Short Greece Proposal Update: Greece Folds

Some details of the Greek proposal have leaked out.

Note contrary to earlier media reports, it technically does not lower pensions payments but does reduce pension spending by requiring higher contributions, including payments from retirees themselves. As the Guardian’s Athens reporter, Helen Smith, notes:

……there’s a hefty increase in revenues from VAT over the next 18 months.

Greece has also accepted that pension must be reformed, and is planning a hike in pension contributions and an increase in health contributions from retirees. However, it appears that actual pension rates won’t be cut, allowing Athens to argue it has kept to its red line.

Another quick verdict is that “pensions are almost spared“. And while European leaders are urging their peers to consummate a deal, it’s not clear these pension moves will be enough to satisfy countries like Slovaka, which have said they can’t stomach financing Greece’s more generous pensions. One rebellious country could probably be shamed into line, but we have yet to hear of the reactions from the real hardliners like Finland and Spain, since the summit has just begun.

However, regardless of what you think of the pension finesse, the Syriza government has agreed to continue with austerity. A 1% primary surplus for 2015, which was the creditors’ target that Greece accepted the weekened before last, contrasted with the IMF estimated that primary surplus for 2015 was going to be as low as negative 1.5% roughly a month ago, represents a big hairs shirt for Greek citizens. Even though recent Greek budget releases show the primary surplus above the target for the first five months, if you look into the details of how that was achieved, it was through payment deferrals and cuts. Those payment deferrals, meaning non-payments to important vendors like pharmaceutical suppliers will need to be made more current, and other reserves that have been run down to make payments such as the borrowings from the IMF reserves, will also need to be made up at some point. That means that the actual impact of meeting the target will be greater than the 1% when you allow for where it would be if Greece were as current as it has been whether new government came in, as opposed to stretching payables to such and extreme degree.

If you take the IMF estimate of a 1.5% primary deficit as a decent representation of where things stand if the Greek government had been paying bills on a normal bassi, that means the amount of austerity being inflicted this year is close to 2.5% of GDP. That is essentially the same increase as the pre-negotiation target of 3.0% of GDP relative to Greece having primary surpluses before the negotiations began Recall that the February Eurogroup memo that Greece signed, which said that the primary surplus target would be adjusted in light of current conditions, that is arguably what happened, that the target was adjusted to produce the same degree of “fiscal consolidation” and not actual relief.

And not only is this year’s level harsh in an already severely depressed economy but 2018 and later target of 3.5% is simply draconian.

Although the Greek government will try to spin otherwise, the new coalition has agreed to continued austerity. They are now just hashing out implementation details.

Update 3:00 PM: Reader Ned Ludd pointed to a link I had yet to see, as of 7:00 AM:

Greek Bailout Proposal Makes Potentially Big Concession on Pensions, Officials Say

The proposals, formally submitted to creditors Monday morning, foresee new pension savings and revenues worth 0.4% of gross domestic product for this year and 1% starting next year, the officials said. That would bring the left-wing government in Athens close to the target demanded by its creditors. […]

Greek officials said that much of the pension target would be achieved by increasing contributions from employers. On top of that, an extra payment to the poorest pensioners, known as EKAS, would be phased out between 2018 and 2020, the officials said.

Based on that, the odds are very high that this deal goes through. The Greek government is delivering on the 1% of GDP pension cuts demanded by the creditors, with the big “concession” that the government is getting is that it is being implemented in phases.

And Lambert provided this tweet:

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  1. NOTaREALmerican

    Well, austerity NEVER works because the opposite of austerity (which apparently doesn’t have a word) brings perpetual prosperity; as demonstrated repeatedly in (uh) Greece before they were required to have all this austerity.

    1. Mr.Mr.


      What Greece did before now was lard up on debt that they do not control in a currency that they do not set rather than tax their richest citizens.

      What is being pushed now under the name of Austerity is burning the seed corn (and the tractor) for fuel rather than planting it for next year.

      The sensible alternative is not to lard up on debt rather than collect taxes but to actually invest for the long term and to restructure tax collections so that the debt can be paid down over time. The catch is that this requires the (largely German) creditors to recognize that their plan for austerity on top of austerity won’t work and to take a different approach that will work out in the long term.

