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Eurogroup: Here is Varoufakis’ proposals for exiting Greece’s crisis

Greek Finance Minister Yanis Varoufakis uploaded on his blog the analytical proposal he presented at the Eurogroup meeting on Thursday. IT is th eofficial proposal of Greece to solve the crisis and achieve an agreement with the country’s lenders.

The proposal is based on three pillars: a package of reforms which includes interventions beyond those discussed at the Brussels Group, measures to cover the fiscal gap and a proposal to restructure Greek debt.

Yanis Varoufakis uploaded the proposal with an introductory notice. That is: transparency against propaganda and malicious leaks.

“The only antidote to propaganda and malicious ‘leaks’ is transparency. After so much disinformation on my presentation at the Eurogroup of the Greek government’s position, the only response is to post the precise words uttered within. Read them and judge for yourselves whether the Greek government’s proposals constitute a basis for agreement.”

Below Varoufakis post ‘stolen’ from Varoufakis blog

Greece’s Proposals to End the Crisis: My intervention at today’s Eurogroup


Five months ago, in my very first Eurogroup intervention, I put it to you that the new Greek government faced a dual task:

We had to earn a precious currency without depleting an important capital good.

The precious currency we had to earn was a sense of trust, here, amongst our European partners and within the institutions. To mint that precious currency would necessitate a meaningful reform package and a credible fiscal consolidation plan.

As for the important capital we could not afford to deplete, that was the trust of the Greek people who would have to swing behind any agreed reform program that will end the Greek crisis. The prerequisite for that capital not to be depleted was, and remains, one: tangible hope that the agreement we bring back with us to Athens:

  • is the last to be hammered out under conditions of crisis;
  • comprises a reform package which ends the 6-year-long uninterrupted recession;
  • does not hit the poor savagely like the previous reforms did;
  • renders our debt sustainable thus creating genuine prospects of Greece’s return to the money markets, ending our undignified reliance on our partners to repay the loans we have received from them.

Five months have gone by, the end of the road is nigh, but this finely balancing act has failed to materialise. Yes, at the Brussels Group we have come close. How close? On the fiscal side the positions are truly close, especially for 2015. For 2016 the remaining gap amounts to 0.5% of GDP. We have proposed parametric measures of 2% versus the 2.5% that the institutions insist upon. This 0.5% gap we propose to bridge over by administrative measures. It would be, I submit to you, a major error to allow such a minuscule difference to cause massive damage to the Eurozone’s integrity. Convergence had also been achieved on a wide range of issues.

Nevertheless, I will not deny that our proposals have not instilled in you the trust that you need. And, at the same time, the institutions’ proposals that Mr Juncker conveyed to PM Tsipras cannot engender the hope that our citizens need. Thus, we have come close to an impasse.

At this, the 11th hour, stage of the negotiations, before uncontrollable events take over, we have a moral duty, let alone a political and an economic one, to overcome this impasse. This is no time for recriminations and accusations. European citizens will hold collectively responsible all those of us who failed to strike a viable solution.

Even if some, misguided by rumours that a Greek exit may not be so terrible or that it may even benefit the rest of the Eurozone, are resigned to such an event, it is an event that will unleash destructive powers no one can tame. Citizens from all over Europe will target not the institutions but their elected finance ministers, their Prime Ministers and Presidents. After all, they elected us to promote Europe’s shared prosperity and to avoid pitfalls that may harm Europe.

Our political mandate is to find an honourable, workable compromise. Is it so difficult to do so? We do not think so. A few days ago Olivier Blanchard, the IMF’s Chief Economist published a piece entitled ‘Greece: A Credible Deal Will Require Difficult Decisions by All Sides.’ He is right, the three operative words being ‘by all sides’. Dr Blanchard added that: “At the core of the negotiations is a simple question. How much of an adjustment has to be made by Greece, how much has to be made by its official creditors?”

That Greece needs to adjust there is no doubt. The question, however, is not how much adjustment Greece needs to make. It is, rather, what kind of adjustment. If by ‘adjustment’ we mean fiscal consolidation, wage and pension cuts, and tax rate increases, it is clear we have done more of that than any other country in peacetime.

