Why we founded new political party MeRA25 to challenge austerity in Greece

Why we founded new political party MeRA25 to challenge austerity in Greece https://www.newstatesman.com/world/europe/2018/04/why-we-founded-new-political-party-mera25-challenge-austerity-greece Shared by Indigo.

How Europe’s Band-Aid ensures Greece’s bondage

http://jordantimes.com/opinion/yanis-varoufakis/how-europe%E2%80%99s-band-aid-ensures-greece%E2%80%99s-bondage

Putting the Greek debt problem to rest

https://voxeu.org/article/putting-greek-debt-problem-rest

US Gross National Debt Spikes $1 Trillion in Less Than 6 Months

https://wolfstreet.com/2018/02/24/us-gross-national-debt-spikes-1-trillion-in-less-than-6-months/

The Greek Economy: Which Way Forward?

Πηγή: CERP
By Mark Weisbrot, David Rosnick, and Stephan Lefebvre
January 2015


Executive Summary

In the past six years the Greek economy has gone through a massive adjustment at a steep price, with unemployment currently at 25.8 percent and youth unemployment at 49.6 percent, and lost output of about 26 percent. The current account and primary government budget balances have been brought into surplus; Greece now has the largest cyclically adjusted primary budget surplus in Europe, at 6.0 percent of potential GDP.

The economy finally grew in 2014, by 0.6 percent, but the recovery is weak, slow and fragile. While some have attributed the nascent recovery to the success of years of austerity, in fact it is due to the near end of fiscal tightening. The cyclically adjusted budget surplus – which measures the government’s fiscal tightening -- moved from 5.7 percent in 2013 to 6.0 percent of GDP in 2014, or just 0.3 percentage points. In the three years prior, the adjustment had been 3.2 percent of GDP (2012-13), 3.8 percent of GDP (2011-12), and 5 percent of GDP (2010-11). It should be obvious that this huge drop-off in fiscal tightening would be the main cause of the return to growth.

The IMF projects unemployment to remain at 12.7 percent in 2019, yet this is considered “full employment,” since the economy will be above its potential GDP according to IMF estimates. In order to meet Greece’s current program debt targets, the government is required to run very large primary budget surpluses – more than 4 percent of GDP – for “many years to come,”beginning in 2016. This will be a serious drag on growth.

This paper argues that prolonged mass unemployment and reduced living standards, brought about by years of recession and budget cuts, are unnecessary, and that a robust recovery is feasible. It presents an alternative macroeconomic scenario with a moderate fiscal stimulus, which brings the economy much closer to full employment over the next five years, with a lower net debt than currently projected by the IMF. This alternative is just one of many possible scenarios, some ofwhich might include debt cancellation, or more help from the European Central Bank in maintaining low interest rates, especially in light of its recently announced quantitative easingprogram. The current program, which forecasts a weak recovery with many downside risks, as well as continued mass unemployment in the years ahead, should be replaced with policies that offer a much stronger and faster recovery.

Greek Economy 2015 01

Lies and myths about Greece and Europe’s debt

Πηγή: People's World

By Conn Hallinan 

March 2 2015

Myths are dangerous precisely because they rely more on cultural memory and prejudice than facts, and behind the current crisis between Greece and the European Union (EU) lays a fable that bears little relationship to why Athens and a number of other countries in the 28-member organization find themselves in deep distress.

The tale is a variation of Aesop's allegory of the industrious ant and the lazy, fun-loving grasshopper, with the "northern countries" - Germany, the Netherlands, Britain, Finland - playing the role of the ant, and Greece, Spain, Portugal, and Ireland the part of the grasshopper.

The ants are sober and virtuous - led by the frugal Swabian housefrau, German Chancellor Angela Merkel - the grasshoppers are spendthrift, corrupt lay-abouts who have spent themselves into trouble and now must pay the piper.

The problem is that this myth bears almost no relationship to the actual roots of the crisis or what the solutions might be. And it perpetuates a fable that the debt is the fault of individual countries rather than a serious crisis at the very heart of the EU.

First, a little myth busting.

The European debt crisis goes back to the end of the roaring '90s when the banks were flush with money and looking for ways to raise their bottom lines. One major strategy was to pour money into real estate, which had the effect of creating bubbles, particularly in Spain and Ireland. In the latter, from 1999 to 2007, bank loans for Irish real estate jumped 1,730 percent, from 5 million Euros to 96.2 million Euros, or more than half the GDP of the Irish Republic. Housing prices increased 500 percent. "It was not the public sector but the private sector that went haywire in Ireland," concludes Financial Times analyst Martin Wolf.

Spain, which had a budget surplus and a low debt ratio, went through much the same process, and saw an identical jump in housing prices: 500 percent.

In both countries there was corruption, but it wasn't the penny ante variety of tax evasion or profit skimming. Politicians - eager for a piece of the action and generous "donations" - waived zoning rules and environmental regulations, and cut sweetheart tax deals. Hundreds of thousands of housing projects went up, many of them never to be occupied.

Then the American banking crisis hit in 2008, and the bottom fell out. Suddenly, the ants were in trouble. But not really, because the ants have a trick: they gamble and the grasshoppers pay.

The "trick," as Joseph Stiglitz, Nobel Laureate in economics, points out, is that Europe (and the U.S.) have moved those debts "from the private sector to the public sector - a well-established pattern over the past half-century."

Fintan O'Toole, author of "Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger," estimates that to save the Irish-Anglo Bank, Irish taxpayers shelled out 30 billion Euros, a sum that was the equivalent of the island's entire tax revenues for 2009. The European Central Bank - which, along with the International Monetary Fund (IMF) and the European Commission, make up the "Troika" - strong-armed Ireland into adopting austerity measures that tanked the country's economy, doubled the unemployment rate, increased consumer taxes, and forced many of the country's young people to emigrate. Almost half of Ireland's income tax now goes just to service the interest on its debts.

Poor Portugal. It had a solid economy and a low debt ratio, but currency speculators drove up interest rates on borrowing beyond what the government could afford, and the European Central Bank refused to intervene. The result was that Lisbon was forced to swallow a "bailout" that was laden with austerity measures that, in turn, torpedoed its economy.

In Greece's case corruption was at the heart of the crisis, but not the popular version about armies of public workers and tax dodging oligarchs. There are rich tax dodgers aplenty in Greece, but Germany, Sweden, and many other European countries spend more of their GDP on services than does Athens. Greece spends 44.6 percent of its GDP on its citizens, less than the EU average and below Germany's 46 percent and Sweden's 55 percent.

And as for lazy: Greeks work 600 hours more a year than Germans.

According to economist Mark Blyth, author of "Austerity: The History of a Dangerous Idea," Greek public spending through the 2000s is "really on track and quite average in comparison to everyone else's," and the so-called flood of "public sector jobs" consisted of "14,000 over two years." All the talk of the profligate Greek government is "a lot of nonsense" and just "political cover for the fact that what we've done is bail out some of the richest people in European society and put the cost on some of the poorest."

There was a "score" in Greece. However, it had nothing to do with free spending, but was a schemedreamed up by Greek politicians, bankers, and the American finance corporation, Goldman Sachs.

Greece's application for EU membership in 1999 was rejected because its budget deficit in relation to its GDP was over 3 percent, the cutoff line for joining. That's where Goldman Sachs came in. For a feerumored to be $200 million (some say three times that), the multinational giant essentially cooked the books to make Greece look like it cleared the bar. Then Greece's political and economic establishment hid the scheme until the 2008 crash shattered the illusion.

It was the busy little ants, not the fiddling grasshoppers, that brought on the European debt crisis.

American, German, French, and Dutch banks had to know that they were creating an unstable real estate bubble - a 500 percent jump in housing prices is the very definition of the beast - but kept right on lending because they were making out like bandits.

