Ten minutes past midnight

In the early hours of Friday morning, according to the British paper, the Daily Telegraph (DT), five key players in the Syriza government, meeting in the Maximus Mansion in Athens, took an important decision. They decided that the government would not pay the IMF its debt repayment instalment due that day. Apparently, the IMF’s Christine Lagarde was caught badly off guard. IMF officials in Washington were stunned.

The Syriza leaders had the money to pay: it had been raked up from various sources and they had told Lagarde that they would pay. But at the late hour, they decided not to pay but instead ‘bundle’ all the repayments scheduled for June into one payment at the end of June – or €1.6bn. This was allowable under IMF rules but had only happened once before – by Zambia in the 1980s.

The reason that PM Tsipras, finance minister Varoufakis and the other Greek government leaders decided to hold back payment was two-fold. First, they were really angry that the IMF and the Eurogroup had completely refused to make any serious compromises on the terms of an agreement to release outstanding funds under the existing ‘bailout’ package, despite the Greeks making huge concessions in the negotiations over the last few months since an extension was agreed last February.  Also, the leaders knew that their Syriza party members and MPs were incandescent with rage at the attitude of the Troika (IMF, EU, ECB). There was no way that they were going to support any deal along the lines of yet further austerity and neoliberal measures demanded by the Troika. So the Greeks have fired a warning shot across the bows of the IMF and the Eurogroup, hinting that they may prefer to default rather than be forced into further concessions.

According to sources for the DT, the IMF representative in the negotiations, Poul Thomsen, has “pushed the austerity agenda with a curious passion that shocks even officials in the European Commission, pussy cats by comparison” (here are the latest demands of the Troika Greece – Policy Commitments Demanded By EU etc Jun 2015). The IMF is demanding further sweeping measures of austerity at a time when the Greek government debt burden stands at 180% of GDP, when the Greeks have already applied the biggest swing in budget deficit to surplus by any government since the 1930s and when further austerity would only drive the Greek capitalist economy even deeper into its depression. As the DT summed it up: “six years of depression, a deflationary spiral, a 26pc fall GDP, 60pc youth unemployment, mass exodus of the young and the brightest, chronic hysteresis that will blight Greece’s prospects for a decade to come”.

The Syriza government has already made many and significant retreats from its election promises and wishes (see Syriza’s latest proposals here (Greece Debt Proposals (47 Pager) Jun 2015).  Many ‘red lines’ have been crossed already (see my post, https://thenextrecession.wordpress.com/2015/04/28/greece-crossing-the-red-lines/). It has dropped the demand for the cancellation of all or part of the government debt; it has agreed to carry through most of the privatisations imposed under the agreement reached with the previous conservative New Democracy government; it has agreed to increased taxation in various areas; it is willing to introduce ‘labour reforms’ and it has postponed the implementation of a higher minimum wage and the re-employment of thousands of sacked staff.

But the IMF and Eurogroup wanted even more. The Troika has agreed that the original targets for a budget surplus (before interest payments on debt) could be reduced from 3-4% of GDP a year up to 2020 to 1% this year, rising to 2% next etc. But this is no real concession because government tax revenues have collapsed during the negotiation period. At the end of 2014, the New Democracy government said that it would end the bailout package and take no more money because it could repay its debt obligations from then on as the government was running a primary surplus sufficient to do so. But that surplus has now disappeared as rich Greeks continue to hide their money and avoid tax payments and small businesses and employees hold back on paying in the uncertainty of what is going to happen. The general government primary cash surplus has narrowed by more than 59 percent to 651 million euros in the 4-month period of 2015 from 1.6 billion in the corresponding period last year

The Syriza government has only been able to pay its government employees their wages and meet state pension outgoings by stopping all payments of bills to suppliers in the health service, schools and other public services. The result is that the government has managed to scrape together just enough funds to meet IMF and ECB repayments in the last few months, while hospitals have no medicines and equipment and schools have no books and materials; and doctors and teachers leave the country.

Even Ashoka Mody, former chief of the IMF’s bail-out in Ireland, has criticised the attitude of his successor in the Greek negotiations: “Everything that we have learned over the last five years is that it is stunningly bad economics to enforce austerity on a country when it is in a deflationary cycle. Trauma patients have to heal their wounds before they can train for the 10K.”

