noise in an ongoing train wreck.

The pain of a Greek default and a withdrawal from the eurozone would be severe. But if others see Greece as a forerunner of events, rather than an exception, they may calculate that the pain of unilateral debt restructuring makes sense and gives Greeks a currency that they can at last manage themselves. The fear is that Greece may depart from the euro, not because of any institutional collapse, but because of a keen awareness that sovereign currencies can benefit nations in pain — which many of Europe’s countries are.

I do appreciate that the European Union was meant to be more than an arena for debtors and creditors. It was to be a moral arena in which the historical agony of European warfare was abolished. But while the idea that European peace depends on prosperity may be true, that prosperity has been lost. Economies rise and fall, and Europe’s have done neither in tandem. Some are big winners, like Germany, and many are losers, to a greater or lesser degree. If the creation of a peaceful European civilization rests on prosperity, as the founding EU document claims, Europe is in trouble.

The problem is simple. The core institutions of the European Union have functioned not as adjudicators but as collection agents, and the Greeks have learned how ruthless those agents can be when aided by collaborative governments like Cyprus. The rest of the Europeans have also realized as much, which is why Euroskeptic parties are on the rise across the union. Germany, the country most threatened by growing anti-EU sentiment, wants to make clear that debtors face a high price for defiance. And if resistance is confined to Greece, the Germans will have succeeded. But if, as I think it will, resistance spreads to other countries, the revolt of the debtor states against the union will cause major problems for Germany, threatening the economic powerhouse’s relationship with the rest of Europe.


On Greek debt

07-03-15 List of prior actions – version of 26 June 20 00.pdf
150630 WATERINTAKE 05_2015.pdf