Monday, June 15, 2015

An Offer Which Greece Cannot (Reasonably) Refuse

It's time for the EU to make a final offer to Greece:

Debt restructuring: All official debt (ESM, ECB, IMF, bilateral loans) rescheduled with bullet maturities, 50:50, in 25/50 years.
Interest: Interest-free for 5 years with option to renew for another 5 years. Thereafter new negotiation.
ECB funding: Frozen at current levels for 5 years.
Reform requirements: None.
Condition: No new debt from any source without the Institutions' approval. Violation thereof is event of default.

Benefit for Greece: All of SYRIZA's dreams come true.
Benefit for official lenders: No one-time loss; insignifcant funding losses during interest-free period; no need "to throw good money after bad" going forward.


  1. Nice proposal Mr. Kastner but maybe for the parallel universe.

    Not in ours.

    All this coming and going. Why do have the sense that deadline after dealine this will continue all the way up to Septmember. Way beyond the death date of June 30th.


    1. The day will come when the tax payers of the lending countries will regret that they ignored the parallel universe.

  2. While I would happily agree to your plan I am afraid that Syriza would not. It lacks their most important element, "the investment plan". Any populist government wish to control all money transactions, it is necessary for paying off their constituency. Syriza know very well that FDI will not come, neither are they interested in it. That would be a voluntary transaction directly between an investor and the real economy. Syriza wants investments from EZ (EU) directly to the government. The same goes for privatizations, they will be with a controlling share of the state, the investor will be allowed to invest and guarantee to employ a certain number of their voters. For the same reason they would not welcome your ideas of special economic zones, they would not be able to control them via the weak institutions. Having said that, the same goes for all previous Greek governments.

    1. You put your finger on it. The hidden agenda of my proposal is to make clear that the investments Greece wants/needs to have, Greece will have to attract instead of being given the money for them.

  3. Why bother at all... The EU is protected by any consequences of a greek default. Draghi's QE is active, Schauble has many times repeated that the markets have already factored in the Grexit, better end this once and for all...

    1. If you believe one word coming from that Schaeuble, then I feel sorry for your grasp on reality.

      The fact is that the eurozone is in crisis with or without Greece. You need to face facts, instead of complaining about one country in a serious mess.

  4. Mr. Tsipras do not have time to consider your offer. He is "carrying on his back, the dignity of a people, but also the hopes of the peoples of Europe (all 400 MIO ?), it is too heavy a burden to ignore". Well don't, shrug Atlas, shrug. (Pardon Ayn Rand). I have never seen so much honor, pride and dignity before, soon we shall have "freedom or death".

  5. Not so long ago you said "way up to the end of the year". What has changed?

  6. Mr Kastner, have you sent this to the appropriate people?

    1. My proposal has evolved in the last 6 months. At first, there were reform requirements and some interest rate. Now I am down to no strings attached and no interest.

      On his first day as Finance Minister, I wrote the following to Varoufakis: "Repay all debt over 60% with a new bond with a minimum maturity of 50 years, a rate adjustable to a very low base so that the real cost of interest is close to zero (or zero) and an interest moratorium for 20 years. Close the deal ASAP and get on to work on all the other things which are much more important for Greece’s (and SYRIZA’s!) future than a haircut which will be followed by another haircut in the future. The key is to REGULARIZE the debt issue so that it doesn’t pop up every few months and distracts from real work." His reaction was that he would immediately go for it if it was offered. A couple of months ago I sent him a watered-down version. Again, he said he would immediately sign it if it were offered. Except, I have not seen him negotiating along those lines. He is negotiating along lines which suggest that he wants default but not Grexit. Ok, is legitimate. But don't fool people for half a year!

