Published on 4 Jun 2015

Greece debt crisis: the unsustainable ultimatum

They came, they saw, they had – as one Syriza MP put it to me last night – “their balls handed to them”.

For all the smiling and calm displayed by Alexis Tsipras after the emergency Brussels meeting last night, the Greeks know they came off the worst.

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Four months of trying to persuade their lenders they can pursue an austerity-lite route out of debt servitude have come to nothing. Issues that engrossed technical discussion for the past four weeks were brushed aside.

Greece was offered an ultimatum. And it was not all bad.

No debt relief

A 1 per cent budget surplus target for this year, in a shrinking economy, looks optimistic – but it is lower than the 3-4 per cent the previous government had been asked for.

A two-tier VAT rise will raise money from the poorest off; but VAT has to rise in a country like Greece where assets are held offshore, and where getting businesses to pay corporation tax is a strategic problem, and does not balance the books short term.

The hardest details for Greece came when its lenders demanded pension payments to be cut by 1 per cent of GDP. However the deal on offer is reported to say that if Greece does not want to hit pensioners it must hit somebody else, to the same extent.

But the biggest problem for Alexis Tsipras comes over what Greece is not being offered. There is no debt relief in the proposal, and though EC president Jean Claude Juncker has a plan to mobilise €300bn to boost southern Europe, not even a last minute emergency could persuade him to allocate any of it to Greece.

Though the terms are tough, there is no guarantee Greece will not face tougher terms in July, when negotiations on the main debt restructuring have to begin.

Sandwiches and theatre

So the problem is: the offered deal is on any metric unsustainable. Greece has no way of exporting itself out of depression; internal devaluation – where family incomes have fallen by up to 40 per cent – does not produce growth.

Two vignettes show why this country is paralysed. I spoke last night to sandwich shop owner, Nick Voglis. His business has shrunk from six employees to one as the austerity has bitten. A former US-resident entrepreneur, his original plan was to grow a franchise but, as he told me, “I don’t trust the business system in this country”.

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As the standoff with lenders continued, Mr Voglis told me there’d been a slump in sales. With over €40bn withdrawn from banks since December, there is certainly cash circulating – but many people have bought cars or houses to insure themselves against their bank deposits being seized in any debt default.

What he wants now are elections and the return of a conservative government.

The second vignette came late at night in the packed open-air Theatro Rematias in Chaliandri, a middle class suburb of Athens. A feud between the local Mayor Simos Roussos and what he calls the “night mafia” – the security guard industry – led to the arena being torched two weeks ago. Hundreds of local people volunteered to rebuild it and last night was a concert to reopen it.

The mayor was elected by a coalition of voters belonging to Syriza and two parties even further to its left: the communists and a revolutionary alliance called Antarsia.

Though people feel powerless in the face of the debt standoff, they did not feel powerless to alter their own local circumstances, there were at least four Syriza junior ministers at the concert, amid a crowd of about 2,000 which occasionally erupted into quiet community singing.

As the concert ended all the politicos backstage were had their noses buried in SMS messages from people in Syriza’s high command. The older ones are mainly people from the 1968 generation; they have an existential commitment to the idea of a liberal, social-democratic Europe and they wanted power to do more than just reverse austerity. These are the activists who are pushing citizenship for second generation migrants through parliament next week, and campaigning for civil partnerships, or restructuring the education system. The younger ones are more networked, more inclined to value entrepreneurial space and human rights. But none of them can live with a return of the fiscal, social conservatism that is the implicit project of Germany and its allies.

A country paralysed

Greece is a country riven between left and right in a unique way. Both political factions contain – and indeed have their core within – the professional middle classes. Each will resist the other’s attempt to govern Greece.

And what it looks like to many of the young people squashed together in the open air theatre is that the European Union will only ever permit one side to win.

As things stand right now, without a long-term debt restructuring deal, there is no way Alexis Tsipras can get what was offered last night through his own party. The left is gaining in strength, and as one activist told me – “the pro-default mood is actually stronger among our voters than among our members”.

Watch more: Paul Mason on Greece’s looming debt deadline

Tsipras knows the lenders want him to split Syriza and lead a government of national salvation, involving the small centrist Potami party and elements of the conservatives. But the parliamentary maths are not there.

And if there is a snap election, what is the Syriza that will stand? The left orientated one or the right? Even within Tsipras’ inner circle both factions are represented, but at some point Tsipras’ own premiership will have to become more politically defined.

In truth his tough stance has achieved movement: the movement of the dilemma from technical talks over debt and austrity to a political process involving all the key players in Europe. And he’s lowered the amount of austerity Greece is being asked to deliver.

So the talks resume today. It looks like the IMF will allow Greece to pay the €300m it owes tomorrow on 19 June instead. But even if they do that, and then it leads to a two-month breathing space, as some suggest, it will not solve the basic issue.

Greece can’t pay its debts – and the €7bn bailout money it might get in return for more austerity will simply be repaid to the ECB to service those debts.

