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Germany Rejects Greek Extension Proposal

(Bloomberg) -- Greece’s government submitted a request to its euro-area creditors to extend the availability of bailout funds for six months in a last-ditch effort to avert a cash crunch.

Jeroen Dijsselbloem, who chairs meetings of the 19 euro-area finance ministers, confirmed on Twitter that the group had received the request. Euro-area officials are scheduled to assess the Greek proposal later Thursday. If they see room for an agreement, the currency bloc’s finance ministers will discuss it on Friday. The Greek state and its banks have effectively lost market access and stay afloat thanks to emergency lifelines extended by euro-area member states and the European Central Bank. The aid is attached to belt-tightening terms which the country’s new government, led by Alexis Tsipras, opposes. Two attempts to strike a compromise in the last 10 days ended in acrimony.

ECB policy makers on Wednesday raised the limit on Emergency Liquidity Assistance for Greek banks to 68.3 billion euros ($77.9 billion) from 65 billion euros, a euro-area central-bank official said, asking not to be identified because the matter is private. Greece has been at odds with other euro-area governments over the formula needed to extend the country’s 240 billion-euro rescue beyond its expiry at the end of February.
Greek government bonds dropped for the third time in four this week. The three-year yield rose 37 basis points, or 0.37 percentage point, to 17.73 percent as of 12:09 p.m. in Athens. That’s still down from 21.1 percent last week, the highest since the debt started trading again last year, and a record 128 percent in March 2012. The euro rose 0.2 percent to $1.1420. Greek stocks rose 1.8 percent.

U.S. Treasury Secretary Jacob J. Lew warned in a call with Greek Finance Minister Yanis Varoufakis Wednesday that failure to strike a compromise would bring immediate hardship to Europe’s most-indebted state.

To contact the reporters on this story: Nikos Chrysoloras in Athens at; Eleni Chrepa in Athens at
To contact the editors responsible for this story: Vidya Root at; Jerrold Colten at Marco Bertacche, Alan Crawford


(Bloomberg) -- Pressure mounted on Greece as U.S. and European officials called on the government to reach a deal with its creditors and the European Central Bank granted the nation’s cash-strapped banks only a small increase in emergency funds.
Prime Minister Alexis Tsipras’s administration will submit a request to the euro area for a six-month loan extension on Thursday, a day later than originally planned, according to a government official. ECB policy makers on Wednesday raised the limit on Emergency Liquidity Assistance for Greek banks to 68.3 billion euros ($77.9 billion) from 65 billion euros, a euro-area central-bank official said. Both officials asked not to be identified because the matters are private.

Greece has been at odds with other euro-area governments over the formula needed to extend the country’s 240 billion-euro rescue beyond its expiry at the end of February. The country risks being left without a financial backstop and on course to default on some of its liabilities as early as next month if it doesn’t reach a creditor accord.

Documents outlining the government’s stance during two closed-door meetings with euro-area finance ministers and representatives of the so-called troika of the European Commission, the International Monetary Fund and the ECB, showed Athens is still seeking to radically alter the terms of the bailout memorandum.

“The words ‘memorandum’ and ‘troika’ are anathema to the Greek government,” said Theodore Couloumbis, a professor of international relations at the University of Athens. “For the other side, fulfillment of existing contractual commitments is an article of faith,” he said by e-mail.
U.S. Treasury Secretary Jacob J. Lew warned in a call with Greek Finance Minister Yanis Varoufakis Wednesday that failure to strike a compromise would bring immediate hardship to Europe’s most-indebted state. French Finance Minister Michel Sapin said that without an accord “we will enter uncharted waters, where there are great risks for the Greeks, first and foremost.”
The lenders want Varoufakis to request an extension to the current bailout deal, which is tied to economic reforms and fiscal prudence in return for aid. Tsipras is seeking an intermediate agreement, followed by a new accord that would allow his government to disassociate from budgetary measures blamed for the country’s economic slump. Senior euro-area finance ministry officials are scheduled to assess the Greek extension request letter on Thursday.

