Are the European authorities destroying the Greek economy in order to “save” it?

Real-World Economics Review Blog

from Mark Weisbrot

There is a tense standoff right now between the Greek government and the European authorities – sometimes known as the Troika because it includes the European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF). ECB President Mario Draghi denied this week that his institution is trying to blackmail the Greek government.

But blackmail is actually an understatement of what the ECB and its European partners are doing to Greece. It has become increasingly clear that they are trying to harm the Greek economy in order to increase pressure on the new Greek government to agree to their demands. 

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“παρελθέτω απ’ εμού το ποτήριον τούτο” or Tsipras’ Choice 


Greece is facing the most significant choice of its recent history at the darkest moment of the crisis. The choice is between complete capitulation to the demands of its creditors (led by Germany) or Grexit.

Capitulation will usher a new “κατοχή”, an era of indefinite economic occupation and a humiliating loss of sovereignty. Grexit will mean economic devastation for the medium term, the sacrifice of a generation, the loss of modernity and Greece’s European identity. The choice is inevitable, but how to make it?

Syriza lacks legitimacy to choose. It has a dual mandate, to reverse austerity and to keep Greece in the euro. In this, it has failed. There is no point pretending that it hasn’t. The fault lies more with Merkel than with Tsipras or Varoufakis, but here we are.

Should the choice be put to a referendum? I think not, as there is no way to structure a question that does justice to the gravity of the issue. Moreover, an in-out of the euro question is meaningless as the vast majority of Greeks still consider participation synonymous with Greece as modern European state.

The only other option is to hold a new election where candidates will not campaign along party lines, but on their allegiance or not to the euro, with everything this entails. A likely win for the pro-euro block will result in a coalition government that will implement domestically the diktats of creditor technocrats. It will be a junta of sorts, but a selection that the people have made for themselves.

No coalition in the existing parliament has the legitimacy to implement an ‘orthodox’ programme. Also there are not enough anti euro forces currently elected to legitimise Grexit.

What would I choose? Even though I agree with Lapavitsas that the country’s growth prospects are better outside the euro, and believe that Varoufakis and Tsakalotos have failed in their project of European reform, I do not think that the country will survive the shock of Grexit. During the crisis a lot has changed, but also a lot remains the same. This will not be so post Grexit, and the political establishment (syriza included) is not robust enough to guide the country through a return to the Drachma.

I would vote for Euro till Greece is strong enough to overturn the technocratic junta, but have no illusions: the European dream is dead and Germany is the assassin.



ELA dispute comes to ICSID: Laiki vs Greece

Cyprus Popular Bank Public Co. Ltd. v. Hellenic Republic (ICSID Case No. ARB/14/16)


This blog has often discussed the ECB’s actions in relation to Greek ELA and ISDS. Here is a case that brings the two together.

Laiki Bank (Cyprus Popular Bank in English) has appealed to the International Centre for Settlement of Investment Disputes (ICSID) against Greece over its exclusion from emergency liquidity assistance (ELA) in the neighbouring country. Laiki Bank claims to have incurred heavy losses because Greece excluded it from accessing ELA unlike other Greek banks during the crisis of 2012. Laiki was wound down according to the terms of Cyprus’ €10 billion bailout. Not being able to access ELA for its Greek branches, Laiki relied on the Bank of Cyprus. Some €9 billion in ELA that Laiki (the parent company in Cyprus)  drew in 2012 were returned to Bank of Cyprus. Reports said over half of that was used to finance the lender’s Greek operations.

Laiki had appointed SKADDEN, ARPS, SLATE, MEAGHER & FLOM (UK) LLP to submit a notice of dispute to the Greek Government on 21 November 2012 arguing that on the basis of the Greece-Cyprus BIT, its Greek banking operations ought to receive equal treatment to other Greek banks, and be allowed to access ELA via the Bank of Greece. It claims to have suffered significant losses as a result. Failing a satisfactory response from the Greek side, Laiki commenced proceedings at ICSID on 16 July 2014.

The claimant is represented by Joseph Hage Aaronson (London, U.K.) and Markides, Markides & Co, (Nicosia, Cyprus). Greece is represented by Cleary Gottlieb Steen & Hamilton, who also represent the respondent in Poštová banka, a.s. and ISTROKAPITAL SE v. Hellenic Republic (ICSID Case No. ARB/13/8). For commentary on the latter case click here.

The appointed arbitrators are Juan FERNÁNDEZ-ARMESTO, Philippe SANDS and Giorgio SACERDOTI.

This is bound to be an interesting case, so keep coming back for updates.



ECB closes last funding option for Greece: Cometh Grexit?


