Deal on Greek Debt Crisis Exposes Europe’s Deepening Fissures.

NY TIMES

Forced by his nation’s creditors into broad new concessions to avert financial collapse, Prime Minister Alexis Tsipras of Greece returned home on Monday with just days to sell the deal to fractured lawmakers and a dazed electorate.

The agreement he struck with other European leaders early Monday after a contentious all-night bargaining session would give Greece the chance to receive its third international bailout in five years, a package of as much as 86 billion euros, or $96 billion, as well as easier repayment terms on some of its existing debt of more than €300 billion and a short-term economic stimulus plan.

Should he succeed in carrying out the policies set out in the agreement, he would oversee just the kind of market-based changes that creditors have been demanding and successive Greek governments have been failing to deliver for years.

As the talks ended in Brussels, Mr. Tsipras, who had once vowed to overturn the austerity policies he says have undercut the Greek economy and left its people suffering, was no longer talking of “blackmail” by creditors or “hostage taking.” Instead, he said the new package of proposals would “maintain Greece’s financial stability and provide recovery potential.”

The country which we help has shown a willingness and readiness to carry out reforms,” Ms. Merkel said, referring to Greece.

Mr. Tsipras came to that willingness very late in the game, but some critics as well as supporters said that his turnabout was pragmatic in the face of shuttered banks and a collapsing economy.

“At a certain point he realized that he had been given very bad advice,” said Aristos Doxiadis, an economist and venture capitalist who writes about politics and has been critical of Mr. Tsipras in the past. “It wasn’t whether it was a good or a bad deal, but whether there was any feasible alternative.”

“Some will surely feel betrayed by what has happened,” he said. “But most Greeks will say this man tried very hard and if he was convinced there is no better way, then there is no better way.”

Among the elements that must be dealt with this week are increases in the value added tax, including the end of a special tax status for the Greek islands; a makeover of the pension system; and the imposition of automatic spending cuts if the government misses budget targets.

If the deal is a political earthquake for Greece, it also puts the country on course for a major economic shake-up. It aims to force Greece once again to tackle many issues it has kicked aside for years, from simple ones like getting reliable economic statistics to more complex ones like opening up product and service markets, further streamlining the pension system, improving tax collection and moving ahead on privatization.

Yet even if the Greek Parliament passes a spate of reforms this week, Athens has a spotty track record at carrying out tough changes. As a result, Mr. Tsipras has now agreed to have the International Monetary Fund survey every move he and his government make.

Many of the changes demanded by creditors are political hot potatoes, including increasing the consumption tax to 23 percent for a range of goods and services, raising the retirement age to 67 and reducing more pension benefits in an aging population. Many of the changes could have the effect of further slowing the economy in the short run and reducing standards of living for some Greeks.

“It will be extremely difficult for the Greek people to accept such an adjustment off the back of five years of economic depression,” Megan Greene, a managing director at the financial firm Manulife who has been monitoring the Greek situation, said in a report.

The creditors’ insistence on tough terms reflects years of pent-up frustration with Greece’s slow progress in modernizing the economy. Many claim that austerity is harder than it would have otherwise been had Athens moved swiftly to promote change.

Mr. Tsipras and most Greeks say that austerity is what killed the economy, especially after previous governments slashed state spending 20 percent since 2010 under previous bailouts, mainly by cutting pensions, wages, health care and social services, impoverishing many Greeks.

One of the more contentious new demands from creditors — one that is likely to prompt an outcry among Greeks — is that Greece transfer €50 billion worth of state assets to a fund that would have international monitors. The fund would oversee sales to pay down Greece’s debt and help recapitalize its teetering banks.

Passage of the new measures appears assured, since Greece's opposition parties have pledged to support Tsipras' deal. His most pressing problem was more likely the speaker of Parliament, Zoi Konstantopoulou, also a member of Mr. Tsipras’s Syriza party, who objected to Mr. Tsipras’s attempts to pass narrower proposals last Friday.

Some analysts said that Ms. Konstantopoulou, a stickler for rules, could prevent him from using the fast-track procedures that would be necessary to get the job done in time to satisfy European leaders. Portions of the plan must be passed by Wednesday, and more a week from Wednesday.




