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The unfinished negotiations for a Greek “Super-Memorandum”

In the wake of the most recent Eurogroup agreement and the last requirement of just a tiny…judicial intervention, the Greek government now finds itself at the end of a long series of negotiations and in the “quiet” months before new ones begin. The next set will be even more critical, not so much for the citizens who will have to endure austerity until 2022 (and “lighter” measures until 2060) as in terms of the negotiations themselves and the narrative that surrounds them.
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by Thanos Kamilalis

They say that history repeats itself first as a tragedy then as a farce. It’s a commonplace expression that is nevertheless clearly true in crisis-ridden Greece. During the SYRIZA-AnEl coalition’s time in power(especially under the second mandate), even the seasons of the year have come to resemble each other. Winter is a time of tension, harsh disagreement and bluster. Spring is the season for gradual capitulation. May (2016 and 2017) is the month for government betrayal; June for further prerequisites and an “agreement.” The rest of the summer then marks a period of government euphoria, followed by an autumn of initial discussions with an eye to the next set of negotiations. By using what happened over the same span of time in 2016—along with the language of the Third (and “fourth”)Memorandum of Understanding—as a kind of textbook, it’s easy to tell where we are and where we’re headed.

The June 15 Eurogroup joint statement condenses all the results of the most recent set of negotiations. These are the most essential and specific points:

The reform measures cover areas such as pensions, income tax, the labour market as well as the financial and energy sectors. These should make Greece's medium-term fiscal strategy more robust and support the growth-friendly rebalancing of the economy.
The Eurogroup invited Greece together with the institutions and relevant third parties to develop and support a holistic, growth enhancing strategy.

In this paragraph, the Eurozone Finance Ministers are essentially borrowing a page from 1984. In that legendary novel by George Orwell, war is peace; freedom is enslavement; ignorance is power. For the Eurogroup (as per usual), pension cuts, reductions in tax exemptions, an administration well-disposed to mass lay-offs, and the sale of Public Power Corporation shares all count as positive “reform measures.” Greece’s sentence to a “long-term memorandum,” requiring surpluses of 3.5% until 2022 and a little over 2% until 2060, constitutes “support [of] a holistic, growth enhancing strategy.”

The Eurogroup reconfirmed its approach to the sustainability of Greece's public debt that was agreed in May 2016, while providing some further detail on the medium-term debt measures that could accrue to Greece.

These measures would be implemented after successful completion of the programme, if a new debt sustainability analysis were to confirm that such measures are necessary.

These two brief paragraphs finalize the results of the multi-month Greek debt negotiations. In short and as is plainly evident, the Greek government gained nothing in terms of its debt, while after months of Eurozone attempts to secure further relief the Eurogroup simply determined that everything decided back in May 2016 still holds. Even the government’s recent expectation that the (highly dangerous) phrase “if necessary” would be removed from the relief-program wording was ultimately frustrated.

The Eurogroup welcomed Greece's commitment to maintain a primary surplus of 3.5% of GDP until 2022, and a fiscal path consistent with the European fiscal framework thereafter. According to analysis by the European Commission, such compliance would be achieved with a primary surplus of equal to or above but close to 2.0% of GDP in the period of 2023-2060.

In Greece the term “Memorandum of Understanding” (MoU, or simply memorandum)has come to mean three basic things: a package of “rescue aid” earmarked for payment of previous loans; harsh fiscal objectives that must be met, and austerity measures that will allow Greece to address its obligations. Two of these three pillars have been specified for the period 2019-2022. The measures amount to 4% of the GDP for 2019 (with the cut in tax exemptions perhaps set to shift in 2020). The objective is a 3.5% GDP surplus. These aims are even harsher than those set forth in the Third Memorandum. Still in the equation, too, is expenditure “trimming”, which still continues and constitutes a mechanism whose authority is even greater than that of the Ministry of Finance.

After the year 2022 there will be a 38-year period during which Greece, still implementing harsh European Union and Eurozone rules, will remain under close supervision. The country will be forced to register surpluses of 2% or a little more. International analysts and organizations have already characterized this program as outrageous, seeing as no country on the planet has ever managed to maintain a 2% surplus for forty years. There is, on the other hand, the counterargument that thisall just marks a “rough” agreement which, at the next stage, will change (for the better, of course). But this marks an over-optimistic hope that the Eurozone will set aside its seven-year position that “rules are rules,” and will finally do Greece a “favor”—which it has never done up to this moment. Yet the surplus plan was not incorporated into the agreement’s language merely for fantasy’s sake. It will constitute an essential aspect of the Greek debt’s “viability analysis.” This puts any government in the position of confronting a double-edged sword: to attain the objectives would only work in favor of the debt, by confirming the position of the Eurozone’s “bad cops” (Schäuble & co.) that the debt is indeed “viable.”

