Russell Lee Street scene. Spencer, Iowa 1936
Maybe they could try and make it a little less obvious?
Defying all expectations, China’s GDP grew 7% in the second quarter—least according to the official charade. Electricity use and assorted proxies of industry suggest that it very probably didn’t grow that fast. But here’s the chart, including the official growth rate and the annualized measure used by most advanced economies, anyway: It is an official charade because China’s GDP has long been recognized as a distorted measure of the country’s economic growth. The value “created” in the country’s economy is inflated by the fact that a good chunk of the stuff bought and built in China it isn’t worth the official sticker price. This is thanks to the government’s “implicit guarantee” of any investments that are political priorities.
This gives investors, both corporate and individual, the confidence that the government will bail out any inconvenient losses. It encourages banks and individual savers alike to lend to wasteful projects, as long as an official imprimatur is looped in somewhere. It lets lenders accept these unprofitable projects at face value as collateral for more loans. And thus, debt begets more debt—China’s nearly quadrupled from 2007 to mid-2014, to $28 trillion, McKinsey calculates. Outstanding loans using property as collateral now add up to 22 trillion yuan—about 40% of the total—according to Fitch, the ratings agency. That’s about five times what they were in 2008. In a way, China’s quarterly GDP announcement is the meta-example of the implicit guarantee creating a moral hazard.
The Chinese government is the only major economy to set GDP growth targets each year. Throughout the year, government officials and the state press reiterate, or talk down, that GDP growth target depending on the political agenda. In decades past, these signals let local officials know how recklessly they should invest, or how brazenly they should lie about the results. Report dazzling growth, get a promotion. Leave nose-bloodying interest payments for the next guy to worry about. That’s changing now, as the Xi Jinping administration tries to “rebalance” the economy away from the dangerous investment binge its policies have encouraged. Those promotion targets are, as a result, generally getting more sophisticated and holistic, rather than focusing on eye-popping numbers; the Shanghai government has even scrapped the targets as a factor altogether. Yet the government still does the whistlestop target tour—for instance, premier Li Keqiang announced in early July that China will hit its 7% growth target for this year.
Singapore GDP fell 4.6% in Q2.
Singapore is the closest thing Asia has to an economic barometer. Its highly open, trade-reliant economy usually signals when trouble is approaching the global stage. And at the moment, Singapore is flashing clear warning signs. The city-state’s GDP plunged 4.6% last quarter, a downturn almost certainly triggered by China. Singapore’s plight may mark a dangerous inflection point not just for Asia, but for the entire global economy. After the 2008 global crisis, China’s 9%-plus growth picked up the slack from a West licking its financial wounds. But as Asia’s biggest economy cools, officials from Seoul to Brasilia are finding themselves without a reliable growth engine. Uneven recoveries in the U.S. and Europe have already slowed the exports that power most Asian economies, including Japan. China’s downturn could now throw Asian manufacturing into reverse.
Morgan Stanley’s Ruchir Sharma warns that “the next global recession will be made by China.” The balance of data – including Singapore’s abrupt shift toward recession – suggests China isn’t growing anywhere near this year’s 7% target. Shanghai’s day traders celebrated this week’s news that Chinese exports rose 2.1% in June. The more interesting figure, though, was the 6.7% decline in Chinese imports. That helps explain the stunning 14% drop in Singaporean manufacturing from the previous three months. The same goes for Singapore’s non-oil exports to China, which fell 4.3% in May, 5.1% in April and plunged 22.7% in February. With Singapore’s economy contracting the most since the third quarter of 2012, its government has to act fast.
It may be time for another surprise monetary easing (the central bank last engineered one in January). Fiscal stimulus may also be necessary. “The global outlook remains challenging and far less positive than the picture” four months ago, says economist Hak Bin Chua of Bank of America Merrill Lynch. “China’s slowdown, the Greece crisis and weaker growth in the immediate neighborhood of southeast Asia, including Indonesia, Thailand and Malaysia, will likely dampen growth.” The downturn in China, Asia’s main customer, will loom especially large. For now, many investors in the region are still bullish about Beijing’s efforts to gin up both GDP and stocks. But even the good news on China these days is worrisome. Take its surge in credit growth in June ($300 billion), the most since January. While it’s helping to stabilize the economy in the short run, it’s also inflating China’s debt bubble in sync with its asset bubbles in Shanghai and Shenzhen.
