Friday, February 20, 2015

This is Why I Fully Expect the Eurozone to Provide Greece with 90 Days, or So, of Breathing Room

Jeffrey Sachs this morning at FT provides a glimpse, as best that I can determine, of the true thinking sans-posturing of the eurozone finance ministers:
Greece has a newly elected government because the Greek people understandably have asked for a new approach to overcome the prevailing 26 per cent unemployment. This new government needs around 90 days to find its feet and make new arrangements with its creditors.

During this 90-day period, Greece also needs to make several billion dollars worth of payments to its eurozone creditors and the IMF, and these payments will require new loans. Greece also faces a self-fulfilling run on its banks as a result of the prevailing uncertainty. It is the stuff of introductory banking textbooks. Why keep money in Greek banks if they are at risk of collapse because of a run and a lack of ECB financing?

Greece and its creditors therefore need 90 days reprieve to sort things out — this is the obvious part. If they can’t resolve their financial and philosophical disputes during that period, Greece will probably be pushed out of the eurozone. So be it...

Both Greece and the eurogroup should say that the 90 days are a period to try to find a creative and mutually satisfactory solution to the existing problems. The debts should be rolled over, with new IMF and European Financial Stability Facility (EFSF) loans replacing those falling due. The ECB should provide liquidity to Greek banks, knowing full well that the deposits now fleeing the country will quickly revert to Greece if and when a new accord is reached.
Ludwig Erhard
This is not to say that the new Greek government has a clue on how to get out of its mess, but EZ finance ministers as protectors of the bankster interests have no real solutions either.

No one is in fact even bringing up the only real solution that could save Greece. And that is a default on outstanding Greek government debt, coupled with a Greek version of  Ludwig Erhard's Wirtschaftswunder, where the regulations now suffocating the Greek economy are removed overnight.

Paul Krugman, btw, sees Germany as pushing Greece toward an immediate exit from the euro:
So if the German complaint is that Greece is not agreeing to lock in total surrender to the preexisting austerity plan, this appears to be right. Instead, Greece appears to be seeking to buy some time to put together an economic strategy (remember, this is a new government without a deep bench of technocrats), and to negotiate terms later. Germany, on the other hand, is trying to force Syriza into complete abandonment of its election promises right now, today.
Do the Germans really think that’s a likely outcome? I suspect not. This looks to me like an attempt to force Greece out of the euro, right now. German policy is objectively pro-Grexit.


  1. Perhaps the Greeks never belonged in the EU to begin with. They continue to behave as spoiled adolescents., after centuries of time to get their act together. All other Europeans went through their own Leftie reorganizations except the Greeks.

  2. Mr. Sachs is obviously not reading Mr. Stockman!