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Getting out of the debt trap

I only promised what I can keep

– Tsipras

Tsipras made this statement on Sunday night right after his victory speech in front of the University in the Centre of Athens. That same evening, the coalition government with Kammenos and his party of Independent Greeks was formed, so that Tsipras could be sworn in the next day as Prime Minister. By Tuesday his government stood and was sworn in with many arriving at the ceremony without tie and not accepting a priest to whom they would declare their oath. By Wednesday, rapid steps were undertaken to let Europe and the Greek electorate to be known what this new coalition government intended to do.

The real clinch is not so much getting out of the debt trap, but primarily about keeping or not the election pledge. This commitment by Tsipras to those who elected him was made public during the first visit to Athens by a European elected official, namely Schultz, President of the European Parliament. Most recently he had been the runner-up to the office of President of the European Commission since he faced off with Juncker in the recent European elections which were held last May 25^th, 2014.

Thursday 29 January 2015

Schulz declared after his talks in Athens with Tsipras that they agreed on many points “while others needed more discussion”, and went on to express in an interview his view that Tsipras’s government was not aiming to “follow its own course” independently of its European partners. Obviously he intended to bridge the huge gap which exists between what the new Greek government intends to do and what other EU partners are willing to accept. Politically speaking, Schultz showed understanding for some political convictions Tsipras had while disagreeing with others. Having come already in 2010 at the height of the crisis to speak in the Greek parliament, he would consider it to be a political mistake if the course of Tsipras was to mean a course of confrontation and rupture with Europe.

In an interview with the newspaper Kathimerini, Schultz qualified his viewpoints still further: “SYRIZA must realize that it is now the Greek government, not a party running an election campaign.” His statement was interpreted wrongly by many in Greece as being an advise not to stick to the election pledges. However, Schultz meant that it is equally of importance to make sure one's own policy can also be realized at international level. Above all any party elected into power and therefore to govern a country is no longer only responsible to those who have elected it, but also to all the others who make up the entire society, and who need if not fit, then at least adapt to a specific system run and functioning according to certain rules.

Governmental responsibility can be defined or rather interpreted in numerous ways. Economic theory since Friedman suggests, for instance, governments should no longer be concerned about employment, but restrict themselves solely to monetary and financial policy. Hence it will be interesting to see what other changes shall manifest themselves as a result of having a Left wing government in Greece.

Moreover to keep what you promise during the election campaign is most important to many Greeks who had experienced as soon as Yiorgos Papandreou had been elected as Prime Minister in 2009, he had to reverse his pre-election promise. The reason was very simple. Once in office, he discovered that the state deficit was far greater than assumed to be the case as long as he was in the opposition. Consequently he had to re-track his promise that there was enough money to finance all the programmes he had promised to implement. Instead he had to enter bail-out agreements with international creditors who created the Troika to oversee if the conditions under which credits were granted would be met i.e. reforms as stipulated by the austerity policy were being really implemented.

So when Schultz met Tsipras, two different lines of thoughts crossed. The outcome of this first exchange of opinions and advise was indicated by Schultz recommending that the new government must adopt a realistic approach. The latter is expressed best by the advise given by Schultz, namely to seek 'pragmatic solutions':

“As I have already said, everyone must realize that grandstanding and headline-grabbing comments may not be the best tool for the coming weeks. And this goes for both sides. SYRIZA must realize that it is now the Greek government, not a party running an election campaign. The election is over, I congratulate SYRIZA for their impressive victory, but now the rhetoric needs to be largely replaced by pragmatic solutions which can work for both sides. This is the same for any party which enters government, anywhere in the world.” ¹

The advise by Schultz suggests, that it is best in politics not to stick to orthodox or fundamentalist positions and maintain a pragmatic attitude, regardless what others think and would be prepared to concede or are willing to do, in order to accommodate the needs of the other side. At the same time, he asserts to understand the Greek side. Whether this understanding goes far and deep enough to comprehend the nuances of meaning Greeks think they have when articulating themselves in a language which presents 2500 years of continuity, remains to be seen. In contemporary terms, there is a need to re-examine terms in use for their applicability when it comes to comprehending the difference between agreement and implementation. There has always been a huge gap in Greek reality between what may be after all a dialectic between the formal and informal levels. ²

Still this crucial point of keeping or not the election pledges made, cannot be neglected, for too often the electorate feels betrayed by what was first promises, and then not kept. If a government is to retain its moral legitimacy, there has to be attained a consistency between what was promised during the election campaign and how this is then translated into official governmental policy. It is a way to show how these pledges can acquire political legitimacy. This new government has all the potentials as the first appointments of ministers indicates what is a guarantee for keeping its promises, namely to have a cabinet of persons with integrity and a high social sensitivity. The latter is equal to moral consciousness. Otherwise the public support it enjoyed to get elected will evaporate very quickly into thin air if these pledges are not honoured. Schultz begged to differ by adding it is one thing to get elected, quite another to be able to push through your agenda, internationally speaking since it must be done within the European Union in consortium with all the other EU governments and as will be repeatedly said by officials their respective electorates.

