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June 26, 2015

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Greek crisis: Agreement... Greek-accident... Or Plan B?

In a climate of confusion and uncertainty citizens all over Greece have been glued to their television sets over the past few days, closely monitoring the developments that are unfolding in Brussels and are determining the fate of Greece. Will the SYRIZA government reach an agreement with Greece's creditors in the little time that is left, will a Greek accident occur or will both sides move on to some sort of Plan B (given that there is a plan b of course)?

On Thursday there was a deadlock in the ongoing negotiations at the Eurogroup and the negative climate against Greece was more than apparent. The truth is, that the Greek government is in a very difficult position and under immense pressure. At present, the voices of support are gradually fading and this is making the negotiation process even more tedious. Indeed the government of Alexis Tsipras has a major responsibility for managing the situation (and correcting the mistakes that his government has made since its rise to power), but so do our so-called European partners and (the resource-sucking) IMF, (who we all know undermine any attempt to bridge the differences with their demands).

Worse of all, the most onerous and catastrophic scenarios are openly being discussed by the domestic and international media, as well as by political officials. Some of these include a Grexit, Greek-accident and even talk about a parallel currency that will be used until reforms are implemented. In these last few hours, there is only one last opportunity for logic to prevail so that the worse sort of scenario can be averted. Trust has to be restored on all sides, and compromises must be made.

What happened at the Eurogroup...

Thursday’s Eurogroup meeting did not result in any agreement, other than the scheduling of a new meeting on Saturday. While the reform proposals submitted by the Greek side on Monday were welcomed as a basis for further discussion, the institutions presented their own counter-proposal with further demands which were then knocked down by the Greek side.

At the EuroSummit....

Prime Minister Alexis Tsipras had an intense dialogue with European Council President Donald Tusk during the summit meeting of Eurozone leaders in Brussels on Thursday, government sources said.

Tusk reportedly told Tsipras that the “game is over”. Answering back, the Greek PM warned him not to underestimate to what lengths a people might go when they feel humiliated. He also reminded him that presently in Greece there are more than 1.5 million who are unemployed, there are more than three million who are below the poverty line and thousands of families without any income whatsoever.
     "Unfortunately, the proposals of the institutions reflect the most extreme positions expressed by the IMF. The text does not differ at all from the previous programme,” Tsipras told Tusk, according to the sources.
     Do “not underestimate the point to which a nation can reach when humiliated.”
He also noted that his government has tabled proposals and added:
     “I’m determined to make reforms in pensions, abolish early retirement, unite funds,” which would start in October.
Then he said: “Following our proposal, the historian of the future will not understand why we didn’t come to an agreement.”

Still many hurdles to be overcome between both sides...

While there is some convergence on certain issues, such as VAT targets and corporate taxation, there are still significant hurdles that need to be overcome in order for Greece and its partners to reach an agreement.

In its latest proposal Greece has raised its VAT revenue target from 0.74% GDP to 0.93% GDP, with the institutions demanding a 1% GDP target. Greece insists of preserving a 13% VAT rate for food, water and energy and a low 6% VAT rate for medicine and books. It has also decided to maintain the 30% VAT discount for the islands.

While Greece has accepted, in part, the institutions’ recommendation on the tonnage tax in shipping, it rejects the abolition of tax cuts exemptions and proposes the implementation of a more efficient taxation framework for commercial shipping.

Greece has also made some concessions on pension expenditure, but wants a more gradual phasing out of early retirements by 2022. The creditors demand that the health care contributions of pensions must increase from 4% to 6%, while the Greek side suggests a 5% rate instead.

The latest Greek proposal also includes a provision for reducing the national defense budget by 200 million euros, with the creditors demanding 400 million euros worth of cuts.

Finally, the Greek side has pledged to announce deadlines for the privatization of OLP and OLTH by the end of October 2015, as well as carrying out what is necessary to complete the privatizations of regional airports, TRAINOSE, the Egnatia Odos highway, OLP, OLTH and the Elliniko development.

Varoufakis butts heads with EU finance ministers...

Greek Minister of Finances Yanis Varoufakis told Irish radio station RTÉ that the latest proposals submitted to the institutions were “very reasonable”. The Irish Finance Minister Michael Noonan has been critical of Greece's stance in the negotiations, to which Varoufakis responded that the Irish government has been kept in the dark about the Greek offers.
     "If your finance minister and I were to sit down and I were to explain my proposals [...] Michael Noonan would agree that they are very reasonable" he commented.
Varoufakis explained that while Greece has an “absolute commitment” to remain the Eurozone, he noted that the country has bent over backwards in order to accommodate “strange demands” of the country’s creditors. He then argued that it would be absurd to carry out any further pensions cuts and stressed that Greece will not accept any debt solution which is not sustainable.

