ESFS - A Road to Socialism

8/4/2019 ESFS - A Road to Socialism

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A ROAD TO SOCIALISMIt is no longer about Greece, it is

about the euro. This, and similar

nonsense, is what the European

politicians use to righten their

voters and explain them why

they must continue in moral

hazard. Just like it is impossible

to extinguish fre with a an, it is

equally impossible to solve the

debt crisis with new debts.

The only thing that will help is

to ace the truth. Greece must

declare bankruptcy, Italy must

start saving and the rules set

up by the eurozone upon its

establishment must fnally start

being observed. It will hurt,

but it is the only solution.

Richard Sulk

www.strana-sas.sk

EUROPEANFINANCIAL

STABILITYFACILITY


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2

TableofContents

1 Howhasthedebtcrisisstarted? .............................................................................................................. 3

2 HowhastheEFSFbeenestablished? ....................................................................................................... 3

3 IstheEFSFincompliancewiththeprinciplesofdemocracy?.................................................................. 5

4 WhatisthedifferencebetweenthefistandthesecondloanforGreece? ............................................. 5

4.1 Participationofbanks ...................................................................................................................... 6

4.2 ParticipationofSlovakia(changeofdistributionkey) ..................................................................... 7

4.3

Slovakia

and

a

two

speed

urozone .................................................................................................. 7

5 WhyisitnecessarytoincreasethetemporaryEFSF? .............................................................................. 8

6 AretemporaryandpermanentEFSFsolidary?......................................................................................... 9

7 WillSlovakialosetheEUfunds?............................................................................................................. 10

8 WhathappensifwedonotsupporttheincreaseofthetemporaryEFSF? ........................................... 10

8.1 Theysayinvestorswillleave.......................................................................................................... 10

8.2 TheysaySlovakiawillpayhigherinterests.................................................................................... 10

8.3 Theysaystockmarketswillcrash .................................................................................................. 11

8.4 Theysayrecessionwillstart........................................................................................................... 11

8.5 TheysaywewillblocktheUnion................................................................................................... 11

9 WhyhastheECBstartedtobuyItalianbonds?...................................................................................... 12

10 WillEurobondshelp?.............................................................................................................................. 12

11 WhydoallothercountriesexceptforSlovakiasupporttheEFSF?........................................................ 13

12 Whatnext?.............................................................................................................................................. 14

European

Financial

Stability

Facility

A

Guide

to

Moral

Hazard

/

Copyright

5

September

2011

Richard

Sulk

Contact:[email protected],[email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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1 Howhasthedebtcrisisstarted?Tomakethecommoneurocurrencyworkin several countries with quite varyingeconomies, it was required to establish

the

rules.

These

were

not

observed

and,

moreover, nonobservance of theestablishedruleswasnotpenalised.

The rule banning the entry into theeurozonetocountrieswithsovereigndebtexceeding60%GDPwasnotobservedrightatthestart.Greeceand Italy1got inthereinspiteofit.

Some of the Maastricht criteria2 were

violated for 97 times altogether in the

first 10 years of existence of the

eurozone but no country has been

penalised a single time. Germany andFrance even declared in 2004 that theywillnotobservetheMaastrichtcriteria.

Nonobservance of the rules has lead inseveral countries to considerableindebtedness,inotherwordswasting,stealing

butespecially tovotebuying3,supportedbythe second significant characteristics of thepoliticiansgivingoutotherpeoples money.

Real problems occurred in 2010 whenanother rule, i.e.Article125of theLisbonTreaty,wasviolated.TheArticlestipulatesthat every country must meet its own

erules.

FSFbeen

1 In 1991 public debt of Italy was 105%, public debt of

Greece in the same year was 92%.2 Maastricht criteria government deficit (3% GDP),

government debt (60% GDP), inflation rate no morethan 1.5 percentage points higher than the average ofthe three best performing member states of the EU,long-term interest rate no more than 2 percentage points higher than the average of the three best performing countries, 2 consecutive years of theexchange-rate mechanism (ERM 2) membership.3 Vote buying is one of the fundamental insufficienciesof democracy and it operates on a politician who tells

its voters: If you vote for me, I will introduce thethirteenth pension, free health care and everybody will

get the Internet for free. Naturally, this soundsattractive and brings in votes but the politician does nottell the voters that it will all be financed on debt.

financial commitments on its own4. Thisrule has been evaded when Greece wasgranted the first loan and violated by theestablishment of a temporary EuropeanFinancialStabilityFacility(EFSF).

The ECB has violated another importantrule, ban on buying bonds of memberstates of the eurozone and has boughtGreekbondsattensofbillionsofeuros.Ithas evaded yet another rule, Article 123of the Lisbon Treaty that prohibits theECBfromlendingtothememberstates.

As if it has not been enough, the

changes5inthetemporaryEFSFapprovedalong with the increase on 21 July 2011also represent a clear violation of th

2 HowhastheEestablished?

After the ears of disrespectfulindebtednes

ys t

ruleswasGreecewhenfinancialmarkets7

6 the first country o

experience problems in 2009 as aconsequence of nonobservance of the

4So-called no-bail-out clause is extremely important

especially when the monetary union is formed by

economically varying countries.5

Loans to countries whose banking systems havegotten into problems; short-term financial aids tocountries able to finance themselves on financial

markets;6 In 1981 when socialist Papandreu, father of the

present-day Greek Prime Minister, took power over thecountry, government debt of Greece amounted to 27%GDP. A year after his governance lasting eight years,i.e. in 1990 it grew to as much as 90%.7

What are financial markets? Firstly, they are banksthat invest money of their depositors, which in particular means the savings of people. Secondly,financial markets are also other institutions like

pension funds, and pure speculators like hedge funds,descending like vultures over their prey when theysense quick and high profit, naturally connected with

high risk. There is a very small difference between ahedge fund and a casino game, therefore hedge fundactivities are also called casino capitalism.

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werenolongerwillingtolendthecountrymoneyatsensibleinterestrates.8

Normally,suchstateisforcedtosaveupandwhen it is not able to, it goes bankrupt9.

