Thursday, April 30, 2015

A New Speech By Alexis Tsipras?

An anonymous source sent me what allegedly is a draft of a speech which PM Tsipras is about to give on national TV. See below.

Fellow Greeks:

I am speaking to you not as the head of my party nor as the head of government. I am simply speaking to you as a Greek who happens to be in a position where he can influence the future of our country. This is my own speech. I have not discussed it with the leadership of my party or with anyone else.

I have often been described as a radical. Some have even called me the most dangerous man in Europe. Yes, I am a radical. I will always be on the side of those who contribute to society instead of those who exploit it. Being a radical, it is only natural that I can also make a radical change and today I will present to you the radical change which I am about to make.

During my campaigns during the last years and, particularly, since my appointment as Prime Minister, my actions were shaped by mistrust. Mistrust in our creditors and other foreign powers. I neglected the fact that mistrust breeds mistrust on the other side.

I began on the premise that Greece faces a solid bloc of implacable creditors who would rather see us default and exit from the Eurozone than let a leftist government succeed; that there is no good will on the other side of the table. I am not a dreamer. Of course our creditors pursue their own interests. After all, they have a lot of money at stake. We would behave the same way if we were in their shoes. But I think it was wrong to assume that they mean us ill. It was wrong to assume that all Berlin, Brussels, and the IMF want from our country is “earth and water.” That they are asking for subordination and surrender. It was wrong to assume that all those creditors want is to turn Greece into a debt colony.

I think one of the most important things in life, more important than being right, is to recognize when one has made mistakes and learn from them. If I have made a mistake by starting on the premise of mistrust, I will now radically change and work on the premise of trust. This in the hope that trust will breed trust.

I state unequivocally: Greece will remain a member of the Eurozone and of the EU, whatever it takes. There will no longer be red lines and there will no longer be ill chemistry between our negotiators and those of our creditors. Instead, I sincerely reach out my hand for a new form of partnership.

This will relieve us from the pressure to perform. We no longer need to be pressured; we reach out our hand. The pressure is now on our partners to show that they are prepared to take our hand and to shake it. We can no longer disappoint Europe but Europe now has to prove that it will not disappoint us.

I will not request much of our partners. In fact, I will request only two things: that they lower the interest rates on our debt and extend the maturities.

I commit that we will allocate 8% of our tax revenue to interest. This is far less than we have paid in memory. Even last year, when much of our debt carried very low interest rates and some of it none, we had to allocate 12% of our tax revenue to interest. Let me give you a simple example so that all of you understand: in the year 2000 when our debt was far less than half of what it is today, we paid interest of over 10 billion Euros. If our partners accept what we propose, we will, beginning this year, pay less than half of that amount in interest on debt which is far more than twice as high. Let me assure you that we can consider this as a very substantial concession on the part of our partners.

I, therefore, commit to our partners: beginning this year, the Greek state will allocate 8% of tax revenue to interest. That will be sufficient to pay interest to all our private creditors and still some interest to our partners. If this requires more austerity measures (which I doubt), we will implement them.

Regarding the maturities of our debt, we cannot go on having crises every time when a loan to official creditors needs to be refinanced. Thus, we request a rescheduling of official sector debt maturities to 25-50 years. How this can be accomplished shall be the decision of our partners.

What do I offer our partners in exchange? I commit to our partners that we will cooperate with them unequivocally to do everything to build a modern and prosperous Greece: a Greece characterized by economic opportunity and social equity, and served by an efficient administration with a strong public service ethos. There will be no red lines on our part. We trust that there will not be red lines on the part of our partners, either. We all know some of the critical points of conflict at this time, for example: pension reforms, labor market reforms, etc. We know that these reforms must be made and we are willing to commit to them by law today. What we need to negotiate is their implementation. Greek society has suffered too much in recent years to digest further austerity shocks at this time. The crucial element in the implementation of such reforms will be adequate transition times.

Now some of our partners may say: How can we trust you? My response to them is: Have you not recognized how much trust I have already extended to you? Don’t you think that justifies trust on your side? I cannot force our partners to trust me. I can only invite them to trust me and to take me by my word.

In 3 days from now, I will request in Parliament a confidence vote on what I have outlined above. I will expect all Parliamentarians to vote on the basis of their conscience independent of their party affiliation. If I am given a clear vote of confidence, I will form a new government with competent members from all parties so that we have national unity in the government.