Skourletis is pessimistic that deal will be landed...

Commenting on Thursday's deadlock, Minister of Labor Panos Skourletis estimated that there are few chances of an agreement with Greece's creditors. Speaking on MEGA tv on Friday morning, Skourletis said that unless an agreement is reached, then the IMF payment due on June 30th will not be made but he noted that the IMF has already clarified that such a development does not constitution a default, but rather an overdue debt.

He also slammed Greece's creditors and accused them of operating under a rationale of “precautionary reprisals”, stressing that “every time we are about to reach a solution they come and say bring some more pensioners to execute”. The Greek Minister did not rule out the possibility of an extension being granted, but noted that there would be conditions in place.

SYRIZA MPs in favor... others want a complete default

On his part, Alternate Foreign Minister Euclid Tsakalotos said in statements to state broadcaster ERT that the agreement in its entity will not be recessionary. He noted that the Greek government is fighting so that the burden is shared in a more fair way.
     "We are closer than ever to an agreement," he underlined adding that a failure to reach an agreement it would trigger problems to all Europe.
Tsakalotos added that the debt is issue has also been raised and underlined that the government's aim is a sustainable and social fair solution.

On his part, Costas Lapavitsas, MP for governing Syriza argues that Greece is being blackmailed and should exit the Eurozone. In an article published in the Guardian newspaper, Lapavitsas says that instead of acceding to the troika’s devastating demands, Syriza should free the country from the trap of the common currency – if the Greek people agree.

Meanwhile in Brussels....

German Chancellor Angela Merkel said a euro zone finance ministers' meeting on Saturday would be decisive for finding a solution to Greece's debt crisis. She told a news conference after the European Union summit that heads of state and government could not get involved in the detailed negotiation of a cash-for-reform deal but only encourage the sides to reach a rapid conclusion.
     "We are saying, not without careful thought, that this Eurogroup is of decisive importance, taking into account that time is very short and that a result must be worked on."
Asked whether she was ready to offer Athens debt relief as Tsipras had demanded, Merkel responded that it was not possible to find new money for Greece beyond what was left in its second bailout programme at this stage.

Quite interestingly, she also deflected a question about whether finance ministers would discuss a Plan B to cope with the fallout of a Greek default and limit the damage to other euro zone countries if there was no deal on Saturday, saying she would not engage in speculation and wanted a successful agreement.

On his part, while speaking to Europe1 radio, French Minister of Finances Michel Sapin said that an agreement can be reached that will secure the interests of Greece and protect Europe from a dangerous situation. When asked to comment on the statements of German Commissioner Oettinger regarding a Grexit, Sapin noted that as time moves on, the possibility of a ‘bad solution’ will increase, which may gradually force Greece out of the Eurozone. He also underlined that at present there is a bailout program in place until the end of June, while the ECB is in the position to help Greece overcome its difficulties. Most importantly, he said that a Greek departure from the Eurozone will have significant consequences and stressed the need for stability in Europe.

It should be reminded that European Commissioner for Energy Gunther Oettinger warned that Greece may be forced out of the Eurozone, unless the Greek government and its creditors can reach an agreement by the end of the month. While giving an interview to the Deutschlandfunk radio station in Germany, Oettinger explained that although such a development is undesirable, the Greek government must demonstrate that it is prepared to implement reforms.

On the other hand, European Parliament President Martin Schulz expressed certainty that an agreement between Greece and its creditors will be reached and underlined the need for Greece to stand again on its own feet. Schulz also urged Greek deputies to cooperate and impose taxes on those people that have not contributed to solving the crisis so far.

On his part, Italy's Prime Minister Matteo Renzi  told the Italian parliament that "Greece must know that in the European institutions there is a large number of countries that will do anything to help it, but the effort must be mutual." He also noted that deliberations at the Eurogroup should be made with a deep awareness of the risks, in particular for Greece, in case of failure to reach agreement.
     "The Greeks should know, and we say that with friendly affection and the closeness of those who are aware of the difficulties of the Greek people, that there is strong pressure to make use of that opportunity in order to permanently close all pending issues with Greece and be excluded from the eurozone," Renzi warned adding that this stance is mainly adopted by countries that have recently joined the European Union.
In Asia....

Chinese Premier Li Keqiang expressed hope for a successful outcome in the negotiations between the Greek government and the institutions, so that Greece remains in the eurozone. The Chinese premier also expressed support for the process of European integration, saying he wanted to see a united, prosperous Europe with a strong euro.
     "Greece's current debt problems are going through a crucial period and China hopes that Greece will remain in the euro zone, especially appreciates the efforts of the interested parties and hopes for the success of the negotiations. China supports Europe and the growth of EU-Chinese relations," Li Keqiang said, according to an announcement by ANA-MPA.
Opposition on alert....

