[DONE] ΜΝΗΜΟΝΙΟ – ΣΥΜΒΑΣΗ ΔΑΝΕΙΑΚΗΣ ΔΙΕΥΚΟΛΥΝΣΗΣ -- MEMORANDUM - UNDERSTANDING AND OVERTHROWING THE LOAN FACILITATION AGREEMENT

 

MEMORANDUM - UNDERSTANDING AND OVERTHROWING THE LOAN FACILITATION AGREEMENT

Popular sovereignty is fundamental to our democracy. (art.1; par.2 of the Constitution) All authority stems from the People, and exists to serve them (art.1; par.3, Const.).

We are indignant in the streets and the city squares because the fundamental charter of our rights, our Constitution, is being violated and we feel it is our duty and it is necessary to defend it. Upholding the Constitution is contingent on the patriotism of Greeks who have the right to resist with every means against whoever attempts to violently destroy it. (art. 120; par. 2 & 4)."The essence of Justice is to resist injustice" Arthur Kaufmann, [PH LB??] p. 705).

Greece faced a problem in borrowing from the international markets since early 2010. Our country's loan requirements for 2010 were 53 bln euros. On 25-1-2010, while the markets were offering 25 bln euros at 6.2% interest, the financial chiefs only borrowed 8 bln euros for 5 years (Eleftherotypia, 26-1-2010). By 31-3-2010 Greece could already have easily borrowed from the financial markets at least 53.4 bln euros with an average interest of roughly 6.2% without having resigned from exercising its national sovereignty in vital sectors, and without having been turned into a financial protectorate of the IMF and the Euro-zone under the control of the Troika (Ep. Marias, Nomiko Vima, 2010, p.2212).

The vote ushering Law 3845/2010 (regarding the Memorandum [Memorandum of Understanding on SPECIFIC ECONOMIC POLICY CONDITIONALITY]); the signing of the Loan Facilitation Agreement (drafted by the London-based law firm of "Slaughter and May"); the issue of decision 2010/320 by the EU Council of Ministers (whereby Greece was served notice to adopt reduction measures for the deficit which had been deemed excessive); and their implementation, are being realized in breach of basic provisions of the Constitution, of the European Convention on Human Rights and Community Law.

BASIC VIOLATIONS:

1. Policy  exercise and control have essentially been ceded to an organ (Troika = European Commission, European Central Bank and International Monetary Fund) which has not been foreseen or legislated by any legal provision (national, Community or international).

2. Salary and pension reductions are completely at odds with the Constitution (art.17), to Article 1 of the First Protocol of the European Convention on Human Rights and the Charter of Fundamental Rights of the European Union (art.17) that protect a series of individual property rights such as wage, pension, and bonus rights,  and all other forms of compensation of workers or social security entitlements, whether periodically, in installments or in lump sums, as well as Article 25 of the Constitution which guarantees the principle of the social rule of law.

3. The Memorandum's arrangements also concern matters of income tax, social security, fiscal policy for which the EU holds neither exclusive nor shared competence (Articles 2,3 TFEU). Consequently the Council's ruling of 2010/320 is in violation of the relevant provisions. However, the most infuriating arrangements are contained in the Loan Agreement:

Compulsory enforcement is forbidden because it is a direct intervention in the internal affairs of a sovereign state by others (Article 2.7 of the UN Charter). If it is forbidden to the United Nations it should also be forbidden to any other state. Compulsory enforcement on state assets intended for public purpose is prohibited in accordance with international protocol (Immunity on grounds of National Sovereignty - K. Chrysogonos, Nomiko Vima, 2010, p. 1358). Nevertheless, under Article 14 (5) of the loan agreement signed with our creditors (EC, IMF, and ECB), the Greek state irrevocably and unconditionally cedes any immunity on grounds of national sovereignty "...that it has or will acquire...", thus allowing foreclosure on all state assets, including the country's military equipment and wealth resources. The term whereby national sovereignty is ceded is not only the agreement's harshest but it is also the term under which fundamental principles of Law are violated at every level. Specifically, it violates the fundamental principle of respecting the state's sovereignty, threatens and affects core sovereignty rights, and the country's very sovereignty and statehood (Kasimatis, Loan Agreements of Greece with the EU and the IMF, Athens Bar Association, 2010, p.25).

