Greece continues talks on aid, deal unlikely on Sunday-sources

31 May 2015 | Author: | No comments yet »

Greeks desert banks as country battles crisis.

Investors are bracing for a bumpy ride this week, as the long-running “Grexit” saga – Greece’s potentially catastrophic exit from the eurozone – enters its final stages, with trading rooms around the world worried that the ending could go either way. Two centuries ago, the celebrated English poet Lord Byron published a poem that aptly captured the contrast between ancient Greece and the Greece of his own time.Deposits are at their lowest level in more than 10 years, falling to $198.89 billion from more than $242 billion just five months ago, data from the European Central Bank showed. As with all good psychodramas, “Grexit” – which has been running since 2010, when Greece received its first international bailout – has kept investors in suspense right to the end, with plenty of complicated plot twists and surprise character revelations. Simon Nixon of The Wall Street Journal, for example, argued last week that talks between Athens and its lenders were going nowhere, so the eurozone and the International Monetary Fund should present Greece with a take-it-or-leave-it offer, set a deadline and say they would cut off its banks if it didn’t agree.

There are serious concerns that the country could be forced out of the euro and default on its debts, with high-profile investors backing out of Greek banks. The Times reported that ordinary Greeks are thought to be stashing cash in their homes while the wealthy are moving their savings to Britain, Switzerland and Luxembourg. Since Syriza’s arrival in power, with its radical approach to debt negotiations, doubts have increased as to whether Athens can clinch a deal at all.

But these hopes were tempered by the much more prudent German finance minister, Wolfgang Schäuble, who hosed down expectations of an imminent agreement. For the past five years, Greece has experienced an economic and social catastrophe of unparalleled proportions for an advanced economy in peacetime conditions. American hedge-fund manager John Paulson told Dow Jones that a Greek default would be “disastrous for Greece’s economy and citizens” and “destabilising to the European financial system”, but “manageable”. Investors concluded that Athens’ optimism was more to do with a PR strategy aimed at avoiding a bank run in the lead-up to a long weekend (Monday is a public holiday in Greece) rather than reality. Even if such tactics made Athens come to heel in the short run, the government would have no ownership of the program, meaning there could be little confidence that it would implement it properly.

Greek Prime Minister Alexis Tsipras (R) and Greek Finance Minister Yianis Varoufakis (L) smile after their meeting at the finance ministry in Athens in May 2015. Greece was not on the official agenda of the three-day meeting in Dresden, but was a key topic as time runs out for Athens to reach an agreement with its international creditors.

How could a nation’s economy that was apparently growing faster in the early to mid-2000s than the economy of any other nation in the eurozone become a basket case in only a few years’ time and be treated like a colony by Germany? And this uncertain climate has sounded the death knell for thousands of businesses that had been clinging on in the hopes of change after Syriza’s electoral triumph. “Since the elections, the market is completely frozen – people won’t spend a dime because of the insecurity. In the course of the rise and fall of nations, internal and external pressures work in tandem – and this is no different in the case of early 21st century Greece. IMF chief Christine Lagarde, ECB president Mario Draghi and the EU’s commissioner for economic and monetary affairs Pierre Moscovic attended the Dresden talks, held to prepare for a wider summit of G7 leaders starting June 7. Still, most of Greece’s current problems are of its own creation, although they were truly intensified as a result of its entry into a monetary union in which it was not fit to compete.

The creditors’ most important concession so far has been that they no longer insist on Greece’s achieving an unrealistic 3 percent primary fiscal surplus — which excludes debt payments — this year and seem prepared for a target of around half that. Greece’s paternalistic political culture and thoroughly corrupt public institutions have hindered sustainable economic growth and blocked the changes and adjustments that all societies need to make in the contemporary world in order not to remain static and backward-looking. Negotiations will commence afresh this week aimed at breaking the impasse over what reforms Athens must agree to in order to access its remaining €7.2 billion in bailout funds.

Meanwhile, the leftist government, led by Alexis Tsipras, has agreed to “marginal changes” to sales tax rates and has acknowledged that privatization will proceed in some form. When it joined the euro, Greece’s political elite took advantage of the cheap borrowing costs and engaged in reckless spending, pushing debt and deficits to unsustainable levels. The euro area would then simply resemble a system of fixed exchange rates, and such systems had never proven particularly successful in the past, the central bank chief said. Nevertheless, Kuroda said he did not believe there would be any contagion effects “in the short term if Greece defaults or even leaves monetary union.” Other topics on the agenda were the state of the global economy, financial regulation, fighting tax evasion and ways of starving jihadist groups like the Islamic State of funding.