Except for Greece. European politicians andtheECB10showedupandstartedtosavethecountry.AtfirsttheyclaimedthatGreeceis capable of repaying its debts all by itself,then that it will need 30 billion euros, laterthe amount grew to 60 billion euros andfinallytheycameupwiththeideathatothereurozone11countriesshouldprovideGreecewithaloanof110billioneurosinspiteofthefactthat itwashighlyprobablethatGreece

would not be able to repay it. They alsoassured that the loan would resolveeverything and Greece would return onfinancialmarketswithinayear.Fortunately,Slovakia has not participated in thisnonsense,especiallythankstoSaS,savingitstaxpayers820millioneuros.

However,itcametoshow,thatexceptforGreece, there are more countries with

8 What is a sensible interest rate? Interest rate consistsof two parts: firstly, it is the price of money thatconsiders inflation and demand for money (so-called

risk-free rate) and secondly, risk premium of thecreditor. The more debts the debtor (for example

a country) has, the higher the risk it will not be able torepay them and therefore the risk premium is higher.Sensible interest, i.e. interest the country is able to paylong-term is the rate not exceeding 6%.9

What does it mean when a state goes bankrupt? Withother debtors (like firms), an executor sells their

property and pays debts. This is not possible with thestate. It becomes a member of the so-called Paris Cluband concludes an agreement with creditors. This meansprolongation of loan due period, suspension of interest payout and in the worst-case scenario, decrease ofprincipal. In history, many countries have already gonebankrupt, i.e. declared insolvency and in recent yearsthey have been joined, apart from other countries, by

Iceland, Russia and Argentina.10

ECB European Central Bank11

Eurozone consists of 17 states with euro as the

currency: Germany, France, Italy, Spain, Netherlands,Greece, Belgium, Portugal, Austria, Slovakia, Finland,Ireland, Slovenia, Estonia, Cyprus, Luxemburg and Malta.

equally bad figures12 Portugal, Ireland,SpainandItaly,forwhichanamePIIGS13has been coined. And what did cleverpoliticians in Brussels come up with?

They came upwith a temporary EFSF14

that should protect countries with

irresponsible financialmanagementand

economybymoneyofthosewhohandle

financial means responsibly. They

promiseditwouldonlybetemporary15

lastingthreeyearsandwouldbebased

solelyonguarantees.

In August 2010 the Slovak parliamentapproved the temporary EFSF. Even SaS

approved its existence: firstly because itshouldhavebeenatemporaryfacilityandsecondly because loans provided fromthe EFSF must be compatible with debtsustainability, inotherwords,yougetaloan only upon a real assumption thatyou will be able to repay it16. Theapproval of the temporary EFSFcontainedalsopowerofattorneygranted

12 What are figures and when are they bad? Especiallymonitored is total public debt to GDP ratio (grossdomestic product, GDP). Total public debt of Slovakia

is approximately 45%, Maastricht criterion is 60%,debt of Greece amounted to 110% at that time. Another

monitored figure is the annual deficit ratio, i.e. newdebt ratio. Thanks to Fico, deficit of Slovakia was 8%(in 2010), Maastricht criterion is 3% and deficit ofGreece exceeded 10% in 2010. Development and

growth of economy, i.e. GDP growth is monitored aswell. GDP in Slovakia grew by 4%. There is no

Maastricht criterion for GDP growth. GDP in Greecedropped by 5% in 2010.13

PIIGS Portugal, Ireland, Italy, Greece, Spain name derived from the English word pigs.14

EFSF European Financial Stability Facility15 For example, Angela Merkel, Chancellor ofGermany, said in October 2010 that no permanentEFSF would be provided. This promise lasted less thansix months. European politicians started to

enthusiastically discuss the permanent EFSF (ESM) asearly as in spring 2011.16

The said assumption has at least theoretically beenfulfilled by Ireland and Portugal, first two countrieswho have been granted loan from the EFSF.

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to the Ministry of Finance to representtheSlovakRepublic17.

As it appeared later on, Europeanpoliticianshavegrosslyviolatedtheirown

rules.Firstly, like Ihavealreadysaid,thetemporary EFSF will become permanent.And secondly, Greece will be the nextcountry to receive a loan from thetemporary EFSF while it is obvious toeveryone, that a loan granted to thecountrywhichhas infactgonebankrupt,is not compatible with debtsustainability. And lastly, the nature ofthe EFSF will be changed by significant

increaseofitscompetence.TheEFSFasaprivate law object will be able topurchasebondsofproblemcountriesandlend them money even earlier thanbeforethesecountriesbecomeincapableof financing by themselves. Moreover,the EFSF will be competent to lendmoney to even those countries whosebanking sectors happen to be hit by thesystemcrisis18.

All of this is in contrary to the originalagreement on the temporary EFSF andSaS would not have supported itsexistenceundertheseconditions.

3 IstheEFSFincompliancewiththeprinciplesofdemocracy?

It definitely is not. The amounts we

speak about in case of the temporary

EFSF, its increase and permanent EFSF

form a significant part of the Slovak

budget19.Whathappens if theNational

Council approves the increase of the

17 This is the reason why signature of Ivan Miklo wassufficient for loans granted to Ireland and Portugal andapproval of the National Council was not needed.18

This would practically mean that the EFSF would beable to lend money for instance to even Germany and

France if their banking sectors are in trouble.19 It equals more than one entire Slovak nationalbudget.

temporary EFSF and entry of Slovakia

into the permanent EFSF20

is that a

sovereign and independent state will

pass the decision on utilisation of the

amount higher than its own annual

budgettotheBoardofGovernorsofthe

EFSF, since commitments of Slovakia (incase guarantees would be effected) willbe directly entering the sovereign debtand costs spent for these commitmentswill influence the budget of the Slovakpublic administration. This means thatthe National Council with its socalledroyalprivilegebeingtheapprovalofthestate budget21 for which it received

unquestionablemandatefromthevotersindirectelectionswillabandonthisrightin favour of some board with no suchdirect mandate granted by the voters.Thisstronglycontradictstheprinciplesofdemocracy.

