Friday, 3 July 2015

Polls suggest division even after referendum

Two opinion polls out on Friday show that while most Greeks are committed to the Yes and No camps in Sunday's referendum on further austerity, the numbers are still too close to call.

A poll by the University of Macedonia for Bloomberg put the No vote at 43 percent, versus 42.5 percent for the Yes vote.

An ALCO poll for the national daily Ethnos showed the vote tipping the other way, with 41.5 percent of Greeks in favour of Yes and 40.2 favouring No.

The margin of error for both polls is three percent.

The closeness of the numbers suggests a marginal result that could still leave the country divided on Monday.

High risk voters

Between three quarters (ALCO) and four fifths (Bloomberg) of Greeks want to remain in the Eurozone, and the ALCO polls shows that three out of five Greeks fear that a No vote will endanger that status. Moreover, one on two Greeks doesn't believe a No vote will soften creditors' stance (ALCO). So at least a portion of the No vote is willing to endanger a eurozone status it wants to keep, despite the apparent futility of a No in negotiations.

What does this tell us about the No vote? Perhaps that it is based on complete mistrust that creditors are acting in good faith, and perhaps that this vote is more about an assertion of sovereignty than preservation of wealth. 

Thursday, 2 July 2015

Greece simmers ahead of referendum

A slightly abridged form of this article was published by Al Jazeera International

“When you talk this way, I can’t carry on a conversation with you!”  shouts a pot-bellied man, marching onto the pavement outside a café in central Athens.

He is addressing a white-haired man, who sits in the back of the café, waving to him to sit back down. But the pot-bellied man is besides himself. “How can you say Tsipras was appointed by the Europeans? He was elected by the people! How can you talk this way at your age?”

It is one of many spontaneous political conversations heard across Athens in these days of slow cashflow and rapid political decline. The young and charismatic prime minister, Alexis Tsipras, who has enjoyed approval ratings twice as high as the 36 percent of the vote his Syriza party garnered in a January election, is for the first time being seriously doubted as an able leader. And as is the Greeks’ wont when things go badly, some are beginning to doubt even the integrity of his intentions.

Capital controls that have shut banks and forced the Greeks to draw up to a limit of 60 euros a day from cash machines are slowing consumer spending; but they are affecting businesses more profoundly.

“Imported meat is already becoming harder to find at the wholesale market,” says Yiorgos Hatzoglou, a butcher in the neighbourhood of Neos Kosmos. Greece imports two thirds of its pork and almost 90 percent of its beef, at a cost of $1.2 billion euros a year. Wholesalers don’t always have the cash to pay importers up front.

“Importers demand cash, which isn’t easy because banks are closed,” said Antonis Zairis, vice-president of the Hellenic Retail Business Association. “The next step will be shortages of products on supermarket shelves. Right now we’re seeing the first signs of that, but we expect the situation to get worse. I believe there is political and state responsibility in this. Perhaps we did not quite understand the balance of power on the global stage.”

Strategic fumble

Tsipras has managed to get caught on the tines of his own multi-pronged strategy with creditors. Last Saturday, he stormed out of an ongoing negotiation in Brussels, and declared a referendum on the package his government was being offered, advising people to vote against it.

The ploy backfired. The European Central Bank, which is one of those creditors, reacted by cutting off liquidity to the Greek banking system, and imposed capital controls.

As queues formed at cash machines and people lashed out at the government, Tsipras relented. Hours before the expiry of Greece’s financial assistance programme at midnight on Tuesday, he wrote to creditors essentially accepting their draft proposals. Deputy premier, Yiannis Dragasakis, implied that the referendum might be cancelled, admitting that it was only ever employed as a negotiating tactic: “The government that decided on the referendum can decide something else,” he said on national television on Tuesday night. “Why did we declare it? To reach an agreement that achieved certain goals.”

But creditors have not accepted the climb-down, and are now holding Tsipras to the result of Sunday’s referendum.

“Given the political situation, the rejection of the previous proposals, the referendum which will take place on Sunday, and the recommendation by the Greek government to vote No, we see no grounds for further talks at this point,” said Jeroen Dijsselbloem, head of the euro area finance ministers’ forum, the Eurogroup, on Wednesday.

