Friday, January 30, 2015

Europe’s Greek Test

by Paul Krugman

New York Times

January 30, 2015

In the five years (!) that have passed since the euro crisis began, clear thinking has been in notably short supply. But that fuzziness must now end. Recent events in Greece pose a fundamental challenge for Europe: Can it get past the myths and the moralizing, and deal with reality in a way that respects the Continent’s core values? If not, the whole European project — the attempt to build peace and democracy through shared prosperity — will suffer a terrible, perhaps mortal blow.

First, about those myths: Many people seem to believe that the loans Athens has received since the crisis broke have been subsidizing Greek spending.

The truth, however, is that the great bulk of the money lent to Greece has been used simply to pay interest and principal on debt. In fact, for the past two years, more than all of the money going to Greece has been recycled in this way: the Greek government is taking in more revenue than it spends on things other than interest, and handing the extra funds over to its creditors.

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Thursday, January 29, 2015

Athens Rekindles Its Russian Romance

by Takis Michas

Wall Street Journal

January 29, 2015

Anyone who hoped that Greece’s new government would focus immediately on the near-bankrupt country’s economy and stop antagonizing its European Union partners has been terribly mistaken. In one of its first acts in government, the radical left-wing Syriza party broke ranks on foreign policy and protested the EU’s condemnation of recent Russian-backed military offensives in Ukraine and the call for further sanctions on Russia.

The government of Prime Minister Alexis Tsipras complained that it hadn’t been consulted. According to a government statement, the EU announcement violated “proper procedure” by not first securing Greece’s agreement. Officials in Brussels disputed this, but it doesn’t matter. Syriza would have opposed any steps toward a harder line on Russia anyway.

Syriza’s pro-Kremlin stance reflects a deep conviction within the party that Greece has much to gain from closer ties to Vladimir Putin ’s Russia. Some analysts see it as a bargaining chip to be used in negotiations with Western creditors over the debt issue. Others explain Syriza’s Russophilia as a kind of nostalgia for the communist days of old.

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Go ahead, Angela, make my day: Greece and the euro’s future

Economist
January 31, 2015

It was in Greece that the infernal euro crisis began just over five years ago. So it is classically fitting that Greece should now be where the denouement may be played out—thanks to the big election win on January 25th for the far-left populist Syriza party led by Alexis Tsipras (see article). By demanding a big cut in Greece’s debt and promising a public-spending spree, Mr Tsipras has thrown down the greatest challenge so far to Europe’s single currency—and thus to Angela Merkel, Germany’s chancellor, who has set the austere path for the continent.

The stakes are high. Although everybody, including Mr Tsipras, insists they want Greece to stay in the euro, there is now a clear threat of Grexit. In 2011-12 Mrs Merkel wavered, but then decided to support the Greeks to keep them in the single currency. She did not want Germany to be blamed for another European disaster, and both northern creditors and southern debtors were nervous about the consequences of a chaotic Greek exit for Europe’s banks and their economies.

This time the odds have changed. Grexit would look more like the Greeks’ fault, Europe’s economy is stronger and 80% of Greece’s debt is in the hands of other governments or official bodies. Above all the politics are different. The Finns and the Dutch, like the Germans, want Greece to stick to promises it made when they twice bailed it out. And in southern Europe centrist governments fear that a successful Greek blackmail would push voters towards their own populist opposition parties, like Spain’s Podemos (see article).

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Beware Greeks voting for gifts

Economist
January 31, 2015

“We have finally put behind us the vicious cycle of fear and austerity.” So declared Alexis Tsipras, Greece’s new prime minister, to crowds cheering his party’s election victory on January 25th. Up to then, countries on the edge of the euro zone, forced to embrace harsh budget cuts and pledges of reform as the price for their bail-outs between 2010 and 2013, had—surprisingly—accepted the nasty medicine without a big populist revolt. That changed when Syriza, a radical far-left party led by Mr Tsipras, won power after campaigning to cast aside austerity, backtrack on reforms and insist that Greece’s vast debt is slashed.

These promises may have won votes for Syriza, but they have given investors the jitters. The stockmarket swooned—led by Greek banks, which suffered their biggest one-day drop ever on January 28th—and short-term bond yields jumped. Syriza’s pledges are also unacceptable to other European governments, whose already sulky voters resent stumping up any more for Greece. The one that matters most is Germany. The country’s chancellor, Angela Merkel, will be wary of any concessions that might encourage insurrectionist parties elsewhere in Europe.

His first public act as prime minister was to visit a memorial for 200 Greeks killed by the Nazis in 1944: a gesture wreathed in symbolism for a man who rails against the German-led “occupation” of his country. Soon afterwards, he objected loudly to a supposedly unanimous EU statement criticising Russia’s renewed aggression in Ukraine.

A colourful team of ministers hardly suggests that compromise is on the cards. Yanis Varoufakis, appointed as finance minister, is an economist and blogger who has protested against “the fiscal waterboarding policies that have turned Greece into a debt colony”. Mr Varoufakis honed his skills as an academic, but also once worked as a consultant for a computer-games firm. Panagiotis Lafazanis, a Marxist who heads Syriza’s far-left faction, will run a ministry incorporating energy and the environment. At least George Stathakis, the new minister for the economy together with tourism, transport and shipping, the country’s biggest industries, is an expert on Greece’s first big bail-out, the Marshall plan of 1948.

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Greece and its discontents

Economist
January 31, 2015

Everything that exists, taught Aristotle, is the same as itself, and is different from everything else. During the hot years of the euro crisis, leaders of the most troubled economies sought desperately to remind investors of this eternal truth. Portugal, insisted its politicians, was not Greece. Nor was Spain Portugal, Italy Spain or France Italy. In short, the problems of one country were distinct from those of others. Yet the bond markets, disinclined to follow ancient wisdom, saw things differently. The contagion caused by spiralling borrowing costs leaping from one country to the next was one of the most alarming features of the crisis—and it explained how problems in tiny Greece could threaten the single currency as a whole. For a time, whenever a finance minister assured investors that his country was different, one could bet that it would suffer the same treatment.

Lately the euro zone has appeared better protected. In June 2012, with Greece in political turmoil, yields on Spanish ten-year bonds topped 7%. This week they were near record lows, despite the election of an explicitly anti-austerity government in Greece. The early antics of Alexis Tsipras, the new Greek prime minister, spooked markets and again raised fears of Grexit. But the channels of contagion have narrowed, thanks to a partial banking union, a permanent bail-out fund and a restructuring of Greek debt, most of which is now in official hands. Investors at last seem to agree that Spain is Spain, not Greece.

