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Greek Debt Negotiations at 11th Hour

The weekend of June 27-28 marks the likely last comprehensive negotiating session between the Troika and the Greek government before the current extension of the debt agreement between Greece and the Troika formally expires on June 30, 2015.

As final negotiations come down to the wire, the class nature of the bargaining positions of the two parties is becoming increasingly clear. The Troika clearly wants Greek workers, pensioners, and small businesses to pay for any further debt deal, while the Syriza government desperately tries to have corporations and wealthy Greeks to pay more, and the Troika to absorb more of the costs of any restructuring of the debt.

Greece wants a solution that allows their economy to ‘grow out of’ the debt, while the Troika wants a continuation of spending cuts and tax hikes on workers, retirees and others—some now even more draconian than in the past—as the solution. Put another way, the Troika wants more austerity and economic stagnation, while Greece wants to lighten the burden of austerity in order to get some growth going.

Greece’s Latest Concessions

During the past week, bargaining has intensified between the parties. Earlier last week Greece offered new proposals to the Troika—to which the Troika responded outright rejecting the Greek new proposals and signaling they were close to their ‘take it or leave it’ final position.

At the start of last week Greek representatives provided the Troika a comprehensive 11 page written proposal, which included significant further on pensions and sales taxes—i.e. issues the Greeks have said in the past were a ‘red line’ they would not cross. But they crossed, in a last minute good faith effort to entice the Troika to try to meet them half way. They didn’t.

Specifically, in its June 23 comprehensive proposal, Greece offered to raise the early and normal retirement age for pensions in stages over the next several years. It continued to refuse to retract, however, the modest increases to Greece’s poorest pensioners it implemented since January, which reversed the extreme pension cuts made by previous Greek governments since 2010. Even with the recent modest pension restoration for the poorest, more than half of Greek pensioners still remain below the income poverty level. Greece also proposed for pensioners to increase the premiums that they pay for national health coverage, which reduces some of the pension hike. At the same time, Greece proposed that contributions by business to the national retirement system (similar to ‘social security retirement’ in the US) increase modestly.

In the proposal Greece also offered to increase the sales tax, called the Value Added Tax (VAT), even though sales taxes impact workers and retirees on fixed incomes far more severely than the rich. The Syriza government accepted the 23% VAT demanded by the Troika, providing that it include lower tiered rates of 13% and 6% for basic food, restaurants, medical supplies and other essentials, and providing as well that the many small businesses in the Greek islands, who are almost totally dependent on tourists, would remain exempt from the sales tax hike. The sales tax hikes would realize approximately $1.5 billion more annual revenue in Greece.

At the same time the government proposed to have Greek corporations and the wealthy, who have been avoiding taxes for most of the past six years, now pay more. The corporate tax rate would be raised from 26% to 29%, and an excess profits tax of 12% on businesses earning more than $550m a year in profits be introduced. In addition, the proposals called for a higher tax on luxury yachts, and supplementary income tax hikes on the rich. The combined tax hikes would raise another $1.5 billion in revenue. Another $200 million in defense spending cuts were proposed.

Greece had previously also made concessions on permitting some privatizations, although not the almost unlimited privatization plan the Troika had embedded in the prior 2012 debt negotiations deal. But significant concessions on privatizations were also included.

Just these three areas—pensions, taxes, and privatizations— amount to about 2.5% of Greece’s future economic growth set aside to service its Troika debt. In other words, Greece would have to grow more than 2.5% in 2015, and potentially even more annually thereafter, in order to generate additional income to get out of depression. The first 2.5% would go to the Troika. That’s not a modest task—and represents a major concession by Greece—given that growth rates in the more advanced sectors of the Eurozone economy, including Germany, are today not even close to 2%.

The Troika’s Response

So what was the Troika’s response to this major offer from Greece?

On Wednesday, June 24, they essentially threw it back in Greece’s face, saying it was not ‘credible’ (meaning, more cuts required). They didn’t even make a counter offer. This initial arrogant response incensed Greek negotiators, and provoked an angry response within Greece. Demonstrations against the Troika immediately followed and have continued. And Greek parliamentarians rebelled—especially the left wing of Syriza—some raising the demand Greece should create its own currency as a preparation for leaving the Eurozone.

