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Greece’s ‘Debtor’s Prison’

John Tarleton Aug 5, 2015

On July 5 the people of Greece overwhelmingly rejected further austerity measures in a referendum called by Prime Minister Alexis Tsipras, head of Greece’s left-wing government. The 61 percent “No” vote came in spite of thinly veiled threats from Greece’s European creditors, led by Germany, that they would wreck the country’s banking system if they did not get their way. In the land where Western democracy was invented, the people had seemingly spoken. 

Eight days later, the “No” became a “Yes.” Faced with the prospect of his country of 11 million people being booted out of the eurozone’s single currency with possibly catastrophic consequences, Tsipras acceded to all of the previous demands from his European “partners” plus new ones that seemed to emerge by the hour as talks dragged on. In order to receive 86 billion euros ($96 billion) in new loans to finance Greece’s already unsustainable debt load of 320 billion euros, Tsipras agreed to conditions that would have made a loan shark blush:

  • Make deep cuts in pension payments.
  • Increase regressive sales taxes.
  • Increase the government’s primary budget surplus, which will require deeper cuts in public spending.
  • Weaken collective bargaining laws.
  • Make it easier for banks to foreclose on people’s homes.
  • Repeal all legislation passed by the Greek government since it came to power at the end of January opposed by creditors.
  • Allow the troika of the European Central Bank, the European Commission and the IMF to review proposed new legislation before it is voted on by the Greek parliament.
  • Put up 50 billion euros in public assets as collateral to be privatized.

Previous “memoranda,” as the bailout packages are referred to in Greece, are blamed for shrinking the country’s economy by one-fourth and creating a 25 percent unemployment rate that is twice as high for young people. This agreement is considered the harshest one yet.

“It’s like a 19th-century debtors’ prison,” former chief World Bank economist Joseph Stieglitz wrote in The New York Times. “Just as imprisoned debtors could not make the income to repay, the deepening depression in Greece will make it less and less able to repay.” 

“We must stop taking on new loans pretending that we’ve solved the problem, when we haven’t,” Tsipras’s former Finance Minister Yanis Varoufakis told The New Statesman. “We have made our debt even less sustainable on condition of further austerity that even further shrinks the economy.” 

Arguing that he fought for the best possible deal he could get, Tsipras has managed to win parliamentary support for the bailout package despite opposition from more than a quarter of lawmakers within Syriza, the leftist coaliton he led to victory in January. Leading Syriza figures who have voted against the bailout include Varoufakis and Zoe Konstantopoulou, speaker of Greece’s parliament. More than half of Syriza’s 201-member Central Committee has also publicly opposed the agreement. 

As The Indypendent goes to press, Greece still has not received any bailout funds and faces an August 20 deadline to make a 3.2 billion euro bond payment to the European Central Bank. According to The Financial Times, Tsipras is “facing demands from creditors for even more economic reforms before they will release the first tranche of aid payments.”

Was There Another Way?

In his interview with The New Statesman, Varoufakis revealed that he had overseen a small team of five people within the Finance Ministry that had developed a “Plan B” for keeping Greece afloat financially if forced out of the eurozone. The plan: set up an alternate payment system by utilizing a system already in place to collect tax revenue and issue euro-denominated IOUs that could be converted to drachmas (the Greek national currency that existed prior to its joining the eurozone) at the flip of a switch. The plan also called for taking control of the Bank of Greece from the European Central Bank and unilaterally reducing debts owed to the ECB. 

On the night of the overwhelming “No” vote in the referendum, Varoufakis said he urged Tsipras and other top officials in the Syriza government to put the plan into action. By a vote of 4-2, Tsipras’s inner cabinet rejected Varoufakis’s plan as too risky. Instead, the decision was made to return to the negotiating table prepared to reach a deal at any cost.


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