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Some home truths about banks, pensions and Greek debt
Comments on the meetings of the Committee for the Truth on Greek Public Debt on 5-7 November 2016
by Anouk Renaud
10 January 2017

On the 5th, 6th and 7th of November, the Truth Committee on Greek Public Debt met again in Athens to carry on its investigation. After studying the Greek public debt and in particular the Troika’s loan in 2010, the Committee enquired into the functioning of the Greek banking system, which is still insolvent, a retirement pension system, which is wrongly presented as being too generous, and the wrong expectations created by the announcement on a public debt relief.

Greek banks: a story that is far from over

In its first report [1], the committee made it crystal clear that the Greek debt crisis was not caused by exaggerated social spending but by a banking crisis which was stopped with public money, in this case, with loans from the IMF and from EU countries.

The evaluation of the independent IMF office, IEO (Independent Evaluation Office) published last July [2] is a key document, which corroborates the Committee’s findings, demonstrating that the first programme of May 2010 was in no way developed in the interests of Greece, and that creditors were aware of what they were doing. Although the IMF is obliged to offer programmes which ensure the viability of the country’s debt, this 1st Memorandum aimed to prevent losses to the French and German banks rather than to relief of the Greek debt. The IMF knew perfectly well that the public debt was going to increase considerably as a result of newly granted loans.

As of April 2011, when the ineffectiveness of the first Memorandum had become clear, negotiations began on Greek debt restructuring. But these negotiations involved the IMF, the ECB, the Eurogroup and even private banks – with BNP Paribas first in line, represented by one of its main CEOs, Jean Lemierre - … but still without Greece! Finally these opaque discussions resulted in an agreement: “We agree on the restructuring of public debt with participation from private lenders if the banks apply a discount and are offered ‘sweeteners’, in other words compensation to clear their losses”. It was thus decided that Greece should see to those compensations. If the truth be told, Greece was made to pay an invoice that it had not even negotiated. Although there were other alternatives, such as a ‘bail-in’ (rescue at the holders’ and lenders’ expense), the banks were recapitalised by the Hellenic Financial Stability Funds, at a cost of 34.1 billion euros.

The 2012 recapitalisation did not touch upon the non-performing loans (NPL) – i.e. the bad loans which strain the banks’ balance sheets – or indeed against the people responsible for the banks’ disarray who are still in office. In January 2015, NPLs reached 45% of Greece’s bank assets. As a matter of fact, with the economic recession caused by destructive austerity policies, the defaults on private debts increased.

Let us make no mistake: banks are directly responsible for the sudden increase in deficient loans, as they deliberately flouted several rules, among which a circular from 2005 which limited the repayment of loans granted to between 30 and 40% of a household’s income [3] or their obligations to analyze risk and heed advice related to their credit activity. The NPL management framework enforced under the Troika’s supervision aimed to reduce these insolvent credits by 40%...... But this NPL liquidation would bring about a high number of foreclosures, i.e. housing evictions, which actually started to take place in Greece as of September 2016. This was explained by one of the members of the “Stop the auctions!” platform auditioned by the Truth Committee. It should be added that since the proceeds of these house-sales will be completely insufficient to clean up the bank accounts, there is hardly any doubt that banks will be recapitalised for the umpteenth time, with Greek tax-payers’ money.

The Truth Committee also received Nadia Valavani, former Deputy Minister of Finance in the first Tsipras government, whose testimony was breathtaking. She described a state bureaucracy under foreign rule as she explained how impossible it had been for her to implement the plan known as the 100-Payments Act regulating private debts to the public sector.

Is the pension system really unsustainable?

As we know, the austerity measures that have already been imposed on Greece for six years now have violently disrupted social security and notably the pension system. A pensioner who received 700 euros in 2010 would not receive more than 561 in 2015. [4] However, as well as these direct attacks (extensions of retirement age, revision of how pensions are calculated….), the successive memoranda have also indirectly weakened this pension system by jeopardizing its viability. The worker/pensioner ratio has increased by 50% in Greece and today amounts to 0.51. [5] Why has this ratio deteriorated so much?

Firstly, because the memoranda resulted in an ageing population due to the drop of the birth rate [6] : the number of people under the age of 15 or 25 has gone down while the number of those above 65, i.e. potential pensioners, is going up. [7] Secondly, the emigration rate has increased, leading to a decline of the working-age population. Thirdly, the proportion of undeclared work, which therefore falls outside the social security system, is going up. The ILO believes that informal work in Greece represented 40% in 2013 compared to 29% in 2010.

Let’s not forget the impact of the restructuring of the Greek debt in 2012. Although the Greek banks were able to benefit from the ‘sweeteners’ it was not the case for several social security funds, which had invested in public debt and lost billions of euros. In 2012, the loss stood at 15 billion of their assets which came to 31 billion euros.

One of the other prominent points raised by the Committee is that retirement pensions turned out to be a way of cushioning the impact of the Greek crisis. Indeed, the figures, show that the share of GDP dedicated to pensions is one of the highest in Europe (13.1% compared to 7.8% in 2009), while the global share of expenditure on social protection remains around the European average of 24.4% in 2009. [8]

Furthermore, within Greek households, before wages, pensions turn out to be the main source of income, since unemployment has soared and wages have dropped. [9] Pensions have therefore somewhat allayed the consequences of the crisis. Slicing pensions, noticeably via the latest reform voted by the Vouli (the Hellenic parliament’s House of Commons) in May 2016 leads to generalised impoverishment, as families depend heavily on pensions to survive.

