The Greek application letter for renewal of the bail-out program includes the following sentence: "The Greek authorities are now applying for the extension of the Master
Financial Assistance Facility Agreement for a period of six months from
its termination".
The Master Financial Assistance Facility Agreement (MFAFA) is the umbrella agreement which governs EVERYTHING. For example, the Memorandum of Understanding (MoU) is an integral part of the MFAFA). When the MFAFA is renewed, EVERYTHING is renewed.
It seems to me that all the Eurogroup would have to say is: "We hereby accept your application for a 6-month renewal of the Master Financial Assistance Facility Agreement". Full stop. Whatever else is said in the application letter is for political consumption and/or for future negotiation but it has no legal value.
Now, by implementing new legislation to reverse certain reforms which the MFAFA had called for and which Greece had already implemented, Greece is de facto violating the MFAFA. Strictly speaking, if Greece means what it says (i. e. renewing the MFAFA), it would have to say at the same time that the new legislation would not be implemented. But these are two separate things: one is the renewal of the MFAFA and the other one are the possible violations of the MFAFA.
It will be most interesting to see on what grounds Germany & Co. will reject the application for renewal of the MFAFA.
The Master Financial Assistance Facility Agreement (MFAFA) is the umbrella agreement which governs EVERYTHING. For example, the Memorandum of Understanding (MoU) is an integral part of the MFAFA). When the MFAFA is renewed, EVERYTHING is renewed.
It seems to me that all the Eurogroup would have to say is: "We hereby accept your application for a 6-month renewal of the Master Financial Assistance Facility Agreement". Full stop. Whatever else is said in the application letter is for political consumption and/or for future negotiation but it has no legal value.
Now, by implementing new legislation to reverse certain reforms which the MFAFA had called for and which Greece had already implemented, Greece is de facto violating the MFAFA. Strictly speaking, if Greece means what it says (i. e. renewing the MFAFA), it would have to say at the same time that the new legislation would not be implemented. But these are two separate things: one is the renewal of the MFAFA and the other one are the possible violations of the MFAFA.
It will be most interesting to see on what grounds Germany & Co. will reject the application for renewal of the MFAFA.
Imho, accepting the Greek proposition results in loss of face and credibility. I also think that the two famous Greeks only sent that letter in order to have further worthless excuses to have tried all in order to prevent Grexit.
ReplyDeleteBut for quite some time I am fully convinced that both sides intend to have Grexit together with the possibility to violently deny it.
Therefore I am not at all interested in the current skirmish but in the near future how Grexit will be realized.
And I wonder what kind of grass those American experts have smoked who now in high pitch recommend what Germany has to do in order to save the Euro (which everyone of them disliked from the beginning).
H.Trickler
"The euro zone now has to make immediate and concrete preparations for an orderly exit of Greece from the Euro to avoid a collapse of the Greek financial system and harmful repercussions for other European states, "Lucke from the AFD told the Handelsblatt.
Delete"With good preparation and coordination a Greek exit from the monetary union without major disruptions is possible. It has to be well managed, since it cannot begin in the last minute."
It is generally thought internationally that any exit from the euro would lead to its collapse, and that the Germans are either idiots or completely deluded if they actually think it can be managed. More likely, this is just German propaganda, especially as it comes here from Seukel.
DeleteIndeed, the UK government fears very much for its economic future with a collapsing eurozone should Greece be forced out. Presumably, our german friends here think that the entire world is wrong, and they are correct. This would not be the first time that they made this error.
@Guest(xenos)February 19, 2015 at 7:46 PM
DeleteWhat you see as "generally thought internationally" is a biased view. I bet a Swiss chocolate that Grexit will happen without more instability in the Eurozone in near future.
H.Trickler
Herr Trickler: since there is no legal mechanism to exit the eurozone -- and Greece is unlikely to agree to quit the EU in order to do so, as the Commission insists -- then the only exit would be actual default of Greece within the eurozone. But Greece would still be in the eurozone, and could issue currency under its own initiative as Klaus has discussed in detail. The legality of such actions is unknown, but probably irrelevant as most of what is going on with the EuroGroup has dubious legality.
DeleteIf the Eurogroup should then try to force Greece out, we can be sure that all of the EU will start to disintegrate. The offer made today by Greece made them a lot of friends, and Germany is potentially in a minority.
The fact that Germany is financing the bankrupt economies of the eurozone in order to protect banks and the euro is something in its own interests. If it chooses to stop, then the reality will be all too obvious and very quickly.
