Tag Archives: Angela Merkel

There is life after austerity

samargouria

The guy in the photo (right) is Angel Gurría, general secretary of OECD. When he last met Greek Prime Minister Antonis Samaras (left) last November he congratulated him for managing to bring Greece in the top position, internationally, of the list with the countries carrying out structural reforms.

These reforms were supposed to improve the way the Greek economy functions but also to rationalise the Greek public sector. Last summer, the Greek government had decided to suddenly close down ERT, the Greek Radio & TV Broadcasting company. The idea of firing all of a sudden around 2,500 employees was that ERT was a corrupt and expensive public organisation. At the beginning there was absolutely no plan – after the huge public pressure and uproar that ERT closure’s caused, the government announced that there would be a new state broadcaster created soon. It would more efficient than ERT, cheaper and more transparent.

Almost a year later, a few days ago, Eleftherotypia newspaper published the cost of a show that is now being broadcasted by NERIT, ERT’s kitsch and unpopular successor. It’s a new version of a show about tourism (that used to exist during ERT), trying to convince Greeks to spend their summer (money) in Greece rather than abroad. As if there is enough income distributed in the society for international plane tickets. Anyway, back to the show, here’s its budget.

nerit-spatali

On the left column you can see the people hired for the show (by specialty) and on the right you can see their payment (for the 2-month period which this contract is valid for). In the country where the minimum wage is down to around 500 euros per month, there is a journalist who will be paid 5.208 euros for reading the text messages that viewers send to the show. Out of the 11 people that will compose the journalistic part of the team, two will be handling the social media, each also paid 5.208 euros for these two months. The same will be the payment for the person who will be responsible to call and book the guests of the show while the editor-in-chief of the show will receive 8.060 euros. For two fucking months! That’s efficiency and rationalisation of ERT’s costs.

And if you want to compare with ERT’s already high wages [compared to the rest of the media market] the guest-booker in the old version of the show (at ERT) was earning about 30% less than the current NERIT’s payment.

As for increased transparency, these people have been hired without a some kind of competition, no job vacancy announcement, no evaluation of applicants.

A vicious circle, creating worst monsters than the ones we had in a supposed attempt to modernise, to get improved, to restructure [sic].

venizelos gurria

Back in his December 2013 visit, Angel Gurría had also met Evangelos Venizelos, the Frank Underwood of the Greek political scene. After the many congrats for Greece’s obediency, the OECD general secretary told him a sibyllic ‘There’s life after debt” which kept me wondering what the hell he was trying to say.

I get it now. There is indeed going to be life after the austerity. Those who get paid 5.000 euros for reading text messages will survive. The rest will have to emigrate abroad. Those who can afford their basic medication will survive. Unlike the woman in Lesvos who died last week [inside the local hospital!!!] simply because she couldn’t afford her medicines for hypertension.

There will be more international congratulations for this government and for these policies that cause such collateral damage. The elections are approaching and Samaras has invited everybody to congratulate him so that Greeks can be convinced that we’re on the right track, that we are exiting the crisis. Angela Merkel will be the next one with her visit planned in the coming days. Others will surely follow. They should all feel responsible if this vicious circle continues.

Greek cartoonists on Merkel’s visit

I always loved to calm fears and tensions with some sense of humour. It’s a humanising effect that is becoming more and more rare during the troubled times this country is going through. Plus, I’ve nothing against Merkel – I keep all my frustration and anger against the austerity, this type of austerity, and the lack of a way-out plan. But, that’s another, huge discussion. Here are some cartoons by Greek cartoonists on the Angela Merkel visit to Greece (I think she landed at the time of writing of this line).

By Dimitris Hatzopoulos

By Dimitris Georgopalis

Translation: Angela Merkel is holding a sign that says AUSTERITY

By Dimitris Hatzopoulos

Translation: REPENT… MERKEL IS COMING…

By Kostas Mitropoulos

Translation:

Soldier: Presnt arms!

Merkel: Are the arms German, Antonis?

