Syriza vs the Troika

After barely a week following the Greek elections and Syriza’s victory, negotiations between the EU’s ‘Troika’ of debt collectors and Syriza’s representatives have already begun to intensify.
Even before the elections and Syriza’s victory, threats were flowing from the Troika warning Syriza to abandon its demand that the Troika write off up to one-third of Greece’s 317 billion euro debt; that it continue with the Troika’s previously imposed debt payment structure agreed to by Syriza’s predecessor government; and that austerity programmes continue to be implemented regardless of the hardship imposed on the Greek people after five years of economic depression.
The Troika are desperate. The northern European bondholders, investors, central bankers, and Euro bureaucrats that are the true faces behind the Troika, whose policies directly represent their interests, are confronted by a serious democratic challenge by the new Greece and Syriza government. A challenge that could spread like political wildfire throughout Europe if not contained.
That democratic challenge comes at a time when the eurozone economy continues to weaken, deflation has set in, more northern and eastern European economies are slipping into recession, bond rates and yields are turning negative throughout the EU, currency instability is rising, the US demanded sanctions on Russia are biting deep into Euro business profit margins, the Ukraine is in economic collapse and demanding billions more in IMF and EC bailouts, and the war in Ukraine is intensifying again. Not a small short list of major problems, by any means.
And now Syriza and Greece, threatening to upset what the Eurobankers and Eurocrats had thought was a stabilised Euro government debt repayment system, paid for by austerity plans that they thought were safely assured for years to come!
The core problem with the Greek debt issue is that Greece’s current 317 billion euro government debt is unsustainable

and effectively condemns Greece and its people to a state of perpetual economic depression for decades to come should it remain in place. At 317 billion, the Greek government debt is nearly twice the GDP of Greece. No matter that 270 billion (85 percent) of the 317 billion euros are owed directly to the Troika itself – ie official agencies that could, if they wanted, write off much of the debt.
No matter that Syriza’s position is that its demand for one-third write-off does not include the 24 billion owed to the IMF and another 54 billion owed to the ECB, but is targeting the 142 billion Greece owes to the European Commission and its European Financial Stability Facility (EFSF) fund. And no matter that, even as Greek-Troika negotiations begin, the European Commission is approving debt write-offs for Croatia while refusing to do so for Greece.
Although there is no crisis deadline for a negotiated settlement until the end of February, at the earliest, the Troika nevertheless is adamant on refusing to forgive any Greek debt. To do so would open a Pandora’s box of potential problems, as they see it. And that may be true.
Here’s why: should the Troika agree to a partial Greek debt forgiveness – aka a write-off or haircut involving debt restructuring – it would set a dangerous (for them) precedent elsewhere. A write off would immediately result in not only a surge in Greek bond debt interest rates, which had already begun with Syriza’s election, but would undoubtedly set off bond rates rises in Italy, Spain, and elsewhere.
If they write off Greek debt, they would have to deal with demands for other debt write offs as well. Bond values would plummet across Europe – and thus register significant paper losses for wealthy bond holders, both public and private alike. A collapse of government bonds would likely spill over to corporate bonds, and then possibly to euro stock markets in turn as well.
Excerpted from: ‘Syriza vs. the Troika’.
Courtesy: Counterpunch.org