German MPs approve Greek bailout extension
Today the focus is still on Greece – Germany’s Bundestag voted on the deal to extend and pretend regarding the Greek bailout. Of course the vote was a ‘Yes’ because Angela Merkel has already said it will be, and she has a huge parliamentary majority. Nevertheless, she has made it clear that there will be no further help for Greece if they fail to carry out the reforms promised by finmin Varoufakis during his total capitulation in front of the Eurogroup last week. It has become clear that Varoufakis’ “letter of intent” wasn’t even written by him, but by the Eurogroup itself, so of course it contained only that which they wanted to see. Once he went back to Greece, Varoufakis then claimed that “fudge” was good, and had been all he had wanted all along – lots of grey areas within which to find compromises. It’s more than clear that the new Greek government represents just more of the “same old”, and gained power by lying to their citizens. Otherwise, Mr Varoufakis would have used his much – vaunted (by himself….) game theory expertise to cut a far better deal with Brussels. He had one ace in his hand – one that would have won the game – but of course he failed to play it. It now seems to me that he never intended to play it – either that ot he’s just totally naive. What was it? Simple – “If we don’t get our debts renegotiated as I have laid out, then we, the Greek government, will unilaterally reduce our liabilities to all our debtors, by 50% as of March 1st.” There would have been more than a little “shock and awe” there – not to mention “shock and horror” in the corridors of Brussels – but I suspect the plan would have worked. Any real threat that Greece would walk away from the euro, would have focused all eyes on the potential for major runs on banks in both Spain and Italy, and Brussels would have undoubtedly been willing to do just about anything to avoid that happening. After all, in the greater scheme of things the Greek debt is of no huge consequence, and the folks in Brussels are so desperate to keep the eurozone together – and indeed expand it – that they would have capitulated. Varoufakis would have won, instead of having seen his credibility fall apart, basically.
The Greek debt would indeed have been renegotiated, after Brussels had desperately sought to buy more time. In other words, the boot would have been firmly on the other foot. Yes, there would have been a run on Greek banks – but guess what? Yes, despite a claim to the contrary the other week by the head of their central bank, money is leaving Greek banks in full “run mode”. So the run is happening anyway. January’s numbers have just been released – 12.2bn euros left the country. February looks even worse according to sources, and given that Greek retail banks have around 40% “non performing” loans on their books, the situation is far from pretty. Add to that the fact that Varoufakis is already speaking about breaking the terms of the Eurogroup – approved deal (He claimed on Athens Radio the other day that privatisations won’t be going ahead) and we have a recipe for Greek default still 100% on the boil in my view. It’s inevitable, and the only question to consider is “when”. Will it be during these four months of grace, or after? But it will happen – if not via the Greeks deciding enough is enough, then by the Germans finally giving up on their dream of a Europe truly united in a “Fiskalunion”. Certainly – in terms of stockmarket action of late – most people seem to believe that “it will all turn out just fine”. But in my view, it won’t….
Elsewhere, world trade is still slowing down, as measured by the Baltic Dry Index – it’s now printing even lower than it was last week. Three big “dry bulk” shipping companies have filed for bankruptcy this month, according to Reuters. Part of the problem of course, was that too many new ships entered service during the boom times (when China was stockpiling commodities like coal and iron ore) but a big part of the problem now is that exporting and importing of manufactured goods – especially to and from China – is slowing down dramatically. Deflation is already well under way throughout the developed world, and recession can’t be that far behind it.