Yet voters may be drawing a different conclusion. Over the past year the growth of Syriza in Greece has been mirrored by the rise of Podemos (“We Can”) in Spain, a radical far-left party that considers itself to be waging a similar war on German-sponsored austerity. Leftists from across Europe flocked to Greece on election night to savour the sweet taste of Syriza’s victory. Sympathetic pundits declared an end to the politics of austerity. Mr Tsipras’s decision to form a coalition with an unsavoury bunch of nationalists soured the mood somewhat. But overall, the message seems clear: if financial contagion is now less of a worry, the political sort may just be starting.

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Will Syriza’s Victory in Greece Mean Easing Austerity?

by Thomas Wright

Newsweek

January 29, 2015

At the weekend, Syriza and its leader Alexis Tsipras won a clear victory in the Greek elections and have formed a coalition government with the small right-wing party Independent Greeks, which is also anti-austerity and anti-bailout.

Tsipras has a clear mandate to renegotiate Greek debt and its relationship with the European Central Bank (ECB). Much will be written in the coming weeks on the economic issues involved in the negotiations (for a very thoughtful post on that, read my colleague Doug Elliott). Here are three initial thoughts on the political dimension and consequences for the future of the eurozone.

1. The belief that the broader repercussions of a Greek exit from the eurozone can be contained will make a Greek exit from the euro more likely, not less.

According to media reports, the German government believes that the eurozone could cope with a Greek exit from the eurozone much better than in 2012. Most analysts seem to agree. If the risk of contagion has decreased significantly (and it is hard to know for sure), it could paradoxically increase the risk of a Greek exit.

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Default? Did He Say Default? Amateur Hour Keeps Traders Guessing

Bloomberg
January 29, 2015

There’s a danger to listening to powerful politicians in Greece and Belarus. They may not know what they’re talking about.

Exhibit A: Bank stocks in Athens lost about $11 billion of their value after ministers in the newly formed government made some populist proclamations, namely, pledging to increase the nation’s minimum wage and halt privatizations.

Deputy Prime Minister Yiannis Dragassakis told people to essentially ignore those comments today, saying they were the product of inexperienced officials speaking out of turn. Greece is, he said, “interested in attracting investors.”

Exhibit B: The president of Belarus, an Eastern European nation with a population half the size of New York state’s, today raised the prospect of restructuring its external debt. Within hours, the nation’s $1 billion of dollar-denominated bonds due this August lost $270 million of their value.

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On Greek Debt, Feeling Like It’s 2012

by Gabriele Steinhauser

Wall Street Journal

January 29, 2015

Anybody who’s been following the debate on Greece’s debt this week will be excused for feeling like it’s 2012. November 2012 in fact, when the eurozone agreed to cut interest rates and extend maturities on loans it had given to Greece in an effort to make the country’s finances sustainable in the long term.

The deal reached at the time was a fudge: The currency union pledged to bring Greece’s debt down to 124% of gross domestic product by 2020 and ensure it would be “substantially lower than 110%” of GDP by 2022. But documents quickly showed that the measures decided that day would actually leave debt at 126.6% by 2020 and 115% two years later. To bridge that gap, eurozone finance ministers promised to “consider further measures and assistance”—as long as Greece stuck to its part of the bargain by implementing economic overhauls and budget cuts.

It’s this rather vague promise that’s back on the table now. And so are the arguments over where exactly Greece’s debt will be at the end of the decade—along with the fuzzy math that such predictions entail.

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A damp day out in Europe’s anti-austerity capital

by Tony Barber

Financial Times

January 29, 2015

In Athens it rains, on average, 64 days a year. Last Saturday, the day before radical leftwing party Syriza won Greece’s parliamentary elections, was one of those days. Unlike a short but violent thunderstorm that struck on Monday evening it was a steady drizzle. Still, it posed the question of what to do in Athens when it’s wet.

You can hardly linger over a coffee at one of the capital’s many outdoor cafés. The Acropolis, up on its rocky promontory, offers panoramic views but is open to the elements. One option is to go for a walk in the spacious National Garden, just behind parliament. Known as the Royal Garden when Greece was a monarchy, this is where King Alexander was bitten by a monkey in 1920 and died of septicaemia at the age of 27.

On Saturday I ventured beyond the National Garden to the Athens War Museum on Rizari Street. This is the official museum of the armed forces. It was established in 1975, a year after the ignominious collapse of the military junta that seized power in 1967. The civilian democrats who replaced the colonels in sunglasses were no doubt content to let them reconstruct old Greek military glories in a museum rather than dabble once again in politics.

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In Greek crisis, Germany should learn from its fiscal past

by Harold Meyerson

Washington Post

January 28, 2015

If you made a list of countries you hope have learned from their past hundred years of mistakes, Germany would have to be at the top. Happily, the staunch opposition to a nativist fringe that the nation’s government and citizenry have shown in recent weeks makes it clear, again, that Germany understands the costs of bigotry and the virtues of tolerance.

Unhappily, it has not learned the costs of a mad adherence to fiscal orthodoxy, despite the fact that its prosperity is rooted in the decision of its World War II adversaries to allow West Germany’s postwar government to write off half of its debts.

Indeed, the policies that Angela Merkel’s government have inflicted on the nations of Southern Europe could not be more different from those that European leaders and the United States devised in the early 1950s to enable West Germany to rebuild its damaged economy. Since the crash of 2008, Germany, as Europe’s dominant economy and leading creditor, has compelled Mediterranean Europe, and Greece in particular, to sack their own economies to repay their debts.

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Why the Eurozone May Need to Sacrifice Greece to Save Spain

by Simon Nixon

Wall Street Journal

January 28, 2015

Alexis Tsipras has been prime minister of Greece for only 48 hours and has done little to back his claim of wanting to keep his country in the eurozone. With just weeks to secure a deal with Greece’s official lenders to prevent a financial collapse, almost everything he has said and done has seemed calculated to deepen the rift with Greece’s creditors.