When the bubble popped and Europe went into recession, Greece was forced to apply for a "bailout" from the Troika. In exchange for 172 billion Euros, the Greek government instituted an austerity program that saw economic activity decline 25 percent, and unemployment rise to 27 percent (and over 50 percent for young Greeks). The cutbacks slashed pensions, wages, and social services, and drove 44 percent of the population into poverty.

Virtually all of the "bailout" - 89 percent - went to the banks that gambled in the 1999 to 2007 real estate casino. What the Greek - as well as Spaniards, Portuguese, and Irish - got was misery.

There are other EU countries, including Italy and France that, while not in quite the same boat as the "distressed four," are under pressure to bring down their debt ratios.

But what are those debts?


This past summer, the Committee for a Citizen's Audit on the Public Debt issued a report on France, a country that is currently instituting austerity measures to bring its debt in line with the magic "three percent" ratio. What the committee concluded was that 60 percent of the French public debt was "illegitimate."

More than 18 other countries, including Brazil, Portugal, Ecuador, Greece and Spain, have done the same "audit," and, in each case, found that increased public spending was not the cause of deficits. From 1978 to 2012, French public spending actually declined by two GDP points.

The main culprit in the debt crisis was a fall in tax revenues resulting from massive tax cuts for corporations and the wealthy. According to Razmig Keucheyan, sociologist and author of "The Left Hemisphere," this "neoliberal mantra" that was supposed to increase investment and employment did the opposite.

According to the study, the second major reason was the increase in interest rates that benefits creditors and speculators. Had interest rates remained stable during the 1990s, debt would be significantly lower.

Keucheyan argues that tax reductions and interest rates are "political decisions" and that "public deficits do not grow naturally out of the normal course of social life. They are deliberately inflicted on society by the dominant classes to legitimize austerity policies that will allow the transfer of value from the working classes to the wealthy ones."

The International Labor Organization recently found that wages have, indeed, stalled or declined throughout the EU over the past decade.

The audit movement calls for repudiating debt that results from "the service of private interests" as opposed to the "wellbeing of the people." In 2008, Ecuador canceled 70 percent of its debt as "illegitimate."

How this plays out in the current Greek-EU crisis is not clear. The Syriza government is not asking to cancel the debt - though it would certainly like a write-down - but only that it be given time to let the economy grow. The recent four-month deal may give Athens some breathing room, but the ants are stilldemanding austerity and tensions are high.

What seems clear is that Germany and its allies are trying to force Syriza into accepting conditions that will undermine its support in Greece and demoralize anti-austerity movements in other countries.

The U.S. can play a role in this - President Obama has already called for easing the austerity policies - through its domination of the IMF. By itself Washington can outvote Germany, the Netherlands, and Finland, and could exert pressure on the two other Troika members to compromise. Will it? Hard to say, but the Americans are certainly a lot more nervous about Greece exiting the Eurozone than Germany.

But the key to a solution is exploding the myth.

That has already begun. Over the past few weeks, demonstrators in Greece, Spain, Italy, Germany, Portugal, Great Britain, Belgium and Austria have poured into the streets to support Syriza's stand against the Troika. "The Left has to work together having as its common goal the elimination of predatory capitalism," says Maite Mola, vice-president of the European Left organization and member of the Portuguese parliament. "And the solution should be European."

In the end, the grasshoppers might just turn Aesop's fable upside down.

This article originally appeared at Conn Hallinan's blog, Dispatches From the Edge.

Greece Needs a Deep Debt Write-Off

Πηγή:  Research on Money and Finance
Written by Costas Lapavitsas and Daniel Munevar
May 20 2014

Greece needs debt relief to generate additional fiscal space for the government, allowing it to adopt fiscal policies that could quickly facilitate recovery and growth. This is imperative in a country with adult unemployment currently standing at the extraordinary level of 27%. The real question is not whether but how to effect debt relief for the country. In this light there
are two options.

First, there is the ‘soft’ option of consensually extending the maturity of debt and lowering the average interest rate, thus reducing the annual interest outlay. This form of debt relief is preferred by the EU and the current Greek government because it would leave the nominal value of the debt intact, thus avoiding major conflict with the official lenders by protecting their interests.

(Available in Greek translation here)

Greece Needs a Deep Debt Write-Off

In Greece, Elites Are Starting to Feel the Pain

Prosecutors have reeled in several prominent businessmen, including Dimitris Kontominas, the owner of a television station and insurance company, as well as Angelos Filippidis, the former head of Hellenic Postbank, and several of his colleagues, over a loan scandal deemed to have cost the former state lender some 500 million euros, or $680 million.

Πηγή: New York Times

By NIKI KITSANTONIS
Jan 6 2013

ATHENS — Since the country’s financial meltdown, Greeks have protested what many here criticize as the unfairness of the biting austerity measures that have raised taxes and trimmed salaries and benefits for average Greeks, while the elite escaped similar burdens or being held accountable for their part in creating the mess in the first place.

Suddenly, to the satisfaction of many here, that dynamic has begun to change. With new vigor, Greek prosecutors working independently of politicians — and sometimes in the face of passive resistance from them — are pursuing corruption cases against a widening pool of current and former high-ranking state officials and members of the business elite once deemed untouchable.

In country after country, officials have had difficulty deciding whether or how to prosecute those responsible for the conditions that led to the financial crisis that began in 2008 and the dark economic period that followed. Here in Greece, the country most afflicted by the collapse, prosecutors say that investigations, launched over the past year or so, are finally coming to fruition.

Analysts add that the prosecutors have more sway now than ever as Greeks smarting from more than three years of austerity demand punishment for those who ransacked state coffers and pushed Greece close to bankruptcy. The combination of the strong public desire for catharsis and a weak government has given the prosecutors far more room to maneuver than they have had in the recent past.

“For the first time, Greek justice is reaching really high up,” said Aristides Hatzis, a professor of legal theory at the University of Athens. “One reason is that the public desire for catharsis is strong, another is that the political system is weak and has too much to lose by trying to intervene. It risks being exposed.”

In the past week alone, prosecutors have reeled in several prominent businessmen, including Dimitris Kontominas, the owner of a television station and insurance company, as well as Angelos Filippidis, the former head of Hellenic Postbank, and several of his colleagues, over a loan scandal deemed to have cost the former state lender some 500 million euros, or $680 million.

On Wednesday, Mr. Kontominas, 75, was released from detention after posting a record €5 million in bail and was banned from leaving the country. The day before, the businessman had answered to charges of fraud and money laundering from an Athens hospital bed.

Mr. Filippidis, who prosecutors allege recklessly approved loans without guarantees, is in a Turkish jail awaiting extradition to Greece following his arrest at an Istanbul hotel last week.

Also in custody is the former managing director of the country’s Skaramangas shipyards, Sotiris Emmanouil, who according to prosecutors, pocketed €23 million in bribes to secure a submarine deal with the German firm Ferrostaal. At the same time, prosecutors are deepening an investigation into a new scandal involving kickbacks for state defense contracts that has implicated senior members of the Greek military for the first time.

Meanwhile, a former conservative minister Michalis Liapis, is being investigated amid reports that he used European Union subsidies to renovate his holiday home. Mr. Liapis, a cousin of a former prime minister, Costas Karamanlis,, received a suspended jail sentence this month for driving a car with fake license plates in an apparent attempt to skirt increased road taxes.

At the frontline of this unprecedented crackdown are the capital’s two top corruption prosecutors — Eleni Raikou, 52, and Popi Papandreou, 36. The latter, known as “the terminator” for her meticulous investigations, compiled the report that led to former Defense Minister Akis Tsochatzopoulos being convicted for money laundering last October, a landmark verdict in a country where top-ranking state officials are rarely prosecuted.

Judicial officials, who spoke on the condition of anonymity, said they have not come under political pressure.

