Netfalls - Remy Musser/Shuttestock

Greece Exposes The Global Economy's Achilles Heel

Countries that can't repay their debts -- won't
Thursday, February 5, 2015, 4:54 PM

The new Greek political party, known as Syriza, the Coalition of the Radical Left, has done the unthinkable: they've dared to speak the truth.

In this case, the truth is perfectly captured by the blunt assessment by the new Greek finance minister, Yanis Varoufakis, who recently declared "I'm the finance minister of a bankrupt country."

Such honest assessments are not supposed to be uttered in politics, no matter how true they may be. And so, as you can imagine, the machinery of the defenders of the status quo is in quite a lather over the whole affair. And it's doing everything it can to minimize and marginalize the new Greek government.

One editorial in the Financial Times summed up the establishment view quite well, I thought, putting its contempt for those who dare to simply state what is true right on the table:

Athens plots a daring escape from the troika

Feb 2, 2015

Syriza is as radical as any party to take power within the eurozone. Hardly any of Greece’s new cabinet have experience of government; predictably, its first week was studded with chaotic interventions, including a clumsy blunder into EU-Russian relations. Syriza’s rhetoric is still more suited to a university seminar than a serious programme of government.


To summarize, the European establishment considers Syriza to consist of radicals with no experience in government who are acting chaotically as they blunder about brandishing immature rhetoric more suited to young students than the serious business of governing.

And that was just the opening paragraph. 

As I said, the new Greece administration has got the powers that be in quite a lather. Why is that?

I think it's because the new Greek rulers have dared to call a spade a spade. They've spoken the unspeakable. They've said that the vast quantities of debt accumulated by Greece, enabled by central bank money-printing programs, are simply unpayable under current terms.

Of course, this is no different than the situations of Italy, Portugal, Ireland, Spain, the UK, France, Japan -- or even the US -- which is precisely why it's being considered such a horrendous foul for Greece to publicly speak as it is now. Such honesty does not have a welcome place in modern politics, and more dangerously, it threatens confidence in the entire system.

Who Is Syriza Exactly & Why Are They In Power?

Since the Syriza party is causing such a stir, I suppose we should take a closer look, especially since so many other 'anti-austerity' groups exist in Europe that might become emboldened and try a similar path.

In Wikipedia we find this description:

The coalition originally comprised a broad array of groups (thirteen in total) and independent politicians, including social democrats, democratic socialists, left-wing populist and green left groups, as well as Maoist,Trotskyist, eurocommunist but also eurosceptic components. Additionally, despite its secular ideology, many members are Christians who, like their atheistic fellow members, are opposed to the privileges of the state-sponsored Orthodox Church of Greece.

In 2012 Syriza became the second largest party in the Greek parliament and the main opposition party. It came in first in the 2014 European Parliament election. In mid-2014, polls showed it had become the country's most popular party. In 2015, in the snap polls held on 25 January, Syriza defeated the ruling coalition and went on to become the winning coalition getting 36.3% of the popular vote and 149 out of 300 seats in the Hellenic Parliament.

Syriza has been characterized as an anti-establishment party, whose success has sent "shock-waves across the EU". Although it has abandoned its old identity, that of a hard-left protest voice, becoming more populist in character, and stating that it will not abandon the eurozone, its leader Alexis Tsipras has declared that the "euro is not my fetish".

The party has grown in power over the same time frame that the people of Greece have been living under what most consider to be punishing austerity.

Under the austerity conditions imposed by the European bureaucrats upon the Greek nation, suicides have risen by 35%,  unemployment is nearly 30% overall -- nearly 60% for those under the age of 25, having fully doubled from 2010 levels -- while wages have fallen by nearly  40%.

Note that the rise of Syriza aligns very well with the decline of employment and wages:


These are quite understandable reasons for the rise of a party touting a plan to end the pain. Whether they can deliver on that plan is another matter.

