EU betrays Greece

Over the last couple of weeks the Greek leadership pushed through all the painful cuts demanded by the EU. I have written that this effort is misguided, and the enforcement of these austerity deals will require heavy-handed enforcement, because the majority of the public rejects (and resents) the EU diktats.

By the early February, the Greeks have agreed to virtually all of the cuts demanded by the troika, including a 22 per cent cut in the minimum wage (to less than 600 euros a month), firing 15,000 civil servants and an end to dozens of job guarantee provisions. They couldn't bring themselves to cut an estimated €300 million ($396 million) in pensions.

The EU Finance Ministers reacted with frustration and refused to sign off on the deal, demanding that Athens make up for a shortfall created by the refusal of political leaders to slash supplemental pensions — before their next meeting, which was scheduled for February 15th. "The agreement, as far as I understand, is not at a stage where it can be signed off," said the German Finance Minister Wolfgang Schaeuble leaving the bailout in limbo and the threat of bankruptcy high.

On Friday February 10th, the Greek cabinet agreed to the pension cuts and on Sunday the Parliament approved it. It was not an easy decision after two days of rioting and burning in Athens. The Parliament had to discipline (i.e. to fire) 40 members who refused to vote for the additional €325m of fiscal austerity.However, the troika demanded proof that the Greeks would would stick to the deal, and the mood has been poisoned by EU demands for an escrow account to seize Greek budget revenues at source.

Greece took a step closer to meeting those demands when George Papandreou, the former prime minister who remains head of Pasok, sent a letter to the EU leaders vowing to implement the austerity measures included in the €130bn bail-out. The letter, which came along with a similar missive from
Antonis Samaras, head of the centre-right New Democracy party and the presumptive next prime minister, was demanded by EU leaders as a condition of the deal. Mr. Samaras letter to European Union leaders reiterated his stance that “modifications might be required” to the bailout plan.

The pleas from the humiliated Greeks were received coolly in Brussels. Luc Frieden, Luxembourg's foreign minister, indicated that Greece is disposable for the EU: "If the Greek people or the Greek political elite do not apply all of these conditions, I think they exclude themselves from the eurozone. The impact on other countries now will be less important than a year ago." Mr. Frieden even suggested a return to the drachma. "It might be something which would allow Greece also to get a new start, to create an economy that can create jobs," he said.

The tone of these comments, along with those from Germany, Holland and Finland suggest that the creditor powers have already decided to eject Greece, causing great bitterness in Athens. After the Greek politicians went again the popular will to push through harsh austerity laws, they seem likely to walk away with nothing.

There are rumors that a “Secret Troika Report” showed that even if the most optimistic scenarios are met, Greece will not achieve the desired debt ratio, nor get even close. I have long believed that allowing Greece to default is the best solution, but abrupt withdrawal of EU support is nothing short of a stab in the back.

The cards have been dealt - risks of 'contagion' have been minimized, and Greece is about to be ushered out of the EU. There is going to be an ordinary meeting of the Eurogroup tomorrow on Monday, 20 February. Will we hear the final rejection of the bailout, or will the drama drag on? The outcome is no longer in doubt, only the timing of its revelation.

German cartoon: 'Togetherness'/unity - this is it!

This breakup also belies the attempts of the EU project not to follow, but to generate political zusammenhalt. German people have become tired of this type of 'unity', and the cartoon above illustrates what they think of their role and they are about to take advice from the title of Ayn Rand's masterpiece 'Altas Shrugged' literally. Too bad about the dog.

EU reinvents Russian troika in Greece

The troika is composed of the European Commission(EC), the European Central Bank(ECB) and the International Monetary Fund(IMF). The first two are representatives of a 27 member European unions. There are 26, 25 and 17 member unions that are prominent. Basically it's two bureaucratic manifestations of the full EU.

