IMF-Eurozone Deal Hailed as a Breakthrough, But No Relief for Greeks
Dimitri Lascaris, securities class actions lawyer, says the Troika is lending money with one hand and taking it back with the other, perpetuating the fiction that Greece’s debt is sustainable
SHARMINI PERIES: It’s the Real News Network. I’m Sharmini Peries coming to you from Baltimore. In the wee hours of Wednesday morning the Greek government and Euro Group trumpeted another bailout deal as a breakthrough. In a rare appearance on this matter, President of the Euro Group, Jeroen Dijsselbloem said this:
JEROEN DIJSSELBLOEM: On the package of all these major reforms that Greece had committed to last summer, we have now a full agreement, a lot of legislative work already being done by the Greek Government and the institutions will do a final check on that to look at the last legislative work and to see whether that’s all in agreement. So this is very good news. Already this part of the agreement of today is very good news because it shows that the program is fully back on track. Greece has done a lot, delivering a lot, and we’re making good progress there. I think it’s an important moment in the long Greek program. An important moment for all of us. Since last summer, where we had a major crisis of confidence between us, that confidence has begun to recover.
PERIES: Now joining me to discuss all of this is Dimitri Lascaris. Dimitri is a class action securities lawyer called to practice in the state of New York and the province of Ontario. Good to have you back on Greece, Dimitri.
DIMITRI LASCARIS: Thank you Sharmini.
PERIES: So Dimitri, in the wee hours of the night when they sent out a press release, you were up and you sent it to me. And I tried to read through it and it was absolutely incomprehensible, even for someone trained in economics. But being the securities class action lawyer that you are, please decipher this all for us.
LASCARIS: Well it’s very- remarkable statement. It’s not unlike the others you see coming from the Euro Group in regard to the bailout of Greece, or the so-called bailout of Greece. And one wonders where the language constitutes intentional obfuscation because it allows- it’s so incomprehensible to the average citizen it kind of allows governments in the Eurozone to make claims about what has been agreed to that may or may not withstand scrutiny. And the average citizen’s just not really in the position to test the veracity of those claims by parsing this language.
Now to understand what was said yesterday and what was not said, I think we have to- we have to explore a little bit the background of this. It’s really important to be able to have any chance of comprehending the statement that was made. You know, going back to my summer’s, many of our viewers will recall, there was an agreement struck in July of last year for a further bailout of 86 billion euros and this agreement imposed the harshest austerity terms yet on Greece. And it was entered into by the [inaud] government right after the population had rejected, by over 60%, a set of terms, bailout terms that were less onerous than those that were subsequently agreed to.
Now following that agreement, the 86 billion dollar accord, the 86 billion Euro accord, the first trench of money was paid to Greece, this is coming to Greece in bits and pieces, and what was decided last night was whether the second part of the, or the second trench should be paid to Greece. And it’s the, that’s in the amount of 10.3 billion Euros. And this is an amount of money that Greece is going to need to service its debts. If it doesn’t get the money, Greece would be unable to service its debts. And the announcement of last night is very clear, that that is what is to be done with this money. It’s going to come in 2 pieces; 7.5 billion euros are going to be paid to Greece in June. And the balance you know 2 to 3 billion euros will be paid after the summer. And that money is explicitly stated to be- to service the debt.
So basically the Troika is lending money with one hand and taking money with the other. This isn’t actually improving in any material way the- the position of the Greek people; it’s just perpetuating the fiction that Greece’s debt is sustainable. So on that very point, the key point of the sustainability of the debt, for months leading up to this meeting, the international monetary fund, which is one of the three members of the troika that has been lending money to Greece, began to make noises about the need for debt relief, because in the review of the IMF and just about anybody with half a brain, Greece will never be able to pay off this debt. And so initially the IMF, and it’s important to understand that the IMF is bound by it’s articles of agreement not to lend money to a state that is clearly unable to pay, which is precisely what it has been doing.
And so it’s losing credibility. Members of the IMF who aren’t necessarily onboard with the neo-liberal agenda, particularly from developing states, resent the fact the IMF is lending this money to a state that’s clearly insolvent, so under that pressure, the staff of the IMF began to demand that there be debt relief for Greece, and initially, quite properly in my view, the IMF demanded that the debt relief be in the form of a write-down. So basically a very large proportion of Greece’s huge debt pile would just be forgiven and the creditors would take a loss, a very substantial loss on those loans.
But Wolfgang Schäuble, the German Finance Minister, and others- other finance ministers from Eurozone countries, ruled that out categorically. So in the days leading up to this meeting, this Euro Group meeting yesterday, effectively the IMF capitulated and said okay, we’re not going to demand a debt write-down. And this announcement they issued last night says very clearly that there isn’t going to be a debt write down. So what the IMF did was within 48 hours of the meeting yesterday it issued a new debt sustainability analysis for Greece or DSA. And in it, it said okay- effectively what it said was you know, using it’s technical jargon, you’re not going to give Greece a debt write down, but there are alternative measures that will need to be taken to render Greece’s debt sustainable. And there’s alternative measures, are 3 in number. First, there are going to have to be very substantial extensions of the maturity on the debt, on Greek debt. So the period of time over which would be permitted to pay back the debt would be lengthened very substantially.
