Tuesday, March 3, 2015

How the Troika and Piraeus Bank sealed Cyprus΄s fate

by Harald Schumann

Der Tagesspiegel/The Press Project
March 3, 2015

The allegation: Cyprus received loans only on the condition that its banks sold their branches in Greece to a competitor in Athens at a fraction of their value. ThePressProject publishes exclusively in Greece the investigation of German journalist Harald Schumann for the newspaper Tagesspiegel.


As an experienced politician, Nicolas Papadopoulos is accustomed to difficult times. He has been an MP and head of the Cypriot Parliamentary Finance Committee for nine years. He is also head of the socially liberal Democratic Party (DIKO) so no one can accuse him of being a political radical. But when the 41 year old tells this story, his voice breaks and his fury brings tears to his eyes. "My country," he says, "is the victim of a daylight robbery." "They stole three and a half billion euros from us and gave it to a Greek bank." "People’s life savings, the money our citizens saved for their retirement." Now many will even lose their homes. "The troika and the Eurogroup decided this, and we were forced to agree since they had a gun to our heads '. It was "one of the biggest scandals in the history of the Eurozone."

So did Eurozone Finance Ministers and officials of the European Commission, the ECB and the IMF perpetrate a billion euro robbery? It sounds absurd. But the allegation is based on facts and documents. They show that officials in Brussels and Frankfurt imposed a highly controversial agreement on the country, under the terms of which customers of the Cypriot banks lost three billion euros, which a Greek bank then received as profit. So far parliamentarians and the European courts have not dealt at all with this question, and one reason for this is that the Cypriot government does not dare to speak publicly. It is is dependent on the goodwill of the ECB and the European Commission. Now, however, hundreds of Cypriots have appealed to the European Court of Justice and the Central Bank of Cyprus intends to launch an investigation.

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Monday, March 2, 2015

Greeks in the Crisis: 'We Need To Explain Ourselves'

Spiegel
March 2, 2015

What hopes and fears has the new government in Greece awakened, and how bad are relations with Germany? Four weeks after the election, SPIEGEL sat down to discuss the situation with six Greek people from different walks of life.


With tensions between Greece and Berlin having been significant in recent weeks, SPIEGEL decided to invite six prominent Greeks to a roundtable discussion at Katzourbos tavern in Athens' Pankrati neighborhood.

The state minister is the first to arrive, 10 minutes early. Alekos Flambouraris, 72, wears a black suit, no tie and the kind of open-collared shirt made fashionable by the governing Syriza party in recent weeks. Flambouraris is a close confidant of Prime Minister Alexis Tsipras. "We need to keep up our contacts with the Germans. We want to explain ourselves," he says.

Athens' politically independent mayor, Georgios Kaminis, 60, arrives shortly thereafter on foot -- an inconspicuous man wearing a corduroy suitcoat. The others are: Natassa Bofiliou, 31, a famous Greek pop star who has been threatened by supporters of Golden Dawn because of her vocal opposition to the party; Christos Ikonomou, 44, whose book "Just Wait, Something's Happening," is a compilation of short stories about everyday life in Greece during the crisis; entrepreneur Aggeliki Papageorgiou, 50, the owner of a small ice cream spoon factory that is on the verge of shutting down; and journalist Xenia Kounalaki, 44, who writes for the center-right newspaper Kathimerini and has been disappointed thus far by Syriza's behavior in Europe.

The guests conduct their discussion in Greek and the event is moderated by SPIEGEL editors Manfred Ertel and Katrin Kuntz as well as co-moderator Angelos Kovaios, a journalist with the weekly newspaper To Vima. They spent three hours discussing developments in the country over Greek wine and Cretan cuisine.

Eurogroup head - Greek reforms could prompt bailout payment in March

Reuters
March 2, 2015

Greece's international creditors could pay part of the 7.2 billion euros (5.2 billion pounds) remaining in its bailout pot as early as this month if Athens starts adopting necessary reforms, the head of the euro zone finance ministers' group said.

“My message to the Greeks is: try to start the programme even before the whole renegotiation is finished,” Dutch Finance Minister Jeroen Dijsselbloem told the Financial Times in an interview.

"There are elements that you can start doing today. If you do that, then somewhere in March, maybe there can be a first disbursement. But that would require progress and not just intentions," he was quoted as saying.

Shut out of debt markets and faced with a steep fall in tax revenues, Athens is expected to run out of cash by the middle or end of March. Finance minister Yanis Varoufakis said Greece will struggle to repay creditors starting with a 1.5 billion euro IMF loan repayment due in March.

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The Eurozone Recovery Means Greece Has Less Leverage Than It Thinks

by Simon Nixon

Wall Street Journal

March 1, 2015

After weeks of brinkmanship between Greece and the eurozone, one might think the outlook for Europe was bleak. Since the election of a radical leftist-led government in Athens in January, a breakup of the supposedly irreversible single currency has looked more likely than ever. It took an 11th-hour deal finalized last week to avert imminent Greek bankruptcy—and already this fragile truce is under strain.

Eurozone policy makers claim that they only tolerated a degree of vagueness in a list of Greek reform commitments required as part of that deal to help Athens obscure the scale of its climb-down from its domestic audience. But Athens insists the lack of detail is evidence of “constructive ambiguity” that leaves the exact nature of what it has agreed open to continued negotiation. Thus the uncertainty over Greece’s fate is set to continue.

Yet focusing on Greece only tells part of the story. Equally important to the long-term fate of the currency bloc is growing evidence that the recovery is strengthening, thanks to a weaker currency, which has fallen 19% against the dollar since the start of 2014; a falling oil price, which is likely to add up to 1.5 percentage points to the level of output this year, according to Huw Pill, chief European economist at Goldman Sachs ; and the lower borrowing rates and boost to confidence from the European Central Bank’s new government-bond buying program due to start this week.

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Sunday, March 1, 2015

Dijsselbloem interview: the annotated transcript

by Peter Spiegel

Financial Times

March 1, 2015

During a 45-minute interview in his Dutch finance ministry office in The Hague, Jeroen Dijsselbloem, chairman of the eurogroup, offered up a detailed recounting of his month-long negotiations with Athens to secure last week’s agreement extending Greece’s €172bn bailout by four months – as well as his views of what might come next.

Portions of that interview have been be published on the Financial Times website here and here, but as is our normal practice at the Brussels Blog, we thought we’d offer up a more complete transcript of the interview since some of it – including previously undisclosed details about the three eurogroup meetings needed to reach a deal – was left on the cutting room floor and may be of interest to those following the Greek crisis closely. The transcript has been edited very slightly to eliminate cross-talk and shorten occasionally long-winded questions from the interviewer.

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Greece warned to start reforms to gain cash

by Peter Spiegel

Financial Times

March 1, 2015

Greece must immediately start adopting some of the economic reforms demanded by its creditors if it is to receive much-needed access to emergency funds in the face of a mounting March cash crunch, the eurozone’s chief negotiator has warned.

Jeroen Dijsselbloem, the Dutch finance minister who leads the Greek talks as chairman of the eurozone finance ministers’ group, told the Financial Times that he was prepared to make a “first disbursement” of the €7.2bn remaining in Athens’ €172bn bailout as early as this month.

But the funds would only be transferred if the new Greek government, which for weeks has resisted implementing measures contained in the existing bailout after campaigning to kill the programme, adopted reforms the two sides could quickly agree on.

