Notebook, 24 February 2015: The Greek Reform Proposals, Annotated. UPDATE

What follows is the list of proposals submitted to the Eurogroup, as reported by Reuters. Contrary to many reports, Jeroen Dijsselbloem said that they were delivered to him on time—just another instance of the miserable reporting on Greece.


Dear President of the Eurogroup,

In the Eurogroup of 20 February 2015 the Greek government was invited to present to the institutions, by Monday 23rd February 2015, a first comprehensive list of reform measures it is envisaging, to be further specified and agreed by the end of April 2015.

In addition to codifying its reform agenda, in accordance with PM Tsipras’ programmatic statement to Greece’s Parliament, the Greek government also committed to working in close agreement with European partners and institutions, as well as with the International Monetary Fund, and take actions that strengthen fiscal sustainability, guarantee financial stability and promote economic recovery.

The first comprehensive list of reform measures follows below, as envisaged by the Greek government. It is our intention to implement them while drawing upon available technical assistance and financing from the European Structural and Investment Funds.

Truly

Yanis Varoufakis

Minister of Finance

Hellenic Republic

I. Fiscal structural policies

Tax policies – Greece commits to:

• Reform VAT policy, administration and enforcement. Robust efforts will be made to improve collection and fight evasion making full use of electronic means and other technological innovations. VAT policy will be rationalized in relation to rates that will be streamlined in a manner that maximizes actual revenues without a negative impact on social justice, and with a view to limiting exemptions while eliminating unreasonable discounts.

The specifics are as yet unknown, but as usual, the Greek government must balance easing the economic burden on its people while generating enough tax revenues to run the primary surplus demanded by European banks.

• Modify the taxation of collective investment and income tax expenditures which will be integrated in the income tax code.

Too unspecific for me to draw any conclusions.

• Broaden definition of tax fraud and evasion while disbanding tax immunity.

Go after tax cheats, who will mainly turn out to be among Greece’s wealthiest citizens.

• Modernizing the income tax code and eliminating from it tax code exemptions and replacing them, when necessary, with social justice enhancing measures.

Sounds good on the face of it. Expect crocodile tears from those who say it’ll hurt investment. (There is NO data to support that claim, at least in the US, where private sector investment is highly volatile and does not correlate well with either the business cycle or policy.)

Gross Private Investment

• Resolutely enforce and improve legislation on transfer pricing.

Amen to this, though I am ignorant of how big a problem this is for the Greek economy. It’s a thorny problem which policymakers have been failing to deal with for at least 20 years.

• Work toward creating a new culture of tax compliance to ensure that all sections of society, and especially the well-off, contribute fairly to the financing of public policies. In this context, establish with the assistance of European and international partners, a wealth database that assists the tax authorities in gauging the veracity of previous income tax returns.

In the US, this implies emphasizing the value society gets for its tax dollars. For example, you can take all the cargo that UPS and FedEx handles annually—combined—and that is what the US Postal Sevice handles EVERY TWO DAYS. That’s impressive, and this works very well to get those who want to whine about the post officee to STFU! Plus, targeting the tax cheats. ALL countries need to get up to speed on this.

Public Finance Management – Greece will:

• Adopt amendments to the Organic Budget Law and take steps to improve public finance management. Budget implementation will be improved and clarified as will control and reporting responsibilities. Payment procedures will be modernized and accelerated while providing a higher degree of financial and budgetary flexibility and accountability for independent and/or regulatory entities.

I’m tempted to dismiss this as “blahblahblah, make government more efficient,” but accountability, flexibility an efficiency are important, and part of the “value” calculation citizens judge their governments by.

• Devise and implement a strategy on the clearance of arrears, tax refunds and pension claims.

Just good management practice here, but again part of the “value” equation.

• Turn the already established (though hitherto dormant) Fiscal Council into a fully operational entity.

With teeth?

Revenue administration – Greece will modernize the tax and custom administrations benefiting from available technical assistance. To this end Greece will:

• Enhance the openness, transparency and international reach of the process by which the General Secretary of the General Secretariat of Public Revenues is appointed, monitored in terms of performance, and replaced.