Furthermore, our country waives all legal procedures (objections, lawsuits) regarding the seizure of its assets. Additionally it is agreed that British law will apply, which allows for a country to waive its immunity (as opposed to, for example, other laws, such as that of Greece). This waiver is in direct contradiction of Articles 1 (regarding national sovereignty) and 26 (separation of legislative, executive and judicial powers) of the Constitution, as no state organ (not even parliament, even with an overwhelming majority) is competent to waive immunity concerning assets slated for public purpose and thus consign future generations to bondage.

Moreover, Finance Minister Mr. Georgios Papakonstantinou and Bank of Greece Governor Mr. Georgios Provopoulos, on whose signatures the loan agreement's effect was solely based, are not entitled to relegate state assets and future generations in such a manner. Actually, based on Greek Constitutional Law, the President of the Republic signs international treaties and Parliament ratifies them legislatively.

In the case of the Memorandum, Article 4 of Law 3845/2010 provided for ratification of all loan agreements and memoranda by Parliament and after barely three days the above provision was amended with Article 9 of Law 3847/2010 so that by ceding Parliament's legislative competence they would be enforced upon signing and that mere "discussion and briefing" would suffice, a fact that directly contradicts the Constitution, either on the basis of Article 28  §2 requiring an increased majority of 180 MP's for the ratification of international agreements, or on the basis of Article 36§2 of the Constitution requiring an absolute majority for Parliament to ratify by formal law those international financial cooperation agreements that burden the Greeks. Subsequently there is a double breach of the Constitution as, not only was said agreement not legally signed but it was also never ratified.

The agreement in fact requires a ruling by the Legal Advisor of the Ministry of Justice, Transparency and Human Rights and the Legal Advisor of the Ministry of Finance, whose validity the Greek government asserts [Article 3 (4) (a) of the Agreement] by means of which it is certified that this agreement does not contradict any provision of the Constitution or of any law that is in effect or will be in effect in the future. Beyond the obvious falsehood of the opinion in question, this attestation is used so that our lenders may demand with interest the return of the money they paid even if this agreement should be deemed to be in violation of the Greek Constitution. If, on the other hand, the agreement is nullified as unconstitutional for one of our lenders, they are released ot their obligations without any sanction.

The agreement is rife with correspondingly severe terms favoring the lenders but at Greece's expense, in violation of the principle of contractual equality:

    *        The lenders, singly or en masse, may transfer by any means to any third party their rights or obligations under the loan agreement while Greece, as debtor, may not refuse such a transfer or transfer all or part of its rights and obligations under the agreement to a third party [Article 2(3) in conjunction with Article 13]

    *       Article 4(2) of the loan agreement guarantees us that all public assets will be preferentially exploited to secure the loan. In fact, transactions concerning public assets (sale, exploitation of public wealth, long-term rental) must be carried out to secure the loan agreement: in other words, to meet the demands of our creditors. Given that the overwhelmingly larger part of the loan shall cover older overdue loans (see Chart 1, page 8 below) lacking commensurate guarantees. In reality with the new loan we are offering guarantees to our creditors without any substantial recompense and at great harm to public assets.

    *       It should be noted that an additional 0.5% of the loan from the EU (80 bln from the total 110 bln we received) was decided as a one-off payment for the services and overhead of our creditors ("portfolio expenses"), reaching 400,000,000 euros!!! (Ep. Marias, Nomiko Vima, 2010, p. 2211). This amount exceeds pension reductions for 2010.

INDICATIVE ALTERNATIVES

Greece could have established a Special Purpose Bank, such as the German KWF state development bank, with low rates in order to borrow cheaply from the ECB and use this capital to refinance the Greek debt with low rates, thus reducing the excessive annual interest Greece pays its creditors while also bolstering the country's growth. This has particular significance as, according to the 2011 budget, Greece will pay 15.9 bln euros on interest while for the period of 2011-2014 Greece will pay 71 bln euros in interest payments according to IMF estimates (IMF, Report 10/110, 5-5-2010, p. 125).

