Friday, December 23, 2011

The 'German Premier': Task Force Leader Cleans House in Greece

By Julia Amalia Heyer

Horst Reichenbach, head of the European Commission Task Force for Greece. Horst Reichenbach, head of the European Commission Task Force for Greece.

Armed with 45 experts and 30 years of experience, Horst Reichenbach is in Athens to help the Greeks economize and institute reforms. His conclusions about their situation are sobering, but he also reports a new sense of determination for tackling the debt crisis there.

He could have left his winter coat at home, says Horst Reichenbach as he hurries along the palm-lined paths of the National Garden. Even now, in the middle of December, there is hardly a cloud in the sky over Athens. He has no complaints about the weather, at least.

Reichenbach, 66, is the head of the European Commission Task Force for Greece, a group of financial and administrative experts assembled in the summer to help debt-ridden Greeks "do their homework," as he says.

It is his third visit to the Greek capital. A white VW van chauffeurs him and his delegation through Athens, from the Agriculture Ministry to the Finance Ministry, and from the Interior Ministry to the Transportation Ministry -- from one brightly lit Christmas tree to the next.

"It's wonderful that you're here," says the agriculture minister.

"We're happy that you've come," the interior minister calls out.

Reichenbach, tall, slim and always dressed in a dark suit, is friendly but not jovial in his dealings with the Greeks. He is not one for exuberant gestures. He is a civil servant, not a politician. Portraits and flags are always proudly displayed behind the Greek ministers at whose enormous tables he sits, while Reichenbach has a thick, blue cardboard folder in front of him.

Devastating Reports

It contains important documents, perhaps even the sobering study on Greece that the Organization for Economic Co-operation and Development (OECD) released last week. Oddly enough, the analysis came in response to an initiative by the Greeks, who approached OECD officials in Paris in 2008 to ask for help. Reichenbach reviewed the report before its publication. OECD officials say that the analyses are congruent on both sides, and that the Greek minister of public administration described the report's summary as "tough but fair."

This is surprising, given that the study finds that the Greek administration "does not have the habit of keeping records or the ability to extract information from data (where available), nor generally of managing organizational knowledge." The OECD's suggestion for correcting these problems is to institute "a Big-Bang reform in the entire government apparatus."

Reichenbach puts it in his words, politely and without using the term Big Bang. "The efficiency of the Greek administration is not such that it would be possible to eliminate jobs," he says.

The International Monetary Fund (IMF) published its most recent report on Greece on Tuesday. Its findings are also devastating. According to the report, the implementation of reforms is taking far too long, government spending is still much too high and revenues are too low. The administration had planned to collect €5 billion ($6.5 billion) by the end of the year through privatization alone. Instead, it managed to collect only €1.8 billion.

Reichenbach's experts, 30 in Brussels and 15 in Athens, are trying to help the Greeks economize and reform. They organize computer-training classes for Greek government employees, but they are also supposed to be creating a more favorable climate for investment. The Federation of German Industries gave Reichenbach a list of conditions that would have to be met to satisfy German investors. It contains proposed improvements in industries ranging from shipping to solar energy.

The 'German Premier'

"The initial situation is so bad that it can only improve," says Reichenbach over a cup of tea, for which he always makes a special request, because most people here drink coffee. His comment isn't meant to be cynical. His team began its work in September and has since deployed experts from half of Europe to attend to Greek patients. Dutch team members are helping to develop a land registry for the country, while the French are working on healthcare reform. Beginning in January, German experts will start developing a functioning system of municipal administrations.

Reichenbach's job is a balancing act. He has to intervene to provide foreign expertise, and yet he is supposed to stay out of political matters.

"It just happens to be the approach I have to take," says Reichenbach. The Greek press has dubbed him the "German Premier" -- one of the friendlier terms used. Reichenbach admits that he underestimated how difficult being German would make his work.

Salaries have declined by 14 percent this year, and even by around 30 percent in some areas. The Greeks have made great sacrifices. Reichenbach is aware of the paradox: Two-thirds of Greeks want to keep the euro, while almost exactly as many are opposed to the harsh austerity requirements. They don't want to play along, and they don't want to "deliver," as the troika expects them to.

Is there still hope?

He is experiencing a "different sort of determination among the Greeks" to tackle things, says Reichenbach, a determination he did not sense the last time he was in Athens.

But could it already be too late for that?

"I think," Reichenbach says slowly, revealing the diplomatic polish he has acquired in his three decades of service in the EU, "that with all the things we have done so far, we are doing our best to make sure that this will not be the case."

Translated from the German by Christopher Sultan

The 'German Premier': Task Force Leader Cleans House in Greece - SPIEGEL ONLINE - News - International

Thursday, December 22, 2011

Why the drachma is no answer


Many people overlook Greece’s historical experience with its national currency

By Dimitris Kontogiannis

The large majority of the Greek population is still in favor of the country being in the eurozone rather than outside it, but their will is likely to be tested in coming quarters as the ranks of the unemployed and underemployed swell and the disposable income of the rest gets squeezed by more taxes and pay cuts. The stakes are high and therefore the costs of Greece exiting the euro versus the costs of sticking to the rules of the economic adjustment program should be highlighted.

Based on the latest revised data by the Hellenic Statistical Authority, the economy shrank by 5.5 percent in the third quarter compared to a year earlier on the back of another sharp drop in private consumption spending and fixed asset formation. So, the economy looks set to contract by 5.5 percent or more this year with the unemployment rate stuck at high levels, perhaps close to 18-19 percent of the working population on average.

If the estimates of the latest International Monetary Fund report on Greece are right, the economy will experience its fifth straight year of recession in 2012, making the current economic slump the worst since World War II.

As the pain becomes more visible and widespread across social strata, and the costs of the adjustment plan get bigger, it is inevitable that a cost-benefit analysis of the two main alternatives - mainly accepting a prolonged recession or even deflation and staying in the eurozone or exiting the euro - will have to take place.

It is true that lessons from other countries that experienced successful fiscal consolidation accompanied by sizeable reductions in their public debt-to-GDP ratio in the past, point to the need for large primary budget surpluses. Denmark’s reduction of public debt ratio from 80.1 percent in 1993 to 22 percent in 2008, relied heavily on primary surpluses. The same is true for Belgium between 1993 and 2007, Sweden from 1996 through 2008 and the Netherlands from 1993 through 2007.

Greece should not be an exception. However, the ongoing fiscal consolidation has proved harder to attain. We have long held that this is largely due to two major faults of the existing economic adjustment program.

First, it relied a lot on taxes instead of spending cuts and downsizing the public sector to achieve fiscal consolidation and reduce the government debt-to-GDP ratio over time. By doing so, it weakened the private sector, the economy’s economic engine, prolonging the recession and undermining the fiscal effort. Second, it did not push for privatizations early on to attain greater economic efficiencies, boost market sentiment and help improve business expectations and other structural reforms such as removing barriers to entry in certain professions.

This is very important because it is not just about fiscal consolidation but also about enhancing the competitiveness of the Greek economy.

At this point, the program is associated more with the visible costs rather than any theoretical future benefits which many in the population cannot see.

Some propose that the trade-off between costs and benefits would have been much better if the country had its own national currency. This idea is based on the assumption that the devaluation of the national currency would have helped restore competitiveness and get the economy out of its slump faster.

In doing so, they overlook Greece’s historical experience with the drachma in the past. The country devalued its currency in the 1980s and even in 1998 to prepare for euro entry but any benefits from the initial nominal devaluation were not that great and did not last long since the real devaluation was much smaller. This is so because the devaluation gave rise to inflation which fed in turn into wages, creating a spiral which eliminated a lot of the benefits of the devaluation in the following two years.

This is the reason the Greek economy was never really competitive even under the drachma regime. Instead, the previous regime helped induce speculative attacks on the national currency and balance of payment crises.

In this case, should Greece decide to exit the euro, any benefits would come after a great deal of costs were incurred. Since the Bank of Greece would have had a limited number of resources to defend the new currency, one should expect it to dive versus the other major currencies, creating havoc in domestic economic activity and depressing Greek asset prices, i.e. real estate, to a great extent.

One could also visualize a situation under such circumstances whereby Greece, being in a weak economic position, would face demands by other countries over issues such as its name dispute with the Former Yugoslav Republic of Macedonia and the ongoing reunification talks in Cyprus. So, it is not just economic but also geopolitical issues one has to take into account when arguing for or against the country’s exit from the euro.

There is no doubt that the current economic adjustment program will have to be adjusted to penalize the main source of Greece’s economic woes - namely the public sector - and this will entail more costs in terms of lost economic output. However, this cost will be much smaller compared to the social and economic costs an exit from the eurozone will mean to Greece.

The Greek economy will have to become more competitive and produce more than it spends down the road. This was not the case when the drachma was the national currency and there is no reason to believe it will be different in the future. | Why the drachma is no answer

Monday, December 19, 2011

IMF Survey: Greece Needs Deeper Reforms to Overcome Crisis


IMF Survey online

December 16, 2011



Athens central market. Taxes should not be raised further, says the IMF (photo: Filippo Monteforte/AFP)

Despite year-long efforts to revive the economy at the heart of Europe’s sovereign debt crisis, Greece remains mired in a deep recession.