  • The public sector’s structural, or cyclically adjusted, fiscal deficit turned into a surplus on the back of a ‘world record beating’ 20% adjustment
  • Wages fell by 37%
  • Pensions were reduced by up to 48%
  • State employment diminished by 30%
  • Consumer spending was curtailed by 33%
  • Even the nation’s chronic current account deficit dropped by 16%.

No one can say that Greece has not adjusted to its new, post-2008, circumstances. But what we can say is that gigantic adjustment, whether necessary or not, has produced more problems than it solved:

  • Aggregate real GDP fell by 27% while nominal GDP continued to fall quarter-in-quarter-out for 18 quarters non-stop to this day
  • Unemployment skyrocketed to 27%
  • Undeclared labour reached 34%
  • Banks are labouring under non-performing loans that exceed 40% in value
  • Public debt has exceeded 180% of GDP
  • Young well-qualified people are abandoning Greece in droves
  • Poverty, hunger and energy deprivation have registered increases usually associated with a state at war
  • Investment in productive capacity has evaporated.

So, the first part of Dr Blanchard’s question “how much of an adjustment has to be made by Greece?” needs to be answered: Greece needs a great deal of adjustment. But not of the same kind that we have had in the past. We need more reforms not more cutbacks. For instance,

  • We need to adjust to a new culture of paying taxes, not to higher VAT rates that strengthen the incentive to cheat and drive law-abiding citizens into greater poverty
  • We need to make the pension system sustainable by eradicating unpaid labour, minimising early retirements, eliminating pension fund fraud, boosting employment – not by eradicating the solidarity tranche from the lowest of the low of pensions, as the institutions have demanded, thus pushing the poorest of the poor into greater poverty and conjuring up massive popular hostility against another set of so called reforms

In our proposals to the institutions we have offered:

  • An extensive (but optimised) privatisation agenda spanning the period 2015-2025
  • The creation of a fully independent Tax and Customs Authority (under the aegis and supervision of Parliament)
  • A Fiscal Council that oversees the state budget
  • A short-term program for limiting foreclosures and managing non-performing loans
  • Judicial and civil procedure code reforms
  • Liberalising several product markets and services (with protections for middle class values and professions that are part and parcel of society’s fabric)
  • Elimination of many nuisance charges
  • Public administration reforms (introducing proper staff evaluation systems, reducing non-wage costs, modernising and unifying public sector payrolls).

In addition to these reforms the Greek Authorities have engaged the Organisation of Economic Cooperation and Development (OECD) to help Athens design, implement and monitor a second series of reforms. Yesterday I met with the OECD’s Secretary General Mr Angel Gurria and his team to announce this joint reform agenda, complete with a specific roadmap:

  • A major Anti-corruption Drive and relevant institutions to support it – especially in the area of procurement
  • Liberalising the construction sector, including the market and standards of construction materials
  • Wholesale trade liberalisation
  • Media – electronic and press code of practice
  • One-Stop Business Centres that eradicate the bureaucratic impediments to doing business in Greece
  • Pension System Reform – where the emphasis is on a proper, long-term, actuarial study, the phasing out of early retirements, the reduction in the operating costs of the pensions funds, pension fund consolidation – rather than mere pension cuts.

Yes, colleagues, Greeks need to adjust further. We desperately need deep reforms. But, I urge you to take seriously under consideration this important difference between:

  • reforms that attack parasitic, rent-seeking behaviour or inefficiencies, and
  • parametric changes that jack up tax rates and reduce benefits to the weakest.

We need a lot more of the real reforms and a lot less of the parametric type.

Much has been said and written about our ‘backtracking’ on labour market reform and our determination to re-introduce protection for waged workers through collective bargaining agreements. Is this some left-wing fixation of ours that jeopardises efficiency? No, colleagues, it is not. Take for example the plight of young workers in several chain stores who get fired as they approach their 24th birthday so that the employer hires younger workers in their place to avoid paying them the normal minimum wage which is lower for employees under the age of 24. Or take the case of employees who are hired part time for 300 euros a month, made to work full time and threatened with dismissal if they complain. Without collective bargaining, these abuses abound with ill effects on competition (as decent employers compete at a disadvantage with unscrupulous ones) but also with ill effects on pension funds and public revenues. Does anyone seriously think that the introduction of well-thought out collective bargaining, in collaboration with the ILO and the OECD, constitutes ‘reform reversal’, an example of ‘backtracking’?

