Citi's Buiter: Greece will be forced out of the euro regardless of who wins the Sunday elections

Daily Collateral's picture

New Democracy. Syriza. Doesn't matter. According to Citi's senior political analyst Tina Fordham, chief economist Willem Buiter, and global economist Ebrahim Rahbari, "any new Greek government, regardless of its composition, will struggle with implementation challenges related to the imposition of further austerity measures demanded by the Troika in exchange for further assistance," and as a result, they "consider it likely that a new troika deal would ultimately fall apart and lead to Grexit."

Citi notes that there is growing sense among European leaders that "promotion of economic growth can no longer be subordinated completely, even in fiscally unsustainable euro area member states, to the requirements of fiscal austerity," but no one has any idea what that means.

This seems to be the current thinking, according to Citi:

The only operational, practical consensus on growth is that austerity policies should not be unnecessarily pro-cyclical. If a deficit target is overshot because of bad luck (economic activity and government revenues are weaker than expected despite full adherence to all conditionality) rather than bad faith (there has been a failure to implement agreed measures or policies), the shortfall will not have to be made up immediately – in the original time frame. More time will be given to achieve the original objectives without the need for deeper and faster austerity than originally envisaged. Bad faith (non-compliance) will, for incentive-compatibility or moral hazard reasons, continue to be punished with demand for enhanced and faster austerity.

Warning. Also, reminder: "And of course, reduced austerity does not mean no austerity, let alone the reversal of austerity...fiscal policy will remain contractionary overall – just less contractionary."

Citi's doesn't think Greece is able to handle any more austerity, and its rapidly deteriorating fiscal condition is hastening a day of reckoning. On how and when Greek membership in the euro ends:

A possible trigger would be the determination by the IMF following the first or second assessment, that it cannot disburse its next installment due under the current programme because the Greek programme is not fully funded for 12 months after the assessment. In that case some of the smaller core euro area member states that have made their contributions to the Greek EFSF programme conditional on the IMF disbursing would probably drop out too. The Greek sovereign would then be forced to default. Then the ECB would stop funding the Greek banks through the Eurosystem and through the Greek ELA. With neither the Greek sovereign nor the Greek banks having access to the lender of last resort, we believe Greece would probably leave the eurozone, as some liquidity through the issuance of New Drachma is better than no liquidity.

The Citi team says that "more generally, we are concerned at the prospect of formerly wealthy countries becoming 'new, critical fragile states.'" This is where things get really messy. They don't think the ECB, EU, et al. will even let Greece go financially when things get really bad as described above. More like this:

In order to prevent such a scenario, we believe that even if “Grexit” were to occur, Greece would stay in the European Union and receive some form of Troika or other external assistance, most likely through the Balance of Payments facility run by the European Commission and the IMF for non-euro area EU member states. Since 2008, Latvia, Hungary and Romania have been under such programmes. Support from the EIB, and from Structural and Cohesion funds would also be likely to be forthcoming. We would also expect the ECB to continue to support the Bank of Greece after a Grexit. After all, the Greek central bank would exit the Eurosystem with considerable euro-denominated debt to the Eurosystem (this could be its Target2 net debit balance – something around €100bn, or its share of the total losses suffered by the Eurosystem as a result of Greek exit, however this would be established, net of the capital it has paid into the ECB, which would, in principle, be refundable on exit).

And the darkness is spreading through Europe. The "seeds of dystopia" are being planted:

Throughout the euro area periphery, and indeed beyond it in the ‘soft core’ of the euro area, the potential for the so-called “seeds of dystopia” referred to in the WEF Global Risks report remains a key long-term risk to European political stability and competitiveness, as youth unemployment rises and the social contract between states and citizens erodes. The burdens of this adjustment fall disproportionately on young people, as evidenced in youth unemployment exceeding 50% in Greece and Spain and unacceptably high everywhere in the periphery and the euro area at large. We continue to take the view that political change in Europe will continue to take place in the ballot box, but note the rising risk of frequent changes in government, street violence and other upheaval in a more fraught environment undermining both political and social consensus when it is most needed. However, unlike in the Middle East and North Africa, European countries do not have an age pyramid, but rather an inverted one, making it less likely that inter-generational conflict will propel rapid change in political outcomes towards more growth and employment-friendly policies.