“My message to the Greeks is: try to start the programme even before the whole renegotiation is finished,” Mr Dijsselbloem said. “There are elements that you can start doing today. If you do that, then somewhere in March, maybe there can be a first disbursement. But that would require progress and not just intentions.”

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How Jeroen Dijsselbloem did the deal to extend the Greece bailout

by Peter Spiegel

Financial Times

March 1, 2015

When Jeroen Dijsselbloem finally received the letter from Athens, he was more than a little surprised. For the preceding 48 hours, the chairman of the eurogroup of finance ministers had been in talks with Alexis Tsipras, the Greek premier, about what a letter requesting a four-month extension of Athens’s €172bn bailout should contain. They had spoken repeatedly by phone, swapped drafts, offered edits.

But the letter Mr Dijsselbloem received, signed by Yanis Varoufakis, the Greek finance minister, bore no resemblance to those discussions. Key commitments, such as ensuring Greece’s budget surpluses would be big enough to gradually reduce its national debt, were now far more vague. Faced with a veto from Berlin, Mr Dijsselbloem, who is also the Dutch finance minister, phoned Athens.

“I called Tsipras and said, ‘look, I don’t know what happened, but you sent a different letter’,” Mr Dijsselbloem recalled in an interview. “And Tsipras was surprised. ‘How is this possible?’ He checked. Someone had changed it.”

Over five days of nearly endless negotiations — some in person, some over email, some by phone — the two sides finally reached a deal last Tuesday, largely on Mr Dijsselbloem’s terms. It was an agreement to extend the Greek bailout beyond its February 28 expiry date, staving off a bank run and possible national bankruptcy. In a dramatic climbdown, Athens’s new hard-left government committed to live up to the programme’s existing reform conditions, something it had long vowed never to do.

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The trust game

by Hugo Dixon

Reuters

March 1, 2015

The Greek government has an almost impossible task over the next four months: to rebuild trust with its creditors while retaining the trust of the people. But Alexis Tsipras only has himself to blame. The prime minister made irresponsible election promises, from which he now needs to extricate himself.

We have seen the first stage of the “kolotoumba”, the Greek for somersault: last week’s request for an extension of the current programme — committing the new government not to roll back the previous government’s reforms or engage in unilateral measures of its own while a new contract is negotiated.

The kolotoumba will require three more stages. First, the institutions formerly known as the “Troika” will probably extract some more concessions in exchange for preventing Athens from going bust over the next month. Jeroen Dijsselbloem, head of the Eurogroup of euro zone finance ministers, has dangled the possibility of such an arrangement in an interview with the Financial Times.

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Saturday, February 28, 2015

Paul Mason’s diary: My Greek TV drama

by Paul Mason

Spectator

February 28, 2015

It’ll be a Skype interview, says the producer from Greek television, and not live. In TV-speak that usually means not urgent and not important, but I’ve become vaguely interesting to Greeks because of the ‘Moscovici draft’ — a doomed attempt to resolve the crisis, leaked to me amid denials of its existence. The interview goes on a bit and the tone is deferential. At the appointed time, I fire up Greek television to see how many clips they’ve used. Instead of me, a panel of five bearded men in an expansive studio are conducting an earnest preview of my interview. When it starts, my face is on a studio screen twice the size of a human being and it turns out that Greek Skype is good enough to reveal what flavour of dog food you have smeared on your glasses and whether you have combed your hair. Afterwards, as the panel reconvenes, the words Πολ Μέισον (Paul Mason) begin to trend on Twitter. Some suggest a square in Athens be renamed after him. Others that he is a wanker.

Wednesday. I come off air and go straight to a fundraiser for a documentary my Greek colleagues are making about Syriza. For a news reporter, documentaries are the opposite of our daily reality. In the world of news coverage, doors open. In the world of documentary-making, they are slammed in your face. The audience is a mix of Syriza activists and bourgeois philhellenes, many of whom have never been to this part of London, an alley in Soho that runs beneath what used to be the Raymond Revuebar. The owner of the space is a Greek entrepreneur who has turned a former sex shop into an art gallery. ‘You should have seen what we had to clear out of here,’ he whispers. ‘I mean, I just don’t understand the British. The canes and stuff, OK, because of public school. But what would you want with a three-inch dildo?’

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Lawmakers (Just Not Greece’s) Approve a Bailout Extension

by Jim Yardley

New York Times

February 27, 2015

The debate lasted more than two hours, with one conservative lawmaker sharply accusing the Greek government of acting in bad faith. A liberal railed against Greek tycoons exploiting the tax system. And the powerful finance minister argued that lawmakers must put aside their differences and accept the controversial four-month extension of Greece’s bailout program.

Ultimately, lawmakers approved the Greek program on Friday — just not those in Greece. The vote was held in the Bundestag in Berlin, not inside the Greek Parliament building looming over Syntagma Square in Athens. Parliaments in Finland, Estonia and the Netherlands also granted approvals this week, as non-Greek politicians voted for Greece’s future even as Greek politicians did not.

The odd spectacle did have a rationale — the Greek deal required parliamentary approval in creditor countries — yet it also underscored how the economic crisis has accentuated the irregular shape of federalist democracy in the European Union, where the political structure remains under construction and the lack of democratic accountability of officials in Brussels is a sore point.

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Friday, February 27, 2015

Greece’s Pension System Isn’t That Generous After All

by Matthew Dalton

Wall Street Journal

February 27, 2015

Greece’s pension system has become a flash point in the new government’s talks with its international creditors. Prime Minister Alexis Tsipras has vowed to fight more cuts to the system, while Greece’s creditors say more cuts are probably necessary to ensure the government can pay its bills.

Before dealing with that question, they’ll need some facts about Greece’s baroque pension system. At first glance, it might seem too generous. But dig a little deeper, and the picture becomes more complicated.

First, how much does Greece spend as percentage of GDP on pensions? The data from Eurostat looks like this as of 2012, with Greece expenditure easily highest in the eurozone as a percentage of GDP:


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Greece runs out of funding options despite euro zone reprieve

Reuters
February 27, 2015

Greece is running out of options to fund itself despite a four-month bailout extension, raising pressure on Athens to quickly implement reforms it has vocally opposed or default on debt repayments in a matter of weeks.

Eurozone and IMF creditors gave Greece extra time until the end of June to complete the bailout program and receive the remaining 7.2 billion euros but it will not be allowed any funds until it passes a review that could take weeks to negotiate.

Shut out of debt markets and faced with a steep fall in tax revenues, Athens is expected to run out of cash by the middle or end of March. Its finance minister has warned that Greece will struggle to repay creditors starting with a 1.5 billion euro IMF loan repayment due in March.

Athens has been looking for quick fixes to tide it through the coming weeks but has not found one yet.

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Germany backs Greek extension but bailout fatigue grows

by Stephen Brown

Bloomberg

February 27, 2015

Germany's parliament approved an extension of Greece's bailout on Friday but a record number of dissenters from Angela Merkel's conservatives underscored growing scepticism in Berlin about whether a new Greek government can be trusted to deliver on its reform pledges.

With Finance Minister Wolfgang Schaeuble promising not to let Greece "blackmail" its euro zone partners, 542 members of the Bundestag voted "yes" to the extension, while 32 opposed it and 13 abstained.

It was the biggest majority for a euro zone bailout since the crisis erupted five years ago, in part because Merkel's year-old "grand coalition" enjoys a dominant position in the Bundestag lower house.

