Monday, May 28, 2012

Greek Facebook users start war against Lagarde


Angry Greeks waged Facebook war against International Monetary Fund head Christine Lagarde today, after she accused their countrymen of dodging taxes.

Greek Facebook users start war against Lagarde

Ms Lagarde told The Guardian in an interview published this weekend that Greeks must 'help themselves' by paying their taxes. Photo: AFP

The French managing director of the International Monetary Fund received more than 10,000 messages, many of them obscene, on her page on the online social network - where her postings typically draw a couple of hundred comments.

By late Sunday afternoon a separate Facebook page had sprung up titled "Greeks are against Lagarde".

Its creators described it as "the page through which to show displeasure as a nation towards Lagarde!", with a picture of the IMF chief.

Greeks accused Lagarde on her page of belittling their suffering in an economic crisis that has seen salaries and pensions cut, in a recession now in its fifth year.

Ms Lagarde told The Guardian in an interview published this weekend that Greeks must "help themselves" by all paying taxes, saying she was more concerned about Africans in poverty than Greeks in the economic crisis.

"You should say that to the relatives of the 3,000 Greeks that have committed suicide, to the one million unemployed," wrote a Facebook user under the nickname Ntavos Paok.

"You should tell your countrymen, who were many years in colonial Africa enriching themselves by stealing from the grandparents of the children you so hypocritically think of by comparing them with Greeks."

Retired civil servant Christina Tsekoura wrote of the hardship of her and husband whose pensions have been cut and who pay housing tax as well as supporting their unemployed daughter.

"My family does not owe one euro to the tax office, to a public agency or a bank in Greece or abroad," she wrote.

"We believe in honesty, hard work and merit. I forbid you from equating me with thieves and taunting my family."

Greece made a deal in 2010 to receive hundreds of billions of euros (dollars) from the IMF and the EFSF, a European Union bailout fund, to rescue it from financial collapse, in return for tough reforms.

One Facebook user, Litsa Sterp, resorted to ancient Greek wisdom, quoting the first-century scholar Plutarch: "Flee the hostile and tyrannous money-lender who interferes in your freedom and attaches conditions."

Greek Facebook users start war against Lagarde - Telegraph

Irate Greeks vilify IMF chief on Facebook after she brands them tax dodgers

 Alistair Osborne

By Alistair Osborne, Business Editor 9:15PM BST 27 May 2012

Christine Lagarde has been forced to express her sympathy for the Greek people after receiving 10,000 messages on Facebook, many of them obscene.

The International Monetary Fund managing director Christine Lagarde

The International Monetary Fund managing director Christine Lagarde Photo: PA

The head of the International Monetary Fund has been forced to express her sympathy for the Greek people after politicians and irate locals vilified her for saying the country was a nation of tax dodgers.

After being bombarded on her Facebook page with 10,000 messages, many of them obscene, Christine Lagarde took to the social networking site to say she was “very sympathetic to the Greek people and the challenges they are facing”.

Despite the emergence this afternoon of a new Facebook page titled “Greeks are against Lagarde”, she reiterated that everyone should pay their taxes.

Greek politicians were similarly engraged, with socialist party leader Evangelos Venizelos claiming she had “insulted the Greek people”.

The backlash came as Greece’s former prime minister warned the country could run out of the money by the end of June if bailout funds are withdrawn after next month’s election.


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Lucas Papademos said that, within days of the June 17 poll, Athens risked having a cash shortfall of €1bn (£800m).

“From late June onwards, the ability of the government to fund its obligations fully depends on the approval of the subsequent instalments of loans from the European Financial Stability Facility and the IMF,” he said.

Such funds would be put at risk by a re-run of the May 6 poll, which failed to produce a government willing to implement the austerity cuts promised earlier this year to win Athens a second bailout.

“The available funds in the Greek government will be reduced gradually from about €3.8bn on May 11 to about €700m on June 18 and from June 20 will enter negative territory at the level of around €1bn,” Mr Papademos said in a memo leaked to the To Vima newspaper.

Elsewhere in the eurozone, the president of Spanish lender Bankia, bailed out to the tune of €23.5bn, was forced to clarify his comments that “we don’t need to talk about giving any of it back”. Jose Ignacio Goirigolzarri said the money would be treated as an investment, not a loan.

Spain is considering directly injecting its own government debt into Bankia as part of the rescue, in an attempt to avoid borrowing money directly from the bond markets, The Financial Times reported on Sunday night.

Under the plans, the Spanish government would issue state-backed debt to Bankia in return for equity, with the bank then able to deposit the bonds with European Central Bank as collateral for cash. Analysts said the move was extremely unusual and may anger the ECB.

The latest bank bailout has triggered renewed efforts in Brussels to devise a eurozone fund, financed by a levy on all lenders, that would rescue any in trouble.

Raoul Rupparel, head of economic research at think tank Open Europe, said such a plan had some merit but added: “I question how quickly it could get off the ground and, even if it raised tens of billions in its first year, that would barely cover Spain”.

Outside the eurozone, Swiss National Bank President Thomas Jordan said a panel of government officials is considering measures including capital controls to weaken the franc should the euro crisis escalate.

“The working group focuses mainly on instruments to combat the franc strength based on a joint approach of the government and the central bank,” he told SonntagsZeitung in an interview. “We also need to be prepared for the possibility of the currency union collapsing, even though I don’t expect it.”

Irate Greeks vilify IMF chief on Facebook after she brands them tax dodgers - Telegraph

Fearful German tourists add to Greece's woes by staying away in droves

Helena Smith in Athens, and Kate Connolly imn Berlin, Saturday 26 May 2012 14.07 BST

Resentment over EU austerity measures and images of violent protests have led to 50,000 holidays being cancelled in 10 days


German holidaymakers normally flock to Greek destinations such as Rhodes, the largest of the Dodecanese Islands. Photograph: Eyeswideopen/Getty Images

Every May, coaches carrying German tourists would cruise up the long winding road that leads from Pyrgos to ancient Olympia. There they would decant in en masse, a permanent fixture in the tavernas, bars and shops that line the Peloponnesian town's cobbled thoroughfare. But things have changed.

"They're just not coming," says Dimitris Tyligadas, a local hotelier. "And if they do, they kind of look at us through half-closed eyes, as if they don't really trust us."

Olympia is not alone. The German reaction to the economic crisis engulfing Greece has been to stay away. In the 10 days after the inconclusive election on 6 May an extraordinary 50,000 bookings – half of those usually made every day at this time of year – were cancelled, the Observer has learned. Most were Germans fearing the consequences of being seen as the source of the austerity regime enforced in return for EU-International Monetary Fund rescue loans to prop up Greece's moribund economy.

"The drop was considerable," said Andreas Andreadis, president of the Association of Greek Tourism Enterprises. "We estimate that German arrivals will be down by about 25% by the end of the year."

Germans exceed even Britons in their lust for the sun, sea and freedom of spirit associated with Greek resorts. Close to four million visit each year – more than any other EU member state. For a country that depends on tourism, with one in five working in it, their absence could have a devastating effect; never more so than now when the future of Greece, either in or out of the eurozone, is likely to have ramifications not only for Europe but the world economy.

Earlier this year Athenian newspapers were full of reports of Germans "fearing for their lives" if they visited Greece. Violent street protests, peaking with the burning of the German flag outside the Greek parliament in February, at the height of the booking season, spurred the first wave of cancellations.

It was a far cry from the image Germans such as Andrea Schale had in mind when they booked their Greek holiday months earlier. For Schale, a 27-year-old sales assistant from Potsdam, the resort of Malia in Crete conjured "fishing boats, a white, sun-baked terrace, a bottle of ouzo to wash down after a plate of souvlaki". On Friday as she prepared to board a flight from Berlin to the island's capital, Heraklion, she found herself wondering whether she had made the right choice.

"We've seen lots of images on TV of Greeks burning the German flag, setting fire to rubbish bins and of stones flying. I just hope the anti-German sentiment isn't going to ruin our holiday. I think I'll pretend to be Austrian just in case, or better still, speak English."

According to a poll by the Foundation for Future Studies, which interviewed 4,000 Germans, only 1.1% are planning a holiday in Greece this summer, a drop of almost a half since last year, and of two-thirds since the start of the economic crisis in 2009.

"The dominant image of Greece right now is not of sunny islands, beautiful beaches or cosy little tavernas, rather of strikes, anti-German sentiment and corruption," said Ulrich Reinhardt, the foundation's scientific head. "These negative associations have led to a huge amount of unease."

