The DictionaryThis dictionary was created by members of the EconomyWorking Group of Syntagma Square. Its purpose is todemystify and clarify some economic and financialterms which have dominated our lives recently. It is aform of resistance to the powerful who, invoking variousunheard of until yesterday terms and concepts, dumpthe burden of debt onto the shoulders of people whichdidn't create it. On the whole we explain these termsaccording to their official usage, but sometimes wepropose more radical interpretations and connections.The data was sourced from economic journals, the pressand the web. We have checked them for accuracy atthe time of writing; we regret any residual errors; weare solely responsible for them. We do hope that weclear up the meanings of these terms, doing our smallpart to overcome the so convenient divide betweenexperts and laypeople, and to demystify a convolutedtechnical language that simply tries to hide basic facts.And one of them is that those who created this crisisand have benefited from it are today passing the bill

onto everyone else.

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Austerity Measures: The economic policiesmost favoured by neoliberalism. Their basiccharacteristics are cuts in public spending, andincreased taxes on an unequal basis. Implementing anausterity programme exacerbates the crisis, shrinkingthe state’s income even further. Why? Shrinkingeconomic activity shrinks all tax receipts, and cutswages and incomes which support domestic demandand economic growth. Austerity is a proven path to sinkan economy into recession.

Bond: A means of borrowing used by a borrower togather funds. Bonds are issued by companies, publicorganisations, and governments. A typical bond isacquired by investors who pay its nominal value, andperiodically receive a coupon – the interest payment. Atexpiry date, they receive the original amount of moneythat they had given. Alternatively, bonds can be tradedin markets designed for this purpose.

When issued every bond has a nominal value (e.g. 100)which represents the amount the borrower received,and an interest rate (e.g. 5%) defining the amount thelender will receive periodically. From the moment itcirculates in markets, and before its expiry date, a bondcan be liquidated (made into cash, or cash equivalent);as such its price is subject to fluctuations, resulting in itstrading value increasing or decreasing. The yield for theinvestor who buys it after its issuance is variable. Givena fixed rate of interest, the yield may increase ordecrease. As the bond price decreases (due to the issuerbeing downgraded) the yield goes up, and vice versa.

Cessation of Payments: Refusing to repay loans allowsthe state to protect the people’s incomes and interests,and avert the pillage of wealth-producing resourcesdemanded to repay loans. Cessation of payments(stopping payments to creditors) would offload anunbearable burden from the backs of the people, andfree up resources to cover basic needs of the country.For example, debt servicing for 2010 was over €30 bln,whilst interest payments were €12.3 bln, double whatwas spent on pensions (€6.4 bln). A government that

would stop servicing the debt would secure direct andimmediate economic benefits, sparing the countryalmost €80 bln a year paid for the debt.

Henry Kissinger stated that the “The first step is to alterthe framework of negotiations – we must remove the‘weapon’ - to the extent that it is possible – of thepossibility of debtors ceasing payments. Industrialiseddemocracies need to urgently provide some sort ofemergency aid for the needs of threatened creditinstitutions, as this will reduce the sense of panic, andthe possibility of debtors to blackmail.” (Newsweek24/1/1983)

Credit Default Swaps (CDS): Insurance contracts whichcover the buyer (e.g. a bank that buys a bond) againstthe occurrence that the bond issuer (e.g. a country)defaults; they are a ‘fruit’ of the 1990s. A bank whichpurchases government bonds may insure its bondpurchases with another bank, which undertakes to paythe insurance money if the government defaults, or isunable to repay the bonds when they expire, or financeits interest payments. Obviously, the more precariousand fragile the economic situation of a country, thehigher the insurance price demanded by the bank thatsells the insurance. In reality, with the use of CDS, bigbanks and hedge funds make massive profits by bettingon default and then pushing entire countries to theirdemise.

The value of insuring Greek bonds recently explodeddue to various factors, including the apparent lack ofcredibility of the country, the abuse of the renownedGreek statistics, whose quality was however well knownto the EU authorities, and the threat of default. Thisallowed the holders of Greek CDS, who had boughtthem cheap, to profit massively. The problem with CDSis, at its base, very simple: It is forbidden to take outfire insurance on your neighbour’s house and thenreceive the insurance money if this house catches fire,since in this case you would have every incentive tohave it burned down. But current law allows for holdersof CDS (that is, insurance contracts) who do not haveany legitimate basis for insurance, since they do notown the goods covered by that insurance (i.e. Greek

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bonds)! These are called naked contracts. In 2010 theprofits of Deutsche Bank from CDS trading surpassed 10billion. Three giant banking groups (Deutsche Bank,Goldman Sachs, and J.P. Morgan) control 75% of the

global CDS market.

