Now the tough task: implementation
The new fiscal adjustment program and the restructuring of the country’s economy after the frenzy of back-to-back elections in May and June will cost the people of Greece a great deal. There is no point in arguing about the logic or effectiveness of the measures outlined in the new program, or the consequences of a “voluntary” buyback of bonds by banks or social security funds at 30 percent of their nominal value. Privately held Greek bonds have already undergone a “voluntary” haircut of 53 percent, so let the powers that be examine the problems that could arise from a write-down of publicly held debt.
The government has created the impression that the disbursement of the new aid tranche, worth some 44 billion euros, is in the bag and that the Greek economy will begin to grow within the next year. Exercises in optimism have their limit, however, especially given that the success of any fiscal adjustment program does not depend on political grandstanding or good intentions, but on the existence of a state mechanism that can implement the new measures effectively so that they may bring about the anticipated result. Those who believe that Greece’s problems can be solved merely with political decisiveness are sorely mistaken. Sure, it is necessary to some extent, but it certainly is not enough on its own. With the state machinery in disintegration and civil servants who are seriously disgruntled at the political system, there is little to be optimistic about.
Greece has failed to honor its commitments on several occasions over the past three years, but the new deal with its creditors leaves little if any room for maneuvering. Greece’s creditors will be brutal about making sure that the measures are implemented and that any deviation from their terms is swiftly augmented by equal cutbacks – to salaries and pensions, most likely.
In other words, the deal, which is supposed to ensure the sustainability of Greek debt, will be socially unmanageable. This, of course, does not necessarily mean huge protest rallies and clashes with authorities. There will certainly be some of those, but public discontent will more likely take an ostensibly passive form that will manifest itself in the complete rejection of the political system.
It took three meetings of the eurozone’s finance ministers for some of the differences between Germany and the International Monetary Fund to be bridged. But it will take much, much more for the Greek government to implement the fiscal adjustment program.