Saturday, January 31, 2015

Greece hires Lazard to advise on debt

Financial Times
January 31, 2015

The Greek government has hired US investment bank Lazard to advise it on its debt burden as it prepares to enter talks with the troika of international lenders that has overseen its four-year bailout programme.

Since the far-left Syriza party won last weekend’s elections it has alarmed creditors and investors with pledges to freeze privatisations, rehire state workers and roll back reforms adopted by previous administrations as part of the bailout.

But on Saturday, Greek prime minister Alexis Tsipras issued a statement saying he was confident “we will soon manage to reach a mutually beneficial agreement, both for Greece and for Europe as a whole”.

“No side is seeking conflict and it has never been our intention to act unilaterally on Greek debt,” Mr Tsipras said, adding that his approach “in no way entails that we will not fulfil our loan obligations to the ECB or the IMF”.

The comments appeared to be a sign that Athens was moderating its position from the confrontational stance taken on Friday by its finance minister.

More

Obama on austerity programs

CNN
January 31, 2014

Fareed Zakaria interviews President Obama

Death threats forced me to quit my job, says Greece's top tax man

by Nick Squires

Daily Telegraph

January 31, 2015

It was when he received threats that his legs would be smashed that Harry Theoharis really knew he was making enemies.

Just months into his job as head of Greece’s tax collection agency, it became clear he was stirring a hornet’s nest with his efforts to crack down on the country’s endemic tax evasion, which robs Athens of hundreds of millions of pounds a year.

“My office was getting phone calls saying 'tell him it would only cost 5,000 euros to break his legs’,” he told The Sunday Telegraph last week. “I received threatening letters too. I had to have a police escort - I still do.”

Angered by the threats, but also beset by intense political pressure not to go after the well-connected, Mr Theoharis resigned from his job as Greece’s Secretary General for Public Revenue last June, just 17 months into what should have been a five-year term.

More

Greece Will Repay ECB, IMF, Reach Deal With EU, Tsipras Says

Bloomberg News
January 31, 2015

Greek Prime Minister Alexis Tsipras sought to repair relations with creditors after a week-long selloff in bonds and stocks, triggered by his pledge to end the country’s bailout agreement.

Greece will repay its debts to the European Central Bank and the International Monetary Fund and reach a deal soon with the euro area nations that funded most of the country’s financial rescue, Tsipras said Saturday in an e-mailed statement.

“My obligation to respect the clear mandate of the Greek people with respect to ending the policies of austerity and returning to a growth agenda, in no way entails that we will not fulfill our loan obligations to the ECB or the IMF,” Tsipras said.

More

ECB's Liikanen - No lending to Greek banks if no deal by end of February

Reuters
January 31, 2015

A deal on extending Greece's bailout deal must be found by the end of February or the European Central Bank will not be able to continue lending to its banks, ECB council member Erkki Liikanen said on Saturday.

Europe's bailout programme for Greece, part of a 240-billion-euro (179 billion pounds) rescue package along with the International Monetary Fund, expires on Feb. 28 and a failure to renew it could leave Athens unable to meet its financing needs and cut its banks off from ECB liquidity support.

Greece's new leftist government, which aims to ease the strict terms of the bailout that have imposed harsh austerity, opened talks with European partners on Friday by flatly refusing to extend the current programme or to cooperate with the international inspectors overseeing it.

More

Greece really might leave the euro

by Matt O'Brien

Washington Post

January 30, 2015

The world's worst portmanteau is back: Grexit.

That's short for "Greek exit," as in Greece leaving the euro. And it's once again a possibility now that the left-wing, anti-austerity party Syriza has won power in the latest elections. The risk, as I've said before, is that the rest of Europe is in good enough shape that Germany finally thinks it can let Greece leave, and Greece's budget is in good enough shape that it finally thinks it can leave too. Neither of them wants that, but neither of them doesn't want it so much that they'd do anything to avoid it—so both might call each other's, as it turns out, non-bluffs if Syriza tries to force Germany to renegotiate Greece's gargantuan debt.