Friday, 30 January 2015

Once Greek Finance Minister Yanis Varoufakis met with Dijsselbloem, he announces in the press conference with Dijsselbloem that the new Greek government will no longer work together with the Troika, since the newly elected government considers it to be a „rotten institution.“

The statement provoked a rash of news with high risk of misleading people by making them believe Greece was heading to nothing else but disaster. For if cooperation with the Troika is ended, does it not immediately mean the end of the rest of the bailout payment still pending, but subject to the Troika making a review of the Greek state of affairs. By rejecting such monitoring by labelling it as "deeply humiliating", it could mean heading straight towards an almost automatic default of the Greek state.

The negative consequences would then go beyond the wildest imagination and instead panic would set in. This basic feeling of insecurity reflects the dire state of living in a society which is no longer able to correct its own mistakes, and by refusing help from the outside due to pride, is inclined to go down a path of self destruction.

If so, it would make things far worse than what has been the case already during the past five years.

One maxim for the new government should be to heed what people wish, namely that the sacrifices they have made over these past five years would be in vain.

In that respect of fearing the worst as a negative projection upon near future developments, it should be reminded that Samaras and the Nea Democratia based their election campaign precisely on this fear. Consistently in their advertisement campaign the painted in stark and dark colours what would be the case if Syriza was to be elected.

However, contrary to fear, the people opted to vote for Syriza as they had certainly enough with the old gambits and political games being played. Once Tsipras and his new government were formed at such a rapid speed, they started to enjoy massive support of around 70%. However, what would be the case, if they audacious challenge to Europe would fail and the Greek state would default. Already Greek banks lack liquidity and panic could easily set in, if they would run out completely of money. It could trigger off a run on the bank. The latter was the experience in New York in 1927, and which precipitated the crash of the New York stock market in 1929. Ever since then fear of a loss of value of the currency has haunted every politician and perhaps even more so every banker.

The interpretation of what this means

According to 'Die Zeit' ³, the statement by Varoufakis means giving up cooperation with the international money lenders to Greece. The reason for doing this was a simple assessment by the incoming new government, namely that the imposed saving programme was not realistic and therefore could not be implemented.

Moreover Varoufakis pointed out that the Greek people had decided in this most recent election on Jan. 25^th to reject this „bailout programme“. Consequently he stated that the remaining 7,2 Billion would not be used. Instead the new Greek government wishes that a conference on debt reduction should be held, to order to bring about a new program.

Dijsselbloem is quoted as replying that there exists already such a conference, namely the Eurogroup of financial ministers.

The move had been anticipated. Tsipras had already stated in his election victory speech to his supporters on Sunday evening, 26^th of January, that „five years of humiliation are enough. Out with the Troika!“

Along similar lines, Reuters in Germany stated Friday, 30.1.2015 in a news bulletin, that the new Minister of Finance, Yanis Varoufakis emphasized that the new government was going to take serious its election pledge. It meant that Syriza was elected on a platform spelling out a rejection of the 'bail-out' programme and therefore an end to all humiliation. Consequently the new government would reject cooperation with the Troika. Rather national sovereignty should be respected by all EU governments working together on the basis of a new agreement. ⁴

At the same time, Varoufakis stated that the new government does not wish to stop reforms, but wishes to deepen reforms and attain as a result a balanced budget.

To note, when Tsipras made his famous speech in Thessaloniki, Varoufakis wrote in his by now famous blog rather than make vague promises, the Greek people should hear a Churchill like speech that ' blood and tears' are needed to get out of this recession or in reality depression. Varoufakis is known already over the past six years because of this blog and what opinions he has been expressing.

However, both Dijsselbloem and Schäuble demanded irrespective of the election outcome that the agreements made by the previous Greek government have to be kept. They added that the progress Greece has made over the past five years should not be jeopardized.

A show down between the two finance ministers was programmed even though Schäuble declared that there is a willingness on the German side to talk with the new government. However, he warned at the same time not to deviate from the already taken reform course. Given the fact that there have been granted already 240 Billion to Greece, he pointed out that the EU countries have reached already the limits of what is possible. Already nerved by this constant Greek question which did not seem to go away like the gag fly Socrates claimed to have been to the Athenians, Schäuble went out of his way to make clear that he rejected a 'hair cut' and like Dijsselbloem the calling of a conference to discuss the debt crisis.

 

Ongoing negotiations via the media

It seems to me that nearly everything that is being said

at the moment is in the context of an ongoing "negotiation"

(part of which is indeed being conducted via the media)

and has to be understood and evaluated in that context.

- Y.Ch.

After the initial alarm on Friday, even signs of panic setting in with especially the financial market reacting nervously, and all being sparked by everyone understanding the statement of Varoufakis as if the new Greek government does not wish to work with the Troika and therefore wants to abandon all bail out programmes, some further explanations have been added in the meantime. They are made in an effort to calm the waters. Nevertheless the shock sits quite deep.

Of interest in this regard is how the German newspaper FAZ picks up the interview Varoufakis gave to the BBC. Apparently Varoufakis tries to clarify the position of the new government. The article underlines the fact that most of what he says is very much what also leading economists in Germany have been saying. Needless to say, these economists in Germany take it to confirm their assessment that the Euro does not work and therefore they belong or lean towards the AfD party which advocates an exit from the Euro not for Greece, but for Germany.

