Tag Archives: Greece IMF

The paradox of the ‘Indignant’

Photo by Stratos Safioleas

Thousands of protesters packed Syntagma Square in Athens for a third consecutive day on Friday. Those giving up another evening to vent their anger at Greece’s plight continued to display great enthusiasm and persistence. There was something dramatic about their protest, which took place as ominous clouds rolled across the Attica sky and boneshaking thunder boomed throughout the capital. It felt like someone had splashed out on the special effects in preparation for the ultimate battle: the people vs. the political system. The unstoppable force meets the immovable object.

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EU should invest in Greece, not just lend it money

Brussels – A restructuring of Greece’s debt or a second bailout from the European Union and the International Monetary Fund coupled with austerity measures and structural reforms will not be enough to ensure the country’s long-term economic future, according to the chief economist at a leading Brussels think-tank who is urging the EU to generate greater investment in the debt-ridden country.

“The key here is to create a positive economic and political future,” Fabian Zuleeg of the European Policy Centre told Kathimerini English Edition. “It is abundantly clear now that simple austerity measures are not enough: they are not going to lead the Greek economy to a higher growth path. If we want to give economic and monetary union a long-term perspective than we need to find vehicles to channel investment from the stronger countries to the weaker countries: true investment, not a transfer – something that will give returns.”

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Reaching the age of consensus

Illustration by Manos Symeonakis

It was ironic that as the Greek government supposedly went in search of consensus last week, the streets of Athens should look just like the streets of other European capitals. As Prime Minister George Papandreou embarked on his doomed attempt to reach agreement with opposition party leaders, the only place where there seemed to be any unity of opinion was on the streets.

Student protestors in London raged against a coalition government pricing many of them out of university education, Italians vented their frustration at the seemingly impossible survival of Prime Minister Silvio Berlusconi while in Athens private and public sector workers expressed their anger at the latest set of reforms that are changing the face of Greek society.

Amid this turmoil, like the fishing boat skipper setting out for sea as the perfect storm looms, Papandreou cast his nets in the hope of catching a public relations victory. His effort to achieve “consensus” can be seen as nothing else but a frivolous foray into the choppy waters of political gamesmanship when there are much more pressing issues to deal with, such as thousands of Greeks losing their jobs and the country going through a violent adjustment to economic reality.

At a time when Greece, as well as many other countries in Europe are beginning to resemble the fractured British society of the Margaret Thatcher years, one of the former UK prime minister’s comments comes to mind: “To me, consensus seems to be the process of abandoning all beliefs, principles, values and policies. So it is something in which no one believes and to which no one objects.” It perfectly sums last week’s aborted attempt to build accord between the parties.

Ostensibly, Papandreou invited the other party leaders for talks to find common ground on the challenging reforms prescribed by the European Union and the International Monetary Fund and to adopt common positions ahead of the EU leaders’ summit in Brussels at the end of last week, where politicians were due to agree on the details of the permanent support mechanism for members with sovereign debt problems. In reality, though, there were no grounds for believing that any of the political leaders would agree to common positions on the reforms or on what positions Greece should adopt at the EU negotiations.

It was delusional to expect any kind of understanding on the structural changes given that they were due to be voted through Parliament a few hours after the party leaders met Papandreou. It’s no formula for success to encourage someone to join you on a journey when your bags are already packed, the keys are in the ignition and the engine is running. Understandably, none of the other leaders decided to jump in the moving vehicle. As New Democracy chief Antonis Samaras pointed out, there is a world of difference between “consensus” and “consent.” None of the other parties had been consulted about the content of the bill on the restructuring of public utilities such as the Hellenic Railways Organization (OSE) and the redrafting of labour laws. Once the legislation has been submitted to the House, the role of the opposition parties is to debate it and then vote for or against it – the time for consensus-building has passed. But even at this late stage, the government did all it could to antagonize the opposition rather than encourage unity by submitting the reforms as an emergency bill and thereby limiting debating time to an absolute minimum. It’s no surprise that the Coalition of the Radical Left (SYRIZA) leader Alexis Tsipras decided to boycott the talks with Papandreou – being portrayed as an accessory to policies you do not agree with, nor have had any part in shaping is not something that any young politician wants to have on their CV.

