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

10 January 2017 by Anouk Renaud

CC - Flickr - Dimitris Drougoutis

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 IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
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 ECB
European Central Bank
The European Central Bank is a European institution based in Frankfurt, founded in 1998, to which the countries of the Eurozone have transferred their monetary powers. Its official role is to ensure price stability by combating inflation within that Zone. Its three decision-making organs (the Executive Board, the Governing Council and the General Council) are composed of governors of the central banks of the member states and/or recognized specialists. According to its statutes, it is politically ‘independent’ but it is directly influenced by the world of finance.
, 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 Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. 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 Troika Troika: IMF, European Commission and European Central Bank, which together impose austerity measures through the conditions tied to loans to countries in difficulty.

’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 Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
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 Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

, Greece has still not been admitted to this bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. 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 Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
demanded by private investors will be even worse than those demanded by the ESM ESM
European Stability Mechanism
The European Stability Mechanism is a European entity for managing the financial crisis in the Eurozone. In 2012, it replaced the European Financial Stability Facility and the European Financial Stabilisation Mechanism, which had been implemented in response to the public-debt crisis in the Eurozone. It concerns only EU member States that are part of the Eurozone. If there is a threat to the stability of the Eurozone, this European financial institution is supposed to grant financial ‘assistance’ (loans) to a country or countries in difficulty. There are strict conditions to this assistance.
, 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)


[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




8 rue Jonfosse
4000 - Liège- Belgique

00324 60 97 96 80