Monday, February 9, 2015

Talks between Greek and German finance ministers go nowhere



Talks Thursday between German Finance Minister Wofgang Schaeuble and Greek Finance Minister Yanis Varoufakis appeared to achieve little or nothing with the German side simply repeating its hard line on Greek debt reduction
German Finance Minister Schaeuble has been consistent in making it clear that he is completely against any "haircut" or writing off any Greek debt. At the same time, Schaeuble said that Greece belonged in the euro zone. German Chancellor Angela Merkel also made it clear that she is against any reduction of Greek debt. Surprisingly, Schaeuble said that although the two had agreed to disagree on renegotiating the terms of Greek debt repayment outside of the Troika process, the talks had "come much further than anyone had expected". Perhaps, Schaeuble was alluding to the fact that Varoufakis has already caved on the debt reduction issue by suggesting that present debt obligations could be met by a debt swap plan that would involve debt payments being tied to Greece's economic growth.

Varoufakis was even less upbeat about the meeting with Schaeuble: "As Mr Schaeuble said, we didn't reach an agreement. It was never on the cards. We didn't even agree to disagree, from where I'm standing." Greece's bailout loan amounts to $270 billion US. The economy has shrunk 25 percent since the bailout began. Unemployment in general is 25 percent with youth unemployment twice that. The debt as a ratio to GDP has increased to 175 percent of GDP now. Many liberal economists have agreed with Varoufakis that the present debt load is unsustainable and that austerity policies have made the situation worse. Varoufakis said that the situation in Greece was comparable to that in Germany after the First World War. The massive debts crippled the economy and helped the rise of the Nazis. In Greece, the Golden Dawn neo-Nazi movement is growing in popularity because of conditions imposed upon Greece. The group came third in recent elections even though many of its members are in jail. The leader and 72 others linked to Golden Dawn face a number of charges including murder.

 As mentioned in an earlier article, the ECB will soon refuse to accept Greek sovereign debt as collateral for loans. This will force the Greek central bank to provide emergency funds. The move caused Greek borrowing costs to increase and Greek bank shares to fall: The Athens Stock Exchange FTSE Banks Index .FTATBNK plunged 22.6 percent initially and ended 10 percent down. Three-year government borrowing costs leapt to nearly 20 percent, leaving Greece utterly shut out of the capital markets. Schaeuble, claimed that he had told Varoufakis that it was not realistic to make electoral promises that would burden other countries. Schaeuble also insisted that while he respected the choice made by Greek voters it was essential that the Syriza government keep to agreements reached by the previous government and work with the Troika. How can Schaeuble respect the Greek choice while not respecting the fact that they reject the previous agreement and the austerity conditions? Schaeuble has indicated how much he actually respects democracy when he said that elections change nothing.

The whole idea of the Troika with its conditions is to circumvent democratic choice. While Varoufakis has caved on the idea of a debt write off, the new government has claimed that it will halt some privatizations, raise the minimum wage, rehire some public sector workers, and restore a bonus to poor pensioners. All this is anathema to those holding Greek debt who want all those funds to be used to repay debt. Reuters describes a policy paper circulated by Germany to EU officials:In a policy paper circulated to EU officials and seen by Reuters, Germany said Greece had to stick to the terms of the 240 billion euro bailout negotiated by the previous government, and not roll back planned privatizations and cuts in the minimum wage, pensions and the public sector workforce. To sum it up, Germany is not prepared to grant any of the demands that Syriza campaigned on.

 Tsipras thought he had the support of French President Francois Hollande and Italian Prime Minister Renzi but both agreed with the ECB decision to no longer allow Greece to use sovereign debt as collateral. They both say this move makes a quick agreement more likely. Varoufakis had pleaded with ECB President Draghi to maintain normal funding for the banks, using sovereign debt as collateral, until a debt deal had been reached.

 A statement from the Greek Finance Ministry said that the government remained committed to its goal of social salvation and to “coming up with a European policy that will definitively put an end to the now self-perpetuating crisis of the Greek social economy.” Greece will be able to carry on for a while using emergency funding through the Bank of Greece. Even this credit line could be stopped if a two-thirds majority of the ECB Governing Council voted to do so. This would likely lead to the collapse of Greece's financial system and for now will probably remain only as another threat. The EC vice-president Valdis Dombrovskis said that Athens must extend the current bailout program in order to gain time to negotiate a longer-term agreement. This is precisely what Varoufakis vowed not to do.

 Tsipras and Varoufakis, as the saying goes, appear to be going nowhere fast. Some leftist groups such as the Communist Party of Greece claim that Syriza was a sell out party long before it even came to power: SYRIZA is an opportunist party which very rapidly is developing into a modern social-democratic party and is fostering illusions amongst the people that there can be a better form of management for the people, despite the dominance of the monopolies. It plays with the pain of the people, with the pressure for immediate solutions without radical changes.

 Support from other EU countries appears mostly rhetorical with clear indications given in the case of France that they actually support the EU and existing rules or as French President Hollande put it: “Dialog between Greece and its European partners must go forward so as to reach agreement,” he said, adding that Athens should “respect European rules which apply to all, France included, and engagements that were taken on debts that are of importance to governments.” So far the Troika far from being kicked out of the game have not given an inch whereas after a great deal of radical rhetoric Greek Prime Minister Tsipras and his finance minister Varoufakis have achieved almost nothing. They may not even establish a new dress code except among Syriza officials.

Perhaps, it is too early to know if the final result will be some sort of sell out agreement with a few cosmetic changes to save face. It may be that Varoufakis intends to show Greeks that it is impossible to negotiate a way out of the debt trap and relief from austerity provisions through EU institutions. Having shown that a way out through such negotiations is impossible he could then sell his electorate the idea of exiting the euro zone. One group within Syriza wants to leave the door open to exiting the euro zone, the Left Platform. The group has its own website. About 75 percent of Greeks want to remain in the euro zone. However, if remaining in the euro zone entails a continuation of EU austerity conditions and crippling debt repayments, then Syriza might very well be able to convince that the only way to retain any Greek dignity and sovereignty is to repudiate its debt and leave the euro zone.

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