Greece has entered into a new deal with European lenders that they claim will lift the country’s economy through the enactment of new reforms. However, the debt-ridden country will still have to meet tough fiscal targets for the next two years. Today, we’ll speak with a Greek economist who believes the deal will do little to help the country.
GREECE– The Greek government recently reached a new agreement with the so-called “troika” of lenders—the European Commission, the European Central Bank and the International Monetary Fund—on new reforms that are slated to go into effect in 2019.
The SYRIZA-led Greek government touted this agreement as a major success that signifies the end of austerity. According to the Greek government, austerity will be averted via the enactment of “equivalent measures” that will offset cuts. But even if this is the case, the agreement is contingent on Greece fulfilling harsh fiscal targets and austerity measures from now until 2019.
What does this agreement really mean for Greece? Is it the best solution for the country and its economy? Are these targets even realistic? To provide insight into these and other relevant questions, MintPress News recently spoke with Greek economist Dimitris Karousos, a member of the political directorate of Greece’s United Popular Front, a small political party that has advocated in favor of a Greek departure of the eurozone and the EU. In an interview that originally aired on Dialogos Radio in March, Karousos discusses the recent agreement, talk of “Grexit” and other pertinent economic matters.
MintPress News: Let’s begin by discussing the recent deal that was reached between the Greek government and its European lenders. The Greek government has engaged in a big PR show, portraying this new agreement as one that will not deliver even one euro’s worth of new austerity measures as a result of the so-called “equivalent measures” that will be adopted. This raises the question: if the net sum of these new measures is zero, then why enact them? And what does the new agreement actually entail and mean for Greece?
Dimitris Karousos (DK): As we now find ourselves in Oscar season, it is clear that the Oscar for best director should go to the communications team of the Greek government, as their new dogma that claims that “one plus one equals zero” is one of the most absurd things that the Greek people have heard yet. Indeed, “professor” Tsipras [referring to Greek prime minister Alexis Tsipras], by claiming that one plus one equals zero seems to be reinventing the rules of mathematics. In other words, the government is attempting to claim that for every euro of austerity measures and cuts that will be enacted, there will be one euro in equivalent measures to offset those cuts. This, of course, is a blatant lie, because if there will indeed be no impact, these measures would not be needed.
The Greek government is lying; this can be demonstrated in three ways. First, the troika—meaning the European Commission, the European Central Bank and the International Monetary Fund—is not discussing the possibility of cuts in the special property tax and the value added tax. It is not even allowing these issues to be brought to the negotiating table.
Second, the troika, instead of tax cuts, is insisting on the enactment of the so-called Juncker growth package, named after President of the European Commission Jean-Claude Juncker. This package is essentially the European Union’s Partnership Agreement, known as ESPA, but this is not a true replacement because Greece already qualifies for funds from this agreement regardless. Therefore, somebody needs to explain how low wage-earners who are now faced with a lower tax-free threshold and will be forced to pay taxes, or how pensioners who will face further cuts to their pensions, will benefit from the European Union’s Partnership Agreement, which in the first place has nothing to do with this group of people, since it concerns only entrepreneurs and supposedly offsets these cuts.
Third, whatever “equivalent” measures are agreed upon will only begin to be enforced if and when Greece has fully and successfully enacted new cuts to wages and pensions, as foreseen in the new austerity package, with 3.6 billion euros worth of cuts.
MPN: The deal that was recently reached foresees the achievement of a primary budget surplus of at least 3.5 percent of the Greek GDP in 2019. We are also hearing that Greece’s primary surplus for the month of January surpassed targets. Is this a good thing? Are primary surpluses a positive thing for a country like Greece, with the economy in the state that it is in?
DKHere, we should first make it clear that no economy that has found itself in a condition similar to that of Greece has been able to recover through the enforcement of strict austerity and the pursuit of surpluses.
