Greece has 5 days to accept EU austerity proposals

The euro crisis is hurtling toward some kind of resolution, as the EU has given Greece until Sunday to accept the terms of the bailout being offered by the EU or be kicked out of the common currency bloc.

In truth, the Greeks wouldn't be kicked out.  They would be forced to kick themselves out as the country is out of cash – literally.  Unless there is a dramatic change of heart by the European Central Bank, who are refusing to pump a few billion euros into the Greek banking system, there will be no more cash in the ATMs, and the banks will remain closed.

The EU ultimatum was precipitated by an incredible scene at a meeting of EU finance ministers yesterday.

Washington Post:

Greece’s radical leftist government had been widely expected to present a new, detailed plan to finance ministers at a meeting Tuesday, just two days after a referendum in which Greek voters emphatically rejected Europe’s latest proposed cuts-for-cash deal. Before the vote, Tsipras promised he could strike an agreement with Europe “within 48 hours” if voters backed him — as they did.

But instead of a formal blueprint, Greece’s new finance minister, Euclid Tsakalotos, spoke from handwritten notes about his country’s intentions to rein in costs and prop up its creaky fiscal underpinnings while avoiding some of the tough austerity measures that Greece’s creditors have demanded.

European officials were incredulous that Greece had not come better prepared, especially with the country’s banking system subsisting from day to day and likely needing a fresh infusion of cash from the European Central Bank on Wednesday just to stay in business.

Jeroen Dijsselbloem, president of euro-zone finance ministers, said it was not clear what the Greeks were offering or whether it would meet the standards Europe has set for authorizing a new multibillion-euro bailout.

“In the eyes of the euro group, the problems in Greece do really need credible reforms,” he said. “And, therefore, we need to hear from the Greek government whether they have such reforms in mind.”

Hours later, after the leaders had dined on cod and chocolate mousse and Tsipras had made his own presentation, German Chancellor Angela Merkel said there still was not sufficient detail to formally restart negotiations.

“We respect the results of the referendum of one country, but we have 18 other countries where political decisions are also discussed,” Merkel said after the meeting. “We have only a few days left to find a solution.”

Ambrose Evans-Pritchard writes that Tsipras was mulling a European version of the nuclear option, which would have thrown all of Europe into a financial panic:

The prime minister was reportedly told that the time had come to choose, either he should seize on the momentum of the 61pc landslide vote, and take the fight to the Eurogroup, or yield to the creditor demands - and give up the volatile Mr Varoufakis in the process as a token of good faith.

Everybody knew what a fight would mean. The inner cabinet had discussed the details a week earlier at a tense meeting after the European Central Bank refused to increase liquidity (ELA) to the Greek banking system, forcing Syriza to impose capital controls.

It was a triple plan. They would "requisition" the Bank of Greece and sack the governor under emergency national laws. The estimated €17bn of reserves still stashed away in various branches of the central bank would be seized.

They would issue parallel liquidity and California-style IOUs denominated in euros to keep the banking system afloat, backed by an appeal to the European Court of Justice to throw the other side off balance, all the while asserting Greece's full legal rights as a member of the eurozone. If the creditors forced Grexit, they - not Greece - would be acting illegally, with implications for tort contracts in London, New York and even Frankfurt.

They would impose a haircut on €27bn of Greek bonds held by the ECB, and deemed "odious debt" by some since the original purchases were undertaken by the ECB to save French and German banks, forestalling a market debt restructuring that would otherwise have happened.

"They were trying to strangle us into submission, and this is how we would retaliate," said one cabinet minister. Mr Tsipras rejected the plan. It was too dangerous. But a week later, that is exactly what he may have to do, unless he prefers to accept a forced return to the drachma.

Meanwhile, the Greek economy is expiring:

Events are now spinning out of control. The banks remain shut. The ECB has maintained its liquidity freeze, and through its inaction is asphyxiating the banking system.

Factories are shutting down across the country as stocks of raw materials run out and containers full of vitally-needed imports clog up Greek ports. Companies cannot pay their suppliers because external transfers are blocked. Private scrip currencies are starting to appear as firms retreat to semi-barter outside the banking system.

Tsipras will submit and then resign.  He has no alternative if he doesn't want to see Greeks starving in the streets.  And most of the rest of Europe, who have become enraged at the antics and arrogance of the far-left government, will have made a harsh example of Greece for the other teetering economies in southern Europe.

