Rocking Horses by Andrew Ellis Johnson.
With Greece having agreed late last week to virtually all the Euro finance ministers’ prior demands for concessions, Euro ministers meeting in Brussels over the weekend, July 11-12, were expected to focus on discussing the terms for Greece’s debt restructuring in exchange for the latest Greek concessions. That is what Greek negotiators apparently expected—i.e. before the ministers’ hardline German-led faction raised further demands on Greece and ‘moved the negotiating goalposts’ yet again, to use a sports analogy, by proposing even more onerous requirements for a deal at Saturday’s July 11 finance ministers meeting.
On July 11 with Euro finance ministers arguing ‘violently’ with each other, according to the business press, the ministers meeting broke up. A tentative plan for Euro Union government heads to meet on Sunday to endorse a deal was cancelled. But that was followed by another last minute intervention by the French late Sunday, July 12, and French president, Holland, German Chancellor, Angela Merkel, and Greek prime minister, Alexis Tsipras, worked out another compromise to the hardline German plan in the early hours of July 13. That compromise adopted much of the German hardliners proposals, except for the demand that Greece exit the Eurozone for a temporary five year period.
As the negotiating dust cleared Monday morning, July 13, here’s what appears to have happened over the weekend, leading to the tentative agreement between the Troika and Greece’s negotiators. The deal must now be approved by Greece’s parliament by Wednesday, followed by the other Eurozone parliaments by the weekend.
Just prior to last weekend’s negotiations, Greece conceded on July 9 to virtually all the Troika’s prior demands to continue austerity, in the apparent expectation of achieving some kind of debt relief and restructuring from the Troika in return. Greece moved off nearly all its prior major positions with regard to concessions and agreed to Troika demands for increases in the sales (VAT) tax. It accepted all the Troika’s demands concerning the VAT, including no discounts or breaks for services or the tourist dependent Greek Islands. Greece also dropped its proposal to implement a 12% business tax on medium and large businesses, again in agreement with the Troika position. It agreed to pension cuts demanded by the Troika, the implementation of labor market reforms, and a broader and faster privatization and sales of Greek economic assets to private buyers—again demanded by the Troika. Greece’s position on concessions and austerity is now essentially the Troika’s. It had hoped by agreeing to such concessions, it would open the way to negotiations on restructuring its debt and some kind of debt relief. No such luck.
The Tsipras concessions of last week, which were offered to the finance ministers before they met this past weekend, were apparently worked out behind the scenes between Greek prime minister and the French government. This unofficial joint Greek-French offer to the ministers was supposed to pave the way to a quick agreement at the ministers’ Saturday meeting this past weekend, by agreeing to continue Greek austerity in exchange for some token debt restructuring while allowing Greece to stay in the Eurozone. But it didn’t.
The hardliners’ faction among the ministers at the Saturday ministers meeting then moved to scuttle that French-Greek deal, in what was reportedly an acrimonious nine hour long debate in Brussels. Led by Germany’s Wolfgang Schaubel—with his Baltic, Finnish, and east European allies whose economies are dependent on Germany financial assistance themselves closely in tow—the hardliners intensified their demands over the weekend. Schaubel and friends shifted the debate from ‘concessions for substantial debt restructuring‘ to ‘more concessions plus debt pre-payment or else Grexit’. In other words, the German-led faction raised new even more onerous demands on the Greeks. Demands so insulting the Greeks would have no alternative but to Grexit perhaps—that is, a final solution that Schaubel and the hardliners have always wanted as far back as 2012.
Schaubel’s ‘New Demands’
What were the hardliners new terms? First, they demanded there be no new loans for Greece. And no debt forgiveness as part of any restructuring deal. Greece’s request for some debt forgiveness and new loans in exchange for all the concessions was rejected outright—a position even to the ‘right’ of the IMF’s of a week ago where it was acknowledged some kind of adjustment of debt levels was needed. What the hardliners only ‘suggested’ (i.e. did not even officially propose) in Schaubel’s ‘internal document’ released only to the finance ministers was maybe, only maybe, the term of the current debt might be extended, from 20 and 30 years to 40 years.