The economists Barry Eichengreen and Ugo Panizza, in a study of theirs, examined 235 countries and found that there were only 36 cases in countries were able to maintain, for a five-year period on average, a primary budget surplus of at least 3 percent of their GDP, representing 15 percent of the total sample. In the same study, they found that there were only 17 cases in which countries maintained a primary budget surplus of at least 3 percent of their GDP over an average of eight years, representing just 9 percent of total cases. There were only 12 cases in which countries maintained a primary budget surplus of at least 3 percent of their GDP over a ten-year period. It should be noted that Germany, the strongest economy in Europe, was not one of these countries.
In other words, they are asking Greece to achieve something that not even an economy at the level of Germany’s has ever been able to achieve. It should also be added that Eichengreen and Panizza noted that extraordinarily strict fiscal policies—austerity, in other words—with the goal of achieving a high primary budget surplus may in fact achieve the opposite result, leading to recession and to political and social turmoil. These policies, in other words, may lead to the opposite outcome from that which is intended.
MPN: With this new agreement, do you believe that the risk of a so-called Schäuble-style Grexit, named after German Finance Minister Wolfgang Schäuble, has been averted, or does it remain a distinct possibility? And continuing on that frame of thought, what would this German-proposed Grexit, which would include the imposition of a dual or parallel currency, mean for Greece?
DKNot only has the threat of a Schäuble-style Grexit and the imposition of a dual or parallel currency not been surpassed, but I believe it remains the plan that will be put into place. I believe that the following will happen: once the Greek government completes the so-called “troika review” of its finances with an agreement for new austerity measures totaling 3.2 to 3.6 billion euros, the troika will break up the next installment of so-called “bailout” funds into sub-installments. Once the German elections have occurred, a fake “crisis” between Greece and its creditors will be orchestrated, and that is when the Schäuble plan, named of course after the German finance minister, will be imposed. This plan would entail Grexit and the imposition of a dual or parallel currency within Greece.
The circulation of a dual or parallel currency will mean an even more rapid internal devaluation and will signify the immediate impoverishment of the Greek populace. There will be one currency used for internal transactions, such as the payment of salaries and pensions, while whatever euros are still in circulation will be collected and used towards the payment of the national debt, which will continue to be denominated in euros.
This would be a terrible development for Greece, as this dual or parallel currency will face constant devaluation versus the euro, as it will not be hard currency and nobody will want it. If you go to the grocery store or the bakery, for instance, they might accept the dual currency at an exchange rate far lower than the official peg set by the government. The black market for euros will flourish and the economic catastrophe will be total and complete. The introduction of what will essentially be an IOU, or script, will not only completely destroy the Greek economy, but it will also discredit the idea of a national domestic currency in the eyes of the populace.
MPN: Something that is not frequently discussed by analysts or the mass media is the difference between a dual or parallel currency on the one hand and a national domestic currency on the other hand. What is the distinction and why is one better than the other?
DKThe differences are as follows. By definition, a parallel or dual currency means that there is one currency in use for domestic transactions and another that is used for external transactions. A national or domestic currency, on the other hand, is a currency that is issued by a nationalized central bank, such as the Bank of Greece, that would be completely state-owned. With a domestic currency, Greece would not be borrowing the currency that it will put into circulation, it will instead mint the currency itself. It is a wealth instrument, not a debt instrument. Furthermore, a national or domestic currency means that the state itself, because it mints its own currency, does not borrow it from any other central bank.
MPN: Explain for us the steps that Greece could follow in order to undertake an orderly departure from the Eurozone and return to a true domestic currency. How could the various dangers that we keep hearing about, such as the risk of hyperinflation or a catastrophic devaluation of the new currency or a difficulty in importing goods, be averted?
DKThe political party that I am a part of, the United Popular Front, also known as EPAM, has described, in detail, 12 necessary steps that are required in order for a smooth transition to take place toward creating a new national domestic currency.
Every step in this process is absolutely necessary and no steps can be skipped, as it will impact the entire transition to a domestic currency. The most important of these steps are as follows:
First, disputing the legality of the debt and declaring an immediate stoppage of payments.
Second, declaring the immediate cancellation of all of the memorandums and associated legislation that have completely altered the legal and political status of the Greek state and imposed the troika-led occupation.
Third, departure from the European Union and the Eurozone.
Fourth, the imposition of a national domestic currency.
