Greece and the troika, dancing in the dark

Finance Minister Yannis Stournaras felt compelled last week to call into a TV news show to deny rumors about imminent property tax hikes for Greeks. He argued there had been a lot of “scaremongering” by the media and politicians relating to the creation of a new property tax, which would unify several levies on real estate that currently exist.

Tax has become an increasingly sensitive issue in Greece. As wages shrink and jobs disappear, nobody is looking forward to the prospect of paying more into public coffers. But anxiety has been spurred by the voting of a new tax bill in January, which increased income and corporate tax and scrapped the tax-free threshold with the aim of raising 2.3 billion euros.

Furthermore, a recent international study by KPMG showed that Greeks pay the second-highest effective income tax and social security contributions at 46.5 percent of their income. Given this burden and the slow progress on ensuring that a sizable minority does not consistently get away without paying its share, it is no surprise that the issue of tax raises hackles in Greece each time it enters the public debate.

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The ties we don’t see but can’t ignore

President Karolos Papoulias was correct to stress to party leaders the unusually large amount of savings being withdrawn from Greek banks over the past few days but this also caused some unnecessary arm-flapping, a practice which always obscures people’s view of what is important.

Papoulias told party leaders on Monday that 700 million euros had been withdrawn from Greek banks on Monday. Banking sources told the Financial Times that about 5 billion euros had been withdrawn since the end of April. Savings disappearing from Greek banks is nothing new. Deposits have fallen from about 240 billion euros in 2009 to some 170 billion now. However, the rate at which money is being withdrawn at the moment is a cause for concern.

ELA: Easy as ABC?

There was an unusual sense of calm among eurozone leaders at last week’s summit in Brussels. The pain from the constant headache of the debt crisis seemed to have been dulled by a 1-trillion-euro aspirin. The European Central Bank’s decision last week to launch a second round of longer-term refinancing operations (LTRO), with eurozone banks borrowing more than 500 billion euros to top up their liquidity, appears to have calmed the markets and politicians. So much so that French President Nicolas Sarkozy essentially declared the crisis to be over.

Putting aside the questionable enthusiasm of a president seeking a second term in upcoming elections, the December LTRO, when the ECB also lent more than 500 billion euros, and last week’s liquidity operation have at the very worst bought the eurozone some time. Some of the LTRO money was spent by the banks on snapping up their government’s bonds, which has led to yields dropping for countries like Italy and Spain, which were facing unsustainable borrowing costs.

One giant leap for Europe, one small step for Greece

Illustration by Manos Symeonakis

A general rule emerged from the financial crisis that originated in the USA a few years ago: If a financial instrument is too complicated to understand, then you’d better start worrying about how safe it is. So, when one of the world’s leading economists, Paul Krugman, writes of the deal for Greece agreed by eurozone leaders on Thursday, “If you aren’t confused, you aren’t paying attention,” then perhaps we need to put the champagne on ice.

Thursday was undoubtedly a landmark moment for the European Union and the single currency. It was never an inevitability that eurozone leaders would arrive at a deal. When you have 17 leaders with 17 different electorates and myriad domestic concerns to juggle along with worries about the future of the euro, there can never be a guaranteed outcome. Nevertheless, the eurozone chose on Thursday the road to a possible solution rather than the path to an almost certain dissolution. The danger has not been dispelled but more time has been bought.

In euro’s moment of destiny, bold may not be bold enough for Greece

Graffiti by Absent

Eurozone leaders will meet in Brussels on Thursday for an emergency summit whose main aim will be to agree on a second bailout package for debt-burdened Greece as it becomes increasingly obvious that the current system of providing interest-bearing loans to Athens in return for austerity measures and structural reforms is not viable for much longer.

The summit is shaping up as a pivotal moment in the single currency’s history because in attempting to address the Greek situation, eurozone leaders are set to adopt unprecedented measures that could pave the way for a much more radical and comprehensive approach to the debt crisis.