‘Linguistic Cosmetics’
As the two sides struggle to find the language for a compromise “they will have to employ the latest in the art of linguistic cosmetics,” according to Couloumbis, who expects a deal may be reached by the end of the month.
Varoufakis told his counterparts on Feb. 16 that Greece wants to maintain a budget surplus before interest payments equal to 1.5 percent of gross domestic product, less than half the target set in the country’s bailout program, according to the transcripts of presentations. He also said Greece wants to scale down the privatization program and opposes labor market reforms envisaged in the bailout.
Jeroen Dijsselbloem, head of the Eurogroup of euro-area finance ministers, gave Varoufakis until Friday to agree to the terms on offer from the currency bloc. Varoufakis said he believes finance ministers will approve a Greek proposal by teleconference on that day, Athens News agency reported on Wednesday.

ECB Signal
The ECB’s decision at its Governing Council meeting to increase the ELA ceiling by just 3.3 billion euros sends a signal that a political deal is needed to halt deposit outflows at Greek banks, the euro-area central-bank official said. It is intended to cover the temporary liquidity needs of Greek lenders, and not to provide cash that can be used to finance the government through purchases of treasury bills, the official said.
While ELA is provided by national central banks at their own risk, the ECB can set limits or curtail it completely. The cash is supposed to be for solvent financial institutions facing temporary liquidity problems.

Uncertainty over the outcome of Greece’s dispute with euro area member states has triggered deposit withdrawals of about 20 billion euros from Greek banks since December. A spokesman for the Greek central bank declined to comment on the change in ELA. The Bank of Greece had asked for additional ELA of 10 billion euros, Kathimerini reported, without citing anyone. The ECB rejected a Greek request to auction 5 billion euros in additional t-bills, the newspaper said.

Capital Controls
A European official said that failure to strike a deal would bring capital controls closer, as deposit withdrawals will accelerate. The official declined to be named, as the decision to impose capital controls would be taken by the government in Athens, not its creditors.
Greek government bonds dropped for the third time in four this week. The three-year yield rose 55 basis points, or 0.55 percentage point, to 17.63 percent as of 10:36 a.m. in Athens. That’s still down from 21.1 percent last week, the highest since the debt started trading again last year, and a record 128 percent in March 2012. The euro rose 0.4 percent to $1.1443.

Greek stocks rose, with the benchmark Athens Stock Exchange gaining 0.2 percent. An index of Greece debt known as the Bloomberg Greece Sovereign Bond Index shows confidence remains well above the worst levels of pessimism during the past five years. “Despite hardline stances on both sides, we expect the negotiations will result in a deal, as it is in no one’s interest for Greece to exit the euro,” Roubini Global Economics analysts, including Brunello Rosa and Ariel Rajnerman wrote in a note to clients. German Finance Minister Wolfgang Schaeuble signaled the Greek request may not be enough. Germany is the biggest contributor to aid. “It’s not about an extension of the loan program, it’s about whether this program is fulfilled, yes or no,” Schaeuble told German broadcaster ZDF late Tuesday. German Chancellor Angela Merkel said on Wednesday that “solidarity is no one-way street.”

To contact the reporters on this story: Nikos Chrysoloras in Athens at; Paul Gordon in Frankfurt at
To contact the editors responsible for this story: Vidya Root at; Jerrold Colten at; Emma Charlton at Marco Bertacche, Ben Sills
Either way, it’s a Greek tragedy


The great tragedy is that there simply are no alternatives for Greece.

There is no magic pill or wishing its problems away. Consequently, all the bravado, brinkmanship -- the various strategies that commentators suggest they should employ -- are all farcical. There is only one path for the Greeks, and that is reform: To live within their means -- whether that is inside, or ultimately outside, the eurozone.

Against that backdrop, and despite frequent calls for a “Grexit”, the far easier path lays within the eurozone: to continue with the current reform program. Government debt, at around 177% of GDP, is largely denominated in euro. Assuming Greece did actually make the decision to leave, then the government would be forced to issue new currency and embrace an inevitable exchange rate collapse. Under those conditions, that debt burden would likely double -- something over 300% of GDP wouldn’t be absurd.

Unfortunately, a default in that instance wouldn’t be the panacea that many seem to think it would. Such an action would merely transform the fiscal crisis into a balance of payments crisis. A default would exacerbate what would already be a huge collapse in the new drachma. In turn, that would lead to a very serious spike in the current account deficit. The thing is, current account deficits need to be funded. Yet who would provide it? In that event, an even larger economic contraction would ensue. Greeks would be confronted with widespread shortages of essential consumer goods -- medicine, food and fuel. So, either way, with or without default, a Grexit would be disastrous. It would cause a large and very sudden economic contraction; another surge in unemployment -- already 26% -- and the crisis would spiral on.