One friend said that Varoufakis was picked for the definite purpose to wage a media war. ⁵ Along those lines, Varoufakis stresses the need to find a contract with all partners in Europe but underlines as well the need for a strong Germany. Yet by embracing the hegemonic power of a strong Germany as part of his media strategy, it is a badly conceived strategy. For it stands diametrically against finding a solution within Europe. Although he differentiates between Germany being a hegemonic power, and this in the sense to the role America played after 1945, and an authoritative dominance of one economic power, he risks to exceed in his acknowledgement of Germany not to give sufficient political substance to prospects allowing all to find a joint solution for Europe, and this under conditions of equality and social justice. All along the value issues are most difficult to define and to articulate, but this is precisely what Europe needs, if structural and other reasons for inequality are resolved.

A FAZ article picks up remarks made by Varoufakis in his interview with BBC, and notes that such remarks are heard for the first time from an official person, that is a representative of the Greek government.

Needless to say, this runs counter to all the criticism Tsipras and Syriza had levelled against Merkel and her finance minister Schäuble for promoting only austerity policy in Europe. The latter is linked to Germany exercising hegemonic power throughout Europe. The Spiegel on 2.2.2015 publishes even a long article who else might join Syriza in upholding the enemy picture of Merkel as if she is the sole reason for the economic recession in Europe.

Any solution to current imbalances cannot be based just on reliance that a counter balancing model will work i.e. a strong Germany there to the benefit of the weaker Southern States, including Greece. Rather the question has to be posed as to what economic model would serve best a European policy not to be reduced to the simplistic formula of a single market alone?

Even all rhetorical references to growth and competitiveness as remedies are doubtful, since competition is relative and would be under current circumstances be solely in favour of Germany. As this throws as much a light on problems linked to the wish to create a single market despite diverse cultures defining spaces in terms of language, identity and values as on EU regulations vis a vis national economies, no one has found a convincing way to explain why so much has come into disarray. The latter is due to over spending and under rated earnings. To this has to be added that each member state is now without having the balance of payments available as indicator to what extent this gap has to be closed with some other policy measures than merely monetary ones. For it is also now a political relationship between different member states who are in the Euro zone, but without being an integral part of one state as the case of America.

Consequently Varoufakis would have to identify other factors than merely a strong Germany economy on which to build a case for a pro Europe policy. To create equal chances for all the diverse European economies would require quite another solution than what is the case right now. Here begins the dilemma of the European Central Bank which operates alone and without the political backing for the whole of Europe. By simply embracing solely Germany, Varoufakis may be playing a political game to gain time and support from diverse EU partners, but it prevents at the same time further going reflections about the assumed political power which goes with a strong economy shared by all.

 

1 February Sunday

A change in austerity policy and in the European agenda

While Varoufakis starts a charm tour by going first to Paris on Sunday, and then on to other EU member states, in particular first of all England to meet there Finance Minister Osborne along with investors of the City, Tsipras travels first to Cyprus. They have to act fast, given the immediate need of the Greek state to sustain itself with daily businesses while dealing with that huge debt said to be nearly 180% of GNP. The urgency is because the full bail out programme running out at the end of February 2015.

However, the reception in Paris was modified by Finance Minister Michel Sapin stating that "friendship requires telling things as they are," and telling Reuters after meeting his Greek counterpart Yanis Varoufakis, that "we must avoid misunderstandings and make sure all, and especially the Greek side, understand how things are." ⁶

2 February Monday

The following is reported on Monday, 2.2.2015:

Greece has been promised another 7.2 billion euros in funds from the EU, IMF and European Central Bank, but this is dependent on the completion of a review of reforms at the end of February. Varoufakis has said his government does not want the loans, but there are concerns Greece cannot survive without them. A particular issue is Greece's banks, which are helping the state stay afloat by purchasing its treasury bills -- and which are being supported by the ECB.  Bank of Finland governor Erkki Liikanen, who sits on the ECB's governing council, said it cannot continue lending Greece money unless Athens extends its bailout programme. "Greece's programme extension will expire at the end of February so some kind of solution must be found, otherwise we can't continue lending," he told public broadcaster Yle.“

 

It has become by then obvious that the aim of the new government is to reach a deal by the end of May on how to handle the debt. The wish to gain time is understandable. For they need to give shape to a new program which would be socially just and at the same put Greece in a position to pay back all of its outstanding debt.

To calm waters, Alexis Tsipras made following statement:

"'I am absolutely confident that we will soon manage to reach a mutually-beneficial agreement, both for Greece and for Europe as a whole,' Tsipras said in a statement on Saturday, adding, 'No side is seeking conflict and it has never been our intention to act unilaterally on Greek debt.'“

The Basler Newspaper of 2.2.2015 ⁷ quotes Giannis Varoufakis describing his land as if it has become something like a drug addict for ever in need of more borrowed money. This has to stop. The finance minister added that the Greek government wishes to put on the table a detailed plan by end of February, in order to reach by the end of May an international agreement. The latter would indicate what solution for Greece and its debt crisis can be acceptable to both sides.

Yet precisely this kind of 'media campaign' and rhetoric does not seem to convince. Rather it seems to have the opposite effect. Especially officials at various levels seem to be more annoyed than pleased by the new tone of the new Greek government. One observer close to the EU representation believes in this way the government is putting itself only into an impossible position. This is especially because no clarity prevails as to what Greece wants exactly or about what Athens wishes to negotiate.

