We begin with a dramatic graphic from Kathimerini, dramatic evidence that despite three rounds of bailout loans an ever-harsher austerity measures, the European economy hardest hit by the Great Recession is showing no signs of recovery as yet still more austerity is demanded:
The Greeks were left holding the string when the bubble popped, unable to pay loans to foreign banksters a lot of them in Germany. And the lenders wanted their money, even though the economy had crashed, unemployment skyrocketed, and the Greek industrial machine had ground to a halt.
To enable Greece pay the loans back, a Troika formed of the European Central Bank, th European Commission, and the International Monetary Fund imposed harsh austerity measures perfectly designed to ensure that the Greek people were reduced to serfs, sacrificing layoffs, pay, pension, and healthcare cuts for those lucky enough to keep their jobs.
Then there was the massive selloff of national assets, ranging from transit and power grids to ports and islands.
And still the troika wants more in exchange for another round of bailout loans.
From the London Telegraph:
Greece will need a fourth bailout as its debts remain utterly unsustainable despite years of austerity and attempted reforms, according to George Papaconstantinou, a former Greek finance minister.
A “radical liberalisation of the economy” is also necessary as the country needs to attract foreign investment because Greece lacks the domestic resources needed to grow its industries, he told an audience at the London School of Economics.
“Pretty much everyone agrees that Greek debt is not sustainable,” he said. “Is there a prospect of a fourth bailout? Yes. Even in the best case… I doubt that Greece will be able to stand on its own feet.”
Mr Papaconstantinou, who was Greece’s finance minister from 2009 to 2011, said that these measures have to be accompanied by serious economic reforms.
“Radical liberalization of the economy”?
Translate that as “more misery for the average Greek.”
The IMF lays down the law
Before taking the helm at the IMF, Lagarde served as Finance Minister for French President Nicolas Sarkozy.
In December a French court found her guilty of criminal negligence in her old job for arranging a payout of more than $400 million for businessman Bernard Tapie’s share of Addidas under questionable circumstances — though the court declined to impose either a jail sentence or a fine, rendering the guilt verdict moot.
The affair didn’t seem to bother either the French government or the IMF, so Lagarde kept her job.
More on her stance on the latest Greek bailout round from Bloomberg:
IMF Managing Director Christine Lagarde signaled that Greek debt restructuring can wait and the country should focus on overhauling its economy for the duration of its latest bailout, which expires in 2018.
Speaking in a German television interview after meeting Chancellor Angela Merkel in Berlin, Lagarde said “the volume of restructuring will clearly depend on how much reform, how much progress, how strong the Greek economy is” when the aid program ends.
What will probably be needed is a “significant” extension of maturities on Greek bailout loans and a “significant interest rate capping,” Lagarde told ARD television on Wednesday. “That will have to be discussed in greater detail later on” and “implementation of the debt restructuring will have to take place at the end of the program.”
The Washington-based fund is demanding additional debt relief measures as a condition for participating in the Greek bailout. Its participation, in turn, is a condition set by Germany when it agreed to help underwrite the latest aid package in 2015.
So who benefits?
Therein lies the rub.
Because much of the money won’t go to the banks who lent it to Greece.
Any of those lenders sold off their delinquent funds at a deep discount to that unique breed of banksters called “vulture funds,” speculators who buy up sovereign debt, then set about collecting it using all the ruthless ploys they can martial.
The experience of the Greek debt restructuring of 2012 serves as a good example to show how vulture funds operate and the costs they can impose in a country and its population. The Greek case is quite interesting as not only involved the first major debt restructuring in Europe since 1953 but also it was the largest operation of its kind. The remarkable aspect of this episode is that the country decided to continue paying holdout creditors, and specifically vulture funds, in full. This was the case even though the process was organized with the support of the official creditors of the country. In this regard, it created yet another damaging precedent regarding the viability of the profits by litigation strategy followed by vulture funds.
Just a month after the debt restructuring was completed, the government made an initial payment of 436 million Euros to a group of holdout investors led by Dart Management. This hedge fund, which had a long story of suing governments to get paid in full going back to the Brady plan in Latin America in the late 1980s, made a massive profit as it had bought the bonds on prices estimated between 60 to 70 cents on the Euro. By making that initial payment, the Greek government set a negative precedent as the rest of the holdouts were now able to use that decision to claim for equal treatment under a foreign court. The payments to holdouts continued uninterrupted afterwards parallel to the implementation of harsh austerity measures. For example, during 2013 the country paid a total of 1.7 billion Euros to holdout creditors. To date, most of the holdout claims have been paid in full by Greece. It is estimated that private investors currently have a total of 36 billion euros in government bonds that were either issued under the debt exchange of 2012 or in the debt issuance that took place in 2014.
As the Greek population continues to struggle under the imposition of harsh austerity measures and the debt burden of the country remains “highly unsustainable”, as the IMF characterizes it, it is evident that the decision to continue paying the holdouts was a mistake. It represented nothing short of rewarding dangerous speculators while transferring the costs of their actions on to the Greek people. Even more troublesome is the fact that the relationship between Greece and the vulture has not ended yet. In the aftermath of the debt restructuring of 2012, it is estimated that hedge funds have bought nearly 15 billion Euros in government bonds. As a new debt restructuring, or even unilateral default, is simply a matter of time is worth nothing that the country can still set a precedent against the actions of vulture funds. The country could begin by enacting a law, similar to that adopted in Belgium in 2015, to limit the actions of vulture funds. Furthermore, given the dire social situation in the country, it should declare the non-application of the 3rd memorandum and non-payment of all illegal, odious, illegitimate and unsustainable debts. After all it is never too late to state that sovereignty and the respect of human rights will always precede debt.
So the troika is really all about making sure predatory speculators collect their pound of flesh.