Tsipras Stands by Democratic Referendum, Defying Merkel's EU

According to unpublished documents compiled by its three main creditors - the so-called troika of lenders (European Commission, the European Central Bank and the IMF) - Prime Minister Alexis Tsipras is right when he says that Greece needs substantial debt relief for a lasting economic recovery. The UK Guardian says analyses show that, even after 15 years of sustained strong growth, the country would face a level of debt that the International Monetary Fund deems unsustainable. The IMF’s baseline estimate - the most likely outcome - is that Greece’s debt would still be 118% of GDP in 2030, even if it signs up to the complete package of tax and spending reforms demanded. That is well above the 110% regarded by the IMF as sustainable given Greece’s debt profile, currently 175% of GDP and likely to go higher because of its recent austerity-induced slide back into recession. The documents admit that under the baseline scenario “significant concessions” are necessary to improve Greece’s chances of ridding itself permanently of its debt financing woes. Even under the best case scenario, which includes growth of 4% a year for the next five years -- note that the EU growth rate, including Germany, is now at 1.8% rising to 2.1% next year -- Greece’s debt levels will drop to only 124%, by 2022. The best case also anticipates €15 billion in proceeds from privatisations, five times the estimate in the most likely scenario. But under all the scenarios - all assume a third bailout program - looked at by the troika, Greece has no chance of meeting the target of reducing its debt to “well below 110% of GDP by 2022” set by the Eurogroup of finance ministers in November 2012. In the troika's own words : “It is clear that the policy slippages and uncertainties of the last months have made the achievement of the 2012 targets impossible under any scenario.” ~~~~~ These projections are in the report Preliminary Debt Sustainability Analysis for Greece, one of six documents that are part of the full set of materials that comprise the “final” proposal sent to Greece by its creditors last Friday. They were sent to all German MPs with the expectation that the deal would need to be approved by the country’s parliament. A Bundestag vote never took place because Tsipras rejected the plans and called a referendum on whether to accept the troika’s demands. The analysis shows that while Greece has already benefitted from a number of debt-reducing measures -- maturities have been extended, interest payments are similar to those of less indebted nations and the 2012 cut debt by about €100 billion -- the document also admits that under the baseline scenario Greece cannot succeed without debt relief. The documents provide no advice about what such a package should look like, nor does it provide any detail about the third bailout program, although the troika documents assume one would exist. They promise only a more detailed debt sustainability analysis in the future. ~~~~~ The documents also throw light on the €35 billion investment package that was offered to Greece last week. The second document in the pack of six, titled Reforms for the Completion of the Current Programme and Beyond, shows there was less to this offer than indicated by EC President Jean-Claude Juncker and Germany’s vice-chancellor Sigmar Gabriel -- the cash offered is not an investment but is actually an EU grant that is regularly available to all member states, but accessing the cash requires a 15% co-financing thzt Greece cannot afford. Because of this, Greece has unspent amounts from its €38bn 2007 to 2013 pot of available grants. ~~~~~ A third document outlines the “financing needs and draft disbursement schedule linked to the completion of the fifth review,” spelling out how Greece would have received €15bn to meet its obligations until the end of November. The cash would have been handed over in five tranches starting in June (as soon as the Greek parliament approved the proposals) to cover Greece’s financing needs. However, 93% of the funds would have gone directly to cover the cost of maturing debt for the duration of the extension. With the remaining €1.05 billion, Greece could not even pay its €2 billion per month pension obligation. ~~~~~ The remaining documents cover the actions that were expected to be taken by Greece in consultation with the EC/ECB/IMF. One of these papers was also published by the EC last weekend. The plan is premised on a primary surplus target of 1%, 2%, 3%, and 3.5% of GDP in 2015, 2016, 2017 and 2018 respectively (both sides agree on these largely unachievable targets). It also depends on VAT changes producing additional revenue of 1% of GDP and a reform of the pension system that leads to savings of 1% of GDP in 2016. The proposal broadens the VAT tax base at a standard rate of 23%, and would include restaurants, and catering. There will be a reduced rate of 13% to cover a limited set of goods, that includes energy, basic foods, hotels and water (excluding sewage). There was also to be a super-reduced rate of 6% on pharmaceuticals, books and theatres, an increase on tax on insurance and the elimination of tax exemptions on certain islands. The creditors had originally wanted only a two-tier VAT system. In terms of pensions, which have been the sticking point in the negotiations, the plan demands reforms to : create strong disincentives to early retirement, including changes to early retirement penalties; adopt legislation so that withdrawals from the social insurance fund will incur an annual penalty, for those affected by the extension of the retirement age period, equivalent to 10% on top of the current penalty of 6%; ensure that all supplementary pension funds are only financed by self-contributions; gradually phase out the solidarity grant (EKAS) for all pensioners by December 2019, starting immediately for the top 20% of beneficiaries with the details of the phase-out to be agreed with the institutions; freeze monthly guaranteed contributory pension limits in nominal terms until 2022; provide to people retiring after 30 June 2015 the basic, guaranteed contributory, and means-tested pensions only at statutory normal retirement age, currently 67 years; and, increase the relatively low health contributions for pensioners from 4% to 6% on average and extend it to supplementary pensions. Clearly, on Monday, EC President Juncker lied when he insisted that these measures did not amount to a cut in pensions. However, the creditors were correct in saying that they had compromised and the plans had some flexibility. They also suggested that Greece could provide alternative proposals as long as they are “sufficiently concrete and quantifiable.” ~~~~~ Dear readers, that is a lot of detail, but it shows how desperate Greece's position is while it continues to try to satisfy EC/ECB/IMF troika demands. As I said last week, Greece would be a bankrupt pauper for the next 45 years if it is forced to accept the troika demands. There would be no money for infrastructure, job development programs or anything else except feeding the troika's coffers. The situation in Greece has been a humanitarian crisis for some time. It is against this austerity-induced death spiral that Juncker said he has always supported the Greek people. It is against this death spiral that Chancellor Merkel spoke to the Bundestag today, telling Greece that she leads an EU of "law and responsibility" which can, she offered, get along very nicely without Greece but will talk - on her terms and after a referendum that all analysts agree she hopes will drive Tsipras from office and provide her with a weaker, more pliable Greek leader who has less love for democracy. The northern core of the EU has coalesced against its southern tier. Greece is to be destroyed. Spain and its Podemus party should take note before they defy Merkel's self-righteous undemocratic EU. The boot will come down hard on them - and on Portugal. And -- although its politicians seem oblivious -- on Italy. There is no room for economic or cultural variety. EU member states will become northern technocrats and rationalists. Only France in the southern tier is to be saved, because it is France that continues to give Germany respectability. Does Alexis Tsipras - do the Greeks - really want to deliver themselves into the gaping maw of the EU monster? Tsipras has just answered 'No,' saying that he will push on with the referendum and asking Greeks to vote no to EU austerity, telling them it will not mean exclusion from the Euro. The Greek people must now answer -- democracy or destruction. But we must also ask where is America, the supposed defender of humanity and its higher values? Nowhere near Athens. Obama's America is too busy trying to figure out how to pay Iran to build a nuclear arsenal and opening a Cuban embassy in Washington. Has America's real voice been silenced forever?