The economy is projected to shrink by about 6 percent in 2011, and unemployment has reached 16½ percent of the work force. And while competitiveness is slowly improving, the country has yet to build up a critical mass of structural reforms to reenergize growth.

“The economy is continuing to trend downwards, reflecting that the hoped for improvement in market sentiment and in the investment climate is not materializing,” IMF mission chief for Greece, Poul Thomsen, told reporters in a briefing tied to the release of the IMF’s latest report on the economy.

On December 5, the IMF’s Executive Board approved the fifth review of Greece’s economic program and released a tranche of €2.2 billion under the country’s 3-year Stand-By Arrangement. The IMF-supported program, approved in May 2010, is part of a joint package of financing with euro area member states amounting to €110 billion.

Political backing

The appointment of Lucas Papademos as new prime minister and the public endorsement of the program objectives by all the major political parties has raised expectations that Greece will now be able to make headway on important reforms. “One problem with the program has clearly been the lack of broad political support,” Thomsen said. “Now that the fifth review has been signed off by the new government, and by the three partners that are supporting this government, we are hopeful that this will help strengthen the program and the ability to implement reforms.”

No room for further tax hikes

During 2010, the Greek government managed to reduce the fiscal deficit by 5 percentage points, despite a contraction in GDP of almost 4 percent. But further progress in reducing the deficit is going to be hard without underlying structural fiscal reforms. The fiscal deficit is now expected to be 9 percent this year, against the program target of 7½ percent.

“One of the things we have seen in 2011 is that we have reached the limit of what can be achieved through increasing taxes,” Thomsen said. “Any further measures, if needed, should be on the expenditure side, and on the revenue side we have to rely on improving tax administration.”

Prospects for debt sustainability

Greece and its European partners agreed October 26 on a debt write-down by private creditors of 50 percent of sovereign bond face value as a means to help reduce Greece’s overall debt burden and restore debt sustainability. This Private Sector Involvement, or PSI, will also help secure the financing needed to help Greece implement its adjustment program. The specific details of the operation still remain to be finalized, with January now mentioned as a deadline for completion.

But sustainability cannot be restored by debt write-downs alone, Thomsen said. “What the debt sustainability analysis shows is that the outlook for debt is highly dependent on growth. That, of course, underscores the point of what this is all about: structural reform to boost productivity. If we don’t get this boost to potential growth over the medium term, the debt sustainability analysis shows that there is clearly a problem,” he said.

Preserving stability in the financial sector

The problem for Greece is that its banks are heavily exposed to Greek sovereign bonds. The PSI deal now under discussion would have a deep impact on bank capital. Recapitalization needs could be large in case of a 50 percent haircut, the IMF notes in its report.

Concerns about the banking system have led to an acceleration of deposit withdrawals, with total outflows since the beginning of the year now amounting to €32 billion, or more than 16 percent of end-year deposits.

With the banks struggling to hold onto their deposit base and economic prospects weaker, Greek businesses and households are experiencing growing difficulties in accessing credit. “Bank liquidity remains very tight. Banks are, at the same time, reevaluating credit risks, and are deleveraging, in part, because they are concerned about losses on loans,” Thomsen said.

But there are instruments in place to deal with these problems, with a process underway to strengthen the public backstop mechanism for providing capital for banks that cannot raise the necessary capital through market-based means, he said.

Critical mass of structural reforms

Structural reforms have not yet delivered expected results, in part because agreed reforms are not being implemented. For instance, two flagship reforms—on collective bargaining and liberalizing restricted professions—have yet to deliver substantial results.

“Progress has been made on many fronts but there is still a long way to go. Greece is still far away from the critical mass of reforms needed to transform the investment climate,” Thomsen said. He noted that delays in reform implementation are one crucial reason why investor sentiment has not recovered as expected under the program, and thus why the economy was weaker than expected.

Next steps

A recent staff visit to Greece focused on program implementation and the outlook for 2012. “We continue to expect to be supporting Greece. There is no formal request yet for a new program,” Thomsen said, noting that a new program would have to be evaluated by the IMF’s management and Executive Board before any negotiations could proceed.

IMF Survey: Greece Needs Deeper Reforms to Overcome Crisis

Saturday, December 17, 2011

Euro debt crisis needs spotlight of truth in Greece

By the Monitor's Editorial Board / November 28, 2011

Greece ignited the euro debt crisis with a big lie about its deficit, and now the man hired to clean up its statistics faces charges of national betrayal. Keeping euro nations honest is a key to Europe's economic recovery.

Workers stand at the entrance of a Greek factory during a strike over wage cuts. Greece has implemented repeated pension and wage cuts, but its bloated budget deficit remains an issue. AP/Petros Giannakouris

The ancient Greek philosopher Diogenes used to walk the streets of Athens “looking for an honest man.” Today’s Greeks are still looking.

It was Greece that sparked Europe’s financial crisis back in 2009 after being caught in a huge lie about the size of its official deficit – claiming it was 3.7 percent of gross domestic product when it was really 15.8 percent.

That was a fourfold fib. Now, even though Europe’s crisis remains the key risk to the global economy, some Greeks have yet to fully embrace honesty as a virtue necessary for economic stability.

The man hired last year to ensure Greece didn’t again cook its books, Andreas Georgiou, is himself under attack.

A few prominent nationalists, disgruntled over the austerity forced on Greeks, have arranged for this respected statistician to face a judge in December for allegedly “betraying the national interest” – simply because he told the truth about the amount of Greece’s red ink. If convicted, he could get a life sentence.

Such a dubious move could threaten the next bailout money for Greece. It also has the potential to disrupt Europe’s attempt to save the euro and jeopardize the continent’s experiment at unity.

This week, France and Germany plan to propose a fix to the 17-nation euro pact with a penalty on any nation that violates the rules on fiscal discipline. The current rule calls for a country’s deficit to stay below 3 percent of GDP. But as Greece and a few other of the 17 euro nations have shown, the rule has been easily ignored.

The French-German proposal could be endorsed at a Dec. 9 summit of European Union leaders. If it is approved, the European Central Bank might then be confident in buying up debt of troubled governments like those in Greece and Italy.

“We must together set up institutions that secure trust in the euro,” says German Finance Minister Wolfgang Schäuble. Or as French Budget Minister Valérie Pécresse says, Europe needs better regulatory mechanisms that are “virtuous, that don’t allow a cheater, so that there is no one who can exempt themselves from the rules that are set.”

Greeks are already notorious for evading taxes. And over the past year, in an attempt to tax the wealthy, the government used helicopters to spot undeclared swimming pools in the walled backyards of Athenian suburbs. Instead of finding the officially reported 324 pools, it found 16,974.

When Mr. Georgiou became head of Greece’s new statistics authority last year, he declared he wanted to create a “culture of excellence” in official accounting. He arrived with a PhD in economics from the University of Michigan and 20 years as a top statistician at the International Monetary Fund.

Charging him for telling the truth about Greece’s accounting would only further anger other Europeans. If anyone in Athens can be Diogenes’ honest man, it is this longtime civil servant

Euro debt crisis needs spotlight of truth in Greece -

What Is The PSI And What It Means for Holders of Greek Bonds - An Overview of the Initial and Modified PSI program


Following the Eurozone Summit on July 21st, European leaders worked out on a solution for the Greek sovereign debt problem, along with a new bailout package, proposing to private holders of Greek Government bonds a voluntary debt exchange program, with new longer-maturity-bonds and a 21% haircut on their nominal value.

In late August, the Greek government revealed more details on the process, recognizing that without the voluntary debt restructuring, the ability to meet future obligations, it would become problematic. Although it was clarified which bonds will be included in the exchange program (see diagram below), as well as the proposed options for the Greek Bond Holders, the PSI (Private Section Involvement) program failed to materialize, mainly because of the deterioration of the financial situation of Greece and the indecisiveness of EU politicians to reach a common agreement on the actual handling of the overall debt problem in the area.

On the 26th of October, EU leaders came up with a modified PSI program, much more realistic than the initial one and it remains to be seen if this time it will go through and get executed.

In this article we explain the details and implication of the initial PSI program and then we overview the modified PSI, decided on the 26th of October.

The 4 options of the (initial) PSI

In the initial design of the PSI program, there were four options, with the first two relating to an exchange of 100% of the nominal value of Greek government bonds and the remaining 2 choices requiring a 21% “haircut” on their nominal value. Apart from the fourth option that was offering an exchange of old debt with the acquisition of a 15-year, 6,20%  fixed rate coupon bond, all the remaining options required the exchange of old bonds with new ones, with average maturity of 30 years.

Which part of the Greek debt is included in the PSI?