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ECB to Face Scrutiny Over Greece at March Meeting

Wall Street Journal
February 27, 2015

The European Central Bank is expected to be hit with questions at its rate-setting meeting in Cyprus next week about how it tackled the Greek debt negotiations. The central bank also kicks off its €60-billion-a-month stimulus program.


Greece’s Challenge: Appeasing Its Creditors and Its Population

by Marcus Walker

Wall Street Journal

February 27, 2015

Greece and the rest of the eurozone spent February fighting about the procedure for keeping the country afloat. They will spend the spring haggling over a tougher issue: Which economic policies can appease both Greece’s creditors and its population?

This week’s agreement to carry on talking was hard enough to achieve. The next deal will be far harder because the airy communiqués that preserved a consensus so far must be turned into meaty policy decisions.

Part of the mistrust between Greece and its German-led creditors stems from an ideological rift over what has gone wrong in the small, distressed country over the past five years.


Berlin blames the economic collapse that followed Greece’s 2010 bailout on the fiscal and other sins that predated it. Greece’s new government blames the bailout for turning a financial crisis into a full-blown depression. Opposite policy prescriptions follow from these clashing interpretations.

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Greece’s Syriza and Europe must be patient and pragmatic

Financial Times
Editorial
February 27, 2015


For a cash-strapped government, pleasing both one’s creditors and one’s voters is always tricky. The letter sent this week from Greece’s Syriza government to the eurogroup of finance ministers was a list of pragmatic concessions wrapped in the language of ideological defiance.

The proposals are intended to win Greece an extension of the current bailout programme for four months, whereupon a comprehensive revision of the terms and conditions of the rescue can take place.

Overall, its tone seems reasonable and represents a welcome retreat from unrealistic promises Syriza has made to its voters. Yet the cool response to the letter from the other two creditor institutions in what Greece no longer wants to call the “troika” — the International Monetary Fund and the European Central Bank — highlights how much trust has been damaged in the course of fractious negotiations.

Having sensibly left most of the business of negotiating the programme to the eurogroup, the ECB nonetheless felt the need to raise the alarm about the weakness of Greece’s promises. In particular it issued a cryptic warning about the need to “stabilise the payment culture”, assumed to be concern about plans for a freeze on banks foreclosing on mortgages. The IMF said it was worried about the failure to make firm commitments in a number of areas, including reforms to Greece’s chaotic VAT regime and sclerotic labour market.

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Can the Greek economy grow?

by Desmond Lachman

Hill

February 27, 2015

Albert Einstein famously observed that a sure sign of insanity was to keep repeating exactly the same experiment and yet to expect a different result. One has to wonder whether the same might not be said of Greece and its European partners as they have agreed to extend Greece's borrowing arrangement for another four months. They have done so in order to negotiate a new economic program with very much the same macroeconomic policy recipe as before. This has to beg the question: Why, if such policies failed so miserably before, should a different result now be expected?

At the heart of Greece's dismal economic performance since 2010 has been the Troika's (the European Commission, European Central Bank and International Monetary Fund) insistence that Greece engage in massive budget belt-tightening within a euro straitjacket. Lacking an independent monetary or exchange rate policy to offset the contractionary impact of fiscal tightening, which belonging to the euro necessarily involves, it should have come as no surprise that the Greek economy would have plunged.

Sadly, that is precisely what happened to the Greek economy. Today, the Greek economy is around 22 percent below its 2008 level, while unemployment exceeds 25 percent or the highest in the eurozone. Also troubling is the fact that Greece is now experiencing outright price deflation at an annual rate of 2.5 percent. Such deflation could constitute a major headwind to any future economic recovery and it could make reducing Greece's public debt to gross domestic product (GDP) ratio well-nigh impossible.

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What Greece Has to Do Now: Fix Its Economy

by Michael G. Jacobides

Harvard Business Review

February 27, 2015

After weeks of media frenzy around the Greek election and the new government’s once-ambitious plans to renegotiate with the Eurozone over its debt crisis, the searchlights of publicity are shifting. For all of its bravado, Greece was pushed into a corner in an eleventh-hour deal that will extend a bailout agreement for four more months. And although it has been given a temporary lifeline, little has been resolved.

Greece’s creditors have by and large insisted that prior agreements be honored, and told the government that its radical plans for state largesse (let alone debt forgiveness) are off the table. A few verbal tweaks (such as renaming the “Troika” — which consists of the EU, the IMF, and the ECB — the “Institutions”) were given as a political concession to the newly elected government, which had created high expectations with its electorate.

The tentative agreement with creditors reached this week is much less favorable to Greece than what was on the table last fall. To be sure, the proposal set forth by the Greek finance minister is less detailed than that of his predecessor, and leaves some room for maneuvering, but this is a mixed blessing, as the EU, the IMF, and the ECB will need to sign off on specifics. Greece appears also to lose control of the €11 billion reserves of the Greek banking stability fund.

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What Greece Won

by Paul Krugman

New York Times

February 27, 2015

Last week, after much drama, the new Greek government reached a deal with its creditors. Earlier this week, the Greeks filled in some details on how they intend to meet the terms. So how did it go?

Well, if you were to believe many of the news reports and opinion pieces of the past few days, you’d think that it was a disaster — that it was a “surrender” on the part of Syriza, the new ruling coalition in Athens. Some factions within Syriza apparently think so, too. But it wasn’t. On the contrary, Greece came out of the negotiations pretty well, although the big fights are still to come. And by doing O.K., Greece has done the rest of Europe a favor.

To make sense of what happened, you need to understand that the main issue of contention involves just one number: the size of the Greek primary surplus, the difference between government revenues and government expenditures not counting interest on the debt. The primary surplus measures the resources that Greece is actually transferring to its creditors. Everything else, including the notional size of the debt — which is a more or less arbitrary number at this point, with little bearing on the amount anyone expects Greece to pay — matters only to the extent that it affects the primary surplus Greece is forced to run.

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In Greece, Bailout May Hinge on Pursuing Tycoons

by Liz Alderman

New York Times

February 26, 2015

As he sifted recently through a sheaf of Greek bank accounts held by executives, politicians and other members of the Greek elite, Panagiotis Nikoloudis, the nation’s new anti-corruption czar, was struck by some troubling numbers.

A man who was claiming unemployment benefits and declared zero income on his taxes had more than 300,000 euros, or $336,000, stashed away at his bank. Another, who told the tax authorities that his annual income was just €15,000, turned out to have €1.5 million in various bank accounts.

Mr. Nikoloudis estimated that the men had bilked Greece’s Treasury of thousands of euros in tax revenue, even as other Greeks struggled under the government’s austerity budgets and embattled economy.

“I have nothing against rich people,” said Mr. Nikoloudis, a financial crimes specialist, leaning into a table one recent afternoon in his office in western Athens. “I’m against dishonest rich people. And I’m here to get them.”

For years, Greece has been trying to attack corruption and tax evasion, from the smallest taverna owner to the nation’s most powerful oligarchs. Now, Prime Minister Alexis Tsipras is vowing to take far more action than previous administrations in cracking down. He says his government, led by his leftist party, Syriza, will succeed because having never held power, it is not beholden to the entrenched interests that have long fought to maintain the status quo.

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Family Feud: The Tortured Relationship between Schäuble and Varoufakis

Spiegel
February 27, 2015

The end began in the National Theater of Greece in Athens. It was the evening of Wednesday, Feb. 18, and the work on stage was "Happy Days," a two-character play by Samuel Beckett. On stage, a not-particularly-young woman slowly sank into a pile of dirt, talking all the while. Finally, she was stuck up to her neck, but continued talking and making plans even though she could move little more than her eyes and her mouth.