The reasoning that Tuesday’s “consensus” talks would firm up Greece’s positions ahead of the EU leaders’ summit was also feeble. Papandreou had already made his government’s ideas on some of the key issues crystal clear both at home and abroad. He had been shouting from the European rooftops for some time that Athens was in favour of the creation of a Eurobond and against private bondholders having to accept lower returns, or a “haircut”, on their investment as part of a permanent bailout scheme. It’s implausible that Papandreou would have suddenly performed a volte-face because Communist Party (KKE) leader Aleka Papariga or the Popular Orthodox Rally’s (LAOS) Giorgos Karatzaferis expressed misgivings. As it turned out, the Brussels summit was a damp squib rather than a landmark moment demanding national agreement from all of Greece’s politicians.

There is no doubt there are few choices in the sticky position Greece finds itself– there is never much wiggle room when you have been backed into a corner. But this doesn’t mean that everyone has to agree on the course being followed to get Greece out of the crisis. After all, it has never been the role of any opposition to provide the sitting government with succour. Its duty has always been to challenge the government’s policies, to highlight its failings and to offer alternatives. One area where Greece’s opposition parties can be seriously criticized is not in their inability to find common ground with PASOK but in their failure to provide plausible alternatives. Samaras developed a pie-in-the-sky scheme to wipe out Greece’s debt by the end of 2011, which was roundly rejected in the November local elections. In democracies, opposition parties have and always will be judged by the quality of their opposition, not the level of consensus they achieve with the government.

Greece is going through a period of immense upheaval, during which, as Samaras said “the terms by which millions of Greeks live are changing.” Clearly, if everybody agreed on the recipe for change, this process would be straightforward but it would also mean our living, breathing democracy would be brain dead. If people are not to question their government’s choices now, then when? Why shouldn’t voters or politicians doubt the efficacy or fairness of some of the EU-IMF-prescribed decisions?

From the latest package of reforms, for instance, few would argue with reducing wages at public enterprises, where many employees had built cash-lined fiefdoms, and cutting costs at public transport companies that are losing taxpayers’ money by the bus-load. In fact, New Democracy supported these provisions, proving that you don’t go in search of consensus; you build it around your ideas. In contrast, it was much more difficult for the opposition parties to back the articles of last week’s bill that allow companies to bypass collective labour contracts by offering employees in-house deals. This is a clear challenge to the rights of employees in the private sector, who unlike their pampered public sector counterparts have only been enjoying the protection offered by collective contracts since the 1990s. These agreements, which blossomed after Greece’s entry into the EU, are designed to give workers more reasonable pay and conditions and shelter from unscrupulous bosses, of whom there are many in Greece. As such, they are completely in keeping with the EU’s ideal of creating fairer, more socially conscious societies. To strip away these rights, which include respectable compensation deals for sacked employees, as jobs dry up and Greeks have to think about how they’re going to feed themselves and their families only increases the sense of insecurity.

Equally importantly, it’s an affront to the section of Greek society that has carried the country for the last few decades. Private sector workers, of whom there are about 2 million in Greece, have been the ones who have consistently paid their taxes and social security contributions – after all, their wages are taxed at source. Whether the employers who have withheld this money have been equally diligent is another question. Yet, despite their unswerving dedication to fairness and the advancement of national cause, it’s these workers that find themselves being punished by the latest measures, which look like a precursor to collective contracts being scrapped altogether and private sector wages being forced down.

In this climate, therefore, it seems unrealistic, almost offensive that voters and opposition politicians are being asked to give their consent without the government making any effort to win what is a crucial argument. The bypassing of Parliament and collective contracts and the mantra that “there is no alternative” does not make for a healthy democracy, or for a public that can find much good in the measures. It’s a mix that leads to people losing their belief in the political system and seeking answers, a voice and, in some cases retribution, on the streets. After all, the way things are going, this is where an increasing number of Greeks will find themselves anyway.

This commentary was written by Nick Malkoutzis and was published in Kathimerini English Edition on December 20, 2010.