NY TIMES

The latest effort to preserve Greek membership in the eurozone has only deepened the fissures within the European Union between north and south, between advanced economies and developing ones, between large countries and smaller ones, between lenders and debtors, and, just as important, between those 19 countries within the eurozone and the nine European Union nations outside it.

In the name of preserving the “European project” and European “solidarity,” the ultimatum put to Greece required punishment for all of Greece’s past sins, and for all of the gamesmanship and harsh talk of the governing Syriza party.  Paul Krugman, the Nobel prize-winning economist and prominent critic of austerity in Greece, said the creditors’ demands on Greece  were “a grotesque betrayal of everything the European project was supposed to stand for.”

But it averted an outcome that could have left Europe even more badly fractured. And it highlighted the willingness of some leaders to make a compelling case for unity over narrow national interest, especially President François Hollande of France, who played an important role in mediating between Germany and Greece.

Unpopular and yet contemplating another run for the presidency in 2017, Mr. Hollande displayed leadership and distanced himself from Ms. Merkel and German demands, which many in Europe, especially in France, saw as selfishness and vindictiveness.

Francois Hollande, French President

It remains to be seen if the European Union can now, after so many years, lift its head from its euro crisis and begin to concentrate on other critical issues: providing economic growth and jobs for its young people, a rational and unified policy on migration, a response to Russian ambitions in Ukraine and elsewhere, and a British vote on whether to leave the European Union.

A so-called Brexit — an exit by Britain, which is expected to overtake France as Europe’s second-largest economy and is one of Europe’s main military and diplomatic actors, with a permanent seat on the United Nations Security Council — would be far more damaging to the European Union than the departure of small, difficult Greece.

Britain, which never joined the euro currency bloc, plans to hold a referendum by the end of 2017 on whether to remain a member of the European Union, and Prime Minister David Cameron is negotiating now to change Britain’s terms of membership. The mess over Greece has hardly helped the reputation of the European Union inside Britain, but it may also help Mr. Cameron secure a better deal.

As for Ms. Merkel, her reputation hangs in the balance, at home and in her role as Europe’s de facto leader. Having rejected a Greek exit from the eurozone three years ago in the name of European solidarity, she has again avoided that outcome. This time, she risked considerable cost to her political standing at home. But what would really damage her legacy is another expensive bailout for Greece that fails.

The crisis that played out over the weekend was just the latest in a series that traces back to the origins and nature of the currency union.

When Germany under Chancellor Helmut Kohl gave in more than two decades ago to the entreaties of President François Mitterrand of France and agreed to give up the deutsche mark for the new common currency, the euro, he did so not for economic reasons, but for political ones.

Mr. Kohl and Mr. Mitterrand ignored the voices that warned against a common currency without common financial institutions or fiscal policies in a set of widely varying economies.

Greece was allowed into the eurozone for largely the same reasons, wishful politics, that put ancient Greece, the core of European culture, at the heart of a European ideal built on civilization and peace. The fact that today’s Greece bears little relationship to the country of Socrates or Pericles was simply ignored. And so was clear evidence, well-known at the time in Brussels, that the Greeks were regularly faking their budgetary figures to qualify for the euro.

The magical thinking involved was that the euro, somehow shorn of politics, would bring all these different economies into closer balance. The last decade has proved that to be illusory. And Monday’s deal — if it is ratified by an angry Greek Parliament, and by an unhappy German Parliament, and not derailed by smaller countries like Finland [which is expected to vote against the agreement] with coalition governments that depend on the support of euroskeptic parties — will avert the debacle of a country leaving the common currency for the first time. But by itself, it will do little to strengthen the future of the euro.

For many in Europe, the euro’s economic benefits have been offset by the constraints it imposes. For the weaker economies in particular, it has become a sort of prison, limiting the ability of elected governments to use budgetary policy to smooth out the ups and downs of the economic cycle and eliminating their use of currency fluctuations to help manage national economies.

The victory in January of Prime Minister Alexis Tsipras and his Syriza party led to the reversal of some critical economic overhauls demanded by creditors, threw the Greek economy backward and raised even higher the requirement for further loans. Mr. Tsipras bet big but lost. But so have the Greeks.