As discussed elsewhere in this blog (see here), Greece has few remaining sources of funding, primarily its own commercial banks purchasing T-Bills through liquidity drawn via ELA authorised by the BoG. The ECB has restricted the use of ELA, and the government’s ability to issue T-Bills. When some are repaid in the next few weeks, the government will be able to draw some more money out of this, but the ECB is now prohibiting Greek commercial banks from buying more, arguing that this endangers them, due to excessive exposure to a soon to be bankrupt sovereign. How confidence inspiring is this?

So much for the ECB being the fireman of the Euro-crisis (see here). At a time that the ECB is engaged in QE, it is prohibiting Greece from drawing liquidity through any source. This supposedly in the aims of promoting systemic stability? This is more like a declaration of war on the Greek economy, the fate of which is on the hands on savers who are rushing to withdraw funds from banks. These latest actions of the ECB threaten turning the slow motion credit leak into a full blown bank run. Is this what Draghi is trying to do? The only option is to go begging the Eurogroup to release some money. Some respect for democracy!

If the government does not prostrate itself at the Eurogroup, Greece is about to default and Tsipras will need to make the choice whether to default internally (stop paying pensions and wages) or externally (not pay IMF, ECB, redeem T-Bills). He will choose external default and then we have to either discuss the effects of a default within the Eurozone (see here) or Grexit.

Here is some evidence from today’s press:

Greece remains very much in focus today though local markets are closed for Independence Day. The government has reportedly been resorting to swaps with various government arms (e.g. public health fund and Athens metro) to raise short-term cash. The ESM meets and appears to be possibly preparing for some micro-tranche payment as early as next week, If the Greek government submits, for the third time, a set of reform proposals that its official creditors will find credible. The ECB will also hold a call today and may expand ELA funding authorization, but Greek banks have been banned from buying any more government T-bills.(click here for source)

According to sources, the ECB instructed Greece’s biggest banks to refrain from adding (short term) Greek government exposure. More specifically, the ECB puts their recent warnings on capping Greek T-bill holdings at Greek banks in a legal framework. Currently, Greek banks hold around €11B of T-bills, while the Greek government has a Troika-induced limit of €15B T-bill issuance (total amount outstanding). The new legal framework by the ECB would thus imply that Greek banks can’t cover this possible €4B shortfall if foreign investors don’t re-invest their maturing T-bills. It would be another blow to the Greek government’s short term liquidity situation with a €1.7B bill for wages/pensions (end of month) and a €0.45B IMF payment looming. On another level, the ECB already has an official cap on the amount of T-bills Greek banks can use for funding through ELA (€3.5B). Today, the central bank meets again on extending this emergency liquidity line. (click here for source)




Από το Ολοκαύτωμα των Εβραίων της Ελλάδας, Ιωάννινα, 25 Μαρτίου 1944, όλη η σειρά των 19 φωτογραφιών

Ντρέπομαι που κάτι τέτοιο έγινε στην πόλη μας και υπαρχουν Γιαννιώτες που ψηφίζουν αυτά τα καθάρματα!

XYZ Contagion

Ηταν ημέρα Σάββατο και Εθνική Εορτή, 25η Μαρτίου. Μέσα σε λίγες ώρες, μια πανάρχαιη ιστορική κοινότητα εξοντώθηκε ολοκληρωτικά. Τα γεγονότα και το χρονικό μπορείτε να τα βρείτε σε βιβλία και στο διαδίκτυο. Εμείς θα προσθέσουμε δυο στοιχεία μόνο:

– Η σύλληψη και ακολούθως η αποστολή με τρένα των περίπου 1.800 Εβραίων των Ιωαννίνων δεν θα ήταν τόσο επιτυχής και τόσο γρήγορη, αν δεν υπήρχε η βοήθεια κάποιων ελληνικών υπηρεσιών προς τους Γερμανούς, όπως λ.χ. η Αστυνομία/Χωροφυλακή. Το αναφέρουν αυτό και οι Ναζί στις εκθέσεις τους. Εγιναν συσκέψεις, ακόμη και λίγο πριν χαράξει εκείνη η ημέρα, για τον καταμερισμό ενστόλων στα σημεία του κυκλωτικού μπλόκου.

– Λίγη ώρα μόνο μετά που έφυγε και το τελευταίο φορτηγό, ήδη από το μεσημέρι της ίδιας μέρας, υπήρχαν αναφορές για πλιάτσικο στις περιουσίες των ΕΒραίων συμπατριωτών μας από τους Χριστιανούς της πόλης.

Εδώ μπορείτε να δείτε ολοκληρωμένη την σειρά των 19 φωτογραφιών από εκείνο το…

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