Against this background, IMF management will shortly recommend that the IMF Executive Board approve in principle a new, 14-month Standby Arrangement for Greece.

Here history is repeating itself; the only difference is the date on the calendar. The IMF, following 2010 (when Greece entered into the First MoU), 2013 (when Greece achieved a primary surplus), 2015 (when the Third MoU was agreed to), and 2016 (when the Fund deemed the debt measures insufficient), is again backing off its policy of major debt relief for any country under its purview.  The Fund’s strategy in these kinds of cases is to wait on the sidelines, as a “technical advisor” to a debt-relief program, essentially offering the guarantees sought by Germany and the harsher wing of the Christian Democrats for any given program’s “success.” In reality, the IMF does play a part in the Greek memoranda by imposing austerity measures but repeatedly “forgetting” the fixed policies it has to accompany debt relief. The Greek memoranda are thus a result of what is, in a sense, a mutation.

“The worst of the worst,” plus some promises

The latest agreement by Greece’s creditors is, if you strip away all the promises, the same agreement the Greek government had categorically rejected only a few weeks earlier. According to the May 22 Eurogroup meeting minutes, published by euro2day, Euclid Tsakalotos characterized the proposed agreement as “the worst of the worst.” His reaction wasn’t just some temporary outburst. For months, the government’s position has been that “nothing is settled, if everything isn’t settled.” In the end, all of Greece’s commitments to its creditors have been upheld, while the creditors’ promises to Greece have gone unfulfilled. Gradually, starting in the winter of 2016-2017, the government consented to legislate measures beginning in 2017for 2019 (a move regarded as antidemocratic, and beyond the European acquis). The government agreed to keep a 3.5% surplus objective until 2022,and an austerity program until 2060. It also assented to all of the IMF’s wishes for continued measures after the end of the Third Memorandum (essentially, a fourth memorandum). It acquiesced to the implementation of the measures set forth as the prerequisite for the IMF’s participation in the Greek debt program, despite the fact that… the Fund has put off its final decision for another 14 months. Tsipras’ promise to abolish the measures if the IMF failed to agree to them has likewise gone ignored…

So what has Greece gained from all of this? The payment of the installment cannot be counted as profit, seeing as 7 of the 8.5 billion euros go right back to the creditors and the remaining money is to be paid in installments. Thus in effect what the government received was promises: a promise for operation of the Development Bank (though with questions about the capital and its recipients); a promise for tying repayment of the debt to growth rates (after the end of the Third Memorandum); a promise to extend maturities by 15 years (“we’re ready to consider it,” Dijsselbloem said). On the other hand, in May 2016 the creditors made a commitment to a debt ceiling equal to 15% of the GDP, at a time that Tsipras, in an attempt to argue against “trimming,” was speaking of “debt trimming.”

No justice for HRADF and the creditors

Even if the creditors’ interventions in Greek finances have now become habitual, their interventions in the legal system mark an innovation. A few days before the “agreement,” the governments of Spain, Italy and Slovakia threatened to freeze payments to Greece, if the Hellenic Republic Asset Development Fund (HRADF) experts who delivered opinions on the matter of sales of 28 public properties were brought to trial—one of the most…interesting privatization cases in the history of Greece. It’s worth mentioning that three of the experts remain executive members of the European Committee.

The issue has to do with properties handed over to the HRADF (the privatization fund) in 2013. These were separated into two groups and appraised according to a “sale and lease-back” scheme. Ethniki Pangaia, then a subsidiary of the National Bank, and Eurobank Properties, a subsidiary of Eurobank, were chosen as the new owners, who then leased the properties back to the public. The first problem here is that, in this particular case of privatization, HRADF engaged two further subsidiaries of the two banks, namely NBG Securities SA and Eurobank Equities Investment Firm. The second problem is that all this privatization is estimated to have cost the public at least 500 million euros.

Pressure from Europe, or at least a judicial intervention, seems to have played a role. Attorneys Alexandros Lykourezos, Ioannis Giannidis, and Nikos Paterakis proceeded on Wednesday with a request to quash the indictment of the six experts, on the grounds that their immunity was guaranteed if they had followed statutory procedures and received a positive audit from the Court of Auditors. This, of course, is only half the truth, given that once there is an indictment, proper consideration must be given to the legality of any actions taken. It is also the case that, initially, the Court of Auditors had attempted to cancel the privatization deal because of the relationships these companies had. In the end, HRADF would have had to submit a motion to dismiss in order for the proceedings to advance.

