Varo­ufakis and the debt talks

Doc­u­ment shows con­flict­ing ap­proaches of the gov­ern­ment dur­ing the 2015 crunch

Kathimerini English - - Focus - BY YAN­NIS PALAIOLOGOS

ANAL­Y­SIS A few days ago, when Greece’s for­mer fi­nance min­is­ter Ya­nis Varo­ufakis wrote about the “par­al­lel pay­ment sys­tem” he had been pre­par­ing in 2015, he ar­gued that its im­ple­men­ta­tion would have en­hanced the gov­ern­ment’s ne­go­ti­at­ing po­si­tion with in­ter­na­tional cred­i­tors.

“If they know about this, it will be more dif­fi­cult for them to try to stran­gle us, since they will not be able to rely on the con­vic­tion that we will back off and ca­pit­u­late over the big is­sue at stake, which is the re­struc­tur­ing of the Greek debt, if they threaten us with the clo­sure of the banks,” he al­leges to have told the Greek cabi­net about the cred­i­tors.

In the name of this “big is­sue,” the Holy Grail of the rul­ing leftists SYRIZA, Varo­ufakis pushed the ne­go­ti­a­tion process to the ex­tremes, with ter­ri­ble con­se­quences for the Greek peo­ple and the Greek econ­omy.

His con­stant re­frain ever since has been that his “con­science would not al­low him to sign an agree­ment that would keep Greece stuck in a state of stale­mate and bank­ruptcy.” SYRIZA used to se­verely crit­i­cize for­mer con­ser­va­tive prime min­is­ter An­to­nis Sa­ma­ras and ex-fi­nance min­is­ter Evan­ge­los Venize­los of so­cial­ist PASOK, both be­fore the Jan­uary 2015 elec­tions and after the leftists came to power, for sug­gest­ing that the Greek debt had been brought onto the path of sus­tain­abil­ity thanks to the PSI (Pri­vate Sec­tor In­volve­ment) write­down of pri­vately held debt.

How­ever, a doc­u­ment that had been cir­cu­lated by the Greek side at a Eurogroup meet­ing on Fe­bru­ary 16, 2015, which is at Kathimerini’s dis­posal, shows that Varo­ufakis, de­spite his pub­lic pro­nounce­ments, was much closer to the po­si­tions of the re­viled Sa­ma­ras and Venize­los.

In this doc­u­ment, the debt-to-GDP ra­tio is cal­cu­lated in terms of net present value and es­ti­mated at 135 per­cent. The doc­u­ment dat­ing from just three weeks after the elec­tions – and re­peat­edly cit­ing the head of the Euro­pean Sta­bil­ity Mech­a­nism, Klaus Regling – states in a spe­cial ap­pen­dix that: “The mis­un­der­stand­ing re­gard­ing Greece’s sol­vency is owed to the fact that the blunt 175 per­cent debt-to-GDP num­ber does not fully de­scribe the ac­tual bur­den of pub­lic debt over the Greek econ­omy.” The bor­row­ing con­di­tions of the Euro­pean Fi­nan­cial Sta­bil­ity Fa­cil­ity (EFSF) as well as Greek Loan Fa­cil­ity (GLF) loans (the lat­ter be­ing the bi­lat­eral ar­range­ments of the first bailout) are char­ac­ter­ized as highly con­ces­sion­ary.

So, the ques­tion in­evitably arises: if Varo­ufakis be­lieved all this, then why did he lead the coun­try to the brink of ab­so­lute dis­as­ter, while dra­mat­i­cally ex­ac­er­bat­ing Greece’s debt-ser­vic­ing prospects?

An in­vestor’s view

Paul B. Kazar­ian, the CEO of Japon­ica Part­ners, which is one of the largest pri­vate hold­ers of Greek gov­ern­ment bonds, is in­fu­ri­ated with Varo­ufakis’s be­hav­ior.

In June 2015, Japon­ica con­ducted an anal­y­sis of the Fi­nance Min­istry’s pro­posal for debt re­struc­tur­ing (through the reval­u­a­tion of EFSF and GLF loans and the re­pur­chas­ing of In­ter­na­tional Mon­e­tary Fund loans utiliz­ing the pro­jected prof­its of the Euro­pean Cen­tral Bank’s SMP bond-buy­ing pro­gram). Ac­cord­ing to the anal­y­sis, Varo­ufakis’s pro­posal would more than triple cash in­ter­est pay­ments in 2015 by 6.5 bil­lion eu­ros.

Japon­ica dis­cov­ered a mul­ti­tude of er­rors and un­re­al­is­tic es­ti­mates in the Greek pro­posal, con­clud­ing that it did not ap­pear to con­form to ei­ther in­ter­na­tional ac­count­ing stan­dards or gov­ern­ment fi­nance sta­tis­tics method­olo­gies. The anal­y­sis specif­i­cally high­lighted the min­istry’s state­ment that the Varo­ufakis pro­posal did not in­volve a nom­i­nal hair­cut of Greece’s obli­ga­tions and that there would be no cost to cred­i­tors, while fully dis­prov­ing these claims.

“I had of­fered to give $100,000 to his fa­vorite char­ity if he would de­bate me in pub­lic, but he de­clined,” said Kazar­ian about the for­mer min­is­ter. “It was a crime of pre­med­i­ta­tion, he de­stroyed the bank­ing sys­tem – all for his own per­sonal ag­gran­dize­ment.”

The Ar­me­nian-Amer­i­can in­vestor places Varo­ufakis in a cat­e­gory for which he re­serves par­tic­u­lar scorn: the-

Paul B. Kazar­ian places for­mer fi­nance min­is­ter Ya­nis Varo­ufakis (left) in a cat­e­gory for which he re­serves par­tic­u­lar scorn: the­o­reti­cians. ‘It was a crime of pre­med­i­ta­tion, he de­stroyed the bank­ing sys­tem – all for his own per­sonal ag­gran­dize­ment,’ says the in­vestor of Varo­ufakis’s pro­posal to cred­i­tors in 2015. oreti­cians. “They don’t know about ac­count­ing and fi­nan­cial man­age­ment,” he said.

Kazar­ian places the few re­main­ing debt “re­al­ity-deny­ing” econ­o­mists and politi­cians promis­ing more debt re­lief in the same cat­e­gory, not­ing that the prospects for ad­di­tional debt re­lief from the Euro­pean cred­i­tors should only be viewed as in­sur­ance if all re­forms are ex­e­cuted in a timely man­ner and GDP does not meet the growth tar­gets.

Kazar­ian con­tends that he has not sold a sin­gle euro of the Greek gov­ern­ment bonds he bought ap­prox­i­mately five years ago. Would he buy more in a new is­sue? “Yes, we and other longterm hold­ers would buy if there was a com­mit­ment to adopt in­ter­na­tional ac­count­ing stan­dards,” ac­cord­ing to which, he says, Greece’s debt-to-GDP ra­tio is a mere 75 per­cent.

Adopt­ing in­ter­na­tional ac­count­ing stan­dards, he in­sists, would be a cru­cial re­form in order to at­tract the big sov­er­eign wealth funds, which to­day are ab­sent from the Greek gov­ern­ment bond mar­ket. As re­gards the is­suance of new bonds, he be­lieves that a “rea­son­able goal” would be 5 bil­lion eu­ros in 10-year bonds with a 3.9 per­cent yield in July or Au­gust.

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