It is one thing to undergo changes when a government and a people have bought into them as necessary and hopeful — this is how the Baltic nations took the pill of economic austerity and overhaul, and this is largely how Ireland, Portugal and Spain saw matters, too, when faced with implosion.

But it is a far different thing to have further social changes and austerity shoved down one’s throat in an exercise of political power and domination, as many Greeks are no doubt interpreting this deal. Carrying out these changes will feel like enforced labor to many Greeks, and especially to the Syriza government, if it survives at all.

As Samuel Johnson said about second marriages, this prospective third bailout of Greece is a triumph of hope over experience. Even more so with Mr. Tsipras and Syriza, their protestations of mandates and sovereignty thrown back into their faces by European colleagues offended by Syriza’s moralizing, and even more, by its gamesmanship.

Greek Plan Accepts Austerity to Get Debt Relief

NYT

Only a day after grim predictions of financial and social collapse in Greece, a scramble appeared underway to work out the details of a new bailout package to bring the country back from the brink of falling out of the euro.

As details of the new offer emerged, it appeared that Prime Minister Alexis Tsipras was capitulating to demands on harsh austerity terms that he urged his countrymen to reject in the referendum last Sunday, like tax increases and various measures to cut the costs of pensions.

He will seek the approval of Parliament on Friday. Much may hinge on his ability to persuade the more radical elements of his Syriza party to support a package that in essence was anathema to many of them last week.

What was breathtaking, however, was how in a matter of hours the entire dynamic in the Greek crisis seemed to shift, from apocalyptic warnings of a Zimbabwe in the Balkans, to a fresh optimism that the basics of a deal could be worked out.

Prospects for a deal improved through the day as a procession of European leaders came around to Mr. Tsipras’s conviction that pure austerity measures were insufficient in their own right and had to be accompanied by a commitment to reduce the burden of Greece’s stupendous debt.

Greece received vital political support and technical assistance from France, help that highlighted the contrasting approaches being taken by the two leading powers in the European Union. Germany has played the bad cop, standing firm against concessions to Greece and, in Mr. Schäuble’s case, openly doubting that the country really belonged in the eurozone. France has thrown itself into the task of finding a deal.

The French assistance appeared to be an effort to make sure the Greek proposal, submitted just before a midnight deadline, would be as thorough and salable as possible to Greece’s creditors and would smooth the way for a compromise on a new bailout package to keep Greece afloat financially and inside the euro.

France has been the most steadfast major nation in Europe supporting Greece ever since Mr. Tsipras was ushered in to power in January on a mandate to repudiate austerity. Paris has been particularly outspoken in recent days about the need for a compromise that would help Greece and hold the eurozone together.

Neither French nor German officials would discuss France’s involvement in the Greek proposal in any depth. But the development raised questions about whether France and Germany have split heading into the final negotiations or whether there is a back-room understanding between Paris and Berlin.

Ms. Merkel, speaking later in Sarajevo, reiterated her opposition to actually writing off some of Greece’s debt, though she was less definitive about steps like reducing interest rates or extending the payment period as ways of helping Greece manage its indebtedness.

Germany has taken an increasingly hard line toward Greece since the nation voted no on Sunday to an earlier bailout program in a referendum that sent political shivers across Europe. In the wake of the chaos sparked by the vote, Ms. Merkel flew Monday to Paris to join President François Hollande of France to discuss what to do next with Greece.

The situation has put Mrs. Merkel into the toughest position of her career. She has been forced to balance an angry German public, which sees no reason to give Greece billions of additional bailout money or to write down its debt, against the danger of a Greek exit from the eurozone.

Greece is a tiny country with limited economic impact on Europe, but considerable strategic value. European political experts had wondered throughout the week whether Ms. Merkel, as the leader of the most powerful country in Europe, would stand for becoming the first postwar European leader to countenance the first step back in Europe’s march toward greater integration.

They also wondered if she was willing to risk the prospect of a failed, embittered state within the European Union and NATO, an open wound in Europe’s southern and eastern flank that would be an open invitation to Moscow to exploit already inflamed division within the European Union.

 Prime Minister Manuel Valls of France on Wednesday  told lawmakers in the National Assembly on Wednesday in a speech that was broadcast live on Greek television, “France refuses that Greece leaves the eurozone in the name of our position and our commitments.” To secure a deal, though, he said Greece needed to pledge to modernize its economy and overhaul pensions.