More good government.

• Strengthen the independence of the General Secretariat of Public Revenues (GSPR), if necessary through further legislation, from all sorts of interference (political or otherwise) while guaranteeing full accountability and transparency of its operations. To this end, the government and the GSPR will make full use of available technical assistance.

More good management practice.

• Staff adequately, both quantitatively and qualitatively, the GSPR and in particular the high wealth and large debtors units of the revenue administration and ensure that it has strong investigative/prosecution powers, and resources building on SDOE’s capacities, so as to target effectively tax fraud by, and tax arrears of, high income social groups. Consider the merits of integrating SDOE into GSPR.

Most likely a high priority item, but this might wind up being a rearrangement of deckchairs on the Titanic. The devil’s in the details on this one, for example, how aggressive will its administrator be? Or how venal? This is an example where the Iron Law of Institutions is decisive.

• Augment inspections, risk-based audits, and collection capacities while seeking to integrate the functions of revenue and social security collection across the general government.

Again, collecting taxes efficiently is vital.

Public spending – The Greek authorities will:

• Review and control spending in every area of government spending (e.g. education, defense, transport, local government, social benefits)

More Good Government and part of that “value” equation.

• Work toward drastically improving the efficiency of central and local government administered departments and units by targeting budgetary processes, management restructuring, and reallocation of poorly deployed resources.

I am ambivalent on this, though I recognize that this gravy to the institutions. Fact of the matter is, for government programs to produce the desired effects, they must overspend. This is by definition inefficient, which in no way means that it is nonetheless true.

• Identify cost saving measures through a thorough spending review of every Ministry and rationalization of non-salary and non-pension expenditures which, at present, account for an astounding 56% of total public expenditure.

Most likely, a lot of spending has been tainted with kickbacks and sweetheart deals. Plus ça change. We’ll see what kind of corruption this unearths and how Tsipras deals with it. Stay tuned.

• Implement legislation (currently in draft form at the General Accounts Office – GAO) to review non-wage benefits expenditure across the public sector.

In the US, this means taming health insurance costs, which for all the blather about free markets and choice, those supposedly hard-headed businessmen have failed to tame. Look for something similar in Greece.

• Validate benefits through cross checks within the relevant authorities and registries (e.g. Tax Number Registry, AMKA registry) that will help identify non-eligible beneficiaries.

Cross-checking is vital in revealing corruption and fraud. Syriza apparently gets this.

• Control health expenditure and improve the provision and quality of medical services, while granting universal access. In this context, the government intends to table specific proposals in collaboration with European and international institutions, including the OECD.

Yup. See what I said about health care above.

Social security reform – Greece is committed to continue modernizing the pension system. The authorities will:

• Continue to work on administrative measures to unify and streamline pension policies and eliminate loopholes and incentives that give rise to an excessive rate of early retirements throughout the economy and, more specifically, in the banking and public sectors.

Greece will most likely be trapped into doing several things here. Increasing retirement age (effectively this means lowering benefits for those retiring before “full retirement age”), raising safety net taxes, and a general trimming back of payouts. I’d expect a replay of America’s Social Security “Reform” legislation of 1982 here, the only instance in US history when taxes were raised on poor people while simultaneously reducing the tax burden on the rich.

• Consolidate pension funds to achieve savings.

Which will give Athens greater power over the retirement system as a whole.

• Phase out charges on behalf of ‘third parties’ (nuisance charges) in a fiscally neutral manner.

I’m at sea on this one. Somebody—anybody—can you help me out here?

• Establish a closer link between pension contributions and income, streamline benefits, strengthen incentives to declare paid work, and provide targeted assistance to employees between 50 and 65, including through a Guaranteed Basic Income scheme, so as to eliminate the social and political pressure for early retirement which over-burdens the pension funds.

Laudable, but I don’t know how this will work out. Effectively, a wage subsidy for those between 50 and 65. There are pluses and minuses here, and only scrutinizing the data a few decades from now will deliver a clear (though still tentative) verdict. Business should keep an open mind about this.

