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The truth about Greek debt Why it is an
European problem?
With Abstracts of the preliminary report of the
Commission of the Greek Parliament for the Truth
on the Public Debt Thanos Contargyris (
thanos_at_dialogos.net ) Member of the
Commission Founding Member of
????C HELLAS (GREECE)
Presentation for meeting in Berlin February 2016
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DEBT EXISTS EVERYWHERE
In Germany as much as in Greece!
Country Total Banks Corporations Households Public
           
?reland 1.166 689 245 123 109
UK 847 547 118 101 81
Japan 641 188 143 77 233
Spain 457 111 192 87 67
France 449 151 150 61 87
Belgium 435 112 175 53 95
Portugal 422 61 149 106 106
Italy 377 96 110 50 121
USA 376 94 90 92 100
Greece 333 22 74 71 166
Germany 321 98 80 60 83
Debt as of GDPof GDP in 2012
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DEBT OF HOUSEHOLDS
Loans instead wage increases! Loans based
on real estate trends Which, like in US in
2007can reverse, and provoke sub-primes risks and
crisis Consequence losses of pensions funds
and banks
Pressure on wages ?
Part of wages in of added value 1976-2011
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DEBTS OF BANKS
Loans to play casino! Deregulation started
when the distinction imposed by Roosevelt in
1929 between banks of deposits and banks of
investment has been abolished. New technologies
allowed an acceleration of transactions while the
creation of new financial instruments, out of any
control, has also grown (titration of loans,
derivatives, CDS,) the over-exposure to risky
debts without any coverage increased. The
opposition to the introduction of financial
transaction taxes, which could have attenuated
these phenomena, allowed an acceleration of these
trends they explain 2007 crisis. The worse of
all that is that states are asked to intervene
and accept new debts to save the banks
Deregulation ?
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PUBLIC DEBTS
Loans instead of taxes! This trend is very
strong in Eurozone due to very attractive low
interest rates. But governments have put
themselves in the hands of banks and markets by
transferring to banks the exclusive right to get
loans from ECB allowing them to negotiate loans
at a higher rate with governments. Not only that
they also ask to be bailed-out when they make
losses! Debt of France cumulated bank benefits
paid since 1974
Fiscal competition ?
Evolution of taxes on benefits in Eurozone 1995
- 2011
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THE RESULT PUBLIC DEBT HAS INCREASED EVERYWHERE
SINCE 2007 CRISIS
Nobody respects the golden rule of 60
S??????? ????? se t?? ??? t? 2012
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WHY THE GREEK PUBLIC DEBT WAS HIGH?
66 of the Greek public debt increase from 1980
to 2007 was due to the accumulated interests
(snow-ball effect) paid to private banks
Public deficits represent a total increase of
debt/GDP ratio of only 28,3 of GDP. If military
expenses had been similar to those of the average
of EU countries the public deficits would have
been eliminated and the debt/GDP ratio reduced at
lt80
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The Greek deficits were exclusively due to
excessive military expenses gt 30 of GDP
(85/240) and 28 of debt (85/300) of 2012
An excess of military expenses Due to some very
contestable military imports (from FR, DE, UK,
US...) Justified for the defense of very
sensitive European borders
Cumulated excess of military expenses of Greece
compared to EZ countries Only for 1990-2012
period (billions at 2010 prices) Source
Eurostat (GDP in EZ and GR) AMECO (GDP at 2010
levels in Billion )
A big part of it is explained by Cumulated
Military Imports of Greece since 1980 (Millions
of at 2010 prices) Source SIPRI database
(imports) Source AMECO (GDP prices 2010 - 1990)
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Other structural causes of Greek debt
Structural problems of Greek public finances
Expenses lightly over EZ average, A
problem of COLLECTION of taxes lower after
correction of excessive employers
social contributions military expenses and bad
spending - high tolerance for those not
paying their taxes (clientelism, corruption,
bureaucracy, low services) - lower taxation
and parallel economy at 30
Badly addressed (wage social cuts only) Almost
not addressed until 2015 (flat tax increases)
Source Eurostat Commission for the Truth on
Public Debt of Greece
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Other structural causes of Greek crisis
External unbalances accentuated by an excessive
increase of consumption loans offered by European
banks after 2004
Balance of goods and services (in billion
euros) Source Bank of Greece
Consumption loans/ Loans of European banks (in
Billion euros) Source Bank of Greece
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Conjectural origins of the Greek crisis 1/2
A sudden sharp reduction of high growth rates due
to 2007 crisis provokes excessive public deficits
(higher than GDP growth rates)
Compared growth rates of GDP (in current prices
in ) Source OCDE
Annual deficit ( GDP) Growth rates (
GDP) Source Eurostat
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Conjectural origins of the Greek crisis 2/2
The sudden reduction of GDP growth and the
increase of deficits provoked a sharp increase of
debt from 100 to 125 of GDP from 2007 to 2009
Debt / GDP and growth of GDP ratios from 2000 to
2011 Sources Eurostat and IMF
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Market reaction to Greek (and EU) debt crisis
judges EU reactions as being too weak, too late
Speculation on CDS and yields and collapse of the
value of Greek bonds
Source
Source
REUTERS
Bloomberg and IMF staff calculation
Meanwhile Greek bonds were sold in secondary
market between 75 and 85 of their value. ECB
bought part of them at this price to avoid a
further collapsewhich would have increased the
losses of the banks detaining them.
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How EU reacted? 1. EU purchased time to allow EU
banks to smoothly get rid of Greek loans
The reduction of the excessive exposure to Greek
loans of the banking sector in 2010 and 2011
(mostly FR DE banks)
Exposure to risk in Greece of foreign banks
Exposure of foreign banks to risks in
PIGS Source BRI
Source Bank for Transnational
Settlements
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2. EU gave loans to Greece to pay back its debt
to banks at 100 of its value
EU provided loans to Greece to allow banks to be
reimbursed at 100 for their loans to Greek
public sector and minimise their losses. The
bail-out of Greece was a bail-out of banks with
EU public funds.
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3. EU decided very late a very ineffective debt
reduction (PSI) of apparently 100 billion (33)
in fact 21 (7)

