Greece, Discovering the "End" in "Extend & Pretend"

By: Ashvin_Pandurangi

There was a rumor over the weekend that the Troika may be willing to relax the terms of the dreaded memorandum for the Greek government if it formed a "pro-European" coalition government and avoided new elections. This rumor is ridiculous on both fronts - 1) the Troika and Germany would NEVER make such a concession for fear that every single penny pledged to peripheral nations would become contingent on the outcome of national elections and, essentially, a gift with no conditions attached (something that would pit the German people against their crony, bankster-run government once and for all), and 2) the left-wing Syriza party in Greece would NEVER commit itself to the Euro while it continues to gain popularity each day before the new elections.

Last year or the year before, such extend & pretend tactics may have actually worked. The Eurozone was still officially out of recession, the people were relatively docile and unaware of how bad their economic situation could get and everyone still had a modicum of faith in the conventional wisdom that bailouts and austerity measures, drawn out over time, could work. Back then, the "fringe" anti-establishment political parties in Europe still had a steep hill to climb before they could credibly threaten those holding the reigns of power. Now, not so much. The tide of popular resistance seems to have turned much too fast for even the most powerful among us.

These elections in Europe are no joke. The Eurocrats will bring everything they can muster to co-opt the platforms of those who have emerged with support and/or maneuver around the snowballing anti-austerity momentum, but it should be painfully clear by now that some things are simply outside of their control. The party leaders of Syriza continue to defy any and all attempts to be seduced into a "Unity Government", knowing full well that, as soon as they accept, the entire party will be rendered irrelevant. Maria Petrakis, Natalie Weeks and Marcus Bensasson report for Bloomberg:

Syriza Says It Won't Join Greek National Unity Government (Update 1)

Greece's biggest anti-bailout party, Syriza, said for the second time in as many days that it won't join a unity government, pushing the country closer to new elections that have sparked concerns about a euro-area exit.

"Syriza won't betray the Greek people," leader Alexis Tsipras said in statements televised on state-run NET TV after a meeting brokered by President Karolos Papoulias between the party and the leaders of the New Democracy and Pasok parties. "We are being asked to agree to the destruction of Greek society."

Papoulias began a final bid to coax the three biggest parties into a coalition today after a week of talks which failed to deliver on mandates to form governments. He will meet later today the leaders of the four other parties to probe the likelihood of forming a national-unity government. If Papoulias's efforts fail, new elections will need to be called.

Greece's political impasse since inconclusive general elections May 6 has raised the possibility another vote will have to be held as early as next month, with polls showing that could boost anti-bailout Syriza to the top spot. The standoff has reignited concern the country will renege on pledges to cut spending as required by the terms of its two bailouts negotiated since May 2010, and, ultimately, leave the euro area.

Under the terms of the bailout, a new government will need to spell out how it will save 11 billion euros next month.

Fitch Ratings said in a report on May 11 that the outcome of another election would be "unpredictable" and "make it doubtful that Greece could comply with the EU-IMF's end-June deadline to propose further medium-term austerity measures."

While Greece would probably be granted an extension to that deadline, any attempt to significantly renegotiate its program would be unacceptable to the so-called troika of the European Commission, IMF and European Central Bank, Fitch said.

"The impression from this week's unfruitful negotiations on the formation of a new government is that Greek political parties have taken the view that new elections in June are the only way out," Riccardo Barbieri, chief European economist at Mizuho International Plc said in a note to investors on May 11. "If new elections are called, they will indeed amount to a referendum on staying in the euro."

So what can the Eurocrats possibly do now to keep this torturous freight train from running off the rails? Despite (because of) all of the meetings and summits held, all of the "agreements" reached, the bailout tranches released, the austerity measures imposed and the debt "voluntarily" restructured for Greece, the Eurocrats have failed to keep one of their tiniest members in tow. Now, the German publication Spiegel is even speculating on the possibility of simply giving the Greek government pledged funds after they exit the Eurozone, with contributions coming in from "all 27 EU Member States". Here is the translation, courtesy of Zero Hedge:

Greece To Get European Aid Even After It Exits, Speculates Spiegel

Greece is to SPIEGEL information even in case of egress expect further € billion bailout from the European EFSF. The European rescue package is designed by the Federal Ministry of Finance therefore emphasize only those amounts that go directly to the household of Greece. Those billions, with which the bonds will be served, which took over the European Central Bank (ECB) as part of its rescue measures should, however, continue to flow.