Turning briefly to pensions again, much has been made of the fact that pensions account for more than they did in the past; as much as 16% of GDP. But consider this: Pensions have shrunk by 40% and the number of pensioners is stable. So, expenditure on pensions has fallen, not risen. That 16% of GDP is due not to spending more on pensions but, instead, to the dramatic drop in GDP which brought with it a similarly dramatic reduction in contributions due to the fall in employment and the rise of undeclared labour.

Our alleged backtracking on ‘pension reforms’ is that we have suspended the further reduction in pensions that have already lost 40% of their value when the prices of the goods and services that pensioners need, e.g. pharmaceuticals, have hardly moved. Consider this relatively unknown fact: Around 1 million families survive today on the meagre pension of a grandfather or a grandmother as the rest of the family members are unemployed in a country where only 9% of the unemployed receive any unemployment benefit. Cutting that one, solitary pension is tantamount to turning a family into the streets.

This is why we keep telling the institutions that, yes, we need pension reform but, no, you cannot just lob off 1% of GDP from pensions without causing massive, fresh misery and a fresh recessionary round as this 1.8 billion multiplied by a large fiscal multiplier (up to 1.5) is withdrawn from the circular flow of income. If large pensions still existed, whose curtailment would make a fiscal difference, we would do it. But the distribution of pensions is so compressed that savings of such a magnitude would have to eat into the pensions of the poorest. It is for this reason, I suppose, that the institutions are asking us to eliminate the solidarity pensions supplement to the poorest of the poor. And it is for this reason that we counter-propose proper reforms: a drastic reduction, almost elimination, of early retirements, consolidation of pension funds and interventions in the labour market that reduce undeclared labour.

Structural reforms promote growth potential. But mere cutbacks in an economy like Greece’s promote recession. Greece must adjust by introducing genuine reforms. But at the same time, going back to Dr Blanchard’s answer, the institutions need to adjust their definition of growth-enhancing reforms – to acknowledge that parametric cuts and tax hikes are not reforms and that, at least in the case of Greece, they have undermined growth.

Colleagues have remarked in the past, and may do so again, that our pensions are too high compared to their older people and that it is unacceptable for the Greek government to expect them to foot our pension bill. Let me be clear on this: We are never going to ask you to subsidise our state, our wages, our pensions, our public expenditure. The Greek state lives within its means. Over the past five months we have even managed, despite zero market access and zero disbursements, to repay our creditors. We intend to keep doing so.

I understand that there are concerns that our government may slip into a primary deficit again and that this is the reason the institutions are pressing us to accept large VAT rises and large pension cuts. While it is our view that the announcement of a viable agreement will suffice to boost economic activity sufficiently to produce a healthy primary surplus, I understand perfectly well that our creditors and partners may have cause to be sceptical to want safeguards; an insurance policy against our government’s possible slide into profligacy. This is what lies behind Dr Blanchard’s call for the Greek government to offer “truly credible measures.” So here comes an idea. A “truly credible measure”.

Instead of arguing over half a percentage point of measures (or on whether these tax measures will have to all of the parametric type or not), how about a deeper, more comprehensive, permanent reform? An automated hard deficit brake that is legislated and monitored by the independent Fiscal Council we and the institutions have already agreed upon. The Fiscal Council would monitor the state budget’s execution on a weekly basis, issue warnings if a minimum primary surplus target looks like being violated and, at some point, trigger automated across the board, horizontal, reductions in all outlays in order to prevent the slide below the pre-agreed threshold. That way a failsafe system is in place that ensures the solvency of the Greek state while the Greek government retains the policy space it needs in order to remain sovereign and able to govern within a democratic context. Consider this to be a firm proposal that our government will implement immediately after an agreement.