Cue the market freakout in three, two, oh, it's already here? Why yes, yes it is. Greek stocks fell 11 percent on Tuesday, another 9.2 percent on Wednesday, before stabilizing up 3.2 percent on Thursday. Three-year borrowing costs shot up to 16.9 percent. And worst of all, Greek banks collapsed between 30 and 45 percent in just the last week. That's enough, as we'll see in a minute, to make it much more likely that Greece leaves the euro.

More

Now Markets Get to Vote on Greece’s New Government

by Charles W. Calomiris

Wall Street Journal

January 30, 2015

Greece’s newly elected prime minister, Alexis Tsipras, has had a busy week. He’s pledged to boost public spending, despite his country’s insolvency. He’s also promised to raise the minimum wage, despite youth unemployment of about 50%.

Mr. Tsipras’s new finance minister, Yanis Varoufakis, calls himself a “libertarian Marxist” and describes his position within economics as that of “an atheist theologian ensconced in a Middle Ages monastery.” In other words, Mr. Tsipras has appointed to high office a man who says even more foolish and narcissistic things than he does.

Mr. Tsipras says he will renege on economic reforms to spending, taxation and labor markets that Greece’s previous government promised to make as the quid pro quo for aid by the European Central Bank, the International Monetary Fund and the European Commission. The ECB, IMF and EC have warned that they are unlikely to roll over highly subsidized loans to Greek banks and the Greek government if Mr. Tsipras follows through.

Meanwhile, Greek bank deposits, according to some sources, may be declining at the rate of about 1% per day. Greek 10-year bond yields rose by roughly two percentage points this week. What is the new prime minister doing to calm markets?

More

As Greece and EU Clash, Clues on Deal Emerge

Wall Street Journal
January 30, 2015

Greece’s finance minister and a representative of its European creditors exchanged grimaces, tough rhetoric and a frosty farewell on Friday, capping a week in which Athens’s new antiausterity government roiled its eurozone paymasters almost daily.

But behind the acrimony, clues are emerging about how Athens and its German-led creditors are searching for a deal that keeps Greece in the euro.

The options for a compromise, likely to become more concrete once negotiations get under way in February, include tweaking Greece’s budget constraints and debt-service burden while revamping how Europe monitors Greek compliance.

More

Friday, January 30, 2015

Merkel's Unintended Creation: Could Tsipras' Win Upset Balance of Power in Europe?

Spiegel
January 30, 2015

Alexis Tsipras couldn't have picked a more symbolic place to show his voters that he is a prime minister like no other Greece has seen before -- -- and that he is truly serious about standing up to the Germans.

On Monday, right after he was sworn in, he was chauffeured in his sedan to the Kesariani rifle range, a memorial to Greek resistance fighters that is revered in the country as the "altar of peace."

It was here, on the outskirts of Athens, that German occupying troops shot a total of some 600 resistance fighters -- some just before the end of the war, on May 1, 1944 -- along with roughly 200 communists from the Haidari concentration camp. The youngest victim was only 14 years old.

As Tsipras stepped out of his car and made his way through the park to the memorial stone, several hundred people crowded around him. People reached out to touch, congratulate, hug and kiss him. The few bodyguards surrounding the politician barely shielded him from the crowd, apparently as he desired. Alexis Tsipras, 40, the youngest prime minister in Greek history, also intends to be its most unusual leader -- a man of the people who is determined to fundamentally change his country.

More

Greece after the elections: Turning an opportunity for change into a risk of isolation?

by Olga Sarrado Mur

Centre for European Policy Studies

January 30, 2015

The outcome of the Greek elections of January 25th did not present any great surprises. In the days running up to the polls, the debate was driven by a seemingly sincere desire to formulate policy options that would be both suitable for the EU and acceptable to the future anti-austerity Greek government. But immediately following his election, Alexis Tsipras surprised many observers by redefining his mandate with provocative statements and choices.

