The Interim Debt Agreement

Jack Rasmus provides argument as to why the alternative of leaving the Euro by the February 28th expiration date (or soon after) would have been a disaster for Syriza and Greece, both economically and politically.  He argues that by agreeing to a very temporary four month extension, Syriza has tactically made the smart move.  The next four months give it precious time to prepare for the next round and the decisive battles ahead. This article was originally published by Telesur see here.

The Greek Debt Interim Agreement: Necessary Step or Sell-Out?

Syriza’s severe critics should assess the situation as it is, using their heads, instead of just passionately declaring all is lost because they didn’t get everything they wanted immediately and overnight on February 28th.

Last Friday, February 20, Greece’s Syriza government agreed to a four month extension of the current debt package that has been in effect since Greece’s last debt renegotiation in 2012, thus agreeing to the main demand of the Troika that it do so as a condition for further negotiations. Some have read this as a ‘sell-out’ by Syriza of its election promises to reject the austerity measures the Troika established in 2010 and 2012, which have kept Greece in a condition of perpetual economic depression for the past half decade. By agreeing to continue current debt arrangements for another four months, critics say Syriza has also reneged on its promise to reject the Troika’s previous debt deal.  The same critics argue that Syriza should have simply declared ‘no’ to extending both the current debt package and related austerity measures by the February 28 expiration date. And if the Troika didn’t like it, so be it; Greece should just leave the Euro currency zone.

But these criticisms and the alternative recommendation to just leave the Eurozone are premature and ill-conceived. And the alternative of leaving the Euro by the February 28th expiration date (or soon after) would have been a disaster for Syriza and Greece, both economically and politically.  By agreeing to a very temporary four month extension, Syriza has tactically made the smart move.  Here’s why.

From the very beginning the Troika’s primary objective has been to extend the current debt and austerity terms ‘as is’, i.e. in perpetuity. That would mean leaving Greece in depression in perpetuity, and having to revisit and renegotiate Greece’s massive debt load of $270 billion (more than its annual GDP) repeatedly every few years, resulting in the piling of still more debt on existing debt and requiring even more austerity.

Even if the Troika’s representatives know this arrangement is unsustainable in the long run, which many no doubt do know and some have publicly even expressed so, they had little choice but to have continued to do so by the February 28th deadline date of the old agreement.  With the Eurozone economy in deep trouble, with its widespread economic stagnation, its continuing slide into deflation, the still massive debt owed by its other periphery economies, the rising populist parties on the right and left, growing negative effects on it created by US-induced sanctions on Russia, and the prospect of a bottomless black hole of debt and bailouts in the commitments it has made to lend money to the Ukraine—unilateral reductions in prior Greek debt at a single stroke by the Troika are not a prospect the Troika could even begin to publicly consider by February 28 or even any date in the foreseeable future.

The Troika’s Cliff

The Troika would have instead allowed the Eurozone to ‘go over the cliff’ after February 28 and let Greece leave the Eurozone, thus dragging Greece over the cliff with it had Greece rejected an extension outright and left the Euro on March 1.

February 28 was simply not enough time for the complex bureaucratic political and banking interests behind the Troika to agree to anything representing fundamental change in Greece’s debt and austerity measures. Nor was it enough time for Greece itself to prepare for the worse—i.e. an exit—or to develop a more effective strategy in confronting the Troika by seeking allies and support within the Eurozone and within the global community as well.  The timing was not right. Principles are important in negotiations; but so is strategy and timing. And declaring an end to debt payments, to austerity in general, and exiting the Euro in turn would have been committing a fundamental error of confusing a tactic (leaving the Euro) with a strategy (ending austerity).

Had Greece left the Euro, the economic effects of that precipitous move were already becoming apparent: capital flight out of Greece was already accelerating, pressures for a run on Greek banks within days were growing, rates on Greek debt were escalating rapidly, and prospects of runaway inflation rising.  All the above would have intensified post February 28th.   Unknown political consequences would undoubtedly have arisen.  It’s not unlikely that the USA and Europe would have unleashed their NGOs and other forces of political destabilization, which we have seen in recent years has become a standard practice everywhere, to effect a political crisis and regime change in Greece. It is well-known that USA Treasury Secretary, Jack Lew, in the week preceding February 20 made direct personal calls to Syriza. No doubt veiled threats, economic and political, were made on behalf of the USA’s banker-political allies in the Troika.  These are realities Syriza no doubt had to consider, along with the obvious severe economic impacts of a precipitous and ill-prepared decision to exit the Euro on February 28. The economic crisis would have meant a much worse immediate economic environment for the Greek people, at least in the short run.