The German foreign office has advised tourists to check on the current situation before any holiday and to avoid "demonstrations and large gatherings".

Ironically, Greece could not be quieter, less strike-plagued or better value for money. Walkouts that saw thousands of tourists being stranded at harbours and airports last year have dropped as unions lay down their arms ahead of general elections on 17 June.

"We don't have plans to stage any strikes until September although much will depend on whether the new government chooses to continue with these barbaric austerity measures that Merkel is demanding," said Ilias Iliopoulos at the civil servants' union, Adedy.

Even Athens, the focus of fiery demonstrations since Europe's debt crisis erupted beneath the Acropolis, has calmed down dramatically despite the political uncertainty that has followed this month's poll. "Last year in April and May there were 54 strikes, according to the public order ministry. This year there have only been four," said Andreadis.

"And precisely because of the crisis Greece is the best value it's ever been for the past decade. To fight the bad press and re-energise demand we have reduced rates dramatically and have far better offers compared with Italy, Spain, Turkey and Portugal," he said. "This is actually an incredible opportunity. The Greece we dream about and want our children to live in could be born out of this crisis."

But it is a perilous balancing act. Although Greece attracted an unprecedented 16.5 million tourists last year – with record numbers from Russia and other new markets across the Balkans and Turkey – falling prices could lead to the sort of revenue losses that will exacerbate what is already the worst recession in living memory for Greeks.

A 10% drop in GDP would equate to 100,000 job losses say industry experts, many of whom are bracing for the worst.

Adding to the pressure, German tour operators such as TUI have demanded that Greek resorts not only cut the price of holidays by up to 35% but have insisted they also add "drachma clauses" to cover themselves should the euro be scrapped and replaced by a seriously devalued drachma.

Under such circumstances, Greece is in danger of becoming a bargain basement destination if it cut its prices too sharply, said Claudia Brözel, a German professor of tourism marketing, noting that the country usually appeals to Germans from the higher income bracket.

"This could really damage its image in the long-term, and attract the type of tourist Greece doesn't want," she said.

Fearful German tourists add to Greece's woes by staying away in droves | World news |

Letters: IMF boss is in no position to preach, Sunday 27 May 2012 21.00 BST

While Christine Lagarde might not care about how the Greeks deal with their financial disaster, I think she might be a little more contrite, since the IMF happily let it all happen (It's payback time: don't expect sympathy – Lagarde to Greeks, 26 May).

Obviously she and the rest of the IMF crew – and all those supposedly in charge of our financial systems – have no answers capable of addressing the scale of this problem. All they can offer involves crushing a nation's people into poverty for a generation, with who knows what long-term results. And, when Greece has been destroyed, Portugal, Spain, Italy and, who knows, France might follow. Will Lagarde shut up then?

The simple truth is that the IMF didn't see the disaster coming over the decade or more when it was happening, they did nothing to tackle the situation when it hit, and now they haven't a clue what to do except cut.

Gordon Brown was in the Metro newspaper recently, calling on the world to recognise the scale of the problem in Europe. His solution – a global bailout to avoid a decade of "unemployment and stagnation" – sounds a lot more convincing than anything the IMF is offering.

But the IMF doesn't seem to realise this and, in several thousand words (Can this woman save the euro?, Weekend, 26 May), Lagarde confirms the poverty of their imagination. Once again we have got the wrong person in the job.
David Reed

• So Christine Lagarde tells us that, for the sake of their children, Greek "parents have to pay their tax"?

Personally, I can't judge how many Greek parents are to what extent in tax arrears. But, more importantly, I also can't judge how many Greek corporate magnates, government officials and contract companies have quietly shunted their cash off to Zurich, Jersey, the Cayman Islands or indeed Delaware (just round the corner from Mme Lagarde's HQ in Washington).

So, before she condemns Greek parents, maybe she should initiate an investigation of how much Greek money has been creamed off and is now sitting in one or other of the many tax havens that we seem unable to shut down.

Yes, if Mme Lagarde is serious about taxation justice, then maybe she should walk the walk rather than just talk the talk.
Alan Mitcham
Cologne, Germany

• As a Greek mother who has religiously paid her taxes for 20 years and had to pay €4,000 extra in 2011, I found Mrs Lagarde's comments extremely offensive.

Of course there is tax evasion in Greece. It is a huge problem and it has not been tackled yet. But there is a very big part of the Greek people that pay their taxes and have seen their incomes shrink. This kind of comment plays directly to the hand of Alexis Tsipras.

The kind of comment that would help now would be, for example, that Europe would help the Greek government locate the huge amounts of money that have fled Greece in the past year.
Irini Andreadi
Athens, Greece

• Given the IMF's destructive and impoverishing policies in sub-Saharan Africa, and elsewhere, I doubt Christine Lagarde is in a position to make claims about her concern for "little kids from a school in a little village in Niger ... Because I think they need even more help than the people in Athens". No one in the IMF, the World Bank or the World Trade Organisation is in a position to preach economic/financial righteousness to others.
Bruce Ross-Smith

• The moral weight of Christine Lagarde's matronising of the Greeks to pay their taxes is not strengthened by the fact that, as director of the IMF, she is in receipt of a tax-free annual salary of $468,000 (£298,000, plus perks).
John Weeks
Professor emeritus, University of London

• To hear that latter-day Marie Antoinette Christine Lagarde tell someone rummaging in bins for food he should pay his taxes is obscene. She should resign.
Michael Paraskos

Letters: IMF boss is in no position to preach | World news | The Guardian

Saturday, May 26, 2012

It's payback time: don't expect sympathy – Lagarde to Greeks

Larry Elliott and Decca Aitkenhead, Friday 25 May 2012 20.04 BST

Take responsibility and stop trying to avoid taxes, International Monetary Fund chief tells Athens

Christine Lagarde

The IMF has no intention of softening the terms of Greece's austerity package, says Christine Lagarde. Photograph: Emmanuel Fradin for the Guardian

The International Monetary Fund has ratcheted up the pressure on crisis-hit Greece after its managing director, Christine Lagarde, said she has more sympathy for children deprived of decent schooling in sub-Saharan Africa than for many of those facing poverty in Athens.

In an uncompromising interview with the Guardian, Lagarde insists it is payback time for Greece and makes it clear that the IMF has no intention of softening the terms of the country's austerity package.

Using some of the bluntest language of the two-and-a-half-year debt crisis, she says Greek parents have to take responsibility if their children are being affected by spending cuts. "Parents have to pay their tax," she says.

Greece, which has seen its economy shrink by a fifth since the recession began, has been told to cut wages, pensions and public spending in return for financial help from the IMF, the European Union and the European Central Bank.

Asked whether she is able to block out of her mind the mothers unable to get access to midwives or patients unable to obtain life-saving drugs, Lagarde replies: "I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education. I have them in my mind all the time. Because I think they need even more help than the people in Athens."

Lagarde, predicting that the debt crisis has yet to run its course, adds: "Do you know what? As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax." She says she thinks "equally" about Greeks deprived of public services and Greek citizens not paying their tax.

"I think they should also help themselves collectively." Asked how, she replies: "By all paying their tax."

Asked if she is essentially saying to the Greeks and others in Europe that they have had a nice time and it is now payback time, she responds: "That's right."

The intervention by Lagarde comes after the caretaker Greek government met to discuss a sharp fall in tax revenues – down by a third in a year. Under the terms of the country's bailout, Athens has agreed to improve Greece's poor record for tax collection in order to reduce its budget deficit, and Lagarde's remarks are evidence of a growing impatience in the international community. Reports surfaced in Germany and France of preparations being made to cope with Greece's possible departure from the single currency after its election on 17 June.

Belgium's deputy prime minister, Didier Reynders, said it would be a "serious professional error" if central banks and companies did not prepare for an exit.

The euro came under fresh attack on the foreign exchanges, dropping below €1.25 at one point on Friday, as the Spanish government was in talks to pump up to €19bn of rescue finance into Bankia, one of the country's biggest banks, and the Catalan regional government sought financial help from Madrid to deal with its debts.

Signs emerged of a widening gulf between Germany and France over whether common eurobonds should be issued to help those countries, such as Greece and Spain, with high interest rates on their debt.

Jens Weidmann, president of the Bundesbank, poured cold water on the idea – which is strongly backed by the French president, François Hollande – and also said financial aid to Greece should be cut off if it failed to keep to the bailout deal.

