[Marxism] Austerity Off-Ramp: Failed Europe Talks Steer Greeks Left

Louis Proyect lnp3 at panix.com
Thu Jan 22 15:49:25 MST 2015


Wall Street Journal, Jan 22 2015
Austerity Off-Ramp: Failed Europe Talks Steer Greeks Left
Walker, MarcusView Profile; Kakaounaki, Marianna.


ATHENS -- Greek Prime Minister Antonis Samaras, under pressure at home 
to end his country's financial bailout regimen, sought help last spring 
from German Chancellor Angela Merkel about relieving some of Greece's debt.

Ms. Merkel asked an interpreter to translate the phrase "debt relief," 
according to people familiar with the meeting. Then she told Mr. 
Samaras: "It doesn't sound as good in German."

The retort was an early sign Greece could expect little clemency from 
its German-led creditors.

Greece, the eurozone's most troubled economy, remains tethered to an 
unforgiving bailout machinery, built at Berlin's behest, that issues 
financial aid in exchange for reforms and regular inspections.

The system's iron rules helped push the Greek government to snap 
elections Sunday, with an outcome that could return the country to the 
brink of exit from the euro. In polls, Mr. Samaras's ruling 
conservatives trail the radical-left opposition party Syriza, which 
promises to end the austerity Europe has imposed on Greece as the price 
of rescue loans.

Syriza could find it even harder to swallow the market-oriented 
overhauls that proved too much for Mr. Samaras's government. Unless it 
agrees to overhauls, German officials say, Greece won't get the loans it 
needs to avoid default by the summer.

Even if Mr. Samaras manages to win Sunday, the mounting conflicts 
between Athens and its creditors show how hard it will be for any Greek 
leader to satisfy Europe and the International Monetary Fund without 
causing political convulsions at home.

Germany's stringent recipe for making the eurozone more frugal and 
competitive is putting such pressure on weaker euro members that 2015 
threatens to be a year of political upheaval. Across Europe's depressed 
South, rising political upstarts such as Syriza and Spain's left-wing 
Podemos party are challenging unpopular ruling establishments.

The renewed Greek drama illustrates how Europe's long economic malaise 
is increasingly turning into a political and social crisis, eroding 
public confidence in established parties -- and in the institutions of 
the European Union -- while fueling the rise of populists of both left 
and right.

This account of how Athens and its lenders brought a long-simmering 
crisis back to a boil is based on interviews with 18 senior officials in 
Greece, Europe and beyond. Many European officials said Greece was 
guilty of hubris by trying to end creditors' control before fixing its 
economy. But if Mr. Samaras loses Sunday's elections, Europe's rigid 
machinery will have been his nemesis.

"We always tell the crisis countries to 'Stay the course,' " and 
continue with painful policies if they want to stay in the euro, a 
senior German official said. "But it's difficult for them. All we are 
offering is the stick."

Mr. Samaras, a suave conservative who swings between statesmanship and 
populism, used to rail against the tax increases and spending cuts 
required under Greece's bailout memorandum with the eurozone and the IMF.

As opposition leader in 2011, Mr. Samaras said the agreement 
"permanently suffocates the Greek economy." Rather than blaming the debt 
crisis for the tough measures, he said: "It's the memorandum that has 
bought us closer to bankruptcy."

But after winning election in June 2012, Mr. Samaras traveled to Berlin 
to offer Ms. Merkel a mea culpa. He rehearsed his lines with aides for 
six hours in the Berlin Hilton, then persuaded Ms. Merkel that he would 
carry out the measures. She backed him, overruling others in Berlin -- 
including her finance minister, Wolfgang Schauble -- who wanted to boot 
Greece out of the euro.

For nearly two years, Mr. Samaras implemented enough of the bailout 
requirements to satisfy inspectors from the IMF, the European Commission 
and the European Central Bank, a group nicknamed the troika. Every 
positive report won Greece another slice of bailout money. The gaping 
budget deficit shrank.