They tell us that these measures are justified due to the extraordinary financial situation the country is in but international law justifies other paths:

    *       freeze of debt payments to creditors;

    *       audit of the debt;

    *       determination of legal debt (whether it exists and to what extent) τον προσδιορισμό του νόμιμου χρέους (αν και στην έκταση που υφίσταται) and settlement of legal debt, as determined following an audit, with our country's counterclaims against its creditors, e.g., war reparations, occupation loan, provisos for failing to meet contractual obligations in weapons and other programs.

    *       refusal or radical renegotiation of the overall debt taking into consideration economic and monetary parameters.

Decisions related to the above were adopted where appropriate by the courts of Italy, Germany, Latvia, and by the World Bank's appelate mechanism in the case of Argentina, etc.

Nevertheless, we ought to note that a precedent already exists in our country! When the Belgian government resorted to the Permanent Court of International Justice, which had been established by the Community of Nations (forerunner to the United Nations), the legal representative of the Greek state for the government of Ioannis Metaxas, Ioannis Yioupis, argued on Greece's behalf:

"An extraordinary situation may occasionally arise which may make it impossible for governments to fulfil their obligations to their creditors and to their people at the same time. The country's resources are insufficient to fulfil both obligations simultaneously. It is impossible for a government to repay its debt and at the same time to offer its people proper administration and the guaranteed conditions for moral, social and economic development. It must choose between the two. Naturally, a government's duty to secure the orderly function of basic public services PREDOMINATES vis-a-vis its debt repayment. No country is required to fulfil, in whole or in part, its financial obligations if this JEOPARDIZES the functioning of its public services and results in disorganizing the country. Where the repayment of loans threatens financial life and the administration, the government is obligated to halt or to reduce the servicing of its debt." (Yearbook of the International Law Commission, 1980, vol. ΙΙ, chapter III, C2 article 33, σελ. 37, 38 &Yearbook of the International Law Commission, 1980, vol. Ι, p. 158, § 19)

Consequently, according to the argument of Ioannis Yioupis, when states are burdened with obligations to their debtors, which they cannot fulfil together with their obligations to their people, they must give priority to basic social needs, even if this proves injurious to creditors [Permanent Court of International Justice (PCIJ). Series C, no 87 (1938-1939). p. 187 on., esp. p. 205 on.].

Even if we only consider invoking the United Nations International Law Commission's "state of necessity" ([1613??]th Session, 17th June, 1980), which states that "a member country may not be forced to shut down schools, universities, courts, to abandon its public services bringing chaos and anarchy merely to secure funds to repay its debts to foreign and domestic creditors," we lay the foundations for the right to refuse payment not only for "onerous"/"odious" debt, but for public debt in general.

The determination of the forms and size of the particular debt is subsequently a vital political issue and relates to uncovering all those loan agreements, usurious loans, provision of state guarantees to third party loans, untransparent and secret transactions in weapons programs, public contracts and works.

A similar customary rule by means of which countries may invoke a state of necessity as a reason not to comply with their international obligations has already been recognized by the International Court of Justice at the Hague provided this is the only way they can secure a vital interest against a present and imminent danger (Judgment of the International Court of Justice of 25 September 1997, Gabcikovo-Navigaros Project - Hungrary/Slovakia).

Based on these arguments the Permanent Court of International Justice of the Community of Nations ruled in favor of Greece. The most important matter is the following: It was on this legal precedent (legal arguments, court ruling) that Argentine president Nestor Kirchner found support in order to write off the greater part of his country's debt and save it from the clutches of the IMF.

GRIM REALITY

By the IMF's own admission the debt will explode in 2013, the final year of the bailout program, from 119% of GDP where it is today (2010) to between 150-177% of GDP, and this is on the condition that there will be a mild economic recovery and that "the authorities will continue to promote strong structural reforms ... and that the country achieves access to markets at satisfactory terms" (IMF, Greece, Request for Stand-By Arrangement Prepared by the European Department in Consultation with Other Departments. EBS/10/77, Approved by Poul M. Thomsen and Martin Muhleisen May 5, 2010, pp. 18, 36). Therefore, if all goes well and if additional measures are adopted the familiar direction, and after we have demolished the social state (article 25, par. 1 of the Constitution) and destroyed social cohesion, we will have managed to increase public debt by half! (Newspaper D.D. 2/2010, p.162, G. Katrougalos, Professor D.U.T.). In other words:

    *       We are borrowing at 5% or 6% interest to service debts with even more favorable terms, e.g., at rougly 3%.