By Petros Tsiolakis

Translation:

Samaras: Are the austerity measures enough, Madam?

Merkel: You are pitiless! I bleed with what you are doing.

(sing on the right has a euro-swastika symbol and writes New Occupation)

By Panos Maragos

Translation:

Merkel: What is this Paul [Thomsen of IMF]? The Greeks don’t live in slums, neither do they survive with acorn!!

Paul Thomsen (holding the troika report): The reforms are not completed yet Mrs Merkel.

Last but not list, another one of Dimtris Hatzopoulos. It’s a bit older (I think it was published a week ago) and it’s not directly linked to Angela Merkel. But I really like his style so here you have it.

By Dimitris Hatzopoulos

The ball is round

The ball is round,

the game lasts 90 minutes,

everything else is pure theory.

Josef “Sepp” Herberger
German football player  (1897-1977)

Although this blog is mostly political, I decided for a change to write something about sports and tonight’s game between Greece and Germany for the Euro 2012. This game is not only about sports anyway, despite the repeated attempts to convince us for the opposite. The way the media work, the lust for a quick joke, a symbolic cartoon or a mere parallelism to the current situation in Greece and its relation to Germany make it extremely political. Imagine the headlines, the cliches…

GERMANY KICKS GREECE OUT OF THE EURO! (there you go, I said it too)

or

[Celtic striker Georgios] SAMARAS SCORES AGAINST GERMANY!

Georgios Samaras, you see, has the same name with our new Prime Minister, Antonis Samaras. There is also a new vice Minister of Justice, Kostas Karagounis, who has the same surname with veteran mid-fielder Giorgos Karagounis.

British comedy group Monty Python were much ahead of their time.

The David vs Goliath match has offered plenty of material for the Greek sport newspapers. Here’s some examples.

Goal News 22/06/2012
“For 90 minutes there is no rich and poor nations”

Sport Day 22/06/2012
“Bankrupt them”

Protathlitis 22/06/2012
“Samaras, tear her Memorandum up”

Derby News 22/06/2012
“Molon Labe” (i.e. “Come and take them” The Ancient Greek phrase μολὼν λαβέ is a classical expression of defiance reportedly spoken by King Leonidas I in response to the Persian army’s demand that the Spartans surrender their weapons at the Battle of Thermopylae).

Metrosport 22/06/2012
“Germany raus aus der Euro!” (i.e. Germany out of the Euro!)

I’ve also come across a series of cartoons that played on the game’s political dimension.

From The Independent

By Kipper Williams for The Guardian

From the Berliner Zeitung

A hard-to-believe report even mentioned that the Greek Tourism Organization have sent a letter to all major media that will be showing the match, asking to lower the volume during the German anthem in order to reduce the effect of possible wooing from Greek fans. Angela Merkel will be present in the stadium and it seems impossible that such an embarrassment can be avoided.

Only a few hours are left for the match. I am writing this post while trying to arrange with my friends where we’ll watch it. And the introduction of this favorite German movie, Lola Rennt (Run Lola Run, 1999) came to my mind.

I guess Greece needs a lot of running if the national team would have any chances of qualifying. But let’s never forget. The ball is round. The game lasts 90 minutes. That’s a fact. Everything else is pure theory.

The elections’ aftermath and SYRIZA’s ghost

So the (first) elections are over, the situation is kind of normalized and we’re preparing for the next ones on June 17. Greece is a weird country when it comes to elections. Some years ago New Democracy had won an election but the talk-of-the-town was what was happening in PASOK’s leadership. Two weeks ago, New Democracy did it again. They’ve won the elections but everybody is talking about SYRIZA and its leader, sexy Alexis. So who are they? If you want to get informed, read this by BBC’s Paul Mason, whose reports on Greece are probably the most accurate accounts of foreign journalists on what’s happening here.

