Zero Hedge
0
All posts from Zero Hedge
Zero Hedge in Zero Hedge,

30 Years Ago, Greece Bluffed Europe... And Won

While tomorrow America's population (and carbon-based traders) enjoys a day off to celebrate the birthday of the first US president, Europe will be gripped by the high drama that is the latest Eurogroup summit to take place in a few short hours, and during which the fate of Greece - either in or out of the European monetary union - may finally be decided. Tomorrow is also the expiration of Dijsselbloem's 10 day ultimatum to Greece by which the country "must apply for a bailout extension to keep Eurozone financial backing."

Still, as the WSJ reports and as many talking heads opined over the past 48 hours, the probability of a successful outcome tomorrow is slim to none, with the best possible outcome being the can getting kicked once again. According to the WSJ, 'Few believe that finance ministers will resolve this impasse at a special summit on Monday—or even by the end of the week, the point at which it becomes too late to secure the necessary parliamentary ratification in several member states for a program extension."

As it further adds: "any hope of a deal hinges on what Athens means by “70% of the program” and whether Prime Minister Alexis Tsipras can wring sufficient fiscal and reform concessions to enable him to sell an extension as a “new” program. The crucial sticking point is Greece’s insistence on reversing key labor-market reforms. “That is nonnegotiable,” says a senior German official. “We consider these to be 80% of the program."

The compromise option is the so-called Plan B:

Faced with the risk that Greece does allow its current program to lapse when it expires at the end of this month, some eurozone officials have started to discuss how to make a program exit as “clean” as possible. This would involve setting out a clear timetable for negotiations on a new program, including a deadline for a deal, says one of these officials. The hope is that this would encourage Greeks to keep their money in the banks and persuade the European Central Bank to continue to allow the banks to receive emergency funding. That might buy a little extra time to negotiate a new long-term deal.

But... "As a Plan B, this is deeply flawed. The Greek economy contracted by 0.2% in the fourth quarter of 2014, on a quarterly basis, confounding expectations of 0.4% growth; tax receipts came in more than 20% below target in January and an estimated €14 billion ($15.95 billion) of deposits have been withdrawn from banks since the end of last year, forcing the ECB last week to increase the ceiling for emergency liquidity assistance to €60 billion. No one knows for sure when Athens will run out of money, but there are fears it could be as soon as March. Yet officials say that negotiating a new deal would take a minimum two to three months."

In any event, for Greece the euphoria of the past month, which has seen the poularity of Syriza soar with polls showing approval for the ruling coalition’s policies shooting to about 70%, a record for any Greek government, due to the new government's defiance of Europe, is about to come crashing down with a hangoverish bang, as either the new Greek parliament concedes to what is essentially a continuation of the status quo, if only under a different name, or see the country ejected from the Eurozone, an alternative that would lead to even more acute pain up front, if a far stronger recovery in the years to come as per the Iceland case study.

But it wasn't always Greece on the receiving end of Europe's good, or not so good, will.

Surely many Greeks and other proud Europeans will recall that some 30 years ago, it was none other than Greece that called the shots, and had nearly unlimited leverage in Europe courtesy of its veto: a veto which back then nearly derailed the Spain and Portugal into Europe's Common Market.

Ah, what joys to the impoverished people of Greece, when what is now the Eurozone's poorest country would singlehandedly determine the future of Europe. It is for their sake that we take this trip down memory lane, going all the way back to 1985 with the following article from the NYT, laying out a very different European world.

COMMON MARKET DISCUSSING GREEK VETO THREAT

 

BRUSSELS, Saturday, March 30— Western European leaders of the Common Market began crucial negotiations here Friday night with Prime Minister Andreas Papandreou of Greece, who has threatened to veto the entry of Spain and Portugal into the market next year.

 

After late-night talks with Mr. Papandreou, the leaders said early today that he stuck by his vow to block the two countries unless the other market members gave Greece nearly $2 billion in special agricultural aid.

 

Greece has said it needs the money to offset the effects on its economy of increased competition from Spanish and Portuguese products when those nations join the market, formally called the European Economic Community.

 

The European leaders gathered in Brussels on Friday afternoon, just hours after their foreign ministers worked out terms to make Spain and Portugal the 11th and 12th members of the trading group. It was thought that the ministers' accord had brought an end to several years of negotiations over the entry of the two nations. Chairman Expresses Disappointment

 

But today, the meeting's chairman, Prime Minister Bettino Craxi of Italy, told reporters he was ''disappointed'' by the lack of agreement so far in talks with Mr. Papandreou. Other high Italian officials said a settlement seemed unlikely at this two-day meeting.