“The decision by the ECB to force the closure of the Greek banks [..], appears to have cost European taxpayers very large sums of money.”
The IMF has set off a political earthquake in Europe, warning that Greece may need a full moratorium on debt payments for 30 years and perhaps even long-term subsidies to claw its way out of depression. “The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date,” said the IMF in a confidential report. Greek public debt will spiral to 200pc of GDP over the next two years, compared to 177pc in an earlier report on debt sustainability issued just two weeks ago. The findings are explosive. The document amounts to a warning that the IMF will not take part in any EMU-led rescue package for Greece unless Germany and the EMU creditor powers finally agree to sweeping debt relief.
This vastly complicates the rescue deal agreed by eurozone leaders in marathon talks over the weekend since Germany insists that the bail-out cannot go ahead unless the IMF is involved. The creditors were aware of the IMF’s report as early as Sunday, yet choose to sweep it under rug. Extracts were leaked to Reuters on Tuesday, forcing the matter into the open. The EMU summit statement vaguely mentions “possible longer grace and payment periods”, but only at later date, and only if Greece is deemed to have complied with all the demands. Germany has ruled out a debt “haircut” altogether, claiming that it would violate Article 125 of the Lisbon Treaty. The IMF said there is no conceivable chance that Greece will be able to tap private capital markets in the foreseeable future, leaving the country entirely dependent on rescue funding.
It claimed that capital controls and the shutdown of the Greek banking system had entirely changed the picture for debt dynamics, an implicit criticism of both the Greek government and the eurozone authorities for letting the political dispute get out of hand. The decision by the ECB to force the closure of the Greek banks two weeks ago by freezing emergency liquidity assistance (ELA), appears to have cost European taxpayers very large sums of money.. The IMF said the Europeans will either have to offer a “deep upfront haircut” or slash the debt burden by stretching maturities and presumably by lowering interest costs. “There would have to be a very dramatic extension with grace periods of, say, 30 years on the entire stock of European debt,” it said. Debt forgiveness alone would not be enough. There would also have to be “new assistance”, and perhaps “explicit annual transfers to the Greek budget”.
This is the worst nightmare of the northern creditor states. The term “Transfer Union” has been dirty in the German political debate ever since the debt crisis erupted in 2010. The underlying message of the report is that Greece is in such deep trouble that it cannot withstand further austerity cuts. This is hard to square with the latest demands by EMU creditors for pension cuts, tax rises, and fiscal tighting equal to 2pc of GDP by next year. Nobel economist Paul Krugman said the cuts are macro-economic “madness” in these circumstances.
“Under this plan, Greece would make no more debt payments until Justin Bieber is 59 years old.”
It reads like a dry, 1,184-word memorandum about fiscal projections. But the IMF’s memo on Greek debt sustainability, explaining why the IMF cannot participate in a new bailout program unless other European countries agree to huge debt relief for Greece, has provided the “Emperor Has No Clothes” moment of the Greek crisis, one that may finally force eurozone members to either move closer to fiscal union or break up. The IMF memo amounts to an admission that the eurozone cannot work in its current form. It lays out three options for achieving Greek debt sustainability, all of which are tantamount to a fiscal union, an arrangement through which wealthier countries would make payments to support the Greek economy. Not coincidentally, this is the solution many economists have been telling European officials is the only way to save the euro — and which northern European countries have been resisting because it is so costly.
The three options laid out by the IMF would have different operations, but they share an important feature: They involve other European countries giving Greece money without expecting to get it back. These transfers would be additional to the approximately €86 billion in new loans contemplated in Monday’s deal. “Wait a minute,” you might say. “The IMF isn’t calling for a fiscal union; it’s calling for debt relief.” But once a debt relief program becomes big enough, this becomes a distinction without a difference; they’re both about other eurozone countries giving Greece money. Indeed, one of the debt relief options proposed by the IMF is “explicit annual transfers to the Greek budget,” that is, direct payments from other governments to Greece, which it could use to make its debt payments. This, obviously, is a fiscal union.
