Greek Deal - Monday and four months

Naked Capitalism is pessimistic

Yves Smith:

"“Moreover, Syriza has already shown a propensity to overpromise and underdeliver.”"

They've been in office three weeks!!!

Say Greece caved. We'll see if they're wrong again.

Greek Deal by Robert Waldmann

I am trying to understand what, if anything, was agreed by Greece and the rest of the EU yesterday. I’m not sure they even agreed to kick the can down the road.

I think Matt O’Brien wrote a very good explainer for wonkblog at the Washington Post (as usual — he is well worth following). His bottom line seems to be that, while the agreement presents itself as a Greek surrender, they haven’t conceded the key point.

Greece got Europe to concede that it “will, for the 2015 primary surplus target, take the economic circumstances of 2015 into account.” In other words, Greece won’t have to do the austerity it was supposed to this year.

However, the rest of Europe hasn’t conceded yet either, since they have not agreed to rollover any loans Liz Aderman and James Kanter report for the New York Times

On Monday, Greece must send its creditors a list of all the policy measures it plans to take over the next four months. If the measures are acceptable, European finance ministers could sign off on an extension of the bailout agreement on Tuesday.

So the result of the dramatic agreement is that Greece hasn’t promised further austerity in exchange for a bailout and the rest of Europe hasn’t promised a bailout. They have delayed for four more days deciding whether to delay for four more months the inevitable concession that Greece will not pay its foreign debts.

So all in all the best that could be hoped.

Frances Coppola:
Greece and the EU: a question of trust

http://coppolacomment.blogspot.co.uk/2015/02/greece-and-eu-question-of-trust.html

"I have been mulling over the terms of the agreement between Greece and the Eurogoup. Initially, I thought that Greece had ended up with an appalling deal, getting almost none of its aims and losing control of EFSF funding for its banks. The retention of future primary surplus targets under the November 2012 agreement - only the target for this year is under review - seemed particularly harsh.

"But then I listened to Pierre Moscovici explaining the thinking behind the deal, and suddenly the penny dropped. We've all been missing the point. Holger Schmieding of Berenberg Bank was on the right lines - he commented recently that the real problem in the Greek negotiations was that trust had broken down. Indeed it has. But not recently. Trust in Greece broke down a long time ago."

While this deal isn't the best one, or the most moral one, it was likely the best political deal to be had. Syriza will need the four months to attempt a restructuring of its fiscal management - no government could implement a fiscal plan in a few weeks. And the apparent Schaueble plan was an implicit ultimatum: Syriza U-turn to the status quo, or deal with the capital flight that would start in earnest next week.

So all in all, given the political reality, this was likely the best possible outcome. I hope Syriza will find a way to build on this moment.

Krugman on Greece

Germany is bringing on the Golden Dawn?

Insert German Curse Word Here

by Krugman

Germany says no to Greek request.To be fair, I think news reports describing the Greek letter as a complete u-turn and capitulation are wrong. I see this:

Photo

Credit

and it looks to me as if Greece is quite carefully not committing to the original fiscal targets; it will attain “appropriate primary fiscal surpluses”, which almost surely means less than 4.5 percent of GDP. 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.

It’s also, given the likely fallout, objectively pro-Golden Dawn.

The role of the ECB is critical here, and Peter Doyle says what I’ve been meaning to say, but better:

[I]n the event that Euro-Greek negotiations fail, the ECB should unequivocally continue to provide full ELA to Greece. Furthermore, it should make that position clear now, while negotiations on the program continue. This would determine that Euro policymakers must not only resolve Greece without the ECB stick corralling them but must also find themselves another Euro enforcement mechanism.

Crunch time.

Economist comes out for NGDP path level target

Shit is getting real.

The economist on good and bad deflation by Scott Sumner

The Economist magazine has a very good editorial discussing good and bad deflation, and worries that the world is now experiencing (at least in part) the bad type. They conclude by urging central bankers to rely on a less ambiguous indicator:

Change the target

Policymakers should be more worried than they appear to be, and their actions to avert deflation should be bolder. Governments need to boost demand by spending more on infrastructure; central banks should err on the side of looseness. (Next month the ECB will start quantitative easing—and about time too.) Now is also the moment to consider revising the monetary rule book—in particular, to switch the central bankers’ target from the inflation rate that most now favour to a goal for the level of nominal GDP, the total value of spending in an economy before adjusting for inflation. With such a target there is no need to distinguish between good and bad price shocks. And the change in rules would itself send a signal that policymakers are serious about banishing the threat of deflation.

Central bankers change course slowly, and their allegiance to inflation targets runs deep. Conservatism often serves them well. But in this case it could cost the world economy dearly.

Notice that they advocate “level” targeting, which is very important in a world where the zero bound seems to occur with increasing frequency.

HT:  Peter Spence, Frank McCormick

PS. I also recommend Edward Hugh’s post on Spanish deflation.

Mad Men finale episodes

promo video

Garofalo on Broad City!

Pablo Iglesias

Pablo Iglesias is right to evoke the guillotine and the French revolution by Olivier Tonneau

preservation of money-claims

"The Idea Was to Create a Modern Gold Standard" by JW Mason

The euro is a project to roll back social democracy and to reimpose the "discipline of the market" on the state -- or in other words to restore the logic of the gold standard, whose essential condition was that preservation of money-claims had priority over democratic government.

Carthaginian Peace

Athenae Delenda Est by Krugman

OK, this is amazing, and not in a good way. Greek talks with finance ministers have broken up over this draft statement, which the Greeks have described as “absurd.” It’s certainly remarkable. On my reading, here’s the key sentence:

The Greek authorities committed to ensure appropriate primary fiscal surpluses and financing in order to guarantee debt sustainability in line with the targets agreed in the November 2012 Eurogroup statement. Moreover, any new measures should be funded, and not endanger financial stability.

Translation (if you look back at that Eurogroup statement): no give whatsoever on the primary surplus of 4.5 percent of GDP. 

There was absolutely no way Tsipras and company could sign on to such a statement, which makes you wonder what the Eurogroup ministers think they’re doing. 

I guess it’s possible that they’re just fools — that they don’t understand that Greece 2015 is not Ireland 2010, and that this kind of bullying won’t work. 

Alternatively, and I guess more likely, they’ve decided to push Greece over the edge. Rather than give any ground, they prefer to see Greece forced into default and probably out of the euro, with the presumed economic wreckage as an object lesson to anyone else thinking of asking for relief. That is, they’re setting out to impose the economic equivalent of the “Carthaginian peace” France sought to impose on Germany after World War I. 

Either way, the lack of wisdom is astonishing and appalling.

It was pointed out that Varoufakis alluded to the Melian dialogue.

Greece

Yanis Varoufakis: No Time for Games in Europe