The attempts to malign and bully the Syriza politicians into conformance with standard EU practices is likely to fail. The Syriza politicians have a mandate from the people that will not last if they kowtow to the standard 'kick the can down the road and follow orders' crowd from Brussels. 

The basic problem for the EU political leadership is that the Syriza party is made up of people who came from the outside, consider themselves outsiders, and have no instinctive desire to please existing institutions or lobbyists. They simply aren't playing the game as it's "supposed" to be played.

Weeks Away From Running Out Of Money

The clock is ticking...Greece is possibly only weeks away from running out of money. So the situation is quite serious:

Greece may be ‘weeks’ away from running out of money

Feb 3, 2015

Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., reminded clients in a recent note that Greece’s debt schedule eventually leads to a scenario that ends in a government shutdown and/or default, possibly within a matter of weeks.

“Greece will end up with a default, possibly in the form of a restructuring with a sizable haircut, but possibly in the shape of an outright default,” Weinberg wrote. “The only question is how soon. To believe otherwise cannot possibly be more than wishful thinking.”

Pinning down the exact date when the government would run out of cash under current circumstances is difficult due to a lack of daily data on its exact cash position. But Weinberg says that, unofficially, the government was down to 2 billion euros ($2.3 billion) in mid-January.

In order to finance all the repayments, Greece would have to roll over the outstanding T-bills, run a balanced budget on at least a cash basis, and sell €27.6 billion in new bonds, Weinberg says.


With just a couple of billion euros in the coffers, the Greek government has almost no breathing room. It did hold an auction to roll over some of its debt on Feb 3rd, but the bids were very small, and only 625M euros of T-Bills (very short term paper) were bought at the offered rate of 2.75%.    

That was barely two-thirds of what was needed to service the upcoming T-Bills maturing on Feb 6th, which total 947M euros. And then on Feb 13th, another 1,400 M euros of T-Bills will mature. And so on throughout the coming weeks and months.

At this rate, the 2 billion euros on hand will not last long. Without some sort of relief, Greece will enter default, triggering all sorts of fun for the holders of its debt and any unfortunate parties that waded back into the pool to sell credit default swaps for Greek debt (and some did).

The only logical thing for anyone in Greece to do is to remove their deposits from Greek banks and place them somewhere safer, like in a non-Greek bank (or even under the mattress).

Many are finally now doing that. Though given the obvious warning signs over the past few years, it's a mystery to me why they've waited this long:


The ECB has just recently upped the pressure by removing a waiver that allowed Greek banks to post Greek sovereign debt as collateral for euro liquidity (are you watching Spain?). Essentially, this means that the Greek bonds the banks were holding as an 'asset' have just become a non-asset as far as the ECB is concerned.

The next step in this crisis is for capital controls to be imposed, to prevent further hemorrhaging of deposits from Greek banks in order to preserve the banks and prevent their utter collapse.

Despite all of this pressure and the inability of the Greek government to fund itself, it seems that the Syriza party is sticking to its course:

Greece Sticks to Anti-Austerity Demands Following ECB Loan Cut

Feb 4, 2015

(Bloomberg) -- Greece held fast to demands to roll back austerity as the European Central Bank turned up the heat before Finance Minister Yanis Varoufakis met one of his main antagonists, German counterpart Wolfgang Schaeuble.

The encounter at 12:30 p.m. in Berlin came hours after Greece lost a critical funding artery when the ECB restricted loans to its financial system. That raised pressure on the 10-day-old government to yield to German-led austerity demands to stay in the euro zone. Shares of Greek banks plummeted.

The government “remains unwavering in the goals of its social salvation program, approved by the vote of the Greek people,” according to a Finance Ministry statement issued overnight. Its aim is “coming up with a European policy that will definitively put an end to the now self-perpetuating crisis of the Greek social economy.”


So an intense game of chicken is playing out before our eyes. Neither side seems willing to bend. On the one side, you have Greece being led by people who know that the current path being demanded by the EU leads to many years, perhaps decades, of punishing depression for the people of Greece.  On the other side is the EU, which worries that if Greece "gets away" with debt restructuring, other weak countries in the Eurozone will want to as well.


