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“Oxi” Means …

Greece has voted “no”. The word is “oxi”, pronounced something like “ohee” in phonetic English, but with a little bit stuck in your throat on the “h” as if you are spitting on the European Central Bank (ECB).

It may well be that this deal had to be rejected and Greece has to essentially go over the cliff to be able to really stand on its feet one day. It may be that the ECB deserves to be spat on, and for that matter perhaps all banks have it coming to them.

But banks today are what we have to watch – in Greece and all around the world. The proud Hellenic people may be about to find out what a world without banks is like as theirs are at the very least going to remain closed for a while longer.  Life is going to become increasingly more difficult for everyone.

But this is hardly the first time Greece stood up and said “no” to the great powers of the world.

The European Central Bank, all shiny and imposing.

The European Central Bank, all shiny and imposing.

It’s worth noting once again that there is no automatic ejection from the Euro if a deal isn’t made by any one of a number of deadlines in the past or the future. Indeed, there is no mechanism for telling Greece as a nation that no, you cannot use the Euro. Being “kicked out” isn’t really an option.

What this comes down to is the proud nation has rallied around PM Tsipras and his Syriza Party and given him the backing he need to take this as far as he can. So far he seems to be working under the belief that “If you owe the bank a thousand dollars you have a problem but if you owe the bank a billion dollars the bank has a problem.”

So far, however, the ECB has once again shown that it is made of marble and simply has not blinked.

Why can’t Greece take the terms that they have been offered so far? Because Greek debt, like that of many nations, is so large that it cannot be simply paid off in a conventional way. The taxes necessary to meed ordinary service of the bonds will no doubt cripple the economy without a draconian reduction in services.

That's the stuff.

That’s the stuff.

They can’t tax their way out, they can’t cut their way out, and they can’t grow their way out. It’s going to take a combination of all three – and a substantial amount of debt forgiveness in a jubilee.

The only way that Greece can possibly force this to happen is to make the current bondholders honestly believe that they are looking at a net value for their Greek sovereign debt of zero before they accept that pennies on the Euro is actually a good deal.

Tspiras could take this all the way to the wall except for one thing – people withdrawing their money from banks and reducing their reserves to the point where the banks are in danger of failing as well. In order to prevent such a failure, the banks have been closed and will now likely remain closed until a deal can be struck.

Greek Finance Minister Yanis Varoufakis, from his twitter account pic.  No, I'm not kidding.

Greek Finance Minister Yanis Varoufakis, from his twitter account pic. No, I’m not kidding.

What Tsipras needed from the Greek people was patience – the time necessary to push this problem right over the cliff. The huge “no” – 61% – has given him some of that as the people of Greece experience living in a world without modern banking for just a little while longer. It may be something they need to get used to for the long haul if the ECB still doesn’t blink.

Meanwhile, stock markets around the world are ready to tumble. That’s not as much about the failure of Greece or even Europe as it is the sudden realization that equities have a lot more downside risk than has been though during the long run-up since 2010. This “bull” market is really buried inside a secular “bear” market that still hasn’t quite topped the pre-depression heights of 1999 in real (inflation adjusted) terms.

But we may have to go back a little further to find the right analogy. After all, “civilized” people learned to speak Greek 2,500 years ago after the collection of stubborn city states stood on their feet and said “No” to Darius of Persia. It seemed rather incredible at the time, but Greece found a way to survive outside the great empire that controlled what was then the civilized world.

History doesn’t repeat itself, but it sure does rhyme. We’ll all have to learn a little more Greek before we know just what rhymes with “oxi”.

28 thoughts on ““Oxi” Means …

  1. I don’t have anything like Erik’s knowledge of this. Obviously the Greeks are treading on dangerous ground. How much of this huge “dept” of theirs is the result of predatory lending practices and corruption?

    I think there is a strong and growing feeling throughout the world that the banksters need to be brought to heel, to be held responsible for the consequences of their actions. From this point of view many will feel good about the Greek vote. But their needs to be more than good feelings; Greeks needs real help, not self-serving manipulative help, in working through this and ending up still owning their own country.

    I’m trying to remember the year that Rodrigo Carazo Odio, President of Costa Rica, put a bunch of IMF banksters back on their plane and sent them home. He repudiated debts. They took their revenge, but CR survived. http://www.globalpost.com/dispatch/costa-rica/091216/rodrigo-carazo-odio-died

    • This may well be the right thing to do. But as noted in the article, Costa Rica paid a short-term price for default that was extremely painful. People do have to eat every day – and when you’re not sure what will come tomorrow that gnawing feeling in the pit of your stomach will try patience far more than anything else.
      We really don’t know what will come of this. That unknown is far worse than anything in the minds of investors and in the stomachs of hungry people. The standoff is going to continue, that much we know. The rest? I can’t say.
      Do we need to bring banks to heal? I would say that yes, they have too much power in the world today. That power is measured directly in the amount of debt that is owed to them. The systems of the world need to reduce debt through a Jubilee before a disorderly default occurs, IMHO. I’ve been saying that for several years now.

