Greece: should Finland use its experience of the payment of last war’s damages?

banner_1The Greek election is behind us, but the problem is in front of us: the opponents to austerity took the power Monday in Greece, under the leadership of the new radical left Prime Minister Alexis Tsipras. He is now allied with a right-wing ,separatist, anti-austerity party. It  portends difficult negotiations with the European Union.

In Finland the first reactions of the different political parties may provoke some mayhem during the next parliamentary elections.

A risk of EU divisions in front of requests to limit the Greek austerity

The EU has already warned Alexis Tsipras, 40, that it was not ready to write off the debt, even if for the moment Syriza calls only for restructuring. And it looks that this has pushed Syriza into the arms of a small extra-right wing wanting Greece to conquer back it sovereignty, which has nothing to do with Syriza, as it is ultranionalist, anti-immigrant, islamophobic party, close to the Orthodox Church, and convinced that the previous New Democracy government has sold Greece to the international bankers. The two parties have  a majority of 162 seats (149 + 13) of the 300 seats in the parliament. The Prime Minister, Alexis Tsipras is expected to announce the composition of his government by Wednesday.

The problem is that Greece, although it has managed to stabilize its finances after near bankruptcy, is still depending on EU and IMF funding with  240 billion euros in loans since 2010 in exchange for a list of structural reforms  and strict austerity policy.

Diverses reactions: even Dr House supports the Greeks!

It is precisely in Germany, whose position will be crucial, that came the more reserved reactions to the new political situation in Greece.For German Chancellor Angela Merkel, the new Greek government must “meet commitments” by his predecessor. Debt relief is excluded, warned the German Finance Minister, who just indicated that postponing the payments could be discussed at European level if Athens requests it.

However, M. Tsipras will possibily try to get some allies in other European countries of the Eurozone, in particular the ones which have important debts(Ireland, Spain, Portugal) . Evidently, the other countries who have asked more flexibility in the eurozone, such as France and Italy, may also support Greece in their new demands. The italian Ministeer of Foreign Affairs, M. Paolo Gentiloni, said that “the Greek result, if managed politically by Greece and the European Union through flexible and realistic negotiations, may promote the demand to put an end to the rigidity, in line with what we Italians have always claimed “.

For the European Commission, M. Juncker is very calm and indicates there is no emergency to renegociate the colossal debt of 175 % of the GNP (it was 120 % at the beginning of the crisis, before the “help” of the EU and of the International Monetary Fund), but is ready to discuss anyway. The International Monetary Fund  chief Christine Lagarde said: “We stand ready to continue supporting Greece, and look forward to discussions with the new government“.

M. Poutine has also sends his support to Greece calling for a stronger collaboration between the two countries, which may be important if the EU and IMF threaten Greece of financial sanctions, considering the difficulties in neighboring Ukraine. And even Dr House (Hugh Laurie) has sent his support: “Bravo Syriza! Must feel like they’ve just won a giant edition of Storage Wars, but let’s hope those boxes are full of good stuff. Καλή τύχη!” (meaning good luck in Greek).

Finland: diverging reactions….

The government has wisely published a press release indicating in particular that “Prime Minister Alexander Stubb congratulates the Greek Syriza party for its clear victory in the parliamentary elections. At the same time, Prime Minister Stubb calls on the new Greek Government to respect the agreements and commitments that the country has made earlier […] If the new Greek Government commits itself to the earlier agreed arrangements and necessary structural reforms, we are ready to discuss the possibility of extending Greece’s programme by a few months. Finland will not accept a demand for debt cancellation which made part of the discussions prior to the elections“.

He is flanked on his right side by eurosceptic Timo Soini (Finns Party) who knows that this position will be difficult to hold, considering the real situation in Grece. He is clearly convinced that the election result in Greece shows that the European Union’s aid policy has been flawed and declared on  Yle’s Aamu-tv breakfast programme that “The election result is a knockout blow to this flawed aid policy. Mistakes have been made for five years and this is the result…” . His intention is to use it for Finland’s general election due in April. He added that Greece is now more indebted than it was before the eurozone crisis began.

On his left, the leader of the Left Alliance party, Paavo Ahrinmäki wrote on his blog an enthusiast post whose title is: “Greece took the first step out of the crisis“, in which it considers that this is a chance for Greece and the EU to put an end to a policy which is not functioning, and find creative solutions.

In principle, everybody is right: EU member states should pay back their loans (M. Stubb), Finland has been wrong to accept to participate in what was a big mistake (M. Soini), and the situation of the Greek people has to improve (M. Arhinmäki). And, some other people say that the first mistake is to accept countries with very different levels of development in the eurozone, beginning with Greece.

Everybody is right

Finland is a country where basic values are very important. In particular, reimbursing your debts and being fair and honest is very important. So the simple idea that Greece is not able to pay back its loan is simply not acceptable, which explains M. Stubb’s declaration which reflects simply the common opinion in Finland. It also constitute a strong initial negotiating position, as Finland is known to have been very reluctant with the global idea of lending more money to Greece in 2012.

M. Soini is also right, as the last years have demonstrated that the decisions taken in  May 2010 (110 billions euros) and in February 2012 (130 billions euros) were totally inefficient. The simple fact that after the first 110 billions euros, it was necessary to add another 130 billions was clearly demonstrating that  the restructuration and austerity programme was not functioning. In fact, the International Monetary Fund (IMF) published a report in 2013 indicating that a number of miscalculation were made initially by the EU and the IMF, underestimating the recession (the drop of growth was finally 17 % instead of 5,5 % as planned in the first year), but also that the inexperience of the EU member states of this type of situation has prevented a timely action, so that it was too late and too little. One of the results was that a number of private debtors, mainly foreign banks from France, Germany and UK ,were able to move their funds in other countries in order to avoid a loss:  all private creditors holding Greek government bonds were required at the same time to sign a deal accepting extended maturities, lower interest rates, and a 53.5% face value loss.