With this growing opposition at home, Tsipras met with finance ministers and Eurozone government heads in Brussels on Thursday, June 24, in a Euro Summit meeting, in what was supposed to be a final effort to conclude a deal. Nothing came of it. Troika hard liners emphasized their continued opposition and demanded Greece provide still further concessions, beyond what they offered earlier in the week.

Following the June 25 Summit meeting, IMF Director, Christine Lagard, commented “It’s still short of everything that should be expected”, and specifically rejected the idea of raising taxes on corporations and the wealthy. The European Commission called the Greek concessions only a “basis for starting negotiations”. The strongest response was from Wolfgang Schaubel, the German finance minister, the hardest of the hardliners and a public advocate for pushing Greece out of the Euro, chastised his colleagues at the EC for even suggesting the Greek proposal was a basis for negotiations and “for raising some kind of expectations” there was still room to negotiate. Schaubel added the Greek proposal indicates they had actually “gone backwards”—a statement that was clearly an outright misrepresentation.

Schaubel is the architect of what is the Troika’s ‘Plan B’ to precipitate a default as a condition to get Greece to leave the Eurozone. He has long believed the Eurozone would be stronger without Greece and that the European Central Bank’s $1.2 trillion quantitative easing (QE) money slush fund passed earlier this year would be sufficient to contain any Euro-wide fallout from a Greek default and exit.

Others in the Troika are not so sure, however, about the economic contagion effects of default or Grexit. Nor about the potential political consequences of a Greek default and exit. If Greece exited, and then recovered, it would certainly give impetus to other movements within the Eurozone, and even the European Union itself, like Britain, to consider exit. It would certainly increase the appeal of rising parties on the left and right within Europe to run for office on programs to exit.

Following the Thursday, June 25 meeting, the third in the week, late that day the Troika made its first detailed response to the Greek proposals. Here the class nature of the on-going bargaining between the Troika and Greece becomes explicitly clear.

Whereas Syriza and Greece proposed to provide relief for the poorer citizens of Greece with modest pension improvements, exceptions to the sales tax hike, and more taxes on corporations and the rich—the Troika’s proposals were just the opposite.

The excess profits tax proposed by Greece was rejected outright by the Troika, as was the increase in social security retirement contributions by Greek employers. The Troika also demanded that proposed supplementary pension payments for the poorest be removed, that limits on early retirement be implemented, and that the retirement age for pensions in general be raised. In addition, the Troika rejected proposals to exempt the Greek islands from the 23% sales tax and added harsh limits on what qualified for the reduced 13% and 6% tiers. The Troika further demanded implementation of the draconian terms of pension reform laid out in the 2010 initial debt deal, effective immediately, July 1; a shelving of minimum wage increase plans; and demanded Greece must conform to labor market reforms being proposed elsewhere in the Eurozone—meaning limits on union bargaining and striking.

Clearly, what the Troika wants has little to do with debt restructuring. It has everything to do with making workers, retirees and small businesses continue to pay for the debt. The Troika does not want taxes raised. It wants wages, benefits, and costs cut. That’s more in line with the Euro-wide strategy of ‘labor market reform’, now at the center of Euro business strategy and designed to reduce business costs, in order to make the Euro more competitive with regard to exports as the primary strategy for Euro economic recovery.

Spain has already implemented labor market reforms. Italy and France area proposing to do so. Even Germany is moving to limit the right to strike. To allow Greece to get out from under labor market reform would send the wrong signal and set the wrong precedent throughout the Eurozone. It would undermine Euro financial and government leadership plans to make workers and retirees pay for economic recovery.

The June 25-26 Positions of the Parties

Greece’s leaders have pinned much of their hopes in the debt negotiations on dividing the Euro bureaucrats. They know the finance ministers, central bankers—and IMF especially– want austerity as usual to continue. Tsipras and Syriza have hoped that by appealing to European unity, they could get European Commission leaders and heads of government—especially Germany’s Merkle and Holland of France—to get the finance ministers and bankers to act more reasonable in debt negotiations. But this appears to have been a false assumption and a questionable strategy for Greece so far.

