Post-bailout conditionality in Greece – a proposal

Post-bailout conditionality in Greece – a proposal

Since the first memorandum of understanding (MoU) between Greece and its creditors in 2010, one word has been the central point of reference: “conditionality.” In other words, the conditions attached to the loans from our European partners and the International Monetary Fund are based on a certain logic: money for Greece in order for it not to go bankrupt and cover its current expenditures, as well as to pay off past loans and interest, and in exchange the implementation of specific and previously agreed upon fiscal, financial and structural reforms.

The political drama of the last eight years has in fact revolved around how exactly this “conditionality” of the MoUs should be measured. There were intense debates on the right mix for the fiscal measures, their “temporary” or “permanent” nature, whether particular structural measures were indeed required, how they should be implemented, and on the degrees of freedom each government had or should have versus specifying in detail the legislative initiatives. In this process, the Greek side repeatedly fought rear-guard battles, either out of ignorance or in order to appease the domestic political audience, which delayed program implementation. And on the creditors’ side, misguided policy prescriptions, wrong economic estimates, deep-held suspicion about the Greek side and sometimes plain lack of common sense often dominated.

As we reach the end of the third MoU and the discussion starts in earnest about the day after, it is time to collectively decide on what “conditionality” should be about from this point onward. But first, an obvious point: “Conditionality” will still be with us, regardless of the political wrapping for the decisions which will be taken, and irrespective of what the new arrangement will be called. This is for two reasons. The first has to do with the new fiscal surveillance framework which applies for all countries that have been in a MoU framework; it includes strict supervision (hence “conditionality”) until 75 percent of the loans are paid back. The second reason has to do with the country’s particularities: Lack of trust in the Greek political system implies that any interventions decided by creditors for debt relief will be gradual, effective over a long period, and subject to continuing the implementation of specific policies.

In the upcoming negotiation for the policy framework that will be applicable after the summer of 2018, in addition to the issue of the required primary surpluses, the discussion will be dominated by the need to continue, even intensify, the structural reforms which the country has embarked upon since 2010. And in these discussions, it would be nice if, for once, the Greek side could put its own proposals for “conditionality” on the table and not just be on the receiving end of whatever others have prepared for us. The key here is to move from a conditionality that depends on initiatives and legislation to one that depends on results achieved. And the driver for this new approach could be the various international indicators measuring competitiveness, social justice and the quality of governance in different countries.

Take, for example, the recent publication on social justice in Europe (Social Justice in the EU – Index Report 2017, Bartlesmann Stiftung). Greece ranks 28th in the EU of 28 based on roughly 50 indicators that are divided into six thematic categories (poverty prevention, equitable education, labor market access, social cohesion and non-discrimination, health, intergenerational justice). What better way to judge the effectiveness of economic and social reforms than to adopt a conditionality yardstick based on improvements in at least some of the indicators, either in absolute or comparative terms?

The same applies for other indicators, such as the competitiveness indicators developed by the World Bank or those by the World Economic Forum, where Greece has dropped another position during the last year and now ranks 87th out of 137 countries measured. And similarly for the governance indicators published by the World Bank (World Governance Indicators), in which, over the last decade, Greece’s position has deteriorated in each of the six categories measured (voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law, control of corruption).

Some people will no doubt rush to judgment and characterize such an approach as being overly “technocratic.” I beg to differ. On the contrary, it is deeply political. It aims to check government on the basis of the results actually achieved, instead of judging it on noble intentions, the legislation passed, or figures on spending. Frankly, for every political party that lays a serious claim to governing the country, this approach should be the basis for the social contract it promises the citizens. And this should be irrespective and beyond the actual negotiations with the creditors about future “conditionality.” It is about time we finally laid the groundwork for our own economic, social and political future in Greece and got specific about that nebulous “development framework” everyone has been talking about all these years. After all, isn’t that what “program ownership” is all about?

* George Papaconstantinou served as Greece’s finance minister from 2009 to 2011.