The diagram above shows the total amounts that were planned to be be included in the  PSI program, based on the original design. Given the ECB’s statement that it will not participate to any exchange program, the PSI was referring only to Greek debt holders besides the ECB, with total capital in Greek bonds of about 60bln for the period 2011-2014 and 90bln for the period 2014-2010.To activate the program, the Greek government had required 90% as a minimum participation, i.e. they anticipated the acceptance of bond exchange of total amount 135bln [90%(60+90)]until 2020, hoping that a significant proportion will choose to proceed to an exchange of bonds, with a 21% haircut (getting higher coupon in return), something that didn’t happen.

The biggest part of these debt is in Greek and European banks’ hands (see in detail the following list of the largest holders of Greek bonds), and that’s one of the reasons for the sharp drop of their stock prices for the past months.

Most private investors chose to go with the first option of the PSI, stating that they are willing to exchange the present issues with new ones, of 30-year-maturity, avoiding the choices that included the 21% haircut.


The new PSI, as it was decided on 26/10, 50% Haircut for Greek Debt Holders

During the Summit of 26/10/2011, EU leaders decided on a series of new measures, to ensure the viability of the Greek debt, but also the overall normalization and convergence of European economies. Among these, lies the decision for a modified PSI for Greek Bonds, requiring a voluntary “haircut” of 50% on the nominal value of Greek Bonds.

The “haircut” of 50% in the value of bonds, automatically makes necessary the recapitalization of the European banking system, which is why the EU leaders have agreed to strengthen the EFSF (European Financial Stability Fund) with more funds. The funds of the EFSF will now reach 1 trillion in an effort to stabilize and support the weak sovereign countries. The Eurozone countries will contribute to the new PSI with total capital of 30bil million, with further potential funding until 2014 of extra 100billion euros.

So, which bonds will get a “haircut”?

Regarding Greece the proposed haircut concern issues of about 200bln (including all maturities, even beyond 2020), still excluding though the bonds owned by the ECB. It is not certain though that all private sector’s holders will participate in the modified PSI and the first estimations talk about volunteer participation rate of 50-70%. The 15-page statement of European leaders was fairly vague and does not get into details on several topics, which may be the “thorns” in the implementation of new decisions. It is noticeable that neither for Greece, nor the rest of the eurozone, there exists an explicit mention of development measures to be taken in order to end the crisis, but only general references on that matter.

If I am an individual holder of Greek Government bonds, do I have to join the modified PSI?

Private investors who chose to invest part of their savings in Greek government bonds, it is probable that they will not be affected by any haircut that may occur. The PSI refers to the voluntarily acceptance of bond exchange+haircut by  banks, pension funds, and insurance companies. Still, we need to be cautious on that because there is huge distance from the political decision to the actual implementation of such programs.

When will the modified PSI eventually get implemented?

It is estimated that the implementation of the final program of PSI can be held in early 2012. But first, it is necessary that EU leaders agree and clarify the precise terms of exchange and strengthen the support mechanism in the Eurozone. European leaders stated that they are determined to give a solution, but there is still a long way to the effective implementation of decisions of October 26th and certainly, there is no time for celebrations for Greek Politicians.

The new PSI provides significant liquidity to Greece, but there are many details to be clarified and doubts regarding needed growth measures, the effectiveness of tax administration, spending cuts and the success of privatizations. All these are structural reforms that no Greek government managed to achieve until now, so it remains to be seen if the current one will succeed. The distribution of the Greek debt has changed a lot since the beginning of the sovereign crisis making it much harder for Greek politicians to negotiate the terms of any future bailout package.

What Is The PSI And What It Means for Holders of Greek Bonds - An Overview of the Initial and Modified PSI program - Financial Arena

Friday, December 16, 2011

Greece's euro future: the speculation goes on

 Helena Smith in Athens,

Sunday 11 December 2011 19.59 GMT

When Nicolas Sarkozy said 'some' should clearly not have joined the euro club, Greece was no doubt on his mind

Valery Giscard d'Estaing

Valery Giscard d'Estaing was very keen for Greece to become part of the EU family when he was president of France. Photograph: Damien Meyer/AFP

More than once, the debt-burdened Greeks have heard how they should never have entered the single currency. And on the eve of Friday's make-or-break summit, as French President Nicolas Sarkozy warned that the euro was at risk of "disintegration", he repeated that there were "some" who should clearly not have joined the club.

Hours earlier, one of his predecessors, Valéry Giscard d'Estaing, who will go down in history as doing more than anyone else outside of Athens to champion Greece's cause, came close to admitting the same thing. "Greece could stay in the eurozone but it is very difficult to achieve economic recovery with a strong currency," he said. "Is it better to use a national currency for a period, or have the safety of a strong currency?" he asked. "It is Greece's choice."

Speculation over Athens's possible exit from the eurozone is unlikely to end soon. Deutsche Bank experts predicted that a Greek departure from the 17-member bloc would continue to top the list of the 10 biggest risks investors should look out for. Greece was the 10th country to be embraced as a full member of the then European Economic Community (EEC) in 1981. The rationale behind its admission was as much romantic as geopolitical. As the birthplace of democracy and fount of European civilisation, France in particular felt that the organisation would be incomplete without Athens.

Thanks to Giscard d'Estaing's relentless support Greece signed up before either Spain or Portugal which had to wait a further five years.

"It not only joined five years ahead of Spain, which was much more developed, but just as significantly it entered alone," said Dimitris Kerides who teaches international relations at the university of Macedonia. "The symbolic romantic element of Greece's accession was very strong."

Astute diplomacy – and a little bit of cajoling – by the audacious Konstantinos Karamanlis, who oversaw the country's return to democracy in 1974, also played a role. Following the collapse of military rule, the conservative leader ended seven years of self-imposed exile in Paris flying back to Athens in the presidential jet of his old friend, Giscard d'Estaing.

Less than five years later Athens had signed an accession treaty with the EEC.

"European technocrats were convinced that Greece wasn't ready, which it wasn't, but they were overturned by politicians," said Keridis. "Karamanlis used all the leverage at his disposal, visiting Bonn when the German chancellor, Helmut Schmidt, became reluctant and openly playing the guilt card, citing the devastation it had visited on Greece during the second world war."

Predictably, the capital was far from prepared when the French president and other leaders flew into Athens for the ceremony. To soften their landing, Karamanlis ordered that the old road linking the airport to the city centre be spruced up. In record speed it was turned into a four-lane highway. Giscard d'Estaing and his European partners, liked what they saw. They were taken in.

Greece's euro future: the speculation goes on | Business | The Guardian

The IMF must realise that, in Greece, the treatment is worse than the disease

 Jeanette Kwakye

Costas Douzinas,

Thursday 15 December 2011 09.30 GMT

It's clear that punishing the poor will only deepen the recession – so why are the IMF technocrats intent on further austerity?

greek protest

A woman shouts while taking part in an anti-austerity rally in Athens earlier this year. Photograph: Yiorgos Karahalis/REUTERS

During an official visit to the LSE in November 2008, the Queen asked a professor why economists had failed to predict the financial crash, the most dramatic event in recent economic history. The professor's answer is not known. A year later, after a British Academy seminar, eminent economists answered by blaming "a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole".

Yesterday the IMF reported that the Greek economy had "taken a turn for the worse" against its earlier predictions. The growth forecast for 2011 was revised downwards from -4% to -6% for 2011 and to -3% for 2012. The 2011 deficit, predicted at 7.5% of GDP, has now been revised to 9%. Greek officials expect it to be more than 10%. Public debt was 130% of GDP in 2009. The IMF predicts now that it would peak at 187% in 2013 and fall to 152% of GDP by 2020, if all measures imposed on Greece succeed. This is unlikely. The selling off of the remaining public assets has yielded very little and negotiations with private creditors who were asked to accept a 50% writedown by the EU October summit have stalled. It will take 10 years, the IMF reports, for Greece to close the competitiveness gap. It will take much shorter to destroy the Greece we know.

The IMF accepts that its forecasts failed badly and blames the government for not fully committing to the programme, institutional and legal hurdles to reform as well as lack of vigour in tax collection. According to Poul Thomsen, the mission chief, the IMF is blameless for the failure of the austerity package it imposed. But unlike the Queen's interlocutors, the IMF cannot claim that this failure was sudden or unpredictable. This will be the fifth successive year of recession, with the Greek economy contracting up to -20% over the period.

Yet the IMF announced more of the same medicine, following Mae West's saying that "you can not get enough of a good thing". Further austerity amounting to €20bn of public spending cuts will be imposed between 2012 and 2015. Around 150,000 civil servants will lose their jobs, unemployment will rise to 19% (but then who believes the IMF predictions?), the already slashed salaries, pensions and social services will be cut further. The minimum wage will be reduced and collective bargaining abolished. This is an image of hell passing as the road to heaven.

The IMF has admitted the failure of its forecasts but doesn't accept responsibility. How badly must the policies misfire before they accept that the treatment is worse than the disease? You don't need to be a Nobel prize-winning economist to know that taking money out of the pockets of impoverished people (civil servants' salaries have been cut by up to 50%) will deepen the recession and destroy any prospects of recovery. But the IMF technocrats are unable to admit that their theories show a "failure of collective imagination".