Jürgen Fitschen, joint head of Germany's biggest bank, Deutsche, described Greece as "a failed state … a corrupt state". Separately, however, there were reports suggesting that the chancellor, Angela Merkel, was dusting down the economic modernisation plan used to revive East Germany after the fall of communism in the belief that similar measures could be applied to Greece and other struggling eurozone countries. Today's Der Spiegel magazine says Merkel will present a six-point plan based on the East German blueprint as a growth strategy. It includes measures such as privatisation, looser employment law and lower tax rates.

Opinion polls are pointing to a close race between parties backing and opposing the terms of Greece's €130bn bailout, but neither Germany nor the IMF has demonstrated any willingness to water down Greece's austerity programme.

In her interview Lagarde says Greece is not getting softer treatment than a poor country in the developing world, and that the IMF does not find it harder to impose strong conditions on a rich nation.

"No, it's not harder. No. Because it's the mission of the fund, and it's my job to say the truth, whoever it is across the table. And I tell you something: it's sometimes harder to tell the government of low-income countries, where people live on $3,000, $4,000 or $5,000 per capita per year, to actually strengthen the budget and reduce the deficit. Because I know what it means in terms of welfare programmes and support for the poor. It has much bigger ramifications."

It's payback time: don't expect sympathy – Lagarde to Greeks | Business | The Guardian

Thursday, May 24, 2012

Quarter of deposits withdrawn from Greek banks

Jill Treanor, Wednesday 23 May 2012 08.49 BST

But while Greek deposits have fallen over two years, those at Portuguese banks have risen to record highs and Spanish and Italian deposits have fallen just 3% and 2%

ATEbank (Agricultural Bank of Greece)

Customers using an ATM at a branch of the ATEbank in Athens. Photograph: Orestis Panagiotou/EPA

Almost 25% of deposits have been withdrawn from Greek banks in the last two years but outflows have been small from other banking systems inside the so-called periphery, according to Barclays analysts.

While Greek deposits are falling, those at Portuguese lenders have risen to record highs, and Spanish and Italian deposits have fallen 3% and 2% respectively.

"Talk of a possible exit of Greece from the European monetary union has sparked fears about deposit outflows from other peripheral countries, but these concerns are not new and evidence does not indicate material outflows from Spain, Italy, Ireland, and Portugal," the analysts said.

Even so, fears of a Greek exit from the eurozone have sparked debate about whether there should be an EU-wide guarantee for the single currency area. At the moment, the €100,000 deposit guarantees are paid for by national banking systems – which should prevent the need for any deposits to be withdrawn – but there are suggestions that the cost should be spread across the eurozone.

Barclays analysts said this would not make a difference: "An EU-wide deposit guarantee scheme could be on the agenda in upcoming meetings. We believe such a proposal would fail to solve the challenges facing the current European deposit insurance scheme. While it would enhance the creditworthiness of the guarantor, it would still not protect against currency redenomination."

Economist at UBS believe that Greece will remain in the euro because the costs of exit are "excessive" to both Greece and the euro area. Local opinion polls show the majority of Greeks want to remain in the single currency. The UBS economists argue that if Greece considers leaving, the markets and bank depositors will all anticipate the event. "This anticipation of exit would likely result in economic disorder," the UBS analysts said.

"The anticipation, and not the act of leaving, will in all probability lead to the cessation of international trade in the conventional sense, the ability of the government to raise any finance in the markets, and bank runs."

The UBS analysts point out that the concerns are not about the strength of banks themselves. "In the event of a Greek exit, contagion risks clearly exist. There seems to be a great deal of official complacency about the ability of firewalls to prevent this. The risk lies in the contagion of bank runs. Bank runs, if they occur, will likely arise because of existential risks about the euro, rather than solvency or liquidity risks about banking systems," the UBS economists warned.

Quarter of deposits withdrawn from Greek banks | Business |

Greece denies eurozone preparing contingency plans for break-up

Telegraph staff and agencies

6:47PM BST 23 May 2012

Greece has denied that eurozone officials had recommended member countries prepare for the country's possible departure from the single currency.

Greece has denied that eurozone officials had recommended member countries prepare for the country's possible departure from the currency bloc.

A Greek flag flies next to a statue of ancient Greek philosopher Socrates in the center of Athens on Wednesday. After an inconclusive vote on May 6, Greece is heading for a second general election on June 17, which is widely seen as a referendum on whether it should stay in the euro. Photo: AFP

"The Greek finance ministry categorically denies the reports that it was requested during a Eurogroup telephone conference that eurozone members prepare plans for handling the possible exit of Greece from the eurozone," a government statement said.

Early on Wednesday, Reuters reported that it had seen a memo issued by the Euro Working Group (EWG) calling eurozone countries to prepare policies that would lead to an "amiable divorce" should Greece exit the euro.

One official told the newswire: "The EWG agreed that each eurozone country should prepare a contingency plan, individually, for the potential consequences of a Greek exit from the euro. Nothing was prepared so far on the eurozone level for now, for fear of leaks."

Greece's former prime minister Lucas Papademos said on Tuesday that plans for a Greek euro exit "cannot be excluded," while Czech president Vaclav Klaus declared that "it would be much better for Greece to leave the eurozone."

Asian and European shares dived and the euro hit a 22-month low on Wednesday over concerns for Greece.


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After an inconclusive vote on May 6, Greece is heading for a second general election on June 17, which is widely seen as a referendum on whether it should stay in the euro.

The radical leftist Syriza party, which wants to tear up Greece's unpopular bailout deal with the European Union and the IMF, came second on May 6 and is expected to emerge in a strong position in the next ballot.

Alexis Tsipras, Syriza's leader, said yesterday that a vote for Syriza was Greece "chance to save the euro," while Greece's centre-right leader, Antonis Samaras, branded his election rival "naive and dangerous".

European leaders have warned if the next government reneges on promised reforms that Greece cannot hope to continue drawing international loans, which would likely lead to its exiting the eurozone.

Greece denies eurozone preparing contingency plans for break-up - Telegraph

Is Europe playing chicken with Greece?

 Larry Elliott

Larry Elliott, Economics editor, Wednesday 23 May 2012 19.48 BST

If the idea of talk about contingency plans is to scare the Greeks off leaving the single currency, it seems to be working

greece euro flag

Greece's exit from the euro could have catastrophic consquences – but staying in could be worse. Photograph: Orestis Panagiotou/EPA

The world's biggest ever game of chicken. That's one way of looking at the noises coming out of Brussels and Frankfurt on Wednesday, suggesting that each eurozone country is drawing up contingency plans for a Greek exit from the single currency, that such an eventuality would actually be no big deal, and that Athens might be offered a €50bn (£40bn) sweetener if it decides to call it a day and bring back the drachma.

If the idea is to put the frighteners on Greeks ahead of next month's election, the strategy appears to be working. Support for Syriza, the party led by Alexis Tsipras, is dwindling as Europe's policy elite sends out the message that there is no middle way between sticking to tough austerity on the one hand and leaving the euro on the other.

The next phase of the strategy, assuming that is what is happening, will be for the stick to be replaced by the carrot. Having softened up the Greeks with blood-curdling warnings about the ramifications of seeking to rewrite the terms of the bailout it agreed earlier this year, a few hints will be dropped that perhaps, after all, some of the conditions could well be softened as part of a pan-European attempt to boost growth.

But not yet. The election is still the best part of a month away, far too soon to ease up on the propaganda war. Hence, the report from the Bundesbank that a Greek departure from the single currency would be "manageable" and the leak to Reuters that eurozone members are drawing up individual contingency plans to minimise the fallout on their economies.

Europe has form when it comes to ensuring that electorates vote the "right" way. When the Irish voted against the Nice treaty in a referendum, they were told to go away and have another try, which they duly did. So it would not be entirely surprising if there was a co-ordinated campaign under way to put the arm on the Greeks.

Playing chicken, though, can be dangerous, especially when the stakes are as high as they are at present. One risk is that all the talk of Greece's departure puts the financial markets in a total panic, adding to the already severe pressure on Europe's fragile banks. There were signs of this yesterday, with a big sell-off in shares on all the European bourses and a fall in the euro against the dollar to its lowest level in more than two years. If this is a big bluff, the markets have yet to twig it.

The second risk is that even if the Greeks do return to the centrist parties that support the austerity programme, nothing will have changed. Greece will still be deep in recession and stuck with a structural adjustment plan that is failing. Markets may well rally, but only until investors work out that the can has simply been kicked down the road again. This shouldn't take them long.

Dario Perkins, analyst at Lombard Street Research, said that for as long as Greece remained in the euro, there could only be a solution to its crisis if the EU's policy became radically more growth friendly. "If that doesn't happen, Greek exit is just a question of timing. And with those same austerity policies now widespread in Portugal, Spain and Italy, pressures on the euro will continue to build."

