This report is from the Washington Post, so take the spin with a grain of salt. But tweets support the idea that the EU, led by Angela Merkel, was as brutal as has been reported.
Instead of considering the possibility of eating some of the unsustainable Greek debt, the EU has doubled down on Greek austerity, demanding the people of Greece eat it instead. Greece now has 5 days to kneel before her creditors and beg pardon, or else she will find herself ejected, alone, and without assistance from anyone. Yet.
Greece’s radical leftist government had been widely expected to present a new, detailed plan to finance ministers at a meeting Tuesday, just two days after a referendum in which Greek voters emphatically rejected Europe’s latest proposed cuts-for-cash deal. Before the vote, Tsipras promised he could strike an agreement with Europe “within 48 hours” if voters backed him — as they did.
I love the framing, don't you? "Radical leftist" governments are the ones who don't want to inflict more pain on their people.
In the eyes of the euro group, the problems in Greece do really need credible reforms,” he said. “And, therefore, we need to hear from the Greek government whether they have such reforms in mind.”
Hours later, after the leaders had dined on cod and chocolate mousse and Tsipras had made his own presentation, German Chancellor Angela Merkel said there still was not sufficient detail to formally restart negotiations.
“We respect the results of the referendum of one country, but we have 18 other countries where political decisions are also discussed,” Merkel said after the meeting. “We have only a few days left to find a solution.”
Coming from Merkel, this is rich. French economist Thomas Piketty explains why:
But in the interview with Die Zeit, Thomas Piketty went even farther, saying that the Germans are only in the strong economic position they are today because they benefited from the forgiveness of their neighbors after World War II.
It was in the 1950s, he notes, that Germany benefited from a massive — and, in those days, surprisingly common -- round of debt forgiveness that catapulted its rise into a peaceful economic power. Greece was one of the nations forgiving Germany's debts. In other words, Piketty suggested, when it comes to how to handle Greece in 2015, the best argument against Germany might be ... Germany, circa 1953↓ Story continues below ↓
Then, those countries gathered in London in 1953 for a debt summit. Archived accounts suggest that the creditor nations seemed to believe they were helping to serve the broader goal of a stable Europe by giving West Germany far easier terms. The formal agreement that came from the summit said debts were being partially forgiven in order to help Germany “make a contribution to the development of a prosperous community of nations.”
The creditor nations waved goodbye to roughly 50 percent of what they were owed.
Business Insider has an excellent overview of how Greece came to this point, no thanks at all to the IMF and the hedge fund moguls they bailed out.
There is another key fact that the Greeks are keenly aware of (but that everyone else has forgotten). This debt was initially owed to private-investment banks, such as Goldman Sachs. But the IMF and the European Central Bank (ECB) made the suicidal decision to let those private banks transfer that debt to EU institutions and the IMF to "rescue" Greece. As Business Insider reported back in April, former ECB president Jean-Claude Trichet insisted that the debt transfer take place:
The ECB president "blew up," according to one attendee. "Trichet said, 'We are an economic and monetary union, and there must be no debt restructuring!'" this person recalled. "He was shouting."
The result was that the ECB made this catastrophically stupid deal with Greece, according to our April report:
And so there was no restructuring agreed for Greece. The country paid off its immediate debts to the private financial sector — investment banks, basically — and replacement debt was laid onto European taxpayers. The government agreed to a package of harsh government spending cuts and structural reforms in exchange for loans totalling €110 billion over three years.*
Trichet made a colossal, elementary mistake. The right place for risky debt by definition is in the private markets, such as Goldman. The entire point of private debt investment is that those creditors are prepared for a haircut. The risk absolutely should not be borne by central banks that rely on taxpayer money for bailouts.
Had Trichet made the opposite decision — and left the Greek debt with Goldman et al — then Sunday's vote would be a footnote rather than a headline in history.
"Goldman Sachs takes a bath on Greek debt." Who cares? Goldman shareholders and clients, surely. But it would not have triggered a crisis at the heart of the EU.
Italy, Spain, and Portugal are now watching Greece closely and thinking, hey, maybe we can get out of this mess, too.
But the bankers are all dancing a jig. And Greece is pressed against a wall with a gun to her head.