There's no easy path for Greece and the new Syriza administration appears to know this. That's why they're seeking to chart a different course. This upsets the lumbering bureaucracy of the EU ,which has shown a remarkable inability to admit that its prior policies were the wrong ones and have obviously failed.

While Greece is a tiny spec of the EU economy (~1%), the fact that the truth is finally being spoken about its broken finances is a very dangerous match to light at this time. Why? Because most of Europe shares the same unworkable math as Greece. Everybody in power fears what would happen if the entire pile of unpayable claims were to suddenly vaporize.

It's kind of like being in a crowded movie theater when a fire breaks out. The first few people to catch on leave somewhat calmly, as most watch from their seats.  But once it becomes 'socially acceptable' to leave, there's a mad scramble for the exits and pandemonium ensues.

So I can understand the desire of the EU officials to avoid such a panic. But at the same time, their absolute inability to acknowledge the billowing smoke is a very harmful form of denial.

With Syriza shouting "fire!", the EU bureaucracy is predictably seeking to cast the current Greek leadership as illogical, whack-a-doodle pranksters in the hopes that nobody takes them seriously.

Oops. Too late:

In Madrid, 100,000 flock to anti-austerity Podemos rally

Jan 31, 2015

Madrid (AFP) - At least 100,000 people poured into the streets of Madrid on Saturday in a huge show of support for Spain's new anti-austerity party Podemos, riding a wave of popularity after the election success of its Greek hard-left ally Syriza.

A sea of demonstrators chanted "Yes we can!" and carried signs reading "The change is now" as they made their way from Madrid city hall to the central Puerta del Sol square in the first major march called by Podemos, which has surged ahead in opinion polls in a crucial election year.


So the current high stakes are quickly getting higher.

The sad part of this tale is that the time to have begun to deal with structurally-unsound levels of debt was many years ago, even before the crisis hit in 2008. But even sadder, that crisis was the fire alarm that should have been heeded. But it was completely ignored by the political and banking establishments in the developed world, who instead opted to pour more money and more debt into the financial system rather than face up to the simple truth that Too Much Debt is a very bad central operating principle.

Greece has merely exposed the fatal flaw of the modern economy, it's Achilles Heel (to stay with the Greek motif), which is that, by definition, a system suffering from Too Much Debt cannot pay it back.  The only meaningful question to address at this stage is: Who is going to eat the losses?

The banks would like that to be the citizens of Greece, and the citizens would prefer it to be the other way around.  This is the drama that is now playing out.

So Why Should You Care?

If you're living in Greece, obviously you have a direct interest in how Syriza's brinksmanship plays out. And if you live in the EU, you should be watching closely to see what the larger ramifications may be for the Eurozone. But should this Greek drama concern the rest of us?


The sovereign insolvency at the heart of the Greece crisis is not unique nor isolated. Most other countries around the globe share the same terminal condition of having Too Much Debt. Greece, a small player, is simply succumbing earlier than they are.

And as Greece proves you can't get blood from a stone, other countries will similarly demonstrate their debts cannot be repaid in full, either. And losses will eventually -- inevitably -- have to be taken. And when that happens, watch out.

In Part 2: The Approaching Great Unraveling - Are You Prepared? we detail out how, in today's over-indebted, over-leveraged, and intensely interconnected global economy, the losses created by sovereign insolvencies will spark a cascade of mortal shocks across the world's financial system. Some countries will fall into deflationary depressions while others will experience roaring inflation. Massive failures will ripple across industries and vast amounts of wealth will be transferred from the hands of the many into the few well-positioned in advance.

The developments in Greece are sending us a clear warning. Are you listening?

Click here to access Part 2 of this report (free executive summary; enrollment required for full access)

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Arthur Robey's picture
Arthur Robey
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Love is in The Air.