Barbarism at the gates

Illustration by Manos Symeonakis

Politicians often say things during election campaigns that they later regret. Looking back on his first year as prime minister, George Papandreou must be wondering what possessed him ahead of last year’s October 4 poll to utter – with excruciating regularity – the words: “The money is there.” Unless, of course, by “there” he meant in the back pockets of pensioners, civil servants, motorists and most middle and working class families that are now footing the bill for Greece’s economic rescue effort.

The money was never there and everybody, including PASOK, knew it. This didn’t stop Germany’s Werkstatt Deutschland organization from awarding Papandreou the Quadriga Prize for “Power of Veracity” on Sunday. The award, named after the sculpture of a horse-drawn chariot that sits atop the Brandenburg Gate in Berlin, was in recognition of Papandreou revealing the truth about the state of Greece’s public finances, which seems a bit like giving a lollipop to a child who admits its part in smashing a vase but only after discovering there was nowhere to hide the broken pieces.

Nevertheless, the trip to Berlin may have given Papandreou an opportunity to contemplate one of the other regrettable statements he made before last October’s election. “Socialism or barbarism,” the PASOK leader had said, echoing Marxist activist Rosa Luxemburg, a late resident of the German capital who believed adopting Socialism was the only escape from an unjust existence. Papandreou spoke in a slightly different context, arguing that the global financial crisis was proof that the capitalist model was unsustainable and that a center-left structure, with more emphasis on regulation and the state, should replace it.

However, 12 months on, his dreams of 21st century Socialism have vanished into the same vortex that is consuming the billions of euros Greeks are paying to prevent their country from going bankrupt. In the meantime, the threat of barbarism has become very real.

Some of the measures taken over the last 12 months were undoubtedly necessary and long overdue but the manner in which they are being applied and the IMF/EU market-driven philosophy that underpins them is brutal. While all eyes are trained on safeguarding financial capital, little attention is being paid to the negative effect on social capital.

The recent liberalization of the road haulage sector set a dangerous precedent. Apart from the truck owners themselves, most people would argue that time had run out on the closed-profession privileges the truckers enjoyed for so many years. Yet, it’s unsettling that the forced end to their lengthy strikes – first with a civil mobilization order in the summer and then with legislation threatening truckers with jail sentences in September – should be met with such satisfaction within the government and among some of the public. After all, this was a failure of democracy and had a distinct totalitarian element to it. PASOK backtracked on its promises to the truckers, one of the many groups that have been pampered by successive governments, and then portrayed them as being unreasonable and obstructing progress. Unable to engage in debate and then formulate policy – functions of the democratic systems we uphold and the governments we vote for – PASOK rammed the liberalization through Parliament and down the throats of the truckers. The government’s heavy-handedness throughout the dispute does not bode well for the future.

Greece’s experience is being replicated in other European countries, such as Ireland, Portugal, Spain and Britain, where citizens are being presented with a fait accompli. Their governments, regardless of political hue, are telling them that austerity measures must be adopted without question. In doing so, elected politicians are not only perverting the very system that put them in power, they’re also sowing the seeds of deep discontent as people grow increasingly aggrieved with the impact of the austerity measures and the lack of alternatives.

The United Nations work agency, the International Labor Organization (ILO), warned last Friday that the global employment market, where 22 million new jobs are needed, would not recover from the crisis until 2015 and that this would only fuel social unrest. “Fairness must be the compass guiding us out of the crisis,” said ILO director general Juan Somavia. “People can understand and accept difficult choices if they perceive that all share in the burden of pain. Governments should not have to choose between the demands of financial markets and the needs of their citizens. Financial and social stability must come together. Otherwise, not only the global economy but also social cohesion will be at risk.”

While scenarios of popular revolution are pure fiction as far as Greece is concerned, the country is no stranger to social unrest. The longer that measures which impact on people’s viability are passed one after the other, with no discussion or effort to present a vision for a better future, the more resentment will fester and the threat of a backlash will grow.

The possible breakdown of social cohesion creates the conditions for another, even darker, reaction to austerity. While understandable to some extent, the glee some citizens and commentators expressed at the abrupt way the government dealt with the truckers is a tell-tale sign that, given the current circumstances, a larger proportion of the population than usual thinks the use of force – psychological or physical – is acceptable. The danger is that the longer the government depends on this tactic, the more people will become accustomed to it and start believing it’s a perfectly legitimate way to run a country and get things done. In Greece, where society has been fragmented for many years thanks to each group pursuing its narrow interests, the flourishing of this mind-set will lead to even graver polarization.