Given that our government will never again need to borrow from your taxpayers or from the taxpayers standing behind the IMF, there is no sense in a debate between member-states that compete on whose pensioners are poorer, instigating a race-to-the-bottom. Instead, the debate moves on to debt repayments. How large should our primary surpluses be? Does anyone seriously believe that the growth rate is independent of the primary target set? The IMF understands fully that the two numbers are linked endogenously and that this is the reason why Greece’s public debt must be looked at at once.

Our large debt overhang should be thought of as a large unfunded tax liability. While it is true that the EFSF and GLF slices of our debt are long-dated and the interest rate is not large, the Greek state’s unfunded tax liability, our debt, features a lumpy component that impedes investment and recovery today. I am referring here to the 27 billion of SMP bonds still held by the ECB. This is a short-dated unfunded liability that potential investors in Greece take a look at it and turn back because they can see the funding gap this part of the debt creates instantly and because they recognise that this lump of 27 billion on the ECB books stop Greece from taking advantage of the ECB’s quantitative easing at the very moment when this program is unfolding and is reaching its maximum capacity to come to the aid of countries buffeted by deflation. It is a cruel irony that the country most afflicted by deflation is the one that is excluded from the ECB’s anti-deflation remedy. And it is excluded because of this 27 billion lump.

Our proposal on this front is simple, efficient and mutually beneficial. We propose no new monies, not one fresh euro, for our state. Imagine the following three-part agreement to be announced in the next few days:

Part 1: Deep reforms, including the automated hard deficit brake that I mentioned.

Part 2: A rationalisation of Greece’s debt repayment schedule along the following lines. First, to effect an SMP BUY-BACK Greece acquires a new loan from the ESM, then purchases the SMP bonds back from the ECB and retires them. To underpin this loan, we agree that the deep reform agenda is the common conditionality for successfully completing the current program and for securing the new ESM arrangement that comes into operation immediately afterwards and runs concurrently with the continuing IMF program until the end of March 2016. Short-term funding relies on the outstanding disbursement from the current program and medium to long term funding is completed by the return of the SMP profits, coming up to 9 billion out of the 27 remaining billions, which go into an escrow account to be used in order to meet Greece’s repayments to the IMF.

Part 3: An investment program for kick-starting the Greek economy funded by the Juncker Plan, the European Investment Bank – with which we are in talks already – the EBRD and other partners who will be invited to participate also in conjunction with our privatization program and the establishment of a development bank that aims at developing, reforming and collateralizing public assets, including real estate.

Does anyone truly doubt that this three-part announcement would dramatically change the mood, inspire Greeks to work hard on hope of a better future, invite investors to a country whose asset prices have fallen so dramatically, and give confidence to Europeans that Europe can, even at the 11th hour, do the right thing?

Colleagues, at this juncture it is dangerously easy to think that nothing can be done. Let us not fall prey to this state of mind. We can forge a good agreement. Our government is standing by, with ideas and with the determination to cultivate the two forms of trust necessary to end the Greek drama: Your trust in us and the trust of our people in Europe’s capacity to produce policies that work for, and not against, them.


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  1. So what’s stopping Greece from enacting those reforms that Yanis says are good, needed and beneficial?
    Those reforms are good for Greece (Yanis says), would have to be undertaken no matter how Eurozone negotiations work out, and would go a long way to appease creditors, so why not?
    People like Zoi Konstantopoulou and the rest of Syriza, that’s who’s stopping reforms.
    Lot’s of complaining on this site (and others), that Troika is not speaking with one voice, so Greece doesn’t know what they want. Ha, compare Zoi and Yanis – notice “subtle” differences between what those two demand?
    It’s clear, by now, what Greece really wants: debt forgiveness and new loans (aka “investments”). Will it get it while being hostile to creditors? I don’t thinks so. If it does, EMU is doomed.
    On top of that, Greece is turning out to be unreliable political ally, playing this silly game with Putin, thus squandering the opportunity to be funded (free money) for geopolitical reasons. Ukraine is only happy to pick up those funds.
    Could have worked together with the rest of Europe but insists on being Venezuela of Europe instead. What a shame.