Will the IMF admit at least that they are destroying millions of lives? The macroeconomic figures are staggering; the social consequences are much worse. Ordinary Greek people have paid a heavy price for the consistent failure of the political and economic elites and the perverse persistence of IMF policies. Unprecedented increases in unemployment, poverty, homelessness, mental illness and criminality are destroying social bonds, reminding us of the catastrophes of the 1930s. The 30s analogy is also borne out by the participation of the extreme rightwing and xenophobic LAOS party in the Athens coalition government. When the far-right Freedom party of Jörg Haider entered the Austrian coalition government in 2000, the EU states were outraged and imposed diplomatic sanctions. In Greece, the EU and IMF conditions led to the entry of the extremists into government.

Only one point of the IMF report seems to bear any relationship with reality. The fund accepts indirectly that popular resistance to the measures has contributed to the failure to meet the targets. The "can't pay won't pay" movement, the "outraged" who occupied the squares of Greece for months, showing direct democracy in action – now repeated elsewhere in the Occupy sites – the electricians not prepared to cut the supply of people if they cannot pay the poll tax illegally collected through electricity bills, have shown that ordinary people can frustrate the plans of mighty powers.

The Queen's "naive" question can have only one answer: the neoliberal economics of austerity and punishment of the weakest in our society is not a road to knowledge or prosperity. The Greek people are asking the same question of the IMF technocrats. In doing so, they are fighting for the future of another Europe not much in evidence in European summits

The IMF must realise that, in Greece, the treatment is worse than the disease | Costas Douzinas | Comment is free |

Saturday, December 10, 2011

Sarkozy, Greeks Need To Feel More Financial Pain – Current Levels Insufficient


December 10, 2011 by Richard @ I4W | 0 comments

Nicolas Sarkozy has come out and said that the Greek austerity measures are not a big enough “punishment” on the Greek people for their government’s reckless spending.

Reuters Quote Sarkozy as saying

Sarkozy said one of their aims was to have automatic sanctions imposed on a country if it breaches the EU rule that a budget deficit should not be bigger than 3 percent of GDP.

Sarkozy believes that a country going into default is not facing harsh enough consequences of its reckless spending.

Sarkozy believes that doubling the people out of work in Greece is not enough punishment for the Greek people whose government has acted recklessly.

Sarkozy believes that an 8% reduction in GDP over one year is not a harsh enough penalty on a country whose government that does not look after its finances properly

Sarkozy believes massive tax increases on Greeks is not a big enough punishment on the Greek people whose government has borrowed recklessly

Sarkozy believes that a 23%  VAT tax on food (There is 0% VAT on food in the UK to give some perspective) is not sufficient punishment for the Greek people, whose government has mismanaged the government finances

Sarkozy believe many more things but those are the ones I can think of at the moment.

So what does Sarkozy want to do to make the punishment of a people more “fair”

Well clearly the punishment that is handed out by the world financial markets is not enough for Sarkozy so he has decided that it would be a good idea for the EU punish the people of a country as well.

The market is not harsh enough so Sarkozy believes the only morally correct thing to do is to “create” extra artificial punishments on a country’s people in the form of sanctions, (like Iran or Libya I imagine).

With reactions like this you do really have to ask, why would any country want to be involved in a “more closely integrated” Europe if this is what you face.

Isn’t free borders and free movement of people enough? Do Europeans really want to start getting involved in the finances and “punishment and sanctions” of other European countries?

Would life not be mush easier and more straight forward if countries looked after their own affairs rather than getting involved in the affairs of the neighbour as well?

And let us not forget who gets effected by sanctions, it is certainly not the politicians who created the mess. The people who end up footing the bill of sanctions are the population of a country who did nothing more than cast a vote and who were not involved in the governments spending decisions.

Sarkozy, Greeks Need To Feel More Financial Pain – Current Levels Insufficient | Independence4wales

Greeks Ignorant – Papademos’s Involvement In Greek Crisis


December 10, 2011 by Richard @ I4W

Athens News carried an article today saying how 3 out of 5 Greeks approve of Papademos as Prime Minister.

How is this possible?

For one thing he is unelected, do Greek’s now want to get rid of democracy?

And secondly Papademos has been a key player, indirectly or directly, that has led Greece to the problems it has today.

To recap on Papademos.

Papademos was governor of the Greek Central Bank when Greece entered the Euro.

When Greece entered the Euro it was because the Greek public finances has been fraudulently put together, a fact recognised by most people including Sarkozy.

This “cooking” of the books is what has led directly to Greece being able to run-up unserviceable debts.

What Papademos’s involvement was in the cooking of the books I do not know. But what is known is that Papademos was overseeing the Greek Economy until May of 2002. And the Euro started circulating in Greece in January of 2002.

So to summarise. The finances of the Greek state were manipulated while Papademos was overseeing the Greek economy/currency in his role as governor of the Greek Central Bank.

But Papademos’s direct or indirect involvement does not end there.

After Greece had joined the Euro, with false economic figures, Papademos has then taken up a new post as Vice President of the European Central Bank, the ECB.

Again the ECB is supposed to manage the Euro currency and control the supply of Euros in the Euozone. From May 2002 until December 2010 Papademos has been observing, measuring, analysing and generally involved in the management of the Euro in the Greek economy, but despite his postion of power, he has failed to highlight or notice the fraudulent figures that Greece used to get into the Eurozone.

And during this time Papademos has also been overseeing the Euro while the Greek government has been running up these massive debts.

Papademos’s ignorance, deliberate or otherwise, has directly led to the Greek government running up unserviceable debts resulting in the Greek economy going into a depression.

And despite Papademos’s alleged role as manager of the Drachma immediately prior to Greece’s entry in the Eurozone and despite Papademos’s alleged role as a manager of the Euro currency, Greeks, for some unknown reason, think he is an acceptable choice given is record of financial management over the past 20 years.

Why is Papademos an acceptable Prime Minister to Greeks given that he has been involved in the management team that has led Greece into its deepest depression in recent memory?

Do Greeks understand what Papademos has been doing for the past 20 years or do Greeks know what Papademos has been doing but are simply hoping that things will be different this time?

Greeks Ignorant – Papademos’s Involvement In Greek Crisis | Independence4wales

Thursday, December 8, 2011

Greece passes new austerity budget


Updated December 07, 2011 14:42:05

Greek prime minister Lucas Papademos

Photo: Greek prime minister Lucas Papademos says the budget is a first step in reversing disastrous fiscal policies. (AFP: Aris Messinis )

Greek politicians have approved a 2012 budget pledging tough fiscal goals demanded by European Union partners in return for fresh loans.

The budget was passed as clashes broke out between protesters and police outside parliament.

A broad majority of the parties backing Lucas Papademos' caretaker administration secured the economic blueprint's passage by 258 votes to 41, the assembly said, after the vote concluded after midnight on Tuesday (local time).

Mr Papademos had earlier described the budget as a key first step in a process to reverse disastrous fiscal policies that have burdened each Greek with over 30,000 euros ($40,000) in state debt.

"Our actions will determine the country's economic future, not only for 2012 but for the entire decade," said Mr Papademos, who took over as prime minister last month with the task of ratifying a key eurozone debt deal and holding early elections.

Mr Papademos, a former European Central Bank deputy chief, also insisted Greece's position in the European Union and the euro was "non-negotiable".

"Our place in Europe is non-negotiable. The Greek people will defend it in every way possible," Mr Papademos said.

"Europe and our common currency remain, despite the crisis, one of the noblest achievements of recent history," he said.

Budget protests

The violence outside parliament broke out as thousands of pupils, students and leftist supporters staged separate demonstrations in memory of a schoolboy whose fatal shooting by police three years ago sparked nationwide riots.

Protesters wearing gas masks and goggles threw firebombs and marble shards broken off from nearby buildings at police, who responded with tear gas and stun grenades to push them back, reporters said.

Nearly 20 people, including over a dozen officers, were injured during an earlier bout of midday clashes and police said they had made 11 arrests.

Police held another 10 people in Thessaloniki after smaller-scale incidents.

Gatherings were also held in Volos, Hania and other Greek cities.

The government had warned during the budget debate that the stakes could not be higher for the country amid a debt crisis which has upended the economy and threatened the eurozone despite the best efforts of the EU, IMF and Athens to stabilise its finances.

The key issue for Greece is implementation after it missed deficit and debt targets laid down in a first EU and IMF rescue in May 2010 and was then forced to seek more help as the economy slumped.

A second accord agreed in late October requires Greece to adopt even tougher austerity measures in return for new funding of 100 billion euros and a controversial debt write-down deal with creditor banks worth 100 billion euros.

The accord also makes available 30 billion euros to help local banks cover the losses on their holdings of Greek government bonds caused by the 50 per cent bond write-down.

The budget puts the public deficit at 5.4 per cent of gross domestic product (GDP) in 2012, down from 9.0 per cent this year, compared with the EU ceiling of 3.0 per cent and the previous forecast for next year of 6.8 per cent.


Greece passes new austerity budget - ABC News (Australian Broadcasting Corporation)

Monday, December 5, 2011

Do Greek Lawmakers Have Secret Swiss Bank Accounts?