Hungary, which was discovered in 2006 to have been fiddling its economic figures and had until this year been applying the austerity measures prescribed as part of the rescue deal it signed with the IMF, offers a salutary tale for Greece. Earlier this year, the extreme right-wing Jobbik party won 850,000 votes in the parliamentary elections on the back of a campaign that targeted the Roma but also played up the failures of the traditional guardians of power in Hungary, the conservative Fidesz and the Hungarian Socialist Party (MSZP). “The main factor behind Jobbik’s rise has been its ability to make political hay out of popular demand for extremist policies,” writes Peter Kreko for the Political Capital think tank in Budapest. “The primary driver behind extremist sentiment is a decline in public morale: Many Hungarians feel they can no longer trust the political elite or their governing institutions. The other fact is a rise in prejudice, especially toward foreigners.”

So, as Greece takes stock a year on from when Papandreou made his foolhardy election campaign pronouncements, it can draw some timely conclusions from its own and others’ experiences. It’s clear that the money is not there, nor is Socialism. As for barbarism? It’s creeping through the gates.

This commentary was written by Nick Malkoutzis and was published in Athens Plus on October 8, 2010.

Crisis? What Crisis?

Illustration by Manos Symeonakis

I’d heard it said many times, in many ways but never with such clarity. It fell to Thanassis, an advertising company employee vacationing on Serifos to deliver a wonderfully succinct assessment of the country’s mood. “Everybody is waiting for September without knowing whether it will be a new beginning, or the beginning of the end,” Thanassis, who clearly has a flair for dramatic turns of phrase, told Agence France-Presse. All his experience as an advertising executive didn’t prevent him from not only jumping on this particular bandwagon but riding it all the way into the imaginary Doomsday sunset like a champion jockey.

September is no longer just any month in most Greeks’ minds, it’s a mystical watershed, a moment in time when clocks will stop, spoons will bend and fish will jump out of the sea. Spurred on by journalists and commentators who can’t resist stirring up a hornet’s nest and politicians who are desperate to be part of the madding crowd, Greeks have become obsessed about September being the month when time will catch up with Greece and lash them viciously against the rocks of hardship.

Of course there will be some tough times in September: the government will begin taking on the closed professions as it starts its liberalization program; a drop in tax revenues due to reduced household spending will require new austerity measures that could include more VAT hikes and spending cuts, and, our IMF and EU overseers will be back to check our books. But, hold on a second. Isn’t all this starting to sound a little familiar? Sure, September will bring new hardships but it’s not like January through to August has been a walk in the park. It was only a few days ago that the head of the IMF mission in Greece, Poul Thomsen, said that “Few European countries have produced so many reforms in such a short time.”

Is it possible that a quick dip in the Aegean and a couple of tequila slammers over the summer has made us forget all this? Don’t we remember how many experts predicted Greece would be bankrupt before the summer, the euro was facing imminent collapse and the EU would implode? Well, here’s some news: the euro has gained 10 percent against the dollar over the past two months, the risk premium on Spanish, Italian and Portuguese government debt has dropped and data published earlier this month showed the German economy grew by 2.2 percent in the second quarter of this year, its best performance since reunification 20 years ago. Sure, the spread on Irish bonds inched up last week and Slovakia says it won’t stump up the cash for Greece’s rescue package but it’s far from the apocalypse many dreaded.

Most bold predictions have been undone and, if anything, several months on from when the debt crisis began, the only thing we can say with any confidence is that there are more unanswered questions than when we began. It seems certain as we continue this fascinating journey into uncharted territory that September will not be a new beginning or the beginning of the end; it will be just another month in a long, hard slog as we adapt to a whole new set of parameters.