      1. Yves Smith Post author

        Yes, the biggest insanity of this approach is that the Greek government has a very narrow tax base and desperately needs to broaden that (as in fix tax collections and get better at going after the rich) and also address other areas of government where it is barely functioning (like the court system). The creditors can’t even bring themselves to adopt a mixed approach of allowing or even pushing Greece harder to implement the reforms needed to make Greece more functional as a state as they whip it to meet their numbers.

        1. IsabelPS

          With due respect, any “fixing” will take years and is obviously very easy to promise (as it has been promised before). The problem here is that the creditors wanted some proof that the Greek side was willing to do some thing BEFORE getting the money. A Portuguese blogger, quite sympathetic to Varoufakis economic proposals, BTW, wrote something recently under the title “Varoufakis’ virginity” (as in, trust is like virginity, you only lose it once). From that point of view, these last 5 months have been a disaster.

          1. Yves Smith Post author

            I think we are more in agreement than you seem to think. See my comment below with the quote re Theoharis quitting.

            The only hope for the new government, and there is no guarantee that it would have worked, would have been to say something like:

            “Look, we just got here and the government apparatus is more of a mess than we imagined. It’s almost certainly worse than you know. We are also the only people who can crack down on the oligarchs and fix the tax system. We don’t have a base of support among the rich.

            “And Greece is never going to work well or be all that attractive to investors until we fix the courts

            “But we can only do so much. We won’t have the support we need to go after the tax evaders if you make us cut pensions. Like it or not, you need government workers on your side, at least for now. The numbers show that cutting wage rates hasn’t helped us with exports, which was the point, after all. If you want Greece to be “competitive,” the country needs a bigger overhaul. It’s a long term project.

            “We can entertain how to do something optical on pensions since we know that’s a hard sell on your end. We can get cracking on tax collections. We need to determine how to go after the oligarchs since how they hold their assets varies a lot. And in many cases, we’ll need the cooperation of international authorities since anyone with liquid holdings would have moved them outside Greece. “

            The fact that Greece looks to have capitulated on pensions, save getting a delay, suggests really trying the time-tested approach to negotiations, of focusing on shared interest (Varoufakis gave lip service to this idea but does not seem to have been very good at executing it) can’t have done worse.

            And the biggest Greek mistake may not even have been in the opposition per se, but in how they took everything into the media fishbowl, where they were destined to lose. They needed to do as much as possible in private, which means also containing leaks, and using the media only selectively. That’s pretty much the only way you can figure out how to come up with compromises and optics that allow each side to claim a measure of victory, whether true or not.

            But for some reason I cannot fathom, Tsipras whipped up the Greek public after the elections even more with is “no more austerity” promises. His coalition I believe has four more years . It seems that he thought getting higher anti-austerity poll ratings would help his case with the creditors, when that was not a threat to them.

            1. IsabelPS

              I think you will enjoy reading what that very seasoned Portuguese diplomat wrote back in February (right before the agreement), because he seems to concur with you (I “cleaned” a bit a google translation, apologies for the clumsiness):
              “In my experience, which naturally is worth what it’s worth, the surprise effect in a multilateral negotiation, seldom works. The past has taught me that it is always very important “to “work” the partners one-by-one as potential allies, before collective meetings, trying to secure in advance, from each one of them, an attitude of support in the subsequent negotiating context . For this it is essential to share with those we deem potentially permeable to our arguments the essential of what we will present, giving them reasons to convince them of the advantages that they will have if they side with us. In international life, except in the case of dictatorships or authoritarian regimes, governments have no mandate to change position internationally (much less dramatically) without having ensured that their public opinions can understand the rationality of that change. The Greeks, much for lack of time, but also by clumsiness and some voluntaristic arrogance, did not do this homework properly and created an expectation of public recognition of the natural “goodness” of their proposals that very clearly did not materialized.”
              Apart from lack of time and the belief in the universal good of their proposals, I am convinced that the major reason why the Greeks didn’t bother to do their homework is that that they thought they didn’t need to, as they had the atomic bomb.

              1. TheCatSaid

                Thanks for sharing the diplomat’s advice. It could prove useful in many contexts.

                1. Cugel

                  All this talk about different negotiating strategies is simply silly, as if talking in any fashion to the creditors would have changed anything. The Troika needed to insist upon Austerity and blame the lazy Greeks for every problem. That was both an ideological commitment, and part of their self-interest, since they get more money for the people who matter by squeezing Greece to the last Euro, regardless of consequences.