Public administration & corruption – Greece wants a modern public administration. It will:

• Turn the fight against corruption into a national priority and operationalize fully the National Plan Against Corruption.

Amen.

• Target fuel and tobacco products’ smuggling, monitor prices of imported goods (to prevent revenue losses during the importation process), and tackle money laundering. The government intends immediately to set itself ambitious revenue targets, in these areas, to be pursued under the coordination of the newly established position of Minister of State.

Amen. What I’d expect to find here is that shippers have been falsifying manifests and bills of lading. Get your popcorn, because this should create some fireworks.

• Reduce (a) the number of Ministries (from 16 to 10), (b) the number of ‘special advisors’ in general government; and (c) fringe benefits of ministers, Members of Parliament and top officials (e.g. cars, travel expenses, allowances)

Again, I’m at sea on this, though once again, we’re dealing with “good government” and “value” voters perceive in their government.

• Tighten the legislation concerning the funding of political parties and include maximum levels of borrowing from financial and other institutions.

Oh, that we had strong legislation and enforcement of this in the US. Enough said.

• Activate immediately the current (though dormant) legislation that regulates the revenues of media (press and electronic), ensuring (through appropriately designed auctions) that they pay the state market prices for frequencies used, and prohibits the continued operation of permanently loss-making media outlets (without a transparent process of recapitalization)

This makes some sense, though rural outlets, if any, will disappear. I would entertain the idea of retaining some loss-leaders here.

• Establish a transparent, electronic, real time institutional framework for public tenders/procurement – re-establishing DIAVGEIA (a side-lined online public registry of activities relating to public procurement)

I’m surprised Athens hasn’t implemented this already, to be honest.

• Reform the public sector wage grid with a view to decompressing the wage distribution through productivity gains and appropriate recruitment policies without reducing the current wage floors but safeguarding that the public sector’s wage bill will not increase

Good luck with this. I wouldn’t spend a lot of time and resources trying to undo wage compression. Real wage compression in the US is an abomination:

Mean Real Income by Quintile and Top 5%

• Rationalize non-wage benefits, to reduce overall expenditure, without imperilling the functioning of the public sector and in accordance with EU good practices

Wherever this intersects with the private sector, as it does in the US healthcare system, just note that these firms will not let their profits go without a fight. And they’ll play dirty. Grab more popcorn and enjoy the fireworks.

• Promote measures to: improve recruitment mechanisms, encourage merit-based managerial appointments, base staff appraisals on genuine evaluation, and establish fair processes for maximizing mobility of human and other resources within the public sector

Eliminate patronage? Best of luck with that and even if appointments and hires are made honestly, there will still be accusations of rewarding some for their political support.

II. Financial stability

Installment schemes – Greece commits to

• Improve swiftly, in agreement with the institutions, the legislation for repayments of tax and social security arrears

A trap for the institutions. If they don’t go along with this, then the Greek public could very well go with an independence party in the next elections, and the EU knows it. Also, elections in Spain are due by next December at the latest. Stay tuned.

• Calibrate installment schemes in a manner that helps discriminate efficiently between: (a) strategic default/non-payment and (b) inability to pay; targeting case (a) individuals/firms by means of civil and criminal procedures (especially amongst high income groups) while offering case (b) individuals/firms repayment terms in a manner that enables potentially solvent enterprises to survive, averts free-riding, annuls moral hazard, and reinforces social responsibility as well as a proper re-payment culture.

Again, going after tax cheats. Here, Athens implies that this will be done with an eye to maximizing revenues rather than punishment.

• Decriminalize lower income debtors with small liabilities

Decriminalize poor tax evaders who’re most in need of all the help they can get.

• Step up enforcement methods and procedures, including the legal framework for collecting unpaid taxes and effectively implement collection tools

Same-same.

Banking and Non-Performing loans. Greece is committed to:

• Banks that are run on sound commercial/banking principles

Well, we all know prudence in lending went out the door at least a decade ago.

