European Commission vetoes Greek government's humanitarian crisis bill

The European Commission has vetoed what the government calls a "humanitarian crisis bill." The bill was meant to address poverty among pensioners and homeless families.

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The bill said:

"The deep recession due to austerity policies and the economic crisis in the past six years had a dramatic social impact. This draft law aims at tackling the humanitarian crisis through measures which ensure access to basic goods."

Free electricity and food would be provided to some poorer households under the legislation. The Commission sent the notice just 24 hours before the bill was to go before the Greek parliament. Another bill that would have allowed tax arrears to be paid in installments was also vetoed. Of course the Greek parliament can still pass the bills, but if they do they can forget about more funds being released under the extension of the bailout program. The agreement with Greek creditors is that no policy that might impact the financial objectives that are part of the extension deal would be passed unilaterally, that is without the agreement of the creditors. I might add, that includes the Troika of the European Commission, IMF, and European Central Bank now called "the institutions."

According to a communication seen by Channel 4 News, Declan Costello, director of the EC's directorate for economic and financial affairs, ordered the Syriza government to kill the legislation. Costello's letter said:During our teleconference last night, you mentioned the planned parliament passage tomorrow of the ‘humanitarian crisis’ bill. We also understand that other policy initiatives, including the installment scheme law, are in train that are to go to parliament shortly.We would strongly urge having the proper policy consultations first, including consistency with reform efforts. There are several issues to be discussed and we need to do them as a coherent and comprehensive package. Doing otherwise would be proceeding unilaterally and in a piecemeal manner that is inconsistent with the commitments made, including to the Eurogroup as stated in the February 20 communiqué.”

In effect, the letter states that if the Greek government goes ahead with this legislation it will be in violation of the deal Greek Finance Minister Varoufakis signed on February 20. It should be clear that Greece simply cannot expect to pass its reform program as promised to the voters, but only such reforms as its creditors agree can be presented. The Syriza government has been carrying on with rhetoric that has no relationship to reality. There is no new deal that avoids the strictures of the Troika. It is the same deal with the Troika now called "the institutions." Legislating reforms that might use funds that could be sent to pay off loans will not be allowed, unless the debtors also agree. The Greek government thinks that it can assure creditors that the new measures will not burden the budget, but obviously the Commission does not see it that way.

Syriza MP and economist Costas Lapavistas in a joint interview with the German paper Der Tagesspiegel and The Press Project International said that Greece and its EU creditors were "flogging a dead horse" by trying to keep the bailout deal going. He suggests that the two sides should be working on "an exit that will be negotiated and consensual." Lapavistas points out that in 2011, the German Finance minister Schauble was in favour of a negotiated exit. A majority of Germans now also want to see Greece exit the euro zone:A poll by German broadcaster ZDF found that 52% of Germans think Greece should leave the eurozone, and only 40% think it should stay. In February, the figures were reversed — with a 52% majority wanting Greece to stay.

Even the business news outlet Bloomberg has an article by Mark Gilbert saying that a Greek exit from the Eurozone seems inevitable.

    Reports indicate that the leaders of the Greek parties must respond by tomorrow morning at 11 AM (Monday Feb. 6) to the demands of the Troika for further economic austerity measures. These include more wage cuts. No doubt there will be more protests.

    The Greek Finance minister Evangelos Venizelos said talks with the Troika were very difficult and that . “We are on razor’s edge.” On some issues such as selling off state assets there was agreement but there was still disagreement over labor and fiscal policy for the year. 

 Imposing even more austerity and weakening labor even further is bound to create more social unrest. Greece faces a 19.1 billion bond payment March 20th. There may be general elections as soon as April. Parties that support further austerity measures may face voter anger and defeat at the polls. For more see this article. A German bank official noted: that the collapse of the Greek economy would be like opening a Pandora's Box that could kill any European area recovery. Some analysts think that even if the bailout goes through Greece will eventually default in any event.

U.S. stocks decline as Greek debt deal remains uncertain

In spite of recent announcements that a deal was near, U.S. stocks declined this morning (Jan. 23) as there still seems a stalemate. European finance ministers are pushing bondholders to provide greater relief for Greece.

The bondholders have been pressing for a four per cent interest rate at the least on new bonds that would be issued to replace the Greek bonds already held. The new bonds will have only 50 per cent of the value of the old bonds. This will help relieve Greek debt.

If a deal is not made then Greece will not receive bailout money that will enable it to pay debt coming due in March. If Greece defaults this could cause serious turmoil in financial markets to say the least. For much more detail on the situation and explanation of what is at issue see this CBC article or this BNN article.

Greek crisis still unsolved

     Late last year Greek bondholders agreed to take a haircut. Also the unreliable elected Prime Minister George Papandreou resigned. He was replaced by the unelected EU approved Lucas Papademos.
    But the Greece situation is still not sorted out even as press attention focuses on Italy and even France. The creditors banks and hedge funds are locked in battle with the Troika--the EU, IMF and European Central Bank and in negotiations with the Greek government.
   Some of the bondholders are reluctant to accept the 50 per cent haircut. There is a conflict of interest in that some debt holders who hold insurance in the form of credit default swaps can actually make money if Greece defaults! However Angela Merkel has urged that Greece be given a chance and that IMF austerity may work as it has elsewhere she claims. But Greece is already in recession and it is not clear how austerity measures will increase production. Quite the opposite by reducing demand it will probably lead to a further decline in GDP making the debt load worse. For more see this article.
    A more detailed account of the crisis can be found here.  The Troika is seeking a deal that would see Greek's debt fall from 180 per cent of GDP to 120 per cent. The talks broke up last Friday without a deal . If a deal is not reached Greece will not get the next installment of its bailout money. Within a couple of months Greece will be unable to pay its bills if this happens.
   The IMF warns that if creditors make the terms even harsher they could win only to see Greece default a situation much worse. Many analysts such as London based Professor Costas Lapavistas are concerned about the situation. Lapavistas says: "There is rising despair in Athens," "There is sullen anger and a lot of fear. The mix is combustible."
  Even if an agreement is reached it will do little but buy time for what looks to be an eventual default. Unemployment in Greece is a horrendous 18 per cent. Investment is collapsing both public and private.The  Greek economy has already shrunk by more than 15 per cent. With the economy shrinking further there is little hope that the debt burden will decrease.