Greece tackling impossible task of keeping election promises and pleasing creditors

Greece said it will keep election pledges to end austerity measures even as its creditors demand pension and labour market changes that go counter to those pledges.

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Deputy Prime Minister Yannis Dragasakis said Greece wanted a viable solution with the euro zone but still would not budge from their red lines. It is because Greece has not been willing to budge much from these red lines that the Eurogroup and the European Commission, European Central Bank, and International Monetary Fund(IMF), the Troika, have not agreed that Greece has met the conditions of the bailout loan with the reforms presented so far.

Other Greek officials were equally defiant in refusing to countenance cuts in wages, pensions, selling state assets or increasing taxes. Energy Minister Panagiotis Lafazanis said the country won't agree to any privatizations, a position at times contradicted by other officials. It would appear the privatization of Piraeus port is going forward. Lafazanis also claimed creditors were trying to blackmail the government to force it to take measures that would hurt the working class, but the government would not betray the mandate of the people. Spokesperson for the major government party Syriza, Rania Svigou, said:“The Greek government has presented a realistic reform plan that doesn’t contain recessionary measures or burden the weaker layers of society, yet gives the economy breathing space. The government will exhaust all possibilities for a solution that respects the mandate of the Greek people.”That may be the case, but it does not meet the terms of the bailout loan Greece agreed to and as understood by their creditors and until they meet those terms there will be no further cash forthcoming from the loan.

Greek banks so far still are eligible for Emergency Liquidity Assistan according to Mario Draghi, the head of the European Central Bank(ECB), but there has been a heavy withdrawal of funds and transfers outside of Greece as depositors worry about a possible exit of Greece from the Euro zone. However, Draghi ruffled markets and spooked some investors when he said financial buffers were sufficient to prevent any contagion should Greece default on its debt. He also warned that if Greece defaulted on its payments the EU would be entering "uncharted waters."

Draghi urged Greece to work out and implement detailed reforms that would satisfy creditors and release funds. Draghi told reporters in Washington on Friday at a meeting of the International Monetary Fund that much more work needed to be done:"It's urgent. We all want Greece to succeed. The answer is in the hands of the Greek government."Even US Treasury Secretary, Jacob Lew , joined the chorus of those urging Greece to reach a deal, and warned a default would "create immediate hardship for Greece."

Some observers, such as Der Spiegel, are suggesting Russia's Putin will come to the rescue of Greece. As Zerohedge puts it: According to Spiegel, citing a senior figure in the ruling Syriza party, Greece is poised to sign a gas deal with Russia as early as Tuesday which could bring up to €5 billion into the depleted Greek coffers.Russia needs an alternative pipeline that would bypass the Ukraine.and bring Russian gas to Europe through Turkey and Greece. Greece would not need to repay the advance until after the pipeline began to operate about 2019. While these funds may provide a temporary stopgap, Greece will still require more cash later this summer and so the Russian injection would simply be another stage of kicking the can down the road, but at least could buy Greece some further time to work issues out. The deal with Russia could be a sign that Greece is willing to begin moving away from the EU orbit into a closer relationship with Russia.

Greece still has no deal with its EU creditors

On Tuesday negotiations between Greece and international lenders ended with no deal reached on reforms that would allow the release of more bailout funds.

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Greece must reach a deal with international institutions, formerly known as the Troika of the European Commission, International Monetary Fund(IMF), and the European Central Bank(ECB), before it can receive the next instalment of bailout funds. Technical talks have halted for now but could begin again next week. Greece could be unable to make debt payments in April if it does not receive more cash.

Greek creditors said that the package of reforms submitted by Greece were ideas rather than a concrete plan of reform. Greek representatives had been meeting with what are called the "Brussels Group" of representatives from both the European Union and the IMF. Creditors are intensifying efforts to collect data in Athens. On Monday, prime minister Alexis Tsipras had appealed for an "honest compromise" with his creditors but warned it could not be won at any cost. He stressed that the government had "red lines" such as avoiding wage and pension cuts, mass layoffs, and a fire sale of state assets.

Spokesperson for the European Commission, Mina Andreeva, told reporters: " The constructive talks are ongoing since Friday, but we are not there yet, so this is why the talks should continue. The Eurogroup working group will discuss the matter at its next meeting,The talks are constructive and are ongoing,"There was to be a conference call of the Eurogroup working group on Wednesday that would provide an opportunity to appraise the debate so far.

The Financial Times reported on the new list of economic reforms that Greece sent to the euro zone authorities on Wednesday. The document was 26 pages long. The reform measures are estimated to generate about 6 billion euros this year. Greece is attempting to unlock 7.2 billion euros in bailout funds. Many of the reforms tackle tax evasion a continuing problem in Greece. There is also a new lottery scheme. In a short introduction the document states: “The larger purpose of this document is, in the first instance, to unlock short-term financing that will permit the Greek government to meet its immediate obligations. The Hellenic Republic considers itself to be a proud and indefeasible member of the European Union and an irrevocable member of the eurozone.”In spite of the lack of a deal so far, the atmosphere of the talks appears improved. Even so, several EU officials said they did not expect a deal until the next meeting of the eurozone finance ministers on April 24. Greece claims it has the necessary funds to make a payment of 450 million euros to the IMF on April 9.