So, where you and the German banking cretins I see pontificating in like style get their ideas from, beats me -- and most of the world. You are just living in your own little universe.
For one thing, a number of national parliaments, including Germany's Bundestag, would have to approve the extension.
ReplyDeleteAll are puzzling, studying, what exactly is written by Varoufakis in the letter to Dijsselbloem. It seems to be true: it is not about principles anymore, but about semantics. I needed to read more about the word semantics, and found: http://en.wikipedia.org/wiki/Semantics
ReplyDeleteThe Germans are fortunately experts in analyzing tricky sentences that can be misunderstood very easy, and also important: that influence the naive reader in his or her unconscious feelings of pity for the Greeks.
Varoufakis is a Master of Words, of Semantics, not of principles.
He has a Master Mind that plays again a shameless game with not so well trained minds.
He met Wolfgang Schäuble however, and this one has a Master Mind also, but thank God some degrees more intelligent.
Vielen dank, Herr Wolfgang Schäuble, for your strong mind, that analyzes perfectly, who is not afraid, shows strength, thank you, for your principles, and leaving the playing and manipulations with words (semantics) to the Greeks.
I do not see any use in overloading my brain with that masterpiece of Greek dialectic o_O
DeleteBut looking at the original faksimile of that letter, I must admit that (only) one part really impressed me: The signature of Varoufakis!
H.Trickler
Antoinette: make sure you pick up your paycheque from Germany and cash it before the euro collapses. You have worked hard for the money, I am sure they will agree.
DeleteIf Germany or one of its clients like Slovakia or Finland vetoes the extension it will be because Germany has decided that a GREXIT furthers their agenda, nothing more, nothing less. Pretexts are not important.
ReplyDeleteI suppose Schäuble did not forget this sentence from Varoufakis: "Whatever it does or says, Germany always pays at the end".
ReplyDeletehttp://www.balkaneu.com/varoufakis-la-tribune-germany-pays/
As perhaps he did not forget the syriza-cartoon described here: http://news.yahoo.com/greek-dailys-nazi-cartoon-schaeuble-vile-145038801.html
Greece tried to play pressure game by threatening to leave Eurozone and blow up the Euro. This bluff has been called.
Perhaps Schäuble is fed up enough with Syriza to finally turn the table and threaten not to pay any money until all demands of the Troika-program are completely fulfilled?
This "Whatever we do in the end Germany always pay" is an example of Greek moral hazard that is not very popular in Germany and Northern Europe. Perhaps Germany and other countries want to play hardball at least once to break these expectations.
If Schaeuble thinks that the future of Germany and Europe should be decided on the basis of his personal emotions, then Germany should think about quickly replacing him. Not many of us are old enough to remember the last time that an irrational and nationalistic German politician was able to manipulate and control the Volk -- but one presumes that the historic record is known to all Germans.
DeleteI just think Varoufakis played with words. Nonsense proposal, just after Schauble told him 'Don't waste my time'.
ReplyDeleteHere is an analysis, I mostly agree with.
http://www.forbes.com/sites/timworstall/2015/02/18/the-full-version-of-what-greece-and-varoufakis-are-offering-the-eurogroup-with-comments/
Peace.
Dear Mr. Kastner,
ReplyDeleteI have read your articles, read much going around in the media and even the comments here on your blog as well as other sites. (Even though some of the comments bring me to nasuea.) But aside from this and jabber.
A demacratical system has requested a change in managment. This democratical systems is within another bigger democratical system. One which is not directly by the people but by their respective representatives.
Not quite sure that the 2nd system is democratically working. Or maybe it is? 19 nations say no. So if Greece representatives possibly cave in meanwhile they have done so to a very large degree, what is expected by the EU? I am really puzzled by this whole situation. Furthermore, from the stance and attitude everyboday has been taken lately it is quite clear that many for their own reasons wants to push Greece off the cliff. Maybe even try to make it look like we jumped by ourselves.
To this end i am not sure if we have reach the de facto situation today of whether a deal can be made or not and if is the deadline and if there is another later date that further requests and no's can be made. Whatever the case, if in the end the resolve of a people is rejected then the many people which want Greece to leave will most probably happen.
Whether if these views are for selfish reasons or for the greater good, countries that were stronger before the euro prefer a broken up continent, russians would love for greece to leave, likewise turkey and i believe german doesn't really care......"beware what you wish for."
