23.04.2015
Robbing Peter to pay Alexis
Athens is running out of money fast, writes Eddie Ford. But will Alexis Tsipras capitulate?
Everything indicates that the Greek crisis is approaching some sort of endgame.
Euro zone finance ministers will be meeting on April 24 in Riga, but almost no-one expects that a deal will be struck between Athens and the European Commission-International Monetary Fund-European Central Bank - once the ‘troika’ now the ‘institutions’. Yanis Varoufakis, the so-called “erratic Marxist” and Greek finance minister, has stated that there is “clear convergence” between the various parties and expressed optimism that a “pact” would be reached sometime soon. Sentiments repeated by the head of the Euro group, Jeroen Dijsselbloem, who said he expected Athens and its creditors to “forge a new agreement” in the coming weeks.
But the chances of securing such a deal, desirable or not, do not look good. Greece is drowning in debt after two bailouts in 2010 and 2012 totalling €240 billion. Making things even harder for the Athens government, last week credit agency Standard & Poor’s downgraded its rating to CCC+, with a “negative outlook” - slipping further into junk status. Naturally, S&P cited the “lack of progress” in Athens’ negotiations with its euro zone partners.
As sure as night follows day, with the situation becoming increasingly perilous for the Syriza-led government, interest rates on Greek government bonds have started to soar again at the prospect of Greece defaulting on its loans - or possibly crashing out of the euro zone altogether (‘Grexit’). At the time of writing, the interest on short-term government bonds due in July 2017 hit another high of 29%, and as for 10-year bond yields - the real benchmark - they stood at 13.6%, way over the 7% danger zone that saw Portugal and Ireland begging for a bailout.1 Meanwhile, the yields on 10-year German government bonds fell to a record low of 0.05%, obviously reflecting their safe-haven status among investors. Significantly, the yields on shorter dated German bonds have turned negative, effectively meaning that people are paying the German government for the ‘privilege’ of parking money with it. How the good times roll.
Even though the beleaguered Syriza-led government somehow managed to make a €450 million repayment to the IMF earlier this month, the institutions are piling on the pressure - the mountain will definitely not come to Mohammed. Hence the head of the IMF, Christine Lagarde, emphasised once again that there would be no leeway when it comes to the debt - “payment delays have not been granted by the board in 30 years”. The Greek government, she told the Financial Times, must “set aside politics” and bring the promised economic reforms to “fruition”, if it wants to unlock the final tranche of €7.2 billion in bailout funds held up since last August - the “honeymoon” period with its creditors was “rapidly coming to a close” (April 19).
More bluntly, Larry Fink, head of US investment management giant BlackRock, this week told a conference in Singapore that if Greece does not capitulate then the euro zone leaders “have no choice but to be firm” and “kick Greece out”. What really worries him, like those leaders - especially the Germans - is the thought of the institutions backing off and making concessions to Greece in order to keep it in the club.2 If concessions are made to Greece, he argued, Spain will demand them and then Portugal, and so forth - the nightmare scenario. But if concessions are refused, and Greece as the “weakest link” leaves the euro zone, then other members of the club will quickly realise that resistance is futile and fall into line.
Desperate
If no deal is done, Athens is likely to run out of money within a month - leaving it unable to pay state pensions and public-sector salaries, let alone meet foreign debt repayments. The IMF expects a €186 million instalment on May 6 and only six days later wants an even bigger payment of €707 million. Then a really big crunch looms in July and August, when €6.7 billion of bonds held by the ECB mature and have to be paid. As things stand right now, it is a mystery as to how Athens will meet these obligations.
Getting desperate, Tsipras citied “extremely urgent and unforeseen needs” and issued an emergency decree on April 20 forcing state-owned enterprises (whether hospitals or local government bodies) to immediately transfer funds to the central bank in the form of short-term loans. Despite the risk of violating its fiduciary obligations, the confiscation of reserves could possibly raise as much as €2 billion for the government: perhaps just enough to meet the wage and pension bill for the month.3 However, there are only so many times you can rob Peter to pay Paul - or Alexis. Unfortunately for the Syriza government, the bills will not go away; workers will still have to be paid.