Credit Rating Agencies: Private specialist organisations,whose clients are mainly banks and private institutions.The global market is dominated by three market giants,Moody’s, S&P, and Fitch. Evaluating at regular intervalsthe credit worthiness of large companies, banks, publiccompanies etc., they calculate how likely the latter areto repay debts. So lenders know what risk they aretaking when lending money, and they can naturallydemand corresponding interest rates. The most secureborrowers receive a rating of “AAA”, whereas the onesreceiving “BBB” are less credible, etc.

The downgrading of Greece’s credit worthiness,sparking the relentless attack which the country faces,exploded its cost of borrowing. After the breakout ofthe financial crisis, the rating agencies found themselvescriticised internationally for partiality. The sameagencies had previously extolled the country’ssuccessful path towards the euro. These three shopsprovide not only rating services, but also consultancy,paid by the same banks that issue the titles. Thus, theygain twice from their services. There is a massive

conflict of interest when the institution being rated isthe one paying for the rating!

Debt Audit Commission: A tool that can assistmobilisations against debt. It can take a variety offorms: official and parliamentary (e.g. Ecuador), orthrough citizens’ initiatives (e.g. Brazil, Uruguay, Greece,Ireland, Portugal), or both (e.g. Philippines). Thefindings of a citizens’ debt audit commission may not bebinding, but they may help build a broad platform forthe movement for debt cancellation, and they can offerarguments and provide data to the social movementsstruggling against debt. Such commissions employinternationally accepted legal definitions regardingillegal, odious, illegitimate and unsustainable debts,which can lead to the debt’s cancellation. The GreekDebt Audit Campaign aims at social control of theeconomy and production.

Debt Negotiations / Restructuring of Debt: Debtrestructuring takes place when borrowers officiallyannounce that they cannot repay their creditors underthe originally agreed terms. It involves negotiations inwhich these terms are changed, usually before theborrower announces default (or a credit event, as it iscalled officially by credit rating agencies and otherbodies). From 1970 onwards more than 40 countrieshave renegotiated their debt repayments. The previousGreek public debt restructuring occurred in March 2011and involved a loan from the EU. It included extendingloan maturity by extending the repayment date from 4.5years to 7.5 years. Already in 2010 the Greekgovernment had hired foreign intermediaries, such asthe firm Lazard, who specialise in renegotiations anddebt restructuring. The current ‘voluntary’ restructuringof the Greek debt held by the private sector (see PSI) is,in absolute terms, the largest in history.

Debt (Public): The total loanobligations of the state. It may refer to the debt of thecentral government (the ministries and the

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decentralised governance bodies), or the generalgovernment (central government plus hospitals,pension funds, public companies, and local authorities).Depending on its origin, debt is divided into internal andexternal. As for debt maturity, there is short-term debt(up to a year), mid-term debt (up to 10 years), and long-term debt (over 10 years). Public or sovereign debtattracts speculation by big private capital, banks andcredit institutions, and vulture funds.

In 2011 the Greek public debt reached €352 bln, or161.7% of GDP. In 2010 it was €329 bln, or 145% of GDP,while in 2009 it was €299.5 bln, or 129% of GDP. In theperiod 1991–2011 the Greek government paid debtrepayments €513 bln, while in 2003–2011 it had repaida further €151 bln in short term debt only. Even in 2009,with the deficit at €17.1 bln, new borrowing surpassed€85.2 bln. For 2012, servicing of the government debtwill surpass €70 bln.

Deficit (Public): The amount of money, as a percentageof GDP, that the government ‘goes under’ each year. Itoccurs when revenues of the government are less thanits expenditure. The gap (deficit) is financed throughborrowing, meaning short or long term loans (seeBonds). The government’s revenue comes mainly fromtaxes and its participation in public companies. Itsexpenditure covers spending for wages, pensions,education, health, military, public investmentprogrammes etc, but also the repayment of debt(interest payments and the principal).

Given the statistics of the time, the Greek deficit in 2010was 10.5% of GDP, including the 6.6% of GDP going fordebt repayments, and 3.9% for all other publicexpenditure (wages, health, education, social securityetc). The deficit in 2011 is estimated to be 19.6 billioneuro, or 9% of GDP, and the 2012 target is 11.4 billioneuros, or 5.4% of GDP. This expected divergence willbring on the usual threats and blackmails of furtherausterity packages.

