Summit signposts: Hollande’s eurobond, and Greece’s banks.

Can Hollande offer what Merkel wants?

The poker game that is non-negotiable bailout terms v Greek exit threat continues, but most of the propaganda is now coming from Berlin-am-Brussels. A German source suggested last night that Merkel is adamant that Greece must not derail the dash to Fiscal Union. If Francois Hollande gets his way, however, the Greeks will not be required to call the EU’s bluff – or vice versa.

“It’s the Big One,” as arch unconscious double-entendre expert David Coleman was wont to remark. The EU summit that begins today is an  important one for eurowatchers. Whether it will achieve much is another matter entirely. But either way, the session will be dominated by The Greek Question….something that is, allegedly, now getting very severely on the Fuhrerin’s nerves.

Some of you may have noticed that over the last week I’ve been edging out onto a limb regarding Greek exit from the euro. That’s to say, if one applies the Slog first principle of watching behaviour and ignoring rhetoric, all the signs suggest to me that Greece will stay in. The reason is simple: neither side wants it to leave the eurozone.

A few weeks back, there were clear signs of a change of heart among the Greek electorate; but on closer examination, it only ever went as far as the bailout terms in relation to ‘rebellion’: even Alexis Tsipras has had to accept that probably around three-quarters of the voters want to stay in the eurozone. In the latest opinion poll anecdotes I’ve received, there is evidence of voters now returning to New Democracy, with Syriza on the Left also doing well….and Evangelo Venomzealot’s PASOK holding steady. This suggests to me that, come June 18th, there will be a pro-bailout majority in the Parliament. (But don’t rule out Merkel and Schäuble doing something unutterably dumb in the meantime).

At the other end of the tug-of-war, there is a lot of blustery propaganda in the air, but again, actions speak louder than words.

Greece’s banking system is being propped up by an estimated €100 billion or so of emergency liquidity assistance (ELA) provided by the country’s central bank — but it is being approved secretly by the European Central Bank in Frankfurt. A careful look at last month’s ECB statements also shows that an unexpected €121 billion increase in the innocently titled heading “other claims on euro area credit institutions” just went flying out of the rapidly-emptying coffers. The total figure is closer to €140 billion….but most of it went to Athenian banks.

“Cutting off ELA would be the way to push Greece out of the eurozone — if that was wanted, or if Greece really wanted to leave. But I don’t think the ECB is going to take that decision,” said Laurent Fransolet, Barclays analyst. I think Monsieur Fransolet is right on the money – if the situation in Athens remains within Draghi control. (See more on this below)

Greece’s position has also been considerably strengthened by the election of Francois Hollande. Before that event, the diabolical duo in Berlin were merely outnumbered: now, they’re surrounded. This hasn’t stopped Der Spiegel (whose editorial position is now openly for kicking Greece out of the eurozone) from running the usual Finance Ministry plants – like this one from yesterday:

 

‘Despite official claims to the contrary, the governments of the euro zone are threatening to kick Greece out of the currency union. At a meeting of euro-zone finance ministers last Monday in Brussels, it was made clear to Greek Finance Minister Filippos Sachinidis just how serious the situation had become. “If we now held a secret vote about Greece staying in the euro zone,” Euro Group Chairman Jean-Claude Juncker warned his Greek colleague, “there would be an overwhelming majority against it.”

I do have a slight logic problem with Juncker’s ability to hold a secret ballot and know the result in advance, but spend too much time working for the Commission, and this is the sort of brain damage that occurs. Anyway, it’s bollocks: the majority view among finance ministers is not what mattered until now: Wolfie Schäuble’s view (when approved by Mrs Rochester in the Chancellery attic) was all that mattered.

Again, the entry of Hollande into the equation changes all that. So Berlin has been ratcheting up the rhetoric via Der Spiegel which, in yesterday’s piece, moved into overdrive with this bit straight out of a Second Year school newspaper:

‘Other participants in the meeting also had harsh words for Sachinidis, with particularly strong criticism towards Athens coming from Portugal and Ireland, countries that have also accepted bailouts in the crisis. The countries say it is unacceptable that they have made serious efforts to fulfil the European Union’s guidelines for consolidating their budgets while Greece incessantly breaks its reform agreements. It was the Greeks, they noted, who poured oil on the flames and repeatedly caused the whole euro zone to catch fire with their repeated negligence, other ministers added.’

That would’ve made even Goebbels cringe: harsh words, incessant rule-breaking, pouring oil on flames, whole eurozone catching fire, repeated negligence repeatedly repeated….‘other ministers added’. Dear oh dearie me: synchronised Athens-bashing.

Taking the opposite view to mine, Bloomberg this morning argues that

‘This logic [Slogic?] underestimates a crucial element of the euro area’s political economy: in a union of partially sovereign members without a supranational authority, concerns about moral hazard — the possibility that leniency towards Greece will encourage other countries to misbehave — still carry a lot of weight. Euro-area leaders are not bluffing when they threaten to cut off support from the European Central Bank – and let the Greek government run out of money.’

There is some evidence to support that view. Yesterday Mario Draghi (I understand) flatly refused to give further liquidity help to four Greek banks. But it would be a mistake, I think, to see that as a bargaining chip: he did it because, quite wisely, he regarded it as good money chasing bad. Signor Draghi faces a genuine dilemma: he most emphatically does not want Greece to quit the euro (if more people did the sums, they’d understand why) but in turn, he cannot empty the ECB to save one country’s banks. The Greek banking system is on a knife-edge, and if it collapses even partially before June 17th then everything could change.

Here too, the logic is clear – at least to me: if you stay in the damned euro and your banking system collapses anyway, what on earth is there left to fear about leaving the euro? Draghi and Brussels have a real problem here.

Finally, I stick with my geopolitical view on Greece – and also my experience of tracking how and why Geithner’s amputation plan for Athens went wrong: the eurocrats are now fully awake to the reality of the staggering mineral and energy wealth that lies under Greek territorial waters. They really do fear that the Americans would like it for themselves….and they’re right. (So would Recep Erdogan, but that’s a topic or another day.)

I sense that the German era of neurotic moralising is about to draw slowly to a close. As of next year, Geli und Wolfie may well be in enforced retirement, and – let’s face it – Hollande and the German SPD leadership would get on like a house on fire. Even if it had been set alight by those beastly, greasy Greeks pouring their nasty olive oil onto the flames and setting everything alight in a repeatedly repetitive manner.

A the end of this argument, however, there seems to me – still – absolutely no way the eurozone can survive. Spain is a basket case, Italy is heading in the same direction, Ireland could still vote against Fiscal Union, and Greece’s debt (even under the bailout schedule) is unrepayable. As for the EU, I think things are looking a lot more hopeful for the europhiles than they were six weeks ago. What comes out of this week’s summit sessions will tell us quite a bit about that. Let’s wait and see.