From his decision to enter a coalition with the pro-Russia, anti-European Union, far-right Independent Greeks, to his appointment of a firebrand Marxist economics teacher as finance minister, to his refusal to back a toughening of the EU’s response to Russia’s latest support for separatists in Ukraine, to his cabinet’s pledge to reverse key reforms, his approach has suggested an appetite for confrontation rather than compromise.

Belatedly, the markets have registered the rising risk that Greece may exit the eurozone, with three-year government bond yields surging to about 17% and the shares of its top banks collapsing by more than 25% on Wednesday.

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Greece Disagrees With Anti-Russian Sanctions to Show Independence From EU

by Anastasia Levchenko and Tosi Ivanova

Sputnik News

January 29, 2015

Anastasia Levchenko, Tosi Ivanova – The new Greek government, led by the left-wing Syriza party expressed disagreement with the European Union's fresh call for more anti-Russia sanctions in order to demonstrate a more independent position, but significant policy changes are unlikely, experts have told Sputnik.

"Both Syriza and its coalition partner, ANEL (Independent Greeks), wish to signal that Greece will not slavishly follow the Western or EU foreign policy line. Syriza's history and culture have been influenced by its Communist past to some extent. ANEL is keen to show its pro-Russian and pro-Putin feelings," Kevin Featherstone, Professor of Contemporary Greek Studies and Professor of European Politics at the London School of Economics and Political Science, told Sputnik Wednesday.

Featherstone did stress, however, that Greece depends on the European Union in terms of debt easing that the country urgently needs.

The professor warned that "very soon Athens will no doubt realize that asking the eurozone for help outweighs its interests with Russia". Nevertheless, according to Feathersone, if the new Greek government survives, Athens will likely strengthen its ties with Moscow.

Aristides Hatzis, Associate Professor at the University of Athens agreed that Greece's current government is more pro-Russian than its predecessors.

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Greek PM Tsipras freezes privatisations, markets tumble

Reuters
January 28, 2015

Leftist Greek Prime Minister Alexis Tsipras threw down an open challenge to international creditors on Wednesday by halting privatisation plans agreed under the country's bailout deal, prompting a third day of heavy losses on financial markets.

A swift series of announcements signalled the newly installed government would stand by its anti-austerity pledges, setting it on a collision course with European partners, led by Germany, which has said it will not renegotiate the aid package needed to help Greece pay its huge debts.

Tsipras, who was congratulated by U.S. President Barack Obama in a phone call for his decisive election victory on Sunday, told the first meeting of his cabinet members that they could not afford to disappoint voters battered by a plunge in living standards under austerity.

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Tsipras’s Debt Plan Sends Athens Stock Market Sliding

New York Times
January 28, 2015

Investors made clear on Wednesday the depth of their concerns about Greece’s new leftist-led government, driving up its borrowing costs, pushing down stock prices and highlighting the risks in the country’s banking system.

Despite some soothing words from Prime Minister Alexis Tsipras, who at the first meeting of his new cabinet said Greece would not seek a “catastrophic solution” in its debt negotiations with the European Union and its other creditors, financial markets seemed increasingly rattled by his government’s pledges to reject the austerity policies imposed on the country over the last five years.

Later, the new finance minister, Yanis Varoufakis, appeared to harden the tone, saying that Greece’s bailout deals were “a toxic mistake” and that the new government was determined to change the logic of how the crisis had been tackled. Mr. Varoufakis said the new government would seek what he called a Pan-European New Deal, which would be a bridge between previous agreements and a new arrangement with creditors. He did not elaborate, though, on what such a plan would look like.

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Wednesday, January 28, 2015

Russia Links Loom Larger as Greece Seeks Debt Relief

Wall Street Journal
January 28, 2015

A new Greek government led by the left-wing Syriza party is creating an overlap between the two biggest crises Europe has faced in recent years: the deep economic malaise in the eurozone and the war in Ukraine.

Statements this week by members of the new government that distance Greece from European Union sanctions against Moscow have made officials in other European capitals wonder whether Greece might obstruct EU policy toward Russia over Moscow’s role in the war in Ukraine.

It isn’t clear yet how far the new government, ushered in by Sunday’s election, might go in resisting the EU’s strategy in the Ukraine conflict, which relies heavily on punishing Moscow’s support for separatist rebels by imposing sanctions on Russian officials, companies and industries.

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Tsipras picks anti-austerity professor as Greek finance minister

by Kerin Hope

Financial Times

January 28, 2015

Greece’s radical leftist prime minister Alexis Tsipras announced his new cabinet on Tuesday, handing the top economic posts to a former communist politician and a popular leftwing blogger who has lambasted the austerity programme imposed by international creditors.

The Syriza leader’s list signals his concern to field a strong economic team while satisfying demands from the far left of his party for a significant portfolio and finding a handful of ministerial posts for the Independent Greeks, his rightwing coalition partner.

The final line-up, dominated by leftwing academics, is likely to raise concerns among domestic and foreign investors fearful Athens will row back on economic reforms, attack big business interests and take a hard line on renegotiating Greece’s debt burden.

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Alarm bells ring over Syriza’s Russian links

Financial Times
January 28, 2015

Soon after Syriza, the Greek radical leftwing party, swept to power this week, alarm bells began ringing in the capitals of Europe. However it was not finance officials who were rattled but Europe’s defence and security chiefs.

The day after his election as Greece’s new prime minister, Alexis Tsipras threw a grenade in the direction of Brussels: he objected to calls for further sanctions against Russia as a result of rising violence in Ukraine.

On Wednesday, Athens went further. “We are against the embargo that has been imposed against Russia,” said Panagiotis Lafazanis, the energy minister and leader of Syriza’s far-left faction, according to the semi-official Athens News Agency. “We have no differences with Russia and the Russian people.”

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The Man in the Hot Seat: Greece's New Finance Minister Yanis Varoufakis Has Creditors Rattled

by Nikolia Apostolou

Vice News

January 28, 2015

Some photoshop elf-like ears on his image. Others slam the tight shirts he wears. And many critics of Greece's new Minister of Economics Yanis Varoufakis accuse him of wanting to bankrupt the country, and take it out of the Eurozone.

Still, others say he is the right man for the job, especially in times of crisis.

"He's fearless," said James Galbraith, an economist and professor at the University of Texas at Austin, co-author with Varoufakis on a paper called "A Modest Proposal For Resolving the Eurozone Crisis." "I expect he will prove well-suited to the challenging responsibilities just ahead," he told VICE News.

