Greek debt crisis about to get more interesting

Congratulations to Greece.

While everyone was expecting a close vote, nobody was prepared for the blowout victory for the “no” vote.

The vote caught European leaders off-guard. Many of them had expected – against the conventional wisdom – that the “yes” vote would triumph. In the run-up to the vote, EU leaders were doing everything in their capacity to influence the outcome of the vote.

Martin Shulz, President of the European Parliament, was the shrillest of all who painted an apocalyptic scenario of collapse which would result in untold miseries: banking system would collapse; there would not be any money to pay the salaries, no money for import and medicines etc.

In short, leaders of so-called democratic institution such as EU did everything in their power to thwart the expression of the free will of the people of Greece since it did not conform to the policies they had in mind for that nation.

And, now that the Greek people have rejected loudly the debt deal, these so-called peace-loving, democratic leaders are doing everything in their capacity to negate the outcome of the referendum – a democratic expression of free will of the people.

(On a side note, the same attitude is expressed towards Novorossiya, currently comprising Republics of Donetsk and Lugansk but could see other regions join as well in due course of time, and Crimea where people have decided to exercise their free will. In Crimean referendum, people – just like in Greece – voted overwhelmingly to secede from Ukraine and join Russia in the aftermath of the illegal overthrow of the Yanukovych regime and subsequent installation of the regime of Porshenko, a US puppet. But EU leaders cried foul since Crimea decided to join Russia and not the despicable entity called EU.)

EU leaders, as usual, misjudged the rebellious mood of the people who were at the end of their patience. The austerity measures imposed in earlier bailout deal had degraded living standards to such as extent as to make people rebellious who finally screamed “enough”.

Responses of EU leaders have been quite shocking, bordering on authoritarianism. Instead of acknowledging the desires of the Greek people regarding reduction in the debt and favorable terms for the bailout deal, EU leaders have doubled down on the rhetoric and reiterated support for their original position: steep VAT tax hikes, cutback of pensions and deep budget cuts for social spending.

It is as if a way of telling the Greeeks that their referendum does not matter. What really matters is only one thing: What we, the EU leaders, say and decide. That is all.

Well, so much for the democracy.

On top of it, ECB now has decided to maintain the line on ELA (Emergency Liquidity Assistance) funding to Greek banks to the level 88.6 billion-euro that was in place on June 26, 2015 level just to see if Greece and creditors can come to some accord – on their terms and acceptable to them - by Wednesday. Which means come Wednesday, Greek ATMs could go dry resulting in social chaos, riots etc.

It is mind-boggling to see members of EU treat one of their own in this savage fashion.

The questions before Greece now is: where does it go from here?

Greek officials have recognized that they have a limited time-frame, about 48 hours, within which to act.

The resounding victory of “no” camp, coupled with IMF’s leaked report regarding the sustainability of Greek debt, has strengthened Tsipras’s hand for negotiations with ECB.

On the other hand, EU officials have decided to stand their ground and not budge an inch so as not make it as a precedent for the other debt-ridden nation like Italy, Spain and Portugal etc.

The result could be a stalemate with neither side budging from their positions. While EU can afford to slow-walk the negotiations, Greece cannot afford to do so. It would have to act fast given that the liquidity would run out in 48 hours.

Under such circumstances, Greek government has few options left.

It could either issue IOU’s (California style, 2009) to recapitalize the banks and revive the economy while it readies for the preparation for launching of its own currency – Drachma.

Greece could also go rogue – a kind of using nuclear option in financial sense - and print euro notes in the denomination of 20 which it has the capacity to print. It could also nationalize its banking system rather than accept the seizure of the depositors’ money above euro 8,000 limits and prevent banks from being shut down on the orders of ECB.

Defiant Greeks reject EU demands as Syriza readies IOU currency ….. Syriza sources say the Greek ministry of finance is examining options to take direct control of the banking system if need be rather than accept a draconian seizure of depositor savings - reportedly a 'bail-in' above a threshhold of €8,000 - and to prevent any banks being shut down on the orders of the ECB. …..