    • The reforms were not undertaken because the troika asked Greece not to pass any bill until the end of the negociation. They just manage to obtain 2 exceptions for the bills on the humanitarian crisis, but that’s all.
      The shame is that you comment without informing yourself first.

      • Who asked to not pass money saving reforms and when?

      • I do not have insight information on the negotiations. However, common sense tells me the creditors would have happily allowed a new law preventing, for example, early retirement to be voted. It is much more plausible that the Greek government did not introduce such reforms yet because it wanted to extract something in return. You can see such tendencies on other questions as well (e.g., very limited results on fighting corruption and tax evasion despite the rhetoric).

  2. “We propose no new monies, not one fresh euro, for our state.”
    —- few lines below —-
    Greece acquires a new loan from the ESM, then purchases the SMP bonds back from the ECB and retires them.
    —- few lines below —-
    An investment program for kick-starting the Greek economy funded by the Juncker Plan, the European Investment Bank…

    AND WHERE IS THE PLAN? Is it this: Part 1: Deep reforms?
    All that after half year of negotiations with Europe + IMF + ECB where top people were involved and they were wasting their time (and our money) discussing with this amateur?

  3. Varoufakis’s proposal seems to me a kind of bullshit covered with a nice paper. EU politicians are not fool and they know that Greeks usually do not keep their promises (especially after they get EU money) and they want clear reforms. The main problem is the Greek pension system.
    16 % of Greece GDP moves to pensions (the highest percentage of all EU countries). Troika wants to reduce this percentage with 1%, but Greek gov. doesn’t want and prefers to leave EU. Sincerely, this seems to me stupid. If you think that Greek pensions are too low, why you don’t’ move your old people in Albania, or Bulgaria where they will have a nice life with an income several times higher than the citizen of these counties. Many US/Canada people use to move in Latin America countries where they can leave very well with relatively small pensions.
    I saw that some Greek politicians try to explain that old people are the only breadwinners in some families where young people are unemployed. Question: Why Greek young people do not try to emigrate in Northern EU countries/US/Canada where they can work on good salaries (as many Eastern Europeans) and eventually send some money to their parents? I think it is a shame to stay at home and spend their parents pensions.

    • keeptalkinggreece

      amazing how one single person can think of all these solutions

    • Yes, let’s move all the oderly people to Bulgaria and all the young people to Germany. Then we can sell the Greek islands and the problem is solved.
      No wonder the european “dream” is a nightmare with such arguments.

    • Giaourti Giaourtaki

      So why not let the old follow the 2500 best educated Greek doctors to Germoney to spare expenses for translators or even better send all Greeks to Germoney to get their Hartz4 that the government pays their poor to not revolt and buy apples that lost all its vitamins at their bloodsucking discounters.
      Because Samaras’ “recovery” was so successful until February already 350.000 Greeks asked the authorities for the working permissions to find jobs (only) in Europe and clean the unemployment statistics just like they do in Spain and Portugal, before that a minimum of 200.000 already left the country and lots of people find season jobs abroad.
      Anyway you need lots of money to travel, for food, internet, to find a place to sleep without getting totally ripped off and also for the case that the boss decides not to pay or you can’t find any job at all and have to get back home.
      About all these questions the local Greek communities have details so you’d better send your local Pulitzer to find that out and tell him that 500.000 German-Greeks are also readers, customers and voters.

  4. While Varoufakis’ proposals sound reasonable, they are not specific enough and it is too late now. My greater fear than Grexit is creating a storyline like “The Greek leftists got all they wanted. Our government just gave in and keeps spending our money on Greece”. That would give further rise to all those right-wing populists. Unfortunately Syriza’s rhetorics have created a situation, in which one side loses unless there is a real compromise.

    • Actually, I am afraid we are beyond a win-lose game. Both sides will lose. The only question is: Which side will lose more.

      • People all over Europe will lose thta’s for sure. Banks and eurocrats, not so sure.

