Finance Minister of Greece Offers Debt Swap Options to the Europeans


European Central Bank President Mario Draghi wants to commit Greece to an austerity program but he is dealing with a game theorist, says Dimitri Lascaris

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SHARMINI PERIES, EXEC. PRODUCER, TRNN: This is The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.

Welcome to the Lascaris report on The Real News Network.

Austerity that destroyed hundreds of thousands of Greek jobs and forced Greeks into a Great Depression that is more severe and has lasted longer than the Great Depression of 1929 is attributed to the loan conditions applied to Greece by foreign lenders. These austerity measures has pushed Greece into a 25 percent loss in GDP, a 28 percent unemployment rate, and 61 percent unemployment rate for its youth under 25.

Now joining me to analyze all of this is Dimitri Lascaris. He’s joining me from Toronto, Canada. And Dimitri is a partner with the law firm Siskinds, where he heads the firm’s securities class-action practice. As you may have seen, Dimitri recently reported for The Real News from Athens during the elections.

Welcome back, Dimitri.


PERIES: So, Dimitri, the finance minister, Yanis Varoufaki, announced that his government would no longer called for a write-off of the 315 billion euro foreign debt it has. Rather, he suggested a menu of debt swaps to ease the burden on his people. Do you think this is a good move?

LASCARIS: Well, I think ultimately the devil is going to be in the details. Let’s step back and recall from a high level the crisis that Greece is currently confronting. Greece has a debt-to-GDP ratio of 175 percent. After it implemented the demands of the troika, its debt to GDP ratio, as many expected, soared, and its situation now is, frankly, that it is insolvent. It is not suffering from a liquidity crisis; it is suffering from an insolvency. And this is something that the leaders of SYRIZA and Mr. Varoufakis have made eminently clear, and rightly so. So the question is how to make that debt burden manageable and at the same time implement the program that has a realistic prospect of enabling the economy to grow and that, in particular, protects the most vulnerable, more vulnerable members of Greek society.

Up until now, SYRIZA has been adamant that it wanted a write-down of the debt, a very significant write-down. And it was supported in that initiative days before the election by 18 eminent economists, including Nobel laureates like Joseph Stiglitz, who called for a significant write-down of Greek debt, precisely for the reason that it is an unsustainable burden.

Today what Mr. Varoufakis said, I think it has to be parsed carefully. And what he said effectively was that they wouldn’t call it a debt write-down, that it would be something more creative–I’m paraphrasing here; I’m not using his exact words–and that they would swap the–certain of the debt or loans that Greece has undertaken pursuant to the bailout for rather creative forms of debt, and bonds in particular.

One form of debt, one bond that he discussed was a GDP-linked bond. And effectively the principle there is that Greece would only be required to pay debt during periods of economic growth.

Another type of debt, a very interesting type of debt he discussed or put on the table was something he called perpetual bonds. What precisely that means is unclear, but the use of the word perpetual implies that there would be no effective deadline for the repayment of the principal. And if you extend the obligation to repay the principal out into infinity, then effectively you have written down the debt.

Whatever he has in mind, ultimately these proposals would ultimately result in a significant easing of Greece’s debt burden, and it would come with a very significant cost to the holders of the debt relative to the terms that they now have under the loan agreements.

However, the question–and it is the key question–is whether or not this proposal, if accepted by the troika and Greece’s creditors, would constitute a sufficient easing of the debt burden of Greece to enable it to escape from this depression into which it has been thrust by the austerity program.

PERIES: Now, if you were to sit back and take a look at what’s going on from last week, when they were elected, to now, the initial bravado that was expressed by the leadership of SYRIZA in terms of its negotiations with the troika, today it seems to take a step back and to be more rational in terms of its approach. Is this tactical?

LASCARIS: It may well be. I think that Mr. Varoufakis, who, amongst other things, is an expert in game theory, understands perfectly well that taking a hard line and repeating that hard line over and over again is not a particularly effective negotiating tactic. He’s also confronted by a very short-term problem, in that the deposit flight that has occurred in the run-up to the election, as depositors became concerned about where the government was going to go in terms of economic policy, has prompted some of Greece’s largest banks to seek emergency funding from the ECB.