Posted on 02 December 2011 by Andy Dabilis

ATHENS – As Greece’s economic crisis worsens and intensifies, new scrutiny is being brought on the 300 Members of Parliament, whose pay and benefits is more than members of the United States Congress, and some of whom are said to have hidden their assets in Swiss bank accounts and Greece has failed to go after major tax evaders. Josef Zisyadis, a prominent Swiss politician, has charged that there are Greek politicians with huge secret accounts in Switzerland, leading Evangelos Argiris, the Chairman of the Greek Parliamentary Committee that monitors the finances of political parties and Members of Parliament, to demand he prove it.

Two New Democracy MP’s, Gerasimos Giakoumatos and Kostas Tzavaras, have also asked the Parliament to investigate the claims. Zisyadis, who was born in Istanbul to Greek parents, told Greek television that there are Greek MPs with very large deposits in Swiss banks. In a written response, Parliamentary Speaker Filippos Petsalnikos, a PASOK Socialist MP, said the question is already being probed by by a special committee who have requested information and lists from the Finance Ministry that has so far not released the names of tax evaders costing the country more than $60 billion. Venizelos reportedly has a list of some 750 Greeks who secreted at least $135,000 to Switzerland in 2009. Addressing Parliament on Oct.20, he said one of them has reportedly stashed away some $197 million in a Swiss bank account when at the same time he owes some $858 million in back taxes, but Venizelos wouldn’t produce the name.

Greece is currently pursuing a bilateral agreement with Switzerland so that it can unleash a tax raid on Greeks keeping money in Swiss bank accounts. Switzerland is the world’s top destination for offshore wealth, largely due to its decades-old tradition of bank secrecy. Finance Ministry General Secretary Ilias Plaskovitis met with Michael Ambuehl, head of Switzerland’s State Secretariat for International Financial Matters, in Bern on Oct. 27 to talk about a possible tax agreement. It’s not unlawful to have a Greek bank account in Switzerland or anywhere in the world unless you don’t declare it so that you can be taxed.

A deal is expected to be ready by the end of the year and reportedly would require Greeks with deposits in Swiss banks to reveal to Greek authorities the balance of their accounts or they will be forced to pay a tax at a rate that would apply had the amount been declared as income in Greece. According to Reuters, the Swiss authorities would forward the tax revenue to their Greek counterparts on an anonymous basis.

Venizelos expressed optimism that the pact would help Greece crack the major problem of high-level tax evasion and raise revenues to curb the country’s gaping budget deficit. “Greece will be able to collect a significant amount of taxes evaded over many years, and be able to access information that will allow us to locate blatant cases of tax evasion,” he said. “It is a very significant development that the negotiations with Switzerland are entering the final phase,” he added. Greeks hold an estimated $269 billion euros in Swiss bank accounts, a sum believed to include some of the widespread tax evasion indulged in by affluent Greeks.

The financial situation of all 300 MPs will be open to public scrutiny soon, officials claimed. Their origin of wealth forms (known as pothen esches in Greek) will be published online on Dec. 15. Everyone will be able to access the forms online until the end of the year. The forms, which all MPs are required to file each year, contain information about all their sources of income and property they own. Meanwhile, Parliament’s 2012 budget will soon force lawmakers to tighten their own belts to save the country some $36.3 million although Petsalnikos claimed that Greek lawmakers, who have cut the salaries of Greek workers, raised taxes, slashed pensions and approved scores of thousands of layoffs, have have cuts of as much as 40 percent to their $8,097 monthly salary and substantial benefits, that include a $220 bonus every time they attend a committee meeting, an additional $2024 monthly for office expenses, a $1,349 housing expense for those who represent areas outside Athens, 68 free round-trip tickets annually and unlimited free transportation on trains and buses, a luxury car, a monthly fuel allowance of $810, a police officer to guard them, four cell phones and a free landline at their home, amnesty from any crime, reduced taxes, interest-free loans, four secretaries and a scientific advisor, free gym membership, free kindergarten for their children, free entrance to archaeological sites and museums, free transportation and lodging when they travel, and free tolls on Greek roads, and can retire after one four-year term with a pension of $6,856.

(Sources: Athens News, Reuters, Kathimerini)

Do Greek Lawmakers Have Secret Swiss Bank Accounts? | Latest News from Greece

Could Greece switch to dollar and avoid bankruptcy?

Posted on 03 December 2011 by Emmanouela Seiradaki

The European crisis has now turned out to be so big and irrational that maybe countries like Italy or even France are in danger of bankruptcy. Angela Merkel might be the most important person in the world right now. She holds the future financial well being of all of us in her hands but it has become clear she’s not up to the job. So Americans targeted the political gap and are ready to penetrate in Europe via its weakest member, Greece. After all, if the euro doesn’t want Greece, maybe the dollar does.

The Euro is Dead Long Live the Dollar and the New Drachma

EPIKAIRA magazine refers to a study by the FED according to which if euro-less Greece doesn’t want to sink in chaos, there must be a transitional phase (pegging) from the euro to the new drachma via the dollar. Greece will have to adopt the dollar as its national currency alongside with the new drachma for at least five years.The new drachma will only be used for Swap deals between the US and Greece with an initial exchange rate 30 to 1. The first result of this transition will be Euro’s devaluation around 50%, especially if more EU members follow Greece’s lead and exit the euro. The second result will be that due to euro’s devaluation the dollarized value of the Greek debt which is in Euros will be decreased. Should these estimations materialise, the Greek debt will be decreased without a new haircut and Greece will not go bankrupt. The third result will be that the FED will provide financial help to Greece via low-interest rate loans. And the fourth, is that the Bank of Greece will print out new drachmas that as mentioned earlier will only be used for Swap deals. After this transitional phase that will last around five years, Greeks will use the new drachma as their national currency.

Greece Becoming Another American State?

FED’s study only mentions the advantages of such a deal. It talks about how Americans are going to invest in Greece, how American tourists will flow in the Greek islands , how the country will regain its credibility and how tiny Greece will have America’s full diplomatic support. However, knowing US politics one easily imagines that there is a high price to pay for this generous gesture. With full financial, diplomatic and political dependency on the US and with the EU out of the picture, Greece will be basically turned into an “American protectorate”.

But is this really such a big deal? With an emergency regime having taken power and submitting draft budgets of our axing and spending to Barroso for oversight, to be subject to Brussels’ “enhanced surveillance”, Greece is already a ” German protectorate”. Barroso and Merkel don’t want to hear nonsense about popular elections or national referendums. They want Europe ruled by Aristotle’s aristocrats, by people like them. So what’s the difference really? If the decisions are being taken in Washington or Brussels how is that going to effect the lives of Greeks who struggle to make ends meet on a daily basis and have no power of say, since elections and referendums are catastrophic? And how did a Union that started up to unite Europe after the second world war and ensure democracy for its member-states ended up being allergic to democratic procedures?

(Sources: EPIKAIRA)

Could Greece switch to dollar and avoid bankruptcy? | Latest News from Greece

Friday, December 2, 2011

How might Greece leave the euro?

By Kabir Chibber Business reporter, BBC News

Papandreou in Brussels

The "drachma", an ancient Greek currency unit, translates as a "handful" - a lot less than what Greece will need to pay off its debts

Greece's latest woes have raised something that was previously unthinkable - the possibility of the Greek people rejecting the euro.

Prime Minister George Papandreou has said that rejection of the bailout would mean an exit from the euro. And the exasperated French leader, Nicolas Sarkozy, told Greeks: "Abide by the eurozone rules or leave."

So, for the first time, the subject of a country leaving the eurozone has been raised at the highest levels of the 27-member European Union.

With Greece unable to devalue its currency, the country is hobbled with crippling debt payments it can't afford.

Many economists (and Greek people taking to violent protests) think leaving the euro is the best way to get out of this mess.

So how would leaving the euro work?

New old currency

If Greece were to act unilaterally and just do it, the so-called "nuclear option" involves introducing a new currency - the new drachma - and letting supply and demand do what it does.

In this case, probably more supply than demand.

"The new currency would fall through the floor and inflation would go through the roof," says Peter Dixon, an economist at Commerzbank.

It would be a legal minefield, as basic financial transactions such as mortgages would have to be redenominated. But that would not be the end of it.

"Living standards would be hit hard. It might seem like an attractive option, but the short-term costs are massive."

Wouldn't banks - who have already agreed to take a "haircut" of 50% - just accept the devalued new drachma-denominated debt?

"Well, no, because it may well halve in value again," Mr Dixon says.

The assets of banks inside Greece and those outside holding Greek debt would be devalued. And of course, they would not be able to borrow commercially.

Greece would probably have to impose capital controls to prevent all the money leaving, much as Malaysia did in 1998 after the Asian financial crisis.

So in the best-case scenario, Greece would have no buying power, everything would be extremely expensive and it would also be broke.

Lessons of the past

But the idea is that, with its currency so weak, Greece's economy would grow rapidly.

People often use Argentina as a comparison of such an outcome, which Nobel-prize winning economist Paul Krugman has said is "an imperfect parallel".