It is, of course, possible that the rest of the eurozone really has had it with Greece. These are not pretend preparations, in other words, but a recognition that Greece is close to the edge and Europe needs a comprehensive blueprint in place to prevent the dominoes tumbling.

The imperative will be to prevent a messy Greek departure that results in bank runs, capital flight and soaring bond yields putting intolerable pressure on Portugal, Spain, Italy and Ireland. Athens said reports of contingency plans were false and it's easy to see why, since even mentioning the possibility that the eurozone is preparing for life after Greece makes departure more likely.

Lurking in the background is the fear that Europe does not really have a plan at all, that it is not organised enough to play chicken with the Greeks and is still in denial about the possibility that the single currency may start to fragment.

The fact that within minutes Greece's "no contingency plans" line was flatly contradicted by Belgium was consistent with the hapless way the crisis has been mismanaged in two and a half years of can-kicking and added to the impression that the current crowd could not organise the proverbial knees-up in a brewery.

It would also explain why investors, as they showed on Wednesday, are prepared to lock their money away at a loss in two-year German bonds rather than expose themselves to any euro risk.

Is Europe playing chicken with Greece? | Business | The Guardian

Monday, May 21, 2012

Fearful Greeks shift to the right as Europe pleads: 'don't self-destruct'

Helena Smith in Athens, Saturday 19 May 2012 19.33 BST

Polls show support for pro-bailout parties rising despite bitter opposition to austerity out of fear of eurozone expulsion


Alexis Tsipras, leader of the radical left Syriza party: 'If you don't talk you can't find a solution.' Photograph: Martin Godwin

Greece's election campaign, the second in as many months, officially kicked off on Saturday as polls indicated that fears of expulsion from the eurozone have helped consolidate support for parties backing the tough terms under which Greece received a bailout to keep its debt-stricken economy afloat.

Signs of a nascent backlash against anti-bailout groups that took the country by storm in an inconclusive ballot two weeks ago have emerged with surveys showing that the conservative New Democracy party is beginning to rally voters on concerns that opposition to EU- and IMF-dictated austerity may lead Greece to the eurozone exit door.

Piling on the pressure, the visiting European parliament president, Martin Schulz, said that a €130bn rescue package reached with international creditors in March could not be renegotiated.

"Greece… shouldn't self-destruct," the German politician told the state-run TV channel NET. "Nor can we Europeans write Greece off. Greeks must believe in themselves." He implored the nation at the centre of Europe's escalating debt crisis to stay the course of tough austerity and structural reforms because that was the only assured way of boosting competitiveness.

Increasingly, the 17 June election is being portrayed as a referendum on the crisis-plagued country's desire to remain in the eurozone.

Schulz's appeal follows a series of similar exhortations by senior European officials who have insisted that repudiation of the tough terms that have allowed Athens to receive crucial injections of cash over the past two years would automatically pave the way to it leaving the 17-nation bloc.

Apocalyptic scenes have been invoked as policymakers have speculated over the chaos that would ensue if Greece, bereft of rescue funds, defaulted on its debt and reverted to its old currency, the drachma.

On Friday, the German chancellor, Angela Merkel, also weighed in, allegedly suggesting in a telephone conversation with the Greek president, Karolos Papoulias, that the nation hold a referendum on euro membership as part of the general election. The proposal was denied by her spokeswoman.

Antonis Samaras, whose New Democracy party emerged with the largest share of votes but fell far short of being able to form a government when Greeks went to the polls on 6 May, retaliated last week by reaching out to centrist forces that would fight against the vociferous anti-austerity bloc. He said his party would lead a pro-European "front of resistance against catastrophe".

The strategy appears to be paying off, with two polls showing the conservatives for the first time ahead of the radical left Syriza party. The leftwing alliance, a fierce opponent of the "inhumane" belt-tightening imposed in return for aid, had been the frontrunner since emerging as the surprise runner-up in this month's poll.

In an interview before a visit to Berlin for talks that will include discussions with representatives of the German government, Syriza's firebrand leader, Alexis Tsipras, reiterated his determination to "cancel" the loan accord, even going so far as to liken it to "assisted suicide".

But he also appeared to soften his stance, saying he hoped to initiate a "substantive dialogue" with Germany and France, which have bankrolled most of the €240bn in emergency aid earmarked for Greece.

"If you don't talk you can't find a solution and so far I believe there hasn't been any real discussion or political negotiation," he told the Observer. "The memorandum," he said, referring to the bailout conditions, "was a political decision that was taken without consulting the Greek people and it has proved catastrophic."

Tsipras's meteoric rise from marginal leftist to possible commander of the political scene has been backed by younger Greeks worst hit by the record levels of unemployment. The young politician has promised to reinstate jobs and pensions by nationalising banks, stopping the closure of state utilities and taxing the rich.

But among older Greeks, who still have vivid memories of military rule and the tumultuous politics of isolation, Syriza's anti-austerity platform has unleashed fears that, if he wins, the country will be playing with fire.

Although voters punished mainstream parties on 6 May for enforcing cuts that have seen wages drop by up to 40 % – and austerity rage has far from dissipated – it could just be that the fear factor is starting to take effect with a backlash that few would have imagined a week ago.

Fearful Greeks shift to the right as Europe pleads: 'don't self-destruct' | World news | The Observer

Victoria Hislop: the tragedy of my beloved Greece

7:50AM BST 20 May 2012

My passion for Greece began the day I first went on holiday there 30 years ago, and has intensified ever since. I have been at the “party” that Greece once was. Now I am sharing the hangover. And it is desperately painful and sad.

Victoria Hislop: the tragedy of my beloved Greece

Victoria Hislop said:'Tourism could help to save Greece, but the Greeks need to nurture and treasure the assets that the gods gave them' Photo: Bill Bachmann / Alamy

I travel to Greece most months, to give talks on my novels, to work on adapting The Island into a 26-part miniseries for local television, and to research writing projects.

I have learnt the language well enough to appear on live television, and over the past five years have become so much part of this country that on arrival I do not always have to show my passport. I also have a house in Crete, which means I pay taxes. I can’t vote — which, in some ways, I am glad about, as I would be torn between a series of equally nightmarish scenarios.

The problems have been brewing for years, but what feels like potential meltdown arrived in Athens very suddenly. Last week, I went to a favourite restaurant in the city centre. It used to be heaving with customers until 2am.

At 10pm on Thursday, the place was almost empty. Restaurants where you once had to book tables a week ahead are now struggling to survive. The bouzoukia, live venues that are a quintessential part of Greek life and where musicians used to play four nights a week, are now mostly open for one. I never thought the Greeks would stop going out. Staying in isn’t in their DNA.

The bars are still full, as these are where people go to argue about politics and the future of the country. There does not seem to be any other conversation worth having. One friend, a leading Athenian journalist, told me how at least half of her friends are without jobs and money, and how anger is growing. Many people, in Athens at least, are at breaking point. “We don’t care any more,” she told me.


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Suddenly, I can feel how dangerous the mood has become. My friend Maria, who voted for Pasok, Greece’s main party on the centre-Left, in the recent election will shift allegiance to the communists; she has been driven to this after her salary dropped from €2,500 a month to €1,000. She is weary and disillusioned.

A 40-year-old fashion writer for a glossy magazine, Maria has seen the quality of her life disintegrate. She feels broken and angry. “For the next issue, we’re focusing on punk — because that’s where the country is at. Anarchy could happen.” At least the riots have stopped, for now. As the country waits for new elections, Athens is strangely quiet. When I was last in town three months ago, I joined a peaceful march to get a feeling for the popular mood.

Up close, it was scary. The Greek police are quick to fire tear gas, and I felt things could erupt at any minute. The quiet on the streets now is even more eerie.

The Greeks are a very proud people, and feel humiliated by what has happened to them. At least once a day, someone will bring up the national debt and, in the same breath, how much Germany still owes Greece in outstanding reparation for their occupation during the Second World War.

Many people have lost their jobs, but the statistics do not reveal the thousands who still have jobs but have not been paid for many months. They are stuck: they have no income, but if they leave, they have no hope of recouping what they are owed. It has left a huge proportion of the country with no money to spend. As a result, retail businesses are going down all around us.

I’ve watched men in suits fishing in bins. The worst thing is when they do not take anything out, because someone has beaten them to it. People I know report their children’s poorer schoolmates fainting in class from hunger.

