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Thread: weekend commentary - The Silent Anschluss

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    Default weekend commentary - The Silent Anschluss

    from


    (snip)"Update 2: the first local headlines are coming in now, from Spiegel: Griechenland soll Kontrolle über Haushalt abgeben (loosely Greece must give up domestic control), and Kathimerini: Germany proposes Greece relinquish some fiscal powers, sources say

    Update: Formal Greek annexation order attached.

    It was tried previously (several times) under "slightly different" circumstances, and failed. Yet when it comes to taking over a country without spilling even one drop of blood, and converting its citizens into debt slaves, Germany's Merkel may have just succeeded where so many of her predecessors failed. According to a Reuters exclusive, "Germany is pushing for Greece to relinquish control over its budget policy to European institutions [ZH: read ze Germans] as part of discussions over a second rescue package, a European source told Reuters on Friday." Reuters add: "There are internal discussions within the Euro group and proposals, one of which comes from Germany, on how to constructively treat country aid programs that are continuously off track, whether this can simply be ignored or whether we say that's enough," the source said.' So while the great distraction that is the Charles Dallara "negotiation" with Hedge Funds continues (as its outcome is irrelevant: a Greece default is assured at this point), the real development once again was behind the scenes where Germany was cleanly and clinically taking over Greece. Because while today it is the fiscal apparatus, tomorrow it is the legislative. As for the executive: who cares. At that point Goldman will merely appoint one of its retired partners as Greek president and Greece will become the first 21st century German, pardon, European colony. But at least it will have its precious euro. We can't wait until Greek citizens find out about this quiet coup.

    More from Reuters:

    The source added that under the proposals European institutions already operating in Greece should be given "certain decision-making powers" over fiscal policy.

    "This could be carried out even more stringently through external expertise," the source said.

    The German demands for greater control over Greek budget policy comes amid intense talks to finalize a second 130-billion euro rescue package for Greece, which has repeatedly failed to meet the fiscal targets set out for it by its international lenders.

    It is likely to spark a strong reaction in Athens ahead of elections expected to take place in April.


    "Strong reaction?" Is that the politically correct parlance for "civil war" these days? We must be out of the loop on that one...

    The specific language that strips Greece of its sovereignty and which will be plastered over every front page in the Greek media tomorrow:

    Budget consolidation has to be put under a strict steering and control system. Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time. A budget commissioner has to be appointed by the Eurogroup with the task of ensuring budgetary control. He must have the power a) to implement a centralized reporting and surveillance system covering all major blocks of expenditure in the Greek budget, b) to veto decisions not in line with the budgetary targets set by the Troika and c) will be tasked to ensure compliance with the above mentioned rule to prioritize debt service.

    The new surveillance and institutional approach should be formulated in the MoU as follows: “In the case of non-compliance, confirmed by the ECB, IMF and EU COM, a new budget commissioner appointed by the Eurogroup would help implementing reforms. The commissioner will have broad surveillance competences over public expenditure and a veto right against budget decisions not in line with the set budgetary targets and the rule giving priority to debt service.” Greece has to ensure that the new surveillance mechanism is fully enshrined in national law, preferably through constitutional amendment.



    Take-aways from this latest news basically revolve around Greek fears of a de-facto German take-over of their own ability to determine how Greek tax money will be spent ( and not spent ) having been well founded !!!

    Please absorb completely what this means. If Greece wants to receive another tranche of EuroZone bailout money, it must first pass new laws that empower an EU 'financial czar' with veto power over Greek gov't budget decisions. This means that if there are only X billion Euros of tax revenues available, and a choice must be made as to whether to 'short' EuroZone bailout bondholders, versus continuing to send paychecks to Greek gov't workers, versus continuing to provide social welfare / medical / retirement benefits to Greek citizens, the EuroZone bailout bondholders will be paid back first with the gov't employees and gov't beneficiaries being left to 'fight over the scraps'.

