By JC Collins
It has now become common knowledge that the promises made by the new Greek Syriza government have been broken. The voting population of Greece were fed a steady stream of propaganda on how Syriza was going to stand up to the Troika, or trifecta of the European Commission, European Central Bank, and the International Monetary Fund.
Before the election I had been provided a copy of the Syriza Policy Paper which detailed their proposed negotiating position with the Troika. The paper was segmented into 3 sections:
- Negotiating Stance with the Troika: Reconstruction of the Banking Sector and Debt Relief
- A Domestic Action Program
- The Modest Proposal, with a Pan European Solidarity Program, to be discussed at the first European Summit under the new government
It was very clear in the policy paper that Syriza had no intention of keeping the promises which their political platform had been built around. In fact, the Syriza party was the economic Trojan Horse which was used by the Troika to implement the broader multilateral reforms and restructuring of the Greek banking system.
One of the main components of this restructuring is the “offer” to pass direct managerial control of Greek banks to the ESM, or European Stability Mechanism. This transition will include bank mergers and is to be implemented under the supervision of the ECB.
But it doesn’t stop there.
The proposed policy defines four categories:
- Debt Mutualization
- Common Bank Supervision
- Pan-European Investment Program
- Pan-European Solidarity Program, which is segmented into the following:
- Common Unemployment Insurance
- A Basic Food and Electricity Security Program
- A European Pension Union
- A Topping-Up Program for Low Earners
- A Common Minimum Wage
Greek Prime Minister Alexis Tspiras and Finance Minister Yanis Varoufakis have clearly been positioned to sell further consolidation of the European economic zone to the Greek population. I had asked Mr. Varoufakis how Greece intended on keeping the promises of exiting the European Union and implementing economic policies which are independent of the larger macro multilateral changes which are taking place, not just in Europe, but internationally as well.
No answer was forthcoming.
Many times here we have discussed how Hegelian principles will be used to implement each transition point of the multilateral financial system. This latest Greek drama is a perfect example of that process. The political representatives of the country package and sell the necessary policy adjustments through a script which serves the emotions and impulses of the disorganized masses.
Let this be a wake up call.
In yesterdays post Economic Ground Zero for Canada (…and how Greece could crash the world) we discussed how a failure in the Greek banking system would spread throughout the larger European banking sector. The Canadian banking system is directly connected to the European banking system and any contagion would spread, creating a massive aversion to risk, and collapsing the quality of capital available.
The threat of this systemic collapse is what is generating the leverage on sovereign entities, such as Greece, and international institutions, to implement the multilateral regulations, as reviewed in the post Reversing Bretton Woods.
Here is the Greek Policy Paper on debt restructuring:
1. Negotiating Stance with the Troika: Reconstruction of the Banking Sector and Debt Relief
(A) Reconstruction of Greece’s banking sector
Offer to pass ownership and direct managerial control of Greek banks requiring recapitalisation to the ESM under certain conditions (see below). Such a transfer of ownership (i.e. common shares) and management will entail disbanding the GFSF (the Greek Financial Facility) and passing all its, newly acquired assets, onto its parent the ESM-EFSF, together with the responsibility for future recapitalisation phases. The conditions under which the Greek government will consent to this transfer include:
• No existing member of the Board of these banks must be retained.
• New Boards to be appointed by the ECB, in association with the ESM-EFSF and the European Commission; possibly under advisement from the European Banking Authority.
• The new Boards will replace top management and proceed with bank mergers and resolutions as required and under the supervision of the ECB.
• All depositors to be protected in full, whether guaranteed and not, during the period of insolvency and resolution, with a “deep insolvency” insurance fund funded by the ESM.
• Remaining shareholders and subordinated bondholders are not protected.
• Eventually, the shares of the reconstituted banks are to be sold back to the Eurozone private sector at a profit to the ESM-EFSF.
• ESM-EFSF investments for the purpose of recapitalisation of Greek banks not to count as part of the Greek national debt.
(B) Re-negotiation of loan repayments re. Bailouts Mk1 and Mk2
• Invite the troika to negotiate a schedule of repayment for past loans that is tied to the growth rate of the Greek economy. This way the troika acquires a stake in Greek stabilization and growth.