Greece’s choice was: precipitate a crisis on February 28 by declaring an exit from the Euro, without having prepared effectively politically and economically for the exit in the brief time it has had to do so; or get whatever minimal concessions it can from the Troika on February 28th, agree to what it must temporarily agree to for the shortest possible period, and buy time—to properly prepare for a possible Euro exit and line up alternative sources of credit should the worst occur, to prepare the public for the consequences, see what ‘splits’ can be wedged in the Troika opposition (which had begun to appear) during the negotiations over the four month extension period, and, in the interim of the four months, maneuver to implement whatever initial rollbacks of austerity might be possible as a first step toward a more aggressive later program.

Whose United Front?

With regard to the question of Greece possibly leveraging potential differences within the Eurozone, during February some Euro ‘soft-liners’ had already floated the idea of allowing Greece to swap old bond debt for what is called ‘GDP or growth bonds’. In the latter, debt payments would only be made if Greece grew economically in real terms.  If no growth, then no debt payments, and suspension of debt payments technically means more funds to reduce austerity.

Of course, all that needs still to be negotiated, and the ‘hardliners’—Germany, its central bank allies, the IMF, were opposed to such debt payment adjustments. They know a bond debt swap agreement opens the door to negotiations on some austerity suspensions since it reduces the debt repayments. It is perhaps notable that the Eurozone Commission, and a number of Euro country finance ministers are not as hardline as the German central bankers, IMF and ECB, who had gained the upper hand within the Eurozone in the closing weeks of February.

But as they continued their hardline opposition, within the Eurozone other’ softliners’ were  suggesting other ideas aside from ‘GDP bond debt swaps’ designed also to lower debt payments by extending the loans by decades, to 50 years, or even in perpetuity.  That too would lower annual debt payments and take some pressure off of austerity in the short run. And others were suggesting converting the bonds’ current principal and interest payments to interest payments only, with the same potential result.  So there is no united front within the Eurozone.  But precipitating a final clash with the hardliners on February 28 would not have given Greece the opportunity to explore leverage in negotiations with the softliners. Extending the agreement for another four months provides that option at least, even if it is not guaranteed to produce results favorable to Greece.

Minimizing or somehow postponing debt payments by any of the above adjustments raises the possibility for austerity roll backs. Opening the door wider to enable even more rollbacks is also potentially possible if Greece can negotiate a reduction in the stringent national budget surplus now dictated by the current agreement.

With regard to this latter point, several Eurozone countries and their current centrist social democratic parties, specifically France and Italy, have been themselves campaigning for a reduction in their annual budget surplus targets their previous even more pro-banker governments had agreed to.  That surplus, of 3% to 4% or so, in effect meant France-Italy would have to cut government spending at a time, today, during which their economies are stagnating or in recession. Both therefore want to increase government spending to generate more growth. But they recognize that is not possible without a reduction of their current budget surplus target. But if France and Italy prevail in reducing their target, then why not Greece? And why not Greece seek allies and support from France and Italy in a joint effort? Reducing Greece’s budget surplus target would, in effect, free up more government revenues to spend to reduce austerity—by hiring back government workers, not cutting or even restoring pensions, improving health care services, not having to privatize electricity services, and so on. .

Greece therefore needed time to ‘court the doves’ in the Eurozone centrist governments and to encourage allies willing to propose alternative measures that would reduce debt payments. That time would have been forfeited and lost if Greece had declared an exit on February 28 and/or not agreed to a four month extension.

Greece also needs time to line up possible supporters within the broader global community—both political and potentially economic support. In the meantime there is nothing to stop Greece from maneuvering with a scalpel to cut back ‘this or that’ austerity measure.  All these strategic opportunities would have been closed off to it if Greece had rushed to leave the Euro on February 28, declared it was not going to pay any debt any longer and discontinued all prior austerity measures overnight.

The trade-off before it on February 28 was economic chaos and potential severe political instability vs. the possibility to negotiate debt reduction based on one of the possibilities above and to roll back austerity, albeit in stages or phases rather than all at once overnight.

If the Troika’s number one demand has always been to extend the past agreement of debt terms and austerity ‘as is’, then Greece’s number one demand has been to roll back austerity.  The bargaining clash between the Troika and Greece leading up to February 20th was about which demand would be primary. Who’s agenda would drive negotiations. The Troika saw austerity as a necessary outcome of its primary objective of ensuring debt repayment; Greece sees debt repayment as the unnecessary requirement preventing its primary objective of austerity roll back.  For the Troika, it’s about continuing debt payments and then talking about austerity changes; for Greece, it’s negotiating austerity changes first and then adjusting debt payments to accommodate those changes.

