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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

yet more on greece

Posted by WARREN MOSLER on March 24th, 2010

Gets stranger by the day:

Broke? Buy a few warships, France tells Greece

March 23 (Economic Times) — In a bizarre twist to the Greek debt crisis, France and Germany are pressing Greece to buy their gunboats and warplanes, even as they urge it to
cut public spending and curb its deficit.


Indeed, some Greek officials privately say Paris and Berlin are using the crisis as leverage to advance arms contracts or settle payment disputes, just when the Greeks are trying to reduce defense spending.

“No one is saying ‘Buy our warships or we won’t bail you out’, but the clear implication is that they will be more supportive if we do what they want on the armaments front,” said an adviser to Prime Minister George Papandreou, speaking on condition of anonymity because of the diplomatic sensitivity.

Greece spends more of its gross domestic product on the military than any other European Union country, largely due to long-standing tension with its neighbour, historic rival and NATO ally, Turkey.

“The Germans and the French have them over a barrel now,” said Nick Witney, a former head of the European Defense Agency.

“If you are trying to repair Greek public finances, it’s a ludicrous way to go about things.”

France is pushing to sell six frigates, 15 helicopters and up to 40 top-of-the-range Rafale fighter aircraft.

Greek and French officials said President Nicolas Sarkozy was personally involved and had broached the matter when Papandreou visited France last month to seek support in the financial crisis.

FRIGATE PURCHASE

The Greeks were so sensitive to Sarkozy’s concerns that they announced on the day Papandreou went to Paris that they would go ahead with buying six Fremm frigates worth 2.5 billion euros ($3.38 billion), despite their budget woes.

The ships are made by the state-controlled shipyard DCNS, which is a quarter owned by defense electronics group Thales and may have to lay workers off in the downturn.

Greece is also in talks buy 15 French Super Puma search-and-rescue helicopters made by aerospace giant EADS for an estimated 400 million euros.

The Rafale, made by Dassault Aviation, is a more distant and vastly dearer prospect. There is no published price, but each costs over $100 million, plus weapons.

Germany is meanwhile pressing Athens to pay for a diesel-electric submarine from ThyssenKrupp, of which it refused to take delivery in 2006 because the craft listed during sea trials following a disputed refurbishment in Kiel.

Payment would clear the way for ThyssenKrupp to sell its loss-making Greek unit Hellenic Shipyards, the biggest shipbuilder in the eastern Mediterranean, to Abu Dhabi MAR, industry sources said.

ThyssenKrupp Marine Systems last year canceled a Greek order for four other submarines over the dispute, in which it said Athens’ arrears exceeded 520 million euros.

Witney, now at the European Council on Foreign Relations, said German officials were embittered by Greek behavior in the long-running dispute, as well as previous payment problems over the purchase of German Leopard II tanks.

Greek Deputy Defense Minister Panos Beglitis told Reuters the dispute was on the brink of settlement but denied the timing had anything to do with Athens’ bid to clinch German backing this week for a financial safety net for Greek debt.

“(The submarine) Papanicolis has been carefully inspected by German and Greek experts. It has been greatly improved and declared seaworthy. We will take it, sell it and make a profit,” he said in an interview.

“We are paying 300 million (euros) and we will sell it for 350 million,” Beglitis said. Witney questioned Greece’s chances of turning a profit on a second-hand submarine.

NO LINKAGE?

Asked whether big European suppliers were using the crisis to press arms sales on Athens, he said: “This has always been the case with these countries. It is not because of the crisis, there is no link.”

Beglitis said this year’s defense budget was set at 2.8 per cent of GDP, down from 3.1 per cent in 2009. Non-government sources say the real level of military spending may be higher.

“Our strategy is continuously and steadily to reduce spending. This is also in line with the Greek stability and growth program,” Beglitis said. The program, submitted to the EU, pledges to reduce the budget deficit from 12.9 per cent last year to below 3 per cent by the end of 2012.

Western officials and economists have advocated a radical reduction of the armed forces as a long-term way of reducing structural spending, but Greek officials say that would require a real improvement in relations with Turkey.

Despite warmer ties, the two countries remain in dispute over Cyprus and maritime boundaries and have sporadic aerial incidents over the Aegean Sea.

French economist Jacques Delpla said Greece could reap big savings if it moved jointly with Turkey and Cyprus to settle disputes in the Aegean and Eastern Mediterranean and engaged in mutual disarmament.

“Unlike Portugal or Ireland, Greece could benefit from significant peace dividends to reduce its titanic fiscal deficits,” he said.

18 Responses to “yet more on greece”

  1. Tom Hickey Says:

    Now we are getting to the nub of it. Military Keynesianism is driving the developed economies of the US, UK, Germany, France, and also is string in Russian and China. Armaments are major exports for all of them, not only tools of power. Here we see Germany openly and unabashedly pushing the stuff. Usually, it’s done behind closed doors.

