Europe's Populist Left

[Martinus]

You repay them at a significant discount. Or refinance them at a devalued principal.

[The Brain]

Money wants to be free.

[Admiral Yi]

You repay them at a significant discount. Or refinance them at a devalued principal.

You refinance them at a higher interest rate.

[Martinus]

You repay them at a significant discount. Or refinance them at a devalued principal.

You refinance them at a higher interest rate.

But the principal is worth less, so hopefully you are still ahead.

And I am not saying you run high inflation infinitely. You run high inflation during the period you have higher income, to be able to repay the debt at a decreasing cost - once you reach desirable debt levels, you contain inflation to bring interest rates down.

[Admiral Yi]

You don't just turn off inflation like a water faucet.  It took the US a prolonged period of high real interest rates, and a significant recession, to kill inflationary expectations in 81.

[Razgovory]

A valid question would be what good is the credit card analogy in the first place?

Yeah. Maybe if instead of one credit card, you have millions. And every time you spend, the credit card companies choose to fund the purchase or not. So if you stop paying your credit card bills, then eventually lots of them will stop accepting to fund you, or will charge you a higher interest rate. And if you default, all your credit cards get canceled.

Also, you can kill some of the people who own the credit companies in certain situations.

[MadImmortalMan]

Don't forget guys, that in the current environment the bonds with the most buying interest are the short-term ones. So the debts are rolling over much faster than normal and the percentage of every country's debt that is in short term bonds is getting bigger all the time. That can be a time bomb if there's an interest rate spike significant enough to really mess up the government's balance sheet.

In that situation, not only do you get the pain to the little guy that high inflation brings, but you also don't get the benefit to the government that you normally would because the percentage of their debt rolling into higher interest would cancel out the benefit of inflation.

I think what the attempt here is to keep interest rates low enough until some moderate inflation does come, and then hold it there long enough. Honestly, I think they are too low. It's in the government's best interest for people to want to buy the 30 year treasuries instead of the two year.

[Sheilbh]

Varoufakis' tour of the Finance Ministries of Europe kicked off with France today. The French ruled out a debt writedown but were otherwise generally supportive and mentioned a 'new contract' and seemed open to ending the Troika supervisors (which is, apparently, what the Greeks mean when they refer to 'the Troika'). But generally Varoufakis continued to be quite categorical in his statements, and Sapin didn't really seem that put off by them. It looks like France could be a moderate supporter of a deal (I imagine Italy will be the other most supportive state).

Edit: One other interesting line. Greece is preparing its offer with Lazard 'the French government have offered their assistance'.

Obama also weighed in for the Greeks. It won't matter except that combined with the very different language coming out of the IMF it means there may be a shift there. But the Europeans ignored Geithner and Obama before - they were right then too. Juncker has also said that there needs to be an alternative to the Troika supervisors.

The perverse situation of Greece not wanting any more money and her creditors trying to force it on her continues. Varoufakis used the rather vivid metaphor of Greece behaving like a hollow-eyed addict waiting for their next tranche of European money and that it was time for Greece to go 'cold turkey'. He continued to say that EU taxpayers have paid too much for a program that isn't and can't work.

Varoufakis' strategy is apparently to start negotiations and lay out their position over the next month or so but thinks there should be a deal by May. There was possibly a veiled threat in his comment that it would be sensible to have something in place by their big redemption in June. This assumes (I think correctly) that the ECB will continue to offer ELA to Greece's banks in February. Basically negotiations until May, no new tranches, no Troika supervision and the ECB maintains liquidity of Greek banks.

One other interesting thing is that I think in some of his language about the Euro he's almost quoting and probably definitely referring to this section of a speech Draghi gave in Helsinki last year - and again the only person who could possibly force Greece out of the Euro is Draghi:

This means that such shocks have to be preempted to the extent possible through sound economic policies. It also means that when shocks do occur – as they inevitably will – adjustment has to take place through other channels. And crucially, those channels have to be at least as effective as if countries were not part of monetary union. Members have to be better off inside than they would be outside.

The reason for this is as follows: if there are parts of the euro area that are worse off inside the Union, doubts may grow about whether they might ultimately have to leave. And if one country can potentially leave the monetary union, then this creates a replicable precedent for all countries. This in turn would undermine the fungibility of money, as bank deposits and other financial contracts in any country would bear a redenomination risk.

