Posts Tagged ‘EU-IMF’

Memorandum of Understanding

In News on June 7, 2012 at 10:24 pm

Below is a link with the Memorandum of Understanding between Greece and the IMF. It should be noted that the Greek parliament voted on the draft. The final contract has never reached the Greek parliament.

Here it is in English and in Greek.


Eurozone ministers: What is the fuss about?

In Background on June 16, 2011 at 8:15 pm

On 14 June, the Eurozone ministers could not agree on the form of the second bail-out package for Greece. The contentious point was the role of the private investors in it. Germany insisted Greece’s lenders should swap their bonds for new ones with extended, seven-year maturities. This would allow plenty of time to the Greek government to implement the necessary reforms in order to lead the economy out of the recession and in a path of growth, which will allow it to borrow from the markets.

This was not accepted by the European Central Bank, the European Commission and France. The reason was that although Brussels would call this bond-swapping “reprofiling” of loans, the credit agencies would interpret this as a pure and simple default. The ECB, both in the words of the current President Jean-Claude Trichet as well as the likely next head of the European Central Bank, Mario Draghi, stood firmly against anything which could be seen by the markets as a default. It claims this would cause panic (see US 2008 collapse of Lehman Brothers) and have serious repercussions for European banks. On 15 June (day of general strike in Greece), Moody’s announced that it might review the ratings of France’s three largest banks (BNP Paribas, Societe Generale and Credit Agricole) because of their exposure to Greek debt.

Instead the ECB was promoting the so-called “Vienna initiative”. This is an agreement which had taken place in order to contain the debt crisis in Eastern Europe in 2009. In effect, foreign banks had agreed not to cut their exposure to the region and run, and thus there was no spread of the  financial contagion in Central and Eastern Europe. In this scenario, any bond-swapping is purely voluntary.

The agreement among Eurozone ministers is now on the way. This was partly facilitated by the IMF’s decision to give the next payment of Greek aid of €12 billion on 29 June, on the basis of a “promise of future EU funding rather than any concrete commitments” (BBC news).

Athens, 15 June

In News on June 15, 2011 at 5:31 pm

Today, 15 June 2011 is the day when the Greek Parliament debates on the new austerity measures (medium-term programme) requested by the EU and IMF in return for a second bail-out package. The austerity programme (€28 billion in cuts)  is to be implemented from 2012 to 2015 and includes a list of privatizations and tax increases. These measures are demanded by the EU and IMF in return for the release of another €12billion, which will allow Greece to pay off maturing debt. Today was also the day on which the trade unions (both of the private and public sectors) had called for a general strike, the third in 2011.

Since this morning, thousands of Greeks were gathering in Athens’s central square (Constitution square) in front of the parliament. At the same time, the Police’s special force units or Public Order Restoration units (MAT) were barracking themselves and the parliament building, behind plastic protective walls and iron barriers.

The protest started peacefully with the demonstrators shouting “bread, education, freedom”, the same phrase which was shouted in the falling days of the Greek junta (1967-1974). But soon enough there were clashes between police and rioters, who threw Molotov bombs. Naturally, the police replied with tear gas and flash bangs.

There was a great debate in the Greek media about whether the rioters were citizens with seeking to express themselves violently, anarchists, hooded thugs or provocateurs, i.e. men who were intentionally placed among the demonstrators (by the government? By the police?) with the aim of causing trouble and in effect breaking up the demonstration. Photographs released this morning by several Greek blogs show hooded youngsters among policemen – a common picture in previous Greek demonstrations – and men carrying stick poles under the eyes of special forces units (See here and here). The police denies the accusations.

Whatever the truth is, there was one result. By 4pm Greek time, the centre of Athens was soaked in tear gas, there were eight people hurt (the total toll by now is twenty nine), the Constitution square was empty, while rioters and police were playing hide-and-seek in the streets leading to the Constitution Square. The demonstration was broken up.

Meanwhile, Prime Minister George Papandreou is holding talks with the President of the Republic Karolos Papoulias and the opposition leader Antonis Samaras  with the aim of forming a government of national unity. The Greek media is filled with special reports about the new government’s possible ministerial posts and guesses on whether the new “unity” government will last six months or three years (the full length of the austerity programme). Presumably, the Greek PM seeks to secure consent across the political spectrum in order for the medium-term programme to be implemented in full.