    2. Mr. Kastner,

      I think you are misjudging the situation completely. In Greece, the political demise of George Papandreou, was based on the fact that his "negotiation" back at the start of the crisis was more or less accepting the deal the creditors offered him, on the basis of his belief that he didn't have another choice. Papandreou returned to Greece and the first thing he did, was gather his ministers and make an apologetic speech on television, to say that he was a true socialist and the things he now had to do, were not even close to his program, but... he had to do it. In the last two days, a greek journalist released a book over 350 documents of the time, which again won't make George Papandreou earn a good place in history.
      - There is no "negotiation" where your only position is that you have no alternative but to accept what they give you.
      - The proposals of the creditors until now, are very much what they 'd give Samaras in terms of measures. Cut pensions, raise VAT, raise VAT for electricity to 23%, are the main features. They ask for 1,8 beur every year in cuts in pensions and same amount from increased VAT returns.
      Now, for Tsipras to sign, it will be repeating George Papandreou, with the difference that Papandreou didn't have a left with 40% power that was plain comunist. And Tsipras has seen what happened to George Papandreou.
      - What is happening now is not "negotiations". It is "chicken game". Plain and simple. And in a chicken game, the weaker part can't ever hope to score a draw, if the only option is "i don't have alternative but to sign".
      - If Tsipras wanted to default (Varoufakis might, but Tsipras is deciding), he wouldn't have bothered to dry out every organization from money, including hospital funds, municipal funds, kindergarten funds, to pay the IMF. Already this costed him politically a lot to the public opinion and created internal frictions in his party. His own president of the parliament, denied to hand him out the parliament fund reserve, when Tsipras asked her to. You don't do that if you plan to default. You just default and put this money to better use, because you 're going to need them.

    3. Addendum: Look at your own proposal, Mr. Kastner... Would you have done it for Samaras? No. And you didn't. You do it now for Tsipras, because he has scared you enough, to believe that he actually may not be like the others before him that went to "negotiate", while publicly saying "we have no other choice but to remain to the euro". It takes so many months, because a chicken game lasts up until the point where the cliff is or the collision point. But you should also ask yourself: "Do the creditors really want to make a deal with Tsipras or do they want him to leave the euro without being accused that they kicked him out?". Because for instance, the sharade we witnessed in the last days on whether or not they asked to cut pensions (they did, even the ones of 300 euros and there is document released in, indicates that the creditors are also putting a show for the public opinion, where they strive to appear as "good".
      - IMF denied they asked to cut pensions.
      - Gabriel said the same and asked to cut the airplanes the goverment ordered instead (how 500 mln divided in 3 years can amount to 1% of GDP this year and 1% of GDP next year, only he knows).
      - Hollande today says "gives us alternatives to the pension cuts" (but, if they didn't ask for pension cuts, how do they ask for alternatives for these cuts, it's a mystery!).

      Tsipras is trying to squeeze the best deal he can. Because he knows that if he gets into a deal that will be like "Samaras II", his party will start suffering attrition just like ND. Because, expecting to do such cuts and VAT raises and expecting also to have growth, is ridiculous. And you don't need to be an economist to see it. Yesterday night, a representative of the restaurant owners said that dropping the VAT by 1%, created 120.000 new jobs in their business. Do the math what will happen by bringing it to 23%.

    4. I believe that I first recommended the type of proposal which I have now watered down in June 2011. Would have to look for it but I did find quickly the one of December 2011. 'Waterin-down' means reducing interest rates to zero and giving up on reform requirements.

      Why did Tsipras not go for a default earlier? Well, Varoufakis has for years been very clear about that: Greece must not do anything which could be interpreted as tough Greece wanted a default.

      You surely don't believe yourself that dropping VAT by 1% created 120.000 new jobs in the restaurant business. Or do you really? If there are many more jobs in the restaurant/cafe business, they are probably due to the EU's financing such start-up's very generously.

      I have said from the start that Papandreou's greatest mistake was to see his role as an order-taker and not as the head of government of a country in financial trouble. Bill Rhodes had warned him that this would lead to disaster.

    5. Mr. Kastner, take also a look at this.
      - Reuters: The IMF never asked to cut pensions!,Reuters-To-DNT-den-zhthsepote-meiwsh-syntaxewn.html

      Later, Gerry Rice (IMF) publicly:
      "Greek pensions are slighly lower than the german ones, Greece spends 10% of GDP while the EU average is 2.5%"

      Here on video, the EU Comission: "It is a great misunderstanding that we ask cuts on individual pensions! We ask to reduce the pension expenditure by 1% each year"

      And here's a document of the creditors that leaked:

      The EKAS, is given to the very low pensioners. Like 300 euro a month.