But so did Greece's economy. By early 2014, GDP was 27% smaller than 
before the financial crisis. Unemployment had reached 28%. Households 
and businesses had sunk into debt as incomes plunged. A debt crisis that 
began with government had spread to the private sector. And although 
recession finally ended, voters had had enough.

The government and European authorities trumpeted Greece's bond issue in 
April, the first in four years. Greece had also achieved a small primary 
surplus: tax revenues covered public spending, excluding debt interest.

But such progress rang hollow to Greeks who paid for it with higher 
taxes and deep cuts to pay, pensions and health care. "To many ordinary 
Greeks, the primary surplus means, 'I am poorer,' " said Nick 
Malkoutzis, founder of MacroPolis.gr, a site of political and economic 
analysis. "But the hope was that we had staggered over the finish line."

During European Parliament elections in May, Mr. Samaras faced a 
younger, left-wing version of himself: Syriza leader Alexis Tsipras, who 
blamed the crisis on austerity, not austerity on the crisis.

Mr. Samaras, meanwhile, told voters the pain was ending. "There will be 
no new measures," he said at a rally in Athens. "No new measures" became 
his mantra. But under the memorandum, Greece still had to boost its 
primary surplus to a hefty 4.5% of GDP and hold it there for years.

Syriza came first in the European elections. Lawmakers from Mr. 
Samaras's party, New Democracy, made it clear they were tired of passing 
unpopular measures. The premier shuffled his cabinet, replacing 
reformist ministers with populists who could take on Syriza.

Mr. Samaras's priority was to get out of the bailout straitjacket as 
fast as possible, said people familiar with his thinking. His plan was 
for Greece to refuse any more bailout loans after 2014, instead relying 
on bond sales. He sought, at most, an overdraft facility from Europe to 
assure bond investors.

European inspections would be minimized. The IMF -- the troika's 
toughest enforcer -- would be sent home. Mr. Samaras hoped to declare 
victory by late 2014. By building political momentum, he could win a 
tricky vote in the Greek Parliament: The selection of a new Greek 
president by a February 2015 deadline. The post is ceremonial, but 
failure to fill it triggers general elections.

For Mr. Samaras's plan to work, Greece needed to first pass a major 
troika review that would yield 7.2 billion euros ($8.3 billion) in aid. 
The problem was a backlog of overhauls from past reviews, including 
reforms to taxation, pensions, labor, banks, mortgages, unions, market 
regulation and the public payroll.

Most officials in Greece's government wanted to dilute the changes and 
push the most unpopular reforms into the future. Demands for pension 
cuts and sales-tax increases, for example, were "political suicide," a 
senior Greek official said.

All sides accepted that Greece couldn't complete all the requirements by 
year-end. The troika met with Greek officials in Paris in early 
September to find out how much Greece was willing to do.

During talks at a diplomat's villa, Greek ministers and aides to Mr. 
Samaras were deliberately vague "because we were testing the water," a 
Greek official said. A top Samaras aide demanded the IMF show respect 
for Greece's fiscal improvement. "You can't treat us as if we're still 
in boot camp," he said.

At night, top officials from both sides dined at a modest bistro near 
the Arc de Triomphe, after first checking for Greek tourists. The troika 
proposed more time for the review and extending the bailout into 2015. 
But that would deny Athens the prize of liberating Greece from the 
program by Christmas.

The Greeks replied that they wanted no more money from Europe or the IMF 
after December, when the country would turn to bond markets. The troika 
was skeptical.

Back at the villa, European Commission negotiator Declan Costello ended 
the Paris talks by reading aloud the list of overhauls Greece had 
rejected. "It's impossible for us to accept your doing nothing on all of 
these," he said.

Mr. Samaras then appealed to a higher power. On a Sept. 23 visit to the 
German chancellery, he asked Ms. Merkel to understand that he couldn't 
enact so many unpopular measures during 2014. If Europe pressed Greece 
too hard, it would find itself dealing with a much less cooperative 
Syriza government, he warned.

