Greece Faces New Kind of Coup
Vladimir NESTEROV | 04.07.2015 | WORLD | BUSINESS

Greece Faces New Kind of Coup

According to the Financial TimesGreek Prime Minister Alexis Tsipras sent a letter to the three major money lenders saying he is ready to accept almost all the conditions proposed by the country’s international creditors at the weekend, marking the latest attempt to keep Greece in the eurozone. The Prime Minister said he would accept all of the terms proposed with just minor exceptions. He agreed to the changes in the country’s value added tax system but asked to keep a special 30 percent discount for the Greek islands untouched.

A two-page letter was sent to the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) late on June 30 and obtained by a number of media outlets including the FT and Bloomberg on July 1. The talks on debt will be suspended until the results of the referendum to be held on July 5 are made public.

New Democracy, the main centre-right political party and historic rival, the Panhellenic Socialist Movement (PASOK) had ruled the country since 1974 till the recent election that took place just a few months ago. They had become fully discredited to make SYRISA, a left-wing political party originally founded in 2004 as a coalition of left-wing and radical left parties, come to power. This is the first time left-wing forces came to power in Greece since the days of «Mountain Government». The Political Committee of National Liberation, commonly known as the «Mountain Government», was a Communist Party – dominated government established in Greece in 1944 in opposition to both the collaborationist German-controlled government at Athens and to the royal government-in-exile in Cairo. 

SYRISA is popular today. The three major money lenders are adamant in their desire to continue the same policy unchanged. Threats, blackmail and ultimatums – these are the instruments used to make Greek Prime Minister Alexis Tsipras implement further austerity measures like his predecessors had done. The country is going through a period of economic woes with a quarter of GDP lost and unemployment rate rising to 27 % (over 50 % of people younger than 25 years old are unemployed). Tsipras got enough votes at the January 2015 parliamentary election to put an end to austerity measures, but the European Union insists that Greece should be «punished». 

The situation makes one remember the Chile of early 1970s when President Nixon endorsed the neutralization of Salvador Allende’s government so that nobody would dare implement independent policy in the US backyard. Nixon wanted the economy of Chile go down the wall and it did. As a result, General Pinochet led a military coup. The organizers of quite coup use more sophisticated weapons than tanks on the streets. They prefer rating agencies, banks and media…The Tsipras government has only two scenarios to follow: either it continues the implementation of its program to face a financial deadlock, or capitulates by submitting a resignation to lose the voters’ trust. 

The three money lenders are afraid of SYRISA’s influence spreading beyond the national boundaries. Before the Greek parliamentary election Mario Draghi, President of European Central Bank, announced that ECB would buy €60bn of private and public sector debt from March 2015 to September 2016 worth over €1 trillion. This policy could be applied to Greece only on certain terms – the needy would get the aid only if they complied with the instructions from Brussels. The people of Greece failed to get the message and voted for SYRISA. Eurogroup Chief Jeroen Dijsselbloem said then that the people of Greece were to realize that the election did not mean the end of economic problems. Christine Lagarde, Managing Director of International Monetary Fund, said there would be no exclusion from the rules. Everyone has to pay.

Jeroen Dijsselbloem

Some time passed and Mario Draghi did his best make Greece face hard times. Without explanation he stopped providing funds for Greek banks, except the Emergency Liquidity Assistance, ELA. This is a very cumbersome program which must be prolonged weekly. The Greek government has to function under the Sword of Damocles. Even that funding lifeline can be taken away from Greece. On May 14 the head of Germany's Bundesbank ripped into the European Central Bank, saying emergency funding for Greek banks broke the taboo of financing governments and it was not up to central banks to decide who was or wasn't in the euro zone. Jens Weidmann also said it was questionable whether money printing by the ECB to boost the euro zone economy and halt deflation was necessary. 

Greek banks have been drawing emergency liquidity assistance from the country's central bank, a funding lifeline provided in exchange for collateral. They have used some of this emergency funding to buy Greek government debt, indirectly helping to keep the county afloat. Those days Moody’s predicted that the victory of SYRISA at election would negatively influence the economic growth. The main thing in focus for Tsipras are the terms the credits are granted on as stated in the ill-fated memorandums of 2010 that made Athens implement austerity measures and make people pay sky high taxes. Over 90% of sums paid to serve the debts return to money lenders, sometimes on the very next day.

Nothing can be done under the circumstances to improve economy. A failure to come up with money for debt payments means bankruptcy. Money lenders got a useful instrument for blackmail. The steps offered by Athens were met by threats to stop providing funds, even though ELA.

As far back as February, Eurogroup put forward an ultimatum, saying its either you do what your predecessors had done or look for funds elsewhere. Tsipras presented a reform plan to end a grueling four-month standoff and unlock the final 7.2-billion-euro ($8.0-billion) tranche of Greece's international rescue package. The Greek government was seeking the return to the Greek state of 1.2 billion euros from the European Financial Stability Facility (EFSF). The money, originally in the Hellenic Financial Stability Fund (HFSF), was used for the recapitalization of Greek banks instead of EFSF bonds destined for this purpose. It was recently transferred to the EFSF in the form of bonds not used for bank recapitalization. Greece wanted the European Central Bank provide it with €1.9 billion received from the profits the Bank made as the Greek bonds holder, but in mid-March the ECB refused, no matter Tsipras made concessions by suggesting that Greece’s privatization program may go ahead and the reinstatement of the minimum wage may be postponed.

Then creditors wanted Tsipras to deregulate the labor market and legalize mass public sector layoffs. The European Commission insists on further privatization. Germans are especially interested in the process as they expect equity prices to go down.

Greece asked for an international conference to discuss its debt problem. It wanted to use Germany's 1953 debt restructuring as a precedent for its debtrelief demand. The relief made possible the German economic miracle. The proposal was put under the rug with threats and ultimatums to follow.

Two months ago Euclid Tsakalotos, the deputy Foreign Minister, took over as Greece's new chief negotiator, instead of Finance Minister Yanis Varoufakis. He says the government faces a new kind of coup, one that is not carried out with tanks, as in 1967, but through banks.

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