Thiswastheveryreasonwhyforexamplein Germany a group of parliamentmembers led by Peter Gauweiler filed a

constitutional

complaint

against

the

temporaryEFSF.Thedecisionisexpectedtobemadeinautumnthisyear.

4 Whatisthedifferencebetweenthefistandthesecondloanfor

Greece?

Thefirst loanwasbilateral,whichmeansthat every country of the eurozone has

lent Greece a certain sum individually.Unlike the first one, the second loan toGreece should be granted from thetemporary EFSF. Similarly to the case ofIreland and Portugal, funds will be usedfrom the temporary EFSF but the

20 The establishment of the temporary EFSF has

already been approved by the National Council inAugust 2010, together with the SaS votes. For the

explanation, see chapter two, paragraph four.21 This is the reason why the act on state budget iscalled the act of the year.

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difference is that Greece has alreadyreceivedmoney22and it iscertaintoday,that itwillnotbeabletorepayeventhefirst loan, letalonethesecondone.Thatisthereasonwhygrantingofthesecond

loan contradicts the agreement on thetemporaryEFSF23itself.StandpointoftheSaS in this matter is unambiguous andconsistent.Wewereagainstthefirstloanand we are against the second loan toGreece.

TheSDKpartywasalsoagainstthefirstloantoGreece24inMay2010buttoday,ayear later, it supports the second loan.

Thepartyclaimsthatthisattitude isfirmand consistent and provides threereasons. Firstly, participation of privatesector25 (in particular banks) is nowgranted,whichwasnotthecaselastyear.Secondly, involvement of Slovakia lastyear was unfairly extensive and thedistribution key has been successfullychanged in themeantime.And thirdly, iftheeurozonechangestoasocalledtwo

speed

eurozone,

strategic

interest

of

Slovakia will then be to become amember of the socalled northern,stronger section with countries likeGermanyandFrance.

Now, letustakeadetailed lookatthesereasons:

22Iveta Radiov said on this occasion that Greece will

not receive money from the temporary EFSF because ithas already received the bilateral loan. (Source:http://www.vlada.gov.sk/tlacova-konferencia-po-25-rokovani-vlady-sr-ktore-sa-uskutocnilo-24-novembra-2010/)23 Loans granted from the EFSF must be compatiblewith debt sustainability, in other words, a loan will be

granted to a country only upon the real assumption thatit will be able to repay it.24

This, however, was stated during the electioncampaign in May 2010.25

PSI Private Sector Involvement

4.1 ParticipationofbanksBanks propose26 in their offer a 1:1exchange of the half of their Greekbonds for new Greek bonds. Thismeansthatbankswillsuffernoloss(!)at the exchange itself, the differencelies in interests. Old bonds bear highinterests because they are onlysecured by Greece, which has theworstratingintheworld27andhenceno financial standing. New Greekbonds will be secured by the EFSF28with AAA rating, and hence the bestpossiblefinancialstanding,exactlylikeGermany.Whilebankswillreceivefor

German bonds less than 3%29 onaverage, theywill receive4.73%30 onaveragefornewGreekbondswithanequally low risk (!). Second half ofbondswillalsobeexchangedbutwitha haircut decrease of principal by20%. However, interest will increaseup to 6.8%, which will compensatetheoverallhaircutinthecourseof15or30years.

This way, bonds of the value of 37

billion euros will be exchanged in a

relatively short period of time.

Politiciansaretrying toconvince their

26 The moment itself when banks propose their loss is

worth a thought. It is like a criminal himself proposing punishment. Josef Ackermann, head of theInternational Banking Federation and CEO of DeutscheBank said in relation to participation of banks that it

will be tough. He could hardly hide his smile whilestating it, which is natural, because in the end, banks

will profit from participation of the private sector.27

Moodys Caa1, Standard & Poors CCC, FitchRatings CCC (Note: all data come from the second halfof July 2011)28

Only principal will be secured while interests will besecured only by Greece. However, interests will bepayable each year (coupon), which makes it a lot moreprobable that they will be repaid. Principal will not be

payable before the total maturity period, i.e. after 30years.29

1-year bonds bear interest of 2.08%, 2-year bonds

1.53%, 5-year bonds 2.35% and 10-year bonds 3.13%.30 4% during the first five years, 4.5% during thesecond five years and 5% during the next 20 years.

6
http://www.vlada.gov.sk/tlacova-konferencia-po-25-rokovani-vlady-sr-ktore-sa-uskutocnilo-24-novembra-2010/http://www.vlada.gov.sk/tlacova-konferencia-po-25-rokovani-vlady-sr-ktore-sa-uskutocnilo-24-novembra-2010/http://www.vlada.gov.sk/tlacova-konferencia-po-25-rokovani-vlady-sr-ktore-sa-uskutocnilo-24-novembra-2010/http://www.vlada.gov.sk/tlacova-konferencia-po-25-rokovani-vlady-sr-ktore-sa-uskutocnilo-24-novembra-2010/http://www.vlada.gov.sk/tlacova-konferencia-po-25-rokovani-vlady-sr-ktore-sa-uskutocnilo-24-novembra-2010/http://www.vlada.gov.sk/tlacova-konferencia-po-25-rokovani-vlady-sr-ktore-sa-uskutocnilo-24-novembra-2010/


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voters that this is the private sector

participation. In reality, however,

bankswillannuallyearnonthismoney

approximately 1.5% more with the

same certainty than as if theywould

invest it intoGermanbonds. Inother

words, banks will exchange Greek

bondsof thevalueof37billioneuros

for Greek bonds of the value of 37

billioneuroswhile theirannualprofit

willbe500billioneuros.Thisisajoke,

notaparticipationofbanks31.