      Also, how much is 1% of GDP? 1,8 bln. So the creditors never asked to cut pensions. They asked to cut 1.8 bln per year from the pension system. And to abolish the EKAS.

      And here we are talking about why Tsipras hasn't signed yet. Well, he hasn't signed yet, because he doesn't want to meet George Papandreou in his way out... Tsipras' own alternatives have all been rejected by creditors. In greek press we 've seen a tax in state contracts and a tax in lotteries and such to support the pension funds. Of course, as the creditors have said before to Papandreou and Samaras, these aren't measures of certain results.

      And the cherry on the pie, was Sigmar Gabriel who proposed to not cut the pensions and instead not buy the airplanes of Kammenos. How a 500 mln contract can replace 1,8 beur every year, i don't know. But he sure looked good in the press and the german audience, being the good person in all this...

      In summary. Nobody wants Tsipras to cut pensions. They want him to cut 1,8 beur per year from pension expense and 1.8 beur per year in VAT. And this great reform, will bring finally growth and Tsipras to success. Why doesn't Tsipras want to sign, i wonder!

    6. Frankly, I have not followed the lists which have been exchanged because, to me, they are pretext to a large extent. To me, what's behind the creditors' position is a general mistrust that Greece will ever reform. It serves to look at the 'hot potatoes' in the First Memorandum of 2010. Yes, enormous cuts have been made but the hot potatoes were avoided. Also, somewhere I read that the Greek parliament had approved about 1.700 reforms since 2010 but only implemented about 250 thereof.

      Regarding pensions, I don't believe that a prudent pension reform will take place as a result of foreign pressures. Austria has had a couple of very major pension reforms. They did not come about because of EU and/or OECD warnings (of which there were a lot). They came about due to domestic pressures. Rational Austrian leaders did the numbers and recognized that the numbers did not add up. Someone (a Greek) commented on twitter the other day that, for the Greek pension system to work long-term, contributions would have to be increased by 40% or benefits cut by 45% or retirment age would have to be increased to 82 years. That's, of course, fancy mathematics but Greek leaders should do their own math to figure out how to solve the problem, if there is one. My sense is: much more important the the level of pensions is the number of years which pensions get paid.

      If Greece were to mean business and make a truly good pension reform, then I think the creditors should be prepared to allow longer transition periods. But for sure, to reduce over 100 pension funds to only 3 (as the First Memorandum had called for) doesn't seem to be a generational project).

    7. Mr. Kastner,

      The same can be said for the creditors. Would the creditors ever want to be seen as the ones who kick Greece out of the euro? No.

      Varoufakis isn't running the goverment on his own. Varoufakis isn't even Syriza registered member and he is seen with hostility by many inside SYRIZA for that, as they regard him as a parachutist that landed on the party. I think that Tsipras isn't foolish enough as to underestimate the fact that the majority of Greeks say in polls that they want to remain into the euro. If Tsipras goes down that road, it's his neck and political career on the line, not Varoufakis'.

      Personally, i don't see what would change if Tsipras had defaulted on May, rather than on July 1st. It would have made no difference, as a matter of fact, SYRIZA's popularity has fallen and unexpectedly, ND has even gained a point. Nobody would accuse Tsipras for not drying out the hospital funds... If he defaults, the opposition will accuse him anyway and he will have to deal with the conseguences anyway. Waiting for your economy to further sink, for your bank accounts to further drain and for the last reserves the state has to be rounded up to be given to the creditors just for show, doesn't makes sense for me... In a few months, no Greek will really remember whether it was May or June that Greece defaulted. They will expect the better future Tsipras gave them. If they don't see it coming, nothing will save Tsipras.

      I really have no idea how much impact 1% could have in their business, that's what he said and he also cited Ireland as another example where the same happened. He didn't bring any papers, i am not a tourism expert and don't know what impact this has on tourism. But i remember that when Samaras had convinced the troika to lower the VAT, the revenues for the state increased. This should be enough index to show the sanity of the measure. The creditors wants to collect money. That's all. If this leads to further recession, they will simply ask for new cuts.

      Your plan i see, but was never adopted and neither will this. You can't give Tsipras so easy way out, when you have moral hazard to think of.

