Transcript GREECE

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 ( [email protected] )
Member of the Commission
Founding Member of
% ΑΤΤΑC HELLAS (GREECE)
Presentation for meeting in Berlin
February 2016
DEBT EXISTS EVERYWHERE…
In Germany as much as in Greece!
Country
Total
Banks
Corporations Households
Ιreland
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
Public
DEBT OF HOUSEHOLDS
Pressure on wages

Loans instead wage increases!
Loans based on real
estate trends…
Which, like in US in 2007can
reverse, and provoke subprimes risks and crisis
Consequence: losses of
pensions funds and banks
Part of wages in % of added value
1976-2011
DEBTS OF BANKS
Deregulation

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…
PUBLIC DEBTS
Fiscal competition 
Evolution of taxes on benefits in
Eurozone
1995 - 2011
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
THE RESULT: PUBLIC DEBT HAS INCREASED
EVERYWHERE SINCE 2007 CRISIS…
Nobody respects the golden rule of 60%
DETTE EN % DU PIB > 60% PARTOUT…
2008
2009
World
2010
2011
2012
2013
66
76,2
79,7
79,9
81,3
81,5
Advancedeconomies
81,5
95,2
101,4
105,5
110,7
113,6
UnitedStates
76,1
89,7
98,6
102,9
107,2
111,7
Euroarea
70,2
80
85,4
88
93,6
94,9
France
68,2
79,2
82,3
86
90
92,1
Germany
66,9
74,7
82,4
80,6
83
81,5
Greece
112,6
129
144,5
165,4
170,7
181,8
Ireland
44,5
64,9
92,2
106,5
117,7
119,3
105,7
116
118,6
120,1
126,3
127,8
Portugal
71,6
83,1
93,3
107,8
119,1
123,7
Spain1
40,2
53,9
61,3
69,1
90,7
96,9
Japan
191,8
210,2
215,3
229,6
236,6
245
52,2
68
75
81,8
88,7
93,3
87,5
87,8
Italy
UnitedKingdom
Canada
Συνολικό
σε % του
2012
71,3 Χρέος
83,3
85,1ΑΕΠ το
85,4
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
Les composantes
de la dette
grecque (en
du PIB) 1980-2007
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 <80%
The Greek deficits were exclusively due to excessive military
expenses: > 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 A big part of it is explained by
of Greece compared to EZ countries Cumulated Military Imports of
Only for 1990-2012 period
Greece since 1980
(billions € at 2010 prices)
(Millions of $ at 2010 prices)
Source: Eurostat (%GDP in EZ and GR)
Source : SIPRI database (imports)
AMECO (GDP at 2010 levels in Billion €) Source AMECO (GDP prices 2010 - 1990)
Other structural causes of Greek debt
Structural problems of Greek public finances
Expenses lightly over EZ average,
lower after correction of excessive
military expenses and bad spending
(clientelism, corruption, bureaucracy, low services)
A problem of COLLECTION of taxes
& employers’ social contributions
- high tolerance for those not paying their taxes
- 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
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)
Consumption loans/
Loans of European banks
(in Billion euros)
Source: Bank of Greece
Source : Bank of Greece
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 %)
Annual deficit (% GDP)
Growth rates (% GDP)
Source: OCDE
Source : Eurostat
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
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:
REUTERS
Source:
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 collapse…which would have increased
the losses of the banks detaining them.
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
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.
…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 < 20 billion
4. EU imposed hard austerity to Greece
A) A big reduction of public expenses
Measures
(1) Var (1) Var (1) Previous Measures Total
Primary /
Deficit deficit Interests measures Nov 2102 MEASURES expenses Expenses
2009
36624
5681
894
-19074
-19074
112700
-16,9%
2010
24125 10592
1964
-16680
-16680
101100
-16,5%
2011
20001 10020
-2032
-13191
-13191
93000
-14,2%
2012
14798
3572
211
-1584
-9200
-10784
88000
-12,3%
2013
7797
1376
749
-3064
-4300
-7364
80100
-9,2%
2014
2558
TOTAL
-53593
-13500
-67093
112700
-59,5%
GDP
Mesures/ Var
forecast GDP
GDP
231600
222200
-7,5% -4,1%
208500
-6,3% -6,2%
195000
-5,5% -6,5%
184500
-4,0% -5,4%
185000
-29,0% -20,1%
(1) Source: Ecfin Report March 2012
Source other: EC 2nd Ajustement Plan - November 2012