And, there is another option that is being whispered not only as a life-line that could help Greece but also alter geo-political landscape.

Putin, Tsipras Discuss Outcome of Greferendum on Bailout Deal - Kremlin ……… Russian President Vladimir Putin discussed the outcomes of the Greek referendum with Greek Prime Minister Alexis Tsipras on Monday, and expressed his support to the Greek people in overcoming the future difficulties in the country, Kremlin press service said. …….

With BRICS set to begin its meeting in Russian city of Ufa on July 8-9, and given the fact that Putin had earlier offered a seat at the table to Tsipras to become a member of the bank, it remains to be seen if the meeting would feature a surprise guest – either Tsipras himself or his firebrand ex-finance minister Yanis Varoufakis who resigned on Monday.

On top of it all, Greece is supposed to pay back ECB euro 3.5 billion on July 20th. If it fails to do so, it would certainly result in the withdrawal of financial loans given, thereby resulting in financial collapse. And, this would definitely lead to grexit.

Drama of Greek tragedy is about to get more interesting.

Greece at the crossroads

This could be the weekend that would decide everything for Eurozone, Greece and other nations on the Eurozone periphery which are themselves drowning in the debt.

World is facing many crises like Syria, ISIS, Ukraine, Iran nuclear deal, tensions in South China sea, global warming etc. But one crisis that has hogged all the attention and is bringing jitters to the world financial markets – in spite of assurances of numerous economists and financial experts - is the Greek debt crisis and Greek referendum this weekend.

The referendum is basically revolving around one simple question: Whether to accept the bailout deal as proposed by the Troika – IMF, European Central Bank and the European Commission – which contains sharp austerity measures. The measures include steep VAT hike and the drastic reduction in the public pensions.  On the other hand, Greece is demanding more leeway in how it raises its tax revenues and no cuts to pensions.

For Greece the choice could not be starker.

Though the financial collapse of 2008 impacted economies around the world adversely, the main reason for the Greece debt lies in the structural imbalance in its economy in the form of high debt-to-GDP ratio.

The implosion of the Greek economy in 2009 led to fear among investors that it would not be able to meet its debt obligation. Greece was, thus, unable to borrow on the international markets and had to turn to “troika” – International Monetary Fund, European Central Bank and European Commission – to seek the bailout to avoid the impending financial crisis.

But the bailout did not come cheaply. Too many strings were attached to it by troika: public sector pensions were supposed to be reduced, tax receipts were to be streamlined by curbing tax evasions, steep VAT hikes were required to be implemented to generate more tax revenue, and deep budget cuts to social programs were to be put in place.

The result of these austerity measures was the absolute impoverishment of the population which was already suffering under the hardships due to recession. The further deterioration in the living standards led to resentment among the population and resulted in the resounding victory of anti-austerity Syriza party in January which campaigned on the promise of ending painful bailout agreement.

The two sides – EU and Greek government led by Syriza – are now at loggerheads. The diametrically opposite proposals regarding the debt deal has led to an impasse. Greece – which is already on the verge of bankruptcy - has already missed June 30th deadline for the repayment of the loan to IMF, thereby becoming the first developed nation to default on the IMF loan. What dominoes would fall as a result of this default, nobody knows.  

Despite all the confident talk coming from the finance ministers of EU member nations, there is an underline fear running through European nations: nobody knows how the Greek banking sector collapse would impact the banking sector in other EU countries, especially the weaker peripheral nations who are themselves teetering on the edge of abyss due to high debt and poor economy. Prime examples are Portugal, Italy, Ireland, and Spain etc. – the nations belonging to the so-called PIIGS group.

This is driving the markets and the central banks all over the world nervous: How to prevent the contagion from spreading if Greek economy and banking system collapses?

The mood of both EU and Syriza has hardened towards each other, given the inability of both EU and Syriza to budge from their respective positions. Even though Greek Prime Minister Tsipras has now sent letter to EU accepting lenders’ conditions but with modifications, the letter seems to be ‘too little too late’ as the deadline for agreeing to new debt deal has already expired.