The first decision after his victory was to form an alliance between his left-wing Syriza party and the far-right and anti-European Independent Greeks. This somewhat ‘unnatural’ coalition signalled an unambiguous message: the new government would assign clear priority to domestic economic matters and to meeting the anti-austerity pledges he made during the campaign. But an uncooperative stance in the discussions with the EU could delay the negotiations and disrupt the relative calm in financial markets. Such a situation could quickly degenerate into a new crisis, dashing Syriza’s hopes of finding money in international markets in order to deliver on its promises to the Greek voters. One solution would be to print money, but such a unilateral action would automatically lead to an exit from the euro area. Many, in fact, have advocated this route as the fastest way to achieve growth, but this argument is facile. Since 2010 Greece has undergone a long process of internal devaluation which has been accompanied in recent months by significant depreciation of the euro. Nevertheless, this has not led to any significant recovery in the export sector. Why should it be any different if the economy returned to the Drachma? Structural problems are not solved by devaluation.

More

A Path Forward for Greece

by Angel Ubide

Peterson Institute for International Economics

January 30, 2015

The people of Greece have spoken, loud and clear, by delivering a resounding victory to Syriza, the left-wing party that won the election last weekend: After suffering five years of economic depression and a massive fiscal tightening (the level of government spending has been cut by 50 percent since 2009), the Greek people cannot stomach any further austerity and have voted for the party that promises change and a different economic policy. The Syriza victory has created a major new dilemma for all of Europe.

It is possible that Syriza, however, in its effort to differentiate itself from the previous government and other establishment parties, may have overplayed its hand during its time in the opposition. By openly committing to renege on existing commitments and demanding debt forgiveness, Syriza may have painted itself into a corner. Beyond the appearances of blackmail and the worries about moral hazard and fairness, it should be clear that the debt relief demanded by Syriza is just not possible at this point. At a time when the euro area is barely starting to see the light at the end of a very long recession, with most euro area countries still undergoing serious fiscal restraint, no parliament in the euro area will be ready to legislate debt forgiveness for Greece while at the same time refusing to increase public sector wages or improve the purchasing power of pensioners for their own citizens. The commentary outside Europe that is calling for debt forgiveness seems to be forgetting the simple fact that after successive rescues of Greece, Greek debt is now mostly in the hands of European taxpayers. Politics always dominates economics.

More

Syriza's victory in Greece might not be the radical revolution you were hoping for

by James Bloodworth

Independent

January 30, 2015

Syriza’s victory in the Greek elections last weekend wasn’t just a triumph for the radical left but a victory for common sense. In accepting the establishment narrative of an "extreme" or "hard left" party coming to power, most commentators have been getting things entirely the wrong way round: in austerity-ravaged Europe the real extremists sit at desks in Brussels and Berlin and peddle economic homeopathy.

Put another way, it would be a mistake to assume that the people of Greece shifted decisively to the left in electing Syriza. In reality economic orthodoxy has moved so far to the right that an unwillingness to let a generation of young Greeks wither on the vine is now considered utopian.

The Troika (the European Union, the International Monetary Fund and the European Central Bank) offered Greece a brutal Hobson’s Choice: reduce your country to penury or be booted out of Europe. Successive Greek governments supinely accepted this twisted logic and as a consequence Greece has lost around a quarter of its economic output and 26 per cent of the country’s labour force are unemployed.

More

Greece's Political Chimera

by Nikos Konstandaras

New York Times

January 30, 2015

In the past few weeks, as the radical leftist party Syriza barreled toward victory in Greece’s early national elections, it became a symbol both inside and outside the country: Everyone seemed to see what they wanted in the formerly marginal party that promised to reject the international bailout agreement that has kept Greece on life support for nearly five years.

For a growing number of Greeks, exhausted and desperate after six years of recession and insecurity, Syriza’s anti-austerity platform was seen as a promise of salvation and an effort to reclaim the country’s sovereignty; others saw the impending clash with Greece’s European Union partners as a deadly threat to an economy that was just beginning to show signs of growth.

