***NOTE: On late Friday, Greek Prime Minister Alexis Tsipras announced on Friday that the Greek people will be voting on the latest aid proposals on Sunday, July 5, saying he would advocate a “no” vote. The ECB has frozen any further emergency liquidity assistance (ELA) to the Greek banks. As a result, Greece has imposed capital controls and the banks will remain shut on Monday. (Also, the euro is already down 1.7% to 1.1014 as trading opens in Asia.) Given the drama unfolding, I’m reissuing a post from February 4, where I discussed the new Greek ruling party and what it would mean for the Troika, Greek relationship.
Be prepared for further statements from Europe’s elites, especially Mario Draghi, who has pledged to do whatever it takes to preserve the euro.
We are in a period of great political uncertainty. The Greek election is a wake-up call for all the established elites and their sycophants who drink high-priced alcohol to celebrate every new IPO and record high made in global equity indices. The recent victory of Syriza is a call to arms by citizens that have grown tired of broken promises and inept leadership. Fringe parties achieving electoral success in a very short period of time is a critical sign of electorates moving away from the establishment as record-high unemployment has continued for several years and the continued pain of austerity has rendered the European middle class a group without hope. The leaders of Syriza have promised the Greek people that they would throw off the burden of massive debt payments while being enslaved to a policy of FISCAL CONTRACTION.
Prime Minister Tsipras and Finance Minister Varoufakis are not the tools of Brussels as were the previous Greek politicos. Remember, in 2011 Prime Minister Papandreou had promised the citizens of Greece a referendum vote on the bail-out package but when the Eurocrats and other European leaders voiced their displeasure for fear of a contagion of referenda, Papandreou was forced to rescind the direct vote offer. It was Brussels’ involvement in Greek politics that allowed for the emergence of political parties of the radical left and right.
The Brussels elite also forced the resignation of Prime Minister Berlusconi and parachuted in Italian/Brussels technocrat, Mario Monti, to install the austerity budget demanded for any bail-out of Italian finances. Monti was never elected but was named by Italian President Napolitano (a week after he was named by the President to be a Senator For Life). The desire of Brussels to control the outcomes of political events provides the fringe to politic against the established elites, especially as the ECB and Brussels-imposed austerity programs have failed to yield any economic success. Tsipras and Varoufakis have a strong hand to play as they strive to provide relief to a nation in economic depression.
The Greeks are playing a game of brinkmanship and the European elites are losing as electorates become more disenchanted with the policy failures of the established parties. If the Brussels elites continue to disenfranchise the electorates of the individual nation-states, violence as a political act will surely arise. The ECB Governing Council acted today to drive uncertainty into the Greek financial system, but, as usual, the punishment was hedged because the ELA is still open to Greek banks. Tsipras and Varoufakis are not for turning. The trains are set in motion as in August 1914. Does Europe have any leaders capable of bringing sanity to this madness? As the Rolling Stones said, “War Children, it’s just a shot away, shot away.” Political disenfranchisement will ultimately lead to an assassination of some political figure. It always has and it always will. It’s those disaffected citizens in search of revenge. And the equities rally on….
***Something to watch for the markets tomorrow: If there’s news that the ECB is challenging the collateral basis of Greek sovereign debt then the new soft peg of the Eur/Chf (recently leaked to the Swiss press) of 1.05-1.10 will be tested at the 1.05 level. Also, watch to see if the Italian bonds (BTPs) come under pressure as fallout from the ECB‘s decision may affect the “lower grade” credit. These are just some possible clues as to the impact of the decision.