In 2010 and 2012, European officials were totally scared of a Greek bankruptcy. The sky would fall, everyone would say. The bankruptcy of an unimportant and largely isolated country would be like fire that would soon destroy all other countries including Germany, the world economy, and the Solar System, thanks to the contagion and domino effect and so on.
So a large part of the debt underwent a haircut (most of the interest on the Greek debt was pretty much deleted and their only task is to repay the principal!) and new gargantuan piles of money were pumped into the country even though at that time, everyone knew that those were not wise investments. Well, many things have changed since those times. People had enough time to think about it and most of them were finally able to realize that this doomsaying was silly. Greece's wallet is isolated from the wallets of others. Their fate is independent. The domino effect only works if the domino pieces are really close to each other and Greece is not so close to anyone.
The Greek government must be held responsible for its decisions that others couldn't influence.
Second of all, the debt was concentrated at various places such as EFSF, the "eurowall", where it became an abstract pile of money, a largely unphysical number. No companies and banks in the real economy will be too threatened if this abstract amount of money disappears. Indeed, most of the "mostly individual" creditors got a large part of their debt back – but don't forget that they have already suffered a haircut, too. As long as people act rationally and they don't possess too many assets directly in Greece, they have no reason to expect contagion or ignite contagion.
Syriza expected to scare everyone. The collapse of the Lehman Brothers has scared the markets and was responsible for much of the recent economic downturn – although most of these reactions were also irrational, I would say. People at many places have been genuinely scared of new events of this kind and willing to bail out everyone.
If Syriza were elected in 2010 or 2012, it would have probably scared everyone. Their whole national debt could have been erased and they would get a trillion of dollars of extra pocket money as well, just to be sure, without any commitments or reform plans whatsoever. Maybe.
But now it's 2015 and times are different. Syriza and its primitive tactics of blackmailing is an outdated exercise of the past, something like the corpse of Vladimir Lenin whose decay is only being masked by the decoration and makeup on the surface. People are just not sufficiently scared anymore.
If the Greek government goes bust, every company or institution that the Greek government can harass or rob is at risk – a huge risk. Companies sufficiently close to those are at some risk, too. On the other hand, every company not controllable by the Greek government and having no assets in Greece or major trade with Greece is basically safe. It's that simple. So the blackmailing doesn't work too well. The complete economic collapse of Greece is the collapse of just 1% of the European economy – and your losses should be much smaller than 1% because the average non-Greek's exposure to Greece is much smaller than the average European's exposure to Greece! ;-)
People may verify that Syriza's promises that they can get a better deal that Samaras were mostly lies. At least after four months of negotiations, it seems so. Promises that one could "avoid austerity" – i.e. to start to live well beyond their means again – were lies, too. Socialism ends when you run out of other people's money and Greece has already run out of other people's money.
The term "Troika" was more or less banned by the Stalinists if not Leninists in Greece as a politically incorrect word connected with the evil global capitalism and imperialism. More seriously, the officials from the Troika aren't allowed to operate in Greece together. Greece is shooting itself in the foot by this "ban" because the more these "Institutions" (the new name) worked together, the softer approach to Greece they were defending. In effect, they used to adopt the softest attitude that anyone in the Troika has had.
Once the Troika was split, the attitudes of the individual members of the Troika could toughen further. And I think that they thankfully did.
Just to be sure, the Troika consists of the International Monetary Fund (IMF); the European Central Bank (ECB); and the European Union (EU). The first member is a large global bank lending to whole countries and saving them. It uses the capital of 180+ countries in the world and its "global authority" is one of the reasons why it almost always got its money back and profited.
The ECB is the central bank supervising the euro, the shared currency of a half of Europe. It is a normal central bank doing analogous things to the Czech National Bank or the Feds. I am among those who are convinced that it is perfectly fine for a central bank to supervise currency used on a politically heterogeneous i.e. not politically and fiscally integrated territory. When the Chinese yuan was pegged to the dollar, the U.S. and China were de facto forming a currency union, the Sino-American union, even though there exist slight differences in the political systems of China and the U.S. ;-) There was nothing "crazy" about the peg. Money is the spice of business, not a tool to express the political harmony between some people!
The EU is the least well-defined member of the Troika. Who is the EU? It's some 28 countries. So who is negotiating? In practice, the EU stands for the European Commission (EC) – an EU's approximation to a "government" which is headed by the EC President Jean-Claude Juncker ("the EU prime minister") – or the Eurogroup which is the set of finance ministers from the Eurozone member states.