Fifth, the nationalization of the Bank of Greece, the country’s central bank.
Sixth, the imposition of capital controls in order to prevent money from leaving the country.
Seventh, the liquidation of Greece’s four major banks while they remain in operation.
Eighth, enacting measures to ensure that transactions are able to take place smoothly during the period of transition to the new currency.
Ninth, ensuring the adequate supply of goods in the marketplace.
Tenth, protecting consumers and vigorously policing the marketplace and the prices of goods.
Eleventh, immediately restoring wages and pensions to pre-memorandum levels.
Finally, the implementation of “seisachtheia,” an ancient Greek precedent that refers to the forgiveness of the debts of households, as well as small- and medium-sized businesses.
MPN: How has Greece’s membership in the European Union since 1981 and in the Eurozone since 2002 impacted Greece’s productive and industrial capacity? As a second part to this question, is there any possibility of Greece’s agricultural or productive or industrial capacity increasing within the European Union and within the Eurozone?
DKThere is absolutely no chance of recovery for the Greek productive sector and Greek industry as long as the country remains within the European Union and the Eurozone, especially when harsh austerity and memorandums are being imposed. How can industry recover when taxes and pension fund contributions surpass 60 percent of a corporation’s revenue? How can the Greek economy recover when its biggest industry, tourism, is saddled with the highest tax rate in the Mediterranean region? How can the Greek economy recover when there is so much bureaucracy and political uncertainty?
The end result of all of this is that Greece’s competitiveness has dropped to 86th place worldwide, despite all of the austerity measures, the memorandums, the economic “growth” that has repeatedly been promised and the constant “fiscal adjustment” policies and “reforms” that have been enacted. Despite all of this, Greece now ranks lower in competitiveness than countries such as Namibia, Tajikistan, Albania and Guatemala.
MPN: You have spoken about the balance of goods and services in Greece and about Greece’s foreign currency reserves. What do these statistics show and what would they mean for Greece in terms of a potential departure from the Eurozone and the EU and a return to a domestic currency?
DKThere is no possibility that there will be shortages of imported goods. This is the case because Greece’s balance of goods and services, after so many years of economic depression and as a result of the internal devaluation that has taken place, is close to being balanced. In very simple terms, this means that Greece, from its exports, tourism, and shipping sectors, earns all of the necessary foreign currency it needs to pay for its imports. Therefore, it follows that there will be no shortage of imported goods.
In addition, according to the most recent figures available from the Bank of Greece from the third quarter of 2016, the central bank has foreign currency in its reserves totaling approximately 31.5 billion euros. At the same time, Greece’s banking system has, among its assets, a long-term foreign bond portfolio totaling 55.7 billion euros. This totals almost 87 billion euros, which could be used as foreign currency reserves in the immediate aftermath of the departure from the Eurozone. Therefore, it is easy to understand that there is no chance of there being any shortages in the marketplace and that Greece’s needs would be met for several years to come.
MPN: There is also the Greek public debt to contend with. Is this debt sustainable to begin with? What would you propose regarding dealing with the debt, and what does international law and international legal precedent have to say regarding what actions Greece could take regarding its debt?
DKThe Greek people have been purposefully led to believe that an “unsustainable” debt is one which is very difficult to repay, but which can, at some point and after the enactment of very strict measures, be repaid. This is absolutely false. We have been led to believe this because first of all, it has been necessary to maintain the hope that Greece, by enforcing these harsh austerity measures, will be able to repay its debt and will, as a result, accept these difficult measures.
In reality, an unsustainable debt is a debt which, no matter what a country does, cannot ever be repaid or even reduced, no matter how many measures are enforced. With mathematical certainty, such a debt will simply increase over time. This is the case in Greece. When Greece received its first so-called “bailout,” the public debt was 122 percent of GDP. From 122 percent it increased to 129 percent, then 148 percent, then 170 percent. It has since reached 177 percent and is projected to increase to 188 percent and later 200 percent of GDP if we continue down this path.