As pointed out repeatedly, the bailout program ends on 28^th of February. If not renewed, then Athens would have no financial backing for the first time in five years. According to the Financial Times, Greece may be able to pay back 4,3 Billion to the IMF, but at the latest by the beginning of June, the country would be with the back to the wall. For then the first of two loans will have to be paid back to the amount of 3 Billion. For this reason, the new Greek Minister of Finance, Varoufakis, after being asked why he is doing trips first to England to meet Osborne, and not to Germany, responds with an affirmative, yes, that there was a need to hold talks in both Frankfurt and Berlin. ⁸

Varoufakis first in Paris

Varoufakis set the scene for today’s London visit in Paris yesterday, where he told reporters that Greece must end its “addiction” to bailout payments.

Varoufakis – who offered to produce proposals for a reworked debt deal within a month – said Greece had no intention of asking for new loans and it was time to go “cold turkey”.

“For the last five years, Greece has been living for the next loan tranche. We have resembled drug addicts craving the next dose. What this government is all about is ending the addiction.”

The French finance minister, Michel Sapin, said France was ready to help Greece find a deal, but any agreement would need to include structural reforms.

 

and then in London, Monday, February 2, 2015

The Guardian publishes an article with following headline:

George Osborne warns Greek debt standoff is threatening global economy⁹

Statement by George Osborne after having met Varoufakis:

“We had a constructive discussion, and it is clear that the stand-off between Greece and the euro zone is the greatest risk to the global economy,”

“I urge the Greek finance minister to act responsibly but it’s also important that the euro zone has a better plan for jobs and growth,” .

“It is a rising threat to the British economy. And we have got to make sure that in Europe as in Britain, we choose competence over chaos.” ¹⁰

The fact that George Osborne uses the word 'threat' (and not, for example, challenge), and thereby evokes possible disastrous consequences for both the UK and the global economy, now that implies several things were referred to in their discussion, and this in an effort to construct a time mode in maybe not simultaneous things could but according to the domino theory a crisis in Greece could trigger off many other negative developments. All this needs to be taken into consideration when George Osborne speaks to the press:

• once a politician uses rhetorical exaggeration, then with the aim to paint the critical situation with more drastic words than what would be the case if a realistic analysis of the situation would be matched by some self critical assessment as to where Europe as a whole stands at the moment, but then England is facing elections soon and the prospects of the UK departing the EU very real if UKIP would gain in popular vote over both the Conservatives of Cameron and Labour with Milliband;

• he may wish to contradict the rumour put out by Merkel via Spiegel that a Grexit would not harm the rest of the EU economy, and in particular not those linked together by having the EURO as common currency, or else he wishes to caution foregone conclusion by admitting that no one is really sure what repercussions the default of the Greek state would have upon Europe and the world;

• the fact that the UK still uses the pound and is not connected to other EU partners by sharing a common currency, underlines this problem of exemptions with each member state seeking to have special privileges within the overall set-up called the European Union; by comparison, the United States had to go even through a civil war to impose a common law with holds for all states, even though the American Revolution was undermined according to James Boggs by not observing in practice the principle of one man, one vote as prerequisite to ensure equality would apply as well to the Blacks. Something similar is the problem of the European Union since not all are equal, especially since the rules have given above all Germany extra advantages with regards to is export orientated economy.

• a threat indicates things have gone already beyond the ability of existing institutions to resolve both the grievances and the problems attributed in this 'austerity narrative' solely to Greece. It might work in a media based kind of propaganda war done in an effort to isolate the problem. In reality, it is making Greece into a scapegoat as if Spain, Ireland, Portugal are the good guys who abide by the rules and therefore did get out of the recession with these austerity measures. Needless to say, the economic problems are massive throughout with though the whole of Europe facing now the problem of deflation.

Here’s a handy summary of the state of play this morning, from AFP:

Greek Finance Minister Yanis Varoufakis meets his British counterpart on Monday as he seeks to build support for a renegotiation of his country’s 240-billion-euro ($270-billion) bailout in the face of German opposition.

The latest stop on his European charm offensive comes as US President Barack Obama warned the world that imposing tough austerity programmes on Greece could backfire on its creditors.

“You cannot keep on squeezing countries that are in the midst of depression,” Obama told CNN’s “Fareed Zakaria GPS”.

“At some point, there has to be a growth strategy in order for them to pay off their debts to eliminate some of their deficits.”

Obama said the Greek economy was in “dire need” of reform but warned that drastic changes were tough to implement in a struggling economy.

“It’s very hard to initiate those changes if peoples’ standards of living are dropping by 25 percent. Over time, eventually, the political system - the society - can’t sustain it,” the US leader said.

Varoufakis meets in London with George Osborne at 1100 GMT after a stop Sunday in Paris where he said he wanted to reach a new debt deal within months to end his country’s loan “addiction”, which was loading ever more liabilities on its economy.

Greece therefore did not want a promised loan tranche of 7.2 billion euros from its trio of creditors, the International Monetary Fund, European Union and European Central Bank (ECB), he reiterated.

“It’s not that we don’t need the money; we’re desperate,” he said at a joint press conference with his French counterpart Michel Sapin.

“What this government is all about is ending this addiction.”

Although not in the eurozone, Britain is in the IMF and Varoufakis is looking for as many allies as possible for any future political negotiations within the EU.

Varoufakis is also expected to meet with key figures from London’s key financial sector, which is home to many lenders exposed to Greek debt.

Greece’s new anti-austerity government has refused to work with the so-called troika of international bailout inspectors charged with overseeing its painful fiscal reforms, instead seeking direct contacts with creditors and governments.