Please bear the following in mind: Greece has now muddled through for exactly 5 years. Greeks have accepted much suffering for the prize of remaining a member of the Eurozone and the EU. We have now reached a decision point. It is now either/or. We will either take a step in the direction of a positive future or we will decide that the future will get worse than the last 5 years have been. At least in the foreseeable future.

Thank you!

Of Nationalists and Socialists, and of Authoritarians

Those who are subsribers to the WSF can access this article by Greek journalist Takis Michas by searching its title (“Greece’s Far Left against the world”) in Google. Critics will, of course, say that the WSJ is the epitome of capitalist and neoliberal interests and cannot be trusted but I suggest to judge the comment (and particularly the quotes!) instead of the medium in which it is published. 

“Panagiotis Lafazanis declared that Greece faces a life-or-death struggle against ‘neocolonial foreign centers’. ‘We cannot have an agreement with the neocolonial centers that dominate the EU and the IMF if Greece is not able to really threaten their basic economic political and geostrategic interests’”.

“Bailouts are an attempt to exploit Greece for nefarious ends. In a recently published book called ‘Colonies of Debt’, Foreign Minister Nikos Kotzias purports to reveal a satanic plan by Germany aiming to subjugate Greece. This plan, according to Mr. Kotzias, involves turning Greece into a ‘colony of debt’ so that the Germans can acquire Greece’s wealth. ‘Just like under the Nazi Occupation’, he writes, ‘Germany aims to control the mineral wealth of the country’. Mr. Kotzias in his book accuses the Greek political forces that supported the bailout agreements of acting as servants of foreign powers, especially Berlin”. 

“At home, the rhetoric directed at the domestic audience is less and less democratic. Instead, Syriza deploys an authoritarian narrative according to which the country is involved in a titanic struggle against the dark forces of international capitalism and their local servants. This combination of authoritarianism with nationalism explains to a large extent Syriza’s continuing popularity (recent declines notwithstanding), despite the growing danger that Syriza would trigger an undesired exit from the euro. Syriza has been able to manipulate in a masterly way the collective mindset of Greece, where conspiracy theories and feelings of victimization abound. Whatever happens, Syriza has hurt the quality of economic and political debates in Greece in ways that could have serious consequences”.

I remember hearing similar themes before, except they then came from the Far Right instead of the Far Left. I heard these themes when I took a semester course at my US College about the political developments in Germany from the late 1920s onwards. Then, it was not the 'neocolonial centers' which had to be feared but the 'Jewish world conspiracy'. Foreign powers did not treat Germany as a 'debt colony' but Versailles had turned Germany into a 'colony of slaves'. Yes, the narrative was authoritarian in those days of German history. Yes, there was a titanic struggle against all those who had taken advantage of Germany. And yes, authoritarianism was combined with nationalism which drove Germans to frenzy. Put differently: the words 'national' and 'socialism' were combined in the party's name.

The combination of 'nationalists' and 'socialists' can become an explosive mix. Even if they are not combined in a party's name, those forces, when combined, are good for trouble. "Socialists cry 'Power to the people', and raise the clenched fist as they say it. We all know what they really mean: power over people, power to the State" (a former British politician). Nationalists can drive those people to frenzy.

Joschka Fischer - An Elderly Leftist Reflects on SYRIZA

When Joschka Fischer was Alexis Tsipras' age, he was arguably at least as radical and leftist as Tsipras is now. In his younger years, he was even a militant revolutionary, being a member of a militant group and having been photographed clubbing a policman during a riot. And Fischer knows his Karl Marx at least as well as the Greek Finance Minister. In 1998, as the then head of the Green Party, he became Germany's Foreign Minister in the coalition government of Gerhard Schröder.
Today, Fischer thinks that one is unlikely to succeed if one destroy's one's own credibility and rants and raves about those whose money one needs. That, at least, is the lesson he learned from balancing a life between theory and practice. Fischer calls that lesson 'life'.

Fischer just published a remarkable article on ProjectSyndicate titled: "Tsipras in Dreamland". I cite below some paragraphs even though one really has to read the entire article.