Following the June 25 meeting, Merkel and Holland met with Tsipras for 45 minutes, according to the business press, urging him to accept the Troika’s “generous” offer, as Merkel termed it. During their private meeting with Tsipras, Merkel and Holland also suggested an offer might be forthcoming to provide Greece with funding to cover its debt payments until November 2015—provided, however, that Greece accept more concessions demanded by the Troika. That would amount to $17.2 billion, disbursed in four installments by November, and would include $1.8 billion with which to pay the IMF due on June 30. The offer might even include stretching out Greece’s bond principal payments by additional years and reducing the interest rates. That would reduce Greece’s annual total debt payments significantly. And it would not require approval by German and other parliaments, since it would add nothing more to their governments’ share of the total debt.

This then is the Merkel-Holland ‘carrot’, offered at the last minute on June 25-26, added alongside the Troika ‘stick’ of Schaubel and friends’ and their ‘Plan B’ to push Greece to default, and the Troika’s June 25 slightly amended ‘Plan A’ of concession demands.

Greece was then given until Saturday, June 27 to respond and meetings were set up for the weekend of June 27-28.

Greece’s latest concession proposals plus the Troika’s response for more pension cuts, sales tax hikes, and privatizations is where the bargaining will begin between the parties on Saturday, June 27 and over the weekend. Whether the Greeks will be willing to buy the $17 billion and another 4 months extension, in exchange for more concessions on pensions and taxes that the Troika especially wants, should be apparent by June 30.

Comparing Strategies to Date

The Troika has been following a smart strategy from its perspective and interests. Plan A formal proposals, Plan B in the background, plus a soft-cop government heads last minute intervention. Unfortunately, the Greeks have no similar apparent ‘Plan B’ that would have to include at minimum replacing the Euro with an alternative currency, controls on capital flight, funding from Russia or China, and taxes payable in the new currency. As the first serious challengers to European neoliberalism, they have few if any allies outside the bargaining table. The Greeks therefore have been largely responding to Troika strategy and tactics, rather than driving the bargaining agenda.

Greek negotiators thus go into the June 27-28 weekend meetings under great pressure to concede yet again. They can buy another four months as before—providing they agree to more concessions. For that they get more money from the Troika to pay the Troika, which changes nothing. Come November, they of course will get to play the same Troika game and make even more concessions.

On the other hand, if they, the Greek team, hold firm on the Troika’s further demands of the past week to cut pensions more, to raise sales taxes more, to provide more tax relief for businesses and investors, to sell off more public enterprises and resources—that is if they let it go to default—then Schaubel’s ‘Plan B’ will no doubt begin. It will start with the ECB not providing further liquidity to the Greek banks, which could precipitate a bank run and capital flight from Greece. Economic stress and dislocation will grow in Greece. The next phase of Schaubel’s ‘Plan B’ is no doubt political—to undermine Syriza in parliament, to get a coalition of opponents to call for a confidence vote, and to push their political and economic allies within Greece to hold new elections—in an ultimate goal of getting a more amenable government to bargain with come November.

What the Troika really wants therefore is more concessions—now or in November. It wants class-based labor market reforms. It wants to destroy the Greek promise of a reformed, no longer Europe-wide neoliberal consensus.

What the Troika doesn’t want is the example of even a moderate left wing government in Greece challenging Europe’s big bankers, their finance ministers, and their government buddies. What they don’t want is Syriza—and the example it sets to other rising parties on the left and right who might also challenge the neoliberal status quo. And if they can’t get Syriza to self-destruct itself by more concessions, then they’ll continue to search for another way.

What Syriza represents is an attempt to return to a Social Democracy of a previous day and age. And that’s just not acceptable in the new, global neoliberal world system.

Jack Rasmus is the author of the forthcoming book, ‘Systemic Fragility in the Global Economy’, by Clarity Press, 2015. He blogs at jackrasmus.com. His website is www.kyklosproductions.com and twitter handle, @drjackrasmus.

This content was originally published by teleSUR.

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Jack Rasmus is author of the recently published book, ‘Central Bankers at the End of Their Ropes: Monetary Policy and the Coming Depression’, Clarity Press, August 2017. He blogs at jackrasmus.com and his twitter handle is @drjackrasmus. His website is http://kyklosproductions.com.

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