The international media is focusing on what Greece can and must at least begin to do during the four-month interim agreement.
What Greece has to do now: Fix its economy.
Harvard Business Review – Michael G. Jacobides
After weeks of media frenzy around the Greek election and the new government’s once-ambitious plans to renegotiate with the Eurozone over its debt crisis, the searchlights of publicity are shifting. For all of its bravado, Greece was pushed into a corner in an eleventh-hour deal that will extend a bailout agreement for four more months. And although it has been given a temporary lifeline, little has been resolved.
The tentative agreement with creditors reached this week is much less favorable to Greece than what was on the table last fall. To be sure, the proposal set forth by the Greek finance minister is less detailed than that of his predecessor, and leaves some room for maneuvering, but this is a mixed blessing, as the EU, the IMF, and the ECB will need to sign off on specifics. Greece appears also to lose control of the €11 billion reserves of the Greek banking stability fund.
Worse still, the real issue, which is the possibility of lightening the real debt load by rescheduling payments and extending maturities (but without affecting the nominal value due to Greece’s official creditors), has been pushed away, and some in Germany would want to renege on a 2012 deal which reduced interest rates and extended payments.
This unfortunate state of affairs is partly the result of the difficult negotiating hand Greece dealt itself. Greece did have some good arguments going for it: It had achieved the biggest fiscal adjustment any developed country had mustered so far, stabilized its economy, and restructured its private debt. As for its official debt to the EU, the ECB, and the IMF, it consisted largely of payments that were made to pass through to EU financial institutions, between 2010 and 2012, so that the Eurozone banks and insurance companies would not be imperiled. So, clemency on loan terms might make procedural sense. It also made economic sense, allowing Greece’s GDP to grow, and thus ultimately pay the creditors, asPaul Krugman has repeatedly argued.
But it also means that public debate may shift from how best to renegotiate to how best to fix the Greek economy. For all the talk of reform, little has happened on the ground: this is partly a legacy of poor leadership from the previous government as well as of the Troika’s priorities. With financial negotiations now stalled, it’s time to focus on the “hard yard” — the issues in the public sector holding Greece back, such as red tape, barriers to competition, a clientelist, incumbent-friendly state, inefficient public services, and a challenging environment for new businesses. These were things that the previous government, especially from the summer of 2014 onwards, also failed to achieve, and that the Troika was unable to push for.
Will there be progress in this regard? Many a government has started with bold declarations, and the proposed agreement contains strong pledges. Yet when it was in the opposition Syriza, the new party of government, blocked any effort to reform the public sector, open up the economy, or infuse competition. It is now being asked to act against its ideology: its new commitments to stick with the agreed upon privatizations, to “fix” the pensions deficit, and to reform the inflexible labor market contradict its pre-election pledges.
One ray of hope is that some changes in the justice system may take place, andtax and duty evasion might be contained. Despite its travails, Syriza retains significant support from a large part of the electorate, which voted it in not because of its policies, but because of its quest for a fairer social system, with fewer people evading taxes or the law. But to do so will require determination, and a shift in government and governance.
This looks unlikely. The problem is that Greece needs operational, transformative changes in the short term, and a revamping of its productive base, starved of investment as it is, in the medium term. The Greek problem isn’t, as Krugman insists, a classic problem of macroeconomic policy. It’s primarily a problem of an economy rendered uncompetitive from state inefficiency and political turmoil.
So, what can we expect moving forward? Most probably another crisis, small or large. Organizations (and countries) in crisis really wake up only on the edge of the precipice. The tragedy is that sometimes this happens too late. The Greek crisis may have abated for a while, but if its root causes are not fixed, expect it to return, soon, to rock the Eurozone. And next time around, “the Institutions” may be less accommodating.
Greece’s Challenge: Appeasing Its Creditors and Its Population
The Wall Street Journal – Marcus Walker
Geece and the rest of the eurozone spent February fighting about the procedure for keeping the country afloat. They will spend the spring haggling over a tougher issue: Which economic policies can appease both Greece’s creditors and its population?
This week’s agreement to carry on talking was hard enough to achieve. The next deal will be far harder because the airy communiqués that preserved a consensus so far must be turned into meaty policy decisions.
Part of the mistrust between Greece and its German-led creditors stems from an ideological rift over what has gone wrong in the small, distressed country over the past five years.
Berlin blames the economic collapse that followed Greece’s 2010 bailout on the fiscal and other sins that predated it. Greece’s new government blames the bailout for turning a financial crisis into a full-blown depression. Opposite policy prescriptions follow from these clashing interpretations.
Finding common ground will be the key to keeping Greece in the euro.
Greek Finance Minister Yanis Varoufakis will have to turn the policy program he sent to Brussels on Monday—centered on aspirations to fight corruption and tax evasion and alleviate some ofthe social pain of Greece’s depression—into more-concrete measures that satisfy the creditors’ priority: to leave Greece with a flexible and competitive economy that can service its huge public debt.