This is to the consequences of a possible €-egress will be mitigated. This could be prevented with the central bank losses, hit by the end of the budgets of the Member States.

Further consideration of the House of Finance Minister Wolfgang Schäuble (CDU) provide, according to Spiegel, that the Greeks, even if they get no help from the rescue more pots of the euro countries, not to be left alone. Greece remains a member of the EU, they are entitled to assistance from Brussels, as are accorded to other EU countries with its own currency in trouble. These would be funded not only by the countries of the Euro-zone, but by all 27 EU Member States.

After the elections of last Sunday and so far unsuccessful attempt to get a government concluded in Athens, is in the black-yellow coalition government talked more openly about the possibility of a Euro exit - resentment is growing. An Athens exit from the euro would be "not the end of the euro nor the end of the EU," said CSU head Horst Seehofer: "We need to get Germany's economic strength, which is more important than a stay in Greece in the Euro zone."

Talk about scraping the bottom of the barrel and floating proposals that have absolutely no chance of going through. Even if this did occur, would the bond markets actually believe continued support for Greece will counteract all of the negative economic, financial and social contagion effects from a Greek exit? Not a chance. And how would the German people react to the fact that they are facing hard-line austerity proposals from Merkel's government, while also being forced to GIVE away money to a country that is no longer even in the monetary union? Perhaps in a similar fashion to the French, who just ousted pro-austerity puppet Sarkozy from office? Stephen Brown of Reuters gives us a pretty clear answer to those questions:

Merkel's party routed in big German state

Chancellor Angela Merkel's conservatives suffered a crushing defeat on Sunday in an election in Germany's most populous state, a result which could embolden the left opposition to step up its criticism of her European austerity policies.

The election in North Rhine-Westphalia (NRW), a western German state with a bigger population than the Netherlands and an economy the size of Turkey, was held 18 months before a national election in which Merkel is expected to fight for a third term.

She remains popular in Germany for her steady handling of the euro zone debt crisis, but the sheer scale of her party's defeat leaves her vulnerable at a time when a backlash against her insistence on fiscal discipline is building across Europe.

According to first projections, the centre-left Social Democrats (SPD) won 38.8 percent of the vote and will have enough to form a stable majority with the Greens, who scored 12.2 percent.

The two left-leaning parties had run a fragile minority government for the past two years under popular SPD leader Hannelore Kraft, whose decisive victory on Sunday could propel her to national prominence.

Merkel's Christian Democrats (CDU) saw their support plunge to just 25.8 percent, down from nearly 35 percent in 2010, and the worst result in the state since World War Two.

"This is not a good evening for Merkel," said Gero Neugebauer, a political scientist at Berlin's Free University.

"The SPD is strengthened by this election, which will stir things up in Berlin."

The blow comes only two days before France's new president, Socialist Francois Hollande, is due to visit Berlin and press Merkel for a shift away from austerity and more emphasis on growth-oriented measures in Europe.

Other big countries like Italy also want Merkel to take a more balanced approach to the debt crisis and an election in Greece last week showed massive public resistance to tough austerity.

From the South to the North, East to the West, Periphery to the Core, the EU experiment of economic and political union is being ripped apart at its seams. The latest bouts of disease-like democratic elections are serving as the catalyst for this fatal reaction within Europe, but the truth is that it never really stood a chance. You can only impoverish and enslave the people of a society so much and for so long before VERY NASTY things start to happen within it. Where exactly we go from here is difficult to say, but we can be quite sure that the Sun has nearly set on the days of "extend & pretend".

Ashvin Pandurangi, third year law student at George Mason University
Website: http://theautomaticearth.blogspot.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

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