Within the eurozone, the Greek government must also confront the truth that its negotiating position is much weaker now than it was in 2012. Back then, the mere thought of a Grexit caused financial markets carnage. It was around June of that year that Italian and Spanish bond yields spiked to their peaks -- 7.7% and 7.5%, respectively. Equity markets tanked -- the S&P500 and All Ords were off about 10%, while European stocks slumped 20%. It was a dark time -- the eurozone was doomed, a Grexit was thought imminent. Any effort to forestall that was futile -- simply ‘kicking the can down the road’.

Two years later, the Greek people have decided that their welfare and prosperity would be better served by a coalition of extreme left-wing radicals: Rich in rhetoric, but apparently oblivious to the reality of deficit funding: The Syriza party proposes a huge spending spree to lift the economy out of its depression -- and to provide jobs for the struggling masses. As is often the case with such governments, the issue of funding has been overlooked. As a wise woman once said: “the problem with socialism is that you eventually run out of other people’s money” -- and this is the situation that Greece confronts.

Given the heightened volatility of 2012, it’s an incredible development that the profligate rhetoric of the government has been met by the complete disengagement of global markets. Imagine that kind of rhetoric back in 2012: Italian and Spanish bond yields would probably have hit double digits. As it is, government yields for both countries have continued to ease this year -- the Spanish 10-year bond yield is at 1.6% and the Italian yield is not much above at 1.7%.

Are markets being too complacent? I doubt it. The difference this time around is that the probability of any contagion, assuming Greece did actually opt out of the eurozone, is very remote. To see this you have to recall that the primary crisis for Italy and Spain back in 2012 was not about solvency, as it was for Greece. While Greece was and is insolvent, that was never the case for Spain and Italy. For them, the issue was always liquidity and how best to extinguish a self-fulfilling panic. Spain and Italy would otherwise have had no trouble servicing their debt.

Actions taken by the European Central Bank -- the series of long-term refinancing operations and quantitative easing (among others) -- have largely made the prospect of another liquidity crisis like we saw in 2012 extremely unlikely. Thus the relative market calm.

As it stands then, Greece needs the eurozone much more than the eurozone needs Greece. Successive governments, through fiscal largesse and corruption, have bankrupted the country. As a consequence of that , they now fully depend on the generosity of their European friends.

Greece must live within its means. There is no choice, and the resultant cut in expenditure -- being weaned off excessive debt consumption -- is going to cause pain either way. With that in mind, remaining within the Eurozone and adhering to the reform program is the least painful route for Greek citizens -- and the fastest way toward a more a sustainable growth model.
ECB Declines To Comment On Spiegel Article - RTRS .
its all going off ;)

The European Union’s largest countries may have had enough of the new Greek government’s demands, the Maltese finance minister has told MaltaToday, suggesting that they will not stop Greece from leaving the eurozone. With little more than a week before its €240 billion bailout expires, leaving the Greek government cash-strapped and its banks at risk of being cut off from ECB credit, Greece could be forced to leave the single European currency. “I think they’ve now reached a point where they will tell Greece ‘if you really want to leave, leave’,” finance minister Edward Scicluna told MaltaToday. “And I think they mean it because Germany, the Netherlands and others will be hard and they will insist that Greece repays back the solidarity shown by the member states by respecting the conditions,” Scicluna said.
Germany rejected a Greek request for a six-month extension to its eurozone loan programme.

Alexis Tsipras’s government wanted the extension instead of the renewal of the existing deal, which comes with tough austerity conditions.
European finance ministers meet tomorrow Friday in Brussels to discuss a letter by Greek finance minister Yanis Varoufakis. Tomorrow’s vote on the Greek proposals must be unanimous. “I think tomorrow’s meeting will be very difficult,” Scicluna told MaltaToday. “There is always that possibility – not 1% but a high probability – that if things finally get really hot and they don’t agree, they could [leave].”
Malta, together with Italy and France, is trying to bridge Greece with the hard-liners. “Unfortunately for Greece, they do not know how the rules and the Eurogroup work. They are completely new and that’s a drawback for them,” Scicluna said. The ball is currently in Greece’s court and it is up to them to determine whether they want to apply or not the conditions of the programme.
The Greek request includes a pledge to maintain “fiscal balance” for a six-month period while it negotiates with Eurozone partners over long-term growth and debt reduction.

