How Cyprus can call the EU's bluff.

As you are probably aware Cyprus is now in the middle of negotiations with EU leaders over a 17 billion euro bailout needed to save the country from bankruptcy. The original plan which involved the taxing of bank deposits at up to 10% has proved unworkable and has been voted down by the Cypriot parliament. However, there is another plan that would allow Nicosia to secure a loan and not have to implement painful spending cuts (and risk becoming the new Greece/Spain/Portugal) nor impose a bank levy that would annoy foreign depositors, especially the Russians.

When Cyprus achieved independence from Great Britain in 1960 large swathes of the island were handed over to the British armed forces to be used as bases in the strategically important eastern Mediterranean. The Sovereign Bases Area are still important given their proximity to Middle Eastern hot spots and the fact they lie so close to vital shipping routes through which so much of the world's oil comes via the Suez Canal.

So here is the deal. The Cypriot parliament turns down present Eurogroup proposals and instead announces that a) they are considering re-negotiating The Sovereign  Base Area deal with a view to inviting other nations to tender bids for a long term lease or b) they say that they will allow other nations to build naval facilities on the country's territory, thus giving them a similar deal . The cost in either case to be approximately the same as the money being used by EU to blackmail (the Cypriot PM's words, not mine) Nicosia into agreement.

Now this is where things get really interesting. Given the poor shape the Assad regime is in, Russia must be wondering if its naval base in Syria will survive a regime change and therefore an alternative offer would be welcome. That it comes from a country with such close ties with USA and UK makes the idea an even more delicious irony, given NATO's encroachment on countries close to the Russian border has been so unrelenting. The fact that huge volumes of natural gas may be flowing through this part of the world soon also adds to the attraction.

Even the suggestion of such an offer to the Russians will set alarm bells ringing in London, Washington and possibly Paris and combined these countries will be able to bring a huge amount of pressure to bear in Brussels and Berlin. Does the EU really want to change the balance of power in such a sensitive region for a paltry 7 billion euros? Given the geo-political ramifications and the fact that the European nations have already pumped 1.7 trillion euros into propping up the continent's ailing banking system, a few billion more may be considered a price worth paying.

In either case, Cyprus comes out on top, it doesn't have to tax depositors, large or small, it's banking sector comes out of hiding this week intact (more or less) and it gets the money it needs to avoid bankruptcy. 

My government attended yet another Eurogroup meeting and all I got wasthis lousy t shirt

My government attended yet another Eurogroup meeting and all I got was this lousy t shirt, a photo by Teacher Dude's BBQ on Flickr.

How much salvation can one country take?

For a moment I thought that I'd that the last three years had all been a nasty dream. The presenter on the news was speaking in glowing terms about how Greece had been saved by its EU partners and that now that the bailout deal had been agreed the country could look forward to avoiding bankruptcy.

The problem is that we have all heard this before. In 2009 the local and foreign news organisations were both peddling the same media narrative when the first tranche of bailout cash was approved in return for implementation of tough austerity measures. I still remember the first question I was asked then during an interview with the BBC World Service; "But why are Greeks so upset about being saved?"

The inability of the foreign media to comprehend the angry reaction of Greek popular opinion to the cuts in salaries and services is once again being repeated despite three years in which the country's economy has declined so drastically that the drop in economic indicators is now on par with the United States during the early 30's at the height of the Great Depression. Unemployment now affects 1 in 4 (though that figure may be as high as 30% according to research carried out by Greece's trade union congress) and shows no sign of improving any time soon. Economic output has declined year on year since 2009 and will continue to so for the forseeable future unless present austerity policies are not abandoned.

Greece's mainstream media, owned and controlled by the country's corrupt oligarchs today is celebrating the decision by the Eurogroup to authorize the release of the next installment of bailout cash, not least because of the bulk of the money will be used to recapitalise the banks they own.On the state run news journalist speak  of the skill with which the government has avoided disaster, knowing full well that criticism or real or implied invites instant dismissal.

A much smaller proportion of the cash will go to pay wages and salaries for the immediate future. On the other hand the terms of the deal mean that thousands of public sector workers will be laid off, a decision which has seen local government grind to a halt as workers strike and occupy town halls across the country.

