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Does Greece need a third programme?
During his visit to Berlin this week, Prime Minister Antonis Samaras repeatedly emphasised that Greece does not require a third financial support programme. In his conversation with Chancellor Angela Merkel he highlighted that the Greek sovereign was able to successfully return to international bond markets in April after a three-year forced hiatus.
Being able to regain access to such capital markets opens refinancing options to the sovereign that broaden its operational leverage. Furthermore, the primary surplus achieved in 2013 and the one expected for this year underline that the government in Athens is in a position to finance its current expenditure requirements out of its own pocket.
The European part of the second macroeconomic adjustment programme expires end-2014, while the last disbursement from the IMF lending programme is scheduled for Q1-2016. In the meantime the examples of Ireland and Portugal have attracted a growing number of followers in Athens. Dublin successfully exited its troika programme in December 2013 and was followed by Lisbon in May 2014. The government in Athens is determined to jump on the train and join Ireland as well as Portugal.
But let us take the contrarian position and inquire if this sense of urgency about an early exit is shared in other cities across the eurozone, particularly in Berlin, Frankfurt, Paris and Brussels? What do federal ministries in Germany and France, the European Central Bank and financing institutions such as the European Stability Mechanism think about Athens’ determination to spend considerable political capital on this (premature) exit strategy?
By way of deliberate speculation, without any pretext of having inside information, I would like to offer some out of the box reflections on possible key elements of a third programme for Greece.
As a point of departure, the terminology would have to be carefully crafted. The term ‘Memorandum’ has been negatively associated with the two predecessor programmes and is being linked with a period that Greeks want to leave behind as quickly as possible.
In terms of the substance of such a new programme and the conditionality attached to it, clear conceptual and methodological demarcation lines will have to be established compared to its predecessors.
A further stringent focus on fiscal consolidation and the stability of the banking sector, while important in their own right, cannot continue to define a new support programme for Greece. Rather, at the heart of such a ‘cooperation agreement’ as we shall term it would have to be the consideration of how Greece can be institutionally supported in its reform endeavours. Put otherwise, the focus now turns to the challenge of how the implementation of a structural reform agenda in the economy and society of Greece can be made permanent and irreversible.
In order to strengthen the reform impetus in the Greek political economy it is necessary to broaden the focus of current deliberations in various capital cities in the euro area. The European creditor community must move beyond the consideration of further interest rate reductions or maturity extensions on the official loans provided to Greece.
Rather, a new cooperation agreement would emphasise the attainment of efficiency gains in the real economy. Critically, the agreement would be structured in such a manner that it has greater support among Greek citizens and participating institutions. I propose five key reform areas:
At the horizontal level the programme would have to formulate cross cutting issues that affect all sectors of the real economy, in particular as regards domestic and foreign investment capacity in Greece. One area where implementation delays and administrative deficits are distinct concerns the privatisation process. Issues such as the valorisation of public property and the capacity to construct securitisation arrangements for these assets deserve greater attention. This approach does not imply a focus on sales management and revenue generation through disinvestment. Rather, it argues for alternative options such as long-term leasing arrangements and greater leverage in the corporate management of public property.
In order to promote Greek export capacity, arrangements at the bilateral and/or European level should be explored that facilitate the availability of export insurance guarantees for Greek companies. The further rationalisation and digitalisation of customs procedures is part and parcel of such an export promotion policy.
For new businesses, including start-ups, the availability of micro finance structures needs to be advanced in Greece. Frequently, new SMEs do not lack innovative ideas but seed capital, which such start-ups continue to have great difficulty in receiving from their local bank. A targeted implementation of European funding programmes and technical assistance laying the groundwork for micro finance structures in Greece is absolutely necessary. Business innovation and institutional financing innovation need to go hand-in-hand.
Apart from the conceptual reorientation of a new cooperation agreement for Greece, the focus should turn towards institutional capacity building, executing agreed reform priorities at the regional and municipal levels. Towards this objective it will be necessary to adjust the provision and coordination of technical assistance provided to Greek authorities by the European Commission, international organisations, individual member states of the EU as well as municipal and regional partners. In this context it will also be critical to enlarge the contribution of technical expertise available from participating Greek institutions. Instead of concentrating the endeavours on the debate of whether Greece needs further financial assistance in the form of lending programmes, attention should turn towards ways of facilitating the financing of technical assistance for Greece.
The possibilities to combine various existing financing options for Greece have not been exhausted to date. This argument does not call for additional official credit lines for the country. Instead, it advocates strengthening synergies between different funding programmes and institutions, e.g. by seeking to enlarge the group of financial backers of the Institution for Growth (IfG) with additional countries, banks and domestic as well as international organisations. The integration of new funding partners into the IfG would broaden its operational capacity and open new financing avenues, in particular for SME financing.
It is currently not known if Ms Merkel and Mr Samaras discussed any such issues during their consultations in Berlin. But these agenda items remain central for Greece, with or without a third programme.