IMF Intervention Ensures the Loss of Greek Sovereignty and Jobs While Privatizing Its Resources

Greek lawmakers voted to speed the enactment of the country’s new austerity measures, clearing the way for foreign lenders to make available the next installment of aid needed to meet the government’s expenses through the summer. Among the new measures are cuts in spending on health and defense, tax increases on heating oil and the self-employed, and reductions in the number of public employees. They also call for the privatization of about $70 billion in state assets, including the sale of state-owned land and shares in the Public Power Corporation, the betting monopoly OPAP, the Hellenic Postbank, and the operators of the ports of Piraeus and Salonika. At the last minute, the bill was altered to freeze the salaries of civil servants and to lower the ceiling below which income for individuals is not taxed; the minimum was reduced to $11,600 annually from $17,400, with more lenient treatment for people with children. - Greek Parliament Approves Implementation of Austerity Plan, New York Times, June 30, 2011

Euro Zone Warns Greeks on Sovereignty and Privatization

July 2, 2011

Reuters - Euro zone finance ministers have approved a 12 billion euro ($17.4 billion) installment of Greece's bailout, but signaled that the nation must expect significant losses of sovereignty and jobs.

Ministers in the Eurogroup gave the go-ahead for the fifth tranche of Greece's 110-billion-euro financial rescue agreed last year, and said details of a second aid package for Athens would be finalized by mid-September.

But within hours of Saturday's decision, Eurogroup chairman Jean-Claude Juncker warned Greeks that help from the EU and International Monetary Fund would have unpleasant consequences.

"The sovereignty of Greece will be massively limited," he told Germany's Focus magazine in the interview released on Sunday, adding that teams of experts from around the euro zone would be heading to Athens.

"One cannot be allowed to insult the Greeks. But one has to help them. They have said they are ready to accept expertise from the euro zone," Juncker said.

Greeks are acutely sensitive to any infringement of their sovereignty and any suggestion that foreign "commissars" might become involved in running the country is an incendiary political issue and could trigger more street protests.

After Saturday's conference call on Saturday, the 17 euro zone ministers agreed the fifth tranche would be paid by July 15, as long as the IMF's board signed off on the disbursement. The IMF is expected to meet on July 8 to approve it.

The payment will allow Greece to avoid the immediate threat of debt default, but the country still needs the second rescue package, which is also expected to total around 110 billion.

Between now and then, finance ministers will work on the "precise modalities and scale" of private creditors' involvement.

Germany hopes this will eventually total around 30 billion euros, with banks voluntarily buying new Greek bonds when old ones they hold mature, meaning Athens would not have to produce cash to repay its creditors immediately.

Juncker also said Greece must privatize on a scale similar to the sell off of East German firms in the 1990s.

"For the forthcoming wave of privatizations they will need, for example, a solution based on a model of Germany's 'Treuhand agency'," Juncker said, referring to the privatization agency that sold off 14,000 East German firms between 1990 and 1994.

BITTER EXPERIENCE

Greece's problems with a lack of economic competitiveness are modest compared with those of eastern Germany, which more than 20 years after communism still has high unemployment.

Juncker made no explicit reference to job losses. But any repeat of Germany's Treuhand experience may prove bitter for Greeks, who are already suffering soaring unemployment as a recession drags into its third year.

Treuhand was supposed to sell state property at a profit but closed with a huge deficit and a legacy of bitterness among the legions of workers whose jobs it destroyed. Four million Germans were employed by Treuhand-owned companies in 1990 but only about 1.5 million jobs were left by 1994.

The Greek parliament voted on Thursday to set up a privatization agency under austerity plans agreed with the European Union and IMF which have provoked violent protests on the streets of Athens.

Athens must sell off 5 billion euros in state assets this year alone or risk missing targets set under its EU/IMF program, which could cut off its funding needed to keep the government running and avoid a debt default.

"The current package of measures, which Athens has agreed to, will bring a solution to the Greek question," said Juncker. However, he added that the Greek tax collection system was "not fully functional."

Athens has repeatedly failed to meet budget targets laid down in the first bailout program, raising the risk that the crisis will spread across the euro zone if unresolved.

"What is crucial now is to implement parliament's decisions," Greek Finance Minister Evangelos Venizelos said shortly after the Eurogroup decision.

The decision gives Athens breathing but concern is growing among EU officials that the strictures being imposed on Greece, including 28 billion euros of austerity measures between now and 2015, are too harsh and could cause longer-term damage.