Well, Greeks did not become radical leftists within a night, as they haven’t been transformed to fascists either. What most Greeks were looking for in the past election was a way to express their opposition to the bailout measures and the Memoranda, an economic policy and seems more and more inefficient and unfeasible. Traditional right wing voters turned themselves to either the Independent Greeks party (centre-right voters) or the Golden Dawn party (far right party but mainly voted by traditional right wing people who are against immigrants). Though the Left had far more choices, the majority went to SYRIZA, a coalition of leftist fractions with a platform of uniting the Left (a rare motto in Greece and an perennial longing of all Greek leftists) to form a leftist government that will undo the Memorandum and cancel the loan agreements. Very appealing for a suffering Greek, isn’t it?

I personally think that these two goals are not feasible and Alexis Tsipras rather meant that he would try to renegotiate the loan agreements and the relevant measures that must be taken. Which is what he had actually caused with his 2nd position in the elections. Suddenly officials from the EU and politicians from several European countries are discussing the dead end of the current plan and are pointing out the need for a slight change or easing of the measures. There is simply no foreseeable solution and exit from the crisis with the current plan. And this fact is the only victory of Greece on a European level, not just since the last elections but during the past 2,5 years.

A cartoon of Angela Merkel and Alexis Tsirpas by German caricaturist Reiner Hachfeld.

You see, Greeks had seen the Papandreou and Papademos governments passing measures that were dictated by the EU, the ECB and the IMF without any attempt of negotiation. They’ve seen Papandreou going abroad and having new measures in his suitcase upon his return without any complaint. Samaras participated in this theatre not because he believed in the rationale of these measures but because he succumbed to another PASOK’s blackmail (either you’re on Greece side a step before bankruptcy or you’ll be responsible for its suicide) back in late 2011. So now there is a feeling that only SYRIZA and Tsipras can a) unite the Left in Greece to form its first leftist government and b) renegotiate the Memoranda. And Europe? Europe is scared of him. Europe is scared the shit out of him simply because they can’t control him and because he might mean what he says.

It’s true that SYRIZA has been a bit confusing as to what exactly they are going to do if they were to form a government. The party, an until recently small leftist party composed of different fractions that tolerated different opinions within the Left, has seen several of its members announcing contradicting promises. Its ennemies, PASOK and New Democracy basically, have used this to their favor. They started a huge campaign to discredit SYRIZA by reminding us on a daily basis of what would happen if SYRIZA comes to power. The EU has followed suit and here we are now, having daily predictions of a post-apocalyptic, Armageddon-style Greece if SYRIZA wins the elections. The whole joke, apart from a daily news item, has now gone viral, it has its own hashtag on Twitter (#ftaei_o_syriza) and is slowly entering the internet meme sphere.

I decided to create a special category of posts in this blog that would contain only these threats – I called it “The Daily Threat Show“. Come back and visit this page (or simply RSS it), I guarantee a lot of fun and also a glimpse of how Greek people’s brains are bombarded with such absurd prophecies and will then be called to vote as reasonable people. Ask any Greek in the street if he knows what will happen after June 17 and you will understand by the confusion in his answers.

But a confused Greek in the street is probably not an originality. Greeks have been confused since 2010 when they were suddenly called to have mature opinions on issues of high Economics. Europeans have always seen the Greeks as a confused people. They were asking themselves: so what do these Greeks want anyway? Why do they protest? Will they solve their problem by breaking one more bank? A foreign journalist (from a eurozone country) came last year to Athens and asked me: So, explain to me, why don’t you want our money?

Alexis Tsipras in a photoshoot by high school students’ magazine “Schooligans”

If Greeks are confused, Europeans are almost schizophrenic. The narrative they’ve adopted is “Greece is given money, they should shut up and do what we say”. They’ve no time to examine the measures asked from Greece to take. They are not in a position to know whether it’s a feasible plan. They are not here to see the misery caused together with the lack of hope for an exit from the crisis. And as they are confused too, they are also afraid of the uncertainty. Here’s a short story to illustrate this.

A foreign journalist came to Greece and we were discussing the situation. This is the dialogue we had.