British minister Osborne welcomed Varoufakis’s visit, saying the pair would discuss “the stability of the European economy and how to boost its growth.”

Yanis Varoufakis is due in the City after his meeting with George Osborne. Reuters just snapped up that he’ll meet around 100 institutions, and reassure them that Athens doesn’t plan to default on their loans. GREEK FINANCE MINISTER TO MEET AROUND 100 BANKS AND FINANCIAL INSTITUTIONS LATER ON MONDAY - SOURCE GREEK FINANCE MINISTER TO SAY GREECE WILL BE ABLE TO SERVICE DEBT, NO DETRIMENTAL IMPACT FOR PRIVATE INVESTORS - SOURCE Facebook Twitter Google plus   11.30am 11:30 The Jubilee Debt Campaign hopes that George Osborne will support their call for debt relief for Greece: The director, Sarah-Jayne Clifton, argues: “Greece’s debt comes from loans to bail out banks and vulture funds across Europe, including in Britain. In 2012 the UK government refused to stop vulture funds that were using UK law to pillage Greece’s finances. George Osborne should now show leadership and support the cancellation of Greece’s debts that is urgently needed.” “The costs of any cancellation should be borne by recovering money from the irresponsible lenders who really benefitted from the bailout, the banks and financial speculators.” Source: http://www.theguardian.com/business/live/2015/feb/02/greek-finance-minister-yanis-varoufakis-george-osborne-debt-deal-live-updates#block-54cf74cce4b09ab34b4864d2

3. February Tuesday

Tsipras meeting Renzi in Rom

Report and analysis offered by Reuters about their meeting:

During a lengthy news conference after they met in Rome on Tuesday, Italian Premier Matteo Renzi hailed Tsipras for bringing a "message of hope, not just fear" to Europe. The news conference brimmed with mutual compliments and references to cultural similarities. Renzi referred to his high school ancient Greek classes and gifted Tsipras a tie. The two joked that the Greek leader would start wearing one once Greek's debt woes are over. Both men are 40. They have taken their countries' political establishment by storm. They govern countries that have Europe's biggest and second-biggest debt as a percentage of output. Crucially, both see themselves as champions of a lost generation. Italians born in 1970 will pay 50 percent more in taxes as a percentage of their lifetime income than those born in 1952, according to Bank of Italy research. They will receive half the pension benefits that current 60-somethings do now. "We are the same age, and our generation has been the buffer of bad political choices," Tsipras said. Yet for Italy and France, Syriza also poses a risk. Hollande and Renzi are centre-left leaders who, under pressure from Europe and economic downturns, are trying to embark on market-friendly reforms. The success of Syriza, with its far-left, anti-market rhetoric, could undermine their efforts. "If Tsipras manages to push his programs against privileges, pressure on Renzi to pivot to the left may grow, shifting the focus to Italy's wealthier households and leaving his labour reforms in limbo," Francesco Galietti, chief executive of public policy analysis firm Policy Sonar, said in a research note. The risks explain why Hollande and Renzi were guarded in their support for Tsipras. "We want to give Greece a hand, which doesn't mean we'll always agree with them," Renzi said. 11

Where things stand at the moment can be summed up briefly. All indications are that the new Greek government will have to give in on almost all the points, and this for the sole sake of getting some extra time to work out a proposal which has then to be accepted by the other EU partners.

• EU countries express their opinions with but few really supporting the Greek proposals; Renzi in Italy stated clearly solidarity yes, but not agreement of all points. Italy itself faces similar difficulties and has to calculate what can it give to Greece without jeopardizing its own negotiation position.

• It is said Juncker is willing to mediate between Greece/creditors and expresses for the European Commission confidence that a compromise with Greek government can be found

• Varoufakis has to find out what the ECB can do short of any political agreement, and even then it would need further guarantees from the Greek side

• At the outset it seems clear that the ECB won’t accept bond swap, but wants full repayment, even though everyone breathed a sigh of relief once Tsipras and Varoufakis no longer used the word 'hair cut' as a way to get rid of the Greek debt

• About the Troika, it remains to be seen on how a trust worthy form of monitoring can be institutionalized without this being an act of humiliation for the new Greek government. The crux of the matter is what often is forgotten, insofar repayment of the debts needs to be coupled with two things: no incurrence of further debt making (the point Varoufakis was making) and reforms which translate into economic growth. 

• Varoufakis wishes to link bond repayment to the performance of the Greek economy i.e. the greater the economic growth, the more shall be repaid.

Added news bulletin:

Apparently the new government of Greece has tabled a proposal with European Commission President Jean-Claude Juncker that could pave the  way towards a bridge agreement that would give Greece ongoing liquidity past its February bailout deadline and allow the country to lobby creditors for a broader debt agreement, senior Eurozone sources have told MNI.

 

4.February Wednesday

While the news still reflect what took place in Rome yesterday, where Tsipras and Varoufakis came together, the market has responded in the meantime on a more positive note. It seems that Varoufakis knows how to spread optimism ahead of further talks even though the immobility of the European Commission and of the other creditors is starting to hit home. After Rome,Tsipras went on to Brussels and then back to Paris while Varoufakis flew to Frankfurt to meet Draghi of the ECB and then on to Berlin to meet Schäuble.

