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Wednesday, May 23, 2012

Alexis Tsipras - promoter of positive reforms!

Alexis Tsipras (SYRIZA) and Gregor Gysi (DIE LINKE) introduced the following 6-point program as “Alternatives to Austerity and Bank Bail-out’s”:

1. Immediate stop of the “memorandum policies” and new negotiation of debt.
2. Elimination of sovereign debt financing’s dependence on capital markets.
3. Strict regulation of financial markets and adequate taxation.
4. Continuation of Greece as member of a reformed Eurozone.
5. Infrastructure and growth projects in lieu of austerity.
6. Holding profiteers of crisis responsible.

Ideological leftist should be forgiven for not knowing how to effectively negotiate with financial counterparties or creditors. Thus, they don’t know that presenting the above points in the above order will be perceived as blackmail and can only lead to an immediate break-up of negotiations. However, since there is a lot of substance to the above proposals, I will restructure them in such a way that they would not only serve as a basis for negotiation but would also hold some promise of success.

Greece has become a country which is totally dependent on foreign funding to sustain its living standard. We have prepared long-term economic plans which will turn this situation around: Greece will become – over the period of one generation – a country whose economy generates enough value on its own to sustain a living standard fitting a member of the EU.

Our plans aim at – briefly speaking – making Greece an excellent place to do business for individuals and corporations with an efficient public administration.

[Presentation of details of the long-term economic plans. N.b.: they have to be so good that no thinking person can object!]

As these plans demonstrate, Greece will reach – within the next 15-20 years – a situation where the state can sustain a reasonable level of sovereign debt and where the economy is no longer dependent on foreign funding. We are certain that the debt which exists today and which trades at 10-20% of nominal value today will trade at well over 50% of nominal value in 15-20 years from now. Any new debt which we will take up from now on will be in a senior position to existing debt (excluding any debt taken up for the payment of existing debt) and it will be paid in full.

In view of the aforementioned, we make the following proposals/requests to the EU:

1. Continuation of Greece as a member of the Eurozone
Greece has benefited significantly from being a member of the EU and the Eurozone. To resign membership is not a reasonable option because it would have dramatic consequences for Greece and for the EU.

We recognize that we cannot reap benefits from membership without, at the same time, fulfilling our obligations. One of our principal obligations, to which we explicitly commit here, is to exercise responsible financial management.

2. “Memorandum policies” and debt
We recognize that the Greek state and economy must be reformed from A-Z. We commit to the reforms which have been negotiated so far and we propose new ones (see long-term economic plans).

At the same time, Greece as well as the Troika have learned that some of the agreed-upon austerity measures have not produced the desired results. It is, therefore, in the interest of both sides to amend some of those measures. Specifically, we will put much more focus on eliminating government waste and imprudent allocation of resources than foreseen in the Memorandum. The additional savings which we expect to generate through these measures will be used to help those who have suffered most from austerity measures so far (primarily the unemployed).

For further increases of our revenue base see the item “Holding profiteers of crisis responsible” below.

Contrary to the belief of many, we are not opposed to privatizations. Instead, we are fully aware that Greece must have capital from abroad for its own development and we think foreign investment is a key aspect of Greece’s turn-around. Similarly, we think of foreign investment as an excellent way to acquire know-how from abroad. Having stated this, we oppose ideological privatizations for the sake of short-term financial gains. We will pursue privatizations with value-oriented investors who commit to be long-term partners for and with Greece. Short-term financial investors will be considered as asset strippers and have no place in these endeavors.

Regarding the existing debt, we believe it is not our decision whether private creditors are bailed out by the EU (through lending us money which we use to repay private creditors) or not. However, during the period of economic restructuring, the impact of whatever the EU decides must be neutral as regards Greece's cash flow. Put differently, if we are expected to repay existing/maturing debt, we need to be given exactly the same amount as new loans. Greece cannot use its own resources to repay existing debt in the near term.

Regarding the interest on debt, we request our creditors to differentiate between "cash interest" and "capitalized interest" (together they make up the interest rate on our debt). We are primarily concerned with cash interest because that flows through our budget and restricts our room for maneuver. We request that the interest to be paid in cash be reduced to 1% for the next 5 years and renegotiated thereafter. The difference between the 1% and the interest rate which our creditors require should be capitalized and payable at an agreed upon future date.

In short, Greece insists on limiting the increase in its sovereign debt to the amount of the agreed upon budget deficit (after paying 1% interest on existing debt). Put differently, Greece is requesting continued financing for the budget deficit (including 1% interest on existing debt).

3. Holding profiteers of crisis responsible
It is critical to point out that a large portion of the Greek people have not benefited unduly from the “Euro-rush” of the last decade. Regrettably, it is now that portion of the Greek people which suffers unduly from the repair of mistakes caused by others. This we plan to amend.

Beneficiaries of the “Euro-rush” could accumulate very significant holdings of real estate, financial assets (most of which are now outside of Greece) and other luxuries. We plan to increase taxes on these items (with reasonable deductibles to protect those sectors of society where additional taxes would reduce consumption expenditures). We will heavily tax capital flight to reduce it and we will seek special treaties with other countries to receive taxes on foreign financial assets held by Greeks.

4. Infrastructure and growth projects
Our long-term economic plan includes a multitude of very viable investment projects. We plan to make maximum use of all EU structural and regional funds but these will not be sufficient. We also need private foreign investment but recognize that private foreign investors might be worried about Greece’s future. Thus, we request the EU to consider providing guarantees to private investors for the political risk of Greece.

5. Elimination of sovereign debt financings' dependence of capital markets
We consider this to be a top priority but recognize that this must be dealt with at the level of the EU. Greece will be prepared to act in a supportive fashion of any measures to promote these goals.

6. Strict regulation of financial markets and adequate taxation
We strongly believe that more regulation of financial markets and taxation of banking transactions of a speculative nature are necessary. We view this as an issue which must be dealt with at the level of the EU. Greece will be prepared to act in a supportive fashion of any measures to promote these goals.


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