Greek Deal Will Erode Sovereignty and Deepen Recession
Dimitri Lascaris says the deal is a collective punishment of the Greek people for supporting a party that attempted to moderate neoliberalism in Europe
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to the Real News Network. I’m Paul Jay.
We’re going to take a closer look at the deal struck between Greek Prime Minister Tsipras and the leaders of the Eurozone. Now joining us to deconstruct it is Dimitri Lascaris. Dimitri is a securities class action lawyer in Canada and the U.S. He previously worked as a corporate securities lawyers for a major Wall Street firm in New York and Paris. He’s also a board member of the Real News.
Thanks for joining us again, Dimitri.
DIMITRI LASCARIS, SECURITIES CLASS ACTIONS LAWYER IN CANADA: Thank you, Paul.
JAY: Okay, so give us the highlights of the deal and what you think of it.
LASCARIS: Well, let’s look first at the context in which this deal was struck. The referendum as we all know was held on Sunday of last week. Although there were numerous polls, none of them showed the no vote winning by anything close to the margin by which it won, which was 24 points. The biggest margin shown by any poll was 10 points. Most of them showed a razor-thin victory for the yes or the no side.
The government, much to everybody’s surprise after this resounding and rather courageous vote of the Greek people against the ultimatum of the Troika, submitted an offer after the surprising resignation of the ex-finance minister, Yanis Varoufakis, that was essentially worse than the ultimatum that the populace had directed them to reject. For example, it didn’t raise corporate taxes as much as had been proposed. It raised the VAT to a greater degree than the government had previously been willing to raise it. None of this was deemed to be adequate. There were other concessions that were made in this post-referendum offer. None of it was deemed to be adequate by the Troika.
And essentially, an ultimatum was issued to the Greek government. It really came via the ECB. And what the ECB said was in light of the fact that the no vote has prevailed and the offer has been deemed inadequate by the creditors, we are going to cut off liquidity assistance to the banks on Monday unless, and I’m paraphrasing here, there’s a strong political signal that a deal has been revived and is very much in the offing. That’s what the ECB said.
Then the press began to report on Friday of last week, for example there was an extensive report on this in CNBC, that unless the ECB actually increased, not simply refrained from withdrawing but actually increased its emergency liquidity assistance to the Greek banks on Monday, they would fail. Or at least, some of them would fail.
Well, it’s now past midnight on Monday. During the day the ECB announced that it was not increasing the liquidity assistance. It also announced that it was not going to withdraw it, either. And to my knowledge not a single Greek bank has failed.
But this was the context in which the negotiation occurred. There was a claim that the banking system was on the verge of failure on Monday absent the decision to raise liquidity assistance and that that would be conditioned upon there being in substance or in principle a deal.
So the Greek government is now entering these negotiations over the weekend under intense pressure. Principally because it appears to have engaged in little to no meaningful preparation for the possibility of a Grexit. And because of that and failure to strike a deal that would see further funding from the creditors would precipitate a banking collapse, and even the limited amount of money available under the capital controls would no longer be forthcoming. The banks wouldn’t have any money.
So under this intense pressure, Tsipras acceded to a set of terms at least in principle which are far worse than anything Greece has had to endure thus far, and certainly worse than what was on the table when the referendum was called.
The other thing–and I want to say it before we get into the substance of that, that many of these proposals–not these proposals but these demands of the Troika to which the Tsipras government has acceded, have to be adopted according to the demand of the Troika within three days. By Wednesday of this week.
Now, some of your listeners may recall that when the referendum was called, on eight days’ notice, the secretary general of the Council of Europe publicly and pointedly questioned whether that brief period of notice, eight days, was compliant with the rules of the Eurozone. Of the European Union, I should say, with respect to referendum. I haven’t heard a peep out of the secretary general of the Council of Europe ever since it emerged this morning that the government has committed to enacting sweeping legislation that will have a profoundly negative impact on the Greek population for years to come within the space of three days. Not a peep. Which suggests that his warnings about or his concerns were politically motivated. The secretary general’s concerns. But nonetheless, this is the commitment that’s been made.
What are they committing to do? They’re committing, amongst other things, to transfer into some sort of special purpose vehicle, a fund, the legal form of which is not yet known, 50 billion Euros worth of Greek state assets. The government–it was initially proposed that these assets would be transferred more or less to be held in trust by a subsidiary of Kreditanstalt fur Wiederaufbau, the KFW, as it’s known, the German Development Bank. I believe that Wolfgang Schauble, the German finance minister, sits on the board of that bank. May be its chairman, in fact. That created a significant amount of consternation, with good reason.
Ultimately that is not, apparently, going to be the case. There’s going to be some other fund set up. It’s going to be headquartered in Athens. The entity to which the assets were initially demanded to be transferred was headquartered in Luxembourg.