• In 2012 - 2013
• After having passed 100 billion in public hands
• A 100 billion reduction on remaining 200 billion
  of which
• About 150 had passed in Greek Hands
• 117 of Greek Banks ?58? fully recapitalised ?gain
  0
• 33 of Greek Public bodies (mainly Pension
  Funds)?16,5 lost ? gain 2
• About 50 remained in Private Foreign hands
• Potential debt reduction 25
• Sweeteners offered
• - Those refusing (opt outs)
• NET DEBT REDUCTION lt 20 billion

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4. EU imposed hard austerity to Greece
A) A big reduction of public expenses
b) Internal devaluation measures reduction of
Minimal Wages by 22 (33 for young people),
cancellation of all collective conventions
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The effects of the treatment
Some apparently positive and necessary results
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But with unexpected collateral effects
A killing treatment

• Social disaster
• Unemployment at 26 and more than 50 for young
  people ? they go abroad
• Available average income reduced by 30
• Poverty at more than 30
• Increase of all forms of precarious jobs
• Lowering of pensions
• Public services (health, education) dismantled
• gt80.000 enterprises closed

• Political effects
• PASOK, main responsible of the choices, drops
  from 44 in 2009 to 5
• SYRIZA, grows from 4,6 in 2009 to 36
• Conservatives from 40 to less than 30
• Extreme right from 5 to 7

Victory of SYRIZA in January 2015. Referendum
against austerity at 62....
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Where we are after 5 years? The debt instead of
decreasing became completely unsustainable
IMF (14/7/2015) - Debt would peak at close to 200
percent of GDP in the next two years. By 2022,
debt projected to be at 170 percent of GDP. Gross
financing needs well above the 15 percent of GDP
threshold deemed safe and continue rising in the
long term. EC (10/7/2015) - Debt-to-GDP ratio
expected to reach 165 in 2020, 150 in 2022
111 in 2030 in the baseline scenario. The
respective debt/GDP ratios in the adverse
scenario are 187 in 2020, 176 in 2022 and 142
in 2030
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Current status of Greece Provisional conclusion

• Greece is not out of the crisis Greeks live the
  effects of a default (capital controls,
  austerity, poverty) without any of its benefits
  (cancellation of debt, recovery of sovereignty)
• The renegotiation of Greek debt is vital for
  allowing that a lot of concessions have been done
  since July.
• Greece is in the situation of Germany in 1919
  and 1952
• If the solution of Versailles is imposed to
  Greece (pay all the debt), neither the default,
  nor the Grexit will be considered, soon, as
  threats, despite the risks implied for Greece and
  EU
• If a solution more inspired by the Londons
  conference of 1953 prevails, it will recover more
  rapidly than expected with minimal risks for
  itself and its EU partners
• To prepare a strong negotiation two things are
  missing
• Debt Audit Commission preliminary report should
  be used better
• A public debate on a parallel currency should
  open it will clarify if Greeks can support
  attempts to get partially free of the constraints
  of ECB to negotiate their debt

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• For Greece, what is at stake?
• A reasonable and fair deal implies from EU side

• A debt cut of at least 30 of the debt (100 b )
  is needed
• An efficient and fair restructuration of Greek
  debt could be based on the acceptance that debt
  due to excessive military expenses cannot be paid
  by Greeks alone, neither the cost of bailing out
  other EU countries banks they should be shared
• Additional (not alternative) measures could be
• Lowering interest rates to limit required
  surplus-surpluslt2
• A -4 years?- moratorium of interests and
  reimbursements to allow Greek economy to recover
  and Greece to pay back
• Private investments to reconstruct the destroyed
  Greek economy should be encouraged by different
  means
• But also (for solving other countries cases) it
  will be good to
• Consider an increase of wages in countries with
  high surplus instead of further revenues
  reductions in Greece

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• For Greece, what is at stake?
• A reasonable and fair deal implies that Greece
  will then welcome, accept and endorse

