It was a weekend in which, according to traders, Greece facing an "absolutely final" was going to be saved. Instead, it may go down in history as the weekend in which the Eurozone finally split and its long-overdue disintegration began.
After yesterday's dramatic report that Germany, together with 5 other nations, are contemplating a "temporary" 5 year Grexit, it started to become clear that Schauble does indeed want to make an example of Greece (perhaps for France and Madame Frexit, perhaps for the rest of the European periphery where the recovery is so "strong", record youth unemployment still assures landslide anti-austerity and anti-Euro victories) and so he did, when the finmin meeting devolved into a total fiasco which ended in the most acrimonious manner yet, one where not even a statement was forthcoming.
The negotiation spilled over into today, where hours ago leader soundbites made it very clear that nothing would be resolve. Case in point, Finland's FinMin Stubb who said that while he is still hopeful "I think we’re very far away from the types of conditionality that we need. If this was a negotiation from one to 10, I think we’re still standing somewhere between 3 and 4. So making progress but not there yet. No one is blocking a deal, we’re all constructively trying to find a solution in a very difficult situation."
And just as we warned on Friday, when we said the proposed Greek offer would be nowhere near enough, so it was again confirmed: "The conditionality that has been presented by the Greeks is simply not enough at this stage. We need to have clear commitments, clear conditionality and clear proof that those conditions will be implemented at the end of the day."
Then it was Finland Prime Minister Juha Sipila who explained why Finland alongside many other nations including Germany, now are pushing for a Grexit: "proposals made by the Greek government on reforms it plans to undertake in return for a third bailout are not adequate as a starting point for negotiations with international creditors."
And why Greek hatred, focusing on the Germans for so long, now may have a new target: the pragmatic, efficient country of Finladn: "We don’t consider the Greek proposal at all sufficient for starting negotiations. Much must happen in order to advance. The Finnish government is unanimous on its stance on Greece."
Or as we said yesterday...
So when Microsoft fired thousands of Nokia employees it inadvertently started Grexit... pic.twitter.com/t28uCm8YP4— zerohedge (@zerohedge) July 11, 2015
Also it is now clear that Tsipras' capitulation was all for nothing.
Even erstwhile Greek supporters Italy were dour: "We continue to work to establish the conditions to start negotiations, which is the real target - it’s not about closing a deal, it’s about starting negotiations,” Italian Finance Minister Pier Carlo Padoan tells reporters in Brussels. "We think that there are conditions to do that but let’s face it, the main obstacle to moving forward is lack of trust."
Italy's conclusion of what is needed: "I would like to see the Greek government to take concrete actions tomorrow in parliament to implement measures that are needed for Greece in the first place and then to rebuild trust and therefore allow concrete negotiations to move forward. We have lost so much time, we cannot afford to lose more time anymore. We’re talking about a very complicated program. ESM is complicated, it deals with structural reforms across the board, it deals with financing."
The only problem is that Greece likely won't have a government much longer, especially not when Tsipras is forced to tell his countrymen that the latest demands by the Eurogroup include at least one kidney. Assuming 79% of the Greeks were against the original Greek debt deal, at this point the only question is just how violent the government overthrow would be if and when Syriza tries to explain to the people just what is going on.
As for what happens today, well as Slovakia FinMin Peter Kazimir said quite simply earlier "it's not possible to reach deal today." What also happens is that all those EU-28members who had hope to meet in Brussels and savor some of that fine Belgium caterer product, were told to stay at home when European Council president Donald Tusk said that he had cancelled a planned meeting of EU heads of state and government this afternoon, even as a summit of euro zone leaders scheduled to continue until talks conclude on Greece. It may go on for a long, long time.
Tusk said in a tweet that the euro zone summit would start at 1600 CET (1400 GMT), an hour later than planned "and last until we conclude talks on Greece". Euro zone leaders were due to meet on Sunday, either to endorse a decision to open talks on a new bailout or, along with other EU leaders, to take steps to contain the fallout from a looming Greek bankruptcy.
Basically, all Europe has left now is hope: hope that Germany will change its mind in the last second and will backtrack on its demands. It got so bad that Luxembourg's foreign minister made a plea for Germany to avoid a Greek exit from the euro, warning Berlin of a catastrophic schism with France if it pushes for Athens to leave the currency union. The comments from Jean Asselborn, released on Sunday, came after Germany argued that Greece could take a five-year "time-out" from the euro zone and have some of its debts written off if Athens fails to improve proposals it has made for a bailout.
"It would be fatal for Germany's reputation in the EU and the world if Berlin does not now seize the chance that there now is with the Greek reform offers," Asselborn told Germany's Sueddeutsche Zeitung newspaper.
"If Germany pushes for a Grexit, it will provoke a profound conflict with France. That would be a catastrophe for Europe," he added in an advance release of an interview to run in the Sueddeutsche's Monday edition.
So there is still hope, although if one looks at their faces...
... it is not much.
* * *
So where are we now? Sky News' Ed Conway has prepared a convenient list of "stream of consciousness" bullet points that effecttively summarize the situation:
Here are a few stream-of-consciousness thoughts about where we are, written at lunchtime on Sunday. They may be out-of-date by the time you read them. Then again, in the euro crisis, nothing ever seems to change all that much.
1. Today’s Absolutely Final deadline is no longer final.
There was lots of talk (from the President of the European Council among others) that Sunday’s leaders’ and EU leaders’ summit was the Very Last Opportunity to seal a deal or to throw Greece out of the euro. That seemed to make some sense?—?after all, not only are the Greek banks closed, the entire financial system seems to be about to run out of money. There’s only so long you can run an economy without a fully-functioning banking system.
