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Trading Lessons

The Greek Issue Just Got Personal

Politics / Eurozone Debt Crisis Feb 12, 2015 - 01:22 PM GMT

By: Raul_I_Meijer

Politics

It was already present over the past two weeks, for example in Yanis Varoufakis’ meetings with Eurogroup head Jeroen Dijsselbloem and German FinMin Schäuble, awkwardly obvious in facial expressions and body language. A touch of personal discomfort. A touch of a threat that required chest-thumping and hubris to be brushed off. ‘You better do what we say or else’. Back then, perhaps it was still experienced from a political, deal-making, perspective. But in the course of yesterday it became clear something has changed.


It has become personal, you could feel it in the air, and that raises the danger level considerably. It’s not personal from the Greek side; Alexis Tsipras and Varoufakis merely act according to – their interpretation of – the mandate handed them by their voters. It’s the other side(s) that have started making it personal. They see themselves, their positions, as being under attack. And they blame Greece’s new Syriza government for that. Which may seem logical at first blush, but that doesn’t make it true. The people sitting on the other side from Varoufakis have dug themselves into these positions.

Which, as they rightfully fear, are now threatened. Not because Syriza means to do so, but because they come to the table with that mandate, to put an end to what has caused Greece to sink as deep as it has. There’s nothing personal about that, it’s democracy at work, it’s politics. Still, it’s perceived as personal, because it makes the ‘old’ leadership uncomfortable. They haven’t seen it coming, they were convinced, all the way, that they would prevail. They mostly still are, but in a now much more nervous fashion.

It’s started to dawn on them that perhaps Syriza will not back down on its demands, that yet another – mostly superficial – political deal is not in the cards. CNBC reported last night that a deal on an extension of the existing bailout was near, and markets reacted quite strongly. It would appear, therefore, that both media and investors have been as deaf as the EU to what Syriza has been consistently saying, that it’s not interested in such an extension. It was never on the table, not from the Greek point of view.

Perhaps a headline such as yesterday’s ‘Greece Warned To Expect No Favors’ sums it up best. The EU side sees – or at least publicly presents – any negotiation with Greece as handing out favors, while Syriza says it doesn’t want any favors, it wants something that will give the Greek people back a future. And there is nothing that will make them not want that.

There is of course a fear within the EU that what is granted to Greece will eventually also have to be handed to other countries. Interestingly, though, the incumbent governments of the countries involved, Spain, Portugal, Italy, have a vested interest in Syriza failing. Because if it doesn’t, their powers are set to dwindle. This is most urgently obvious in Spain, where PM Rajoy’s ruling party is already way behind Podemos in the polls.

Podemos leader Pablo Iglesias, writing in the Guardian, made his position very clear:

If The Greek Olive Branch Is Rejected, Europe May Fall

During his swearing-in speech as Greece’s prime minister, Alexis Tsipras was clear: “Our aim is to achieve a solution that is mutually beneficial for both Greece and our partners. Greece wants to pay its debt.” The European Central Bank’s response to the Greek government’s desire to be conciliatory and responsible, was also very clear: negative. Either the Greek government abandons the programme on which it was elected, and continues to do the very thing that has been disastrous for Greece, or the ECB will stop supporting Greek debt.

The ECB’s calculation is not only arrogant, it is incoherent. The same central bank that recognised its mistakes a few weeks ago and began to buy government debt is now denying financing to the very states that have been arguing for years that the role of a central bank should be to back up governments in protecting their citizens rather than to rescue the financial bodies that caused the crisis.

And though Portugal may not – yet – have a full-fledged Syriza or Podemos, it’s economy is in straits as dire as those of its peers, as Ambrose EP explains today:

Germany Faces Impossible Choice As Greek Austerity Revolt Spreads

It is unfair to pick on Portugal but its public and private debts are 380% of GDP – the highest in Europe and higher than those of Greece – making is acutely vulnerable to toxic effects of deflation on debt dynamics. Portugal’s net international investment position (NIIP) – the best underlying indicator of solvency – has reached minus 112% of GDP. Public debt has jumped from 111% to 125% of GDP in three years. The fiscal deficit is still 5%. The country’s ranking in global competitiveness is close to that of Greece.

“The situation in Portugal is very different,” says Paulo Portas, the deputy premier. Sadly it is not. Once you violate the sanctity of monetary union and reduce EMU to a fixed-exchange system, the illusion that Portugal is out of the woods may not last long. Markets will test it. Only two people can now stop the coming train-wreck. Chancellor Angela Merkel and her finance minister Wolfgang Schauble, a man who masks his passion for the EU cause behind an irascible front.

Ambrose also quotes Italy’s Beppe Grillo:

Beppe Grillo’s Five Star movement – with 108 seats in parliament – is openly calling for a return to the lira. Mr Grillo proclaims that Syriza is carrying the torch for all the long-suffering peoples of southern Europe, as it is in a sense. “What’s happening to Greece today, will be happening to Italy tomorrow. Sooner or later, default is coming,” he said.

Maybe for the reigning ‘kings and queens’ of the EU and its member states it’s inevitable that all this should become personal at some point. They’ve certainly tried hard enough to trivialize Grillo as some kind of clown through the years. Perhaps, also, it’s the demeanor, the popularity and the person of Varoufakis, the ‘new heart-throb of the thinking German woman’, as Ambrose characterized him. And I don’t think he meant Angela Merkel. Christine Lagarde, perhaps, who showed up yesterday in the sort of attire that seemed designed to blend in with Yanis.

But I still think the main reason things got personal is that with the arrival of Syriza on the scene, the ‘kings and queens’ can just ‘intuitively smell’ the changes that are afoot, and that don’t spell anything good for their own plush seats. For a while they could pretend it was all only – mostly right-wing – extremists that expressed feelings critical of the EU. And of course, Syriza is still habitually labeled ‘extreme left wing’ and ‘Marxist’, but Varoufakis clearly isn’t seen by people in Germany et al as some extremist nutcase.

The usual bag of tricks no longer works. And the subject Varoufakis brings to the table, that the EU and ECB economical policies have been an abject failure – at least for the people in Greece’ Main Street – is not some extreme notion either. Schäuble and Dijsselbloem can try and cling to the idea that Greece seeks to swindle German and Dutch voters out of even more money than they already have, and that still works to an extent, but it is wearing thin.

The contagion from Syriza success can be considerable, and though it pretends otherwise, the EU has no idea what it would mean down the line. Every single option they look at that is NOT Varoufakis surrendering, must scare them out of their socks. Anything they give up will be seen as a sign of weakness, and it will encourage parties for which Syriza ‘carries the torch’, and likely raise their support and votes.

However, if the Eurogroup don’t give up anything at all in the negotiations, there may be a Grexit, even with Russia and/or China stepping in to fund Athens. While there are all sorts of reports claiming that Grexit is manageable for the EU, don’t believe a word of them: nobody knows. And none of the present big shots wants to be held responsible for blowing up the common currency.

They have come to the realization over the past week that Syriza can be a ground-breaking force in Europe, not just a minor nuisance. They will have to adapt their attitude and their way of thinking, real fast. Monday February 16 comes to mind. Because Syriza will not back down and go for a bailout extension. For the simple reason that it is not what they see as their mandate. The Eurogroup had better be prepared for that, or it might become irrelevant in no time.

And no, no matter what they think, it’s not personal. Not for Varoufakis it isn’t. He merely represents the Greeks without access to health care who line up at soup kitchens. But you’re right, for those people, living in the third world that Europe has created within its borders, it’s very personal.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)© 2015 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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