Fiscally it’s unsustainable; politically the country is paralysed. Meanwhile on its borders with Turkey it’s facing a new flood of refugees it can barely cope with.

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18 reader comments

  1. antonia willis says:

    At last, a really useful and insightful analysis of the Greek situation as it unfolds. Thank you Paul Mason.

  2. Philip Edwards says:

    “…the small centrist Potami party…”

    Yeah, right……..”centrist” by your far right definition and none other.

    At this rate the colonels will be back to help capitalism do the bang up job it’s done everywhere else in Europe and throughout the world. As they did in Argentina, Chile, Salvador and anywhere else they could get their Yank-trained and financed claws into.

    Syriza are putting up a valiant fight despite the likes of non-stop far right propaganda muck peddled by the likes of you. They at least have decency on their side, which is more than can be said for people like you.

  3. Dav says:

    The pitchforks are coming to your town

  4. iGlinavos says:

    Enough already, enough! Yesterday’s offer is the best that can be achieved and there is no time left as everyone keeps saying. Tsipras needs to agree, and then hold a new election so the Greeks get to decide whether to sacrifice this generation in the hope of a better future after Grexit, or to accept subjugation for the sake of the Euro.

  5. Trisul says:

    It is interesting how Greeks view the whole problem politically, Europe views it as an economic issue. The Greeks have voted an economical problem out of existence, according to the EU, it is still there … even legally, it is still there, but to the Greeks, they have voted it out of existence.

    So, it is politics over reality. They just seem unable to comprehend that overwhelming political support does not change the status of the debt because on the other side there are voters of all the other EU countries who have not been asked to pay back Greek debts, and if asked, would never agree to it.

  6. Brian Gilbert says:

    Best action:
    Wait for world stock markets to close.
    Float the currency.
    Convert all intergovernment debt to ten year bonds one for one euro to drachma .
    Repeal all tax laws that are unenforceable to cut costs basically leaving a single income tax rate.
    Repeal VAT laws and institute a Purchase tax which will cut cost of administration.and reduce fraud.
    No new government ‘investments’.

  7. nmb says:

    Elections with the threat of Grexit

    This is probably the most suitable time for SYRIZA to play the strongest card

    http://goo.gl/hFiHyE

  8. Maria says:

    Thank you for your excellent reporting on Greece.

    I am worried about the 1968 generation of leaders who have “an existential commitment to the idea of a liberal, social-democratic Europe”. I feel that they see Europe as it looked to teens in the late 1960s when Greece was under dictatorship. They seem to have fallen in love with the popular culture of Europe at the time. But when one thinks of the history and reality of Europe, of its imperialism, its racism, its strictly classed based societies, it doesn’t seem to be such a great place. It is even worse now that the neo-liberals have taken over. I worry that the 1968 generation politicians are not thinking realistically and this is dangerous for people in power. They say the Syriza voters are more in favor of default that the Syriza politicians. I hope that they listen to the voters.

  9. Alex says:

    This is unusually good reporting and helpful in understanding what is going on. Thanks for the good read.

  10. anon says:

    this sounds disrespectful but really isn’t intended to be, the Germans have done such a remarkable job in rebuilding their nation after their evil disgusting, no words suffice to describe it, ‘leader’ did his best to destroy them, perhaps a possible idea for a thesis?, that he hated his own people, as well as everyone else,

    but despite all this there seems to be a lack of sense, a deficiency in some of what they are doing, as well as being so very cruel, their stance on Greece is palpably absurd, it won’t work, its going to fail, so knowing the car is going to crash why keep driving in the same direction?

    my suggestion is that people like ourselves really need to take more of a lead in all this despite our perceived ‘second rate’ status, for the sake of the Greeks, for the sake of Europe and the European ideal and to stop the Germans getting themselves into a pickle again

    perhaps we can lend them some of our Politicians, most of them do not start wars thankfully but have the boring sort of quality a more peaceable cooperative world needs,

    who could we nominate for this role I wonder?

    1. JIMJFOX says:

      The Germans did NOT “rebuild their nation”- the USA idi that thru the Marshall Plan.

  11. Nikos says:

    “but many people have bought cars or houses”. Instead of asking a gyros-pita seller you should confirm yourself if the relative nonsense blah blah is accurate or not simple using the official statistics regarding sales of cars or houses.

    “The older ones are mainly people from the 1968 generation; they have an existential commitment to the idea of a liberal, social-democratic Europe and they wanted power to do more than just reverse austerity.” The super political Greek 1968 generation wanted the abolision of the capitalistic system and not the reformation of the Europe. Again what you said is nonsense. And in any case the social-democratic period is dead and burried for ever. So its not relative today …. existential commintment …. ridiculous

  12. Sotiris says:

    The Syriza left is very capable in getting its position across friendly media, mainly in Europe. What they have failed to do is cause any visible shift among public opinion against euro membership. Probably, it’s because they haven’t offered a viable alternative for the country after its projected exit from the eurozone. The same people that champion the disentanglement from a revanchist Europe, base their plans for the return to the drachma on the prediction that the ECB will help the country contain inflationary tendencies. Failing that, Greece can always hope to get support from Russia, China and the BRICS Bank.