And the debt in all this?

It cannot be said that figures are at all in favour of the Tsipras government: a debt representing 175% of GDP for 2017, a 15% increase of public debt since the coming to power of Syriza and an overwhelming weight since in the 2017 draft budget, 5.5 billion euros will be swallowed up by the sole payments of interests…

The government tries to justify its antisocial policy by leading people to believe that the public debt issue will soon be resolved. Now after taking a closer look, the agreement [10] concluded between Greece and the Eurogroup in May 2016 endorses:
- That a potential agreement on the debt will not occur before 2018 and at the end of the 3rd Memorandum.
- That there will be no debt agreement without conditions, that is without a new wave of austerity measures.
- That the Greek government is committed to not demanding a reduction of the nominal value of the public debt. It will only ask for cosmetic measures such as extending repayment periods, whichmay come at a cost.
- That the Greek government is committed to produce a budget surplus of 3.5% as of 2018.

In addition to this unfair agreement with its creditors, Greece is somehow trying to save its image. In this perspective the government has changed the definition of debt sustainability. A debt is considered unsustainable not if it exceeds 120% of GDP but if its repayment exceeds 15% of GDP. And not until 2022 and 2023 will Greece have terms which exceed this threshold (unlike other years). Therefore, to compensate, the government wishes to pay a bit more than is due in 2017 and 2018 in order to pay less in 2022 and 2023… A sleight of hand presented as a real victory.

The meeting of finance ministers of the Eurozone which took place in Brussels on Monday 5 December, played to the same tune. Indeed behind the clamour around debt relief, the measures validated by the Eurogroup remain completely superficial and are not going to change the situation. Furthermore, the Eurogroup confirms that Greek debt will not be cancelled out. [11]

The government also states loud and clear that Greece should benefit from the ECB’s Quantitative Easing (QE) policy and may soon access the financial markets.

Let us bear in mind that the ECB’S QE is of course conditional upon the implementation of austerity measures and that despite the 3rd Memorandum which imposes an unprecedented level of structural adjustment, Greece has still not been admitted to this bond repurchase programme. And in any case, the big winners of this ECB programme well and truly remain private banks. [12]

Let’s also take into account that in 2014, under the Samaras government, Greece had again issued bonds on the financial markets and that the operation was linked to awful conditions, worse than those of the memoranda. The entire operation was simply for effect. The Tsipras government would also like to benefit from such an operation, although it is highly likely that if Greece tries to issue bonds on the markets, its debt will further increase since the interest rates demanded by private investors will be even worse than those demanded by the ESM, bad as they are. It becomes increasingly unlikely that the illegitimate nature of a large portion of Greek debt will be called into question, even though this was part of the Syriza electoral programme. On 7 December 2017, the Greek government will face a significant IMF repayment deadline for its loan in the framework of the 1st Memorandum, a deadline which just should not be honoured in order to give priority to the basic needs of the Greek population.

The audit goes on!

The audit committee of the Greek debt still has plenty to work on: the dismantled social security system, insolvent banks, the trial of ELSTAT [13] – the Greek statistics agency, defaults on private debts which are increasing rapidly, continuing collaboration with the U N Independent Expert on the effects of foreign debt and human rights, hearings to unravel responsibilities, monitoring the evolution of public debt, pseudo-negotiations and various announcements made by the government, and so on. This prospective work will mainly be investigation but also popularizing what is going on, and all Committee members are determined to carry it out to the best of their abilities.

Translation: Trommons, Christine Pagnoulle (CADTM), Vicki Briault (CADTM)

Footnotes :

[2Independent Evaluation Office, The IMF and the Crises in Greece, Ireland, and Portugal, July 2016.

[3Léonidas Vatikiotis, Magazine Unfollow, n°57, September 2016

[4Michel Husson, “Why Greek pension [counter]reforms are not sustainable”, November 2016, CADTM. Accessible at

[5There is only 0.51 worker for 1 pensioner.

[6The birth rate has risen to over 1.5 children per woman in 2009 compared to 1.3 in 2014.

[7Michel Husson, ” Why Greek pension [counter]reforms are not sustainable”, November 2016, CADTM. Accessible at:

[8Michel Husson, “Why Greek pension [counter] reforms are not sustainable », November 2016, CADTM. Accessible at

[9Indeed, the proportion of salaries in their income dropped from 40% in 2008 to 28.2 % in 2012. Cf. Michel Husson, Ibid.

[13In 2010, ELSTAT and EUROSTAT decided on the transfer of debts of 17 companies from the non-financial sector to the State budget, which increased public debt by 18.2 billion euros in 2009. These entities had been considered as non financial businesses, after EUROSTAT had approved their ranking in this sector. It should be stressed that the ESA95 regulations in terms of ranking did not change between 2000 and 2010.

This reclassification occurred without prior studies; moreover it was carried out in the middle of the night, once the members of the ELSTAT management had left. The president of ELSTAT was then free to proceed with these changes unquestioned by the members of the management team. The role of the national experts was completely ignored, in flagrant contradiction of ESA95 rules. Consequently, the institution adopting the criterion for attaching an economic entity to the state budget resulted from a breach of the regulations. A trial is currently underway against ELSTAT.

Anouk Renaud

Militante au CADTM Belgique