The new list of reforms fails to address an overhaul of the Greek pension system and greater labour market liberalisation. The new reforms even suggest 1.1 billion euros in new spending, partly on pensions. The document also suggests a suspension of the "zero deficit clause" since this would force more cuts to state pensions. These measures are not likely acceptable to creditors.

The reforms in the labour market include a gradual increase in the minimum wage and the strengthening of collective bargaining laws. These measures point in the opposite direction of policies already adopted in earlier reforms. On privatisations the document appears to grant concessions even though this conflicts with the express statements of some Syriza ministers. However, the document does estimate that privatizations would bring in 1.5 billion euros this year as against the planned 2.2 billion in the original agreement.

Economy minister George Stathakis said he expects a deal next week. The reform list presented on Wednesday, included the leasing of 14 regional airports and the privatization of the largest port Piraeus to raise 1.5 billion euros through asset sales and leases. Yet, Stathakis said the government had no plans to sell all of its 67 percent stake in the Piraeus Port Authority. He claimed that government would pursue a joint venture. There seem to be inconsistent statements given by different officials. It seems unlikely that the Greek government will be able to pursue any substantial reforms and reduction in austerity as promised to voters during the election campaign and at the same time satisfy its creditors and obtain the release of more bailout funds. Even Warren Buffet thinks that it might not be such a bad thing if Greece left the euro zone.

International Monetary Fund complains that Greece is its most uncooperative client ever

Officials from the IMF, the European Central Bank, and the European Commission, complained in a conference-call Tuesday that Greek officials are not adhering to the conditions of the bailout extension deal or cooperating with creditors.

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The officials did not want to be identified since the call was private. A letter was also sent by the European Commission objecting to legislation that would give free food and electricity to households in poverty and also to allow tax arrears to be paid in instalments. The letter said that the laws were in violation of the bailout agreement. since they were not cleared by the Troika. International Monetary Fund(IMF) officials claimed that Greece was the most unhelpful client they had dealt with in their entire history. German finance officials said trying to get the Greek authorities to present a rigorous economic reform policy was like trying to ride a dead horse.

According to a Reuters report the teleconference was supposed to allow Greece to report on its reform process but instead Greek officials insisted that discussions should be held at the upcoming European Union summit on Thursday. One anonymous euro zone official said that for many people the teleconference "could be something of a last straw."

If the Greek government does not implement the unpopular austerity provisions of the bailout extension required by creditors, Greece may end up not getting the money needed for its upcoming debt payments. Tsipras is hoping to have a meeting with Mario Draghi, head of the ECB , Angela Merkel German Chancellor, French President Francois Hollande and Jean-Claude Juncker the head of the European Commission later this week in Brussels. Tsipras wants a political deal to unlock funds from the $254 billion bailout, but the euro zone officials may be in no mood to grant Greece any leeway as the Greek government goes ahead with reform policies without getting approval from creditors. Without concrete proposals and evidence that reforms the creditors want are being implemented, there will be no political agreement to release the funds. There may however be political agreement not to release the funds.

The Dutch Finance Minister Dijsselbloem said that Greece might require capital controls as happened in 2013 in Cyprus. His remarks helped Greek bank shares to lose over 5 percent. The Athens stock exchange lost 1.8 percent and interest on Greek bonds rose to a whopping 20.5 percent. Progress of technical personnel from the Troika working in Athens has been very slow. They too complained of the Greek government passing legislation whose implications for Greek finances was not at all clear and without consultation, a clear violation of the bailout extension agreement. Greece has large payments due as early as this Friday.

German Finance Minister Schaeuble said that time was running out for the Greek government. He noted also that Greece has insisted it does not want a third bailout program. He said: "We have the impression, and everyone who is dealing with the question shares the impression, that time is running out for Greece. They obviously have certain problems."

It is not clear how Greece could possibly continue to pay its debts without further loans.

As well as talking with European officials and meeting with Angela Merkel in Berlin, the Greek Prime Minister, Tsipras, also intends to visit Putin on April 8. Some worry that Greece's debt problems may lead the country to form alliances outside the west including with Russia. The US sent Victoria Nuland , the assistant secretary of state for European and Eurasian affairs to Athens to meet with Tsipras. She was active in seeing to it that Ukraine turned toward Europe. Now she no doubt will warn Tsipras not to cosy up to Putin.

The Greek government faces the impossible task of trying to implement its election promises, to show Greeks that the government can improve conditions, and at the same time convince its creditors that it is carrying out the reforms demanded as part of the bailout deal. But reform measures by the Greek government continually violate the terms of the bailout deal. The government then call the demands of the creditors blackmail. In a further slap in the face to the Troika or "institutions" the Deputy Finance Minister Nadia Valavani said that proceeds from any privatizations will be used ,not to repay debt as desired by the creditors, but for social programs. She said:"There will be a new Sovereign Wealth fund ... and the revenue will be used to fund the government's social policies and to support the social security system."Having annoyed all those parties who hold the purse strings, it seems unlikely that Greece will be able to get any concessions at all from euro zone officials.