“We are a parallel authority,” one said. “I don’t take orders from the prime minister”

But they have also received little or no support for their efforts. Even as graft scandals multiply, no new employees have been hired, leaving four corruption prosecutors with a mounting caseload. In one office, telephones have a bar on international calls, obliging officials seeking access to suspects’ bank accounts to call from their cellphones, at their own expense.

Despite the practical difficulties, prosecutors appear determined and are pushing for a change to the law to allow those who return money stolen from the state to be spared prison time. “The point is to get the money back,” one official said.

The biggest challenge is recouping bribes pocketed by officials in exchange for securing defense contracts with foreign firms, she said.

Three deals for submarines, tanks and aircraft worth some €5 billion — all deemed to have been purchased at inflated prices — have come under the scrutiny of prosecutors, and another 10 deals are also slated to be investigated.

Greece had the highest defense expenditure, in relation to gross domestic product, in the European Union in 2009, before the debt crisis hit, amid enduring security concerns about its traditional rival, Turkey; that budget has since been halved to 1.7 percent of G.D.P. under pressure from Greece’s international creditors.

Asked to estimate the total pocketed in bribes from Greek defense deals over the past 20 years, the official shrugged. “I’ll retire and I still won’t know,” she said.

Some of the bribe money has been recovered. The €17 million recouped in the past month will go toward “covering needs in the health and education sectors,” the Finance Ministry said. Around half of that money was returned by a former Defense Ministry official, Antonis Kantas. “I took so many bribes that I’ve lost count,” Mr. Kantas told a magistrate. A lower-ranking Defense Ministry employee was found to have a private jet.

Equally eye-popping are the details of a new scandal embroiling Hellenic Postbank, a former state lender which was absorbed by Greece’s fourth largest lender Eurobank last summer after being stripped of its bad loans. One of the beneficiaries, the businessman Mr. Kontominas, is alleged to have used a portion of a €110-million loan to buy a luxury home in London for his daughter.

The judicial crackdown has been welcomed by ordinary Greeks who have seen their incomes cut by a third since the crisis hit.

“We drain our bank accounts to pay higher taxes, and they fill theirs by evading them and cheating the system,” said Aliki Theodorou, a 45-year-old teacher. “It’s about time someone else started paying.”

Euro zone wrangling may cost Greece 2 bln euros in 2013: sources

Πηγή: Reuters
By Martin Santa and Lefteris Papadimas
June 19 2013

European foot-dragging could leaveGreece short of 2.0 billion euros ($2.7 billion) this year as some euro zone creditors are reluctant to roll over their Greek debt holdings, Greek and euro zone sources involved in the matter told Reuters.

Greece's creditors - euro zone countries, the European Central Bank and the International Monetary Fund - agreed last December that the bloc's 17 national central banks would replace some of the Greek bonds they hold with new Greek paper as the debt matures.

This measure, called the "rollover of ANFA holdings", was expected to spare Greece from having to redeem 3.7 billion euros of debt in 2013-2014 and 1.9 billion euros in 2015-2016.

But the bond rollover has hit a snag because some central bankers are worried that it might be seen as direct financing of the Greek government, Greek officials said. The law governing the ECB forbids it from such direct financing.

"The main issue is that ANFA is considered by some central bankers as direct government financing from the ECB," a senior Greek financeministry official told Reuters.

"We have kept our pledges, now our lenders must do the same," another Greek official said.

Senior euro zone officials with direct knowledge of the matter confirmed that a gap could open up in the bond rollovers.

"There could be a financing gap between 1.5-2.0 billion euros in Greece until the end of this year and the question is how will Greece deal with this and make it," another senior euro zone official told Reuters.

The shortfall is a threat to Greece's bailout program because International Monetary Fund rules require the country to be fully financed at least 12 months in advance in order to continue the program of support for Athens.

In a report last month, the IMF said it projected a financing gap of 4 billion euros would open in the second half of 2014 and that additional financing should be quickly found to cover it.

Athens and euro zone officials were already working on a "technical" solution to plug the hole, the one Greek official said.

Greece's financing gap may widen further due to home-grown problems caused by the slower-than-expected pace of privatizations.

Athens failed to find any buyers for natural gas firm DEPA last month, which could blow another hole worth about 1 billion euros in the program's financing.

"It's kind of a deja vu with Greece," one of the euro zone officials told Reuters. "Real implementation of prior actions is slowed by the performance of the public sector... privatization is proceeding slowly as well".

Greece and Spain helped postwar Germany recover. Spot the difference

People exchanging food for tickets in 1923 Germany. 'Many, including Keynes, argued that [reparations imposed on Germany following the Versailles treaty] led to the rise of the Nazis and the second world war.

Πηγή: The Guardian
By Nick Dearden
Feb 27 2013

Sixty years ago, half of German war debts were cancelled to build its economy. Yet today, debt is destroying those creditors.

Sixty years ago today, an agreement was reached in London to cancel half of postwar Germany's debt. That cancellation, and the way it was done, was vital to the reconstruction of Europe from war. It stands in marked contrast to the suffering being inflicted on European people today in the name of debt.

Germany emerged from the second world war still owing debt that originated with the first world war: the reparations imposed on the country following the Versailles peace conference in 1919. Many, including John Maynard Keynes, argued that these unpayable debts and the economic policies they entailed led to the rise of the Nazis and the second world war.

By 1953, Germany also had debts based on reconstruction loans made immediately after the end of the second world war. Germany's creditors included Greece and Spain, Pakistan and Egypt, as well as the US, UK and France.

German debts were well below the levels seen in Greece, Ireland, Portugal and Spain today, making up around a quarter of national income. But even at this level, there was serious concern that debt payments would use up precious foreign currency earnings and endanger reconstruction.

Needing a strong West Germany as a bulwark against communism, the country's creditors came together in London and showed that they understood how you help a country that you want to recover from devastation. It showed they also understood that debt can never be seen as the responsibility of the debtor alone. Countries such as Greece willingly took part in a deal to help create a stable and prosperous western Europe, despite the war crimes that German occupiers had inflicted just a few years before.

The debt cancellation for Germany was swift, taking place in advance of an actual crisis. Germany was given large cancellation of 50% of its debt. The deal covered all debts, including those owed by the private sector and even individuals. It also covered all creditors. No one was allowed to "hold out" and extract greater profits than anyone else. Any problems would be dealt with by negotiations between equals rather than through sanctions or the imposition of undemocratic policies.

Perhaps the most innovative feature of the London agreement was a clause that said West Germany should only pay for debts out of its trade surplus, and any repayments were limited to 3% of exports earnings every year. This meant those countries that were owed debt had to buy West German exports in order to be paid. It meant West Germany would only pay from genuine earnings, without recourse to new loans. And it meant Germany's creditors had an interest in the country growing and its economy thriving.

Following the London deal, West Germany experienced an "economic miracle", with the debt problem resolved and years of economic growth. The medicine doled out to heavily indebted countries over the last 30 years could not be more different. Instead, the practice since the early 1980s has been to bail out reckless lenders through giving new loans, while forcing governments to implement austerity and free-market liberalisation to become "more competitive".

As a result of this, from Latin America and Africa in the 80s and 90s to Greece, Ireland and Spain today, poverty has increased and inequality soared. In Africa in the 80s and 90s, the number of people living in extreme poverty increased by 125 million, while economies shrank. In Greece today, the economy has shrunk by more than 20%, while one in two young people are unemployed. In both cases, debt ballooned.

The priority of an indebted government today is to repay its debts, whatever the amount of the budget these repayments consume. In contrast to the 3% limit on German debt payments, today the IMF and World Bank regard debt payments of up to 15-25% of export revenues as being "sustainable" for impoverished countries. The Greek government's foreign debt payments are around 30% of exports.