Foreign journalist: Greece has falsified its statistics in order to enter the eurozone. I’m sorry to say this but Greece was corrupt, it has cheated and now it’s time to pay.
Me: Yes but people in Europe knew that Greece was cheating. And Greece was not the only country which altered its stats in order to achieve the eurozone criteria.
Foreign journalist: Who knew?
Me: A lot of people knew and certainly several EU officials.
Foreign journalist: Really? Who knew?
Me: Certainly the Germans knew about Greece and Italy. And part of the corruption was carried out with German money, through the scandals with Siemens and the German submarines.
Foreign journalist: Why the hell would Greece want a leader like Tsipras? He is going to get you out of the eurozone. His proposals are not realistic, are not feasible.
Me: I partly agree but you’re contradicting a bit now. I know, you know, the Greeks know that their previous governments, as you said, were corrupt. This crisis is happening because of them, of how they handled the situation for at least the past 10 years.
Foreign journalist: Right.
Me: So Greeks finally realize that these politicians are corrupt and they decided to take them down from power. That should please the EU, if it had a problem with their corrupt mentality.
Foreign journalist:…
Me: Tsipras is a young politician, inexperienced yes, but certainly not the like of the previous ones. So Greeks are choosing a new guy to govern them and the EU gets scared. You know why?
Foreign journalist: Why?
Me: Because they can’t, or don’t know yet if they can, control him. Because he is unknown. 
 

Alexis Tsipras is neither Ernesto Che Guevara nor a European Hugo Chavez. Tsipras is simply Greece’s only bargaining chip.

Today’s roundup of Greek newspaper front pages

Here’s today’s roundup of Greek newspaper front pages.

Ethnos 10/02/2012

Title: Slow martyrdom for the deal

Kathimerini 10/02/2012

Title: Tough demands abroad, Political theatre domestically

Eleftheros Tipos 10/02/2012

Title: Constant blackmail by Scheuble

Ta Nea (10/02/2012)

Title: The citizens speak “We’ve gone back 50 years”

Dimokratia (10/02/2012)

Title: Whatever the people say; elections is the one and only solution

As a bonus, here’s yesterday anti-German cover of the same, conservative, newspaper.

Dimokratia (09/02/2012)

Title: Dachau; Memorandum Macht Frei

and finally the front page of weekly satyrical newspaper Pontiki.

Pontiki (10/02/2012)

Title: The team is up in the air

-I wonder, what will History write about the deals of the coalition government?

-Money thrown in the air.

Now I know what they did last summer

I just read a detailed account of the backstage negotiations during last Spring and the dramatic, for the EU and especially for Greece, months that followed. It’s a must read for anyone interested. It is the product of a Wall Street Journal investigation, based on more than two dozen interviews with euro-zone policy makers. It reveals how the currency union floundered in indecision—failing to address either the immediate concerns of investors or the fundamental weaknesses undermining the euro. The consequence was that a crisis in a few small economies turned into a threat to the survival of Europe’s common currency and a menace to the global economy. Enjoy the reading. It’s long, even though slightly reduced by me, so go get some coffee and a couple of cigarettes.

At a closed-door meeting in Washington on April 14, Europe’s effort to contain its debt crisis began to unravel.

Inside the French ambassador’s 19-bedroom mansion, finance ministers and central bankers from the world’s largest economies heard Dominique Strauss-Kahn, then-head of the International Monetary Fund, deliver an ultimatum.

Greece, the country that triggered the euro-zone debt crisis, would need a much bigger bailout than planned, Mr. Strauss-Kahn said. Unless Europe coughed up extra cash, the IMF, which a year earlier had agreed to share the burden with European countries, wouldn’t release any more aid for Athens.

The warning prompted a split among the euro zone’s representatives over who should pay to save Greece from the biggest sovereign bankruptcy in history. European taxpayers alone? Or should the banks that had lent Greece too much during the global credit bubble also suffer?

The IMF didn’t mind how Europe proceeded, as long as there was clarity by summer. “We need a decision,” said Mr. Strauss-Kahn.

The dispute at the Washington meeting divided two of the Continent’s grand old men, both of them born in 1942 and both among the fathers of the euro.