We know however that the size of the budget deficitcan change or be presented in a variety of ways, toserve the interests of those in power. The deficit isoften technically enlarged according to the policy that

most suits them. For example, when they want toimpose anti-people policies they can mask revenues tojustify further borrowing or spending cuts. On the otherhand, they can present certain revenues (e.g. from roadtaxes) when it suits them best. The dramaticadjustment of the deficit with the help the Europeanstatistical authority Eurostat provided the governmentafter its election the motive to bring on the attackagainst Greece, as it decimated the countriesinternational credibility. A few years earlier the othergovernment party, New Democracy, had attempted asimilar trick.

Eurobond: A bond proposed as a solution to the currentcrisis, covering all countries of the eurozone and notissued by each member state independently, but by theentire eurozone. This proposal was first formulated bythe president of the Eurogroup (the Eurozone’s financeministers), J.C. Junker, and the Finance Minister of theBerlusconi government, Julio Tremonti. Some maintainthat the best solution is to issue a 20 year Eurobondwith a 3% interest rate. The cost of Eurobond borrowingshould be equal for all member countries, as it willsupposedly be guaranteed by powerful countries suchas Germany. It doesn't deal with the reasons for debtcreation, only with its financing.

Extending Loan Maturity: Prolonging the time in whicha debt can be repaid. Usually the IMF, after the threeyear threshold loan period is over, proceeds to newlending to its borrower countries, equal to half the valueof the original loan. And this is the amount that the IMFwill most likely lend to Greece in the new agreement,with the conditionality that all public wealth is sold off,and catastrophic austerity is imposed.

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First Bailout Package (€110 bln from EU and IMF):

In April 2010, when the Greek bond spreads exploded tonew heights, rendering impossible Greece’s fundingfrom the capital markets, the Prime Minister requested,from the remote island of Castelorizo, a bailout packagefor the country. It is basically a 3-year loan worth €110bln, with an original interest rate of 5%; €80 bln aregiven by the EU, and €30 bln by the IMF. This money isgiven on the conditionality of strict austerity policies:privatisations, cuts in wages and pensions, increases ofindirect taxes etc. Their implementation is strictlymonitored every three months by the EU and the IMF,in exchange for the financial flows.

Greece is a typical example of a controlled or orderlydefault. Through the implementation of theMemorandum, the Greek public debt is transferredfrom the hands of private creditors, who are easier for agovernment to control, to the hands of the IMF, theECB, and the eurozone countries. The Memorandum,signed simultaneously with the loan agreement,transfers sovereign rights to creditors. Indeed, theagreement signed by the Greek government in earlyMay 2010 with the Troika does not differ hugely fromthe typical IMF loan agreements.

The conditionalities agreed include:

An internal devaluation, through lowering the cost oflabour and internal consumption

The exploitation of natural and other resources byselling off mining rights, mining companies andhanding out licenses for pittance in return.

Structural adjustment, such as market liberalisation(mainly labour market and financial market), andprivatisation of public utilities (water,telecommunication, electricity, and all otherprofitable monopolies).

Constriction of public deficits, of inflation, and ofsocial spending (health, education, etc.)

Wage freezes, and abolition of labour rights.

Mass layoffs, especially of civil servants.

The possibility for creditors to sell off the loans tothird parties.

This has defined the situation in Greece for the twoyears since the first bailout package. The new loanagreement however, and the haircut of the Greek debt,is accompanied by unprecedented austerity packages.They include layoffs in the public and private sector,massive wage reductions, the unconstitutional abolitionof collective bargaining, the selling off of everyprofitable state business (state lottery, electricitycompany, ports), which is plunging society intoimpoverishment.

Gross Domestic Product, GDP: The total value of allgoods and services produced within a country during agiven year, including those produced by units owned bypeople who live abroad. The Greek GDP in 2010amounted to €230 bln, with a real fall of 4.5% incomparison to 2009. In 2011 the fall approached 7%,whereas the Troika predicted 3%. The fall for 2012 ispredicted to be between 2.8 and 6.5%. A reduction inGDP means that goods and services of smaller valuehave been produced in comparison to the previous year.The Greek economy is now in its fifth year of recession.A cumulative loss of Greek GDP that may surpass 20 %renders this financial crisis one of the largest in recentdecades.