Greece may be forced to exit euro zone to achieve its reform proposals

In order to renegotiate its debt burden, the Syriza government of Prime Minister Alexis Tsipras has been forced to abandon most of its campaign promises including a write off of some of its debt, and removing most of the austerity conditions that were part of the original agreement. Indeed, the new agreement is simply an extension of the old one and will give Syriza just four months breathing space before huge payments will be required for maturing European Central Bank bonds. Germany has been insistent that there be continued onerous conditions placed upon extension of the bailout. Commentators such as the economist Paul Krugman and Joseph Stiglitz claim that the imposition of strict austerity conditions is counter-productive. The policies reduce demand producing depression and high unemployment. Increased public spending is needed to spur growth.

 While liberal economists are no doubt correct about the negative consequences not only for the populace but for economic growth that austerity produces, the aim of the austerity policies are to restore profitability and improve conditions for capital. The reforms involve cutting back on government and privatizing public facilities and services. The reforms increase unemployment resulting in a larger "reserve army of the unemployed" that will reduce labour costs and weaken union power. Expectations about what the government is able to provide in terms of social services will be reduced. All of these types of measures increase the power of capital over labour and make capital more competitive eventually improving the profit picture over the longer term. Proponents of the austerity measures point out that Greece has already reached a point where it has a surplus. The fact that it also has twenty five percent unemployment rising to fifty percent among youth is neither here nor there. Indeed it ensures that labour costs are lower. It also supplies a flow of frustrated but often skilled Greek workers into other parts of Europe helping to lower labour costs in other areas.

 The Germans have support from governments in Spain, Portugal, and Ireland who also were subjected to painful austerity policies. The Germans and their allies do not want to see their policies undermined by giving Greece less harsh terms and conditions for dealing with their debt situation. Italy and France are also attempting to impose structural reforms on their labour force. The electorate in Germany and elsewhere support harsh treatment of the Greek. Two thirds of the German populace do not want Greece to receive any concessions. Many think that Greeks are lazy, get huge pensions, and are corrupt. Of course some are, but actually the Greeks who do work are working more hours than in any other European country. If measured in hours worked, it is the Germans who are the laziest Europeans!

 The European Central Bank put pressure on the Greek banks by withdrawing their ability to use Greek sovereign debt as collateral for liquidity provisions. Depositors became worried and withdrew billions of euros each day.The Greek government was also faced with obtaining funds to pay debts and wages.Unless a deal was reached the Greek government faced an ever worsening financial crisis. T he Eurogroup, led by Germany. used these conditions as leverage to force the Syriza government to accept a deal with very few concessions. In order just to stay alive for another four months, the Greek government promises to achieve appropriate surpluses, and refrain from any unilateral actions that would impact negatively on fiscal targets.

Most of the reforms that Syriza campaigned upon will be impossible under the terms of the agreement, including raising the minimum wage and reversing privatizations, although there are signs that the government may attempt some of the reforms under the rubric of relieving the humanitarian crisis. However, they may find that their EU partners simply refuse to send money on the grounds that the government is not meeting the terms of the agreement.

 Costas Lapavitsas, an economics professor and Syriza MP, notes that not only did the Greek government pay a high price to stay alive, the situation is made even more difficult by the state of the Greek economy. The economy grew only 0.7 per cent last year and actually declined in the last quarter. It had been shrinking ever since the austerity policies had been imposed. Even during the Xmas season retail sales fell by 3.7 percent. There is evidence of a deflationary spiral with prices declining by 2.8 percent in January alone. Lapavistas claims: "This is an economy in a deflationary spiral with little or no drive left to it. Against this background, insisting on austerity and primary balances is vindictive madness." At the end of the four months, Greece will face even more demands and will need more funds to make even larger payments than during the four month reprieve. Lapavistas maintains that Greece should go ahead implementing measures that it campaigned on, including forbidding house foreclosures, writing off domestic debt, raising the minimum wage and stopping privatizations. He claims that carrying out these policies rather than fiscal calculations must be the main priority of the government in order to keep popular support.

 There is some evidence that Lapavistas viewpoint is being accepted in part, as the government forges ahead with some policies that will bring it in conflict with the EU. In Lapavistas' view the euro zone is not capable of being reformed and he claims the common currency has become an absurdity. He believes that in the next negotiations the Greek government should present radical proposals. No doubt these will not be accepted by the Eurogroup but then Lapavistas' said that the government should prepare the people for a possible exit from the zone. This position appears not to be shared by Finance Minister Varoufakis who promises he will do anything to stay in the euro zone. He has kept that promise.

 A majority of Greeks support the manner in which the Greek government carried out negotiations. A large majority also favor staying in the euro zone. Perhaps within the next few months it will become clearer to the population that if they stay in the zone then they will be subject to more austerity and a continuing debt trap. Lapavistas is not alone in suggesting an exit from the euro zone or Grexit as it is called. This article argues in a similar vein. An exit from the zone will be very difficult.

Greece's proposed reforms for bailout deal accepted by Eurogroup but with reservations

The Greek Finance Minister Yanis Varoufakis sent a letter to Eurogroup President Jeroen Dijsselbloem just before the deadline of midnight Monday that outlines proposed reforms that Greece was willing to undertake to receive bailout funds.