Unsurprisingly, this sudden move by the central government in Athens has outraged local mayors and officials. Authorities from municipalities across the country held an emergency meeting on April 22, with Giorgos Kaminis, the mayor of Athens, condemning the decree as “unconstitutional” and other mayors considering appealing against the order in court.
‘Moscow gold’ may be another possible source of funding for the cash-starved government. Tsipras recently met Vladimir Putin in Russia and, according to some reports, the Kremlin is willing to offer Athens a sweetener of up to €5.4 billion as advanced payment for a planned natural gas pipeline running through the country. The project, dubbed ‘Turkish Stream’, will provide “hundreds of millions of euros of transit taxes a year, just like that” - as Putin put it. The pipeline is Russia’s latest attempt to build a new supply route to Europe, after Moscow was forced to abandon its $40 billion ‘South Stream’ project late last year - originally designed to run through Bulgaria carrying up to 63 billion cubic metres of gas. Moscow’s state-backed Gazprom now has its eyes on establishing a new gas hub on the Turkish-Greek border, pumping its supplies through the Black Sea and bypassing Ukraine. Some Greek government officials have hailed the potential Russian cash as “turning the tide”.
At this stage, it is far from clear whether the deal is done and dusted. But how far will the money actually go? Yes, the sums supposedly involved are certainly not nothing, and could help to alleviate some of the immediate financial pressures on Athens. But every month the Syriza government faces a €1.7 billion social security bill, on top of its commitments to pay back its lenders. At best, Kremlin cash could help cover one month’s wage bills, as well as going part of the way to paying off the IMF.
So this is still small beer when weighed against the monumental problems facing the Greek government, economically and politically. Furthermore, the longer-term benefits of a Russian deal for the Greek economy are likely to be minimal - at least according to calculations from Simone Tagliapietra and Georg Zachmann at the Bruegel think tank. They calculate that Greece would only reap around €380 million annually in transit fees from Turkish Stream, while a 10% gas discount from Moscow would shrink the country’s energy bill by a relatively modest €100 million a year. ‘Moscow gold’, or gas, will hardly plug Greece’s financial black hole. Plus you have to factor in the distinct likelihood that the carrot of Russian cash will antagonise euro zone leaders - running the risk of further isolating Athens.
You have to seriously question whether this is something Tsipras and the Syriza leadership are prepared to countenance, given that their entire strategy seems to be based on staying within the euro and hoping that Germany blinks. Does Syriza have a Plan B? Wolfgang Schäuble, the hawkish German finance minister, remarked recently that the Syriza government had “destroyed” all the economic improvements achieved by Athens since 2011 and heavily implied that the euro zone could cope with a Greek default - saying the markets had “priced in” all possible outcomes to Greece’s debt woes and there was no contagion risk to other euro zone sovereign borrowers. In the same vein, Mario Draghi, the ECB’s president, said that the currency bloc had sufficient “buffers” in place to avoid a chain-reaction meltdown, were Greece to be forced out of the euro zone - though he did add the slightly alarming caveat that these buffers were not “necessarily designed” for a Grexit and could still send the global economy into “uncharted waters”. Now say that again.
There are plenty of signs that the ECB is losing patience with Athens. According to Bloomberg, it is studying measures to rein in ‘emergency liquidity assistance’ to Greek banks.4 If the Bloomberg account is accurate, a growing minority of the ECB governing council is opposed to providing indefinite assistance.
Split
Options running out, ‘Moscow gold’ or not, Athens has been swirling with rumours about the introduction of a dual or parallel currency: a new drachma, so to speak. There has even been talk of printing government IOUs, which would almost certainly be the road to disaster - just as it was during the French Revolution, when the assembly proposed that the government would stimulate the economy by the issuance of a new monetary instrument called the assignat (literally ‘assignment’).5 The assignat was essentially a government IOU denominated in francs, since the revolutionary government had no gold or silver with which to back this new issue. Needless to say, though the assignats were in theory interest-bearing government securities, in reality they simply represented an issue of irredeemable paper money - which soon became worthless.