It will not be the first nor the last time WE said no, which sparked changed on this beautiful continent.
Varoufakis wisely told his partners, don't humiliate a proud people.
Sincerely,
V
@ V. 1 of 2
DeleteSince it is exactly 40 years today that I met my Greek wife, allow me so write at length about the issue of Greek pride. Off the bat: among the most effective instruments to manipulate people is the playing with feelings like self-worth, pride, guilt, etc. etc. Like so often, I will start with an Austrian example.
The only sport where Austria is at the top of the world is skiing. Only a win in soccer against Germany could top fanaticism with skiing but such wins only come about once every 50 years and since the last one was in 1986, we will most likely have to wait for some time for the next one. In skiing we have true legends: Toni Sailer, Annemarie Moser-Pröll, Frank Klammer, Hermann Maier, etc. And then there was Karl Schranz (who happened to be my great idol, too).
Schranz was a bit of a maverick who liked to challenge the establishment. He had won, over 15 years, everything there was to win with one exception: he had never won Olympic gold. At the Olympic Games 1972, Schranz was already 34 years old and that was his very last chance to win gold. For months prior to the Games, there seemed to be only one subject in Austria: will Schranz win the gold? An entire society was becoming hysteric.
The President of the Olympic Committee then was Avery Brundage, not a cripple, not in a wheel chair but 86 years old and rather stubborn in his principles. One of his principles was the separation of money and sports. Schranz, with world-wide popularity behind him, thought he was invulnerable and decided to play some games with ‘old Brundage’ by doing a commercial or two. And the unimaginable happened: Brundage disqualified Schranz from the Olympics. The Austrian nation was under deep shock.
There is the Heldenplatz in Vienna where, I once read, Hitler had gathered the largest crowd ever when he ‘invaded’ Austria in 1938. Schranz topped Hitler. There was just hysteric frenzy when Schranz appeared on the balcony with the Austrian chancellor, Bruno Kreisky, retreating because the whole thing was getting a bit too much for him. A frenetically proud nation celebrated their hero in hysteric ways. Only days afterwards, journalists began asking what it really was that we had been celebrating. A call to order for misbehavior? It certainly was not an accomplishment which we seemed to be so proud of. Perhaps the psychological reaction of a people with deep inferiority feelings?
@ . 2 of 2
DeleteInstead of me re-writing Wikipedia, I suggest you read there for yourself. I have 40 years of experience with differentiating between healthy/natural pride and sick pride. The latter really is not based on some inner feeling of worth but rather on the absence thereof. Through sick pride one compensates for deep feelings of inferiority. Healthy and natural pride requires the experience of humility.
Yanis Varoufakis is a man of enormous talents, one of which is his talent to manipulate the thoughts and convinctions of other people in such a way that humility is pretended but authority is excercised. Run through his blog and look, for instance, for articles which involve Germany (the majority of them do…). You will never find anything which might smack of a demand that German tax payers should pay for Greece. Instead, he would write wonderful prose about those wonderful German tax payers who have been taken for a ride by EU elites, who need to be protected from exploitation by EU elites. No, he doesn’t want German tax payers to pay more. Instead, he feels sorry that EU elites have required German tax payersto pay as much as they did. The Germans paid much more than they should have and they have reason to be upset! At that point, the innocent reader becomes thankful that, at long last, someone stands up to protect the interests of the German tax payer. The fact that the next paraphraphs focus on how to get money from German and other tax payers is then no longer being paid attention to. Very, very intelligent, I must admit, but a manipulation, nevertheless. Awful manipulation, I might add, because it is intentional.
I have attended many sales training programs in my career. They all aim at the same objective: how to recognize the personality of others so that one can manipulate them in such a way that don’t feel pressured by you to buy but, instead, feel convinced that by buying they are doing themselves a favor. Manipulation isn’t necessarily bad; everyone manipulates to a certain degree (certainly Greek mothers manipulate their children!). As a manager, my goal had to be to get my staff to do things voluntarily which I had planned for them to do beforehand. If that meant adding value to customer relationships, revenues for the bank and success experiences of my staff, it was fine. If it meant getting people to take advantage of their customers, it was terrible.
