Sunday, July 5, 2015

Time for Hollande to Step Up

It has been announced that President Hollande and Chancellor Merkel will meet in Paris tomorrow night. It is now time for Hollande to show what he's made of. There are already signs of a gap opening up between France and Germany. Although Wolfgang Schaüble said before the vote that there would be no immediate resumption of talks no matter which way the outcome went, both Finance Minister Michel Sapin and Economy Minister Emmanuel Macron called for a resumption of talks and no punitive measures.

If I were to hazard a guess, I would say that there will be no immediate cutoff of the ECB's Emergency Liquidity Assistance and perhaps even an increase in the daily ceiling. This will allow Greek banks to reopen, alleviating pent-up pressures and preventing a massive outburst of Greek anger and recourse to the streets. There will then be time for both sides to work out a strategy.

In my view, if there is an ounce of humanity and a modicum of rationality on the Troika's side, they must agree to talks about debt reduction now that Greece has voted a resounding No and the IMF has admitted that the debt is unsustainable. Anything else would be heartless, vindictive, and likely to fail. If this happens, Syriza will have won a tremendous victory, which I freely admit I did not think possible.

If the Troika refuses debt reduction talks, I see nothing but trouble ahead. This is the opportunity, if ever there was one, for Hollande to press Germany hard, as he should have done in 2012. It is a moment for statesmanship, and, if I may put it bluntly, time to grow some couilles.


FrédéricLN said...

I agree, but I would already be happy if Mr Hollande could understand what Ms Merkel will tell him, *and* take any action of consequence.

By the way, keeping the ELA tap open and calling for new talks will just result in more billions lost. As more investors will find a Grexit (from the €) likely, they will empty accounts in € in Greek banks, which will meme Grexit more likely, and so on.

The "greek-€" (€ under a Greek jurisdiction) is, for a moment, *not* a convertible currency, and will remain so as long as a sustainable macro-economic framework is not granted.

The lenders should (as they should have done in 2010, but much faster now) cut the debt by 30%, as required by the Greek administration, which will put Greece on level field with other indebted countries in Europe (Italie, Portugal).

The Greek administration should, at the same speed, enforce rules that investors (including physical persons, i.e. students, workers…) would consider sustainable — also Russian, Chinese, Arab…, investors, as regarding West-European ones, the "chat échaudé craint l'eau froide" might prevail.

As Yanis Varoufakis suggested, all this could be done in 24 hours. OECD designed all that since years. It's just upon Greek and European leaders to go forward and take decisions — instead of procrastinating and looking for scapegoats, as all of them did so far.

Which drives me back to your words — guts, cojones or something like that.

FrédéricLN said...

"which will MAKE Grexit…" at §2. Oops.

Mitch Guthman said...

Art, I think you’re absolutely right in your analysis. It’s ironic, though, how we’ve come full circle in the crisis. I, too, hope Hollande recognizes the second chance he’s been given and grows some balls. As an aside, In the context of French politics, Hollande’s also maybe been given another chance to make the second round in the presidential election. It’s his moment, if he can find the courage and take the risks.

Anonymous said...

Hope you are right Art, but the remarks of hardline German hegemonists -- some of whom apparently forget that it is but 70 years since they were last put back in their box - underlines the enormous amount Germany stands to lose if there is now a debt jubilee -- Zerohedge puts it at "up to 56% of German GDP ... If Greece defaults hard, EU governments will be on the hook for €145 billion in guarantees on loans to the ESM alone...". While debt write-off remains the only way to make Greece whole again, the costs to EU taxpayers and the resultant political fallout when voters realise what their reckless leaders have done, could see an electoral bloodbath in Spain, Italy, France and even Germany itself.

bert said...

Predictions are hard, particularly about the future, and especially about the future in Greece right now. For what it's worth though, in my crystal ball I can't see the banks opening again in a hurry. Perhaps a deal can be found to raise the ATM withdrawal limit, or something on that level. But the banks need recapitalisation. Open them and the exact reverse will happen. If I was a depositor, I'd be worried about a chunk of my savings disappearing overnight, and being forced to read in the next morning's papers about regrettable emergency measures, etc, etc. There is a deposit guarantee scheme, but it's not properly funded, and the idea that the ELA might be transformed into one is (to understate somewhat) not currently under discussion.
Of course, the Greek government could forcibly convert all deposits to New Drachma, and would be free to print as many of those as they liked. But I don't think we're there yet.

Massilian said...

Balls, balls, more balls and hard couilles... that's what Europe needs and Greece too. The muscles men are talking, I can feel teststerone oozing out from the blog. That's what true politics are about.
I must be dreaming !

TexExile said...

Art, I fear that Hollande has already shown us, more than once, what he is made of. Hence my pessimism about his role in this. As to the ECB, it toughened conditions for Greek banks yesterday. Not a promising first day after...

Mitch Guthman said...


I think that President Hollande has demonstrated on countless occasions that he is made of a wobbly caramel pudding with a soft-centre. Nevertheless, I would offer a partial defense of Hollande’s inability to rise to the occasion on this particular occasion. It occurs to me that it may no longer be possible for him to do anything at this point.

In 2012, Hollande had the potential to gather other EU countries (several with governments of the center left) many possible allies around him to support his challenge of German hegemony.
There were a number of EU countries suffering under austerity that might have been interested in joining with France. Perhaps of even greater importance were popular movements such as Occupy and the Los Indignados anti-austerity movement who could have contributed vast numbers of “foot-soldiers” and their tremendous energy.

Tragically, Hollande didn’t have the courage to seize that moment. Today, all of the governments of the center left have fallen on their swords through their unwavering support of austerity. The left is shellshocked and incapable of action. The popular movements have been crushed and dispersed. It would be difficult for even a beloved and charismatic figure to reenergize them for this fight; for Hollande it would be impossible.

Consequently, Hollande is in no position to threaten Germany's dominant position or its control over the institutions of the EU. Even if he wanted to fight, I think Hollande has left it for much too late. The great irony is that the mechanism created to end the struggle for hegemony has made Germany the unquestioned ruler of Europe.

bert said...

That's a good insight, Mitch. At this point the other program countries regard austerity as a sunk cost, which makes them receptive to the moral hazard hardline argument on Greece. That view rests on a belief that there is light at the end of this particular tunnel, and that the conditions that caused this hardship either won't reoccur or will be mitigated by some yet-to-be-agreed active fiscal policy for the eurozone. Assumptions that are wrong, or highly optimistic, or both.
Krugman posted a scan from a Milton Friedman paper the other day, on why having an exchange rate is a useful thing when adjusting to asymmetric shocks, and why restricting yourself to wage and price adjustment is much harder and can make your problems worse. Worth a read.