Wolfgang Schäuble, Germany’s ascetic and irascible finance minister, understood the IMF’s ultimatum. The euro zone would have to draw up a second bailout package for Greece by summer, just a year after a loan deal for €110 billion, or $140 billion.

But this time, Mr. Schäuble said, “We cannot just buy out the private investors” with taxpayer money. That would reward reckless lending, he said, and it would never get through an increasingly impatient German parliament. Greece’s bondholders would be required to lend more money, Mr. Schäuble proposed, rather than take payment for their bonds at maturity.

Jean-Claude Trichet, the urbane French head of the European Central Bank, warned against forcing bondholders to put in more money, which would effectively delay repayment. “This is not a good way to go in a monetary union,” Mr. Trichet said. “Investors would avoid all euro-area bonds.”

Mr. Trichet, in the twilight of a 36-year career as a finance official, feared that if Greece didn’t honor its bond debts on time, the implicit trust that kept credit flowing to many weak euro-zone governments would shatter. More countries and their banks would lose access to capital markets, in a chain reaction with incalculable consequences.

The April meeting ended inconclusively.

Meanwhile, the cost for fixing Greece was rising. The Athens government’s budget deficit was stuck at a stubbornly high level.

Italian and Spanish borrowing costs were still affordable and stable. The yield on Spain’s 10-year bonds hovered around 5.3%; on Italy’s, around 4.6%.

The debate over making bondholders contribute to the new funding package for Greece—known as private-sector involvement, or PSI—divided euro-zone countries.

Germany had allies. In the Netherlands and Finland, new governments had promised voters they wouldn’t pay for problems in less-frugal Mediterranean countries. Breaking those promises would risk rebellions in parliament.

But France joined the ECB in resisting burden-sharing by bondholders. France’s banks had lent more heavily than Germany’s to Greece and other indebted euro nations, and France fretted about a Lehman Brothers-style banking-system meltdown. Italian officials also feared that a precedent for losses in Greece would scare investors away from Italy’s bonds.

Three weeks after the Washington gathering, on Friday, May 6, panic erupted. German news weekly Der Spiegel reported that Greece was thinking of leaving the euro zone, with policy makers heading to a secret meeting that night in Luxembourg.

The report was half-right. There was a meeting, but Greece was staying put.

Inside a country chateau, top euro-zone officials told Greece’s finance minister they expected deeper austerity and faster reforms in return for a new aid package.

Then Mr. Schäuble said he wanted to discuss how bondholder burden-sharing would work. The usually smooth-mannered Mr. Trichet lost his patience. “I want to put my position on the record,” he said: “I don’t agree with private-sector involvement, so I won’t take part in a discussion about the practicalities.” He stormed out.

Mr. Trichet’s assent was vital. If the ECB were to stop accepting Greek bonds as collateral for its lending to banks on the grounds that the bonds were in default, then Greece’s banks, which were stuffed full of their government’s bonds, would quickly run out of cash and collapse. That would radically drive up the cost of a rescue.

In Greece, a new wave of mass strikes and demonstrations was starting. Protesters, angry about Europe’s imposition of extra spending cuts and tax hikes, clashed with police in front of the Athens parliament in the biggest and most violent protests in a year.

Spanish and Italian bond prices remained stable. But Europe was at a dangerous impasse over Greece.

Many euro-zone governments hoped Mr. Strauss-Kahn could find a way to relax the IMF’s summer deadline. The IMF chief was due to discuss the matter with German Chancellor Angela Merkel in Berlin on May 15, and with euro-zone finance ministers in Brussels the next day.

Mr. Strauss-Kahn couldn’t attend. Police in New York pulled him off his Paris-bound flight and charged him with sexually assaulting a hotel chambermaid. (The charges were later dropped, and prosecutors said they doubted the maid’s reliability.) An aide phoned Ms. Merkel at her central-Berlin home that Saturday and told her the news. The astonished chancellor responded with a German idiom that translates roughly as: “You couldn’t make this up.”

