Saturday, July 4, 2015

OXI

"The International Monetary Fund (IMF) is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world." - IMF Website

As Greece prepares today for a referendum - a stark choice between accepting or rejecting the bailout conditions proposed jointly by the European Commission (EC), the International Monetary Fund (IMF) and the European Central Bank (ECB) - the 'Troika' - the UK's Jubilee Debt Campaign notes:

Ahead of the payment of €462 million by Greece to the IMF on Thursday 9 April, figures released by the Jubilee Debt Campaign show that the IMF has made €2.5 billion of profit out of its loans to Greece since 2010. If Greece does repay the IMF in full this will rise to €4.3 billion by 2024.

The IMF has been charging an effective interest rate of 3.6% on its loans to Greece. This is far more than the interest rate the institution needs to meet all its costs, currently around 0.9%. If this was the actual interest rate Greece had been paying the IMF since 2010, it would have spent €2.5 billion less on payments.

Out of its lending to all countries in debt crisis between 2010 and 2014 the IMF has made a total profit of €8.4 billion, over a quarter of which is effectively from Greece. All of this money has been added to the Fund’s reserves, which now total €19 billion. These reserves would be used to meet the costs from a country defaulting on repayments. Greece’s total debt to the IMF is currently €24 billion.

Tim Jones, economist at the Jubilee Debt Campaign, said:

“The IMF’s loans to Greece have not only bailed out banks which lent recklessly in the first place, they have actively taken even more money out of the country. This usurious interest adds to the unjust debt forced on the people of Greece.”

As of 1 July 2015, Greece is in arrears to the IMF of €1.6 billion. So the IMF’s overall profit currently stands at €900 million.


Depending on who you ask, the causes of the ongoing economic crisis that has devastated Greek society range from government corruption, overly generous social benefits and pensions, tax evasion, incompetence, greed, the Olympics...take your pick. One thing is certain, however: the Greeks and their government are now at the mercy of those pulling the strings in Brussels, Frankfurt and Washington, D.C., forced to suffer crippling 'austerity' cuts as part of the terms of the bailout deals.

One causal factor seldom cited within the corporate media is the role of Goldman Sachs [My emphasis in bold]:

Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.

As worries over Greece rattle world markets, records and interviews show that with Wall Street’s help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.

Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November [2009] — three months before Athens became the epicenter of global financial anxiety — a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.

The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.

It had worked before. In 2001, just after Greece was admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means.

...

Banks eagerly exploited what was, for them, a highly lucrative symbiosis with free-spending governments. While Greece did not take advantage of Goldman’s proposal in November 2009, it had paid the bank about $300 million in fees for arranging the 2001 transaction, according to several bankers familiar with the deal.

Such derivatives, which are not openly documented or disclosed, add to the uncertainty over how deep the troubles go in Greece and which other governments might have used similar off-balance sheet accounting.


...

In 2005, Goldman sold the interest rate swap to the National Bank of Greece, the country’s largest bank, according to two people briefed on the transaction.

In 2008, Goldman helped the bank put the swap into a legal entity called Titlos. But the bank retained the bonds that Titlos issued, according to Dealogic, a financial research firm, for use as collateral to borrow even more from the European Central Bank.

Edward Manchester, a senior vice president at the Moody’s credit rating agency, said the deal would ultimately be a money-loser for Greece because of its long-term payment obligations.

Referring to the Titlos swap with the government of Greece, he said: “This swap is always going to be unprofitable for the Greek government.”


Greek military spending is also a major factor. A closer look at this travesty yields some very uncomfortable truths about the motives of Germany and France in particular.

From an informative Paul Haydon Guardian article in 2012:

In 2006, as the financial crisis was looming, Greece was the third biggest arms importer after China and India. And over the past 10 years its military budget has stood at an average of 4% of GDP, more than £900 per person. If Greece is in need of structural reform, then its oversized military would seem the most logical place to start. In fact, if it had only spent the EU average of 1.7% over the last 20 years, it would have saved a total of 52% of its GDP – meaning instead of being completely bankrupt it would be among the more typical countries struggling with the recession.

