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Tuesday, July 28, 2015 1:48 PM

Another Bridge Loan Likely as Greek Talks Break Down; Shocked Over Parallel Currency Plans? Why?

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Greece insists it has met all of the conditions for another bailout, but only one vote matters, that of the creditors who say Greece hasn't.

One of the stickiest issues is hiking taxes on farmers.

But if tax hikes is what the creditors want, that's what they will get. Greece should realize that by now.

Nonetheless, the bickering lingers and it will continue until Greece finally is forced out of the eurozone.

Greek Talks Break Down

Meanwhile, Denials Fly in War of Nerves Over Greek Debt Talks.

Any hope of a fresh start in fraught relations between Greece's leftist government, purged of its most radical members, and the institutions representing its creditors, appeared to be dashed by the flurry of assertions and rebuttals.

The two sides couldn't even agree on when the talks began.

Differences included the pace and conduct of bailout talks, whether or not Greece needs to enact further laws before a deal, the reopening of the Athens stock exchange, and the activities of former finance minister Yanis Varoufakis, who continues to heap abuse on the creditors in his blog.

Greek official said suggestions that Greece needed to pass further reform legislation before a bailout deal were not justified by the euro summit statement or subsequent exchanges.

However, euro zone officials made clear that Athens must enact measures to curb early retirement and close tax loopholes for farmers before any new aid is disbursed. Greece needs more finance by Aug. 20, when it owes a 3.5 billion euro payment to the European Central Bank.

Hanging over the new talks is the legacy of Varoufakis, whom Tsipras sidelined in the final phase of the talks before accepting even more stringent bailout terms this month. He continues to create problems for the premier by denouncing the bailout agreement and accusing the creditors of having treated Greece like a colony.
Uproar Over Varoufakis' Parallel Currency Plan

Yahoo!Finance reports Varoufakis 'Parallel' Currency Ploy Sparks Uproar in Greece
Revelations by Greece's flamboyant former finance minister Yanis Varoufakis of secret plans for a parallel currency have sparked uproar in the country as the embattled leftist government on Monday began to rebuild tattered trust with its international creditors.

On Monday, a recording of Varoufakis' remarks was released by the Official Monetary and Financial Institutions Forum.

In it, the maverick economist said Prime Minister Alexis Tsipras had "given the green light" for a Plan B before coming to power in January.

The goal was to create a "functioning parallel system" of liquidity in case the European Central Bank cut off support to Greece's banks, as indeed it did after talks with the hard-left government on new austerity reforms broke down in June.

Varoufakis said that a five-man team under his orders had hacked into the finance ministry and obtained access to the tax file numbers of Greek taxpayers in order to create duplicate accounts.

The subterfuge, he explained, was necessary to avoid alerting Greece's EU-IMF creditors who "fully" control the revenue mechanism.

The operation was designed to enable the ministry and also taxpayers to make digital transfers without having to use the banks, which as it turned out, had to be shut down for three weeks this month to avert a run on deposits.

"Of course this would be euro denominated but at the drop of a hat it could be converted to a new drachma," Varoufakis said.

"The work was more or less complete," he added.

The news caused a political storm in Athens, with opposition parties demanding an official explanation from the government and threatening to put Varoufakis on trial.
Shocked Over Parallel Currency? Why?

No one should be shocked by any of this. In fact, a bank takeover was absolutely necessary were Greece to be forced from the eurozone. And Greece was right at that point before Tsipras caved in to every creditor demand.

Not having a "Plan B" would have been extremely incompetent. The takeover of accounts is precisely what I warned about for months on end.

Primary Account Surplus, Yet Again

Greece would have tried to remain on the euro, but would not have been able to do so unless it quickly got to a primary account surplus position (tax receipts, in euros, large enough to pay current expenses except for debt repayments and interest on debt).

Looking for a reason Germany demanded 50 billion euros in collateral for another bailout? The key is a primary account surplus.

Creditors demand a primary account surplus from Greece so that Greece can pay back the creditors from the surplus. But as soon as Greece has a surplus, the temptation would be to stop the debt payments, thus the need for collateral.

Mike "Mish" Shedlock

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