Now Even Greek Politicians Are Taking Cover

Wolf Richter

Greeks yanked €65 billion out of their bank accounts since 2009, Finance Minister Evangelos Venizelos told parliament on Friday. “Of that total, €16 billion has been legally taken abroad,” he said. The rest? Stashed under mattresses or hauled to Switzerland via the land route. A whopping 20% of GDP! Capital flight of massive proportions. They see a forced conversion of their euros to drachmas. With good reason.

"The case of Greece is hopeless," said Otmar Issing, former member of the Executive Board of the Bundesbank and of the Governing Council of the ECB. But it’s legally impossible to kick Greece out of the Eurozone. So he suggested a procedure—a procedure that is already happening. Read.... Kicking Greece out of the Eurozone.

And now even the political elite in Greece is taking cover: former Prime Minister George Papandreou told MPs of his party, the Pasok, that the coalition government of Prime Minister Lucas Papademos should stay in power till the regular elections in late 2013—rather than hold early elections.

Thus, Papademos would take the fall for Greece’s default and exit from the Eurozone. The former Governor of the Bank of Greece is a “technocrat” who was anointed last November when Papandreou resigned. He is expendable. Dynastic career politicians like Papandreou might then rise from the chaos that would follow Greece’s return to the drachma. Political positioning for the “afterwards” has begun.

Yet they haven’t giving up the hunt for more money. Bailout number one for €110 billion wasn’t enough. Number two for €130 billion, whose details haven’t been decided yet, has already been declared insufficient. Meanwhile, the bailout Troika (EU, IMF, and ECB) has been imposing ever stricter budget cuts and tax increases, which have never been fully adopted by the Greek parliament or executed by the ministries.

Exhibit A: In 2011, the national healthcare system spent €4.1 billion (2% of GDP) for medications though the Troika had set a budget of €3.8 billion. For 2012, the Troika cut that to €2.1 billion. Options: rationing medications and forcing price reductions on the pharmaceutical industry. But on Thursday, Health Minister Andreas Loverdos told representatives of the pharmaceutical industry that he was shooting for €3.1 billion, and that he was working on a compromise with the Troika.

So it goes. The Troika imposes cuts. The country pushes back. The deficit is coming down, but too slowly, and gobbles up more bailout money than anticipated, as the economy continues to deteriorate. But for once, there was news that wasn’t even more catastrophic than feared, which in Greece is worthy of being leaked. The budget deficit for 2011 will be above the Troika-set limit of 9% of GDP but won’t hit the feared 9.5%, thanks to €2 billion from the detested property tax that was instituted in September amidst waves of protests.

Demands for debt forgiveness has become a growth industry. Last summer, private-sector holders of Greek sovereign bonds were pushed to accept a “voluntary” haircut of 20%, which grew to 50%, and it’s still not enough, and the negotiations are bogged down. If there is no agreement, the Troika threatened to withhold the next bailout tranche. In return, Greece threatened to default in March. And then, something even more bizarre happened... Abysmal news for Greek Bonds and Debt Swap Negotiations.

But it’s still not enough. Now the Greek government demanded that public-sector holders also accept haircuts. The ECB, which bought $45 billion of these crappy bonds to prop up the country, and Germany were incensed.

The core of the fiasco isn’t just Greece’s debt and the political machine that took it on and hid it, but also the bloated public sector and uncompetitive private sector. So the Troika demanded brutal cuts in private-sector wages and benefits. Alas, they’re set by a wage pact. And unions are rebelling. On Thursday, they were joined by employer groups. Together they’d oppose the government and the Troika. And on Friday, the Prime Minister threatened to resign unless the Troika’s demands were implemented. A Greek tragedy turns into a farce.

And they’re all still fuming over Germany’s demand that Greece surrender control over its budget to EU institutions as a condition for being spoon-fed with bailout money. This Teutonic reluctance to pay ever more to bail out Greece—and increasingly the Eurozone—has made Germany a global punching bag. Yet the amounts it has committed are already staggering. Read... Germany Frets As Bailout Risks Balloon.


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