Each bump along the road will not only jolt us but it will enlighten us and, hopefully, inch Greeks closer to achieving a more stable and fairer future, free from the favoritism and myopic thinking of the past. To appreciate how the crisis has shaken things up, we only need to look at how Greece has gone from being an inert country not just gathering dust but accumulating it in huge piles, to one that finds itself at the coalface of the global economy. It used to be that reforms only existed so we could create more shelves to put them on but this year we have seen changes pushed through with breathtaking speed. Not too long ago, Greek prime ministers seemed to only venture abroad if the shopping was good but now George Papandreou is racking up more air miles than George Clooney as he seeks to preach the good word about Greece’s gallant fight with its economic demons and grab a seat at the table where the big players take decisions.

The crisis has been good for Greece. It’s created the best chance the country has of achieving catharsis and tangible change. Critics, though, will argue the process is devalued because Greece is following the instructions of foreigners. In fact, New Democracy, after almost a year in opposition, has decided this is the government’s Achilles heal. Lately, the conservatives have taken to calling Papandreou and his team “the memorandum government” in reference to the agreement Greece signed with the EU and IMF to obtain 110 billion euros in loans. Yes, it’s taken nine months to come up with this dazzling repartee. However, if the wisecrackers at ND headquarters could sew their split sides back together for a moment, they’d realize that after the flaccidness of their five years in office, it really doesn’t matter where the instructions are coming from. What counts is that the status quo, which worked in favor of the few, is being confronted. It’s natural that only outsiders could instigate this challenge since our own decision makers – some of the members of the current PASOK government included – were draughtsmen of, and shareholders in, the previous, failed system.

New Democracy, like all the political parties, is preparing for the November local elections, which are expected to be a litmus test for Greek politics. Some big name politicians want to avoid throwing themselves at the mercy of the electorate and the big parties intend to take a much more low-key role than usual, allowing local politicians to form their own alignments and groupings. The fact that rather than being drawn to power, politicians and parties are daunted by the prospect of being scrutinized or having to answer to the public is evidence of how the crisis is reordering things in Greece.

So, this September, instead of being cowed by the doom-mongers and naysayers, let’s take heart from the potential of our situation. Like so many other European countries, for Greece the next decade will be about taking steps to bring its debt and deficit under control. With that come some very harsh measures, as we already know, but, unlike other European countries, it also presents Greece with the opportunity to right wrongs, correct injustices and rebuild our dilapidated structures. That’s why we should not fear the crisis, but embrace and master it – it could be the only opportunity we have to press reset rather than the self-destruct button.

This commentary was written by Nick Malkoutzis and was published in Athens Plus on August 20, 2010.

Win or lose?

Illustration by Manos Symeonakis

When Greece lines up against Argentina at the World Cup in South Africa on Tuesday, the two sides will not appear to have much in common. Argentina, a squad packed with some of the planet’s best soccer talents, will be wondering whether it can make it to the final. Greece, a squad of ageing tryers running short of ideas, will probably be wondering what time their flight home is.

But beneath the surface, there is plenty that links these two teams. They both represent countries that have experienced economic meltdowns. Both have suffered the ignominy of being ridiculed for their handling of public finances. Both have had trouble convincing financial markets of their credibility. Both peoples have had to endure the consequences of these failures.

The similarities do not end there. Before defaulting on almost $100 billion of debt in 2001, Argentina had tied its currency to the dollar for 10 years – almost as long as Greece has been a member of the eurozone. Buenos Aires also relied on loans from the International Monetary Fund, paying a rate of 6 percent – almost as high as the one Greece is paying for its bailout package. And, despite Buenos Aires adopting austerity measures in 2001, the IMF pulled out of the South American country, triggering a default and devaluation of the peso.

“The circumstances leading to the Greek and Argentinean crises were similar – two countries with a great reputation that did not see the consequences of their excessive expansion and who counted on continued external support,” Claudio Loser, a Senior Fellow at the Inter-American Dialogue, a Washington-based forum for opinion leaders, told Athens Plus

Argentina once had an economy that was as dynamic and successful as Diego Maradona, the country’s former star midfielder who now coaches the national side. But like Maradona, who suffered from drug abuse, health issues, money problems and general erratic behaviour, the Argentinean economy hit a brick wall in 2001. Greece always craved a Maradona-like economy. The good news is that it finally got it. The bad news is that it’s the fat, wheezy and unruly Maradona, not the nimble world-beater.