Tsipras again on Wednesday asked Greeks to back a No vote - now simultaneously agreeing to a policy package he is asking his voters to reject.

No does not mean a rupture with Europe, but a return to a Europe of values,” he said on national television. He said a No vote would add pressure on creditors for “a socially just agreement that will distribute burdens to those who can carry them and not only upon wage-earners and pensioners.”

But Tsipras has now lost both the stability a compromise would have brought, and the romantic appeal of going against the odds of unbridled capitalism.

And his inconstancy has made northern Europeans irate, leading to an escalating war of words.

Rupture

European Commission president Jean-Claude Juncker on Monday lashed out at Tsipras after repeated accusations that the Commission and Greece’s other institutional creditors, the European Central Bank and the International Monetary Fund, were to blame for the impasse in negotiations.

The Greek delegation walked out on talks “at the worst possible moment,” on Friday night Juncker said.

Vice-President Dombrovskis was spending hours, days together with all the other Commissioners involved to put together all the elements needed to provide Greece with a growth package of 35 billion euros,” Juncker said.

He made it clear that he did not believe the Greek delegation departed in good faith, accusing it of “egotism, and sometimes tactical or even populist games”.

Greece said it had been presented with an “ultimatum”. Juncker directly accused the government of lying about creditors’ intentions. “There is talk of an ultimatum, of a "take-it or leave-it" deal, as they say in French. We have heard about blackmail. But who acts this way? Who acts this way? Where do these insults, threats, misunderstandings come from - these incomplete sentences that carry the imagination of those who listen very very far away - too far?”

The deal

The deal Tsipras rejected, but accepted on Tuesday, is closely based on a Greek proposal of $1.5bn in spending cuts and tax raises this year, increasing to $4bn as of next.

But, says Alternate Foreign Minister Euclid Tsakalotos, a senior negotiator, in talks creditors were demanding much greater consumer tax hikes that would have depressed tourism, a key industry.

He also believes Greece’s creditors don’t really want to go after Greece’s oligarchs or beat corruption. “They insisted that liberalising pharmacies and bakers was somehow crucial to addressing the competitive deficit of the Greek economy. We, on the other hand, argued that we should go for the big fish first… important cartels in certain industries, public procurements, and anti-corruption measures.”

The biggest problem, however, is that while Syriza came to power wanting to talk about fundamentals of the programme – the fact that it hasn’t created growth and jobs, and doesn’t render Greece’s debt sustainable, making Greece dependent on new cash injections – it has, like previous governments, got bogged down in quibbles over its budget performance for the current year.

This has invariably meant extra, last-minute revenue measures which have further depressed the economy.

Creditors have, to a certain extent, recognised this problem. They have allowed Greece to spend an estimated $18.7bn paying off its debt over the next four years, compared to the $33bn its current programme demands.

Yet Greece wants a more fundamental approach. In accepting the latest draft proposals, Tsipras asked for a two-year freezing of debt payments altogether.

This picked up an idea expressed by former IMF director Dominique Strauss-Kahn, who suggested that instead of giving the Greeks more loans they will have difficulty repaying, they be given a two-year reprieve from debt payment to put the economy back into growth.

Following that, he said, they should have a significant amount of debt forgiven and a lengthened schedule of payments for the remainder, so as to lighten the annual load.

"My proposal is the following,” Strauss-Kahn wrote. “Greece should get no more new financing from the EU or the IMF but it should get a generous maturity extension and significant nominal debt reduction from the official sector," he said.  

"Having no access to markets and receiving no new financing from the EU or the IMF it will have to balance its budget alone," Strauss-Kahn said, warning that the Greeks would "need to make tough fiscal choices but they would make them on their own".

The trouble is that Europeans no longer trust the Greeks to do their own accounts.

Meanwhile, the referendum is artificially dividing Greeks into Yes and No camps. Both are equally against austerity, but the Yes camp no longer trusts Syriza and wants to oust it with a public vote of censure, while the No camp no longer trusts creditors to cut a fair deal and believes that only a rupture will restore Greek sovereignty.

“We’re going to sell our country piecemeal to the Germans and the Europeans, and one day we’ll look up and the only opportunities we will have will be to work for them and live on $400 a month,” says Angeliki, an student at the Athens University of Economics and Business, who has joined a protest for the No vote. “We’d like to dream of working in what we’re trained for, buying a house, getting married, having children. None of that is feasible at the moment,” she says.

