The involvement of the private sector in the Greek bailout, via a voluntary nominal haircut of over 50 percent on its holdings of Greek government bonds, has run into obstacles which are expected to be overcome by tonight?s deadline.
This is what the government is hoping for, although it is far from certain that a write-down will solve the country?s debt problem. The biggest parties, PASOK and New Democracy, are also hoping for a positive outcome so that they can organize their election campaigns around the claim that Greece has been saved, for the time being, and can anticipate better days.
The problem is that some pension funds are holding out because the government does not intend to make up for the damage. The reactions from the funds, which own the majority of Greek bonds worth some 3.5 billion euros, are in vain. Failure to reach the required participation will only trigger the collective action clauses (CAC) on the bonds and force 100 percent cooperation in all cases.
The issue has highlighted the complete lack of credibility of the Greek governments that managed the contributions of employers and employees alike. An unreasonable law introduced in 1952 by the Nikolaos Plastiras administration gave the Bank of Greece governor the right to invest, at will or at the government?s recommendation, the reserves of any fund, including those of the private sector, in Greek bonds or shares.
Furthermore, the money was for years kept at the Bank of Greece, where it was not earning any interest. In fact that money was used for ?investments? or for boosting all sorts of ?growth programs.? Finally, PASOK governments put an extra burden on social security funds by handing out pensions to all sorts of ?disadvantaged? groups. The heads of funds also carry a huge responsibility, but they are certain to avoid punishment.
Following the drastic reduction of the funds? reserves because of the PSI, the catastrophic policies followed since 1952 must stop. The Plastiras law must be scrapped. The funds cannot possibly be administered by the same governments that have proved blatantly unreliable. Rather, they must be managed by those involved: employers and employees. At a time when the state is shrinking, it?s unacceptable that governments continue to squander people?s contributions. After the ruin must come the catharsis. Governments can no longer be allowed a free rein.