A second option is extending the grace period, during which Greece would be relieved of the obligation to make interest or principal payments on its debt to European countries, through the year 2053. That’s not a typo. Under this plan, Greece would make no more debt payments until Justin Bieber is 59 years old. This is a fiscal union by another name, since those lengthy and favorable credit terms would save the Greeks money at the expense of Greece’s creditors, most of which now are other European governments or the IMF. The third option floated by the I.M.F., a cancellation of a portion of Greece’s debts, has been fiercely resisted by the German government, even though this is the option that least obviously constitutes a continuing fiscal union. Debt cancellation is a one-time fiscal transfer (if I lend you $100 and then forgive the debt, that’s much like me simply giving you $100), but at least in theory it would be done only once, with Greece expected to stand on its own otherwise. The important exception is that Greece would still need to rely on European governments to lend it money at favorable rates, though not quite as favorable as under the Old Bieber scenario.
Second time Europe withholds an IMF assessment report from negotiations.
Greece will need far bigger debt relief than euro zone partners have been prepared to envisage so far due to the devastation of its economy and banks in the last two weeks, a confidential study by the IMF seen by Reuters shows. The updated debt sustainability analysis (DSA) was sent to euro zone governments late on Monday, hours after Athens and its 18 partners agreed in principle to open negotiations on a third bailout program of up to 86 billion euros in return for tougher austerity measures and structural reforms. “The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date – and what has been proposed by the ESM,” the IMF said, referring to the European Stability Mechanism bailout fund.
European countries would have to give Greece a 30-year grace period on servicing all its European debt, including new loans, and a very dramatic maturity extension, or else make explicit annual fiscal transfers to the Greek budget or accept “deep upfront haircuts” on their loans to Athens, the report said. It was leaked as German Finance Minister Wolfgang Schaeuble disclosed that some members of the Berlin government thought Greece would have been better off taking “time-out” from the euro zone rather than receiving another giant bailout. IMF managing-director Christine Lagarde attended weekend talks among euro zone finance ministers and government leaders that agreed on a roadmap for a new bailout.
An EU source said the new debt sustainability figures were given to euro zone finance ministers on Saturday and were known by the leaders before they concluded Monday’s deal with Athens. The IMF study said the closure of Greek banks and imposition of capital controls on June 29 was “extracting a heavy toll on the banking system and the economy, leading to a further significant deterioration in debt sustainability relative to what was projected in our recently published DSA”. European members of the IMF’s executive board tried in vain to stop the publication of that earlier study on July 2 just three days before a Greek referendum that rejected earlier bailout terms, sources familiar with the discussions told Reuters.
It wouldn’t take that long with the drachma.
An IMF study published on Tuesday showed that Greece needs far more debt relief than European governments have been willing to contemplate so far, as fractious parties in Athens prepared to vote on a sweeping austerity package demanded by their lenders. The IMF’s stark warning on Greece’s debt came as Prime Minister Alexis Tsipras struggled to persuade deeply unhappy leftist lawmakers to vote for a package of austerity measures and liberal economic reforms to secure a new bailout. In an interview with state television, he said that although he did not believe in the deal, there was no alternative but to accept it to avoid economic chaos. The IMF study, first reported by Reuters, said European countries would have to give Greece a 30-year grace period on servicing all its European debt, including new loans, and a dramatic maturity extension.
Or else they must make annual transfers to the Greek budget or accept “deep upfront haircuts” on existing loans. The Debt Sustainability Analysis is likely to sharpen fierce debate in Germany about whether to lend Greece more money. The debt analysis also raised questions over future IMF involvement in the bailout and will be seen by many in Greece as a vindication of the government’s plea for sweeping debt relief. A Greek newspaper called the report, which was initially leaked, a slap in the face for Berlin. Late on Tuesday, a senior IMF official, who spoke on condition of anonymity, said, “We have made it clear … we need a concrete and ambitious solution to the debt problem. “I don’t think this is a gimmick or kicking the can down the road … If you were to give them 30 years grace you are allowing them in the meantime to bring down debt by … getting some growth back.”
German Finance Minister Wolfgang Schaeuble said in Brussels on Tuesday that some members of the Berlin government think it would make more sense for Athens to leave the euro zone temporarily rather than take another bailout. The Greek Finance Ministry said it had submitted the legislation required by a deal Tsipras reached with euro zone partners on Monday to parliament for a vote on Wednesday. Assuming Athens fulfils its end of the bargain this week by enacting a swathe of painful measures, the German parliament is due to meet in a special session on Friday to debate whether to authorize the government to open new loan negotiations.
“The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date – and what has been proposed by the ESM,” the IMF said, referring to the European Stability Mechanism bailout fund. An EU source said euro zone finance ministers and leaders had been aware of the IMF figures when they agreed on Monday on a roadmap to a third bailout.