                  Talking about mutual benefit in what is a zero sum power game makes no sense. Varoufakis tried that back in the initial negotiations and was instantly rejected. That rejection has continued right up to the present.

                  Now lots of people including me have agreed with Yves that the Troika and German governments have been very stupid to push things to this level, but that is a political rather than an economic analysis, centering upon the long-term prospects for unraveling the Eurozone that will not be in anybody’s interest.

                  The analogy is to a pathogen. Disease bacteria “ought” to spare the host, because once the host dies, they die. They don’t because they lack foresight and instead instinctively opt for short-term “profit maximizing” strategies. Thus, they take everything they can from the host until it dies and never look ahead. Europe’s bankers are the same with their smug confidence in “containment” because short-term bonds are not tanking due to the threat of default.

                  1. John Jones

                    In other words. The Troikas job is to collect money they don’t care about reform to benefit the state they want reform that fills their collection bag. Greece will always miss targets because the troika always moves the goal posts. Greece has to be seen as the bad guy?

            2. John Glover

              I have no doubt that would have been a much better approach (although in fact this is far more a matter of style than substance). I also have little doubt it would have failed all the same.

              There was no way that a deal would be done with Syriza, just as there was no way the Republicans would do a deal with Obama. The substance of the proposal is irrelevant. They have to be seen to have won, and Syriza has to be seen as having lost.



      2. NOTaREALmerican

        Re: to take a different approach that will work out in the long term.

        Like, (uh) the Greeks electing a government that is actually functional. (I know, I know, that made me laugh too….) Ok, ok, seriously tho…. (my side still hurts from that “functional government” thing)

        Anyway, there’s only two real-world economic options available on planet earth: #1) Austerity. And #2) Hedonistic bling bought by a government of sociopaths elected by dumbasses. #2 then leads to #1 when the people providing the loot for the bling want there money back. But, that’s Austerity. Of course, there’s always that “long-term functional government thing !!” (Stop, yer killin’ me here…)

  2. Rex

    Austerity works for somebody, just not most somebodies…just the ‘Important somebodies.’

  3. Synoia

    I don’t see income tax raises on the list. Raising VAT is very regressive.

    Raising corporate taxes is also counter productive. It either results in higher prices or layoffs.

    Mission accomplished. The whipping will continue until morale improves.

      1. IsabelPS

        VAT is regressive and therefore unfair, but it is a quick fix. That is the reason why it is favored by a State that needs the money for yesterday. Hotels, restaurants, cafes etc in Portugal keep complaining about the 23% rate to no avail.
        Also, it is very simple and concrete and can be shown to the creditors as a token of good will, which I believe is paramount in this case.

  4. frosty zoom

    i see 200 quatloos of defence austerity for next year.

    are the persians coming to ransack, too?

    1. abynormal

      toofunnee! i didnt want to be the 1st to ask…thanks

      8/2012 “After running through all the reasons why austerity wasn’t working in my country I brought up the issue of defence expenditure. Was it right, I asked, that our government makes so many weapons purchases from Germany when it obviously couldn’t afford such deals and was slashing wages and pensions?”

      Merkel’s reaction was instant. “She immediately said: ‘But we never asked you to spend so much of your GDP on defence,'” Panagopoulos recalled. “And then she mentioned the issue of outstanding payments on submarines she said Germany had been owed for over a decade.”

      whaaat “Just under 15% of Germany’s total arms exports are made to Greece, its biggest market in Europe,” Papadimoulis said, reeling off figures from a scruffy armchair in his party’s parliamentary office. “Greece has paid over €2bn (£1.6bn) for submarines that proved to be faulty and which it doesn’t even need.

      “It owes another €1bn as part of the deal. That’s three times the amount Athens was asked to make in additional pension cuts to secure its latest EU aid package.”

        1. OpenThePodBayDoorsHAL

          Never happen, backing out those “sales” on Siemens’ balance sheet (courtesy of “vendor financing”) would never fly with the burghermeisters in Frankfurt. Though I suppose they could clean out the spilled ouzo and olive pits from the bilges and “vendor finance” them over to Ukraine, who can still borrow at will despite default/bankruptcy. Channel stuffing! Paid for with scrip that can be printed in “unlimited” quantities. Self-licking ice cream cones for all!

