Thursday 18 June 2015

Greece on the eve of Grexit?

Comments from Alexander Mercouris

GREECE ON THE EVE OF GREXIT?



 Via Facebook

Apologies to everyone that I cannot be very communicative but there is now a mood of deep crisis in Greece and I am very preoccupied with trying to keep in touch with events there.

A few comments, though I must be brief:

1. The Greek Central Bank - undoubtedly in collusion with the European authorities - raised the possibility of Greece's expulsion not just from the eurozone but from the entire EU. European parliament president Martin Schultz has said the same.

Quite obviously this is intended to rattle people in Greece. From what I am hearing the mood on the contrary has stiffened. However I am not in Greece and I cannot be sure.

2. I don't know how real this threat is and I don't think anyone does. There is no simple legal mechanism to exit either the euro or the EU but there is certainly a case for saying that an EU state that reneges on the fundamental commitment of seeking "ever closer union" by leaving the euro cannot stay in the EU. However I think the decision will ultimately depend not on narrow legalities but on politics ie. do the US and the EU want to take the unprecedented step of expelling from the EU an EU member state? I am not in a position at the moment to debate or analyse the issue.

3. The suggestion that Greece repudiate the debt on the grounds that it is an "odious debt" is indeed doing the rounds in Athens. In my opinion it is hopeless. The US, EU and IMF will never accept that the debt is odious and they are in a position to decide the question. I don't know of any court that would support Greece on such a question (the European Court of Justice obviously would not) and even if one did no decision of that sort is going to be made in the brief time still available. I doubt anyway that Greece has a strong case here because all Greek governments up to now (including Syriza) have admitted liability for the debt.

4. Several people including I notice the Guardian and I believe Wolfgang Munchau in the Financial Times are saying that Greece can default and remain in the euro. Strictly speaking that is true and that is what should have happened back in 2010. In my opinion it is now much too late for that. The Europeans will not countenance it because of the terrible precedent it would set for countries like Portugal, Italy and Spain.

5. My best guess is that there will be a default on 30th June 2015 and that the ECB will then cut liquidity support to Greece's banks (it might well happen before). At that point Syriza will have no other choice but to impose capital controls, nationalise the banks and reintroduce the drachma.

6. Tsipras is going to St. Petersburg and will meet Putin there on Friday. Inevitably there are rumours that he will ask Putin for money to pay the IMF instalments this month. That would have been a strong play a few weeks ago but again I think Tsipras has left it too late. If he does that there is a strong chance the ECB will cut liquidity support to Greece's banks anyway on the grounds that Greece is in breach of its bailout conditions. Whilst the Russians might in theory be willing to pay Greece's instalments on its debts to the IMF I cannot see them replacing the ECB by providing support to Greece's banks. I am afraid that applies to China as well.

I would add that Tsipras must anyway have irritated the Russians by today supporting the decision to extend the sanctions. Whilst I doubt this is a serious issue for the Russians they must be asking themselves what they would gain by stepping in to support Greece and excluding sentimental considerations the answer is not obvious.

7. There remains a possibility that Tsipras will back down. At the moment that doesn't look very likely though this is a very fluid situation. If he does back down he won't be in power for very long.

8. It seems to me that Tsipras and Yaroufakis gambled that the US would pressure Merkel into giving them a break. Most of their connections are with the US - not with Soros but with people like Krugman, Stiglitz, Galbraith and Reich, some of whom are very close to the Obama administration. It seems that there was some US lobbying on behalf of Greece and Merkel predictably tried to do as the US told her but in the end she could not win over Schauble and when it became clear that the grassroots of the CDU/CSU were backing Schauble the gamble failed.

I notice by the way that Krugman has gone to ground and has put up a comment on his blog saying that he is not going to comment on the situation.

As I said this is a very fluid situation but we should know the direction in which things are going over the next few hours.



Greece likely to exit euro and EU without deal with creditors – central bank

RT,
17 April, 2015

Athens is likely to leave the eurozone and the EU if it fails to reach an agreement to unlock a €7.2 billion bailout installment, said a statement from the Bank of Greece.

“Failure to reach an agreement would, ..., mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country's exit from the euro area and – most likely – from the European Union,” the bank said in a statement Wednesday.


The manageable debt crisis Greece is now facing may turn into an uncontrollable and broader crisis, dangerous for the banking system and financial stability, the bank added. An exit from the eurozone would only add to hostility that is already felt, and, as a result, a deep exchange rate crisis would make inflation skyrocket.

