Bailout deal allows Greek oligarchs to maintain grip – The Guardian

Screen Shot 2015-08-18 at 09.24.11The Guardian summed up my annotated version of Greece’s Third MoU with this title. Click here for the Guardian’s webpage or read on…

Greece’s former finance minister Yanis Varoufakis has accused European leaders of allowing oligarchs to maintain their stranglehold on Greek society while punishing ordinary people in a line-by-line critique of the country’s €86bn (£61bn) bailout deal.

Varoufakis said the Greek parliament had pushed through an agreement with international creditors that would allow oligarchs, who dominate sections of the economy, to generate huge profits and continue to avoid paying taxes.

The outspoken economist published an annotated version of the deal memorandum on his website on Monday, arguing throughout the 62-page document that most of the measures imposed on Greece would make the country’s dire economic situation worse.

His first insertion makes clear his dismay at the dramatic events of last month, when the Greek prime minister, Alexis Tsipras, was forced to accept stringent terms for a new bailout amid calls from Germany for Greece’s temporary exit from the eurozone. Varoufakis, who resigned from his post in June, said: “This MoU [memorandum of understanding] was prepared to reflect the Greek government’s humiliating capitulation of 12 July, under threat of Grexit put to Tsipras by the Euro summit.”

Folllowing the July summit, Athens agreed a three-year memorandum of understanding last week that will release €86bn of funds, much of it to repay debts related to two previous rescue deals. In exchange, Athens will implement wide-ranging reforms including changes to the state pension system and selling off government assets.

But Varoufakis said a reform programme overseen by the troika of lenders – the European commission, the International Monetary Fund and the European Central Bank – would only enslave ordinary workers and families by imposing tough welfare cuts while letting foreign companies grab domestic assets cheaply through privatisations. He said billionaire business owners in Greece would also escape scrutiny.

In the memorandum it says: “Fiscal constraints have imposed hard choices, and it is therefore important that the burden of adjustment is borne by all parts of society and taking into account the ability to pay. Priority has been placed on actions to tackle tax evasion.”

In answer, Varoufakis said: “As long as it is not committed by the oligarchs in full support of the troika through their multifarious activities.”

The memorandum goes on to say: “The authorities plan to benefit from available technical assistance from international organisations on measures to provide access to health care for all (including the uninsured).”

To which Varoufakis responds: “ie using advice of well paid foreign ‘technocrats’ as a substitute for funding, nurses, doctors and equipment”.

The deal memo also refers to rolling out a “basic social safety net” in the form of a guaranteed minimum income (GMI]. That provision “would be great, except that not one fresh euro will be made available for the GMI program whose funding will be siphoned off existing benefits provided by the Greek state, e.g. child benefit,” says Varoufakis.

As finance minister, Varoufakis opposed any deal with Brussels that he believed would consolidate the strategy of the previous five years of bailouts. He argued that combining financial aid with severe cuts to state spending was the main reason why Greek unemployment had soared to more than a quarter of the working population and shrunk the economy by 25%.

Varoufakis was succeeded at the finance ministry by his colleague Euclid Tsakalotos who went on to negotiate the current agreement.

Last week, after the memorandum passed into Greek law, Tsakalotos said the deal would take Greece forward and create a more stable financial system.

Varoufakis said the deal was flawed in many ways as he picked his way through the memorandum. For instance, property taxes based on out-of-date and inflated values would hit ordinary households; that a reliance on expensive advisers and consultants would deny the health service vital cash; and a reduction in investment funding by Brussels would stifle the recovery.

He said the troika had wrecked the pension system, which remains anessential economic prop for many households. Warning that removing state subsidies from pensions would create a vicious circle, he said: “The pension cuts necessary will be so large that aggregate demand in Greece will fall again so much that employment will suffer further thus hitting again the pension funds.”

His intervention came as the German parliament prepares to vote on the bailout agreement on Wednesday. If, as expected, German MPs approve the deal it will pave the way for the first disbursement of aid on Thursday, allowing Greece to meet a €3.2bn payment due to the European Central Bank.

Meanwhile, the Greek government appears likely to call a confidence vote following a rebellion among lawmakers from the ruling Syriza party over the country’s new bailout deal, senior ministers said on Monday.

Energy Minister Panos Skourletis described such a parliamentary vote as “self-evident” following Friday’s rebellion when almost a third of Syriza deputies abstained or voted against the agreement.

With Syriza’s left wing showing little sign of returning to the party fold, Skourletis also raised the possibility of early elections should Tsipras lose a confidence motion. Tsipras had to rely on opposition support to get the bailout deal through parliament, and another minister argued that elections would be a way of achieving political stability.


    • Look, let’s be honest here. Syriza is now learning the lesson all previous Greek governments have learned. Which is the minute you cooperate with the ratzillas you are history. Once cooperated with Berlin and then a simple question of how fast you party would disintegrate.

