Financial Coup in Greece

By Stelios Kouloglou

"Le Monde Diplomatique " - Like the traditional Greek song, in Athens “everything changes and everything stays the same”. Four months after Syriza’s victory, the parties that had governed since the overthrow of the military dictatorship — the Panhellenic Socialist Movement (Pasok) and New Democracy (rightwing) — have been completely discredited. The first radical leftist government since the “mountain government” at the time of the German occupation is very popular (1).

Although the “troika”, hated because of its responsibility for the current economic disaster, is no longer mentioned, its three “institutions” — the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF) — continue their policies. With threats, blackmail and ultimatums, a new “troika” is imposing the same austerity on the government of Alexis Tsipras.

With wealth generation down by 25% since 2010 and an unemployment rate of 27% (more than 50% for those under 25), Greece has an unprecedented social and humanitarian crisis. But despite the results of the January elections, which gave Tsipras a clear mandate to end austerity, the European Union continues to treat Greece as a naughty pupil who must be punished by the stern teachers in Brussels, to discourage daydreaming voters in Spain and elsewhere who still believe in the possibility of governments opposed to the German dogma.

This situation is like Chile in the 1970s, when US president Richard Nixon was determined to topple Salvador Allende to prevent leftwing contagion in America’s backyard. “Make the economy scream,” said Nixon, and when it did, General Augusto Pinochet took over.

The silent coup under way in Greece is using more modern tools, including credit rating agencies, the media and the ECB. Two options will remain for Tsipras’s government: to be strangled financially if it keeps trying to implement its programme, or to renege on its promises and fall, abandoned by its voters.
The hope disease

ECB president Mario Draghi announced three days before the Greek election that the bank’s intervention programme (the ECB buys €60bn in sovereign bonds issued by eurozone countries each month) would be open to Greece under certain conditions: this was to avoid spreading the Syriza virus, the hope disease, to the rest of Europe. The eurozone’s weak link, which needs help the most, would not get support until it submitted to Brussels.

Greeks are hard-headed. They voted for Syriza, compelling the Eurogroup’s president Jeroen Dijsselbloem to call them to order: “The Greek people have to realise that the major problems in the Greek economy have not disappeared and haven’t even changed overnight because of the simple fact that an election took place.” Christine Lagarde, managing director of the IMF, said: “We cannot make special exceptions for specific countries,” while Benoît Cœuré, member of the ECB executive board, went further: “Greece has to pay, those are the rules of the European game.”

Draghi soon demonstrated that the eurozone knew how to “make the economy scream” too: without any explanation, he shut off the Greek banks’ primary source of funding, which was replaced by Emergency Liquidity Assistance (ELA), a more costly measure that has to be renewed weekly. The rating agency Moody’s announced that Syriza’s victory “has an adverse effect on [Greece’s] economic growth prospects.”

Grexit — Greece’s exit from the eurozone — and a payment default were back on the agenda. Only two days after the elections, Marcel Fratzscher, president of the German Institute for Economic Research (DIW) and former economist at the ECB, said Tsipras was playing a dangerous game: “If people start to believe that he is really serious, you could have massive capital flight and a bank run. You are quickly at a point where a euro exit becomes more possible” — a perfect example of a self-fulfilling prophecy that worsened Greece’s economic plight.

Syriza had little room to manoeuvre. Tsipras was elected to renegotiate the terms and conditions attached to the “aid”. But the idea of an exit from the eurozone is not supported by most Greeks, who have been persuaded by the Greek and international media that Grexit would be a disaster. And participation in the single currency strikes other very sensitive chords.
Grexit is still taboo

Since independence in 1822, Greece has swung between a past as part of the Ottoman empire, and “Europeanisation”. Both its elites and ordinary people have always seen being part of Europe as signifying modernity and an end to underdevelopment. Participation in Europe’s “hard core” was supposed to make this national dream happen. So, during the election campaign, Syriza candidates felt obliged to treat Grexit as taboo.

At the heart of the negotiations between Tsipras’s government and the “institutions” are the conditions set by the lenders, the “memorandums” that have forced Athens since 2010 to implement devastating austerity and overtaxation. More than 90% of the lenders’ payments are returned to them directly — sometimes the next day — because they are used to repay the debt. As finance minister Yanis Varoufakis, who wants a new agreement with the lenders, said: “Greece has spent the last five years living for the next loan tranche like drug addicts craving the next dose.” Since non-repayment of the debt is equivalent to a “credit event” (a kind of bankruptcy), releasing the dose becomes a very powerful blackmail weapon for the lenders. In theory, since the lenders need repaying, the Greek government has considerable bargaining power, but using this leverage would have prompted the ECB to stop lending to Greek banks, meaning a return to the drachma.