Anyhow, if Syriza were to go down, that path it would mean economic misery for millions - just proving that things can always get worse. But not only in Greece. In fact, for all of the reassurances from Schäuble, Draghi and others, a messy Grexit could be destabilising for the remaining members of the euro zone.
No wonder that publications like the Financial Times have been agitating for Tsipras to ditch his leftwing and start moving to the sensible centre ground before it is too late. In other words, the FT and others are looking for a split within Syriza on the basis that this is the only way to make a bailout agreement possible. But the “ultra-left” is underrepresented in parliament, composing about a third of its MPs - though this is partly because some elements inside Syriza do genuinely subscribe (unfortunately) to the anarchistic belief that parliamentary work is a boring and pointless diversion from occupying the streets and organising the next demonstration or general strike (conversely, there are doubtless genuine careerists among Syriza’s parliamentarians and the party machine as whole).
If Tsipras were able to take out his left in a surgical strike, or bloody internal civil war, then obviously Syriza would be cleaved right down the middle. There is certainly a fight to be had, given that one Syriza MP, Yannis Micheloyiannakos, angrily denounced the government’s decision to sequester local government funds as “tantamount to a coup d’etat that does not suit our character and leftwing conscience”. He is not alone.
The notion is that Tsipras will perform a Ramsay MacDonald-like somersault, using the 1931 National government in Britain as his historical model, to set up a pro-EU national unity government. Taking advantage of Syriza’s continued high popularity ratings of 70% plus, and the personality cult that has developed around him, the Greek prime minister would form a new coalition with the rump that is now Pasok and also To Potami (The River), the new centrist party that fought its first general election in January. Maybe Tsipras could also gather in forces from New Democracy: stories have circulated that he has already made overtures to a faction led by Kostas Karamanlis, former ND president and prime minister from 2004-09. In the words of one senior European official, Tsipras “has to decide whether he wants to be prime minister or the leader of Syriza”.
However, this would be a very high-risk approach. Tsipras does appear to be very loyal to his Syriza comrades, including those on the left of the party - many of whom he has known personally for decades, having fought many battles alongside them. The odds are that he will do almost anything to avoid a rupture with them, taking negotiations with the troika right up to the wire - and maybe beyond. There is also the obvious point that hooking up with thoroughly discredited, if not hated, political parties associated with austerity and the old regime is a sure way to take the shine off his halo.
Of course, another way for the bourgeoisie to get what it wants is through the more direct means of destabilisation. For instance, the FT ran a favourable story about an anti-government demonstration by gold miners outside parliament on April 16 - apparently against the government’s decision to suspend the Canadian-owned mine’s operating licences on environmental grounds (April 17). Funnily enough, the FT does not normally approve of striking miners. The paper even quotes a geologist, Dimitris Ballas, describing the government action as “unfair and illegal” - before loftily observing that, if the Greek people “feel mistreated or misgoverned”, they will “turn against the political upstarts of Syriza, just as they turned against the traditional parties of left and right, whose misrule pushed Greece to the abyss”.
This story has a whiff of manipulation. Who organisedand paid for the demonstration - not the mine owners, Eldorado Gold, by any chance? You cannot help but be reminded of the prolonged lorry drivers’ strike in Chile, that was funded by the CIA and presaged the 1973 military coup led by general Augusto Pinochet.6
eddie.ford@weeklyworker.co.uk
Notes
1. www.bloomberg.com/quote/gggb10yr:ind.
2. http://seekingalpha.com/article/3080896-larry-fink-thinks-the-market-is-wrong-on-greece.
3. www.bloomberg.com/news/articles/2015-04-21/greek-officials-said-to-see-decree-giving-time-for-april-deal.
4. www.bloomberg.com/news/articles/2015-04-21/ecb-said-to-study-curbs-on-greek-bank-support-as-unease-grows-i8qy1abe.
5. http://voluntarysociety.org/conditioning/federalreserve/pugsley.html.
6. http://news.bbc.co.uk/onthisday/hi/dates/stories/september/11/newsid_3199000/3199155.stm.