In the interview on Greek state television, Tsipras defended the deal he signed up to, saying it was better than the alternative of being forced out of the euro zone. He said banks, closed for the past two weeks to prevent a flood of withdrawals that would collapse the banking system, would reopen once the deal had been fully ratified by parliaments in Greece and other European countries. Tsipras could not conceal the bitterness left by last weekend’s acrimonious euro zone summit. “The hard truth is this one-way street for Greece was imposed on us,” he said.
Very good from Ellen. And her conclusion is real positive for Greece.
The creditors may have won this round, but Greece’s financial woes are far from resolved. After the next financial crisis, it could still find itself out of the EU. If the Greek parliament fails to endorse the deal just agreed to by its president, “Grexit” could happen even earlier. And that could be the Black Swan event that ultimately breaks up the EU. It might be in the interests of the creditors to consider a debt jubilee to avoid that result, just as the Allies felt it was in their interests to expunge German debts after World War II. For Greece, leaving the EU may be perilous; but it opens provocative possibilities. The government could nationalize its insolvent banks along with its central bank, and start generating the credit the country desperately needs to get back on its feet.
If it chose, it could do this while still using the euro, just as Ecuador uses the US dollar without being part of the US. (For more on how this could work, see here.) If Greece switches to drachmas, the funding possibilities are even greater. It could generate the money for a national dividend, guaranteed employment for all, expanded social services, and widespread investment in infrastructure, clean energy, and local business. Freed from its Eurocrat oppressors, Greece could model for the world what can be achieved by a sovereign country using publicly-owned banks and publicly-issued currency for the benefit of its own economy and its own people.
“..on both sides of the Greek political class there is cognitive dissonance, and it’s being generated by the same thing: a blindness to what the Euro has become.”
It’s easy to get drawn in to the detail. I spent some of yesterday in the hot corridors of the Greek parliament where the various factions and groupings within Syriza, the radical left party, were working out their postures on today’s vote. No to the rescue deal, says the left. Abstain, say others. Vote yes while declaring it’s been done at gunpoint, says Alexis Tsipras in a live TV interview. But step away from the argument, bitter as the black coffee served in the parliament’s canteen, and the bigger picture is: the deal will pass, Syriza will vote for it. Step back further and take in the implications of the IMF’s secret report, leaked yesterday, into the dynamics of Greece’s debt. The IMF says – after the weeks of dislocation caused by the relentless bank run and the capital controls – that the austerity deal is pointless.
Greece needs a massive debt write-off or large upfront transfers of taxpayers money from the rest of Europe. It needs a 30 year grace period in which it will stop repaying the loans. Yet the entire deal done on Sunday night was premised on not a single cent worth of debt relief. Vague commitments to “reprofile” debt – pushing repayment times backwards and lowering the interest rates – were all Angela Merkel could be persuaded to do. What this means is very simple: the third bailout agreed in principle on Sunday night is doomed to fail. First because the IMF cannot sign up to it without debt relief; second because, without debt relief it will collapse the Greek economy. This is even before you factor in issues like mass resistance to its details, or the total lack of enthusiasm for execution of the deal by the Syriza ministers who will have to do it.
But on both sides of the Greek political class there is cognitive dissonance, and it’s being generated by the same thing: a blindness to what the Euro has become. The Greek centre and centre right will keep Syriza in power today on the grounds of being good Europeans. Syriza will vote for a deal it opposes, and which anybody who’s read even a summary of the IMF report now understands is doomed. Again on the grounds that it is demonstrating commitment to Europe and that, as Alexis Tsipras argues, “rules out Grexit”. The implication of the IMF report is that Grexit is inevitable. Without debt relief the Greek debt to GDP ration will rise to 200%. It will be using 15% of its GDP simply to make interest payments and payments coming due.
“..it tells you that the plan that was agreed is unworkable..”
As U.S. Treasury Secretary Jack Lew jets into Europe to urge policymakers to keep the Greek rescue on track, there are fears that the IMF has derailed country’s third bailout. Lew is expected to visit Frankfurt, Berlin and Paris over the next two days for talks on Greece with senior financial officials, including the President of the ECBMario Draghi and finance ministers of France and Germany. His trip comes at a crucial moment in the Greek crisis, with the country’s parliament due to vote later Wednesday on wide-reaching reforms and spending cuts. Meanwhile, the IMF stirred already tense relations between Greece and its creditors, which had just agreed to open talks on a 86 billion euros bailout, by saying on Tuesday that Greek debt relief was essential.
