Negotiations on Greece, saved again? (update 24 June)

Posted: June 23, 2015 in Uncategorized

European markets have been cheering at the news of a deal.

As usual geopolitics saved Greece.

– the US (major stakeholder in the IMF) cannot allow for Greece to fall into a Sino-Russian sphere of influence

– Germany cannot risk an unknown scenario in Greece that could stimulate the breakdown of Europe (Spain has election by the year end and the Italian government starts to be wobbly)

-Greece cannot destroy the best economic season (holiday in Greece) by defaulting in July.

But is it all real?

It is not really clear at the stage.

There is general optimism, but also the Eurogroup President referred to “prior action” before the money disbursement.

Greece often offered good deals, but then could not implement  them (or they got blocked in Parliament by the left part of Syriza). The question here is “will the PM Tsirapas survive?”. The last two PM that signed bailout agreement did not (PM Papandreou and PM Samaras) and now they are completely forgotten. And PM Tsiparas knows it.

This could be the relief rally that I mentioned about in my technical analysis previous post.

Definitely Europe wants to keep on negotiating as the Emergency Lending Assistance (ELA) to the Greek banks has been again raised.

Notwithstanding this, Greek banks are more and more under stress as, in order to receive ELA, they need to provide collateral.

So the most likely scenario is a further extension of the bailout while details are negotiated.

A “natural” extension of the bailout is the 20 August when another big tranche of Greek debt.

So unfortunately the Greek saga will continue simply because this “Theory Game” scenario has no solution.

Europe (and US) cannot allow Greece to go to the Russian and Chinese and Greece cannot survive as a Euro currency country.

What they should do? Well, look at history under “Truman Doctrine”, 12 March 1947

From Wikipedia

He (President Truman) pledged to contain Soviet threats to Greece and Turkey. No American military force was involved; instead Congress appropriated a free gift of financial aid to support the economies and the militaries of Greece and Turkey. More generally, the Truman doctrine implied American support for other nations threatened by Soviet communism. The Truman Doctrine became the foundation of American foreign policy, and lead in 1949 to the formation of NATO, a full-fledged military alliance that is in effect this day. Historians often use Truman’s speech to date the start of the Cold War.

This was in the midst of the Greek Civil War (military backed by US and UK versus Democratic Army of Greece backed by Yugoslavia, Albania and Bulgaria – won by the Americans when Stalin (Soviet leader) stopped Tito (Yugoslav leader)

Don’t they say story repeats itself? Now it has to be more subtle as now everybody reads the news (which was kind of rare in 1947).


The negotiation are still going on. Two main point sticks out

– PM Tsiparas is confronted with a serious backlash from its own party

– Wednesday (Europe) everybody is meeting again. There is progress but the main sticking point is that IMF wants to have pension cuts (as pensions represents 16% of GDP expenditures) and small tax increases…while the Greek Proposal is 92% tax increase and just 8% pension cuts).

The issue with the early pension is very contentious as in Greece you can retire just after 35 years of contributions (early 50s) – if you were working in a “strenuous occupation” (funny, the definition includes even hairdressing and represents 35% of all pensions) you could have worked strenuously just for 25 years and contributed for 35 to access pension. Another funny thing is that minimum pension at quite good salary substitution rate could be taken just after 15 years (so people dropped workforce and went to work into the black market world). Also before the reforms imposed (2010 -2013) the substitution rate salary/pension were 96%(!!)…now they are decreased  (54% of salary, 62% for strenuous occupation like hairdressing).

Now also you can see that why pensions are the main sticking point – and will always be the burden of the Greek society!


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