Which of these institutions are tough and which of them are soft?
The IMF used to be clearly the toughest member of the Troika. I believe it's still the case. It is an old-fashioned meritocratic bank that has forced many countries to adopt reforms which was a success in most cases. Countries with big fiscal (debt) problems simply have to change something important about the management of their economies and while the IMF isn't perfect, it roughly knows the obvious rules what is needed.
In particular, the rules of the IMF explicitly ban various soft, politically correct methods that have been routinely embraced by the EU. For example, the IMF just can't send new funds to countries that are not solvent in order to delay the collapse. The IMF may only disburse funds that are a part of the efforts to redirect a country to the right track. The money have to be a good investment. It's the money owned by 180+ countries of the world – which includes money of important governments. If they get lost, too many people see it.
So I think that the IMF is the most principled member of the Troika. Its boss Christine Lagarde was shocked on Friday that Greece has applied the Zambian trick when it bundled and delayed the repayment it was supposed to make on that day. The Greeks were lying that this solution was basically offered or recommended by the IMF. The IMF had to mention that much like most of the things that the Greek Bolsheviks say every day, it was a lie. (The most frequent lie that Tsipras et al. have repeated every day in recent months was that "the deal was around the corner". This repeated lie was clearly meant to reduce or delay the run on banks. The gullible Greeks who believe this lie think that they don't need to worry about their savings even though the worries are perfectly justified in this case.) The IMF not only didn't offer or recommend such a thing. It was genuinely shocked that Greece chose that path. But the IMF had to tolerate it because this technicality is simply allowed by its rules.
Now, the ECB is basically tasked to regulate the value of the Euro so that the inflation level in the Eurozone is right and do the usual things – setting interest rates and/or some increasingly popular non-standard policies like Quantitative Easing – that restart inflationary pressures when they're too low. The ECB should also increase the interest rates when the inflationary expectations will be too high, and so on.
Although the QE is an unusual policy, it's still pretty apolitical. So the ECB wants to be as apolitical as it can be. The ECB also has some responsibility for sending the emergency liquidity to banks in the Eurozone (through the national banks – which can't control the currency themselves) and those funds are regulated by some partially well-defined rules. There is a lot of wiggle room, of course. But the ECB simply wants to avoid making moves that have huge political implications. Nevertheless, it also tries to follow some common sense rules about "not constantly keeping insolvent banks above the water" and so on – but the ECB is more likely than the IMF to be "generous" when the European politicians seem to want it.
Finally, the EU is the softest member of the Troika. The Eurogroup but mainly the European Commission contains all the people who want the "ever deeper integration" of Europe to continue, who don't want members to leave. And this has led to their supporting of the funding that was economically stupid – and recently, funding of people who are obviously abusing the solidarity within the EU and the EU group think.
EC, Eurogroup get tough, too
However, I think it's fair to say that the Eurogroup and the European Commission, while the softest ones, are the members of the Troika that were toughening at the fastest rate. We have seen lots of the Eurozone finance ministers who were very far from treating Yanis Varoufakis as their credible peer. They admitted he was an amateur and poser who wastes their time. I think that some votes in the Eurogroup require the unanimous support and such a support for a new bailout etc. seems pretty much unthinkable at this moment.
It may be pretty weird if a self-confident Bolshevik crackpot whose main achievement is to have killed about 10% of his country's economy in 4 months tries to lecture you not only about the right policies for Greece, the country that he has harmed so much, but for your country, too. Others really don't want to copy the bankrupt Marxist šit that you have established as the new norm in Greece, Yanis.
It's good to see that at least when the leftwingers become really extreme, they lose all allies in Europe. Finland is perhaps the greatest enemy of aid for Greece. But others don't want to play from Varoufakis' notes, either. Slovakia and Austria are clearly against him. The governments of the other PIGS that were successful, it seems, simply don't want to see that their hard work in recent years was useless because Varoufakis may achieve similar results with a few doses of scaremongering and blackmailing. And they don't want to encourage remotely Syriza-like trash on their own political scenes – such as Podemos in Spain. Of course that they must want Varoufakis to be given a proper thrashing almost as much as I do.
The idea of a new haircut is pretty insane – and most of the important folks in Europe seem to agree at this point. Greece's debt is large but it's not so much larger than that of other countries. They are at 180% – but Italy isn't far from 150%. Surely Greece doesn't expect its debt-to-GDP ratio to be lowered below Italy's, does it? If it were lowered, it would be pretty obvious that Italy should demand a similar haircut as well, right? Why should Italy suddenly have a higher debt-to-GDP than Greece? Because it wasn't whining and insulting others so much? And others... One simply can't allow a new haircut, especially not a significant one.