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The complete text of the letter can be found here or here. Many of the reforms have to do with tax collection and the tax system, an area that both Syriza and its EU partners agree is in drastic need of reform. There is also an emphasis on tackling corruption. While there are sections that deal with tackling poverty and humanitarian issues, these are always treated as being addressed in a manner that does not impact negatively on the fiscal situation.

Under the final section entitled the Humanitarian Crisis there is a section that an article in the Business Insider considers could redefine how we view the modern welfare state. The proposal is for a guaranteed minimum income(GMI). While this is often supported by leftists, it is also supported by many on the right The libertarian right sees the system as a replacement for the many separate welfare schemes that have grown in advanced capitalist societies with a single payment that could be spent by the recipient at will and without bureaucrat intervention. This contrasts with other right wing groups who want to ensure that welfare is narrow and targeted and goes only to those who are "deserving". The idea has been supported by free market ideologues such as Milton Friedman and Friedrich Hayek.

Hayek said:There is no reason why in a free society government should not assure to all, protection against severe deprivation in the form of an assured minimum income, or a floor below which nobody need descend. To enter into such an insurance against extreme misfortune may well be in the interest of all; or it may be felt to be a clear moral duty of all to assist, within the organised community, those who cannot help themselves.Hayek's formulation for the GMI is much more idealistic than that presented in the Greek reform proposals. Here is part of the context of the Greek GMI reforms as set out in the letter: • Evaluate the pilot Minimum Guaranteed Income scheme with a view to extending it nationwide.• Ensure that its fight against the humanitarian crisis has no negative fiscal effect.So any expenditure on the GMI will presumably need to be revenue neutral or paid for by saving elsewhere. Another passage makes it clear that the GMI is actually intended to discourage early retirement which would cost the state more in pensions.The reforms promise to:"..provide targeted assistance to employees between 50 and 65, including through a Guaranteed Basic Income scheme, so as to eliminate the social and political pressure for early retirement which over-burdens the pension funds."

This would allow those between 50 and 65 who may become unemployed through becoming jobless, no doubt in some cases through the measures accepted for the bailout loan, to remain in the job market until conditions improve for them without opting for early retirement which would cost the government more.

Another supporter of the GMI is Sam Bowman, deputy director of the Adam Smith Institute who writes: "The ideal welfare system is a basic income, replacing the existing anti-poverty programmes the government carries out (tax credits and most of what the Department for Work and Pensions does besides pensions and child benefit)...Like the current benefits system, this would provide a safety net. But ‘benefits traps’, where people lose as much in benefits as they earn from work, would be eliminated."

The role of the GMI as presented in the Greek reforms is to save money not solve the humanitarian crisis. This may be a means by which Greece is trying to sell the program to its partners. For those who would earn more if they could choose early retirement when laid off the GMI would represent a decline in income. The GMI is hardly the revolutionary new program the Business Insider describes:In the First Muslim Caliph, Abu Bakr introduced a guaranteed minimum standard of income, granting each man, woman, and child ten dirhams annually; this was later increased to twenty dirhams.

While the EU and Troika or "institutions" have accepted the reforms listed--not surprising since they were developed through constant consultations--they have also demanded further elaboration of them. Christine Lagarde the manager of the International Monetary Fund(IMF) and Mario Draghi, the President of the European Central Bank expressed some reservations and objections to the list. The Eurogroup finance ministers in an official statement said: “We call on the Greek authorities to further develop and broaden the list of reform measures, based on the current arrangement, in close coordination with the institutions in order to allow for a speedy and successful conclusion of the review.”Greece is being presented with more and more hoops to jump through to receive further funds. In the end the Greek government may decide enough is enough and break free through an exit from the euro zone.

Support grows for fresh negotiations on Greek bailout outside of Troika

Greek finance minister, Yanis Varoufakis, is gaining support in high official circles for his refusal to negotiate Greek debt provisions through the Troika arrangement with the European Commission, European Central Bank, and International Monetary Fund.

The president of the European Commission, Jean-Claude Juncker, claims that he wants to scrap the Troika's mission that at present governs oversight and negotiations over Greece's $360 billion bailout. However, the claim comes from a report by anonymous sources in the European Commission by the German daily newspaper Handelsblatt. The source quotes Juncker as saying that an alternative had to be found quickly. Again quoting unnamed sources, the paper also said that German government officials were prepared to reform arrangements for debt negotiations between the three members of the Troika and Greece. However, the sources also said that new arrangements would be possible only if the previously agreed reforms and savings targets were met. This would mean Greece would still be bound by the same arrangements that Syriza had vowed to reject. There is no mention of cutting debt. The reforms agreed to would include all the austerity provisions. 