When debts have been "restructured", they are only a portion of the total debts owed, with only willing creditors participating. In 2012, only Greece's private creditors had debt reduced. Creditors that held British or Swiss law debt were also able to "hold out" against the restructuring, and will doubtless pursue Greece for many years to come.

The "strategy" in Greece, Ireland, Portugal and Spain today is to put the burden of adjustment solely on the debtor country to make its economy more competitive through mass unemployment and wage cuts. But without creditors like Germany willing to buy more of their exports, this will not happen, bringing pain without end.

The German debt deal was a key element of recovering from the devastation of the second world war. In Europe today, debt is tearing up the social fabric. Outside Europe, heavily indebted countries are still treated to a package of austerity and "restructuring" measures. Pakistan, the Philippines, El Salvador and Jamaica are all spending between 10 and 20% of export revenues on government foreign debt payments, and this doesn't include debt payments by the private sector.

If we had no evidence of how to solve a debt crisis equitably, we could perhaps regard the policies of Europe's leaders as misguided. But we have the positive example of Germany 60 years ago, and the devastating example of the Latin American debt crisis 30 years ago. The actions of Europe's leaders are nothing short of criminal.

The Greek Debt Trap: 'An Escape Plan'

Πηγή: Bruegel 
By Zsolt Darvas
Nov 9 2012

In this interesting report the Bruegel think tank - which is chaired by Jean-Claude Trichet - an unpleasant prospect is unfoleded as few of the main points are that :

• A credible resolution should involve the reduction of the official lending rate to zero until 2020, an extension of the maturity of all official lending, and indexing the notional amount of all official loans to Greek GDP. Thereby, the debt ratio would fall below 100 percent of GDP by 2020, even if the economy deteriorates
• ... an additional €40 billion will be needed by 2020 and a further €43 billion for 2021-30.

So the present debate between the IMF and ECB is just another compromise while the statement of Antonis Samaras that the recent austerity measures should be the last is another lie on the usual pile...

The Greek Debt Trap- An Escape Plan (English)

SPECIAL REPORT - Greece's other debt problem

Conservative New Democracy leader Antonis Samaras arrives at the Presidential Palace in Athens June 20, 2012.

Πηγή: Reuters

By George Georgiopoulos and Stephen Grey
Sept 27 2012

The two main political parties in Greece are facing their own financial crisis. New Democracy and Pasok, the key members of the country's coalition government, are close to being overwhelmed by debts of more than 200 million euros, say rivals, as the big parties head for a slump in state funding because of falling public support.

In Greece's state-financed political system, parties that receive more votes get more funding. Relying on past good results, the big political parties have pledged future state funding as collateral for bank loans. But in the most recent poll their support collapsed, leaving them with big loans and facing much smaller incomes.

Banking sources familiar with the issue say that conservative New Democracy and socialist Pasok now owe a combined 232 million euros to Greek banks. Some of the loans are going unpaid, those sources say. The debts far exceed the combined 37 million euros the parties received in state funding last year - a figure set to decline.

The parties' debts raise questions about potential conflicts of interest because the government is in hock to a financial system that it also needs to reform. Athens is already struggling to implement spending cuts and reforms demanded by the European Union, International Monetary Fund (IMF) and European Central Bank (ECB) in return for the 130 billion euro bailout keeping Greece afloat. On Wednesday unions called a nationwide strike protesting against austerity.

Leandros Rakintzis, Greece's independent inspector-general of public administration, believes the financial crunch the two big parties face is proof that Greece's political funding system is flawed. "This is all about the exchange of favours," he said. "These parties cannot pay the debt so it's a vicious circle in which they come to depend on the banks. It creates an interdependence of politicians and banks."

The loan pressures will intensify early next year when state funding is recalculated to reflect declines in the parties' support. At present, funding is still based on the proportion of votes each party won in the June 2009 election. But in January funding will change to reflect votes cast in June 2012.

At that election Pasok saw its share of the vote plunge from 43 percent to 12 percent, while New Democracy's share fell from 33 percent to 29 percent. The big winner was leftist Syriza, which opposed the bailout terms. Its share of the vote shot up to 27 percent from 4.6 percent in 2009, and it now stands to receive significantly more funding.

Costas Tsimaras, the general manager of New Democracy, the biggest party in the Greek parliament, told Reuters the bulk of its bank loans were currently being paid on time, but "a small proportion of the loans may have become late, non-performing."

For the parties to keep on top of the loans, he said, they should be restructured.

"It will be very difficult for the parties to pay back the debt if there is no arrangement. Down the road, a political decision needs to be made to give parties the capacity to service their liabilities, some type of settlement on these loans."

Pasok did not respond to requests for comment.

Greece's other debt problem (pdf) link.reuters.com/ryq82t

STATE HANDOUTS

Like many European countries, Greece provides some public funding for political parties and their election campaigns: last year the state handed out a total of 54 million euros.

Each year parties receive tax-free funding equal to 0.102 percent of annual state revenue, plus another 0.01 percent for "research and education" purposes. When national or European parliamentary elections take place an extra 0.022 percent of annual state revenue is handed out.

Private companies, owners of media and foreign nationals are banned from funding parties. Individuals giving more than 600 euros have to be identified and are allowed to give only up to 15,000 euros a year, though it is unclear how well these rules are enforced.

The lion's share of the state funding pie, 80 percent, is divided between parties that win seats in parliament, each one receiving amounts proportional to the votes they score. That funding does not include the cost of MPs salaries and other parliamentary expenses, which are paid separately.

Greece is among the most generous of EU countries to political parties. It provided an average of 6.5 euros per registered voter per year between 2007 and 2011 - the fourth highest funding in the EU after Luxembourg, Cyprus and Finland, according to Forologoumenos, a Greek taxpayer association that tracks state spending on politics.

By another measure, Greece hands out three times the amount spent by Germany on political parties. Per valid vote cast, Athens spends an average 9.4 euros versus Germany's 3.1 euros, says Forologoumenos.

In 2011 New Democracy, led by Antonis Samaras, received 16.9 million euros and Pasok, now led by Evangelos Venizelos, 21.7 million. That state funding accounted for about 75 percent of New Democracy's income, the party said, though the proportion fluctuates from year to year. Pasok did not comment on how much it depends on public funds.

In 2010, when Greece's debt crisis exploded and forced Athens to seek a bailout, the country spent a total of 65 million euros on funding parties in a country of 11 million people. Germany, with a population more than seven times larger, limits state funding of political parties to 150 million euros.

For German lawmaker Klaus-Peter Willsch, the generous state funding in Greece is emblematic of the country's financial malaise. "This self-serving mentality will not come to an end as long as Greece is funded by the solvent states in the euro zone," he said. "The fact that Greek parties get three times as much funding per vote as in Germany is part of the problem."

Willsch, a member of Angela Merkel's Christian Democrats who sits on the Bundestag's powerful budget committee, voted against the Greek bailouts.

MIND THE GAP

Even with state funding, Greek parties have had to borrow to fill the shortfall between their revenue and expenditure.

The main lender has been state-owned ATE Bank. By this year New Democracy owed ATE 105 million euros and Pasok owed ATE 96 million, according to banking sources. A senior source in the Greek parliament confirmed these amounts to Reuters.

Separately, Piraeus Bank, the country's fourth largest, lent New Democracy 15 million euros and Pasok 6.5 million euros. Three other banks made small loans to the parties. A banker familiar with the matter told Reuters that some of the loans "are non-performing, they are past due more than 90 days".

Piraeus denies any problem. "Piraeus Bank's loans to political parties are a small percentage of the total. They were given against guarantees of state funding. The loans are performing," said a Piraeus spokesman.

In late July, ATE had to be rescued from collapse, with parts of the bank, including the political loans, being taken over by rival Piraeus Bank. At the time the political loans were performing, said a source at ATE and a senior government official.