Greece’s Debt Extension Acceptance Letter of February 23

So, post-February 28th, whose primary position is now at the top of the negotiating agenda? Has either side succeeded in firmly establishing its priority and now dominates the agenda? The answer is no.  Although only the outlines of the extension agreement are thus far available, it appears the letter Syriza sent on February 23 include the following:

First, the Troika got its ‘as is’ extension of current terms, its primary demand, but only for four months. After that, the current debt-austerity terms may well become null and void if no further, more permanent agreement is reached.  In the meantime, in its agreement letter to the Troika, Greece left hard numerical details purposely vague. It reportedly has two months to clarify the details.  In the meantime, Greece buys itself time. It can proceed with rolling back austerity measures, albeit more slowly and carefully, even though it may have agreed in writing in principle not to. What is the Troika going to do about it, if Greece leaves the extension vague, giving itself room to maneuver at home to continue to reduce austerity in the interim? Will the Troika throw Greece out of the Eurozone because it doesn’t like the lack of details? Break off negotiations? That would have repercussions, both economically and politically throughout the Eurozone and the Troika knows it. They’ll bluster and complain, posture in the media, they’ll threaten not to provide the bridge loans technically due Greece even under the old terms during the four month extension, but in the end they’ll continue negotiations nonetheless. They really have no other alternative.

In the meantime, Greece will focus on and point to its aggressive efforts to raise taxes, by cracking down on the wealthy tax evaders and tax collection corruption. It will cite these aggressive efforts called for in the agreement letter of February 23, as evidence it is proceeding to implement some of the terms of the extension.

Greece’s acceptance of the extension letter also indicates it will proceed with demanded government reforms to root out corruption, make government funding projects more transparent, and reduce the influence of Greece’s economic oligarchs who have shielded themselves politically the past five years from any austerity effects while the rest of the country has bore the burden of the same. That too will be held up as evidence of compliance.

Troika demands for labor market reforms—a program the Euro bureaucrats and bankers are pushing throughout the Eurozone—are tactically addressable by Syriza as well.  It can say it is refunding pensions from increasing tax collections on the wealthy that have been effectively avoiding them and by other administrative reforms.  It can point to hiring back government workers by reducing pay for top government bureaucrats and managers and by other plans to ‘streamline’ government which the Troika has demanded. It can raise the minimum wage and restore collective bargaining, noting these measures affect the private sector and don’t raise government spending; in fact, rising wages mean more tax payments and therefore more potential government surplus.

Greece’s February 23 letter apparently agrees not to roll back privatizations that have been already completed or ‘under way’. But the definition of the latter is not spelled out and those projects can be effectively placed on hold for at least four months or more. And it has not agreed to continue with further privatizations the Troika wants, such as the electricity system, a project that would certainly impact households and incomes. They will be reviewed on a ‘case by case’ basis, according to the letter. That means effectively, nothing to be done for another four months. In short, no rollbacks of past privatizations in exchange for a freeze on anything further.

In its letter Greece also indicates it will proceed with promises to reduce food costs, health care services and utility services for the poorest, which now constitute a large part of Greece’s households after five years of depression. It indicates the funding for these anti-austerity measures, which amount to around $2.15 billion, will be financed from other cost savings.

Notably, much of the social benefit and program measures will be financed not by budget cuts but by finding cost savings. That means provide the benefits and then look for ways to cut costs. That’s a dramatic departure from the Troika’s procedures of cut first and then adjust the benefit levels.

In the days following Greece’s acceptance letter, the hardliners within the Troika—Germany, its northern Europe central bankers faction, together with the IMF and ECB, have continued their hard line, insisting Greece provide more details in its letter.  In contrast, the European Commission and a number of finance ministers have assumed a different public line. As the European business weekly, the Financial Times, reported on February 25, “Officials at the third bailout monitor, the European Commission, said the reform list had improved on outlines discussed at the weekend and, unlike the IMF and ECB, gave it unequivocal support”. So is the IMF and ECB playing ‘hard cop’ while the EC the ‘soft cop’? Or is the fact that the EC’s $142 billion Greek debt is that which is being considered, whereas the IMF’s and ECB’s smaller debt is not even in question here?  Only time will tell. But the point is that Greece and Syriza have at least bought that time to find out, to prepare, and have in the meantime not really abandoned their primary goal of rolling back austerity—even if that goal’s attainment has been, of necessity, been slowed for a temporary four months.

Need for Continued Solidarity on the Left

Greece and Syriza have not ‘sold out’. To declare such is premature at best, and counterproductive politically at worst.  Greece has bought itself time—to prepare for the worse while it plans for the best possible compromise with its Eurobanker-Troika adversaries.  It has bought time to properly prepare for an exit if that ‘nuclear option’ becomes necessary. It has bought time to maneuver with potential sources of support within the opposition itself, and to line up global alternative economic and political support.  It simply did not have sufficient time in the few weeks between Syriza’s election and the February 28 deadline. Yes, Greece ‘blinked’ at the February 28 deadline. If it hadn’t what would have been the consequences, including for the Greek people, of a precipitous action?  The Troika, with its ‘eyes wide shut’, would have gone over the cliff and dragged Greece, and perhaps the entire Euro currency union, with it.  Greece and Syriza have thus, in effect, led it, the Troika, and the Eurozone itself, back from the precipice by agreeing to an extension—an extension that has not really tied its hands in maneuvering to reduce austerity and an extension that at least raises the possibility of ‘debt reduction by other means’ (swaps, surplus target reductions, etc.) going forward in the four months of negotiations ahead.