Juncker is set to meet Greek Prime Minister Tsipras on Wednesday in Brussels. He has repeated again that he is not prepared to accept any direct write off of Greek debt, which at present is about 175 percent of GDP. However, it would seem that contrary to campaign pledges, Varoufakis is now suggesting a plan of "debt swaps" rather than any write-off of Greek foreign debt: Varoufakis called his plan a "menu of debt swaps" that meant Athens would no longer call for a write-off of Greece’s 315 billion euros ($360 billion) of foreign debt, the Financial Times reported. Varoufakis, in London, assured investors that Syriza's plan would not inflict losses on privately held bonds. He also pledged reforms to the Greek economy. The source said that the bond swap plan was a "work in progress": "These bonds held by the ECB right now can be restructured. It's possible to turn it into perpetual bonds to be serviced, or growth-linked debt. It's the same with a proportion of the other bilateral bonds held by the official sector." Varoufakis himself said: "What I’ll say to our partners is that we are putting together a combination of a primary budget surplus and a reform agenda. I’ll say, 'Help us to reform our country and give us some fiscal space to do this, otherwise we shall continue to suffocate and become a deformed rather than a reformed Greece'.."We are in substantial negotiations with our partners in Europe and those that have lent to us. We have obligations towards them."  

The Greek government plans to target wealthy tax-evaders and predicts a budget surplus of 1 to 1.5 percent of GDP. He said the government plans to achieve this even if this means that it will not fulfill its election spending promises. Today Tsipras is meeting with Italian Prime Minister Renzi, who may be quite sympathetic to Tsipras' demand for more lenient lending terms. Michael Hintze, CEO of hedge fund CQS, was asked after Varoufakis' meeting with international investors if Varoufakis had proposed a debt swap and he said without elaborating: "It's more balanced and broader than that." While Tsipras and Varoufakis may manage to bypass the Troika, this does not mean that any debt will be written off, or that many austerity conditions will be removed, or that spending promises will be kept. 

Some sources are suggesting Syriza achieved a great victory: Although the financial media is blathering about negotiations and gamesmanship, the truth is Greece just blew up the Empire's Death Star of debt. There's nothing left to negotiate except the official admission that the Imperial Death Star of debt, the most fearsome threat in the galaxy, has been blown to smithereens. The author, Charles Smith, thinks that Greece will exit the euro zone and thus be released from the debt trap that it faced under the rule of the Troika. So far there is little evidence that will happen. The EU authorities may accept direct negotiations as appears to be already in progress but there is no indication of any debt being written off. 

What Syriza appears to have done so far, as well as bypassing the Troika,is to exploit divisions within EU authorities. Unlike Juncker, the German Finance Ministry through its spokesperson said: "The German government sees no reason to scrap this mechanism of evaluation by the troika." A Bloomberg article mentions that Varoufakis has co-written a text on Game Theory. His actions already appear to have achieved one goal, of negotiating outside of the bounds of the Troika. He also appears to have further split EU authorities with some agreeing to dump the Troika arrangement. On the other hand he has made strong moves to ease investors fears by plans that jettison the whole idea of a debt write-off. It is not clear, where this is all going but at present the Grexit scenario has receded into the background. 

Nicholas Spiro. of Spiro Sovereign Strategy in the UK, thinks that Varoufakis' anti-austerity rhetoric and moves against the Troika may be part of a strategy of trying to establish their credentials with their electorate but he concludes of Syriza's leaders:"They will play this game as long as they possibly can. This will give them political cover to climb down." This assumes that the goal of the game they are playing is to successfully negotiate an end to Greece's debt crisis with EU lenders. I think it is too early to tell. The moves are too ambiguous to be sure that is the goal of the game the Syriza leaders are playing. Most markets seem to be unfazed by what is happening and have been going up since Monday, until this morning at least.

Greeks in Thessaloniki protest austerity measures

Thousands of Greeks mount protests at new austerity measures imposed to meet terms of the bailout provisions imposed by the Troika

In Thessaloniki, Greece's second largest city, protesters marched by the thousands during an annual fair. The protest was against a new round of wage and pension cuts demanded by the international lenders, the Troika, in exchange for more money to stave off bankruptcy.

Fifteen thousand trade union members and leftists took part in the protest against the almost 12 billion euro package of austerity measures. Prime Minister Antonis Samaras has introduced the savage cuts to convince EU and IMF inspectors that Greece is making progress on reforms required to receive more funds.

Some protesters burned EU flags but the protests were largely peaceful and about 3,500 police simply looked on. Nearly one in four Greeks are now jobless. Thousands of businesses have closed down as well. At the festival Samaras made only a brief appearance to defend the planned cuts rather than making an annual economic policy speech as was the custom.Samaras said:

"We are trying to minimize the pain from the cuts as much as possible but we have to make the cuts, because there is no other way..I am telling you the truth, there is no other way."

The leader of the main opposition party Alexis Tsipras of the SYRIZA party criticized Samaras for his short low-key speech:"

The prime minister came and left like a thief - perhaps he is ashamed,"

SYRIZA opposes the bailout terms. While Samaras and his Finance Minister Yannis Stournaras have won praise from some European officials for attempting to meet the terms of the bailout they face growing opposition within Greece. Samaras is hoping that Greece can be given two more years to implement the austerity measures. As of now they are slated for 2013 and 2014. Already the economy has been in recession for years. In this year alone the economy is expected to contract by 7 per cent.

As the Troika conclude a review of Greek progress in the coming days more protests can be expected. The results of the review will determine if Greece will receive the next installment of bail out money. If it does not receive the money Greece could default on its debt.