    Or can it?

  13. Pav says:

    Question: how can this be an ultimatum if there are still discussing/negotiating? Posssibly a pathetic effort of a bluff? God help us that our leaders of a united Europe are such nationalists…

  14. VN Gelis says:

    If Syriza was interested in economic growth, it clearly isn’t, it would default, exit EZ and go back to the Reach me as a start. Nationalize banks introduce controls, start trading with the BRICS, openly without EU constraints.
    Everyone knows this is a geopolitical conflict over shipping costs between east and west and drop off points within the EU is between Hamburg or Piraeus. Brussels at the behest of Germany wants to dictate who Greece does business with, at what cost and tempo. When the Troika wants to impose €4.4b worth of new cuts, particularly focused on tourist industry amongst others why stay in? There is nothing to gain and everything to lose.
    Russia has offered to modernise the train infrastructure, a new gas pipeline via the Black Sea and Turkey. Syriza remains more embedded to the Brussels agenda trying to convince Germany to weaken its reigns, but to no avail.
    So why don’t they do what they alleged they would be doing, no more sacrifices for the Euro? Take a bold leap forward? Any other course of action will ensure Syriza implodes.

  15. Greek Default says:

    Greece will default. If not now, later. The country has defaulted 5 times in the last 200 years and is overdue for another default.
    The question one must ask is why creditors even entertain giving Greece more loans.

  16. Edgar JOYCEY says:

    The Europeans are desperate to get rid of what they see to be a leftish govnmt, and to cover up for the terrible and self-interest-driven mistakes they have made over the Greek issue. They also want to punish the people who voted for SYRIZA and didn’t accept there medicine. Some UNION.

  17. Goldilocks says:

    “CROSS-BORDER” KEYNESIAN ECONOMICS.
    A THOUGHT ON GREECE – versus – THE EURO GROUP:
    “TAXATION WITHOUT REPRESENTATION” ?

    There is an elephant in the the Greek Debt Crisis room that no one is openly addressing : Should Keynesian Economic policy apply in a situation where one country demands that another country
    “prime its pump” when it has no ability to do it itself? And given an American revolutionary heritage, do we see in it our founding fundamental wrong – “No Taxation without Representation”?

    In the creation of the Euro, the issue of how a member country could or should apply Keynesian methods of government stimulation (or for that matter,other post-Keynesian economic approaches) was not handled. (Caveat, one general rule against the central bank financing a member country’s budget was included.)

    The problem is simple to state.

    From the new Greek government side:
    (a) Greece wants to stimulate its economy through government spending. A classical Keynesian prescription. So far, so clear; and often so good.
    (b) But Greece has no means of its own to implement this prescription.
    (c) So, Greece wants other countries to provide the stimulus money for them.
    (d) Greece wants to be the beneficiary of this stimulus and for its citizenry to reap the economic benefits.

    From the Euro Group side:
    (e) In the circumstances, we other “paying” countries have no way to get our stimulus money repaid.
    (f) We Euro countries gain no (direct) real economic benefit and our citizenry doesn’t want to pay for it.

    The negotiating problem is equally simple to state.

    Greece:
    (a) Greece has demanded it in combat mode, instead of Oliver Twist supplicant “please sir, more sir” mode.
    (b) Greece has used the Cold War “MAD” (mutually assured destruction) approach to threaten the destruction of the EURO project and currency (as well as Union) – if they don’t get their demands.

    Euro Group:
    (c) How does the Euro Group hold together if their taxpayers object to what amounts to taxation without representation – and no economic benefit for themselves to boot?
    (d) How does the Euro Group operate if it treats Greece differently than it treats other members?

    Consider that the Greek Euro Crisis is therefore a novum in Keynesian Economics. (Let’s also ignore the competing economic schools and not bother to even consider an answer to this conundrum.)

    There is something more important stuck behind the Keynesian idea: it is the implicit understanding that the context of all of it is based on an economy where the citizens who bear the burdens will also reap the gains. In other words, it all applies within a country; not cross-border.

    So the novel Greek demand is a cross-country Keynesian Economics application where the country deciding for the Keynesian prime the pump will reap the benefits, but other countries will bear the burdens without the benefits.

    The big categories that are at play here, have been largely ignored by the participants. They have ignored them, because they believe them to be too difficult to resolve, in general, and in this debt crisis context. So, we are also witnessing an exercise in “containment” of the “outbreak”, by ignoring all these big issues at play. (Let’s just ignore other big notions, e.g., of “too big to fail” as analogous to the EU rule requiring unanimous consent of all countries; and of “moral hazard”.)

    So, we are being provided a fascinating opportunity for observing how parties to a problem go about trying to both (a) gain comparative advantage; (b) engage in “on-the-go” rule-making; (c) resolve the problem; and (d) resolve it when the resolution will apply in other situations – all the while not even addressing the underlying fundamental issues.

    Wanna bet that the solution they adopt is both no good and will be an example of a solution leading to further problems?

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