Syriza’s severe critics should therefore assess the situation as it is, using their heads, instead of just passionately declaring all is lost because they didn’t get everything they wanted immediately and overnight on February 28th. Negotiations are not over, they have just begun. And so has the fight. Meanwhile, it is too early to voluntarily and arbitrarily throw much needed solidarity overboard.  As workers know full well when their bargaining team goes into negotiations, you don’t declare sell out and split your ranks even before you’ve gone out on strike.  There’s ample time to better determine if that bargaining team’s doing its job. Right now, it looks like Syriza—Tsipras and Varoufakis—have made the right tactical decision on February 28.  Let’s see if they can now make the best strategic choices going forward as well.

Greece – Looking at alternatives to the euro

euro-debtInteresting paper from 2012 on the extreme difficulties of staying within the euro currency – especially now that it is clear that Germany and its band of desperate governments are locked into a hard austerity framework. The paper has relevance today.


See full paper

Executive summary below

This week the Greek government reached agreement with the European authorities and the IMF for 130 billion euros in lending, as part of a new adjustment package to replace the current IMF program that began in May of 2010. Although the agreement should allow the government to avoid default in March, there are grave doubts as to whether the agreed upon program will lead the country to a point where it returns to growth, has a sustainable debt burden, and can borrow from private markets.

The most important problem with the commitments that Greece has made in the past two years is that its fiscal policy is pro-cyclical – that is, the government has been, and is committed to, tightening its budget while the economy is in recession. In 2010-11, the Greek government adopted measures to cut spending by 8.7 percent of GDP.

But the economy continues shrinking and this makes it even more difficult to make revenue targets. The IMF has consistently underestimated the loss of GDP for Greece, lowering its projections by a huge 6.9 percent since its First Review of the Stand-By Arrangement in September 2010. Twothirds of this drop came in the five months between its Fourth and Fifth Review (December 2011).

Although most of the planned adjustment for 2012 is in the form of revenue increases, the IMF’s Fifth Review states that there must be a shift toward spending cuts in 2013-2014. This will increase the risk of further prolonged recession. The IMF program also assumes very large revenues from privatization – about 15 percent of GDP over the next two years, and 22 percent of GDP by 2017. But very little in the way of revenues has been forthcoming from privatization in the past two years, and the Fifth Review notes that lower revenues from privatization could by themselves put the 2020 debt/GDP ratio at 138 percent, instead of the target 120 percent.

The program could also easily be derailed by lower growth. Given the current shrinking of the eurozone economy, this seems quite possible.

On Monday, there were press reports based on a leaked document prepared for the European finance ministers, which contained a much more pessimistic scenario for the Greek economy. In this scenario the debt was explosive and Greece would need “about €245bn in bail-out aid, far more than the €170bn under the “baseline” projections eurozone ministers were using.” Debt would be 160 percent of GDP in 2020. Given the underestimation of GDP losses by the IMF so far, and the failure of the European authorities to recognize the negative impact of fiscal contraction, the more pessimistic scenario may turn out to be more realistic.

The economic costs of Greece’s adjustment have already been quite high; using the IMF’s projections and updating them with the most recent data, if the economy begins its recovery later this year it will have lost 15.8 percent of GDP from its pre-recession peak. This would put Greece among the worst losses of output from financial crises in the 21st and 20th centuries.

Greece also now has the highest interest burden on its public debt of any EU country, at 6.8 percent of GDP; only two other countries are even in the 4 percent range (Italy and Portugal). There are CEPR More Pain, No Gain for Greece z 2 very few countries in the world with a higher interest burden than Greece, and it is unlikely that it will be brought below 6 percent even with the planned debt restructuring.

The social and human costs of Greece’s recession have also taken a large toll. By the Greek national measure, unemployment hit a record high in November at 20.9 percent of the labor force. The IMF’s last projections show Greek unemployment still at 17 percent in 2016, and this is likely to be raised. The IMF’s projections for unemployment in 2013 have increased between the first and fifth review, by more than a third, from 14.5 percent to 19.5 percent. Employment as a percentage of the working age population is now less that it was in 1994. There have been large increases in suicides and violent crime, and access to health care has declined.

The Greek government has agreed to reduce government employment by 150,000 workers by 2015, to cut the minimum wage by 20 percent (and by 32 percent for those under the age of 25); and to weaken collective bargaining. All of this will have the effect of reducing living standards for workers and redistributing income upward.

The economic theory behind these changes is that of “internal devaluation,” in which wage costs, lowered by the recession and high unemployment, are pushed down far enough so that the economy becomes more competitive internationally and can recover through exports. But after four years of recession and reaching record-high unemployment, Greece’s Real Effective Exchange Rate is still higher than it was in 2006. In other words, there has still been no internal devaluation.