The IMF sent a lower-ranking official to Brussels in his place who had no latitude to deviate from the IMF’s deadline.

In Athens, meanwhile, a tent city of the “Indignant” protest movement—a groundswell of anger at the country’s impoverishment—sprang up outside parliament. Spain’s bond prices began to wobble as investors worried that other countries might also face debt restructuring.

On June 1, Mr. Schäuble’s deputy, Jörg Asmussen, presented a German plan at a meeting of finance officials in Vienna, at the Hofburg palace of the former Habsburg emperors. It involved pressuring Greece’s bondholders to swap their Greek debt for new IOUs that would come due far in the future. That would cut the amount of European taxpayer funding Greece would need.

After a meal in a palace banquet hall, the officials quarreled into the wee hours.

For the ECB, Mr. Trichet’s deputy Vitor Constâncio, of Portugal, denounced the German plan as “dangerous.” Credit-rating agencies would declare Greece to be in default on some of its debts—a so-called selective default. In that case, Mr. Constâncio warned, the ECB would refuse to accept Greek government bonds as collateral, dealing a death blow to Greek banks. France, Italy and Spain all supported Mr. Constâncio.

Germany’s Mr. Asmussen shot back with a threat of his own. Europe needed Germany’s money to fund a new program of Greek loans. “Without private-sector involvement,” he said, “there will be no program.”

Greece was descending into chaos. Embattled premier George Papandreou’s slender majority in parliament was fraying. On June 15, a swelling demonstration in Athens’s central square veered out of control.

Alone in his office, Mr. Papandreou phoned the parliamentary opposition leader and offered to make way for a national-unity government. Talks broke down, and the Greek government limped on badly wounded.

Even Ms. Merkel had some doubts about her finance ministry’s hard-line insistence that Greece’s bondholders take a loss. On June 17, she discussed a softer plan with French President Nicolas Sarkozy: a gentleman’s agreement under which Greek bonds would be honored but the bondholders would volunteer to buy new ones.

Mr. Schäuble pushed back. The veteran conservative politician was Berlin’s biggest supporter of the European dream, but he was also the keeper of Germany’s purse. He was determined to make banks share the burden with German taxpayers, and he didn’t trust them to keep a gentleman’s agreement.

When finance ministers met again on June 20, Mr. Schäuble pushed harder. Greece’s bondholders should be told not merely to accept a delay in repayment, he said, but also to forgive some Greek debt—a so-called haircut.

As Greece’s economy moved toward free fall, its debts were soaring beyond the country’s ability to pay, the Germans and their northern allies argued. Mr. Trichet and the southern countries resisted. Talks dragged on for hours. The ministers knew they couldn’t leave without some agreement.

They tried to please everyone: Greece would get more aid. Bondholder losses would be substantial, to placate the Germans, Dutch and Finns. But as the ECB insisted, they would avoid pushing Greece into selective default.

Investors knew you couldn’t have it both ways. As the threat of a Greek debt restructuring sank in, Southern Europe’s bond markets grew volatile. Spain’s 10-year bond yield rose above 5.6%. Italy’s reached 4.9%.

Greece’s parliament debated the extra austerity measures that Europe demanded. Central Athens erupted in violent protests. Anarchist youths tore up chunks of paving stone and threw them at riot police, who fired back with tear gas and stun grenades. Café parasols burned.

Europe hadn’t resolved how to keep Greece afloat. The IMF—whose demand for a decision had set off the whole argument—softened its ultimatum. IMF officials said they were satisfied that Europe would sort out some kind of new bailout, and wired Greece its summer aid payment on July 8.

It wasn’t enough to calm markets. Spain’s bond yield hit 6.3%. Italy’s rose to over 5.8%. Such borrowing costs, if sustained, would make it hard for both countries to rein in their debts.

The selloff in bond markets forced leaders to call an emergency summit for July 21.

Determined not to let the summit pass without an agreement, Ms. Merkel invited the French president, who objected to the German push for bondholder losses, to Berlin. The pair and their advisers met for dinner in the German chancellery the night before the meeting.