Tsipras in Brussels

     

Tsipras and Juncker in Brussels 4.2.2015

Juncker stated so much on the eve before the visit, that the EU will "have to adapt a certain number of our policies but we are not going to change everything." ¹²

Ahead of Tsipras's visit, EU officials have insisted as well "that while the anti-austerity choice of Greek voters must be respected, so must public opinion in the other 18 nations using the euro currency." Some further interpretation is needed as to what is meant by 'public opinion' since EU officials working for the European Commission have not been elected and therefore do not have a mandate as elected representatives of sovereign states like Greece claims and wishes to be despite the debt crisis.

It is a delicate tight rope walk since various factors need to be taken into consideration. In an article published by the Neue Züricher Zeitung, Niklaus Nuspliger takes this to mean that the EU cannot give in readily to the demands of Greece. He argues on the one hand it would add fuel to demands of the populists who are on a strong anti-Europe course; on the other hand, in the case that the EU does not give in, likewise it could be interpreted how undemocratic the EU really is since not accepting the outcome of elections in Greece. ¹³

Tsipras himself displays 'optimism', or more precisely what is called in German 'Zweck-Optimism' (purposeful optimism). Given jittery markets, any wrong remark to the press can set off a new round of speculations and provoke losses at the stock market. Yet the key question remains if he is prepared to reveal the whole truth of what had been discussed and maybe even agreed upon on how to proceed further to the Greek people? Politics behind closed doors is one thing, another is the practice of mendacity i.e. the use of public lie. Naturally there is nothing wrong in saying that one is optimistic, but if it is too far from the truth, what may not constitute exactly a lie, it is still a matter of manipulating or engineering public opinion.

It is a difficult balancing act. In reality, Tsipras has to assure not only the Greek voters, but as well all the EU partners. Given his extreme nationalist stance, it is unlikely that he will be able to balance out both aspects. Of importance is as well to what extent any reference to Europe as a whole is anything but an exercise in lip-service, so to speak. Crucial would be to know if he really means what he says. Someone who knows Tsipras personally very well, states that he is very sincere in whatever he says and promises.

While in Brussels, this balancing act by Tsipras to assure both his EU partners and the people back home amounted to following elements not really matters of choice but more or less an appraisal of the state of affairs at this given moment:

• he gives himself as if optimistic that his country can convince its international lenders to ease the terms on Athens's massive bailouts, but on what realistic assessment is this based within his own party and experiences made so far by others wishing to alter the austerity agenda?

• Tsipras seeks to alter not so much the framework of rules as he puts much more emphasis on a need for a new time frame; consequently he lets know key European Union leaders in Brussels, including EU chief Jean-Claude Juncker, that it would be best to work out a four-year reform plan to boost the struggling Greek economy.

• He emphasized that his country respects EU financial rules, but believes that the tough austerity measures demanded by the country's creditors in exchange for nearly $300 billion in loans need to be changed.

His most significant statement was:

"We want to re-correct this framework, not to smash this framework and we believe that in this framework we could find a common viable solution for our peoples, for our common perspective. I am very optimistic that these discussions that were in a good way - of course we don't have already an agreement - but we are in a good direction to find a viable agreement." 9

What else was discussed with Juncker behind closed doors, that is open to interpretation due to lack of concrete information. Most likely Tspiras will have to rethink his options since time is running out and it is becoming increasingly apparent that this EU bloc is difficult to move.

A small side observation can also underline how important is the so called body language. There was hesitation in terms of giving the hand for the usual hand shake, also at times Tsipras did not know where Juncker wished him to stand, and as they walked out of the Press conference, Juncker insisted that Tsipras gives him the hand as if father and son are about to embark on a voyage with the aim of the elderly politician to introduce the younger one to how the European process works. Even such a gesture underlines the wish of Juncker to appear as a fatherly companion rather than the crafty politician he has been especially when Prime Minister in Luxembourg and allowing for major companies to evade their taxes back home.

When in Brussels, Tsipras held as well talks with European Council President Donald Tusk and afterwards gave a joint press conference with Parliament's President Schultz who had come already to Athens last Thursday, January 28^th.

After that brief stop over in Brussels, Tsipras headed off to Paris where he meet Hollande who stated all EU countries have to abide to rules, even if that proves at times to be rather difficult as experienced right now in France. Tsipras replied that he will respect EU rules and assured that he does not wish to smash the regulatory framework of the European Union even though this framework does need reform as well.

Yanis Varoufakis in Frankfurt

Meanwhile Greek Finance Minister Yanis Varoufakis is in Germany on Wednesday to meet European Central Bank President Mario Draghi in Frankfurt before holding talks Thursday with German counterpart Wolfgang Schäuble in Berlin.

When he emerged from the talks with Draghi, he observed that excellent lines of communication had been established and which gives him encouragement for the future. Again not much was revealed what was really agreed upon on how to go forward.

Two important remarks need to be made here.

Rumours circulate that Draghi had asked Varoufakis, if he had brought with him an agenda on the basis of which the two sides could talk about possible ways to go forward. Varoufakis replied that he had not brought any agenda. Draghi stated then that there was nothing further to discuss, and therefore he asked Varoufakis to leave. Varoufakis became loud in reply. Draghi called then security guards to escort out Varoufakis. Now such a rumour coming from inside the European Central Bank by employees who were witnesses of this meeting have to be taken with a strong dose of salt. For such rumours may have other sources of intentions, lest of to undermine the reputation of the newly elected Greek government. In German, that is called 'Ruf mord': assassination by sabotage of somebody's reputation.