There is now an urge to end the corruption that has helped to destroy this country. Friends with businesses tell me that bribery has long been an assumed part of business life. I have listened, open-mouthed, to stories of tax evasion, often in the form of brown envelopes full of cash given to government inspectors to reduce a bill; sometimes, the pressure to hand over these bribes is tantamount to blackmail.

On a very small scale, I have witnessed it in restaurants when the credit card machine is “broken”. “We can only take cash,” says the owner. Dozens of times, I have watched a €20 note slip into a pocket, knowing that the government will not see a cent of it in tax.

The past few months have seen new taxes being imposed as existing ones rise. People are exhausted and confused by it all, and if their businesses survive at all, it is down to their determination.

Greek children are all too aware of the crisis into which their country has plummeted. Apart from having parents who are constantly anxious and talking about the “krisi”, schools are running short of money. I have discussions over Skype with a school in northern Greece, and during the winter I noticed the pupils were wrapped up in coats and scarves. There was no money to heat the classrooms.

There was no budget for schoolbooks either. When I heard about the problem eight months ago, I asked my Greek publisher if we could start an initiative for authors to donate copies of their books. Even though I wanted to help, it has not been possible. There are layers of bureaucracy, but often very little organisation.

The mood in places far from Athens is not quite so bleak. I have been given so many gifts on my current trip (books, wine, pieces of embroidery, pens, olive oil and more) that they have had to be sent home by ship. Even when Greeks have very little, they give — and their generosity is humbling. In a city in the north, Alexandroupolis, I was given a vintage necklace, with old beads and coins. “Ah,” said the woman who had made it, touching a drachma coin. “I might need that back.”

Most Greeks are not making jokes about the currency. I have to keep a sum of money in my Greek bank account, which I was obliged to open when I bought the house. The hefty taxes that are randomly imposed on home owners these days are removed by direct debit, so the funds need to be there. It seems disloyal to remove them.

With eurozone banks on the brink, friends have asked me to help take their savings out of Greece. Three friends offered to fly to London with their life savings in suitcases — €40,000 in one instance — so that I might keep it in my account. I wanted to help, but then I considered the consequences if something happened to me: the money would be lost under my name, and they would be left with nothing.

Tourism could help to save Greece, but the Greeks need to nurture and treasure the assets that the gods gave them. This is a country with beautiful landscapes, blue sea, culture, history and wonderful food. But one of the problems now is that the mood is so glum that when tourists come, they will not see the best of the country.

In Athens, they will be driven from the airport by a taxi driver who spends the journey on his mobile phone (illegal), smokes (illegal), and breaks the speed limit (illegal). If they live to tell the tale, they will see boarded-up shops, graffiti-covered walls and people going through the bins. I hope that visitors can see past the dilapidation to the eternally ravishing aspects of Greece that are beyond politics and time. This could help the country to survive. I was touring Greece last week talking about my novel, The Thread, which describes the traumatic, often dark, events of 20th-century Greek history — occupation, civil war, earthquake. It is a tale about the Greeks’ ability to survive, and they need to brace themselves now, just as they have before.

Unusually for May, it poured with rain last week. From my balcony, I could see the crowd that had gathered in the ancient marble stadium for the handing over of the Olympic flame. After several hours, the clouds parted and an intense rainbow appeared.

Greece always delivers drama. It is always larger than life. I hope for the sake of everyone in this extraordinary country that the rainbow was symbolic and that Greece will soon find its pot of gold.

* Victoria Hislop is the author of The Thread (Headline Review), available from Telegraph Books for £7.99 + 99p p&p. To order, call 0844 871 1516 or visit

Victoria Hislop: the tragedy of my beloved Greece - Telegraph

Greeks withdraw savings in national 'bank jog'

 Damien McElroy

By Damien McElroy 6:30PM BST 20 May 2012

Retired Athens hospital worker Giorgos Vassilakis will today make the same journey to his bank in central Athens to make a withdrawal.

Message understood: graffiti depicting the Euro symbol as a grenade about to be thrown by a soldier, sits on a wall in Athens - Europe finally awakes from its utopian dream<br />

Graffiti depicting the euro symbol as a grenade about to be thrown, on a wall in Athens.

The 65-year-old has been doing the same thing daily, steadily depleting his own savings pile since the country’s cataclysmic May 6 general election. He is busy building up a reserve of cash at home to protect himself should the worst happens and the country falls out of the euro.

“It’s a bit to hold in my home just to be sure I’m okay,” he said. “Since I heard the rumours after the election I have been withdrawing money to have a €3,000 to €5,000 a small stash at home to keep safe.”

Economists have dubbed the collected effect of worried Greeks taking money out of savings accounts a “bank jog,” not quite a run but still a deliberate trend in the same direction.

Bank branches have remained relatively calm and surprisingly empty despite headlines that hundreds of millions were being pulled out each day. But savers are factoring in some form of collapse and that affects how much cash they hold.

The effect can be seen in the twilight as old ladies line up at ATMs and take away a handful of green €100 notes. In Athen’s bars younger customers admit they have used Internet banking to send money to accounts abroad left over from student travels.


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Adjusting to the prospect of financial perils ahead is a fact of life. Violent street protests and elections that returned fringe parties have captured the headlines but ordinary Greeks are soberly preparing for a post-euro future in other ways.

As recently as December, George Provopoulos, the head of the Bank of Greece warned of the hellish effects of ‘Drachmageddon’ forcing Greeks to trade “a kilo of olive oil for three kilos of flour” in a moneyless world.

Official have briefed that the initial disruption would trigger a dramatic clampdown by the state with the army drafted on to the streets over an extended bank holiday, currency controls and border inspections to stop capital flight.

But after five years of deep recession there is no longer an absolute horror at the prospect of swapping the euro for a revived Drachma. Even at the top of the financial establishment.

Costas Mitropoulos, the head of the asset fund privatising state property, told The Daily Telegraph he did not believe in Grexit but a switchover could be managed. “Its not going to be nice but it won’t be the end of the world,” he said. “Potential investors in Greek assets just don’t want to be wrong-footed by investing in euros and getting paid out in Drachmas.”

Back at street level, it is ordinary Greeks that are feeling wrong-footed after a two decade binge on cheap money went spectacularly bust.

Few Greeks have the stomach to wait much longer. Sticking with the euro has imposed a whole series of burdens on the family oriented Greeks that are now bitterly resented.

Andreas Bitounes, a small businessman, is coping with a 50pc drop in his income while having to support his unemployed son, Costis, a 27-year-old qualified nurse. “I don’t have enough hours in the day to work to pay my bills but the worst of it is that my son has moved back home and can only find a little bit of money as a delivery boy,” he said. “He’s spent four years at university and can’t find work. Something has to change.”

Greeks withdraw savings in national 'bank jog' - Telegraph

Saturday, May 19, 2012

EU working on emergency plan for Greek exit from euro

 Bruno Waterfield

By Bruno Waterfield, Brussels 11:16AM BST 18 May 2012

The European Union is working on an emergency Greek exit plan as the break-up of the euro looms, a senior Brussels official has revealed.

EU working on emergency plan for Greek exit from euro

The EU commissioner warned Greek voters that there was no room after a round of second elections for loosening the EU's austerity programme. Photo: AP

Karel De Gucht, the EU's Belgian trade commissioner, has told the De Standaard newspaper that the European Commission and the European Central Bank are confident the euro can weather the storm.

”A year and a half ago there may have been the danger of a domino effect,” he said. ”But today there are, both within the European Central Bank and the European Commission, services that are working on emergency scenarios in case Greece doesn't make it.”

Mr De Gucht indicated that the EU is apparently relaxed about bank runs and market turbulence hitting Spain, despite the financial turmoil this week.

”How much will it cost… I do not know, but it will cost money. What I am assured of is that there will be no contagion: a Greek exit does not mean the end of the euro,” he said.

Painting a grim picture the commissioner said that if Greece left the euro it was “finished” and that, while the euro would survive it would have to fight off a “cataclysm”.

”C'est fini. It (Greek exit) means that after a while you can no longer pay your officials who can no longer pay your pensions,” he said.

”All you can do is have your central bank to print money, and then you get hyperinflation. That would cause a cataclysm in other countries that are now under pressure.”

The commissioner warned Greek voters that there was no room after a round of second elections for loosening the EU's austerity programme that requires Greece to find an extra £9bn in cuts next month in returns for aid the country needs in order to finance its state.

”I would not speculate that Europe will bend after the elections. There is no margin. You'll barely have a reduction of the debt with the programme now on the table,” he warned.

He predicted: “I think that Greece will remain in the European monetary union. I do not know what the outcome of the new elections will be, but who knows, there may then be a third ballot battle. You would at some point also get a referendum on whether to withdraw from the monetary union, where the Greeks might vote in a totally different way.”