It was not surprising then that within three weeks of the Syriza win, the finance ministers of the other 18 eurozone countries sent an ultimatum to Greece — its government must implement the austerity programme it had inherited, or meet its obligations by finding the money elsewhere. TheNew York Times concluded this was “a prospect that many in the financial markets think would leave Greece little option but to leave the euro.”
Four-month truce

To escape, the Greek government requested a four-month truce. It did not ask for disbursement of the €7.2bn but hoped that both sides would reach an agreement incorporating measures to develop the economy and resolve the debt problem. It would have been tactless to bring the government down immediately, so the lenders accepted the request.

The Greek government thought it could count, at least temporarily, on certain sums. It hoped for €1.2bn from the European Financial Stability Facility’s reserves — a sum not used in the process of recapitalising Greece’s banks — as well as €1.9bn that the ECB had earned on Greek bonds and promised to give back to Athens. In March, the ECB announced that it would not return these earnings; and the Eurogroup ministers decided to transfer this money to Luxembourg, as if they feared the Greeks would steal it. The Tsipras team, inexperienced and not expecting such manoeuvres, assented without demanding any guarantees. In an interview with the TV channelStar, Tsipras admitted that not asking for a written agreement had been an error.

The Greek government remained popular despite the concessions it had agreed to — no reversals of the privatisations of the previous government, a postponement of the increase in the minimum wage, and increased value-added tax (VAT). So Germany launched a campaign to discredit the government. Der Spiegel published an article on the “tortured relationship” between Varoufakis and German finance minister Wolfgang Schäuble, written by, among others, Nikolaus Blome, recently transferred from Bild, where he was the hero of its campaign in 2010 against the “lazy Greeks” (2). Schäuble publicly mocked Varoufakis as being “stupidly naïve”, a rare occurrence in the history of the EU and in international diplomacy. Der Spiegel presented Schäuble as a benevolent Sisyphus, sorry that Greece would be condemned to fail and leave the eurozone unless Varoufakis was removed from his post.

With capital flight, grim predictions and threats worsening, Dijsselbloem declared in the New York Times that the Eurogroup was considering whether to apply the Cyprus model to Greece, limiting capital flows and reducing deposits. This could only be seen as an unsuccessful attempt to provoke a banking panic. While the ECB and Draghi were further restricting Greek banks’ options for finance, Bild published a pseudo-story about a panic in Athens, misrepresenting a banal scene of pensioners queuing outside a bank on pension day.
First German fruits

At the end of April, Varoufakis was replaced by his assistant Euclid Tsakalotos for negotiations with the lenders, and said: “The government today faces a new kind of coup, one that is not carried out with tanks, as in 1967, but through banks.” For now, the silent coup has affected only him. But time is on the side of the lenders, who are demanding neoliberal “remedies”. Each has its own obsession. The IMF ideologues insist on the deregulation of the labour market as well as legalisation of mass redundancies, which it promised to the Greek oligarchs who own the banks. The EC (or rather, the German government) demands further low-cost privatisations that may interest German companies. One scandalous example that stands out from the long list is that of 28 buildings sold by the Greek state in 2013 — it still uses them and must pay the new owners €600m in rent over the next 20 years, almost triple their sale price.

The Greek government, in a weak position and abandoned by those whom it had hoped would support it, such as France, can’t resolve the country’s main problem: an unsustainable debt. The proposal for an international conference similar to the 1953 event where Germany was forgiven most of its war reparations, opening the way to its economic miracle (3), has been lost amid threats and ultimatums (including a warning of Greek default this month). Tsipras wants a better agreement, but any deal reached would be a long way from the programme voted for by Greeks. Jyrki Katainen, the EC vice-president, was clear on this the day after the election: “We don’t change our policy according to elections.”

So do elections have any meaning when a country which respects its major commitments is allowed no rights to modify its policies? The Greek party Golden Dawn, and its neo-Nazis, have an answer to that, and it may be that they will benefit more from the failure of Tsipras’s government than will Schäuble’s supporters in Athens.