Greek Finance Minister Yanis Varoufakis was in the audience. "Splendid performance(s)," he tweeted two days after the show. The evening, he wrote, was "such a relief from you know what ..."

In hindsight, the scene seems like an omen -- like a screenplay for the days to come. Theater, after all, is a reflection of humanity's existence as a whole -- and sometimes it reflects the specific existence of a Greek finance minister.

At the same time as Varoufakis was enjoying his visit to the theater, his German counterpart Wolfgang Schäuble was attending a very different show, one in which the main character was Portuguese Finance Minister Maria Luís Albuquerque. She was a guest speaker at the Bertelsmann Stiftung and used her talk to review the significant progress her country has made since almost going broke four years ago. The country's finances are now under control and economic growth has returned.

"My dear friend," Schäuble addressed her pleasantly. The warmth in his voice made him sound like a teacher who had just barely managed to prevent a student from failing out of school. Why, he seemed to be thinking, can't all finance ministers in Europe be like Maria Luís Albuquerque?

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Setbacks for Tsipras Stir Discord in Greek Ruling Party

by Maria Petrakis

Bloomberg

February 27, 2015

“A Day with Yanis Varoufakis,” a satirical post doing the rounds on social media, shows the Greek finance minister spending his waking hours feted by adoring fans. He goes to sleep and is jolted awake by a nightmare of German Finance Minister Wolfgang Schaeuble cackling.

In what’s turning that nightmare into reality, Greece’s month-old anti-austerity government led by Prime Minister Alexis Tsipras had a rude awakening last Friday when German-led pressure forced it to pedal back on most election pledges in the face of national insolvency. On the streets of Athens, Greeks used to political flip-flops in the five years of their odyssey to financial health are taking what has been a capitulation in their stride.

“When you have your hand outstretched and they say there’s no money, that’s when you put your hands up in the air,” said Alexandra Dimopulos, 60, a retired civil servant. “You may have all the good intentions in the world but that means nothing when you have no money for them.”

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Thursday, February 26, 2015

IMF’s Christine Lagarde shows tough love to Greece over bailout

Financial Times
February 26, 2015

When Christine Lagarde offered a sceptical view this week on the new Greek government’s reform plan, the International Monetary Fund chief highlighted just how uncomfortable her institution has become about one of the biggest bailouts in its history.

The IMF’s experience in Greece has been painful, exposing fault lines between its traditional US and European paymasters and emerging powers keen for greater influence over global finance.

“Greece so far has not been a brilliant chapter in the IMF’s history,” says Paulo Nogueira Batista, who represents Brazil and 10 other countries on the fund’s board. “Rules were bent and broken to suit the needs of the euro area.”

The result, he argues, has been damage to the institution’s credibility.

The IMF joined the EU’s financial rescue of Greece in 2010 and its board since then has approved two separate programmes, each worth approximately €30bn and greatly exceeding the fund’s normal lending limits.

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'Foreign' Money and 'Austerity' Haven't Caused Greek Stagnation

by Jerry Jordan

Real Clear Markets

February 26, 2015

The on-going "Greek Financial Crisis" is chock full of lessons about the nature of the entity that serves the functions of money in an economy. Historically, people have chosen to use as money everything from notched wooden sticks to metal coins to pieces of paper printed by governments. When alternatives have been available, people have chosen to hold on to "high-quality-money" and rid themselves of the lower quality forms of money. Sometimes that has meant the illegal holding of foreign forms of money-like US dollars or German marks-instead of the official currency of their own country.

Today, the vast majority of Greek citizens answer pollsters that they want to continue using the ‘euro'-a currency provided by the European Central Bank-rather than return to the ‘drachma'-the fiat currency previously issued by the Greek central bank. At the same time, Greek voters elect politicians who promise to reject economic policies that would be essential to remaining within the "euro zone." As The Wall Street Journal recently commented on Greek preference for euros over drachmas "... they also keep electing candidates who campaign against reform ... (who) promised voters he opposed the bailout before he supported it in office." This inconsistency reveals the inherent tensions arising from forms of money and the associated economic policies of a country.

It comes down to this: a specie currency-gold and silver-imposes sound economic policies on a country. A fiat currency-issued by central banks-requires sound economic policies. What is happening in the euro zone-and clearly in the case of Greece-the imposition of sound economic policies is being demanded by politicians of foreign governments, not advocated by domestic politicians. As the Journal put it, "The conceit remains that external forces can mandate reform. But creditors lack the means to enforce reform, while successive Greek governments on left and right lacked the desire or political skill to implement them."

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Greek Bailout Deal Boosts Deposits to Banks

by Alkman Granitsas

Wall Street Journal

February 26, 2015

Greece’s interim deal with its eurozone partners last week has helped calm nervous depositors, senior banking and government officials say, reversing a weekslong savings outflow from the country’s cash-strapped banks.

According to one senior banking official, more than €800 million ($905 million) in deposits have been put back into the Greek banking system since Monday when Greece’s banks were closed for a public holiday.

“We saw €700 million return on the first day and another €150 million yesterday,” the banking official, speaking on the sidelines of central bank conference, told journalists. “Things are going well.”

But, in fact, the money that has dribbled back since last Friday’s deal, pales in comparison with the amount withdrawn in the past three months, say analysts, and it will take several months of inflows to confirm that the trend is here to stay. And, if past experience serves as precedent, many of the deposits that have left, may never come back.

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Greece Must Reform, Says Greek Central Bank Governor

by Stelios Bouras

Wall Street Journal

February 26, 2015

Bank of Greece Governor Yannis Stournaras urged the government on Thursday to fulfill reforms commitments promised to European partners in exchange for future funding as soon as possible to help the country’s economic recovery to take place.

Presenting his annual report, Mr. Stournaras said Greece needs a comprehensive growth plan based on reforms including the opening up of professions, preserving fiscal achievements, reviewing tax exemptions and adopting policies that promote employment.

“In the past few years, we have covered some very rough ground at high cost to the whole of Greek society. If we can address the relatively few issues still pending and complete the first phase of the effort launched in 2010, we will then be able to move on to the next phase, in which the growth potential of the economy will be considerably enhanced,” said the governor.

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The Reason Austerity In Greece Didn't Work

by Tim Worstall

Forbes

February 26, 2015

One of the little puzzles of the past few years has been why was the reaction of the Greek economy to austerity so much worse than that of other countries? For it is true that other countries (I think particularly of Spain and Portugal) had the same sort of shrinkage of the government budget, had the same (entirely wrong and inappropriate) monetary and currency policies but they did much better. Or at least not as badly. So what was the secret to that Greek economy that made the out turn so awful? And awful it is, Greece has had a fall in GDP akin to what the US had in the Great Depression of the 1930s. The answer, it appears, is that the underlying structure of the Greek economy is such that it just couldn’t take advantage of the meagre benefits that austerity did provide.