4.2 ParticipationofSlovakia(changeofdistributionkey)

Participation of Slovakia in thetemporary EFSF is 0.9935%. It isdefinitelyhighsinceparticipationoftherichestcountryoftheEU,Luxemburg,ishardlyhalfofthisfigureascomparedtoits GDP32. Although Ivan Miklo hassucceeded in lowering itto0.73%,thisfigurewillbeappliedforthepermanentEFSFonly.Slovakparticipation in loansgranted from the temporary EFSF will

be

even

higher,

and

that

1.0622%

because Ireland, Portugal and Greecewill not need to participate in newloans. Our participation in the currentloan to Greece will then be 1.0622%and not 0.73%, which represents adifferenceofaquarterofbillioneuros.If a loan from the temporary EFSFshould be granted to Spain also,participationofSlovakiainthisloanwill

31The question is: where does the percentage of 21%

the European politicians are trying to impress taxpayerswith come from? I do not want to get into details butthe point is that a high discount rate of 9% has beenused to get such a high number referring to participation of banks. Nobody was able to explainwhy the rate of 9% has been used and why not a lower

one. For example, with the discount rate of 5% theresult is not a loss for banks of 21% but a profit of 3%.32

GPD of Slovakia is 70 billion euros, which is 2.5

times more than GDP of Luxemburg while participation of Slovakia in the EFSF compared toparticipation of Luxemburg is four times higher.

growto1.18%andifmoneyisgrantedalsotoItaly,itwillbe1.35%.

4.3 SlovakiaandatwospeedurozoneEvenifthetwospeedeurozonewould

be created, a ticket for membership insuch a club would not depend onwhether a country had supported theEFSF inthepastornotbecause it istheeffort of the two best performingeconomies Germany and France togetridoftheperipheralones33thatisthereasonfordividingtheeurozoneintotwoparts.Entry intothebetterpartoftheeurozonewillbedecidedinparticularon

basis

of

a

countrys

rating.

Generally,

it

will reflect the level of credibility of acountrys fiscal policy and how its longterm sustainability of its sovereign debtlooks like. IfSlovakiawastotakepart inthe increase of the temporaryEFSFandenter intothepermanentEFSF, itwouldhave to borrow money on financialmarkets itself and its rating would onlydeteriorate. In other words, it is the

participation

in

EFSF

that

makes

our

chancesworse!

If the first loan toGreecewas nonsense

because it was heading towards

bankruptcyanyway,thesecondloanisan

absurdity because Greece already is

bankrupt. Any money for Greece

whatsoever ismoney thrown outof the

window. In spiteof this, IvanMiklohas

agreed

with

the

issue

of

guarantees

for

grantingtheloanforGreeceintheamount

of800millioneuros34

on21July2011.

33Economics uses the terms core economies (for

example Germany and France which form a base forthe eurozone as a whole with their economicperformance) and peripheral economies (for exampleGreece or Ireland whose participation in the eurozone

economics is marginal.)34

In this connection I view the action of ministry offinance Ivan Miklo, who said at the meeting of the

National Council on 1 July 2011 that the sum Slovakiawill use as a guarantee will not be 600 million euros(which I feared) but only 350 mil. euros as extremely

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5 WhyisitnecessarytoincreasethetemporaryEFSF?

ThetemporaryEFSFwassetforthesumof750billion euros supplied by the MMF with the

sum

of

250

billion

euros,

European

Commission

withthesumof60billioneurosandcountriesof the eurozone with the sum of 440 billioneuros. Since participation of Slovakia is0.9935%, we had covenanted to issueunconditionalandirrevocableguaranteesofatleast4.371billioneuros.Butsomeonemadeamistake in here and it came to show thatalthough the EFSF has guarantees for 440billioneurosfromthememberstates,itisable

to

grant

loans

only

up

to

the

amount

of

250

billion euros without losing the best AAArating35.

ThatisthereasonforputtingpressureonthetemporaryEFSF increase.However,wemustrealise that Slovakia already is obligated(from the last year) to issue, if needed,unconditional and irrevocable guarantees inthe amount of 4.371 billion euros for loans

(total

volume)

granted

to

countries

with

irresponsiblefinancialmanagement.IncreaseoftemporaryEFSFmeansfurtherguaranteesfor Slovakia that amount to 3 billion euros,now only for the volume of principals36.

inappropriate. Nevertheless, he agreed with the sum of

800 million euros 20 days later in Brussels. He repliedthat nobody knew of such increase, which is a jokethrown into faces of Slovak taxpayers and onlyconfirms mystification as the working method of the

EU.35 Failure to consider, know or acknowledge that if 440

billion euros is to be raised by countries with differentratings, loan capacity of 440 billion euros whilemaintaining the best rating is impossible really is to nocredit of the EU experts.36

Change of terminology from total volume tovolume of principals means that the effective sum of250 billion euros comprised principal and interestswhile the new effective sum of 440 billion euros will

comprise only principal with interests being extra.However, we will guarantee for everything andtherefore after the increase, Slovakia will not provide

the guarantee of approximately 7.2 billion euros butapproximately 9 11 billion euros (with principal of7.2 billion euros, average 15-year maturity and 3.5%

Slovakiawillbeobligatedtoissueguaranteesfor approximately 10 billion euros after theEFSF increase, which almost equals oneannual state budget of Slovakia and is a lotmore than the sum stolen during Ficos

rule37.

Muchmoreimportantistoaskwhathappensafterguaranteesareissued,letussayincaseof Greece. I claim that almost nothing will.Wasting and stealing will continue. Forinstance,deficitforthefirst7monthsofthisyearinGreeceamountsto15billioneurosinspite of all the talking about saving whichlasted for a year and a half. Greece with

extremely generous pensions, army of 134thousand soldiers and 100 thousandgovernment officers more than necessary,still needs more and more money, will notborrow it on financial markets by standardconditions,butfromtheEFSF38.

In the meantime the Greeks have stoppedplayinghideandseekandtheGreekministerof finance has said directly that the Greek

debt

has

gotten

out

of

control39

.

