European Central Bank to Greece: Drop Dead

[marmar]

European Central Bank to Greece: Drop Dead

Friday, 06 February 2015 09:37
By Yves Smith, Naked Capitalism | News Analysis


Even by the standards of bank thuggishness, the move by the ECB against Greece last night was a stunner. Americans have become used to banks taking houses under dubious pretexts when both the investors and borrowers would do better with a writedown. But to see the ECB try take a country is another matter entirely. As one seasoned pro said, "If anyone had tried something like this against a country with a decent sized military, the tanks would be rolling."

The ECB's bombshell was to put Greece at risk of an intensification of its ongoing bank run in order to pressure it to agree to a deal with the Troika under an impossibly tight timetable, even shorter than the February 28 pre-existing deadline that Greece Finance Minister Yanis Varoufakis had planned to extend until June. As we've discussed at length previously, a longer negotiation timetable would be necessary to meet Greece's objective of restructuring of the relationship with the Troika. Greece wanted that to be based on the recognition that Greece could never pay off its debts and that it was in both side's interest to let Greece implement more growth-oriented policies. But the message from the enforcers at the ECB was unambiguous: Greece has no rights and needs to accept its debtcropper status.

The ECB has thus also effectively said that it would rather have fascists like Golden Dawn running Greece, which is what will eventually occur if it succeeds in breaking Syriza. It also just handed France's Marine Le Pen, head of the nationalistic, anti-Eurozone Front National fantastic fodder for her campaign.

The February 28 date was the result of Greece presumably needing access to so-called bailout funds to pay off an IMF obligation coming due. Varoufakis said he would refuse those funds, and could get by until June, when more loans came due, by relying on existing tax receipts and getting what he regarded as minor waivers from the central bank. He also had some creative ideas for restructuring Greece's debts and said that he wanted the OECD rather than the Troika to provide auditors on behalf of the lenders. .................(more)

The complete piece is at: http://truth-out.org/news/item/28960-ecb-to-greece-drop-dead

[JaneyVee]

1. And the irony is that banks caused this crisis to begin with.

Privatize the profits, socialize the losses.

[bemildred]

2. It's all about control.

The bank's control is being challenged, and it will be a war to the death, Greece or ECB.

[riderinthestorm]

3. Wow! This can't end well... for either side.

K&R. Krugman's gonna have a field day with this.

[MohRokTah]

4. They'll force Greece to drop a nuclear financial bomb

They'll leave the Eurozone and default on all debt.

The problem is, that will likely cause a global recession or worse, a global depression.

[MrTriumph]

5. So Greeece is blameless? Give me a break.

They cooked the books to get into the EU.
They haven't collected taxes for decades.
They are uncompetitive.
They could have so no to any of the terms of the first THREE bailouts.

But somehow, according to many, all of Greece's woes are the fault of the ECB, or the IMF or the EC.

[Yorktown]

6. Greece has been cooking its books for decades

Now, nobody has a good solution.

The ECB, Tsipras, Jabba the hutt, nobody would find a decent solution.

The Greeks will pay for having trusted demagogues for too long.

The bitter irony is that they invented the word millenia ago.

[newthinking]

7. Some method of loan forgiveness has been economic and humanitarian policy for thousands of years

It is in the Bible for heaven's sake.

Basically because it is necessary for economies to function to have a method to clear the books from time to time. It was called "jubilee" in ancient times and some societies used to do it every 7 years.

[pampango]

8. Krugman: My guess is that it’s actually aimed more at the Germans than at the Greeks.

What happened was that the ECB declared that it will no longer accept Greek government bonds as collateral when lending to Greek banks. The initial reaction of some observers was that this was the end, that the ECB was pulling the plug arbitrarily and abruptly.

Sure enough, this is a much subtler action that the first headlines suggested. This funding channel is one that Greek banks no longer use very much, and it’s not necessarily to keep them afloat; they can continue to borrow indirectly via the Greek central bank. So this is not a crisis-provoking event.

Maybe it’s an effort to push the Greeks into reaching a deal, but my guess — and it’s only that — is that it’s actually aimed more at the Germans than at the Greeks. On one side, it’s the ECB making tough noises, which might keep Germany off their backs for a little while. On the other, it’s a wake-up call: dear Chancellor Merkel, we are *this* close to watching a Greek banking collapse and euro exit, and are you really sure you want to go down this route? Really, really?

So this wasn’t brinksmanship; it was sort of pre-brinksmanship, a warning shot to all sides about what will happen next.

http://krugman.blogs.nytimes.com/2015/02/05/a-dance-with-draghi/

Krugman does not have much confidence in the ECB. I hope he is right that this may be a wake up call for Merkel - who seems to need one.

[Yorktown]

9. Excellent summary of the players' hands.

+

[woo me with science]

10. kick