Here in Thessaloniki, Greece's second largest city and home to over a million residents the decision by KTEL (Greece's answer to Greyhound Buses) to suspend operation means that for many the city is effectively cut off from surrounding towns. The dispute over money owed by Athens is set to spread to Thessaloniki's urban transport network as the local bus company has also threatened to stop running from the first of December unless it is paid money owed by central government.

With winter setting in, money getting ever scarcer and the cost of heating sky rocketing ordinary Greeks might be forgiven once again for hoping that EU and the IMF would not insist on saving them again

Greece election post mortem

First things first. An apology to anyone who  bet (and lost their shirt) on my prediction that SYRIZA would be the largest party in parliament today, if I see you, let me buy you a drink, it's the least I can do. As it turned out my analysis was off the mark. I overestimated SYRIZA's final vote and more crucially underestimated the final New Democracy tally. Also I didn't see the collapse in Greek Communist party support which halved, unlike PASOK and Golden Dawn who only saw a small drop in votes received. All in all, my days as a poll pundit are numbered. (Vote statistics can be found here).

Why was I so wrong? First of all, I failed to grasp just how successful the fear campaign over possible Greek exit would be. I had assumed that the constant barrage of warnings over the consequences of Greece having to leave the Eurozone had done its work and wouldn't push Samaras's vote over 25%. On the other hand the record low turnout (down 8% from 2009) seemed to have had an effect, I suspect on younger voters who would have supported anti-bailout parties. Finally, the scenes of violence perpetrated by Golden Dawn spokesman on live TV did nothing to diminish their popularity, which is both surprising and deeply worrying.



Mea culpa aside, today the New Democracy leader, Antonis Samaras will be asked by the president of the Greek republic to form a government. At first glance this seems just a formality as New Democracy with 129 seats and the other pro-bailout party, PASOK with 33 seats will comfortably exceed the 151 MPs needed to form a majority. Indeed both leaders in the last week of campaigning repeatedly stated the need for the country to immediately have a working administration in order to deal with its current economic meltdown.

However, beyond the campaign promises, Samaras and PASOK leader, Evangelos Venizelos have to take into account other factors concerning their own and their parties' political future. If they do assume power, then they will be seen as the parties that are responsible for the country's economic woes, leaving SYRIZA and others to claim that have are the only real anti-austerity choice in any future elections. Given the drubbing PASOK got and the marginal victory achieved by new Democracy that more or less guarantees their defeat in the next elections (barring an economic miracle and the Germans have outlawed miracles).



The answer to this dilemma is to try and persuade SYRIZA leader, Alexis Tsipras to join the government with promises, appeals to patriotism and threats of possible dire economic consequences if he does not.This card was played after the May elections and judging by official SYRIZA statements coming out in the Greek media such overtures are almost certainly likely to be rejected. On the other hand the Democratic Left have made it quite clear that they will be willing to take part in such a government. But this does not solve Samaras and Venizelos's long term problem about how deal with Tsipras in coming elections.

The other factor which plays a crucial role in any negotiations is ego. Even with Greece mired in the worst economic downturn, the monsterously overblown egotism of both Samaras and Venizelos may prove an obstacle in forming a stable government. Both have spent decades slowly working their way up the greasy pole of political power and just as they seemed to be destined to become prime minister, the game changed. To have to share power after so many years playing second fiddle is almost more than either can bear.

Whatever form the next Greek government takes, its fate will not be decided in Athens but in Berlin and Brussels. If the troika (EU/ECB/IMF) are serious about supporting Samaras then serious concessions in the terms of the current austerity measures will have to be made, otherwise with unemployment rising 1% every two months and the economy contracting the fragile New Democracy - PASOK (and possibly Democratic Left) coalition will fracture under the weight of more job cuts and tax hikes. At which point Greece holds yet more elections and most likely brings to power SYRIZA.

There seem to be mixed signals coming out of Europe over whether there will indeed be a change in approach which will allow New Democracy to stay in office, on the one hand deputy German finance minister, Steffan Kampeter said that Greece shouldn't be overstrained during a talk on German TV, on the other the Eurogroup of EU finance minsters sent a polite but clearly worded statement last night warning Athens that it could not deviate from the term of the bailout agreement.

With cost of lending in Spain continuing to rise and with Italy on the verge of asking for its own bailout deal none of this may matter as the systemic problems of the Eurozone continue to rage unchecked, leading to possibly disastrous results for European debtors and creditors alike