Greece is in default arrears

Did the Euro die at 5.13pm on Saturday 27 June, when Greek finance minister Yanis Varoufakis walked out of the Eurogroup meeting of finance ministers? We still don’t know, but it is important to understand that Varoufakis didn’t ‘walk’, he was pushed.

At that point chairman Jeroen Dijsselbloem had announced there would be “a meeting of the 18” – that is the Eurozone group without Greece. Varoufakis demanded an opinion of the EU legal counsel, sitting in the room. To no avail, so he got up and left.

Varoufakis had just made a passionate speech, asking for time to conduct a referendum. No dice.

Paul Mason says that what triggered the stalemate was democracy. An agreement would need to be passed by the constituent parliaments. The compromise worked on for weeks was too harsh for the Greeks and too soft for the rest.

There was a further proposal and a teleconference on June 30, but to no avail. Technically Greece defaulted.

Satyajit Das told the ABC (can’t find the link) that if Greece defaults then technically the IMF can’t deal with Greece and the ECB will have to close off support for the Greek banking system. Germany’s participation is conditional on IMF involvement. Somehow, the IMF are now talking about Greece being “in arrears” and the ECB keeps funding the Greek banks, which, I understand, are part owned by other European banks, especially in Germany and Austria.

Are the rules being bent? If so, who will complain, and to whom?

Das said that in the end the Eurozone taxpayers will pay. Had they done so six years ago it would have cost a whole lot less.

In this article Das goes into the gruesome detail. In the end he quotes French philosopher Jean Paul Sartre:

    “Once you hear the details of victory, it is hard to distinguish it from a defeat.” Whatever happens it will destroy the lives, hopes and futures of many Europeans, in Greece and elsewhere.


    The creditors and taxpayers in eurozone member countries now face large losses on their commitments. There are deep divisions within Germany and within the eurozone. Europe’s handling of the Greek crisis has revealed its inability to face up to inconsistency between a single currency and monetary policy, national fiscal policies and the lack of political integration. It has also exposed a ponderous decision-making process.

Immanuel Wallerstein points to division at the top in Germany.

    There are many actors (and notably Germany’s Finance Minister, Wolfgang Schaüble) who insist that a Grexit would be quite tolerable for the eurozone. These people are concerned primarily with one thing – that the principle of repayment of debts be an imperative priority for Greece and for everyone else in the world. Then there are actors who give priority to the survival of the eurozone and worry about a Grexit. In fact, the most notable person in this group is Germany’s Chancellor Angela Merkel. She fears that a Grexit will not only lead to a disintegration of the eurozone but that in turn a collapse of the eurozone will lead to a collapse of the European Union. She is therefore willing to consider some kinds of accommodation to Syriza’s offer of a compromise.

Greece’s GDP is only 2% of the Eurozone, but Merkel and co worry that others (Portugal, Spain, Italy) might follow.

Joseph Stiglitz sees the crisis as being about power and democracy. The austerity policies favoured by Greece’s paymasters are the cause of the problem and will make matters worse.

Greece has suffered a decline of 25% in terms of per capita GDP. It used to rank with the other main economies of Western Europe. Now it ranks with the emerging economies of the former Soviet block, except that it’s going the other way. Stiglitz says it may eventually qualify for World Bank assistance.

Meanwhile a referendum has been called in Greece for Sunday, but it is not clear what the people will be voting for. The offer is no longer on the table. Those urging “yes” appear to be saying they are voting to stay within the Eurozone, and the EU.

Wallerstein’s bottom line:

    The third view – the view of total uncertainty – is however the correct one. It is the only view that takes account of the fact that the world is in a chaotic bifurcation, in which there is no way of predicting how the “market” or any other institution will react. Since most investors are consumed with uncertainty, their reactions lead to wild oscillations and frequent freezes.

Talk is still happening, officially and through back channels, so the expectation is that Europe will, as usual, muddle through. The share markets have taken a hit, but the currency has been remarkably stable.

The man from Commsec, talking on local radio, said that Europe, for us, is a matter of sentiment. China is substance.

Alan Kohler’s latest begins:

    For Australia Greece is a distant thriller, but China is a nearby horror show.

If you paste that sentence and Kohler’s name into Google you can sneak past the paywall and read all about it!

7 thoughts on “Greece is in default arrears”

  1. It may surprise some folks that I have little sympathy for the Greeks.
    They lied to get into the Euro, they lived the life of Reily off their neighbours money and now can’t pay it back.

    In the good old days their creditors would divide the place up as compensation, that way the Greek people would be living under a successful regime and not in the shit that they themselves got into and now suffer under.

    Their peak GDP ever was less than Victoria, it’s more a media and political ” catastrophe/story ” than global economic one.