Few of them had time to touch the duck breast and vegetables on their plates as they searched for a compromise. Finally, Mr. Sarkozy said he would accept the private-sector involvement—if Ms. Merkel dropped her resistance to giving the euro-zone bailout fund broad new powers to buy debt of weak countries directly and move to protect such countries as Spain and Italy from bond-market contagion. Ms. Merkel agreed.

One more person needed to sign off. Ms. Merkel phoned Mr. Trichet at his Frankfurt office. He took the last Lufthansa flight to Berlin and arrived at the chancellery around 10 p.m.

Reluctantly, Mr. Trichet gave his OK. But he set conditions. Governments would have to insure Greek bonds against default so that the ECB could continue to accept them as collateral. And they would have to make plain that no other euro country but Greece would have its debts restructured.

The trio’s deal was both complicated and vague. Their staffs had little time to flesh out details before the next day’s summit in Brussels. As leaders trickled into the European Union’s boxy headquarters, Ms. Merkel faced a challenge to placate the euro zone’s south, which thought private-sector involvement was dangerous, and its north, which thought it didn’t go far enough.

When the leaders assembled at the sprawling summit table, Ms. Merkel admitted that the specter of bondholder losses was causing market unrest. But, she said, some Greek debt relief was essential. Without it, the bailout’s tough austerity conditions—made tougher by Greece’s missing its budget goals—would be seen as unbearable.

“If Greece had met its program parameters in April,” she snapped, “that would have helped.”

All 17 euro nations had to agree to private-sector involvement. But presented with a calculation that the plan would reduce Greece’s debt by only about €19 billion out of more than €350 billion total, Dutch Prime Minister Mark Rutte balked. If it’s only €19 billion, he said, “I’m out. I need more.”

Finnish premier Jyrki Katainen also complained. His parliament wanted collateral in exchange for more Finnish lending to Greece. “No collateral, no agreement from me,” he said.

Mr. Sarkozy was peeved. “All our parliaments can cause problems,” he said.

Then it was Slovakia’s turn. Prime Minister Iveta Radičová was fighting to keep her coalition together over aid for Greece—a richer country than her own. Adding more powers to the bailout fund “would be suicide,” she said.

Greece’s Mr. Papandreou pleaded for help. “If we can’t solve even Greece, we won’t be seen as being able to solve anything else,” he said.

Hours later, the leaders had a communiqué. To appease the holdouts, it left key points broad and noncommittal, offering the possibility of collateral to Finland and describing the complex bondholder deal in a few strokes, vague language that would return to haunt the bloc.

Officials struggled to explain the new Greek bailout and the bondholder losses. Amid the confusion, Mr. Rutte dispensed muddled numbers. Bank analysts put out flawed reports.

Investor confidence faltered as it became clear that Europe’s compromise achieved the worst of all worlds. Greece would be pushed into a historic default—the first time in nearly 60 years that a developed, Western country wouldn’t honor its debts. But the default was so small that Greece was still left with a crushing debt burden.

And then official Europe went on vacation: Ms. Merkel to the Italian Alps, Mr. Sarkozy to the French Riviera.

Bondholders didn’t. They went on a rampage.

This article was written by Charles Forelle and Marcus Walker. Stephen Fidler, David Gauthier-Villars, Sudeep Reddy and Brian Blackstone contributed to it.

Wall Street Journal also produced this documentary, called “Europe at the Brink” in which WSJ editors and reporters examine the origins of Europe’s debt crisis and why it spread with such ferocity to engulf much of the continent and threaten the entire world.

The run-up to the Greek economic crisis (Part 2)

This is the 2nd part of Greek journalist Pavlos Papadopoulos’ article on the run-up to the current Greek economic crisis, published by “To Vima” newspaper (16/10/2011). To read the first part of the article, click here.

“George knew everything” admits to “Sunday’s Vima” newspaper a top government official. “Since February 2009, eight months before the elections, we knew that Greece was technically bankrupt. The actual bankruptcy was a matter of time”. In February 2009, there was a sudden increase in the difference of the interest rate (spread) between the Greek and the German state 10-year bond. That development, which panicked the Karamanlis administration, didn’t go unnoticed by the PASOK leader and his close associates.

