[MGSA-L] Greek candidate willing to call European leaders’ bluff
june.samaras at gmail.com
Sun Dec 14 18:07:47 PST 2014
Greek candidate willing to call European leaders’ bluff
Alexis Tsipras told Greek voters as recently as last week that his
government would cease to enforce the bail-out demands
Ambrose Evans-Pritchard By Ambrose Evans-Pritchard9:55PM GMT 10 Dec 2014
Events have rudely exposed the illusion that Greece's people will submit
quietly to a decade of colonial treatment and debt servitude.
As matters stand, it is more likely than not that a defiant Alexis Tsipras
will be the elected prime minister of Greece by late January. His Syriza
alliance has vowed publicly and persistently that it will overthrow the
EU-IMF Troika regime, refusing to implement the key demands.
A view has taken hold in EU capitals and the City of London that Mr Tsipras
has resiled from these positions and will ultimately stick to the Troika
Memorandum, a text of economic vandalism that pushed Greece into seven
years of depression, with a 25.9pc fall in GDP, longer and deeper than
Europe's worst episodes in the 1930s.
Mr Tsipras is a polished performer on the EU circuit. He can no longer be
caricatured as motorbike Maoist. But the fact remains that he told Greek
voters as recently as last week that his government would cease to enforce
the bail-out demands "from its first day in office".
The logical implication is that Greece will be forced out of the euro in
short order, unless the EU institutions capitulate. Syriza's deputy,
Panagiotis Lafazanis, is plainly willing to take this risk, warning in
October that the movement must "be ready to implement its progressive
programme outside the eurozone” if need be. His Aristeri Platforma holds
30pc of the votes on Syriza's central committee.
Mr Tsipras also knows it. He is gambling that EU leaders - meaning
Germany's Angela Merkel and Wolfgang Schauble - will yield. His calculation
is that they will not dare to blow up monetary union at this late stage,
and over a relative pittance,
Too much political capital has been invested. The EU-IMF loans have already
reached €245bn, the biggest indenture package in history. To let it fall
apart now would reveal the failings of their EMU crisis management.
The clock is already ticking. Greece must repay €6.7bn to the European
Central Bank in July and August. The ECB will not roll the debts over
because that would be monetary financing of a government. The capital
markets are shut.
Mr Tsipras is expecting to receive a call from the ECB within weeks of
taking office reminding him that Greece owes some €40bn in support for the
banking system. This will be a veiled threat to pull the plug, as it
threatened to do in Ireland, and came close to doing in Cyprus.
I am reliably informed that his answer to any such call will be: "do your
worst". Mr Tsipras wishes to keep Greece in the euro but not at any price.
"We are not going to crumble at the first hurdle," said one of his close
advisers. "A freshly elected government cannot allow itself to be
intimidated by threats of Armageddon. The ECB bought these bonds to stem
the eurozone crisis, not to help Greece."
Needless to say, markets are taking fright. The Athens bourse fell 13pc on
Tuesday, the biggest one-day drop since the 1987 crash.
Yields curve on three-year Greek debt have exploded by almost 300 basis
points to 9.52pc in two days. They are now 90 points higher than 10-year
yields, a violent inversion of the yield curve unseen since default scares
of the EMU crisis. Italian and Portuguese yields have been ratcheting too,
early evidence of where contagion risk still lies.
The Syriza road show in the City last month went horribly wrong. "Everybody
coming out of the meeting wants to sell everything Greek," said a leaked
memo by Capital Group's Joerg Sponer.
The reported shopping list was: a haircut for creditors; free electricity,
food, shelter, and health care for all who need it; tax cuts for all but
the rich; a rise in the minimum wage and pensions to €750 a month; a
moritorium on private debt payments to banks above 20pc of disposable
income; €5bn more in EU subsidies; and demands for 62pc debt forgiveness on
the grounds that this is what Germany received in 1952. "The programme is
worse than communism (at least they had a plan). This will be total chaos,"
said Mr Sponer.
"It was a disaster," said Professor Yanis Varoufakis from Athens
University, a man tipped to play a key economic role in any Syriza-led
government. The reality is more prosaic. "We are not going to go on a
spending spree. We will aim to achieve a modest primary surplus, and we
will liberalize the labour market," he said.
"Greece faces a humanitarian crisis and we will spend €1.3bn to alleviate
abject poverty. There will be US-style food stamps and we will reconnect
electricity to homes where it has been cut off," he said.
"There will have to be debt relief because it is simply unpayable. We will
ask Germany to renegotiate," he said. Most of the remaining debt is owed to
EU bodies, which replaced private creditors long ago.
The proposal is based on "Bisque bonds" floated by John Maynard Keynes in
the 1930s. The idea was explored by Nobel laureate Joseph Stiglitz and
Daniel Heymann in their book "Life After Debt".
The bonds would be new issues with payments linked to the rate of GDP
growth. Greece has already issued such bonds under its 2012 restructuring.