The Greeks said they want enough time, without the threat of “blackmail and time deficits”, to draw up a new agreement with Europe for growth over the next four years. A spokesman for the German finance minister was quoted as describing the Greek request as an attempt at “bridge financing, without meeting the requirements of the programme.”

Senior officials negotiating behind the scenes for tomorrow’s Eurozone meeting will not use the word ‘Troika’ – the triumvirate of the EC, the ECB and the IMF much loathed by the Greeks – and instead replace it with ‘European institutions’ and the ‘IMF’.

The Eurogroup will however insist on a proper definition of the word ‘extension’, to which Greece now refers to as a ‘Master Financial Assistance Facility Agreement’. “Extension is a good word, but an extension of what? An extension of its programme is fine but an extension of something that does not exist is not,” Scicluna said. He added that Greece had to respect the conditions agreed with its creditors that forked out billions to bailout the country. Malta loaned Greece €188 million in bailout funds.

Scicluna said it was still possible for the Eurogroup to change direction towards a more growth-oriented agenda in six months’ time, a move that would not be restricted to Greece but also to the other countries like Italy or Portugal. “The question at this stage is how to find a way for Greece to exit ‘nicely’ with its electorate accepting the programme, while showing that they are going to change something,” Scicluna said.
Is this supposed to be a way of preserving 'Greek Honor' ie prove that you are idiots?

Greece Sent 'Wrong Letter', Ready To Accept Conditions - Press
10:43 02/20

By Johanna Treeck

FRANKFURT (MNI) - The Greek government accidentally sent the wrong letter
to Brussels on Thursday with the intended version going a step further accepting
conditions agreed to by the previous government, Germany's Bild Zeitung reported
Friday citing government sources.

According to the report, Greek Prime Minister Alexis Tsipras in cooperation
with EU Commission President Jean-Claude Juncker and Eurogroup head Jeroen
Dijsselbloem Wednesday had prepared a letter to secure support of bailout

However, Greek Finance Minister Yanis Varoufakis sent an altered version of
the letter in which - against previous agreements - omitting assurances that
Greece will accept bailout conditions agreed to by the previous government, the
report said.

The paper said that in conversations with Dijsselbloem and German
chancellor Angela Merkel, Tsipras described the letter as an "administrative

The proposal that had been sent was quickly rejected by Germany as

Euro area finance ministers are currently meeting in Brussels seeking to
broker a deal on Greece. As they arrived for the meeting, finance ministers
cautioned that an agreement might remain elusive today.

--MNI Frankfurt Bureau; tel: +49 69-720-142 ; email:
Please - we need a 'mercy killing'
After that we can place Greece in with Zimbabwe et al
It’s up to Germany to end the game of chicken with Greece

At the heart of the rift that runs through Europe at the moment lies a technocratic debate drowned in emotion. Germany has rejected Greece’s bailout request on the basis of the semantic difference between a programme extension (acceptable) and a loan extension (unacceptable).

True, words are substance. But when the German finance minister, Wolfgang Schäuble, or his allies take the floor to explain their critical stance, the underlying reasons become evident: they quickly shift to moral and emotional grounds, invoking trust, values and cultural differences.

The Greek side of the debate is not better. Opening the negotiations with a ridiculous request for war reparations, tolerating for several days caricatures of Schäuble as a Nazi in government-friendly newspapers, and comparing Eurogroup methods with waterboarding, the new Greek government went for a strategy of emotional alienation, rather than trust-building.

In a game of chicken, stubbornness leads to catastrophe. And stubbornness based on pride and prejudice is hard to abandon. This is why I have started to get seriously worried about where these negotiations are heading. We urgently need to bring back in some simple economic and political considerations to show that a compromise is not only a good solution;it’s the only solution.

First, we need to make it absolutely clear that Grexit would be devastating for Greece, for Europe and for Germany. For Greece, because it would cause the banking system to collapse, import prices to skyrocket and growth prospects to disappear for several years, with horrifying prospects for the Greek population. For Europe because the euro area would be turned from an “irrevocable” currency union into some kind of fixed-exchange rate regime where countries can leave as soon as they come under market pressure. It is hard to imagine how Ireland, Portugal, Spain or even Italy could have stayed in the euro area in 2011-2012 had there been a worked-out exit route.

Finally, it would be devastating for Germany, not only because it would lose billions of euros from a Greek devaluation but even more so because it would put at risk Germany’s recent prosperity: a currency union is to the benefit of the largest export nation in Europe.