The composition of the Greek troika:
Toirka = EU+IMF (3=2+1)
EU= ECB + EC (2=1+1)
Europe = All

The IMF is and international, of course, but it's last 10 directors, have been Europeans, and four of them, including the current one - Christine Lagarde - were French. The IMF has committed over $500 committed for a great EU financial firewall including $109, which the U.S.committed  in 2009 to the IMF. No government has ever lost money investing in IMF (according to the IMF - so I'll have to check). The developing nations are also unhappy with having their money committed to stench the bleeding in Europe.

The word troika is Russian, and it refers to a sleigh harnessed to three horses.

The Greek troika views itself as three European entities  dragging a slacker, at least according to the German standards. 

The Greeks, at least, see this differently. The experience three riders (of the apocalypse ?) EC, ECB, and IMF.

I read this as three impatient riders running an inherently slow horse as hard as they can -- although, I don't know how to draw it. It wouldn't work with horses, much less with people.

Force is coming to Greece

Recently I wrote in Germany to Greece: Our money or your life that continued financial propping up of Greece with German money is a bad proposition for both countries. While the leaders of both countries press on with the charade, the people are waking up to the game: Greeks, because their Liberty is at stake, while Germany realize they are fleeced financially.

This situation is a stark example of what is wrong with the West - the issue that concerns me the most is the break-down of the trust between the leadership and the population - the unmaking of the social contract, based on honesty, and a representative government. The irony is that while the leaders have essentially reached an agreement, the public has soured on the whole enterprise.

The Germans are finally getting tired of their part in a Greek tragedy. While the German flags burn in Athens (along with flags bearing Swastikas) what is the upside for the Germans citizens from continued lending? There isn't one according to Der Spiegel, which has  recently published an article calling for the end to the farce. I added some translations to the graph provided by Der Spiegel showing the transfers of wealth (in euros). Germany comes out as the biggest sucker, I mean lender.

After decades of government overspending, compounded by costly political patronage, tax evasion and a strong union movement deeply linked with governing parties, Greece is in a sorry mess: The economy is set to contract for a fifth consecutive year, the government still spends almost ten percent more than it earns and unemployment is at a record high of nearly 21 percent — with the number of jobless exceeding one million in November.

The private lenders have (generously or desperately?) agreed to restructure Greek debt, which will be reduced by > 70% and rolled over into 30-year bonds with a low <4%  interest rate (called the coupon), still provoked Greek indignation: “The creditors are asking for 40 years of submission,” said Georgios Karatzaferis, who heads the right-wing Popular Orthodox Rally. “Greece will not give itself up,” he added.

Greeks have a lot of soul searching to do - for years their politicians cooked the books to provide social programs, which we given our like so many candies. I call this the trick-and-treat strategy, because the unpaid treats are essentially lies. The problem with socialism, as Margaret Thatcher pointed out is that "eventually you run out of other people's money". The Greeks spent their own money, the money of their children and have spent €110bn of the first bailout - mostly from German taxpayers. Now the state can't afford the goodies, and needs to withdraw them from an addicted population.

Lucas Papademos, the Greek economist who was appointed as a temporary Prime Minister in November of 2011, has worked hard to accommodate the demands of the so-called troika -- the European Commission, the ECB and the IMF. The demands included: cutting the minimum wage to less than 600 euros a month, cuts of 25 per cent in private sector wages and 35 per cent in supplementary pensions, abolition of at least one holiday allowance, closure of about 100 state-controlled organisations with thousands of job losses. According to the Financial Times, the list of demands also included cutting 150,000 public sector jobs within three years and cutting this year’s budget deficit by a further 1 per cent of economic output.

In addition, because Papademos’s term is set to end when general elections are held, most likely in April, EU and IMF officials seek guarantees from political leaders in Greece that they will stick to pledges made to receive the financing. If you have any ideas how this provision can be reconciled with meaningful elections in a sovereign country, please contact a Greek consulate immediately.

The Greek unity government knew about the resistance of the public to these terms, before it accepted them piece by piece during painstaking negotiations last week.