EU, on its part, has taken note of the letter but has decided to stick to its gun and is waiting for the outcome of the referendum and has refrained from commenting on the contents of the letter.

As there is no debt deal to talk about, July 5th’s referendum has become moot. The referendum would be seen as nothing but a referendum on whether to stay in EU or not.

Here is the most important thing: What would happen with either “yes” or “no” vote?

A “yes” vote means agreeing to all the conditions stipulated by the troika: more VAT hike and reduction in public pensions, which would bring more misery to the already suffering and impoverished population.

Internet is full of news reports of Greeks not being able to buy medicines, food etc. and committing suicides. The unemployment situation is even bleak. There are no good paying jobs for the educated youth for whom the future looks bleak with many of them turning towards drugs.

A “yes” vote would pile on more misery and Greece would have no hope of ever recovering from the economic disaster that plagues it.

A “yes” vote means it would not matter which government would come to power year after year, it will be Brussels and Germany who would be calling all the shots regarding what policies Greek government is supposed to implement – not for the benefit of Greek people but for the benefit of Brussels and Germany.

Greek would, thus, lose all the sovereignty and would be reduced to perpetual “serfdom” or “vassalage”. It would be quite ironic for a country that gave the world principles of democracy to be reduced to such a status.

To top it all - as recently leaked IMF report suggests - Greece would need a debt reduction of 30% if it ever hopes to recover from the debt crisis. It would take at least a middle of this century if Greece ever manages to climb out of the hole it finds itself in.

A ‘yes” vote seems akin to committing national suicide but given the turnout of the “yes” camp rally at the Olympic stadium on Friday – which boasted of having more than 10,000 people according to some news reports – it seems quite strange that there are people who are willing to agree to the demands of the troika for the sake of relieving the current pains but are oblivious to the darkness that would engulf them in the long run.

On the other hand, a “no” vote means complete chaos as Greece would be booted out of Euro; its banking system would collapse and it might have to go back to its old currency – Drachma – which would be absolutely devalued. Short term pains would be excruciating but in the long run, Greek economy would recover, given the fact that the devalued drachma would make exports more competitive.

And, in the event Greece is forced out of EU due to its “NEIN Frau Merkel” vote, there is always a possibility that it could tap the newly commissioned BRICS Bank or AIIB (Asian Infrastructure Investment Bank) for funding not in Dollars, Euros but in Yuan. Not only this would free the Greeks from the bondage of troika but the absence of punishing conditions could help Greece recover from the economic disaster it finds itself in. What this would entail in terms of geo-politics – NATO, EU etc. - is beyond the scope of this article, but the idea that BRICS Bank or AIIB could become a factor in helping Greece stand back on its feet is tantalizing, akin to earthquake of magnitude 9.0+.

How the scenario develops would depend on Sunday’s vote. A “yes” vote means perpetual serfdom and a “no” vote means a new beginning with sovereignty remaining intact.

Many nations, like France, Italy, Austria, Spain, Portugal etc., are eagerly looking forward to see which path Greece takes as their future also depends on it. The bankers of western world are rooting for a “yes” vote, while those yearning to be free from the shackles of institutions like IMF, ECB etc. are rooting for the “no” vote.

The birthplace of democracy is thus truly at the crossroads. And, so is the Eurozone. The world waits.

Fire Fighting – not in Zilla Parishad Schools but in Mantralaya. “Education Audit”, not the “Fire Audit” is call of the hour.

Mr. Devendra Fadnavis

Hon’ble Chief Minister

Government of Maharahstra

Mumbai

Fire Fighting – not in Zilla Parishad Schools but in Mantralaya. “Education Audit”, not the “Fire Audit” is call of the hour.

On 11 February, the education department had issued a government resolution authorising the office of the Education Director (Primary) to enter into a rate contract for supply of 62,105 fire extinguishers for Zilla Parishad schools across the state. Each fire extinguisher was to be procured at a price of Rs 8,321 and each school was to be provided three pieces. This contract is worth about Rs.191 crore.

