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How I see the chain of events:
  1. Greece's deficit problem is covered up by the EPP as long as the conservative party rules. The problem is well known already on July 2009 Ecofin but made no public at the moment. More you can read on Handelsblad here.
  2. October 2009 - Papandreou wins the election. The new governments announces that the deficit is already almost double than predicted by the previous one. A violent attack starts by EU institutions to cover up their responsibilities. However, Greek spread remain under 200 basis points.
  3. End November 2009 - The ECB underestimates the situation and believes that the global crisis is over. Trichet says he will withdraw the extraordinary measure to provide liquidity. That spooks investors and sends Greek spreads well above 200 bps.
  4. May 2010 - Greek rescue and all that which is well known.
  5. Autumn 2010 - The ECB says it will not follow Fed's QE2 believing the euro crisis is over.
  6. October 2010 - Deauville
  7. The two previous steps force Ireland to seek rescue by the EFSF.
  8. Talks on the terms of the ESM - which will replace EFSF after 2013 - start.
  9. Socrates had decided not to enter the EFSF before the ESM rules have been set on March 25.
  10. December 2010 - The ECB has stopped buying Portuguese bonds and says so in public sending Portuguese spreads sky high.
  11. Socrates is ready to keep his defense by having provided enough financing until March 25, 2011. So he denies to join the EFSF.
  12. Late March 2011 - The ECB bullies Portuguese banks to stop financing their government with ECB liquidity (FT, "ECB blamed for Portugal aid request", April 11).  
  13. It is announced that decisions on the ESM are postponed for June.
  14. March 31, 2011 - Socrates replies with calling an early election. That means that there will be a caretaker government until then.
  15. It is made clear that ESM decisions will be postponed for September 2011.
  16. Socrates concedes. EPP has unlimited cards in this poker game.

Meanwhile, the narrative on Greece takes a U-turn. Suddenly the government that was praised for "unprecedented reforms" is described as "reform exhausted". This is to cover up that the Troika has failed on two basic promises on its side, while Greece has kept with most of its part of the deal. The deal was "you do as we say" (you follow the doctors orders, as DSK has literally said) and, first, you will have such and such macro performance, and, second, you will return to private markets on viable terms by 2012. However, the Troika predictions on growth/recession, unemployment, inflation etc. have already failed. It is clear that all indexes will develop far worse than predicted and the country will return to growth much later than anticipated by the Memorandum. Moreover, it is clear will not be able to return to the markets because the ECB has not provided the necessary liquidity for this to happen. That has nothing to do with Greece's performance. The markets are also closed for Ireland, Portugal and maybe soon for Spain also (Spanish spreads have already move above the unsustainability level of 200 basis points - Italy is yet a little below).

That how it looks like from here.

"Eurozone leaders have turned a 50bn Greek solvency problem into a 1,000bn existential crisis for the European Union." David Miliband

by Kostis Papadimitriou on Mon Jun 6th, 2011 at 03:36:04 PM EST
And when the backers of the EPP also control or intimidate most of the MSM they can get their cocked version of events to fly, especially by appealing to xenophobia and racist stereotypes.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Jun 6th, 2011 at 04:18:08 PM EST
[ Parent ]
It is tempting to describe this as a coup using the ECB, the "markets" and the EPP as weapons.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Jun 6th, 2011 at 04:39:48 PM EST
[ Parent ]
But, but, but...

...Greece's debt to GDP was 110% in mid 2009, so if the problems were known internally, they were actually known by everyone, including Papandreou, prior to that. Why? Because Greece's debt to GDP has been at 100-105% for over two decades now. No surprise that it moved slightly up during a global economic crisis.

I thought it much too convenient that Papandreou blamed the previous gov't. of course they were at fault--for a lot of corruption. But so was the Simitis gov't prior to that.