      You can promote theories of secret plans on both sides but the honest and brutal truth is that Syriza walked into a giant trap when it won the election of January 2015. This is precisely where Schauble wanted it to teach everyone a lesson.

      So the only way out of this mess is snap elections ASAP (preferably within the 1st part of September). Tsipras, even though discredited already and seriously wounded, has an once in a lifetime opportunity to wipe off the floor the remnants of ND+Pasok. Failing to do so now it would allow the “Yes” referendum parties (aka german collaborators) to exit their self-imposed trap of voting affirmatively on all Tsipras tabled legislation action and once free ND would begin to slowly but surely chip away at him.

      So now is his chance. Defeat the domestic ratzillas decisively and then focus on the schauble and other external ratzillas to be exterminated later. Once the August 20th payment is made by Greece of the amounts due then Greece has a rare 2-3 year window for very small repayments or no external repayments due. In other words an ideal period to settle old scores.

      But it’s uber critical that Tsipras deals with the ND+Pasok problem now and extinguishes them as potent political forces for sometime to come. Opportunities like that don’t appear every day. Carpe diem. You don’t need to be Julius Caesar to understand this.

    • The problem is that SYRIZA is in a mutating process to be transformed into a social-democratic party to replace the PASOK gap. Once Tsipras get rid of the radical part (Left Platform) the mutation will be almost completed. That’s exactly what the creditors want.

    • It is always worth fighting. Elections now seem pointless unless we see a rapid movement created by the Greek people who will be determined to fight against colonialism at all costs. If Tsipras will be forced to follow this movement then something could change, but it seems that he has completely surrendered to the euro-dictatorship. I believe that many things will be clarified in the next 2 months.

  • There are clearly potent Greek economic and political interests who support EU Creditors. But Yanis = beyond referring vaguely to “Oligarchs” and “vested interests” = does not really specify who these people are, what interests are involved, etc., and how they interact with Brussels. Without more substance and detail, it is hard to understand the grand game involved.

    There is an enormous paradox of two failed programs and now a doubling up with a third program, yet Greek GDP keeps shrinking, unemployment is massive, absolute tax receipts are shrinking and Greek public debt is projects in increase by the IMF to 200% GDP by 2018.

    Who would rationally support such an idiotic program? Yet Eurogroup thinks that this is marvelous and 200+ Greek MP’s are claiming that the program will save Greece! What in hell is really going on here?

    Why doesn’t Yanis explain this to us???

    • Does the German Fraport taking over 14 Greek airports for the next 50 years gives you a hint about oligarchy? Or may the Greek oligarch Kopelouzos who is eagerly selling his own country to the ratzillas is a better explanation for you?

  • It is always worth fighting. Elections now seem pointless unless we see a rapid movement created by the Greek people who will be determined to fight against colonialism at all costs. If Tsipras will be forced to follow this movement then something could change, but it seems that he has completely surrendered to the euro-dictatorship. I believe that many things will be clarified in the next 2 months.

  • The case against cash for reforms by Martin Sanbu (excerpt from FT):


    This article examines four widely-held preconceptions about Europe’s single currency. First, that the euro eroded the export competitiveness of the weaker countries. Second, that the resulting debt made official bailouts necessary. Third, that a monetary union can work only in the presence of a “fiscal union” — large budget transfers between countries to insure against downturns. And fourth, that the weaker countries must undergo deep structural reforms to be able to stay in the euro.

    Each of these claims has had an outsize influence on policy. The research reported below shows that they should not be taken for granted.

    Claim: Export competitiveness suffered

    The conventional narrative

    The euro damaged Europe’s weaker economies in the boom years by helping to push up wages in those countries, making their exports less competitive. After the crisis, the euro’s fixed exchange rate kept them from devaluing their currencies, which would have again made their exports competitively priced.
    Euro chart
    The inconvenient fact

    The euro’s “peripheral” economies — Ireland and southern Europe — did not price themselves out of markets. Despite the rise of China, most held on to their market share between 1999 and 2007.

    Under the surface

    Why did periphery country exports stay buoyant even though labour costs went up much faster in the periphery than elsewhere? One answer is given by Guillaume Gaulier and Vincent Vicard, two Banque de France economists. They measured unit labour costs separately for sectors that trade with other countries and those that do not. They found that most of the wage inflation happened in purely domestic sectors such as construction and government jobs.

    Zsolt Darvas, a senior fellow at the Brussels-based Bruegel think-tank, says it matters whether we measure the periphery’s exports in terms of their value in euros or in physical volumes. Even if peripheral countries held on to market share in value terms, Mr Darvas says their performance did suffer in volume terms — they were able to sell less for more.

    European Commission research found that Portugal and Greece exported up to one-third less than their geographic and economic characteristics predict. But that problem predates the euro.

    The lesson

    The loss of export competitiveness because of rising wage costs was not
    the cause of the debt build-up in the periphery. Exports held up reasonably well, though sometimes at pre-existing low levels. Instead, massive capital inflows from the core economies to the periphery fuelled an import boom and wage inflation, but less so in sectors that trade internationally.

