Published on 24 Jun 2015

Greece: a deal nobody believes in

The deal Greece wants in Brussels has three parts: budget, debt and public investment. In the flurry of last-minute negotiations, conducted under threat of a bank run and capital controls, the media has been obsessed with the first.

The Greek newspaper Kathimerini carried the full Greek proposal on the budget for 2015-17, designed by Syriza’s negotiators to achieve the surplus target the IMF/ECB and EU have imposed. It is, as one of the ministers presenting it told me, “terrible”.

To avoid cutting services and pensions further, Syriza is preparing to hit businesses, consumers and employees with a mixture of tax and higher contributions to their pensions. It will also raise the retirement age to 67 over the next 10 years, and severely limit incentives to early retirement.

The proposal meets the top line targets of the lenders but last night they were still haggling over the precise structure of VAT, pensions and “product market reform” – which is the codeword for the IMF’s obsession with Greek pharmacies and bakeries.

While the proposal has caused outrage among the Greek conservatives who were only last week calling for a deal, and outrage among Syriza’s left-wing voters, and the 5,000 communist-led pensioners who staged a march last night, the real problem is bigger.

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Everything we’ve seen so far suggests it will not work.

The lenders, as one senior participant in the talks put it to me, “do not do macroeconomics”. The models used in the EU’s negotiations assume that if you whack an €8bn tax rise on to an economy in recession it will at the very least only shrink by €8bn, and may even grow.

But the experience of Greek austerity – and this tax package is simply left austerity – shows you have to consider the “multiplier effects”. The IMF has already said its own model on this was flawed, and that the macroeconomic effect of cutting one euro could be not 50 cents but more like €1.50.

The reason the IMF and EU are trying to tinker with stuff like VAT and bakeries is because they suspect that a switch from harsh spending cuts to harsh, redistributive tax rises will have the same overall impact: the economy will shrink and the debt will get larger.

But a redistributive programme is all Syriza can sell to the people who voted for it. When they drew up this proposal the Greeks did so in the knowledge that it would need tens of billions of debt relief and tens of billions of structural funding from the EU to cushion the blow.

But the lenders are resisting. When it comes to debt, as one participant described it to me, the lenders are “each at war with the other”. The IMF wants debt write-offs; the ECB wants no debt write-offs.

The proposal being discussed is to swap €27bn of debt Greece owes to the ECB into a programme called the ESM, where redemptions are decades away and interest rates low. It would mean paying the ECB out of a fund owned by national governments.

I understand that, without some clear indication that debt relief is on the agenda, the Greeks cannot sign. Likewise, they are determined there should be an agreement to release structural funds for development projects from the European Commission.

They came to Brussels prepared to do a deal on the budget and debt, but to walk away and trigger financial armageddon, with aggressive defaults, if they got nothing.

It’s not petulance. Without a clear movement on debt relief and structural funds, they know their tax hike programme won’t work. And they can’t get it through their party like that in any case.

The pressure on Syriza from its grassroots voters is large, but variable. The pensioners and the communist party will protest most vigorously over pension and dock privatisation.

But the younger radical generation in Greece cares more about social issues: it want higher wages, more secure jobs, the right to civil partnerships and citizenship for second generation migrants. It wants the police cleared of fascists and the state cleared of corruption. It is also quite addicted to the entrepreneurial startup culture, to self-employment, to ducking and diving.

It believes that, absent the creation of a party like Ciudadanos in Spain, the only party that can deliver this modernisation and cleanup programme is Syriza.

The reflex of the older generation – inside Syriza and beyond – will be to default and fight. The reflex of its younger voters – no matter how much they hate the IMF and ECB – might be to accept the tax rises, accept the apologies of Syriza’s leaders – and urge them to get on with the minor social revolution they promised. Jailing corrupt politicians and businessmen, after all, does not cost you anything.

But it’s all academic unless Yanis Varoufakis comes out of Brussels with a package he can sell to himself. Without debt relief that’s impossible.

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21 reader comments

  1. Philip Edwards says:

    Christ, just as we think we’ve seen the worst even a far right propagandist like you can vomit……we get this:

    “…communist-led pensioners…”

    Doubtless your next stop will be Ukraine to bolster the IMF/ECB scam there too. But I bet we don’t hear from you about Kiev/Lviv Nazi-led mass murderers or US/Europe-led coups.

    People like you can fool some of the people some of the time, but not all of the people all of the time.

