As Greek politicians in the midst of post-election turmoil are told that they must implement the ‘bailout’ programme agreed with the EU and IMF it may be timely to reflect on that programme. Added topicality arises from the fact that Charles Dallara is speaking at the Institute of International and European Affairs (IIEA) in Dublin tomorrow (16th May). Dallara is Managing Director of the Institute of International Finance (IIF) and is talking about ‘Lessons from the Greek Debt Exchange’, having represented the financial industry during negotiations that, according to the IIEA website, “secured the largest debt restructuring in world history, involving €206 billion worth of bonds”.
The IIF is a lobby group set up by the world’s largest banks and financial institutions and it represents them in negotiations on any restructuring of sovereign debt. In the negotiations on Greece, the IIF actually had people they knew well on both sides of the table: a leading member of the Greek negotiating team had previously worked with Goldman Sachs and the Greek National Bank (a private bank that was part of the IIF ‘task force’ for Greece); the then prime minister’s chief economic advisor was on sabbatical from Eurobank EFG, another member of the IIF Greek ‘task force’. Corporate Europe Observatory has also documented how the IIF had considerable access to other EU heads of state during the Greek negotiations.
The deal that was struck saw creditors getting approximately 50% of the nominal value of their Greek bonds, but this needs to be seen in the context of those bonds trading at around 36% of their face value on the secondary market. In addition, they got €30 billion in cash, another 15% of the total bond value. And the replacement bonds issued to the creditors are to be serviced from an escrow (third party) account and are guaranteed under UK and Luxembourg, not Greek, law – some Greek professors of constitutional law believe the deal to be in violation of the Greek constitution. Deposits held by public companies and institutions were converted by the Greek Central Bank into bonds and obliged to participate in the debt restructuring – universities have lost €87 million as a result and pension funds a staggering €12 billion.
Meanwhile, Greece’s public debt has been increased, as documented by the Greek debt audit campaign. While €105 billion of private debt was written off, new debt of an estimated €137 billion was taken on: €109 billion to eurozone institutions and €28 billion to the IMF, with €37 billion left over from the first ‘bailout’ package. As SOAS economist Costas Lapavitsas puts it, “EU policy has thus succeeded in transforming a debt problem between a state and its private lenders into a debt problem among states and bilateral organisations”, a point recognized by the far from radical Wall Street Journal.
The austerity being imposed on Greek people has not been in any way mitigated, in fact it has intensified: pensions and wages are still being slashed (many people are trying to live on wages of €300-400 per month), 150,000 public sector workers have been or are being made redundant, unemployment is shooting upwards towards 30%, social services are being cut, and state companies privatised. This is the context in which the far right Golden Dawn party could gain 7% of the national vote.
So we have a deal that saw private sector bondholders get off rather lightly, the burden of debt increased (and increasingly socialized) and austerity intensified. It is at the very least understandable that many Greek people are asking why they should be bound by the terms of this deal.