Financial markets still see an 81 percent chance that Greece will eventually default, and German Finance Minister Wolfgang Schaeuble told Der Spiegel in an interview that Berlin was making preparations for such an event -- even though it does not expect it to happen.

Private financial institutions have held talks with finance ministry and central bank officials in euro zone countries to discuss under what conditions the private sector would be willing to help finance Greece and by how much.

Those discussions continue, with the involvement of the private sector in the next package a must for several euro zone countries as voters grow increasingly opposed to shouldering the burden of bailing out Greece on their own.

But private sector involvement must be voluntary to avoid triggering another downgrade of Greek debt to default status by ratings agencies, a development which could put the whole Greek banking sector at risk.

Greece Needs Herculean Reforms to Secure Bailout

Greece stays stuck in its worst recession since the 1970s with a youth unemployment rate of more than 40 percent. Greece last week passed austerity measures worth 28 billion euros ($40 billion) and promised to deliver 50 billion euros in sell-off revenues by 2015, including raising 5 billion euros by the end of this year alone. On the list are public utilities whose sale is sure to prompt public reaction. - S&P warning adds default threat to Greece's bailout, Reuters, July 2, 2011

July 2, 2011

Reuters - Greece is set for an uphill struggle this week launching sell-offs and tax system reforms to meet European Union and IMF conditions for bailing it out.

A warning from Eurogroup chairman Jean-Claude Juncker that Greece will lose sovereignty and jobs to meet those criteria has enraged unions. Any suggestion of foreign intervention in running the country is an incendiary political issue that will make implementing reforms even tougher.

Public sector union ADEDY, which has launched crippling strikes and protests, reacted angrily to his comments. ADEDY President Spyros Papaspyros said Juncker was out of line,

"Mr Juncker interferes in the internal affairs of a country, provokes European rules and is an embarrassment for the country whose government tolerates him."

Juncker's comments could trigger more of the anti-austerity street protests that have roiled the country for months as Greece stays stuck in its worst recession since the 1970s with a youth unemployment rate of more than 40 percent.

EASIER SAID THAN DONE

Greece last week passed austerity measures worth 28 billion euros ($40 billion) and promised to deliver 50 billion euros in sell-off revenues by 2015, including raising 5 billion euros by the end of this year alone. On the list are public utilities whose sale is sure to prompt public reaction.

"Greece now needs to push faster fiscal adjustments and structural reforms," said EFG Eurobank economist Platon Monokroussos. "On the privatisation front, it is of essence the government delivers fast results to send a strong signal to financial markets."

That is easier said than done.

The socialist government, which came to power on a social welfare platform, has yet to launch a single state sale in 18 months in power and must set up a privatisation agency within weeks to meet its target.

It must also start to sell state property, estimated at up to 300 billion euros but often entangled in legal complications.

"The 50 billion euro target is not achievable," said Constantinos Mihalos, head of the Athens Chamber of Commerce. "Share values are very low right now because of the recession."

At the same time, Greece needs to deliver on pledges to reform a chronically inefficient tax system that has relied too much on middle class salary earners and let wealthy tax evaders off the hook, producing disappointing revenues this year.

Finance Minister Evangelos Venizelos told Reuters in an interview on Friday that Greece would tap for the first time private sector expertise but tax offices around the country are notoriously resistant to any change.

"A greater effort is needed to rein in tax evasion and broaden the tax base in a bid to bring the ratio of revenues to GDP closer to euro area average and reduce expenditure and waste in the broader public sector," Monokroussos said.

Investors have feared that default by Greece would send shockwaves through the world finance system with some commentators saying such an eventuality could call the whole euro zone into question.

Another hurdle is the law on a uniform pay scale for the public sector, sure to cut further the salaries of civil servants who have already seen their pay reduced by an average 15 percent as a result of a wave of austerity measures to secure the 110-billion-euro bailout last year.

On Saturday, euro zone finance ministers approved a 12 billion euro loan Greece needs to avert default.

The IMF will meet on July 8 to approve the 12-billion euro loan tranche, which is expected to be handed over by July 15 and allow Greece to avoid the immediate threat of debt default.

But the country still needs the second rescue package, which is also expected to total around 110 billion. EU officials will now look at how private creditors can be involved voluntarily so that rating agencies do not declare the rescue a "credit event."