"The Tsipras government could have presented itself as Europe’s best partner for implementing a far-reaching program of reform and modernization in Greece. Measures to compensate the poorest met with considerable sympathy in EU capitals, and favorable sentiment would have strengthened had Greece started to cut its bloated defense budget (as a leftist government might have been expected to do). But Tsipras squandered Greece’s opportunity, because he and other Syriza leaders were unable to see beyond the horizon of their party’s origins in radical opposition activism. They did not understand – and did not want to understand – the difference between campaigning and governing. Realpolitik, in their view, was a sellout.

Syriza’s inability to escape its radical bubble does not explain why it formed a coalition with the far-right Independent Greeks, when it could have governed with one of the centrist pro-European parties. I hope that they do not share policy priorities, particularly a change of strategic alliances, which would be equally bad for Greece and for Europe. But two steps by Tsipras soon after he took office have heightened my skepticism: his flirtation with Russian President Vladimir Putin, and his attempt to isolate Germany within the eurozone, which never could have worked.

Even if there were no troika and no monetary union, Greece would urgently need far-reaching reforms to get back on its feet. What it also needs is time and money, which the EU should provide if, and when, the Greek authorities face up to reality.

The current crisis and the negotiations to resolve it are about only one thing: Greece’s future within Europe and the future of the joint European project. To help Greece get back on its feet and keep it in the eurozone is in Europe’s interest, both politically and economically. But any agreement on how that is to be achieved now requires Greece to prove that it shares the same goal".

This truly is a spot-on assessment!

Wednesday, April 29, 2015

A Damning Report --- But Not From The 'Institutions'!

"In short, the fiscal adjustment which is being attempted is an idiosyncratic mix of new taxes, new spending and institutional changes and, to a large degree  announcements of often contradictory planned changes. For certain measures (eg debt restructuring via 100 instalments) the long-term consequences are undetermined. Despite the short-term benefit, this mix increases the uncertainty which characterizes the present situation.”

"On the side of spending there is a lack of clarity with regards to its development. Different announcements take place disjointedly. The lack of clarity arises from the fact that many of the measures that have been announced have not been legislated for, but also from the disjointed character of many announcements which do not create the sense of a continuous and stable plan. The level of spending and, mainly, the trajectory of different allocations depend on the measures which have already been decided or announced and create new spending: the new defense procurements, the reinstatement of the 13th pension payment to low income pensioners, the elimination of the zero-deficit clause in social security funds, the emergency assistance to the Hellenic Sugar Company, etc."

"The pro's and con's of every one of these measures can be debated, but all together they do not form a plan for growth, nor is it cflear how they will be ultimately funded, despite the optimism of the 'working text' for tax revenues of 4,7 to 6,1 billion euros, nor ultimately are they based on data-backed analysis of indirect, long-term consequences on the behaviours and expectations of citizens." 

This is not coming from the Institutions (formerly Troika). Instead, it comes from the Greek Parliament's Budget Office and it was reported in the THETOC-website.

Tuesday, April 28, 2015

Greece - Reflecting On Past Optimism

Had lunch with my two best friends here in Kalamaria today, Christos (84) and Yiannis (59). As is usual, it didn't take long until we touched on the subject of the Greek economy and Greek politics. They asked me for my opinion as to what should be done in Greece. I had to collect my thoughts. During the last months, all my thoughts and writings had circled around negative things: how Greece might default; how Greece might exit the Euro; etc. It seemed so long ago, back in 2011-12, when I was completely positive; when I made proposals for a Long Term Economic Development Plan for Greece. As I said, I really had to think before I remembered what I had proposed in the times when I was in a proposing mood. But then I remembered quickly.

I likened the Greek economy to a young Greek soccer player in a regional club who is so superbly talented that his sponsors get him transferred to Real Madrid to play with the stars. After a year or two in Madrid, just when he has gotten used to the good life there, his coach tells him that he needs to beef up his game to the level of the stars or else leave the club. Obviously, he will have to leave the club. What should his sponsors have done? They should have allowed him to become a star in a big club at home before he would be sent to play with the big stars elsewhere.

I told my friends about our property in Austria which my ancestors had operated as a small farm. Today, we still have a lot of old fruit trees. I decided to plant new fruit trees. I purchased quite a few and dug them in. That was it. And after only a few days, the deer and other animals had killed the trees. What I should have done was to protect the trees with wire and water them regularly. Only if and when the trees would have been strong enough to survive on their own should I have taken the protection away.

