The bell tolls for Greece, too, Mr Tsipras
Greece and its creditors are running out of road to prevent a default. So a “J’accuse”-style article by Prime Minister Alexis Tsipras, in which he tries to pin blame for the impasse on the country’s creditors and demands that they rethink their approach, is worth a careful read. There seems a good chance that it contributed to the decision of euro-area leaders to hold a top-level emergency meeting on Monday night.
The Op-ed in the French daily Le Monde appears to be part of a last-minute campaign by Greece’s government to change the general perception that it has been a feckless negotiating partner, offering unserious proposals for economic reform while making equally unserious demands for Nazi war reparations from Germany, a major creditor. Tsipras also argues that the “the bell tolls” for the euro region and the International Monetary Fund if they don’t stop making “absurd” demands. That threat, though, cuts both ways.
The core of Tsipras’s argument is that, contrary to claims by Greece’s negotiating partners that it routinely comes to the table “intransigent and without proposals,” the Greek government has put forward a broad package of concrete reforms that has simply been ignored. So who is right? More importantly, who needs to do what if this slow-motion disaster is to be averted?
Tsipras says the Greek proposals include legislation to crack down on fraud and tax evasion; speeding up the country’s sclerotic justice system; repealing provisions that allow Greeks to retire early; simplifying VAT sales taxes; collecting tax arrears; and implementing privatizations — despite being fundamentally opposed. That all sounds persuasive.
Look more closely, though, and one can understand some of the frustration among Greece’s partners. In four months, the government has passed one piece of legislation to tackle tax evasion, which is rather less significant than its predecessor’s work in automating tax collection. Tsipras’s promises to improve the courts and repeal the ridiculous early retirement rules were made months ago, yet little has materialized to suggest the government will follow through.
Greek pensions may not be high, but the country (EL in the chart below) spends more as a percentage of gross domestic product on them than any other country in the European Union.
Even though that ratio has been forced up somewhat by the collapse in GDP, it’s too high for an essentially bankrupt economy — and it’s largely a result of the early retirement habit. As the Wall Street Journal has shown, if you look only at spending on over 65s, Greece doesn’t overspend at all. So it’s hard to understand why the government has insisted on restoring the Christmas bonus for pensioners, which was ended as part of the bailout agreement.
Tsipras also points to his government’s willingness to continue with privatizations. But only one — for horse betting licenses — has materialized, while it insists on renegotiating the other deals that had already been sealed. The list goes on.
Tsipras’s government has been more active in unwinding some of the bailout terms it dislikes, for example rehiring some of the (relatively few) public sector workers who were fired to reduce costs in a notoriously inefficient civil service. Little wonder, then, that Greece’s creditors are skeptical of its intentions.
The real worry about the Tsipras Op-ed is that it reads more like an effort to assign blame for a coming default and “Grexit” than an attempt to prevent them. The Greek bailout deserves all the criticism it can get; it has been a disaster. Yet no country has ever become bankrupt without suffering substantial levels of subsequent pain — with or without ill-designed austerity policies. The question for Greece and its partners is how best to secure a sustainable recovery, and that doesn’t appear to be getting addressed.
Greece needs further debt relief and less ambitious primary surplus targets — its creditors should deliver them. The 4.5 percent of GDP surplus demanded by the current bailout program was wholly unrealistic for any developed economy to meet, let alone Greece, and is simply a reflection of the unsustainability of the country’s debt pile. Greece’s creditors should move much further towards Greek demands than the 3.5 percent compromise being floated, which is still unrealistic, and fund the difference directly from the European Stability Mechanism.
In return, though, the Greek government needs to deliver the kinds of ambitious structural reforms that would make a sustainable recovery possible, inside or outside the euro. Tsipras, who heads the neo-Marxist Syriza party, has described such demands as “extreme neo-liberalism,” but they aren’t. They are essential. He cannot expect Germans to volunteer the money Greece needs, so he can spend it on the kind of leftist economic fantasy that was discredited all over Europe in the 1970s and 1980s. Just ask Argentina where default followed by populist economics leads.
At the end of his Le Monde Op-ed, Tsipras advises his counterparts to reread Hemingway’s For Whom the Bell Tolls, implying that it tolls for them. Well it’s ringing for Greece, too, and especially for Syriza, which got elected on a false promise to cancel the bailout terms while keeping the euro. Both sides in this negotiation need to finally get serious.
[Bloomberg]