On Tuesday, following Greece's elections that ushered in anti-austerity Syriza, Varoufakis became the man in the cabinet hot seat, taking over what could be the most despised position in the country — the economics ministry.

He now faces the monumental challenge of kickstarting the economy, which has been sputtering ever since the global financial crisis hit the country in 2009, with over 25 percent unemployment and an average drop in individual income of 40 percent.

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9 reasons Greece's experiment with the radical left is doomed to failure

by Sean O'Grady

Independent

January 28, 2015

Greece’s new cabinet faces the biggest task of any Greek government since democracy returned in 1974; how to save the nation. A frustrated, fatigued and angry electorate has put into power a new radical left party because all else seems to have failed. Indeed, in some ways the austerity programme had made things worse. So now prime minister Alexis Tsipras, and finance minister Yanis Varoufakis, a self-described libertarian Marxist, face Angela Merkel and the conservatively-inclined Germany taxpayer in a battle of wills. All the signs are that the Greeks will not win...

Popular mandates don’t mean a thing

Or at least not in the hard world of international finance. It really doesn’t matter that much, when push comes to shove, if your government won 35% of the vote or 65% per cent of the vote in a general election. You owe the money; you need to pay it back as agreed. Alexis Tsipras and his new cabinet will soon be told that.

If Greece has her debts written-off everyone will want the same treatment

So every other nation that has had to have a bailout will want the same treatment; and if they don’t get it then they just hold an election and put a leftists Syriza-style party into power that just says “can’t pay, won’t pay” into power. Soon all of Europe will be run by governments that don’t believe in honouring their obligations, and have a few more damaging policies besides. Not something to be encouraged.

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Greek Bank Deposit Flight Said to Accelerate to Record

Bloomberg
January 28, 2015

Greek bank deposit outflows last week accelerated to record levels amid concern about lenders’ liquidity and the outcome of the nation’s negotiations with creditors, according to a person familiar with the matter.

Withdrawals from Greek banks exceeded 14 billion euros ($15.9 billion) in the run-up to the snap elections that catapulted the anti-bailout Syriza party to power, including 11 billion euros that were taken out in January, the person said. Between Jan. 19 and Jan. 23 outflows were greater than in May 2012, when Greece was on the brink of exiting the euro area.

Shares of Eurobank Ergasias S.A., Alpha Bank A.E., the National Bank of Greece, and Piraeus Bank fell as much as 30 percent today as the country’s new cabinet pledged to annul privatizations and economic overhauls attached to the country’s bailout. That may also lead to greater government control of the nation’s banks, while liquidity reserves of both the sovereign and the lenders are drying up.

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Austerity on trial

by Robert J. Samuelson

Washington Post

January 28, 2015

Is this the beginning of the end for austerity?

The day after the Greek left-wing party Syriza impressively won the country’s latest election, the Financial Times ran the following headline:

“Greek leftists’ victory throws down challenge to euro establishment . . . Inspiration for similar parties across continent.”

It was Greece, recall, that in late 2009 triggered the European debt crisis with the revelation that its budget deficit was far worse than its official statistics indicated (the numbers had been fudged). And Greece has suffered mightily. From late 2009 to the end of 2013, its economy (gross domestic product) shrank by a punishing 25 percent. At last count (September), the unemployment rate was 25.7 percent. Among youth under 25, the rate was 49.8 percent.

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Notes from Athens: The Syriza Policy Illusions

by Holger Schmieding

SchmiedingBlog

January 28, 2015

Just back from Athens, I feel almost compelled to shout it from the rooftops: it’s not about the debt. it’s about the economy, stupid – to borrow a phrase from Bill Clinton. In Athens, much of the discussions I had revolved around the debt: how much will Europe cut the burden now that Greek voters have asked for it? Or: wouldn’t it be cheaper for Europe to write off half its claims on Greece than to risk losing it all?

THE FOUR DELUSIONS

The new Greek government and its voters are in for a reality shock. The debate in Athens seems to suffer from four delusions.

Delusion 1: It’s about the debt, not the economy

Yes, Greek public debt is very high with 176% of GDP. But Europe and the IMF have already seen to it that the debt is bearable with low interest rates, long maturities and generous grace periods. The European promise remains: if Greece stays the course of supply-side reforms, the debt service will not suffocate Greece. In return for reforms, Europe can and will offer even lower interest rates and longer maturities. Asking for a cut in the nominal debt is pointless.

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Thinking About the New Greek Crisis

by Paul Krugman

New York Times

January 28, 2015

Markets are panicking. It’s important to understand that this is not a verdict on the new Greek government, or at any rate only the new Greek government; it’s a judgment that the risk of no agreement, and a disorderly breakdown of the whole process, is high.

I think it’s important to be as clear as we can about the stakes and the real interests here, lest players stumble into a disaster they could and should have avoided. So, some points about where things stand:

1. We are not talking about whether Greece will pay its debt. As I tried to explain the other day, the headline Greek debt number is more or less meaningless. The question is how much Greece will transfer to its creditors by running primary surpluses — and yes, at this point that’s the question, there’s no possibility that the creditors will transfer more resources to Greece.

2. If Greece were to adhere totally to the previous terms, over the next five years it would make resource transfers of about 20 percent of one year’s GDP. From the point of view of the creditors, that’s a trivial sum. From the point of the Greeks, however, it’s crucial; the difference between a primary surplus of 4.5 percent of GDP and, say, 1.5 percent of GDP for the Greek economy and the welfare of its citizens is huge. The only reason for the creditors to play hardball would be to make Greece an example, to discourage other debtors from trying to negotiate relief.

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The Eurozone Needs More than QE

by Martin Feldstein

Project Syndicate

January 28, 2015

Although the European Central Bank has launched a larger-than-expected program of quantitative easing (QE), even its advocates fear that it may not be enough to boost real incomes, reduce unemployment, and lower governments’ debt-to-GDP ratios. They are right to be afraid.

But first the good news: anticipation of QE has already accelerated the decline of the euro’s international value. The weaker euro will stimulate eurozone countries’ exports – roughly half of which go to external markets – and thus will raise eurozone GDP. The euro’s depreciation will also raise import prices and therefore the overall rate of inflation, moving the eurozone further away from deflation.