Many foreign observers, on the left and the right, saw Syriza’s rise as a rebellion against austerity and the economic and political orthodoxy of the European Union, a revolt that could spread to other debtor nations. European Union governments, which had lent Greece money (along with the European Central Bank and the International Monetary Fund), worried that their taxpayers would foot the bill for Greece’s voters and that this would inspire populist revolts in other countries.

More

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.

More

Greece Turns Left, Europe Goes Right

by Noah Feldman

Bloomberg

January 30, 2015

Why has Greece chosen a far-left government at a time when discontented and frustrated voters elsewhere in Europe have turned to the far right?

In northern Europe, the frustrated voters’ parties of choice are right wing and anti-immigrant. So how come frustrated Greeks made a sharp turn to the left, electing the near-communist Syriza party to lead the government? The choice of left over right is especially striking because Greece is a first port of call for so many new immigrants to Europe.

If Spain’s Podemos party continues to grow, then the contrast between northern and southern Europe will be even more striking.

A combination of economics, politics and history can shed light on the differences. The simplest -- and most surprising -- answer may be just this: the worse the economy, the worse for the far right and the better for the far left.

More

Greece Has Chosen, but It Doesn’t Get to Decide by Itself

by Jacob Funk Kirkegaard

Peterson Institute for International Economics

January 26, 2015

The radical leftist party Syriza won the election in Greece on Sunday with 36 percent of the vote, propelled by a campaign demanding an end to tough austerity measures imposed from on high in return for its rescue from insolvency. Together with the Independent Greeks party (ANEL), Syriza is now poised to form a Greek government, opening a new chapter in the contentious modern history of the euro area.

Syriza’s call for a new agreement with the euro area is not entirely far-fetched. The new Greek government faces pressure, however, to drop demands for immediate debt relief. It must also show that it can present a credible alternative economic plan for Greece. Some scope for negotiations about the details of the short-term fiscal stance and some of the structural reform requirements also seem possible.

If the new government has new suggestions for collecting government revenues, for instance, euro area governments would welcome them. But the most likely result is that Syriza will have to drop many of its electoral campaign demands. The euro area is not likely to accept an increase in the Greek minimum wage, as advocated by Syriza, or an elimination of the Greek primary surplus, or a broad rollback of the Greek privatization program, as part of any renegotiations with the Troika, consisting of the European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF). And certainly the euro area will resist talk of future additional debt relief until after the current Troika program has largely been implemented.

More

A Greek Burial for German Austerity

by Joschka Fischer

Project Syndicate

January 30, 2015

Not long ago, German politicians and journalists confidently declared that the euro crisis was over; Germany and the European Union, they believed, had weathered the storm. Today, we know that this was just another mistake in an ongoing crisis that has been full of them. The latest error, as with most of the earlier ones, stemmed from wishful thinking – and, once again, it is Greece that has broken the reverie.

Even before the leftist Syriza party’s overwhelming victory in Greece’s recent general election, it was obvious that, far from being over, the crisis was threatening to worsen. Austerity – the policy of saving your way out of a demand shortfall – simply does not work. In a shrinking economy, a country’s debt-to-GDP ratio rises rather than falls, and Europe’s recession-ridden crisis countries have now saved themselves into a depression, resulting in mass unemployment, alarming levels of poverty, and scant hope.

Warnings of a severe political backlash went unheeded. Shadowed by Germany’s deep-seated inflation taboo, Chancellor Angela Merkel’s government stubbornly insisted that the pain of austerity was essential to economic recovery; the EU had little choice but to go along. Now, with Greece’s voters having driven out their country’s exhausted and corrupt elite in favor of a party that has vowed to end austerity, the backlash has arrived.

