Money vs Democracy: What The European Press Said Of The Second Greek Bailout

As the negotiations on the second Greek bailout went on until 3.30am on Tuesday, Europe's papers weren't able to provide a response to the agreement until yesterday. Here's a round-up:

As usual, we would like to start with Germany. The front page of Die Welt ran with an unequivocal headline,

Europe: Welcome to the Transfer Union

In the Frankfurter Allgemeine Zeitung, Economics Editor Holger Steltzner argued,

Prices must fall if Greece wants to compete with its neighbours in agricultural products or tourism. Such an adjustment usually works via the exchange rate with the devaluation of the own currency. But members of the monetary union have relinquished this instrument. In Greece wages and prices would have to fall by half in order to become as successful as Ireland. That is too much – there is a lack of will and force. Therefore, a third credit package is coming – or the farewell to the euro.

While part of the German press was more interested in the economics of the second Greek bailout, others chose to focus on what the second Greek bailout could mean for the future of Greek democracy.

In Die Welt, political commentator Günther Lachmann warned,

Europe is being radically changed. With regulations in a Socialist-style language the EU is trying to govern nation-states...The kind of consequences this has can now be seen in Greece. There, the government is actually thinking of changing the constitution, at the request of the EU, to give absolute priority to debt repayment.

Wolfgang Böhm wrote in Austrian daily Die Presse,

[Greece] is de facto being completely put under custody...This has nothing to do any longer with the normal democratic order of a sovereign state.

To continue with 'Northern' Europe, this is what Carla Joosten wrote in Dutch magazine Elsevier,

The euro has condemned European citizens to deal with each other more than they may really want to. Can Europe go on this way?

A leader in Belgian magazine Knack carried the headline,

Greece must choose between money and democracy.

The article is particularly critical of German Finance Minister Wolfgang Schäuble's idea of postponing the Greek elections, due in April, and questions how it is possible that such proposals,

Are being floated without any serious protest coming from the European Commission, the European Council or even the European Parliament.

Let's move South.

In Italy's main business daily Il Sole 24 Ore, editorialist Carlo Bastasin noted that, with the second Greek bailout,

Europe enters into the heart of the state’s supreme authority, showing that monetary and fiscal policies are now detached from the sphere of the nation’s exclusive prerogatives.

In an op-ed in Spanish business daily Expansión, Spanish Economics Professor Juan Castañeda warned,

This European way out of the crisis in which national institutions democratically elected by citizens are gradually losing the effective ability to rule their countries…to the advantage of European institutions chosen by states will do nothing but distance even more the citizens from the so-called European project.

So what's the alternative? Well, get prepared to read something pretty unusual among Spanish academics,

Greece’s temporary suspension from the euro and the circulation of the new drachma in parallel would allow for the effective devaluation of Greek prices and costs, once and for all and without so much social discontent.

For those who love ancient Greek history, Nick Malkoutzis took inspiration from the 'marathon negotiations', arguing in Greek daily Kathimerini,

Marathon can refer to one of two things: one of the most decisive battles in history, in which the ancient Greeks repelled the threat of the Persians and a disastrous future, or the long-distance race which marks the lung-busting effort of messenger Pheidippides to inform the Athenians of victory over the invading army...Where these two allegories might cross paths in the case of modern Greece in the wake of the Eurogroup’s bailout decision is that the country might escape the clutches of disaster but its people, like the ancient messenger, might collapse from exhaustion.

Not sure we can call the following comment piece a 'reaction' to the second Greek bailout, given that it was written ahead of Monday's Eurogroup meeting. However, French columnist Nicolas Barré made a very good point in French business daily Les Echos,

Two years ago, European leaders concealed the gravity of the situation of the sickest economy of the eurozone, and pretended to believe that, with some tens of billions of aid, [Greece] would be put back on its feet and miraculously regain the markets’ confidence. Not only was this a complete failure, but such a denial of reality also undermined the credibility of the eurozone as a whole and contributed to make the crisis worse. So that nowadays it’s frankly paradoxical that the more cautious, those who warn against the risks, those who don’t rule out a Greek default in the coming months, are relegated with disdain into the ‘anti-European’ camp.

And here's what François Roche has written in La Tribune,

Over the coming years, Greece will be watched over by an impressive number of EU and IMF observers. It must commit, in its constitution, to prioritising the reimbursement of its foreign creditors. Can this stand up to the exasperation of [Greece’s] public opinion and part of the political class? For the first time in the history of the European construction, a member state is deprived of part of its budgetary policy prerogatives.