Unfortunately, that may not be enough. The success of QE in the United States reflected initial conditions that were very different from what we now see in Europe. Indeed, eurozone countries should not relax their reform efforts on the assumption that ECB bond purchases will solve their problems. But even if these countries cannot overcome the political barriers to implementing structural changes to labor and product markets that could improve productivity and competitiveness, they can enact policies that can increase aggregate demand.

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Sanctions Are Now Syriza's Bargaining Chip

by Leonid Bershidsky

Bloomberg

January 28, 2015

Greece's new rulers are engaging in dangerous brinkmanship: They may be bargaining too hard for the debt write-off they seek from the European Union.

On Tuesday, in one of its first foreign policy moves, the Syriza-led government distanced itself from an EU statement calling for additional sanctions against Russia for its interference in Ukraine. Since these can be imposed only by the unanimous consent of the EU's 28 members, Greece is essentially threatening to torpedo any further sanctions.

The leaders of the far-left Syriza party are blatantly pro-Russia. Alexis Tsipras, the new prime minister, has echoed the Russian line that "neo-Nazis" are part of Ukraine's government (they are not, though some are parliament members, and neo-Nazi units fight on the Kiev side in the eastern Ukraine conflict). He has gone out of his way to stress Greece's "strategic partnership" with Russia. And the first foreign official he met with as prime minister was Russian ambassador Andrei Maslov.

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Greece, religion and geopolitics: A hint of civilisations clashing

Economist
January 28, 2015

As my last posting noted, the first edgy thing which the new Greek government did was to downgrade, albeit very politely, its relations with the church. The second thing was to upgrade a relationship whose historic roots are at least partly religious, with Russia. On his first day in office, prime minister Alexis Tsipras met the Russian ambassador, and then distanced Greece from an EU statement which protested over Russian actions in Ukraine and threatened further sanctions. He then named a foreign minister, Nikos Kotzias, who enjoys cordial relations with the religious-nationalist segment of the Russian elite.

Lots of questions arise. Is this a great historical paradox - the consolidation of a sentimental tie based on common Orthodox Christianity, under a secular Greek government and a stridently pious Russian one? That would be an interesting reversal of the cold war. Or is the relationship more cultural and historical, based on common memories of shimmering mosaics and swirling incense, rather than actively religious? If that is true, then it is not particularly dependent on what people on either side now believe.

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Want a Friend, Greeks? Buy a Dog

by Holman W. Jenkins, Jr.

Wall Street Journal

January 27, 2015

What a surprise, you can’t treat a democratic people the way the European Union treated Greece and expect voters not to revolt.

Voter sovereignty was always the Achilles’ heel of the elitist eurozone project. It’s why the eurozone now faces its umpty-third Greek crisis, thanks to the election of a Greek anti-austerity party in Sunday’s election. But one thing has changed. After five years of stringing the Greeks along, European politicians now are telling the Greeks: Go ahead, make our day, walk out of the eurozone. We’ve got our own derrières covered, so see ya.

This is not to say the Greeks haven’t been, in large measure, the author of their own misfortunes. Their economy is corrupt, riddled with favoritism, overrun with bureaucracy, and topping it off the Greeks lied to their creditors about their deficits.

But how Europe treated Greece was suffused with short-term expediency that served only the elected officials of Greece’s eurozone neighbors.

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Why Europe Will Cave to Greece

by Clive Crook

Bloomberg

January 28, 2015

A prediction for you: Greece and the European Union will split the difference in their quarrel over debt relief. What's uncertain is how their respective governments will justify the new deal, and how much damage they'll inflict on each other before accepting the inevitable.

EU governments, with Germany in the lead, are saying that debt writedowns are out of the question. Debts are debts. Greece's newly elected leader, Alexis Tsipras, calls the current settlement "fiscal waterboarding" and says his country faces a humanitarian crisis. His government won't pay and wants much of the debt written off. Neither side is willing to give way.

What surprises me is that this all-or-nothing positioning takes anybody in.

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Greece Puts Mind Over Money

by Justin Fox

Bloomberg

January 28, 2015

Whenever a public intellectual runs for or is appointed to high public office, people who think and/or write for a living tend to get very excited. At some point after that, they usually get very disappointed.

Sometimes it’s just that the intellectual can’t connect to voters. Other times he or she is thwarted once in office by short-sighted, lunk-headed foes. More often than not, though, what makes a person an interesting thinker isn't what makes a good political leader. William F. Buckley used to say that he “would rather be governed by the first 2,000 people in the Boston telephone directory than by the 2,000 people on the faculty of Harvard University.” There’s some sense in that.

So…good luck to Yanis Varoufakis, Greece’s new finance minister!

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Tuesday, January 27, 2015

Greece Needs Broader Structural Reforms Than Syriza Has Proposed

by Aristides Hatzis

New York Times

January 27, 2015

The mix of austerity policies imposed by the International Monetary Fund, the European Central Bank and the European Commission and implemented by the Greek governments for the past five years led to unprecedented misery and anger. The unjust and unfair across-the-board spending cuts and the enormous tax hikes to pay off massive debts targeted the symptoms and not the root causes of the crisis. The backlash brought a coalition government of radical left and populist right. A government like this, which is Euro-sceptic and anti-reform, will not solve Greece's problems.

Greece is wrecked not just by debt but by the institutional flaws with its economy. Debt relief and other such measures would be beneficial, but Greece can only overcome its crisis by implementing crucial structural reforms.

Greece’s economy is not free and competitive. Powerful cartels are shielded with barriers to entry by newcomers and foreign investors. There are still numerous closed shops and professions. Public sector unions are overprotected in comparison with private sector employees. Policies to improve competitiveness and to carefully deregulate or privatize segments of the economy can invigorate it.

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Syriza Is Limited in the Promises It Will Be Able to Keep

by Desmond Lachman

New York Times

January 27, 2015

In the depth of an economic depression, it is perfectly understandable that Greek voters would elect a government committed to reversing the austerity policies that were imposed on Greece from abroad and that have led Greece to an economic and social disaster. But it would be fanciful to think that simply rejecting austerity and insisting on official debt relief will put the Greek economy on course for a sustainable economic recovery. Indeed, such demands risk putting Greece on a collision course with its official paymasters that could very well lead to Greece’s exit from the euro before the year is out.