The final red lines have been reached. What the Syriza leaders finally balked at was the demand by the IMF and the Eurogroup that the government raise VAT on electricity by 10 percentage points, directly hitting the fuel payments of the poorest; and also that the poorest state pensioners should have their pensions cuts so that the social security system could balance its books. Further down the road, the Troika wants major cuts in the pensions system by raising the retirement ages and increasing contributions. The Syriza leaders were even prepared to agree to some VAT rises and pension ‘reforms’, but the two specific demands of the Troika appear to have been just too much.

As Mody put it: “I am frankly shocked that we are even having a discussion about raising VAT at all in these circumstances. We have just seen a premature rise in VAT knock the wind out of a country as strong as Japan.”   As for pensions, they have already been slashed under previous bailout agreements with the Troika. Main pensions have been slashed 44-48 per cent since 2010, reducing the average pension to €700 a month. Contributors to a supplementary scheme receive a top-up averaging €170 a month. About 45 per cent of Greek pensioners receive less than €665 monthly — below the official poverty threshold.

The Troika wants more. It is pressing for across-the-board cuts in both main and supplementary pensions; the abolition of a special monthly stipend for pensioners receiving the lowest benefits; an increase in the retirement age to 67; the ending of special arrangements that allow working mothers and people in so-called “dangerous” occupations to retire early on full pensions; and the merger of dozens of sectoral pension funds into three main funds.

The horrible truth is that none of these further cuts would be necessary if the Troika had just cancelled some of Greece’s public sector debt back in 2012 when the debt was ‘restructured’. Instead, the banks of Germany and France were paid off for their holdings of Greek government bonds with just a small haircut and the burden of the debt then fell on the shoulders of the new Eurozone bailout institutions and Greece’s own pension funds. Greece’s pension funds lost an estimated €25bn of reserves that were held in government bonds as a result of the debt restructuring. They have been unable to replenish them. Meanwhile, contributions to the system fell sharply as unemployment soared above 25 per cent and outlays rose sharply as more than 60,000 public sector workers opted for early retirement, fearing their jobs would soon be eliminated.

The reality is that Greece can never pay back these loans. Greek capitalism is in a deep depression and in deflation.  The OECD has just slashed its Greek GDP estimates to 0.1 percent in 2015 from 2.3 percent in its previous forecast published last November. So the debt burden is rising not falling despite (and partly because of) austerity. The IMF recognises this and suggests that the Eurogroup agree to a haircut on its loans (while the IMF still expects full repayment of its loans!). The Eurogroup has already agreed that no repayments on its debt need be made until 2020, but won’t agree to a debt haircut (yet). And both the IMF and the Eurogroup want to cut the debt in the meantime and thus are demanding more austerity measures. Syriza has made a very modest proposal to cut the debt burden in the future (see here ENDING-THE-GREEK-CRISIS-short), but this proposal has been ignored by the Troika, at least until Greece capitulates on the current bailout terms.

greek debt

The Greek government is running out of cash to pay back the IMF and the ECB and very big repayments are scheduled for July and August. It will definitely run out of money by the end of this month, when the choice will be between paying the IMF the bundled-up debt or paying government workers their wages.

The cruel irony is that if Syriza agrees to the demands of the Troika on VAT, pensions and other austerity measures, the money it receives under the existing bailout agreement of €7.2bn and some €1.9bn in held back ECB profits on Greek bonds would just be immediately transferred back to the IMF and the ECB (see my post, https://thenextrecession.wordpress.com/2015/02/21/greece-third-world-aid-and-debt/)! Nothing would touch the sides of the Greek government to pay its employees or suppliers.

So even if a deal ensues in the next fortnight (and it will have to be done probably by 18 June when the next Euro summit takes place so that the German and Greek parliaments have time to endorse the deal), almost immediately negotiations will have to be concluded on a new package so the Greeks can meet repayments to the IMF scheduled up to April 2016 and to finance any deficits and interest payments down the road. Greece will tied into another five years of austerity.

The late night decision of the Syriza leaders shows that they have reached the end of their tether and it will not be possible to persuade their own party to accept Troika demands which would mean accepting in full everything that the previous New Democracy government agreed to. If that happened, what would be the point of a Syriza government, supposedly elected to reverse austerity?

According to opinion polls, the Greek people still overwhelmingly want to stay in the Eurozone and they still give strong support to Syriza in polls, but support for the government’s negotiations with the Troika has been fading. The people want a deal but they don’t want austerity. This appears to be an unresolvable conundrum.