Argentina, which had its peso linked to the US dollar, defaulted on $102bn of debt during a financial crisis in 2001-02.

In 2005, the country persuaded 76% of creditors to accept a debt swap that reduced the value of their bond holdings by nearly two-thirds.

But Argentina had to go through years of pain, and at least had the advantage of its own currency. The mechanics of de-pegging were easier.

Greece has to start afresh.

One comparison is Iceland, which in 2008 had a run on its currency when its banks failed.

The Icelandic krona lost more than half its value in one summer. It quickly faced interest rates at 15%, and inflation at 14%.

But Mr Dixon suggests the closest recent parallel to a euro exit might well be the splitting of Czechoslovakia.

In February 1993, the Czechoslovak koruna was split into the Czech koruna and the Slovak koruna - at a par of one-to-one. (One version no longer exists; Slovakia adopted the euro in 2009.)

But in that scenario, as with the replacing all the major currencies of Western Europe with the euro, people had time to adjust to the concept of a new currency.

"You had a long period of time to get used to the single currency," Mr Dixon says. "You're not going to to get it the other way around.

Treaty of good-bye

One major issue is that there simply is no mechanism to leave the euro.

It was never envisaged by the bright-eyed politicians who created the impetus for the currency, which debuted in 1999.

"The treaties indeed confirm what we have been saying here: the treaty doesn't foresee an exit from the eurozone without exiting the EU," said a European Commission spokeswoman on Thursday.

The treaties she is referring to are the Maastricht treaty from 1992, which led to the creation of the euro, and its successor, the Lisbon treaty in 2007.

So under its current obligations, for Greece to exit the euro, it would have to leave the EU. This option was only added in Article 50 of the Lisbon treaty.

Leaving is straightforward; it involves a member state notifying the European Council - that is, the heads of state of the EU - that it wants to go.

The Council then agrees the terms of the exit via a qualified majority.

Would leaving the EU be the end of the world for Greece? Probably not.

The key part of Article 50 involves "setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union".

Iceland, Liechtenstein and Norway all do fine and they are not in the EU. They are part of the European Economic Area, meaning they get access to the single market.

Switzerland is not even a member of this organisation, and it trades with the EU with few problems - the odd tax exile aside.

The EU could then bail out Greece at a lower exchange rate, even.

But again, the chaos of going from inside the EU to a country outside of it but still slap bang in the centre of Europe could possibly be even worse than what it is going through right now.

"What happens then is that cure ends up being worse than the disease," Mr Dixon says.

And the question would then become whether a queue would form at the door to leave the EU.

Would other bailed-out nations say enough is enough and join Greece? Would we then get the new punt? The new escudo? The new lira?

BBC News - How might Greece leave the euro?

Greek debt crisis


Why is Greece in trouble?

Greece has been living beyond its means since even before it joined the euro, and its rising level of debt has placed a huge strain on the country's economy.

The Greek government borrowed heavily and went on something of a spending spree after it adopted the euro.

Public spending soared and public sector wages practically doubled in the past decade. It has more than 340bn euros of debt - for a country of 11 million people, about 31,000 euros per person.

However, whilst money has flowed out of the government's coffers, its income has been hit by widespread tax evasion.

When the global financial downturn hit, Greece was ill-prepared to cope.

It was given 110bn euros of bailout loans in May 2010 to help it get through the crisis - and then in July 2011, it was earmarked to receive another 109bn euros.

But that still was not considered enough. Another summit was called in October in Brussels to solve the crisis once and for all.

How did we get to this point?

The aim of the original Greece bailout was to contain the crisis.

That did not happen. Both Portugal and the Irish Republic needed a bailout too because of their own debts.

Then Greece needed a second bailout, worth 109bn euros.

In July this year, eurozone leaders proposed a plan that would see private lenders to Greece writing off about 20% of the money they originally lent.

But bond yields continued to rise on Spanish and Italian debt - leading to fears that their huge economies will need to be bailed out too.

The failure of Franco-Belgian lender Dexia also added to woes - French and German banks are large holders of Greek debt.

The eurozone rescue fund - the European Financial Stability Facility - was 440bn euros, nowhere near big enough to deal with that scenario.

And so, in October, the eurozone agreed to expand the EFSF to 1tn euros and got banks to agree to a 50% "haircut" on their Greek holdings.

But then Greece's Prime Minister George Papandreou shocked European leaders by calling a referendum on the bailout package.

That led the leaders of Germany and France, as well as the IMF, to declare that Athens would not receive its next tranche of emergency aid until the referendum had passed.

Moreover, the question of Greece leaving the euro was raised for the first time by angry eurozone leaders.

That forced Mr Papandreou to back down over the referendum, and he has since made way for a new cross-party unity government that is expected finally to pass the latest bailout deal.

Why did the crisis not end with the Greek bailout?

Although Greece's troubles are the most extreme, they highlight problems in the eurozone that also apply to other economies.

Many other southern European countries ran up huge debts - government debts as well as household mortgage debts - during the past 10 years. They also enjoyed rapidly rising wage levels.

Now the bust has come, it is very hard for them to repay the debts. And the high wage levels leave their economies uncompetitive compared with, for example, Germany.

Because they are inside the euro, these governments cannot rely on their central bank - the ECB - to lend them the money. Nor can they devalue their currencies to regain a competitive edge.

Meanwhile they are having to push through very painful spending cuts and tax rises to get their borrowing under control.

But this is just pushing their economies into recession, which leads to higher unemployment, and therefore less income tax revenue and more benefit payments for the governments, compounding their financial problems.

What would happen if Greece defaulted?


Protesters clash with police in Athens on 15 June
There has been much public opposition to the austerity programme
Europe's banks are big holders of Greek debt, with perhaps $50bn-$60bn outstanding. An "orderly" default could mean a substantial part of this debt being rescheduled so that repayments are pushed back decades. A "disorderly" default could mean much of this debt not being repaid - ever.

Either way, it would be extremely painful for banks and bondholders.

What's more, Greek banks are exposed to the sovereign debts of their country. They would need new capital, and it is likely some would need nationalising. A crisis of confidence could spark a run on the banks as people withdrew their money, making the problem worse.

Nonetheless, the Greek economy is only a small part of the eurozone, and the losses should be manageable for its lenders.

The real risk is that a unilateral default by Greece could lead to a financial panic, as investors fear that other, much bigger eurozone countries may ultimately follow Greece's example.

This effect could be even worse if Greece also leaves the euro - something that was explicitly acknowledged as a possibility by the outgoing Greek Prime Minister, George Papandreou, as well as the German and French leaders at the end of October.

Such a move might be a repeat of the collapse of Lehman Brothers, which sparked a global financial crisis that pushed Europe and the US into deep recessions.

Countries most exposed to Greek debt

What does all this mean to the UK?

According to figures from the Bank for International Settlements, UK banks hold a relatively small $3.4bn worth of Greek sovereign debt, compared with banks in Germany, which hold $22.6bn, and France, which hold $15bn.

When you add in other forms of Greek debt, such as lending to private banks, those figures rise to $14.6bn for the UK, $34bn for Germany and $56.7bn for France.

The UK government's direct contribution to any Greek bailout is limited to its participation as an IMF member.

However, any knock-on from Greece's troubles would exacerbate the UK's exposure to Irish debt, which is larger.

And if it led to a major financial crisis, as well as a deep recession in the eurozone - the UK's main trading partner - the damage to the UK economy would be substantial.

The Meaning of Default

Strictly speaking, a default occurs when a borrower has broken the terms of a loan or other debt, for example if a borrower misses a payment. The term is also loosely used to mean any situation that makes clear that a borrower can no longer repay its debts in full, such as bankruptcy or a debt restructuring.
A default can have a number of important implications. If a borrower is in default on any one debt, then all of its lenders may be able to demand that the borrower immediately repay them. Lenders may also be required to write off their losses on the loans they have made.

Glossary in full

BBC News - Q&A: Greek debt crisis

Destination Nowhere Part III: Athens

by Alexander Besant

“Watch your things here, it is not safe,” an older Greek man warned me as I trudged with my backpack through Athens’ Omonia square. “There are immigrants and criminals everywhere.” Omonia was, indeed, a menacing place both in the day and at night. Thousands of unemployed illegal immigrants sit idly around the square peering at tourists as they go by, while heroin addicts (mostly of Greek origin) inject openly in the streets. The side streets around the square have become a no-go zone for indigenous Greeks fearful after a series of high profile murders and violent assaults.

“You could eat off the street here 40 years ago,” the man told me throwing his head back in disgust as we passed by a gaunt beggar. “Now it is filthy and the politicians don’t care. The don’t live near here. They don’t have to see this everyday.”

Athens has changed, even in the last ten years that I have visited the city. Though the Olympics offered hope of redemption from destroyed sidewalks, intense air pollution and crumbling infrastructure, the financial crisis has shattered any pretense of the city becoming a grand European capital. Unchecked immigration from the poorest parts of the earth have also made Athens a troubled meeting point for those escaping conflict and hardship. Far from a relief, the city becomes its own nightmare for most.

