How should we interpret this week’s volte-face by Tsipras and the
Syriza government in approving austerity concessions to the Troika that
had been specifically rejected by Greek voters in a referendum less than
a week before? Short term, this would seem to provide an opportunity
for celebration for creditors and financial markets in that the Greeks
will have to repay all their debts and perhaps more importantly will not
offer a precedent to other indebted nations to demand debt relief and
therefore open the floodgates to unlimited QE and debt monetisation so
feared by the northern block.
This reprieve however
would be both temporary and illusory as it fails to address the
political or economic reality of the situation. The most obvious of
these is that Greece is bust and chasing it into the grave for the last
sou will make it less, rather than more likely to be able to pay what it
owes, let alone become a functioning and contributing member of the EU.
Politically, it is also counter-productive for the EU to be shown as a
rapacious creditor in league with a politicised and conflicted ECB to
use weapons of mass financial destruction to terrorise the Greeks into
submission. Without a debt relief, how long do you think Tsipras and his
Syriza party will last and if not them who – Golden Dawn or some other
extreme fringe, and then what?
At face value, the
concessions approved last night by the Greek legislature is at best
another attempt to kick the can down the road. While agreeing to cut
government expenditures, including pensions and defence along with
improving tax collection rates are fairly uncontentious, the current
plans also include a number of counter-productive proposals including
heavy increases in consumption taxes (eg 23% VAT on restaurants and
increased ‘luxury’ taxes on recreational boats on anything longer than a
dinghy) as well as increases in corporate and tonnage taxes along with
the removal of Island tax breaks. How this is expected to get more
tourists to want to go on holiday to Greece or more ships to locate
there is a mystery to me and seems to be blind to the simple fact that
these industries are mobile and will just go elsewhere and thus further
compound the revenue erosion. Does anyone in their right mind actually
believe the current commitment to stick to a primary surplus target of
1% for this year rising to over 3% from 2017 is achievable? Look at some
of the other proposals and things get even more ominous. Consider the
proposed amendments on insolvency laws to get debtors to pay up loans or
‘consultants’ on how to deal with bad loans or the opening up of
restricted professions such as court bailiffs. Throw in the asset
privatisations of the electricity grid company, regional airports and
shipping ports and the Greeks will be little more than rayahs in their
own land.
https://www.youtube.com/watch?v=rRBPS3o_IvU
. Germany may be obsessed with its hyper-inflation history, but it
seems to have also forgotten the dangers of leaving a nation without
hope or self-respect.
The problem with the above
scenario however, is that it doesn’t explain why Tsipras would commit
political suicide agreeing to concessions that would not work anyway. It
also fails to recognise the wider geopolitical issues at stake which
need Greece to stay in the western sphere of influence and would happily
sacrifice Germany’s aversion to sovereign debt monetisation to achieve
it. Greece has long existed on a number of fault lines (geological,
ethnic, cultural, political and religious) and this has been reflected
in its complex politics. Add in gas politics of Gazprom cancelling South
Stream in favour or a new route through Turkey and Greece and the EU’s
domestic spat over debt relief has acquired a more serious geo-political
dimension. Tsipras has obviously been playing this card with his
meeting with fellow orthodox Putin and the US are concerned enough to
put pressure on Europe.
The US therefore
needs a deal to keep Greece inside the tent, but knows that Germany is
resistant to debt monetisation. As befitting the EU and in the best
tradition of the Godfather, they need an ally on the inside that can
propose the deal to both parties while furthering its own interests
http://youtu.be/fuWkcKbBQkg
and this is where the French come in. At the last moment, the French
have sponsored the Tsipras’s apparently generous concessions which will
form the basis of discussions at tomorrow’s broader EU meetings. Debt
relief is not explicitly included, but the IMF ‘leak’ that Greece debt
is unsustainable and needs restructuring (ie relief) was incidentally
released and not accidently. Tsipras must know that his concessions in
isolation would destroy Syriza and resolve nothing, so his participation
must therefore have included broader assurances also on debt relief.
Germany no doubt suspects that its red line on sovereign debt
monetisation may be assassinated at this meeting arranged by its ally
and hence some of the rumoured hostility to the plan even though at face
value Tsipra has conceded on virtually everything barring a tribute of
children. In many ways, Merkel is being manoeuvred into an impossible
position. Reject IMF evidence of the need for debt relief and drive
Greece into default and her dream of European unity starts to look
pretty shabby. Agree to it however, and a principal will have been
conceded which will inevitably turn the Eurozone into a transfer union,
but without political responsibility or restraint which may hasten calls
for a northern block.