France loves to say socialist things about solidarity but they don't want to play the Greek game, either. Their prime minister Michael Sapin just warned Greece that no deal is possible after June 30th. Even more importantly, Germany – except for the still dangerously ambiguous chancellor Angela Merkel – has turned into a rather clear opponent of new meaningless "bailouts without solid plans". Finance minister Wolfgang Schäuble is as principled as the people in Finland or elsewhere. But even the economy minister Sigmar Gabriel (SPD: a social democrat) has been able to see that Tsipras' goal is to make the European taxpayer pay for everything so that he and his voters won't have any duties. Gabriel said that "it won't work, however".
Similar comments could have been heard from Martin Schulz, an important left-wing guy in the European Parliament. I can imagine that Angela Merkel will suddenly defend some kind of a surrender – a plan to send money to Greece even though they can keep their insane subsidies for pensioners, huge pensions, tiny value-added tax, ban on privatization, or a large subset of these unacceptable things that are guaranteed to keep Greece on the wrong track (and probably make things much worse than in the past). But I still can't imagine how she could defend such a thing. She is not a dictator of Europe. Too many people would have to join her, I think.
The EC President Jean-Claude Juncker has arguably been the main ally of Syriza in the Troika. The video above – where Juncker holds Tsipras' hand and where they do many other things you expect from lovers and not two politicians whose "countries" are almost at war – was recorded at the beginning of February.
Juncker looks like a boring bureaucrat but he is a professional communicator who can produce compromises etc. He does sufficiently many jokes for others to consider him a good company or friends. So our President Miloš Zeman considers Juncker a friend. Juncker once welcomed Hungary's Victor Orbán by a special greeting, Hello Dictator. Juncker was obviously making fun and I do find it funny to mock the nutcases who consider Orbán a dictator.
So he probably has many friends with different political opinions and roles. He was heavily helping new Bolshevik Greece up to very recently. His support escalated on Wednesday, just four days ago, when Juncker made an unbelievably generous offer for Greece to get an additional cheap €35 billion loan if it agrees to the reform plan. This would almost certainly be just another huge package of money that would be thrown into the black hole and I don't really agree that it's a great idea. On the other hand, it seems obvious that the offer was generous. Juncker was at risk that he could face heavy criticism, especially once it becomes obvious that it was another waste of money. Imagine that Samaras could have gotten similar generous offers. I am sure he would have been happy. He was able to start to revive the Greek economy even without such injections but his efforts were interrupted by the snap polls.
Even though the offer assumed that Syriza would ignore its "red lines" – an incredible list of dozens of totally insane fiscally unsustainable Bolshevik policies – Tsipras should have been grateful for this generosity. Instead, he went to the Greek Parliament on Friday night and emitted a hateful rant against the proposals from the Troika. Juncker's generous plan actually became the main target of that rant. Tsipras was "shocked" by that "absurd" plan. He also lied to the deputies – mostly fellow Bolshevik šitheads – that Juncker's plan was presented as an ultimatum.
Maybe he thought that his speeches in the Greek Parliament wouldn't be translated for the politicians outside Greece so he can keep two different faces – as he does most of the time. Well, they surely were translated.
You can imagine how Juncker, pretty clearly the most enthusiastic supporter of aid to Greece within the Troika, must have felt when he heard Tsipras' Friday night rant. Juncker was very generous and had to work hard to write down the proposal and offer it to Tsipras in a friendly way and risk the backlash. All Juncker got for that was a hateful rant!
So when Tsipras called Juncker on Saturday morning, Juncker simply refused the call. Juncker said that there was nothing to discuss (no new development) because Tsipras hasn't offered any new proposal – even though the jerk has promised it. This telephone call was a part of the Greek theater but Juncker doesn't think that he has to be a star of every scene. Moreover, Tsipras hasn't paid his telephone bills and until he pays them, people just won't respond to his calls! ;-)
Juncker must have been very angry – his generous offer which contained some non-trivial work as well was treated as a pile of trash. Moreover, Tsipras lied that Juncker's offer was an ultimatum, and so on.
The Guardian and the BBC articles make it rather clear that a former friend Juncker was turned into one of the most visceral enemies of Tsipras' among all the folks who keep on negotiating.