What next then? Well, assuming that the Troika does not blink and drops it latest demands and assuming that the Syriza leaders do not capitulate, then default on the debt will take place at the end of this month. The government will have to take steps to introduce capital controls to stop the flow of funds out of the banks and abroad, already sizeable in the last few months.

Greek bank deposits

In my view, Syriza would finally have to grasp the nettle and take over the banks; reverse all austerity measures agreed to; launch a programme for state investment and jobs and appeal directly to labour movements in Europe for a Europe-wide programme of action over the heads of the Euro leaders. Up to now, Syriza has failed to do this, but it is not too late to start at ten minutes past midnight.

As I said in a post last March
“the issue for Syriza and the Greek labour movement in June is not whether to break with the euro as such, but whether to break with capitalist policies and implement socialist measures to reverse austerity and launch a pan-European campaign for change. Greece cannot succeed on its own in overcoming the rule of the law of value.”

22 thoughts on “Ten minutes past midnight

  1. I think that Syriza has built up some credibility in this period of seriously attempting to work for a constructive deal, even if painful additional measures were necessary. In the mean time, more and more economists are urging the Troika and Eurogroup to end austerity and allow some regrowth in Greece.

    .. I don’t think there was a big chance in february for the strategy to: “appeal directly to labour movements in Europe for a Europe-wide programme of action over the heads of the Euro leaders”.

    Maybe now.

  2. So Michael, what do you think? Support Syriza, support this government, or vote no confidence in the Syriza government and demand the repudiation of the debt?

    Do you think Syriza is capable of undertaking the steps you advocate it takes? What evidence is there that it can, or will, or even wants to take those steps? What organizations exist that can compel Syriza to do that? What is necessary to adopt such a program? Can it be done in parliament? Can it be done without confronting the military? Can it be done without neutralizing the police and other forces of repression?

  3. -appeal directly to labour movements in Europe for a Europe-wide programme of action over the heads of the Euro leaders-

    They have gotten next to zero support from working people and unions in Europe, who have bought the lazy Greeks argument hook line and sinker.

    With a recovering EZ I think it’s plainly obvious that Greece is on its own, and they should certainly proceed that way.

  4. They can nationalize whatever they want, but they are not self sufficient which means foreign capitalists will determine the value of their drachma and even whether they will be able to trade. The crooked EU can always dream up some reason to put sanctions on them.

    Their only realistic hope in the short term is to find a client state.

  5. “launch a programme for state investment and jobs and appeal directly to labour movements in Europe for a Europe-wide programme of action”

    Is this programme Keynesian-Krugmanite?

    As for a militant appeal, the bitter lesson of Greece is that social-democrats are incapable of confronting capital in hard times. Sure, they might get a few crumbs from capital in prosperous times. But since its election, Syriza has done almost nothing to mobilize and educate the Greek people for a successful course of action. Instead, Tsipras and Varoufakis dwell on how to be clever negotiators. So clever that they not only united the bourgeoisies of Europe north and south against Greece, they drove Podemos in Spain to distance itself from Syriza.

    Chile’s Allende was an honorable social democrat, and his failure was a tragedy. Syriza’s Tsipras and Varoufakis are con men, and their failure is despicable.

    It is up to the people of Greece to decide what they must do. Around the world, let us learn from Greece the difference between social democracy and socialism.

  6. Syriza should been long ago organising huge demonstrations and strikes.
    They do not control the state, and they do not control international capitalism.
    Shame on Syriza, and even more shame on the Marxist left within it.

    1. But Syriza wasn’t organized as a party by those organizing demonstrations and strikes; and it gained its “currency” by demonstrating it could control, and prevent, such demonstrations and strikes in the period after 2012.

      Syriza is exactly what it has always claimed to be: a party committed to the preservation of European capitalism; and Greece’s participation in the joint stock company called the European Union.

      There’s no shame in that. And there’s no shame in the so-called “left” of Syriza– a funny bunch to call “left”– made of up of former by C Communists, Stalinists, and those who think a “deformed workers state” is the next best thing to utopia.

      Cowardice, maybe. Self-interest definitely. But no shame.

      The question is will ANEL make a maneuver to bring the government down, because the Syriza “left” will not do it.

  7. “The question is will ANEL make a maneuver to bring the government down, because the Syriza “left” will not do it.”