The point is made in this NYT piece:
Greece has fared much worse than other eurozone countries that faced a sudden drop in foreign financing, and then enacted similar austerity programs. It lost 26 percent of its G.D.P. from the pre-crisis peak, while Portugal, Ireland and Spain lost no more than 7 percent each. Much of this difference is due to foreign trade.
Yes, of course, there’s more to it than only foreign trade. But this is also a large part of the difference:
Finally, the size of companies in Greece is a fundamental structural issue. Industrial capitalism was never strong in Greece, which is a society of small owners and of microbusinesses. Land and homes belong mostly to their occupants, free of mortgage, more so than in any Western country. Self-employment and companies of fewer than 10 employees are much more prevalent than in any other European nation. Only 5 percent of employment in the whole economy occurs in companies with more than 250 employees. Even the main export industry, tourism, consists mostly of medium and small businesses.
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Unlikely Winners of Greece's Surrender

by Mark Gilbert

Bloomberg

February 26, 2015

The Greek government's apparent capitulation in debt negotiations with its euro partners makes it less likely that Athens will be forced out of the common currency. The real winners, though, are the European governments who have stuck with spending cuts in the face of mounting domestic opposition. They don't have to worry about a successful austerity renegade giving ammunition to their opponents.

Rightly or wrongly, Greece's interlocutors displayed a united front on refusing to cede to Greece's demands throughout the talks, with 18 euro members allied against one. Rightly or wrongly, Germany was indifferent to whether Greece stayed in the euro or not, willing to countenance a Grexit rather than surrender to the new Syriza-led administration, the person said. And, rightly or wrongly, any changes Greece makes to its existing commitments will probably have to be fiscally neutral, with the government having to show exactly how it plans to meet its pledges; unquantifiable measures, such as promising to collect outstanding taxes, won't make the grade.

Instead, Greece has diluted at least five of its key electoral promises in the face of implacable German-led opposition to its stance. There's been no extension of the country's debt repayment timetable; Greece is still a ward of the troika, even if its guardians now go by a different name (they're now referred to as the "institutions"); there's no rollback of the previous government's economic reforms; cash allocated to the domestic banking system won't be diverted to alleviating economic hardship; and the need to achieve a sensible budget surplus has been acknowledged.

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Wednesday, February 25, 2015

Greece sees problems repaying IMF, ECB; Germans air mistrust

Reuters
February 25, 2015

Greece said on Wednesday it will struggle to make debt repayments to the IMF and the European Central Bank this year as Germany's finance minister voiced open doubts about Athens' trustworthiness.

A day after euro zone finance ministers agreed to a four-month extension of a financial rescue for the currency bloc's most heavily indebted member, Finance Minister Yanis Varoufakis gave a frank assessment of Greece's financial position.

"We will not have liquidity problems for the public sector. But we will definitely have problems in making debt payments to the IMF now and to the ECB in July," he told Alpha Radio.

He put no figure on the funding gap. After interest payments this month of about 2 billion euros, Athens must repay an IMF loan of around 1.6 billion that matures in March and about 7.5 billion in maturing bonds held by the ECB in July and August.

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What Greece Needs

by Aristos Doxiadis

New York Times

February 25, 2015

The depression ravaging Greece is always framed as an issue of macroeconomics: fiscal policy was tightened too quickly; government debt is too high; the tools of currency devaluation and monetary expansion are not available inside the eurozone. But this is overly simplistic; local politics and microeconomic factors are just as important in explaining the depth of the crisis.

Greece has fared much worse than other eurozone countries that faced a sudden drop in foreign financing, and then enacted similar austerity programs. It lost 26 percent of its G.D.P. from the pre-crisis peak, while Portugal, Ireland and Spain lost no more than 7 percent each. Much of this difference is due to foreign trade.
Continue reading the main story

In all four countries, when capital from abroad stopped flowing in, increasing exports became an urgent goal. The other three countries achieved this quickly. Greece did not. If it had boosted exports, its recession would have been much shallower; by one estimate, a 25 percent increase in exports could have limited the drop of gross domestic product to just 3 percent.

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Greece Struggles to Get Citizens to Pay Their Taxes

by Matthew Karnitschnig & Nektaria Stamouli

Wall Street Journal

February 25, 2015

Of all the challenges Greece has faced in recent years, prodding its citizens to pay their taxes has been one of the most difficult.

At the end of 2014, Greeks owed their government about €76 billion ($86 billion) in unpaid taxes accrued over decades; the government says only €9 billion of that can be recovered, with most of the rest lost to insolvency.

Billions more in taxes are owed on never-reported revenue from Greece’s vast underground economy, which was estimated before the crisis to equal more than a quarter of the country’s gross domestic product.

The International Monetary Fund and Greece’s other creditors have argued for years that the country’s debt crisis could be largely resolved if the government just cracked down on tax evasion. Tax debts in Greece equal about 90% of annual tax revenue, the highest shortfall among industrialized nations, according to the Organization for Economic Cooperation and Development.

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A Greek Deal and What It Means

by Jacob Funk Kirkegaard

Peterson Institute for International Economics

February 25th, 2015

Greece and the Eurogroup have struck a deal designed to avoid another economic meltdown and even return Greece to economic growth. An additional four months have been added to an earlier two-month extension of the review of Greece’s economic reform program, giving Athens and its partners until the end of June to reach a more comprehensive arrangement. As previously discussed, the threat of an acute fiscal revenue crunch and an accelerating deposit flight from the banking system gave the new Greek government no choice but to reverse course and seek such an extension while remaining committed to the goal of reform.

Indeed the new list of Greek reform commitments includes most of the agenda in the existing program imposed by the Troika, consisting of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF). Both the IMF and the ECB [pdf] will not accept vague “policy commitments” from Athens but instead will demand concrete reform implementation before releasing further funds to the new government.

Despite the predictable spin, this outcome represents a Greek government capitulation—and a likely worse outcome for the Syriza coalition in Athens than what might have resulted from a more levelheaded and credible negotiating strategy.

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Greece’s Alexis Tsipras Seeks Backing of Lawmakers Over New Deal With Creditors

by Alkman Granitsas

Wall Street Journal

February 25, 2015

Greek Prime Minister Alexis Tsipras sought the backing of his restive lawmakers for a new financing deal with creditors Wednesday, as his government signaled its continued defiance to the sale of state assets-one of the key demands of its creditors.

The deal reached with eurozone partners and the International Monetary Fund late last week has forced Greece’s government—in power just over a month—to make deep concessions to its populist platform, rolling back many of the promises made to voters. Promises such as writing off the country’s debt, raising the minimum wage, and rehiring laid off public servants, have all gone by the wayside or else been dramatically pushed back.

And that has fueled discontent within the radical-left Syriza party that had vowed to abolish Greece’s €240 billion ($272.3 billion) bailout, the austerity measures that came with it, and bring sweeping change to a political system many see as riddled with corruption and cronyism.

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After approval of bailout plan, Greece under pressure to deliver

by Christine Pirovolakis

German Press Agency (DPA)

February 25, 2015

A green light by the eurozone to a list of proposed reforms by Greece needed in return for continued loans means its new leftist government has its work cut out in the coming weeks trying to deliver on its promises.

The reforms, approved by eurozone finance ministers, to extend the European share of Greece's bailout by four months, has gained the country a "few weeks of breathing space," according to a finance ministry official.

But the government, led by the leftist SYRIZA party, faces months of difficult negotiations with its creditors over how to ease its unsustainable debt after securing a temporary lifeline on Tuesday that wins Prime Minister Alexis Tsipras time until the end of June.

"The main objective of SYRIZA now has to win the international confidence battle. If it does so, creditors will trust it and will possibly consider to provide further financial assistance after June," said George Tzogopoulos, a political analyst at the Hellenic Foundation for European and Foreign Policy (ELIAMEP).

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German MPs urged to take tough line on Greece

Financial Times
February 25, 2015

An influential German business group is urging MPs to take a tough line on Greece ahead of a Friday vote in the Bundestag to approve an extension to the country’s bailout.