Rainer Bruederle, a former German economy minister, told the German Handelsblat newspaper: “Unlike two years ago, the eurozone today could cope with a Greek exit. It would cost a lot of money but it would be manageable. The decision, however, lies in Athens and not in Berlin.

"The Greeks themselves have to weigh up whether reintroducing the drachma would help their economic recovery more than staying in the eurozone.”

EU working on emergency plan for Greek exit from euro - Telegraph

Who is to blame for Greece's crisis?


The four main suspects will get off lightly compared with the real victims: the most vulnerable segments of the Greek population

Soup kitchen activists deliver food to a poor area of Athens

Soup kitchen activists deliver food to a poor area of Athens. Photograph: Louisa Gouliamaki/AFP/Getty Images

Greece is following the road taken by several other crisis-ridden emerging economies over the past 30 years. Indeed, as I argued earlier this year, there are stunning similarities between this once-proud eurozone member and Argentina prior to its default in 2001. With an equally traumatic implosion – economic, financial, political, and social – now taking place, we should expect heated debate about who is to blame for the deepening misery that millions of Greeks now face.

There are four suspects – all of them involved in the spectacular boom that preceded what will unfortunately prove to be an even more remarkable bust.

Many will be quick to blame successive Greek governments led by what used to be the two dominant political parties: New Democracy on the right and Pasok on the left. Eager to borrow their country to prosperity, they racked up enormous debts while presiding over a dramatic loss of competitiveness and, thus, growth potential. Some even sought to be highly economical with the truth, failing to disclose the true extent of their budgetary slippages and indebtedness.

Having borrowed far too much after joining the eurozone in 2001, New Democracy and Pasok let their citizens down when adjustments and reforms were needed after the 2008 global financial crisis. An initial phase of denial was followed by commitments that could not be met (indeed, that some argued should not be met, owing to faulty programme design). The resulting erosion in Greece's international standing amplified the hardship that citizens were starting to feel.

Hold on, I hear you say. For every debt incurred there is a credit extended. You are right.

Greece's private lenders were more than happy to pour money into the country, only to shirk their burden-sharing responsibilities when the artificial boom could no longer be sustained. The over-lending was so widespread that at one point it drove down the yield differential between Greek and German bonds to just six basis points – a ridiculously low level for two countries that differ so fundamentally in terms of economic management and financial conditions.

Over-eager creditors willingly underwrote this absurd risk premium. Yet, when it became abundantly clear that Greece's debt burden had been taken to insolvency levels, creditors delayed the moment of truth. They dragged their feet when it came to the critical agreement on orderly burden-sharing (that is, acceptance of a "haircut" on private-sector claims on Greece). And the longer they did that, the more money left Greece without any intention of returning.

But neither the Greek government nor its private creditors acted in a vacuum. Both took comfort from the political cover provided by the European unification effort – an historic initiative aimed at securing the continent's wellbeing through closer economic and political integration on the basis of credible rules and effective institutions.

On both counts – rules and institutions – the eurozone fell short of what was required. Remember, the large core economies (France and Germany) were among the first members to breach the budgetary rules that were established when the euro was launched. And European institutions proved toothless when it came to enforcing compliance. All of this served to sustain the fantasy world that both Greece and its creditors happily inhabited for far too long.

Europe also failed to react properly when it became obvious that Greece was starting to teeter. European government counterparts failed to converge on a common assessment of the country's problems, let alone co-operate on a proper response. While they grudgingly loosened their purse strings to support Greece, the underlying motives were too shortsighted, and the resulting approach was strategically flawed and abysmally co-ordinated.

Finally, there was the International Monetary Fund, the institution charged with safeguarding global financial stability and being a trusted adviser to individual countries. It appears that the IMF succumbed too easily to political pressures during both the boom and the bust. Political expediency seems to have trumped analytical robustness, undermining both the Fund's direct beneficial role and its function as a policy and financial catalyst.

On the surface, each of the four suspects has an individual case for arguing that the finger of blame should be pointed elsewhere. They could even argue that, at worst, they were uninformed accomplices. But that is not really right.

None of the four can avoid the reality that Greece's collapse would not have occurred had they not been complacent during the boom and, subsequently, fulfilled their responsibilities during the bust so poorly. They sucked each other into a sense of false prosperity, only to trip each other up during the inevitable downturn. Now, one hopes, all four will be held properly accountable by their stakeholders and undertake serious self-evaluation.

Most likely, they will end up getting off too easy, especially compared to the real victims of this historic tragedy – the most vulnerable segments of the Greek population, who will become much worse off, today and for many years to come, as jobs disappear, savings evaporate, and livelihoods are destroyed. And they may not be alone. Millions of others may experience collateral damage, as financial contagion risks spreading to other European countries and to the global economy as a whole.

In a fairer world, these vulnerable citizens would be entitled to claw back the salaries, official privileges, and bonuses that the four parties to blame enjoyed for too long. In the world as it is, they are a compelling lesson for the future.

Copyright: Project Syndicate, 2012.

Who is to blame for Greece's crisis? | Business |

Greek euro tragedy nears final act


Greece is poised to default on its debt and exit the euro – so having rules in place will make the inevitable less costly

The Greek euro tragedy is reaching its final act: it is clear that either this year or next, Greece is highly likely to default on its debt and leave the eurozone.

Postponing the exit after the June election, with a new government committed to a variant of the same failed policies (recessionary austerity and structural reforms), will not restore growth and competitiveness.

Greece is stuck in a vicious cycle of insolvency, lost competitiveness, external deficits, and ever-deepening depression. The only way to stop it is to begin an orderly default and departure, co-ordinated and financed by the European Central Bank, the European Union, and the International Monetary Fund (the troika), that minimises collateral damage to Greece and the rest of the eurozone.

Greece's recent financing package, overseen by the troika, gave the country much less debt relief than it needed. But, even with significantly more public-debt relief, Greece could not return to growth without rapidly restoring competitiveness. And, without a return to growth, its debt burden will remain unsustainable. But all of the options that might restore competitiveness require real currency depreciation.

The first option, a sharp weakening of the euro, is unlikely, as Germany is strong and the ECB is not aggressively easing monetary policy. A rapid reduction in unit labour costs, through structural reforms that increased productivity growth in excess of wages, is just as unlikely. It took Germany 10 years to restore its competitiveness this way; Greece cannot remain in a depression for a decade. Likewise, a rapid deflation in prices and wages, known as an "internal devaluation", would lead to five years of ever-deepening depression.

If none of those options is feasible, the only path left is to leave the eurozone. A return to a national currency and a sharp depreciation would quickly restore competitiveness and growth.

Of course, the process would be traumatic – and not just for Greece. The most significant problem would be capital losses for core eurozone financial institutions. Overnight, the foreign euro liabilities of Greece's government, banks, and companies would surge. Yet these problems can be overcome. Argentina did so in 2001, when it "pesofied" its dollar debts. The United States did something similar in 1933, when it depreciated the dollar by 69% and abandoned the gold standard. A similar "drachmatisation" of euro debts would be necessary and unavoidable.

Losses that eurozone banks would suffer would be manageable if the banks were properly and aggressively recapitalised. Avoiding a post-exit implosion of the Greek banking system, however, might require temporary measures, such as bank holidays and capital controls, to prevent a disorderly run on deposits.

The European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) should carry out the necessary recapitalisation of the Greek banks via direct capital injections. European taxpayers would in effect take over the Greek banking system, but this would be partial compensation for the losses imposed on creditors by drachmatisation.

Greece would also have to restructure and reduce its public debt again. The troika's claims on Greece need not be reduced in face value, but their maturity would have to be lengthened by another decade, and the interest on it reduced. Further haircuts on private claims would also be needed, starting with a moratorium on interest payments.

Some argue that Greece's real GDP would be much lower in an exit scenario than it would be during the hard slog of deflation. But that is logically flawed: even with deflation, real purchasing power would fall, and the real value of debts would rise (debt deflation), as the real depreciation occurs. More importantly, the exit path would restore growth right away, via nominal and real depreciation, avoiding a decade-long depression. And trade losses imposed on the eurozone by the drachma depreciation would be modest, given that Greece accounts for only 2% of eurozone GDP.

Reintroducing the drachma risks exchange-rate depreciation in excess of what is necessary to restore competitiveness, which would be inflationary and impose greater losses on drachmatised external debts. To minimise that risk, the troika reserves currently devoted to the Greek bailout should be used to limit exchange-rate overshooting; capital controls would help, too.

