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Greece rescued, again

December 2, 2012

Published in ‘New Europe’, 2-8 December 2012, pages 1 & 3

Greece rescued againLast Tuesday, November 27, the Eurogroup finance ministers “saved” Greece from bankruptcy once again, by agreeing to disburse € 43 billion over the next few months. By doing so, they bought some more time for Greece but also for themselves. It has indeed been their strategy to “kick the can down the road,” since the beginning of the crisis, three years ago, while hoping to some day reach a broad agreement on the structural problems that plague Europe and are at the origin of the sovereign debt crisis. And they don’t seem to want to deal with the troubles of an official Greek default until that day.

The last agreement is not only about lending more money to Greece, but also about making its debt “sustainable”. The aim is to lower the Greek debt-to-GDP ratio from its current level of 190% to a more “manageable” 124% by 2020…Thus, several other measures, favorable to Greece, were decided; these include an extension of the repayment period for Greece’s bailout loans, a reduction of interest rates, a  sovereign debt buyback pogram etc. Also, the biggest part of the money to be received as a first installment under this plan (around € 23.8 billion out of a € 34.6 billion) will be used to recapitalize the Greek banks after the heavy losses they suffered from the so-called PSI earlier in the year.

As in any new plan, the figures above just emphasize that the previous plan’s goals were not realistic, and so could the current targets’ prove to be. And before the new Euro-zone agreement’s ink was dry, Citigroup issued its own forecasts contradicting those of the troika, and painting a much more grim future for Greece. According to Citibank, Greek GDP will contract by more than 7% this year, and will keep contracting up to and including 2015; unemployment is seen to attain catastrophic levels, up to 40% in 2015, and will start to decline after 2017. Eventually, always according to Citibank, Greece will be forced to leave the euro somewhere between the next 12 and 18 months.

Although these forecasts look overly pessimistic, (and the thousand or so articles we have read so far in the “serious” Anglo-saxon press about Greece’s exit from the euro-zone have proved wrong), the official troika’s forecasts have in some way “symmetrically” been overly optimistic. All the rescue plans decided to date have created a much deeper recession than expected, thus making the goals that they themselves had set, unattainable.

So, in this backdrop, is it still possible to save Greece? I strongly believe that the answer will come from Greece itself and not from its international “rescuers.” And the answer lies in the denominator of the debt-to-GDP ratio. In other words, Greece’s future solely depends on its society’s will and its government’s ability to implement those measures that will stimulate its economy, and attract foreign investment.

Some serious efforts have been done to this end, including a sharp reduction of public deficits, a significant decrease of wages across the board, and a partial dismantlement of a largely constraining labor legislation. However, these measures are “too little, too late” to bring real change to the country’s economic landscape. Public administration and its famous bureaucracy, the single most deterring factor to foreign investment, is still practically intact; very few if any measures for simplifying the bureaucracy, other than vague promises, have been taken so far.

Tax legislation, of a proverbial complexity, is getting even worse: 14 tax laws were passed over the last three years, reflecting the changing reactions of government officials towards the consecutive failures of the tax collection system. More to that, these laws (some of which have never been applied) are typically complemented by regulatory texts (circulars) that are supposed to “clarify the law.” Only last year, in 2011, 250 such tax circulars were issued, practically one per working day, with many of them contradicting one another…  This is far, indeed, from the ideal environment that would appeal to international investors, but it’s just about all the current Greek administration can produce.

The main issue is neither the last rescue plan itself, nor the gloomy predictions of some major international bank. The true question is whether Greece wants to be saved, and more precisely if its current political class is able and willing to make the necessary “administrative revolution” the country badly needs. Is it too much to ask? Sometimes, I think of it as if we were asking the old communist regime to demolish the Berlin Wall…

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