    *       This inefficient borrowing is based on the logic of delaying default in order to rescue foreign (mainly German) banks that will use the time we save - borrowing on their behalf - in order to opportunely sell our bonds. Here it should be pointed out that the German KFW bank, while borrowing from the ECB at a rate of 1%, in turn issues loans of 22.3 bln euros to Greece at 5% to 6% interest depending on their maturity. Germany's refusal to rescue Greece in accordance with the solidarity clause (art. 122, par. 2 SLEE) is, therefore, not accidental because it is supposedly not foreseen by the EU treaties (especially under article 125 Treaty on the Functioning of the EU) as it sought the rapid decline of the euro which would boost German exports. As a matter of fact these have benefitted from the euro's drop because of the Greek debt crisis (LeFigaro, 14/15-8-2010, p. 23). They increased by 18.2% during the first half of 2010, reaching 458.4 bln euros (LeMonde,14-8-2010, p.10).

Thus the signing of the Memorandum and the Loan Facility Agreement leads:

    *       To relieving European banks of the 'toxic' Greek debt and transferring it to EU member states, the IMF and the European Central Bank, from where it will be managed;

    *       To switching the law governing the debt from Greek to British, abolishing the advantage Greece has enjoyed until now, i.e., the immunity foreseen in Greek law regarding the protection of state sovereignty. In addition, although British law was selected, which also includes immunity provisions for the borrower country, the loan agreement was signed with an explicit voluntary resignation from this right. 

    *       To further burdening Greece's debt with loans secured by Greek public sector, annuling the country's heretofore excellent advantage as it borrowed without using its public assets as collateral.

    *       To oversight and control of the Greek economy and Greece's obligation to obey the suggestions of its creditors in order to ensure repayment of its debt to them to the greatest possible degree.

The "exploitation" (i.e., sell-off) of public assets to benefit the creditors, under their complete control, is being prepared. When that happens, the countries that will obtain ownership or assume management of public assets will have gained powerful rights.

 

GREECE'S FINANCES

Below we display economic data concerning the debt and its repayment 

CHART I: Maturity of bonds 2010-2013, recorded date 29.04.2010, in bln € – schedule of support mechanism disbursement

Year        Matured Loans  Total IMF-EU loans

2010             15.80                         38

2011             31.30                         40

2012             31.70                         24

2013              24.90                           8

Total             103.70                      110

Source: Bloomberg – Ministry of Finance (budget draft)

According to Chart I, Greece's borrowing for 2010-2013 exclusively serves the repayment of its creditors with bonds worth 103.7 bln euros maturing, and borrowing 110 bln euros (the 110 bln euros from the support mechanism are basically the 103.7 bln euros we owe.) It is obvious that the loan does not service pension payments, wages or other state expenditures. It services the bailout of European banks who are our primary lenders (which is precisely why the Eurozone has a 73% participation in the 110 bln euro loan while the IMF's participation is barely 27%.)

* Finance Ministry forecast

** Deficit from application of the program according to the Ministry - GDP not from the charts but from deductionof the recession predicted by the Ministry

Note: We are not calculating the additional deterioration of the deficit from public institutions, as announced.

CHART II: Unemployment among total workforce of 4,940,000

Data             Percentage           Unemployed

2010               11.6%                    573,040

2011               14.5%                    716,300

2012               15.0%                    741,000

2013               14.6%                    721,240

Source: Ministry of Finance - Forecasts

With regard to unemployment - its future trend appears grim, even according to the Ministry of Finance's official conservative estimates, resulting in social corrosion.

Other examples of countries where the IMF was active (collecting taxes) in the past leave absolutely no doubt as to the intentional creation of unemployment (wage reduction, etc.) and its result to human societies. With taxes being one of the most significant reasons behind the recession, of (taxation) inflation and unemployment (it is estimated that about 175,000 small and medium-sized enterprises, from a total of 800,000, will shut down by the end of 2011, raising the number of unemployed by 300,000, i.e., 20% of the employed population instead of 15% that the government estimates), we believe that the transfer of resources from the private sector to the public (and from there to the Troika) with absolutely no hope of rescuing the country from bankruptcy is at the very least criminal. One telling example is that unemployment benefits will be slashed by 500 mln euros in 2012 while the number of unemployed will skyrocket due to the recession, accentuated by the predicted cutback of public investments by 500 mln euros for each of the years 2010-2012.

