Greece debt crisis: Tsipras facing eurozone deal revolt

July 15, 2015 – 30 minutes ago

Greek MPs are debating tough economic measures they must approve by the end of the day in order for an €86bn eurozone bailout deal to go ahead.

The new legislation includes tax rises and an increase in the retirement age.

As debate continued, protesters threw petrol bombs at police during an anti-austerity protest close to parliament, and police responded with tear gas.

PM Alexis Tsipras has said he does not believe in the deal, but has urged MPs to agree to the measures.

The vote is expected to pass with opposition help, despite a revolt from some hardliners in the ruling left-wing Syriza party.

Pro-European opposition parties have pledged to vote for the measures.

Hardliners in the ruling left-wing Syriza party are likely to vote against, and the junior coalition party has offered only limited support.

“If I don’t have your support it will be hard for me to remain as prime minister,” Mr Tsipras has told his MPs, as government estimates suggest between 30 and 40 will oppose the measures.

Opponents of the deal took to the streets of Athens ahead of the vote, and unions and trade associations representing civil servants, municipal workers and pharmacy owners held strike action.

More than half of the members of Syriza’s central committee have signed a statement condemning the bailout agreement, describing it as a coup against their nation by European leaders.

The possible bailout was agreed in Brussels on Monday by eurozone members, though one of Greece’s creditors, the International Monetary Fund (IMF), has suggested in a report that it does not go far enough – and that Greece will need some of its debts to be written off.

Greece’s economy has shrunk by 25% in the last five years amid austerity measures designed to curtail its ballooning public sector debt.

In order to begin negotiations over a third bailout worth €86bn (£61bn; $95bn) over three years, Greek MPs need to approve measures including:

  • The ratification of the eurozone summit statement
  • VAT changes including a top rate of 23% to take in processed food and restaurants and; a 13% rate to cover fresh food, energy bills, water and hotel stays; and a 6% rate for medicines and books
  • The abolition of the VAT discount of 30% for Greek islands
  • A corporation tax rise from 26% to 29% for small companies
  • A luxury tax rise on big cars, boats and swimming pools
  • And end to early retirement by 2022 and a retirement age increase to 67

Monday’s announcement of a possible deal was met with anger among many in Greece, who called it a “humiliation”.

The Greek constitution states that a government must have a majority – 151 seats out of 300.

But if it loses a vote, the government can still function in a minority capacity as long as the opposition does not call a vote of confidence and as long as the numbers don’t fall below 121.

The number of anti-bailout MPs is known to be at least 30 within Syriza’s 162-seat coalition.

The question is whether there will be more than 41.

If the numbers go below 121, Prime Minister Alexis Tsipras’s government will be severely damaged and will likely look to opposition parties to join a national unity government.

Mr Tsipras has said he does not believe in the deal, though he agreed to it.

In a television address on Tuesday, he called the proposals “irrational” but said he was willing to implement them to “avoid disaster for the country” and the collapse of the banks.

As parliamentary committees considered the details of the laws, Deputy Finance Minister and Syriza member Nadia Valavani announced her resignation, saying: “I’m not going to vote for this amendment, and this means I cannot stay in the government.”

And tempers flared when former Finance Minister Yanis Varoufakis was heckled with shouts of “You got us here” while addressing one committee.

The jeers came when he said he doubted the deal could work, and compared it to the conditions imposed on Germany in the Treaty of Versailles after World War One.

Meanwhile, French MPs have overwhelmingly backed the Greek bailout deal. Because of their constitutions, several eurozone members, including Germany, must ratify the deal in their parliaments before it can proceed.

Banks stay shut

Greece faces an immediate cash crisis. Banks have been shut since 29 June.

Mr Tsipras has warned banks are unlikely to reopen until the bailout deal is ratified, and this could take another month.

The European Commission has formally proposed a short-term €7bn loan for Greece through the EU-wide European Financial Stability Mechanism (EFSM).

Use of the EFSM for eurozone rescues has been opposed by Britain and other countries which are not part of the euro but are European Union members.

One British official in Brussels told the BBC the UK government had no objection in principle to the use of the EFSM – as long as British taxpayers’ money was ring-fenced from any liability.

Valdis Dombrovskis, a senior European Commission official, said it was working to protect non-euro states from any negative financial consequences should the loan not be repaid.

‘Need for debt help’

The IMF report was written before the eurozone reached a deal with Greece in the early hours of Monday. It was shared with eurozone leaders in advance, but made public only on Tuesday.