Those who claim that contagion from a Greek exit would drag others into the crisis are also in denial. Other peripheral countries already have Greek-style problems of debt sustainability and eroded competitiveness. Portugal, for example, may eventually have to restructure its debt and quit the euro. Illiquid but potentially solvent economies, such as Italy and Spain, will need support from Europe regardless of whether Greece exits; indeed, without such liquidity support, a self-fulfilling run on Italian and Spanish public debt is likely.

The substantial new official resources of the IMF and ESM – and ECB liquidity – could then be used to ringfence these countries, and banks elsewhere in the eurozone's troubled periphery. Regardless of what Greece does, eurozone banks now need to be rapidly recapitalised, which requires a new EU-wide programme of direct capital injections.

The experience of Iceland and many emerging markets over the past 20 years shows that nominal depreciation and orderly restructuring and reduction of foreign debts can restore debt sustainability, competitiveness, and growth. As in these cases, the collateral damage to Greece of a euro exit will be significant, but it can be contained.

Like a doomed marriage, it is better to have rules for the inevitable divorce that make separation less costly to both sides. Make no mistake: an orderly euro exit by Greece implies significant economic pain. But watching the slow, disorderly implosion of the Greek economy and society would be much worse.

Copyright: Project Syndicate, 2012.

Greek euro tragedy nears final act | World news |

Lucas Papademos warns of 'catastrophe' if Greek voters reject austerity

 Damien McElroy

By Damien McElroy, in Athens 4:47PM BST 18 May 2012

Greece's former technocratic prime minister used a resignation letter on Friday to warn voters that rejection of the eurozone bail-out in next months election would be a "catastrophe".

Greece's former technocratic prime minister used a resignation letter on Friday to warn voters that rejection of the eurozone bailout in next months election would be a

Newly appointed caretaker Prime Minister Panagiotis Pikrammenos, right, poses with former PM Lucas Papademos prior their meeting and after his swearing-in ceremony at the Presidential Palace, in Athens on Wednesday. Photo: AP

Lucas Papademos, who stepped down on Wednesday made his comments as signs emerged of a backlash against anti-bailout parties as fears grow Athens could be ejected from the single currency.

An opinion poll showed a clear lead for the pro-bailout New Democracy party for the first time since the shock emergence of the hard-Leftist Syriza as a political force in the May 6 elections.

The poll predicted New Democracy would win 26.1 per cent of the vote compared to 23.7pc for Syriza.

Mr Papademos said a stand-off over the budget cuts and privatisation required by the 130 billion euros bailout would unavoidably cost Greece's place in the euro.

"We are, once again, at a critical crossroads," Mr Papademos wrote. "At a time when many countries, including in our neighbourhood, are working hard to win a place in the EU it would be tragic if we went in the opposite direction."

Alexis Tsipras, the Syriza leader, sought to play down fears over his party's radicalism yesterday by accusing its opponents of unfairly painting its agenda as euro exit.

“This scaremongering is being generated by political forces playing with fire and by speculators playing speculative games,” Mr Tsipras said after meeting with European Parliament President Martin Schulz. “I expressed my conviction that Greece is, and must remain, an equal member of the euro area with obligations but also the rights that accrue to it from its membership.

Mr Schultz used to a joint appearance with Mr Tsipras to highlight the dangers of the path. He said: "Many people believe that it would be the end of a negative cycle but for me it would be the beginning of an even more negative cycle."

Panagiotis Pikrammenos, 67, the new caretaker prime minister, told his unpaid government that it must avoid the public infighting that has frightened the markets.

"We must not forget that all of Europe is watching us. We must all work to steer the country to a safe harbour, " he said. "I would like this government to set an example of a different type of behaviour, which the Greek people, who have been severely tested, will be able to respect."

Fears that the election will further destabilise Greece's position led Kathimerini, the leading broadsheet, to remind politicians of the high stakes in the election. An editorial said: "Nothing can be taken for granted in this latest election race. Voters appear to want a team to govern the country, a program, a collective effort and, especially, a definitive stance.

Angela Merkel, the German Chancellor, spoke with Greek President Karolos Papoulias by telephone to stress that June 17 poll must provide a strong mandate.

"We're awaiting the results of these elections and it's the wish of all European partners and the (German) government that a government capable of taking decisions in Greece should be formed as quickly as possible after the elections," said Georg Steiner, Germany's deputy government spokesman.

Lucas Papademos warns of 'catastrophe' if Greek voters reject austerity - Telegraph

Angela Merkel caught in referendum row with Greece

Conal Urquhart and agencies, Friday 18 May 2012 23.27 BST

Greece claims German leader advised it to hold a referendum on euro membership – but her spokesman denies allegations

Angela Merkel

German chancellor Angela Merkel was caught up in the referendum row as she visited America for the G8 summit. Photograph: Jacquelyn Martin/AP

German-Greek relations were further strained on Friday after the German chancellor, Angela Merkel, was heard advising Greece to hold a referendum on its membership of the euro.

Greek politicians reacted angrily, but Merkel's aides insisted she had not suggested a referendum during a telephone call on Friday with the Greek president, Karolos Papoulias.

The Greek government's spokesman, Dimitris Tsiodras, said: "[Merkel] relayed to the president thoughts about holding a referendum in parallel with the elections on the question whether Greek citizens wish to remain in the eurozone."

A German government spokesman rejected the idea that Merkel had proposed a referendum. "This is false and we completely dismiss this," he said.

Some commentators suggested that the misunderstanding was due to an error in translation. One said that Merkel had said that the 17 June elections in Greece would be like a referendum on the country's membership of the euro.

But Greek politicians criticised Merkel's perceived interference in Greek affairs.

Alexis Tsipras, the leader of the leftwing Syriza party that wants to renegotiate Greece's bailout by the EU and the IMF, said: "Ms Merkel is used to addressing Greece's political leaders as if the country was a protectorate."

Antonis Samaras, a conservative, also criticised Merkel's suggestion. "The Greek people don't need a referendum to prove they're pro-euro. Her idea is unfortunate, to say the least, and can't be accepted," he said.

The elections will take place amid confusion in Greece over which economic path to take. Opinion polls suggest that Greeks want to remain in the euro but do not want to abide by the austerity programme demanded as part of the international deal to finance Greece's debt.

Merkel and other European leaders have told Greece they must continue the austerity programme if they want to remain in the single currency.

Angela Merkel caught in referendum row with Greece | World news |

Greek leftist leader Alexis Tsipras: 'It's a war between people and capitalism'

Helena Smith in Athens, Friday 18 May 2012 20.55 BST

Greece's eurozone fate may now be in the hands of the 37-year-old political firebrand and his Syriza party

Alexis Tsipras

Alexis Tsipras in his office at the Greek parliament building on Friday. He says Greece has been used as a guinea pig for the rest of Europe. Photograph: Martin Godwin

"I don't believe in heroes or saviours," says Alexis Tsipras, "but I do believe in fighting for rights … no one has the right to reduce a proud people to such a state of wretchedness and indignity."

The man who holds the fate of the euro in his hands – as the leader of the Greek party willing to tear up the country's €130bn (£100bn) bailout agreement – says Greece is on the frontline of a war that is engulfing Europe.

A long bombardment of "neo-liberal shock" – draconian tax rises and remorseless spending cuts – has left immense collateral damage. "We have never been in such a bad place," he says, sleeves rolled up, staring hard into the middle distance, from behind the desk that he shares in his small parliamentary office. "After two and a half years of catastrophe Greeks, are on their knees. The social state has collapsed, one in two youngsters is out of work, there are people leaving en masse, the climate psychologically is one of pessimism, depression, mass suicides."

But while exhausted and battle weary, the nation at the forefront of Europe's escalating debt crisis and teetering on the edge of bankruptcy is also hardened. And, increasingly, they are looking towards Tsipras to lead their fight.

"Defeat is the battle that isn't waged," says the young politician who almost overnight has seen his radical left coalition party, Syriza, jump from representing fewer than 5% of Greeks to enjoying ratings of more than 25% in polls.

"You ask me if I am afraid. I'd be afraid if we continued on this path, a path to social hell … when someone fights there is a big chance that he will win and we are fighting this to win."

Before Greeks went to the polls on 6 May, neither Tsipras nor his party were a name to be reckoned with. If anything both were the butt of vague mockery: a former pony-tailed student communist leading a rag-tag band of ex-Trotskyists, Maoists, champagne socialists and greens. Tsipras's assistants – wielding Louis Vuitton bags and fashionable sunglasses – readily admit they are signed up "militants" mostly of the anti-globalisation cause.