• Utilize fully the Hellenic Financial Stability Fund and ensure, in collaboration with the SSM, the ECB and the European Commission, that it plays well its key role of securing the banking sector’s stability and its lending on commercial basis while complying with EU competition rules.

Nuts and bolts. I expect Athens will put up a fight along the lines of some form of capital controls and/or transparency, which, since the EU is currently grappling with this issue itself, they can hardly argue against, though as usual, expect the rentier class to whine about the “free flow of capital.”

• Dealing with non-performing loans in a manner that considers fully the banks’ capitalization (taking into account the adopted Code of Conduct for Banks), the functioning of the judiciary system, the state of the real estate market, social justice issues, and any adverse impact on the government’s fiscal position.

Good luck with this as well. This is what Syriza is committed to, but they’ve a long, uphill battle before them. In the US, we’ve already seen foreclosure mills flourish, including at least one judge who believed it was her duty to push as many foreclosures through her court as possible.

• Collaborating with the banks’ management and the institutions to avoid, in the forthcoming period, auctions of the main residence of households below a certain income threshold, while punishing strategic defaulters, with a view to: (a) maintaining society’s support for the government’s broad reform program, (b) preventing a further fall in real estate asset prices (that would have an adverse effect on the banks’ own portfolio), (c) minimizing the fiscal impact of greater homelessness, and (d) promoting a strong payment culture. Measures will be taken to support the most vulnerable households who are unable to service their loans

Here is what lies at the heart of the entire financial crisis. Falling real estate prices undermined the entire banking system throughout the West, and Syriza doesn’t want it getting any worse.

• Align the out-of-court workout law with the installment schemes after their amendment, to limit risks to public finances and the payment culture, while facilitating private debt restructuring.

HAMP and HARP attempted to do this in the United States and were miserable failures, due to the refusal by banks to grant mortgage relief—except to those who didn’t need it.

• Modernize bankruptcy law and address the backlog of cases

Another process fraught with difficulty, and rather at odds with the earlier stated aim of going on a case-by-case basis. You can maximize justice or you can maximize efficiency. You can’t do both.

III. Policies to promote growth

Privatization and public asset management – To attract investment in key sectors and utilize the state’s assets efficiently, the Greek authorities will:

• Commit not to roll back privatizations that have been completed. Where the tender process has been launched the government will respect the process, according to the law.

Well, this is what Greeks are going to have to live with apparently. The challenge here is to get full value from vulture capitalists.

• Safeguard the provision of basic public goods and services by privatized firms/industries in line with national policy goals and in compliance with EU legislation.

Too broad an aim for me to comment on. What EU legislation? What goods and services? What firms? About the only aspect of this point I feel somewhat confident of are the “national policy goals” which I take to mean “to maximize social justice.”

• Review privatizations that have not yet been launched, with a view to improving the terms so as to maximize the state’s long term benefits, generate revenues, enhance competition in the local economies, promote national economic recovery, and stimulate long term growth prospects.

In other words, look at asset sales with a businessman’s eye: Let nothing go which contributes to the bottom line—unless you can get an offer too good to refuse.

• Adopt, henceforth, an approach whereby each new case will be examined separately and on its merits, with an emphasis on long leases, joint ventures (private-public collaboration) and contracts that maximize not only government revenues but also prospective levels of private investment.

Yeah, I’ve heard this before. Healthcare.gov for example. Beware of public-private partnerships. The private side often fails to deliver, or generates massive cost overruns. Though they seem to get paid on time, nonetheless.

• Unify (HRDAF) with various public asset management agencies (which are currently scattered across the public sector) with a view to developing state assets and enhancing their value through microeconomic and property rights’ reforms.

Yeah. I didn’t know what the HRDAF was before encountering it here, but I’d get a firm grasp on that ASAP. Looks like it’s neoliberal mission is to make Greece a better playground for German and Arab millionaires. Dissolve it. Slow that process down as much as possible.

Labor market reforms – Greece commits to:

• Achieve EU best practice across the range of labor market legislation through a process of consultation with the social partners while benefiting from the expertise and existing input of the ILO, the OECD and the available technical assistance.

