Smacking of desperation
Will Athens submit to the ‘institutions’ or get booted out of the euro zone? Eddie Ford looks at the latest negotiations
With time and money running out, on June 9 Greece submitted new proposals to its creditors. They consisted of two short supplementary documents - one outlining how Greece intends to cover the fiscal gap and the other suggesting a plan for making the country’s debt “sustainable”. As our readers will know, Greece’s total public debt stands at €320 billion following bailouts in 2010 and 2012, which amounted to €240 billion from the European Commission-International Monetary Fund-European Central Bank ‘institutions’ (née troika).
The first document, cut down from 47 pages to a mere three, concedes again to the demand for an increase in the primary surplus targets - with the Greek government proposing surplus equal to 0.75% of GDP this year and 1.75% the next, compared to its previous offer of 0.6% and 1.5% respectively. Athens is now pushing the idea of three value-added tax rates, perhaps raising the two lower brackets from 6.5% to 7% and 11% to 12% (maybe even 13%). The top rate will remain at 23%, it seems. The bottom rate will apply only to medicines, books and theatre tickets. Basic foodstuffs, fresh produce, utilities and hotel accommodation will be among the products in the middle bracket.
The government is aiming or hoping to raise around €1 billion from these VAT changes, and another €350 million is expected from the scrapping of the 30% reduction on VAT for the Aegean islands. Additionally, there are plans to increase pensioners’ contributions to their health insurance, possibly from 4% to 6% of their retirement pay - bringing in about €500 million. It does look, however, as though the Syriza government has resisted calls, at least for the time being, for a rapid rise in the effective retirement age, restricting early retirement applications by hundreds of thousands of Greeks. In the extremely unlikely event that these proposals satisfy the institutions, the final tranche of €7.2 billion in bailout funds that has been held up since last August will be unlocked.
As for the other document, this apparently suggests the European Stability Mechanism buys the €6.7 billion of Greek bonds held by the ECB, which mature in July and August. In other words, Alexis Tsipras now wants to extend the current bailout programme until March 2016, when the IMF’s participation formally ends. In turn, this extension would more likely than not be a preparation for what is widely known as the ‘big agreement’ - ie, a third bailout of between €40 billion-€50 billion to hypothetically keep Athens afloat for the next few years. According to Greek sources, the idea of an extension was mooted at the highest level of German policy making several months ago.
Margaritis Schinas, the EC’s spokesperson, assures us that the latest proposals from Athens are being assessed with “diligence and care”. Forever optimistic, Tsipras told Corriere della Sera that “we’re very close to an agreement” on the primary surplus, though there needs to be a more “positive attitude” towards the anti-recessionary proposals put forward by Athens.
However, the problems with the proposals - insofar as we have all the details - are obvious. First, and principally, they amount to a massive capitulation to the institutions: Syriza, after all, was elected on a platform of total opposition to all austerity measures - which by definition meant rejection of any further bailouts predicated on slash-and-burn economics and massive assaults on the living conditions and rights of the working class. Lest we forget, Syriza also wanted repayment of the remaining debt to be tied to economic growth (not the Greek budget), a “significant moratorium” on debt payments, the purchase of Greek sovereign bonds under the ECB’s €60 billion monthly programme of quantitative easing, a European debt conference modelled on the write-off of half of Germany’s post-World War II debt - not to mention a halt to privatisation, such as the port of Piraeus. But now the Syriza government says it will “respect” tender processes that are already underway.
Anyhow, Athens’ new proposals represent a virtual abandonment of the Thessaloniki programme adopted last September - which was described as “not negotiable” by Tsipras only in January. Well, it has now been negotiated out of existence - and, of course, the Thessaloniki programme itself represented a significant dilution of Syriza’s original radical intentions, like the repudiation of the entire debt, nationalisation of the banks, and so on. The party’s progressive ambitions are being shredded, Salami-style.
Inevitably, discontent runs deep inside Syriza, especially within the Left Platform grouping led by energy minister Panagiotis Lafazanis. At the party’s 2013 conference it won 30% of the overall vote and 60 seats on the party’s central committee. Then in March the LP won four seats on the party’s political secretariat. It is also important to recall that the Syriza left as a whole is underrepresented in parliament, composing about a third of its MPs. This section of the party is adamant that Tsipras should not compromise any further, and should instead seek a “rupture” from its creditors.
For instance, prominent CC member Stathis Kouvelakis has challenged the timidity of the Greek prime minister. Replying to a May 31 article by Tsipras in Le Monde, Kouvelakis demanded that the government should “proceed to a counterattack”, with an alternative plan based on Syriza’s “pre-electoral pledges” and the government’s “programmatic announcements”.1 This “counterattack” should be structured along the following set of measures to be “implemented immediately”: the nationalisation of the banks “with all necessary accompanying measures” to insure their function along transparent, productive, developmental and social criteria; the “immediate termination” of every grid protecting the country’s scandal-immersed oligarchy; the “substantial taxation” of wealth and large properties, as well as top earners and high corporate profitability; and the “full reintroduction”, as well as the “safeguarding and practical implementation”, of labour legislation laws and rights to trade union organisations. Overall, Kouvelakis concluded, the Greek government’s “priority” should be to default on the debt, as the “greatest disaster” facing the country would be the imposition of a new memorandum that would “signify the end of any hope for an alternative to the neoliberal shock therapy”.