  7. I fully agree with V. I have followed this story now for years with growing anger and frustration. I do no longer believe that it makes any sense to think of new proposals for yet another last offer to the Greeks. They play their own games with lies and tricks, and they have no intention to live up to their promises and obligations. I had once a great sympathy for that country, but that is no longer so. It is not reasonable to try and keep Greece in the euro regardless of the cost. People in other debtor countries will want a similar deal, which is absolutely unaffordable, and those in the creditor countries will lose the rest of the sympathy that they had towards the EU.

    1. You seem to have formed quite an opinion about Greeks, sitting behind your desk.

      Guess it must be the media, unless you have been to Greece and came across a rather large majority of people who have lied or tricked you.

      When Greek banks went belly up, it was the Troika that started offering money to the Greek Government a so called 'Bailout'. Ever questioned where that money went or who exactly was being bailed out?
      Who created an asset bubble in the first place?

      Not the average John Doe in Greece.

      The Greek crisis has very smartly pushed the mistakes of the banks onto its people.

      And mind you, while you might be enjoying your luxuries, there is no saying that this same crisis could your country too and make you pay for your Bank and Govt's mistakes.

      Greece needs a better deal and for once, there is a Greek Govt. that is actually fighting for the average middle class Greek citizen.

  8. Can Germany accept it?

    1. If the German tax payers understood that this is the only way to avoid a huge one-time cost and have, instead, the cost spread out over 50 yerars or so, they would definitely go for it, I am sure. Not to mention the fact that they would avoid becoming blamed for Greece's demise as a side effect.

    2. I am quite shure, as it would mean an end of "burning new good money".

    3. Mr. Kastner,

      I think your proposal would never see the light or to put it in other way, would never be accepted by Germany, because:

      It creates moral hazard. So little Tsipras blackmails you and you just give in like that? What message does this pass? What are you going to do if Podemos in Spain become goverment in few months and they ask for debt restructuring too (which is in their program?). Portugal could come next. No, any deal with Tsipras, must be bitter enough to make others not want it...

      Otherwise, i think Tsipras would accept it, as it would allow him to come triumphant home and wave the deal at the face of ND, PASOK, River and say "Look what i did in few months without opening a nose, while you german lickers, were sucking the blood of the poor greek for 5 years!" Immediately elections and Tsipras would get re-elected with over 50% of the vote and he 'd probably repeat an Andreas Papandreou-like period with SYRIZA indisputable goverment for 20 years.

    4. That depends on the question one asks German tax payers. If the question is "Do you want to forgive claims against Greece?", the answer is likely to be 'no'.

      The proper question would be: "We have more claims against Greece than the country will ever be able to handle. Would you prefer paying for the differential in one sum right away or do you prefer to have the cost spread out over 50 years?"

    5. Mr. Kastner,

      There are times i wished you were the chancellor of Germany. But alas, you aren't... Isn't it much preferable, to flex your muscles and wait for Tsipras to lose the chicken game? Then you 'd have nothing to tell to the german tax payer and nothing to worry about when the spaniard and portuguese elections come. And this is what the EU leaders are doing.

      Your thining, is actually what SYRIZA's MPs have hoped for. For years, while in opposition, the SYRIZA MPs on television, were saying more or less: "they will cut our debt, because otherwise they will lose it all and no sane man would prefer to lose it all, than to get half of it".

      But, aside the syriza delusions about "unilateral debt write off" or "writing off at least 50% of the debt" , you see that the other side, has to respond to them using their own weapons. That SYRIZA hoped that it would be so simple, is another matter.

    6. You seem to forget that, only a few months ago, the Eurogroup made audible noises that the Greek debt problem would have to be 'solved' exactly that way (extending maturities, lowering interest rates). Obviously, they would never have eliminated the reform requirement nor brought the interest rate to zero but certainly an interest moratorium (which is already in place for much of the official debt) would have been in the cards.

      SYRIZA has always made the huge blunder of insisting on a 'haircut' instead of 'debt reprofiling'. When the interest expense is as low as Greece's is nowadays, a haircut brings very little for the budget. Reprofiling can bring A LOT for the budget and it is much more acceptable to creditors. But I do understand that it is easier to get people's excitement by promising a haircut instead of having to explain that debt reprofiling is better.

      BTW, I am not so sure that flexing the muscles with Greece, as you call it, would scare Spanish and Portuguise voters. It could also have exactly the opposite effect.