• Expand and develop the existing scheme that provides temporary employment for the unemployed, in agreement with partners and when fiscal space permits and improve the active labor market policy programs with the aim to updating the skills of the long term unemployed.

• Phasing in a new ‘smart’ approach to collective wage bargaining that balances the needs for flexibility with fairness. This includes the ambition to streamline and over time raise minimum wages in a manner that safeguards competiveness [sic] and employment prospects. The scope and timing of changes to the minimum wage will be made in consultation with social partners and the European and international institutions, including the ILO, and take full account of advice from a new independent body on whether changes in wages are in line with productivity developments and competitiveness.

Taking these three points together, all I can say is BEWARE! My observations suggest that weakening labor unions merely throws working people onto the public dole one way or another, and that retraining tends to provide labor markets with an oversupply of skilled workers, depressing wages. When Ronald Reagan declared class war on American workers, he gave capital the political cover to go after organized labor on all fronts, which it still wages today. This hasn’t worked out well for American workers, especially in manufacturing jobs, but across the entire gamut of lesser-skilled employment as well:

Sector Shares of the Workforce, 1972 and 2012

Change in Real Production and Nonsupervisory Wages by Sector

I could go on about this at length, but suffice it to say, that:

  1. This destroyed American prosperity
  2. Drove working people into debt:

    Percentage of Household Disposable Income Devoted to Debt Service

  3. And facilitated the transfer of wealth to those who didn’t need any more, and if anyone tells you that this will generate greater tax receipts, that’s not necessarily so either. It certainly failed to do so in the United States:

    Corporate After-Tax Profits vs Corporate Tax Receipts

The fact is, exiting the eurozone entirely is preferable to abandoning your workforce to the mercy of management and shareholders.

Product market reforms and a better business environment – As part of a new reform agenda, Greece remains committed to:

• Removing barriers to competition based on input from the OECD.

• Strengthen the Hellenic Competition Commission.

• Introduce actions to reduce the burdens of administrative burden of bureaucracy in line with the OECD’s input, including legislation that bans public sector units from requesting (from citizens and business) documents certifying information that the state already possesses (within the same or some other unit).

• Better land use management, including policies related to spatial planning, land use, and the finalization of a proper Land Registry

• Pursue efforts to lift disproportionate and unjustified restrictions in regulated professions as part of the overall strategy to tackle vested interests.

• Align gas and electricity market regulation with EU good practices and legislation

I will also take these in one lump. They’re bogus arguments, all of them. I challenge any economist to demonstrate that increasing competitiveness produces the results advertised. Japan is in retreat, China has maxed out, Mexico’s maquilodora has become lawless and ungovernable . . . . I could go on and on in this vein. China and Japan, at least, weren’t regions where competitiveness was the only spanner in their development toolbox, either. They had full-fledged, central government driven industrial policies funneling investment into certain sectors aimed at making a splash in specific global markets but as we’re witnessing, the benefits derived thereof are temporary and given to creating massive debt bubbles.

The real key to sustainable development lies in the concept of creating a center of excellence. (Plus being aggressive with R&D in your field.) In the Boston area where I live, that’s medicine, particularly in dealing with complex conditions. In the Italy’s province, Brescia, it is in custom-fitted, hand-engraved shotguns. Think that’s a paltry idea? It wasn’t so long ago that shotguns alone gave the province of Brescia a bigger GDP than Greece. I cannot say what the solution is for Greece. Certainly it is very well placed to be the logistical hub for trade into Europe for goods coming in from South Asia, China, the Middle East and Africa. That’s a competitive advantage that’s not going away anytime in the foreseeable future and being really good at it is a formidable challenge.

But there it is. An industrial policy aimed at developing centers of excellence. That’s my proposal. Somewhat like the United States does in the field of advanced weaponry and don’t knock it. Unspoken as that is in the US, it works. I believe it is the only idea worth considering, but it does demand a leader with the vision of Themistocles to achieve it.

I never said it was going to be easy.