It predicts that, in two years’ time, Greek debt will reach close to 200% of GDP (national income) which could “only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far”.

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It recommends a “very dramatic extension” on the maturity of Greece’s debts, “with grace periods of, say, 30 years on the entire stock of European debt”.

“Other options,” it says, “include explicit annual transfers to the Greek budget or deep upfront haircuts (debt write-offs)”.

Germany, the largest contributor to Greek rescue funds, and a number of other eurozone countries have long resisted any talk of haircuts and debt relief.

The European Commission published its own assessment on Wednesday, taking a more optimistic view of Greece’s debt sustainability than the IMF but also suggesting debt relief.

The Commission’s report says rescheduling the debt is possible, but only if Greece implements the reforms being demanded by its creditors. It rules out debt write-offs.

Analysis – by Chris Morris, BBC News, Brussels

The IMF report highlights a massive flaw in the deal hammered out so painfully between Greece and the rest of the eurozone: the numbers don’t add up.

It believes that without a restructuring of the Greek debt, it will keep on rising.

But the point about this deal is – once again in the eurozone, it was a case of politics trumping economics.

The desire to keep the eurozone together was stronger (for now) than the economic forces threatening to pull it apart.

There was plenty of talk about debt restructuring during the negotiating process, but not on the scale that the IMF is suggesting.

Officially, there will be a discussion of restructuring only after a first review of the new bailout is successfully concluded.

That is several months down the line.

But, while the IMF report doesn’t comment directly on Monday’s deal (because the report had already been written by then), it certainly implies that the IMF may feel it is unable to take part in the new bailout programme for Greece.

And that would leave a large hole – both in terms of numbers and political credibility.

Greek crisis will shake IMF

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Varoufakis: pourquoi l’Allemagne refuse d’alléger la dette de la Grèce

 

12 juillet 2015

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Behind Germany’s refusal to grant Greece debt relief – Op-Ed in The Guardian

Tomorrow’s EU Summit will seal Greece’s fate in the Eurozone. As these lines are being written, Euclid Tsakalotos, my great friend, comrade and successor as Greece’s Finance Ministry is heading for a Eurogroup meeting that will determine whether a last ditch agreement between Greece and our creditors is reached and whether this agreement contains the degree of debt relief that could render the Greek economy viable within the Euro Area. Euclid is taking with him a moderate, well-thought out debt restructuring plan that is undoubtedly in the interests both of Greece and its creditors. (Details of it I intend to publish here on Monday, once the dust has settled.) If these modest debt restructuring proposals are turned down, as the German finance minister has foreshadowed, Sunday’s EU Summit will be deciding between kicking Greece out of the Eurozone now or keeping it in for a little while longer, in a state of deepening destitution, until it leaves some time in the future. The question is: Why is the German finance Minister, Dr Wolfgang Schäuble, resisting a sensible, mild, mutually beneficial debt restructure? The following op-ed just published in today’s The Guardian offers my answer. [Please note that the Guardian’s title was not of my choosing. Mine read, as above: Behind Germany’s refusal to grant Greece debt relief ). Click here for the op-ed or…

Greece’s financial drama has dominated the headlines for five years for one reason: the stubborn refusal of our creditors to offer essential debt relief. Why, against common sense, against the IMF’s verdict and against the everyday practices of bankers facing stressed debtors, do they resist a debt restructure? The answer cannot be found in economics because it resides deep in Europe’s labyrinthine politics.

In 2010, the Greek state became insolvent. Two options consistent with continuing membership of the eurozone presented themselves: the sensible one, that any decent banker would recommend – restructuring the debt and reforming the economy; and the toxic option – extending new loans to a bankrupt entity while pretending that it remains solvent.

Official Europe chose the second option, putting the bailing out of French and German banks exposed to Greek public debt above Greece’s socioeconomic viability. A debt restructure would have implied losses for the bankers on their Greek debt holdings.Keen to avoid confessing to parliaments that taxpayers would have to pay again for the banks by means of unsustainable new loans, EU officials presented the Greek state’s insolvency as a problem of illiquidity, and justified the “bailout” as a case of “solidarity” with the Greeks.

To frame the cynical transfer of irretrievable private losses on to the shoulders of taxpayers as an exercise in “tough love”, record austerity was imposed on Greece, whose national income, in turn – from which new and old debts had to be repaid – diminished by more than a quarter. It takes the mathematical expertise of a smart eight-year-old to know that this process could not end well.