Anyone who incites the emotions of Greeks these days by making emotional appeals to their never-ending pride is a manipulator of the worst kind because sick pride alone will never get food on the table. Sick pride only increases the distance between wishful thinking and reality which leads to hangovers when reality sets in. I think the Greek people have deserved better than that. Natural/healthy pride, self-worth, etc. are feelings which should be based on positive premises like “we can and will get this job done and then we can really be proud of ourselves!” When they are based on negative premises (“we are not as bad as they think; they hurt our pride”), you get into psychological spheres.
"Don't humiliate a proud people!" - if that warning hasn't come from Jesus Christ himself, it could only come from Varoufakis. Whoever says that elevates himself to high moral grounds above all others. Forgotten is that he had just called all these proud people 'bankrupt'. Or as he often said in his blog: "A failed stated. A failed nation". There was a time when someone manipulated the Germans to feel like a 'Herrenrasse'. The Germans believed him with a passion because it got them out of their humilation after WW1. It got the Germans so drunk that they are still suffering from the hangover to this day.
Dear Mr. Kastner,
DeleteThank you for your reply. I always find your replies insightful and thought bearing. I would like to elaborate on many points that you make above such as psychological inferiority complexes and the eloquient point of "sick and healthy" pride, but not for a blog wall.
My only question to you as a highly educated man in the specific sector that we are discussing and what my "leader country men" are saying.
1. Was the greek debt sustainable in 2008? 2010?
2. Forget question 1. Lets say mistakes were made and Greece is on a better path with the last govenrment ND. With surpluses, 180% debt ratio, with 25% unemployment, crime regular and financial on the rise, tax hikes and slightly "returned to growth," and i simply won't mention the poverty levels homelessness levels which up till 2001 when we got into the euro currency did not exist.
Is our debt under the current agreements sustainable?
I believe you are a strong advocate as other 10's of gloablly reknowned economists say that it is not. The economists threshold states 130% is the red line. It needs refinancing to be servicable right? Yes i agree. What did ND do? They met all agreement but failed to get a written reply from EU and Company what was stated only verbally. "Do what we tell you and we will see what to do about the debt." When Samaras met their demands which i am proud of, they told him/Greece "no... nooo... it is servicable debt." Now we blame Syriza for standing up for Greece?
Which what they are saying which may be "sick pride" to you, is pain for us. And i will take myself out as i am the exception, i have the luxury to observe and open my eyes to my countrymen's pain. And when promises, verbal promises are made that there is a light at the end of the tunnel, what tunnel? the tunnel of 2 generations? No i do not think so. Meanwhile in the USA we have debt ceiling that rises every year. The global debt ceiling grows, every year because the monetary system of today is based on perpectual growth of cummulitive debt. Who end up paying and suffering. ALL normal people. And make us have angry feelings for each other whom if i sit down and talk with on a personal level will have absolutely nothing bad to say about. Any people.
Last night i saw a program that explained that debt and "sufferabel punishment" in german are synonyms, or something respectively. The point made was in Germany one who is deep debt must suffer.
How Greece got to this point is a discussion in itself. And i blame my self and my countrymen for this first. And i can also open up arguments that go back in to the 10's and 100's of years back as to why modern greeks have circumbed to what and how we are, but i won't. But if we are brought to the end of our rope and although Varoufakis and Tsipras may know how to play to the masses, the truth be said, we should walk away from the table. Or better yet be kicked out of the table.
And as in your last paragraph which makes representation of what drunkendness came over the German people which lead to the horrors of the 20th century, then the German people or and leaders should know where our path is dangerously leading too.
Sincerely,
V
@ V.
DeleteSovereign debt is sustainable when the budget can reasonably service it. When Greece had its defaults in the 19th century, debt service occasionally accounted for up to 50% of government revenues and that is obviously not sustainable. Debt service consists of two components: (a) repaying principal maturities and (b) paying interest. If all debt consisted of Evergreen Bonds and carried a zero interest rate, 1.000.000.000 billions of debt would be sustainable. Note: it would no longer be debt but equity instead.
Greece’s debt service is presently around 4% of government revenues, a very ‘normal’ percentage. With some tough negotiations, Greece could probably bring that percentage down to 2% (or even a bit less). On much of the debt, Greece was given an interest moratorium for 10 years. Most of the principal maturities are already way out in the future.
If the Greek negotiators got off their ego trip and entered into reasonable negotiations, I would guess Greece could reschedule its principal maturities out to 50 years or more and it could really reduce the interest cost quite a bit more. And, it could extend the interest moratorium.