Reform of the judicial system – The Greek government will:

• Improve the organization of courts through greater specialization and, in this context, adopt a new Code of Civil Procedure.

Specialization is expensive. I’m not sure the bang for the buck is worth it.

• Promote the digitization of legal codes and the electronic submission system, and governance, of the judicial system.

In this day and age, this should be a given.

Statistics – The Greek government reaffirms its readiness to:

• Honor fully the Commitment on Confidence in Statistics, and in particular the institutional independence of ELSTAT, ensuring that ELSTAT has the necessary resources to implement its work program.

Amen. I’ll take all the good data I can get and let me just say “thank you” in advance.

• Guarantee the transparency and propriety of the process of appointment of the ELSTAT President in September 2015, in cooperation with EUROSTAT.

And don’t accuse your chief statistician with treason just because the numbers suck. Please. That’s awfully bad form, it really is.

IV. Humanitarian Crisis – The Greek government affirms its plan to:

• Address needs arising from the recent rise in absolute poverty (inadequate access to nourishment, shelter, health services and basic energy provision) by means of highly targeted non-pecuniary measures (e.g. food stamps).

Like it.

• Do so in a manner that is helpful to the reforming of public administration and the fight against bureaucracy/corruption (e.g. the issuance of a Citizen Smart Card that can be used as an ID card, in the Health System, as well as for gaining access to the food stamp program etc.).

Like it.

• Evaluate the pilot Minimum Guaranteed Income scheme with a view to extending it nationwide.

Like it.

• Ensure that its fight against the humanitarian crisis has no negative fiscal effect.

The only way to achieve this is through economic growth (see my development scenario above) and with increased tax receipts resulting from that growth. Well, I wish you the best with that.


Looks like they touched all the bases, though as I say, their proposals concerning competitiveness are pure bilge, but this is the kind of thing the institutions demand, so Athens gets a pass. They way the institutions mean it, “competitiveness” is just code for union-busting and payroll cuts anyways. If Greece relies on income taxes like he US does, that will drive tax receipts (as well as bank deposits) down. I said before that the vision of Themistocles is needed but the political will to take a direction and see it through is the real critical component. Such leadership is rare, but without it, and even if it manages to dig itself out of the debt-hole it is in, Greece will be back where it is today; an also-ran in the European sphere with it’s future uncertain and like Latvia, its young people and skilled labor force emigrating in droves. In Latvia, Riga has become a ghost town.

Political will is indeed the decisive factor, and this is something that Greeks seemed to have grasped, though it took them long enough. The dynamic I see here is one I think you’ll find often. Capital will push and push (just like free market counterparties are expected to) until the go/no-go point is reached. In other words, price discovery. My feeling is that had this been understood sooner, a lot of hardship and tragedy might have been avoided and it strikes me as particularly callous to think that some seem to feel that policy should be driven as though it was at auction. Apparently, this is the case.

Perhaps. with German Finance Minister Wolfgang Schauble moved to the periphery of the coming negotiations, we may see signs of easing in the way the EU deals with Greece (and then Spain, Portugal and Ireland, countries still suffering the crippling effects of the austerity inflicted on them). In truth, however, the possibility of a Grexit remains real, as does a dissolution of the euro entirely, but the probability of this has—for the time being—receded.

UPDATE: It would seem that reports that the IMF was sitting in Greece’s corner are premature. Also premature could be all those reports that the list of reforms has been accepted by the Eurogroup, the EC and the IMF (“the institutions”) and that revenues to bolster Greek banks are to be shortly forthcoming. Christine Lagarde has sent a chatty (“Dear Jeroen”) letter to Eurogroup President Dijsselbloem, and the situation has markedly destabilized in the last few hours.

Notable here are a few things. Eurogroup President Dijsselbloem gets a gentle slap on the wrist for accepting the Greek letter without first getting input from the financial ministers of the eurozone member states:

“. . . a determination in this regard should of course rest primarily on an assessment by Member States themselves and by the relevant European institutions.”