More

Greece’s Feisty Finance Minister Tries a More Moderate Message

by Liz Alderman

New York Times

January 29, 2015

In the first days after the election victory of the leftist party Syriza in Greece, Yanis Varoufakis, the new finance minister, has lobbed some rhetorical grenades, referring to his country’s foreign-imposed austerity budgets as “fiscal waterboarding” and calling Greece’s international bailout deals “a toxic mistake.”

Now, faced with the need to make good on promises to negotiate debt relief for his beleaguered nation, he seems eager to send a more moderate message.

During an interview on Thursday morning in his office, Mr. Varoufakis, 53, poured a cup of coffee and took a large swallow. It had been a late night. On Wednesday, the day after he was sworn in, the Athens Stock Exchange had plunged on concerns that the Syriza-led government might wage a battle with Greece’s international creditors, and he had stayed up to monitor the developments.

More

Greece’s Problem: Persistent Fiscal Irresponsibility and Too Few Reforms

by Anders Aslund

Peterson Institute for International Economics

January 29, 2015

The victory of the extreme left-wing party Syriza in the Greek parliamentary elections on January 25 is a wake-up moment. The outcome of the ensuing economic policy discussion is likely to be decisive for Europe for a long time. Two opposing views were recently published in the Financial Times illustrating the dilemma facing the region. Reza Moghadam argued that the European Union should write off half of its debt to Greece, while Gideon Rachman contended that now Europe could not afford to forgive any debt to Greece.

Meanwhile, Paul Krugman hailed Alexis Tsipras, leader of Syriza, in the New York Times as “the first European leader elected on explicit promise to challenge the austerity policies that have prevailed since 2010.” After all Greek markets plummeted by a fifth over three days, Krugman backpedaled. “Markets are panicking,” he asserted. Then, implausibly, he added: “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.”

Greece has a long history of bad economic policies, eminently analyzed by Nikos Tafos in his 2013 book Beyond Debt: The Greek Crisis in Context. Since Andreas Papandreou came to power in 1981, Greece has stood out as a model of fiscal irresponsibility. Greece had an average budget deficit of no less than 8.7 percent of GDP from 1981–99, and Papandreou ruled 11 of those years. His was a parasitical and oligarchic regime that used socialism to rebuild an old clientele system of poor governance.

More

Russia Says It Would Consider Financial Help for Greece

Time
January 29, 2015

Russia’s finance minister said his country would consider providing financial support to Greece, raising the stakes for the European Union as it confronts the new Euroskeptic reality in Athens.

Anton Siluanov told CNBC that Russia has not received a request from Greece for assistance, but his comments come days after the anti-E.U. party Syriza won parliamentary elections, vowing to renegotiate aid packages from the bloc that are tied to strict austerity measures.

“We can imagine any situation, so if such petition is submitted to the Russian government, we will definitely consider it,” he said, “but will take into account all the factors of our bilateral relationships between Russia and Greece, so that is all I can say.”

More

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.

More

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).

More

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.

More

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.

More

The game is up. It’s time for Greece to leave the eurozone and move on.

by Allister Heath

Daily Telegraph

January 29, 2015

It’s time for Greece to leave the euro, default on its debt and move on. I write this with a heavy heart as the short-term consequences for ordinary Greeks could be disastrous, but there is now no other practical way out.

Syriza is serious about change and simply will not honour the country’s debts or stick to international agreements. Germany is equally serious about not accepting a debt write-off. A N24/TNS poll shows that 43pc of Germans are unwilling to negotiate debt relief or a longer loan repayment schedule with Greece. As to Brussels, the European Commission president Jean-Claude Juncker has said that “there’s no question of writing down Greek debt”. The stand-off will escalate, and escalate further. Neither side will blink, which means that a Grexit and default is now almost inevitable.

At least 77pc of Greek government debt is owned by official bodies or governments, according to Open Europe, rather than the private sector, so a massive default won’t be catastrophic for private institutions. Anybody with any sense will have seen this coming, and sold as much Greek debt as they could get away with.

More

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.