Greece may not receive further bailout funds

The Troika, that is the European Commission, The European Central Bank, and the International Monetary Fund are set to meet with Greek officials on July 24. In preparation for the meeting the Greek government approved a further 11.5 billion euros in cuts to placate its creditors. However this may be too little too late. There is already a report in the German newspaper Der Spiegel indicating a decision has been made not to extend further credit.
   If true, this is somewhat surprising in that the newly former coalition was intent on solving the crisis and making sure it received the next tranche of  funds under the bailout plan. Bloomberg reports that Der Spiegel article claims that IMF officials are becoming impatient with Greece. According to a translation of  the report
. “High ranking officials at the Fund have informed the European Union that the IMF is no longer willing to provide Greece with more aid,”  
  The IMF wants Greece to reduce its GDP debt ratio to 120 per cent of GDP in order for it to be sustainable in the longer term. However the officials are pessimistic about the ability of Greece to do so. This pessimism is warranted. Given the austerity policies involving severe cutbacks to spending, demand will fall. Already unemployment is soaring over twenty per cent and production is dropping not growing. The report noted “Giving the country more time to meet its targets would, according to troika estimates, mean an extra 10 to 50 billion euros in relief aid,”  The political situation in Europe is such that many governments are simply not willing to extend that much more aid.
  Greece already has a  3.2 billion euro bond due on August 20 but no more money is due to Greece until after the report of the Troika is analyzed in September! It is not clear how Greece will pay for the bond. Perhaps the European Central bank will provide aid or the Greek government will issue short term T Bills.
   The Greek crisis is obviously far from over. As many analysts have predicted Greece may yet leave the euro zone. Stock markets next week may reflect this new uncertainty. For more see this article.

Greek officials meet with Troika to discuss bailout terms

   Greek officials meet with the Troika officials (European Central Bank, European Commission and International Monetary Fund) to discuss the terms of the Greek bailout fund. Yannis Stournaras an economist is the new Greek finance minister.
  Greece has imposed unpopular stringent austerity measures including cuts to salaries and pensions and higher taxes. However Greece is still struggling to reach financial targets and hopes to revise some of the conditions. However Sweden's Finance Minister said:"The way the situation has been handled so far, and with the high debt levels they have it can't be ruled out that it will all finally end in a bankruptcy.''
 The Greek government is now a three party coalition with New Democracy being the largest partner. However, the leftist anti-austerity party Styriza came a close second in the elections. The government is to present a policy statement on Friday evening to parliament.  Reports are that the coalition is recommending freezing public sector layoffs and repealing some tax hikes. This might produce some economic growth but may be resisted by the Troika.
   The bailouts total 300 billion. Germany has demanded that Greece stick to its austerity program. If the new government does not achieve any significant changes in the austerity program there could be considerable social unrest. For more see this article.

An assessment of Greek election results by a Greek economist

Yanis Varoufakis is an economist at the University of Athens. For more about Varoufakis see this site.. Varoufakis points out that in spite of the New Democracy party coming first more Greeks, 55 per cent in fact, actually voted for parties that were against the bailout terms and conditions.

The unusual Greek electoral system gives the first place party 50 extra seats in the 300 seat assembly. Varoufakis thinks that many voted for New Democracy just to keep Syriza from winning and bringing down the wrath of EU institutions and Germany upon the hapless Greeks.

First off PASOK the Socialist party that has lost much of its support will need to invent some narrative to explain why it is willing to join with New Democracy. Next there will be a meeting of the EU Council that will draft a Greek bailout. Mk3. The last bailout Mk2 will not work in spite of what Germany may think. The EU will be forced to change the bailout terms because the earlier terms would make the Greek economy even worse. There will be some relaxation of the terms as an incentive for New Democracy to agree to the new bailout.

Varoufakis thinks that Greece will be given 3 to 5 years to bring its deficit to the 3 per cent mark. Under Mk2 the new government would have to cut 11.5 billion more from public spending. The new Mk3 provisions will cut less perhaps 5 billion. Some funding of projects may also be announced. Varoufakis thinks that this new bailout will nevertheless be a disaster both for Greece and Europe.

According to Varoufakis the credit circuits in the Greek financial system are broken. Even efficient and profitable Greek companies are not able to access capital markets. The new arrangements do nothing to heal this broken credit system. Also even reduced spending cuts will have the effect of ensuring the recession continues with revenues declining. At most he thinks the new terms simply prolong Greeks agony while testing the patience of taxpayers in Germany, Finland and other European countries. For Varoufakis the bailout throws good money again after the bad.

Varoufakis recommends three steps be taken. First Greek banks should be recapitalized through the EFSF (European Financial Stability Facility) Secondly, a shift of Greek (and other peripheral countries debt) to the European Central Bank. This would be financed by the issuance of Euro bonds. Thirdly a recovery program to be financed by the European Investment Bank and European Central Bank. For more details see the full article. Of course as of this writing Greece does not even have a coalition government. The steps that Varoufakis suggests will probably not be approved by key countries such as Germany.

Greece: No coalition government in sight as yet

Alexis Tsipras leader of the 2nd place Styriza party has so far been unable to form a coalition government. Given that the two other largest parties support the bailout deal while his party opposes it, it seems unlikely that he can form a government. If he fails then the task will fall upon the third place PASOK socialist party. However, it too is unlikely to be able to form a coalition. If this happens there will need to be new elections in June.