    1. Roderick Beck says:

      Phillip,

      No far right political parties made into the Ukrainian parliament. Your comment is an attempt to manipulate people.

  2. Roderick S. Beck says:

    Greek debt service burden is low. Debt to GDP has always been a misleading metric. And it is not an obsession to reduce the huge of special protections enjoyed by companies, industries, and professions in Greece. Last time I checked the US economy was racing ahead of Europe precisely due to liberal nature.

  3. Stuart says:

    Seems to me this is going to end in “extend and execute”, the carrot in return for which will be the debt re-something-ing that Greece wants. Don’t think Greece will get their debt wishes to come true without enacting a lot of new legislation, which will take time. So book your tickets to Athens for the last weekend in September now, Paul, before the rush.

  4. KXL says:

    ‘Contagion’ was cited as the big risk during the recent Euro Zone bailouts, but is virtually absent from the GREXIT conversation. Has the market moved on and is ‘contagion’ no longer a threat?

    1. Roderick Beck says:

      Yes, there has been very little contagion.

  5. King Kong says:

    Greece destroys its economy itself.

    They cooked the accounting books to get into the Euro.

    They fail to collect tax. They have huge corruption problem. Their retirement scheme is too generous. Their politics is too bad. Their economy foundation is too weak: too much reliant on tourism.

    No one makes Greece poor. If they have trouble they should ask others to help politely, at least friendly. However, this Syriza started a scaring campaign, including persuade other leftist parties (in Spain, Ireland, Italy and Portugal) to follow them in anti-austerity policies, asking for WW2 compensation, threatening of releasing terrorists to other European countries, fingering gesture, threatening of domino collapsing of world economy, and threatening to ally with Russia etc, etc.

    All the politics done by this Syriza is wrong. Should they have asked friendly, troika may help by various means: like lengthening the repayment time, etc. However, they want to lead the world to go back to communism. They fail to read the big picture. This is year 2015. Even Russia build a navy foundation in Greece, missiles can fly around to and from Russia. The world has changed. However, they are still not updated.

    As Finance Minister Yanis Varoufakis told the German magazine Die Zeit: “Why does a kilometre of freeway cost three times as much where we are as it does in Germany? Because we’re dealing with a system of cronyism and corruption. That’s what we have to tackle.” Refer the link below:

    http://www.theaustralian.com.au/business/opinion/greece-humiliated-but-still-in/story-fnp85lcq-1227412279986

    Fascism is in Greece. Those corrupted bankers, merchants, professionals
    and senior officials exploit the poor people of Greece by bribery, cronyism,
    nepotism, patronage, graft, embezzlement and tax evasion. When the banks,
    commercial organisations or enterprises run into trouble, the Greek government
    has to bailout them. As such, private debts become public debts. So, as a
    result, the Greek government owes creditors a lot of money. Therefore, the Greek
    government has no budget for the poor people. Therefore, austerity has to be
    implemented. Unluckily, those who get money from the bailouts have already
    transfer money away easily by the convenience of a single currency system,
    Euro. If big troubles come after the default, these rich people can go away to
    the rest of the EU countries to enjoy life.

    This Syriza should not be allowed to win one thing. That is to say that the conditions of bailing out should be close to the ones promised by Greece’s previous government. Otherwise, the leftist parties in Europe will follow. Therefore, there will be more troubles ahead. As such, the troika should not concede a single thing. Let this Syriza fail. This is cancer. Cut it now or cut a bigger tissue later.

  6. Chris says:

    Syriza came to power promising to unilaterally write off the debt. Then they negotiated restructuring it. Now they might even be satisfied with a mere reference to the need for debt restructuring. Syriza suffers from the same problems all other European left parties suffer: it’s just not militant (=politically brutal) enough, and – considering the brutality of the neoliberal policies and politicians they have to face – that simply does not suffice. A Greek saying warns that it’s unwise to march onto the battlefield carrying nothing but a cross, and I’m afraid Syriza is doing just that

  7. Alan says:

    One wonders if the Troikas diktats will be applied to the Ukraine? If anything, at least we understand how little our lives matter when compared to ‘paper’.

  8. Simon Barker says:

    Nobody’s buying austerity Paul.

    In those first 3 words we have what actually happens, in 2008 there was a global financial meltdown and Greece along with much of the rest of the world went into recession.