Piraeus has filed a lawsuit against Reuters, claiming 50 million euros in damages after Reuters published a report about a series of property deals between the bank and companies run by the family of its chairman. Reuters stands by the accuracy of its reports.

A banker with knowledge of the political loans said limits should be set "on the percentage of state funding that can be accepted as collateral and for how many years in the future. Otherwise, one would have to be a Houdini to know for sure what amount of state funds a party will be entitled to far out in the future, 10 years down the road."

For the parties, some pressures are already evident. One former staff member of Pasok, who asked not to be named, said that payments to party workers had been irregular since September last year.

New Democracy said its staff were paid on time. "We do not owe a single euro to anyone on the payroll," said general manager Tsimaras. However, he added: "Our bills to suppliers do face some delays."

A Pasok staff member said party funding had sometimes been spent poorly. In 2009, for instance, the party built a fully-equipped gym at its new headquarters and employed a personal trainer. "It is now a smaller party and costs have to be reined in," said the party staffer.

Pasok did not respond to requests for comment.

RISING ANGER

Greece is now in its fifth year of recession and is struggling to meet fiscal targets set by its euro zone partners and the IMF. The gap between government spending and revenues is projected at 7.3 percent this year, based on IMF estimates. The country's accumulated debt stands at 332 billion euros, equal to 163 percent of GDP.

Greek Prime Minister Antonis Samaras asked in August to be given a "breathing space" by the EU and IMF, which are pressing for more public spending cuts. At the same time, critics say the political system itself should tighten its belt.

"State funding to political parties must be adjusted to what the Greek economy can afford and not be far off from the corresponding average in the European Union," said Yannis Sarris, the general manager of small party Dimiourgia Xana, which calls itself the 'common sense' party.

Others say it is politically unacceptable for parties to be propped up with bank loans when many businesses are unable to obtain credit even against sound collateral. The small Democratic Alliance party (which folded into New Democracy at the June election) has previously called for a 50 percent cut in state funding to parties.

"On the one hand we have a country on the brink of bankruptcy, a suffering society, victim of an unprecedented tax onslaught," Democratic Alliance deputy Christos Markoyannakis told parliament in December last year. "On the other, we face the absolute provocation by those bearing the biggest share of responsibility for the country's crisis. As long as the cash flows into party coffers, all is fine and dandy."

The Group of States against Corruption (GRECO), a body set up by the Council of Europe, has also levelled serious criticisms at the way Greece funds its politics.

It has urged Athens to improve transparency of party funding, to strengthen controls over small donations for fear that rich donors could abuse the system, and to ensure that loans are repaid under their original terms - otherwise they risk becoming de facto donations.

The group concluded: "There is in Greece a general public mistrust of the system of political financing and supervision, which may be attributed to an overall inefficient and opaque system of supervision, in which political parties are both judge and jury.

"This system has failed, under current law, to uncover and sanction any - even minor - infringement of the rules on political financing."

So far, none of GRECO's 16 recommendations have been implemented, the organisation says.

The omens for reform are not encouraging. Last year Nikos Alivizatos, a constitutional lawyer, helped draft a new law to correct shortcomings of the current system, including barring banks from lending to political parties. The legislation was shelved because the two main parties were keen to maintain the status quo, say political observers.

S&P cuts outlook on Greece's rating from stable to 'negative'

Πηγή: Todays Zaman
By AP
August 8 2012

Standard & Poor's Ratings Services on Tuesday lowered its outlook on Greece's long-term credit rating, saying that the financially troubled nation will likely need further aid from its international lenders amid a worsening economy and delays implementing harsh austerity measures.

The ratings firm downgraded Greece's long-term sovereign credit rating outlook to "negative" from "stable." Its rating remained at "CCC," well into "junk" status. Greece's economy is worsening, so it will likely need as much as 7 billion euros ($8.7 billion) in additional financing, or 3.7 percent of its gross domestic product, from the European Union and the International Monetary Fund, S&P said.

The move to lower the outlook reflects the possibility that S&P will downgrade Greece's rating if the nation fails to get additional funding from other eurozone countries and the IMF. The country has been relying on such loans since high interest rates pushed it out of bond markets in 2010. In return, it has imposed harsh austerity, slashing pensions and salaries, repeatedly hiking taxes and increasing the retirement age. The firm projects that Greece's gross domestic product will shrink by 10 or 11 percent over this year and next. The European Union and IMF have assumed GDP will slow only between 4 percent and 5 percent during that period.

Greece has received two bailouts totaling 240 billion euros from other eurozone governments and the International Monetary Fund after bond investors would no longer lend it money at affordable rates. In return for the money, Greece is supposed to cut its budget deficit and reform its economy. However, the economy has continued to contract and the new government of Prime Minister Antonis Samaras has said it wants more time to meet some of the conditions. Even so, S&P anticipates that Greece's government will find it difficult to make the additional cuts required to satisfy the conditions to get its next slate of funding from the EU and IMF. "We see the likelihood of shortfalls, owing to election-related delays in the implementation of budgetary consolidation measures for the current year, as well as the worsening trajectory of the Greek economy," S&P said. A cutoff of bailout money could lead to Greece defaulting on its remaining obligations and possibly leaving the euro currency.

IMF To Stop Further Aid Tranches To Greece, Spiegel Says

Πηγή: Bloomberg
By Brian Parkin
July 22 2012

The International Monetary Fund will stop paying further rescue aid to Greece, making the country’s insolvency in September more likely, the Der Spiegel magazine said. citing unidentified European Union officials.

While a review of Greece’s progress in meeting terms of its rescue is unfinished, it is “already clear” to the reviewing body of the IMF, the EU Commission and the European Central Bank that Greece will not be able to fulfill its promise to cut debt to 120 percent of annual economic growth in euro terms by 2020, Der Spiegel said.

Missing the target means Greece needs between 10 billion euros and 50 billion euros ($60.8 billion) in additional aid, a potential outcome that the IMF and several unidentified euro- area states are not prepared to accept, the magazine said, citing the review.

Euro-area leaders regard Greece’s exit from the euro as manageable even though they want to prop up the country’s finances until the new and permanent rescue fund called the European Stability Mechanism is in operation, the magazine said, citing from the same sources. Germanyis holding up the inception of the ESM as it awaits a court ruling on the fund’s constitutionality on Sept. 12, Spiegel said.

The ECB may step in to help Greece in the meantime, said the magazine, citing some 3.8 billion euros the government needs to pay back to the central bank on August 20. The government may sell debt of that amount as short-term “T-Bills” to Greek banks, which in turn would deposit the bonds as security at the ECB, securing further aid, Spiegel said.

Greece’s Debt Crisis in Context

Πηγή: Political Economy Research Institute
By C.J. Polychroniou
September 2011

"...A similarly strong argument made against a single European currency was that sustainable convergence in the European Union could be achieved only at the expense of even higher rates of unemployment. According to this argument, Eurozone economic and fiscal policy must lead to real unit labor cost convergence, otherwise unemployment would reach unsustainable levels. Yet, real convergence (growth, wealth creation, real wage costs, unemployment, productivity) in a neoliberal economic environment, the critics implied, is a chimera. Indeed, the critics have proven to be right, at least on this point: the euro has led to greater economic and social inequality among the various national economies, has exacerbated the problem of unemployment in the peripheral economies, and has produced huge transfers from the periphery to the core. But to have expected the political and financial elite in Greece to engage in such reflections and ponder whether it was wise for the country to enter the euro when it did would be equivalent to expecting a shark to twist and turn away at the smell of blood. The easy access to international credit with low interest would not only help to sustain the growth model and strategy of the last thirty years, but would also greatly expand opportunities for bribery, kickbacks, and payoffs for the political class. As for the academic neoliberal economists, who were staunch advocates of Greece joining the euro, the best they could do was hedge their bets on the unfounded hope that the single currency would lead to increased productivity and speed structural adjustments within the Greek economy."
Greece’s Debt Crisis in Context

New Project to Save Greece: 'For a Donation of 3,000 Euros, Every Greek Can Buy Freedom'

A mural by graffiti artist "Blu" in Thessaloniki.

