Where is Odysseus? Part 4 - Unemployment and Employment
Broad impact of inflation crisis becoming clearer
Where is Odysseus? Part 3 - Participation
Podcast - Rising sun: How will PASOK's revival affect Greek politics?
Where is Odysseus? Part 2 - Uncertainty
Greece needs to re-think natural gas policy, starting with demand
Greece and its lenders: Where do you start?
Since it was first recorded in 1944 by American public administrator David Lilienthal, the following anecdote has been told many times and in many ways: A traveller asks a local man for directions and, after much thought, the latter turns to the visitor and says: “My friend, I tell you; if I were you, I wouldn’t start from here.” As Greece and the eurozone remain some distance apart on how to conclude their bailout negotiations, it seems a good time to return to this tale.
If Greece and its eurozone partners could have the last two months, let alone five years, all over again, they certainly would not want to be at the point where they are now. On the one hand, there are the frustrated and increasingly disinterested lenders and, on the other, the confused and unschooled Greek government. Add to this a nervy public, limited time and the incessant pressure of debt repayments and you have a mix that is not conducive to composed thinking.
In fact, two months on from when the new Greek coalition began its deliberations with lenders, it feels that we have zigzagged all over the place just to end up somewhere – as the anecdote says – that is not a good starting point. As this relentless process has unfolded, it has become abundantly clear that the gap separating the two sides is more conceptual than practical.
Much as it wanted to invert the process at the start by rejecting the notion of reforms-for-loans and asking for debt relief, Alexis Tsipras’s administration has been gradually hooked and reeled in to the bailout framework. It has spent the last few weeks exchanging emails, documents, phone calls and words over what measures Athens needs to adopt to secure at least part of the 7.2 billion euros remaining in bailout loans.
The latest set of fiscal and structural measures proposed by Greece was not enough to secure an agreement. That’s not to say that some of the Greek proposals were not worthy: After all, nobody could argue with clamping down on tax evasion, tackling fuel and tobacco smuggling or intensifying checks on lists of bank transfers and offshore entities. All of the measures aimed at improving tax collection and tackling illegal activity are necessary not just for fiscal reasons but also to establish a sense of social justice after years of growing inequalities.
The government expects these measures alone to produce at least some 2 billion euros of the 4.6 to 6.1 billion it believes it can raise through the package of proposed reforms this year. And, this is where the problems begin because sitting on the other side of the negotiating table are technocrats whose primary task is not to promote social justice or equality but to ensure that the numbers add up. This means that they want to sign off on measures that have tangible results. A pledge, for instance, that the discredited Greek political system, public administration and judiciary will leap into action and collect between 725 and 875 million euros this year by conducting the checks on the Lagarde list of Greeks with deposits in Switzerland and other such places, is met with deep scepticism by lenders. This is not to mean that the effort should not be made, just that its results cannot be quantified and therefore relied on for the institutions’ calculations.
Instead – as has been the case throughout the course of this crisis – lenders want to see measures that bring immediate and reliable results. Unfortunately, this leaves policymakers with limited options. The type of measures that can be trusted to deliver measurable and predictable results are spending cuts and tax hikes. For instance, technocrats can readily assess the impact of an increase in VAT, even if it is just on the islands of Mykonos and Santorini as has been rumoured, and record the projected results in the revenues column with a strong degree of certainty. The same goes for something like cuts to auxiliary pensions, which are another measure that the institutions have been pushing for since last year.
The only measures that Greece has proposed in this direction are an increase in luxury tax and the top rate of income tax. Beyond that, the reforms put forward by Athens are seen as “aspirational” (in fiscal terms, at least) by creditors. The Greek side, though, insists that it will not consider across-the-board tax rises or significant cuts to pensions and public sector salaries. This creates a void between Athens and its partners even before other sensitive subjects such as further reform in the labour and product markets are encountered.
With time, goodwill and perhaps some inventiveness, it would perhaps be possible to overcome this encumbrance but all of those are in short supply at the moment. Instead, what we have is little time, frayed nerves and constrained mindsets. It does not bode well for a satisfying outcome, with the best option now appearing some kind of temporary fudge to avoid a catastrophe. The point where the stubbornness of Greece’s lenders meets the flittiness of the Greek government is certainly not the point from where you would want to start this journey.