Haircut (see PSI): If a borrower country can’t paycreditors, then it can, unilaterally or in accord withcreditors, decree that only a portion of its obligationswill be paid. Usually this amount is around 70% or 80%,

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but there are cases, like the recent Greek one, wherethe borrower agrees to pay only 40%. The amount thatthe investor loses is called a ‘haircut’. In Latin Americaduring the last decade, for example, creditors wererepaid on average 75% of obligations. Such a legislativeintervention, most often involving bonds, shuts out theborrower from capital markets for some time.

Inflation: The increase in the general price level in theeconomy during a specific time period. In Greece in2010 it reached almost 5%, whilst 2011 ended withinflation close to 3%. Inflation causes suffering mainlyfor wage earners, pensioners, and ‘vulnerable’ groups,whose income dissipates in value, as they have fewchances to tie it to inflation. The poor become poorer,but creditors also lose, because the value of their loansdecreases with inflation. Trying to guard the value oftheir loans, they support policies of inflation targeting,hence their commitment to price stability. They alsomove to make central banks independent of electoralcontrol. Not too democratic a choice, is it?

Labour Cost: The amount that employers pay for theuse of their employees’ labour. According to the Troika‘experts’, it is the basic reason for the lowcompetitiveness of the Greek economy. However, inGreece after the Memorandum we have seen large cutsin labour costs (-6.5%) without competiveness beingaided in the slightest, and the same holds for Ireland,Portugal, and Hungary. By the summer of 2011, inrelation to 2010, wages were on average down by 11%in the private and 14% in the public sector.

Liquidity (money from the ECB): In June 2009, whenthe crisis intensified, banks stopped lending to oneanother in the interbank market, fearing bank defaultsthat might lose them money. Then the ECB intervened,lending to the private banks at very low interest (1%).Banks however lent to the state or to individuals atmuch higher interest rates, ranging from 5% to 15%.

The ECB also lends money to banks for lengths betweenone week and twelve months, on presentation ofcollateral. The ECB foresees even three-year lending,but claims that gradually these ‘facilities’ will be curbed,and talks of raising the interest rates. A problem for the

Greek banks, that made big use of the ECB, is that theyhave to return the money they had borrowed, but theyare by now essentially bankrupt.

Odious Debt: Under a UN proposal (of April 2010) adebt is considered odious not only if it is product of asuspicious exchange, but whenever its repaymentinvolves the circumvention, violation or abolition ofbasic human rights. Whenever a country has to destroyjobs and cut people’s incomes, cut social and publicspending, and sell off public wealth in order to repaycreditors, then its debt is odious, and its repaymentmust be denied. This proposal was accepted by amajority at the General Assembly of the UN in 2010

Primary Deficit: The primary deficit, or surplus, is thenet deficit which occurs when debt repayments (interestpayments and debt servicing) are not included in thedeficit calculation. If, for example we deduct the state’sexpenditure (for wages, pensions of civil servants etc)from its revenue (from taxes etc) and the result ispositive, then there is a primary surplus; but afterdeducting debt servicing too, the government may runan overall deficit.

One of the basic conditionalities imposed by the Troikaon Greece was that the government should run aprimary budget surplus by 2013, so that debt is repaidsmoothly. In reality this means cutting pubicexpenditure on wages, pensions and social services.The 2012 budget includes 17.9 billion euros for interestpayments alone, much more than the cost of wages andpensions combined! Government claims that the PSI(‘haircut’) will reduce interest payments are rubbish!

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PSI (private sector involvement): the bond exchangeprogramme of Greek debt: The recognition that Greekpublic debt is unsustainable led to negotiations for abond exchange. The PSI decision was part of the 26/7th

October 2011 agreement, after the failed agreement inJuly for a 21% haircut. It involves the “voluntary”participation of private lenders, who accept swappingthe titles they hold for new ones, of 50% lower nominalvalue (‘haircut’). From the total €325 bln of Greek debt,€92 bln is in the form of loans and €260 bln is in theform of bonds. Private bondholders, covered by the PSI,hold around €205 bln of the latter, with the ECB holdingthe remaining €55 bln.

The PSI reduction to the public debt will be small andunevenly distributed; for example, the debt held by theTroika and the bonds held by the ECB are exempted. Aneventual ECB contribution to the PSI is key to the latestnegotiations, whose results will be announced shortly.Direct victims of the haircut are the pension funds, thatlose half their reserves (around €24 bln, invested undergovernment orders in state bonds). The haircut puts thefinal nail in the coffin of the pension system.

The new guaranteed bonds, issued to replace the oldones, will not be governed by Greek law, but by Englishand Luxembourg law, further strengthening thecreditors’ position, as these legal jurisdictions arerenound for being creditor friendly. The rate of interestis a central element of the negotiations; the Eurogroup,refusing an interest rate of over 4%, threatens the entiredeal, since the bondholders presently don't acceptanything less.