Indeed, Athens has become a kind of purgatory for migrants entering Europe – a cramped, violent and sweltering waiting room that one may never get to leave. From the backstreets of Omonia to Plateia Amerikis to the quiet streets of Pagrati, tens of thousands of immigrants live one on top of another, scrounging for a few euros a day by selling trinkets, handbags, cheap clothes or, worse still, stealing, robbing or selling sex. The financial crisis has made the situation worse as, according to migrants I spoke to, police have more heavily cracked down on their businesses at the request of legitimate shop owners, while, at the same time, Greeks have less money to spend on non-essentials.

“I am lucky if I make 15 euros a day,” said Abdou, a 35-year old handbag vendor from Senegal who had been in Greece for two years. “It was much better before the crisis. Now I don’t have enough money to eat.”

I sat with Abdou and his colleagues for most of an afternoon on Syntagma (Constitution) Square speaking to them about their lives both at home and in Greece. Their living conditions were tough: a dozen to an apartment, uncertainty about whether or not they would eat that day, constant threats of police mistreatment and a growing sense that they would never make it out of Greece. They sat amongst at least 30 other vendors whose wares spread across the square, which had been badly damaged after numerous protests and riots. A customer approached, picked up a bag, inspected it, and put it down quickly before Abdou could get up.

“Look at me,” said Abdou pointing at his neat line of fake Louis Vuitton bags. “This is not what I expected to be doing in Europe.”

Weeks later I heard the same sentiments from Ali, a 27-year old Pakistani who sold polyester dresses for two euros a piece on a busy street in Athens. Though in his twenties, Ali looked no less than 40. Deep lines on his face showed decades in the blistering sun and intense pollution. His teeth had begun to blacken and fall out and his arms and hands were covered in deeply ingrained dirt. He sat cross-legged on the street despite 90-degree temperatures outside and laughed at how I had become drenched in sweat after only a few minutes in the sun.

Ali said he had gone to school to become an engineer in Karachi but ended up becoming a police officer. After some troubles at home (which he would not specify) he made the trip to Europe via Iran and Turkey. He recalls crossing the river in Evros not aware that he was at last in Europe until he was detained by Greek police. Crowded conditions at the detention center ensured that he was released within days and he made his way to Athens.

That was two years ago. Ali said that he dreamed of going to England and working as an engineer there. His descriptions of England were fantastical and I could only think of English cities in flames and the increasing joblessness while he spoke of his future home. Unlike many of the other migrants I met, he had no desire to return to Pakistan no matter how hard things got. He said he worried about becoming a victim of right-wing groups that were increasingly targeting foreigners in random acts of violence. Several months before, he recounted, Pakistani friends of his were beaten by a group of masked assailants who told them to get out of their country as they kicked and punched them.

His worry was not unfounded. Attacks on immigrants by right-wing nationalists, like elsewhere in Europe, were a growing problem that was played down by police. While sipping on a beer on a warm July evening in Psyrri, a working class central Athens neighborhood, a beer bottle suddenly exploded near my feet. This was followed by a fight, in which knives were drawn and pushing and punching began. The clash cleared the nearby cafes of people trying to avoid being hit by flying bottles. After it was over, a young man approached my table out of breath asking for a light for his cigarette. I asked him what happened and he explained that he and his friends were fighting immigrants in the area because they were stealing jobs and bothering people in the street. He said that Greeks needed to join together to push the immigrants out of the country before they ruin it. He said he supported Chryssi Avgi (Golden Dawn), a Greek nationalist group that opposes immigration and whose numbers have grown amidst skyrocketing immigration and unemployment.

After a few weeks in Athens, I received a phone call from Abass, the young Mauritanian I had met in Alexandroupoli.  He told me to come to Plateia Amerikis, a popular hangout for African migrants in Athens. When I arrived, he was with friends and we went to a café to speak about how things were going. He looked in good spirits and was noticeably better groomed then when we had met in Alexandroupoli. After arriving in Athens, he had been taken in by Muhammad, an older Senegalese friend whom he knew from home.  Abass still had some money but said that he was running out and would have to start selling bags like Muhammad soon if he could not get to Belgium.

We met again in a park in Pagrati a few weeks later to talk about his plans. His spirits were lower as he had little to do during the day except phone home and reassure family that everything was fine. He knew it wasn’t, however, but he continually spoke of reaching Belgium to see his friends who had made it there. “C’est difficile ici (its difficult here),” he told me over and over. I could tell he was losing hope but he kept a smile on his face as he always had since we first met.

Muhammad was different. He had been in Greece for two years and bristled when asked about where he wanted to eventually end up. He was tense but kind. He seemed more unpredictable than Abass and I often felt on edge speaking to him, as if he might get up and leave if he did not like my question. He constantly wore sunglasses and I suspected he was losing his sight as he often had trouble reading words from my computer screen. Like others who have been here for a long time, he knew that he probably would never be able to leave. He had seen the worst that Greece had to offer – a scar on his lip from a police baton spoke to his experience in a country where the rest of the world comes to relax on sandy beaches. I could see that his hope had been diminished but he still thought that one day he might make it out of Greece. Inshallah (God willing) finished nearly every sentence as if he now left all things in his life to the will of God.

Destination Nowhere Part III: Athens | Latest News from Greece

Destination Nowhere Part II: Evros

by Alexander Besant

From the migrant exit point in Igoumenitsa, I made my way to Evros, the largest entry point for illegal immigration into Greece. I drove ten hours along the newly constructed Egnatia highway to Orestiada, a border town in the northeastern most corner of Greece. The border with Turkey had seen an exponential increase in migrant crossings in the last year as Spain and Italy tightened their border controls and human traffickers had discovered a new route across the 13-kilometer Greek-Turkish land border, as well as across the nearby Evros River which runs from the Rila mountains in Bulgaria and empties into the Aegean Sea. In 2010, 90 percent of illegal immigrants entered Europe through Greece – approximately 50,000. Though that number began to shrink due to better border controls, dozens still cross every night with the help of traffickers who now mostly use the river.

Human traffickers in the area are mostly of Turkish origin given that the bulk of migrants arrive straight from their country of origin to Turkey before entering Europe due to relaxed visa restrictions. Many traffickers work for larger crime syndicates and are simply middle-men who labor on the front lines to aid in the river crossing. Often migrants have paid thousands of euros to traffickers to make the crossing and are penniless when they arrive on the riverbank in Greece. Before crossing, they are instructed to discard any documents that show their identity or place of origin to confound Greek and European authorities and make future deportation nearly impossible.

Typically, migrants are packed into makeshift rafts or rubber boats and must paddle either by themselves or with the help of traffickers across the fast flowing river. Pregnant women, children, families and single men, many of whom do not even know they are entering Greece (they simply know the other side of the river is “Europe”), make the journey every night, only to be arrested by Greek police on the other side of the river. They are usually detained for a few weeks or months before they are released with papers that require them to check-in with Greek authorities in order to either leave the country or apply for asylum. Nearly all migrants believe this is a necessary but temporary step in beginning their new lives somewhere else in Europe – little do most of the new arrivals know the near impossible chance that they will ever be able to leave Greece.

While in Athens, I met Rose, a 27-year-old single mother who had arrived in Greece eight and a half months pregnant from the Democratic Republic of Congo. I sat with her one afternoon with her baby in her arms as she described her harrowing journey as a pregnant woman through Turkey and into Greece.

“We went through forest after forest. There were 17 of us from Africa,” she said in French. “And then they told me to get in a boat and cross this river and Europe would be on the other side.”

Rose was detained and then hospitalized to have her child. She now lives in a shelter run by Medecins du Monde in Athens and says that she regrets her decision to leave Congo where she was a seamstress.

In Orestiada, I met one government official after another who basically said the same thing: the problem was bad, it has improved slightly since the European Union moved in to help, but traffickers continue to find holes in border patrols. Police and local residents had been unprepared for the massive influx of migrants into this relatively small town. For police, protecting the borders from streams of immigrants also began to look like a game of whack-a-mole: try to guard one area and the problem pops up in another. For instance, just as the EU and Greek border authorities bolstered their presence on the land border near Orestiada, migrant crossings increased exponentially at the Southern end of the border with Turkey closer to the Aegean Sea.

The overall message from those I spoke with in Evros: this is not a problem with policing but a problem with policy, both in Greece and in Europe. Bureaucratic wrangling due to EU and Greek policies meant that rarely is anybody sent back to their country of origin despite the country’s inability to properly feed, cloth, provide work for and integrate new arrivals.

I spent nearly a week in the town of Orestiada. It was a surprisingly lively town that was more typically Greek in many ways than towns I had passed through the region of Thrace where Evros is a sub-region. This, I imagined, was likely due to the fact that many of those in Orestiada were Greeks evicted from Turkey in the 1920s and were thus more attached to their Hellenic heritage. Speaking with locals, I was struck by the sense of doom and foreboding. Most had sympathy for the new arrivals and spoke of their experiences with migrants whom they tried to help. But there was a feeling that Greece had lost control of the situation and I regularly heard variations on the sentiment: “they [immigrants from Africa, Asia and the Middle East] are coming to Greece but we have nothing more to give them. We are also suffering here and can’t find work!”