What about voices from outside the eurozone?

In Swedish daily Dagens Nyheter, columnist Annika Ström Melin argued,

The crisis is not only about the survival of the euro. A rescue package for democracy will be required as well. Even more secret meetings and ingenuous but incomprehensible agreements between the representatives of the political elite are not enough to save the European project.

In Polish daily Rzeczpospolita, Andrzej Talaga wrote,

Trading sovereignty in exchange for financial assistance could be acceptable if it were a temporary measure, until Athens is ready to stand on its own feet again. However, this is not going to happen – the agreement reached in Brussels contains…utopian macroeconomic assumptions regarding Greece’s debt, deficit and growth prospects which could only be achieved if Greece were to completely overturn its economic, administrative and political system and replaced its pathology with a healthy state and economy…Let it be a warning to others.

We are sure that, after this 'marathon' of comments, you are still curious to know what we said in reaction to the second Greek bailout. We published a comprehensive response on our blog, which you can read here. In addition, over on the Telegraph's blog, we argued,

New debt issued by the Greek government in 2014/2015 will essentially be junior to existing debt. This raises the question why private creditors would want to purchase Greek debt at all in three years' time, given that they would be first in line for any losses if Greece’s economy goes down the tubes. Taken together with the tough austerity targets which could choke of any chance of recovery, as the [debt sustainability analysis] admitted, this may force Greece to seek another €50bn bailout after 2014 [as investors will have little incentive to hold Greek bonds].

This is enough reaction for one day, but if you want to stay on top of the latest developments in the eurozone crisis, follow us on Twitter @OpenEurope.

The Greek Crisis: Five Key Developments

The decision on the second Greek bailout has been put on ice until (at least) next Monday, but things are moving fast in and around Greece these days - so here are yesterday's five key developments in the Greek crisis:

• A new poll published by Greek magazine Epikaira confirmed that the Greek electorate is moving towards the extremes of the political spectrum. New Democracy - the centre-right party led by Antonis Samaras - is credited with 27.5% of votes, while former Greek Prime Minister George Papandreou's PASOK lags well behind with 11%. In total, the two 'mainstream' parties would therefore get 38.5% of votes. The Greek Communist Party, Democratic Left and the Radical Left Coalition (SYRIZA) are credited with a combined 43.5% of votes, but the first has ruled out entering a coalition with the other two hard-left parties. These results are clearly very significant, not least because they will give Germany, Finland and the Netherlands fresh impetus to argue that Greece's smaller parties should also provide written commitments to austerity. Unfortunately, as we point out in our latest briefing, at the moment it's quite hard to see any of these parties agreeing to such a request;

• PASOK's Michalis Chrysochoidis, Greek Minister for growth and competitiveness (definitely an unenviable post), told reporters in Frankfurt that his party is "in favour of an extension of the life of [Greek Prime Minister Lucas] Papademos’s government...Elections should take place by the end of the constitutional term in 2013." Incidentally, Germany, Finland and the Netherlands reportedly brought up the possibility of postponing the Greek elections during Wednesday's conference call of eurozone finance ministers;

• Greek President Carolos Papoulias' anti-Schäuble invective didn't go unnoticed in Germany. CDU MP Christian von Stetten yesterday said that, without the German Finance Minister, Greece would already have been bankrupt a long time ago. The Greek President's intervention, he went on, was "unthinkable" and "absurd". Most significantly, Mr von Stetten said that Papoulias' words would "certainly impact" on the Bundestag vote on whether to approve the second Greek bailout, due on 27 February;

• According to Die Welt, the ECB has started the announced swap of its €50 billion Greek government bond holdings for new Greek bonds. The ECB is swapping the bonds at their nominal value, meaning that it is making profits out of them. These profits will then be distributed via national central banks to eurozone governments, which will have to decide whether they want to return the money to Greece as part of the second Greek bailout. The swap will be reportedly completed by 20 February. We will expand on this specific point later;

• Separately, Schäuble is also said to have rejected the idea of providing Greece with a bridge loan to avoid the country defaulting on 20 March - when Greece needs to redeem €14.5 billion worth of its debt - and uphold the rest of the second Greek bailout until after the elections as a means to maintain pressure on Athens.

Lots of stuff going on, and not all is necessarily good news. As usual, if you want to stay on top of the eurozone crisis, we recommend that you check out the €uro-Zone section of our new website and keep following us on Twitter @OpenEurope.

Liaising With The Right People?