In

other

words, they will continue creating hugedeficits40insteadofsaving.

interest). A more detailed estimation is unfortunately

impossible to make since, as usual, detailedinformation are not available.37

Website www.ukradli.sk specifies the sum ofapproximately 3 billion euros and I ask our coalitionpartners why we fought so hard against Fico and all thestealing during his rule since in this case they are

willing to give their consent to multiply higher losses.38 Greeks would be stupid if they attempt to get money

on financial markets. Firstly, they would have to trymanaging their economy in a responsible way andsecondly, they would pay higher interest. This waythey have money from the EFSF, without any effortand at the interest of 3.5%.39 Sharp increase of debt and high primary deficit hasdeteriorated the dynamics of debt, which is out ofcontrol, to maximum said the expert committeeassembled by the Greek Minister of Finance in its

report issued on 31 August 2011.40

While the experts of the so-called Troika (EU,

ECB and MMF) had counted with the primary deficit(deficit without interests) of 0.9% for the year 2011and for the next years with primary surplus yet in May

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So, if Slovakia issues unconditional and

irrevocable guarantees in terms of the

temporary EFSF (on basesofwhichGreece

will receive the loan that it will most

certainlynotrepay),wewill in facthaveto

remit the sumwehaveguaranteed.As the

Slovakbudgetisalsodeficient,wewillhave

toborrowthesaidsum,hencebecomeeven

more indebted! Never mind that we arepisspoor,wecanalwaysget intodeptuptoourneckssothatwecan look likehotshotsinBrussels.Afterall,wearebigspenders.

The permanent EFSF only makes thissituation worse. The entire eurozone is

headingtothesocalledtransferunionwhereresponsible states will finance theirresponsible ones. The presently set rulesevenexpresslymotivateforreceivingmoneyfrom the EFSF. A country does not need toconvince the investors about being atrustworthydebtor,interestswilldroptotheguaranteedamountof3.5%andthecountrywhich receives EFSF funding will no longerneed to issue guarantees for loans provided

to

other

countries. Hurray! European

bureaucrats have conspired to create a

mechanism that motivates countries to

considerable indebtedness! But the worst

thing is that this mechanism provides no

solution for the debt crisis. Conversely, it

evendeepensit.Justlikeadrugaddicttryingtosolveproblemsbyincreasingdailydose.

6Are

temporary

and

permanent

EFSFsolidary?

Solidarity the European politicians flaunt isdelusive. Insolvency isnotanearthquakeoratsunami when help provided to the affectedstate would be an act of real solidarity.Insolvency is primarily bad news for the onewholends,thecreditor,becausehecanloseallmoney or portion of it. It is of nosignificance

this year (1.2% in 2012, 3.5% in 2013 and 6.1% in2014).

whetherthecreditorhas lentmoneytoabaddebtorduetoinsufficientinformationorgreedbecause of the vision of high interests. Whatmatters is that creditors have profited fromGreekbonds41fora longtimeandprettywell

without sharing the profit with anybody. Soprofits were private. Now (in case Greekdeclaresbankruptcy)lossesareimpendingandtheEuropeanpoliticianssuddenlyhavemouthfullofsolidarity(delusivesolidarity!). Infact,itis only about saving profits of foreign,especially German and French banks42. Myquestion is why financial losses need to besocialised once again while profits areprivatised?

IncaseofthetemporaryEFSFthereoriginallyexisted a hope that it could really help thestates in certain circumstances. But grantingthe loantoGreecefromthetemporaryEFSF(already the second one) threw all theprinciplesoverboard.Now the loan isonlyatool for creation of other debts that will beused for repayment of the old ones, andhence for saving banks profits. After the

changes

arranged

on

21

July

2011,

the

temporary EFSF creates options for passingowndebtsontoothers. Isthissolidary?No,itisirresponsible!

Putting the question differently: Greece haslived on debt for many years becauseirresponsible Greek politicians granted theirpensioners quadrupled pensions43, buyingvotes this way. Is it solidary that a Slovak

pensioner must contribute a Greek

41What is a bond? It is a security issued by government

that needs money because its income is lower thanexpenditures. It contains the sum the governmentborrows (so-called principal), interest on the borrowedsum and date when the borrowed money will be repaid.42 To avoid any misunderstandings: any moneywhatsoever directed to Greece under the nameborrowing or purchase of ECB bond goes

immediately to foreign banks (and today, also tospeculators in great extent) for repayment of

receivables and for interests.43 Average Slovak pension in 2010 was 378 euros,average Greek pension was 1,365 euros.

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pensioner in form of higher VAT to his

pension that is four times as high as his

own?Weclaimthatitisnot.TheEFSFisnot

solidary.On the contrary, it isnonsolidary

becauseitencouragescreationofdebts.

7 WillSlovakialosetheEUfunds?Apartfromflauntingdelusivesolidarity,someare used to argue that if Slovakia refuses tosupporttheEFSF,itwilllosetheEUfunds.Ofcourse, this isnonsenseas theEU fundsarebased on a totally different contract basisthantheEFSFbutwhathappens ifEuropeanpoliticiansstarttolinktheEUfundswiththe

EFSF? This would naturally be primitiveblackmailingbutintheworstcasescenario,itis always better for Slovakia to lose the EUfunds most of which we do not draw (andthose we do only nurture corruption anddeformbusinessenvironment),thanto issuebillion euro unconditional and irrevocableguaranteesfortheEFSF.

Also, all the talking about how we must be

solidary

with

the

Greeks

because

we

receive

fundingfromtheEUfundsismistaken.Afterall, the Greeks have received far more EUfunds44thanusanditstillisnotenough.Itisnot at all about solidarity. A poor country(Slovakia) is to contribute the richer ones

(Greece,Italy)sothattheycouldmaintaina

lifestylethatisbeyondtheirmeans.

8What

happens

if

we

do

not

supporttheincreaseofthe

temporaryEFSF?