    7. This is what I wrote to Varoufakis on his first day as Finance Minister: "I have just gone through endless tweets about debt, haircut etc. I see Kammenos felt it necessary to comment that the debt will be cut. This drives me nuts. Don’t people understand that debt is totally irrelevant when it carries no interest or maturity. That’s also called equity."

    8. The Eurogroup, if i am not mistaken, has signed that once Greece is on track with the program, a discussion about possible further debt relief if needed, can open. This is very vague and in the meantime, actors like Regling, have said that the greek debt doesn't need further restructuring. I think 2-3 days ago i listened to minister Varoufakis, underlining that they will go after a "decisive commitment" about debt relief, because if the Eurogroup's wording is as i think it is, it is open to many interpretations. And usually the interpretations of many prevail over the interpretation of the one.

      But let's say for a moment, that the Eurogroups wrote black on white that "we will do debt restructuring". This still doesn't solve the main SYRIZA problem. The Europeans may think that SYRIZA is the traditional european "post USSR collapse" party, a slightly heavier version of eurosocialists. This is a mistake. SYRIZA is one party only on paper. It is composed by many lesser parties, the majority of which, are more comunist than any eurocomunist party. Most of the members had at one point or another been members of KKE. KKE still has Lenin and Stalin portraits and statues in its headquarters and sent condolences to North Korea for the death of their dictator.

      Given this context, one must realize, that for SYRIZA, which before the crisis was on competition with KKE on which of the 2 will propose the highest minimal salary (they had arrive to 1200 euros), to come now and cut EKAS, 1,8 beur from pensions, raise VAT to 23% to electricity, to food etc, is a very tough dilemma. They were the ones accusing the previous goverments of letting Greeks endure the cold and houses with no electricity and now they are supposed to make the food more expensive the electricity a luxury and take the EKAS away from the pensioner? For a Eurogroup promice (vague or not) of debt restructuring one day?

      When you go to negotiations, you must understand who the other part is. Tsipras may sign and i think at the last moment they will agree, but expecting him to just sign without testing the resolve of his opponents, means you don't know who you are dealing with. Politicians care about their career and party. Politics is like a drug. Tsipras can't just sign like that, because this is a very difficult to swallow deal. Can there be an accident? Well, yes! Tsipras is waiting for the creditors to step on the brakes, the creditors are waiting for Tsipras to do it first. Logic says that they will both step on brakes... But, if you want someone to step on the brakes, you must give him an offer that allures him. The left in Greece has built its myth on that is caring for the people, never cuts, protects the income. If you force them something that makes them lose face, then the allure is reduced. Tsipras must also weigh the impact that signing will have in the cohesion of his party. Lafazanis, if he decides to, can bring the goverment down on his own.

    9. About cutting debt, Kammenos, etc:

      Cutting debt was a very effective weapon that SYRIZA used, to gain popularity, because common people get confused if you start talking about maturities, reprofiling, etc. This is why SYRIZA has in all television discussions, used the debt as % of GDP to support its thesis of haircut. And it had comunicative success, because it is something that a television viewer can understand easily.

      Kammenos, is a populist, that nobody really takes seriously when he talks about money, it is too long to explain, it goes back to 2010 and what he was saying... Kammenos, is the equivalent on the right, of those PASOK MPs that not having the stomach to vote for cuts, fled to SYRIZA and now are SYRIZA MPs or directors of bank of Greece and so on and so forth. The difference is that Kammenos didn't have a SYRIZA to flee to, so he founded his own party. The party needed something to differentiate itself from ND, so he raised the antimemorandum flag. To that, he borrowed successful SYRIZA positions, like the debt write off. If tomorrow, by some miracle, there was no crisis, Kammenos' political power would dissipate into thin air, because his party has no other fundaments or political line.

  9. So Klaus, it seems that Mr. Tsipras read your proposal and made a counter proposal (Kathimerini yesterday), his proposal contain many sensible things that the savior of the suffering poor should have implemented on day one. Since I have a certain knowledge of it, let's take the smuggling of fuel as an example.
    It is a criminal activity that harms the society at large; it is surely most harmful to the poorest. Mr. Tsipras claim that he can stop it, I believe that. Mr. Tsipras offer, as part of an honorable deal, and for a certain amount of money, to stop it. Now, analyze that please.