b) Internal devaluation measures: reduction of Minimal Wages by 22%
(33% for young people), cancellation of all collective conventions…
Impact of internal devaluation
Internal demand
Unit cost of manpower
Wages of private sector/head
2010
-7,10%
-2,40%
0,40%
2011
2012
-6,00%
-4,20%
-8,70%
-5,00%
-4,00% -975,00%
2014 Cumulated
0,60%
-15,80%
-0,40%
-15,70%
-10,60%
-22,20%
The effects of the treatment
Some apparently positive and necessary results
But with unexpected collateral effects
A killing treatment…
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%
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
- >80.000 enterprises closed
Victory of SYRIZA in
January 2015.
Referendum against
austerity at 62%....
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
Current status of Greece
Provisional conclusion
1. 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)
2. The renegotiation of Greek debt is vital: for allowing that a
lot of concessions have been done since July.
3. 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 London’s 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
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-surplus<2%
- 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
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
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
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
1) 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!
2) 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.
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 (>120% of GDP) and haircut it
• Redefine target levels (<100% of GDP) and give time to reach them
• Freeze the part below target levels with low interest rates <2%
• 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
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)?
CONSEQUENCEDE L' OBJECTIF DE 60%
EXCEDENT A DEGAGER
de 2011-2030 PAR AN
pour ramener ses dettes à 60%
Italie
France
Portugal
Grèce
Autriche
Espagne
Tchequie
Finlande
Belgique
Allemagne
Irlande
% des recettes
% du PIB
12,15%
11,42%
13,87%
25,67%
3,75%
29,86%
5,21%
-2,60%
10,53%
2,02%
33,43%
5,6%
5,80%
6,20%
10,50%
1,80%
10,60%
2,10%
-1,40%
5,20%
0,90%
11,40%
COUT VIEILLISEMENT
de 2011-2030 PAR AN
% du PIB
DE 2011 A 2030…
EXCEDENT A DEGAGER /AN
pour payer vieillissement
et ramener ses dettes à 60%..
% des recettes
-1,0%
9,43%
1,60%
14,07%
4,20%
24,13%
3,40%
31,31%
4,20%
12,16%
2,10%
27,82%
0,60%
6,55%
4,60%
5,90%
4,80%
19,88%
2,00%
6,76%
1,50%
37,07%
Source: Rapport du FMI d'Octobre 2012...
% des dépenses
publiques
pour retraites
% du PIB
% du PIB
4,60%
7,40%
10,40%
13,90%
5,90%
10,10%
2,70%
3,20%
10,10%
3%
12,90%
13,00%
12,80%
12,40%
12,10%
11,20%
10,20%
9,80%
9,80%
9,60%
9,20%
8,10%
The choices we are facing (2/2)
Austerity + Fiscal Competition
Or
Solidarity and Fiscal Convergence
AUGMENTER
RECETTES DES ETATS
LES RECETTES
Recettes A TROUVER
ou DIMINUER
actuelles
% PIB
LES DÉPENSES?
Italie
46,1
4,60%
France
50,8
7,40%
Portugal
44,7 10,40%
Grèce
40,9 13,90%
Autriche
48
5,90%
Espagne
35,5 10,10%
Tchequie
40,3
2,70%
Finlande
53,9
3,20%
Belgique
49,4 10,10%
Allemagne
44,5
3,00%
Irlande
34,1 12,90%
Ecart Min - Max
19,80
Max % du min
58,06%
POLITIQUES D'AUSTERITE (actuelles)
Recettes Augmentation Réduction
2017 des Recettes Dépenses
% des recettes
49,00%
52,70%
42,20%
41,40%
48,50%
36,80%
41,40%
54,50%
51,00%
44,10%
34,10%
20,40
60%
6,29%
3,74%
-5,59%
1,22%
1,04%
3,66%
2,73%
1,11%
3,24%
-0,90%
0,00%
POLITIQUES DE CONVERGENCE vers le haut
Recettes Augmentation Dépenses Réduction
2017 des Recettes
2017 Dépenses
% des recettes
3,69%
10,83%
28,86%
32,76%
11,25%
24,79%
3,97%
4,82%
17,21%
7,64%
37,83%
% des recettes
50,7%
53,9%
53,9%
53,9%
53,9%
45,6%
43,0%
53,9%
53,9%
47,5%
47,0%
6,90
16,0%
9,98%
6,10%
20,58%
31,78%
12,29%
28,45%
6,70%
0,00%
9,11%
6,74%
37,83%
% des recettes
50,70%
58,20%
55,10%
54,80%
53,90%
45,60%
43,00%
57,10%
59,50%
47,50%
47,00%
0,00%
8,46%
2,68%
2,20%
0,00%
0,00%
0,00%
5,94%
11,34%
0,00%
0,00%
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 relocalise 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…
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?
Thank you for your attention