The lower house of Germany’s parliament is broadly expected to pass the four-month extension that eurozone finance ministers agreed with Athens on Tuesday.

Nonetheless, Chancellor Angela Merkel could face a sizeable rebellion within her Christian Democratic Union and its Bavarian sister party, the Christian Social Union. If nothing else, the warnings from the CDU’s business caucus and other conservatives reflect widespread unease about providing additional support to a Greek government amid doubts about its reform pledges.

In a letter to lawmakers, Kurt Lauk, president of the CDU’s Economic Council, wrote: “A simple extension of the aid programme without effective terms would mean that we are knowingly throwing further good money after bad.”

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Ex-Greek minister on trial over HSBC accounts

Financial Times
February 25, 2015

Former Greek finance minister George Papaconstantinou went on trial on Wednesday charged with removing relatives from a list of Greeks allegedly holding accounts at HSBC’s Swiss private bank.

Mr Papaconstantinou denies that in 2010, while finance minister, he tampered with a USB memory stick containing a list of 2,000 HSBC accounts held by alleged tax evaders.

The document is known as the Lagarde List after Christine Lagarde, then French finance minister and now head of the International Monetary Fund. Paris sent it to Mr Papaconstantinou who allegedly removed the names of two lawyers and an engineer from the memory stick, which he later said was mislaid.

Greece’s new Syriza government has pledged to speed up the investigation after authorities have been criticised for not pursuing the people on the list more aggressively.

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Is Greek honeymoon over for Tsipras after EU bailout deal?

by Mark Lowen

BBC News

February 25, 2015

The cold January wind swept through Omonia Square in Athens for Alexis Tsipras's penultimate pre-election rally, eased only by the sense of excitement in the crowd.

Half of Greek debt would be written off, he told supporters, promising to "finish with the orders from abroad".

To rapturous applause, he insisted: "We will not govern with anybody who follows the policies of Mrs Merkel."

His fans were ecstatic.

Fast forward a month and the rhetoric is a distant memory. After three crisis meetings in Brussels, Greece was backed into a corner.

Its banks faced the prospect of emergency liquidity being turned off and capital controls implemented unless a deal was reached.

As much as €1bn (£732m, $1.5bn) a day was flowing out of Greek banks as the stand-off reached its climax.

Athens was forced to dance to the eurozone's tune.

So is it a capitulation or a pragmatic compromise? Well, a bit of both.

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Tuesday, February 24, 2015

Greece’s Reprieve: In Praise of Kicking the Can Down the Road

by Paolo Mauro

Peterson Institute for International Economics

February 24th, 2015

The melodrama in Greece has produced demands that Athens and its European partners take decisive action to fix a complicated situation once and for all. In fact, kicking the can down the road—as the players did recently to avert a financial crisis—is an underrated and long-standing feature of debtor-creditor relations. The rattling metallic noise produced by the joyous act of kicking that can is fondly remembered from childhood days. Today it marks the sound of Greece and its official sector partners bound together in a long-run relationship by virtue of their large exposures as debtors and creditors.

No doubt a more orderly and speedy negotiation with less last-minute drama and posturing in public would be welcome. But unconditional fiscal transfers are not envisaged. Complete and unconditional debt relief would run the risk of profligate spending in Greece and elsewhere. At the opposite end of the spectrum, expecting a new government to abide willingly by a detailed list of tough austerity measures in the absence of outside monitoring also does not seem plausible. Anything in-between is messy and requires repeated interaction.

Creditors will continue seeking to influence the economic policies of a debtor country in an effort to get repaid. Greece will be asked for some degree of “austerity” for many years to come. Negotiations on debt relief and the size of the primary surplus are two sides of the same coin. Creditors will ease the pressure only if it becomes apparent that excessive austerity will undermine economic growth to the point that it reduces the debtor’s ability to repay.

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Greek Bailout Extension Amid Doubts

Wall Street Journal
February 24, 2015

Eurozone finance ministers approved a four-month extension to Greece’s bailout on Tuesday, despite signaling concerns over the willingness of the new left-wing government in Athens to implement the budget cuts and legislative overhauls they demanded.

The extension removes the immediate threat of a Greek exit from Europe’s currency union and a run by depositors on the country’s banks. “Greece has won a few weeks,” said a senior Finance Ministry official in Athens.

But numerous hurdles remain until the government can get its hands on the cash remaining in its €240 billion ($273 billion) bailout from the eurozone and the International Monetary Fund and negotiate a longer-term rescue deal with its creditors.

A first set of obstacles was raised Tuesday by Christine Lagarde , the IMF’s managing director. In a letter to Dutch Finance Minister Jeroen Dijsselbloem made public just minutes after he presided over the finance ministers’ approval, Ms. Lagarde complained that new measures outlined by the government of Prime Minister Alexis Tsipras were “generally not that specific.” Similar concerns were voiced in a separate letter by European Central Bank President Mario Draghi and by the ministers themselves.

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A closer look at Greece’s proposed reforms

by Kerin Hope

Financial Times

February 24, 2015

Greece’s new leftwing Syriza government has talked of killing the country’s current bailout deal. Yet many of the reform pledges it spelt out in a letter to the eurogroup on Tuesday bear a striking resemblance to those made but not implemented by previous Greek finance ministers.

Others seem calibrated to give space for Yanis Varoufakis, Greece’s new finance minister, to claim he has kept faith with Syriza’s so-called “Thessaloniki programme”. This is a collection of anti-austerity policies endorsed by multiple factions in the hardline “Left Platform”, which is said to represent about one-third of party activists.

Greece has submitted the reforms to persuade its 18 eurozone partners to extend its bailout by four months, putting it on a path to collect about €7.2bn in loan payments by June.

Its gaps and omissions will presumably be filled in during negotiations with the group of institutions that have overseen the bailout and were until recently known as the “troika” — the European Commission, the International Monetary Fund and the European Central Bank.

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The Economic Consequences of Greece

by Alberto Bagnai, Brigitte Granville, Peter Oppenheimer & Antoni Soy

Project Syndicate

February 24, 2015

The first sentence of the 1957 Treaty of Rome – the founding document of what would eventually become the European Union – calls for “an ever-closer union among the peoples of Europe." Recently, however, that ideal has come under threat, undermined by its own political elite, which adopted a common currency while entirely neglecting the underlying fault lines.

Today, those cracks have been exposed – and widened – by the seemingly never-ending Greek crisis. And nowhere are they more evident than in Greece's relationship with the International Monetary Fund.

When the euro crisis erupted in 2010, European officials realized that they lacked the necessary expertise to manage the threat of sovereign defaults and the potential breakup of the monetary union. For EU officials, avoiding the eurozone's collapse became the top political imperative, so they turned to the IMF for help. The irregularities in the Fund's resulting intervention attest to how serious the eurozone's problems were – and continue to be.

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Greece Must Stop Grandstanding and Start Governing

by Angel Ubide

Peterson Institute for International Economics

February 24th, 2015

Greece’s last-minute agreement with the Eurogroup on Febuary 20 averted a potential major financial disaster. The Greek government was days from running out of money to pay the bills. But despite the claims of victory by both Prime Minister Alexis Tsipras and his European creditors, little has changed in the relationship among Europe, the International Monetary Fund (IMF), and Greece, as I expected. Paraphrasing the Sicilian novelist Giuseppe Tomasi di Lampedusa, change has occurred in Greece, so that nothing (or little) changes.