The world will crash down are the wordsthat can be used for summarizing all thecatastrophic scenarios our coalition partnersthreatenuswith.They literallythreatenthatin case the EFSF is not increased, investorswill leave, interests will grow, stock markets

44Estimated amount exceeds 100 billion euros.

will crash, recession will start and we willblock theUnion.So letus takeacloser lookatthesepseudoarguments:

8.1 TheysayinvestorswillleaveInvestorscomeandgodependingonwhere and what conditions theyfind.Thatis whyoneofthegoalsofthe SaS is to improve businessenvironment because it is theemployers only who createvacancies.Thebettertheconditionsfor business and recruitment, thegreater the chance for investors to

come

and,

logically,

the

lower

the

riskofseeingthemgoaway.Andtheessentialquestion is: if,oneday,wehavetopayseveralbillionsofeurosin terms of the EFSF for Greekpensionsorforthe Irishtomaintaintheir 12.5% income tax rate andSlovakiawillafterwardsbeforcedtoincrease its income taxes, will ourbusiness environment be improved

or

will

it

deteriorate?

8.2 TheysaySlovakiawillpayhigherinterests

Interest a country must pay for itsbonds depends on its rating45. Thefewer debts, the better the ratingand lower the interests. If Slovakiaprovides guaranty for loans for

different

countries

amounting

to

billions of euros, it will inevitablyleadtoworseningof itsratingwhileinterest will grow. Hence the

45There are three large global rating agencies evaluating

the majority of world countries depending on theirability to repay their liabilities. The higher theprobability that a country is able to repay its liabilities,

the better its rating and the lower the risk premium upon placing government bonds on financial market. Forexample, Germany with the best possible rating (AAA)

currently pays for its bonds only 2.8%. Italy with worserating, higher deficit and second largest debt in theeurozone pays for its bonds approximately 6%.

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oppositeistrue:Slovakiawillhavetopay higher interests if it agrees tothetemporaryEFSFincrease.

8.3 TheysaystockmarketswillcrashStock price is not based only onfinancial results46 of a particularcompany but it is often object ofspeculations. Sometimes a stockbubble gets created, stock pricesstart to grow rapidly, investorsbecome greedy and sense profit.One day this bubble bursts47 andstock prices crash. Some will gain

and

some

will

lose.

Some

blinded

by greed and vision of fast profitget into debt and lose everything.Sometimes it is banks whosemanagers mistake a stock exchangeforacasinoandcausethatthebankthey work for collapses. It might besensible to think about more strictrulesforbanksandhigherdegreeofpersonal responsibility of their top

managers.

Potential

fall

of

stock

pricesisdefinitelynotthereasonforsupportingtheEFSF.

8.4 TheysayrecessionwillstartThis is true, but recession will startanyway.TheentireEurope48has livedbeyonditsmeansbutthepartyisovernow. Countries will have to stopmakingdebts,whichmeansthatpublicexpenditures will be lower. This willdecrease consumption and logically,productionwillgodown.Itwillleadtodecrease of GDP and recessionbegins49. Global recession is definitely

46 So-called fundamental value of stock.47 For example Internet stocks in 2000; bubble features

can nowadays be clearly seen in the price of gold.48

Naturally, also the USA but they have decided to

postpone the saving.49 According to an economic theory, recession is whenGDP decreases in two consecutive year quarters. I dare

not related with bankruptcy of someGreece. Greek economy formsapproximatelyonly2%oftheentireEU(andlessthan5ofglobaleconomy),which is simply too a little influence.

But when the recession comes, weshould be ready. Slovakia will needfinances to fund the investmentprogrammes like highways, higherunemploymentbenefits,etc.

One more important argument: Ifrecessionstarts,itwillhitallEuropeancountries regardless of whether theyhavetheeuroornot. Inspiteofthis,

Great Britain, Sweden and CzechRepublic(countrieswhichdonothavethe euro) have declared some timeago,thattheywillnotspendacentonGreece and other problem countries.All the talking about recession isobviouslyjustathreat.

8.5 TheysaywewillblocktheUnion90%

of

the

capital

of

member

states50 was enough to create thetemporary EFSF but 100% of thecapitalisneededtoincreaseit,whichputs enormous pressure on allcountries in an unfair way: Weunderstand that you do not want toincrease the temporary EFSF but dorealise that you block the entireUnion. However, the truth is, that

our

Union

colleagues

have

at

least

four options how to avoid gettingblockedbySlovakia. Firstly, theywillsimplyamendtheagreementsothat90%ofthecapitalwouldsufficealsofor the increase. Secondly, they willleave Slovakia out of the temporaryEFSF. Thirdly, the ECB will continuepurchasingItalianandSpanishbonds.

say that this is nothing compared to billions that willleave Slovakia for Greek pensions, etc.50

Slovak contribution is 0.9935%.

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Though this is gross violation of theECB rules, as we have already seen,rulesofhisownarenotwhatwouldbe sacred to Mr. Trichet. And lastly,those states thinking they will solve

the debt crisis by creating furtherdebts can continue lendingbilaterally. Just like they have lentGreecethefirsttime.

However, reality is that consensusdecisionmaking51 is applied to putpressure on the countries with adifferentopinion.Atfirstyouaretoldthat consensus decisionmaking is

goodbecausewegotonefootinthedoor and then, that after all, wecannotblockalltherest.

9 WhyhastheECBstartedtobuyItalianbonds?

Like Greece, Italy has also lived beyond itsmeans for years and it never should havebeenadmitted into the eurozone because it

has never fulfilled the Maastricht criteriaregarding the sovereign debt52. It had beenadmitted into the eurozone and moneywasting had continued. At present, Italy isthe second most indebted country afterGreece,havingadebtof120%GDP,logicallypaying higher interests than e.g. Germany.Obviously,thankstotheEuropeanpoliticians(who have been solving the crisis for a yearand a half and have resolved absolutely

nothing until this day) there is uncertainty53on the market and this has caused that

51Process of decision-making when consent of all

participants is required, in other words the vetopower.52 According to Maastricht criteria, sovereign debt ofa state may not exceed 60%. Sovereign debt of Italy atthe time of its entry into the eurozone was 90%.53 The truth is that big financial market players have

understood that the ECB will save ad infinitumregardless of the fact that it is exactly the thing it must

not be doing, and so they play against it. They wouldbe foolish if they would not, and this will cost us allanother billions of euros.

interestson Italianbondshavegrownabove6%. It is absolutely clear because interestconsistsoftwoparts,i.e.priceofmoneyandrisk premium and the higher the risk, thehighertheinterest.