Because the PSI agreement is accompanied by €130 blnworth of new loans the expected reduction in debt willbe much less than promised, and total public debt willeven increase! Of these €130 bln, €50 bln will

recapitalise the banks, which hold €50 bln ofgovernment bonds. On the other hand, Greek societywill sink into poverty: new austerity measures,reductions in wages, layoffs and privatisations. Promisesto reduce debt to 120% of GDP in 2020 are hardlycredible. If this debt level were sustainable, then why isItaly, currently having this level of public debt, asked tolower it? And why was Greece, which had this level ofdebt in 2009, forced to enter the ‘stabilisationprogramme’?

Secondary Bond Markets: The markets in which alreadyexisting debt contracts are bought and sold. Theseexchanges happen:

(1) Between investors, for bond exchanges ofcompanies, publicly listed or not.

(2) Between banks and investors, in government bondsand treasury bills, without the mediation of the officialregulatory authority, or the stock market.

The secondary bond market is tightly controlled by“large institutional investors”, who are in a position tocoercively influence the prices of bonds.

Spread (difference in interest rates): In the currentcrisis, this term primarily means the difference betweenthe interest rate paid by an EU country borrowingmoney, and the rate paid for equivalent borrowing byGermany. It represents the premium paid by Greece toinvestors who prefer Greek from German bonds.

Before Greece fell prey to the markets the spread wasvery small. These days it has rocketed up to 14% forsome categories of bonds (meaning that if Germansborrow at 3% we borrow at 17%). Just like the CDS (seeCDS), the spread presents a prime opportunity for everysort of speculator to enrich themselves on the back ofthe people. Characteristically, the head of theinvestment fund Marian stated: “Our job is to makemoney and not to think what will happen to Greekcitizens. In any case, there isn’t any law that states onecannot exploit an idiot”.

Taxation: The main way in which states gather therevenues needed for their operations. During recession,

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economic activity slows down, so tax revenues fall,making deficits larger. There are two main types oftaxation, direct and indirect.

Indirect taxation is mainly the imposition of VAT andSpecial Consumption Taxes on goods and servicesbought. If, for example, two people, A with an income of1000 euros and B with an income of 5000 euros, buythe same product worth 100 euros, the indirect tax paid(the VAT) is 23 euros for both of them, i.e. 23% of theprice of the product. However, the burden relative totheir income is different; for A it is 2.3% of his income,whereas for B it is 0.46%. So, when indirect taxes areraised (this happened repeatedly since the onset of theGreek crisis), lower incomes are most pressed; thiscontradicts the redistributive character that a taxationsystem ought to have.

Direct taxes are those levied on individuals andcompanies. A progressive income tax system hasredistributive character. However, a look at the taxincome of the Greek state shows that it redistributeswealth from the poor to the rich. In 2010 individualspaid 9.4 bln in direct taxes, whilst companies paid only3.2 bln. For 2011 the equivalent numbers are 10.6 blnand 2.8 bln, while the 2012 numbers are even worse, asthe Mid-Term Austerity Plans promises 2.1 bln taxationof companies, while individuals will pay 11.1 bln.

Tax Exemptions: Various business sectors havepermanent tax exemptions, such as the shippingindustry, the banking sector, and the church. They paymuch less tax than we do, relative to their actual profits.Furthermore, official taxation for businesses is 20%

(down from the 45% of a few years ago), while if taxexemptions are included this falls to 15.4%. Churchproperty is taxed at just 0.5%, whereas an average civilservant is taxed at 24%.

Unemployment: The “inability” to find employment fora person willing and able to work. More and morepeople experience it in Greece, in Europe andthroughout the world due to the crisis. Officialunemployment in Greece was 14.8% for 2010 (733,645persons out of the 4,967,410 who form the labourforce), compared to 10.2% in December of 2009. In the15-24 age group the unemployment rate reached 40%,and has gone over 50% by now. Official unemploymentin the third quarter of 2011 was 17.7% in comparison to16.3% for the same quarter of the previous year. In 2012the unemployment rate is expected to surpass 20%. For2011 the total number of those employed was4,233,765, whereas the economically non activepersons were, due to the crisis, more, that is 4,343,149.

Greek Debt Audit Campaign info@elegr.gr www.elegr.gr

Pamphlet created by Christina Laskaridis and George Papalexiou, 2/7/2011; Version II created in January2012.

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