So, with talk of default and exit from the single currency rife in the Athens air. Is there anything that Greece can learn from Argentina? Fernando Navajas, the chief economist and director of the Buenos Aires-based FIEL think-tank believes the best advice for Greece is to be more cohesive and organized than Argentina. “I am not saying that devaluation and default could have easily been avoided but one could have minimized the costs by some collective action on the political side coupled with a professional approach to crisis management,” he told Athens Plus. “Argentina did just the opposite on both fronts. Instead of minimizing, it maximized the cost of the crisis.”

Argentina’s disorderly retreat meant that millions of people lost their savings overnight and the value of property crashed, bringing people out onto the streets in daily protests. More than 20 people lost their lives in riots. It’s no wonder that Argentineans are cautious when they hear economists recommending that Greece leave the euro and devalue the drachma.

“Do not be fooled by a sorcerer’s apprentice that tells you the Argentinean case is a good recipe for Greece,” says Navajas. “This is particularly true in the case of magic formulas that involve asymmetric conversion from euros to drachmas in the financial sector.

“If confronted with the hard choice to abandon the euro, Greece should combine collective action and high technical capabilities to think not of an unconditional exit but rather an exit-plus-reentry program,” adds the FIEL director. “Argentina never thought about reentry and has been drifting ever since.”

Argentina used the depreciation of the peso to offset declining domestic demand by making its exports cheaper in foreign markets. It sounds like a good example to follow but Greece exports hardly anything. Also, unlike Argentina, Greece is one of 12 members of a single currency and any decision to abandon the euro would have far-reaching consequences for its eurozone partners and the European Union as a whole. Even if exit and devaluation were a viable economic option, it is almost inconceivable in political terms. This leaves debt restructuring as the only realistic option on the table.

“A process of adjustment without devaluation is possible although it may require in practice a reduction in nominal salaries and declining prices for goods and services, such as tourism,” says Loser. “A situation of adjustment without a serious look at the debt is much more difficult.”

However, even restructuring carries a very heavy economic and political cost. Argentina’s decision to default may have seemed like a simple way to get rid of an onerous load but it only helped the country switch one burden for another. Since 2001, the South American country has not been able to borrow on international markets and has been involved in a protracted process to convince its creditors to accept a loss on their investment. In 2005, three-quarters accepted a bond exchange worth a third of what they had invested. Buenos Aires is currently in negotiations with the remaining creditors and has given them until June 22 – the day Greece will play Argentina – to accept a debt securities swap.

Since its default, a number of factors have helped Argentina turn its fortunes around. Chief among which was the upturn in the world economy during the last decade. Greece, on the other hand, has to clamber out of its deep hole in the middle of a global recession. Also, Argentina’s success has come at a price – increased government spending that has been funded in part by central bank reserves and nationalized pension funds. Many economists have been scathing about this tactic, accusing the government of President Cristina Fernandez, who dismissed the rescue plan for Greece as being “condemned to fail”, of having no economic plan and burning its way through the country’s savings

“Argentina’s default and devaluation was a one-way journey without any careful planning that damaged the reputation of the country and affected its long-term growth prospects,” says Navajas. “This has been hidden by the extraordinary external conditions after the crisis, which will not be available for Greece, and which have led to confusion about the causes of recovery.”

It’s evident from Argentina’s experience that despite what some may say, default and exit from the euro are options that Greece should avoid considering. Or, at least if it does, then it should think its strategy through properly, something Greek governments do not have a very good track record of doing. Of course, there is always the possibility that, as with Argentina, its financial backers will just lose confidence in Greece and default/devaluation will not be a matter of opinion but a matter of course.

“The big message is that even with significant resources, there is a point when the rest of the world – or Europe and the IMF in Greece’s case – will not be willing to continue the support, even if they support others, such as Portugal, Spain and Ireland, because they are seen as more virtuous,” says Loser. “This is exactly what happened with Brazil and Uruguay at the time of the Argentinean crisis.”

There are clearly many things that Greece can learn from Argentina but perhaps the most useful one is that, as the national soccer team is likely to find out on Tuesday, when your back is up against the wall, there is no easy way to end up on the winning side.

This commentary was written by Nick Malkoutzis and appeared in Athens Plus on June 18, 2010.