The paper also briefly looks at the alternative of a planned default and exit from the euro, considering that such an outcome might happen in any case due to recurrent crises and continued recession. The case of Argentina’s successful default and devaluation is one relevant comparison. Argentina unsuccessfully tried an internal devaluation during three and a half years of recession beginning in mid-1998. After default in December 2001 and devaluation a few weeks later, the economy shrank for just one quarter (a 4.9 percent loss of GDP), but then recovered and grew by more than 63 percent over the next six years. It took three years for Argentina to reach prerecession GDP; Greece is currently projected to take more than a decade. Contrary to popular assertions, the Argentine recovery was not a “commodities boom,” nor even an export-led growth experience. Rather, it was led by domestic consumption and investment, which was only possible after Argentina was able to abandon the “internal devaluation,” pro-cyclical policies that the government – like that of Greece today – had been committed to. It’s also worth noting that Greece’s exports of goods and services are currently about twice the level of Argentina’s before its default/devaluation, relative to GDP.

The authors conclude that the default/exit option should be taken seriously for Greece as an alternative to the current projected scenarios.

Backstage in Brussels – how Eurogroup happened

eurogroup feb 2105Is Greece’s fate in the hands of Angela Merkel? One leading economist with close ties to Greek finance minister Yanis Varoufakis says that the primary obstacle to compromise is a dramatic division within the German government, with one faction demanding that Greece fully adhere to its previous commitments, and another powerful group advocating compromise.

Economist James Galbraith recently spent a week with Greek finance minister Yanis Varoufakis. Fortune magazine published an article of the interview. You can find that here. Excerpts below.

It’s all up to Merkel,” says James Galbraith, who spent seven days in mid-February at Varoufakis’ side in Brussels and Athens. “We’ve heard from her finance minister, who takes a negative stance, and from her vice chancellor, who wants to talk. The person we haven’t heard from is Merkel. We know she does not talk until needed. They are as tough as possible, then make one concession at the last minute so they don’t have to make two.”

Galbraith summarizes Merkel’s dilemma—and the best hope for an agreement—with one fundamental question: “Does Merkel want to be the person who presides over the fragmentation of the Eurozone?”

It’s hard to imagine a more unlikely duo than Galbraith and Varoufakis. The former is the Harvard, Yale and Cambridge-educated son of legendary economist John Kenneth Galbraith. Varoufakis is a firebrand who sports leather trench coats and electric blue shirts at meetings with Europe’s stuffy elites, and blasts off on motorcycles to unwind. Yet as colleagues at the University of Texas in Austin, they became not only great friends but intellectual soul mates, co-authoring (along with UK economist Stuart Holland) a 2013 treatise on resolving the Eurozone crisis that advocated for replacing large portions of troubled nations’ sovereign debt with super-safe ECB-backed bonds carrying low interest rates. It’s clear that Galbraith’s ideas helped shape Varoufakis’ controversial campaign to end “austerity” in Greece and protect government jobs and pensions.

Working alongside Varoufakis, Galbraith got an inside view of the chaotic maneuvering at a Eurogroup meeting of European finance ministers, held on February 16 in Brussels. “I stayed with the tech teams, from the 11th to the 17th, including the Brussels meeting,” says Galbraith. “I was in the boiler room with the Greek guys, the working stiffs.”

At the Eurogroup conclave, Pierre Moscovici, the EU commissioner for economic and financial affairs, presented Varoufakis with a draft communiqué that allowed Greece to apply for an extension of its loan agreement while granting time to discuss a new growth program for Greece. As Varoufakis stated at the press conference after the meeting, he was poised to sign the Moscovici communiqué, which he praised as a “splendid document” and a “genuine breakthrough.”

But the chief of the Eurogroup, Jeroen Dijsselbloem, was working on his own document. “Yanis said, ‘I have a text,’ and Dijesselbloem said, ‘No, this is the text.’”

Galbraith and the Greek team then attempted to combine portions of the two drafts into a document acceptable to both sides. “My day from that point, along with some other people, was taken up with trying to turn either of those texts into something that could be signed. In another half hour, we could have done it.”

Then, according to Galbraith, German finance minister Wolfgang Schaeuble closed the meeting. “He was saying ‘no’” to fashioning a joint statement as a prelude to a compromise, says Galbraith.

For Galbraith, the lack of coordination on the European side was shocking. “I’m an old Congressional staffer,” he says. “To watch an official body function in this slipshod and ad hoc way, to watch the Eurogroup and the way things were done, was really a revelation.”

On February 18, Varoufakis presented a formal request for an extension of Greece’s loan agreement with the Eurogroup. Once again, the divergent responses left Galbraith confounded.

“Jean-Claude Juncker [president of the European Commission] said it was a good start,” says Galbraith. He also notes that Germany’s vice chancellor, Sigmar Gabriel, said that the loan extension letter was a “starting point” for negotiations. But Schaeuble contradicted Gabriel, dismissing the request as “not a substantial position.”