    Reply

    Matt Franko Reply:

    Tom,
    I think it was Mike that once pointed out that when you challenge a “mainstreamer” on this they will say something like “well that’s different, it’s about our defense!”.

    Or if you point out the fiscal results of WW2, and the subsequent domestic performance they respond something like “well that was war!” as if somehow that changes the mathematical evidence you would be pointing out! Resp,

    Reply

    Tom Hickey Reply:

    That’s true, Matt. Many neoliberal conservatives take it that nothing should be spared for defense. Human suffering, not so much. It strengthens character and resolve, they claim.

    What is happening now is an effort by Western capital to control the process of globalization and funnel wealth to the top based on neoliberal ideology masquerading as free markets and democracy. The obstacles that are likely to result in surprises are the Western middle class that is getting squeezed, the emerging nations that are being exploited, and real resources that are dwindling. This promises to get interesting on several fronts. In effect, this is what the “global war on terror” is all about at bottom.

    Reply

    Matt Franko Reply:

    Tom,
    “real resources that are dwindling.” WRT Petro,
    Last year this Co. here A123 systems came out with an aftermarket LiIon kit for Prius. It makes Prius into a plug in single mode hybrid. My regional installer is Fitzgerald Toyota in Gaithersburg, MD. I called them a while back to see what its all about. Service manager said they had installed over 100 units at that time. He told me the dealership owner drives one. After a month driving it (12 mi commute one way) the owner called the Serv. Mgr and told him to come pick the car up he was afraid he was gong to run out of gas as the needle hadnt come of “full” in a month. Service mgr took it for fuel and he said it took all of $1.76 of gas. Mgr told me they put a kW-hr meter on the first unit they charged from zero and it registered 55 cents of electricity (we pay around 12 cents /kW-hr here). The unit costs $10,900 installed and you can get 10% tax credit (of course not enough!) Once Toyota puts a plug in LiIon battery in from factory, this can all but eliminate much petro consumption. Resp,

    PS I make no endorsements for the product per se.

    Tom Hickey Reply:

    Yes, but the rare metals used to make these batteries are in very short supply, and the US has virtually none of them. China has the most. Moreover, the petro problem is not only supply of resources but also carbon emissions.

  2. beowulf Says:

    If Greece had any sense, it’d use the prospect of arms sales to lure loan offers from the US, Russia and China.

    Or they could go to NATO and assert that their financial troubles are because of cyberattack. :o)

    During her NATO strategic concept speech, Secretary of State Hillary Clinton argued that “threats to our networks and infrastructure such as cyber attacks and energy disruptions” should be considered an Article 5 action, in which an attack on one is an attack on all.
    http://www.acus.org/new_atlanticist/clinton-cyber-security-and-energy-security-nato-priorities

    Reply

  3. Tom Hickey Says:

    Bloomberg: IMF may bail out Greece.

    Hey, maybe California can apply, too. You know, “Everybody’s doing it.”

    Reply

    Matt Franko Reply:

    Tom,
    This also from Bloomberg:
    “ECB President Jean-Claude Trichet took some pressure off Greece today by extending emergency lending rules, saying its bonds won’t be cut off from ECB refinancing operations next year in case Moody’s Investors Service lowers its rating to a level comparable with other companies.

    Trichet’s remarks marked a reversal for the ECB, which said in January that it wouldn’t soften its collateral policy for the sake of a single country. The bank was scheduled to reintroduce pre-crisis rules at the end of 2010.”

    Reply

    zanon Reply:

    that would be awesome. arnie should go to IMF!

    Reply

    RSJ Reply:

    Instead of the IMF, the intervention needs to be done by a fiat currency issuing entity.

    This is a great opportunity for the U.S./U.K. to buy Greek Debt, Greek Olives, and Greek villas in large quantities. Same for Portugal, Spain, etc.

    If done on an appropriately large scale, the Euro will fall vis-a-vis the dollar/pound, hurting Germany (always a plus), and helping U.S./U.K. exports, and at the same time the PIIGS can give the finger to the core as they receive an external stimulus package, which will boost employment and limit their budget deficit due to automatic stabilizers.

    And we will get olives in exchange for the goods we export away, so there will be no “real” cost.

    This is a great way to exploit the fact that the PIIGS economies are small in relation to the core and that they share a common currency with it — it allows for effective third party stimulus via selective currency intervention against the Euro.

    Reply

  4. Tom Hickey Says:

    Interesting, Matt. I wonder if that was it response to Germany’s insistence that Greece go to the IMF, which was a real slap in the face to the EMU and was provoking criticism of the euro.

    Trouble in Euroland, and Greece is just the tip of the iceberg.

    Reply

  5. Matt Franko Says:

    Per the Bloomberg report above it now looks as though the Greek Govt bonds are good collateral until the end of 2011 at least. Why doesnt the Greek Treasury demand that the Dealer banks below with an asterisk (by the name I assume they are Greek) buy all of the upcoming Greek Govt issues at the same rate as German govt bonds plus some few bps. If they refuse, nationalize them.