The question arises: What is the value of a democracy when the police are guarding the parliament with iron walls and barricades, in order to protect it from the demonstrators? What is the quality of a political system where its political elites protected by armed forces conspire to go ahead with the exact programme which the majority of Greeks oppose? Is this bail-out worth this degradation of Greek democracy?

P.S. More pictures from today’s demonstrations (from indymediademotix, and the Boston Globe).

Second bail-out package for Greece

In News on June 13, 2011 at 3:52 pm

Greece is heading for a second bail-out package. In May 2010, Greece received a €110bn euro bail-out by the EU and the IMF. Like in all the situations when one lends and the other borrows, the lender imposes his conditions. And the greater the need of the borrower, the harsher the conditions which the lender can impose. So, as the Greek government refused to borrow from the international markets (at what were admittedly very high interest rates), it borrowed from the IMF and the EU.

The borrowers’ conditions were the usual IMF structural adjustment policies it has so often demanded from African and South American states (minus the devaluation of the currency which cannot take place as Greece is a member of the eurozone).[1] In 2010, the Greek government cut spending and raised taxes amounting to 5-7% of the GDP. The idea was that in 2012 Greece would return to the capital markets, issue new bonds in order to pay off the maturing ones.

However, the scenario of borrowing from the capital markets is no longer a realistic one. There is a real risk of default if further funds are not released soon. In particular, according to a report from EU-IMF-ECB inspectors in Greece (the so-called troika), which was leaked to Reuters, the recession [in Greece] “appears to be somewhat deeper and longer than initially projected”. In 2011, the Greek economy is shrinking by 3.8%, following last year’s reduction in GDP by 4.5%.

In the light of Greece’s undiminished debt, there is a new aid package on the way. According to the leaked document, “the Greek government is one of the European sovereigns with the richest portfolio of assets,” which, however have not provided any revenue but are instead a burden on taxpayers. So, the mantra is privatization, in order to reduce the government deficit. So, the Greek government prepared a new medium-term programme which includes more tax increases and a long list of privatizations.

The list of privatizations includes the Hellenic Organization of Telecommunications (OTE), the National Lottery, the Greek Defence Systems (EAS), the Public Gas Corporation (DEPA), the National Railway, the General Mining & Metallurgical Company (LARKO) , the old Athens airport in the Ellinikon area, Airbus planes, the Agricultural Bank of Greece, (ATE), the Hellenic Post (ELTA), the Public Power Corporation (DEI). The medium-term programme was endorsed by the Greek cabinet on 9 June and it is expected to be placed to popular vote on 15 June, amidst a general strike and protests which have been running in the central square of Athens (Constitution Square) since the 25th May.

[1]  These policies include reductions in public expenditure (austerity), balancing budgets, increasing taxes but reducing corporate taxes, privatization, trade liberalization, devaluation, removing trade barriers to boost exports, making the domestic environment more open to Foreign Direct Investment (FDI) e.g.  by enhancing the rights of foreign investors vis-a-vis national laws, removing price controls and state subsidies. Many of these measures were unnecessary as Greece’s borders were already open as part of it being part of the European Union and the single European market.

The bail-out

In News on June 5, 2011 at 6:51 pm

In May 2010, the Greek government, under the premiership of the Socialist leader George Papandreou requested financial support of €110 billion from the International Monetary Fund (IMF) and Greece’s euro area partners, amid fears of default and of borrowing from the international markets at forbiddingly high rates. Greece’s debt has been steadily increasing over the past few years, reaching 115% of the GDP in May 2010, when according to the European Union’s Growth and Stability Pact rules, the debt/output ratio had to remain below 60%.

The measures which have been proposed as part of the IMF-EU financing plan include fiscal austerity, deregulation, privatization, reducing public sector wages. These measures are a de facto devaluation for the country, without the actual devaluation, as Greece is part of the eurozone and does not have an independent monetary policy. The announcement of the measures has been so far followed by public disaffection in the Greek society. One may argue that in the long-run (long, long long-run) the consequences of the structural changes to be adopted may actually do the state-fed Greek economy some good, but there is no doubt these measures are and will be even more painful to the Greek citizens.