    In 2010 it was discovered how much debt Greece was in and austerity was enforced in various forms. Reduce spending when the economy is already depressed and GDP shrinks but shrinking GDP IS a recession. Slash government spending when there isn’t any slack in the economy and spending will always go down, reducing GDP and therefore reducing the budget. Less income to pay debts that are bigger by comparison to GDP. It’s insane.

    Nobody’s buying, so there’s no demand and no point in producing, currently Greece are in a death spiral with no chance of getting out. Likewise there’s no chance of them paying the debt off. So unless the overall plan is land grab I can’t see how the IMF/ECB think they’re going to benefit.

  9. Marielly says:

    The older generation would indeed opt to default and fight. However dangerous, it would be better than the certain slow destruction in store otherwise. The Greeks are a resilient lot. They can do much, once they put their mind to it.

  10. william says:

    Before the crash of 2008. An American financier, being interviewed, said: “I don’t believe in democracy, I believe in capitalism”. It is now obvious that this has become a struggle between the two ideologies, and it is fitting/ironic, that this clash is now taking place in the “cradle of democracy”. Democracy cannot “afford” to lose, for all our sakes.

  11. james casey says:

    Not directly related to this story but since you like quirky things and Paraic O’Brien doesn’t seem to have a blog, I’ve got to say that he has come up with the interview question of the year tonight.
    Interviewing a asylum seeker who said he was 65 and was beng dragged out of a container lorry by police in Calais with an injured leg, Paraic asks ‘Do you not think you’re a bit old for this, sir’.
    I love the the ‘sir’! Didn’t hear how the guy responded….but can guess.
    ps. – I love Paraic’s reports.

  12. william says:

    Before the crash, an American financier, interviewed on tv said: “I don’t believe in democracy, I believe in capitalism”. It is now obvious, that this is a struggle between capitalism, and democracy. And it seems fitting/ironic, that this struggle is being played out in the “cradle of democracy”. And the outcome will affect us all

  13. william says:

    They “cooked the books” with the help of Goldman Sachs! What punishments did they receive? The EU have not had their accounts signed off for 20years! What’s the definition of a cleptocracy? I think you’ll find the answer in the above!

  14. william says:

    From the “big bang” to the big “crash”. It was a good run! From, “privatising the profits”, to “socialising the losses”. Its over! That’s what you get for educating the “hoi polloi”. Get used to it! Its a “brave new world!

  15. Gerard says:

    The “Devil is in the detail” with regards to Europe..Why oh why does it NOT occur to The Intelectual Vanguard that The Wider Eurpean Adventure IS (as it was always going to be), a failure? It was to guard AGAINST imperialism that the original Treaty of Rome was signed. Manageably sized international trading communities are healthy but as they expand they always risk collapse. Eastern Europe and some of the Mediterranean states (?), would be better of in an international trade and cultural union of their own, they would maintain their seperate identity, exchange rates and living standards but begin to benefit from both a truly healthy economy AND relationship with Mother Russia, Schumacher saw ther truth of this and he WAS German!

  16. VN Gelis says:

    What is never asked is why did Syriza fight for power? This is in stark contrast to the whole past 100 year history of the Greek Left. Hence it fought to take over for a reason. The only possible explanation was to implement more cuts where the previous lot could no longer carry the can.
    This is the third time in 6 years a political party has campaigned on a platform of no cuts and then is doing precisely that.
    A parliamentary impasse which shifts the political centre of gravity once more to the extreme of neoliberalism will create a new poltical vacuum.
    Each wave of bullshit politicians is being replaced by another. When it all runs dry the flood of popular anger and despair will turn to rage and revolt.

  17. Theo says:

    Out of the eurozone?! why not..
    Separation might be painful, but this Europe is not attractive anymore..If only she could return to her fundamental principles for the well being of its people.

  18. anon says:

    it could always be re spun I guess; “Greece: a deal noddy believes in”, what is the truth these days?

  19. Andrew Lowrey says:

    “It believes that, absent the creation of a party like Ciudadanos in Spain, the only party that can deliver this modernisation and cleanup programme is Syriza.”

    What on Earth makes you believe that Ciudadanos has any ability to bring about modernisation of Spanish politics. Since the regional and municipal elections last month Ciudadanos has only proved to us one thing: that it is willing to support either of the old, corrupt parties depending on which will give it a better deal for itself. Podemos is being cut out of negotiations because it insists on systemic change. Ciudadanos is merely PP-lite.

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