“My eyes are bugging out watching this,” says Galbraith. “This is Germany, the most powerful government in Europe!”

For Galbraith, the divisions in Germany, and among the nations themselves, have made it clear that the European leadership are poor negotiators. “They made the mistake of exposing to Yanis that they are playing a very hard game, but not playing it very well, from the point of view of basic political skills.” He dismisses the idea that the Greek position is confusing. “I think the Europeans want to pretend to be confused, but the confusion exists in their minds, not in the Greek position.”

For Varoufakis and Galbraith, petty politics is trumping sound economics. “The institutional players—the IMF, European Community, and ECB—have been constructive,” says Galbraith. “But the creditors, the active players, are the finance ministers, and they are divided and hostile.”

The camp strongly opposed to compromise includes Spain, Portugal, and Finland. “Their leaders all facing elections with rising opposition,” Galbraith says. “They’re terrified that their opponents will take heart from the Greek position.” Hence, surviving in office means more than saving the Eurozone.

Breaking the impasse will most likely require the intervention of the only leader powerful enough to pull off such a maneuver: Angela Merkel.

Greece gets a deal, but it aint over

In football terms Greek finance minister Yanis Varoufakis has snatched an “narrow away defeat” from a potential knockout – from the cup and the league combined. The eurozone and IMF have done a deal with Greece, extending its bailout for four months in return for a commitment to run all policy measures with significant economic impact past the lenders. The second part of the deal has to be done on Monday, by Greece submitting a list of proposed measures. That is the opinion of commentator Paul Mason (UK Channel 4) on the agreement struck on Friday.

See below and full piece here

The draft does not give Germany everything it wanted. It allows Greece to vary its fiscal target this year – meaning it can run a lower surplus, as yet unspecified. In addition, according to Varoufakis, there is “creative ambiguity” about the surpluses Greece is required to run beyond this year.

Second it maintains the words Varoufakis proposed on Thursday: that Greece will not rollback old measures or unilateral policies “that would negatively impact fiscal targets, economic recovery or fiscal stability” – however with the addition of the words “as assessed by the institutions”. This clarifies who gets to decide whether the revised Greek programme threatens these things.

By Monday Greece has to submit a list of measures, in order to get the money to recapitalise its banks, and roll over its loans. Varoufakis spun this at a press conference as something that would be assessed jointly – so effectively the power game between Germany, Greece and everybody in between now continues, but with the IMF – whose methodologies are considerably less doctrinaire than the ECB on what Syriza proposes to do – in the loop.

In addition, the word “bridge” appears in the agreement. Dijsselbloem indicated that it would be a bridge to any future arrangement – and in that sense, the German opposition to any signal of the possibility of a transition phase was overcome.

Positives for Greece

Here’s why I think Varoufakis has achieved something. In the hours before the deal the Greek media reported deposit flight had significantly increased. So it was not the ECB threatening Greece with capital controls but the Greek central bank and finance ministry knowing they would have to limit ATM withdrawals as early as Tuesday.

With that hard deadline clear Greek negotiators feared the position they signed up to tonight would be chipped away by their opponents to nothing – i.e. towards the German position. So by signing early, they – they believe – have removed the ticking clock issue, and if the ECB – as Mr Varoufakis expects – makes positive announcements on restoring normal credit lines to the Greek banks, the banks are safe.

He said in the press conference the Banks would remain open “Tuesday, Wednesday and ad infinitum”.

A nightmare scenario for Greece was that, if they imposed ATM limits on Tuesday, the EU/IMF could then drag their feet, Cyprus style, forcing total capitulation.

The true substance of what’s been agreed will only be decided as the IMF/EU and ECB say yay or nay to each of the Greek measures. The German finance minister, and indeed the German “tone of voice” was not present at the final announcement of the deal. So it remains to be seen what the German lawmaker’s response is.

Syriza’s left

Varoufakis was visibly relieved. He has – we think – averted a bank run and total surrender, but only by beating a retreat from what Syriza promised in the aftermath of the election.

Syriza’s left will criticise this – and they will criticise the conduct of Varoufakis and his team who seemed to have very few bullets left in the clip by this evening. But because Varoufakis can sell this as “better than it could have been” I would expect there to be relief, and the anger focused on Germany, on the Greek streets this holiday weekend.

Asked what happens if the IMF/EU do not agree the list Syriza presents on Monday, Varoufakis said, disarmingly, “then we are finished”. But if it can be agreed, there is a massive amount Syriza can do on policies not tied to its fiscal limits, and four months only takes us to the end of June, which has always been “riot season” in the Greek crisis.

The strategic crisis is not over. But the damage to trust and solidarity, with one nation – Germany – being seen to attempt to force another’s electorate into total surrender – is real.

I asked Dijsselbloem in the press conference: “What do you say to the Greek people, whose democracy you’ve just trashed.” He replied that he did not think that was a very objective question. We’ll have to agree to differ.