The IMF study, first reported by Reuters, showed that Greece needed far more debt relief than European governments were willing to consider. According to the news agency, European countries would have to give Greece a 30-year grace period on servicing all its European debt, including new loans, and a dramatic maturity extension. Otherwise, Europe had to accept “deep upfront haircuts” on existing loans. It’s not the first time the IMF has called for debt relief over Greece, somewhat ironically, given that Greece missed a 1.6 billion euro loan repayment to the Fund last month and another €456 million due earlier this week. Eyebrows have been raised over the timing of the study’s release, coming a day before the deadline imposed on the Greek parliament to pass legislation on reforms.
Analysts said the IMF’s advocacy of debt relief could now be a deal-breaker. Moreover, the IMF has already reportedly signaled it could walk away from putting 16.4 billion euros of its own funds into a third bailout without some kind of debt relief, according to an IMF memo sent to European leaders last weekend and reported by the Financial Times on Wednesday. “It’s very interesting that the IMF has weighed in ahead of this vote,” Adam Myers, European Head of FX Research, told CNBC Wednesday. “When one of the creditors that is on the hook for 25% of the total bailout, says there needs to be an extension (of maturities) of that magnitude, it tells you that the plan that was agreed is unworkable.
The IMF also messed up hugely.
Olivier Blanchard has, with his customary clarity and candor, addressed criticisms of the IMF’s role in Greece’s financial rescue. His is a personal statement. But in writing it, he also presents the IMF’s operating philosophy and mandate. Blanchard’s statement will, therefore, not only shape our thinking on the evolution of the Greek crisis but it could define how we view the proper role of the IMF. His blog post deserves careful reading and consideration. The critics, he says, complain that “The [official] financing given to Greece was used to repay foreign banks.” But that, Blanchard insists, is not the right way to think of it. Memories of the post-Lehman meltdown were still fresh. The risks of contagion were real, or were perceived to be real, and there were no firewalls to contain those risks. That is certainly the official view. But is it right?
While a moment of great uncertainty, it was also a time for new ideas and initiatives. Barely 10 days after the Lehman fiasco, Washington Mutual Bank became the largest ever bank to fail in the United States and the U.S. authorities forced the creditors and equity holders to bear all the losses. The IMF, in contrast, went in the opposite direction, overriding its well-founded principle that the distressed country’s debt must be reduced to a “sustainable” level. In the Greek case, debt reduction required imposing losses on creditors. To the fear of contagion, a simpler solution—with much lower costs to all—would have been for the French and German authorities to stuff their banks with cash so that they were protected from the losses on their Greek debt holdings.
If even with these efforts, the risk of a wild-fire contagion could not be eliminated, then the question should have been who should bear the burden of preventing the contagion. An IMF paper that bears Blanchard’s name lays out the principle by which Greece should have been compensated—with a financial grant (not a loan)—for agreeing to hold on to its unsustainable debt burden in the interest of limiting losses on others. The IMF paper says:
“[…] there may be circumstances where any form of debt restructuring … would be considered problematic from a contagion perspective. […] in these cases, sustainability concerns could be addressed not through a debt restructuring but through concessional assistance [the official euphemism for financial grants] provided by other official creditors.
The argument is that contagion is a global problem and the global community should share the cost of preventing contagion. Absent such burden-sharing, it is an arithmetical matter that the austerity required on Greece was much greater than it would otherwise have been. And before the terms of the official loans were finally eased, the wind was knocked out of the Greek economy. The critics, Blanchard says, are not right to complain that “The 2010 program only served to raise debt and demanded excessive fiscal adjustment.” Fiscal austerity, he insists, was not a choice, it was a necessity. He makes a strange claim:
“Had Greece been left on its own, it would have been simply unable to borrow. … Even if it had fully defaulted on its debt, given a primary deficit of over 10% of GDP, it would have had to cut its budget deficit by 10% of GDP from one day to the next.”
Surely, that is a non-sequitur. No one has proposed that the alternative would have been to leave Greece “on its own.” That is not what the IMF does. The process requires the creditors to bear losses and the IMF simultaneously provides temporary financing. Both help to ease the pace of fiscal austerity.