And Paavo Arhinmäki is right: the situation of the population in Greece is unbearable. The programme of austerity imposed by the IMF and the EU has lead to major violations of human rights, as indicated by reports from the United Nations (UN) and the International Federation for Human Rights (FIDH) . As indicated by the most recent UN report, “the measures have pushed the economy into recession and generally undermined the enjoyment of human rights, particularly economic, social and cultural rights, in Greece. Significantly,the public spending cuts and labour market reforms have resulted in increased unemployment (in particular among young people), homelessness, poverty and social exclusion (with approximately 11 per cent of the population living in extreme poverty), and severely reduced access to public services, such as health care and education. The impact has been particularly severe on the most vulnerable: the poor, older persons, pensioners,persons with disabilities, women, children and immigrants“.

An unacceptable situation, with some responsibilities of the Greek government

In addition to the unacceptable employment (more than 27 % and 55 % among young people, 1 million additional people unemployed in the last 3 years), the loss of income (the average income is around 600 euros with prices comparable to those in other EU countries, and 11 % of the population has no income or less than 200 euros), the changes in the pension regime (average pension 750 euros, with plans to put them down), the health situation is becoming a nightmare: bankrupted municipalities are unable to provide for water or waste management, there is a lack of insulin for 50 000 diabetic people who begin to die as Novo laboratory has withdrawn from Greece, the lack of prenatal follow-up due to budget cuts  is pushing the infant and mothers mortality to an unacceptable level in a developed country, the waiting lists for cancer treatment are of more than 1 year, the absence of funding for mosquito destruction has bring the resurgence of malaria (disappeared at the end of the 60s), a West-Nile virus epidemic has developed, killing 62 persons, HIV prevention has disappeared provoking an explosion of contamination in Athens. .. Other examples such as the development of the extreme-right, openly racist and antisemitic political party Golden Dawn, and the increase by 150 % of prostitution (20 000 prostitutes in Greece) can also be attributed to the REU-IMF plan.

This unacceptable situation is partly due to the bad management  of the Greek authorities. It is certain that the level of corruption, denounced by Syriza, is a serious problem, which explains the result of the election. In addition, one the main expenses in the Greek budget, Defense, has not been reduced as much as it could be: it represents 2,3 % of the GNP against 1,6 % in average for other NATO countries: it may be with the complicity of UK and France, who are the main weapons providers, as stated in an article by the Guardian. And there are serious doubts that the Greek government has not been sufficiently strong to put pressure on the upper class, including shipowners, who have not as much suffered from the crisis as the middle class or the poor, thus increasing inequalities. Siryza has promised to address this topic.

What is in front of us?

One first solution is that the EU governments are, for different reasons, deciding that there is no majority to adapt the Greek debt, except giving, as indicated by M. Stubb, some months flexibility. In this case, the biggest probability is that Greece leaves the euro, and stop paying the bulk of its debts, as Iceland did successfully some years ago. It will be difficult for the Greek people, as importations will be lacking, but if they have the same determination as the Icelandic population, they may manage well. If the economy improves, and it may take some years,  there may be some reimbursements for us. if not, it will be difficult for Finland to get back even a part of the 9 billions euros.

A second solution, quite probable based on the negotiaton skills of M. Juncker, is to provide some relief to Greece by postponing the payment of the debt by a large number of years, with maybe some adaptations concerning the interests. It may lead to a reduction of the yearly payments (they represent now 4,5 % of the GNP, the new Prime Minister asks for a reduction to 2 to 2,5 %). In this case, the IMF and Ms Merkel will probably ask to dictate the content of the new austerity programme, which will be a difficult discussion with the new government.

The third solution, probably the only one which would give some guarantee of success, is an Argentinian solution. In 2002, Argentina stop paying its debt, and let its currency float. Then in 2005, it negotiated with its debtors and obtained to pay back only 30 % of the debts, with limited exceptions. The situation is now in order. This solution would be expensive for us, but we are not sure to get back more money with the other solutions…

The Finnish experience of war damages could provide a solution

Finland has however some lessons to give to the rest of the world, using its own experience of war damages. I would like here to cite an article on the repayment of these war damages after last world war: “the Finns were obligated to make deliveries of products, mainly machine goods, cable products, merchant ships, paper, wood pulp, and other wood products. About one-third of the goods included as reparations came from Finland’s traditionally strong forest industries, and the remainder came from the shipbuilding and the metallurgical industries, which were as yet only partially developed in Finland. The reparations paid from 1944 to 1952 amounted to an annual average of more than 2 percent of Finland’s gross national product (GNP).  […] the Soviets relented somewhat by extending the payment deadline from 1950 to 1952, […] The United States played an important role, nonetheless, by mediating the extension of financial credits of more than US$100 million from its Export- Import Bank to help Finland rebuild its economy and meet its reparations obligations punctually“.

If we follow this lesson, we could imagine Greece paying its debts with goods and not with money, which would help to rebuild an economy destroyed by austerity measures. We should not ask Greece to continue to pay 4,5 % of their GNP, as all Finns born before the war remember clearly how difficult it has been to pay 2 % for the war damages. We should for this accept toextensively change the payment schedules, and finance more productive investments in Greece, using European funds, as the US has done for Finland at the time.

What was good for Finland in 1944 may be good for Greece in 2015…

Categories: Economy, Elections, International

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