Among the warnings were those of representatives of Greek employers and the biggest private sector union on Feb. 3 called on Papademos to resist pressure to cut the minimum wage, holiday allowances other benefits. "The painful measures that create misery for the youth, the unemployed and pensioners do not leave us much room," secretary general of the ADEDY union, Ilias Iliopoulos, told Reuters.

More austerity risks triggering a “social explosion,” Hieronymos II, the head of Greece’s Orthodox Church, said in a statement on Feb. “We are being asked to take even larger doses of a medicine that has proven to be deadly and to undertake commitments that do not solve the problem, but only temporarily postpone the foretold death of our economy,” he said.

Meanwhile, more pressure was applied to the Greek leadership in Brussels - at a closed doors meeting on Thursday the euro zone finance ministers made it plain that they did not believe the figures provided by Greece. The bureaucrats in Brussels demanded that Athens must find an additional $428 million in savings — to make up for a shortfall created by the refusal of political leaders to slash supplemental pensions — before their next meeting, expected this Wednesday.

The birth-place of Western democracy is expressing itself by other means.

The Greek cabinet agreed to all Brussels' demands last Friday. Despite two days of striking by a Greece's two major labor unions on Friday and Saturday against these reforms, during which Athens was set ablaze, the parliament approved the austerity package on Sunday.

One headline summarized the reaction of the financial world particularly well: "Greece Burns as Markets Show Relief". This shows not the wisdom of the markets, but their wishful thinking that the deal will stick despite the desires of the people. The only way this could happen is if the dissenting citizens are beaten back into submission.

I am a big proponent of capitalism, as a source of independence and individual dignity. Unfortunately, the 'Third way' between capitalism and socialism tried in Europe, was essentially a gradual encroachment of the later, and a betrayal of the former. It's beyond sad to read how the perverted capitalist markets cheer, as the birth-place of democracy burns. Clearly, the markets would applaud the inevitable application of Force against the will of the people.

Papademos provided the justification for Force: "Vandalism, violence and destruction have no place in a democratic country and won't be tolerated". What democracy? Brussels demands that Greeks somehow promise to etch the deal in stone, so that the austerity program cannot be undone by elections in April. What other means to affect their government remains? The Greeks have lived above their means, but now they have lost not only their money, but their liberty, which is the upside of responsibility. Perhaps this calls for paraphrasing Ben Franklin's famous dictum to read "Those who give up an essential Responsibility for a little Security, deserve neither Liberty nor Security".

Successful continuation of the vast transfers of wealth would be a Pyrrhic victory for both Greece and Germany. As painful as bankruptcy would be for Greece, and much as it would spread 'contagion' through EU -- such an outcome would lead to a restoration of proper national responsibilities. Most importantly, it is the only way to preserve the democratic social contract in Greece, and prevent the spread of a far more dangerous authoritarian contagion in Europe.

Germany to Greece: Our money or your life

Germany is proposing that debt-ridden Greece temporarily cede sovereignty over tax and spending decisions to a powerful eurozone budget commissioner before it can secure further bailouts, an official in Berlin said Saturday.

Greece's international creditors - the International Monetary Fund, the European Union and the European Central Bank (the troika) - already have unprecedented powers over Greek spending after negotiating with Athens stringent austerity measures and economic reforms in return for the first bailout.

Under the new German proposal, a budget commissioner would have veto powers over Greek budgetary measures if they were not in line with targets set by international lenders.Greece would also legally commit itself to servicing its debt, before spending any money in any other way.

"Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time," the Financial Times quotes the German plan as saying.

The Greeks know how much is at stake: "We must do everything that will restrict the recession and will begin the cycle of growth. The coming days will determine the coming decade," Finance Minister Evangelis Venizelos told reporters as the talks broke up on Saturday.

The idea was quickly rejected by the European Union's executive body and the government in Athens, with the EU Commission in Brussels insisting that "executive tasks must remain the full responsibility of the Greek government, which is accountable before its citizens and its institutions."