It could be a chapter in an economics textbook: What happens when severe austerity is imposed on an economy that’s already lost a quarter of its output? Greece will find out how bad it could be. The package of measures that Tsipras was strong-armed into agreeing to early Monday after an all-night summit with euro leaders requires pension curbs and tax increases, with no promise of debt relief. To prove his commitment to reforms, Prime Minister Alexis Tsipras must pass those measures through parliament as early as Wednesday. The country’s economic slump has already saddled it with a 26% unemployment rate as previous governments implemented budget cuts at the behest of creditors, and output may fall by 10% this year.
The IMF admitted in a report two years ago that it underestimated the recessionary impact of the original 2010 bailout plan. “If there’s a permanently horrible business environment it just prolongs the agony,” said Gabriel Sterne at Oxford Economics in London. “It already is one of the worst post-crisis output performances ever apart from uber-commodity slumps and wars.” Greece could also see a rerun of the kind of civil strife seen in central Athens up to 2012 during parliamentary votes on budget bills. While protests in recent weeks, both for and against a deal with creditors, have been peaceful, minor scuffles have broken out with riot police at rallies organized by anarchist groups. Public sector workers are set to strike on Wednesday, indicating the first general strike since November might follow.
The prime minister has one hope, says Constantine Michalos, president of the Athens Chamber of Commerce and Industry: Succeed where previous governments failed and fully implement the market-opening reforms that were also part of the package Tsipras agreed to keep his country in the euro. The seven-page statement issued at the end of the summit, which lists measures Greece must take before funds can be released for its cash-starved economy, begins with the need for “ownership” of the program by Greek authorities.
They won’t get anywhere near €50 billion. But Greece would still lose the assets. They should never ever say yes to that.
The Acropolis is not for sale, but other valuable Greek assets might be. The Greek government agreed to transfer up to €50 billion worth of assets to an independent fund as part of the $96 billion bailout deal with Europe. The trust’s goal will be to generate cash by either selling these assets or by turning them around into money-making enterprises. The program must be approved by the Greek parliament by Wednesday if Greece wants to receive any additional bailout money. Greek banks, electrical and utility companies, airports and ports are likely to be included on the list of assets, as are some tourist resorts and land developments currently owned by the government.
The partly state-owned telecommunications company OTE, Greece’s Public Power Corporation, and the Independent Power Transmission Operator (ADMIE) are among the enterprises the government might put up for privatization. Previous governments were also looking at selling its 35.5% stake in the Hellenic Petroleum, which operates three refineries in Greece, and its 90% stake in the Hellenic Post. The idea to sell Greek assets to raise funds is not new. A series of privatizations was among the conditions of Greece’s previous bailout agreements. But the process did not run smoothly and raised far less than the government had hoped for. “The privatization program has been a huge disappointment of the previous bailouts,” said Raoul Ruparel, the co-director of Open Europe think tank.
Analysts are warning about the ambitiousness of the program. Many Greek assets have lost value in the last five years as the crisis wiped off 25% of Greece’s GDP. The original target for all privatizations was to raise 50 billion euros by 2019. It was later revised to €22 billion by 2020. But the agency leading the first wave of privatizations, the Hellenic Public Asset Development Fund, has so far only raised €3.5 billion. One of the few successfully completed privatizations was the 2013 sale of OPAP, the Greek betting agency, to a group of investors from the Czech Republic, Greece, and Russia.
Need a whole lot of US pressure for that.
The IMF threatened to withdraw support for Greece’s bailout on Tuesday unless European leaders agree to substantial debt relief, an immediate challenge to the region’s plan to rescue the country. The aggressive stance sets up a standoff with Germany and other eurozone creditors, which have been reluctant to provide additional debt relief. The I.M.F role is considered crucial for any bailout, not only to provide funding but also to supervise Greece’s compliance with the terms. A new rescue program for Greece “would have to meet our criteria,” a senior IMF official told reporters on Tuesday, speaking on the condition of anonymity. “One of those criteria is debt sustainability.” Debt relief has been a contentious issue in the negotiations over the Greek bailout.
