May 192015
 
 May 19, 2015  Posted by at 7:38 pm Finance Tagged with: , , , , , , , ,  4 Responses »


Harris&Ewing Horse and Motor Oil, Washington, DC 1918

Will this Greek stuff ever stop? Probably, but don’t hold your breath. I was reading up on China, but that will have to wait till tomorrow. A friend just sent me a Sputnik story -they’re a Russian news channel, so they can’t be trusted, right?!- that adds more juice to the Syriza vs troika tale. And whaddaya know, the king of Greece leaks, Paul Mason at Channel 4, is involved once again.

Let’s do Mason first. He’s in Athens and, wait for it, he scored another leak. But not a direct leak to Mason; this one concerns a European Commission document leaked to Greek newspaper To Vima. There are some useful numbers here. Mason:

Greece: Europe’s Last-Ditch Effort To Keep It In Euro?

According to To Vima, the EU commission boss (Juncker, ed.) has offered Greece a deal that delays the harshest austerity for two years, and releases €5bn of bailout money to help fill the gaps in the Greek budget. To get the money Greece has to:

• Run a primary surplus of 0.75% of GDP – much lower than the previous demands from the ECB and IMF. And a surplus of 2% of GDP in 2016.

• This rises to 3.5% for both of the next years, but would have to be seen as notional – as committing to anything in 2018 barely matters when you are three weeks from default.

• Greece has to raise VAT to 18% – with 15% for card transactions. This cleverly forces tax evaders into the formal economy by setting a relatively low rate.

I was wondering why I saw two different numbers being reported, but this makes sense. As much as I am suspicious of the war on cash issue as well, we must be aware that using cash to avoid taxes is a huge issue in Greece, and Syriza has do to something about that. I’m guessing there’s a similar difference for the lower VAT rate, 6.5% vs 9.5%.

• Greece gets its way on labour market reform, which will be done using “ILO best practice”. But it has to keep an unpopular property tax called ENFIA and it has to reduce pension entitlements for public sector workers.

This may jeopardize the whole thing no matter how much water Juncker is putting into the wine. But Tsipras may find a way, provided any changes are pushed far enough into the future.

The obvious sticking point is the IMF. As I reported on Saturday, the IMF – one of Greece’s major creditors – has rules that prevent the sign-off of a “quick and dirty” settlement, such as the one Jean-Claude Juncker is offering. The debt has to be judged sustainable – yet the Juncker proposal puts off a long-term deal until October.

Greek government insiders were already worried that the IMF was going to walk away – asking the EU to take over the next bailout of Greece. The Juncker document acknowledges this problem and hints that the Greek debt will have to be taken over solely under the EFSF fund.

I don’t know that Syriza was worried about the IMF leaving the table, as long as the EU is still there.

It may still be too austere for Syriza’s left to accept – meaning Alexis Tsipras’ government could not get it through parliament, and that there may have to be new elections.

That is a possibility. The Syriza meeting I wrote about last night is happening as I write this, 3pm EDT. But the left side will also want to keep its powder dry if Tsipras can convince them he’s really close.

Beyond the usual left wingers, people I’ve found rigidly loyal to the party’s line were saying “if we surrender I am leaving”. But the leaked offer at the same time is way more generous than any proposal previously considered by the ECB and the German Finance Minister Schauble. If the Germans veto it, then it leaves Alexis Tsipras with nothing palatable to sell his own voters. A German veto would, if it came to a euro exit referendum, probably play well for those advocating a “controlled exit”. Greeks would no longer be seen as walking away from the euro, since the commission had offered them a compromise – but from a Europe where the commission has no power, and only the voters of Germany get their way.

Mason obviously gets confused in that last bit, but that’s alright. German veto, controlled exit, German voters, that’s all just opinion making. And not all reporters are equally good at opinions.

But this is just the warm up. The juice comes from the Sputnik piece. Turns out, the US has gotten involved. And they want peace and quiet in their own back yard while they’re wreaking havoc anywhere from Kiev to Ramadi to Aden. Yes, it’s about “Greece’s geopolitical value as a NATO outpost”. And Greek ports frequented by US oil tankers.