Secondly, we need to remember that some of the Greek requests are economically reasonable. The country urgently needs to shift from a contractionary to a more neutral fiscal stance. Structural reforms were necessary but put additional pressure on domestic demand.

The bailout money hasn’t benefitted the Greek population, but in its largest parts has gone straight from European bank accounts, through Athens, and back to the European Central Bank or the International Monetary Fund

The Greek debt burden is excessive and will hamper Greek market access for decades to come. Swapping it into GDP-indexed, zero-coupon bonds with a long duration could increase transparency of the repayment plan.

Thirdly, we need to remember that some of the German requests are economically reasonable too. Greece needs to continue with its reform efforts. Tax collection needs to be improved. Taxing highest incomes and wealth could be a good way to increase government income. Reforms in the labour market need to continue, to prevent the excessive wage inflation that took place in the first decade of monetary union.

So can there be a deal? In an environment of trust, even a game of chicken can be solved. The problem is that German public opinion currently doesn’t want to listen to any economic arguments as long as they support the position of the Greek government, which is considered chaotic and unreliable.

Greek public opinion doesn’t seem to remain willing to differentiate between the good and the bad in the Troika programme, to see where changes to its economy are needed and beneficial in the long run. Instead it unloads the understandable frustration of the crisis on the diktat from the Troika and from Germany.

In German, there is a well-known saying: “the wiser person gives in.” It’s a very German saying, in the sense that it puts moral pressure on those claiming to be morally superior to actually act in accordance with that supposed moral superiority.

Well, dear fellow Germans: if we are wise, then we should put reason before emotions. Put more simply, the proof of the right economic reasoning is the right economic compromise.
Equities want to go up no matter what news is being rumored... I'm very curious to see how this plays off.

Me thinks the majority will be disappointed.
Eurozone chiefs strike deal to extend Greek bailout for four months

Greece has stepped back from the prospect of a disorderly eurozone exit after reaching a last-ditch deal to resolve the impasse over its €240bn (£177bn) bailout. The outline agreement between Athens and its creditors in the single currency bloc to extend Greece’s rescue loans should help ease concerns that it was heading for the exit door from the euro.

In return, the country’s leftwing government has pledged not to roll back austerity measures attached to the rescue, and must submit, before the end of Monday, a list of reforms that it plans to make.

Analysis Greece deal is first step on the road back to austerity
The extension of the Greek bailout with barely a concession to Yanis Varoufakis’s demands proves only that Europe wants him to stick with the programme

The chairman of the eurozone finance chiefs’ group, Jeroen Dijsselbloem, said Athens had given its “unequivocal commitment to honour their financial obligations” to creditors. He said that the agreement was a “first step in this process of rebuilding trust” between Greece and its eurozone partners which would provide a strategy to get the country back on track.

A senior Greek government official welcomed the agreement, saying it gave Athens time to negotiate a new deal. “Greece has turned a page,” the official added.

Greece’s finance minister, Yanis Varoufakis, claimed victory, insisting there was “no substantive difference” between the deal and a Greek compromise text that had been dismissed by Germany’s finance ministry as a Trojan horse for Athens to throw off austerity. “We are going to write our own script on the reforms that need to be enacted,” he said

But the Greek prime minister, Alexis Tsipras, will almost certainly face fierce reaction over the deal, both from hardliners in his radical left Syriza party and from the populist rightwing Anel – his junior partner in the governing coalition – for agreeing to continue with austerity measures as part of the deal, given that he was elected on an anti-austerity programme.

“Very heavy concessions have been made, politically poisonous concessions for the government,” Pavlos Tzimas, the veteran political commentator, told SKAI news.

The make-or-break talks began more than three hours late, delayed because of last-ditch preparatory talks involving the German finance minister, Wolfgang Schäuble, and his Greek counterpart, Varoufakis. This discussion yielded a fresh compromise to extend Greece’s loan agreement for four months, buying time for further negotiations on Greece’s vast debts, which stand at 175% of its economic output.

The agreement to stave off an imminent cash crunch in Greece was achieved despite a backdrop of fractious public exchanges between European politicians and the newly elected Syriza government in Athens.

The accord sets Greece a deadline of Monday to send a letter to the 19-nation group listing all the policy measures it plans to take during the remainder of the bailout period, to ensure they comply with the conditions and receive vital funds. But if ministers reject the next round of reforms, which have to be agreed by the end of April, “we are in trouble” said Varoufakis.