  2. Biily Mays Varoufakis here for OXI Clean, the solutions to all your debt problems…..Well, yes, negotiations are starting up again. But it’s the math that counts. Can Italy, Spain, Portugal, or even France take a 30%, 40% or even 50% haircut? Except for Greece, everyone else’s debt is so intertwined that there can’t be any haircut or everything falls apart. I suspect that the ECB really wants to push Greece out and figures to make up the difference with a great more quantitative easing. Un like the US, the ECB can print more money, create more credit at the drop of a hat is accountable to no one in Europe, not even the Germans. I would believe that Varoufakis has departed because Tspiras believes he can wrestle concessions out of the creditors while bluffing the ECB. I think Varoufakis has given him the math lesson but Tspiras doesn’t want to 1) believe it, or 2) the popular mandate is to stay in the Eurozone and and the EU. The next round of talks will be very interesting but I have no faith is fantasy solutions. Truth is, Greece must default, Greece must leave the Eurozone, and it may have to leave the EU or be granted a special partnership status. That is the reality until 2+2 = 5.

    • Good schtick at the start. 🙂
      I think Varoufakis has led the financial equivalent of guerrilla war and, as a practitioner, hit and run. Greece clearly believes they have a stronger hand than anyone else does and that the risk of default will bring the creditors to the table on more favorable terms.
      I do agree that more default is necessary, but it is best for everyone that it happen in an orderly way. So far the creditors are not allowing that to happen.

      • Thank you for the comment. I wrote two articles today that you may find interesting. the last really outlines the present dilemma for the ECB and Greece. Enjoy them if you wish. Your comments are always good reading, by the way.

    • I believe they still have credit cards, but the banks are closed at least through Wednesday at this point. My understanding is that they had an active barter system operating even before this, so we can only imagine what’s going on now.

  3. I see their finance minister “stepped down” today. I have to ask Erik, are we next? The USA has tons more debt per capita than Greece. Just an astronomical amount that I don’t think can ever be paid.
    Or is this just another example of the socialist system not working? They just ran out of “other peoples money”

    • Are we next? Certainly, we’re in a similar situation – although our debt is less than half theirs as a share of GDP (72% vs 161%). We also cannot either tax, cut, or grow our way out – it must take a combination of all three.
      But our supply of OPM (Other People’s Money), the real OPiuM of the world, is a lot more limitless as long as the global standard reserve currency remains the US Dollar. That can’t hold forever, but it will for at least a little while longer.
      Yes, we do have a serious problem, though not as bad as Greece. And as I’ve said many times before we have to confront it before it turns into …. this ….

  4. The interesting thing about the Clinton presidency economic policy is that the reduced federal budget during those years was associated with increased debt issues in the private sector. Savings or non consumption allows for all types of debt issuances or purchases of securities or purchases of bonds. Savings have to go somewhere most of the times.

    Whether loans, securites and bonds should exist from a moral standpoint is….well lets start reviewing history…

    The fun thing about Barataria is that we all, including me, take varying, contradictory stances about debt.

    Barataria is at its core a blog about debt with a few forays about getting one’s thinking lost in good science fiction…

    • Debt is indeed where it’s at these daze. It’s not always a bad thing, but even when it’s done for the right reasons (investment, infrastructure) too much of a good thing is a bad thing.

    • A good article, if written from a distinct political point of view (which I try to avoid).
      Let me try to boil all of this down, if I may.
      When we talk about Greece, or really every nation at this point, we’re talking about the corrosive effects of a large public debt load.
      This article reasonably calls out the threat to democracy imposed by all that debt – and indeed how modern economies have been run for the last 50 years or so. The call for a closed economy with barriers to entry I’ll leave aside for a bit and focus on the problems with debt which everyone has. I completely agree that the dialogue with the Greek people about their future dealing with this somehow is absolutely critical.
      The other problem that I’ve been focused on is how such a large debt load can be managed economically, which is to say without a terrible burden on everyone in the end. It’s really the same problem expressed in a different way.
      The short version is that debt is not being managed in a way that is consistent with any of our beliefs and values anywhere in the world.
      So how do we manage it? What really went wrong?

      • And if I argued that focusing on “debt” itself represents “a distinct political point of view” just as much as any other?

      • Fair enough. I was thinking the same thing.
        If the topic at hand is the role of banking in a democratic society, there are many ways of looking at it. Public debt is one component of the issue, for sure. There are others such as the large number of people who are “unbanked”, which I have written about. There’s a place for economic literacy, too.
        I was thinking about writing about this today. I hope I have time to try to pull this all together. What, indeed, does a free and open society need in the way of banking in this new economy?

    • So here is something from George Friedman, an often-cogent right-winger:

      “As I have said, the Greeks were irresponsible borrowing money. But the rest of Europe was irresponsible in lending it. Indeed, the banks that lent the money knew perfectly well the condition Greece was in. The idea that the Greeks pulled the wool over the bankers’ eyes is nonsense. The bankers wanted to make the loans because they made money off of transactions. Plus, European institutions that bought the loans from them bailed out those that made the loans. The people who made the loans sold them to third parties, and the third parties sold them to EU institutions. As for the Greeks, it was not the current government or the public that borrowed the money. [….]” (http://bit.ly/1KKkXIl)

      To me this rings true and little different from the “mortgage crisis” in the US. There will always be debate over who is the perp and who is the victim, but the underlying reality is that societies need institutions that deal in money as such, but letting them operate unfettered and unregulated can only produce disaster. Thus, the need for President Sanders, not President Clinton (II)….

      Enough out of me on this. Work to do.

      • And what kind of regulation makes sense? As far as I can tell, I’m the first person to use the phrase “Banking should be boring”. Maybe it should be more or less on autopilot for reasons of transparency? Dunno.
        I also have work to do, but this is a good area to think about, generally.

  5. Empirically if there is currently banking then those operations can’t be described as boring.

  6. Pingback: Crisis and Calm | Barataria - The work of Erik Hare

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