US Pressures EU via IMF Over Greece’s Permanence in the Euro

The EU is under increasing American pressure via the IMF to bail out Greece, as Grexit has become anathema to Washington, Deutsche Wirtschafts Nachrichten (DWN) reports. DWN quoted a recent article in the New York Times stating that: “Even as Greece’s European neighbors are focused on the country’s ability to repay its debts, the United States is intent on addressing Greece’s geopolitical value as a NATO outpost at the southern tip of the Balkans and as an important gateway for energy from Central Asia.” Hence the dispute is not between Greece and the EU, but between the EU and the US, added DWN. It all started with a memo dated May 14 that the IMF leaked to Paul Mason of Channel Four.

The memo was apparently leaked to put pressure on the EU in the run-up to the gathering of European leaders in Riga for the Eastern Partnership Summit on 21-22 May. Either a deal is reached then, or Greece will default a couple of weeks later. [..] Hidden in the IMF memo, however, is a nasty surprise for the still unaware European, and especially German, taxpayer. According to DWN, the US-dominated IMF is trying to pass on its credit risks to the EU via the rescue mechanism ESM (European Stability Mechanism).

Here is the IMF memo again: “While staff emphasized they are not pushing the European partners to consider debt relief, at the same time staff noted the numbers need to add up. In particular, it was noted there is an inverse relationship between reforms and sustainability.”

I forgot to ask the question yesterday in The IMF Leaks Greece, but now I see it again, I’m still puzzled. “..an inverse relationship between reforms and sustainability”, does that mean the more reforms, the less sustainability? Fewer reforms, more sustainability? It would be way less funny if it didn’t ring so true.

According to Paul Mason of Channel Four: “This translates as: the more austerity the Europeans demand, the bigger the chance that Greece defaults on its debts.” Indeed the IMF is not content with so-called “quick and dirty” solutions favored by the EU. Which is sensible enough, giving the EU’s attitude to just buy time and delay real solutions. The problem is who foots the bill. We are talking of IMF own credit risks with Greece, after all. And yet, the IMF memo mentioned “debt relief” in connection to “the European partners”. So, just as with sanctions on Russia, the US decides, the EU pays.

That’s not a bad find at all.

Yesterday, the EU hit back by leaking its own – strictly confidential, of course – memo to the Greek newspaper Vima. The EU memo contains the European Commission’s proposal to keep Greece afloat — and in the Eurozone. Clearly the US have succeeded in persuading the EU that Grexit is a no-go. The show must go on and here is how — the harshest austerity measures will be delayed for two years, and $5.6 billion (€5bn) of bailout money provided to help finance the Greek budget.

In case you weren’t paying attention, that’s just about exactly what Syriza has been asking for.

As the NYT has written: “European and international lenders continue to hold back on releasing $8.1 billion (€7.2bn) in funds from a bailout program, demanding economic overhauls in Greece that the Tsipras government has so far been reluctant to carry out.” Now the EU has been persuaded to put up at least $5.6 billion (€5bn). “To get the money,” – explains again Mason, quoting Vima – “Greece has to run a primary surplus of 0.75% of GDP – much lower than the previous demands from the ECB and IMF. And a surplus of 2% of GDP in 2016. “This rises to 3.5% for both of the next years, but would have to be seen as notional — as committing to anything in 2018 barely matters when you are three weeks from default.”

Varoufakis exonerated indeed.

As for the labor market, a contentious point between the IMF and Greece, the EU will demand no reforms. But public sector workers’ pensions, another contentious point, will have to be reduced. What the above plan amounts to, however, is precisely what the IMF calls “quick and dirty solutions”.

But who controls the IMF?

The EU memo hence, is hardly the latest chapter of the “save Greece saga”, but by now we can be confident that, one way or the other, quick and dirty or with EU-footed “debt relief”, Greece will be offered to remain in the Eurozone. Will it accept? It is not just a financial decision. It is a highly political, almost civilization one. To remain in the Eurozone means to stay under Brussels and Washington. To exit, might open up other opportunities. Greece has indeed been invited by Russia to join the New Development Bank (NDB). Whether Greek Prime Minister Alexis Tsipras will want, or even be able to, sell the EU deal to his voters and backbenches remains to be seen.

Amen.

In a veritable, last minute flinger flick, Greek Finance Minister Varoufakis said last night that the referendum will be on Grexit, not on any deal, be they IMF or EU sponsored. As for Washington’s stance, DWN quoted sources in the financial scene: “The USA will not want to hear any discussions about a Grexit nor will any hard negotiations between EU-creditors and Greece be allowed.” So, it really is up to the people of Greece.

Amen again. We all got the picture now?