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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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Sun, 06/17/2012 - 08:10 | 2533480 Element
Element's picture

Russia yesterday denied the incorrect NBC reports that Russian naval ships or troops were headed for Syria.

The NBC report was apparently propaganda schtick being put out in advance of the Pentagon's own announcing it had completed plans and preparations to invade Syria.  Thus making the US's position to appear less extreme and belligerent.

In short, the US military is using disinformation operations within US domestic media to shape perceptions and debate, and the MSM goes along with it.

What Eisenhower warned the US public to strenuously guard against, is now routinely occurring.

Sun, 06/17/2012 - 10:13 | 2533681 headless blogger
headless blogger's picture

Thanks for the heads up on this latest propaganda. I think they had said they were going to work on "public perception", which used to be illegal.

They're doing crimes openly, now, even murder, because they know the public will do absolutely nothing. All caring individuals can do now is keep records of all the goings-on for safe secure; for when a generation, sometime in the future, may be more educated and less corrupt.

Sat, 06/16/2012 - 16:48 | 2532646 The Age of Usef...
The Age of Useful Idiots's picture

He is not 'on the socialist side' at all, he is actually as right-wing as it gets. He is a nationalist who rightly declares the current political elite in Greece traitors.

Sat, 06/16/2012 - 14:21 | 2532427 jonjon831983
jonjon831983's picture

Wow, that's intense speech.

 

What is this June 24th "celebration" or what not for these supposed nazi italian collaborators.

Sat, 06/16/2012 - 14:08 | 2532409 RoadKill
RoadKill's picture

Great propiganda. But ultimately ill informed

Sat, 06/16/2012 - 14:20 | 2532425 jonjon831983
jonjon831983's picture

Please explain for the uninformed.

Sat, 06/16/2012 - 17:08 | 2532670 ThirdWorldDude
ThirdWorldDude's picture

He's probably disappointed that Mittens didn't get mentioned in the speech...

Sat, 06/16/2012 - 13:05 | 2532301 Doña K
Doña K's picture

Simply amazing!

Sat, 06/16/2012 - 11:56 | 2532178 ElvisDog
ElvisDog's picture

Problem is it's hard to separate real analysis from book-talking bullshit when reading these commentaries from TBTF banks like Citi. It seems like I've been reading Greekpocalypse predictions for years.

Sat, 06/16/2012 - 11:53 | 2532163 TahoeBilly2012
TahoeBilly2012's picture

One way to raise some needed Government revenues could be to license advertissing on the sides of the drones. I mean, if they are going to be putzing around 24/7 could JP Morgan have some ads on them?

Sun, 06/17/2012 - 09:32 | 2533609 mjcOH1
mjcOH1's picture

"One way to raise some needed Government revenues could be to license advertissing on the sides of the drones. I mean, if they are going to be putzing around 24/7 could JP Morgan have some ads on them?"

They could tow banners.   Or sky-write.

Sat, 06/16/2012 - 18:45 | 2532746 HungrySeagull
HungrySeagull's picture

Yer disgusting.

Gave you a thumbs up anyway and I thought I was creative.

Sat, 06/16/2012 - 11:07 | 2532014 Zero Govt
Zero Govt's picture

Govt got Greece into this desperate bankrupt farce

international Govt (EU/ECB/EU) couldn't get them out (no solutions at any level, politicans always fire blanks)

let's hope the Greeks see Govt for what it is, a sham wrapped in deceipt whose aim is to wreck first your economy and then your society (as the Greek Govt has averaged every 14 years)

Give Govt the boot Greece, stop repeating the mistake

Sun, 06/17/2012 - 13:21 | 2534208 MFL8240
MFL8240's picture

Wrong!  The Wall Street whores got Greece in the trouble it is in as did they ruin Italy, and Spain. 

Sat, 06/16/2012 - 18:24 | 2532735 Peter Pan
Peter Pan's picture

Greece will become exceedingly dangerous the more and more the German austerity boot tries to bring her in line with unsustainable strategies. If they go too far the plight of Greece will unleash intense nationalism internally and incredible support from the outside.

History has been on the Greek side again and again and again. The score for Germany hasn't been too good with two world wars totally lost and a reputation of succumbing to a man who turned them into mass murderers.

No one denies the German qualities of discipline and productivity but they need to become compassionate lateral thinkers and win the hearts of Europeans rather than threaten them into submission.

Sun, 06/17/2012 - 00:09 | 2533158 Lednbrass
Lednbrass's picture

German Austerity boot? What complete crap.

Oh no! Unleashed Greeks! Boy, thats guaranteed to strike fear into the Germans.

You need to be honest, what you call "compassionate lateral thinking" is complete horseshit that really means you want the Germans to give vast amounts of money to Greeks so the Greeks can continue to retire before the Germans themselves can.

This is ridiculous, the Germans should cut them loose to either succeed or fail on their own, and eventually they will do jsut that.

Sat, 06/16/2012 - 23:24 | 2533111 Freddie
Freddie's picture

Austerity?  Oh you mean that 50+% of unionized Greeks working for the govt might have to take a pay cut?  Hugh Hendry correctly called Greece a cheats charter.

Germany ponying up even more money is a waste. The Euro and EUSSR has to go.   

Sun, 06/17/2012 - 02:21 | 2533284 Peter Pan
Peter Pan's picture

I suppose you prefer US style austerity with a budget deficit that defies economics and logic. Or US austerity that has produced higher and higher rates of pay for US public servants compared to private enterprise? Or US austerity that has given trillion to bankers while having people losing their jobs and homes? Or US austerity that has hundreds of billions for interfering in other nations? Or US austerity that keeps doling out education loans that enslave graduates with gargantuan debt and no quality jobs?

The German approach in Europe will fail. Print this out and cry when it happens.

Sat, 06/16/2012 - 11:46 | 2532141 saturn
saturn's picture

NATO will bomb Greece any minute now.

Sat, 06/16/2012 - 22:22 | 2533020 Lednbrass
Lednbrass's picture

Nah, not enough oil.

Sat, 06/16/2012 - 18:40 | 2532744 Peter Pan
Peter Pan's picture

That would be funny if it wasn't for the very strong suspicions that the USA bombed its own Pentagon and its own twin towers.

We need to wake up to the fact that austerity in its current format and lack of real carrot is failing badly.

Sat, 06/16/2012 - 13:42 | 2532363 Jack Sheet
Jack Sheet's picture

Rubbish. They will be destroying their own collateral.

Sat, 06/16/2012 - 12:18 | 2532219 falak pema
falak pema's picture

an lose a good arms industry client? Why bomb the void?

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