        2. TheCatSaid

          The Greeks should use the european consumer protection organization. The Germans like rules, after all. The Greeks should get a refund for the sub that’s not fit for use. . .

        1. John Jones


          yeah, and macedonia, too..
          I don’t follow what you mean

          my question is: what is left to defend?
          As bad as it is people still live in Greece.

  5. Larry

    It’s unfortuante to see it come to pass, but as Yves has stated all along, the Greeks had no operating room. Either succumb to demands, or risk total chaos and even worse depression in a Grexit. I thought Varoufakis did a good job of selling the message of why the push back was warranted, but it has fallen on mostly deaf ears.

  6. William C

    Slovakia et al may be making a fuss to get some sweetener to bring them on board. That is how negotiations in the EU often go. Often the sweeteners will be in some completely unrelated field.

    It is interesting how quickly principled positions change when it is made worthwhile.

  7. fdsada

    From my understanding the EU wouldn’t let Syrzia tax. I still don’t understand why Grexit is worse than continued austerity. I’m not saying it is or isn’t, I just don’t know enough about ths situation. Can someone fill me in?

    1. Yves Smith Post author

      “Won’t let Syriza tax”? Huh? The creditors have been trying for years to get Syriza to fix tax collection. See here, for instance:

      Merkel wasn’t convinced. After years of dealing with successive Greek governments, Germany and the IMF had come to distrust Greek promises. The only way to ensure Greek compliance, they were convinced, was to keep Athens on a tight leash.

      While Greece had made some progress, they worried that Samaras’s government was slipping back into its bad habit of over-promising and under-delivering.

      That summer, Greek tax agency head Haris Theoharis had resigned after receiving anonymous threats. He complained of persistent pressure from Samaras’ government to go easy on the rich. Europe had long complained about Athens’ corrupt system of tax collection, which costs the state billions in lost revenue every year. Theoharis’s position was created under pressure from the troika and the creditors regarded his decision to leave as a major setback.

      1. TheCatSaid

        Won’t the cuts required by austerity result in further reductions in the administrative, enforcement & judicial overhaul resources needed to improve tax collection?

        YV made the case that increasing tax rates won’t work, that it’s the tax collection process that needs to be actively supported (and not undermined by austerity-related cuts).

      2. Cat Burglar

        I am still hunting for the reference (readers help!), but fdsada may also have read an article today that quotes an interview with Varoufakis. He said that when he became minister, there were only 100 tax collectors in all Greece. He went on to say that they were told by Troika representatives that drafting and passing new tax laws would be taken as a violation of the bailout program. It dovetailed well with Paul Mason point about the weakness and incapacity of the Greek State.

        1. Yves Smith Post author

          That simply makes no sense. As I indicated, the Troika installed Theoharis because it was dissatisfied with Greece’s failure to improve tax laws and collection. The only reason I can see the Troika would have objected is that they wanted Greece to take “no unilateral action” as in not do anything that would have budgetary impact, until the bailout was approved. They didn’t want Greece implementing pieces without having the whole package approved. But even then, Dijsselbloem repeatedly said that the Troika and Eurogroup were read to approve partial deals and release the funds in tranches.

          And remember, this was all supposed to be negotiated and approved by the end of April.

      3. Bill

        The creditors have been trying for years to get Syriza to fix tax collection.”

        Surely you mean ‘Greece’, as Syriza have never been in power before?
        That being said, the Troika have no ‘real’ intention of oligarchs falling into the net, it’s always about the ‘little fish’ paying more!
        I have visited the Greek Islands since 1994 and have noticed how they have to ‘issue’ till receipts at Restaurants and bars, to show the Tax Inspector who visits once a month. Cutting Public Services wont help this cause.

      4. steelhead23

        I hope this late comment gets some traction. Would someone please explain why the ECB could not simply monetize the majority of Greece’s outstanding debt? Is it a fear of inflation? That seems absurd to me as the money was created when the debt was issued – the central bank would simply be playing the role of the Greek treasury in fulfilling those contracts. Of course, if they did help out, other indebted member states would surely come knocking and in aggregate perhaps cause a bit of inflation. More likely it is an overweening concern for moral authority. Greece lied about its finances when it joined the union. Liars must be punished. But, given that the moral authority of the entire financial system is quite shaky, such concern about moral hazard seems completely laughable to me. So, why did the ECB play so rough with Greece. It would seem that Greece will be under the thumb of the financial elite for decades to come – leading to continual domestic strife and turmoil. These folks might benefit from reading a bit of French history.