More

How Greek Citizens Saw Their Government Services Curtailed

by Paolo Mauro and Jan Zilinsky

Peterson Institute for International Economics

January 29, 2015

It is generally understood that Greece has undertaken a major fiscal adjustment since the beginning of the crisis that engulfed it. But the scale and speed of the decline in government expenditures do not seem to be fully recognized, despite the close attention devoted to Greece by the press in recent years.

In part, this stems from an excessive focus on measures of the deficit expressed as shares of GDP. Indeed, analysts interested in debt sustainability often focus on technical measures such as the cyclically adjusted primary fiscal surplus as a share of GDP. But changes in these measures are difficult to interpret against the background of a staggering contraction of output, and in any case seem inadequate to capture citizens’ well-being.

What is the scale of Greece’s fiscal adjustment from the perspective of its citizens? And how does it compare to other countries?

An internationally available proxy for the real flow of goods and services that a citizen receives from the government is real per capita general government primary expenditure. It is obtained by dividing nominal general government expenditure (excluding interest payments) by the GDP deflator and further dividing by population. For each advanced country, the level of real per capita general government primary expenditure is set to 100 in the year 2005.

More

Greek Banks at Mercy of the Fates

by Paul J. Davies

Wall Street Journal

January 29, 2015

Greek banks are about the most emotional trade in the stock market right now. The problem for investors is that there are few real reasons to buy or sell—everything depends upon what political game the new government wants to play.

Another strong rebound in bank stocks Thursday after days of hefty falls shows there is still a price at which investors will jump back in. Conciliatory words from the new deputy prime minister on Wednesday evening about excessive zeal in comments from inexperienced ministers also helped.

But the sector faces three big imponderables. First is the revived possibility of Greek default and exit from the euro. But more particular to the banking sector are: second, the chances that locals panic and pull their deposits; and third, the desire of the government to interfere with the banks and use them for overtly political purposes.

More

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.

More

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.

More

Has Greece Done Enough?

Peterson Institute for International Economics
January 29, 2015

Paolo Mauro and Anders Åslund debate whether the austerity undertaken by Greece has been sufficient to merit more help from Europe.

More

The success of Syriza in Greece has been driven by Marxism, populism and yes — Essex University

by David Howarth

Independent

January 29, 2015

You might not know this, but there are surprising connections between Syriza – the radical left-wing party which has just swept to power in Greece – and the University of Essex, where I work as a professor.

The new Finance Minister Yanis Varoufakis, who studied Economics, and the new Syriza MP for Corfu, Fotini Vaki, are both Essex alumni. So is Rena Dourou, the prefect (or governor) of Athens.

Rena Dourou completed an MA in Ideology and Discourse Analysis in 2001, a course that I teach. First encounters with new students at university can often be misleading. But this was not the case with Rena. From the beginning, I found that she was intellectually curious, forthright in her political views, and utterly committed to succeeding (which she did).

The ideas that Dourou was exposed to while studying at Essex have had a clear influence on herself and Syriza. Her MA course was inspired by the late Professor Ernesto Laclau, a political exile from Argentina. A key aspect of his approach focusses on the emergence of populist movements and their ideas.

More

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.

More

The stand-off that may sink the euro

by Philip Stephens

Financial Times

January 29, 2015

The euro has become the prisoner of a playground game of “you-go-first”. Everyone — almost — knows what needs to be done, even if some resile from admitting it. The necessary ingredients are growth, competitiveness and sustainable debt and deficits. The missing glue is trust.

Governments will act only if they are sure those on the other side of the creditor/debtor line will do the same. As in the school playground, each insists the other must jump first. The result is policy paralysis and the rise of populism.

A sensible European policy maker would see the election success of Greece’s Syriza as a wake-up call rather than a nightmare. Not because the radical leftist government of Alexis Tsipras is correct in most of its prescriptions (though neither is it invariably wrong), but because its victory crystallises the impasse that has crippled the eurozone.