While it is certainly true that both the Greek government and the German government have every interest in keeping Greece in the euro, both are highly constrained in the concessions that they can grant to make that possible. After several years promising that it would tear up the much reviled International Monetary Fund-European Union memorandum of economic policies for Greece and that it would insist on major official debt relief, it is difficult to see how Syriza can make the large U-turn needed to keep its official creditors happy. This is all the more so the case considering the lavish promises on increased social spending that it made during the electoral campaign.

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By Changing Direction, Syriza Can Win Over Greece and Europe

by Spyros Lapatsioras

New York Times

January 27, 2015

Syriza won this week’s elections because the Greek people were furious with policies that led to an unemployment rate of 25 percent, a 25 percent reduction of the economy and an unprecedented rise in social inequality and poverty.

Some European officials have already indicated that in negotiating Greek debt, they would consider some of the targets of the new government: an end to strict deficit reduction, modernization of the state administration
and economic growth boosted by a mix of public and private investment.

The distance between the new Greek government and European officials and creditors is not insurmountable. There is a growing understanding that Greece’s existing debt payment obligations actually strangle economic growth. And there is a range of technical solutions to the issue of sovereign debt that can be discussed.

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Greece Is Set on a Collision Course With Europe

by Yannis Palaiologos

Wall Street Journal

January 27, 2015

The triumph of the left-wing Syriza party Sunday in Greece’s general election is a landmark in European politics. Syriza is the first party to win power in a eurozone member state based on its firm opposition to the Berlin-Brussels-Frankfurt consensus.

It is no accident that the electoral breakthrough of the far-left came in Greece. The country has suffered its own version of the Great Depression, having seen its economy contract by about a quarter since 2008 and its unemployment stuck above 25% for three years now. Countless small businesses have shuttered, and more than 35% of loans on the books of Greek banks are nonperforming. According to one official estimate, almost a third of Greeks are without basic medical insurance.

The toll of the six-year recession and the five years of harsh tax increases and spending cuts has been crushing. But what has angered people most is the perception that the cost of adjustment has been distributed unfairly. The vast majority of the nearly 900,000 people that have lost their jobs since 2009 have been private-sector employees. Public-sector redundancies have been limited to a few thousand, and have been extremely contentious politically. In addition, the oft-promised crackdown on corrupt officials and tax-evading big businesses has failed to materialize, beyond a small number of prosecutions. Such injustices compound the sense of humiliation at having policy dictated by foreign capitals and international organizations.

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Nobel Winner Shiller Joins Pimco in Saying Buy Greek Assets

Bloomberg
January 27, 2015

Investors who have wiped 15 percent off the value of Greek stocks since voters elected a government determined to renegotiate the country’s debts may be overreacting, according to Nobel Prize-winning economist Robert Shiller.

“Investing in Greece right now just might not feel right,” the Yale University economist said Tuesday in London. The price of Greek stocks is “below anything I’ve seen in the U.S. and suggests a spectacular investment,” he said.

Shiller, who won the Nobel Prize in Economics in 2013 for his modeling of asset-price fluctuations, said that while the situation in Greece is challenging for investors, the stock price of Greek companies failed to reflect their earnings potential.

That view echoes the outlook of Pacific Investment Management Co. and hedge fund Greylock Capital Management, which said this week a Syriza-led government hasn’t dimmed their appetite for the country’s bonds. Yields on Greece’s 10-year securities have risen to 10.4 percent since the government was formed on Monday, compared with Germany’s 0.37 percent.

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Why Putin Is the Big Winner in Greece’s Elections

by Keith Johnson & Jamila Trindle

Foreign Policy

January 27, 2015

Greece’s election of a self-proclaimed radical leftist could hand an unexpected win to Russian President Vladimir Putin by exacerbating divisions within Europe over how to respond to Moscow’s latest aggressive moves in Ukraine.

European foreign ministers are set to huddle Thursday, Jan. 29, to try to reach consensus on how to dial up the pressure on Russia — which escalated its proxy war in Ukraine over the weekend — without harming their own economic interests. An already tricky diplomatic game has gotten more complicated thanks to the outright defiance of Greece’s new government, which on its second day in office rejected a European proposal to study new reprisals on Moscow.

The United States is trying to wrestle reluctant European partners into supporting a fresh round of economic and financial sanctions on Russia; President Barack Obama and Treasury Secretary Jack Lew said this week that the administration is poring through its sanctions tool kit to try to change Russian behavior.

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Greeks rebuff EU call for more Russia sanctions

by Tony Barber

Financial Times

January 27, 2015

Greece’s new radical leftwing-dominated government signalled on Tuesday that friction with its European partners might extend from economic to foreign policy when it distanced itself from an EU call to consider broader sanctions against Russia.

A spokesman for the ruling coalition of Alexis Tsipras, prime minister, said Greece had not approved a statement from EU heads of government that asked their foreign ministers to review further sanctions in response to the latest flare-up of violence in eastern Ukraine, blamed by the US and most European nations on Russian-backed separatists.

The Greek statement raised questions over whether the new government, led by the radical leftist Syriza party, would support a continuation of existing EU sanctions, including visa bans and asset freezes on Russian officials and Moscow-supported separatists, when they come up for renewal in March.

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Greek bank shares hit as deposits flee

Financial Times
January 27, 2015

Greek banks suffered a second day of double digit share price declines as the country’s biggest lenders are set to tap emergency central bank lending to mitigate the effects of accelerating deposit flight.

The country’s four biggest lenders — Piraeus, Alpha Bank, Eurobank and National Bank of Greece — have each seen more than a fifth of their market capitalisation wiped out this week as the banking sector continues to bear the brunt of an electoral fallout dragging down the rest of the Athens bourse, which declined by 3 per cent.

“This is a massacre,” said one senior Athens-based banker. “Markets are panicking . . . They’re trying to pre-empt a crisis on banks’ liquidity. They know the crisis will be centred around the banks.”

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Greeks Vote Against Euro And European Union And For Home Rule And Democracy

by Doug Bandow

Forbes

January 27, 2015

It has been centuries since Greece mattered much in world affairs. But Syriza’s striking victory in the Greek parliamentary election Sunday could reshape Europe. In voting for the radical left-wing party the Greek people have reinvigorated home rule and democracy across the continent and challenged the “European project,” embodied by the European Union.

Greece has been in economic crisis seemingly for eternity. Always an economic laggard, the congenitally inefficient south European state manipulated statistics to meet the entry criteria for the Euro, or common currency. The other European governments knew they were being lied to but didn’t care.