The deal was similar to what Greece would have obtained with the previous government. Any potential change will come in how Tsipras’s government implements it. Given the agreed fiscal targets, will the composition of expenditures and revenues, or the type of reforms, be adjusted? Given the left-wing political leanings of Tsipras’s Syriza coalition, one would expect some different priorities. There is always flexibility within a fiscal policy path and a reform objective, and that flexibility is dictated by domestic choices.

Greece has no market access, is facing a sharp liquidity crunch, and needs external funding. It remains under the monitoring of the IMF, the European Commission, and the European Central Bank (ECB)—a group formerly known as the “Troika,” now to be called the “institutions” as a gesture to Greece’s sensibilities. The agreement of late February calls for a four-month extension of the current program, which may be granted based on proposals that Athens is to submit by the end of the month. No new funding has been agreed, leaving Greece’s acute liquidity crunch unresolved. A possible solution (including the ECB’s reinstatement of the waiver to accept Greek government bonds as collateral) could be adopted if the Greek proposals are submitted and accepted by the Eurogroup.

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How Greece’s Creditors Can Encourage Its Return to Stability

by Avinash Persaud

Peterson Institute for International Economics

February 24th, 2015

Now that over 75 percent of Greece’s debt has been transferred from private banks to the official sector backed by European taxpayers—there is a novel solution to the Greek tragedy that would satisfy the interests of borrowers as well as creditors. This solution could also temper unhelpful nationalism on both sides and doesn’t promote future fiscal irresponsibility.

Under this proposal, official creditors and borrowers would enshrine debt stability by setting interest rates equal to nominal growth. Greeks would rejoice. But it would also be necessary and possible to embed strong incentives to discourage Greece from abandoning fiscal responsibility and reform as soon as growth returns. Interest rates would be further adjusted above nominal growth by the amount of a primary deficit and fall below it by the size of the surplus. Creditors would approve.

Any solution to the current impasse must satisfy at least three tests. First, the primary budget surplus required of Greece must not be so large as to inhibit sustainable economic growth. By primary budget surplus we mean revenues less expenditures, excluding interest or debt repayments. This is a better measure of a budget’s impact on economic activity than the overall deficit. When the animal spirits are low like now, the multiplier of fiscal conditions on to GDP growth is high. And without GDP growth, there can be no stabilization of the debt-to-GDP ratio.

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5 Things to Know About Greece’s Proposed Reforms

by Alkman Granitsas

Wall Street Journal

February 24, 2015

Greece’s new government has submitted a list of overhauls it will make in exchange for four more months of financing from its international creditors while it negotiates a new bailout program. The European Commission has backed the proposals, but has asked for more details. Here are five things to know:

1. The List of Reforms Doesn’t Include Any Numbers

The seven page letter, sent by Greek Finance Minister Yanis Varoufakis, describes general principles of the reform program and details some specifics on tax overhauls and government spending policies. But it doesn’t include any estimates about the costs, benefits and economic impact of those commitments. The financial details of the reform program will be hammered out during further consultations with creditors by the end of April.

2. Greece Wants To Shake Up The Public Sector And Crack Down On Corruption...

From tightening political party financing rules to publicly tendering out media broadcast licenses to making public procurement more transparent, the government wants to sever the deep links between business oligarchs and government. Many Greeks blame the country’s monied elite for leading the country to ruin, but rooting out corruption is never easy and Greece’s oligarchs have proven to be very resilient.

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European Commission Backs Greek Reform Proposals

Wall Street Journal
February 24, 2015

The European Commission on Tuesday backed proposals made by the Greek government for reworking its bailout program, putting Athens one step closer to securing a four-month extension to its expiring bailout.

But the bloc’s governments will require more detail on the proposals before giving Greece more money and possibly before approving its extension request. Eurozone finance ministers will discuss the list of proposals, sent by Greece to its creditors on Monday night, on a conference call Tuesday afternoon.

“In the commission’s view, this list is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review, as called for by [eurozone finance ministers],” said commission spokesman Margaritis Schinas. “We are notably encouraged by the strong commitment to combat tax evasion and corruption.”

However, Jeroen Dijsselbloem, the Dutch finance minister who leads meetings of the eurozone ministers, said the proposals represented “just a first step.”

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Greece delays delivery of spending-cuts plan to creditors

by Anthee Carassava & Carol J. Williams

Los Angeles Times

February 23, 2015

Caught between their election promises and the reality of bills to pay, Greece’s new leftist leaders Monday delayed delivery of a detailed plan to creditors for boosting employment at the same time they make deep spending cuts.

Prime Minister Alexis Tsipras and his populist Syriza party sailed to victory last month on vows to end the indignity of austerity measures imposed by European lenders in exchange for $280 billion in bailout funds over the last five years.

But Tsipras’ campaign-trail message, that Greeks can demand easier terms on repayment without giving up their membership in the common currency alliance, has come back to haunt him as his freshman government tries to persuade the troika of financial institutions that oversees the bailout agreement to extend it before its Saturday expiration.

European Union leaders want to preserve the 19-nation Eurozone, as a Greek departure would represent a failure of the euro experiment that is a fundamental part of the European Union vision of the continent as a collective economic powerhouse. Syriza politicians felt confident that the Eurozone needed Greece at least as much as Greece needed the euro when they ran on a platform vowing to recover sovereignty over the country’s finances.

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Monday, February 23, 2015

Eurogroup conference call raises hopes for Greek bailout extension

by Peter Spiegel

Financial Times

February 23, 2015

Eurozone finance ministers are expected to hold a conference call on Tuesday to weigh Greece’s new economic reform plans, raising expectations that they are inclined to sign off on a tentative deal to extend Athens’ €172bn bailout until June.

The Greek list of economic reforms, due to be submitted to bailout monitors early on Tuesday, represents the last hold-up for the 18 eurozone counterparts deciding whether to extend Greece’s EU programme beyond Saturday, when it otherwise expires.

Eurozone officials said that, if the list proved unacceptable, ministers would probably be summoned to Brussels for another in-person meeting to try to resolve differences.

But Greek and EU officials said that, after an initial outline of reforms submitted at the weekend proved too vague, talks on Monday were more constructive, leading to the decision to hold a conference call instead.

“I’d put my money on [approval] tomorrow,” said one senior official involved in the talks.

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Four misperceptions about Greece

by Martin Sandbu

Financial Times

February 23, 2015

At best, it's the end of the beginning

On Friday, Free Lunch called the eurogroup meeting on Greece "the next of many high noons", and so it will prove this week. Much like previous "breakdowns in talks" were nothing of the sort, Friday's "agreement" was not one either. The FT's Peter Spiegel gives a quick summary of what the eurogroup on Friday signed off on. This was to consider extending the rescue loan if, but only if, the institutions formerly known as the troika approved the reform proposals that Athens was scrambling to write down over the weekend. So the "deal" is to keep talking, and that as soon as today.

It is a good time to clear up some more of the misperceptions riddling the running commentary. First is the notion that what Syriza agreed to on Friday differed little from what was on the table "on the day the government took office", as the Wall Street Journal's Simon Nixon puts it. That's quite wrong. A blog by Norbert Häring lists the ways in which Athens got the eurogroup to sign off on a statement that preserves a lot of negotiating space to press for a bigger rejection of the "memorandum" policies Syriza was elected to end. That's in addition to some small but substantive movement on the strictness of the fiscal targets. (In a companion piece, he argues that the German side got nothing that Greek finance minister Yanis Varoufakis had not already offered on February 11.)