Second, the Schaubel document demanded new provisions to ensure Greek debt payments in the future will be on time. In what is one of the most ironic statements to come out of the last four months negotiations, the hardliners insisted that ‘Greece could not be trusted’ to make its payments even if a deal were signed. Therefore, the German led faction demanded that a special Trust Fund be set up for Greece. Greece would ‘deposit’ $55 billion worth of Greek assets in the fund. (Read: virtually all its public goods, utilities, airports, ports, parks, enterprises, etc.). Debt payments would be made from the sale of those assets. (Read: the fund’s managers would sell the assets at whatever below market price to whatever Euro investors they decided. The Eurocrats would approve the checks). Greeks would no longer determine what would be ‘privatized’ or sold off to whom, when, or at what price; the Eurocrats would do that. Public assets would be sold no doubt at ‘firesale’ prices to big banker and investor friends elsewhere in the Eurozone. What that all amounts to is ‘privatization on steroids’.
In other words, in a move more akin to 17th century conquistadores confiscating Incan and Aztec gold, the economic raping of Greece would shift to an even higher level than it has since 2010 and 2012. And the Greek parliament’s independence on economic matters and policy would thus be severely limited. Not only would Greek economic assets be seized, ‘stripped’ and sold off as they decided, but so would Greek sovereignty and democracy be shredded. It all looks somewhat like the Euro-IMF solution for Ukraine, where in exchange for more debt the Euro and US bankers have been put in direct control of day to day management of the economy there. Is some kind of new form of Neoliberal colonialism thus emerging, one wonders?
Third, and still more onerous, was the Schaubel document’s proposal that Greece ‘temporarily’ exit the Eurozone for a period of five years, after which time it could petition for its re-entry. In other words, the latest deal offered the Greeks is: agree to all our demands, implement all the concessions now, turn over all your assets to us to sell, then we’ll talk about debt terms. And if you don’t like it, you are suspended by our ‘Euro School’; you can leave for five years and think about it.
‘Temporary’ here is just a tactical ploy by the Schaubel faction. There’s no such thing as a temporary exit. Should Greece leave the Euro and then its economy does better, why would it ever consider going back to the Euro? And if it left, and it did worse, why would the Euro ministers, Germans in particular, want to accept back after five years a country and economy even worse than it is today? Schaubel and friends know this full well. ‘Temporary’ is just a sop to public opinion and a way around Eurozone’s own rules to make it look like the Eurozone is not throwing Greece out.
Merkel Chooses German Politics
The apparent strategy of the Greek-French crafted deal last week was to enlist the ‘soft’ liners among the Euro finance ministers to join France and Greece. As a group together they would then appeal to German leader, Angela Merkel, to join them in preventing the breakup of the Eurozone. Merkel was thus maneuvered by Schaubel and company into a lose-lose situation, caught between the Schaubel faction and German public opinion, on the one hand, and the French compromise proposal and Euro unity on the other. Which way she might ‘fall’ in terms of throwing her support was last week’s strategic question. But no longer.
Following the Saturday, July 11, ministers meeting, Merkel came down on the side of Schaubel and German public opinion, which has been whipped up in recent weeks and months by the hardliners and their media friends in a move designed to make it impossible in terms of German domestic politics to oppose any change in the Greek debt structure. Merkel reportedly agreed, therefore, that the Greeks must legislate and implement all the hardliner ministers concessions within 72 hours. Only then might the Troika agree to start negotiations on debt restructuring.
By supporting the Schauble demands, Merkel bought into the idea that Greeks should give up any little leverage in negotiations they might still have left, and then the Troika will talk about debt. It’s like saying in labor contract negotiations: ‘end your strike, agree to our concessions, come back to work, sign the agreement on our terms, and maybe then we’ll visit the topic of a wage increase.’ Merkel now has clearly come down on the side of German politics at the cost of Euro unity.
By Sunday, July 12, Schaubel and company appeared to have prevailed within the finance ministers group, as well as within German domestic politics. The new Troika proposals appeared so onerous that Greece could not agree to anything but Grexit; that is, what Schaubel and friends have always wanted. The more interesting question is why?
Why Hardliners Prefer Grexit
It is a known fact that Schaubel and the ‘right wing’ of Euro bankers and ministers have wanted to eject Greece from the Euro since 2012. In that prior debt restructuring deal, private bankers and investors were ‘paid off’ and exited the Greek debt by means of loans made by the Troika, which were then imposed on Greece to pay. 2012 was a banker-investor bailout, not a Greece bailout. What was left was debt mostly owed by Greece to the Troika, more than $300 billion. Greece’s small economy of barely $180 billion GDP annually can never pay off that debt. Even if Greece grew at 4% GDP a year, an impossibility given that Europe and even Germany have been growing at barely 1% in recent years, and even if Greece dedicated all its surplus GDP to paying the debt, it would take close to a half century for Greece to pay off all its current debt.