This is not theory: we all have seen first-hand, and at considerable costs in terms of welfare and employment, how fears about euro exit and redenomination have fragmented our economies.

So it should be clear that the success of monetary union anywhere depends on its success everywhere. The euro is – and has to be – irrevocable in all its member states, not just because the Treaties say so, but because without this there cannot be a truly single money.

Meanwhile a German paper said Greece should stop using the comparison of the 1953 London conference cancelling Germany's debts because, unlike those debts, Greece's are self-imposed. They issued a correction a short while later

Also of interest there's strong rumours that they're about to re-appoint a Greek computer programmer who was hired by the Greek revenue agency in 2011 to develop programs that monitor both evasion and collection. He was fired after about six months last time

And this piece on the previous head of revenue:

Death threats forced me to quit my job, says Greece's top tax man
Tax boss who targeted rich and well-connected 'warned his legs would be broken'

It was when he received threats that his legs would be smashed that Harry Theoharis really knew he was making enemies.

Just months into his job as head of Greece's tax collection agency, it became clear he was stirring a hornet's nest with his efforts to crack down on the country's endemic tax evasion, which robs Athens of hundreds of millions of pounds a year.

"My office was getting phone calls saying 'tell him it would only cost 5,000 euros to break his legs'," he told The Sunday Telegraph last week. "I received threatening letters too. I had to have a police escort - I still do."

Angered by the threats, but also beset by intense political pressure not to go after the well-connected, Mr Theoharis resigned from his job as Greece's Secretary General for Public Revenue last June, just 17 months into what should have been a five-year term.

To make matters worse, the British-educated ex-Lehman Brothers man had been put in the job specifically to act as a "new broom", tasked by Greece's EU troika creditors with collecting the massive £35bn owed in unpaid taxes.

Last week, he won a seat in parliament for the centrist ToPotami party, in the same snap general elections that brought the new, radical leftist Syriza party to power on its anti-austerity ticket. But as Syriza's leader, Alexis Tsipras, vows to renegotiate Greece's £180bn troika bail out, Mr Theoharis's own experience offers a cautionary tale. Greece will never balance its books, he warns, as long as tax collectors like him come under political pressure.

"They wanted me to be lenient," he said. "I resisted it up to a point but then I had to leave. I think Tsipras is honest and determined. But he downplays the risks of what is at stake. He underestimates the complexity that lies ahead. It's a minefield."

The combination of his experiences in the tax office, and his new role as a member of parliament, gives Mr Theoharis a unique insight into Greece's chronic problems and the massive challenges facing Mr Tsipras, its ex-Communist prime minister.

Mr Tsipras's party, Syriza, fell just two seats shy of winning an outright majority and so entered an alliance with the Independent Greeks, a right-wing, anti-immigration party, in order to form a government.

The only glue holding them together is their shared determination to renegotiate the repayment of the loans from the troika, which consists of the European Union, the European Central Bank and International Monetary Fund.

With EU leaders insisting that a write-off of the debt is out of the question, the stage is set for months of gruelling negotiations. Mr Theoharis, whose ToPotami party is in opposition to the odd-couple coalition, thinks Syriza is woefully unprepared for what lies ahead.

"They will go head-on with the EU and the IMF, but after a point you cannot bluff," he said. "It's not poker. You are playing with people's lives. The question is, can he hold his party together and can he save face with the voters?"

Mr Tsipras finds himself stuck between the extravagant promises he made to voters about cancelling great swathes of the debt, and the EU's insistence that Greece has had quite enough money already.

The 40-year-old prime minister has pledged to crack down on tax evasion and avoidance - a demand also of the troika - but the challenges are huge, as Mr Theoharis knows all too well.

When appointed in 2013, the former IT expert embarked on a radical programme of reform - computerising antiquated tax records, changing what he calls "lackadaisical attitudes" among staff and getting rid of those promoted because of political connections.

The ultimate objective was to bring in more revenue, in a country where dodging taxes is "part of the DNA". The habit first began as an act of patriotic resistance against Ottoman rule, but the incompetence of successive Greek governments over the generations has given many Greeks an excuse to continue the tradition.