The supposed threat from Turkey is often cited as the major reason for such a high military budget. However, this argument just doesn't hold up for several reasons. First, both countries are part of Nato and share a number of mutual allies, not least the US, and so all-out war between the two is highly unlikely to occur. Second, Turkey has on several occasions proposed a mutual reduction in arms spending, something Greece has repeatedly refused to agree to. Finally, relations between the two countries have markedly improved in recent years, making such a massive military build-up seem even more unnecessary. All Greece's military spending seems to achieve is to polarise the situation and goad Turkey into an arms race.

The second justification given by the Greek government, that its forces are responsible for defending its porous borders from illegal immigration, is only marginally more convincing. While this might account for some increases in spending, it is unclear what role the latest fighter jets, submarines and tanks could play in stemming the tide of migrants arriving by foot or in small boats. So why has Greece continued to spend such huge amounts on its army?

One major factor is that France and Germany's arms industries have greatly profited from this profligate military spending, leading their governments to put pressure on Greece not to cancel lucrative arms deals. In the five years up to 2010, Greece purchased more of Germany's arms exports than any other country, buying 15% of its weapons. Over the same period, Greece was the third-largest customer for France's military exports and its top buyer in Europe. Significantly, when the first bail-out package was being negotiated in 2010, Greece spent 7.1bn euros (£5.9bn) on its military, up from 6.24bn euros in 2007. A total of £1bn was spent on French and German weapons, plunging the country even further into debt in the same year that social spending was cut by 1.8bn euros. It has claimed by some that this was no coincidence, and that the EU bail-out was explicitly tied to burgeoning arms deals. In particular, there is alleged to have been concerted pressure from France to buy several stealth frigates. Meanwhile Germany sold 223 howitzers and completed a controversial deal on faulty submarines, leading to an investigation into accusations of bribes being given to Greek officials.


Angela Merkel was dismissive:

A few months before submarines became the talk of Athens, Yiannis Panagopoulos, who heads the Greek trade union confederation (GSEE), found himself sitting opposite Angela Merkel at a private meeting the German chancellor had called of European trade unionists in Berlin.

When it came to his turn to address the leader, he instinctively popped the question that many in Greece have wanted to ask. "After running through all the reasons why austerity wasn't working in my country I brought up the issue of defence expenditure. Was it right, I asked, that our government makes so many weapons purchases from Germany when it obviously couldn't afford such deals and was slashing wages and pensions?"

Merkel's reaction was instant. "She immediately said: 'But we never asked you to spend so much of your GDP on defence,'" Panagopoulos recalled. "And then she mentioned the issue of outstanding payments on submarines she said Germany had been owed for over a decade."


In the period between 2002 and 2011, Greece bought 42% of its arms from the US, 25.3% from Germany and 12.8% from France - the top three suppliers.

"Just under 15% of Germany's total arms exports are made to Greece, its biggest market in Europe," Papadimoulis said, reeling off figures from a scruffy armchair in his party's parliamentary office. "Greece has paid over €2bn (£1.6bn) for submarines that proved to be faulty and which it doesn't even need.

"It owes another €1bn as part of the deal. That's three times the amount Athens was asked to make in additional pension cuts to secure its latest EU aid package."


...

"Since the 1974 Turkish invasion of Cyprus, Greece has spent an estimated €216bn on armaments, although I am 100% certain that in absolute terms its defence expenditure is much greater than official documents would show due to the so-called secret funds the state has access to," said Katerina Tsoukala, a Brussels-based security expert.

"The problem is that unlike Britain, for example, Greece has never had a transparent and democratic defence procurement strategy. Instead, everything is veiled in secrecy and people like me have to go to Sipri to find out information that in other countries would be readily available."

The murkiness has ensured that over the years the Greek arms trade has become increasingly associated with high-level bribery and corruption – the very practices abhorred by Berlin, Athens' main provider of rescue funds.

This week the former defence minister Akis Tsochadzopoulos was jailed pending trial on charges of accepting an €8m bribe from Ferrostaal, the German company that helped oversee the scandal-marred sale of four Class 214 submarines to the Greek navy 12 years ago.