Schaubel and the northern Europe bankers know this. In 2012, in the midst of a second Eurozone recession and financial instability, it was far more risky to the Euro banker system to cut Greece loose. Today they believe, however, that the Eurozone is stronger economically and more stable financially. They believe, given the European Central Bank’s $1.2 trillion QE slush fund, that contagion effects from a Greek exit can be limited. Supporters of this view argue that Greece’s economy is only 1.2% of the larger Eurozone’s.
What they don’t understand, apparently, is that size of GDP is irrelevant to contagion. They forget that the Lehman Brothers bank in 2008 in the US represented a miniscule percent of US GDP, and we know what happened. Quantitative references are meaningless when the crux of financial instability always has to do with unpredictable psychological preferences of investors, who have a strong proclivity to take their money and run after they have made a pile of it—which has been the case since 2009. Investors globally will likely run for cover like lemmings if they believe as a group that the global financial system has turned south financially—given the problems growing in China, with oil prices now falling again, with commodity prices in decline once more, with Japan’s QE a complete failure, and with the US economy clearly slowing and the US central bank moves closer to raising interest rates. Greece may contribute to that psychological ‘tipping point’ as events converge.
But there’s another, perhaps even more profitable reason for hardliners and Euro bankers wanting to push Greece out. And that’s the now apparent failure of Eurozone QE (quantitative easing) policies of the European Central Bank to generate Eurozone stock and asset price appreciation investors have been demanding.
Unlike in the US and UK 2009-2014 QE policies that more than doubled stock prices and investors’ capital gains, the ECB’s QE has not led to a stock boom. Like Japan recently, the Eurozone’s stock boom has quickly dissipated. The perception is that stock stimulus from the Eurozone’s QE, introduced six months ago, is perhaps being held back by the Greek negotiations. Euro bankers and investors increasingly believe that by cutting Greece loose (and limiting the contagion effects with QE and more statements of ‘whatever it takes’ by central banker, Mario Draghi) that Grexit might actually lead to a real surge in Euro stock markets. Thus, throwing Greece away might lead to investors making bigger financial profits. In other words, there’s big money to be made on the private side by pushing Greece out.
The Holland-Merkel July 13 Deal
With France and ministers from Italy, Austria and a few others not wanting to face the prospect of even a potential Euro crisis, political and economic, a last-ditch effort to forge another compromise was made early into them morning of Monday, July 13. The deal basically called for the Schaubel proposals, minus the temporary Grexit suggestion. All the Troika’s original ‘Plan A’ concessions on the table for the past four months were raised again, plus additional onerous demands, including the $50 billion ‘Privatization Trust Fund’ idea of the hardliners. $25 billion of the fund would be earmarked to refloat the Greek banks. Another $23 billion to pay for past debt. And $2 billion left for Greece to spend. Reportedly the Greek banks were exposed to billions of derivatives financial products issued by Euro banks. If the Greek banks failed, so too might other Euro banks in a development similar to the Lehman Brothers-AIG collapses at the core of the US crisis in 2008. But the Greek people would now have to bail out the Greek banks, in order to prevent the crisis spreading to the Euro banks.
It is quite possible that even the $25 billion will not be sufficient. Although not publicly reported, it is still possible that the bank bailout may look like the EU imposed bailout of Cyprus banks a few years ago. In that affair, average depositors savings in those banks were ‘bailed in’, as they say. Their cash savings were converted in part to buy stock in the failing bank. That is still a possibility for Greece. But no mention will be made of that before all the Parliaments vote on the proposed latest settlement.
All other prior Troika concession demands, and hardliners’ additional concessions demanded on July 11, were included in the latest deal—i.e. pension cuts, public jobs, labor market reforms, sales tax hikes, defense spending, and so on. In addition, the Greek parliament had 72 hours to legislate it all or no deal.
Greece as Eurozone’s ‘Economic Protectorate’
That settlement, should the Greek parliament vote to approve, will result in Greece not only losing control of its currency and monetary policy, as it did by joining the Eurozone. It will mean another deep loss of economic and political sovereignty. Like the terms of a treaty, the parliament will not be able to legislate changes later. The Privatization Trust Fund will remain in control of Eurozone bureaucrats who will oversee the management of the fund, make its decisions, and sign its checks.
Greece will have become a new form of economic protectorate under the ultimate economic control of Eurozone technocrats of the Troika. It will become something similar to US protectorates in the Pacific islands. Or like Japan immediately after the second world war. Or like native American nations on reservations in the US today.