“All this would imply a deep recession, a dramatic decline in income levels, an exponential rise in unemployment and a collapse of all that the Greek economy has achieved over the years of its EU, and especially its euro area, membership. From its position as a core member of Europe, Greece would see itself relegated to the rank of a poor country in the European South,” the bank said.

This is why the bank called a debt deal a “historical imperative” impossible to ignore.


The five-months of inconclusive negotiations have led to a high level of uncertainty in Greece, which is hitting the country hard, the bank said. This reflected in higher Greek bond yields and Greek businesses losing financing in the capital markets.



“On the domestic front, heightened uncertainty was reflected in the deterioration of economic sentiment and confidence indicators and in bank deposit withdrawals by businesses and households.”

Between October 2014 and April 2015 €30 billion was withdrawn from deposits, the bank said.

Fears of Greece leaving the euro escalated after the country delayed a €300 million payment to the IMF on June 5, saying it’ll bundle four June payments totaling €1.6 billion together and pay them at the end of the month.

So far the negotiations have failed to meet halfway over reforms in Greece which is the main condition for Athens to receive the last €7.2 billion tranche of the second bailout. But the Bank of Greece said a compromise on the main conditions and smaller issues remained to be covered.


Greece maintains it won’t accept new deep austerity cuts while the country’s creditors – the IMF, the ECB and the European Commission – insist on more financial responsibility from Athens.

Despite some write-offs of Greek debt made by creditors in 2012, its public debt currently stands at €316 billion, about 175 percent of the country’s GDP. The maximum acceptable level for the EU should be not more than 60 percent of GDP, according to the EU’s Stability and Growth Pact.

Austerity measures have seen unemployment rise from 12 to 27 percent in three years, GDP has fallen by 26 percent since 2008, Greeks are under a huge tax burden, and the number of people living below the poverty line is increasing every day, said Prime Minister Alexis Tsipras last week. His Syriza party came to power promising to end austerity.

Over the last five years, Athens has reduced pensions by up to 44 percent, reduced salaries in the private sector by up to 32 percent, and seen its labor market crushed, he added.

From the pro-EU Guardian



Head of European parliament says Grexit from euro may also mean leaving EU as Athens admits it cannot pay IMF and Brussels expresses little hope in final talks


Meanwhile, In Greece, The Protests Return


With capital controls set to be implemented as soon as this weekend, and with EU officials planning to convene an emergency meeting on either Saturday or Sunday, Greeks are understandably restless at the prospect of being 'Cyprus'd' while they wait to hear if they will be subject to further austerity or worse, a redenomination-fueled economic collapse.
On the eve of a critical Eurogroup meeting in Luxembourg where FinMin Yanis Varoufakis says no new proposal will be tabled, Greeks are taking to the streets ahead of an anti-austerity protest planned for Wednesday evening. 


Greek Citizens Threaten To "Take The Heads" Of "Grave Digging" Creditors

Yanis Varoufakis on the future of Greece


 Greek Finance Minister Yanis Varoufakis will be giving a speech on the crisis in the Eurozone at the Hans-Boeckler foundation on Monday, June 8. Before the .

This past Sunday, Greece's Syriza party came into the power and frequent Boom Bust guest Yanis Varoufakis was elected as finance minister. Take a look at .

Russia has been facing increased sanctions from the US, EU, and their allies as a result of the conflict in Ukraine and sentiment toward Russian assets has .

 On April 16, the Global Economy and Development program and the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution hosted Greek .

Greek Debt Committee Just Declared All Debt To The Troika "Illegal, Illegitimate, And Odious"

17 June, 2015

It was in April when we got a stark reminder of a post we first penned in April of 2011,describing Odious Debt, and why we thought sooner or later this legal term would become applicable for Greece, because two months ago Greek Zoi Konstantopoulou, speaker of the Greek parliament and a SYRIZA member, said she had established a new "Truth Committee on Public Debt" whose purposes was to "investigate how much of the debt is “illegal” with a view to writing it off."
Moments ago, this committee released its preliminary findings, and here is the conclusion from the full report presented below:
All the evidence we present in this report shows that Greece not only does not have the ability to pay this debt, but also should not pay this debt first and foremost because the debt emerging from the Troika’s arrangements is a direct infringement on the fundamental human rights of the residents of Greece. Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate, and odious.


