Tough Talk to Provide Political Cover for a 3rd Greek Bailout

Merkel, Hollande to unite in tough message for Greece | Reuters.

Let’s start with what we know. A Greek exit from the Eurozone or a Greek default would be a disaster throwing Germany, France and the rest of Europe into a deep recession, if not depression.

The tough talk does not matter. Merkel needs to posture against more aid for Greece in order to mollify the German public. Read the first passage from the article:

Angela Merkel and Francois Hollande will present a united front towards Greece at talks on Thursday, telling Athens not to expect any leeway on its bailout agreement unless it sticks to its terms.

Isn’t this statement a contradiction? Essentially, the leaders of France and Germany are telling Greece the only way that you don’t have to stick to the bailout terms is by sticking to the bailout terms. This is like telling your child that he doesn’t have to eat his broccoli if he finishes his broccoli.

As I have been writing all month, it is very cheap to keep Greece sputtering along in a depression compared to the costs of a Grexit or default precipitating a market panic. Greece will be given more aid, though it won’t be called a third bailout.

This is how it will go down over the next two months. The Europeans will not make any decisions on Greece or release funds until the troika is “done with its report.” In the meantime, the ECB will continue to allow backdoor bailouts of Greece by permitting the Greek government to sell t-bills to its banks who pledge the bills to the Bank of Greece in exchange for euros. This robbing Peter to pay Paul will add to Greece’s debt woes and make a default more likely in the long term, but in the short-term this should keep the markets happy.

https://dareconomics.wordpress.com/2012/08/18/more-nonsense-…nance-ministry/

https://dareconomics.wordpress.com/2012/08/20/grexit-is-not-manageable

 

 

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