Antonis Samaras (see picture), the leader of Greece's centre-right New Democracy party, has made people in Athens, Brussels and elsewhere sweat quite a bit with his aversion to giving a written commitment to the latest austerity package.

However, he has finally bowed to pressure. Here is a link to the letter Samaras sent to the European Commission, the ECB and the IMF to reassure them that he will stick to the latest round of austerity measures adopted by the Greek parliament on Sunday if he wins the next general elections in April.

Predictably, media reports are focusing on the following part of the letter,

If New Democracy wins the next election in Greece, we will remain committed to the [Greek Stabilisation] Programme’s objectives, targets and key policies.

Given that former Greek Prime Minister George Papandreou has already sent over to Brussels a similar commitment on behalf of his Socialist PASOK party, on the surface Greece seems to have made another crucial step towards its second bailout.

However, doubts remain over the strength and the actual relevance of the commitment sought by Greece's public lenders. Firstly, as Samaras specifies in his letter,

Prioritising recovery along with the other objectives, will only make the [Greek Stabilisation] Programme more effective and the adjustment effort more successful. Therefore...policy modifications might be required to guarantee the Programme’s full implementation. And, once again, we intend to bring these issues to discussion along with viable policy alternatives.

Indeed, this is supposed to happen "strictly within the framework outlined by the Program, so that the achievement of its objectives will not be put at risk." Still, this reads like a clear hint that, at some point, Samaras may want to give a boost to Greece's public spending in the name of economic recovery.

Secondly, and most importantly, are the Commission, ECB and others really liaising with the right people in Greece? In other words, is a written commitment from only PASOK and New Democracy enough to ensure that Greece will keep doing its homework regardless of who wins the next elections? According to the latest opinion polls, the answer seems to be a 'no'.

In fact, Samaras' party is currently polling at 31% - definitely not enough to secure an absolute majority in the Greek parliament. The problem is that New Democracy's 'natural' ally in a hypothetical coalition, the far-right LAOS party, recently withdrew its support for Lucas Papademos' technocratic government precisely because it didn't want to back the latest round of austerity imposed on Greece.

Crucially, the polls show that not even a German-style (unlikely) Große Koalition between New Democracy and Papandreou's PASOK would be enough. With PASOK credited with only 8% of votes, the two parties would put together less than 40% of votes - still not an absolute majority.

In other words, Athens' public creditors seem to have lost touch with the political reality in Greece. And the reality is that, as the two 'mainstream' parties are increasingly seen as mere executors of the requests coming from the EU, Germany, France and others, the Greek electorate is moving towards the extremes of the political spectrum. As the FT's Gideon Rachman points out, three far-left parties account for 42.5% of the votes - so potentially more than New Democracy and PASOK together.

Perhaps the European Commission should try and pick up its interlocutors a bit better. Or, perhaps, people in Brussels think that Greek voters will feel 'encouraged' to vote for either New Democracy or PASOK as they are the only two parties which can make sure that Greece gets its second bailout...

Democracy and transparency remain the biggest victims of the euro crisis

Over on the Telegraph blog, we argue:

The 80,000 Greeks that came out in Athens yesterday to protest the latest round of bailout austerity imposed by EU-ECB-IMF troika can shout all they want. They can even express their disgust at the polling booths in the country’s general elections, scheduled for April. It won’t make much difference. To get its second bailout, the leaders of Greece’s main political parties are required to submit a written commitment to fully implement the package regardless of who wins the elections in April.

Everyone recognises that Greece needs fundamental reform – the country has for too long epitomised reckless economic behaviour. But as Andreas Vosskuhle, the heavyweight President of the German Constitutional Court, said in a recent speech: “It would be tragic and fatal if we were to lose democracy on the road to saving the euro.” Beyond everything else, this is the central dilemma the eurozone faces: necessary economic reforms are constantly pitted against basic democratic principles.

The demand for a written assurance to stick to the austerity plan in Greece is only one in a series of direct assaults on democracy, accountability and transparency that have followed in the wake of the eurozone crisis, including:

The technocratic regimes in Italy and Greece: Berlusconi was hopeless and Mario Monti has given Italy a boost, but the replacement of elected governments in Greece and Italy – under heavy pressure from eurozone leaders – with unelected technocratic regimes, has left a very bad taste. This was unintentionally summed up by the President of the European Council, Herman Van Rompuy, when he remarked in a recent speech that “Italy needs reforms, not elections".

This a practical issue too: reforms decided by technocrats without a proper popular mandate are less likely to be implemented and to stand the test of time.