"I tried to wrestle the agency away from politics, " said Mr Theoharis, who studied tudied software technology at London's Imperial College. "But everything is political in Greece. We sit in coffee shops and argue about everything."

At first, Mr Theoharis's efforts at tax collection went according to plan. He operated a Twitter account via which he dispensed tax advice, and even went on Greek television chat shows to preach the cause of "compliance".

To rectify the idea that only "little people" pay up, the tax service also stepped up campaigns targeting big companies and wealthy individuals, armed with a law under which anyone suspected of dodging more than €10,000 in taxes can be put in jail pending charges.

But while that yielded a number of high-profile scalps, including former government ministers, Mr Theoharis said that the government of Antonis Samaras, the leader of the conservative New Democracy party, started pushing him to adopt what he diplomatically calls "a more populist stance".

In practice, that meant going easy on politically sensitive targets such as friends and benefactors of the party. "It was a case of 'don't do this, don't do that'," he said. He threw his hat into the ring just two weeks before the elections, and became one of 17 MPs that ToPotami now has in parliament.

He readily admits that he encountered hostility from some people as he campaigned, and that not everyone was enthusiastic about the idea of electing their former tax tsar to parliament.

But others were impressed by his efforts to reform one of the more Byzantine pillars of the Greek state.

"I had focused on reforming the agency in an honest way and that got results. In Greece, doing simple things like that makes you a hero. And people could see that I had been treated unfairly."

Bringing in more money from tax collection will have to be a priority of the new government if it is to drag the country out of a six-year recession that has seen the economy contract by a quarter and unemployment hit 26 per cent.

The IMF said in a recent report that wealthy Greeks, along with self-employed professionals such as doctors, dentists and lawyers, continue to evade taxes "on an astonishing scale".

As for the new government, Mr Theoharis says it is vital that it tone down its anti-bailout rhetoric, moderate its demands, and come to a compromise with the EU and IMF.

"Everyone wants to put the crisis behind them. And our European partners don't want to talk about Greece anymore."

The line about that making you a hero in Greece reminds me of what Varoufakis said in his Newsnight interview about taking on the oligopoly and deepening structural reforms. What they want to do are really very basic things that are the norm in most states and really the sort of thing bourgeois parties like ND and PASOK should have done. It's still a massive if but if they pull this off (and are allowed to) it'll be the most important structural reform possible.

And Syriza continue to make PR adjustments to government, that they want to do things differently than the old Greek parties. Varoufakis is flying economy round Europe, they're going to sell off most of the Ministerial BMWs and Mercs, they've dismantled the barricades around Parliament and, for the first time in ages, there was a protest which was policed by non-armed, non-riot police.

If things continue as they seem to be I'm beginning to suspect they may end up losing their hard-left supporters but end up winning a lot of centrist, middle class votes instead.

[Monoriu]

How is their military spending?  I read somewhere that Greece has one of the highest military spending levels (as a percentage of GDP) among NATO countries, due to the conflict with Turkey over Cyprus. 

[MadImmortalMan]

Well their GDP went down by 25% so I'd guess if they kept military spending the same the percentage would go way up.

[Sheilbh]

They've cut it by about 20% during the crisis I believe, but it's still one of the highest levels in the EU.

That seems unlikely to change given that the far-right populists got the Defence Ministry.

[Monoriu]

They've cut it by about 20% during the crisis I believe, but it's still one of the highest levels in the EU.

That seems unlikely to change given that the far-right populists got the Defence Ministry.

That doesn't really count as "they've done everything they can" in my books. 

[Ed Anger]

They also had to replace the very old A-7 fighters.

[Jacob]

They've cut it by about 20% during the crisis I believe, but it's still one of the highest levels in the EU.

That seems unlikely to change given that the far-right populists got the Defence Ministry.

That doesn't really count as "they've done everything they can" in my books.

No one cares what's in your book

[mongers]

They've cut it by about 20% during the crisis I believe, but it's still one of the highest levels in the EU.

That seems unlikely to change given that the far-right populists got the Defence Ministry.

That doesn't really count as "they've done everything they can" in my books.

No one cares what's in your book

It's a small book, a pocket-book.