The euro crisis is hurtling toward some kind of resolution, as the EU has given Greece until Sunday to accept the terms of the bailout being offered by the EU or be kicked out of the common currency bloc.

In truth, the Greeks wouldn't be kicked out.  They would be forced to kick themselves out as the country is out of cash – literally.  Unless there is a dramatic change of heart by the European Central Bank, who are refusing to pump a few billion euros into the Greek banking system, there will be no more cash in the ATMs, and the banks will remain closed.

The EU ultimatum was precipitated by an incredible scene at a meeting of EU finance ministers yesterday.

Washington Post:

Greece’s radical leftist government had been widely expected to present a new, detailed plan to finance ministers at a meeting Tuesday, just two days after a referendum in which Greek voters emphatically rejected Europe’s latest proposed cuts-for-cash deal. Before the vote, Tsipras promised he could strike an agreement with Europe “within 48 hours” if voters backed him — as they did.

But instead of a formal blueprint, Greece’s new finance minister, Euclid Tsakalotos, spoke from handwritten notes about his country’s intentions to rein in costs and prop up its creaky fiscal underpinnings while avoiding some of the tough austerity measures that Greece’s creditors have demanded.

European officials were incredulous that Greece had not come better prepared, especially with the country’s banking system subsisting from day to day and likely needing a fresh infusion of cash from the European Central Bank on Wednesday just to stay in business.

Jeroen Dijsselbloem, president of euro-zone finance ministers, said it was not clear what the Greeks were offering or whether it would meet the standards Europe has set for authorizing a new multibillion-euro bailout.

“In the eyes of the euro group, the problems in Greece do really need credible reforms,” he said. “And, therefore, we need to hear from the Greek government whether they have such reforms in mind.”

Hours later, after the leaders had dined on cod and chocolate mousse and Tsipras had made his own presentation, German Chancellor Angela Merkel said there still was not sufficient detail to formally restart negotiations.

“We respect the results of the referendum of one country, but we have 18 other countries where political decisions are also discussed,” Merkel said after the meeting. “We have only a few days left to find a solution.”

Ambrose Evans-Pritchard writes that Tsipras was mulling a European version of the nuclear option, which would have thrown all of Europe into a financial panic:

The prime minister was reportedly told that the time had come to choose, either he should seize on the momentum of the 61pc landslide vote, and take the fight to the Eurogroup, or yield to the creditor demands - and give up the volatile Mr Varoufakis in the process as a token of good faith.

Everybody knew what a fight would mean. The inner cabinet had discussed the details a week earlier at a tense meeting after the European Central Bank refused to increase liquidity (ELA) to the Greek banking system, forcing Syriza to impose capital controls.

It was a triple plan. They would "requisition" the Bank of Greece and sack the governor under emergency national laws. The estimated €17bn of reserves still stashed away in various branches of the central bank would be seized.

They would issue parallel liquidity and California-style IOUs denominated in euros to keep the banking system afloat, backed by an appeal to the European Court of Justice to throw the other side off balance, all the while asserting Greece's full legal rights as a member of the eurozone. If the creditors forced Grexit, they - not Greece - would be acting illegally, with implications for tort contracts in London, New York and even Frankfurt.

They would impose a haircut on €27bn of Greek bonds held by the ECB, and deemed "odious debt" by some since the original purchases were undertaken by the ECB to save French and German banks, forestalling a market debt restructuring that would otherwise have happened.

"They were trying to strangle us into submission, and this is how we would retaliate," said one cabinet minister. Mr Tsipras rejected the plan. It was too dangerous. But a week later, that is exactly what he may have to do, unless he prefers to accept a forced return to the drachma.

Meanwhile, the Greek economy is expiring:

Events are now spinning out of control. The banks remain shut. The ECB has maintained its liquidity freeze, and through its inaction is asphyxiating the banking system.

Factories are shutting down across the country as stocks of raw materials run out and containers full of vitally-needed imports clog up Greek ports. Companies cannot pay their suppliers because external transfers are blocked. Private scrip currencies are starting to appear as firms retreat to semi-barter outside the banking system.

Tsipras will submit and then resign.  He has no alternative if he doesn't want to see Greeks starving in the streets.  And most of the rest of Europe, who have become enraged at the antics and arrogance of the far-left government, will have made a harsh example of Greece for the other teetering economies in southern Europe.