The charge that Greece misrepresented its books to Eurostat--and therefore investors--was also largely a fraud. Why? Read the January 8, 2010 report on Greece that's available from Eurostat right on the front page. Greece gave bad statistics to Eurostat yearly. Because Greece's government ministers were lax in rounding up the necessary information--presumably in order to maintain their interests in the ministries. But this doesn't mean accurate data was not reported at the end of the year. Indeed, Eurostat sent teams of accountants to Greece--something the report describes with much perturbation--and after a lot of work, they came up with accurate numbers for Greece. At the end of every year. Eurostat continues to do this to this day. So while the Greek gov't was horrid with numbers, it is NOT accurate to say that investors and the EU were not apprised of the state of Greek debt. And if the Eurostat numbers were wrong during the entire decade, then they are doubly wrong now, because the revisions showed a jump from an average around 100% from 2000-2009 to 115% in 2010.

In other words, investors should not scream fraud. Indeed, EUROSTAT and PIMCO has issued warnings about the state of Greek debt all through the decade. PIMCO hasn't bought Greece since 2006.

by Upstate NY on Mon Jun 6th, 2011 at 06:07:00 PM EST
[ Parent ]
Spiegel: A Fatally Flawed Recovery Plan: Greece Back on the Brink
So much for the theory. A visit to the Acropolis offers an example of what is really happening. There are more museum guards here now, a consequence of the Greek interpretation of consolidation.

Consolidation, Greek Style

Here's how it works: OSE, the national railroad, was expected to eliminate its annual deficit of €1-2 billion by slashing about 1,800 of its 5,800 jobs. But, as in other government-owned businesses, the employees were not let go but transferred to new jobs instead -- albeit with reduced pay.

Greece's partners in the euro zone are gradually losing patience with Prime Minister Papandreou and his team. A year after receiving €110 billion in international financial aid commitments, Greece has hopelessly failed to reach the agreed austerity goals. Its lenders are now questioning the government's ability to reform, the economy has declined even further than feared, and important tax revenues have failed to materialize.

How is it that Germany did better than other EU countries because its private sector was able to reduce work hours and pay without firing people, and now it is wrong for Greece to reduce public wages without firing people?

The Spiegel piece is naked narrative-setting for the U-turn in the Troika position. And the thrust is "unemployment, unemployment, umeployment". Throw the bums on the street. See how well that will work.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Tue Jun 7th, 2011 at 02:35:55 AM EST
[ Parent ]
I would go so far as to say that the troika's constant moving of goalposts and ridiculous demands on oversight of privatization constitute not only a negotiation in bad faith, but also a guarantee that Greece will be totally abandoned by its partners in the future.

The sea of people in front of the Greek Parliament understand this. The Greek politicians with their visions of turning Greece into Denmark do not.

Someone in a Greek paper, writing about the massive Greek protests, invoked Aeschylus this morning, "Who can exhaust the sea?"

We shall see.

by Upstate NY on Tue Jun 7th, 2011 at 12:37:54 PM EST
[ Parent ]
But the economic history of the first two decades of this century will be written by the "partners".

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Jun 7th, 2011 at 12:43:07 PM EST
[ Parent ]
It's not yet certain that the political history will be.

The ECB is (literally?) playing with fire here.

Here's a question - what kind of concerted EU-wide political action would be needed to remove the ECB's headlock on national policy across the EU?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Jun 7th, 2011 at 01:24:40 PM EST
[ Parent ]
How about a Europe-wide referendum of the form that is allegedly forseen by the Lisbon Treaty? 1 million signatures, isn't it?

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Tue Jun 7th, 2011 at 06:09:02 PM EST
[ Parent ]
It is. But the provision was only ratified in April, and won't become active until 2012.

And it's not a forced referendum or a demand for policy - it's a petition mechanism that asks the Commission to, like, think about stuff, if it wouldn't mind, and if it's not doing anything too taxing elsewhere.

Even so - it would make a terrific media campaign. And given current sentiments, I'd be surprised if it took anything like a year to get a million signatories supporting broad anti-bankster measures.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Jun 7th, 2011 at 07:04:15 PM EST
[ Parent ]
yes

ThatBritGuy:

Even so - it would make a terrific media campaign. And given current sentiments, I'd be surprised if it took anything like a year to get a million signatories supporting broad anti-bankster measures

much better than blairblocking even

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Jun 7th, 2011 at 09:31:54 PM EST
[ Parent ]
We could plan to have a qualified petition ready for submission on the day the provision comes into effect, if that is allowed.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jun 7th, 2011 at 10:22:59 PM EST
[ Parent ]

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