Greece –—–Kicking The Can Toward Another “Happy End”?


Hope dies last, as they say in Germany, but it has always been certain that the EU would do “whatever it takes”, to use a Draghi-ism, to keep Greece in the euro fold by finding a way to continue the existing extend and pretend scheme. So we are not surprised to learn that Alexis Tsipras is “hopeful” and that there has been “progress” at the talks – although it actually sounds like they have achieved precisely nothing.


sparkly tsiprasSparkly Greek prime minister Alexis Tsipras

Image via



As Reuters reports:


Greek Prime Minister Alexis Tsipras forecast a happy end soon to fraught negotiations with creditors on a cash-for-reform deal, and the chairman of euro zone finance ministers said talks were making progress, though not enough for a deal next Monday.

However, with Greece’s cash reserves dwindling, EU officials said there was no breakthrough in talks with the International Monetary Fund, the European Commission and the European Central Bank on sticking points such as pension and labor market reforms and budget targets.

“The organization and structure of the talks has improved, compared to what it was before, but we are still quite some way away from a situation that you could describe as a final agreement being well in sight,” a senior euro zone official said.

Greece’s leftist-led government, which was elected earlier this year on promises to end austerity policies, has dragged its feet on accepting unpopular reforms promised by a previous government under the country’s EU/IMF bailout program.

The country faces the risk of defaulting on debt repayments and being forced out of the euro zone, but negotiations have moved so slowly that the lenders have ruled out an agreement at next Monday’s meeting of euro zone finance ministers.

Tsipras, who has taken personal charge of the negotiations, told parliament in Athens: “I am confident that we will soon have a happy ending and that despite the difficulties… we will carry out the agreement which will be concluded soon in Europe.”

The leftist leader said his government was “doing whatever it should in order to reach … an honest and mutually beneficial agreement with our partners”, but gave no indication of yielding on the lenders’ core demands for painful reforms.

The government has said its “red lines” are that it will not make further pension cuts or legislate to ease layoffs in the private sector. It has given some ground on privatizations and value-added tax but wide gaps remain.

Eurogroup chairman Jeroen Dijsselbloem said Monday’s meeting would not be decisive, but negotiations were moving forward. Greece’s partners would consider debt relief only once Athens committed to, and completed its current bailout program, he said.

EU officials said they are keen for the Eurogroup to send a positive message on Monday that a deal is in the works and avoid another clash with Greek Finance Minister Yanis Varoufakis like one at a meeting in Riga last month.

“I cannot exclude that ministers will issue a statement, but if it appears, it is likely to be anodyne, taking stock, etc,” the senior euro zone official said.

That would not be enough to prompt the ECB to allow Greek banks on emergency liquidity support to buy more short-term treasury bills to ease the government’s funding crunch.


(emphasis added)

In short, the ECB will be given the green light to continue to do its part in the ongoing extend-and-pretend operations. Below is an update of the relevant Greek data as of the end of March 2015 (these are the newest data available from the Bank of Greece). Note that the while the March outflows of private deposits have been fairly small, there has actually been a sharp decline in government deposits at commercial banks (we deduct government deposits from the total to arrive at a clean number that shows only what the private sector is doing).

The charts below show private deposits, euro-system borrowing by Greek commercial banks (including ELA), as well as Greece’s still growing TARGET 2 liabilities. The government has recently issued another emergency decree, charging depositors with a mandatory surcharge for withdrawing money from banks. Ironically, the government’s revenues from this levy will be the greater the more Greek depositors decide to panic.


1-Greece, private sector depositsGreek private sector bank deposits – outflows continue, but the pace has slowed a bit in March – click to enlarge.


2-Greece, euro system liabilitiesEuro system liabilities of Greek commercial banks continue to grow as well, albeit in small steps, as the ECB has raised Greece’s ELA ceiling only reluctantly since March – click to enlarge.


3-Greece, TARGET-2 liabilitiesGreece’s TARGET-2 liabilities continue to surge as well – in fact, the surge in these has been quite large in March, from €95.6 bn. to € 101.07 bn – click to enlarge.