• Measures to make investments attractive in order
  to create new jobs, fight unemployment and
  refrain educated young people from leaving the
  country
• Effective actions to fight fiscal fraud
• Effective actions to eliminate corruption
• Effective actions to eliminate bureaucracy
• - Make Greek rich people pay their share (levy
  tax on property?)
• Effective actions to make public administration
  efficient
• Effective actions to deliver better public
  services
• An honest and transparent valorisation of public
  assets

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What about the current alternative? The risk of
refusing a true and fair solution

• The current dominant scenario is that Greek debt
  will not be reduced. This implies that Greece
  will have, soon, with SYRIZA or, worse, later,
  with an extreme right government, to declare a
  default and leave the Eurozone and maybe the EU.
• Except the implied direct losses (impossibility
  of reimbursing of the biggest part of its debt)
  other consequences are
• Greece will not be able anymore to buy a client
  lost
• Interests located outside EU will take the
  opportunity to take financial profits (by
  speculating against the euro), or, political
  profits by proposing new alliances to Greece
  compromising the geopolitical balance in a very
  sensitive region at a very sensitive moment
• Other countries, if Greece is better off after
  that (and it could be after a period), could
  follow later

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• The choice is Versailles or London?
• The true challenge to be addressed

• An excessive debt is a sacrifice to the past
  condemning the future it obliges a country to
  generate excessive surplus for a very long
  period as this is impossible the result is that
  at the end its debt will never be paid back.
  Nobody will win!
• Germany has faced twice this situation in its
  history and has been faced by EU countries,
  including Greece, with two very different
  solutions with completely opposed consequences
• For its debt of 1st World War France claimed
  that it should pay all its debt - the treaty of
  Versailles It lead to a big crisis, Hitler and
  the 2nd World War. A catastrophe for all!
• For its debt of 2nd World War US requested in
  1953 and obtained (Treaty of London) a reduction
  of its debt by 50. US, European lenders
  (including Greece) and Germany have known a long
  period of peace, prosperity and cooperation
  thanks to this decision.

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Proposals for a new consensus on public debts at
EU level

• Public Debt audits should be conducted everywhere
  in EU
• to respond to the obligation created by
  Regulation (EU) No. 472/2013 of the European
  Parliament and of the Council on 21 May 2013
• to understand the causes of debt and correct
  them (overspending insufficient taxation)
• to understand what part is sustainable, under
  which conditions after recalculating the costs
  required to face the challenges in front of us
• An European Conference on Public debts to agree
  decide
• Common priorities to face, means required for
  them and fix the limit s of the maximum surplus
  for debt service at levels allowing to address
  them (1,5 of GDP)
• Fix what is excessive debt (gt120 of GDP) and
  haircut it
• Redefine target levels (lt100 of GDP) and give
  time to reach them
• Freeze the part below target levels with low
  interest rates lt2
• Stop refinancing bank sector errors with
  public funds use FTT instead
• Rules and effective cooperation to stop public
  debts increase over the excessive level
• To ban fiscal and social competition as well as
  fiscal and social fraud and evasion within EU

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The choices we are facing (1/2) Pay for the Past
(Fiscal Pacts, Debts) or get enough free of them
to be able to face creatively the real challenges
in front of us (ageing population, climate
change, poverty, inequalities, decent jobs
creation)?

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The choices we are facing (2/2) Austerity
Fiscal Competition Or Solidarity and Fiscal
Convergence

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Quit, Rebuild EU or Rebuild consensus? What
vision EU offers today?

• A EU which will blow up, under nationalist
  pressure?
• Organised divergence Exacerbated competition
• Grexit? Brexit? Frexit? South against the North,
  or West against East?
• End of the Euro, of Schengen.. Back to closed
  borders
• An European empire with vassal states ?
• Fight against any form of convergence or
  solidarity
• Take over of the control of the resources of the
  South East by the North West?
• Young people leaving the South East to go North
  West?
• More production in the South or in the East, at
  low prices to re-localise productions currently
  delocalised outside EU?
• A democratic, social, federal, integrated,
  solider EU?
• Policies of convergence and consensus
  democratically agreed
• Reduced deficit surplus and mutualisation of
  risks opportunities
• As it is, EU, last months, evolves more to the
  first scenarios

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Conclusion

• EU is in a deep crisis facing several
  simultaneous challenges austerity, debts,
  refugees, terrorism, regain of nationalisms
• Greek case revealed a lot of terrific aspects of
  EU governance
• It should provoke a citizens debate at EU level
  in favor of another EU
• EU citizens should engage and impose this
  democratic debate
• For re-establishing the rights of politics
  democracy over the markets technocracy
• To allow Democracy to defend itself against
  Plutocracy
• To re-establish the status of Collectivity and
  Society in all policy choices
• To re-establish at national and European level
  key values such as social justice, solidarity,
  human rights, consensus and inclusive society
• From the collective answers, at EU level, the
  citizen will be able to deliver the choice on the
  future of EU will depend
• Is it time to blow EU up or/and to rebuilt it?
• Is it any hope left to rebuild a consensus in it?

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Thank you for your attention