Greece and the Troika’s Treachery

Here’s the draft of the supposed agreement to “sort out” the Greek debt problem once and for all. According to Bloomberg, here’s the essentials:

  • Greece’s 2012 GDP will shrink by as much as 5%.
  • Greece is expected to return to growth in 2013.
  • Greece will cut 15,000 in state jobs in 2012.
  • Minimum wage will be cut by 20 percent.
  • There will be no increase to sales tax.
  • The government will cut medicine spending will fall from 1.9% to 1.5% and merge all auxiliary pension funds.
  • It will also sell stakes in six companies—in particular, energy companies and refineries.

Of course, the current thrust of fiscal policy will almost certainly guarantee that there still will be a default, involuntary or otherwise, in spite of this agreement. If you don’t have a mechanism to allow growth, then how do the Greeks service their debt, even with the reduced debt burden?

Perhaps that’s the idea. Make the deal so miserable for the Greek people that the Spanish, Portuguese, Irish and Italians don’t even begin to think of trying to get a similar haircut on their debt.

Certainly, the deficit reduction won’t come. It can’t when you deflate a rapidly declining economy into the ground. Common sense suggests that a drop in private income flows while private debt loads are high is an invitation to debt defaults and widespread insolvencies.

Even with all of the concessions, the euro bosses have not officially signed off on the agreement:

Finance ministers of the 17-nation euro zone arriving for talks in Brussels warned there would be no immediate green light for the rescue package and said Athens must prove itself first.

“It’s up to the Greek government to provide concrete actions through legislation and other actions to convince its European partners that a second program can be made to work,” EU Economic and Monetary Affairs Commissioner Olli Rehn said.

German Finance Minister Wolfgang Schaeuble, whose country is Europe’s biggest paymaster, told reporters: “You don’t need to wait around because there will be no decision (tonight).”

Greek Finance Minister Evangelos Venizelos flew to Brussels after all-night talks involving Prime Minister Lucas Papademos, leaders of the three coalition parties and chief EU and IMF inspectors left one sensitive issue – pension cuts – unresolved.

It is worth pointing out that Greece’s pension payments on a per capita basis are amongst the lowest in Europe. Still, apparently, this plunder hasn’t gone far enough The Greek people must feel like Sabine Women right now.

Game, set and match to the Troika.

While we’re at it, let’s address this “Greeks as tax cheats” canard once and for all. Greece’s tax revenue from VAT collapsed by 18.7pc in January from a year earlier. As Ambrose Evans Pritchard noted:

“Nobody can seriously blame tax evasion for this. It has happened because 60,000 small firms and family businesses have gone bankrupt since the summer

The VAT rate for food and drink rose from 13pc to 23pc in September to comply with EU-IMF Troika demands. The revenue effect has been overwhelmed by the contraction of the economy.

Overall tax receipts fell 7pc year-on-year.”

We’re one step closer to ensuring that the birthplace of democracy becomes a form of national indentured servitude. That is of course, unless Greece regains some modicum of self-respect and tells the Troika to take a hike and leaves the euro zone.

This post originally appeared at New Economic Perspectives.

5 Responses to "Greece and the Troika’s Treachery"

  1. Mike   February 10, 2012 at 10:13 am

    Greeks don't want to change, I think they should default because that's what they want. When we talk about tax evasion in Greece, the evasion comes only from direct income tax contributions which lag significantly other countries as % of GDP. This is due to the extremely high percentage of self employed people who conceal their real incomes. 82% of taxpayers in Greece are below the poverty line according to their tax statements. VAT income is the same as in the rest of EU.

  2. paulie46   February 10, 2012 at 2:49 pm

    Mike, regardless of whether or not the Greeks pay their taxes or don't or work hard or don't or whatever else, they were doomed to fail as long as they were a net importer. Starting with a finite number of Euro's in their economy that have been draining away to Germany (a net exporter) Greece is simply running out of money and nothing can fix that other than printing more.
    And no, borrowing doesn't help beyond short-term.

  3. Bearlow   February 11, 2012 at 11:41 am

    A simple solution would be to defer paying back existing loans, to adjust interestrates on them to say 1%. Because of this choice Greece will not be able loan anymore and therefor must have a balanced budget. Europe will keep it's euro's and there will be no need to control the Greeks. This option is open to every country in Europe.

  4. Stray__Cat   February 12, 2012 at 6:51 pm

    I write just minutes after the Greek parliament approved the new austerity package. News report fires in downtown Athens, and turmoils with dozens of wounded.
    I never thought I could say this.
    They're right, they are being stolen of their lives and future, they have no other choice but revolution. And, maybe, revolution is what is needed to adjust the heading of Europe.

  5. Henry   February 16, 2012 at 10:43 pm

    Greece would agree on anything the EU come up with . Their cuts is in the Millions and the rescue package is in the Billions. Would one exchange Millions for Billions !!

    Greece would do what they always do at the end, because there is no formula for them to grow out of their problem. Debt ratio of 120% of GDP is not possible to maintain; if they are not competitive, and not allowed to grow out of their problem.

    by the way, Greece is only the first round……..