  8. Jonf

    This is what you must expect when you surrender your sovereignty to a corporate scheme. It enriches the wealthy and impoverishes everyone else. Kinda what we can expect from these oh so wonderful trade deals.

  9. djrichard

    Maybe we can make this work in the US too. Let’s eliminate fiscal transfers between states and eliminate the national minimum wage (and whatever other labor reforms are needed). Shouldn’t take long for a race to the bottom between states to kick into gear.

    This would solve the China trade problem too. Instead of US corporations outsourcing part of their supply chain to China, they can keep the supply chain wholly within dollar-land, using one of the low-cost states as a substitute for China. Surprised nobody has figured out this already; we should be seeing arguments that fiscal transfers and a national minimum wage is an impediment to free-trade within the US trading bloc. /sarc

  10. David

    Now Syriza has to figure out how to run the country. No more excuses.

    In a few months, the targets will have been missed, the Troika will threaten to cuts funds, and we’ll be back at the table.

    1. Yves Smith Post author

      Yes, if the initial reports are accurate, this is just a short-term deal (6 months) so Greece and its creditors will be back fighting over the “third bailout” in probably no more than two month. I don’t think I can take another four month pitched battle (and if I find this stressful from my safe enclave in NYC, I can’t imagine how Greek citizens endure it on top of the austerity-induced hardship) , but it’s hard not to imagine that we’ll be back to a rerun of sorts all too soon.

      1. Mr. G

        i don’t know about that. The gift Syriza may have given Europe was a reason and cause to further unify fiscally. They drew attention to what New Democracy had allowed Europe to keep in the closet. You can see it in Junckers latest EU plan to strengthen Europe’s foundations. I think everyone sees now that today it’s Greece. Tomorrow it could be Italy, and there is no saving Italy.
        A 3rd debt deal may be needed, but it would be wise for Europe to,pitch it as a total Eurozone reform plan. Benefiting everyone.

        1. Synoia

          Benefiting everyone.

          As Ghandi is reported as saying of Western Civilization: “Nice Idea”

  11. Santi

    From what I have seen, it looks very bad, just kicking the €uro can again. Which means bad Euro policies prevailing for at least one more year. I would have greatly preferred a solution where Greece would go out of the €uro and a hope of sane policies would dawn on us… ☹

    1. NotSoSure

      As long as “hope” reigns and the Greeks want to have the cake and eat it too i.e. staying in the Euro with no austerity, they will be bled ruthlessly. They can’t argue about the Germans because the later holds all the cards, and their economy seems to be doing well.

      IMHO, there are no good sides here, I despise both equally.

    2. EmilianoZ

      That seems a rather selfish reason for wanting the Greeks out of the EU. Are the Greeks some kinda sacrificial lambs to be slaughtered so that the rest of Europe can prosper? Are they the new Jonahs to be thrown out at sea to save the boat? And why doesn’t Spain show some leadership and get out of the union? And when will you mount a serious challenge for the Premier League?

  12. Greenguy

    The problem, of course, is now the left party has become the enforcer of austerity. This was structurally a probable outcome, but a massive blow to popular support for left-wing class consciousness – that is unless the Left Faction in Syriza breaks away and forms a new party. The only plus side I see to this is that all illusions in an electoral solution within the EU (and capitalism) will be vanquished. In the next iteration we may see a revolutionary solution, with workers’ control of the economy and collectivization proffered rather than deals with the EU institutions and reform. Though Golden Dawn is sure to gain before that happens…

    1. gemini33

      Kind of reminds me of the US in 2008. In our case it was a complete con job. Is that the case w/ Greece too? It’s en vogue to put on the left populist mask nowadays and continue with the status quo. It had the effect of breaking the will of a popular movement in the US, for the time being anyway.

      I did not think that was the case with Syriza but I guess the jury is still out.