JAY: We did an interview earlier today. Again, there isn’t a lot of clarity about this. But it seems to me actually be the exact same institution, but its office in Athens.
LASCARIS: Well, that–whatever institution it may be. Merkel has said very clearly that the Greek government will not have control over these assets.
And if you think about it for a second, why would you set up a fund into which you would transfer $50 billion of state assets if the Greek government is going to control them? The Greek government already controls these assets. These are infrastructure assets, principally. They’re not going anywhere. They’re in Greece.
JAY: What are we talking about, here? We’re talking about islands and ports, and–.
LASCARIS: We’re talking about ports, we’re talking about the–I think it’s 14 regional airports. Apparently there’s a German company that’s quite interested in buying some or all of these regional airports.
JAY: And one of the things they’ve agreed to is to privatize the electrical company, which apparently was something they said they would never do.
LASCARIS: The electricity grid. That was the next thing I was going to talk about. Or mention as one of the assets that’s going to be transferred into this fund.
So these are all assets that, no matter how you structure this fund, they’re going to stay in Greece. They can’t physically be removed from Greece. The question is who’s going to control them till they’re monetized or liquidated, and the proceeds are then put to some use. And if they were simply going to be remaining within the control of the Greek government, as I said, there’d be no reason to set up this fund. And Merkel has said very clearly that she’s not going to set–she’s not going to tolerate a control of these assets by the Greek government.
And so the fact that the office is maybe physically situated in Athens as opposed to Luxembourg or some other non-Greek financial center is, from my perspective, completely immaterial. The only marginal benefit to the Greek government of placing the office in Athens is that, you know, you have dozens or perhaps hundreds of people employed by this fund who are going to be sitting in Athens rather than Luxembourg. And so there’ll be a few more jobs available to the Greek public, I suppose.
But the bottom line is it appears that the Greek government has acceded to this surrendering control over 50 billion Euros worth of key state infrastructure.
JAY: And also apparently have agreed to undo some of the laws they’ve passed, like the rehiring of the cleaners at the finance ministry, and so on.
LASCARIS: Yes. On the pretext that these laws would result in significant expenditures by the Greek government that were not within the very strict, suffocating confines of the terms of the so-called bailout to Greece.
JAY: Yeah, I’m not sure if it’s been specifically talked about, but that may also include closing down again the public broadcaster, the national public broadcaster.
LASCARIS: Right. I myself, I believe Michael Spourdalakis may have mentioned that yesterday when we talked to him. But I’ve not seen that as an explicit term of the bailout. I think what, I think the concern is that measures that have been taken since the government came to power that are increasing expenditure, one of which was the reopening of the broadcaster, obviously, would have to be undone in order to save that money. So it’s sort of more or less an implicit effect of the commitments the Greek government made over the weekend, actually this morning.
JAY: What are some other critical things that were agreed to that seems like they wouldn’t have been agreed to?
LASCARIS: Well, the pensions. One of the problems with this agreement that has been struck is there’s very little detail. And they’ve been, they’ve been admitting, as they must, that a great deal more negotiation remains to be done. So it’s hard to discern exactly what is intended by the demand on pensions.
But essentially what the statement of the creditors and the Greek government says is that they are going to, they must engage in ambitious reforms of the pension system that results in zero deficit spending on pensions. So what that appears to mean is, you know, there must be, it must rely–the pension system must rely on dedicated resources and must run a zero deficit.
If, in fact, that’s what is meant it could result in a gutting of the pension system. I don’t know myself. I’m not particularly knowledgeable about the dedicated sources to the extent to which the pension system in Greece relies upon dedicated sources. I know it because I’ve seen analyses of the pension assets that Greece has. And apparently they’re only sufficient to run the pension system for about 10 months. So the possible implication of this is that you would see far greater reductions in pensions than anything that has been discussed thus far.
And we’re talking about an environment in which pensioners, already 40-45 percent of them are living beneath the poverty line. And pensions have been slashed by an excess of 40 percent since the crisis hit in 2010.
JAY: What do you make of the argument that Syriza’s leadership did its best? It fought what it could within the mandate it had. The Greek people weren’t ready to leave the Eurozone, the mandate was negotiated as best you could, and they did as best they could. But the balance of forces was such that European finance and German finance simply were out to crush them, and they lost. They did their best and they lost. And at this point in the negotiations, Tsipras really had no choice.
LASCARIS: I think there’s some merit to that, to be fair to them. It is true–I don’t necessarily buy the narrative that, which we’ve heard repeatedly ad nauseum in the press, that the vast majority of Greeks want to remain in the Euro. And I think I got into that yesterday. I’m not going to repeat what I said when we talked to Michael Spourdalakis. I think it’s a much more complicated question than that.