The first loan agreement that Greece signed in 2010 and which, it should be stressed, was not ratified by the Greek Parliament, was a product of fraud and coercion. Articles 48 through 52 of the UN’s Vienna Convention on the Law of Treaties allow for the cancellation of a treaty or agreement when it is a product of deceit or threats. This would permit Greece, with a written statement delivered to the UN General Assembly via the UN’s Secretary General, to announce to the international community that it is denouncing its illegal public debt.
In addition, the official report of the United Nations High Commissioner on Human Rights harshly criticizes the Greek government for its methodical and repeated violations of human rights, and specifically the individual, political, economic, social and cultural rights of Greece’s people.
MPN: You have previously spoken about the recapitalization of the Greek banking system, which most recently took place in early 2016. In what condition does the Greek banking sector find itself in today? Are we headed toward yet another recapitalization and what would such a development mean?
DK I would argue that the Greek banking system now finds itself in worse shape than in the beginning of 2016, if we take into consideration something that the mass media and most analysts typically neglect to tell us — namely, that the deferred tax accounts for 40 percent of the equity of Alpha Bank, 71 percent of the equity of the National Bank of Greece, 75 percent of the equity of Eurobank and 58 percent of the equity of Piraeus Bank. This alone means that a new recapitalization is coming.
Another negative and tragic aspect is that, from the beginning of this year, 1.5 to 1.7 billion euros’ worth of new high-risk loans have been added to the banking system. These loans include mortgages, consumer loans and business loans. Eighty percent of these loans have been refinanced.
In addition, 2.7 million loans, totaling almost 100 billion euros, are at the risk of default, as payments towards those loans have not been made in over three months. This is a ticking time bomb for the financial system. While this is happening, the deposits of households and individual depositors in Greece have dipped below 100 billion euros for the first time since 2003!
It is therefore clear to me that we will soon see a new recapitalization of the Greek banking system totaling 7 to 10 billion euros.
MPN: How has the British economy performed since the referendum result in favor of Brexit this past summer, and how do you believe the British economy will perform if and when the process of exiting the European Union is completed? Do you believe the widely-held fears of adverse economic impacts will be proven to be correct, or do you believe the opposite will be true?
DKEven though it is surely too soon to draw a definite conclusion, what we can say from now is that in contrast with the various “Cassandras” who foresaw the total collapse of the economy of Great Britain, what we are seeing is that the British economy grew by 0.6 percent in the final quarter of 2016, exceeding expectations.
In fact, the Bank of England once again revised its growth projections for the British economy for 2017, raising its projection of 1.4 percent of GDP, initially forecast in November 2016, to a growth rate of almost 2 percent of GDP. The higher projection is largely a result of increased consumer spending, which has occurred despite the fear-mongering that the British public faced as a result of the Brexit vote.
Two additional aspects that are important and which should also be noted are the reduction of the public deficit by 400 million pounds and the increase in average weekly wages for British workers by 2.8 percent on a year-to-year basis.
MPN: The new president of the United States, Donald Trump, seems to have taken a position in favor of Brexit and against the Eurozone, stating a preference for reaching bilateral trade agreements with individual countries, rather than large-scale trade deals with the Eurozone as a whole. On a domestic basis, Trump has promised the return of domestic jobs, factories, corporations and businesses that have left the country. How do you view the economic policies and promises of the Trump administration and what would they mean for the European and global economies?
DKThe turn inward being undertaken by the United States will gradually lead to the repatriation of U.S. dollars. As a result, it is likely that countries whose national debt is in large part denominated in U.S. dollars, as is the case with Turkey, where 65 percent of its debt as a percentage of GDP is in dollars, as well as developing countries whose major public- and privately-owned industries have outstanding loans in U.S. dollars, will face increased difficulties from upward pressure on the dollar in international financial markets.
In addition to all of this, we need to take into consideration the ongoing trade battle between the United States and China and the efforts of the United States to achieve energy autonomy, especially the elimination of dependence on OPEC nations. This means the replacement of approximately three million barrels of oil per day that are currently imported. They’ll have to be replaced by domestic energy sources. It is easy to understand that this will hurt countries like Saudi Arabia and Venezuela in particular.
As for Trump’s domestic economic policy, the jury is still out. We will just have to wait and see.