08.03.2012
Pre-revolutionary situation triggers talk of a coup
Whether or not Athens 'selectively' defaults this week, writes Eddie Ford, the working class is refusing to be ruled in the old way
Greece’s future within the euro hangs in the balance despite the February 21 paper deal with the European Commission, International Monetary Fund and European Central Bank troika over the next bailout. Having in theory secured the €130 billion second tranche of bailout money and therefore avoiding immediate bankruptcy - or so the plans goes - the Greek finance minister, Evangelos Venizelos, declared that the country had escaped a “nightmare”. Catastrophe had being averted.
That may possibly be the case for the corrupt Greek elite, its ill-gotten gains and dubious investments safely squirreled away in foreign financial institutions - especially British ones. For decades the Greek government has in reality been a clientelist state, operating through an ubiquitous system of patronage and bribery - jobs and perks for those who toe the line. But for the Greek working class the nightmare is set to continue, if not get much worse, thanks to the onerous - hellish - terms and conditions that come attached to the bailout money.
Lucas Papademos, the technocrat prime minister imposed on the Greek people by the European Union bureaucracy - which increasingly regards any form of democracy as an irritant - has pledged to do whatever is necessary to finally secure the bailout and hence be able to make the €14.5 billion bond payment due on March 20. Nothing else matters. Any resistance to the austerity measures, Papademos stated, would “set the country on a disastrous adventure” and “create conditions of uncontrolled economic chaos and social explosion”. Pension cuts totalling €300 million, a 22% reduction in the minimum wage and the loss of 150,000 public sector jobs by 2015 are all on the troika agenda and will hit almost every Greek household.
“Now they want to take away everything” - in the words of a spokesperson from the civil servants’ union, Adedy. Wages and pensions slashed, longer hours. Unemployment is rocketing, especially for youth, which now stands at 48.1%. Greek workers are going hungry and homelessness in the form of rough sleeping is growing at an almost exponential rate. Cancer wards are being closed. People are sitting in cold flats because they cannot afford to pay the bills - especially after the introduction of new legislation last September, which sought to collect property taxes via electricity bills. Large numbers of Greek workers are experiencing the phenomenon of ‘negative wages’, with mortgage repayments directly deducted from their falling salaries - leaving them with less than nothing.
Nor will Greek workers be living the life of Riley, or Zorba, on unemployment benefits - though you would almost think so to judge by some of the commentaries that appear in the rightwing press. The Greek version of the dole is only available to laid-off salaried workers who have made full social security contributions over the previous two years. If you are self-employed you are automatically disqualified, as are those with “other sources” of income. Benefits are currently paid monthly at a fixed rate of €454 (with a little extra for each under-age child) - though, of course, that figure will be substantially reduced if the troika, and the present Greek administration, gets its way. Claimants are eligible at most for 12 months and after that, regardless of the circumstances, their benefits are cut off. Indefinitely. No appeal.
Elections are pencilled in for April. Inevitably, support for the two partners in the coalition government - Pasok and New Democracy - is draining away: they are hated for their part in pushing through the troika’s savage austerity measures. On February 15 the weekly Epikaira newspaper published the first opinion poll since parliament passed the austerity bill on February 12. ND is down to 27.5% and Pasok would at most get 11%. In the 2009 elections these two parties combined received 77.4% of the vote. As for the rightwing, populist Laos - which withdrew from the coalition on February 9 in protest at the proposed cuts - it too has declined in popularity, now on 4%, as opposed to the 7% in December. Still compromised by its previous role in the coalition government.
Meanwhile, there is growing support for parties to the left of Pasok. The ‘official communist’ KKE is now on 14% - up from 12.5% in January - the Coalition of the Radical Left (Syriza) gets 13.5% and Democratic Left (a rightist split from Syriza) stands at 16%, an increase from 13% in January. Thus the total votes for main left parties according to the Epikaira poll represent 43.5% of the electorate, whereas in the 2009 elections they won just 13.1%.