  2. Imagine what a complete stuff-up Australia would be if the country was really run by the premiers and the feds had as little power as the European parliament? Premiers who were elected for looking after their state at the expense of the rest of Aus. States that had their own taxes, welfare schemes, language , etc. States whose main link was a shared currency and a history of fighting each other.
    Then try and work out what is different between the above nightmare and the way the EU/Eurozone operates at the moment.
    To my mind, Greece is a symptom of an EU/Eurozone structural problem. The resolution is either to at least get rid of the common currency or at least keep the common currency and also merge things like welfare, education, the bulk of taxation and working pay and conditions. Giving the EU parliament much more real power and taxing authority would help the last option along.
    Business Spectator Five possible future currency arrangements for Greece These ranged from “Greece staying in the Eurozone” to the “New Drachma.” The best choice will depend on what other choices the leaders of the EU make about the future organization of the EU/Eurozone.

  3. Imagine the progress Australia would have if the country was really run by the premiers and the feds had as little power as the European parliament? Premiers who were elected for looking after their state and compete with the rest of Aus. States that had their own taxes, welfare schemes, language , etc. States whose main link was a shared currency and a history of showing each other what works and what doesn’t work.

    Removing competition by fiat has it’s natural result = Greece.

  4. This is really a very very complex issue and too many jump to a quick (emotional) conclusion. I do not claim to understand all the ins and outs, but here is a German perspective on some aspects of this crisis: The Greeks evidently still suffer from the burden of their Ottoman past, when an oppressive government was to be avoided in any way possible. This attitude is not only inherited but encouraged by the corruption and the inefficient bureaucracy over the last years (see Jumpy above).

    Another factor in the present mess is the incredibly immature, incompetent, provocative, procrastinating and contradictory behaviour of the Greek representatives over the last few months. Just one example: The representatives of the 19 European states sat waiting while the Greek delegation was still having breakfast. The examples of incompetence and insincerity are too numerous. Just look for example at the text of the referendum question. The distorted information of the Greek public is another thing etc. You can’t go on like that all the time without finishing a lot of goodwill.

    If you read a summary the BBC provides you will see that the European demands are not all that unreasonable to get Greece back on dry ground (after a very long time, and under the present financial setup in Europe). And there had already been the beginnings of a turn around. That is in the stars now, because that can be achieved only with help from outside – and with an almost superhuman effort at reform from the inside.

    Unfortunately the Greek representatives’ incompetence invalidates and obscures (especially for the media) some reasonable leftist criticism. We know that the IMF policies are often detrimental. Another example: 5 years ago most of the Greek debt was to the banks, whereas since then almost all of it has been shifted to the European taxpayers.

    And unfortunately the real sufferers will be the Greek people, as the example of Argentine has shown, and not people like Varoufakis.

    Although the Greek economy is so small by European standards, this crisis has also a lot to do with Europe’s future quite apart from the many economic questions. For example how is European solidarity to handle problem cases like blatantly undemocratic and corrupt governments like Berlusconi’s or Orban’s? And with all those ominous antidemocratic and corporation empowering developments like CETA, TTIP and TISA (next week under greatest secrecy beginning negotiations of 23 nations) in the pipeline the future looks grim.

  5. Thanks, Christoph. This is the BBC summary I think you referred to. It is a fine piece of journalism.

    One thing that has not been emphasised here so much is the endemic corruption within the Greek state, the cash economy and the avoidance of taxation by the rich.

    Another factor at this point is the lack of trust between the 18 and Tsipras, in particular in his willingness to abide by any agreement struck.

    I must say the Finance Minister Yanis Varoufakis was formerly a university academic in Sydney and has spoken on Phillip Adams’ Late Night Live program several times, as recently as last Thursday. He comes across as principled, intelligent and competent.

    I’ll be amazed if the Greek bureaucracy can get voting papers out to all the islands in time. Apparently none had arrived yesterday.

  6. Europe has tried to financially carpet-bomb Greece into submission, according to Paul Mason.

    The Greek government was forced to close its banks after the European Central Bank, whose job is technically to keep them open, refused to do so. The never-taxed and never-registered broadcasters of Greece did the rest, spreading panic, and intensifying it where it had already taken hold.

    When the prime minister made an urgent statement live on the state broadcaster, some rival, private news channels refused to cut to the live feed. Greek credit cards ceased to work abroad. Some airlines cancelled all ticketing arrangements with the country. Some employers laid off their staff. One told them they would be paid only if they turned up at an anti-government demonstration. Martin Schulz, the socialist president of the European parliament, called for the far-left government to be replaced by technocrats. And the Council of Europe declared the referendum undemocratic.


    After this week, the narrative of the EU as “imperialist” will blossom in Greece – but true imperialisms imposed order. The outcome here is likely to be very different.

    Well worth a read in full.

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