Obviously, the current Syriza leadership will not accede to such demands ... at the moment. If it did, the institutions would almost certainly pull the plug and Greece would be booted out of the euro zone.
Pressure mounting, Tsipras on June 9 told the political secretariat that negotiations with lenders were at a “most crucial stage” - nor was he considering early elections. Perish the thought, just as the Thessaloniki programme was “not negotiable”. Later in the day he urged his MPs to back “whatever deal” his negotiators secure. But, even though it has become a hoary cliché, the clock is ticking. Greek coffers are almost completely empty and Athens desperately needs the remaining bailout money or it will find itself unable to pay government salaries and pensions.
Looming ominously, June 11 sees a meeting of the Eurogroup countries, senior officials saying they need a deal agreed by then for it to be presented to finance ministers at their next scheduled gathering a week later - the latter being regarded as the last possible date, leaving enough time for Greece to legislate and implement new economic reforms and still receive funding before the bailout officially expires on June 30. On that very same day, Athens is due to make a bundled set of four loan repayments totalling €1.5 billion to the IMF - the latter taken by surprise last week when Athens announced it was to make use of a little known clause or loophole adopted in the late 1970s, under which indebted countries “can ask to bundle together multiple principal payments falling due in a calendar month”. Surely a fiscal manoeuvre that smacks of desperation.
If things were not daunting enough, two Greek bonds totalling €3.5 billion are due to be paid on July 20 to the ECB - which purchased them back in 2010 in an effort to stabilise the euro zone debt markets. Even if Athens is able to pay the €1.5 billion IMF bill in June without a deal, next to nobody believes it will be able to make the ECB payment without another bailout.
But Tsipras’s chances of securing a deal, even the massively compromised deal now on the table, is doubtful. According to the Financial Times, the mood of “cautious optimism” that has surrounded the talks in recent weeks is “rapidly giving way to fear and suspicion” - with the paper also commenting that the latest document exchange between Athens and Brussels has become such a mind-numbingly familiar process that the EC has even given it a sobriquet: “paperology” (June 9).
Reflecting the growing despondency, Jeroen Dijsselbloem, the Eurogroup president, told the Dutch RTL Nieuws TV station that the optimistic chatter from the Greek side is an “underestimation of the complexity of what’s being asked of them”. Sounding even more grumpy, the oddly named Finnish prime minister, Alex Stubb, declared that “our patience is running out”. At the time of writing, creditors do not appear to be budging on the surplus targets - rejecting the 0.75% on offer and wanting Athens to commit to a primary surplus of 1% of GDP this year. Schinas told the press that the ball is “clearly” in Greece’s court, saying the latest proposals “fall short” of what Athens had previously promised.
Perhaps inadvertently, Tsipras himself has supplied us with a distinct clue as to the darkening of the mood. In the same Corriere della Sera interview, he took issue with the idea that a Grexit would be easily manageable. Instead, he argued: “I think it’s obvious. It would be the beginning of the end of the euro zone. If the European political leadership cannot handle a problem like that of Greece, which accounts for 2% of its economy, what would the reaction of the markets be to countries facing much larger problems, such as Spain or Italy, which has two trillion of public debt?”2
Yes, Alexis, but you have grasped the wrong end of the telescope. By the very same token, the institutions cannot come to any meaningful deal or compromise with Athens. If, for example, they agreed to write down or write off a large proportion of the Greek debt, then Spain and Italy - not to mention Portugal and Ireland - would want precisely the same treatment, and Brussels knows this. But Italy is too big to bail out - impossible. Not even Berlin’s coffers would stretch that far. When all is said and done, Athens has to stick to the terms of the bailout agreement, embrace austerity and economic ‘reforms’ - or get out as a warning to others. Do not screw around with the euro zone project.
This hardening attitude towards Athens manifested itself at the G7 summit in Krün on June 7-8, where the country was repeatedly cautioned against resisting the demands of the institutions. Barack Obama effectively put Athens on notice that it needed to accept the inevitable and prove it is “serious” about making “important reforms”, putting the onus squarely on Tsipras to “follow through” and make “tough political choices”. Obama’s comments must have dashed the hopes of some in Athens that the White House would intervene in their favour - or at least tilt the odds slightly back in that direction. No chance. One more potential escape route for Athens has been closed down.
Indeed, the Syriza government appears to have seriously miscalculated right from the very beginning. Countries like Spain and Ireland have not come to their rescue - quite the opposite: they have spat extra venom at them, if anything. Athens does seem to have prolonged the negotiations for as long as humanly possible, and then some more, out of the belief that its creditors would eventually blink and agree to grant wholesale debt relief and new bailout cash with far less strings attached.
Maybe summing it up, one senior euro zone official at the negotiations told the FT that Athens “doesn’t understand we’re not back in 2012, when the Europeans were willing to just throw money at the problem”. Brussels will not blink, he added.