        • Financial markets will make correction (may be big one), but Greece will step down to the GDP per capita level of Bulgaria – Serbia.
          For Eurozone it will be a stress test – YES, but Portugal, Spain and other PIIGS countries will not follow those gamblers from SYRIZA after Greece will end up in real humanitarian crisis and after they realize, that they can end up without cheap EURo financing of their huge debts.

    • Giaourti Giaourtaki

      One problem for the extreme right is that they always denounce the media as liars but then why believe all the crap about Greeks?
      Who knows may be that’s the big secret why the Goebbels-media didn’t accomplished to provoke anti-Greek pogroms so far.

  5. Professor Pelotard

    @Keep Talking Greece,

    Definitely a set of sensible actions propsed by the Greek Minister of Finance. Certainly room for discussions, for instance how future loans will be secured etc, etc. This is the type of proposals IMF used to discuss when they could prescribe the solutions their economists favoured, and not those some politicans demanded.

    Above, Markus, agrees that the proposals sound sensible, but he finds it too late and specifics had to be shown now. My question is whether Varoufakis only presented these (or most of these) proposals yesterday. I have the feeling that they have been on the table since January, but the Eurozone finance ministers were not intersted in this kind of economical discussions. They only wanted to discuss (well, “discuss”) what V. calls “parametric measures”.

    IMHO it appears we have come to the latest impass because of an inherent conflict between micro- and macro-economics, not between marxism and free-market economics. Personally, I would not necessarily consider the latter to be more free-market oriented than the former. (Yes, that’s an intentional understatement.)

    • keeptalkinggreece

      similar proposals have been on the table since February. but creditors have no ‘time’ to discuss, they insists on the old wrong austerity program. it seems fiscal but it’s rather political.

      • Giaourti Giaourtaki

        First they couldn’t find translators for Greek and now it will be just too much English.

    • Varoufakis hit the nail on the head in the introduction of his speech: “Nevertheless, I will not deny that our proposals have not instilled in you the trust that you need.” I believe, the Greek government was focused on showing that they are tough negotiators rather than instilling trust in their interlocutors. Just a few days ago Varoufakis told the Greek parliament that the government never agreed to a 1% primary budget surplus for 2015 (even though in this speech he confirms there is an agreement, and the February agreement talked about 1-1.5% primary surplus).

      Without any specifics, Varoufakis’s “proposal” essentially comes down to: “Trust us, we will figure out how to delivery the primary surplus”. However, the trust is not there.

      • Giaourti Giaourtaki

        Delivery-boys are only existing in Westerwelle’s wet dreams but as “end of the day” in Germoney gets translated by google-translator since what? 2 years? no wonder.
        The Troika-institutions are every 3 months coming up with more “adjustments” but Greece isn’t allowed to do so too and trustworthy is the IMF with blocking the last credits since march 2014 and EU since August 2014?
        Since 5 years these bastards try to force Greece out of Europe and that’s also the reason to continue the embargo against Greece, but wow, many Greek companies took measures against capital control already in September 2014, the same time money outflow started and who was the Oracle for that?

  6. This Varoufakis proposal is already a total surrender and has nothing to do with the electoral platform of Syriza.
    But still the criminals of the IMF/EU want more, they want their pound of flesh, they want to crush Syriza and punish the Greek people for choosing an alternative to the “IV Reich consensus”.
    It is quite clear to me that the “European partners” key goal in this process is to overthrow the current Greek government, that is their goal. All the rest are just instruments to achieve this goal. If this results in a grexit so be it, the criminals are willing to pay that price for crushing the people and Syriza.
    As for the Greek Government it spend way to much time trying to compromise, preparing proposals and trying to please the sociopath “partners” (than notice how they are criticized for doing nothing when it was the criminals that demanded in the first place they do nothing until a full deal is settled).
    Its time to spend their time preparing a solid alternative path. Its time to take control of key economic and social sectors in Greece, to really fight the oligarchs and other cancers of Greece, to turn to Russia and China.
    Right now Greece has no respect in the EU, if some years for now things work out well maybe the rest of Europe will than turn to Greece as an example.
    Lingering now on illusions of compromises with the sociopath criminal “European partners” is a suicide.