The ‘impossible triangle’ for the Syriza government was 1) reversing austerity 2) staying the Eurozone; and 3) Syriza staying in power (see my post, https://thenextrecession.wordpress.com/2015/01/21/syriza-the-economists-and-the-impossible-triangle/). The Troika prepared to break that triangle. What the Troika wanted was a Greek government carrying out a full programme of austerity (running a government budget surplus in the middle of a depression) and ‘structural reforms’ (ending labour rights, deregulating services and finance and privatising state assets). The previous Samaras government got bailout funds in return for such ‘conditionalities’. When Syriza wanted to change those conditions, not only did the Troika not concede, it actually tried to impose even harsher ones on Syriza.
This is partly because the Greek economy and government revenues have deteriorated during the five-month bailout extension. But it is also because the Troika wants to break Syriza and end a government pledged to oppose fiscal austerity and neo-liberal reforms. This is to ‘encourage’ the others.
The most forceful exponents of applying these even harsher measures include the IMF (which wants its money back); the German finance minister, Schauble, some small Eurozone states which are poorer than even Greece; and conservative governments in Portugal, Ireland and Spain which have imposed severe austerity on their electorates and now face anti-austerity movements at home. All these forces outweighed any forces for compromise that came from the French, the Italians and the European Commission.
And remember the cruel irony is that all these tortuous negotiations were designed not to provide help to the Greek people, but simply to release funds so that the IMF and the ECB would be repaid without any default. Over 90% of all the loans made by the Troika in the last five years have merely been siphoned back to Greek government creditors without touching the sides of the Greek economy – see my post, https://thenextrecession.wordpress.com/2015/02/21/greece-third-world-aid-and-debt/.
And these creditors were mainly French and German banks and hedge funds who got the value of their speculative purchases of Greek government bonds repaid with only a small ‘haircut’ in 2012. After that, the Eurozone, the IMF took on the debt while the Greek pension funds were stripped of their reserves.
The Syriza government went very far in dropping all its commitments which originally were: cancelling the debt, then halving the debt, reversing austerity, opposing privatisations etc. Eventually, to get a deal, the Syriza government even proposed a tax increase to annual incomes above $33,000 (thus suggesting that individuals in that income bracket rank among the wealthy). Basic food items and services were to carry a 23% VAT. The special VAT rate on Greek islands, which is so crucial for the tourist sector of the economy, was also to be removed. The early retirement age was to be increased as of the start of 2016 and a benefit for low-income pensioners was to be gradually substituted, beginning in 2018.
But on 25 June, the Christine Lagarde/Wolfgang Schäuble duo (IMF chief and German finance minister) wanted the benefit for low-income pensioners to be completely eliminated by 2017. If this proposal for overhauling the nation’s pension system were to be accepted by the Greek government, it would mean that a person who today receives a monthly pension for the amount of, say, 500 euros ($560) – close to 50% of Greek pensioners receive pensions below the official poverty line – would be deprived of nearly 200 euros ($223). This was one step too far for Tsipras and the Syriza leadership.
To understand why is to hear from Greeks themselves in various media reports. Here are the reactions gleaned from the media of Greeks living in Thessaloniki, Greece’s second largest city.
Michalis Nastos, 54, runs a clothing stall selling €10 jeans, €6 shirts and an array of cheap summer dresses, has seen his profits fall by more than 50% after years of crisis, unemployment and tax hikes. Nastos said his main fear was the proposed rise in VAT — an indirect sales tax that would push prices up and indiscriminately affect all shoppers, most of whom are already struggling with the effects of previous tax hikes. “Of course I’m against VAT rises, it’s already very high, it will have a knock-on effect. It’s the little details that will really affect people. The price of bread would go up — that’s important because people in Greece still eat a lot of bread, so you could see the price of a sesame-seed loaf rise from say 50 cents to 70 cents, that would really have an impact. Packaging costs will rise, energy, basics like pasta. Low-income people won’t be able to afford to buy and more and more people won’t be able to make it.”
Michalis Hadji-Athanasiadis, 84, a former police officer who had retired aged 50, said his pension had shrunk from €1,600 a month to €1,000 a month, and his extra benefits had been cut. But his pension was still far higher than the shrinking salary of his 52-year-old daughter who was a high-school teacher and who, like her brother and his wife, still lived with their parents to make ends meet. He said: “People are hungry. For five months it seems there has been no progress and business is down everywhere, a lot of shops have closed. Income is down, with VAT going up everything you need to buy becomes so much more expensive.”
Near the market, one woman in her 50s, who said her main income came from selling black market Balkan cigarettes, described how customers used to buy five or six packets but were now only buying one or two. “It feels like life is over,” she said. “We can barely manage to feed ourselves.” Her adult children, who had lost their jobs as shop-assistants during the recession both lived with her. She adds: “It feels like they’re going after the little guy, all the high-income people got away with it and got their money out of the country.”
The next irony was that the IMF knows that Greece can never repay a €300bn debt equivalent to 180% of GDP and rising. Greece asked for ‘debt relief’ in return for agreeing to more austerity. And it asked for a long-term package. The Troika refused. It refused to consider debt relief and only offered ‘bailout’ funds for another five months in dribs and drabs, thus keeping Greece in the grip of depression and poverty.
So we have a referendum. Greeks will be asked to vote on a complicated set of proposals put forward by the Troika. The question put is whether they will accept the Troika package or not. If they vote YES, then presumably the Syriza government will return to Brussels saying that they accept any terms offered. If the Greeks say NO, then the Greeks face the prospect of no more funding to pay their government debts and the cutting off of credit by the European Central Bank, which is currently financing the Greek banks to meet the increasing demands of depositors withdrawing their cash by the billions.
The government will have to impose capital controls to stop the flight of money (most of the rich and companies have already taken theirs already); it will possibly have to issue IOUs to pay its government workers and pensioners. These ‘euro IOUs’ will quickly devalue, as ‘real’ euros become scarce.
There are two more ironies here. The first is that if the Greeks vote yes to the Troika package, there will be no package to agree to. The current bailout programme ends on 30 June. After that, a completely new package will have to be negotiated and the Troika is talking about the impossibility of working with Syriza. They are looking to remove Syriza from power so they can negotiate with an amenable government.
The second is that if the Greeks vote no and the Greek economy is then cut off from euro credit by the ECB and Greece defaults on all its debts, there is no actual procedure for removing a member state from the Eurozone. Under the rules, a member state must ask to leave; it cannot be ejected. This is clearly uncharted waters for Merkel, Hollande and the Euro leaders.
The criticism of the pro-Troika parties in Greece was that Tsipras is using the referendum to avoid taking the decision himself. He is hiding behind the electorate. There is some truth in this but it is not the whole truth because Syriza will campaign for a no vote.
But what if it gets it? Surely, the government must move to end this tortuous mess. It must refuse to recognise the ‘odious’ Troika debt. It must impose capital controls; it must nationalise the Greek banks; and bring the commanding heights of the economy under the control of labour. The Greek people can start to turn round this depressed economy. But the Greeks cannot do this alone; it requires the combined efforts of European labour to break the grip of capitalist forces on economic policy and investment.
In another post, I shall try and analyse the state of the Greek economy and what could be done to turn it around within a plan for Europe.