However, at yesterdays’ eurogroup meeting (that’s the euro finance ministers) it emerged that the decision on a deal may be put off for another few days. Sources said that the financial outflows were not so bad last week, and that the Greek banking system could survive for another few days. Whether this is true or not remains to be seen.
2. One big problem is trust
This is both good news and bad. Good because it signifies that in terms of the proposals for a bailout deal, there is no longer much distance between the two sides. Having persuaded his people to vote in last weekend’s referendum against the deal proposed by the creditors, he has subsequently signed up to the vast majority of its strictures. So the two sides now, finally, largely agree on the kind of austerity that needs to be imposed (cuts to pension bills, liberalising monopolies and nationalised industries, raising VAT and removing exemptions, including on the islands etc). The problem is that no-one believes that Greece will actually go through with the reforms?—?especially after all the surprises, disappointments and broken promises of the past few weeks and months. That is why there is talk of waiting until the Greek parliament has actually passed some of these measures before giving the final go-ahead to new bailout talks.
3. The other big problem is domestic politics
Midway through yesterday’s finance minister’s meeting, it emerged that Finland’s government was close to collapse, as the second-biggest party, the True Finns, were dead set against handing any extra cash to Greece. There were also extremely hawkish comments coming from the German and Slovakian teams. It’s a reminder that around the Eurozone many countries are simply sick and tired of handing money to Greece. The largely centrist leaders in Spain and Italy, who face upsurgent anti-euro parties back home, are desperate to prove to the electorate that voting in a party like Syriza is the worst thing they could do. The more Greece suffers (preferably with wall-to-wall coverage across the European broadcast media) the more likely their voters are to think twice about voting for Podemos or Beppe Grillo.
To put it another way, in order to get a deal, politicians will have to risk losing at least some votes (maybe lots of them) back home. And no politicians like that.
4. Crazy ideas are now mainstream
A few years ago it was forbidden to talk about the possibility that a country could leave the euro. That taboo was overcome a few years ago at the Cannes G20. Now some finance ministers are openly discussing how it would be done. The big story out of yesterday’s eurogroup was that Germany has been throwing around an idea of a temporary Grexit?—?that Greece could leave the single currency for five years, restructure its debt and re-join when it is in better health. The problem with such an idea is that “temporary” changes in currency regimes almost always turn out to be permanent. Take the UK leaving the ERM in 1992, or leaving the gold standard in 1931, or the US closing the gold window in 1971. All were described as temporary. Many might have even believed that at the time. Ultimately, they were nothing of the sort.
Anyway, what seems more likely is that this plan is a mischievous attempt at brinksmanship. And, even if it never comes to pass, it is going down brilliantly back home with the German electorate [see point 3].
5. The cancellation of the full EU leaders’ summit is neither a good nor a bad thing
There was originally supposed to be a euro leaders and then a full EU summit today?—?the idea presumably being that if Grexit was indeed likely, the whole of the EU might need to sign off both on that and the consequent humanitarian aid that might be needed. Now the EU summit has been cancelled?—?mainly because after last night’s nine hour marathon of talks it is clear that there will be no straightforward conclusion from the eurogroup, and hence the leaders won’t simply be coming into town to sign a piece of paper and then leave.
6. Best-case scenario: eurofudge
Of course, the pie-in-the-sky best-case scenario involves Greece getting a deal immediately and going home and successfully implementing it. But a more realistic scenario is probably going to involve a characteristic euro fudge.
The euro finance ministers could agree to begin bailout talks on the pre-condition that Greece implements a number of austerity/reform proposals in the next few days. This would be endorsed by the leaders, unanimously. Then, the European Central Bank confirms that because talks are now ongoing (as opposed to frozen) it can loosen conditions on Greece’s banks (though they won’t open for some time either way). The eurogroup confirms the bailout talks are underway in yet another meeting or teleconference later on this week. Note that there is no longer any hope of getting a full bailout signed off?—?the best that can be done is to begin formal negotiations for another bailout. All because the last deal expired a couple of weeks ago.
7. Worst-case scenario: eurodisaster
The worst-case scenario for both sides involves Greece leaving the euro. Quite how this happens is anyone’s guess, though Germany’s eurosabbatical paper yesterday underlined that despite the fact that the EU Treaties don’t have a clause to allow it, Grexit is absolutely feasible. It would begin with a breakdown of today’s talks, with a complete split in the eurogroup and euro leaders’ meeting between those who believe Greece’s departure is good news for the euro (Germany, Finland etc) and those who think it would be a disaster (France, Italy etc).
Rather than coming out and waving a piece of paper saying Greece is heading back to the drachma, the process might be more subtle and imperceptible: Athens might be allowed to print its own euro-denominated instruments; it might be allowed to print scrip; it might simply not be allowed to get extra liquidity from the ECB and be forced to nationalise its banks.
But though it might not begin with one big moment of fanfare, a departure would be messy, would provoke a further default by Greece on its debts to the IMF, the ECB and other euro nations. They would be pursued in the courts for decades for some sort of payback. Questions would arise over the future of the single currency. If the remaining members do not commit to big-scale further integration (a single Treasury, fiscal union) they will leave the door open for further departures in the coming years. Markets would plunge, not just in the Eurozone but everywhere around the world. Greece would almost certainly be out of the euro forever, however much the move would be branded initially as temporary.
* * *
Good luck Europe, judging by the suddenly surging Bitcoin price, you need it now more than ever.