Clearly, though the left is hopelessly divided and programmatically mired in nationalism and semi-Keynesian nonsense, revolutionary conditions are rapidly maturing. The masses are refusing to be ruled in the old way.
No wonder that some fiscal ‘hawks’ within the EU are strongly suggesting that the bailout should be delayed until after the elections, by which time we will know whether the ‘responsible’ parties of government have obtained between them a parliamentary majority - otherwise no bailout money. Why throw good money after bad? Others though are hinting that the elections should cancelled or postponed altogether through some kind of coup and Papademos’s mandate indefinitely extended. The problem with elections, and democracy in general, is that it can throw up unpredictable results - which is bad for business. And very bad for forcing through deeply unpopular and hated austerity measures.
Debt deadline
Yet there is still the possibility that the bailout deal, and the cash, will never happen at all - and that Greece could default as early as March 8, spreading chaos throughout the euro zone and beyond.
Racing against the clock, Athens has until May 8 - unless the deadline is somehow stretched - to conclude a debt swap arrangement with its private creditors in what would be the largest debt restructuring package in history, the aim being to reduce what it owes by around €100 billion. This restructuring forms a central element to the bailout accord that the Greek government has signed with the euro zone leaders. No debt restructuring or ‘haircut’, no bailout: Greece goes bankrupt.
The February 21 plan involves private investors taking a nominal 53.5% loss, which equates in reality to a 73%-74% hit (as feared all along) on their Greek bonds - in all €206 billion. In an attempt to clinch the deal once and for all, investors have been lured by all manner of sweeteners - a cash equivalent for upfront payment, a new bond issued under English law, a GDP warrant offering higher interest if the Greek economy does better than expected, equal treatment for the new bonds with the public sector, and so on. Venizelos has adamantly insisted that there must be “near universal participation” in this scheme, by which he meant at least a 90% uptake.
Talking tough, though perhaps more in desperation, Venizelos warned Athens’ private creditors on March 5 not to hold out any longer for a better deal - what is currently on the table was definitively the best they would get - take it or leave it. As the Weekly Worker goes to press, Charles Dallara - the head of the Institute of International Finance, which represents about half of Greece’s creditors - was “optimistic” that his members would accept the terms of the deal. In his opinion, as they “look at the real choices they face”, there will be “growing recognition of the benefits” to be gained from accepting the swingeing ‘haircut’. On the same day that Venizelos issued his warning, 12 banks, insurers, asset managers and hedge funds on the IIF steering committee (including BNP Paribas, Deutsche Bank, National Bank of Greece, Allianz and Greylock Capital Management) said in a joint statement they would take part in the exchange. Reuters has roughly calculated that this grouping holds some €45 billion of Greek bonds.
If necessary though, Venizelos has threatened to activate collective action clauses (CACs) through retroactive legislation. This would allow the deal to be imposed on all bondholders if 66% or more agree to it - a totally unprecedented move that could end up being replicated elsewhere (Portugal, Spain, Italy, etc). Stepping up the pressure, on March 7 Greece’s Public Debt Management Agency (PDMA) said that if it got enough support from the majority of bondholders, it intended to make losses “binding on all holders of these bonds” on the grounds that the country’s “economic programme does not contemplate the availability of funds” to make payments to private-sector creditors - like a clutch of so far unnamed Greek pension funds - which still refuse to take a ‘haircut’ at the rate demanded.
Not that such has a course of action does not have consequences, of course. For example, on March 1 the International Swaps and Derivatives Association said the Greek debt deal did not constitute a “credit event”, though it prosaically noted that the situation in Greece was “still evolving”. The ISDA regulates (insofar as anyone does) the murky, semi-subterranean world of complex financial instruments that are traded directly between parties rather than on exchanges (“over-the-counter derivatives”) and governs a market worth £439 trillion - more than 10 times the size of the entire global economy. In other words, the ISDA effectively gets to decide on what is classified as a “credit event”.