As we predicted over four years ago, Greece has effectively just declared that it will no longer have to default on its IMF (or any other debt - note that the dreaded "Troika" word finally makes an appearance after it was officially banned) simply because that debt was not legal to begin with, i.e. it was "odious."


If so, this has just thrown a very unique wrench in the spokes of not only the Greek debt negotiations, but all other peripheral European nations' Greek negotiations, who will promptly demand that their debt be, likewise, declared odious, and made null and void, thus washing their hands of servicing it again.
And another question: when Greece says the debt was illegal and it no longer has to make the June 30 payment, what will be the Troika's response: confiscate Greek assets a la Argentina, declare involutnary default, sue it in the Hague?

Good luck.



Hellenic Parliament’s Debt Truth Committee Preliminary Findings - Executive Summary of the report


In June 2015 Greece stands at a crossroad of choosing between furthering the failed macroeconomic adjustment programmes imposed by the creditors or making a real change to break the chains of debt. Five years since the economic adjustment programmes began, the country remains deeply cemented in an economic, social, democratic and ecological crisis. The black box of debt has remained closed, and until now no authority, Greek or international, has sought to bring to light the truth about how and why Greece was subjected to the Troika regime. The debt, in whose name nothing has been spared, remains the rule through which neoliberal adjustment is imposed, and the deepest and longest recession experienced in Europe during peacetime.


There is an immediate need and social responsibility to address a range of legal, social and economic issues that demand proper consideration. In response, the Hellenic Parliament established the Truth Committee on Public Debt in April 2015, mandating the investigation into the creation and growth of public debt, the way and reasons for which debt was contracted, and the impact that the conditionalities attached to the loans have had on the economy and the population. The Truth Committee has a mandate to raise awareness of issues pertaining to the Greek debt, both domestically and internationally, and to formulate arguments and options concerning the cancellation of the debt.


The research of the Committee presented in this preliminary report sheds light on the fact that the entire adjustment programme, to which Greece has been subjugated, was and remains a politically orientated programme. The technical exercise surrounding macroeconomic variables and debt projections, figures directly relating to people’s lives and livelihoods, has enabled discussions around the debt to remain at a technical level mainly revolving around the argument that the policies imposed on Greece will improve its capacity to pay the debt back. 

The facts presented in this report challenge this argument.


All the evidence we present in this report shows that Greece not only does not have the ability to pay this debt, but also should not pay this debt first and foremost because the debt emerging from the Troika’s arrangements is a direct infringement on the fundamental human rights of the residents of Greece. Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate, and odious.


It has also come to the understanding of the Committee that the unsustainability of the Greek public debt was evident from the outset to the international creditors, the Greek authorities, and the corporate media. Yet, the Greek authorities, together with some other governments in the EU, conspired against the restructuring of public debt in 2010 in order to protect financial institutions. The corporate media hid the truth from the public by depicting a situation in which the bailout was argued to benefit Greece, whilst spinning a narrative intended to portray the population as deservers of their own wrongdoings.


Bailout funds provided in both programmes of 2010 and 2012 have been externally managed through complicated schemes, preventing any fiscal autonomy. The use of the bailout money is strictly dictated by the creditors, and so, it is revealing that less than 10% of these funds have been destined to the government’s current expenditure.


This preliminary report presents a primary mapping out of the key problems and issues associated with the public debt, and notes key legal violations associated with the contracting of the debt; it also traces out the legal foundations, on which unilateral suspension of the debt payments can be based. The findings are presented in nine chapters structured as follows:


Chapter 1, Debt before the Troika, analyses the growth of the Greek public debt since the 1980s. It concludes that the increase in debt was not due to excessive public spending, which in fact remained lower than the public spending of other Eurozone countries, but rather due to the payment of extremely high rates of interest to creditors, excessive and unjustified military spending, loss of tax revenues due to illicit capital outflows, state recapitalization of private banks, and the international imbalances created via the flaws in the design of the Monetary Union itself.


Adopting the euro led to a drastic increase of private debt in Greece to which major European private banks as well as the Greek banks were exposed. A growing banking crisis contributed to the Greek sovereign debt crisis. George Papandreou’s government helped to present the elements of a banking crisis as a sovereign debt crisis in 2009 by emphasizing and boosting the public deficit and debt. 


Chapter 2, Evolution of Greek public debt during 2010-2015, concludes that the first loan agreement of 2010, aimed primarily to rescue the Greek and other European private banks, and to allow the banks to reduce their exposure to Greek government bonds.


