Looking for game changers
September will be a crucial month for the government and Greece. So far, the prime minister and finance minister have sent all the right messages regarding the need to speed up structural reforms, slash government spending and get on with the sale of state assets. The problems will begin, though, once the government sits down with the representatives of the European Commission, European Central Bank and International Monetary Fund next week.
European leaders decided months ago that all negotiations with Greece will be carried out between the government and the lenders? representatives. They obviously don?t want a political discussion, but rather a negotiation with numbers and data. After all, the representatives sent to Athens are very familiar with the details of Greece?s finances. The kind of negotiation they are interested in has no room for vagueness and speaking in general terms. If, for example, a Greek official promises to raise revenues from the sale of public states, the troika?s representatives will point out that this will take at least 18-24 months to bear fruit.
In every crucial issue that is discussed between the Greek government and the troika, both sides are looking for that single factor that will change the tone or terms of the game. During past talks, there have been points when it was apparent that the fiscal targets would not be achieved and it would take one or two impressive moves to get the game to change. In regard to the first memorandum, the game changer was when the Greek government agreed to reform the social security sector and in the second, it was with the labor law changes. Greece did try to throw a couple of fireworks, such as announcing 50 billion euros? worth of privatizations, but this soon fizzled simply because it was unfeasible.
The government today needs to come up with two or three moves of this nature by early September in order to ensure that Greece continues to receive funding. This is not going to be easy given that there are no quick alternatives to reducing salaries and pensions even further. Meanwhile, it must also try to make decisions that will not jeopardize the shaky coalition. As the background to all this, there is added pressure from Berlin, which no longer views a Greek euro exit as a catastrophe.
So far, the government?s messages inside and outside Greece have been just what they should be. But within a very short time it will have to enter the painful phase of making decisions under increasing pressure and with ever-emptier coffers, until negotiations with the troika come to end in early September.