    1. I am not sure that I can follow. Are you saying that Tsipras is not prepared to do anything against fuel smuggling? Only using it as a pretext?

  10. @ lennard, I do not understand your objections to Syrizas privatization plans, it is a very popular model and is called Public-Private Partnership. Many advantages, the investor get a profit and the state learn to run a business. Also, what is wrong with investment in the state, they will bring work to many in starting big infrastructure projects. I think you are against anything that will bring Syriza a victory, or against Greeks.

    1. PPP's only make sense where the private part shares full risk in the project. Those deals are hard to find. Normally, the full risk stays with the public. Benefits to the public are that the private investor is more likely to carry the project through successfully and that the cost of the investment can be spread out over 20 years (or more).

  11. I post this as an interesting break from the northern european press.

    Question to Stefano Fassina (italian finance vice minister to Letta goverment, former IMF economist). He is currently member of "PD" (Renzi's party).

    "I would resist. I would not sign the memorandum that predicts cuts on pensions for example, since they also know very well, that 3, 6, max 1 year from now, without a debt restructuring, Greece will find itself in the same condition it is now.

    Imagine that. His party is the goverment in a creditor country and would like Varoufakis to sign. But he advices not to...

  12. Climate of deep introspection and anxiety within SYRIZA's MP assembly today (see photos):

    Minister Varoufakis so exhausted that couldn't walk to the chair. Greeks can sleep safe, for their representatives remain vigilant. Haha!

  13. @ Anonymous, a tale of Private Public Partnership (PPP) in a populist nation.
    2 years ago a friend told me about fuel smuggling and theft. He works in a middle management position for a Greek refinery. I find it hard to believe his percentages. Although it is secondhand, I have, for now, chosen to believe the systematic.
    "We all know that the stories about smuggling 20% of the output are correct. We know when to turn our backs and who participate, we talk about it. The system is simple, the fuel is exported tax free to ships or other countries, only the paper works do the rounds, the fuel goes untaxed to the Greek market. There is another 10% we don't talk about; we don't even want to know about it, it's dangerous. Delivery of fuel to public entities such as armed forces and other government bodies. It is for propelling jet fighters, destroyers, government cars, trains and heating government buildings. A large part of that fuel goes directly to private individuals and the market, or it goes nowhere. It is fully paid for by various state agencies. All this could easily be stopped; we have artificial DNA we could add to each batch of fuel. We don't have many tank farms in Greece. It would take 20 accountants and 20 logistic experts to close it within a month. I would not like to be one of them."
    Now for this to happen thousands of people would have to be in the know. From truck drivers to top management, from politicians to high ranking officers. So let's look who top management is, yes, right first time around, Latsis owns 40%+ and the state 35%. And no, I don't take bets on who makes the most out of that deal.
    There is a sequel to my friends story about a PPP.
    He is middle aged and well off, with 2 children at university. His job is well paid and considered secure. Why not, it is a private company operating with a profit, there is no justification for reducing wages or firing people. He is also Syriza (ex. Pasok) voter and subscribe to the idea that the loans were erroneous and are the sole responsibility of past politicians. He would strongly object to any suggestions that he benefited from any loans or grants, or that he benefit from fuel smuggling.

  14. An idea quite close to your proposal, in the Spiegel, the most important german journal:
    Just the headlines of the ideas:
    1. No new money for Greece.
    2. Inavitable financial restructuring of Greek debts
    3. Capital controls
    4. No paternalism
    5. Athen decides about Grexit or not (not anyone else)

    How do that sound for Greeks?

    1. Yes, it is very similar. One major difference: there is no limitation on new debt (he just assumes that there won't be much new debt because the cost would be too high). There simply must not be ANY NEW DEBT for budgetary purposes, above all since the government itself claims that it will never ever again run a primary deficit.

  15. Ah, I see. Finally your demands may be even harder to comply.
    But wouldnt it
    - mean a continuation of european imposement of austerity via Greece?
    - therefore restrict the Greek sovereignity and hurt the pride of Greece?
    - hence birthing new Greek mass demonstrations against the bad, foreign troika-imperialists?