Once in the Euro, Athens politicians threw a big party. The government borrowed at near-German interest rates and spent wildly. Nominal conservatives were little different than supposed socialists. The two main parties alternated in power and created a shared system of statist entitlement. Observed Denis MacShane, former British minister for Europe, politicians “awarded jobs and contracts to their friends and allowed the professional middle classes and public sector unions to avoid all responsibility for paying taxes. And they shunned the actual task of governing—that is, reforming the state so it can deliver public services fairly and to all.”

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Greek debt and a default of statesmanship

by Martin Wolf

Financial Times

January 27, 2015

Sometimes the right thing to do is the wise thing. That is the case now for Greece. Done correctly, debt reduction would benefit Greece and the rest of the eurozone. It would create difficulties. But these would be smaller than those created by throwing Greece to the wolves. Unfortunately, reaching such an agreement may be impossible. That is why the belief that the eurozone crisis is over is mistaken.

Nobody can be surprised by the victory of Greece’s leftwing Syriza party. In the midst of a “recovery”, unemployment is reported at 26 per cent of the labour force and youth unemployment at over 50 per cent. Gross domestic product is also 26 per cent below its pre-crisis peak. But GDP is a particularly inappropriate measure of the fall in economic welfare in this case. The current account balance was minus 15 per cent of GDP in the third quarter of 2008, but has been in surplus since the second half of 2013. So spending by Greeks on goods and services has in fact fallen by at least 40 per cent.

Given this catastrophe, it is hardly surprising that the voters have rejected the previous government and the policies that, at the behest of the creditors, it — somewhat halfheartedly — pursued. As Alexis Tsipras, the new prime minister, has said, Europe is founded on the principle of democracy. The people of Greece have spoken. At the very least, the powers that be need to listen. Yet everything one hears suggests that demands for a new deal on debt and austerity will be rejected more or less out of hand. Fuelling that response is a large amount of self-righteous nonsense. Two moralistic propositions in particular get in the way of a reasonable reply to Greek demands.

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Has Syriza Relinquished Its Biggest Bargaining Chip?

by Alen Mattich

Wall Street Journal

January 26, 2015

Syriza’s victory in the Greek general elections ought to be a thunderclap in eurozone politics, marking the start of an anti-austerity movement that could yet spread across the single currency region. But it could yet ring hollow.

That’s because Syriza’s politicians have relinquished one of their biggest bargaining chips even before they start negotiations with the troika, the country’s supranational rescuers, to wipe out Greece’s burden of debt and relax its fiscal strait-jacket.

They seem determined–with good reason–to remain in the eurozone.

Syriza’s Yanis Varoufakis, tipped to become Greece’s finance minister, was quoted the U.K. press Monday saying “we who are in the eurozone must not toy with loose or fast talk about Grexit or fragmentation.” Greek exit from the euro was not on the cards, he said, a message that chimes with Syriza’s position over the past weeks in interviews and repeated in a victory speech Sunday night.

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Germany Deserved Debt Relief, Greece Doesn't

by Leonid Bershidsky

Bloomberg

January 27, 2015

Syriza, Greece's new ruling party, makes an attractive argument for writing off Greek debt: Wasn't Germany, now the biggest opponent of debt relief, itself the recipient of unprecedented largesse in 1953, when its foreign debt was halved? Attractive, however, doesn't mean convincing. Parallels between today's Greece and 1953 Germany are demagoguery, pure and simple.

The Federal Republic of Germany's creditors -- 20 countries including Greece -- indeed agreed at a London conference to write off 55 percent of the country's 32.3 billion Deutsche marks of foreign debt. "More than 50 percent of Greek debt needs to be written off," says top Syriza economist John Milios. "The solution that was given to Germany at the London conference in 1953 is what we must do for Greece.”

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Greece’s Coalition of the Unwilling

Wall Street Journal
Editorial
January 27, 2015


More cautionary news for the eurozone emerged from Greece on Monday as it became clearer that new Prime Minister Alexis Tsipras meant what he said about rejecting the terms of its bailouts. Mr. Tsipras’s far-left Syriza party formed a governing coalition with the right-wing Independent Greeks. The only thing that unites the two sides is their opposition to the country’s bailout and their desire to renegotiate with Greece’s international creditors.

This is a shock to investors and European policy makers who expected Mr. Tsipras to adopt a more conciliatory tone after the election. It’s also a surprise for the many Greek voters who might have hoped that a vote for Syriza would be a safe protest against the failures of the previous government.

All three groups have become accustomed to “elite bailouts” in Greece, in which the leadership in Athens comes around to imposing creditor diktats after elections, despite popular opposition. Mr. Tsipras’s predecessor, Antonis Samaras of the center-right New Democracy party, did this in 2012 when he campaigned against the bailout before he supported it in office.

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Greek Ship Owners Fear Syriza Tax Plan

Wall Street Journal
January 27, 2015

Several owners in Greece’s important shipping sector say they fear the new government led by radical-left party Syriza will levy higher taxes that the industry can’t afford.

If the industry is unable to reach a compromise with the government, elected Sunday, some owners say they plan to limit their operations in Greece or move out of the country altogether.

Shipping is one of the few sectors in Greece that has successfully weathered a ravaging debt crisis which wiped out about a quarter of the economy over the past five years and impoverished much of the population. It is one of the country’s biggest employers, providing about quarter of a million jobs, and makes up 8% of the economic output in a country where unemployment is running close to 30%.

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Greece’s Last Evasion

by Bret Stephens

Wall Street Journal

January 26, 2015

Whenever I think of Greece and its economy, I can’t help but recall the stool-sample story.

Sorry to begin on a scatological note, but here’s a revealing tale about a country that, by electing the radical left-wing Syriza party over the weekend, just voted itself down the toilet. In 2011, Greek entrepreneur Fotis Antonopoulos and his partners decided to start OliveShop.com, an online store specializing in organic olive-oil products.

Before they could start their business, they first needed the right paperwork. As recounted in the Greek newspaper e-Kathimerini, authorizations were required from the government tax office, the local municipality, the fire department. Also the bank, which insisted that the entire website be in Greek—and only in Greek—despite Mr. Antonopoulos’s attempts to explain that he intended to market his products to foreign customers.