Place a thumb on these articles so that I can press it like a lab rat after a sugar water reward.

I see Greece winking and nodding at Russia. They share a common alphabet and religion. (My son is Russian Orthodox).

And I see also see a Greek monobrow going up and down like a semaphore at the Spanish lady with the dramatic red dress and rose. 

The Italian is is posing in the doorway, surveying the scene.

The European Central Banker chaperones are going to have a busy night. 

Debt Bomb, debt bomb. Bubbles you just turn me on.

Thetallestmanonearth's picture
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Posts: 311
"Yes We Can!"

A sea of demonstrators chanted "Yes we can!" and carried signs reading "The change is now" as they made their way from Madrid city hall to the central Puerta del Sol square in the first major march called by Podemos, which has surged ahead in opinion polls in a crucial election year.

Why does that sound so familiar?  We must be careful about buying into political rhetoric, even from political outsiders.....those who seek power rarely do so for altruistic reasons.

The meek shall inherit the earth (when the people in power now finish burning it to the ground).

locksmithuk's picture
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Watching this game of chicken is both fascinating and dread-inducing. For Europeans themselves and other bystanders the fuzziness of past financial whitewashing must now be starting to give way to a sharpened view of the realities of financial oppression. It seems the battle for hearts and minds has begun. 

I can't believe that there isn't utter panic in the corridors of the ECB. They appear to have a lot more to lose. The threat to power is at its greatest when the cupboards are bare and unlikely to fill up anytime soon. As evidenced by the Podemos rally I'd guess that the risk of widespread emboldenment among the citizenry of the Mediterranean countries is something that the ECB would want to prevent. And quickly. A game-changer could come in the form of last-minute unexpected outside help for Greece. Unfortunately Russia probably couldn't afford it. Would China have anything to gain from intervening? Option 2 could trigger severe retribution from Europe.

I think the ECB would be crazy not to at least start negotiating with Greece if they want anything close to a continuation of the status quo... if nothing else simply to keep them quiet. Then again a lot depends on whether the new Greeks have the stomach for a fight, or whether an ECB concession sets a precedent for other debt-strapped European economies. Whichever, I have admiration for the new Greek show in town. They remind me of a wily old boss I once had, back when I was young & green, and railing against him for not stepping in to prevent a calamitous breakdown in a process at work. He calmly looked at me, smiled and said "You know, sometimes you just have to let things break".

Rector's picture
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The Bank Has A Problem

This reminds me of the quip: If you owe the bank one million dollars - you have a problem.  If you owe the bank 100 million dollars - the bank has a problem.  

It is high time that this house of cards falls down.  The idiots in the EU who lent Greece Euros so they could blow it on corruption and preposterous entitlements deserve to lose their ass.  As long as the people continue to gaze at their navels and remain willfully ignorant of the abuses of fiat money regimes - they will get the government and monetary system they deserve.  There is no free lunch.  The Greeks will have to learn to live within their means, get off the entitlement gravy train, and go back to working.  The Eurocrats will have to get used to managing default and a currency failure.  Promptly afterwards they should lose their jobs and start producing something of value.

A reset remains our only hope.  


pgp's picture
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Grim Future for the Global Economic Ponzi Scheme.

I definitely get the point that someone had to go first on the treadmill of unpayable" debt disaster growing throughout the Eurozone.  Greece got there the fastest thanks to an even more abysmal and corrupt level of governance than the usual European-norm.

The situation does appear to be hopeless BUT the ECB's recent QE plan seems well timed to me and I wouldn't be surprised if QE turns into debt forgiveness (ie. the bonds are "eased" and then burned at some point).  It might become an easy sell once the markets begin soiling themselves over the threat of Euro collapse.  Not all debt would be forgiven just enough to get the PIIGS back on their feet and preserve the EU. In fact QE 2016 could ensure that every country gets a handout at some point so there are fewer complaints. 