Skeptical Germans and Grumpy Finns

In Germany, conservative lawmakers are increasingly skeptical of the efforts to keep Greece in the euro zone at all costs. A number of politicians in Finland, the economy of which is incidentally on the threshold of a crisis as well, are also not very happy with the new Greek government and its ongoing refusal to play ball. True Finns leader Timo Soini, who is likely to become Finland’s new finance minister, seems to prefer a euro zone without Greece:


“A source briefed on German government thinking said Merkel was willing to take a deal to continue financial support for Greece to an increasingly skeptical parliament provided Tsipras made serious commitments on reform. The source said Finance Minister Wolfgang Schaeuble and a growing number of lawmakers in Merkel’s conservative CDU party were skeptical about Greece’s ability to stay in the euro zone.

Another hurdle may lie in Finland, where the head of a Eurosceptic party who has agreed to enter a new governing coalition said it would make sense for Greece to leave the common currency. Timo Soini, leader of the Finns Party and possible next finance minister, declined to comment in a television interview on what position the next government would take on a third Greek bailout, saying that in a coalition “no one dictates nothing”. Asked whether he would still like to see Greece thrown out of the euro zone, he said: “That would perhaps be the clearest option for everybody, also for the Greeks.”


(emphasis added)

Soini has a point, not least because the “Greek crisis” promises to return over and over again, like a boomerang.


Timo soiniTrue Finn Timo Soini no fan of bailing out Greece for the umpteenth time.

Photo credit: Mikko Stig / Lehtikuva


Cue the “Energy Diplomat”

Lastly, the US apparently also has business in Greece. As Reuters notes in passing, an unnamed “US energy diplomat” had a very urgent request (what the hell is an “energy diplomat”?):


“In Athens, the top U.S. energy diplomat tried to persuade Greek officials to focus on a Western-backed pipeline project rather than a rival Russian gas pipeline that the Tsipras government is discussing with Moscow, lured by the prospect of advance payments of profits.”


Given that the unnamed man is the designated the “top” energy diplomat, we are guessing they must mean Amos Hochstein. What “Western backed” pipeline project is there for Greece to focus on we wonder? Please don’t say they are talking about the corpse of Nabucco. Never giving up, are we?

Not to put too fine a point to it, it is none of the US’ business where Greece gets its gas and gas pipelines from. Moreover, Russia has been a reliable energy partner of Europe for many decades. It never once violated its contracts, not even at the height of the cold war, when it was under Soviet rule. Note that Russia’s government is only interested in one thing at the moment: avoiding Ukraine as a transit country. This is perfectly understandable given the hostility of Ukraine’s post-coup government and the well-documented habit of Ukrainian governments of welshing on their debts to Gazprom.

By contrast, Nabucco would get its gas from Azerbaijan and Turkmenistan, and at one stage it was planned to inter alia also get gas from the region that is currently ruled by the Islamic State. As Wikipedia notes, the pipeline would cross territories that are not necessarily considered the safest:


“Concerns have been raised about the safety of the project. Gas for the Nabucco pipeline coming from Azerbaijan and Turkmenistan will have to pass near areas of instability in the South Caucasus.”


Given the already existing Russian pipeline infrastructure and the ability and willingness of Gazprom to finance pipeline projects, it also makes a lot more economic sense to go with the Russian option. In other words, the interference concerns only the geopolitical games the US is playing with Russia. There is no economic mileage for Greece in playing a good vassal. Moreover, Nabucco was previously never even supposed to cross Greece, but we don’t know of any other “Western pipeline project” that Hochstein could possibly be referring to.



We continue to assume that in the end, the show will go on as it has before. Syriza may be thrown a few bones it can sell as a success to its voters, and that will be that. Greece will remain just as bankrupt as it already is, and everybody will continue to pretend that it isn’t. However, the fact remains that the debt exists and can never be repaid. The only question with respect to that has always been who will be taking the loss and when.

Regarding Greece’s relationship with Russia, there is a cultural affinity based on the fact that in both countries the Orthodox Church is the main religion (the same goes by the way for Serbia). The Greek government has already persuaded Putin to consider exempting Greece from Russia’s tit-for-tat sanctions imposed on the EU, something no other EU country has managed to do thus far. Both Syriza and its coalition partner have frequently given voice to their unhappiness with the current EU sanctions regime. So we doubt they will be swayed by Hochstein, unless he brings tangible gifts and not just promises.


Charts by: Acting Man