  13. hemeantwell

    I hope I’m not being repetitive, but what is most puzzling to me has been the at least apparent absence of sharp denunciations of wealthy tax evaders, complete with “if they paid their fair share, we could do this” statements. The coverage that seeps through makes it sound as though the Troika has to remind a dodgy Syriza of the tax problem. This is nonsense, but I don’t see why Syriza hasn’t used the issue, not in the sense of a ploy, but because it provides one way of expressing what should be in Syriza’s DNA, mounting an attack on the elites. This could also easily be extended into a rectification campaign against the bureaucracy, which by all reports has been largely hostile to Syriza. It seems that they are boxed into a nationalist framework that prevents framing matters in strongly class-based terms. Could their alliance with ANEL be limiting them in this way?

    1. Tsigantes

      Perhaps you don’t hear about denunciation of wealthy greek tax evaders because you don’t read greek papers or listen to greek radio / tv. MeanwhiIe Yves quotes from mainIy foreign angIo-american press which except for PauI Mason doesn’t present greek oriented views. The greek bureaucracy is pro-Syriza through its union, which is one of the strongest.

      It seems that they are boxed into a nationalist framework that prevents framing matters in strongly class-based terms. Could their alliance with ANEL be limiting them in this way?

      It goes without saying that this is a cIass-based issue, i.e. unfair demands on the 85%. Except in this case this issue is not “owned” by the Ieft, but by 85% of Greeks both right AND Ieft. AII parties except pro-memorandum Potami, PASOK & ND are on board with that. Furthermore – in fact when this mess is over – the true issue is sovereignty, the unwinding of the euro/zone and the serious reform or disbanding of the EU. And one way for Europe to postpone that eviI day is to proIong these negotiations, even as the way it is doing so shreds trust and beIief in the EU among its populations further.

      Jacque Sapir [transIated] “Greece, Europe and Sovereignty”

      More to the point –
      The 3 Victories of the Greek Government
      In French & weII worth GoogIe TransIate

  14. Rosario

    Good ole can kick. Good luck with the debt replay in another 5 years (probably less). Also, now Greece’s legal system and tax collection process will be non existent because they can’t pay for it. This is an absolute tragedy.

  15. MaroonBulldog

    If I have learned anything from following the negotiations from the day Yanis Varoufakis first told Germany the he was the finance minister of a bankrupt country, up till now, then the one thing I have learned is the profound wisdom of following the ancient principle: “Never do today what you can put off till tomorrow, because while you put it off, something may change so that you won’t have to do it.” This principle is universally followed by diplomats and negotiators, who never settle anything until it absolutely has to be settled.

    This thing had to be settled this week, this way. Otherwise I suppose it would have been capital controls and bail-ins in Greece next week, and maybe Mr. Tsipras and Mr. Varoufakis out of office. This way, they can stay in office maybe a couple of weeks longer, till the left-wing of SYRIZA turns them out. And who knows, maybe it won’t?

  16. Chris in Paris

    On French radio yesterday there was an interesting interpretation of the EU by a man discussing the refugees trapped in Ventimiglia. He said “the EU isn’t a government, it’s a supermarket. How do you expect supermarket assistant managers to accomplish anything in a crisis?”

    1. gemini33

      That description is kind of elegant in its simplicity. I’m guessing he meant the EU, as it was set up, is a supermarket and now it’s trying to be a government (or I would say more than just govt, a sub-empire, sub to US empire I mean).

      Varoufakis has an interesting explanation in his “Global Minotaur” book talk. He says the EU was designed with one surplus state, Germany (similar to US in its economic region) and client states but the only way that system works is if the surplus state keeps its client states healthy by propping them up, and Germany was never suited for that role because its a terrible hegemon. Unless he’s completely full of baloney in that lecture, he has absolutely no confidence in the EU/Eurozone system. At all. Unless Germany changes the way it runs the joint.

      1. Tsigantes

        You are correct. Varoufakis – and by now most Europeans – have ZERO confidence in the EU.

  17. Dana

    One aspect of this drama that has baffled me is the silence over the in-depth audit that was undertaken to examine the nature of Greece’s debt. Valid or, officially, according to the IMF’s own terms and conditions, ‘odious’?

    See search results, here, for recent media reports on the conclusions reached by the audit committee.

    The audit committee’s conclusion: The debt imposed on Greece and its residents by creditors directly infringes the human rights of Greeks and is “illegal, illegitimate and odious,” according to the preliminary report issued on Wednesday by the Audit Committee on Public Debt.

