Greece: Grefault not Grexit

So, you know it all about Greece and the crises, having read the press and listened into TV shows! Well, maybe you have noticed, that in Greece things just don’t work out as foreseen and as they would in other places.

It’s about Semantics

Greeks don’t like the Troika, so it’s re-baptized to “The Institutions”. I would not like to be called either one.


Now, the press is speculating about a “Grexit”, knowing exactly that the treaties do not foresee  the case of exiting the common currency. Grext would mean, modifying the Mastricht treaty, meaning you’d need all members to agree to such a modification. Knowing the Greeks, that would take time and more time if it was ever to happen.

As Martin Schulz put it, a Grexit is possible if Greece leaves the European union. But how can a country leave the European Union?

According to the Treaty on European Union (Article 50): “Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.”

Wow, that’s great news. But, what if the Greeks don’t want to leave? And according to consistent poll results, the vast majority of Greeks don’t even want to leave the Euro, not to speak about the union.

The semantics of Grexit is somewhat more complex: it probably means leaving without leaving or staying without staying.

Tsipras, Varoufakis and the Casino

The Casino always wins, at least most often. But then, it happens that the bank goes bust, depending on how much money the player disposes of, or how well the bluff is placed. Greece just does not have the necessary coins to play it by the money.

The Casino has to play by the rules. By definition, the rules are in favor of the bank.  In Europe the rules followed are rules which are politically defensible and manageable by governments and legislators who for a wast majority originate form typically center left/right political cultures.

Europe expects players to stick to the rules of the political establishment.

The problem arises, when all of a sudden Mr. Tsipras and Mr. Varoufakis enter the game and play according to their rules, rules which are legal, even legitimate but not in accordance with the sacro-saint diplomatic dress-code and langue de bois.

Mr. Tsipras and Mr. Varoufakis know: they can not really win the party but in the best case they can damage the opponents to bridge the gap between rich and poor.

There is actually nothing to win for the Greek side at this stage: agreeing to creditors conditions will not help Greece, it would just allow creditors to flip some 7 billion back and forth to prove that loans of a de facto insolvent country are performing, allowing to drag the situation through the summer or part of it. And the Greeks should pay for it with increased austerity? Nonsense!

There is not much to lose for Greece either, as it has already lost what it needs to play in the concert of the international world of finance.

Contrary to what creditors lead us to believe, the markets prove very well how a Greek worst case scenario will swap over to neighboring economies, Europe and the rest of the world.

What will a default change?

Defaulting may trigger an economic crash within Greece but it will even more hurt negligent creditors who have not provided for the eventual losses deriving from the consequences of the 2010 and 2012 agreements. The Greek restructuring did not lead to a sustainable situation and from hindsight it seems all parties agree at least to that fact.

While every third class accountant or banker knows about debt provisioning and contingent credit risks, it comes as a huge surprise that the Troika technocrats (sorry, Institutions) have not set aside funds to write off the mess they have helped to create.

Default also means that all outstanding amounts become due, as cross-default clauses would be activated.

Terrible scenario … for the creditors, because, while everyone knows that if Greece does not have the funds necessary to honor its duties to the IMF end of June, it will not have the 400 billion to cover all external debt, not to talk about the internal engagements. So, the result for Greece’s cash-flow is the same whether 1.6 bn or 400 bn become due.

The creditors however have not only a purely financial problem but also a political one. First, they could be taken to court for mismanagement of public funds and then they would have to explain to their constituencies not only why they have lost all that money, which mainly helped to save French and German banks and export industry, but also, that the humanitarian crises in Greece and the solidarity among members of the European Union requires huge additional funds to be forwarded by their taxpayers.

So, a default is no option, too dangerous for the creditors. Or for the European economy. Or for the American economy. Why else would the White House all of a sudden show definite interest in the urgent conclusion of “an” agreement? Maybe they fear a European version of Lehman Brothers which has triggered the blow-up of the bubble in the first place?

Grefault is the Solution

“Grefault” is when you default the Troika way: meaning, you are technically insolvent but not legally declared bankrupt. So far the Troika way has kept waters calm by advancing Greece the funds needed to serve the debt (at least till last August; since then, Greece made efforts to honor payments digging into the states and peoples reserves).

The absurd scenario of Grefault is best illustrated by the way the European Central Bank is pouring cash into the Greeks banking system to allow Greek depositors to withdraw their holdings, driving the debt via the emergency liquidity mechanisms sky high, at this time to over 84 billion Euros, which will be shouldered by European taxpayers. These taxpayers will love Greece for it and hopefully go after those responsible for such nonsense, which (as usual) has helped to keep (Greek) banks afloat up to now.

While in one way the creditors did not want the conclusion of the famous review before the elections bringing Mr. Tsipras and Siriza to power, to prevent the new government to start out with a reasonable cash balance, they did the only humanitarian effort without wanting it: allowing Greek people to withdraw their cash from banks and sending it abroad (to the creditors countries?) or hiding it at home.

Grefault is the scenario to bridge the time till Institutions have made sufficient provisions for covering losses over time.  Grefault is also a scenario, hopefully leading to a more united Europe, a stronger Union and a global consensus about real solidarity among European partners and people.

It’s time for leaders at the helm of Europe with a Vision and the will to guide the European peoples to a strong and prosperous future.

In the mean time, the weaker economies are suffering from the Greek situation being penalized by the financial markets (bonds before all) and the stronger economies by a loss of credibility and trust.

Greece will just continue to suffer, with or without an agreement; maybe the Grefault scenario could help to prevent social unrest and streams of Greek refugees to invade the prosperous European nations.

And maybe it’s just better the way things seem to develop: Greece will default and Europe will have to at last accept reality and learn from past mistakes. Grefault could be the starting point for a new, more people oriented way to handle crises, for the Greeks and the future of a united Europe.