Anti-austerity protests in Greece as bank shutdown bites

30 Jun 2015 | Author: | No comments yet »

Europe’s last-minute offer to Greece likely to fall flat.

Athens — European Commission President Jean-Claude Juncker made a last-minute offer to Athens in a bid to reach a bailout agreement before the deadline expires on Tuesday, European Union and Greek government sources said. The battle lines over Greece’s future hardened as the country prepares to leave the protection of Europe’s bailout regime and its citizens grapple with a new reality of capital controls.Athens – Standard & Poor’s downgraded Greece’s credit rating deeper into junk territory on Monday, saying the government’s call for a referendum on creditor proposals brought it closer to default. “We interpret Greece’s decision to hold a referendum on official creditors’ loan proposals as a further indication that the Tsipras government will prioritise domestic politics over financial and economic stability, commercial debt payments, and eurozone membership,” said S&P. Under the offer, Prime Minister Alexis Tsipras would have to send written acceptance by Tuesday, in time for an emergency meeting of the Eurogroup of euro zone finance ministers to be held and agree to campaign in favor of the bailout in the planned July 5 referendum. S&P said that was a sign that Athens would likely miss its payment obligations due the same day, June 30, including the 1.5 billion euros ($1.7 billion) to the IMF.

However, given the country’s dire finances and absent unforeseeable improvements in the situation, “a commercial default is inevitable within the next six months”, the ratings firm said. The offer published on Sunday incorporated a proposal from Greece that would set value-added tax rates on hotels at 13 percent, rather than at 23 percent as originally planned in the lenders’ proposals. Bear in mind that on the 20th of July, we have another 3.2 billion euros worth of payments coming due.” With Greece in financial lockdown and banks closed, Tsipras blamed everyone but his government for bringing the country to the brink of financial paralysis,’’ “In order to get a positive outcome, there needs to be goodwill from the Greek government and at the moment there are no signs of goodwill,” Australian Treasurer Joe Hockey said in an interview. “It is not in the interest of the most vulnerable people in Greece to be left out of Europe.” On Monday, European equities sank, with the Stoxx Europe 600 Index down 2.7 percent while bond yields jumped in Italy, Spain and Portugal. In early trading in Asia on Tuesday, stocks recovered some of yesterday’s decline with the MSCI Asia Pacific Index rising 0.2 percent at 10:10 a.m. in Hong Kong from yesterday’s three-month low.

The BSE Sensex fell around 600 points from its previous close (on Monday) but managed to recover and close the day around 167 points or 0.6 percent below its previous close. Verified email addresses: All users on Independent Media news sites are now required to have a verified email address before being allowed to comment on articles. Even so, “it won’t be able to destroy Europe.” Neither German Chancellor Angela Merkel nor French President Francois Hollande, the heads of the two biggest economies in the euro, have ceded an inch. European Commission head Jean-Claude Juncker said the “whole planet” would view a “no” vote as Greece turning its back on Europe. “Is it possible for them to drive our banks to asphyxiation, to refuse an extension and for them to then expect us to pay the IMF tomorrow?” Tsipras said.

The idea is to ensure that the Greek budget enters into a positive territory so that the country is finally able to start repaying the debt it owes, instead of borrowing more to repay what it owes. But Greece cannot do that simply because the power to print euros is with the European Central Bank and not with the individual central banks of countries that constitute the Eurozone.

At the same time the total public debt (the total government debt minus the government debt held by the various arms of the government) shouldn’t have been more than 60 percent of the GDP. Several countries managed to fulfil the criteria only for 1997, the year in which it was decided which countries of the EU could use the euro as their currency. As Neil Irwin writes in The Alchemists—Inside the Secret World of Central Bankers: “Instead of fixing their fundamentals of their economy, the Greeks were cooking their books.

As Irwin writes: “Less widely known were such tricks as underreporting how much the nation was spending on its military (a particularly large expense given the perennially tense relations with Turkey) and the failure to account for debts owed to hospitals…The government fudged its numbers by selling off long-term assets—the rights to future airport fees, for example—in order to fund immediate spending.” In fact, Greece continued to underreport its fiscal deficit over the years and it was left to the then finance minister George Papaconstantinou to discover the real level of the Greek fiscal deficit in October 2009. George Provopoulos, the governor of the Bank of Greece, the Greek central bank, told Papaconstantinou that the actual fiscal deficit of Greece was 12.5 percent or higher. Irwin details the dealings between the finance minister and the central bank governor of Greece. “Every day, they found new expenses that hadn’t been property accounted for—600 million euros owed to hospitals, for example, with no accurate record of when the expenses had even incurred. Germany had tried to introduce automatic sanctions which would involve fines on countries which violated these conditions especially deficit overruns but other members of the European Union did not agree to it. The Council watered down the conditions even more in 2005, when Germany couldn’t meet the 3 percent limit on the fiscal deficit for a third time in a row.

This included situations like natural catastrophes, a falling GDP, recessions, pension reforms, public investment, expenditure carried out for innovation and research and so on. Once the likes of Germany and France had stopped following the rules on which the foundations of euro rested, it was hardly possible to expect countries like Greece to follow the rules.

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