Greece and Europe now face many worst-case scenarios

The marathon talks painfully exposed the impossibility of a deal that would satisfy creditors and debtors.

The fissures exposed between, and within, the warring groups of eurozone debtors and creditors are the widest and deepest in the past 5 1/2 years of turbulence over the single currency. The gloomy predictions of the late German-British sociologist Ralf Dahrendorf, who said before it started in 1999 that economic and monetary union would split rather than unite Europe, have become reality.

Angela Merkel, the German chancellor, has found herself under simultaneous attack over Greece from Germany’s traditional allies the U.S. and France — pleading for a more lenient line on Athens — as well as from hostile elements in her own conservative parties calling for the opposite.

Several “worst-case” outcomes are still possible, including the fall of the government of Alexis Tsipras and the calling of new elections in Athens; the introduction of a parallel Greek currency (backed by the remaining reserves of the heavily borrowed Bank of Greece, which are quite considerable if loans are not paid back); and Greek departure from (or suspension within) the euro.

Another result, if things go badly, would be the break-up of other European governments (including the German one). And that is not to mention the various unsettling geopolitical consequences of a Greek eurozone departure, including an intensified “arc of crisis” linking Ukraine to the Balkans to the storm-tossed countries of Syria and Iraq.

The multilateral rifts within the creditors have been laid bare by French and Italian insistence (backed by Spain and Luxembourg) that Greece should be rescued. There are three reasons behind this: to salvage a semblance of European unity from the shambles of the past few weeks; to force a climbdown from German insistence on austerity over everything else; and to ward off the danger that the European monetary union (EMU), in losing Greece, would become more exposed to financial assault on vulnerable and much larger members.

Yanis Varoufakis, the firebrand former Greek finance minister who resigned a week ago, has made way in the ministerial chamber for his quieter former colleague Euclid Tsakalotos. But he has been stoking the flames from the sidelines with weekend allegations that Germany has wished to bring Greece to heel to discipline France.

Varoufakis’ claims, underlining that Greece is both a pawn and a buffer in long-running monetary warfare between Germany and France, do not tell the whole story, but are based partly on first-hand experience. The ultimate fault line in the EMU edifice runs between Paris and Berlin.

The accord unveiled this morning in Brussels imposes harsh terms on Greece, turning the country practically into a vassal of the European Union, unwinding most of the election promises of the Syriza government that came to power in January and signalling its ritual humiliation. Whether the terms are politically acceptable to a restive Greek parliament and whether they can be implemented are important, but perhaps not the most relevant, questions.

Even if the Athens parliament does approve higher taxes, reforms to pensions and labor markets, a return of the troika and much more vigorous privatization including quasi-sequestration of state assets, it is unlikely that the package will generate the growth and debt sustainability that Greece and its creditors badly need. The Greek prime minister failed to get the early pledge of debt relief that Athens insiders believed was the minimum to gain parliamentary acquiescence.

The convoluted, confused negotiations between Greece and its partners reflect the reality that different groups have been talking at cross purposes for the past month. The amount of money at stake, the length of time of any further Greek subjugation to its creditors and the degree of political sovereignty being jettisoned or fused have all greatly increased in the past few weeks.

The Greek electorate in the July 5 referendum said “no” to a set of creditors’ terms for a relatively small extension of bailout money (7.2 billion euros) due to have been disbursed by the end of June. The volume now being requested is 12 times bigger — 82 billion to 86 billion euros, including money for recapitalizing Greek banks hard hit by dislocation. So the creditors’ conditions are far more onerous, and are far less likely to be met in any satisfactory way.

We have been here before. The developments of the past few days are reminiscent of the great monetary skirmishes of November 1968, the first act in 30 years of currency attrition centered on the Deutsche mark and French franc that ended in 1999 with the subsuming of both currencies into the EMU. Despite furious pressure from the French, Americans and British, the Germans refused to revalue the mark, and instead, Bonn decided on a package of border taxes to make imports cheaper and exports more expensive, claiming that this was a more flexible method of countering currency inflows. The Brussels debacle has, however, been on a far grander scale and the fractures unveiled more powerful.

One of the drawbacks for non-EMU countries like the U.K., it was said in 1998-99, was that they would not be allowed to take part in important meetings on the future of Europe where participation would be limited to euro members only. After weeks of unedifying summit gatherings in Brussels, the reluctance to sign up for the euro by non-members — relatively untroubled countries such as Sweden, Denmark, Poland and the Czech Republic as well as the U.K. — can only have increased. The abiding impression of the past few weeks’ squabbles is that EMU has developed into a permanent source of divisiveness.

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commented 2015-07-14 22:05:00 -0400 · Flag
Spartacus commented

I would truly be contemplating Mass Murder If I was an Unfortunate Greek Citizen
who is about to be forced into a Dark Age of Indentured Servitude, imposed by some
un-elected, technocratic Wunderkinds masquerading as agents of enlightenment !

It is beyond Orwellian, and It Is PURE Evil and the Only thing the ignorant slobs on this
earth know to do is check there i-phone for the latest instant message text !
commented 2015-07-14 03:57:16 -0400 · Flag
C.A.R. commented

hat a stunning volte-face after the kabuki theater of a ‘greferendum’ a week ago. What is stopping the hellenic masses from going full ape-shit in rebellion? Have these people become so emasculated that they accept the irrefutable serfdom status they’ve been consigned to by the wermacht-finanz guard?

The world proves orwell more clairvoyant by the week.

The greeks certainly ensured their vassal-itude with their preposterous socialist culture, but these ‘agreement’ is simply sovereignty surrendered.

I smell an 11th-hour hiccup… I suspect schauble’s diktat to ‘smell the glove’ will unravel by the weekend.
commented 2015-07-14 03:55:35 -0400 · Flag
D.P. commented

The predatory State has turned against its citizens and is now openly proclaiming sovereignty over every aspect of our lives. In the eyes of the Ruling Elite we are all serfs. It is demoralizing and horrifying.
commented 2015-07-14 03:54:38 -0400 · Flag
Vic commented

The electorate of nearly every state in the union voted no to gay marriage – the supreme court decides against that – aren’t we just following in our greek brother’s steps?
commented 2015-07-14 03:53:33 -0400 · Flag
Thomas N. commented

so just over 1 week ago, 61% of the greek electorate Said NO to the draconian measures that EU officialdom was seeking to impose as part of Bail Out #3.

Now a mere 7 days later, the Ruling Elite Masters of that dysfunctional birthplace of democracy have decreed that the Vote was meant nothing and we are going to accept even more ruinous conditions than those which the voting public Rejected a week ago.

Anyone who is Not Truly Terrified by the TOTALITARIAN ‘State Rule’ that is being rolled out globally should immediately be lobotomized !

I am not carrying water for the Greeks, they are a corrupt country but the suicide of Germanys terms and conditions are more crippling than the WW I war reparations that were imposed on Germany as part of the treatise of Versailles, which as we all know eventually led to WW II.

As a FREE Man, roaming the countryside, circa 2015, I am truly horrified by the Autocratic Rule being imposed by self-appointed elites Globally.