John Ward – Greece Exclusive : ‘Deal Has Been Done To Pay Off Bondholders And Forgive Residue Of Debt’ – French Diplomat Source Confirms Big New Containment Plan For Greece – 12 August 2012

Samaras…big secret, upping the pace of austerity

‘What the deal does is allow another default date to come and go with everyone pretending it hasn’t happened.’

Another day, another bonkers conspiracy theory from The Slog. Greece has done a deal to put the lid on the Greek crisis? Pah! Formation of Greek/Israeli/Cyprus/US alliance? Fiddlesticks!

Let’s take the deal first.

There is a tradition in Greek politics that the government of the day delivers a speech and holds a press conference during the annual Thessaloniki International Trade Fair. Organized by Helexpo, it takes place every September at the Thessaloniki International Exhibition Centre. This convention of a sounding-board for those in power has been going on since 1926. Only during the German Occupation was it interrupted.

But the Samaras government has decided to neither speak nor take questions. No explanation is being given as to why. Another email from a regular Athenian media contact:

“Something has been agreed, and whatever it is has made the bondholders and the Troika irrelevant overnight. There are half-hearted references to repayment schedules, but they don’t have that sense of panic evident just a few short weeks ago. But you can see that Samaras is now pushing for more austerity progress.”

He is indeed. Greek media are reporting that Prime Minister Samaras told government ministers to complete work this month on 77 amendments to be included in a bill that aims to speed up state asset sales.

One clue comes from a senior tax office executive who has blown whistles to The Slog before.

“I think the Troika made a catastrophic error some days ago,” this person told me yesterday, “either that, or they did this deed to create a showdown. I don’t know which, but it concerns the EU demand that the Greek civil service should have its headcount drastically reduced. Samaras and Stournaris are all for it, Venizelos [PASOK] is nervously against, and Fotis Kouvelis [Democratic Left] is flatly refusing to even consider it. No crooked politician in Greece dares to attack the civil service, for obvious reasons. This is a major sticking point”.

It’s an interesting view, but it doesn’t on its own in any way explain the dramatic change in Troika/bondholder v Government atmosphere the week before last. Somebody, somewhere in Europe flicked a switch within the last ten days, and everyone relaxed.

Now a close French diplomatic contact has told The Slog:

“Brussels or Berlin…or both…or others…have given Samaras a big reassurance that if he sticks with the [austerity] programme, Greece will not be thrown out of the euro. Those same people have given similar assurances to the key players in the IMF and bondholder groups…that if they take another haircut, the EU will pay off the balance and give them their money back. The secrecy is to do with Merkel being flayed alive at home if they thought she was doing this, and Draghi ensuring that his central bank doesn’t become an open door for insolvent States and panicky bondholders.”

Now this is an interesting one: the talks stick over the issue of bureaucrat firings, so somebody decides to break the deadlock using a judicious mixture of EU acting like a sovereign plus debt forgiveness. But it will be packaged in such a way as to disguise what it is. This is, of course, precisely what the ECB has done over Spain, and to some extent Italy; so to that extent it rings true. Has Draghi engineered this deal as the next step in neutering Germany…or has he formed some sort of pact with Merkel during her holiday – which ends tomorrow? Are the Americans in the loop?

I don’t know for certain: but logic points the finger at Mario Draghi.

This Tuesday, Athens will auction some short-term bonds to pay off the €3.2 billion bond repayment due on Aug.20. Greece being able to do this successfully will avoid the country having to seek yet more emergency funding on top of the bailout loans it receives from EU and IMF funds.

The €3.2 billion bond that matures August 20th is held by the European Central Bank.

It seemed odd that nobody looked concerned by everyone going on holiday with default due on August 20th. Now we know why. What the deal does is allow another default date to come and go with everyone pretending it hasn’t happened. Success or failure after the bond issuance, the ‘Greeks’ will meet the maturity date.


It is becoming increasingly potty to stick with the view that nothing is going on here. As the Economist points out this week:

‘There is a common fallacy, not least in Germany, that dropping the Greeks would be a fairly costless way to teach a useful lesson. In fact the European Central Bank (ECB) owns Greek bonds with a face value of €40 billion ($50 billion), which would be converted into devalued drachma and which Greece might not service. A further €130 billion or so of loans that Greece received in the bail-out would have to be written down, or written off. The €100 billion of the temporary debts Greece has stacked up in the ECB’s payments system would crystallise into a loss. Add in a one-off grant of say €50 billion to tide Greece over—call it conscience-salving “solidarity”—and the bill might come to €320 billion. Estimating the price of a “Grexit” is guesswork, but Germany’s share might reach €110 billion of this, about 4% of the country’s GDP.’

Those nutters at the Economist, eh? What will they come up with next?

Now for the strategic alliance story. Starting from the vantage point of Greece-Turkey relations over Cyprus, I was (I think) the first to point out that Putin was trying to strengthen his ties with the Greek Cypriot regime. I also posted several times earlier this year about Turkish raw material ambitions in the Aegean, and the virulently anti-Israel stance being taken by that nice, normal Recep Erdogan. The comms/energy pipeline agreement between Greece, Cyprus and Israel quickly followed as a topic here, and now – following the visit of Shimon Peres to Athens last week – comes further evidence of a cemented alliance.

The output from the visit is that Greece and Israel will move towards much closer cooperation on defense issues, including the joint manufacture of defence systems. Government sources confirmed this to news-site Ekathimerini, adding that the Syrian bloodbath and arrival of warships warships in the Southeastern Mediterranean have confirmed the two sides’ mutual view that closer defensive cooperation is essential. A senior bod in the Israeli Ministry of Defence, Shmaya Avieli, will visit Greece before the end of August to continue the talks and scope out some projects.

Clearly, neither side is hanging about on this one. But it’s all just more Slogbollocks anyway, so I wouldn’t worry over there at the Foreign Office, chaps. You just carry on getting it completely wrong: it’s a long-standing tradition, and it’d be a shame to change it now.

See also Why the Germans will quit the eurozone whether they want to or not. link to original article


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