Fast forward to 2015 and Greece's military spending, while significantly lower than before, continues to be a great drain on the overall economy.

Finian Cunningham writes:

Even after five years of economic catastrophe, Greece’s annual military budget amounts to $4 billion, according to the Stockholm International Peace Research Institute. That translates to 2.2 per cent of the nation’s GDP – a colossal drain on the economy.

To put Greece’s military spend into perspective, it is double the ratio that most other EU countries currently spend on defence. For example, Germany spends 1.2 per cent of GDP, Italy 1.1 per cent, Netherlands 1.2 per cent and Belgium 1.1 per cent.

If Greece were to cut its outsized military budget by half that would generate $2 billion in one year alone, which would pay off its immediate bill to the IMF and help the country reach a 1 per cent budget surplus that the Troika has set for 2015. In other words, that source of finance would obviate any further need for cutting pensions and workers’ salaries.

Why the Syriza government of Alexis Tsipras, which claims to be a radical socialist coalition, does not pursue this more imaginative and democratic alternative is a curious question. Last week, Tsipras offered to cut the military budget by $200 million – or a mere 5 per cent. But the offer was rebuffed by the IMF because it stated that its rules do not permit interference in a country’s defence policy.


A highly recommended commentary by Boris Kargalitsky writing in Counterpunch puts things into perspective:

The actions of the Troika seem far less absurd if we reflect that the billions of euros intended to “save Greece” never reached that ill-fated country but were deposited immediately in German and French banks. Under the pretext of servicing the Greek debt a huge financial pyramid was created, analogous to a Ponzi scheme or to the MMM and GKO pyramids in 1990s Russia, but on a much greater scale. Meanwhile, part of the money that finished up in the banks was sucked directly out of Greece, while a further part came from the pockets of West European taxpayers. For decisions made effectively in Berlin and Brussels, with the approval of Paris, the citizens of other Eurozone countries were forced to pay. The victims included even the inhabitants of Spain and Italy, as well as of countries such as Austria and Finland that had no relation whatever to the events concerned. A sort of all-European pipeline was constructed, and used to siphon off state funds for the benefit of German and French financial capital.

...

[] a re-launching of the economy is technically inconceivable unless the harsh rules imposed by the ECB are rejected, along with its insistence on a dramatic increase in competitiveness unaided by a lowering of the exchange rate. Since it has been understood from the outset that the ECB will not agree to sharply lower the euro exchange rate solely in order to save Greece, it is clear that in technical terms there is not the slightest chance of a successful exit from the dilemma without Greece quitting the Eurozone and returning to the drachma. The only real question has been whether this exit will be planned, organised and prepared in advance, or whether it will be chaotic and disastrous. The situation is very similar to the one in Argentina in 2001, when after a default the peso had to be decoupled from the dollar if economic growth was to resume.


The people of Greece and Europe as a whole are not the only ones praying for a certain result in the referendum. Dozens of hedge funds stand to lose billions:

During peak hype a year ago, there were perhaps 100 hedge funds plowing what they thought was fertile financial soil. But when things began to curdle again in late 2014 and in 2015, many of them bailed out, selling what they could.

But 40 or 50, according to local broker estimates, kept their bets and hopes alive that it would all get worked out somehow, that the ECB or Germany or whatever would swoop in and allow them to make a killing, as they’d done with Greek bonds in 2012. So these funds have about $11 billion stuck in these shut-down Greek markets.

[From] The Times:

*****

The largest investors include Japonica Partners in Rhode Island, the French investment funds H20 and Carmignac, and an assortment of other hedge funds like Farallon, Fortress, York Capital, Baupost, Knighthead and Greylock Capital.

A number of hedge funds have also made big bets on Greek banks, despite their thin levels of capital and nonperforming loans of around 50 percent of assets.

They include Mr. Einhorn at Greenlight Capital and Mr. Paulson, both of whom have invested and lost considerable sums in Piraeus Bank. Fairfax Financial Holdings and the distressed investor Wilbur Ross own a large stake in Eurobank, one Greece’s four main banks.