But whatever Greeks may or may not want it is true that in the campaign leading up to the January election of the Syriza government, Syriza was quite clear, quite adamant, that its program was premised upon Greece’s continued inclusion within the Eurozone and had no intention of taking Greece out. So that’s true. They did not have the mandate to do that.
The problem though is when you’ve taken that card off the table, you are now in a position where there is very little room to maneuver. The government, the only way for the government to effectively liberate itself of this crushing debt and all the conditions that are attached to receiving the funding necessary to continue to service that debt is clearly in the current political environment, and probably for years to come, a default. A unilateral default by the Greek government which then forces the creditors to come to the table and negotiate a debt writedown.
And if you’re not–and that, however, would precipitate a collapse of the banking system. The ECB would stop supporting the Greek banking system. And then the Greek government would have to issue a parallel currency.
So if you’ve taken Grexit off the table, you’ve vastly diminished your leverage. Now, that’s fine. But then from my perspective, as someone who spends a lot of time negotiating, if you’re in a position of that nature you don’t engage in inflammatory negotiating tactics. As well-founded as your criticisms of your counterparts at the negotiating table may be, it may be that they’re blackmailing you, it may be that they owe you war reparations. It may be that they’re neoliberal fanatics.
And all of that is, in fact, true. But that’s not a tone that’s going to be particularly productive. And if you’re not prepared to pull out the little nuclear weapon that you may possess–we can all debate about how powerful a negotiating point that was for Greece. But if you’re taking that off the table you have to be much more modest in your objectives in the negotiation. You need to be up front with the electorate about the very limited degree to which you’re going to be able to relax the stringency of the austerity program. And I think there’s some criticism that ought to be leveled on the leadership of Syriza for not being particularly upfront with the Greek populace about the limited opportunities available for improving the situation in Greece given the fact that Grexit had been taken off the table.
And from my perspective what is particularly troubling about what happened is that June 30 became a very pivotal date in this entire discussion and negotiation, because June 30 was the date upon which the prior so-called bailout expired. And also there were some payments due to the IMF by June 30.
In May, Wolfgang Schauble, the German finance minister, essentially invited the Greek government to hold a referendum. That was not done. Rather, the Greek government held that referendum or called that referendum two days before the expiry of the bailout.
And I’m not particularly surprised that this caused tremendous anger on the other side of the table. I have absolutely no criticism to level at Syriza for going to the people and seeking a democratic mandate. The timing of it was problematic. It precipitated a harsh reaction from the ECB because the bailout expired, because the government in substance went into default on its IMF debt as of June 30. Then the Greek people had to deal with capital controls. They had to vote while dealing with the trauma of capital controls. Nonetheless 62 percent of the population voted oxhi.
But very, very significant damage has been done to the Greek economy. The strangulation of the financial system has undoubtedly caused the non-performing loans held by Greek banks to increase substantially. A lot of businesses will have gone bankrupt or will go bankrupt by the time these capital controls are lifted.
So the Greek banking system has been damaged, private enterprise has been damaged. The economy has basically ground to a halt. And what has been accomplished, the Greek people now must endure a bailout program that is far worse than anything they’ve had to endure to date. And I think rightly some criticism must be leveled on the Syriza leadership for this outcome.
JAY: All right. You’re on your way to Athens tomorrow, right?
LASCARIS: Yes. And to be honest, Paul, I’m not quite sure what to expect. A lot of things could happen in the next week. And we’ll be watching with great interest.
JAY: Well, parliament is supposed to pass the, or not pass or vote down, this agreement by Wednesday. People are expecting the vote to be on Wednesday. Although there’s a possibility it might even happen tomorrow, being Tuesday. The municipal workers have called for a strike. They’ve called for a general strike, I think. I’m not sure whether that’s really possible.
LASCARIS: Yes. On Wednesday, yes.
JAY: Well, I think that they–apparently if the parliament votes on Tuesday they may move the strike call to Tuesday.
LASCARIS: Yeah. And there have been other developments, too, within the party. The youth wing of Syriza issued a statement today in which it bitterly denounced the terms of the bailout. It didn’t, I would say, directly criticize the leadership of Syriza but it’s very clear that the youth wing is very unhappy with these terms and called for a protest to be held. The left platform has come out and denounced this deal. Apparently there’s a communist wing within Syriza that sometimes issues its own statements. It too has bitterly condemned the deal.
I think that this is almost certainly going to precipitate a very serious rupture in Syriza within the next several days. Probably the government has the votes to pass this legislation because of the support of the neoliberal parties with which it has now regrettably allied itself. But how this government survives much longer once it loses its majority, that’s entirely unclear.
JAY: Okay. Thanks very much for joining us, Dimitri, and you’ll be reporting for us from Athens about a little more than a day.
LASCARIS: Yep. Looking forward to it, Paul.
JAY: And thank you for joining us on the Real News Network.
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