If the government majority does not support the potential agreement between Greece and its creditors whenever it comes to parliament, then a different government formation should be formed, main opposition leader Antonis Samaras told Crash magazine in an interview.
     "If the government loses the majority, the only thing that can be done is for Mr Tsipras to continue with those who agree with him for a deal with Europe, with our help," Samaras, who leads New Democracy, was quoted as saying, noting that a government will have to form to push these things forward.
He said if the government majority doesn't support whatever deal he brings to parliament, then he loses its confidence and in this case there should be a wider national consensus to keep Greece in the euro and exit the crisis. He also said the next step would be to form a transitional government of national consensus in which "neither him, nor Mr Tsipras would participate."

HellasFrappe's opinion on matters...

I don't know if both our government and the EU realize that there is an elephant in the room that cannot be ignored: the United States!  We have read reports that Barack Obama’s administration has put pressure on Merkel to reach an agreement with Greece, but the importance of this news has been lost in the airwaves. Whether some want to digest it or not, Greece is strategically important to Washington and our geopolitical value dear Frappers are much more important than any economic concerns. We are the cross-roads to the Balkans, and to Eurasia and Washington would never, EVER, want an independent government in Greece, so dreams of the drachma are nothing but tall tales and romantic hedge fund dreams. If Greece does not reach an agreement, then we believe a Plan B will be implemented and rumor has it that it will involve a second currency for domestic consumption, while the Euro will be used by tourists and exports (something similar to Cuba's system). Let us take it from another angle, Greece will also be less important to Asia if it leaves the Euro because our main port is used to distribute its products all over the EU. That is why we were not surprised with the comments that were made by the Chinese PM.  Russia on the other, which is already suffocating from sanctions, will not help Greece right now because it has too much on its plate with Syria and Ukraine. Also, Putin is someone who works strategically and does not take spontaneous decisions so when he decides to begin doing business in Greece he will first have forged strong economic and business ties with us (spreading soft-politics), so that he and his country would not provoke the already shaky relations it has with NATO. And finally, Greek citizens forget that the measures that are presently being discussed in Brussels, and which are indeed harsh, were proposed firstly by SYRIZA which decided to tax the masses instead of doing the logical thing which was to cut state expenses. In the first few days in office, this party decided to rehire people to the state instead of re-engineering it to finally serve the interests of the masses. (Example fire 5 people and purchase a damn computer to get the job done). 20 workers in the private sector need to work to maintain these five public sector workers. Accept it or not, they took care of their own, much in the same way that all previous governments did. The difference with this government though, and the previous conservative government (and some may not like what we are going to say) is that Samaras cut state expenditures by 73 percent and only raised taxes on the private sector by 27 percent. In this way, he downsized a corrupt private and useless public sector, and after decades even Transparency International had reported that corruption in the state was finally declining. How can it not? State workers were finally being evaluated for their skills, and they feared being fired. Whereas now, it is back to the same conditions we have come to know for decades. We did not applaud Samaras' government for the measures it took, do not misunderstand us, they made many mistakes, but no one can deny that economically things were getting better in Greece. SYRIZA on the other hand has proposed raising taxes by 92-93 percent on the private sector and only cutting state expenses by 7-8 percent. We know there will be many who will disagree with what we just said, but we would advise them to read the numbers because they never lie. The public sector is SYRIZA's clientele, or as we all know the old bad PASOK. The same force that brought us to where we are today, and the same force that is known for inequalities in the state, massive corruption, the infamous "fakelaki", etc. (Example of this - they agree to giving DEH 600 million in state subsidies -including recent raises- and yet decide to tax poor Greek farmers with 23 percent! Isn't this insanity?) We are not economists, but it does not take a brain surgeon to realize that SYRIZA is purposely protecting the interests of Greece's corrupt public sector, and crashing down hard on private enterprise. What they do not realize is that ONLY the private sector can generate places of employment and all this proposed taxation will wipe away what little is left in this country after 6 years of recession. We fear a mass exodus of companies and more unemployment. It would be very entertaining to see how all these public sector workers will be paid once there are even more private sector workers without work. The only thing we hope is that an agreement is reached, because if it is not, expect complete chaos as of Monday morning. If this is what it takes to slap people into reality, so be it, nonetheless we aspire that it never happens.

References: Reuters, WSJ, FT, BBC, Europe1, Kathimerini, ERT, SKAI Tv, MEGA Tv, ANT1, enikos, To Vima, ANA-MPA


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