    Why is this information being ignored? Iceland had the good sense to punish its corrupt bankers and to rewrite its constitution in such a way as to discourage potential future malfeasance. And its economy appears to be coming back to life.

    Why has the Greek govt refrained from using the results of the audit in its negotiations with the Troika?

    1. Yves Smith Post author

      I’ve discusses this issue before, repeatedly, in comments. This idea is a complete non-starter. The committee is doing a great disservice to the Greek people by raising false hopes. “Odious debt” is not an accepted legal theory. In addition, the debt was not “imposed”. Previous democratically elected Greek governments accepted the terms and received the proceeds of borrowings.

      If anyone has a case to try an argument like that, it was Argentina, which has some of the debt on which it defaulted incurred by a military junta, whose members diverted a lot of the proceeds to their own offshore accounts. And those borrowings were mainly with private creditors, who have vastly less power than official creditors like the IMF, the ECB, and the member states of the Eurozone.

      Where Greece does have a viable case, it appears, is in funds that Germany stripped from Greece’s central bank during World War II. But that is not part of the negotiations. Greece would have to present its claims in court and have it adjudicated, or have that case lead to a negotiated settlement. That will take years and will not help Greece meet its near-term funding needs.

      1. Dana

        Thank you for your response. I’ll do a search to try to find your commentary on odious debt.

        In the mean time, I’d tend to disagree with the notion that ““Odious debt” is not an accepted legal theory”, when the IMF, itself, provides a very clear definition of what constitutes odious debt, for which, legally speaking, a population cannot be held responsible.

        The IMF page does explain and warn that future foreign investment in a country could be hindered by the rejection of a portion of national debt on the basis even of its recognized illegitimacy. That, in itself, says a great deal about the accumulated power of global finance and investment …

        The following won’t be anything new to you, obviously, but Michael Hudson [“debt that can’t be paid won’t be paid”] and Steve Keen, who has been saying for years that we’ve got to get real and recognize that debt has accumulated to such a mind-boggling level that its has to be written off, are simply stating the obvious.

        Unfortunately, one could say that, tragically, Greece is being exploited to demonstrate what can and cannot be done in the realm of today’s centralized system of financial control mechanisms.

        I may well be wrong, but my sense has been that Varoufakis was trying to raise precisely these issues with the Troika and the Eurogroup.

        1. Yves Smith Post author

          1. That study is from 2002 and it is a study from the research department and has no bearing on IMF policy.

          2. The study also clearly says odious debt is a notion that applies (in some cases) as regarding the laws of a nation. This is international debt. It is not ruled by Greek law even if Greek law had such a concept.

          3. The examples all cited were like the example I cited of the junta in Argentina, of corrupt leaders borrowing and taking the proceeds in significant measure for personal use.

          4. The paper does not provide any examples of this theory actually being used successfully (as in resulting in meaningful recoveries). In fact, the second full paragraph confirms precisely what I have been saying: “However, this doctrine has gained little momentum within the international legal community.”. And the world has gone much further in the neoliberal direction since 2002. One might guess that this paper was written to help give ammo to Argentina, which defaulted in 2001 (see my mention that if anyone recently had a case, they did). And as I said, Argentina did not try this argument. It repaid the IMF in full and restructured its debts with private lenders.

    2. Calgacus

      The concept of “odious debt” does have some support, has been used successfully in court. So while it is not the most essential idea in international law, “‘odious debt’ is not an accepted legal theory” is too strong. The phrase is due to Alexander Sack writing in the late 20s & 30s, but the main case used as evidence of opinio juris is Taft’s 1923 Tinoco Arbitration, which of course did not use the then uncoined phrase. (BTW, not an obscure case, the major case on diplomatic recognition.) As the IMF paper mentions on p. 7, Taft nullified debt to a bank which “knew that this money was to be used by the retiring president, F. Tinoco, for his personal support after he had taken refuge in a foreign country”. As many have noted, interestingly, both Sack & Taft were generally pro-creditor. I agree that Greece has a tough case to make there, which is not to say that it shouldn’t throw it, as well as the kitchen sink, at its depraved and demented creditors.

