Wednesday, 31 October 2012

Greece Announces Massive Budget Cuts

Greece will cut 1.7 billion euro from state salaries and 2.8 billion euro from pensions as part of a total public spending curtailment of 10.8 billion euro next year.

The two cuts are among the most controversial included in a final draft of next year’s budget, released today by the Greek finance ministry, because they contradict a declaration issued by the coalition shortly after it was elected in June to try not to touch incomes. “The fiscal target can be achieved without further cutting salaries and pensions… but by reining in waste and targeting corruption,” the text read.

Greece today also submitted a plan of how it would extend its period of fiscal adjustment by two years to 2016. The debt-ridden country is obliged under its current loan agreements to balance its budget by 2014. Greece’s finance minister, Yannis Stournaras, has said that the country’s debtors have agreed to extend that to 2016. The assertion was denied by his German counterpart.

If it were approved, the so called Mid-Term Fiscal Strategy would see Greece register a final budget deficit of 1.8 billion euro in 2016 (see table at the end of this article). Its deficit this year is expected to be about seven billion euro. If the extension were not approved, Stournaras has said, the two-year austerity programme would have to be closer to 18bn euro.

But such arguments are unlikely to carry a lot of weight with the political opposition. The radical left Syriza party has been arguing that Greece’s bailout, sponsored by the European Commission, European Central Bank and the International Monetary Fund will ultimately fail because it produces recession. 

The Greek economy will shrink for the fourth year this year by an estimated 6.6 percent, and next year by an estimated 4.5 percent, losing a total of about a fifth of its 2008 size. One in four workers is already unemployed, and that figure is expected to rise.

The knock-on effect of recession has been a drop in state tax revenues. The government expects to make 2.6 billion euro less from taxation next year compared to 2012.

The government controls 176 seats in the 300-seat legislature, comfortably more than the 151 needed to vote the budget and austerity bill through. But a 3.3 billion euro package of last-minute spending cuts to the 2012 budget voted parliament through in February witnessed about three dozen defections and massive riots on Syntagma Square before parliament. 

The tensions underlying Greek society and disagreement on how to handle them have caused friction between the coalition leader, the conservative New Democracy, and its junior partners, the socialist Pasok and the Democratic Left. A number of socialist MPs is rumoured to be planning to veto the measures, while the Democratic Left has yet to officially sign onto the package in its entirety.

“The coalition parties’ back-and-forth on the measures have no purpose other than to save face as the government heads for collapse,” said Syriza’s leader, Alexis Tsipras, on Monday.

Yesterday Prime Minister Antonis Samaras said Greece had reached the best deal possible with its creditors. “We did everything possible… We won significant concessions even at the last minute,” Samaras said in a statement. “If this agreement and budget are approved, Greece will remain in the euro. And it will emerge from the crisis.” 

A vote for the budget and austerity package will release a loan tranche of about 31 billion euro Greece needs to remain solvent after November.
How Greece Sees Its Deficit (in billions of euro)*


*Source: Greek Finance Ministry, October 31 2012

Monday, 29 October 2012

Austerity Vote Soon

Greece is scheduled to send two crucial bills to parliament in the coming days. One is the 2013 budget. A draft submitted on October 1 foresees 7.8bn euro in spending cuts and 0.5bn euro in new taxes, though those figures may now rise to a total of more than nine billion euro. A parliament source said the budget was expected to be tabled midweek.

More controversial is an austerity package worth 13.5bn euro in cuts and tax rises, which details where the hammer will fall hardest. The tripartite coalition in Athens is said to be still wrangling with its junior member, Democratic Left, over some of the labour provisions. A number of MPs from the socialist party, another coalition member, is said to be threatening to veto the bill. The government controls 179 seats in parliament and can afford a few dissidents in claiming a relative majority of 151 seats, but it cannot afford to shed so many of the ruling bloc's votes that it appears to lose legitimacy.

The prime minister's office had no schedule for the tabling of the bill on Monday morning. A finance ministry source said it could go to parliament by the end of the week. One Greek news website has it slated for Monday November 5, with the vote two days later.

Sunday, 28 October 2012

Hot Doc Publisher Explains Why He Exposed Lagarde List

Publisher Kostas Vaxevanis has been released after his arrest today for publishing what purports to be a list of possible tax evaders. He was charged with violating Greek privacy law and will appear in court on Monday.

A list of some 2,000 names was handed to then Greek Finance Minister Yiorgos Papakonstantinou in 2010 by his then French counterpart, Christine Lagarde, current head of the International Monetary Fund. It was said to contain the names of Greeks with accounts in the Swiss bank HSBC French authorities thought worthy of investigation for possible tax evasion.