    Yes, the fact that the Syriza left was content to keep its protest within party councils – while somehow “ensuring” that it would not gain an actual majority in what was a close vote – is all the proof required on the status of this left on matters of basic class struggle principle. The vote proves they have the power to bring down the present government at any time!

    One can only add: shame on those Marxists abroad who continue to support the Syriza approach, with either their lame excuses or with their silence, of exclusively negotiating concessions to the Euro bourgeoisie while abstaining from any attempt at mobilization of Greek society. I was in Athens for about 4 days late last month, including an overnight foray to the countryside, and saw only a deeply demoralized population and government business as usual. But I did see Golden Dawn activists busy leafleting the Piraeus metro station! The contradictory results of Greek opinion polls is only more evidence that Syriza never had any plans to educate anybody about anything. The whole thing is a classic recipe for fascism, and their militants are hard at work as we read and write.

    I suspect the social basis of Syriza, including its posturing left wing, lies in the “new petit bourgeoisie” a la Poulantzas (ironically), most likely connected with the lower levels of the civilian state apparatus. Naturally they don’t want to rock the EU boat that is the source of their social privileges. Hence they are content to entertain the Greek people in their contradictory illusions concerning their real relations to the EU and the Eurozone.

  8. “… then default on the debt will take place at the end of this month.”

    Unlikely but not impossible. A disorderly default that isn’t negotiated properly would be pretty disastrous for the Troika and the IMF, so they’ll likely try to avoid it at least temporarily.

    “The government will have to take steps to introduce capital controls to stop the flow of funds out of the banks and abroad, already sizeable in the last few months.”

    Even less likely than a default. Introducing capital controls would lead to Greece’s expulsion from the Eurozone and the re-introduction of the Drachma, precipitating a social catastrophe even worse than what the Troika imposed.

    “In my view, Syriza would finally have to grasp the nettle and take over the banks; reverse all austerity measures agreed to; launch a programme for state investment and jobs and appeal directly to labour movements in Europe for a Europe-wide programme of action over the heads of the Euro leaders. Up to now, Syriza has failed to do this, but it is not too late to start at ten minutes past midnight.”

    The suffering and chaos that would result from Drachma-driven austerity would dwarf Troika-driven austerity of the past 5 years. The big winner of a stunt like this would be Golden Dawn and no one else.

  9. “Even less likely than a default. Introducing capital controls would lead to Greece’s expulsion from the Eurozone and the re-introduction of the Drachma, precipitating a social catastrophe even worse than what the Troika imposed.”

    Hilarious. Pathetic. Both. People committing suicide. Doctors unable to treat patients. Pharmacies without pharmaceuticals. Water supplies endangered, yet leaving the Eurozond will “precipitate an even worse catastrophe.”

    What bullshit.

    Just stamp TINA on your forehead and be done with it.

  10. ^All the problems you mention will get worse when there’s a run on the banks as working people scramble to withdraw their Euros to avoid a Drachma that will rapidly depreciate in value when it is re-introduced. Hopefully it wouldn’t reach German 1923 levels but anything is possible. It’s uncharted territory.

      1. Oh, and that, Germany’s softening is going to make things better for those whose pensions have been cut some 48%; and it’s going to help those who had to take retirement at an early age after losing their jobs and not being able to find another?

        TINA, Pollyanna, Pangloss– pick one, pick all.

      2. Sure thing; events are vindicating RDS’ comments. Like this:

        The proposals by the Syriza government represent a painful compromise compared to its electoral promises. It has accepted tight fiscal targets, and to achieve them it is offering to raise VAT on several goods, while also imposing a substantial tax burden on the rich, thus achieving some redistribution. It has also toned down its policies on
        privatisation and pensions. In return it is asking the troika for an immediate injection of liquidity, as well as for a serious commitment to reduce Greek debt and to promote long-term investment. There is hardly anything revolutionary, nor even particularly radical, in these demands.

        The response of the eurozone creditors, judging by a leaked “official” document, has been ruthless. They have set fiscal targets slightly above those of Syriza, but to achieve these they are demanding a substantial increase in VAT, including a rise of 10% on electricity, thus hitting the poorest where it hurts. They are also demanding the abolition of subsidies and tax relief measures (including for farmers and poor pensioners), and pension cuts. Finally they demand an end to collective bargaining, no increase of the minimum wage and sustained privatisations.


        But repudiating the debt, and seizing assets, that could only make things worse.

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