However, if the Greek government were to invoke CACs then in all probability the ISDA would reverse its decision and that would almost certainly trigger the paying out of billions of dollars to the holders of Greek credit default swaps; essentially an insurance contract against a country or company defaulting. A default in all but name. In turn, the Standard and Poor’s credit rating agency has declared that any attempt to force bondholders into a deal using CACs would be viewed as a “selective default” - the practical outcome being that the ECB would no longer accept Greek government bonds as security for new loans. This follows on from Moody’s March 3 re-downgrading of Greece - this time to the lowest rating on its bond scale, Ca. Moody’s argued that the risk of default remains “high” even if the bond-swap deal is successfully concluded by March 8 (or whenever).
Demonstrating what is at stake in this high-risk game of poker between the Greek government and the private investors, a ‘confidential’ staff note by the IIF drawn up on February 18 - and subsequently obtained by Reuters - paints a bleak picture of what would happen if Greece succumbed to a ‘disorderly’ or ‘hard’ default come March 20. Though it is “difficult to add all these contingent liabilities up with any degree of precision”, we read, it is “hard to see how they would not exceed €1 trillion”. This figure is based on how much it would cost to “contain the fallout” in Spain and Italy (€350), on “helping” Ireland and Portugal over the next five years (€380) and on recapitalising the devastated banks (at least €160). As a conclusion, the IIF note remarks that the “global growth implications” of an “extreme event” like a disorderly default are “hard to quantify”, especially when you consider that Lehman Brothers was “far smaller” than Greece and its “demise was supposedly well anticipated” - and just look at what happened there. Near global economic meltdown.
Alarmed by the situation developing in Athens, stock markets sharply declined on March 6 - with the German and French markets losing 3% and the Dow Jones index down 1.6%, its biggest fall in nearly three months. Bank shares also tumbled by between 4% and 6%. Failure on March 8 or some other “credit event” could see far more dramatic losses.
Losing patience
Papademos made out that the February 21 deal, such as it is, would “create the conditions” for growth and recovery. Pure fantasy, as the Greek economy enters the fifth year of recession - with many more grim years of recession and contraction ahead. Frankly, the figures just do not add up and everyone knows it. According to a leaked IMF assessment of the Greek economy, its debt-to-GDP ratio will be 160% in 2020 - at the same level as today, that is, and far above the rescue programme’s notional target of 120.5%. Reality is starting to intrude. Stefanos Manos, a former Greek finance minister, commented last week that the debt would only become “sustainable” when cut to 90% of national outlay - a figure which everyone regards as impossible.
In all likelihood then, with its economy spiralling downwards, Greece will need another bailout within a relatively short space of time. On March 4 Der Spiegel carried a major story saying Greece will need a third international rescue package worth €50 billion by 2015 - a viewpoint that seems to be shared by the troika itself, which has cast doubt - to put it mildly - on the idea that Greece will be able to borrow again on the international money markets come 2015.
This leaves Greece in an utterly impossible position. With sky-high debts, a recession stretching out indeterminately into the future and massive loan interests to pay, there is no way Athens can meet Brussels’ never-ending demands for austerity and ‘reforms’. A circle that cannot be squared.
And some European governments are already running out of patience - most notably Germany. At the March 2 EU summit, which saw all but two (UK and Czech Republic) of the member-states sign up to the new fiscal treaty/compact institutionalising austerity economics, the German delegation were playing hardball, insisting that the second rescue package for Greece must be the “final word”. If the bailout cash on the table proves to be insufficient - the debt mountain keeps growing - or the Greek government finds it can no longer afford to pay public sector wages or pensions, then tough luck: it must default on its debts and declare itself bankrupt. “There is no standing still for Greece,” said one German official at the summit - it must either “move forward with reforms” or leave the euro, if not the EU itself.
If Greece does get kicked out of the euro - disorderly or chaotically, now or later - then one thing is guaranteed: contagion could easily spread through the entire European economy and beyond. The capitalist class and its system would find itself in the deepest of crises.