Like any hard sell you just need to create the right conditions.  Don't call it QE call it Quantitative Release.  Give it a few more weeks and after some heartache in the markets, abject fear that the EU is about to fall apart, some nicely worded ECB and IMF rhetoric, kind words from Greece, a bit of international collusion between the banks, CBs and IMF and the way will be paved.

It's all just Monopoly money at this point and creative accounting seems like the logical next step before a complete global meltdown is allowed to happen right ?

aggrivated's picture
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the real wealth

As this article in 'The Moscow TImes"  tentatively suggests, Greece and Russia may well have opportunity to befriend each other.  Going back to Chris' oft said line,  "There will be a transfer of wealth", Greece may well seek out a transfer of wealth to Russia that is non financial while defaulting or demanding a major write down of the present financialized EU debt..  For example, special access for the Southern Stream pipeline of gas to southern Europe through Greece would give Russia opportunity to further put pressure on the EU by transferring leverage to the smaller southern EU economies. This is a tangible asset that could easily put Russia and Greece into a much closer economic relationship by providing Greece a brokering fee for gas exported to Southern Europe.

KennethPollinger's picture
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Two Key concepts

1.  "Prepare as best you can so that you can be OF SERVICE to those who need help."

2.   Real wealth=
           factories and farms
           building and houses
           raw land and minerals
           WATER and FOOD.
These two KEY concepts add up to a sustainability philosophy for preserving wealth.
Now, however, all one needs is MONEY to buy these things.  Catch 22, no?, as 3/4 of the world can't afford such.
kaimu's picture
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Aloha! What made the housing market in the US go "off-balance" in 2008? It was derivatives as in packaged debt with all sorts of anachronisms like ABS, MBS, RMBS and its a longer list. Who here thinks that similar derivatives did not make it into the sovereign debt world?

Recently the ECB announced that Greek bonds were no longer acceptable collateral. In a Bank of Greece report(see below) from Q4 2104  it lists assets in the off-balance sheet at $152BIL, with $40BIL listed as greek securities tied to Greek social security funds. Another $72BIL are listed as Eurosystem "collateral". How much of that is no longer allowed as collateral. If $112BIL in so called collateral is out the window then that really skews what the real Greek debt liabilities are. Typically none of this off-balance sheet data gets into the mainstream media.

If we do some dejavu and go back to 2010 when Greece owed over $300BIL we see that is the tip of the iceberg as it seems that Goldman Sachs and JP Morgan helped the Greek government prior to 2010 hide its debt and enabled more spending by recording the debt not as a loan but as a currency transaction. Sadly these "special" Greek derivatives are collateralised with real Greek infrastructure like airports and roads.

From the New York Times article entitled, Wall Street Helped to Mask Debt Fueling Europe's Crisis"(Feb 13, 2010).

Banks eagerly exploited what was, for them, a highly lucrative symbiosis with free-spending governments. While Greece did not take advantage of Goldman’s proposal in November 2009, it had paid the bank about $300 million in fees for arranging the 2001 transaction, according to several bankers familiar with the deal.

Such derivatives, which are not openly documented or disclosed, add to the uncertainty over how deep the troubles go in Greece and which other governments might have used similar off-balance sheet accounting.

Now it is more clear that the ECB has  lot more to fear than just poor Greece and its debt since Wall Street hit up every single European government including Italy, Spain and France with similar off balance sheet deals and fraudulent control accounting.

Once again the big bank cartel that pulled off LIBOR "day old sushi" fraud were hard at work in Europe making sure they make billions at the expense of the global economy.

In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come.

Critics say that such deals, because they are not recorded as loans, mislead investors and regulators about the depth of a country’s liabilities.

Some of the Greek deals were named after figures in Greek mythology. One of them, for instance, was called Aeolos, after the god of the winds.