Not so long ago governments confounded the gloomsters by summoning up the political will needed to keep the single currency on the road. Compromises were made on all sides. Berlin, though it could never say so, abandoned its opposition to bailouts; the peripheral economies accepted a harsh mix of austerity and structural reforms.

More

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.

More

Europe’s Anti-Business Stance

by Steven Rattner

New York Times

January 29, 2015

TOO often the debate over how to restart Europe’s economy veers into the conveniently crisp alternatives of stimulus versus austerity. Should the pressure to reduce government deficits be relaxed? Should central bank actions to lower interest rates have come sooner and been more aggressive?

That simplistic debate has returned to the forefront, with the European Central Bank’s plunge into purchasing the sovereign debt of its member nations and Greece’s resounding vote at the ballot box against spending cuts.

But the focus on macroeconomic policy underappreciates the critical importance of smaller structural problems that collectively amount to a bigger challenge for Europe.

Archaic restrictions on hiring and firing workers, flawed energy policies and kilometers of red tape that can make even starting a business difficult — just to name a few — have combined to damage the Continent’s ability to compete in increasingly global markets.

More

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.

More

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.

More

Lack Of Reform, Not Austerity, Doomed Greek Economy

by Alvaro Vargas Llosa

Investor's Business Daily

January 28, 2015

The real Greek tragedy is not that Alexis Tsipras from the radical left-wing Syriza party won that country's recent election, becoming prime minister in the cradle of democracy.

Voters can reverse that mistake when they realize that his policies are doing more harm than good.

The real tragedy is that Greek voters, like other Europeans who are embracing far-right or far-left parties, cast their ballots in response to draconian austerity measures, imposed by the European Union (EU) and International Monetary Fund (IMF), that they equate with free-market capitalism and globalization.

The consequences of this ideological travesty will last much longer than Tsipras' honeymoon and prevent a solution to Greece's six-year-old recession for years to come.

Remember the sequence: After years of mercantilist corruption, crony capitalism and socialist welfare-state policies, a system that the center-right New Democracy party and center-left Pasok party upheld for 40 years, the Greek economy collapsed.

More

Greek Banks Are Ticking Time Bombs

by Mark Gilbert

Bloomberg

January 29, 2015

Investors are trashing Greek stocks and bonds in the aftermath of Alexis Tsipras's election. It's the country's banks, however, that are bearing the brunt of the backlash to the new prime minister's anti-austerity promises, and that spells trouble for a government that can't afford to rescue its financial system.

This week, the benchmark Athens equity index is down about 12 percent, as the incoming administration says it will push forcefully to renegotiate the nation's debt obligations. Greek banks, however, are getting hammered much harder:


The danger of a run on the banks is clear and present. Depositors withdrew 11 billion euros ($12.5 billion) as the election approached. While we won't get official December figures until the start of next month, total deposits look to be as low as 150 billion euros -- even less than the last time Greece was in crisis, in June 2012.

More

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.

More

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.

More

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.

More

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.

More

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.”

More

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.

More

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.

More

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.

More

Three myths about Greece's enormous debt mountain

by Mehreen Khan

Daily Telegraph

January 28, 2015

€317bn. Over 175pc of national output. That's the enormous debt mountain that faces the new Greek government. It is the issue over which the country is set to clash with other countries in the eurozone.

As it stands, Greece's debt-to-GDP ratio is the highest in the currency bloc. It has been steadily rising as the country has undergone painful austerity and experienced a severe contraction in economic output.

The new far-left/right-wing coalition is now demanding a write-off of up to 50pc of its liabilities. The government argues that this is the only way Greece can remain in the single currency and prosper.

According to the newly appointed finance minister, who first coined the term "fiscal waterboarding" to describe Greece's plight, the EU has loaded "the largest loan in human history on the weakest of shoulders - the Greek taxpayer".

So far, the rest of the eurozone is adamant that it will not meet demands for debt forgiveness.

More

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.

More

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.

More

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.

More

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.

More

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.

More