The leader of the New Democracy party Samaras was himself unable to form a coalition earlier. International creditors have been warning Greece that if the austerity measures are not implemented then bailout money will not be forthcoming in June. The uncertainty resulting from Greek politics is one of the reasons stock markets in many countries have declined of late. Greece has also promised that it will pass new austerity measures worth 18.9 billion next month as well as implement agreed upon measures. Given the political situation it seems quite unlikely that this will happen.

The Communist Party has refused to join any coalition government and the right wing New Dawn party has not been contacted by any one as yet since it is regarded as too extreme apparently. Tsipras wants Greece to pull out of the bailout agreement. This position puts him at odds with both New Democracy and PASOK. The New Democracy leader said"Denouncing the agreement, as [Tsipras] proposes, will lead to immediate internal collapse and international bankruptcy, with the inevitable exit from Europe," However, Samaras was open to amending the agreement.

Greece received two bailouts worth 312 billion dollars. In return salaries and pensions have been cut, state jobs eliminated, and new taxes imposed. The result has been continued recession now lasting five years.

The German foreign minister said that Greece will not obtain any further loans unless it continues its austerity policies. He said:"Germany would like to keep Greece in the euro zone but whether Greece actually does remain in the euro zone or not lies in its own hands," However it looks more and more as if Greece will not meet the demands of the EU and will end up bankrupt and leaving the Euro zone. For more see this article.

Upcoming Greek election may produce new crisis

The leftist PASOK party and the center-right New Democracy party have been the two most popular parties for decades in Greece and between them have usually formed governments. However both parties support the new austerity measures imposed by the EU and creditors. The result has been a plunge in their popularity.

Although polls up to April 20th at least (see this site) indicate a probable slim majority for the two combined perhaps this may not happen as more and more voters swing to other parties who do not support the austerity measures.

The result is that 8 to 10 different parties are expected to gain seats in the 300 member Parliament. Even if the two main parties are able to form a government it will probably be quite weak. It may be difficult to carry out all the tough demands required to get the 170 billion dollar loan just recently approved.

Desmond Lachman who previously worked as an economist for the IMF says that we are witnessing the calm before the storm as Greece has faded from the headlines. Its debt has even been upgraded!

Lachman notes that over four years Greek GDP has dropped by 14 per cent. In spite of the fact the IMF has already loaned Greece 37 billion dollars it predicts that GDP will drop another 5 per cent this year.

Unemployment in Greece is already 18 per cent but among youth it is a horrendous 40 per cent. This is a sure recipe for more social unrest.

Lachman calls the austerity policies pushed by both the IMF and EU insane. They produce precisely the worst results since the slower economic growth causes the deficit to grow as revenues decrease.

After the election the government has a June deadline to approve another 14 billion dollars in cuts. The spending cuts are equal to 5.5 per cent of GDP.. Even before these new cuts wages and pensions were slashed by up to one quarter. For more see this article.

Greek coalition partners poised to win May election according to polls

In spite of huge demonstrations against austerity measures and widespread anger at the government the two main parties in the governing coalition may very well have enough seats to renew their partnership.

The PASOK socialist party and the New Democracy conservatives have regained support. One polll shows New Democracy at 21.9 per cent with 108 seats a gain of 4 per cent since February. PASOK the socialist party was up even more at 17.8 per cent and 47 seats versus 9.8 per cent in February.

In total the two would have 155 seats in the 300 seat assembly. That is just over half however and there are two weeks left in campaigning. The final poll could end up with a situation where other parties would need to join the coalition for a majority.

Even with these increases in support the parties are at almost historic lows in popularity. Eight other parties will probably win seats. An extreme right party Golden Dawn could win 14 seats, Fringe parties opposed to the bailout are gaining support.

Polls show that most Greeks favor a coalition of leftist parties but that is certainly unlikely to happen. While many Greeks are wholly opposed to the austerity measures a full 77 per cent want Greece to remain in the Euro zone and do what it takes to achieve this. If that is so then opposition to austerity measures is likely to be without any effect. For more see this article. The Greeks can look forward to a longer recession, cuts in salaries and pensions, and the sell off of their state assets.

Russia may buy Greek railway system

Greece has long lost sovereignty to its creditors. In return for loans it has been forced to sell off state assets. No doubt they will go at fire sale prices.

The Russian railway monopoly Russsian Railways is in talks with Greek authorities. The head of Russian Railways said: "We're keeping in contact with the Greeks … They haven't decided on the model yet, so it's too early to talk about our participation."

Romania's largest private railway is interested in the cargo part of the Greek business. Russia has been interested in investing in Greek railways for some time.Proposals made last year were reportedly rejected by Greece. The situation may be different now.

However there are reports that Greece wants a French company to run the railways to service foreign debts. However the French company involved SNCF said through a spokesperson that the operator "is not in the running for the purchase of Trainose, nor is it in the running for the purchase of a railway company or a railway line in Greece".

An EU timetable has tenders for Trainose (the Greek railway system) to be opened in the last quarter of this year. All the assets of the company will be transferred to a privatization fund. The proceeds will go to pay off Greek debt.