The Greek economy was relatively quickly exposed to the Four EU Freedoms (free movement of people, goods, services and capital). And then the Euro-entry put a turbo on that development. Those were at least two freedoms too many for the Greek economy (free movement of goods and capital). If, for example, during Drachma-times, the Greek economy could produce electric ovens for the domestic market (I don't know whether it could), then that production would be forced out of business as soon as it had to compete with the likes of Miele in Germany. The same thing happened to production in the former East Germany as soon as it was forced to compete with the West. The West was forced to transfer money to the East as subsidies free of charge to sustain a living standard there. In Greece, the lenders sent money voluntarily to the South but that was interest-bearing debt.

The basis of my thinking was always the economic term of "infant industry protection" within a Long Term Economic Development Plan. You have to develop the young soccer player before you throw him into the arena full with tough stars. You have to protect the young tree so that it can get strong and survive on its own. And --- you have to develop an economy before you completely open it up to worldwide competition.

Yes, I am a believer in a market economy, preferably as free as possible, but, yes, I am also convinced that the free market can kill players who are not (yet) fit for it. And no previously closed economy can overnight become fit for free, worldwide competition.

What did I have in mind for Greece when I first wrote about this? Yes, I used those forbidden terms like 'selected import tariffs', 'subsidized export promotion' and 'capital controls'. The completely free movement of capital can kill any emerging economy when the owners of that capital go berserk. And, obviously, if imported products are better and cheaper than domestic ones and if there is no constraint of foreign currency availability, consumers will go for the imports and the domestic producers, if there are domestic producers in the first place, will disappear. Importers will boom and exporters will suffer. The production jobs, the associated wage/income taxes and social contributions, all revenues for the state, will go to other states.

The huge risk with any protection is that the protected ones abuse it for non-intended purposes; i. e. domestic producers would not use the benefits of temporary protection in order to improve their productivity but, instead, cash-in more profits. Particularly an economy like Greece's would be very prone to fall victim to such abuses. That is why I argued that one could never change (reform) an entire economy from A-Z within a reasonably short timeframe. Bearing that in mind, I recommended to begin with 'pockets' within the economy. I called them Special Economic Zones where one could implement perfect economic conditions from the start. If those zones turned out to be successful, they might rub off on the rest of the economy over the years.

It was in June of 2011 when if first proposed to the then Prof. Yanis Varoufakis that, instead of using all his brilliant talents for solving other people's problems (like the Eurozone's functioning, etc.), he should use them to develop a Long Term Economic Development Plan for Greece. I had begun following his blog and had become very impressed by his ideas to solve the Eurozone's problems ("Modest Proposal") but I never heard anything from him regarding what Greece should do on its own. His reaction then was: "During the Great Depression, there was nothing that the state of Ohio could have done on its own". That was a discussion-stopper. During the couple of months prior to the January election, I had an intensive email exchange with Varoufakis. By that time, our relationship had developed into a very constructive one. On his first day as Finance Minister, I again wrote to Varoufakis that the most important thing for Greece, more important than the debt negotiations, was the design of a Long Term Economic Development Plan. At that point, he forcefully agreed with me and promised that this would be his first priority. Todate, I have not seen a Long Term Economic Development Plan for Greece.

Monday, April 27, 2015

"Greece Never Abandoned The West; The West Never Gave Up On Greece!"

I am presently reading, once again, a book about Modern Greece. This one is titled "Modern Greece" and it is written by Stathis N. Kalyvas who is a Professor of Political Science at Yale University. Among the many questions which Prof. Kalyvas addresses in his book, the one that really excited me was the question "What explains the love-hate relationship between the West and Greece?" I hope I am not violating any copyright laws when I reproduce the relevant section below. 

"For all the advantages it provided, the internationalization of the Greek rebellion had a flip side, helping set the stage for what would become an enduring love-hate relationship between the West and Greece, based on both shared admiration and mutual resentment.

On one hand, many Westerners saw the Greek national project with sympathy and helped to bring it to fruition. For many of them, modern Greece was a dream come true, a fantastic resurrection of a magnificent ancient world that had been left for dead. At the same time, however, they were appalled by the unreliability, infighting, corruption and fickleness of the Greeks. They were also annoyed by what they believed was an arrogant belief held by them, namely - that their nations owed them undying gratitude because of the legacy of classical Greece.