Vaxevanis said in an exclusive interview to Al Jazeera's John Psaropoulos that his list of 2,059 names is that list. "A package arrived at the magazine from an unknown sender, who said 'this is the genuine Lagarde List. It comes from a politician's office, and has not been used for its intended purpose but for illegal purposes.' And the sender asked us to expose the truth. The first question was whether the list is true. So we called up a sample of well known people on the list, like shipowners who might well have accounts abroad, told them why we were calling, and they verified the amounts listed as well as the transcripts of phone calls with the bank and contact information. So it became apparent that the list was most probably genuine"

Vaxevanis said his motive in publishing the list was to inform the political debate. " I can't sit here and watch the country falter and the political system being maligned. And all this when the list exists and can be discussed on the basis of the facts. For instance it was said that there were politicians on the list - well there aren't. ... it is made up of the bosses of the politicians - from newspaper publishers, businesspeople, friends of ministers, those who wine and dine with members of parliament. That is the list."

Former finance ministers Yiorgos Papakonstantinou and Evangelos Venizelos, as well as the chiefs of the financial crimes squad who operated under them, have been called to a parliamentary committee to answer why the list was not prosecuted or made public.

Papakonstantinou said he passed the list on for investigation. Venizelos claimed the list was "legally unusable" because it came through informal channels (see the related New Athenian story). Both Vaxevanis and the radical left opposition party Syriza disagree. "This list was given to Greece officially and had been used by other countries without problems, but the ministers it was given to treated it as a private thing, not as a state asset that had to be looked into," Vaxevanis said. "One of them put it in his pocket, the other lost it, a third lost the CD - these things are ludicrous, but they stem from ulterior motives."

The "Lagarde List" as it has been dubbed by media appears at a sensitive time for the Greek government, which is planning to introduce painful austerity measures worth 13.5bn euro in parliament on Monday.

Hot Doc will publish a regular edition on Thursday, two days after the parliamentary vote. Asked whether he rushed the list into print in an off-cycle edition before the vote in order to prevent passage of the measures, Vaxevanis says he has no ulterior political motives. "As a journalist my reasoning is, I have a big story and I have to get it out," he said. However, he expressed himself against the policy of austerity. "It is creating recession and unemployment," he said. Upon leaving court today, Vaxevanis was accompanied by Rena Dourou, a senior Syriza party official.

Vaxevanis is to appear in court at noon tomorrow for an express trial (αυτόφωρο). He will try to have this commuted to a proper, criminal trial, he says, in which his lawyers will have time to prepare. He said he does not believe he violated Greek privacy law, because he only published the names on the list, not the amounts they held in their accounts. "The fact that I have an account is not a secret," he told The New Athenian. "Only the amount in the account."

The list was scanned from Hot Doc magazine and republished on a number of sites, including

Friday, 26 October 2012

A Snapshot of Where Greece is Today

The following is the preamble to a talk delivered at Cornell University on October 18. The talk was entitled The Makings of the Greek Crisis. The Cornell Chronicle published a summary of the lecture.

Greece has, over the past three years, descended to a desperate position.

Financially, it faces a potentially unsustainable debt burden of about 350 billion euro, roughly 175 percent of GDP. It is technically bankrupt since March 2010, when it sold its last multiple-year bond at 6.5 percent interest. It is effectively locked out of markets and unable to refinance its debt. It still has not eliminated its deficit, though it has cut its deficit from 36 billion euro in 2009 to a forecast 13.3bn euro this year and 8bn next year.

Economically things sound even worse. Unemployment stands at a nominal 25.1 percent for July, but that does not include underemployment (not everyone is working a 40 hour week), salary reductions, arrears in salary payments of up to six months, and the fact that many more people are expected to be laid off over the next year. For the 18-24 age group unemployment is above 54 percent, meaning that many young people who can choose to go abroad.

Competitiveness has plummeted by all indices. Greece is 90th in this year’s Competitiveness Index, carried out by the World Economic Forum, down from 83rd the year before, and that downward pattern has been a constant since 2004. The World Bank’s Ease of Doing Business index puts it at 100th place out of 183. Perhaps worst of all, Greece fares particularly poorly in the corruption department. Transparency International’s Corruption Perception Index puts it at 80th place, alongside Colombia, El Salvador, Morocco and Peru, compared to 42nd place a decade ago.

All these indices measure the extent to which Greece has become unattractive to investors. In all, Greece comes behind most or all the former Soviet satellites of Eastern Europe, which have been market economies, democracies and EU members for a fraction of the time that Greece has been over the last century.

Greece remains a net importer, though its export ratio has improved, and suffers from high inflation, suggesting that markets are still not working. It is now in its fourth year of recession, having lost a fifth of its economy, and is forecast to shrink by another 4.2 percent next year (a compromise rate agreed by Greece and its creditors as a working hypothesis, though creditors think the rate is likelier to be five percent). Prime Minister Antonis Samaras, visiting German Chancellor Angela Merkel in late August, said Greeks had suffered a one-third drop in their quality of life since the beginning of the crisis.