Athens’s need for financing to service its debt, and Greeks’ desire to stay in the euro, mean the creditors continue to hold most of the cards. Prime Minister Alexis Tsipras will have to sell painful concessions to Syriza lawmakers and supporters, some of whom are making mutinous sounds before the major struggles over economic policy even start.
The main reason for optimism remains that nearly no one wants Greece to default and tumble out of the euro.
“We will probably witness another late-night agreement in four months’ time,” says Christian Odendahl, chief economist at the Centre for European Reform, a London think tank.
“The two main areas of friction will be labor and pensions,” says George Pagoulatos, professor of European politics and economy at the Athens University of Economics and Business. “It’s not going to be smooth,” he says.
Greece’s main victory in the talks so far was to gain the chance to replace the IMF’s preferred measures with policies of its own. But to actually follow its own path, Greece must convince the IMF that Syriza’s policies are just as effective a way to achieve the bailout program’s broader goal of making Greece’s economy competitive inside the euro. The fund and Berlin are audibly skeptical.
Family Feud: The Tortured Relationship between Schäuble and Varoufakis
Athens relented in the end. But prior to the compromise deal allowing for an extension of Greece’s bailout program, Greek Finance Minister Varoufakis and his German counterpart Schäuble engaged in a bitter battle for supremacy.
Excerpts from the article follow.
Greek Finance Minister Yanis Varoufakis was in the audience. “Splendid performance(s),” he tweeted two days after the show. The evening, he wrote, was “such a relief from you know what …”
In hindsight, the scene seems like an omen — like a screenplay for the days to come. Theater, after all, is a reflection of humanity’s existence as a whole — and sometimes it reflects the specific existence of a Greek finance minister.
At the same time as Varoufakis was enjoying his visit to the theater, his German counterpart Wolfgang Schäuble was attending a very different show, one in which the main character was Portuguese Finance Minister Maria Luís Albuquerque. She was a guest speaker at the Bertelsmann Stiftung and used her talk to review the significant progress her country has made since almost going broke four years ago. The country’s finances are now under control and economic growth has returned.
“My dear friend,” Schäuble addressed her pleasantly. The warmth in his voice made him sound like a teacher who had just barely managed to prevent a student from failing out of school. Why, he seemed to be thinking, can’t all finance ministers in Europe be like Maria Luís Albuquerque?
A Two-Person Drama
Still, it was the Greek finance minister’s Wednesday evening program that was more reflective of recent events. It has been a two-person drama, with the lead roles played by Varoufakis and Schäuble, a confrontation between two radically different characters. Only one could win in the end, but both would have to pay.
A telling episode in the clash between the two took place in Brussels last Friday. European finance ministers were gathered for a decisive meeting of the Euro Group, one that would decide whether emergency aid for Greece would be extended by four months. More than that, though, it would go a long way toward deciding if the country would remain in the euro zone. Varoufakis arrived early in the morning, flying second class without advisors and bodyguards in an effort to save money. He was still confident. “This is not the most difficult day of my life,” he said prior to the meeting. “But perhaps it will be the most difficult in Schäuble’s life.” He then put in his earphones and began reviewing his papers.
Schäuble is Varoufakis’s nemesis. And it is difficult to imagine two people being more different. The Greek finance minister is in excellent physical shape and nicely tanned. His German counterpart sits in a wheelchair, the result of a 1990 assassination attempt, and his shoulders are slumped, as if giving way under the weight of a long political career and the responsibility he has carried for decades — in particular, responsibility for the euro, which he helped create.
One Must Imagine Sisyphus Happy’
Schäuble’s office in the Finance Ministry looked just as tidy as always this week. But the minister himself was exhausted and didn’t try to conceal it. His eyes were red and he repeatedly rubbed them and yawned.
Schäuble used to be fond of comparing politicians in general, and himself specifically, with Sisyphus, the character from Greek mythology who is damned to spend eternity trying to roll a stone up a hill, to no avail. “One must imagine Sisyphus happy,” Schäuble would say, quoting Albert Camus.
When asked if he could imagine simply allowing Greece to stumble out of the euro zone, Schäuble shakes his head. “We are on the right path towards leaving the euro crisis behind us,” he says. “We can’t allow that to be ruined by a country that doesn’t follow any rules.”
It is a typical Schäuble sentence. Basically, he means that, if Greece lives up to its agreements, it can stay. If not, then the country will have to leave the club. And he doesn’t have all that much sympathy for those now in power in Athens. “What the Greeks must now do is not exactly what they promised in the campaign,” he says. “But that’s not my problem.”
Just before midnight on Tuesday, Yanis Varoufakis sent the required list of reforms to Brussels. It includes a national plan to take on corruption, measures against tobacco and gasoline smuggling, higher taxes for the rich and the closing of tax loopholes. It includes food vouchers for the poor and the introduction of a Citizen Smart Card for access to the health system. There are 64 items in total.
Does Schäuble believe that the Greek government will fulfill its promises? The German finance minister stares at the table in front of him. The corners of his mouth fall and he shrugs his shoulders. Sisyphus is tired. And sad.