On the other hand, most members of the Greek intellectual elite who helped conceive and execute the modern Greek project saw themselves as fully European; they had studied and lived in European countries and fully took part in European intellectual debates. Yet, they resented the arrogance and sense of superiority they often discerned in the European gaze and couldn't help but realize that they were often used as pawns in a game of Great Power politics. The "more European" (or "modernizers") among them were also aware of the fact that the country they had dedicated themselves to, did not really satisfy the criteria of European modernity they held so dear and that its people often saw them as foreigners or "Franks". All this generated an intense feeling of insecurity and inferiority. As for the “less European” among the Greeks (the “traditionalists”), who were actually the majority, they felt little community with the Westerners, who often berated them as “Christian Turks” and resented their constant presence and meddling. Thus, both modernizers and traditionalists were, for their own different reasons, ambivalent about their relation to Western Europe, while at the same time being dependent on it – an attitude that endures to the present.

Likewise, a most sensitive issue in the relationship between Westerners and Greeks was the link between ancient and modern Greece. Every attempt to challenge this relationship – most famously by the Austrian writer Jakob Philipp Fallmerayer, who suggested in 1830 that modern Greeks were the descendants of Slavic peoples – caused an intense emotional reaction in Greece. The link between ancient and modern Greece remains a sensitive issue in Greece today, as it is simultaneously a cornerstone of Greek national identity and an expression of the nation’s pronounced insecurity.

Obviously, this mix of admiration and resentment is a key feature of the relationship between colonizers and the colonized. However, the Greek case is unusual in two respects. To begin with, the particular salience of classical Greece gave this relationship an edge that is rather unique, in the sense that the inferior party to the relationship (Greece) could claim ownership to the feature coveted by the superior one (the West). Furthermore, the Europeans were not the colonizers of Greece; rather, it was the Ottomans who had been its imperial overlords. In short, the Greeks had to manage a rather complicated relationship. 

This relationship is crucial for understanding how Greece interacts with the West - and vice versa. Most Greeks see Western Europe (and the United States) as unwelcome meddling foreigners, even though they have largely profited from their interventions. Conversely, Europeans (and Americans) are exasperated that Greeks have failed to see those benefits, even though their inverventionism has been driven primarily by their own self-interest and has been imposed over the Greeks - their discourse about the importance of ancient Greek civilization notwithstanding. Nevertheless, despite this animosity, Greece never seriously considered abandoning the West, and the West never gave up on Greece".

A Term Sheet For Greece

Below is the Term Sheet which I would propose to the Eurogroup if I were in the shoes of Greece's Finance Minister:

Instrument: Two Bonds in equal amounts („A“ and „B“)

Issuing Date: June 30, 2015

Amount: The combined sum of Bonds “A” and “B” will be calculated as follows: (a) total bonds/loans (including interest accrued to June 30, 2015) on the books of the “Institutions”; plus (b) 7,2 BEUR (the last tranche of the current agreement); plus (c) an amount necessary to reduce the ECB’s funding of Greek banks to a level which the ECB can commit to make available on a sustained basis (if the ECB so requires)

Purpose: To prepay all loans from the institutions; to repurchase all Greek bonds at book value which the ECB and/or other Institutions hold; and to provide working capital for Greece.

Tenors:         Bond “A” – 25 years
                      Bond “B” – 50 years

Interest: Greece commits to allocate 8% of its State Budget Net Revenue (tax revenue and privatization proceeds) to interest payments (10,8% in 2014). Approximately half thereof should suffice to pay interest on debt owed to private bondholders. The remainder is available to the Institutions.

Covenants: Reform steps and policies will be agreed with the Institutions whereby the Institutions have the decisional prerogative. Greece commits to honor all reforms and policy steps ‘mandated’ by the Institutions provided that the OECD can issue a ‘highly confident opinion’ that each such mandated step contributes to financial and economic stability and to economic growth.

New debt: Greece commits not to assume any new sovereign debt, except for the refinancing of bonds held by private creditors, without the approval of the Institutions.

And I would present it in due form and humility with respect for the Eurogroup.