Chapter 3, Greek public debt by creditor in 2015, presents the contentious nature of Greece’s current debt, delineating the loans’ key characteristics, which are further analysed in Chapter 8.


Chapter 4, Debt System Mechanism in Greece reveals the mechanisms devised by the agreements that were implemented since May 2010. They created a substantial amount of new debt to bilateral creditors and the European Financial Stability Fund (EFSF), whilst generating abusive costs thus deepening the crisis further. The mechanisms disclose how the majority of borrowed funds were transferred directly to financial institutions. Rather than benefitting Greece, they have accelerated the privatization process, through the use of financial instruments.


Chapter 5, Conditionalities against sustainability, presents how the creditors imposed intrusive conditionalities attached to the loan agreements, which led directly to the economic unviability and unsustainability of debt. These conditionalities, on which the creditors still insist, have not only contributed to lower GDP as well as higher public borrowing, hence a higher public debt/GDP making Greece’s debt more unsustainable, but also engineered dramatic changes in the society, and caused a humanitarian crisis. The Greek public debt can be considered as totally unsustainable at present.


Chapter 6, Impact of the “bailout programmes” on human rights, concludes that the measures implemented under the “bailout programmes” have directly affected living conditions of the people and violated human rights, which Greece and its partners are obliged to respect, protect and promote under domestic, regional and international law. The drastic adjustments, imposed on the Greek economy and society as a whole, have brought about a rapid deterioration of living standards, and remain incompatible with social justice, social cohesion, democracy and human rights.


Chapter 7, Legal issues surrounding the MOU and Loan Agreements, argues there has been a breach of human rights obligations on the part of Greece itself and the lenders, that is the Euro Area (Lender) Member States, the European Commission, the European Central Bank, and theInternational Monetary Fund, who imposed these measures on Greece. All these actors failed to assess the human rights violations as an outcome of the policies they obliged Greece to pursue, and also directly violated the Greek constitution by effectively stripping Greece of most of its sovereign rights. The agreements contain abusive clauses, effectively coercing Greece to surrender significant aspects of its sovereignty. 

This is imprinted in the choice of the English law as governing law for those agreements, which facilitated the circumvention of the Greek Constitution and international human rights obligations. Conflicts with human rights and customary obligations, several indications of contracting parties acting in bad faith, which together with the unconscionable character of the agreements, render these agreements invalid.


Chapter 8, Assessment of the Debts as regards illegtimacy, odiousness, illegality, and unsustainability, provides an assessment of the Greek public debt according to the definitions regarding illegitimate, odious, illegal, and unsustainable debt adopted by the Committee.
Chapter 8 concludes that the Greek public debt as of June 2015 is unsustainable, since Greece is currently unable to service its debt without seriously impairing its capacity to fulfill its basic human rights obligations. Furthermore, for each creditor, the report provides evidence of indicative cases of illegal, illegitimate and odious debts.


Debt to the IMF should be considered illegal since its concession breached the IMF’s own statutes, and its conditions breached the Greek Constitution, international customary law, and treaties to which Greece is a party. It is also illegitimate, since conditions included policy prescriptions that infringed human rights obligations. Finally, it is odious since the IMF knew that the imposed measures were undemocratic, ineffective, and would lead to serious violations of socio-economic rights.


Debts to the ECB should be considered illegal since the ECB over-stepped its mandate by imposing the application of macroeconomic adjustment programs (e.g. labour market deregulation) via its participation in the Troïka. Debts to the ECB are also illegitimate and odious, since the principal raison d’etre of the Securities Market Programme (SMP) was to serve the interests of the financial institutions, allowing the major European and Greek private banks to dispose of their Greek bonds.


The EFSF engages in cash-less loans which should be considered illegal because Article 122(2) of the Treaty on the Functioning of the European Union (TFEU) was violated, and further they breach several socio-economic rights and civil liberties. Moreover, the EFSF Framework Agreement 2010 and the Master Financial Assistance Agreement of 2012 contain several abusive clauses revealing clear misconduct on the part of the lender. The EFSF also acts against democratic principles, rendering these particular debts illegitimate and odious.


The bilateral loans should be considered illegal since they violate the procedure provided by the Greek constitution. The loans involved clear misconduct by the lenders, and had conditions that contravened law or public policy. Both EU law and international law were breached in order to sideline human rights in the design of the macroeconomic programmes. The bilateral loans are furthermore illegitimate, since they were not used for the benefit of the population, but merely enabled the private creditors of Greece to be bailed out. Finally, the bilateral loans are odious since the lender states and the European Commission knew of potential violations, but in 2010 and 2012 avoided to assess the human rights impacts of the macroeconomic adjustment and fiscal consolidation that were the conditions for the loans.


