Spearheaded by Berlin, the Troika engaged in overseeing Greek debt management effectively cut out the possibility of a disorderly default late yesterday. In a strongly-worded proposal circulated to EU finance ministers, a German proposal called for Greece to cede sovereignty while all Greek State income to go first to creditors – by law. This is, basically, the takeover of a sovereign EU member State in order to calm markets and protect exposed banks in the eurozone and elsewhere.
Judging by the Greek media I’ve been scanning so far this morning, the average Greek has no idea as yet that the Troika of credit managers is effectively taking over the country. Needless to say, the BBC hasn’t got it, neither has Sky News. But reports are firming up and beginning to appear in German media, where headlines like ‘Greece asked to give up sovereign control’ are running. The FT has also obtained a copy of the German ‘recommendation’.
The writing was on the wall yesterday when Christine Lagarde gave a pretty testy interview to Bloomberg, saying bluntly “Greek progress on budgets and reform is simply unsatisfactory”. She talked of “putting together a programme for the country” although there was no sign at this point that it would literally be done ‘for’ the Greeks, not by them.
Last night, Athens News had a piece saying that ‘the threat of disorderly default is now concentrating minds across the EU’, but again there was no specific mention of a sovereign handover. But when she spoke with Bloomberg, we can be almost certain that Lagarde knew what was coming: EU finance ministers had already seen Berlin’s proposal.
The text specifically says, ‘Budget consolidation has to be put under a strict steering and control system. Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time.’
Note the dictatorial ‘has to’ in there. The proposal even more controversially demands that Greece pass a law ‘committing all State income first and foremost to debt servicing and reduction’.
Three immediate issues spring to mind:
1. What legal power does the EU have to enforce this?
2. How will the Greek people react?
3. Who else was in the loop apart from Troika and Finance Ministers?
We can be fairly certain that Washington approved the move – it may even have suggested it via the IMF. And the Troika’s 15-pt reform plus action plan of Thursday was largely written by the IMF….a Washington-based concern.
This act sends a message to EU States both inside and outside the eurozone: defaults vill be orderly at all timess: disorderly actions vill not be tolerated.
Mind-boggling. It all needs thinking about.