Πηγή: Spiegel
Interview by Carsten Volkery
June 29 2012

Greek shipping heir Peter Nomikos has taken matters into his own hands. While EU leaders wrangle for a solution to Greece's problems, Nomikos started a non-profit to wipe out the country's debt. If all of his countrymen do their part, he tells SPIEGEL ONLINE, they will be able to shore up the country's finances.

SPIEGEL ONLINE: Mr. Nomikos, you have just started a campaign to free Greece of debt. Your organization buys up Greek bonds and then forgives the debt. Are you serious?

Nomikos: Professionally, I deal with distressed debt. And it struck me that Greece has a historical opportunity. In the euro, the Greeks have a very strong currency, while the price of their government bonds has collapsed. That makes it possible to buy back debt at very low prices and reduce the Greek debt burden with relatively little expenditure.

SPIEGEL ONLINE: You are asking your countrymen for donations. What do you tell them?

Nomikos: If you break down the national debt, each Greek owes around €25,000 ($31,485). So I am telling my fellow citizens to make themselves debt-free. Greek government bonds with a nominal value of one euro currently trade for around 12 cents. For a donation of around €3,000, every Greek can buy his freedom.

SPIEGEL ONLINE: How many bonds has your foundation already bought?

Nomikos: We always buy those bonds that have the deepest discount. So far we have invested €273,000 ($343,816) and hold €2.2 million ($2.8 million) in Greek debt.

SPIEGEL ONLINE: And then you cancel the debt?

Nomikos: Not immediately. If we did that, we would decrease the impact of our project. When the GDP-to-debt ratio goes down, bond prices go up. If the movement becomes a great success, this could become a problem, because we cannot buy debt as cheaply on the markets. So we hold these bonds for a while and use any profits to buy more bonds. We plan to amass as many bonds as possible and then cancel the debt all at once.

SPIEGEL ONLINE: Have you set yourself a specific goal?

Nomikos: We just started collecting donations last weekend. We'll see how it develops.

SPIEGEL ONLINE: Your first supporter was ship owner Evangelos Marinakis, the owner of Greece's biggest football club Olympiakos Piräus. He donated €168,590 ($212,322). How did you get him involved?

Nomikos: I called him about four weeks ago to ask if he would use our logo and message in his communications for Olympiakos FC. He immediately said yes. Half of Greece supports Olympiakos, so this was a big moment. Then I asked him whether he wanted to buy the freedom of his players. He said: I'll also buy the freedom of my employees. So he paid for 55 people -- €3,065 ($3,860) each.

SPIEGEL ONLINE: Who else has signed up thus far?

Nomikos: I have paid for 34 members of my family. But this is not about me asking rich friends to join. It is about the majority of Greeks helping their country. This campaign will only work if it becomes a social movement. People will look at each other and ask: What have you done to battle the debt?

SPIEGEL ONLINE: Wouldn't it be easier if all Greeks started paying their taxes?

Nomikos: The difference is that with taxes, you don't know what they are being used for. There is a lack of trust in the state, and I am not going to pretend that I can solve this cultural problem. But Greeks are also great patriots, and I think we should harness this feeling. A euro for "Debt-free Greece" is not a euro in taxes lost. It is complementary.

SPIEGEL ONLINE: What is the reaction from the Greek government?

Nomikos: Many people in the government and the diplomatic community find our campaign very encouraging. But remember, we are non-political and non-governmental. It is the first real show of a private Greek citizen to organize other Greeks to address our biggest problem. It shows to the world that we are taking initiative.

SPIEGEL ONLINE: You established the foundation in the US state of Delaware. Why not in Greece?

Nomikos: In Greece, I couldn't be sure the money would remain untouched. Also, being a US charitable foundation means that American taxpayers can deduct any donation from their taxes. It is an incentive for the wealthy Greek diaspora in the US.

SPIEGEL ONLINE: And for other nationalities as well?

Nomikos: Any friend of Greece is welcome. Originally, I thought mainly diaspora Greeks would participate. But there has been a huge amount of interest from the business community within Greece. Some companies are marketing their products with our slogan "Debt-free Greece" and pay part of the profits into our campaign.

ABOUT PETER NOMIKOS

Peter Nomikos, 33, is the scion of a Greek family that has been successful in the business world. His father built a billion dollar empire in the US from shipping and medical technology. Nomikos grew up in London and studied economic history at Princeton University. The entrepreneur still lives in the British capital and finances both commercial and non-profit projects. Nomikos says that he spends about 70 percent of his time earning money, the rest he devotes to charitable ventures. With a seven member team he now runs the campaign for a Debt-free Greece. His Santorini beer company, Volkan, contributes 50 percent of its profits to the charity.

Debt Overhangs: Past and Present

FIGURE 1. Gross Central Government Debt as a Percent of GDP: Advanced and

Emerging Market Economies, 1860-2011

(unweighted averages)

Preliminary Draft
By: Carmen M. Reinhart
(Peterson Institute for International Economics, NBER and CEPR)
Vincent R. Reinhart
(Morgan Stanley)
Kenneth S. Rogoff
(Harvard University and NBER)
April 15 2012


Abstract


We identify the major public debt overhang episodes in the advanced economies since the early 1800s, characterized by public debt to GDP levels exceeding 90% for at least five years. Consistent with Reinhart and Rogoff (2010) and other more recent research, we find that public debt overhang episodes are associated with growth over one percent lower than during other periods. Perhaps the most striking new finding here is the duration of the average debt overhang episode. Among the 26 episodes we identify, 20
lasted more than a decade. Five of the six shorter episodes were immediately after World Wars I and II. Across all 26 cases, the average duration in years is about 23 years. The long duration belies the view that the correlation is caused mainly by debt buildups during business cycle recessions. The long duration also implies that cumulative shortfall in output from debt overhang is potentially massive. We find that growth effects are significant even in the many episodes where debtor countries were able to secure continual access to capital markets at relatively low real interest rates. That is, growthreducing effects of high public debt are apparently not transmitted exclusively through high real interest rates.


Debt Overhangs: Past and Present

Greece Seen Blocked From Debt Markets Until 2017: Euro Credit

Πηγή: Bloomberg
By Anchalee Worrachate and Lukanyo Mnyanda
June 25 2012

Greece may have to wait at least another five years before it can sell bonds to investors, according to financial institutions that trade debt with European governments.

A new administration in Athens and signs that European Union leaders are willing to loosen Greek austerity measures failed to convince primary dealers that the country will be able to return to the market before its second bailout ends in the next three years.

Three of 20 companies surveyed by Bloomberg News that deal directly with sovereign bond issuers expect it to take at least a decade before Greece issues debt again. Ten say investors would lend money to the country no sooner than 2017, while five predict 2015 at the earliest. The median forecast was a minimum of five years.

“The challenges facing Greece remain extremely large,” said Jamie Searle, a fixed-income strategist at Citigroup Inc. in London. “It will be a long while before they can get back to the market.”

Greece last sold bonds in March 2010 before the extra yield that investors demand for holding its 10-year securities instead of German bunds ballooned the next month to 443 basis points, then a euro-era record. That forced the country, facing 8.5 billion euros ($10.7 billion) of bond repayments, to start bailout talks with the EU, the European Central Bank and International Monetary Fund.

Ten-year Greek debt yielded 25.68 percentage points more than German bunds as of 9:10 a.m. London time today.