The debt to private creditors should be considered illegal because private banks conducted themselves irresponsibly before the Troika came into being, failing to observe due diligence, while some private creditors such as hedge funds also acted in bad faith. Parts of the debts to private banks and hedge funds are illegitimate for the same reasons that they are illegal; furthermore, Greek banks were illegitimately recapitalized by tax-payers. Debts to private banks and hedge funds are odious, since major private creditors were aware that these debts were not incurred in the best interests of the population but rather for their own benefit.


The report comes to a close with some practical considerations. Chapter 9, Legal foundations for repudiation and suspension of the Greek sovereign debt, presents the options concerning the cancellation of debt, and especially the conditions under which a sovereign state can exercise the right to unilateral act of repudiation or suspension of the payment of debt under international law.
Several legal arguments permit a State to unilaterally repudiate its illegal, odious, and illegitimate debt. In the Greek case, such a unilateral act may be based on the following arguments: the bad faith of the creditors that pushed Greece to violate national law and international obligations related to human rights; 


preeminence of human rights over agreements such as those signed by previous governments with creditors or the Troika; coercion; unfair terms flagrantly violating Greek sovereignty and violating the Constitution; and finally, the right recognized in international law for a State to take countermeasures against illegal acts by its creditors , which purposefully damage its fiscal sovereignty, oblige it to assume odious, illegal and illegitimate debt, violate economic self-determination and fundamental human rights. As far as unsustainable debt is concerned, every state is legally entitled to invoke necessity in exceptional situations in order to safeguard those essential interests threatened by a grave and imminent peril. In such a situation, the State may be dispensed from the fulfilment of those international obligations that augment the peril, as is the case with outstanding loan contracts. Finally, states have the right to declare themselves unilaterally insolvent where the servicing of their debt is unsustainable, in which case they commit no wrongful act and hence bear no liability.

People’s dignity is worth more than illegal, illegitimate, odious and unsustainable debt


Having concluded a preliminary investigation, the Committee considers that Greece has been and still is the victim of an attack premeditated and organized by the International Monetary Fund, the European Central Bank, and the European Commission. This violent, illegal, and immoral mission aimed exclusively at shifting private debt onto the public sector.


Making this preliminary report available to the Greek authorities and the Greek people, the Committee considers to have fulfilled the first part of its mission as defined in the decision of the President of Parliament of 4 April 2015. The Committee hopes that the report will be a useful tool for those who want to exit the destructive logic of austerity and stand up for what is endangered today: human rights, democracy, peoples’ dignity, and the future of generations to come.
In response to those who impose unjust measures, the Greek people might invoke what Thucydides mentioned about the constitution of the Athenian people: 

"As for the name, it is called a democracy, for the administration is run with a view to the interests of the many, not of the few” (Pericles’ Funeral Oration, in the speech from Thucydides’ History of the Peloponnesian War).
 

Opinion: Europe’s secret fear about Greece





16 June, 2015

There’s a secret fear gripping the powerful across Europe.

It has policy honchos lying awake at nights in Brussels. It has bankers in Berlin tossing feverishly on their silken sheets. It has eurocrats muttering into their claret.

The fear?

It isn’t that if Greece leaves the euro EURUSD, +0.2205% , the Greeks will then suffer a terrible economic meltdown.

The fear is that if Greece leaves the euro, the country will return to prosperity — and then other countries might follow suit.

Take a look at the chart, above.

As you can see, Greece with the bad old drachma had double the economic growth of Greece under the euro. Double. And it wasn’t alone.

Italy, Spain and Portugal tell similar stories. Their economic growth back in the 1980s and 1990s, when they were “struggling” with the lira, the peseta, and the escudo, makes a mockery of their performance under the German-dominated euro.

Apparently having control of your own national currency and your own monetary policy works well with having your own government and your own national sovereignty.

Who knew?

The data for this chart come from the International Monetary Fund’s own database. They show real economic growth in four southern European currencies in the period before they embraced the euro, from 1980 to 1998, and the period since the single currency was launched at the start of 1999. (The numbers show the average annual growth in Gross Domestic Product, measured per capita, and in real, “purchasing power” terms to strip out inflation).

The people of Europe were told the euro would bring stability. It hasn’t.


Greece’s future in the EU
Yanis Varoufakis


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