There is no doubt that every single western central bank knows what all the domoinoes look like. I believe their biggest fear is that "novices" who know nothing of international derivatives and control accounting fraud and off balance sheet con jobs will gain control of a EU nation and demand complete and total DEFAULT! And that is a word that is most deadly to any derivatives counterparty holding the debt bag! Who knows how much CDS and Interest Rate derivatives are tied to the EU. This has all the hallmarks of the SubPrime only bigger ... SovereignPrime! After all the goal of derivatives is for the bankers to own all global infrastructure in exchange for politicians to over spend in order to stay in power. Derivatives were truly designed to use human nature as the driver for bank supremacy. What human on Earth is more predictable than a politician? It is said that 99% of global politicians operate under the "3B Principle" ... Bling-Blow-Booty!! It goes back to caveman days ...

Cornelius999's picture
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Good Points Ken

Thanks.  And meanwhile, not that anybody here should care, good old Professor Bill Black, despite all kinds of legal red tape, yesterday got to tell it like it is at our Irish excuse for a banking enquiry. ( Yes, we do move kinda lesiurely).  He said literally, that " it was the stupidest guarantee ever given in the entire history of banking!"  

And the great thing about it is we can take all the blame ourselves. No blaming the British, the Church, the Famine this time.  

Homer Simpson could visit and take lessons in stupidity !

james_knight_chaucer's picture
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Mr Panos

Mr Panos' explanation looks more & more accurate:

(Offensive language):

nmb's picture
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Posts: 1
We are with Greece and Europe

Three hundred economists and academics from all continents, James Galbraith, Stephany Griffith-Jones, Jacques Sapir, Dominique Meda, call on European governments and international institutions to “respect the decision of the Greek people” and to “initiate negotiations good faith with the new Greek government to resolve the debt issue.”

sand_puppy's picture
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Posts: 1229
Thanks Kaimu

I appreciate your efforts to lay out the topic of secret finances and huge and disguised liabilities.

I had heard a number of times that corrupt Greek politicians, in conjunction with the finest corrupt bankers in the world, cleverly packaging loans so that they can be called "interest rate swaps" or similar, and hidden from view.

These secret deals and dealings that are the real hidden risks are completely unknown (to me) and probably to most of us.

treebeard's picture
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Posts: 524
Poor are the problem

Ah, the poor are always the problem, they just don't work hard enough and want to much, it's cutting into the "investors" profit margins.  Now that we have nearly wrung the earth dry of it's valuable resources, most of the cheap oil is gone, natural gas, even coal and uranium for that matter, water resources are depleting, the planets heating up, farm lands are being poisoned with every more toxic farming practices, lets turn our eye to the unenfranchised.  With 3 to 4 billion wage earners on the planet, if we can get just a few more dollars, rubles, wons, francs, euros, pesos, yuans out of everyone's pockets that will add up to big bucks. But how could we do that.........ah, world reserve currency, a cabal private banks with a printing press and a magic check book that never runs out of money, that will work.  Then all we need is lots of debt.  Debt slaves, then they'll blame themselves, and so will everyone else, for spending money that we printed that they had to work for.  Perfect!

Don't want any investors to get hurt if a stampede in the theater starts, we need to protect the global financial system at all costs. Oh by the by, don't look at the millions of people who's backs that theater is resting upon, think how disappointed they would be if they didn't have a theater full of "investor" to hold up. Don't want to get hurt, invest in your community, people you can get up in the morning and look into their eyes.  Give to Caesar what belongs to Caesar........

Can we free ourselves of our financialized minds?

Oh, but we have to pander to "investors" otherwise they'll take their money somewhere else and we'll just die, be realistic.  Diffuse local technologies, crowd source funding, local control and responsibility, this bigger is better thing just isn't working.  Time to toss the tea overboard.

Cornelius999's picture
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Kaimu Thanks

And that is the scariest information ever!  Well, I guess it's back to the valium again !  And did I mention I'm going to live in a region where there's a brewery

AKGrannyWGrit's picture
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Posts: 299
The Chant

Treebeard et al,

The Colonists chanted "No More Taxation Without Representation" as they threw the tea overboard. 

Ak Granny

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