After talking with Greek and mostly foreign experts (Economics Nobel Prize recipient Joseph Stiglitz and investor George Soros, to name but a few) Mr. Papandreou is said to have concluded that the dynamics of the public debt was so powerful that a catastrophic bankruptcy was certain. According to the same source, the PASOK chairman then thought the obvious thing: the states which are on the verge of bankruptcy address to the International Monetary Fund (IMF). However he realized that the capital which was necessary for Greece to avoid bankruptcy was five times more than what the IMF could offer. So he concluded that Greece needs an “international solution” and he started examining the initiatives that he could take.

“Our mistake was that we didn’t prepare the people” says the same party member, “and the Party either”. Mr. Papandreou underestimated the “domestic front” even though he knew that Greece was heading towards bankruptcy. He didn’t abandon his vision of “Green Development”, neither did he direct his Financial advisors to more “careful” declarations. In the summer of 2009, the total cost for benefits was 30 bn euros. A lot of the MPs have called 2009 as the “new ‘81”.

Mr Papandreou stubbornly insisted in a vague rhetoric. He reckoned that a combination of green development, institutional reforms and a (completely unspecified) international initiative would solve the debt problem without targeting the people. This is why the warning by George Provopoulos, Governor of the Bank of Greece, that the 2009 deficit would be a double digit figure didn’t mean much for the wannabe Prime Minister. What he actually believed was that Greece would go from over-borrowing to prosperity without walking the distance in between. And some accused him that, had he taken tough measures back then, he could have avoided the worse that followed.

There was no “socialist allergy” at the Finance Ministry when it came to austerity measures. The Minister often called confidential meetings. “Think of shock measures” was his request to his associates . He believed that the austerity measures were necessary to restore the international markets’ trust. One of his most radical and risky ideas that was heard in those meetings was the “10% haircut of the savings” for all the bank accounts which had more than 100.000 euros. They would implement it at the same time with the (French inspired) freezing of any account which would be instructed to send more than 100.000 euros abroad, in order to proceed to a tax details check.

These proposals, as many others, were triumphantly rejected. Mr. Papaconstantinou did not possess the political prowess to enforce a different policy, while he never recovered the control over the tax-collecting mechanisms. He was good enough abroad. Domestically he achieved the minimum while he didn’t avoid deficiencies and the equivocations which increased the insecurity and the uncertainty. The measures that were announced were like aspirins and even them were causing reactions. Like the reaction by Christos Papoutsis when they announced the freezing of salaries in the public sector for those whose paycheck was more than 2.000 euros (which was rejected by the Prime Minister too).

During the early period of his administration Mr. Papandreou visited Moscow and Paris in order to “surround” Berlin, since Angela Merkel didn’t want to accept, especially after her alliance with the Liberals, a “European solution” in co-operation with the IMF. Mr. Papandreou reckoned that, if he could convince Moscow and Paris, he could then take Berlin. Having his mind in an “international solution” he kindly avoided Vladimir Putin’s proposal of geopolitical significance for an interstate loan to Greece.

While waiting for the international solution to mature, it was preferred to flirt with Goldman Sachs and Deutsche Bank. According to banking sector sources, the Greek government appointed these two banks at the same time with the order to investigate the possibility of a 25 bn euros loan (private placement) from the markets. However the international practice necessitates that such orders are given only to financial institutions. At the end of 2009 Gary Cohn, CEO of Goldman Sachs, met Papandreou at the Pentelikon hotel in Kifissia suburb. At the beginning of 2010 the head of Deutsche Bank, Josef Ackermann, visited the Greek Prime Minister’s office. The players who were involved in these initiatives were having preferential access to the core of power. The initiatives failed. The two banks (and their middlemen) lost important commissions. And the markets’ lack of trust against the Greek government increased.

End of Part 2  – To read Part 3 click here.