Once the sordid operation was complete, Europe had automatically acquired another reason for refusing to discuss debt restructuring: it would now hit the pockets of European citizens! And so increasing doses of austerity were administered while the debt grew larger, forcing creditors to extend more loans in exchange for even more austerity.

Our government was elected on a mandate to end this doom loop; to demand debt restructuring and an end to crippling austerity. Negotiations have reached their much publicised impasse for a simple reason: our creditors continue to rule out any tangible debt restructuring while insisting that our unpayable debt be repaid “parametrically” by the weakest of Greeks, their children and their grandchildren.

In my first week as minister for finance I was visited by Jeroen Dijsselbloem, president of the Eurogroup (the eurozone finance ministers), who put a stark choice to me: accept the bailout’s “logic” and drop any demands for debt restructuring or your loan agreement will “crash” – the unsaid repercussion being that Greece’s banks would be boarded up.

Five months of negotiations ensued under conditions of monetary asphyxiation and an induced bank-run supervised and administered by the European Central Bank. The writing was on the wall: unless we capitulated, we would soon be facing capital controls, quasi-functioning cash machines, a prolonged bank holiday and, ultimately, Grexit.

The threat of Grexit has had a brief rollercoaster of a history. In 2010 it put the fear of God in financiers’ hearts and minds as their banks were replete with Greek debt. Even in 2012, when Germany’s finance minister, Wolfgang Schäuble, decided that Grexit’s costs were a worthwhile “investment” as a way of disciplining France et al, the prospect continued to scare the living daylights out of almost everyone else

By the time Syriza won power last January, and as if to confirm our claim that the “bailouts” had nothing to do with rescuing Greece (and everything to do with ringfencing northern Europe), a large majority within the Eurogroup – under the tutelage of Schäuble – had adopted Grexit either as their preferred outcome or weapon of choice against our government.

Greeks, rightly, shiver at the thought of amputation from monetary union. Exiting a common currency is nothing like severing a peg, as Britain did in 1992, when Norman Lamont famously sang in the shower the morning sterling quit the European exchange rate mechanism (ERM). Alas, Greece does not have a currency whose peg with the euro can be cut. It has the euro – a foreign currency fully administered by a creditor inimical to restructuring our nation’s unsustainable debt.

To exit, we would have to create a new currency from scratch. In occupied Iraq, the introduction of new paper money took almost a year, 20 or so Boeing 747s, the mobilisation of the US military’s might, three printing firms and hundreds of trucks. In the absence of such support, Grexit would be the equivalent of announcing a large devaluation more than 18 months in advance: a recipe for liquidating all Greek capital stock and transferring it abroad by any means available.

With Grexit reinforcing the ECB-induced bank run, our attempts to put debt restructuring back on the negotiating table fell on deaf ears. Time and again we were told that this was a matter for an unspecified future that would follow the “programme’s successful completion” – a stupendous Catch-22 since the “programme” could never succeed without a debt restructure.

This weekend brings the climax of the talks as Euclid Tsakalotos, my successor, strives, again, to put the horse before the cart – to convince a hostile Eurogroup that debt restructuring is a prerequisite of success for reforming Greece, not an ex-post reward for it. Why is this so hard to get across? I see three reasons.

One is that institutional inertia is hard to beat. A second, that unsustainable debt gives creditors immense power over debtors – and power, as we know, corrupts even the finest. But it is the third which seems to me more pertinent and, indeed, more interesting.

The euro is a hybrid of a fixed exchange-rate regime, like the 1980s ERM, or the 1930s gold standard, and a state currency. The former relies on the fear of expulsion to hold together, while state money involves mechanisms for recycling surpluses between member states (for instance, a federal budget, common bonds). The eurozone falls between these stools – it is more than an exchange-rate regime and less than a state.

And there’s the rub. After the crisis of 2008/9, Europe didn’t know how to respond. Should it prepare the ground for at least one expulsion (that is, Grexit) to strengthen discipline? Or move to a federation? So far it has done neither, its existentialist angst forever rising. Schäuble is convinced that as things stand, he needs a Grexit to clear the air, one way or another. Suddenly, a permanently unsustainable Greek public debt, without which the risk of Grexit would fade, has acquired a new usefulness for Schauble.

What do I mean by that? Based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone.

Greece Might Have To Sell Ancient Ruins, Islands Under Bailout Deal

 

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It’s a horrifying prospect:  Greece may have to sell it’s ancient ruins and sights in Athens and elsewhere, as well as nature preserves, and islands as part of it’s deal under the new bailout agreement.  People are very rattled at the part of the seven-page agreement where the Greek government has agreed to sell off 50 Billion Euro’s worth of “valuable Greek assets”.

