More Greek trouble ahead?
Well, things are getting to the critical stage now as regards the ongoing Greek tragedy. It’s clear that the country’s prime minister Tsipras has removed his finance minister Varoufakis from any and all contact with anyone in Brussels, Berlin, Frankfurt and Strasbourg, in an attempt perhaps to defuse some of the acrimony that resulted from Varoufakis’ highly abrasive approach over the past couple of months. Tsipras demanded – and got, a one on one meeting with Angela Merkel in Berlin on Monday. He wants all future contact and negotiations about Greek debt, to be carried on at “head of state” level only. Undoubtedly Angela Merkel desperately wants Greece to remain in the Eurozone, but she gave its PM short shrift at the meeting, saying that all financial negotiations must be carried out with “the institutions” (the so – called Troika). So nothing has changed, and Tsipras has had no more success so far, than did his finmin previously.
In fact, not only did he get nowhere with Merkel, but Draghi at the ECB has started turning the screw on Greece even more, with the decision yesterday that the country’s retail banks are now totally banned from buying any of the government’s short term sovereign debt. That ruling puts even more pressure on the embattled banking sector, which has seen massive capital outflows as retail customers panic and remove their cash as fast as they can. Certainly the perception now of the average Greek citizen, will be to grab as much of what’s left in their accounts as they can get a hold of, and stash it under the bed at worst, or transfer it to another bank outside Greece at best. The only thing is (and one has to suspect Draghi’s timing here) is that today is a Greek bank holiday, so no money can leave, other than via ATMs. I expect such machines are by now empty of cash. What will happen when the banks open tomorrow, I wonder? Indeed, will they open tomorrow – or will an “extended bank holiday” be declared until next Monday, as happened in Cyprus more or less exactly two years ago? Retail customers of Cypriot banks then not only suffered capital controls, but also lost some of their deposits to the ensuing “bailin” that was insisted uopn by the Eurozone finance minister as part of the agreed aid package for the country. It could well be that the Athens government will get involved in something similar – after all, they really have nowhere to go now, unless they turn to the Russians for help. At the moment they are staggering along financially, scraping the very bottom of the barrel by requiring public bodies – such as electricity and water companies – to lend them money via bonds, and they are also now allegedly raiding pension funds. So it’s quite possible that they will feel forced to turn to Russia once these funds have all been used up. Turning to Russia for assistance is not something the EC rulers would like to see of course, so although this whole mess is going to the wire, it could still be the case that Brussels blinks first. Next Monday’s deadline for the Athens government to produce its final “ongoing austerity proposals” to Brussels, will be pretty interesting I think!
Whatever else happens however, it’s pretty clear that George Soros’ comment that Greece is a “basket case”, is bang on the money. I don’t really see how a further bailout, or indeed the alternative – a full default and exit from the euro, will make any real difference to the country. It has been ruled since WW2, by the endemically corrupt, and in my view it is, and has been for many many years, a failed state. There might be a new left wing government in place now, but we have to ask ourselves – is it really much different from what has gone before? Let’s face it – both prime minister Tsipras and finance minister Varoufakis, come from “priviliged” backgrounds, and “privilege rules” in Greece! You just have to note how a previous (privileged….) finmin has been treated over his removal of the names of three of his relatives from an HSBC list of Geneva bank accounts, to realise nothing is that likely to change in Greece. He may not even serve a prison sentence, despite having been found guilty of the crime.
Nevertheless, markets don’t seem too bothered. The euro is strengthening again, after having fallen to nearly 1.04 against the US Dollar less than two weeks ago. Yesterday it managed (briefly) to poke its head above the psychologically important 1.10 level, and although it has retraced a little today so far, it looks like it could head a good distance higher still over the coming weeks and months. Indeed, in my view an exit from the Eurozone by Greece, would actually strengthen the euro overall – although we could expect a week or two of serious volatility should that scenario arise.