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Christopher Mahoney
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I spent eight years at Bank of America in New York (1978-86) covering Wall Street, then moved to Moody's Investors Service where I worked for 22 years, covering banks, sovereigns and corporates. I chaired the Credit Policy Committee for four years. I retired in 2007 as vice chairman. PLEASE... More
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Capitalism and Freeedom
  • Greece Will Defy Europe Yet Again 0 comments
    Dec 8, 2012 1:53 PM

    It looks like the latest Greek bailout deal is about to be put to bed. Greece has passed the required legislation, the deal has been okayed by the relevant donor parliaments, and the debt buyback required by the IMF is almost complete. All systems are Go.

    However, this latest deal is not just a xerox copy of the prior (failed) deals. At the insistence of the donors, it contains what appear to be some real teeth. In trying to reconcile the need to prevent Grexit while forcing Greece to comply with its demands, the Troika wants to do to Greece what the US used to do to Central America back in the good old days. Just as the US Navy would take over customs collection until its bonds were redeemed, the Troika will take control of Greek revenue and expenditures, or so it believes.

    The new deal includes the following conditions:

    1. Disbursements are conditioned on Greek fulfillment of its specific promises. For example, the upcoming disbursement of 9.3 billion euros requires that the Troika certify that the Greek government met a January deadline for implementing tax reform. (It is unclear if that means merely passing the legislation or actually changing the tax system, a crucial distinction in a country where legislation means nothing.)

    2. In the event that Greece's budget goes off the rails (as it always had in the past), automatic spending cuts will kick in.

    3. The Troika will administer a segregated account for Greek revenue and aid money to ensure that debt payments have first priority.

    These unyielding conditions put the Greek government in an awkward position: whether to defy the people, or to defy the Troika. If past is any indication, Greece will defy the Troika. The Troika represents International Capital, the eternal enemy of the Greek working class. As a tool of foreign capitalist interests, the Troika lacks political legitimacy. The Greek government has an affirmative obligation to defy such forces. (In Greece it is always May 1968.)

    The question is not whether Greece will fail to comply, but how soon. Probably next month, given their past performance. Better to defy now, while Europe is still writing checks, than to wait for time to pass and the German parliamentary elections to loom larger. The closer the elections get, the worse it will be for Greece.

    Will the Greeks get away with it? They always have.

    Themes: greece, troika, imf
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