An EU ‘budget-veto’ commissioner: A leaked German/Dutch plan would see the creation of a Commissioner, with the power to veto the budgets of poorer eurozone states – the proposal instantly drew a barrage of criticism and looks to be a step too far a the moment.

Central banks dictating economic policy: In August last year, the ECB sent an absolutely extraordinary letter to Berlusconi’s government, setting out a range of prescriptive reforms, including changes to the Italian Constitution, that Rome needed to enact in return for the ECB agreeing to buy Italian government bonds. These demands, which were only revealed months afterwards through leaks, appeared to have become government policy.

“Dark, secret rooms”: Symptomatic of the crisis, Eurogroup Chairman Jean-Claude Juncker suggested last year that eurozone meetings should take place in “dark, secret rooms” to avoid market speculation, admitting that he often “had to lie” during his career. In creditor and debtor countries alike, elected MPs are becoming increasingly frustrated at playing second fiddle.

Reduced insight for citizens: Citizens are left in the dark too. The opaqueness has even spread to traditional pro-transparency, non-euro countries such as Denmark. Since the eurozone crisis erupted, the website of the Danish parliament no longer publishes draft minutes of upcoming European Council summits – a great service which used to grant citizens insight. No explanation is given except for bilaget er fortroligt (the document is confidential).

The secrecy of the fiscal compact: negotiations on the much-hyped euro fiscal compact have equally been shrouded in great secrecy and the legality of key aspects of the document remains dubious.

The ECB’s mysterious balance-sheet: Apart from complaints in Germany that it’s engaging in illegal state financing (against promises made to German citizens), the ECB doesn’t publish any break-down of their bond purchases (not even with a time lag), nor any information about where the bonds they hold lay on the balance sheet. As the bond-buying amounts to a hidden, and growing, cost of the crisis to eurozone taxpayers, this begs the question: who, exactly, is accountable for these decisions?

And the list can be made much, much longer. As some are keen to point out, as all of this is happening under the auspices of (mostly) elected governments, it’s perfectly consistent with democracy. But even if that is true, the eurozone elite continues to test the limits of democracy at its own peril. If policies remain the same irrespective of who’s in power, sooner or later, voters will look to other, and far more unpleasant, alternatives.

Not Sure They Really Deserve It...

On his Coulisses de Bruxelles blog yesterday, French journalist Jean Quatremer offered an interesting insight into what Greek MPs earn. In light of Greece's current economic situation, the figures reported by Libération's Brussels correspondent are somewhat disturbing.

Apparently, the net monthly salary of a Greek MP can reach up to €8,500 (yup, you read that right). On top of this, the lucky members of the Greek Vouli are also entitled to:

• An expenses allowance of €4,900;
• An allowance of €1,200 for participation in parliamentary committees (but surely, sitting in committees is part of an MP's job?);
• An accommodation allowance of €1,000 (for MPs travelling from outside Athens);
• An office allowance of €1,800;
• Free transport.

To put these figures into context, according to EU Economic and Monetary Affairs Commissioner Olli Rehn's spokesman, the average minimum wage in Greece is €871 a month (still surprisingly higher than Spain, €748, and Portugal, €566, but that's another issue).

But salaries and allowances are not the only things likely to anger Greek citizens. Since last year, Quatremer notes, the annual income and properties of Greek MPs must be published on the Greek parliament's website.

For the record, here are some interesting details on the annual earnings of the two top Greek politicians (figures are from 2009 and are also mentioned by Greek newspaper Kathimerini, see here).

George Papandreou (former Prime Minister, leader of socialist PASOK party):

• An annual gross salary of €122,114
• Other "miscellaneous revenues" worth €6,926
• Savings worth €61,379
• A house in Athens
• A stock portfolio of €228,000 owned by his wife

Antonis Samaras (leader of centre-right New Democracy party):

• An annual gross salary of €107,150
• Other "miscellaneous revenues" worth €110,695
• Five plots of land and a flat (whose value is not specified)
• Savings worth €285,467 deposited in a Belgian bank, plus a further €8,952 deposited in a Greek bank
• 3,500 shares in a ferry company

If we were Greek voters we wouldn't take much confidence in the fact that leading politicians felt the need to deposit the majority of their savings outside the country.

There is clearly something wrong in a place where 'normal' citizens have either been lost their jobs or faced a series of pay cuts over the last two years, while the political class - which certainly bear a good deal of responsibility for the conditions Greece finds itself in - continues to ignore the option of substantially reducing their own salaries. It wouldn't do a whole lot to solve Greece's debt problems, but it would still surely be the right thing to do.