    Claim: Sovereign bailouts are necessary

    The conventional narrative

    There was no alternative to offering rescue loans to the crisis-hit governments of Greece, Ireland, Portugal and Cyprus. A sovereign default would have had devastating consequences for those countries and huge repercussions for other European economies.

    Euro charts

    The inconvenient fact

    Sovereign defaults are a common occurrence, but a definitive sovereign default is almost always followed by faster growth and better creditworthiness. And economic research finds very little market contagion of default risk.

    Under the surface

    The European Central Bank under Jean-Claude Trichet was extremely hostile to the idea of allowing governments to default and restructure their debts. Its opposition helped thwart Ms Merkel’s proposal to allow sovereign restructuring at her Deauville summit with French President Nicolas Sarkozy in 2010.

    But research by Carmen Reinhart and Christoph Trebesch shows that economies and markets have taken the two big waves of sovereign restructuring — Europe in the 1930s and emerging markets in the 1980s and 1990s — in their stride. This suggests that definitive sovereign writedowns encourage investment by bringing certainty.

    As for contagion to other sovereigns, it is hard to find evidence of much. Mr Mody, the former IMF deputy director, says Ms Merkel was right to try to change the rules at Deauville. Only Greece saw borrowing costs rise, he says: “For the other small countries the effects were small and short-lasting; for Spain and Italy there was no effect” if you compare bond spreads before and after Deauville

    The lesson
    Sovereign restructuring was never the bogeyman it was made out to be. Market panic across the periphery in 2010-12 may have related more to inherent risks in the countries concerned than to contagion. ECB researchers attribute up to half of it to a fear of “redenomination” into national currencies.

    Claim: FIscal union is the best shock absorber
    The conventional narrative
    Elementary economic theory is often taken to say that to function well, a monetary union must put enough fiscal resources in common to help its members absorb “shocks” that hit some countries harder than others. This is the alleged “remorseless logic” from monetary union to fiscal union.
    Euro charts
    The inconvenient fact

    Well-functioning monetary unions, such as the US, have very little fiscal risk-sharing. Most of their local shock absorption happens through private financial markets.

    Under the surface

    The case for sharing risks against “asymmetric shocks” — so regions in good shape transfer resources to those hit by downturns — is straightforward. It follows from the basic rationale for insurance. Economics Nobel laureate Jean Tirole has pointed out that this applies regardless of monetary union.

    IMF research shows there is indeed more risk-sharing in federal countries such as the US and Germany. Eighty per cent of local economic fluctuations are smoothed in those countries, against 40 per cent between eurozone countries. In other words local consumption suffers only 20 per cent of any hit to local GDP (against 60 per cent for eurozone countries). Most of this smoothing, however, happens through private channels. Banks, credit markets and investments insulate disposable resources. Fiscal insurance, in contrast, only compensates for 15 per cent of local downturns in the US, and just 10 per cent in Germany. Daniel Gros has concluded that achieving US-style fiscal risk-sharing “would be of very limited usefulness” to absorb shocks in the eurozone.

    The lesson

    A US or German-style “fiscal union” would marginally help eurozone countries deal with shocks. Smoothing 10 to 15 per cent of local downturns is better than 1 per cent, the current degree of eurozone fiscal risk-sharing. But the real prize lies in achieving the level of private financial integration that the federal states enjoy.

    Claim: Structural reform is the solution

    The conventional narrative
    Europe’s peripheral nations must fundamentally reform their economic structures in order to make their debts sustainable and for their growth to catch up with the core eurozone economies.
    Euro charts
    The inconvenient fact
    IMF research finds at best a very small positive effect of structural reforms on productivity and output — and sometimes zero or negative effects.

    “Neither theory nor econometric evidence give any support that structural reforms are good for growth,” says Mr Mody. For product market reforms, there is in theory a “reasonable presumption that more competition makes firms more efficient and that somehow leads to growth” but much “growth comes from market structures that are not recognised as” highly competitive. For labour market reforms, “even in theory the outcome is ambiguous”, he says.

    The IMF’s own research corroborates Mr Mody’s scepticism. The fund’s latest World Economic Outlook measured the short- to medium-term effect of reforms on productivity (how much each worker can produce with a given level of capital). Labour market reforms reduced productivity, it found, whereas liberalising product markets had positive effects.
    Another IMF study estimated how much structural reforms would increase peripheral eurozone GDP. After five years of product and labour reforms, output would be just 3.7 per cent higher than without them. Even in the long term, when all the reforms have fully borne fruit, product market reform only boosts GDP by 8.6 per cent, labour market liberalisation by 2.2 per cent.

    The lesson
    The supposed growth benefits of structural reforms are not convincing. Even studies that find a positive result show effects far too small to make much difference either to debt sustainability or to the periphery’s relative living standards.

    This article draws on ‘Europe’s Orphan’, the author’s book about the euro, which will be published by Princeton University Press in October”.