He also suggested that Mr. Tsipras’s most pivotal request — a program to make Greece’s mountainous debt more sustainable — be taken seriously by other European countries. Until recently, that has been nearly a taboo idea in Europe’s halls of power, since European taxpayers are currently on the hook if Greece defaults on its debts.




NPR


The new proposals include sweeping reforms to VAT to raise 1% of GDP and moving more items to the 23% top rate of tax, including restaurants – a key battleground before.

Greece has also dropped its opposition to abolishing the lower VAT rate on its islands, starting with the most popular tourist attractions. Athens also appears to have made significant concessions on pensions, agreeing to phase out solidarity payments for the poorest pensioners by December 2019, a year earlier than planned. It would also raise the retirement age to 67 by 2022.

And it has agreed to raise corporation tax to 28%, as the IMF wanted, not 29%, as previously targeted.

Greece is also proposing to cut military spending by €100m in 2015 and by €200m in 2016, and implement changes to reform and improve tax collection and fight tax evasion. It will also press on with privatisation of state assets including regional airports and ports. Some government MPs had vowed to reverse this.

In return, Greece appears to be seeking a three-year loan deal worth €53.5bn.

The Greek government said parliament would vote on the proposals later today, before an emergency summit on Sunday of all 28 European Union leaders.

Many experts believe [the] debt, which is 177 percent of the country's gross domestic product, is unsustainable for a country that has not recovered from the 2008 financial crisis. Indeed, U.S. Treasury Secretary Jack Lew added his voice to calls for "Europe [to] ... restructure the debt in a way that is more sustainable." Christine Lagarde, the managing director of the IMF, one of Greece's toughest critics, echoed those calls.

But some European countries, especially Germany, have been reluctant. Chancellor Angela Merkel, on a visit to Bosnia on Thursday, appeared to rule out a "classic haircut" on Europe's loans to Greece.

WHAT NEXT FOR GREECE?

NPR

Greece and its European Union partners are beginning to sort out what's next after the country voted en masse to reject a German-led bailout plan that would have given the country more credit to pay its debt in exchange for tough austerity measures.

As The New York Times reports, now that the vote is in, the hard part begins. Using the vote as leverage, Greece will try to renegotiate more favorable terms for its bailout, but its European partners could insist on tough terms, which could ultimately result in Greece's exit from the European Union.

Meanwhile, the vote had its first concrete consequence on Monday when Greek Finance Minister Yanis Varoufakis resigned. Varoufakis went on to call the vote "splendid" and the "historic" moment in which Greece "rose up against debt bondage. I shall wear the creditors' loathing with pride," he said.

Prime Minister Alexis Tsipras of Greece, second left, before a meeting with other political leaders in Athens on Monday. Credit Petros Giannakouris/Associated Press

Ending Greece’s Bleeding

PAUL KRUGMAN, NY TIMES

...the campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.

What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the “no” side offers at least a chance for an escape from this trap.

But how can such an escape be managed? Is there any way for Greece to remain in the euro? And is this desirable in any case?

The most immediate question involves Greek banks. In advance of the referendum, the European Central Bank cut off their access to additional funds, helping to precipitate panic and force the government to impose a bank holiday and capital controls. The central bank now faces an awkward choice: if it resumes normal financing it will as much as admit that the previous freeze was political, but if it doesn’t it will effectively force Greece into introducing a new currency.

Specifically, if the money doesn’t start flowing from Frankfurt (the headquarters of the central bank), Greece will have no choice but to start paying wages and pensions with i.o.u.s, which will de facto be a parallel currency — and which might soon turn into the new drachma.

Suppose, on the other hand, that the central bank does resume normal lending, and the banking crisis eases. That still leaves the question of how to restore economic growth.

In the failed negotiations that led up to Sunday’s referendum, the central sticking point was Greece’s demand for permanent debt relief, to remove the cloud hanging over its economy. The troika — the institutions representing creditor interests — refused, even though we now know that one member of the troika, the International Monetary Fund, had concluded independently that Greece’s debt cannot be paid. But will they reconsider now that the attempt to drive the governing leftist coalition from office has failed?