 

A spokesman for Prime Minister Margaret Thatcher of Britain said of the negotiations Friday night, ''Frankly, we are not getting anywhere.'' The British spokesman said all the other Common Market governments were ''delighted with the enlargement agreement.''

 

Many of the leaders called the accord on the complex package of membership terms, which Greece had accepted, a historic step in Europe's quest for greater unity.

 

''The European Community is alive and in the final phase of its completion,'' Prime Minister Wilfried Martens of Belgium said Friday as the session opened.

 

Mr. Craxi said, ''Europe is now finally achieving its true shape.''

 

Admitting Spain and Portugal should also help the Common Market solve its longstanding fiscal problems and enable it to concentrate on strengthening free trade between the members and building up their industrial and technological base.

 

Some Action on Budget

 

Last year, the member nations agreed to reduce Britain's contribution to the organization because the British Government complained it was too large. The market also decided to increase the amount of tax revenues that member governments pay to the Common Market.

 

But West Germany linked its acceptance of that plan to a successful conclusion of the negotiations with Spain and Portugal, saying it would refuse to pay more unless the 10 members agreed to admit the two countries at the start of next year.

 

Many European officials also say they hoped the expansion will increase public support in Spain for staying in the North Atlantic Treaty Organization, to which all other Common Market members except Ireland belong. That support would help Prime Minister Felipe Gonzalez of Spain win a referendum scheduled on that issue next year.

 

Prime Minister Papandreou's threat centers on a plan for the other market countries to finance a new agricultural subsidy. His plan, known as Integrated Mediterranean Programs, would help Greek, Italian and French farmers adapt to the increased competition that their wine, fruit, olive oil and other products would face when Spain and Portugal join the market.

 

Threat Carries Weight

 

Mr. Papandreou can carry out his threat because the entry of the new member nations will go before the parliaments of all the Common Market members, as well as the parliaments of the two countries seeking membership. If approved, Spain and Portugal would become members on Jan. 1, 1986.

 

Other market members also take Mr. Papandreou's threat seriously because of his long record of provocative statements against other Western powers.

 

In particular, Mr. Papandreou has threatened to withdraw from both the Common Market and NATO and to close United States military bases in Greece.

 

At the last high-level meeting of Common Market nations in Dublin last December, Mr. Papandreou angered other leaders by demanding that the market pay the three present Mediterranean members $6 billion over five years in special agricultural aid, with about $2 billion going to Greece. Chancellor Helmut Kohl of West Germany and Prime Minister Thatcher of Britain immediately dismissed the sum as too large.

 

Since then, Jacques Delors, president of the Common Market's executive commission, has offered to give the farmers in Greece, France and Italy $1.4 billion in grants over the next five years and $1.7 billion in loans.

 

Compromise Seems Possible

 

Mr. Papandreou was reported by other delegations Friday to have said he was willing to negotiate on Mr. Delors's proposals, provided that Greece gets close to the $2 billion that it would have received under Mr. Papandreou's demand. But Chancellor Kohl's spokesman said the trade group's offer was still too large for Bonn to accept.

 

Officials from several market countries noted that Mr. Papandreou faced difficult domestic pressures that might make it hard for him to compromise.

 

They mentioned the national elections that are due in Greece by October, saying the Prime Minister had an obvious interest in being seen as fighting hard for the best possible deal in Brussels.

 

But Mr. Delors has said he will withdraw his compromise offer if Mr. Papandreou rejects it and that his next proposal will be less generous to Greece.

Back then, the Greek bluff succeeded:

European leaders resolved a bitter financial dispute with Greece today, paving the way for Spain and Portugal to join the Common Market at the start of next year.

 

Prime Minister Andreas Papandreou of Greece had threatened to veto an agreement reached this week on Iberian membership unless the other nine members gave Greek farmers $2 billion in special subsidies to help them compete with Spain and Portugal.

 

But after two days of negotiations at a European Economic Community meeting here, Greece was persuaded to accept about $1.4 billion in new agricultural aid in return for lifting its veto threat.

 

* * *  

 

After two days of bargaining, the 10 Common Market Governments
agreed on a $4.4 billion package of new subsidies and loans for Greece,
France and Italy. Greece will get about $1.4 billion of this money over
seven years.

 

Announcing the agreement, Prime Minister Bettino Craxi of Italy, who was the chairman of the conference, said it marked a ''historic moment in Europe's development.''

 

Jacques Delors, the new president of the Common Market's executive commission, said, ''The family quarrel is over, the family will be enlarged, and we can all now think of the future.''

Oh how wrong he was... but the real question is: can the Greek bluff succeed again tomorrow?