In summary, the way Greece’s debt is structured already it is definitely sustainable (debt service only 4% of government revenues). To give Greece more leeway for its economic recovery, that debt could be made even more sustainable by extending maturities, lowering rates and getting a longer moratorium.
And here it the test. If Greece’s creditors forgave all debt over 60% of GDP with one proviso, namely that the remaining debt, i. e. the 60% Maastricht level debt, would carry a market interest rate, then Greece would have a higher debt service than it is having now. Not to mention the even lower debt service it might get in the future after tough but honest and straightforward negotiations.
I was 24 when my American bank transferred me from Europe to the US Head Office for a 1-year training program. Upon arrival, the Head of Europe gave me his prep talk. Something like: “We didn’t bring you here to test if your are smart. We know from your degrees that you are smart. What you have to accomplish here is to gain personal credibility with the people on whose support you will depend in the future. Without personal credibility you can accomplish nothing in this bank. And, mind you, it takes time to build up personal credibility but it can be lost in a moment!”
The Greek negotiators have willingly destroyed their personal credibility.
Thank you Mr Kastner for explaining.
DeleteBut
I still have some questions. When Samaras provided some descent measures, although were boggus but had maintained a descent program on a political level why did Mrs. Merkel not support him? Where IMF was stating last summer that Greek debt is unsustainable and debt restructing as stated in the past was necessary. Merkel denied this and i believe they were in serious disagreement with the IMF.
This disagreement is what caused the straw to break the donkeys back. Samaras governement although better than past crony governements still was not up to par. But there was the credibility at least in eye sight to the creditors. Or am i wrong??? Now we had to go through a difficult period and a new negotiation. Not to mention new established credibility. Which the ultimate goal which Varoufakis is screaming is debt restructiring of the interest you mention. Seems like this is not on the table? (Also i was misinformed that the % was at 2 already and we are striving for lower than 1?) Also they are proposing a new manner of govenrment restructuring. Samaras did some and now Syriza will do a different kind. You must understand that to get a cockroach out of your house you need to attack from new directions.
I am all for restructuing but you know our "partners" need to learn how to hold out a carrot infront of the donkey to move. Soemtimes you need tolet him eat the carrot too. Not just hang it.
A step foward was made tonight as i see... it remains to see what will happen not only with partners but internally in Greece now. I am hopeful Varoufakis and Tsipras acceptance rating stays as is as there are many Bruto's in Greece. Ironically if the eu partners regardless of how they feel toward the both them, need to now public support both them right now. As to establish stability in Greece again.
Growth will come as long as thing re stabalize.
I am working a very large projects which brings 10 mil euro of investment and 50 mil euro turnover/annual with prospects of more such projects which support local businesses and factories and solidfy exports and reduce imports. Ther are many people in similar position and there are many ready to invest and this storm needs to blow over, meanwhile an understand of renegotiations and social values needs to be restored ASAP.
Sincerely,
V
@ V.
DeleteI could never figure out why Merkel essentially pulled the carpet from underneath Samaras. Perhaps, and quite probably, she thought it was premature to talk about a program-exit and was upset that Samaras used it as a political tool. I do remember, however, that there was a scene with the Greek ambassador in Berlin who resigend the day after the Merkel-Samaras meeting. Stories circulated then that the ambassador had strongly advised AGAINST a Samaras visit on the grounds that Merkel did not want to hear what Samaras planned to tell here. If that was the case, then Samaras himself pulled the carpet from underneath his feet.
What was the meaning of Berlio? It's electronic money?
ReplyDeleteProbably Germans worry for ex post facto of the MFAFA. For example the privatization of airports is (?) in accordance with the legal framework of MFAFA?
Germans have concerns about the cost of this 6 month renewal, until August. What will be the sources of financing?
Zigmar Gabriel imply that.
http://www.forexlive.com/!/germanys-gabriel-says-we-shouldnt-say-yes-or-no-to-greece-too-quickly-20150219
The 4.5% of primary surplus to become e.g 2.5% (P Krugman says 1.5%) could become the new target if Greek side accepted part of the previous programme with equivalents for the toxic one and refrain from unilateral actions under the framework of MFAFA? (wisfull thinking all these, but lets say)
Varoufakis if i reading him well in last minute he might try a give and take, (he is going without Dragasakis) but i don't know if he has the time.
I read that there will be before Eurogroup a 4-5 part meeting (Lagarde,Schauble, Disselbloom, Varoufakis, Moskovisi).