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Europe’s Populists Hail Syriza Win in Greek Elections From Left and Right

Wall Street Journal
January 27, 2015

Antiestablishment parties across Europe hailed left-wing Syriza party’s triumph in Greece’s elections as a turning point, seeking to boost followers’ confidence that they can break with European Union economic policies they blame for miring much of the region in a seven-year slump.

From left-wing groups such as Spain’s Podemos and Ireland’s Sinn Féin to right-wing movements such as France’s National Front and Britain’s U.K. Independence Party, populist parties sought to present Syriza’s win as payback for what they see as out-of-touch mainstream parties and EU institutions.

“I am delighted by the enormous, democratic slap in the face that the Greek people have delivered to the European Union,” Marine Le Pen, leader of the far-right Front National, said on French radio station RTL. France’s far left was just as enthused. “The end has begun for the era of the all-powerful arrogance of the neoliberals in Europe,” said the Left Party’s Jean-Luc Mélenchon, who won 11% of the vote in France’s 2011 presidential elections.

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Greece and Europe Dig In on Bailout Terms After Syriza Victory in Greek Election

Wall Street Journal
January 26, 2015

Greece and its creditors veered toward confrontation as its new, leftist government pledged to make good on promises to reverse years of public-spending cuts despite warnings from Berlin and other European capitals that doing so could plunge the country, and Europe, into deeper crisis.

Europe’s political establishment sought to show respect for the will of the Greek people on Monday while also swiftly moving to douse hopes in Athens that it would substantially relax the country’s bailout terms, which many Greeks blame for their economy’s deep malaise.

“There are rules, there are agreements,“ German Finance Minister Wolfgang Schäuble said of the framework for Greece’s financial rescue. “Whoever understands these things knows the numbers, knows the situation.”

Europe’s resolute response is driven in part by concern that such a step would invite other bailout recipients, including Portugal and Ireland to demand similar concessions and further erode the eurozone’s credibility.

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Greece's radical new leader declares war on country's all-inclusive resorts visited by tens of thousands of Brits each year

Daily Mail
January 27, 2015

Greece's new left-wing prime minister has declared war on the country’s all-inclusive resorts, which are visited by thousands of British families every year.

All-you-can-eat buffets and unlimited drinks by the pool are under threat even though that sector of tourism brings in £1.5billion a year for the Greek economy.

Alexis Tsipras, leader of the triumphant anti-austerity party Syriza, believes such deals ‘alienate tourists from the local economy’ by keeping them in resorts and away from small businesses.

He has promised to curb the type of mass tourism that Greece has developed in the last few decades.

Deals to sell public land to mega-resort developers could be banned and VAT rules are likely to be changed to hit existing holiday developments with higher taxes.

Mr Tsipras said: ‘We do not want to continue the current saturated model of intensive exploitation of tourism.’

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Greece: Think Flows, Not Stocks

by Paul Krugman

New York Times

January 26, 2015

How should we think about the bargaining that may or may not now take place between the new Greek government and the troika? (No bargaining if the troika basically says no concessions.) Most discussion is framed in terms of what happens to the debt. But as both Daniel Davies and James Galbraith point out — with very different de facto value judgments, but never mind for now — at this point Greek debt, measured as a stock, is not a very meaningful number. After all, the great bulk of the debt is now officially held, the interest rate bears little relationship to market prices, and the interest payments come in part out of funds lent by the creditors. In a sense the debt is an accounting fiction; it’s whatever the governments trying to dictate terms to Greece decide to say it is.

OK, I know it’s not quite that simple — debt as a number has political and psychological importance. But I think it helps clear things up to put all of that aside for a bit and focus on the aspect of the situation that isn’t a matter of definitions: Greece’s primary surplus, the difference between what it takes in via taxes and what it spends on things other than interest. This surplus — which is a flow, not a stock — represents the amount Greece is actually paying, in the form of real resources, to its creditors, as opposed to borrowing funds to pay interest.

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Greece’s Agonized Cry to Europe

New York Times
Editorial
January 26, 2015


The message from Sunday’s elections in Greece was unambiguous: The Greeks cannot and will not continue to abide by the austerity regime that has brought their economy to its knees. It was a message the Germans and other Europeans who continue to insist that Greece pay off its mountainous debt, no matter what the damage, must hear. Persisting on their dogmatic course is not only wrong for Greece but dangerous for the entire European Union.

It is too soon to anticipate how Alexis Tsipras, the maverick politician whose left-wing Syriza party won 36.3 percent of the popular vote and nearly gained an outright majority in Parliament, intends to deliver on the promises he made to voters to abandon the austerity program while reducing the nation’s debt and retaining the euro.

These goals are fundamentally incompatible, but the new prime minister has signaled to Europeans that he is ready to moderate his ambitions once in office. It is essential that Chancellor Angela Merkel of Germany, who is seen by Greeks as the prime architect of the austerity program, and the “troika” of the European Commission, the European Central Bank and the International Monetary Fund, which manage the Greek bailout, demonstrate a similar readiness to ease the size and conditions of Greece’s debt burden.

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Greece's Crazy Leftists Have a Good Idea

Bloomberg
Editorial
January 27, 2015


Amid the populist rhetoric that propelled the far-left Syriza party to victory in Greece's parliamentary elections, there's one idea that Germany in particular should take to heart: revive growth in the euro area by giving the hardest-hit countries a break on their debts.

Syriza leader Alexis Tsipras, who was sworn in Monday as Greece's new prime minister, has long been calling for a "European debt conference" -- a summit meeting at which the region's leaders would reduce the debilitating obligations of Greece and other financially troubled euro-area governments. Unlike the rest of the party's program, this idea makes sense.

Greece has already been granted some debt relief, but not enough to make its fiscal position sustainable. Tsipras is calling for a writedown of about one-third.

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Monday, January 26, 2015

Greece Must Repay Debt, Europe Officials Say

Wall Street Journal
January 26, 2015

Europe’s political establishment moved quickly to douse hopes it would substantially relax the terms of Greece’s bailout after antiausterity leftists swept to power in the country’s national election, insisting that Athens honor its commitments.

European officials tried to balance a display of respect for the will of the Greek people on Monday, while also stressing that a change in government wouldn’t upend the rescue framework that many Greeks blame for their country’s deep malaise.

“In our opinion, it’s important that the new government tackle measures to allow a continuation of the economic recovery,” German Chancellor Angela Merkel ’s spokesman, Steffen Seibert, said in Berlin.

“We believe Greece has accepted terms that are not off the table after the election.”

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