Athens has pushed aggressively for creditors to write down the country’s debt, which now exceeds €300 billion. Without it, Prime Minister Alexis Tsipras has argued the debt will remain a heavy weight on Greece’s troubled economy. But Germany and other countries, including the Netherlands and Finland, are loath to grant Greece easier terms, which are a tough sell to their own voters. German Chancellor Angela Merkel has ruled out a “classic haircut” on Greece’s debt. The IMF is now firmly siding with Greece on the issue. In a report released publicly on Tuesday, the fund proposed that creditors let Athens write off part of its huge eurozone debt or at least make no payments for 30 years. The report was initially submitted to eurozone officials before a weekend meeting to consider the new bailout deal for Greece.
The eurozone officials did not adopt the IMF’s debt relief proposals in the tentative agreement they reached with Greece on Monday. In going public, the IMF is making a tactical move, adding pressure to the negotiations over the bailout deal. But its aggressive position also complicates efforts to complete a deal, with Greece’s Parliament scheduled to vote on Wednesday whether to accept the creditors’ conditions. As the uncertainty over the deal mounts, Greece’s rapidly growing financial needs only create additional strains on the eurozone, while its unity is already shaken. With Greek banks closed and foreign investment at a standstill, the economy is sinking fast, undercutting tax revenue and making it even harder for the government to pay its debts.
Wise words, 4 years old.
June 21, 2011- We write to encourage you – to urge you on in your resistance. In your defiance, you understand Greece is slave to the interests of private wealth. You must understand too that it is private wealth that needs Greece. Greece does not need private wealth. As is obvious to you – if not to EU finance ministers – Greek and other EU taxpayers are asked to shore up the immense wealth and reckless lending of private French, German, British and American banks. Without your taxes, your sacrifices, the privatisation of your government’s assets, these bankers once again face Armageddon – as they did in autumn of 2008.= Just as then, so now they have rushed behind the ‘skirts’ of their defenders at the IMF and the EU.
On their behalf, these unelected officials and some elected politicians demand that Greek and EU taxpayers shield private sector risk-takers from the consequences of their risks. The very antithesis of market principles. In the process, the EU is torn apart. Politicians, backed by officials, now defy the founding goals of the Community and, in the interests of private wealth, set the peoples of Europe against each other. On 20 June, 2011 the acting Head of the IMF called for “immediate and far-reaching structural reforms, privatization, and the opening of markets to foreign ownership and competition.” Which proves our point: private wealth needs Greece. Greece does not need private wealth.
Greece’s elected politicians have plunged the country into a spiral of decline, as austerity leads to greater economic crisis, more severe failure of public finances and social and economic hardship on a scale unknown since the inter-war years. Is there anybody on earth who seriously believes that austerity will restore the prosperity of Greece? The idea is ludicrous. But equally ludicrous is the idea that there is no alternative. There is an alternative. In reality, austerity marks the final failure of the existing arrangement between public interests and the interests of private wealth. Financial liberalisation has failed. The only way forward is a new arrangement, based on ones that have better served societies since the dawn of civilisation: since Aristotle identified the evils of usury and the barrenness of prosperity based on speculation.
The first step must be the abandoning of the Euro. The Euro must be understood not as a currency of the peoples, but as an ideal of private wealth. The Euro is a perversion of the greatest monies in history. These arose as a relation between people and the state. Through the institutional development of central banks, domestic banks, state borrowing, paper currency and double-entry book keeping, national monies have underpinned all of the greatest societies of the world. Money has been aimed at the interests of society, of productive labour, and vibrant state and private activity alike. But the Euro is a money aimed only at the interests of private wealth. It is divorced from individual nation states. Its statutes explicitly prohibit the support of state activity through money creation, while its foundation in monetarist doctrine inhibits private activity and has led to a world devoid of markets, at the mercy of large financial monopolies.
A proper assessment of Tsipras’ position.
Tsipras should now try to create the time and breathing space to lead Greece out of the EU. The FT reports how, having reached an impasse in their negotiation, around 6 a.m., Merkel and Tsipras went to leave the room and President of the European Council Donald Tusk physically prevented them, saying “there is no way you are leaving this room”. Alone, sleepless, with other leaders reportedly taking turns on him in a process which one EU official described as “extensive mental waterboarding”, looking like “a beaten dog”, Tsipras finally succumbed. In any ordinary circumstances, in most legal jurisdictions, such an agreement would be considered void; obtained by coercion and under duress. In Euroland, it seems, such considerations do not apply.