The second component, and the IMF said very clearly, that’s not nearly enough to make Greece’s debt sustainable. They then said the second thing you’re going to have to do is you’re going to have to defer payments, for periods of up to 20 years. So Greece would not be making any payments at all on substantial portions of this debt. And then finally and this was perceived by many I think rightly to be the biggest debt relief measure, the IMF said that you’re going to have to fix the interest rates, cap the interest rates payable on Greece’s debt at 1.5%. It said if you do all of these things and everything goes according to plan, then Greece’s debt would likely be sustainable. But then it went on and said, you know, if there are any shocks and it described for example the situation in which Greece’s growth over the longer term is very weak- that’s what it characterizes as a shock, weak as in the range 1%, then even these 3 measures, even if they were all taken, would not be sufficient to render Greece’s debt sustainable.
So even if those 3 measure are taken, that’s by no means any guarantee that Greece is going to eventually be able to pay off it’s debt. And one other key thing from a debt sustainability analysis is the IMF very clearly dismissed the notion that Greece could achieve a budget surplus of 3.5%. It said that unequivocally that they just didn’t buy, that it was unrealistic, and that is a key part of the program that Greece has been required to undergo in order to receive this additional bailout. And in fact the IMF said even a 1.5% budget surplus, and these are the exact words of the IMF, is quite optimistic.
Okay, so this now, this is the background in which this statement by the Euro Group is issued. What does the statement say? First of all, it’s very important to, not only does it rule out unconditionally debt write-downs, but whatever debt relief it talks about, is conditioned upon Greece’s successful completion of the program, which means Greece would primary budget surplus of 3.5%. The IMF just said that’s a pipe dream. And even 1.5% is quite optimistic. So to the extent that this announcement contains any commitment at all to debt relief by the European creditors- the condition upon which that commitment is based is so unrealistic that it’s very likely that the European creditors are never going to be under any obligation to issue any sort of debt relief to Greece whatsoever.
But let’s suppose, let’s just operate in a fantasy world for a moment and imagine that Greece is going to achieve the primary budget surplus of 3.5%, well even then the announcement doesn’t say precisely what the debt relief will be. It does talk about potentially extending maturities. It talks about potentially capping the interest rate, at what level it doesn’t say. It talks about potentially there being additional grace periods on the payment of debt, in fact a debt holiday. But we don’t know what those precise measures will be. The measures are not going to be decided until 2018 if there are any at all. And in 2018 of course by that point in time, there will have been a German election. We may have government in place in Germany, which is even more hostile to debt relief for Greece. All of this is of course is condition, as I said, on the successful completion of the program by 2018.
And so when I add it all up and you cut through all the technical jargon, Sharmini, what you have here is smoke and mirrors, in my view. The Greek people have not been given any assurance of meaningful debt relief. There’s absolutely no guarantee, not even close to a guarantee, that the debt will ultimately be rendered sustainable, and it is really unconscionable for the Greek government to be running around, as it has begun to do predictably and to talk about this as being some sort of a breakthrough and some sort of a great victory for the Greek people. It’s none of those things. And I really don’t see any light at the end of the tunnel at all as a result of yesterday’s negotiations for the Greek people.
PERIES: Dimitri, much of this is being portrayed to us as now a debate between the IMF and the EU Group lenders, but even what the IMF is proposing according to Hudson, that’s Michael Hudson that was on this topic earlier this week, it is problematic for Greece as you have just outlined here. But let’s take the analysis up in the next segment.
PERIES: Thank you for joining us for now, Dimitri.
LASCARIS: Thank you, Sharmini.
PERIES: And thank you for joining us on The Real News Network.
SHARMINI PERIES: Welcome back. I’m speaking with Dimitri Lascaris about the Greek debt crisis and the most recent announcement made by the Euro Group. And please watch segment 1 if you haven’t. Segment 2 is going to be about what the IMF is laying out. So Dimitri, the IMF is looking like the good guys here in terms of the Greek debt crisis and the negotiations underway with the Euro Group. What is it that the IMF is actually laying out here?
DIMITRI LASCARIS: Well the press has been focused upon the fact the IMF has been calling for debt relief for months. That sounds like a rather humane thing to do to an economy that has been battered by austerity for 5 or 6 years. But the part of the equation that the mainstream media is leaving out of course is that the IMF remains an enthusiastic cheerleader for the austerity program itself. And in fact even, you know, all of its calls for debt relief have been coupled with an insistence that Greece continue- the Greek government continue to toe the line and continue to implement further austerity measures on the Greek people.