    In turn, if the Greek gov't employees and gov't beneficiaries want to continue receiving paychecks and benefit checks, they must vote to raise taxes to make a larger amount of total Greek tax revenues available ... so that some tax revenue dollars will be left over after the EuroZone bailout bondholders have been paid first to back their gov't paychecks and benefit checks. Those higher taxes will fall on ( what remains of ) Greek businesses and gainfully employed Greek workers.

    Arguably, this is the first step toward a 'United States of Europe'. But it will potentially provide some relief for global economic concerns over Greece ... at least up until the Greek 'revolution' starts !


    Of course the Greek gov't / Greek voters also have the option of rejecting the latest bailout deal .. meaning that no more EuroZone bailout money will flow in Greece's direction. This would leave Greece unable to cover gov't bond payments due in mid March. If the Greeks choose this option, every foreign creditor will cut off Greece cold turkey ( including oil and gasoline suppliers, medical suppliers, food suppliers, parts suppliers, etc. ), at which point every available Euro of Greek gov't assets outside of the country will be 'foreclosed upon' as a result of the Greek gov't's bond default, at which point Greek gov't worker paychecks / Greek social welfare checks / Greek retirement checks will stop being printed etc. ... which is likely to similarly catalyze a Greek 'revolution'.
    Last edited by Melonie; 01-28-2012 at 04:27 AM.

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    Default Re: weekend commentary - The Silent Anschluss

    Our 'old friend' Mike Shedlock offers the following commentary ... from

    (snip)"Prepare for Greece to Leave Eurozone; German Government Calls for Greece to Cede Sovereignty Over Tax and Spending Decisions to Eurozone "Budget Commissioner"; Text of the German Demands

    Prepare for Greece to exit the Eurozone. Germany has made a request that in my opinion practically guarantees that outcome. The Financial Times has a pair of articles on the matter but the conclusion above is mine.

    [ skipping repeat - similar news coverage as in above post - sic ]

    Expect Greek "Bank Holiday" Soon

    Perhaps I am mistaken but I do not see any chance Greece will agree with this proposal.

    German and IMF demands make meaningless any hint of a deal "soon". Germany has signaled it has had enough and will not throw another 130 billion euros down a rathole. The IMF signaled the same thing but not as emphatically.

    Thus, if Germany does not back down and the IMF insists on a 10-page list of “prior actions” a Greek exit from the Eurozone is at hand.

    Look for a "bank holiday" in Greece soon.

    Mike "Mish" Shedlock(snip)


    The take-away from this piece is that Greece does indeed have a third option. That third option would be to withdraw from the EuroZone, and to return to the use of their own currency the Drachma. In doing so the Greek gov't could officially declare that, on the day of withdrawl, the New Drachma are worth one Euro. But by the following day, the New Drachma might only be worth 1/2 a Euro. This would allow Greece to pay off it's bailout bond creditors in newly printed New Drachma ( at a de-facto rate of fifty percent of the debt actually owed ) using the 'official' 1:1 exchange rate. However, it could also effectively 'steal' 50% of the value of the savings and investments of Greek citizens. And it could increase de-facto price levels on all imported commodities, i.e. oil and gasoline, medical supplies, food, parts etc., by a factor of 2.

    Indeed this third option would still leave Greece as the 'master of their own destiny'. It would also inflict massive real losses on the bailout bond creditors, which would quickly ripple through the Global economy. And it would instantly impoverish all Greek citizens who have been 'foolish' enough to leave their savings and investments in Greek banks and Greek financial institutions. It would also instantly provide a de-facto 50% 'pay cut' for Greek gov't workers, social welfare recipients, and retirees, who would still be paid by the Greek gov't at the 'official' 1:1 exchange rate - thus 'solving' the Greek gov't's 'budget problems' at the same time.