Politically the repercussions have been severe, at home and abroad. Greece has suffered effective loss of sovereignty since its creditors, the European Commission, European Central Bank and International Monetary Fund, must approve its budgets and may veto spending decisions. (This, as we shall see later, has severe implications for the European Union as a consensual decision making body of equal sovereigns).

Greece’s credibility with other EU member states has collapsed. It is the only eurozone member to have been put under the Excessive Deficit Procedure (financial monitoring) three times for falsifying statistics. The eurozone has become increasingly hostile after Greece repeatedly failed to implement the reform schedule attached to its bailout or meet deficit targets. Many northern Europeans now see a cleavage in values between Greece and the rest of the EU, and think the Greeks un-European. (In fact Giscard d’Estaing, the French president who sponsored Greece’s membership in the late 1970s, this year declared it a mistake and the Greeks “not ready” for Europe). It is not unfair to say that nuisance value alone keeps Greece in the eurozone.

Domestically politics have been tumultuous. Traditional powerhouses, the socialist Pasok and conservative New Democracy parties, have sunk to less than half their combined voter base as people have moved to extremes on the left and right. About 45 percent of voters went to parties opposed to Greece’s bailouts, including the neo-fascist Golden Dawn and radical left Syriza. There is a real danger that support for bailout will erode, with serious consequences for the eurozone.

The following article was published by the Cornell Chronicle, Cornell University's newspaper, summarising the lecture. 

Journalist warns that Greece is on brink of bankruptcy

John Psaropoulos

Plagued by corruption, ineffective leadership and a large national debt, Greece faces possible bankruptcy and withdrawal from the eurozone -- the group of European nations that use the euro, said John Psaropoulos, an independent journalist for NPR, PBS and Al-Jazeera, speaking on campus Oct. 18 about the Greek financial crisis.

"[Greece has] got an unsustainable debt burden of about 344 billion euros. It is technically bankrupt, because the last bond it sold on the open markets was March 2010 and that would carry the coupon to 6.5 percent interest, which is unsustainable," said Psaropoulos. "In terms of competitiveness, we [Greece] are doing worse and worse."

According to Psaropoulos, the World Economic Forum placed Greece 90th out of 142 countries in its global competitiveness index, down from 83rd the previous year. And the World Bank's business report ranked it 100th out of 183. Moreover, Greece's standard of living dropped 30 percent over the last decade.

To mitigate its debt, Greece looked toward the European Commission, the European Central Bank and the International Monetary Fund for assistance. In May 2010, Greece received its first bailout of 110 billion euros. But apparently this was not enough, Psaropoulos said, so the European Union (EU) agreed on a second bailout of 130 billion euros early this year.

"The bailout policy may be unrealistic because Greek debt is unsustainable. Austerity programs may not work," he said.

Former Prime Minister George Papandreou's solution was to propose a referendum to default from the euro, which was ultimately overturned.

"Unilateral default may be catastrophic. Reversion to the drachma will cause inflation and decrease its value by 60 percent," Psaropoulos said.

Greece's 344 billion euro debt will increase to more than 540 billion, he continued. "The debt may be forgiven, but Greece will be shut out from international markets."

He added: "Greece has suffered a complete breakdown in credibility with its EU partners because it has falsified its statistics so many times that it is the only one of the 17 eurozone members to have been under the Excessive Deficit Procedure (EDP) three times." The EDP allows creditors authorization and supervision over a country's spending decisions. Three of the four times it has been imposed was on Greece.

"Greece, politically, has suffered a loss of sovereignty," Psaropoulos said. "Politicians are making such fools of themselves that they were actually losing the authority to govern," he stated.

Conservatives and socialists, who have been alternating in power for the past four decades, were unwilling to compromise, and the country lacked a national project since the 2004 Olympics, Psaropoulos said. Additionally, the series of handouts and nationalizations started in 1981 under Andreas Papandreou, George Papandreou's father, contributed heavily to the debt.

"Greece started borrowing tens of billions of euros for social programs," Psaropoulos said. "The political value was very damaging. Once you've started making handouts, you're locked into that set of promises for many years."

In addition, he said, those who knew the right people acquired entitlements that were hugely costly. He added: "Don't you want to set up this society in a way that is fiscally affordable now so that they don't have to clean up this mess? Most people don't seem to be answering 'yes' to that question."

The talk was part of the fall speaker series "Greece and the euro" sponsored by the Cornell Institute for European Studies' Mediterranean Initiative, the Johnson School of Management and the Mario Einaudi Center for International Studies at Cornell. On Nov. 5 and Nov. 6, Mayor of Athens Giorgos Kaminis will speak on EU funding and problems facing Athens, respectively.

Jacques Diec '15 is a student writer intern for the Cornell Chronicle.