Eurozone finance ministers will meet in Brussels to decide whether to accept or reject Greece’s bailout proposals
If the three institutions overseeing the bailout – the European Commission, the European Central Bank and the International Monetary Fund – are satisfied after an initial view, eurozone member states will ratify the extension. The ongoing role of the troika – now renamed the institutions – represents a climbdown for Tsipras and Varoufakis, who had pledged to cease dealing with troika inspectors.

Another concession is that Greece will remain constrained by the budget targets agreed with its eurozone partners. Although it can ease austerity, it will have to find another way of arriving at the same budget target.

“The only commitment that we took today is that whatever measure we take will not affect fiscal stability,” Varoufakis said.

Despite the restrictions, Varoufakis promised Syriza would not go ahead with pension cuts and VAT hikes that the previous Conservative government had planned. Instead of these austerity measures, Syriza plans to meet its budget targets with a crackdown on tax evasion – although Varoufakis admitted he had “no idea” how much this would add to government coffers: “If I gave you a number I would be lying.”

However, Schäuble, one of the toughest critics of the Greek government’s negotiating stance, indicated that Syriza will have to back austerity measures that it had vowed to repeal. “The Greeks certainly will have a difficult time explaining the deal to their voters,” he said.

The Irish finance minister, Michael Noonan, also voiced caution about the prospects of success, telling reporters: “It’s an important first step that we hope will lead to a successful second step on Monday night or Tuesday morning, but then of course there’s a third step with ratifications in parliament.”

Without a deal, Greece faced the prospect of quickly running out of cash because it is effectively locked out of the international lending markets. Its banking system, on life support from the ECB, is losing deposits at a rate of about €2bn a week. A €1bn shortfall in revenues for January – caused by some Greeks delaying tax payments in the runup to the election – has added to the strain on government finances.

The Syriza party, which swept to power in January with a promise to end Greece’s humanitarian crisis, is pressing to lift the austerity measures imposed by eurozone creditors in exchange for the bailout.

Syriza had been campaigning for a bridging loan to ride out immediate funding concerns, while it renegotiates the bailout terms. But the rest of the eurozone was opposed to a new loan deal unless Greece pledges to continue the austerity programme – which has included privatisations and public sector job cuts. Last night’s deal indicated that tough limits on public spending will have to remain.

“Greece has folded this hand, but the game of poker continues,” Raoul Ruparel of Open Europe said.

US stocks closed at record highs last night after the deal between Greece and its creditors in the eurozone. The Dow Jones industrial average closed up more than 150 points, its first record close for 2015. The S&P 500 ended the week at its third record close for the year.
Greece’s Crisis, Again

Greece’s Crisis, Again
FEBRUARY 27, 2015, 12:23 PM

A lot has been going on in Europe in the first two months of 2015. The Swiss National Bank removed the peg of 1.20 francs per euro and the European Central Bank announced the QE program. Then radical left-wing Syriza won the elections in Greece and announced that it wants to renegotiate the bailout plan with the hated troika. Soon after Sweden joined a growing group of countries to cut its key interest rate to negative. While the Russian economic crisis aggravated as S&P downgraded (as well as Moody’s a bit later) its credit rating to junk status, the conflict in Ukraine continued, although the ceasefire was eventually agreed upon.

All of these events were covered in Gold News Monitors, and in the March edition of Market Overview we cover all of them, however in this article we will focus on one of them in greater detail – the situation in Greece.

A few days after launching the European QE, investors’ attention moved from Frankfurt to Athens, where Syriza triumphed in general elections. The new government opposed an extension of the bailout program that ended February 28 under the bailout terms being in force at that time. Instead, Prime Minister Alexis Tsipras and his finance minister Yanis Varoufakis, called for a bridge loan to give Greece more time to renegotiate a deal. Not surprisingly, the troika of lenders (the IMF, the ECB and the EU), which owes 76 percent of a €323 billion-worth Greek debt, did not understand Greece’s anti-austerity stance.

Why? Greece has already received two large bailouts, which actually enabled it to buy some time, delay austerity and continue policy of deficits. The truth is that the “austerity” in Hellas is a myth. Even though the government cut its spending (however, in relation to GDP it is even higher than before the Eurozone crisis), it did not conduct structural reforms or adjust its economy, as other peripheral countries partially did. The debt burden is also not so high, in the 2014 interest spending amounted to 2.6 percent of GDP (in 2015 it is estimated at 1.5 percent), much lower than several less indebted European countries pay, actually.