It is people like Angeliki that Tsipras claims to be fighting for. But with Europe’s doors closed against him, banks shuttered at home and businesses dying an asphyxiating death, Tsipras may not long be the man authorised by the Greeks to make a deal.


Wednesday, 1 July 2015

Tsipras capitulates

Greek prime minister Alexis Tsipras has capitulated to creditors’ demands, 72 hours after walking out of talks with them and declaring a referendum.

Tsipras sent a letter to the country’s three institutional creditors, the European Commission, the European Central Bank and the International Monetary Fund, asking them to extend its financial assistance programme by two years.

In return, he accepted almost all the measures in their plan, requesting only a continued discount of consumer tax (VAT) on Greek islands, and a delay of a few months on the implementation of pension cuts and labour reform.

The letter, first made public by the Financial Times, was confirmed at lunchtime on Wednesday by the prime minister’s office.

The letter says: “The Hellenic Republic is prepared to accept this Staff Level Agreement… as part of an extension of the expiring EFSF programme and the new ESM Loan Agreement, for which a request was submitted today, June 30th 2015.”

The EFSF programme is Greece’s first loan arrangement, in which the bulk of 100bn euros was disbursed by the newly created European Financial Stability Mechanism. Greece wants the European Stability Mechanism to repay its debt for a two-year period of – essentially - bankruptcy protection.

The ESM is an intergovernmental distress fund that succeeded the EFSF and operates under the authority of the European Commission.

Tsipras stresses the date, because he sent the letter just within the period of the now expired financial assistance programme.

The DSK factor

In asking for a two-year moratorium, Tsipras is picking up an idea expressed by former IMF director Dominique Strauss-Kahn on Sunday.

Strauss-Kahn suggested that instead of giving the Greeks more loans they will have difficulty repaying, they be given a two-year reprieve from debt payment to put the economy back into growth.

Following that, he said, they should have a significant amount of debt forgiven and a lengthened schedule of payments for the remainder, so as to lighten the annual load and render the debt sustainable.

"My proposal is the following: Greece should get no more new financing from the EU or the IMF but it should get a generous maturity extension and significant nominal debt reduction from the official sector," he said.  

"Having no access to markets and receiving no new financing from the EU or the IMF it will have to balance its budget alone," Strauss-Kahn said, warning that the Greeks would "need to make tough fiscal choices but they would make them on their own".

Greek political parties universally agree with the idea of a partial debt forgiveness and maturity extension. The ruling Syriza leftists have also endorsed the moratorium idea.

In uncharted water

However, Tsipras is unlikely to be allowed back into the good graces of the Eurozone.

Addressing the Bundestag on Wednesday, German Chancellor Angela Merkel, said she would wait for the result of the referendum on July 5 before resuming the initiative on any financing deal with the Greeks.

The tough stance reflects anger across the Eurozone over the manner in which Tsipras and his team departed ongoing talks at the singe currency union’s forum of finance ministers, the Eurogroup, on Saturday. Since then, there has been a war of words that has soured Greece’s relations with the rest of Europe.

Tsipras’ government now seems unlikely to last very long. Its tactics of brinkmanship and its uncouth language and demeanour have brought Greece’s relations with Europe to an all-time low. Those tactics have also now made Greece the first developed economy to fall into arrears with the International Monetary Fund; it is set to default on payments to the European Central Bank this summer as well.

At home, Tsipras’ refusal to strike a deal over the weekend has caused a bank run and persuaded hardliners in the ECB to stop supplying Greek banks with liquidity. This has triggered a closure of banks and capital controls in Greece, meaning the Greek economy is beginning to see shortages and signs of a slowdown. If extended, these cannot but deepen the recession Greece has posted in the first quarter.


Now, Tsipras has lost both the stability of a deal with Europe, and the romantic glory of a socialist charge against the odds of capitalism. Even if he maintains the popular mandate, his party could begin to disintegrate from within, as moderates and diehard leftists decide they can no longer cohabit. And this may be the fall his creditors wish to provoke by insisting on his carrying out the referendum. A no vote means he has to manage alone; a yes vote amounts to a public censure of his policies.  


