The war of words between Greece and its creditors took a leap in intensity today, with Greece declaring its debt illegal and odious, and Germany calling the Greek leaders “clowns”.
Debt Illegitimate, Odiousness, Illegal, Unsustainable
Please consider a few snips from a translation of the Executive Report of the Hellenic Parliament’s Debt Truth Committee.
Several legal arguments permit a State to unilaterally repudiate its illegal, odious, and illegitimate debt. In the Greek case, such a unilateral act may be based on the following arguments: the bad faith of the creditors that pushed Greece to violate national law and international obligations related to human rights; preeminence of human rights over agreements such as those signed by previous governments with creditors or the Troika; coercion; unfair terms flagrantly violating Greek sovereignty and violating the Constitution; and finally, the right recognized in international law for a State to take countermeasures against illegal acts by its creditors, which purposefully damage its fiscal sovereignty, oblige it to assume odious, illegal and illegitimate debt, violate economic self-determination and fundamental human rights.
People’s dignity is worth more than illegal, illegitimate, odious and unsustainable debt
Having concluded a preliminary investigation, the Committee considers that Greece has been and still is the victim of an attack premeditated and organized by the International Monetary Fund, the European Central Bank, and the European Commission. This violent, illegal, and immoral mission aimed exclusively at shifting private debt onto the public sector.
CSU Secretary General Calls Greek Leaders “Clowns”
Let’s also take a peek at the Reuters story Greece’s Future in EU in Doubt if Talks Fail, Central Bank Warns.
A warning by Greece’s central bank that the country risked being driven from the euro zone and, ultimately, the European Union failed to break a deadlock with creditors before a potentially decisive meeting of European finance ministers.
“People are getting anxious on both sides. Athens expects Brussels to move. And Brussels expects Athens to move. And it’s stuck,” said a senior EU diplomat, who declined to be named. “It’s very dangerous, and we may have an accident.”
Making clear the huge stakes at play, the Greek central bank said reaching an accord was “an historical imperative” that the country could not ignore.
“Failure to reach an agreement would … mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country’s exit from the euro area and, most likely, from the European Union,” the Bank of Greece said in a monetary policy report.
Highlighting the fraying tempers, German Chancellor Angela Merkel’s Bavarian allies accused Athens on Wednesday of not grasping the seriousness of the situation, with CSU Secretary-General Andreas Scheuer calling Greek rulers “clowns“.
Failure to Grasp Seriousness of the Situation
It is Germany, not Greece that fails to grasp the seriousness of the situation. In fact, Germany fails to grasp the fundamental picture I outlined at least four years ago.
- What cannot be paid back, won’t.
- European taxpayers, will foot the bill one way or another, either by debt forgiveness or default.
- German taxpayers will take the biggest hit because Germany has the largest percentage responsibility of any country in the eurozone.
All along, I was pretty sure default was inevitable because at no stage of the way did Eurozone leaders admit point number one.
Yesterday, I posted this approximate hit taxpayers will have to shoulder.
| Mish Calc | Bilateral loans | Guarantees on the borrowings of EFSF to fund its loans | Implicit share of TARGET2 claims of the Eurosystem | Implicit share in the SMP holdings of bonds by the Eurosystem | Total |
|---|---|---|---|---|---|
| France | 11.389 | 31.02 | 24.47 | 5.439 | 72.32 |
| Germany | 15.165 | 41.308 | 31.07 | 6.903 | 94.45 |
| Italy | 10.008 | 27.259 | 21.25 | 4.722 | 63.24 |
| Spain | 6.65 | 18.112 | 15.26 | 3.391 | 43.41 |
| Total | 52.9 | 141.8 | 118.0 | 27 | 339.7 |
I took the IESEG numbers and plugged in €118 billion as a total Target2 liability, split as shown.
I heard from Eric Dor, Directeur des Etudes Economiques, IESEG School of Management, Université Catholique de Lille, today. He thinks my Target2 number is too high. He suggests that it’s more like €100 billion now. If so, mentally lower the balances slightly. I have an email in to him for clarification. The main point stands, however. Liabilities are high and rising. Hollow Threats
There is no provision by which the eurozone can expel Greece. Nor is it possible for Greece to be forced out of the EU.
Foreign Policy answers the question Could Greece Get Kicked Out of the European Union? with a simple one word answer: “No”. Here’s the longer explanation:
EU bylaws provide no mechanism for expelling a member state. Indeed, the EU’s laws in spirit are integrative and unifying, “conciliatory” rather than “punitive.” Therefore, in letter, they provide no option for kicking a country out, no matter how much other member countries might want to. Even if Greece invaded France — and it would take as much for Brussels to contemplate expulsion — the European Commission, a body of ministers that initiates EU laws, would have to craft new legislation to do it.
Real Threats
In contrast Greece has “real threats”.
Imposition of sanctions on another country requires unanimous consent by treaty. Greece can kill EU sanctions on Russia at a moment’s notice.
And as I have pointed out, Greek Prime Minister Alexis Tsipras Meets Russian President Vladimir Putin on Friday June 19.
Unless there is a deal favorable to Greece, the sanctions will end in January. Curiously, Moscow Times reports just today that EU Agrees to Extend Economic Sanctions on Russia Until January.
Did Greece really agree to that? Perhaps. Greece needs help from Russia and removing that bargaining chip now would reduce that leverage.
It appears to me that Greece has played its cards very well every step of the way.
Blame Game
Finally, when this finally blows, and it appears now is the time, expect Greece to blame Germany and Germany to blame Greece.
Assigning blame is much more complicated. The short answer is both are partially to blame but so is the fundamental nature of the eurozone itself.
More importantly fiat currency issues and the trade policies of Germany come into play as does political arrogance.
For the proper way to look at this pathetic mess, please consider From ZIRP to NIRP: Virtues of Germany vs. the Vices of Greece; What About “Speece”?
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com