Difficult reforms could be postponed -- as so-called leftovers -- under 
a gentler post-bailout agreement that would free Greece from the 
shackles of the troika.

"We want to declare victory," Mr. Samaras told the chancellor. "It would 
be a big success for Europe" if Greece, the hardest-hit crisis country, 
could graduate from its bailout.

Ms. Merkel asked if bond markets were ready to fund Greece, according to 
people present. If not, then Greece would need more than overdraft 
protection from Europe. It would need another bailout.

Ms. Merkel said Greece's next phase would still require robust 
inspections -- including the IMF. Otherwise, there was no guarantee that 
Greece would continue with its overhaul. She urged the Greek premier to 
complete the troika review.

The German side felt Greece was trying to have it both ways. Mr. Samaras 
was seeking reform delays now -- and weak controls later. Berlin 
suspected Athens was hoping the troika would let it off the hook. German 
officials advised tackling tough reforms right away. Popular anger would 
die down, they said.

A trip to Athens by the troika a week later made little headway on the 
disputed reforms. When Greece's finance minister, Gikas Hardouvelis, 
tried to schedule the next meeting, Mr. Costello, of the European 
Commission, said, "Let's meet when you've made more progress on these 
points."

In October, Greece proposed a budget law that infuriated the troika. It 
would allow many Greeks with tax debts to pay them off in 100 monthly 
installments. The scheme's leniency risked undermining already weak 
habits of paying taxes promptly, troika officials told Athens.

A plunge in Greek bond prices that month scuttled Greece's chances of 
raising its own funds. The selloff partly reflected investor suspicions 
that Greece's troika review was going badly, as well as fears the 
government might fall over the presidential vote due by February.

With the troika refusing to return to Athens, officials met again in 
Paris during November to try to break the deadlock. Greek officials, now 
worried the review could fail, offered some concessions.

The IMF maintained its demands for tough labor and pension changes. The 
IMF also wanted extra austerity measures to cover an anticipated budget 
shortfall from sagging tax revenues.

Greek officials thought the IMF was being stubborn and overly 
pessimistic. They became convinced the IMF was avoiding an agreement 
that would pay Greece <euro>7.2 billion, as a hedge against Syriza 
coming to power.

"You are pulling the rug from under this government," Chrysanthos 
Lazaridis, a top aide to Mr. Samaras, told the IMF in Paris. The IMF 
stays out of politics, was the reply.

The ECB, usually a quiet observer in troika talks, backed the IMF's view 
that Greece was doing too little.

Even the European Commission, which showed more sympathy for the 
political cost of reforms, felt Greece's concessions on taxes and 
pensions fell short. The commission thought Greece offered enough to 
justify another troika visit to Athens, but not enough to close the 
review. The IMF, meanwhile, didn't think it was worth the trip.

On Nov. 30, the Greeks, increasingly nervous, emailed new concessions. 
The proposals, which included higher sales taxes on the economically 
important hotel sector, caused a public fury following news leaks.

The IMF wanted more. Germany, which had brought the IMF into Europe's 
crisis to crack the whip, concluded that Athens didn't understand: There 
would be no money for countries that didn't complete their homework. 
Even the commission wasn't satisfied.

"At the end of the day, they had reached the limit of what they could 
do," a Brussels-based official said. "And it wasn't really good enough."

Mr. Samaras had run out of time to attain the victories he had sought 
before the Greek Parliament voted on the presidency.

In early December, Mr. Samaras and his closest aides decided the 
government's survival now required a roll of the dice. They brought 
forward the presidential ballot, and postponed a deal with the troika 
until 2015.

Their gamble was that enough lawmakers would support the government's 
nominee for president because, if not, snap elections might sink 
incumbent lawmakers along with the country.

The gambit failed. Mr. Samaras couldn't mount an argument that drew 
broad support. A government that had promised to end the bailout, 
curtail the measures, expel the IMF, and alleviate the debt had returned 
empty-handed.

Eurozone finance officials now think Greece will need a longer bailout. 
Sunday's election winner must bridge an even bigger gap.




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