A government official in Athens said a similar proposal had been floated last year but got nowhere. In an angry reaction from the Greek government, the education minister, Anna Diamantopoulou, a former EU commissioner, slammed the idea as "the product of a sick imagination" in an interview with local television.

Despite the immediate rejection by the Greek, and the EU's executive body, Germans officials have brought up their proposal for discussion among the 17-nation currency bloc's finance ministers because Greece has repeatedly failed to fulfill its commitments under its current €110bn lifeline.

Greece’s finance minister angrily rejected a German plan for the eurozone to impose a budget overseer onto Athens in return for a new €130bn bail-out, saying it would improperly force his country to choose between “financial assistance” and “national dignity”.

Centralized control is a key point of the new 'unified' Europe that Merkel is calling for. There is no room for national dignity in that supra-national project, or at least not when it costs €130bn.

A powerful budget commissioner would further diminish the political leeway of Greece's government, just as politicians there are gearing up for an election set to take place this spring. Greece is currently locked in a twin effort, seeking to secure a crucial debt relief deal with private investors while also tackling the pressing demands from its European partners and the IMF for more austerity measures and deeper reforms.

The debt relief deal may actually go through, contrary to my expectations - I didn't think it was likely that bondholders would agree to take a the proposed 75% haircut on their investments. According to officials involved in the discussions, negotiators representing Greek bondholders largely completed a deal with Athens last weekend which would cut the long-term value of privately held bonds by just over 70 per cent. This is a sign of how desperate the situation is in EU.

To avoid default, however, Greece needs to succeed on both fronts: giving it's bondholders a 'voluntary' fleecing, and getting more loans from EU. Failure on either front would force the country to default, pouring new fuel on the fires of Europe's debt crisis.

Concurring with German proposals, IMF has also signaled that Greece will have to give up autonomy over its budget if it is to receive the full backing of the international community for its second €130bn bail-out.

Christine Lagarde, the director general of the IMF, said that a new "fiscal compact" was set to be signed by European Union members at the vital leaders' summit on Monday that would 'centralize' budgetary powers.

Greek officials, are not the only ones who have reacted angrily to the IMF and German proposal for an EU budget commissioner with veto powers over Greek taxes and spending. In Athens on Friday, protesters tried to blockade inspectors from the "troika" of institutional lenders - the EU, the International Monetary Fund (IMF) and the European Central Bank (ECB) - into their hotel. The pains of failure to salvage this situation economically are likely to pale in comparison to politcal turmoil, which will result if the German  plan succeeds.

"For your own good, surrender your sovereignty to us temporarily," is the essence of message to Greece coming from Germany. This a bad proposition for both parties, and the kind of proposal that supports the idea that Germany is establishing a Fourth Reich, perhaps unwittingly and with good intentions. It is a route to Germany hegemony on the continent by soft methods - conquering others through productivity, rather than brute force. This proposal supports my description of Angela Merkel as the "Mutti of the Fourth Reich".

Will the loss of Greek sovereignty be temporary? Does Germany benefit from the closer fiscal union proposed by Angela Merkel that leaves it shackled to an financial corpse (or a few)? What do you a call a plan which makes losers out of both parties? I call it a Suicide Pact.

As I pointed out, it's possible for Europe to back out of the euro - the greatest obstacle appears to be inability of leaders to admit that euro was mistake. Yet, even George Soros acknowledge at Davos last week: "The austerity Germany wants to impose will push Europe into an inflationary debt spiral. The architects of the euro knew it was an incomplete currency when they designed it." Soros didn't mention why such a flaw plan was pursued - you can read my opinion here.

It's hard to predict how this difficult situation will play out. I am certain of one thing - Benjamin Franklin was right when he said: "Those who would by up Essential Liberty to purchase a little Temporal Safety, deserve neither Liberty nor Safety".