Greece – closing down immigrant detention centres

Artist: Skitsofrenis  2009

Artist: Skitsofrenis 2009

Following the suicide of a 28 year old Pakistani national on Friday night in the Greek immigrant detention cetre of Amygdaleza, Yiannis Panousis, Greece’s new Minister for Civil Protection, toured the facility on Saturday. Greeted by a protest organised by anti-racism groups, Panousis said, “I came to express the sadness and grief of the ministry and the government…but now I express my shame, not as a minister, but as a human being, as a representative of civilization.” The new government has vowed to overhaul Greece’s system of detention for undocumented migrants. “I couldn’t believe what I saw. I really could not believe it. This must change and it must change immediately,” he said, adding that the centers would be closed within days.The government will instead set up “open” centres with better facilities.


Alexia Eastwood wrote this article on the story that appears in The Press Project – see full article here. Excerpts below.

Amygdaleza, one of many ‘closed hospitality centres’ for undocumented migrants, has long been the subject of controversy and international concern. Amygdaleza, which was the first facility of its kind, uses containers as temporary housing. The conditions for detainees have been described as substandard, degrading, and unacceptable by the independant humanitarian organisation Médecins Sans Frontières/Doctors Without Borders (MSF). Their 2014 report, Invisible Suffering, which documents conditions in centres around the country is available here .

Greece, one of the key European entry points for irregular migrants, has in recent years been overhwelmed with an increased influx of migrants following conflicts in the middle east, especially in Syria. As the Economist reported , from January to July of last year, “ the number of illegal migrants arrested by the Greek authorities at the border with Turkey rose by 143%.”

Although many of these migrants are hoping to make it to the richer, northern countries of Europe, most will never make it that far. The Dublin Regulation decrees that it is the country that the migrant arrived in that is responsible for the individual’s asylum application, thereby more often than not placing the overwhelming burden of dealing with undocumented migrants onto the shoulders of border regions who are usually the least well equipped to deal with them. In 2013 for example, Greece, one of the  European countries who have been hit the hardest by the economic crisis, spent €63m to prevent illegal immigration, with only €3m of that sum coming from Europe’s border agencies.

The previous Greek administration led by the conservative New Democracy party, in 2012 initiated Operation “Xenios Zeus”, ironically named after the Greek God of hospitality, rounding up and arresting irregular immigrants across Greece and placing them in long term detention in centres around the country until they are either granted asylum, or more often, deported. Detention periods have creeping up over the years. Police were called to end a riot at Amygdaleza in August 2013 after detainees were told that the maximum time they could be held in detention had been extended from 12 to 18 months. That has now been extended to potentially indefinately in cases where detainees refuse to cooperate in their removal proceedings, following a Greek Legal Council advisory opinionin 2014.

A complete overhaul of this deplorable system can’t come quickly enough, but the real problem here is one for Europe as a whole to deal with. The burden of dealing with large numbers of people fleeing war, poverty and desperation, and hoping for a better life in Europe cannot be left on the shoulders of the EU countries who happen to be on Europe’s borders. As a report concluded in 2013, “Far from promoting inter-State solidarity, a long-standing EU goal, it seems that the Dublin system has shifted responsibility for refugee protection toward the MS in Europe’s southern and eastern regions. Indeed there has been an 87 per cent increase in asylum levels in Southern European countries.”

UK Financial Times – Athens must stand firm against the eurozone’s failed policies

Photo: Thanasis Karras

Photo: Thanasi Karra

Wolfgang Munchau is a senior editor with the UK Financial Times. So when he says the Greek government should tell their eurozone colleagues to go to hell with their veiled threats, people should take notice. He also canvasses other options halfway towards leaving the eurozone and which might offer a strategic advantage.

Full story here and excerpts below.

The Greek finance minister can expect a frosty reception on Monday where he will confront his eurozone colleagues in another ‘high noon’ European showdown. My advice to Yanis Varoufakis would be to ignore the exasperated looks and veiled threats and stand firm. He is a member of the first government in the eurozone with a democratic mandate to stand up to an utterly dysfunctional policy regime that has proved economically illiterate and politically unsustainable. For the eurozone to survive with the current geographic remit, this regime needs to go.Of course, for Greece to stand up to the EU policy elites is risky. The consequences of a failure to agree a deal have to be well understood. Greece might risk a financial collapse, and with it a forced exit from the eurozone. The concrete issue under discussion is a new loan to Athens to cover its funding needs for the next few months. The argument is not really about the money. It would only take a couple of economists in a pub with a pencil and a few beer mats to do the sums.

The dispute is about the packaging. The Greeks want a simple bridging loan combined with an implicit acknowledgment that the previous support programmes have failed. Others disagree. The Germans support austerity on ideological grounds. The Portuguese oppose any deal for Greece as they have taken their austerity medicine and did not stage an insurrection. And the Lithuanians are saying: we are even poorer than you are. Why should we bail you out? And so on.