      Odette Lienau- Who is the “Sovereign” in Sovereign Debt?: Reinterpreting a Rule-of-Law Framework from the Early 20th Century- Yale Journal of International Law 33: 1 (2008) is a recent, judicious exploration of some history and concepts. One can find legal sources & fervent debates pro- & anti- to ones hearts content by searching under “odious debt” or Tinoco in Google scholar & books.

  18. steviefinn

    Estimated 32 trillion stashed away in tax havens & a humanitarian crisis in Greece that would have been unimaginable 10 years ago. Morals – forget about it……this is the real world & looking at the human race as a whole…..we fucking well deserve it.

  19. IsabelPS

    From the blog of the ex-PT embassador Seixas da Costa :
    “In negotiation processes, there are always movements behind the scenes that only time will eventually clarify. In this tug-of-war between Greece and the other members of the euro, the role of the US government seems to have been important to press the various parties to show greater flexibility. In addition to its geopolitical concerns, it will be interesting to learn some day what the US brought to the whole process, in concrete. There are increased signs that the European movements of the US Treasury secretary during the last hours, either with the President of the ECB or in contacts with the PM Tsipras, adding to the more political “demarches” to Angela Merkel may have been a determining factor.”

  20. gemini33

    So what happens when Greece’s economy continues in a negative spiral because there’s no mechanism that helps them pull out of it? I don’t see how Tsipris & Varoufakis can sell this part of the deal. Where’s the game changer for their economy? Magic?

    I’m not sure what it means for retirees to have to contribute to their pensions. Are they going to tax the pension money and claw some back from every check?

    Also haven’t seen anything about what national assets have to be sold off in this new deal.

    Maybe it’s just wishful thinking, but I still think if Syriza cuts a deal w/ Troika, it can only be to take the immediate pressure off while they work on longer term arrangements to get the heck out of Eurozone. Their statements have shown sheer contempt for it and complete lack of confidence in that system. So none of this makes sense unless they’re either 1) buying time or 2) delusional or maybe 3) believe this system is going to collapse on itself anyway or some other major upset is coming to the region.

    1. Tsigantes

      if Syriza cuts a deal w/ Troika, it can only be to take the immediate pressure off while they work on longer term arrangements to get the heck out of Eurozone. Their statements have shown sheer contempt for it and complete lack of confidence in that system. So none of this makes sense unless they’re either 1) buying time or 2) delusional or maybe 3) believe this system is going to collapse on itself anyway or some other major upset is coming to the region.

      They are not [2] deIusionaI. Syriza & aneI need to get the greek electorate on side with grexit, even though most greeks by now think by now the pro-euro poII is rigged.

      1. Yves Smith Post author

        A Grexit would be an utter disaster for Greece. If you think things are bad now, you have no conception of how much worse they will be.

        No economy has endured, particularly in this era of computer-based banking (which is far less able to adapt to unexpected changes than paper based systems) all of what it entails at the same time: capital controls, a bank holiday, a failure of all the major private banks, which will necessitate a restructuring, the need to set up or convert a payment system (this took ten years of planning and three years of execution with the introduction of the Euro) and a serious currency depreciation. Economists who have looked at a Grexit have overwhelmingly been negligent and have seen it as only a sudden currency depreciation. And comparisons to Iceland are invalid too. Iceland, which has all of 330,000 people, got over $5 billion of support, a massive amount for a small country,. Greece will get no such help. And unlike Greece was starting from a position of apparent prosperity. It still suffered greatly (see Michael Hudson on how talk of Iceland’s “recovery” was very much exaggerated). Iceland also did not have to deal with an unplanned currency conversion/introduction.

        1. steviefinn

          Brilliant work on all of this Yves – keeps me grounded but frustrated & somewhat depressed, which of course is not your fault.

  21. Maju

    You guys are all assuming that the deal will be approved by EU. It won’t.

    I wish I could bet on this, really: even if they’d offer the head of John the Baptist on a silver plate, they won’t get a deal because EU leadership wants to force the bankruptcy (the only possible outcome anyhow) while Syriza is in power. It’s nothing but pedagogic posing by Tsipras et al.: we tried everything but they would not budge, before Grexiting. I’m not even sure if Tsipras knows it himself but he’s just bluffing again, and it’s what he must do anyhow (no complains on my side) because it is what the Greek people and in general the European peoples want to perceive: that every last ditch effort to prevent the unavoidable bankruptcy of Greece and subsequent gradual collapse of the EU has been tried.

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