(Brussels, July 8) Yesterday was a crucial day for Greece as its European partners realized the real nature of the Greek problem. Today, in addressing the European Parliament Prime Minister Alexis Tsipras assured the Parliament that the NO in the Greek referendum by no means constitute a break with the European Union and accused the Greek governments of the past five years for the present crisis. In essence Alexis Tsipras did not make any concrete reference to the Greek proposals and made the general accusation to the European banks as “the recipients of Community money.”
Greece did not present any concrete proposals in Tuesday’s Eurogroup nor Prime Minister Alexis Tsipras tabled any proposal to other Eurozone leaders in the meeting that followed.
This gave the opportunity to Eurogroup to give an ultimatum to the Greeks to present their proposals by the latest Friday 08:30 am CET. The Eurogroup will evaluate the Greek proposals and Sunday June 12, has been scheduled an extraordinary EU summit (the leaders of the 28 Member States) to take final decisions over the Greek issue, if the Greek proposals are rejected by the Eurogroup. As for the possible exit of a Eurogroup member from the common currency, the withdrawal from the European Union is required. The summit of the EU leaders instead of the Eurogroup leaders of Sunday, implies that a GrExit is not ruled out by the Europeans.
The matter will be further complicated in Greece as in the meeting of political leaders under the President of the Republic which convened last Monday Alexis Tsipras got a deadline of forty eight hours to go to Brussels and bring back an agreement signed. At the same time, all political leaders in Greece, including Alexis Tsipras himself, rule out a possible GrExit.
However, the parameters of the Greek case have suddenly changed and Alexis Tsipras, will go back to Greece without an agreement to present in Parliament and with a potential GrExit on the table.
A far-fetched (?) scenario is that, given the nature (communist) and the targets (dismemberment of the European Union) of the (leftist) hard core of the Tsipras cabinet, this (leftist) hard core most probably is looking for a GrExit.
The lack of cash and the inability of the government to pay salaries to civil servants (approximately 700,000, annual cost € 16 bn per year not to speak of €28 bn per year to pensioners) who constitute the nucleus of the SYRIZA party is the only preoccupation of the Tsipras government. By going to drachma, SYRIZA will be printing money at will and will be paying regularly its supporters while granting generous monthly salary increases, as the drachma will be at galloping hyperinflation.
This seems to be the plan in the minds of the “leftist platform,” which is part of the present Alexis Tsipras government.
Cash is King
Since ten days now, the Greek economy is functioning without banks. After the first shock, the Greeks are rapidly adapting and setting on a full-scale black economy.
When Alexis Tsipras won the January election, the Greeks began withdrawing their moneys from the banks. At this moment it is estimated that the Greeks hold in their homes, some € 40 billion, in cash.
A big disadvantage of the Greek economy is the plethora of small family companies employing three or less people each, in most cases either family members of relatives. This type of small business has a lower productivity rate than the average European, yet enjoy the highest degree of flexibility. This disadvantage becomes advantage in extraordinary situations.
This kind of enterprises are now sustaining the economy and are doing fine. As there are no banks, all transactions are in cash, and there is plenty of cash in Greece. Yesterday, I learned that a “free-entrepreneur” from Kalamata, Peloponese, got a loan of € 80,000 from a usurer, at interest 5% per month, rented a small frigo-van from a butcher, drove in Italy, bought frozen shrimps and returned to Kalamata. Upon return, sold-out the merchandise to food retailers, returned the money with the due interest to the usurer and the van to the butcher and after deducting all costs, he made a profit of € 34,000. No income tax, no TVA, no social security contributions.
Hotels and restaurants work only for cash. In northern Greece (Macedonia, Thrace) besides traditional foreign currencies (USD, GBP, CHF etc.) hotels and shops accept also Bulgarian Leva and Romanian Leu. Since one week, the British government has issued a travel advisory informing UK subjects visiting Greece to have cash for their entire vacation period. This facilitates black market transactions.
The Greek economy is swiftly turning into a cash economy. In this context the state machine is completely absent in this economic process and nobody pays taxes. Furthermore, no controls such as spot audits are exerted anymore because no controller risks coming face to face with merchants.
The problem is only with the pensioners who get only € 120 per week against their pensions. The biggest problem is with foreign trade companies, which cannot transfer money abroad and thus their activities are suspended. On the contrary, department stores (food) have no problem. They sell with credit cards, they make their domestic transactions with e-banking while they keep the cash, which is used in the parallel economy.
The two Greek alternatives
GrExit is the first option.
It will be certainly a high-risk decision for Alexis Tsipras himself and for Greece. Indeed, it will change dramatically the life of ordinary citizens and certainly will have serious political repercussions.
Earlier this morning the term “treason” was pronounced by one of the political leaders, Stavros Theodorakis of “Potami” party, for the first time. This gives an idea of the socio-political climate, which is being formulated in Greece at the present and what might follow if a GrExit proves premeditated.
The European economy will also suffer and may enter in unchartered waters, as Euro is a new, fragile currency not supported by a common fiscal policy of the countries that have adopted it. Thus it is not easy to predict what synergies to the Eurozone a GrExit might produce.
The world economy is another issue to examine, with a Cold War tougher than ever unfolding between the USA and CIS while the Chinese economy, after a long period of frenetic growth, entered into a rapid decline.
Compromise is the other option.
To this effect, EU leaders and in particular Chancellor Angela Merkel were explicit. Give and take.
Greece has to present by Friday morning (08:30 am CET) a complete two-phase plan, which cannot be without political assurances.
Once accepted, immediate financial assistance will be granted to Greece to resolve its direct problems including the gradual restoration of the functioning of the banking system, payments of overdue foreign debts and securing payments of basic state obligations such as pensions, salaries and functioning of hospitals. This will be the “give.” The “take” could be a government reshuffle under Alexis Tsipras, which include all pro-European parties of Greece and exclude the leftist platform of Syriza. This will be necessary not only for restoring the credibility of the Greek government in Europe but also for formulating the necessary majority in the Parliament in order to approve the agreement. Such a reshuffle will be also the most credible argument for all Eurozone leaders to pass any agreement with Greece in their Parliaments.
The first phase there will be an interim agreement for Greece to go to elections and produce a new Parliamentary majority and an new grand coalition government which will sign the final deal.
Last but not least. The real problem the European Union institutions have with Greece, is political. It is the possible impact any, even small, political victory SYRIZA can claim over Europe, will favor similar leftist parties all over the EU starting with the Podemos party of Pablo Iglesias in Spain. That is why we think that one of the sine qua non conditions of the Eurogroup will be the formation of a new Parliamentary majority in Greece composed only by pro-European forces. This certainly will be reflected by a new, reshuffled cabinet and a very generous economic support to Greece, as an additional tool of conservative Europe to maximize its propaganda against the Leftist movements in Europe. coronakis(at)neweurope.eu