Nomura’s Richard Koo: EU refuses to acknowledge mistakes made in Greek bailout [PDF, chart]

“After achieving a resounding victory in the national referendum, the Greek government resumed its negotiations with the EU. It has been reported that the talks could resume only because France, taking a broader view of matters, persuaded the other creditors that history would not look kindly on them if they allowed the negotiations to break down.

On the debtor’s side, Mr. Varoufakis had to step down first probably because an agreement was impossible as long as he was on one side of the table and Mr. Dijsselbloem was on the other.

The compromise proposal submitted by Greece was almost identical to the EU’s previous proposal in that it contained neither debt waivers nor GDP growth forecasts. I suspect Greece felt bringing those issues up again would further reduce the chances of reaching an agreement.

In other words, I think Mr. Tsipras left those essential two items out of the new proposal because he decided it was critical to prevent further dysfunction in the nation’s banking system. Because of that decision, however, the agreement will resolve none of the fundamental problems facing the effectively bankrupt nation of Greece. Unless Greek growth picks up sharply, the country is likely to roil global markets again before long.”


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