Big positions have also been taken in some of Greece’s largest companies. Fortress Capital bought $100 million in discounted debt belonging to Attica Holdings, Greece’s largest ferryboat holder. York Capital has taken a 10 percent stake in GEK Terna, a prominent Greek construction and energy firm.

In 2014, Blackstone’s credit arm bought a 10 percent chunk of the Greek real estate developer Lamda Development. And Third Point, one of the earliest, most successful investors in Greek government bonds, has set up a $750 million Greek equity fund.

Among the most dubious of these was a 10 percent equity stake, then worth about $137 million, that Mr. Paulson’s hedge fund took last year in the Athens water monopoly. The company had little debt and was set to be privatized, making it an attractive prospect at the time. But the privatization process is now frozen, and the monopoly is struggling to collect payment on its bills from government entities that are nearly broke….

*****

Now Greece’s financial system is shut down to control the chaos. Parts of the economy are shut down with it. Greek banks had already been reduced to penny stocks before the bank holiday, confounding these hedge funds that had invested in them. Now, they’re cutoff from the lifeline that has kept them from toppling.

“People are freaking out,” Nicholas Papapolitis, a corporate lawyer in Greece who has led some of the largest hedge-fund deals in the market, told the New York Times. He was working through the weekend, comforting and cajoling his frantic hedge-fund clients. “They have made some really big bets on Greece,” he said.

They weren’t betting on Greece, however. They were betting on the ECB, the European institutions, and taxpayers – as they’d done in 2012, when they’d made a killing – to shovel money their way. Only this time, it didn’t happen, leaving the ultimate “smart money” to twist in the wind.


These commentaries make it clear that the Greek people, who have suffered terribly for so long due to corruption in successive governments and wolves of varying species preying on their misfortune, are pawns in a much wider game. While today en masse they have the power to reject the punitive tactics of the Troika, the fear campaign has been stepped up to hysterical levels on all fronts with apocalyptic warnings coming from quoted officials in the media along with hundreds of real-life tragedies recounted just in time to terrify the Greek population into rejecting any kind of step into the unknown.

Polls earlier in the week showed a clear majority for a 'no' vote but the bank closures and the corporate media fear campaign have led to the elimination of that lead, with the latest polls saying it is now too close to call. In such a scenario, the Yes campaign will have an advantage, as fear inevitably takes its toll on those Greeks who are not suffering as badly as some or on those who are relatively unfamiliar with the scandalous background details of their nation's desperate plight.

The reality, however, is that a vote for Yes or No will ensure future pain with no immediate lessening of the current level of suffering. The difference is that at least with a No vote, the way will be opened for the Greek people to reject the burden of the Troika and other predators sucking their lifeblood. It will ensure, for instance, that there need be no firesale of its islands just to kick the debt can down the road for a few more years. With a sharply devalued post-default currency, the country would be swamped with bargain-seeking tourists along with foreign investors in its large agriculture and shipping industries, all hoping to take advantage of suddenly low prices and rates. While there will be pain for a time, the seeds of recovery will have been planted and future generations would benefit from the removal of the chain of debt - another name for control by foreign powers, banks and hedge funds - from around their necks. It is also worth noting that current opponents of Western policies like Russia and China are likely future creditors and trading partners.

The IMF, profiting from an impoverished, desperate nation in direct contravention of its stated mission statement, can be trusted only to extract further suffering from Greece. The referendum is a stark choice for the Greek people between darkness and hope in the knowledge that both will involve pain. Meanwhile, the feverish levels of hysteria emanating from the corporate media fear campaign confirm that the banks, the hedge funds and the rich desperately need Greece to submit to continuing humiliation for their own selfish, greedy ends.

Will the people of Greece show courage one more time and strike a real blow against the corporate elites that have taken control of the world's financial and political institutions? This is a microcosm - a manifestation in miniature - of the global struggle against corporate fascism. A No vote will give heart and momentum to the anti-austerity, anti-fascist, pro-democracy movements that have emerged in dozens of nations, ordinary working people who have organized and pledged to secure their human rights. It will also confound the true underlying aim of the Troika - to make an example of Greece - to show other 'upstart' nations who commit the capital crime of demanding a decent life for its citizens just who the boss is.

OXI means hope.

Written by Simon Wood

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