And this is precisely what the Cidesa government has been doing at the demand of the IMF and the other creditors, the ECB, and the EC, and what- for example the Cidesa government enacted in just the last month, it implemented further cuts to pensions, and a revamping of the income tax system such the government reduced it’s expenditures by 3.6 billion euros. This past weekend it was forced, the government, to pass measures that involve new taxes on alcohol, tobacco, fuel, internet usage, cars, hotel stays, and it also increased the basic value added tax from 23% to 24%. And in addition, the IMF was perfectly happy to see this rather radical and brutal measure implemented. The government agreed to legislate automatic spending cuts over and above those that I just identified, and that have already been implemented. In the event that Greece doesn’t achieve its targets, the-what remains of the left wing of Cidesa [inaud] was adamant that it was not going to exceed to automatic spending cuts being drafted into law.
But at the 11th hour as Cidesa [inaud] has demonstrated a wonderful talent to do, it capitulated yet again, and these automatic spending cuts were legislated. So you can imagine what will happen now. Greece is unlikely [inaud] precisely because of the austerity which will result in automatic spending cuts and further contraction in the economy which will render all of Greece’s debt even less sustainable than it already is. The IMF is an enthusiastic cheerleader of all of that. And that’s not to be forgotten. So even if the IMF had achieved something meaningful, and I don’t think it did yesterday in terms of debt relief commitments from the European Creditors, it still remains a major part of the problem because it is- it remains a devotee of this failed philosophy of austerity.
PERIES: Now Dimitri, there’s been weeks of protests in Greece not to mention years now, but recently there was a general strike and it’s very clear that the people who are suffering the consequences of these measures in Greece do not accept these terms and in an interview that Michael Hudson did with us, he said this is financial warfare. And Greece is being asked to give up their ports, their pensions, their properties, not to mention all the things that you just said. How are the Greek people fairing in all of this and is there any way in which the voices of the Greek people are going to be heard in these negotiation exercises that are going on?
LASCARIS: You know, I remember last summer, Sharmini, when we were covering the crisis in Greece in July, an activist there told me, as I recall that there had been more general strikes in Greece during the austerity program than there had been in all the rest of Europe combined during that period. You know, Greece of course, just constitutes a very small part of the Euro Zone. You know, initially there was a honeymoon period for the Cidesa[inaud] government when it became clear the Cidesa government was going to oppose even harsher austerity on the Greek people than it’s predecessors, the Greek people took to the streets again and they have been striking one day after another. They’ve been shutting down ports. Shutting down the transportation system. You know, there have been riot police in the streets again, the use of tear-gas again.
I must say that the resistance in the street does not appear to be having any effect whatsoever on government policy or the attitude of the troika towards the Greek people and you know, if- for there to be a meaningful change on the ground in Greece, either Greece is going to have to exit the Euro Zone, which is itself a path that is fraught with danger, or there’s going to have to be a broad base change in the politics of the Euro Zone, which means their going to have to be leftist, generally progressive governments coming to power in major states within the Euro Zone, like France, like Italy, like Spain- states that have significantly more heft than Greece has because of the size of their economies. Only then are we going to see relief for the people of Greece, otherwise this process of effectively keeping the Greek economy barely alive just enough to keep it servicing the debt with the assistance of further loans of the troika will go on and on.
And the Greek economy will be hollowed out over time. Even as things stand now, there’s a question about whether it can ever recover because there’s been a massive brain drain. There’s been huge exodus from the country of well-educated youth. The healthcare system is in disarray. Infrastructure is collapsing. So you know, I don’t even know now whether the country can ever recover and re-discover that economy that it had before the austerity program began. I think we really need ultimately board-based political change within the Euro Zone.
PERIES: And the worst hit of course, the pensioners and people just struggling to keep their families fed as a result. Can you tell us a little bit more about the impact this is having on pensioners and the lowest economic class in Greece?
LASCARIS: Well you know, as I said you know, the unemployment rate remains at 26% for the general population. For the youth I believe it remains well in excess of 50%. You know, one thing that has helped the Greek people to survive- you know many of course have become homeless. There’s been a sharp increase in the suicide rate. Not all of them have survived or at least have continued to maintain a decent life. Many do not, have not survived, or do not have a decent lifestyle. But what has allowed a surprisingly large percent of the population to avoid complete catastrophe is that- the social bonds and the family bond within the society. And a lot of pensioners have been using their pensions to support their entire families. You know, adult children have been living with their parents and those pensions have been a lifeline. That’s been the main reason in Greece that pensions are basically the main form of social support.
They don’t have the other types of social support that you see in countries like France for example, like Canada. So those pensions are critically important to keeping many people above the line of poverty. And slowly they’re being whittled away. So that even that form of support is disappearing gradually. And I think if this process continues you’re going to see further increases in unemployment, further increases in the suicide rate, in homelessness. And at some point the society might just break down altogether and become a failed state. That’s a real danger at this stage. There’s no indication that the Euro Zone, that Greece’s creditors are even cognizant of that danger or if they are cognizant of it that they care. And so basically we need new political leadership in Europe in order to prevent that disastrous outcome from ultimately coming to pass.
PERIES: Alright, Dimitri, so much more to talk about- the magnitude of the problem as a result of the refugees that Greece is also processing at this time. But we will continue this discussion on The Real News. Thanks so much for joining us.
LASCARIS: Thank you, Sharmini.
PERIES: And thank you for joining us on The Real News Network.
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