The Chinese currency, the yuan or renminbi, also featured in discussions, as Beijing continues to push for it to play a greater role in the world financial system. For instance, the IMF is pressing Athens to lift the retirement age to 67 years, Brussels is arguing for a less ambitious number of 65, while Athens wants it to be 62 years.

Indeed, how could anyone lend hundreds of billions of euros to a country that was already posting the highest debt-to-GDP level in all of Europe, had a political regime that was notoriously corrupt, and lacked structures and processes of transparency, democratic accountability, and openness? Taking into consideration Greece’s parlous economic position, Brussels is content with a primary surplus amounting to 1 per cent of GDP in 2015, rising to 2 per cent in 2016 and 3 per cent in 2017. The power company is threatening to cut her electricity as she’s been unable to pay her bills, and even the bank keeps calling her every other day to ask her to repay her loan. Like a patient who takes the first few doses of an antibiotic and throws the rest in the trash, Greece never finished the treatment, with the result that the infection was not defeated. Not only was the bailout package not meant to rescue the Greek economy, but it’s actual intention was to punish the Greek people for bringing the eurozone to the brink of collapse.

Athens claims to have the money to meet this deadline but there are worries that it will not be able to meet three further payments to the IMF later this month totaling about €1.25 billion. Ms Chrisolomou says she’s disappointed by Syriza, who rose to power promising the Greeks it would negotiate a better deal with the country’s international creditors. “The problem starts with the EU but the government also promised all sorts of things – promises it hasn’t delivered,” she says. Indeed, the policy measures imposed on Greece secured repayment of the loans and thus kept the country from defaulting, but wiped 20 percent off the national output, caused the unemployment rate to soar to stratospheric levels, and created a man-made humanitarian crisis. All Greek governments up to early 2015 went along willingly with the destruction of the country as they were politically and ideologically committed to the vision of a neoliberal eurozone.

Foreign companies now demand that shopkeepers pay up front, making it difficult for recession-hit businesses to survive. “We no longer have the credit we used to have. But it will be a tense week, starting on Monday when French President François Hollande is due to meet German Chancellor Angela Merkel and the head of the European Commission, Jean-Claude Juncker, in Berlin. After all, Immanuel Kant, perhaps Germany’s greatest philosopher, made a critical distinction between heteronomy — following laws made by others — and autonomy. And, more than ever, investors will be scrutinising the body language and decoding the language of leading European officials as they try to anticipate the ultimate denouement of this Greek tragedy. Riot police line up outside a closed branch of the National Bank of Greece during a 24-hour general strike in 2010 in Athens, Greece. “We’ve come to the point where we prefer a bad deal [between the EU and Greece] than this devastating question mark of what comes next,” he says.

Hence, eurozone leaders have blocked the release of over 7 billion euros ($7.6bn) of bailout funds for Greece, causing a huge liquidity crisis, in an attempt to force the Syriza-led government to accept a humiliating agreement. Businesses across the country are closing at a rate of 59 a day, according to a study conducted by the Greek commerce confederation, at a cost of 613 jobs and €22.3m to GDP. “The situation of the economy is desperate. The above statement reveals the truth about the government’s financial position, but also seeks to add a new twist to the standoff between Greece and its creditors.

It is easy to see how doing so would fit into the script told by Greek nationalists, both on the right and left, that foreigners are always dictating to it. Yet the German side appears unwilling to give ground, although Syriza has already made major compromises on German demands for economic reform, including the privatisation of many assets still left under state control, a ‘compromise’ that does not sit well with the very radical elements inside Syriza. Moreover, they seem to believe, as several of them proclaimed at the party’s latest central committee meeting held just this past weekend, that a ‘Grexit’ is quite manageable. Not only will Athens have to deliver on its promises, it will also need, in a few months, to reach a new multiyear bailout agreement, under which its creditors will lend it at least a further 50 billion euros, or $55 billion, and give it some relief on its mountainous debts. A man who wanted to remain anonymous because he is in debt closed down his business in late 2014 because he could no longer afford to pay his taxes and maintain his social security fund.

Maybe they are right, or they can turn out to be complete wrong, especially if they fail to provide a vision and chart a strategy for transforming Greece’s public institutions, which is key to reviving the economy and securing a sustainable future outside the euro. He owes the authorities €20,000. “I had no choice,” he says. “Now I live day by day, am grateful I don’t have a family, as couldn’t afford it, and pray I don’t fall sick.” Syriza championed a call for universal access to medical services, to help the uninsured and unemployed. Ironically, the glory of ancient Greece was all due to the magnificence of its public institutions and its exceptional cultural and political features, which included citizen-centred forms of governance and a deep sense of civic virtue. But if the government increases VAT on islands and makes Greece not competitive compared with Turkey or neighbouring countries, this will be just the worst possible scenario.

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