More likely what took place between the two is something else as revealed later on by Varoufakis making himself statements to the point that he told Draghi not to meddle in policy matters of his government while the Greek government would not meddle in his work as President of the European Central Bank. Varoufakis made it be known that he considers the role Draghi plays to be one of a technocrat who has to regulate the affairs of banks according to set rules. Political responsibility for policy related matters is something else and therefore a matter of national sovereignty (something which Merkel evokes in reference to the need of Russia to respect Ukraine.)

More crucial behind the remarks by Varoufakis is the knowledge that Draghi has a tendency to decide almost alone. The board of the European Central Bank is often frustrated by his behaviour since he is usually during meetings either on one of his three phones or else he goes outside to continue some conversation. It rattles the entire board.

Still more important is that the importance of the European Central Bank has grown during the Euro crisis out of proportion i.e. legal framework of the European Union. Political processes have been sidelined as the crisis required rapid decisions. One a certain modus vivendi has been established, it is difficult to scale back this growth of power even though not intended originally when the institutions of the European Union were designed and created. Given the background of Varoufakis, it is safe to assume that he does not respect the power Draghi claims to have all by himself, and which he has as long as it goes unchallenged.

It is a sophisticated orchestration that both Tsipras and Varoufakis are attempting. All of this throws a remarkable different light on EU decision making processes best comprehended as everyone managing to hide behind 'rules and regulations' rather than assuming a position of responsibility.

Thursday 5.2.2015

Varoufakis in Berlin to meet Schäuble

The stage was set for a first real showdown. Everyone knows that Germany demands a sticking to the rules. Unfortunately no one is willing to look again at these rules if they make any sense at all.

In advance of his visit to Berlin, he was greeted already through the press by a statement Merkel made about his and Tsipras diplomatic effort to win over some EU partners for their cause. She simply said while some agreed with their intentions, however in 'political substance' all held the same viewpoint that the new Greek government must abide by the EU rules. ¹⁴

Two important news confirm that optimism by Tsipras and Varoufakis were far from the bitter truth:

• the ECB shut out cheap Greek bonds as of Feb.11, and this undermines any positive spin Varoufakis might have wanted to give his talks with Draghi

• Merkel made the statement that the Greek diplomatic offensive has failed, insofar as all EU political leaders will in 'substance' uphold the rules set up to safeguard the Euro. Even Hollande is quoted as saying to Tsipras 'France has to stick to the rules, even if it is hard at times.'

To anyone reducing the problem to being the fault of Germany, then it is not only Merkel, but all are afraid to stick out their neck. Hence everyone hides behind rules, so as not to take a political position of responsibility. This makes the entire EU bloc a wasteland of rules, since no one really sticks to them completely. Every member state objects to the rules issues by the European Commission, but when it is not opportune, they play along as if they do.

Varoufakis will have today a hard time with Schäuble after the decision by the European Central Bank having already rejected cheap Greek bonds as of 11 Feb. Commentators of the BBC say this might be the signal to throw Greece out of the Euro if the newly elected government does not give in completely. It follows the path of punishment of anyone who dares touch the framework of rules. There is naturally fear behind this hardened stance.

Sad to see Europe to go down that path of complete conformity but it is easy to blame only Merkel as if the others do not bear any responsibility. This is why I also argue Tsipras and Syriza have made too light a fact of what they face by making Merkel become enemy number one. Enemy pictures cannot replace serious analysis of the situation in order to know what you can do.

My question was also what will Tsipras and Varoufakis say in public. Rather than being over optimistic, they should stay very sober. Varoufakis has now been sabotaged especially by Draghi with this latest decision by the European Central Bank, but then my question is when do politicians learn to speak the truth rather than practice what we call in German 'Zweck Optimismus': purposeful construction of optimism to hide the bitter truth, so as not to upset the electorate back home?

Greece leaving the Euro zone with all unpredictable consequences is now the real option if not some other political will across Europe would want to prevent the break up of the European project.

Not the best conclusion, I admit, but ever since Varoufakis declared the government will oust the Troika, I felt the red button had been pushed to alarm all European leaders in current governments. And there is no one in Germany to really challenge this position because you have a coalition government of the two strongest parties, and therefore a weak opposition. Besides Syriza opted to have the 'Linke' as partner, a party not really valued in Germany.

On top of it all, Tsipras and his government made a major mistake by threatening to opt out of the consensus behind the EU foreign ministers' will to renew sanctions against Russia in view of the growing crisis in Ukraine. More than anything else, this risk of a consensus being broken by the new government, it put everyone on high alert.

No German government of the current constellation will allow a left wing government to get away with it. So if you start multiple fights all at once, you will be very weak on the economic front. 

Definitely any renewal, or break out of the debt trap, requires a change in value system but that is most difficult, given what Cornelius Castoriadis said: values are set, and anyone trying to change them, will lead to conflict, if not to war.

What is needed for the German side to see, is that the value issue is a search for human values which German Idealism thinks it has, but which is a concept of values, but not values lived and experienced in daily life. Also life without freedom is impossible. Thus to abide only by rules is impossible, since no design of a system is perfect and fits exactly the needs of every individual.