The conclusion is simple. When it has to, a country in receivership (as the Prime Minister admits Greece is) or even in “micro-receivership” (as the Minister of Finance calls it) turns not only its executive and legislative power, but even control of its judiciary, over to its custodians.

All of this marks an unprecedented humiliation, as well as unchecked involvement on the part of the creditors in the administration of justice. On the other hand, it also signals an unparalleled implementation of a regime of “omertà.” An arm of the European bureaucracy is deciding to acquit its own executives, who are under investigation for the loss of more than half a billion euros in the country they were charged with “saving.”

The “clear path”… to the third assessment

It’s…admirable how capable the government is of making concessions, with minimal adherence to statements made by its own officials, as it attempts to adjust to each successive defeat at the negotiating table. If you were to pay close attention to statements made over the course of the negotiations, you would see how, via nearly imperceptible rhetorical shifts and a whole jumble of statements and positions, astonishing “pivots” have come about. Bit by bit, measures which the government had refused to accept become “provisional,” then permanent, then are accompanied by a putative “sunset clause” (which never comes before Parliament). In the end they’re forgotten, when the next objective is promoted in subsequent negotiations.

Sometimes, of course, the pivot is a little more dramatic. For example, after two years of demands for debt relief, Alexis Tsipras claimed, in statements regarding the Eurogroup, that “we got what we demanded.” Not once did he mention the word debt. In the case of another major government objective, the inclusion of a European Central Bank program of Quantitative Easing, Minister of the Economy Dimitris Papadimitriou stated on Wednesday that the incorporation of such a program would be of “symbolic significance.”

The government regularly finds itself in need of a new narrative.  It makes sense, after all, that when every decision depends on centers of power you have basically no say in, the only thing you can do is spin what’s happening. And because, in the case of the Greek crisis, history does often repeat itself as a farce, the agreement made in the summer of 2016 was the “roadmap to an exit from the memoranda.” Now, according to what Tsipras has told his Cabinet, there is a “clear path” ahead. In reality, though, and with what will happen after the Third Memorandum now largely agreed to (seeing as a “fourth” is set to follow), the only thing left for the government to do is to try to keep matters from getting (much) worse.

Nevertheless, the path isn’t “clear.” In autumn, the Third Assessment of the Third Memorandum will begin. In the most recent supplemental memorandum (SMoU), that assessment is referred to as “comprehensive”: the Troika will fully examine everything that Greece was meant to have implemented, and whether it has been implemented 100%. Only then will the creditors give the green light to “successful completion of the Third MoU.” That in turn may lead to restored access to the markets; it may lead to medium-term debt measures; but it certainly will not lead to the end of austerity. 

Likewise, Alexis Tsipras may commit himself to “fair development,” or to the “flourishing not just of numbers, but of people,” though it’s worth wondering just how he’ll manage those things. Even if there is no further tightening of austerity for the citizens of Greece, thousands will suddenly find themselves facing seizures of bank accounts and assets and, from September onwards, electronic auctions of their property. At this moment in Greece, about four million citizens owe back taxes. About two million are believed to owe the Public Power Corporation, and thousands are set to face auctions “at the touch of a button,” even if the property in question their sole residence. The idea that these social groups will be able to achieve a state of “development” as a result of solidification of current levels of austerity amounts to less than an idle hope.

The government’s gamble on restoring market access

The government’s goal now is to close out the Third MoU and regain market access in spring or summer 2018. For the majority of Greeks who will again be hit with cuts in 2019, renewed market access will be significant only if it means that the cuts won’t get any bigger. Otherwise—if, that is, Greece needs a new “rescue” package—a Fourth Memorandum will be established (with the loan tied to the austerity measures and financial targets previously adopted). On the other hand, there’s always the possibility that the creditors will demand even harsher measures before proceeding with a new round of financing (money which, of course, would go right back to them).

For the government, though, it seems that regaining access to the markets has become the biggest goal, seeing as the (exceedingly high) expectations for debt settlement have all been disappointed—despite the monumental moment of Tsipras’ leak that there was “such great news,” and the hopes he would soon be wearing a tie. For the second SYRIZA-AnEl government coalition, this is a gamble on survival. If Greece regains access to the markets and the Third MoU is completed, the government will be able to claim (communicative as it is!) that it “managed to get Greece out of MoUs and out of the crisis”—and so find some sort of justification for all of its constant and countless concessions.  The fact that each new celebration will have nothing to do with reality won’t be important. But if the government doesn’t pull this off, and the Third MoU (too) leads to total failure—to a new loan—there won’t be any explanation, any narrative, to sweeten the bitter pill of defeat. The SYRIZA-AnEl government has already failed to handle the crisis with its left-wing politics. Now it risks failing even with a memorandum in place.

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