• Use the profits of the ECB from the SMP program (up to €14 billion so far), and of the Greek Central Bank from the ELA program, to establish a Solidarity Fund to provide food relief, through a food stamps program, and minimal electricity security for eligible Greek citizens and legal residents.
2. A Domestic Action Program
(A) Social Emergency Program
• Food Stamps: Establish a program by which food stamps are channelled to the elderly, to families with children under the age of 12, to the long term unemployed and disabled who have suffered substantial reduction in other benefits.
• Milk for Schools: Introduce a program of Pint-per-Child milk provision to all state schools.
• Electricity Security: Families that default on their electricity bills and that meet the criteria of the Food Stamps program are to be afforded a minimum ration of kWs and of heating oil stamps during the winter months, depending partly on climate in each village/town.
IMMEDIATE FUNDING: Divert the fuel tax from ECB and troika loan repayment for this purpose, without the troika’s consent, until the troika consents to diverting profits from the ECB and Central Bank to this Social Emergency Program.
(B) Labour Market Reform and Jobs Program
• Standardize Labour Contracts. Prohibit the current practice of dependent labour masquerading as independent contractors or ‘service providers,’ who pay a flat social security contribution without any employer social security contributions, with no minimum wage, and with no real prospect of ever being vested in a pension. All labour contracts to be covered by social security (IKA) with employer contributions and minimum wage requirements.
• Reduce Employer Contributions. In exchange for the above, reduce by up to 40% employer contributions to employee social security (IKA), while keeping the average employee contribution equal to the current flat rate.
• Public Jobs. Establish a Public Service Works Program to provide temporary, non-civil-service employment to young men and women on public projects and maintenance of public facilities, to be funded from receipts of the tax coupons described below.
(C) Prefund tax receivables – tax coupons in lieu of a parallel euro-denominate currency
The Tax Office shall be authorized to sell transferable tax coupons of different denominations and of different durations. These coupons would permit taxpayers with liquid resources held in or outside Greece to prepay future taxes at a discount, bringing euro reserves to the government in the near term. As long as these coupons are transferable and anonymous, a liquid market in them will soon emerge, operating like a parallel currency from which the government will be able to fund, in the short run, programs without the troika’s consent.
(D) Establish a non-bank electronic payments system
Mobile telephony companies shall be obliged to establish and run a digital money wiring service based on SMS, regulated by the Central Bank of Greece. Users will be able to buy credit from kiosks or through their banks, which they can then use to pay for goods and services without any further intermediation by any financial institution. Mobile companies will participate for free, benefitting from the increase in SMS traffic. Balances will be kept on reserve at the Central Bank of Greece. Meanwhile, the Central Bank of Greece can utilise this system, in collaboration with the Tax Office, to ensure that these transactions deliver VAT receipts instantly.
Note: The benefits from this scheme are multiple. First, they will allow citizens who no longer have (or never had) access to the banking system to enter into instantaneous non-cash transactions without incurring banking costs. Secondly, it will create a system of payments that gives society a degree of independence from the banking sector. Third, it will make it easier for the Tax Office to collect VAT. Fourth, in case of a Cyprus-like crisis, or worse, it allows society and the state to function better in case Greek banks are frozen out of ELA funding and can be part of contingent planning in case a new currency needs to be introduced.
3. The Modest Proposal, with a Pan European Solidarity Program, to be discussed at the first European Summit under the new government.
The present Modest Proposal (Version 3.0) has three elements: debt mutualization, common bank supervision and a Pan-European investment program. Version 4.0 will add a Pan-European Solidarity Program, with the following elements to assure basic economic security to the entire population of Europe:
• common unemployment insurance.
• a basic food and electricity security program.
• a European Pension Union.
• a Topping-up Program for low earners.
• a common minimum wage.
These programs should be phased in, with meeting the needs of the most vulnerable Europeans in first order of priority.
• Initial funding should come from the ECB’s TARGET2 profits, from a financial transactions tax, and/or from a tax on corporate financialization (as proposed by Jan Toporowski). As the programs expand, additional and more stable funding can come from a payroll tax or mutualization of a portion of VAT.
• Much of this program will be self-liquidating if and as economic conditions improve and the incomes of vulnerable populations in the peripheral countries converge toward those of the core.