Moreover those sticking to the rules leave out completely the dark side where rules no longer apply and wild competition leaves everyone at the mercy of the market and its underground system of dealing with human beings. Alone the Hartz IV system in Germany is such an example. It is a system designed to break down any solidarity between people and therefore a way to prevent any opposition against a legal system which protects only good business deals, but not those who suffer the consequences of bad business deals.

To all of this you have to add in Germany the crazy professors who want to oppose the government's pro Europe policy by opting for an exit from the euro zone. There exists in Germany the strong illusion that Germany can go it all alone. They forget that Germans live as well in a world with other cultures and flows of people. Thus the real danger and risk is that national self isolation inherent in Syriza as well in UKIP in England can become the prime force throughout Europe if the efforts of the newly elected Greek government fails. If all understand European politics only out of the perspective of national interest, see England, then European values, interests and perspective will go down the drain, just as in this current political climate with the Right occupying the centre of politics leaving out the notion of public good by over emphasis of the private sector and by catering solely to private interests. Greece is a prime example of how things go badly wrong when you give in only to the so called private interests who wish to do business according to their own rules without regard for the rest of society.

The silence in Germany, or lack of opposition, means no one is up to discussing the absurd tautology demanded by the German government of the Greek government, namely 'save' = 'reform'. By negating the role of the state, this austerity logic dictates solutions which are pseudo solutions or which go against human and cultural values. For example, privatization of beaches goes against the Greek common value that everyone should have free access to the sea.

The same goes for the environment. Privatization ignores the constraints of nature as land serves the sole purpose to fuel still more consumption of space. The recent rainfalls in Greece which have brought down the bridge of Arta symbolizes to what extreme level of disaster natural catastrophes have reached in the meantime. The legend of Arta bridge should be kept in mind. You build only bridges of understanding if the one side does not demand of the other sacrifice for the bridge to hold.

The one sided demand for the Greeks having to make all the sacrifices, if they wish to stay in the Euro zone, that is now on the table. Practically this has been all along the case once the huge state deficit became known in 2009.

However, this demand for the need to make sacrifices needs to be interpreted in the most critical way. Its one-sidedness nature follows the example of radical fundamentalist. For example, it can mean a statement that women have to stay at home and should be available at all times to their men. Such one sided schism is preached, for example, by a radical Islamic preacher in Berlin. To remind, he follows a line of thought articulated first by Chomeiny in 1979 when the latter returned to Iran to install the absolute rule of theocracy. This division of man-woman underlines a modern problem with men fearing the emancipation of women. For then certainty as a compelling reason for making sexual love happen under all circumstances and the woman completely available all the time, would no longer be a given. Instead uncertainty would rule the self-understanding of the man, and even worse be felt something like a permanent threat to be excluded from society. Once the life for women is ruled as if an institution without windows, and far more worse is the way the life of women could be regarded as a natural resource for men, then the interesting question remains but where does this leave Merkel as a woman?

Resume of the one week of diplomatic effort

Before jumping to the conclusion that Greece is one against 18 Eurozone members, and therefore isolated, and therefore stating this effort by Tsipras and his finance minister Varoufakis was a failure, there is a critical viewpoint to consider: while the Greek side tried to be realistic and presented some good reasons to alter the approach the debt, almost all European leaders stuck to a simple moral statement: stick to the rules and uphold the commitments made by previous Greek governments to the Troika. ¹⁵

 

Scenarios ahead

About the debt and therefore needs of Greece, there is some confusion or rather it is not altogether clear when a state shall hit, so to speak the end of the road. If not careful in their negotiation tactics, the streets they turn into may may well be a col-de-sac, and therefore leave the new government the sole option of suicide or face defeat for the reckless way of having tried to affect change.

Any failure to come to some agreement by way of this new negotiation tactic would have following consequences: 1) if the bailout programme would stop at the end of February, the Greek state would experience very soon payment difficulties and therefore could default; 2) it would have to pay back 10 Billion to the bailout fund; and 3) the European Central Bank would no longer offer easy credits to overcome liquidity shortages. ¹⁶

A crucial test for the government is what the New York Times picks up on Saturday, Feb. 7, 2015, namely if Tsipras can really keep his election promises if the money for Greece runs out? ¹⁷ The answer is far from clear. It depends not only on Greece alone, but what will the EU ministers decide? In view of rating agencies having already started to downgrade Greek bonds by adopting the view that Tsipras and Varoufakis have failed in their attempt to win over some EU members states (Italy, France, Spain), there seems no room to endorse Syriza's anti-austerity position. Rather the two seem to have unified all 18 other member states. Even the Spanish Minister of Finance, while believing that a new deal is possible, iterates at the same time that the EU rules have to be upheld. ¹⁸ critics declare that to be a position of morality, for rather than embracing economic and political rationality, it amounts to declaring that all EU rules and commitments made by previous Greek governments to the Troika have to be upheld. That means they rule out that Greece can be exempted and thereby become the case of exception to the rule. But this is precisely how Greek politics has always played out itself and therefore outplayed itself, especially with regards to paying or not taxes. Everyone tried to come under an interpretation of law that amounts to being an exception to the rule. Thus finding a common ground for the sake of the public good does not figure much in Greek terms, although what unites them is a deeper understanding as to what has to be done to safeguard human life. Definitely not rules, for when in doubt, then human life goes before anything else.

HF 6.2.2015

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