I have no idea — and in any case there is now a strong argument that Greek exit from the euro is the best of bad options.


How come no one is suggesting that Greece be abandoned and let them 
Imagine, for a moment, that Greece had never adopted the euro, that it had merely fixed the value of the drachma in terms of euros. What would basic economic analysis say it should do now? The answer, overwhelmingly, would be that it should devalue — let the drachma’s value drop, both to encourage exports and to break out of the cycle of deflation.

Of course, Greece no longer has its own currency, and many analysts used to claim that adopting the euro was an irreversible move — after all, any hint of euro exit would set off devastating bank runs and a financial crisis. But at this point that financial crisis has already happened, so that the biggest costs of euro exit have been paid. Why, then, not go for the benefits?


Would Greek exit from the euro work as well as Iceland’s highly successful devaluation in 2008-09, or Argentina’s abandonment of its one-peso-one-dollar policy in 2001-02? Maybe not — but consider the alternatives. Unless Greece receives really major debt relief, and possibly even then, leaving the euro offers the only plausible escape route from its endless economic nightmare.

And let’s be clear: if Greece ends up leaving the euro, it won’t mean that the Greeks are bad Europeans. Greece’s debt problem reflected irresponsible lending as well as irresponsible borrowing, and in any case the Greeks have paid for their government’s sins many times over. If they can’t make a go of Europe’s common currency, it’s because that common currency offers no respite for countries in trouble. The important thing now is to do whatever it takes to end the bleeding.



Greek Crisis Shows How Germany’s Power Polarizes Europe

WALL ST JOURNAL

Ms. Merkel’s power after a decade in office has become seemingly untouchable, both within Germany and across Europe. But with the “no” vote in Sunday’s Greek referendum on bailout terms posing the biggest challenge yet to decades of European integration, risks to the European project resulting from Germany’s rise as the Continent’s most powerful country are becoming clear.


On Friday, Spanish antiausterity leader Pablo Iglesias urged his countrymen: “We don’t want to be a German colony.” On Sunday, after Greece’s result became clear, Italian populist Beppe Grillo said, “Now Merkel and bankers will have food for thought.” On Monday, Ms. Merkel flew to Paris for crisis talks amid signs the French government was resisting Berlin’s hard line on Greece.

Ms. Merkel’s popularity at home has remained strong through the Greek crisis, holding about steady at 67% in a poll at the end of June. She now must weigh whether to offer additional carrots to Greece to keep the country in the euro and preserve the irreversibility of membership in the common currency—at the risk of political backlash at home and the ire of German fiscal hawks. Only 10% of Germans supported further concessions for Greece in another poll last week.

Greece Is Just The Beginning Of The Great Austerity Backlash

HOWARD FINEMAN, HUFFINGTON POST

Now that the...world’s top dozen banks control $30 trillion in assets, the callous demands of a new and even larger “money power” is starting to spark a worldwide backlash.


Even the ever-cautious Obama has alluded to it. This past winter, he defended Greece, saying that “you can’t keep squeezing countries that are in the midst of depression” to pay off debt and warning that "eventually the political system, the society can’t sustain it.”

Europe, meanwhile, is likely to see the Greek anti-austerity sentiment spread -- in the first instance to Portugal and Spain, which have national elections this fall and winter, respectively. Governments in both countries are responding to heavy borrowing and debt with controversial austerity measures sure to be at issue with the voters. French and Italian national elections are much further away, but the leftist parties in each nation have been invigorated by the fight in Athens. Representatives of parties and movements in all four countries were on the scene in Greece this week, cheering on the Syriza party and trying to learn from its victories and mistakes.

The leftists face long odds despite growing evidence that what British economist John Maynard Keynes warned during the Great Depression (and what Obama said this winter) remains true: You can’t “squeeze” a country into prosperity. Just the opposite, in fact.

This was something the founders of the International Monetary Fund understood. Their original aim was to provide guidance to national governments in economic distress but also to feed in more money where needed, not cut it back. Today the IMF has become something akin to a collection agency, insisting on harsh measures that guarantee the repayment of loans made to vulnerable countries by private global banks.


Something has to change, as the Greeks declared with their vote this weekend.