PurchasingItalianbondsbytheECBissheer

blatancy.TheECBhadnoright fordoing it.

Itsboss,Mr.Trichet,andothermembersof

thebank board areobligated to adhere to

the rulesandnot tochange them.TheECB

goals must be sacred to them and the

fundamental goal is to maintain currency

stability and price stability (i.e. keep

inflation under control), as had been

promisedtothepeoplewhentheeurozone

was established. Purchasing bonds of amembercountryjustforthesakeof interestincreaseisinstrongcontradictiontothisgoaland to all other principles like for instancethe independence of the ECB fromgovernmentsofmemberstates.

The only thing that will help Italy is to startsavinginordertostopproducingdeficitsevery

single

year.

Italian

members

of

parliament

do

not need to earn 15 thousand euros net amonthorcarusageofpoliticiansdoesnotneedto cost one billion euros a year. Italians mayalso sell some stateowned enterprises. Theycan come to money immediately by sellingsomeofitsgold. Italyowns2.500tonsofgoldwith the current value exceeding 100 billioneuros. There was no sensible reason for theECBtobuyevenasingleItalianbond.Nobody

should

expect

though

that

Italy

will

start

saving

now.Whywouldtheydoit?TheECBwillsavethem if necessary. Ultimately, there are morepleasant duties for Italian prime minister toattendto.

10WillEurobondshelp?Eurobonds are something like commonbonds of all eurozone countries. They have

common

guaranty

and

united

interest.

In

the

endof July this year the intereston10year

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bonds was 2.6% in Germany, 5.9% in Italy,6.1% in Spain, 11% in Portugal and Irelandand 15% in Greece. Interest reflects the riskof the respective country and concurrentlyputspressureondebtdecreasesignificantly,

thusmotivatingtowardssavingmeasures.

Issue of Eurobonds will average the abovestated interests for individual countries to aunitedinterestofapproximately4.6%.

Letustakeanexample.Germanywillpayoninterests about 33 billion euros54 more peryearwhileItalywillpaylessbyapproximatelythesamesum.Butthemore Italywilltry to

manage their economy responsibly, thelessertheadvantagewillbebecauseoflesserdifference between the interest ofEurobonds and the interest Italy (alreadysaving) would pay by itself. Now let usimagine that Italy will completely stopproducedeficitsonedayandstartdecreasingitssovereigndebt. ItcouldthenhappenthatinterestItalywouldpaywouldbelowerthaninterest it will have to pay because it is

financed

by

means

of

Eurobonds.

The

result

is that Italy will pay for its responsiblemanagementoffinances.

Inotherwords,Eurobondsreducemotivationto manage finances responsibly andencouragecreationoffurtherdebts55.

11WhydoallothercountriesexceptforSlovakiasupporttheEFSF?

LetushavealookatwhosupportstheideaoftheEFSFinparticular.ItistheECBbossTrichet,European Committee boss Barosso and

54 Source: IFO Institute, 17 August 2011.55 There also exist opinions that countries will receivemoney from Eurobonds only up to 60% of their GDPand the rest they must finance on their own. Regardless

of how this rule would prove in practice, European politicians have already violated their rules so many

times that they will almost certainly violate this one tooafter majority of countries would reach the said limit of60%.

Eurogroup boss Juncker. Obviously, thesemisters and other Eurocrats support the EFSFbecause they would have to admit theirmistake which is impossible in these circles.Why for example would the ECB boss Trichet

retireinOctoberadmittinghehadproducedalossoffewtensofbillionsofeuros56andspoilpersonal reputation thereby? Or, why wouldthe European Committee boss Barosso admithehadmadeamistake(havingallowedGreeceproduce deficits manifold higher thanpermittedunderMaastrichtcriteria)andlethispower weaken unnecessarily? In short,everybodyinBrusselswilldefendthisnonsenseabout the EFSF until the last drop of their

blood. Regardless of economic and, it seems,alsopoliticalcosts.

Then there are 17 eurozone states. Portugal,Ireland, Italy, Greece and Spain will not standup against the EFSF because they get (or willsoon be getting) money out of it to continuestaying indebted. Now on to 12 remainingstates.Malta and Cyprus are tightly interconnected

with

the

PIIGS

and

soon

enough

they

will

probably reach out their hands too. Belgium,which is a target of financial markets alsobecause ithasnogovernmentforoverayearand might be another candidate to receivesupportfromtheEFSF.AlthoughSloveniahasarelativelylowoveralldebt,ithasproducedhighdeficitsforthreeyearsnowandmightaswellbeg for money and then spend it withoutpaying any. It is only logical that these

countries

support

the

idea

of

the

EFSF.

Still

8

countriestomention.Germany and France are definitely for the

EFSFbecause there isachance for them to

gain control over the entire EU with their

Europeaneconomicgovernment.Thisgroup

also includes Luxemburg, which as a

56ECB has bought Greek bonds for tens of billions of

euros, which is in contrary to its own guidelines. If

Greece goes bankrupt and real haircut happens(decrease of principal, say to its half), banks wouldreport loss and the ECB as well.

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provider of financial services still manages

tolivewelloncontinuouslyincreasingdebts

of other countries of the eurozone, and

moreover, its participation in the EFSF

fundingagainstGDP isthe lowest57.5more

countriestomention.

Finland has fought for collateral58 with abilateral deal behind the backs of others inexchange for the loan to Greece as aprerequisite of its participation in the EFSF.Althoughnegotiationshavenotendedatthismoment yet, it is a clear proof that theFinnishknowthetraptheycouldbecaughtinandhaveseriousobjectionsagainsttheEFSF.

Estonia has adopted the euro only at thebeginning of this year and therefore little isknown about their attitude. Enthusiasmabouttheeuromightstillberunninghigh inthecountry.