Finally, below we display the economic data derived from the 2011 budget draft. The exclusive responsibility of those who were in charge of Greek money is obvious, if nothing else from the spending increases and the deficit.

CHART III: Progress of GDP, income, spending and deficits (losses to the state) in mln euros, in Greece

 

YEAR     GDP*       Income     Expenditures     Deficit    Public Debt**     Percentage of GDP

2003     153,045     37,500         40.735          -3,235    179,008            117.00%

2004     164,421     40,700         45,414          -4,714    198,832            120.90%

2005     196,609     42,206         48,685          -6,479     209,723           118.90%

2006     213,085    46,293          50,116          -3,823     224,162          105.10%

2007     228,180     49,153         55,733          -6,580     237,742          104.20%

2008     239,141     51,680         61,642          -9,962     260,439          108.90%

2009     237,494     48,491        71,810         -30,866     298,524          125.68%

2010     231,000     52,700        66,188         -19,473     340,680          147.48%

Source: Ministry of Finance (estimates, pp. 49 and 64)

* Revised 2005 GDP, i.e., some 20% higher than 2004, with the addition of income from the "black economy" by the government, which resulted in reducing the percentage of the deficit  and bringing it within EU stability pact parameters for the first and last time (essentially a hypothetical GDP.)

**Central government debt

Our GDP increased from 2003 to 2009 by about 51% while public revenue rose 40%, spending by 62% and the deficit rougly seven-fold.  The difference on increased revenue relative to GDP growth is to such an extent "non-balanced" as the rise of GDP mainly stems from the upwards "revision" of data (even though this meant higher "outflow" to EU coffers as these are determined as a percentage of GDP) rather than real growth.

To conclude, on the one hand the ability of Greeks to pay taxes has been exhausted as increasingly greater taxation surely leads to an escalated recession which, together with the tax inflation of about 6%, with high rates (also 6%), scaled back nominal and real worker compensation, with rampant unemployment, with the closing of small and medium-sized businesses, with the liberalization of our markets (sell-off of public utilities to creditors), with the privatization of natural resources (lignite, nickel, gold, oil, natural gas, etc) to benefit our creditors, and the non-existence of development programs will lead Greece with certitude to economic, social and political decay.

Therefore, strict adherence to the Memorandum will lead us without the slightest doubt to a purposely designed one-way cul de sac that we must avoid at all cost - paying off the IMF, from which we have received 8 bln euros, immediately and seeking new avenues to pursue.

THE PUBLIC DEBT

Believing, as we will show next, that reducing public debt is an absolute priority, we will examine a summary of our options. Chart IV tha follows helps understand the matter for which we are seeking solutions:

CHART IV: GDP 2009-2011; interest on public debt; percentage of GDP; deficits and percentage of interest on GDP

GDP                  Amount       Interest      Percentage*     Deficit     Interest/Deficit**  

GDP 2009        237,494      12,325          5.19%           32,299        38.15%

GDP 2010        227,994      13,209          5.79%           18,467         71.53%

GDP 2011        222,066      15,800          7.12%           16,877         93.62%

* Percentage of interest to GDP

** Percentage of interest to deficit

Source: 2011 Budget draft

It is apparent in CHART VI the 2011 interest payments make up almost the entire deficit, Therefore,  a potential debt write-off would mean an instant erasure of deficits and our country will begin having surplus budgets.

However, overcoming the current state of affairs is no longer the providence of legal or economic science but now rests with the Greek people, who with faith and the will to fight shall seek out a political solution.

Although there is no doubt that the Loan Agreement and the Memorandum shall be deemed null and void in the future it is our DUTY to CANCEL THEM NOW.

KNOWLEDGE IS POWER

Athens, 05-06-2011

Team of Lawyers and Economists of the People's Assembly of Syntagma Square