    Current HDAT members:

    Primary dealers:
    *ALPHA BANK SA
    BANCA IMI S.p.A.
    BARCLAYS BANK PLC
    BNP PARIBAS SA
    UNICREDIT BANK AG (MILAN)
    CITIGROUP GLOBAL MARKETS LTD
    CREDIT SUISSE SECURITIES (EUROPE) LTD
    DEUTSCHE BANK AG
    EFG EUROBANK ERGASIAS SA
    *EMPORIKI BANK
    GOLDMAN SACHS INTERNATIONAL
    HSBC BANK PLC
    ING BANK NV
    JP MORGAN SECURITIES LTD
    MERRILL LYNCH INTERNATIONAL
    MORGAN STANLEY & Co. INTERNATIONAL PLC
    *NATIONAL BANK OF GREECE SA
    NOMURA INTERNATIONAL PLC
    *PIRAEUS BANK SA
    ROYAL BANK OF SCOTLAND PLC
    SOCIETE GENERALE
    UBS LTD

    Dealers
    *AGRICULTURAL BANK OF GREECE SA
    *BANK OF ATTICA SA
    BANCA SELLA HOLDING S.p.A.
    COMMERZBANK AG
    *TT HELLENIC POSTBANK SA

    Reply

    RSJ Reply:

    Hmm — by that logic, why doesn’t the Greek Government demand that any Greek business buy some government bonds, or else they will be nationalized? Or demand that Greek Citizens buy savings bonds or be imprisoned?

    In the U.S. system, PDs are required to bid, but they can bid whichever price they want. Or, you can set the price and be prepared to listen to crickets chirping if that price is too high (as well as risk giving away large windfalls when the price is too low). But you cannot both require someone to bid and also set the price.

    Actually in the case of Greece, they could not have the money. Euros spent by Greece need not stay in Greece, nor remain in the hands of Greek businesses or banks, which is why the EMU is primarily benefitting Germany.

    Reply

    Matt Franko Reply:

    RSJ,
    Because banks are supposed to be there for public purpose. Think of them as a private-public partnership. They should use them/employ them to seek a fairer result for Greece within EMU.

    Since they (Greece) have the green light wrt collateral acceptance for next 21 months or so, they are functionally/operationally the same as the US Treasury is here in US now for that time (currency issuer/impossible to default), I can see no operational limits (if Im wrong would appreciate correction) on their ability to issue as long as the Dealers can repo with them (and should force their banks to buy at a reasonable price and if not, should take them over). They should not surrender to these 6%+ usury type rates when Germany is paying 3.

    Greece should now keep issuing and issuing while pointing out the facts of intra EMU national income accounting life, ie if Germany seeks to have large net exports within EMU, Greece will seek to issue large amounts of Greek Govt debt. Force a re-work of EMU rules.

    Resp,

    Reply

    RSJ Reply:

    Matt,

    The PDs don’t have the capital to absorb gov. debt — they are just market makers. They operate on a small base of capital going long/short debt that they offload to the rest of the private sector.

    Nationalizing banks and then requiring them to buy debt == government buying its own debt == Greek CB providing endless repo funding for PDs to buy and hold all the Gov. debt

    In all of the above, Greek Gov. debt goes onto the asset side of the Greek Gov balance sheet in unlimited amounts. Being able to expand your balance sheet this way is the definition of currency sovereignty.

    Matt Franko Reply:

    RSJ,
    “Greek CB providing endless repo funding for PDs to buy and hold all the Gov. debt”

    that would be the plan…These finance ministers in these abused countries have to grow a pair (btw the US is quickly coming up for honorable mention in this dept). Force change to happen via political process (ie leadership) instead of allowing the society to self-destruct. this would be a hardball way to get the Germans attention.

    (And, I know, its never going to happen!)

    Resp,

    RSJ Reply:

    Matt,

    I understand the plan, but it can’t happen under the EMU. You are trying to find some loophole by which Greece does have currency sovereignty and just doesn’t know it. “E.g. if they could grow a pair, they would steal money from the ATM”. Not a fruitful line of reasoning, IMO. Just assume that Greece does not have currency sovereignty and then look at the economic implications of that, and the political process necessary to change this state of affairs.

  6. Matt Franko Says:

    RSJ,
    Appreciate the exchange here.

    I still submit that if the collateral acceptance committment that Trichet made is binding, Greece (granted in effect) does have (at least the solvency effects of) currency sovereignty for that period.

    I dont see how it would be stealing from ATM when they all violate the 3% rule.

    dont agree that PDs can bid whatever they want per se. (You’re bordering on the ‘What if the Chinese stop lending us money?’ point of view here.)

    banks capital: they could establish say a “Greek Primaryo Dealeriki Credito Facilityaeus” (Note to Greece: see US Fed for that playbook)

    But overall to your point that this will not happen I have to agree with you. Its too confrontational/defiant for the typical civil servant to prosecute. They will seek to kick the can and try to work within the current framework at least for a while.

    Thanks again., Resp,

    Reply

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