“I do not have a personal problem with Alexis Tsipras. He was my friend. He is my friend … But frankly, in order to maintain (the friendship), he has to observe some minimum rules.”You may see that Juncker wanted to make it clear that their friendship is gone – Tsipras "was" my friend – but then he felt that it would be tough, so he added the same sentence with "is", too. But make no mistake about it, their friendship is a thing of the past.
Separation of power and responsibilities
The situation is so messy because the powers and responsibilities are not quite transparent and sometimes separated from each other. Syriza wants to have the power over all the "nice" things in Greece, to determine how many 15th pensions their pet pensioners receive every year, and so on, but it doesn't want to have any responsibility for the unavoidable bad consequences of this horror "leadership". But once the power is separated from the responsibility, it's just way too bad. Systems with this separation are dysfunctional. And the unreadable environment of the European Union – where some things should be up to the individual countries but it's always possible to pretend that they "already" have to be settled and solved at the EU level as well – is literally inviting immoral people such as Tsipras to separate the power from the responsibility.
We may give the electricity for free, all the wonderful pensions, protection of your house when your mortgage fails, and millions of other things. But we don't have any responsibility. It's surely the fault of the Germans when our economy collapses. Syriza wants to take credit for all the good things and blame others for all the bad things. This is clearly unacceptable. The previous Greek governments and especially the current one have adopted all these lethally insane Bolshevik policies, so it's the government – and its voters – who is responsible. They may only blame themselves.
The decisions didn't take place in the vacuum but no events ever do.
The essential "moral fix" that has to occur is to integrate the power with the responsibility once again because it's their separation that is the "moral seed" of all these problems (at least when we look at the problem from the perspective of governments). It is easy to see that there are two basic ways how to integrate the power with the responsibility.
Either, the Greek government will be allowed to do their insane things, but it must do it from its money. All the aid has to be stopped. When they go bankrupt, they must be treated like everyone else who is in the big trouble that default represents. Creditors must do everything to liquidate all Greece's non-essential assets and use them to repay a part of their claim.
Alternatively, money and loans and liquidity assistance funds may keep on flowing to Greece but the payers must also acquire the control over the policymaking and laws in Greece. No taxation without representation. If the German and other taxpayers are paying the money for the life in Greece, they must also co-determine how the life in Greece is managed and how the funds are spent.
In healthy cases, I am of course a clear defender of sovereignty and especially opponent of the control from Brussels (and even Berlin). But when a country is as f*cked-up and failed as Greece, my opinion simply changes. The fact that this nation cannot really govern itself and its current government is scarily incompetent and harmful is so obvious that no one should deny it. I would actually recommend to use some paragraphs against the Syriza government – they have violated almost all of them – and declare Greece to be a province or a protectorate that is directly controlled by the institutions in Brussels, or Berlin, if you wish. Such a new setup would probably excite some nationalist opposition but if it could be overcome, it would undoubtedly be a much more efficient algorithm to return some sanity to that failed country.
If that doesn't happen, it is essential to allow Greece to go bankrupt at the end of the month and let the economy and living standards get appropriately worse than they are today before they are helped again. Before they learn what are the actual standards that are created by hardcore Bolshevik policies such as Syriza's ones, they will continue to display this super-arrogant culture of entitlement on steroids. They simply don't feel any problems – they are doing great, others pay for that, and Greeks are allowed if not encouraged to insult their sponsors or owners or what's the right word. We have the "right" to devour everything produced in Europe, they will keep on telling you, and everyone who questions this "right" is a shockingly absurd imperialist.
I think that these outrageous things will only stop when some Greeks will realize that the final stage of the collapse was started by the election of this horror government and when the members of this horror government will be shown fists on the Greek streets. Don't expect any progress in the Greek saga before the living standards of millions of Greeks deteriorate really dramatically so that they reflect Greece's lack of production. Don't expect it simply because the ultimate root of these problems and their persistence is a moral defect, not an economic technicality (such as the difference between the drachma and the euro). After 4 decades of socialist policies largely paid from foreigners' wallets, Greece has been pretty much converted to a bunch of 11 million whining lazy spoiled brats (and I do acknowledge the few percent of exceptions). The European solidarity has contributed to this skewed upbringing and the Europeans outside Greece should help to fix this mess they previously helped to create.
The Greeks have to be spanked, spanked, and spanked, and the invisible hand of the markets must be allowed to spank them, too. There is no other easy fix. Communism is cancer and its goal is nothing else than to dismantle the prosperity and capitalism in all of Europe and maybe beyond. You can't cure cancer by M&M's or chocolate euro coins.