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otherleading's picture

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metastar's picture

"Bad faith (non-compliance) will, for incentive-compatibility or moral hazard reasons, continue to be punished with demand for enhanced and faster austerity" ...


And why aren't banks punished for such behavior???

dlmaniac's picture

Euro itself is destined to implode regardless Greece exits or not.

xcehn's picture

"The eurozone is doomed whatever happens in Athens....

In turn, there are three certainties about the eurozone: first, it has lost all bond market credibility; second, its economy is at a near standstill outside Germany, thus exacerbating its imbalance problems with every day; and third, there is no way it can bail out Spain, Italy and France….all of which it would have to do in order to arrived at a Fiskal Union not entirely peopled by the inmates of a debtors’ prison.

The eurozone will leave the stage before Greece leaves the eurozone.

A month ago, the MSM thought the French election was more important than the Greek one. They were wrong. Now they think it’s the other way round. They’re wrong again."

new guy's picture

Margaret Thatcher was right. The problem with socialism is that eventually you run out of other peoples money. Greece is the socialist promised land.

Ol Man's picture

That which is inevitable, must come to pass....

"Lieutenant... I am half Vulcanian. Vulcanians do not speculate. I speak from pure logic. If I let go of a hammer on a planet that has a positive gravity, I need not see it fall to know that it has, in fact, fallen. " - Spock, Court Martial

covert's picture

was greece ever really a part of europe?

silverdragon's picture

Greece needs to tell the banksters to fuck off and it save hundreds of billions in the process.

There is nothing negative anyone can do that would out weight the positives of this.

Greece would survive whatever negativity this creates.

No negativity out weighs writing of hundreds of billions in bankster debt.


AurorusBorealus's picture

Enter Russia stage right...

Navymugsy's picture

Right after they buy half of Cyprus. I don't speak Russian or Greek. I am so screwed...

silverdragon's picture

Greece, please just tell the banksters they aren't getting a cent. The implications of reneging on all that debt must be better than paying it. It is better to not owe hundreds of billions that to owe hundreds of billion.

You are still one of the most beautiful places on the planet and we will continue to visit you especially if you are a bit cheaper.


twocents's picture

"Citibank - The City Never Sleeps". That used to be their advert! I for one wish they woul long nap.

As for Fiat money, we all know what that stands for:






Great site btw.

resurger's picture


I filled in the blank


mjk0259's picture

Greece has gone bankrupt about every 20 years. They should never have been in EEC. Made some geopolitical sense since that is traditional invasion route for Turks and Persians but not worth throwing in more money than it would cost to occupy it again after invasion.


robertocarlos's picture

You can't make the Greeks leave and there is no mechanism for tossing them out. The Greeks have to make the decision to leave and that is not happening as long as they get free money.

mjcOH1's picture

"You can't make the Greeks leave and there is no mechanism for tossing them out. The Greeks have to make the decision to leave and that is not happening as long as they get free money."


Sure you can.   Stop the Euro bailout life support payments.  With insufficient cash flow to pay their civil servants and public pensions, they'll have no choice but to issue a currency of some sort.  

diana_in_spain's picture

the germans have to much to lose if greece (and spain ) leave so they Will do anything to prevent it. that is where thes countries have to bargain and say we'll take your money but not to Pay debts with it

HungrySeagull's picture

No no no.. not the gas money, but the food shops.

Jack Sheet's picture

J Rickards on Twitter, 4 h ago:
"Greece is not leaving the Euro"

So who has the better sources?

MachoMan's picture

The title seems the obvious answer...  if you control all the dark money triggers, then you can firewall greece...  also, should greece leave the euro and the remainder stays intact, then that will do wonders for increasing trust...  which is what this is all about anyway.  Simply put, the ecb/rest of euro can't rest on whether or not greek elections give them a favorable outcome...

