The following letter was featured on olympia.gr
To
Mr Papademos
Prime Minister of Greece
Mr Dalaras
IIF
Ms Legard
IMF
CC Mr Samaras, Mr Tsipras, Ms Paparyga, Mr Karatzaferis
Chairman of the Greek Parliament, All members of the Greek Parliament
For the past three years a program of economic measures was applied in Greece that has not been successful in reaching its objectives.
The increase in taxes, pension reductions and all the other measures that have been taken has led to a deep recession. Government revenues have essentially remained the same as two years ago while the economy has plunged from an GDP of 255 billion to 215 billion or a total reduction of 15%.
These policies have made the Greek Government debt unsustainable. The sustainability of debt as you all know is a relationship between GDP growth and interest rates. In this case the growth became negative and the interest rates increased to 32% from 3.1%.
We agree that the Greek economy was rigid, bureaucratic, and had not used its opportunities offered by its integration in the EU effectively. However despite all of the above the economy was vibrant.
The real issue of the economy was the Pension Funds inability to pay pensions and health care. In 2012 the Central Government that guarantees pensions has to pay € 14 billion out of its budget for these services.
Demographics (a problem that all western economies will face sooner than later) as well as the inability of Government to collect the pension contributions had a role to play in the inability of pension funds to meet their obligation. But the largest cause of this “bankruptcy” of the pension system was due to the mismanagement and “theft” of pension funds by the Greek governments since the 50’s.
We cannot however turn a bankruptcy of a pension fund system to a bankruptcy of a country.
Unless this fundamental issue is addressed we will continue to have PSI s restructuring etc. and the problem will not go away as demographics and reduced economic activity will require more and more funding by the Government of Greece. It is a vicious circle that has no end.
We have run our economic models that shows that if this pension liability was to disappear tomorrow from the government accounts the deficit would be 3% (including the reduction in the interest to be paid due to lower borrowing costs). In two years from now Greece will have a surplus. World renowned financial institutions have concurred with our analysis.
Our proposal is as follows:
The Government entity that was created to hold Greek Government assets (holding company) is endowed with all the assets of the Greek Government.
It issues a €30 billion bond issue with specific assets as collateral, not all of them, under English law. The proceeds of this issue are used to meet pension fund obligations for 2012-2013.
The holding company, constitutionally now, undertakes to pay pension funds deficits. Proper asset management and new potential sources of revenue (gas, oil) will ensure that pension obligations are met. If it cannot meet all obligations than pensions need to be reduced. Here again competent and honest management will be required. The expertise of World Bank and EU on pension fund management will be welcomed
Proper asset management will require that the holding company invests its cash reserves, as all pensions plan do, in the real economy. This would provide funding for new enterprises run by young innovative entrepreneurs. We cannot allow our youth to leave the country.
The Greek government produces a restructuring plan for all of its activities. That is where the expertise of World Bank and EU will also be required given the lack of talent in our politicians.
It presents this restructuring plan to the MARKETS. Having eliminated the pension liability from its books the numbers show that the country can again borrow from the markets at attractive rates without having to resort to any restructuring. Only a €30 billion loan will be required to fund the transition period.
This proposal in our view eliminates the root cause of the problem and allows the central Government the option to raise money from the markets without the possibility of a default.
We are a proud nation with a long history. We have been mismanaged. This proposal protects our future wealth that is hidden in our soil and seas. It allows us to have a say in our destiny. Anything else, that takes our freedom to act, will fail.
The Olympian Movement
http://olympia.gr/2012/01/21/the-solution/#more-120460
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