Within the hard black and white reality of fat-lettered newspaper headlines, of adoration and condemnation, of twitter’s one-hundred-and-forty characters, everything is binary. Alexis Tsipras must be either praised as hero or condemned as villain; idolized as the Messiah or reviled as Judas. As I have written previously he is neither. He is just a man under an enormous amount of pressure, trying to reconcile a Greek mandate – to do away with austerity, but remain within the eurozone – which turned out to be irreconcilable. Much more cogent is the charge that Syriza should have known that such a promise was undeliverable when they made it. I do not subscribe to the view that this was done deliberately. That they inflated the hopes of a people, already betrayed so many times, intending to betray them again.
Nothing in their behavior these last six months evidences that. On the contrary, time after time, I saw a government totally shocked by the behaviour of people who were meant to be our family, our friends and allies. I saw in their eyes the look of someone stunned by an abusive partner. The very commentators claiming that this behavior was completely predictable also claim they have never seen anything like it and that Europe has changed fundamentally. Nevertheless, this cruelty is now a matter of record. We had all hoped for a Greek Spring. Instead, we got a German Winter. Yet, everyone has turned on the victim of this violent assault for not locking their door, for wearing too short a skirt, for not fighting back harder, while the criticism of the perpetrator seems to have dissipated.
The idea of Tsipras as a “traitor” relies heavily on a cynical misinterpretation of the referendum last week. “OXI”, the critics would have you believe, was “no” to any sort of deal; an authorization to disorderly Grexit. It was nothing of the sort. In speech after speech Tsipras said again and again that he needed a strong “OXI” to use as a negotiating weapon in order to achieve a better deal. Now, you may think he didn’t achieve a better deal – that may be a fair criticism – but to suggest the referendum authorized Grexit is deeply disingenuous. And what about the 38% that voted “NAI”? Was Tsipras not there representing those people, too?
Going through the motions.
Greek Prime Minister Alexis Tsipras started his pitch for a bailout that’s sparked a revolt in his own party and is struggling to get off the ground as international officials ask new questions about the country’s finances. As Tsipras went on national television on Tuesday night to argue for a deal that he only agreed to with “a knife at my neck,” European officials were at a loss over how to put together a bridging loan that will keep Greece from defaulting on the ECB and its own citizens next week. One person familiar with the matter said that Greece’s finances seem to get worse with every meeting and governments are now reluctant to help out with even short-term funds. “The Greek government has not received a bridge-financing program yet because some try to block this,” Tsipras said in an interview with ERT-TV before a parliamentary vote on the deal on Wednesday.
“My priority is to make sure that the choice I made the other day, with a knife at my neck, is finalized.” European officials are at a loss on how to put together a bridging loan that will keep Greece from defaulting Parliament will vote Wednesday night on the measures Greece’s creditors demanded as a condition for aid as capital controls ravage an economy that has already shrunk by a quarter since 2009. Those measures have exacted a “heavy toll” and have led to a dramatic deterioration in Greece’s ability to repay its debt over the past two weeks, a new analysis by the IMF showed on Tuesday. Tsipras portrayed the package of austerity as unavoidable because the alternative was leaving the euro. In return, all Greece’s mid-term financing needs will be covered and talks over debt restructuring could even start in the fall, he said.
Good grief. Harper’s the worst disaster on a planet full of them..
Canada formally announced a “milestone” free trade agreement with Ukraine after the two countries’ prime ministers met in Ottawa on Tuesday. The agreement, which has to be ratified by both nations’ parliaments, will be implemented as soon as possible, Stephen Harper said after meeting Arseniy Yatsenyuk. With more than a million people claiming roots in Ukraine, Canada has supported Kiev many times since the 2014 revolution and Russia’s annexation of the Crimean peninsula. Also, Canada was the first western country to recognise Ukraine’s independence, in December 1991. The trade deal is expected to lift the Canadian GDP by C$29.2m (US$22.9m) and Ukraine’s by C$18.6m, Canadian government evaluations show.
“Today’s conclusion of the Canada-Ukraine free trade agreement is another milestone in the important relationship between our two countries,” Harper said. Canada will eliminate tariffs on 99% of imports from Ukraine and increase exports to Ukraine by C$41.2m. Meanwhile, financially troubled Ukraine will reduce tariffs on 86% of Canadian imports and increase exports to Canada by C$23.7m, mainly in the textile and metalworking industries. The Ukrainian economy has taken a nosedive after three years of recession and more than a year of war. Its national debt is expected to reach nearly 94% of GDP in 2015, the IMF says.