Possible Exit

Analysts at New York-based Citigroup said there’s a 50 percent to 75 percent chance that the nation will exit the euro region in the next 12 to 18 months. Their view hasn’t changed since before the June 17 election.

Antonis Samaras was sworn in last week as prime minister, Greece’s fourth since November, after his New Democracy party won the vote. He is under pressure to tackle the nation’s debt crisis with the economy in a fifth year of recession and unemployment at 21 percent.

Greece won a second bailout this year from the EU and the IMF, taking the total rescue package to 240 billion euros. Under the country’s bailout program, Greece has to reduce its budget deficit to 7.3 percent of gross domestic product this year from 9.3 percent in 2011, and cut its primary deficit, which excludes interest payments, to 1 percent from 2.4 percent.

Fiscal Union

It may need a third bailout or another round of bond writedowns, or both, to get debt to a manageable level, said officials from the primary dealers, who asked that they not be identified. Some said policy makers must signal their willingness to share the burden by issuing common bonds before investors are confident enough to buy Greek securities.

“The only thing that will get investors’ trust back is to get something that looks like a fiscal union because Greece isn’t going to grow out of the problem,” said John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London. “Investors have given up on the concept of a union that doesn’t have a fiscal transfer, but does have the interest rate and currency locked together.”

The country sparked Europe’s sovereign-debt crisis in 2009 after saying its deficit was bigger than previously thought, reaching a euro-region record of 15.8 percent of GDP that year.

European leaders will hold a two-day summit on June 28 to seek a way out of the debt turmoil. Billionaire investor George Soros warned that failure by leaders meeting this week to produce drastic measures could spell the demise of the currency.

Tough Times

Yields on Greek 10-year bonds dropped to 27.21 percent today from a record high of 44 percent in March. The rate is at least 20 percentage points above the level at which Greece could fund itself, as the country along with Ireland and Portugal all sought aid when 10-year yields surpassed 7 percent.

The nation’s ratio of debt to GDP is projected to rise to 168 percent next year from 161 percent, according to the European Commission’s report of May 11. The economy will contract 4.7 percent this year and show zero growth in 2013, the commission said.

“The country is still insolvent and there is little progress in the way of fiscal adjustment and growth,” said Piero Ghezzi, the head of global economics at Barclays Capital in London. “Investors will need to see what the end game for Greece is before they buy its bonds again. A country can borrow in the market only if there is demand for its debt. For Greece, that can be easily five years away.”

Primary Dealers

Companies participating in the Bloomberg survey were Bank of America Merrill Lynch, Bayerische Landesbank, BNP Paribas SA, Citigroup, Commerzbank AG, Credit Agricole SA, Danske Bank SA, Deutsche Bank AG, DZ Bank AG, HSBC Holdings Plc, ING Bank NV, Jefferies International, Landesbank Baden-Wuerttermberg, Lloyds TSB Bank Plc, Nomura International, Rabobank International, Royal Bank of Canada, Royal Bank of Scotland Group Plc, Barclays Plc and UniCredit SpA. They provided their forecasts on June 21 and June 22 on a non-attributable basis.

Petros Christodoulou, former head of the Greek debt office, said June 19 that his nation isn’t close to selling bonds and there may be common euro debt issuance by the time it returns to the markets. He also said Greece will remain a member of the 17- nation euro area.

The IMF recommended issuing common debt on June 21 after warning that the euro-area crisis has reached a “critical” stage.

“Greece could return to the market quickly if leaders take the right policy decisions,” said Padhraic Garvey, head of developed market debt at ING in Amsterdam. “But the risk that things could go in a very wrong direction, taking Greece much longer to return to the market, is greater than the other way around.”

Greece's Lazard banker unlocks deals over secret meetings

Πηγή: ekathimerini
By Anne-Sylvaine Chassany & Jesse Westbrook
April 17 2012

The world of Michele Lamarche, one of Lazard Ltd.'s top advisers to Greece on its debt restructuring, is full of meetings that never happened, officially at least.

With efforts to cut in half Greece's 206 billion-euro ($269 billion) debt stalled and a Greek bond payment looming, Lamarche and two colleagues secretly met in Paris on a Saturday morning in December with BNP Paribas SA adviser Jean Lemierre, a negotiator for Greece's private creditors, two people involved in the restructuring said. Out of that 30-minute meeting came the proposal to offer private creditors cash and give them and the public creditors parity on new Greek debt, said the people, who declined to be identified because the talks were private. It helped restart the negotiations.

"We had to work something out,» Lamarche, 63, said in an interview. «The alternative, Greece exiting the euro, was too dramatic for everybody. Sometimes you need to sit down with the other side, talk bluntly and in total confidence."

Over a 30-year career at Lazard, Lamarche has negotiated such deals all over the world, always on the side of the debt- strapped sovereigns against their creditors. In Iraq, Argentina, the Ivory Coast and now in the glare of Greece, Lamarche, short, thin and elegant in her Dior suits and Christian Louboutin high heels, is among a small cast of advisers, and one of the rare women, who show up around the table for almost every major sovereign debt restructuring. Now with nations including Portugal and Spain struggling with high debt and sluggish economies, Lamarche's work is shifting to developed markets in Europe. With Greece, the largest sovereign debt restructuring, the team is also becoming a bigger fee generator for Lazard.

'Political instinct'

"Beyond her experience and her understanding of how those deals work, her talent is her political instinct,» Lemierre, who represented Greece's private creditors with Institute of International Finance Managing Director Charles Dallara, said in an interview. «In a stalemate, she'll be able to stand back, use her connections and unlock the situation."

With Europe's debt crisis again roiling markets and pushing up bond yields in Italy and Spain, the threat of more restructurings beyond Greece remains. Portugal hasn't sold long- term bonds in the public markets for a year and Spain, with unemployment at a European Union high of 23.6 percent, is struggling to meet budget targets. The 17-nation euro economy will shrink 0.3 percent this year, the European Commission said.

Lamarche said she hopes Europe will prevent further restructurings. It should always be the last resort, she said.

"Everybody realized how difficult those restructurings are,» Lamarche said. «It always makes a return to the market much more difficult for a country. Portugal and Spain are making big efforts, and I hope an improving economic environment in the US will help."

Europe's crisis is a recipe for growth in Lamarche's business. The team is working on other assignments related to the euro crisis, she said, declining to identify them. Lazard, based in Hamilton, Bermuda, will earn as much as 25 million euros alone in fees for advising Greece over the last two years, the Greek government reported on March 21. The bigger the debt reduction and level of creditor participation, which is almost 97 percent, the larger the fees are. Lazard's top 10 clients paid the bank about $14 million each last year on average, according to Lazard's annual report.

"Michele Lamarche never got much publicity for her work, and she isn't the type to care,» said Luce Gendry, a partner at Paris-based mergers-and-acquisitions bank Rothschild, who has known Lamarche since college. «Sovereign debt wasn't something that would make the headlines as much. Now it is grabbing everyone's attention."

Finding consensus during that secret meeting in December was just the beginning. Lamarche, accompanied by Lazard Paris chief Matthieu Pigasse and economist Daniel Cohen, and Lemierre also had to get their own camps to accept the concept, called co-financing.

Euro-region nations had agreed to lend Greece 30 billion euros to sweeten a debt exchange, and creditors wanted it invested in securities to guarantee the new 30-year bond's principal. Greece objected the deal was too costly and some European countries, including Germany, had technical concerns.

In the final accord, investors took the 30 billion euro- cash in the form of European Financial Stability Facility notes, and received bonds with a face value of 31.5 percent of the old ones, instead of 50 percent. The new bond and the euro-region loan have a common paying agent. If Greece defaults on the private bond, it automatically defaults on the public debt.

