Whether Greece does a deal or defaults, the prospects seem equally grim

http://www.theguardian.com/world/2015/may/31/greece-deal-defaults-prospects-for-people-grim-eurozone

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As Greek prime minister Alexis Tsipras and his finance minister Yanis Varoufakis have discovered the hard way, international financial deal-making is a world away from the thrill of a barnstorming election campaign.

But with Varoufakis sidelined after a series of less-than-helpful public interventions, Tsipras and his colleagues appear to be in the final stages of agreeing a deal with the country’s eurozone creditors and the International Monetary Fund – renamed the “Brussels Group” to assuage the Greek public’s hatred of the “troika”.

Every day last week saw a fog of claims and counterclaims about how much progress was being made by officials in Brussels and their political bosses, who discussed the issue on the sidelines of the G7 summit in Dresden. But there is at last a feeling that both sides are making progress.

If Tsipras pulls off a deal and skirts default, it will be a political and personal triumph, in the face of extraordinary odds. And if he can persuade Greek voters to back him in the messy compromises he will inevitably have to make to win over the lenders – especially the IMF, which is reportedly taking a particularly tough line – it will be close to miraculous.

As Gabriel Sterne of Oxford Economics pointed out last week, while two-thirds of the Greek public believe Syriza should be willing to compromise, almost 60% thought that should not include pension reform – likely to be a red line for creditors. Sterne believes there is now almost a 50/50 chance that the country could be forced out of the single currency.

With every day that passes, holidaymakers opt for Ibiza instead of Crete, for fear of being caught out by a Greccident

The sad truth for the Greek people is that none of the roads ahead of them looks anything but grindingly hard. This is a country where GDP collapsed by a quarter in the aftermath of the crisis; where unemployment remains above 25%; and where average wages fell by almost 18% in real terms between 2008 and 2013.

The latest reports suggest that Angela Merkel and François Hollande will discuss the issue with European commission president Jean-Claude Juncker on Monday.

But with every day of fruitless talks that passes, bank deposits drain out of Greece as nervous savers squirrel their money abroad, investors postpone spending plans and holidaymakers opt for Ibiza instead of Crete, for fear of being caught out by a summer Greccident.

Bank deposits have hit a 10-year low, according to the latest data. And the political turmoil has strangled the tentative economic recovery that got under way last year. Separate figures released last week confirmed that Greece has slipped back into recession.

If a deal is done, the country is likely to face another bout of painful structural reforms and stringent spending cuts, to satisfy the Brussels Group that it’s not throwing good money after bad – and there appears little hope that the debt forgiveness Tsipras and Varoufakis once so stirringly advocated will be part of the package. That means Greece will still face hefty repayments, and the scrutiny of its paymasters, for years to come.

And if no deal is forthcoming by the 30 June deadline both sides appear to have set (though Athens must cobble together the money for several debt repayments before then), then Greece faces the risky and uncertain prospect of defaulting on its debts and crashing out of the euro.

Euro-exit would at least come with the benefits of a drastic devaluation in the currency – a New Drachma, perhaps. Hordes of holidaymakers would presumably follow, keen to take advantage of the cut-price ouzo, and over time Greece might be able to attract inward investment as a cheap location for manufacturing for the European market. But in the short-term, Grexit would mean capital controls, financial market chaos, and soaring inflation.

The Greek people have already endured extraordinary hardship. But as another debt deadline looms, it’s hard to foresee an outcome that will bring anything but more tough times ahead.

Amazon tax battle goes on

There has been outrage that Amazon, by routing transactions through a Luxembourg-based company called Amazon EU Sarl, has diverted sales worth billions of pounds and euros out of major markets such as Germany, France and the UK — thus ensuring that resulting profits are beyond the reach of tax authorities in those countries.

Last week, in the face of a tax crackdown by George Osborne – and probable similar moves across Europe – it emerged that Amazon has caved in. It has begun opening Amazon EU Sarl branches in all its major European markets, and sales are now flowing through these branches, where any profits will be taxed.

It is an important victory. But make no mistake: Amazon has not given up the fight. There are fierce battles to come before the retailer pays much corporation tax in Europe.

Round two has already begun. This second struggle concerns the tax affairs of Amazon EU Sarl itself. Given that this is where most of Amazon’s European revenues are pooled, you might expect it to have large taxable profits. You would be wrong. Amazon EU Sarl – which has little in the way of conventional running costs — has paid little or no tax for much of its life.

The reason for this lies with the royalties Amazon EU Sarl pays to a controversial partnership called Amazon Europe Holding Technologies SCS, which are tax deductible. AEHT is also based in Luxembourg, but has its partners back in the US. Thanks to a Luxembourg tax ruling, these royalties wash straight through AEHT, untaxed.

In the US these payments go untaxed again, lost in a mismatch of tax rules between America and Luxembourg. The European commission is fighting to unravel this tax arrangement, but Amazon will resist fiercely.

Without a breakthrough on this second front, the first victory – getting Amazon to recognise UK transactions in a taxable UK entity​​ – is hollow. Those boycotting the company over its tax affairs should be under no illusion: the battle is not won.

Master of universe out of touch with real world

Dick Fuld – the man once known on Wall Street as “the gorilla” – has had more than six years to ponder what went wrong at Lehman Brothers, the once-mighty American investment bank that he used to run.

So when he made his first public remarks since the 2008 crisis last week, his audience was eager to hear the fruits of his reflections.

His answer? An unforeseeable perfect storm of forces swept away the Wall Street institution. But, ultimately, the fault could be traced back to politicians in Washington, for promoting the “American dream” of home ownership for low earners, leaving them exposed when interest rates rose. The gorilla himself, evidently, was entirely innocent.

Fuld may be an extreme example of the dangerous beasts that once roamed the financial jungle. But his unrepentant performance was a stark reminder of the gulf that still remains between Wall Street and the real world.