Orestiada sits a few dozen kilometers away from the Turkish border and the nearby Turkish town of Edirne (formerly Adrianople). It is home to the central police station of the region, where migrants are brought and processed after being captured by Greek authorities. During the strongest wave of migrants in 2010, locals told me that dozens, if not hundreds, of mostly young foreign men would wander through the town each day looking to be detained by police (they knew they would later be released). I later asked the chief of police in Orestiada about how locals of this tiny town felt about this. A gruff, no-nonsense man, the chief had a strange tic that saw him spit air into his clinched fingers as if about to turn a page. When I asked him he sighed and said that Orestiada had somehow become a crossroads for all the problems in the world. Regrettably it seemed.

On my way back to Athens I stopped in Sidiro, a tiny Muslim town in central Evros, home to a makeshift graveyard where migrants who died during the river crossing are buried. A local resident drove me up the winding dirt road to a large metal fence. Inside the fence were mounds of dirt – unmarked graves where dozens of men, women and children from Afghanistan, Palestine, Iraq, Pakistan, Bangladesh, Iran, and all over Africa are buried. A local Muslim religious leader says that he has records of where each person is buried but those I spoke to thought it was unlikely that anyone would ever return to see the burial spot of a family member or loved one. These people were essentially gone without a trace. Over the rolling hills to the west, I could hear thunder in the distance. The rain began to soak the rocky soil as I made my way back to the car.

Before leaving the region I stopped at the bus station in Alexandroupoli, where I was told migrants walk from Orestiada to get the bus to Athens (a two day walk). Sure enough, there were at least two-dozen new arrivals waiting for the bus to Athens. To my surprise, they were smiling and laughing. They looked hopeful, as if they had finally finished their long, hellish journey. I struck up a conversation with a group of young men from Mauritania and Senegal. Over coffee we spoke about their journey from Africa, their hopes and their dreams of where they might one day end up.

Abass, a young-Mauritanian who had worked odd jobs in his home country said he was going to Belgium to make money to provide for his family at home who were counting on him to succeed in Europe. He seemed unaware of the struggle he would soon face and I did not have the heart to talk about what I had seen in Igoumenitsa – thousands of migrants who were trapped, eating from rubbish bins, their fate totally uncertain.

He sipped his coffee and then shared it with several others. He said he had not had a warm drink in months. When I pressed him further about the details of his journey he smiled but did not speak. I could tell that he never wanted to relive the brutal and dehumanizing things that he had just experienced. He had made it to Europe and that was all that mattered. Life would be easier now – or so he thought. With no belongings, hope and his faith in God were all he had left. After hours of conversation I got up to leave.  We embraced and exchanged contact information, promising to meet up in Athens inshallah.

Destination Nowhere Part II: Evros | Latest News from Greece

Part I: Destination Nowhere: Igoumenitsa

by Alexander Besant

Past the rolling hills that hug to the shores of the Adriatic Sea, a port in Northwestern Greece, Igoumenitsa, appears suddenly. A few dozen kilometers out toward to sea, the green peaks of the island of Corfu can be seen in the evening haze. At first glance, Igoumenitsa seems orderly and pleasant – at least near the port – and, despite its remote location hemmed beside Albania, it is relatively cosmopolitan with modern cafes and multilingual patrons. Among the public were a remarkable number of police who eyed my unfamiliar car suspiciously.

Igoumenitsa was my first stop on this journey to explore Greece’s dire migration situation after hearing from humanitarian NGO’s that it had become a hotspot for migrants who had set up camps on the mountainside next to the port. Unable to successfully make their journey to Italy due to tight border controls, and refusing to go back to Athens to live on a few euros per day, over a thousand migrants, mostly from Africa, built iron and plastic shelters in view of the boats that they believed would take them to a better life.

These people were trapped yet seemed determined to make due of their situation. To return home with nothing to show for their efforts would be seen as a failure…an embarrassment even. In an act of desperation, they had built a camp in the trees and for over a year, the migrants lived together in squalor without running water, electricity and adequate shelter. The daily menu consisted of scraps found in dumpsters. And, on a lucky day, was supplied by NGOs that were quickly overwhelmed by the amount of hungry people arriving each day. Police harassment was common and the local media raised fears of disease and crime brought by migrants. One local newspaper I picked up while I was in town characterized the migrants as animals and coldly poked fun at their  unfortunate living conditions.

Destination Nowhere Immigrant Series

Upon my arrival in Igoumenitsa, I found a local café to get some answers. In Greece, a local café can provide a wealth of candid information. One question can spark a heated debate among patrons who cannot help but add their own two cents. I asked the waitress if she knew anything about the situation on the mountain and she directed my attention to a local newspaper with pictures of the camp, which had been destroyed by police days earlier. I headed there immediately.

Where the camp once stood only remnants remained – shoes, toothbrushes, some medications, torn bits of plastic tarp used for shelter. The smell of human excrement overpowered my senses. Most of the migrants had either been arrested or fled further into the mountains. Some had been taken to a hotel by the NGO that was looking after them. I pulled my car into the open lot next to the mountain where the bulldozer that had razed the camp still sat. Voices could still be heard in the trees as I drew near in order to take pictures. I was nervous standing in the forest along a relatively unused road knowing that hundreds of desperate men (and they were all single men) peered at me through the forest.

After only a few minutes a police car pulled into the area and two officers asked me what I was doing. Suddenly the voices in the trees went silent. Other officers were called in to find out who I was and why I was here taking pictures of the destroyed camp. I suspected they were nervous about pictures of destruction in their quiet town being shown around the world. They were pleasant but suspicious and demanded identification. When the police left I laid a bottle of water and five Euros near the forest. It disappeared within seconds.

That night I slept in Parga, a resort town 25 minutes down the coast, which the police had recommended. Hotels were cheaper there and the waterfront cafes provided an escape from the difficulties I had witnessed in the daytime. As I made my way back to my hotel in the late evening, I could not help but think of the hundreds of migrants who remained in the forests above Igoumenitsa. They lived in complete uncertainty and hope seemed a cruel joke. The thought of France, the UK or Sweden as a paradise for immigrants was laughable to me but to them it was all that was keeping them sane. It seemed strange that as I laid my head down on a pillow, there were fellow humans just miles away laying their heads down in the dirt.

The next day, I met the dozens of migrants with the help of Medecins du Monde, a French NGO, who had been put in a nearby hotel for shelter. They were frail and exhausted but friendly. What was apparent, however, was their hopelessness. One Sudanese from Darfur explained to me during a game of basketball in the courtyard of the hotel how he had spent more than a year living in squalor on the mountain. He said that he would never return to Sudan but that he had never imagined himself eating out of dumpsters on the side of the road. Europe was supposed to have opportunities and “human rights” – a word that was constantly referred to by migrants. Sweden had “human rights,” France had “human rights,” England had “human rights,” but Greece had none.

“I have traveled to many places in the world and have done many things,” he told me. “This is very bad. Life is hard here in Greece without human rights.”

Initially hopeful that Europe would offer a better life, he said that he had lost all hope and that he thought about making the perilous trip back to Turkey to look for work. It was the first time I had heard such sentiments from migrants in Europe but would not be the last.

Another Sudanese named Idriss, who had become my unofficial translator for the day, seemed more comfortable in Greek society despite a harrowing story of survival. He chatted with the Greek hotel owners and helped them out when he could. He recounted to me a story of a Greek driver stopping on the road while he walked from the border of Turkey to the nearest bus station. The driver gave him water, money and directions. The gesture was never forgotten and it seemed no matter the hardship, he remembered that Greece could be a kind and hospitable place.

I took out my camera during dinner to get pictures and was immediately confronted by several Sudanese telling me to put my camera away. They said that they did not want to be photographed during the only period in their journey in which they had a hot meal and a cool place to sit. Many had lived in makeshift shelters for months and in a photo it would look as if the Greek state had been taking care of them all along. Understanding their concern, I obliged.

At some point in the day, I left with a group from Medecins du Monde, which consisted of young Greek do-gooders facing a seemingly impossible situation. During my time with them I marveled at the scale of disaster that they were expected to remedy. That day, they were on their way to rescue an 18-year old Eritrean boy who had been living in the forest after police destroyed his shelter. I waited in a gas station parking lot with Zoi, a 25-year old nurse from central Greece who had been assigned to Igoumenitsa by Medecins du Monde for the summer.

After a phone call from the boy (though many migrants barely had enough to eat, some still had cell phones) we pulled away and found him a few hundred meters up the road where he had just appeared out of an olive grove. He looked around nervously and got in the car. He was wide-eyed with a shy smile and shook my hand as he got in the car. His clothes were ragged and he carried nothing with him except a few papers. While we drove him to the hotel I asked him if he would ever think of returning to Eritrea after all of this hardship. “Never” he responded.

Destination Nowhere: Igoumenitsa | Latest News from Greece