This, in the end, is what politics is all about...  limiting your opponents to binary decisions (either way benefitting you or neither way hurting you).  Seems they'll go with the latter. 

Bob's picture

if you control all the dark money triggers

Exactly.  And, of course, you can change the rules in any manner necessary to maintain the relative status quo. 

Mark to myth, anyone?  We've seen just a hint of the kind of creative accounting that is possible to keep this international criminal enterprise going.

RoadKill's picture

Dear people of Greece.

You are correct this is a farce, a farce set upon you by your corrupt leaders that borrowed money in your name but without your permission. They borrowed money to buy votes, to stay in power to plunder you more.

The solution is simple. You do not have to except the loss of soverignty. You do mot have to reject capitalisim or security and accept communisim and the drachma. You simply have to exhert your right under the capitalist system to say

"This is not my debt. I did not sign for it and will not pay it."

It is not the lenders you should rail against. They were told by your corrupt politicians that they could enslave the Greek people to pay back the debts. They were. LIED to by your corrupt politicians about how much money they had borrowed from other lenders. The lenders lend knowing the risks of not being paid back. Should you recant on your debt, they will refuse to lend to you. WHICH IS GOOD. WE SHOULD LEARN FROM THIS THAT SOVERIGN BORROWINGS AND DEBT ARE A STEP TO ENSLAVEMENT. BAN THEM FOREVER IN YOURCONSTULITUTION.

It is not the banks that are threatening you to take Santorini or the

exartizo's picture

Toute nation a le gouvernement qu'elle mérite.

- Joseph De Maistre


- Except for the United States. Which got the government it didn't deserve from roughly 1776 until 1971.



AmCockerSpaniel's picture

It takes 2 (you and the banks). But not to worry; Russia will be right along to help you out? They will not be as forgiving as the EU if they don't get payed.

RoadKill's picture

It is other corrupt politicians that do not want to admit to their people that they did the same. You borrowed from the banks, but then when your corrupt politicians coild not borrow more from the banks they borrowed from the Mafia. The Mafia will not accept bankrupcy. They will not discharge debt. They will threaten your families and homes with destruction.

Stand up to the Mafia. Say this is not our debt and we will not pay ot.

Set an example for the citizens of Spain and Italy, Germany and France...

They are not your enemies. Corrupt politicians in those countries have done the same as has been done to Greece. Banks and pensioners across the world have been robbed just like yoir banks and pensioners.

Thos is not our debt and we will not pay it.

That is a right every citizen has and every country. The banks will suffer and they will learn not to trust politicians who offer to sell their citizens into slavery.

Vote for Syrza not for the promises of pensions and payouts. This is. The same corruption that got you in this mess.

Vote for Syrza and DEMAND an exit from the Euro and a expunging of all government debt.

Start a new Greek democracy. Show the corrupt politicians what capitalisim really means. Not corrput cronyism but freedom.

potlatch's picture

Just don't call them "Helots"

OneTinSoldier66's picture

"Citi notes that there is growing sense among European leaders that "promotion of economic growth can no longer be subordinated completely, even in fiscally unsustainable euro area member states, to the requirements of fiscal austerity," but no one has any idea what that means."


Well, if TBTF Citi and European Leaders don't have any idea of what state issued fiat paper money means fiscally anymore, then I don't know why anyone else would. Only The Shadow knows!

jonjon831983's picture

Good point regarding the age pyramid.

'However, unlike in the Middle East and North Africa, European countries do not have an age pyramid, but rather an inverted one, making it less likely that inter-generational conflict will propel rapid change in political outcomes towards more growth and employment-friendly policies.'

the tower's picture

I actually think that because of the inverted age pyramid Europe will go full on high-tech to solve the problems that come with a shrinking, aging population.

Situations like this cause revolutions, revolutions cause paradigm shifts, shifts that influence everything.

Japan is working on an army of robots, European collapse provides the reason to implement.