And the ECB apparently is going to be voting or determining–the ECB itself has to approve this emergency funding and is going to be making a determination, apparently, on Wednesday of this week. And Mario Draghi has said quite clearly and very recently that forbearance from the ECB in the future is going to be conditioned upon Greece’s being in a program. And I think what he means by that, clearly, is the austerity program that’s been imposed upon Greece in some form. So he has to be mindful that a tone that is not conciliatory, that is a very hard tone, is making it significantly more likely that the ECB will not approve that emergency lending and will precipitate a very severe banking crisis in Greece.

Conversely, time, to the extent that he can buy time, I think is on his side, because pressure has been increasing for many quarters on the German-led austerity bloc to relax the stringent austerity program. This has been coming, for example, from Mark Carney, the head of the Bank of England. It’s been coming from Obama. There were conciliatory noises coming from the French finance minister yesterday. And I think his perception may be that to the extent he can buy himself or Greece several months of additional time, the odds improve for Greece obtaining the concessions that it needs in order to have a constructive path forward.

PERIES: Right. And, Dimitri, one of the things that the finance minister did while he was in London is actually meet with other potential investors. So this is critically important for Greece, to raise more money to address the programs that they need to address. Now, do you think that there will be some people out there who would be interested in investing in Greece at this moment?

LASCARIS: Well, I think at the moment the private sector is not particularly interested in investing in Greece, in no small part due to the uncertainties surrounding Greece’s ability to meet its debt obligations and the uncertainty surrounding the willingness of the ECB and the IMF and European Commission to continue to support Greece.

Ultimately there’s going to have to be a deal struck with Greece’s creditors, I think, if we’re going to see a return of private investors to [incompr.] market in Greece. That’s just the reality that they confront. And in the absence of a deal that is satisfactory and sufficiently face-saving to both sides of this negotiation, I don’t think there’s any realistic prospect for funding from the private sector.

PERIES: Dimitri, one of the first of gestures by the new prime minister, Alexis Tsipras, was to go and meet with the Russian ambassador, making overtures towards Russia, and also denouncing the potential new sanctions against Russia that the European Union was proposing. Now, is this an attempt to perhaps have Russia’s assistance in addressing the debt?

LASCARIS: Well, I think there isn’t any–I don’t think there’s a significant appetite on the part of the Greek government to go hat-in-hand to the regime of Vladimir Putin, or any other regime, for that matter, and ask for some form of assistance that would create another dependency to replace the one that Greece is currently suffering from.

I think that that–my sense of it is that the opposition within the new Greek government to further sanctions on Russia is driven by their perception of what is actually happening on the ground in Ukraine. And what has happened on the ground in the Ukraine is that there has been effectively a coup d’etat, which was partially orchestrated by the E.U. and the United States. There has been evidence of this, incontrovertible evidence of this, which is little discussed in the Western media.

And the suggestion that the Russians are primarily to blame for the conflict in Eastern Ukraine that has resulted in thousands of deaths is a highly dubious one, frankly. And a lot of the responsibility has to lie on the hands–has to lie with the Ukrainian regime. In fact, Human Rights Watch, I believe, and The New York Times published evidence several months ago to the effect that that regime had used cluster bombs in Donetsk, a heavily populated area of Eastern Ukraine. And this potentially constitutes a war crime–again, something that’s little discussed in the Western media.

So I think that the Greek government is quite rightly saying, why are we imposing further sanctions on Russia? Why is nobody talking about imposing sanctions on the regime in the Ukraine? Are we in fact creating a constructive dialog that is diffusing the tensions in the Ukraine? Or are we heading towards a situation with potentially catastrophic consequences, where the West enters into direct military conflict with a nuclear-armed power that has shown no sign of backing down? Frankly, the position taken by the new Greek government is about the only rational position that any European leader as articulated in respect of the Ukraine crisis in the past few weeks, and I think that that was primarily the driver of their reluctance to go forward with further sanctions against Russia.

PERIES: Right. Dimitri, I thank you so much for joining us and look forward to your report tomorrow.

LASCARIS: Thank you very much. Talk to you soon, Sharmini.

PERIES: And thank you for joining us on The Real News Network.


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