But today I am the third person to pass through Tsipras's second-floor parliamentary office. The others have been the German ambassador to Greece and the president of the European parliament, Martin Schulz. As Greeks prepare to head to the polls again on 17 June, Tsipras, the politician poised to win the greatest number of votes – after Syriza came in second place in this month's inconclusive election – is the man everyone wants to see. "He is not as dangerous as he appears on TV, but he does have some risky positions," says Schulz emerging form the talks.

"The [upcoming] vote in Greece will decide not just what happens here but what will happen internationally", adds the German before saying what he really wants to say. "If the memorandum [loan agreement] is cast in doubt, the payment [of rescue funds from the EU and IMF] to Greece is cast in doubt."

Tsipras, who turns 38 in July, wants me to know that the war is not personal. The enemy is not Berlin, until now the biggest provider of the monumental rescue funds keeping the debt-stricken economy afloat. "It is not between nations and peoples," he says. "On the one side there are workers and a majority of people and on the other are global capitalists, bankers, profiteers on stock exchanges, the big funds. It's a war between peoples and capitalism … and as in each war what happens on the frontline defines the battle. It will be decisive for the war elsewhere."

Greece, he says, has become a model for the rest of Europe because it was the first country to fall victim to the enforcement of hard-hitting "growth through austerity" policies pursued in the name of resolving the crisis.

"It was chosen as the experiment for the enforcement of neo-liberal shock [policies] and Greek people were the guinea pigs," he insists.

"If the experiment continues, it will be considered successful and the policies will be applied in other countries. That's why it is so important to stop the experiment. It will not just be a victory for Greece but for all of Europe."

Under the current rescue plan, which has subjected the nation to relentless austerity – the average Greek's purchasing power has dropped by 35% – the international financial system, and especially banks, are gaining most, he says. "Who is surviving, tell me?" he asks. "Greeks aren't … The loans are going straight to interest payment and banks."

The other point that Tsipras wants to make is that he is not against the euro or monetary union. Fears that the country is about to exit the eurozone are about terrorising people to keep the status quo, he claims. They are why the nation has seen "more then €75bn" of cash taken out of Greek banks since the outbreak of the crisis in Athens in December 2009.

But Angela Merkel, the German chancellor, should know she has "a huge historical responsibility" – a point he will be making when he holds talks with representatives of the German government in Berlin next week.

"We are not against a unified Europe or monetary union," he insists. "We don't want to blackmail, we want to persuade our European partners that the way that has been chosen to confront Greece is totally counter-productive. It is like throwing money at a bottomless pit."

Over the past two years, Athens had received two bumper bailouts from the EU and IMF: €110bn in May 2010 and then €130bn in March this year, but the stringent fiscal adjustment programmes demanded in return for the aid are clearly not working, he says.

If the emphasis is not now put on re-energising Europe's most moribund economy through development and growth, "in six months we will be forced to discuss a third package and after that a fourth," he predicts,

"European tax payers should know that if they are giving money to Greece, it should have an effect … it should go towards investments and underwriting growth so that the Greek debt problem can be confronted because with this recipe we are not confronting the debt problem, the real issue."

All this sounds remarkably toned down from the fiery rhetoric Tsipras has come to be associated with – until, that is, the mention of rescue funds drying up if (as seems likely) his party emerges as the governing force in a hung parliament.

The first thing Syriza will do in power is tear up the controversial "memorandum of understanding" Greece signed up to with creditors, which details the onerous conditions under which the country receives quarterly injections of cash.

The agreement, he says, was reached without the Greek people ever being consulted. And now in the wake of the 6 May vote, when more than 70% of those opposing the policies voted for "anti-bailout" parties, it is clear it has lost all legitimacy, he insists

It is a high stakes game but, he argues, Europe is holding the gun because ultimately, under European law, Greece can't be ejected from the 17-nation bloc.

"Europeans have to understand that we don't have any intention of pushing ahead with a unilateral move. We will [only] be forced to act if they act unilaterally and make the first move," he says. "If they don't pay us, if they stop the financing [of loans] then we will not be able to pay creditors. What I am saying is very simple."

And if Athens stops paying its creditors, the problem then takes on a different hue. Greece is in a much stronger position than most think.

"Keynes said it many years ago. It's not just the person who borrows but the person who lends who can find himself in a difficult position. If you owe £5,000 to the bank, it's your problem but if you owe £500,000, it's the bank's problem," he said. "This is a common problem. It's our problem. Its Merkel's problem. It's a European problem. Its a world problem."

With his good looks, raven black hair and propensity for rousing oratory, Tsipras comes across more as a pin-up (which is how many in Greece see him) than a saviour, which is how a great deal of others see him.

His aides add in passing that one of his heroes is Venezuelan leader Hugo Chávez, with whom he shares the same birthday. Nor does he believe in political tags "at this time of crisis".

But though he appears to be preparing for power and moderating his tone, he says the war will continue.

Greek leftist leader Alexis Tsipras: 'It's a war between people and capitalism' | World news | The Guardian

If Greece is to stay in the euro, something's got to give

 Ian Traynor

Ian Traynor, Europe editor, Thursday 17 May 2012 17.47 BST

While EU leaders now talk publicly of Greece leaving the euro, a little more flexibility could yet keep the currency intact

Alexis Tsipras in the Greek parliament

Alexis Tsipras, the main beneficiary of the stalemate in Athens, is likely to improve his performance in the election rerun. Photograph: Martin Godwin

We'd really like you to stay, but sorry, you may have to leave. This is the message now being sent to Greece by Europe's key leaders in the space between the election earthquake of 6 May and the ballot rerun on 17 June.

For the first time in 30 months of crisis, Europe's leaders have been talking publicly of a country being forced to quit the euro. There is no doubt a "Grexit" will do immense damage to Greece and to Europe.

It's a question of scale – containment or contagion.

No one really knows whether a Greek departure will result in an exponentially bigger Spanish and Italian crisis that could kill the currency and perhaps mortally wound the EU, or whether the fallout will be restricted to Greek calamity and collateral damage to European banks that can be lived with.

The fact that leaders such as José Manuel Barroso, Olli Rehn, Angela Merkel, and Wolfgang Schäuble are publicly discussing the eventuality of a Greek exit suggests strongly they think the damage can be limited, that they've used the past two years to quarantine Greece.

They may be right. But it's a gamble. It would not be the first time in 30 months they have miscalculated.

EU leaders also mean it when they say they'd prefer to keep Greece in the euro. To that end, they are now effectively telling the Greeks how to vote on 17 June – for the two big discredited parties, New Democracy and the socialist Pasok, whose combined vote collapsed from 79% to 32% 12 days ago.

These may be extraordinary times. But it would be more than extraordinary to see such an electoral shift within six weeks. All the signs so far are that the young firebrand bailout rejectionist, Alexis Tsipras, – the main beneficiary of the stalemate in Athens – is likely to improve his performance in the election rerun. He is said to be heading to Berlin and Paris next week for talks on the next moves.

If Greece is to stay in the euro, something has to give – on Tsipras's rejection of the "memorandum" (what Greece has to do to receive the bailout) and/or on Berlin's rules-bound approach that brooks no wavering nor flexibility in administering the medicine.

Despite the impression of strictness, Merkel has shifted several times in the crisis, always at the very last minute and arguably too late, reactively rather than pre-emptively. She hinted at another shift on Wednesday.

"If Greece believes that we can find more stimulus in Europe in addition to the memorandum, then we have to talk about that," she said.

Relaxing the timetable of Greece's deficit reduction and budget cuts, for example, could help, allowing the economy to breathe a little rather than being strangled in the depths of recession.

The same could be said about Spain, or even the Netherlands, a healthy economy that nonetheless is grappling with a deficit dilemma, which would be much more easily repaired over three to four years than one to two.

The rightwing Spanish government sounds committed to slashing spending, tearing up Spain's social contract and making the structural changes it needs to meet the eurozone budget deficit targets.

But it can't do anything about Greece. It fears being next in line of fire for the financial markets. It is angry that Berlin and Paris are failing to fix the euro, leaving Madrid highly vulnerable to events outside its immediate control.

Greater flexibility and longer timelines for debt reduction would allow the new star of Greek politics to argue that he won his "renegotiation" of the terms of Greece's rescue. The Germans would still stress that austerity remains sacrosanct. The new French regime would declare that it is already making a difference, that its emphasis on growth strategies is already paying dividends.

The time and the place to agree this is next Wednesday at a special EU summit in Brussels.

If Greece is to stay in the euro, something's got to give | World news |