Ladies and gentlemen, please fasten your seat belts

Agora Contributor: Nick Malkoutzis
Photo by Can Esenbel []
Photo by Can Esenbel []

Earlier this year, Prime Minister Antonis Samaras held an informal dinner with some of his party’s MPs. He reportedly told them that if Greece would be able to get through a tough summer, it would “take off” in September. We are now nearing the end of October and there has been no departure for the skies. Instead, Samaras is bracing for impact.

It’s true that a number of indices, from economic sentiment to bond spreads, have improved over recent months. The troika’s fiscal targets, meanwhile, have never been in doubt and a primary surplus will be secured by the end of the year. There are also signs that the recession is bottoming out. Unemployment figures, however, continue to be brutal and the number of people and businesses being pushed to the edge is not abating. Non-performing loans are also rising and the government’s cash deficit is growing.

All of this means little, though, when matched up to the troika’s prevailing view. If economic reality is keeping Samaras’s flight from gathering the necessary speed, then Greece’s lenders are providing the hurricane conditions keeping it grounded. Last week’s suggestion that Athens would have to find about 2 billion euros more of austerity measures to cover a fiscal gap next year was a potential death knell for Samaras’s coalition and a hammer blow for Greece’s beleaguered society.

For one, Samaras and his ministers have been busy over the last few months telling anyone who’ll listen that there would be no new cuts next year. There is no doubt they spoke prematurely but they also had every reason to believe that the primary surplus at the end of the year would be enough to ward off any demands for more cuts from the troika. Their pronouncements were also born of a political necessity. The 2014 draft budget already contains about 4 billion euros, or 2 percent of GDP, of measures and Samaras knows that convincing Greeks more is needed on top of this will be a thankless task.

Then, there is a question of where these extra savings would come from. Samaras has already shut down state broadcaster ERT, torpedoing his three-party coalition in the process, and disbanded a profit-making municipal police force to meet the troika’s targets. Pensions and public sector salaries have been slashed by more than a third and social spending has been reduced to a drip feed. While there is still waste that can be addressed, finding 2 billion euros at this stage of the Greek crisis is more than just a tall order. With no genuine growth due at least until 2015, it seems an impossibility to make up for a lack of extra revenues by squeezing more out of a public sector that is already being dismantled.

It has been suggested that more public organisations could be shut down to save money but there are few such bodies large enough to make a difference. The effectiveness of the Greek National Tourism Organization, for instance, has repeatedly been questioned. But it has just had its annual budget slashed to 7.5 million euros. How many of those would Samaras have to find to meet the troika’s new demands?

The prime minister’s problems don’t end there, though. The European Central Bank has nipped in the bud talk of Greek bonds maturing next year, with a value of about 10 billion euros, being rolled over to cover Greece’s financing gap. 

Furthermore, the indications are that discussions about more debt relief, as agreed at a Eurogroup meeting last November, will be put off until after May’s European Parliament elections. Samaras now faces going into these elections after having broken his “no new measures” pledge and failed to deliver the debt relief he also promoted.

All of this raises questions about the troika’s stance. Having seen two governments fizzle out since 2010, two close and acrimonious elections in 2012, the surge of a neofascist party, a shaky governing coalition and a narrowing parliamentary majority, one has to wonder what else needs to happen before there is a show of political sensitivity from Greece’s lenders. We should be clear, though, that this is not a case of Greece needing a dose of leniency or charity. It simply needs an injection of fairness and reason.

The ECB, for instance, has dismissed out of hand as “monetary financing” Greece’s proposals for a series of bond rollovers next year when the bank has shown a much more open mind in similar cases involving other countries. The apparent decision to delay discussions on debt relief until after May’s European elections also suggests double standards. The trigger for these talks taking place should have been confirmation that a primary surplus has been achieved at the end of the year. European officials suggested a couple of weeks ago that confirmation from Eurostat, due in April, would be needed first. Now, it appears there will be another delay.

Lastly, the request for more fiscal measures comes after the troika rejected Greece’s intention to include in its primary surplus for this year profits from the Hellenic Financial Stability Fund even though it is part of the general government budget. Greece’s lenders have also expressed concern about tax revenues and social security contributions being lower than expected. The latter is a particular irony given that one could argue that the economic policy pursued in Greece over the past three years, in agreement with the troika, has directly contributed to tax and social security revenues suffering.

The view from the troika, and particularly from the eurozone, seems to be that if Greece needs a third bailout, which looks increasingly likely, then for this to be politically acceptable in the lender countries the package will have to be as small as possible and subject to high conditionality. However, what is politically acceptable for Greece’s eurozone partners, is not necessarily something that is palatable in Athens. “We will only agree on a new bailout package if it is not accompanied by new measures,” Greek Finance Minister Yannis Stournaras told Kathimerini in an interview, adding that the government would accept making savings through structural reforms.

Maybe this will turn out to be a storm in a teacup. Maybe Greece will swallow the bitter medicine, as it has done on similar occasions over the past three years. Maybe, though, the Europeans are underestimating just how much pressure this government and Greek society are under. Maybe they truly cannot see that the coalition and the country are running out of runway. If this is the case, then it’s time to pull our seat belts tight. 

1 Comment(s)

  • Posted by: H.Trickler

    > "what else needs to happen before there is a show of political sensitivity from Greece’s lenders"

    Mr. Malkoutzis your are expecting something that never will happen!

    > "We will only agree on a new bailout package if it is not accompanied by new measures"

    This is quite reasonable, but for the northern countries no base for future deals. The medicine given in the past to Greece by EU and EMF has been wrong, but it is Greece who must finally find a solution.

    Imho only drastic steps like bankruptcy of the Greek state can bring a long term solution.

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