Greece : Will Honest French Help or Misplaced German Hubris Prevail

EARLY BREAKING NEWS FROM EUROPE. The new Greek bailout offer was submitted yesterday two hours before the EU-set deadline. The proposal wasn't published but some details have been leaked, suggesting that there has been a partial capitulation by Prime Minister Alexis Tsipras, who says he does not have a mandate to leave the Eurozone. The new proposal is reported to include defense spending cuts, tax hikes and steps to cut pension costs. Reuters reports that the Greek daily newspaper Naftemporiki has outlined $13.2 billion in deficit-cutting reforms offered by Greece. They include a corporate tax increase to 28% from 26%; a VAT increase on luxury goods to 13% from 10%; a VAT increase on processed foods, restaurants, transport and some private health services to 23% from 13%; and a VAT increase for hotels to 13% from 6.5%. But Tsipras seems to have made progress on debt relief, which he has always characterized as non-negotiable. Tsipras is conviced that austerity measures are insufficient and have to be accompanied by a reduction in Greece’s €320 billion debt. Germany’s hardline finance minister Wolfgang Schäuble finally gave a little on Thursday, admitting that “debt sustainability is not feasible without a haircut,” i.e., debt writedown, even if he then seemed to backtrack. But Chancellor Angela Merkel repeated again yesterday her position that a classic writedown of any of Greece's debt was not possible. She did say that lower interest rates and longer repayment periods could be discussed. ~~~~~ In the past 24 hours, the balance of power among EU leaders is shifting toward making whatever compromises are required to give relief to the Greek people and economy in order to keep Greece in the Eurozone and in the EU. Donald Tusk, the prime minister of Poland and the president of the European Council, said on Twitter and in the European Parliament that any “realistic proposal from Athens needs to be matched by realistic proposal from creditors on debt sustainability to create a win-win situation." Only Germany opposes this approach -- 89% of Germans want Greece to leave the Euro, according to the Bild tabloid. ~~~~~ Greece’s main creditors -- the Eurozone, the European Central Bank and the International Monetary Fund -- are scheduled to review the new proposal in Brussels on Friday. Final approval will also require an assessment by the 19 finance ministers of Eurozone countries, the so-called Eurogroup, whose meeting has been scheduled for Saturday afternoon in Brussels. Italian Prime Minister Matteo Renzi told reporters that he hope the Eurogroup will agree to the new Greek proposal and eliminate the need for the scheduled full EU leadership meeting on Sunday. ~~~~~ The most important help for Greece's position has come from France. Greece received key political support and technical assistance from France, highlighting the differences between the two leading EU powers. While Germany has stood firm against concessions to Greece and, in Schäuble’s case, openly doubted that Greece really belongs in the Eurozone, France has worked to find a deal. French assistance in the form of reviewing the Greek proposal to make sure it is as thorough and marketable as possible to Greece’s creditors seems to have been a critical factor. A French official said : “There is a group of people who have been sent to help the Greeks, to try to transform words into action.” France has supported Tsipras more steadfastly than any other major EU country and has been outspoken in recent days about the need for a compromise to both help Greece and hold the Eurozone together. By contrast, Germany Chancellor Angela Merkel has shown little inclination to compromise, demanding that Greece show that it can be fiscally responsible by adopting reforms before the EU even considers new bailout aid. In 2012, when Greece was at the center of the last flare-up in Europe’s ongoing debt crisis, many French officials maintained that the Eurozone is fundamentally a historic project, and that it should not risk being broken up by the departure of Greece, or of any other Eurozone country. This week, French Prime Minister Manuel Valls told the National Assembly : “France refuses that Greece leaves the Eurozone in the name of our position and our commitments.” His speech was broadcast live on Greek TV. To secure a deal, Valls said Greece needed to pledge to modernize its economy and overhaul pensions. French President Hollande said early today that France aims to "do everything to get a good deal, a deal that respects European rules and respects the Greeks, too, because they have suffered a great deal for several years, and at the same time they have to understand that reforms are essential." French Economy Minister Emmanuel Macron said in Madrid today that he was "reasonably optimistic" Greece would reach an aid-for-reforms deal with its creditors, adding that major advances have occurred in recent days and saying a discussion about Greece's debt burden is needed. ~~~~~ Dear readers, today Prime Minister Tsipras must convince the Greek Parliament to support his new reform proposal that is much more onerous for Greece than prior offers. Tsipras must have the votes of the radical elements of his Syriza party to support a package that in essence was unthinkable for many of them last week. Greek media report that Parliament will back Tsipras, but even if Tsipras succeeds in holding his party in line, it's far too early to know whether this prospective new bailout will be any more effective than earlier ones in balancing the demands of Greece's creditors against the Greek people's desperate need for relief from austerity. Joseph E. Stiglitz, Nobel Laureate economist, wrote an article yesterday for Time entitled "The US Must Save Greece." Stiglitz debunks many of the false negative stereotypes about Greece built up by EU leaders -- Merkel, Schäuble, Juncker, Dijsselbloem. He also has a suggestion or two for saving Geeece if the EU fails : "As the Greek saga continues, many have marveled at Germany’s chutzpah. It received, in real terms, one of the largest bailout and debt reductions in history and unconditional aid from the US in the Marshall Plan. And yet it refuses even to discuss debt relief. Many, too, have marveled at how Germany has done so well in the propaganda game, selling an image of a long-failed state [Greece] that refuses to go along with the minimal conditions demanded in return for generous aid. The facts prove otherwise: From the mid-90’s to the beginning of the crisis, the Greek economy was growing at a faster rate than the EU average (3.9% vs 2.4%). The Greeks took austerity to heart, slashing expenditures and increasing taxes. They even achieved a primary surplus (that is, tax revenues exceeded expenditures excluding interest payments), and their fiscal position would have been truly impressive had they not gone into depression. Their depression -- 25% decline in GDP and 25% unemployment, with youth unemployment twice that -- is because they did what was demanded of them, not because of their failure to do so. It [the depression] was the predictable and predicted response to the austerity....The US was generous with Germany as we defeated it. Now, it is time for the US to be generous with our friends in Greece in their time of need, as they have been crushed for the second time in a century by Germany, this time with the support of the troika. At a technical level, the Federal Reserve needs to create a swap line with Greece’s central bank, which -- as a result of the default of the ECB in fulfilling its responsibilities -- will have to take on once again the role of lender of last resort. Greece needs humanitarian aid; it needs Americans to buy its products, take vacations there, and show a solidarity with Greece and a humanity that its European partners were not able to display." But, today it seems likely that the EU will finally step up to its responsibilities to help Greece. It would be a showing of EU solidarity with Greece if the Eurozone finance ministers actually reduced any offered cutbacks in pensions for current Greek pensioners and agreed to debt relief, without which none of the new reforms will have a chance of succeeding. But, Germany, having in reality forced Greece to its knees, now dares to question whether Greece is sincere in carrying out its new proposal or whether Greece will get a deal and then refuse to implement it. German politicians and media are calling it a coming "bad surprise." But Europe knows that it has been Germany that delivered "bad surprises" - twice. There really is no end to German hubris.