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Greece On The Brink

by Richard A. Epstein

Hoover Institution

February 23, 2015

Germany and Greece have both wisely blinked on how best to renegotiate Greece’s outsized debt to its reluctant playmates inside the European currency union. The present fix will last for only four months, which means that the unresolved issues will surge to the fore yet again if some long-term solution is not crafted in the interim. In dealing with bailouts of this sort, financial gurus unduly rely on macroeconomic principles. In my view, that approach overlooks the gritty transactional challenges that routinely arise when parties attempt to work out delinquent loans in the shadow of bankruptcy. The picture is not pretty.

To see how the process unfolds, start with a simple situation where a lender advances $1 million to a debtor who at the appointed hour is unable to repay the loan in accordance with its terms. At this point, the lender first looks to foreclose on any specific collateral that the borrower has given to secure the loan. But specific assets do not secure many loans, like those made to Greece.

In dealing with these unsecured debts, one option open to the lender is to insist that all the money be repaid, come hell or high water. But if the current funds are not available, these futile and aggressive demands could easily disrupt the debtor’s productive capacity, so that the lender will cut off its nose to spite its face. Backing off on these onerous collection demands, by taking some reduction to the principal or interest, or both. Typically, these revised deals also require delay in repayment, but that haircut, as it is usually called, ultimately works to the lender’s benefit. To see why, do the math: backing down results in a higher probability of collecting a smaller amount. Its present value is often worth more than some lower probability of collecting the original debt with interest in full.

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Greak Leader Tsipras Can Expect More Humble Pie

by Simon Nixon

Wall Street Journal

February 22, 2015

Greece’s membership in the eurozone looked less precarious by the end of last week than it did at the beginning—but it still hangs in the balance.

Faced with escalating bank runs and rapidly deteriorating public finances, Athens finally bowed to the inevitable and did what it had vowed not to do: request an extension to the country’s current bailout program—and commit in good faith to completing it. In doing so, the new Greek government has averted certain economic collapse and bought itself time to break yet another promise as it tries to secure a new bailout.

Little was agreed upon at Friday night’s meeting of eurozone finance ministers that couldn’t have been agreed on the day the government took office. Athens invested the better part of a month in the pursuit of the legally as well as politically impossible fantasy of unconditional loans from the European Central Bank and eurozone taxpayers.

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Greece's Tsipras Is on a High Wire

by Paul Tugwell & Nikolaos Chrysoloras

Bloomberg

February 23, 2015

Greek Prime Minister Alexis Tsipras walks another high wire over the next 24 hours as he tries to come up with financial measures that satisfy both the demands of euro-region creditors and his anti-austerity party.

After talks in Brussels between officials from the 19 euro members concluded late on Feb. 20 with an agreement to extend bailout funds for four months, the government in Athens now has until the end of Monday to complete a list of policies in return for the continued funding. Finance chiefs will then decide whether the proposals go far enough or trigger another round of emergency negotiations this week.

“The stakes are too high for the euro area and mostly for Greece, as the country’s economy and especially banking system may face an imminent collapse,” said Panos Tsakloglou, a professor at Athens University of Economic and Business. “One way or another they will manage to strike a compromise on the list of measures required for the extension of the program.”

The agreement potentially frees up money to meet some of the pledges made by Tsipras before disgruntled Greeks catapulted his Syriza party into power almost a month ago. The outcome may still prove politically bruising for him after he was forced to ditch plans to take back control of Greece’s beleaguered finances so he could raise wages and pensions.

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Sunday, February 22, 2015

A scrappy deal keeps Greece from the wolves

Financial Times
Editorial

February 22, 2015


It is a sign of low expectations in the handling of the Greek debt crisis when a deal to keep the country from chaos for four months at the most and only 72 hours at the least is hailed as a great breakthrough.

After four weeks of brinkmanship, the eurogroup of finance ministers and Greece’s Syriza-led government emerged on Friday night with an interim pact that should stave off disaster for a while.

In the sense that it avoided catastrophe, the agreement was good for both sides. The bailout money will continue to come, and the European Central Bank will stand behind Greece’s banking system, for the time being. But grandstanding and mutual accusations of bad faith during the talks have done needless damage to the reputation of Greece’s government. They have also dimmed the prospects of a constructive agreement in June when the four-month extension runs out.

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Greece's two-day deadline to earn four months' grace

by Julia Kollewe

Guardian

February 22, 2015

Having clinched an outline agreement to extend Greece’s bailout by four months in crunch talks in Brussels on Friday, Athens now has its work cut out.

Finance minister Yanis Varoufakis and Prime Minister Alexis Tsipras have until Monday night to come up with a list of proposed structural reforms that will then be scrutinised by international creditors – the “troika” of the European Central Bank, the European Union, and the International Monetary Fund.

The Greek cabinet is drawing up a list of budget cuts and economic reforms which must be approved by the troika before eurozone members ratify the bailout extension – urgently needed to stave off a cash crisis. The 19 eurozone finance ministers will discuss the reform proposals in a telephone conference as soon as Monday.

The reform list is also likely to include measures such as deregulation of the economy, privatisation and social security reforms, according to Athens University economist Aristide Hatzis. Friday’s agreement included a Greek commitment towards “implementing long overdue reforms to tackle corruption and tax evasion, and improving the efficiency of the public sector”.

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Who Made Germany Europe's Boss?

by Clive Crook

Bloomberg

February 22, 2015

There are two main lines of analysis about Germany's role in the European Union. The first, favored by populist euro-skeptic politicians, is that Germany seeks to reverse the setbacks of the 20th century and rule Europe by other means. The second, popular with political commentators and other members of the European elite, is that German guilt over the setbacks of the 20th century inhibits it from exercising the leadership that the EU actually needs.

If the past several weeks are any guide, reports of German inhibitions have been exaggerated.

We'll see whether Friday's tentative agreement over Greece sticks. Tomorrow, Athens is to present a list of measures to the International Monetary Fund, the European Central Bank and the European Commission -- the so-called troika, with which Greece’s new government vowed not to deal. If the supervisors sign off, the plan must go to various national parliaments for approval, including Germany's. This thing isn't over yet.

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The skirmish is over — let the Greek debt battle begin

by Wolfgang Münchau

Financial Times

February 22, 2015

If this was meant to be the challenge to German economic orthodoxy, it failed. The compromise reached in Brussels on the extension of the Greek bailout was not the deal the new Syriza government sought. Its negotiating position was weak for two reasons. On Friday, Greek depositors transferred more than €1bn of bank deposits abroad. The bank system would have collapsed within days without an extension. And Athens had no plan for a euro exit. It had no choice but to cut a deal in which the Germans prevailed on all the substantive issues.

Then again, the deal runs for only four months — time to prepare for the battle that matters most: determining the long-term trajectory of the Greek fiscal position. Under its old agreement with creditors, Athens was meant to run a primary budget surplus — before payment of interest on its debts — of 3 per cent this year, and 4.5 per cent in 2016. The EU wants Greece to pay down its debt, currently 175 per cent of gross domestic product, to 110 per cent by 2022.

Economic history tells us adjustments of such scale do not work because electorates do not stand for it. One of Syriza’s main pre-election demands was a debt conference, in which Greece and its creditors would agree a formal “haircut” — a reduction in the nominal value of the outstanding debt — to allow the country to remain in the eurozone. The lower the level of the debt, the lower the required primary surplus needed to achieve any given debt target.

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