Monday, 22 June 2015

Glimmer of hope for Greece

Eurogroup president Jeroen Dijsselbloem called the proposals Greece sent to Brussels on Monday morning "broadly comprehensive", saying they were a "welcome step" in a "positive direction".

This amounts to more positive language on Greek proposals in the space of a 10 minute press conference than Dijsselbloem has used altogether since February, when negotiations with the new leftist government began.

However, there would not be a final deal from the Eurogroup on Monday, he said, that could be considered by the Eurozone's 19 heads of government in an extraordinary summit on the Greek question scheduled for Monday evening.

Pro-European Greeks demonstrated outside parliament last Thursday carrying banners such as "no to sinecures in the public sector" and "no to Stalinism in Greece".

Dijsselbloem said the proposals were "comprehensive enough for a general recovery to go on," and said they were a basis to restart the talks over the next couple of days.

This means that time is now of the essence, as the deal needs to be ratified by Eurozone parliaments and emergency funds disbursed to Greece before June 30, when it faces a 1.6bn euro bond payable to the International Monetary Fund.

The details of the Greek proposal were not made public, but media reports suggest that it cleaves to the country's creditors' proposal made on June 3. This means that Greece would have to generate a primary budget surplus of 1 percent of GDP this year and 2 percent next. This is far below the 3.5 percent and 4.5 percent forecast in Greece's current bailout programme, but also somewhat higher than the 0.6 percent and 1 percent Greece had asked for.

The primary surplus is the amount of tax revenue above expenditures the government generates, before it pays off debt. The ruling Syriza party had promised to lower it so as to alleviate the suffering of taxpayers, many of whom are unemployed or have had their salaries cut during the six year-long Greek depression.

However, the government's four-and-a-half-month-long negotiations with the European Commission, European Central Bank and International Monetary Fund have affected the situation on the ground, and not in Greece's favour.

By raising the spectre of a possible Greek departure from the Eurozone, they have created political and economic uncertainty at home. This has turned a 2.5 percent growth prospect forecast for this year into a marginal recession, as investment and consumption have both slowed. The result is a one billion euro tax revenue shortfall in the first half of the year, which creditors believe will worsen.

This means that any additional tax revenue measures Syriza now applies to correct that gap will have a recessionary effect on an already wobbly economy, potentially perpetuating the spiral pro-austerity governments created over the last six years.

Media reports suggest that Syriza would raise pension contributions for employers and employees, and impose a one-off levy of 12 percent on businesses with a turnover of half a million euros or more. Neither of these measures is likely to conduce to further investment, foreign or domestic.

In return for these measures Syriza hopes to extract a rescheduling of Greek debt, if not over the longer term, then at least for the medium term, allowing it to spend less of its economy repaying debt.

The broader problem, however, remains, that Syriza, like its predecessors, has reduced negotiations to a number-crunching exercise over the execution of the current budget and the next one. It, too, has failed to seize ownership of a true reform programme that puts social security on a path to sustainability over the long term, drastically reduces the overheads of the state, and sets Greece on a path of competitiveness and growth.

Sadly, Greece's creditors seem content with this, because their priority is containment of the Greek mess until mechanisms are put in place to secure the Eurozone from contagion. While the prospect of default and Hellenexodus from the Eurozone are thus temporarily put back, Syriza's vaunted goal of making creditors see the Greek problem as one of viability over the long term rather than liquidity over the short term is thus defeated.

In this way, Syriza condemns Greeks who are hardworking, outgoing, capable and enterprising to a renewed sentence of hard labour under a discouraging and often stifling social, political and economic environment. Many Greek politicians know how to say the things many of their voters and partners abroad want to hear. Few are willing to try putting them into practice.

John Psaropoulos

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