According to Time.com [1]:

“It’s an affront,” says Georgios Daremas, a strategist and adviser to the Greek Ministry of Labor, Social Security and Social Solidarity. “It’s basically saying sell the memory of your ancestors, sell your history just so we can get something commercial for it,” he tells TIME on Monday. “This is an idea to humiliate Greeks.”

The idea of locking up Greek assets in a special fund emerged on Saturday from Germany, the biggest and one of the least forgiving of the creditor-nations involved in the talks. In order to guarantee repayment on loans to Greece, the German Finance Ministry even suggested moving the titles to Greek assets to an “external fund” [2] in Luxembourg so that Athens could not renege on their sale. On this point, Greek Prime Minister Alexis Tsipras managed to fight off the Germans on Sunday, though it was one of the very few concessions he managed to get during the marathon talks.

Greece

“The deal is difficult, but we averted the pursuit to move state assets abroad,” [3] Tsipras said in trying to put a positive spin on the bailout, which would see Greece take more than 80 billion euros in additional loans in order to stave off bankruptcy over the next three years.

Greek payments on its two previous bailouts were also meant come in part from the sale of state assets. Under the terms of its first bailout in 2010, Greece agreed to privatize around 50 billion euros in property and infrastructure as a way of raising money for its creditors. But only 3.2 billion euros have come from these sales to date. So Germany and other creditors have good reason to doubt the Greek commitment to privatization.

Going forward, Greece will have to stash its assets in a specially created fund and prepare them for sale “under the supervision of the relevant European Institutions,” according to the text of the bailout agreement published on Monday [4]. Asked what kinds of assets the fund would include, Dutch Finance Minister Jeroen Dijsselbloem, one of the key European negotiators in the bailout talks, said “experts” would be brought in to settle this question. “I won’t give you any examples, because it’s not my specialty,” he told reporters in Brussels on Monday [5].

Most of the examples would have to come from the government’s land and real estate holdings, says Daremas, the government official in Athens. “That may include buildings, possible areas of land, and even islands,” he says. To protect the natural, historical and archaeological value of such real estate, Greece would need to pass laws and empower oversight bodies to make sure that “the new owner does not abuse or damage the property,” says Daremas.

Since Greek islands and plots of land often house ruins from ancient civilizations, some of these may also have to be sold, he added. “Maybe some archeological sites that are not developed,” Daremas says. “But if you have this as a private investment you also have to assume responsibility for developing the site, of course being monitored by [Greek] authorities.”

There are, of course, limits to the privatization of ancient artifacts. The treasures of Greek antiquity, such as the Acropolis in Athens, would never be sold, Daremas says. “That’s impossible. Their value is immeasurable.”

The idea of selling the Acropolis came up early in Greece’s debt crisis. In 2010, two conservative German lawmakers caused a furor [6] in Greece by suggesting that ancient ruins should not be off limits to privatization. “Those in insolvency have to sell everything they have to pay their creditors,” Josef Schlarmann, a member of Chancellor Angela Merkel’s political party, said at the time. Since publishing those remarks, the Bildnewspaper, Germany’s most popular tabloid, has continued to irritate Greeks by asking why the Acropolis cannot be sold to repay debts to Germany [7].

This is black humor,” says Natalia Kosmidou, a tour guide at the Acropolis in Athens. “The Germans must have had too much beer.” Although the last five years of economic turmoil have forced Greece to rely on private donors and foreign foundations to help pay for the maintenance and restoration of the Acropolis, Kosmidou says, “the Greek state will always own these monuments, even as the poorest pauper, even penniless.

Greece has at least been willing to discuss the sale of its islands, however, as many of them are uninhabited and underdeveloped. Joseph Stiglitz, the Nobel-prize winning economist who has spoken out in favor of debt relief for Greece [8], says the sale of islands could be an important part of the broader privatization campaign. “You could sell them,” he says. “But not a fire sale, because that would be like giving away your patrimony for nothing.”

That would mean waiting until the property market in Greece recovers. “Of course real estate prices are depressed right now,” says Daremas. “It’s very important to have time, and to wait for change in the economic climate to be able to sell them at a fair price.” The Greek promise to sell state assets came with no time limit in the text of the agreement published Monday. But in their hunger for guarantees on this latest package of loans to Greece, creditors in Germany will not be happy to wait much longer.

 

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