But who would then assume management of the economy and the negotiations with creditors that are so crucial to it? Would they make the right choices, scaling back the crushing burden of the public sector on the private economy, and cutting early retirement for over-entitled payrolls? And after such a Waterloo, does any Greek government have the leverage or diplomacy to disabuse creditors of their most punishing and recessionary views, and convince them to reschedule Greece’s debt?

Monday, 29 June 2015

War of words fogs referendum

In an interview on national television on Monday night, Greek Prime Minister Alexis Tsipras confirmed that Greece would not honour an IMF bond on Tuesday, unless creditors accept its fiscal plan for the next 18 months.

He also left the door open for further talks, having walked out of them on Saturday, suggesting that Greece may be looking for a way to return. “We are still at the negotiating table. We never left the negotiating table. We are basically agreed on fiscal matters. On everything else we are prepared to talk.”

But a war of words has escalated between the Greek government and the rest of Europe over the last three days, leaving little hope that the Greek government can return to any sort of understanding with European colleagues and institutions.

Commission president Jean-Claude Juncker on Monday lashed out at the Greek government after repeated accusations that the Commission and Greece’s other institutional creditors, the European Central Bank and the International Monetary Fund, were to blame for the impasse in negotiations.

The Greek delegation walked out on talks “at the worst possible moment,” on Friday night Juncker said. “We were working on further openings and the Commission together with others was proposing to limit the increase of the hotel VAT in Greece to 13 per cent instead of 23 per cent envisaged earlier.”

Vice-President Dombrovskis was spending hours, days together with all the other Commissioners involved to put together all the elements needed to provide Greece a growth package of 35 billion euro,” Juncker said.

He made it clear that he did not believe the Greek delegation departed in good faith, accusing it of “egotism, and sometimes tactical or even populist games”. Greece walked out of talks in Brussels on Saturday, saying it had been presented with an “ultimatum”.

Juncker directly accused the government of lying about creditors’ intentions. “There is talk of an ultimatum, of a "take-it or leave-it" deal, as they say in French. We have heard about blackmail. But who acts this way? Who acts this way? Where do these insults, threats, misunderstandings come from - these incomplete sentences that carry the imagination of those who listen very very far away - too far?”

Tsipras said failure for last week’s talks belongs with creditors. He reiterated his belief that creditors are trying to intervene in Greece’s referendum since it was in their power to extend liquidity to Greek banks and use ECB profits on Greek bonds to pay the IMF, preventing a default - something Greece requested on Saturday. He criticised Greece’s Eurozone partners for putting themselves above Greece.

“There are no hosts and guests in Europe. And we don’t feel like guests in Europe… the Greek people are a European people. But those who use blackmail to violate all that has been achieved are doing it at their own risk.” 

But European leaders seem to be in no mood to accommodate Tsipras. In a statement on Greece on Monday, German Chancellor Angela Merkel insisted that the Greeks had to make the first move to mend their finances. “It is important—and in this position there will be no change—that own efforts and solidarity continue to belong together,” she said.


The Financial Times on Monday claimed to have obtained a copy of a letter from Donald Tusk, head of the European Council, turning down a Greek request to extend the financial assistance period by a month. "After consultations with the leaders, in the absence of new elements, I see no willingness to go against the positions expressed by the Finance Ministers at their June 27 meeting," the letter is alleged to say. It apparently, though, leaves open "the door to negotiations." 

Capital controls

Greek authorities began to clarify capital controls for households on Monday:

-Banks will remain closed for six business days, until July 6.
-ATMs were restocked on Monday but withdrawals are limited to 60 euros per card per day
-Domestic electronic transfers via web banking, phone banking and credit cards continue normally
-Cards issued by financial institutions abroad are not subject to these withdrawal limits
- Salary and pension deposits are to be made normally into beneficiaries’ accounts, but they are subject to the withdrawal limits

Retail business seemed to resume normally on Monday morning. While households are likely to remain liquid thanks to the fact that they have withdrawn several billion euros in savings over the past two weeks, it was unclear what the rules would be for businesses.

The heads of the country’s chambers of trade and industry wrote to Tsipras to seek an audience on Monday, saying that business was “asphyxiating”.