One wonders what kind of game Lagarde is playing here, because we know that once Germany, Finland and Austria get their fangs out, that’s it for Syriza. Apart from any economic sense the deal might or might not make, the northern bloc will not let a leftist government gain any traction in Europe, even though an anti-establishment government like Syriza is the only way to break the death grip entrenched special-interest groups hold over their governments.

I have already gone on here about what labor “reforms” entail, and I won’t go into that any further, but it seems that Lagarde simply plays on the old neoliberal fiddle here. We should all realize by now what the anti-labor movement has done to American prosperity, but it seems Lagarde can’t see the obvious. Well, she was chosen to head the IMF, and had she a clearer vision of what history has to tell us in this regard, she wouldn’t have been chosen at all, now would she? So I am not particularly surprised, but I won’t let this slide. @Lagarde is going to be hearing from me from now on.

She goes on:

“While the authorities’ list is comprehensive, it is generally not very specific, which is perhaps to be expected considering that the government is new in office.”

Well, also considering that their foolish deadline was three days, what else can they expect? A full-fledged budget proposal? Varoufakis called this deadline “inhuman”, and he was right.

My initial take was that Syriza would find itself up against a brick wall and be forced to call for early elections in which the Grexit issue was back on the table, and with this development, this has become a much more likely possibility than I was feeling it would be just a few hours ago. We should know in a week or two. If Greek banks begin going under, it is game over. We are not quite yet there, however.

Anyways, Lagarde continues:

“We note in particular that there are neither clear commitments to design and implement the envisaged comprehensive pension and VAT policy reforms, nor unequivocal undertakings to continue already-agreed policies for opening up closed sectors, for administrative reforms, for privatization, and for labor market reforms. As you know, we consider such commitments and undertakings to be critical for Greece’s ability to meet the basic objectives of its Fund-supported program”

Now this is just turning the screws. As I stated earlier, the deadline was always unrealistic, which is something I realized as soon as I heard Dijsselbloem announce it last Friday. Clarity and detail? Impossible, considering the tightrope Tsipras and company have to walk. In engineering development terms, what Lagarde demands here is a design specification when she hasn’t even given Athens time to develop with a decent user-spec. And even if Tsipras and company had such designs all worked out, this program would still have to pass muster in Greece’s parliament, which I just don’t see happening at all.

The situation is complex. The Eurogroup had seemingly given its blessing to the letter, though Lagarde seems to feel that this isn’t so, at least until the Member States get to rip into it. Yet in the press conference given last Friday Lagarde specifically (and happily) indicated that contrary to the Eurogroup’s February deadline, the IMF aid was scheduled to continue until March of 2016. Now she seems to be making this contingent to adherence to agreements made by previous governments which Syriza was specifically elected to overturn. A few hours ago, I had thought that this would get Tsipras four months closer to the latest date Spanish elections can take place, in December. I had thought a few hours ago that perhaps the idea that Greece was being given a four month lifeline while the “program” could be renegotiated, which even the IMF has publicly admitted is a disaster. Most of all, it stinks of bad faith. Positively reeks of it.

My scenario entailed a Podemos-led government in Spain acting in concert with Syriza in Greece which could present a powerful front to counter Europe’s financial elites, and disastrous austerity policies could begin to be rolled back. It appears I was wrong about all that. The more I think about things, the harder it is to conclude anything but the situation in Europe is now beyond prediction. Podemos in Spain, which would be amateurish but well meaning, could very well be complemented by Le Pen in France.

In other words, political chaos.

Cyprus, and now Greece. This was a move whose overreach seems worthy of ISIS. Such short-sighted stupidity is something I haven’t seen since 2003 and Bush’s rush to war in Iraq. It is also highly reminiscent of the disastrous wranglings of 1919. I don’t know who got to Lagarde or if anybody even needed to, but she may have just pushed the European Union—not just the eurozone—to the very brink. Even if it does survive, it can only do so with some deep scars from this point onward. Battle lines have been drawn and there are simply too many unemployed young people in Europe right now for any of this to turn out well.

The letter, in its entirety, is below:

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