    At risk of bending the 'politics ban', I would comment that Greece's return to the Drachma with a 50% devaluation would essentially be no different than the policies which have routinely been followed by the US FED in the recent past. The only major difference is that, where the US dollar has taken ~ 28 years to 'lose' half of it's purchasing power, the Greek currency could do so in 28 HOURS ! However, due to the 'frog in a boiling pot' principle, Greek citizens are much more likely to A. realize that they are officially being 'screwed', and B. react violently to the 'scroomage'.

    I would also add that, regardless of which of the three options Greece chooses to follow, or is forced to follow, the end result will involve a drastic reduction in the Greek standard of living. This MUST translate into a deep economic recession as Greek citizens are forced to pinch every Euro / Drachma in order to pay for 'necessities'. This will also 'run uphill' to Germany, France etc. who have relied heavily on Greece as an export market for their 'non-essential' products and services. And this loss of export profits problem for Germany and France will only be compounded as Portugal, Spain, Italy etc. creep ever closer to their own Greek moment.

    There is also a larger, more basic take-away from the 'Greek tragedy' in that the days of governments being able to indefinitely spend more money per year on gov't worker salaries, retirement benefits, social welfare benefits etc. than they actually take in via current year tax revenues are drawing to a close. Thus Greece bears close watching, because similar circumstances are likely to develop in Portugal, Spain, Italy etc. within a matter of months, and somewhat similar circumstances are likely to develop in other countries with high 'deficit spending' levels over the course of the next couple of years.
    Last edited by Melonie; 01-28-2012 at 10:49 AM.

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    Default Re: weekend commentary - The Silent Anschluss

    well, my speculations appear to be becoming official ... from


    (snip)"So from Reuters, "Greece must surrender control of its budget policy to outside institutions if it cannot implement reforms attached to euro zone rescue measures, the German economy minister was quoted as saying on Sunday. Philipp Roesler became the first German cabinet member to openly endorse a proposal for Greece to surrender budget control after Reuters quoted a European source on Friday as saying Berlin wants Athens to give up budget control." And some bad news for our Portuguese (and then Spanish) readers: you are next.

    More:

    "We need more leadership and monitoring when it comes to implementing the reform course," Roesler, also vice chancellor, told Bild newspaper, according to an advance of an interview to be published on Monday.

    "If the Greeks aren't able to succeed themselves with this, then there must be stronger leadership and monitoring from abroad, for example through the EU,"
    added Roesler, chairman of the Free Democrats (FDP) who share power with Chancellor Angela Merkel.

    Reuters reported on Friday that Germany wants Greece to give up control of budget policy to European institutions as part of discussions over a second rescue package.

    Greece, which has repeatedly failed to meet the fiscal targets set out by its international lenders, is in talks to finalise a second 130 billion-euro ($172 billion) package.

    With many Greeks blaming Germans for the austerity medicine their country has been forced to swallow, officials in Athens dismissed the idea of relinquishing budget control as out of the question.

    Finance Minister Evangelos Venizelos said on Sunday Greece was perfectly capable of making good on its promises.

    "Anyone who puts a nation before the dilemma of 'economic assistance or national dignity' ignores some key historical lessons," he said in a statement before heading to Brussels for a European Union summit on Monday.


    And by the way, this is just the beginning:

    A government source in Berlin said Germany's proposal was aimed not just at Greece but also at other struggling euro zone members that receive aid and are unable to make good on their obligations.

    So yes, it is true, and Germany is dead serious. Ball is in the Greek court now: just how far will the new technocrat PM go to sell its people in exchange for a few banker smiles? (snip)


    These developments, of course, put increased probability on Greece ( and subsequently Portugal, Spain, Italy etc. ) being forced to choose the third option - readopting their own national currencies - if their citizens are not willing to pay the very high taxes necessary, and 'give up' the gov't jobs, social welfare benefits, and retirement benefits neceesary, to actually start paying back the money that their gov'ts have already borrowed and spent in accordance with the terms under which that money was originally borrowed !

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