The contract, cleared by Tawde, has, however, been put on hold after the Finance Department objected to it.

The objections are as follows:

1.      How can the Education Department grant administrative approval for Rs.191 crore when the Department had just Rs. 19 crore in budgeted funds for ‘procurement of miscellaneous items’ in Zilla Parishad Schools?

2.      No prior approval was sought by the Finance Department.

3.      Supreme Court judgment of 2009 was quoted out of context.

4.      The contract has been allotted without ‘fire audit’ of the schools.

5.      The contractor who was awarded the contract was not on Government’s rate contract list.

Education Minister Vinod Tawade and his Firemen, the Finance Minister Sudhir Mungantiwar and the Cooperation Minister Chandrakant Patil have attempted to douse the fire as follows:

1.      Education Minister Vinod Tawade has put on hold the said contract and has directed Mr. Purushottam Bhapkar, Education Commissioner to probe the allegations against the Education Minister.

2.      On budgetary application and the funds available and prior approval, Education Minister has clarified as per PTI that "Our Education department budget for the purpose is Rs 18 crore but there are allegations of a Rs 191 crore scam. I (the department) had Rs 18 crore. I could have easily purchased equipment worth that amount. If I were to comply with the SC order, I would have needed Rs 191 crore. I asked Finance Department what should I do? There was already a provision of Rs 18 crore made by earlier Congress government for purchase of fire-fighting equipment in schools. Had we wanted, we could have ordered equipment based on that provision. However, we approached the finance department, asking about providing the equipment to all the schools. That amount came to Rs 191 crore. That is what is being referred as the 'Rs 191 crore scam' despite the fact that not a single rupee has been given to anyone."

3.      On SC judgment of 2009, Vinod Tawade said “Just because the previous regime had overlooked this aspect (i.e. order has come 5 years ago), does not mean I should have delayed matter too. I issued directives to save the department and myself from possible contempt of court directives.”

4.      Tawade clarified that State would now carry out the fire audit in Zilla Parishad Schools.

5.      Vinod Tawde has clarified that “the contractor was an authorized dealer of a rate contractor ‘In Time Fire Appliances Private Limited’, which existed on the rate contract list. Norms permit such an arrangement.

When one look at the objections raised and the explanations given, it becomes crystal-clear that Vinod Tawde and his Firefighters end up confirming the charges, viz., no prior approval for Rs.191 crore was taken; SC judgment was quoted out of context, probably to hoodwink the common man by referring to ‘contempt of court’; no fire audits were conducted in Zilla Parishad Schools; And in the absence of prior sanction by the Finance Ministry, he could not have issued administrative orders for Rs.191 crore, a financial impropriety on the face of it. And icing on the cake is Education Commissioner is going to probe Education Minister!

However, what is more pathetic is the poor fire fighting skill of his Cabinet colleagues — Finance Minister Sudhir Mungantiwar and Cooperation Minister Chandrakant Patil. Mungantiwar, whose department had objected to the contract, defended Tawde saying, “This is nothing but a political conspiracy to drag Tawde into the matter. In fact, it was Tawde who brought this matter to light and stalled payment to the contractor.” Obviously, the Finance Minister is not in synch with the sequence of events. Mungantiwar is blissfully unaware (or shall I say conveniently feigning ignorance?) that Tawde stalled payment only after the Finance Department raised objections. And Chandrakant patil defended by saying purchase was ordered as per Supreme Court ruling. He did not quote the relevant paras of the said judgment. It is doubtful even whether he has read that judgment. But that should not prevent him from issuing a statement.

There is another soap opera involving Pankaja Munde Palwe. The more she explains, the more she exposes. And now she wants to defend herself with ‘show of strength’ of her supporters. More about that in another write up.

Instead of ‘fire audit’ in Zilla Parishad Schools, CM should do education audit of certain Ministers. No need to wait for SC judgment for such audit. 

Regards