Athens' "big no" squares off against the
Eurozone's special flavor of bankers' ramp...
SO the 'troika'
of Greece's bail-out lenders all got the memo.
"The ball is in Greece's court," as
they keep repeating.
But what if Athens wants it that way? Finance minister
Varoufakis is a professor of 'game theory' in economics after all (even if he
isn't a "real" Marxist).
And as the Greek government now says...finally grabbing a
catch-phrase of its own...it isn't afraid of "saying the Big No" to more
bail-out loans, and the austerity forever needed to repay them.
The "big no" means default and most likely
Grexit. But while waving that threat at its lenders, Athens also holds out a
plan. Long on detail and very heavy on Greek reforms, it asks for maybe €27 billion to write off the debt Greece now owes the European Central Bank.
Out of €242bn currently owed, that looks small. And if
Greece ran its own money...in the way that Japan, the US and the UK do...it
could borrow this cash through a QE programme. Then, simply get the central
bank to cancel it at maturity, just like Japan, the US and UK will most
likely do in the end.
But Athens doesn't run its own money. Indeed, it's not
even part of a currency union according to this article...perhaps
the best you'll read on Greece's catastrophe today.
Instead, Greece is subject to a foreign currency regime,
just like any banana republic. So what was initially sold back in 2010 as "saving Greece" quickly
showed itself to be "saving its lenders"...most
notably those German and French banks which had lent Athens too much money
during the good times of fake accounting and Euro-love.
Now...in a uniquely Eurozone replay of Britain quitting the Gold Standard in 1931...Athens' left-wing government says it's suffering a "bankers' ramp", with whispers and rumours from the Greek central bank
and Athens' Eurozone "partners" scaring Greek citizens into pulling
what's left of their cash from the banks, forcing
the very banking collapse which the central bank, IMF, Eurozone and ECB say
they want to avoid.
A replay, because a monetary system built on maintaining
payments in a high-value currency risks losing a member state which cannot service its debts while meeting its
domestic promises. Something has to give, and the
creditors would much prefer that democracy caved in, and they get their
repayments while voters lose benefits and pay higher taxes. Different because
1931's top-hatted villains were blamed (rightly or not) for trying to control
London's fiscal policy by redeeming their Sterling bank-notes for gold, and
for selling British bonds to drive up London's borrowing costs. Today's ramp
in contrast cannot hurt Greece by selling Euros, and Athens' bonds are
already off the market anyway, tucked away on the ECB, IMF and Eurozone
lenders' own balancesheets.
So, creating a crisis to defeat Greek democracy
apparently means urging Greek citizens to start a run
on their banks. Net effect? A gun to the head. The fright caused by
Athens' own threat of uttering the "big no" can't help either.
Maybe that's part of Syriza's game-plan.
Who is bluffing in this stand-off? Not Greece's angry, jobless youth. Perhaps
not the old regime's favored elite, massing last night on the steps of parliament either. To say this could get
ugly...in a country only four decades on from an army coup...might sound
alarmist. But as plenty of people noted 5 years ago when Greece's mess
first made the headlines, this really isn't how Europe's post-war project was
supposed to end...with bitter wrangling over money and an economic, social
catastrophe on its south-eastern coast.
Politics and history aside for a moment, there's growing
chatter of an immediate threat to cautious savers, wherever they are. Because
whether or not you hold bank deposits in Greece, people are asking about
precious metals:
Might Athens sell its 112 tonnes in gold bullion
reserves?
Never say never. The mere hint that Cyprus might sell a
fraction of its tiny 14-tonne reserves when it "enjoyed" a rescue
by Eurozone partners proved a straw on the camel’s back of $1530 in April 2013.
But Cyprus never did sell, and it’s very hard to imagine
much of Greece’s gold reserves being sold to raise cash, not least because
Athens' hoard is worth only a fraction of the €242bn it owes in total.
What’s more, keeping hold of those gold
reserves...held 50% in Athens, and 50% split between
the New York Fed, Bank of England, and Swiss National Bank...will likely play
a big psychological role in establishing a new currency if the Bank of Greece
quits the Euro system. See the political value attached to gold, for
instance, by the Syriza government’s would-be friends in the Kremlin.
Pledging gold against new bail-out loans is more
possible. Again, it would add just a drop in the bucket, but international
loans have previously been part-collateralized with bullion. See India’s emergency 1991 loan of $2.2bn
for instance, raised against 67 tonnes of gold then worth $800m. The World
Gold Council suggested Italy do the same in 2013, only via private lenders,
as an alternative to the need for austerity.
Sadly for Greece, dumping its gold offers no alternative
anyway. Selling or pledging the total would only raise €3.8 billion
($4.3bn, £2.7bn) today. Which brings Athens right back to the nub of the
problem.
The only possible outcome to Monday's emergency summit is
a debt write-down for the lenders...whether they want or agree it or not.
This needn't be a moral issue, although it is for
Greece's youth and future generations today, just as surely as debt servitude
was a moral horror when Solon banned it in 6th century BC Athens.
No, in the end, the creditors must bear losses on
excessive debt. Because the bankrupt borrower hasn't got any money.