Theremainingones,Austria,NetherlandsandSlovakia, are the countries (along withFinland) with the strongest aversion to theEFSF. Unfortunately, it is too marginal for

letting

common

sense

win.

By

the

way,

we

speakaboutthepoliticiansonly.Thefactthatthey are trying to rescue with themoneyofother countries adds to their generosity tosave everybody around by new debts. Wewillfindanumberofrenownedeconomists59who claim with all seriousness that Greecemustgobankrupt(sothatrealhaircutcouldhappen)orthatitmustleavetheeurozone.Itshould devalue its new currency afterwards.

Devaluation

does

not

need

to

be

a

negative

57Conversely, participation of Slovakia in the

temporary EFSF expressed as GDP ratio is the highest.58

Collateral is a financial security the debtor uses as aguarantee to the creditor for its liability. Collateral isused the moment the debtor is not capable ofperforming the arranged obligations. Establishment ofmortgage over an apartment which is the object of

financing is a typical example of a collateral.59

For example Kenneth Rogoff, Alan Greenspan, HansWerner Sinn, 189 German professors of

macroeconomics, who signed an appeal to the Germangovernment in February 2010 to disapprove of the loanfor Greece, etc.

motion in this case but could contribute tothe rise of competitiveness of Greekeconomy and thus help Greece return onfinancialmarkets.

I have also heard the opinion that theEuropean Committee, InternationalMonetary Fund and European Central Bankemploy a number of experts and those cannot possibly be wrong. Well, firstly, it isimportanttorealisethatwhosebread Ieathis song I sing and it suits most of thepoliticiansthattheEFSFallowsthem furtherwaste money and buy votes. And secondly,these socalled experts have claimed, not

evenayearago,thatGreecewouldreturnonfinancial markets in 2012, they got it wrongwith temporary EFSF by almost 200 billioneuros. I would rely on common sense waymorethanonexperts.

The situation is different if we look at thevoters, for instance in Germany. There is astrong aversion to the EFSF which can beseen in Internet debates60. Speaking about

Germany,

coalition

majority

does

not

exist

even there and opposition votes will beneededtoapprovetheEFSF.

12Whatnext?IunderstandthatSlovakia isasmallcountrybutthereisnoneedtobeoverservile.Oncethere is the veto right, we must be able touse it, for example when averting huge

economic

losses

is

in

question.

It

would

be

good if we were a little bit more selfconfident and realised that concerns ofSlovakia are not always identical withconcernsofothercountries.

Iagreewiththestatementthat it isno longerabout Greece. At this very time (under thepretence of saving the euro) the central

60

For example reactions to my interview in Die Welton 26 August 2011 where 98% of over four hundreddiscussion comments were against the EFSF.

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European government is being established.Besides common currency, we will also havecommon debts, common taxes and minimumnationalcompetencesinthemidtermhorizonunder its reign.Weneedto realisethatthere

willnolongerbemuchleftforusinSlovakiatotake decisions about after that happens. I amaskingmycolleaguesfromtheKDHpartywhytheyopposeharmonisationoftaxesandatthesame time support something way moredangerous whereof harmonisation of taxesformsjustasmallpart.

Comecon was nothing compared to what istocome.Iwouldliketopointoutthatthisis

notthesameeurozoneweenteredin2009.

There are rules that should have been

observed but all of them have been

violated. Temporary EFSF and permanent

EFSFwillcostus1to1.5theamountofour

annualstatebudget!Moreover,there isno

guarantee that the attempts for the EFSF

increaseareover.Thisistheactofeconomic

treason. We are on the way to economic

serfdom. Has anyone asked people at all

whether

they

want

it?

All

surveys

clearly

provethatpeopledonotwanttheEFSF.And,thereisnowillwithourcoalitionpartnerstodeclare referendum. Program declaration ofour coalition literally contains thefollowing61:

ent ofeobservanceoftheapprovedrules.

exactlytheoppositething.Buttheyhavenot

At the level of the European Union,governmentof theSRwill support substantialtightening of the European budget rules StabilityandGrowthPact,whilechangesmustinclude also a clear mechanism of directedbankruptcy of a country which consistentlyperformsirresponsiblebudgetpolicy,andothermechanismsfor the effective enforcemthNow, our coalition partners are going to do

61 Something similar is contained in pre-electionprogrammes of government parties as well.

been granted mandate for doing such thingfromvotersintheelections62.

EFSF ratificationby the National Councilwillbe a decision that will harm the citizens of

Slovakiainthelongrunandtoagreatextent.

SaSwillsimplynotsignupforsomething

likethis.

62 Over 60% of the inhabitants of the SR are against theloan for Greece, source: AVVM.

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www.strana-sas.sk

Ing. Richard SulkSaS Chairman

WHY WE HAVE BEEN ESTABLISHED

AND WHAT WE AIM FOR

A group o experts with a great deal o workdone as businessmen or managers havestopped grumbling about the conditions inSlovakia one day and established a politicalparty. None o them had been a politicianbut what they have had in common was

ambition and perseverance. Lie has thoughtthem that honest and responsible behaviouris not only a guarantee o personal happi-ness but also a prerequisite to unctioning oa community. They have always put frst indi-vidual reedom within air rules and a chanceo every individual to be successul.

That is how Freedom and Solidarity (SaS),centre-right liberal party has been establis-hed, the party o proud and ree citizens whohave decided to take destiny into their ownhands. Their primary task is to work towardsthe eective and air unctioning o the state.

The greatest weak point o modernisation oSlovakia is its over-bureaucratic public sectorwhich has been entrapped in the slavery ocorruption or ar too long. Liberal reedomscan not be successully implemented andpossibilities o civil solidarity can not unoldin a society where access to air-play is impe-ded and law enorceability is weakened.

We have not entered the politics to steal

but to prevent our children run away romSlovakia. Our aim is to make Slovakia anordinary country where things work andwhere a citizen can live reely without beingintimidated by the state.

EFSF is the greatestthreat to euro becauseit solves the debt crisisby creating new debts!!!!

ESFS - A Road to Socialism

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