What has been called socialism and entitlement will become the new normal: basic income and healthcare for all, 50% jobs for all, technology to the rescue.

So much for the wet dreams of the capitalists and the bottom feeders who drool over them.

Bob's picture

Not in America . . . where "Liberty" absolutely requires have-nots, without whose existence we would not have the warm confirmation that people have "failed" and that the right people have made it.  The more poor there are and the more ugly the gap, the more it proves we have "Liberty" . . . and anybody who has a problem with that must be vanquished and returned to the deep recesses of Hell from which they came.  Likewise for the collectivist poisons of "compassion" and "social justice" they brought with them. 

Government is inherently "violent" and unconscionably wrong since it imposes taxes: "Ouch, ouch, it hoights!" 

"Liberty" is not cheap.  Clearly the problem is a lack of real "Liberty."  What problem, you may wonder?  Any problem, numbnuts. 

Extremism in the pursuit of Liberty is no vice, they say.  I'm going long on ecstatically self-righteous fanaticism in the name of "Liberty." 

Claim the right values and you can justify anything.

That's some American Exceptionalism you can count on. 

OneTinSoldier66's picture

"...but no one has any idea what that means."


Ahh yes, this is what it means! A Ctrl Alt Del. +1

shovelhead's picture

Welcome to PIIGS-LAND.  Step right up, free haircuts for all.

You too, Baldy.

headless blogger's picture

"The Citi team says that "more generally, we are concerned at the prospect of formerly wealthy countries becoming 'new, critical fragile states.'"

This tells me that the "conspiracy theorists" were on to something when they say this Economic crisis, originating in the U.S., has been planned to empoverish the Western nations, creating systems of a few wealthy ruling over the many serfs; what I call Modern Day Feudalism. But why would they do this and who exactly are the Elites? When we find answers to these questions the problems and solutions become more clear.

Freddie's picture

Wiping out the middle class in the USA and Western Europe plus flooding the countries with third world illegals is part of the plan.   Destroying freedom - one bailout at a time.

Mitzibitzi's picture

+1 for the well timed reference. I just finished reading Neuromancer last night, for about the 18th time. Tonight's bedtime reading will be 'Market Forces' by Richard Morgan - recommended as a glimpse into what a corporate controlled world will probably look like for the common guy; though the 'road rage' stuff is a bit silly.

Grand Supercycle's picture

Rally warning continues.

SPX-EURUSD-GBPUSD-AUDUSD-GOLD-SILVER bullish warning on daily charts strengthened further on Friday & more rally expected.

Shorts will be squeezed next week onwards.

DOW initial target approx 13,170 & more upside after that.

USDX daily chart bearish signal strengthened on Friday & further downside expected.

BeetleBailey's picture

Super Duper Technical Take.

Then watch some ECB/EU/Douche-Minister of Lying open their maw(s) and fuck up all those pretty charts.

ebworthen's picture

Then Spain, then Italy, then...

tom's picture

Germany and the ECB must stop enforcing gravity on Greece! Greece can't handle any more gravity! 

John_Coltrane's picture

And don't get me started on the necessity to relax the coulomb attraction law and weak nuclear interactions as they apply to Greece (but keep them for the rest of the universe since unstable atoms would be bad for the financial markets i'm thinking).

And while we're making adjustments to inconvenient laws of "austerity" this conservation of energy thingy is really causing problems with resource costs.  At least allow Greece, Italy and Spain to implement perpertual motion devices on an interim basis to reduce their current account deficits and energy consumption.

Judge Arrow's picture

Go long on police state vendors

headless blogger's picture

It seems Europe is coming undone at the seams at the same time Syria is exploding into a possible major war, with Russia's strong leader, Putin, sending more troops to "watch over their syrian base".

I'm sure Obama has all this timed meticulously to maximize his re-election bid. Scary!

Watch Panos Kammenos's speech on the Greek parliament floor. (subtitles). He might be a little on the socialist side but he's sure got more spunk than any American leader in a long time:

Beyond the Greek Matrix

Speech starts at about 3:35 in..