More Greek protests over austerity after pensioner suicide

A 77 year old pensioner shot himself outside the Greek parliament buildings yesterday. A suicide note he left criticized the austerity measures implemented by the government including reducing his pension to nothing the note claimed.

Protesters threw rocks and Molotov cocktails outside the parliament buildings. In return police fired tear gas and flash grenades.

The suicide note by the 77 year old read in part:"" "The government has annihilated all traces for my survival, which was based on a very dignified pension that I alone paid for 35 years with no help from the state..."And since my advanced age does not allow me a way of dynamically reacting... I see no other solution than this dignified end to my life, so I don't find myself fishing through rubbish bins for my sustenance."

Evangelos Venizelos, a former finance minister and now head of the socialist Pasok party that holds a majority in the coalition government, called on politicians to refrain from "political commentary" Venizelos said they should show solidarity and togetherness. Imagine he is calling on all Greek politicians even socialists to show solidarity not with the complaints of the senior about his plight but with financial capital that is imposing these austerity measures so that Greece can obtain bailout loans! Do not make political statements. Of course by his remarks Venizelos himself is making a very significant political statement.

By last night there were dozens of messages written under the tree where the senior killed himself. One message was "It was a murder, not a suicide", and another "Austerity kills".

The protesters today had similar messages chanting "This was not a suicide, it was a state-perpetrated murder" and "Blood flows and seeks revenge". According to Reuters suicides have increased 18 per cent in Greece since the austerity measures. Just in the city of Athens alone suicides increased more than 25 per cent last year.Unemployment is now running at 21 per cent. For more see this article.

The last quarter of 2011 saw the Greek jobless rate hit a record high at 20.7 per cent. Greece received a 130 billion euro bailout. However to receive the bailout Greece had to make severe budget cuts including reducing the number of government jobs.

The public and especially unions are angry. Consumer confidence is declining as well. The statistics agency ELSTAT indicated that jobs were being lost at an increasing rate. The unemployment rate of 20.7 in the last quarter of 2011 compares to 17.7 in the third quarter and 14.2 per cent in the final quarter of 2010.

Worst hit are Greek young people. In the 15 to 29 age range almost 40 per cent are unemployed. A year earlier the rate was 28 per cent itself a very high rate.

The Greek economy shrank 7 per cent in 2011 and is expected to remain in recession in 2012 for the fifth year in a row. Under these conditions it is difficult if not impossible for Greece to increase revenue and pay off its debts. No doubt the solution according to the Troika overseeing the bailout will be to demand further belt tightening.

Greece's December jobless rate was about double the euro zone average of 10.6 per cent. However, Spain's rate was even worse in the last quarter of 2011 at 22.9. For more see this BNN article.

Paul Krugman on what ails Europe

An op-ed in the New York Times by the well-known liberal U.S. economist Paul Krugman is titled "What Ails Europe?" Krugman writes from Lisbon in Portugal.

In Portugal Krugman notes that unemployment stands at 13 per cent. While this is bad enough the situation is worse in Greece, Ireland and perhaps in Spain as well. Even the whole of Europe may be sliding back into a recession.

Krugman maintains that several of the stories explaining Europe's situation are simply not true. Both what he calls the Republican narrative and the German narrative are false.

According to the Republican narrative pushed by the likes of Mitt Romney Europe has spent too much on the poor and that too much welfare state spending has ruined the economy and plunged states into debt.

Krugman mentions that Sweden which still has an extensive welfare state is nevertheless doing well economically. NOTE; The welfare state in Sweden has been cut back however. Those countries in the most trouble Greece Ireland Portugal Spain are not in the top five of 15 European euro zone nations. Only Italy is in the top five and still has less of a welfare state than Germany which is one of the strongest economies. These facts surely show that the welfare state spending per se was not the trouble.

The German story is all about the fiscal irresponsibility of nations having debt problems. The story fits Greece to an extent but not the other countries having problems. Italy's deficits happened long ago and Spain and Ireland actually had surpluses. Countries such as the U.S. and Japan can run huge deficits without apparently facing any huge crisis. NOTE: Some analysts might claim that those countries just have not faced up to their crisis as yet!

In spite of their debts the U.S. and Japan as well are able to borrow at very low-interest rates. Krugman sees Europe's main problem as having a common currency without the institutions that are required for the common currency to work properly.

The common Euro led investors to invest huge amounts of capital into countries around the edges of Europe a flow that was unsustainable. These large flows caused both costs and prices to rise making some countries uncompetitive. This in turned resulted in large trade deficits.

The countries involved cannot devalue their currencies and restore competitiveness because they are tied to the Euro. The nations only have painful choices whether they stay with the Euro or leave the zone.

Krugman thinks that Germany could help by reversing its imposition of austerity policies but will not do so. Probably it is not politically doable in any event. What is important for Krugman is that people should realise that the conventional wisdom about the too expensive welfare state and fiscal irresponsibility lead to failed policies that often make the situation worse. For more see the article. Even though these policies make the situation worse over the short term they do weaken labor and do cut spending on social programs. This leaves more of the economic pie for the one per cent. The theory is that once labor costs are low enough and the countries implement more policies favorable to financial capital that investment will flow back into those countries