Mr Tsipras wants this extended to all the debt, and on better terms. If EMU
leaders believe their own tale that Greece can grow its way out of debt at
rates of 3.5pc or 4pc, they should have no fear agreeing to such terms.
This is the Tsipras plan. It is high stakes poker. We know from
kiss-and-tell books - such as "Morire di Austerità" by ex-ECB board member
Lorenzo Bini-Smaghi - that Chancellor Merkel came within a whisker of
ejecting Greece from the euro in 2012. She relented only when it became
clear that Italy and Spain were going up in flames.
The eurozone now has firewalls in place. There are - in theory - back-stop
mechanisms to bolster confidence. Richard McGuire from Rabobank says the
prospect of QE may embolden some to think they can cope with the systemic
fall-out if Greece were "allowed to go it alone", in other words if it were
It may not come to this. Premier Antonis Samaras may yet find 25 opposition
MPs to support his candidate for the Greek presidency in parliamentary
votes this month. Only if he fails to win a 60pc super-majority will there
be a snap general election.
The latest Alco poll gives Syriza 31pc support, with Mr Samara's New
Democracy holding at 25.7pc. This lead has been stable for months. The
winner gets an extra 50 seats under the electoral law. Syriza will need a
coalition partner - probably the pro-EU Potami party - but its ascendancy
The EU's mishandling of Greece has been calamitous. Investment has fallen
by 63.5pc. Public debt has spiralled to 177pc of GDP, even after two sets
of haircuts on private creditors.
Unemployment has dropped slightly to 25.9pc, or 49.3pc for youth, but only
because of a mass exodus, a brain-drain to the US, Canada, Australia,
Germany, and the UK. The work force has shed over a million jobs, dropping
The economy has stabilized. It grew 0.7pc in the third quarter on pent-up
demand. But this should not be confused with recovery or a return to
viability within the EMU fixed-exchange system. Exports were lower in 2013
(€51.6) than in 2007 (€56.6bn). The current account deficit has narrowed
because imports have collapsed.
For all the talk of EU-led reform, Greece's ranking on the World Economic
Forum's competitiveness index has dropped from 67 to 81 over the last six
years, below Ukraine, Guatemala, and Algeria.
"The concept of reform has been gradually discredited during the current
crisis," was the acid verdict of the Athens think-tank IOBE in its latest
report. Any marginal gains from EU reforms have been overwhelmed in any
case by the hysteresis damage of lost labour skills, which lowers Greece's
future growth trajectory.
Stripped bare, it has been brute austerity, imposed by powerful foreign
creditors in their own interest. My view is that Greece would have
recovered long ago if it had left EMU at the outset of the crisis, turning
to the IMF for a classic bail-out package. It received the IMF's austerity
medicine, but not IMF's the cure of debt forgiveness and devaluation. The
fiscal multiplier did its worst with nothing to offset it.
Debt relief was blocked. The Troika imposed yet more debt onto a country
that was already bankrupt, allowing foreign banks and investment funds to
dump their bonds onto Greek taxpayers through the mechanism of EU
"bail-outs". These were not in fact bail-outs. They were loans. The burden
remains entirely on the shoulders of the Greek state, though you would not
know that from reading the North European press.
The IMF admits in its mea culpa that Greece needed debt relief from the
start. Normal rules were violated, under EU pressure, because the primary
goal was to hold EMU together. The assumption was that any hint of debt
restructuring for Greece risked setting off an uncontrollable
chain-reaction through southern Europe.
“Debt restructuring should have been on the table,” said Brazil's member of
the IMF board, in leaked minutes from a meeting in May 2010. The loans “may
be seen not as a rescue of Greece, which will have to undergo a wrenching
adjustment, but as a bailout of Greece’s private debt holders, mainly
European financial institutions”.
The Troika's fear of contagion was justified, as the unfolding drama would
later show. The deformed construction of EMU amplified the stress, and the
dangers. It is easy to forget how close we were to a systemic blow-up at
that moment, in the white heat of the crisis, before the ECB had begun to
fulfil its primary duty as a lender of last resort, and before any EMU
rescue machinery was in place.
Greece was sacrificed to buy time for the alliance, like the Spartans at
Thermopylae. It was subjected to an unworkable economic experiment, in
defiance of known economic science and principles. Given what has happened,
Europe’s leaders have a special duty of care to Greece. They have betrayed
Europe's contractionary policies have failed on every level. The region has
not regain "escape velocity" since the Lehman crisis, and is now sliding
into deflation. Output is still below 2008 levels and has performed worse
over the last six years than from 1929 to 1935. Debt ratios are rising
across the South.
The centre-Left has proved unable to articulate any critique because of
EMU's political code of Omerta. The once great parties of European social
democracy have become grim enforcers of reactionary policies, apologists
for mass unemployment.
So it falls to rebels to catalyze the simmering rage. Europe's leaders may
have met their match at last in the ice-cold Mr Tsipras.
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E-mail : june.samaras at gmail.com
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