It is the first time public creditors agreed to be tied up in such a co-financing with private investors in a restructuring, Lamarche said. The Greek deal was the most difficult negotiation of her career, in part because of the number of European nations and institutions involved, she said, her fingers playing with one of her golden earrings.

The secret sauce is to find creditors who share her objective to reach a deal, Lamarche said.

"It's our job to identify the bondholders that are constructive and will be able to apply pressure on their more aggressive peers,» she said. «Everybody has their own limitations, but at the end of the day, creditors are a sensible bunch."

Born near Algiers, the daughter of a French colonel who fought in Algeria's war of independence, Lamarche was a teenager when she and her family fled by ferry in 1962 amid retaliation attacks against Europeans. Although she «never felt the danger,» Algeria gave her a taste for geopolitics.

"I was a child thrown into a war, and I naturally got interested in international crises,» she said.

Protesting in Paris

While attending the Paris business school HEC, she took part in the student riots in May 1968, getting «the scare of her life» when demonstrators burned the stock exchange. Rothschild's Gendry, who used the changing times to swap the mandatory skirts for jeans at business school, recalled Lamarche as a strong-willed student who made a point of remaining elegant under any circumstances.

Lamarche won a scholarship to study for a Masters of Business Administration at the University of California at Berkeley, then a hotbed of America's anti-Vietnam war and hippie movement. There, she stuck to her studies to «graduate in one year, get into business and earn my own money."

After graduation, she turned down a job with Bank of America Corp. to join a French state-owned institution that helped small businesses export. She quit a few months later after realizing she was paid less than her male colleagues.

She called back Bank of America, working in Paris and London, helping to arrange financing for companies such as Algeria's state-owned gas producer Sonatrach, and forging friendships with executives such as Christophe de Margerie, who heads French oil company Total SA.

In 1982, she joined Lazard's international department in Paris, which had been created by Helie de Pourtales, a partner who in the 1970s helped Indonesia reschedule its debt. She and a colleague started a unit that helped lenders swap their sovereign holdings. She hired former Bank of America colleagues, including Eric Lalo, now a managing director of the department. Her team was allowed to invest some of their profit, and the bank started building its own sovereign debt trading book.

When the late Bruce Wasserstein took over Lazard in 2002, deciding to take the firm public in New York and focus on advisory, Lamarche won mandates in Argentina, the Ivory Coast, Gabon and Iraq. Under Pigasse, the unit added advisers such as Cohen, a vice president of the Paris School of Economics, and Mark Walker, a former managing partner at law firm Cleary Gottlieb Steen & Hamilton LLP who has worked on debt negotiations for five decades.

'Crisis isn't over'

"This department has become very important for Lazard,» Pigasse said. «It gives us unparalleled insight into the European sovereign debt crisis and all the other businesses benefit. Unfortunately, I don't think the crisis is over, Europe's growth prospects are bleak."

Pigasse, a former government cabinet member, Cohen and Walker worked on the Greek talks with Lamarche. Walker, in years of debt negotiations, is known for making aggressive demands and sometimes storming out of the room when talks reach an impasse, according to creditors. Lamarche is known for seeking consensus, they said.

"I don't know if putting Michele and Mark together was intentional, but it worked because they are complementary,» said Hans Humes, president of New York-based hedge fund Greylock Capital Management LLC, who was part of the private creditors' committee negotiating with Greece.

Lamarche's connections are stunning, Pigasse said.

"I would go to her and say, 'I need to talk to this finance minister, whom I don't know, at 3:15 p.m. today.'» he said. «She would come back an hour later apologizing, 'Sorry, I only got 3:20 p.m. with the prime minister.'"

While most debt negotiations are held in cities such as London, Washington or Paris, Lamarche has also learned her way around the countries she advises. She recalled being shocked by Baghdad's deserted streets when speeding through the city on a scorching July day in 2009. She regularly visits the west African country of Mauritania, where al-Qaeda in the Islamic Maghreb, the terrorist group that kidnapped and killed foreign hostages, operates.

One day, after visiting Mauritanian officials, she and Cohen found themselves in a dune-buggy stuck in the sand with two guides on an isolated beach. It was getting dark, they risked missing their flight and Cohen started fretting.

"The whole situation was actually very funny,» Lamarche said. «So we were going to miss our plane. No big deal."

Lazard's focus on advisory and its choice not to work for creditors explain why governments hire the bank, according to Pigasse. The credit crisis has accentuated this need, allowing the bank to regain market share lost to the larger institutions in the 1990s, he said.

"If you are JPMorgan Chase & Co. or Citigroup Inc., you've probably underwritten sovereign bonds and you have a conflict,» said William D. Cohan, a former Lazard banker and a Bloomberg columnist. «Lazard has a competitive advantage because they have been in it longer. Spain, Portugal, Italy, they want the people who've done it for Greece, whether they need to go down that path yet or not,» said Cohan, who wrote a history of Lazard titled «The Last Tycoons."

Some of Lazard's work has had varying degrees of success.

More than 10 years after defaulting on $95 billion in debt, Argentina is still excluded from world credit markets and relies on central bank reserves and a local pension agency to pay its debt. The country continues to fight litigation from hedge funds that opposed the restructuring.

No retirement plans

Lamarche's team also advised BTA Bank, which was taken over by the Kazakhstan government in 2009, just before it defaulted on $12 billion of debt. BTA's bonds were restructured in 2010, and the bank failed to make a $166 million interest payment in January. It is now seeking a second restructuring, with Lazard's help. Kazakhstan is ranked 120th of 183 nations in Berlin-based Transparency International's 2011 Corruption Perceptions Index, and parliament changed the constitution in 2007 to allow President Nursultan Nazarbayev to be re-elected indefinitely.

Lamarche, who has raised three daughters from two marriages and spent half her time outside France over the past year, said she doesn't plan to retire any time soon.

"My job is fascinating intellectually, and it is amazing to help a country jump back on its feet,» she said. «It's so rewarding.»

EU Treatment of Greece Shows 'Moral Decay': Economist

Πηγή: The Street
By CNBC
March 23 2012

European Union leaders showed "moral decay" in delaying Greece's bond swap deal in order to minimize the impact on the region's banks, according to High Frequency Economics' founder and chief economist, Carl Weinberg.

In a March report on the global economy, Weinberg said EU leaders had deliberately delayed Greece's restructuring, to the detriment of its economy, in order to give banks time to prepare for the hit on their debt holdings.

"Why wasn't Greece allowed to restructure its debt two years ago, before its economy contracted by 15 percent, and before it was necessary to impose a haircut on private sector borrowers, destabilize the government and the economy, illegally implement retroactive collective action clauses, and trigger credit default swaps?" he asked in the report.

"It was inconvenient for the banks, that is why," he said.

Weinberg added that EU leaders forced Greece to go through severe austerity measures in order to give banks time to deal with the debt.

"Politicians preferred to put a few million Greek citizens through the ringer than ask banks to swallow losses on government bonds before they had time to 'prepare'... it would seem that it is not just bankers who have entered an era of moral decay, but the governments that want to regulate them as well," he wrote.

As a creditor representative in the wave of Latin American sovereign debt restructurings in the 1980s, Weinberg told CNBC.com that these earlier deals showed that if properly conducted, Greece's restructuring would neither have triggered credit default swap payments, nor destabilized its economy and government.

In particular, Weinberg highlighted Mexico's 1982 restructuring and Brazil's 1983 restructuring as "clear success stories" carried out "properly and promptly, without being enslaved to political considerations".

Neither Brazil's nor Mexico's debt has required subsequent restructuring, although both nations received substantial loans from the International Monetary Fund [cnbc explains] in the 1990s.

"Mexico and Brazil both undertook reform on their own initiative, and are now model economies," said Weinberg.

In his report, Weinberg added that Greece was in more need of investment to combat its economic woes, than "clever" restructuring.