So what should the Greek government do? They should stick with their position not to accept a continuation of the existing financial support programme. By doing this they would no longer be bound by self-defeating policy targets such as the contractual requirement to run a primary budget surplus of 3 per cent of gross domestic product. For a country with mass unemployment, such a target is insane. It would, of course, be better for this nonsense to stop while Greece remains in the eurozone. But the most important thing is that it has to stop.

If this is not feasible, Athens would need to prepare a Plan B. This does not necessarily mean a formal exit from the eurozone, which would be one of the riskiest options. There are smarter choices to pursue first.

The most sensible one is the introduction of a parallel currency — not necessarily paper money, more like a government-issued debt instrument that can be used for certain purposes. A number of economists have been thinking along these lines. Robert Parenteau, a US economist, has proposed what he called “tax anticipation notes”. These are IOUs backed by future tax revenue. Such instruments exist in the US at state level. They act as a tax credit that allows governments to run a fiscal deficit until the economy recovers. With such an instrument Greece could abandon austerity without abandoning the euro.

John Cochrane, a conservative economist at the University of Chicago, also wants the Greek government to print IOUs. They would be electronic money, not necessarily cash and would be used to pay pensions and other transfer payments. The IOUs would fulfil one of the core functions of money — a medium of exchange. You can use them to buy food in the grocery store or to recapitalise parts of your banking systems.

And what no one is saying — at least not in polite company — is that once this system is in place, you can default on the official European creditors. What can they do? They cannot eject you from the eurozone. They have no legal means to do so. They cannot kick you out of the EU either. They still need your assent for treaty change, or any policy requiring unanimity, such as the renewal of the sanctions against Russia.

The riskier alternative would be a hard exit — Grexit. This is an option Greece should try to avoid because it is hugely disruptive. But the scale of the downside of this, at least for Greece, depends on how it is managed. Grexit would be potentially more dangerous for the eurozone itself because it could be a seen as a template for others, especially in the absence of an economic Armageddon in Greece. Yet, while not desirable, Grexit would still be preferable than the status quo.

The worst-case scenario would be for the Greek government to blink first, and accept defeat. If Syriza were to be co-opted into the policy consensus, the only political party left to oppose these policies would be Golden Dawn, a neo-Nazi party.

My preference would be for the eurozone as a whole to abandon the failed policies of the past five years, and move on. If that proves politically impossible, the second best option, for Greece at least, would be a semi-exit with a parallel currency and a default on official creditors only. Either way, they will need to stand their ground on Monday.

Let Greece Breathe at Sydney Town Hall

Crowd - koletsisA very succesful rally was held outside the Sydney Town Hall on Monday 16 February. Approximately 200 people came together to show their support for the Greek people and the Greek and government. Speakers include Harry Danalis from the Greek Orthodox Community, Angelo Gavrielatos from Education International, Maria Mouratidou and Adam Rorris the coordinator of the Australia-Greece Solidarity Campaign.


The speakers called on the international agencies and countries negotiating with Greece to strike a deal that is fair and respects the democratic will of the Greek people.

Excerpts from the press release for the rally below.

SYRIZA_160215_2408Harry Danalis, president of Greek Orthodox Community of NSW has expressed support for the Greek government in its negotiations to get a fairer deal on debt and relief from austerity measure imposed as a condition of loan agreements.

“We now have a government in Athens that is finally prepared to take a stand against the troika and the EU, and we’re with them,” he said.


“What we want to do is more broadly publicise the plight of the Greek people. The information we get here is often filtered,” added the Community president.

“The message we’ll be promoting is that the plight of the Greek people is serious and severe, and people should support what the new Greek government is trying to do.”

The Campaign Coordinator, Mr Adam Rorris, said the aim was to demonstrate the strong Australian support for the Greek people in their current crisis.

“Australians have a long history of engagement with Greek people through the massive migration program that has made them neighbours and friends of many in Australia. Australia also shares a common bond of sacrifice in war as both countries fought side by side in Greece to defend Europe from the scourge of fascism in the twentieth century”, said Mr Rorris. He added that:

“What we are expressing today is support for Greece so that it be given a fair deal on debt that doesn’t strangle the economy and decimate the living standards of ordinary Greeeks.”

SYRIZA_160215_2403“When a country has under the duress of it lenders implemented policies that have seen it lose 25% of its GDP, rendered half its youth unemployed, destroyed its health system and produced child malnutrition rates not seen since the German occupation, you know that its time to change course. The new Greek government was in fact elected because it promised to change course, and the international agencies are beholden to recognise the wisdom and validity of that decision”

“Australia must use its voice in the IMF and through other diplomatic means to make it clear that it does not support the imposition of sovereign debt programs which are unviable in terms of recovery and lead to great hardship for ordinary people on the street”, said Mr Rorris.