However, the Greece tough course was quite understandable (abstracting from the Syriza’s promises to voters and the strategic position of the country in NATO), because the country ran a primary surplus (so, without the interest payments component, it had a positive budget balance). It means that the government was able to finance its expenditures only through taxes (and something was even left over and could be used to pay interest), which naturally strengthened the temptation to default.

Finally, the Greek government has eventually reached an agreement with its creditors, as we had believed. The bailout program for Greece was extended by four months in return for a commitment to honor its debt obligations and conduct structural reforms, which Greece and creditors will agree to by the end of April (the list of reforms proposed by the Greek government was initially backed by the European Commission). Although Greece could prepare its own list of reforms and negotiated a smaller primary surplus, the agreement signed just a few days before the Greek banks would have been broke, reveals that Greek deposit flight is on a trigger-sensitive path at any moment.

Indeed, this was a strong argument for reaching an agreement. The banks’ condition was significantly deteriorating, as depositors were withdrawing their capital from the domestic banks and shifting it abroad. Greeks feared an exit from the Eurozone, which could entail their savings to be converted to devaluated drachma. Consequently, the Greek banks lost over €20 billion in just the first two months of 2015, which meant that the country’s financial system would be broke without reaching an agreement and ECB extending support. This is why we believed that both sides would finally reach a deal – otherwise Greece would simply run of money and its banking system would be demolished.

The fiscal situation has also significantly deteriorated since the end of 2014. In January the tax revenues fell by 16 percent compared to year earlier, a loss of €775 millions in just one month. The decrease in tax receipts was caused by the drop in consumption, big hikes in taxes last year and an increase in tax evasion (partially due to hikes and partially due to expectations of tax cuts promised by the Syriza).

The deal between Greece and its creditors eases tensions and the risk of Grexit, and decreasing tensions which would be negative for the gold market in the short run. However it is only a pause in a drama, because between Greece has to repay €11 billion in the coming months(as some of its debt matures), €6.7billion from that sum after April (in July and August), which would be a rather impossible task without a fresh bailout program.

It means that the February agreement was only a means of buying time. Greece’s problems were not solved, but only postponed for four months. If the bailout program is not extended in April, the Greek government will have to default on its debt. According to the Greek government itself, it can pay the bills until June when the bonds held by the ECB worth €3.5bn mature. Although the sole default on the state obligations does not automatically entail leaving the Eurozone, the problem is that Greek banks depend on help from the ECB. (This is why we do not consider potential help from Russia or China as possible. Abstracting from their own financial problems and rather not their area of influence, the sum needed by the Greek banks is too big, which means that the ECB is the only possible backstop for Greek banks). Therefore, if the banks were cut off by the ECB, the government would be forced to return to the drachma in order to fund the local banks. And if the bank runs and capital outflows repeat in a similar scale, Hellas may also introduce capital controls.

What are the possible consequences of the Grexit for the global economy and gold market? Such worst-case scenarios would result in the increase of market uncertainty about the contagion effects and the future of the Eurozone. The opinions on the possible impact of Grexit on markets are very mixed. For example, the German government believes (however, it could be a bluff) that the Eurozone is now in much better shape than in 2012 and would be able to cope with Grexit with limited contagion.

The consequences are very difficult to predict, but it is worth pointing that the very construction of the Eurozone (one central bank and several independent governments) is inherently flawed and unstable. The Grexit will deepen the Eurozone debt problem, which was never solved, for sure. It would be a precedent that could encourage other members to leave. There is also a risk of a repetition of the contagion of 2011 and 2012, when a few other peripheral countries got bailouts. This is what many investors were afraid of in February, which induced them to accept even negative interest rates in betting against the euro or the breakdown of the Eurozone.

Grexit talk is heating up again.

Which brought up a thought: government finance types are very good at making money disappear from government coffers and into their own & their cronies. Why can't they just reverse the trick and make a lot of digital Euros "appear" in Greek accounts? What's a few billion of counterfeit Euros among friends? :)

Considering the vast majority of money is digital these days, having never been printed, it's pretty easy: just change a few digits. It'll only work for a little while, but no one is going to be any wiser for months.

It just seemed like a fitting "solution" to the entire problem, which is built on bigger & bigger packs of lies.
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