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Greece: The gathering storm The Corner newsletter European business news ATHENS | By Nick Malkoutzis via MacroPolis | As the dust settles from Greece’s negotiations with its lenders and the arduous work of implementing their agreement begins, it is becoming increasingly evident that the next four months will be an extremely testing experience for everyone concerned. There are several reasons to begin bracing for the turbulence ahead. One is that the new Greek government is still on a steep learning curve and is liable to make slip-ups. It’s apparent determination not to keep its own counsel and the tendency for its ministers to speak into any and all microphones put in front of them is compounding the problems it faces. On Wednesday, three ministers gave three different messages about what the government plans to do with VAT. On the same day, Finance Minister Yanis Varoufakis suggested that Greece would have trouble paying its 1.6-billion-euro loan repayment to the International Monetary Fund, while Economy Minister Giorgos Stathakis insisted that the government did not have any funding problems. A day later, State Minister Alekos Flambouraris indicated that the government might indeed be unable to pay the IMF in full and could ask for part of the repayment to be delayed. This picture of confusion is in contrast to the persistently blunt message being broadcast from German Finance Minister Wolfgang Schaeuble. After rubbing salt into the Greek side’s wounds after the Eurogroup deal on February 20, when he wondered aloud how Varoufakis would explain the agreement in Athens, the German politician has maintained extreme pressure on the SYRIZA–Independent Greeks coalition. Ahead of the vote in the German Parliament, he insisted that no money would be released to Greece unless it completes the review and made it clear that failure to live up to the terms would lead to the agreement being declared null and void. Schaeuble also accused Varoufakis of “straining the solidarity of European partners”. It was just one of several personal jibes from the German minister towards his Greek counterpart. These comments carry dual significance. Firstly, because Schaeuble sets the tone for the rest of the Eurogroup, as underlined by the fact that Eurogroup chief Jeroen Dijsselbloem, European Commissioner Pierre Moscovici and IMF managing director Christine Lagarde negotiated on February 20 with Varoufakis in one room and Schaeuble in another to thrash out a deal before the meeting of the eurozone finance ministers began. Schaeuble’s insistence is also significant because it gives an idea of how fraught the process of implementing the agreed reforms and then having them reviewed by lenders is going to be for Greece over the next four months. Since the beginning of the bailout process in 2010, Germany has turned towards the IMF to act as its enforcer on the ground, believing that the European Central Bank and the European Commission do not have the expertise or resolve to ensure that terms are being met. The way that Schaeuble appeared to try to sideline the Commission’s efforts to find a compromise with the Greek government before February 20 suggests that these reservations still exist in Berlin. This means Schaeuble and German Chancellor Angela Merkel are likely to turn to the IMF again over the next few months to ensure that they are getting their money’s worth from the coalition in Athens. This is where the next concern about how the process will evolve over the next few months arises. While the Commission, the Eurogroup and the ECB signed off relatively easily on the reform package proposed by the Greek government on February 23, the IMF adopted a more dissenting line. In her response to the proposals, Lagarde recognised the Greek proposals as a “valid starting point” but raised a number of concerns about elements that appeared to be missing or were not covered in enough detail. These included reforms for pensions, VAT, opening up closed sectors, privatisations and the labour market – all of which are political hot potatoes in Greece. “As you know, we consider such commitments and undertakings to be critical for Greece’s ability to meet the basic objectives of its Fund-supported program, which is why these are the areas subject to most of the structural benchmarks agreed with the Fund,” added Lagarde, indicating that regardless of what the new government has agreed with the Eurogroup, the IMF will still be looking for Greece to deliver in areas where the previous coalition failed. Lagarde’s response seems to leave only limited room for flexibility and suggests that the government will be asked to delve into a lot of areas that it would prefer to leave untouched at this stage given the already fragile state of unity within SYRIZA. However, the way the Fund, driven by rules and procedures, works means that Athens will have to meet specific structural benchmarks before it can qualify for further loans. This means the current coalition cannot escape the nightmarish reviews that its predecessor approach with a mixture of dread and panic if it expects to receive the IMF’s 3.5 billion euros from the total of 7.2 billion in pending instalments. Schaeuble, meanwhile, has insisted that Greece will not get a cent of the remaining part of the tranches if it does not complete the review. This ties Athens down to the incredibly testing process of working with lenders to draft and pass legislation so the review can be wrapped up. At the same time, it will have to ensure that it does not alienate creditors by adopting measures that run counter to their goals. There has already been some friction over privatisation, payment plans for overdue taxes and plans for the settlement of non-performing loans. Also, the various sides have not yet sat down to discuss the complex and extremely technical issue of the fiscal gap and any relevant measures that need to be taken. All this forms an extremely challenging environment for the new government, which has no experience of this process and will also have to launch, in parallel, discussions about what kind of package can be agreed to carry Greece on from July, when the current four-month extension ends. This suggests the next four months will be the most definitive period of the Greek crisis. <http://www.thecorner.eu/news-europe/greece-gathering-storm/44213> Greece's fundamental problem, lack of income, hasn't changed <http://www.independent.co.uk/news/business/comment/greeces-fundamental-problem-lack-of-income-hasnt-changed-10082649.html> IMF Stands Firm, Forcing Greece and Syriza to Accept Hard Concessions <http://www.worldpoliticsreview.com/trend-lines/15210/imf-stands-firm-forcing-greece-and-syriza-to-accept-hard-concessions> Greek FinMin: There’s an Alternative if Greece Doesn’t Get Loan Tranche in March <http://greece.greekreporter.com/2015/03/05/greek-finmin-theres-an-alternative-if-greece-doesnt-get-loan-tranche-in-march> Tough talk from Greece stuns EU leaders <http://www.iol.co.za/business/international/tough-talk-from-greece-stuns-eu-leaders-1.1826736#.VPk2k3uNfQU> Athens faces uphill struggle despite eurozone deal Ferdinando Giugliano, Economics Correspondent Financial Times March 4, 2014 The Greek government received a boost last month when it reached agreement with its eurozone creditors on a four-month extension of the country’s €172bn rescue programme. But while Alexis Tsipras, prime minister, believes Athens “has turned a new page”, the economic outlook has shown little sign of improvement since his administration came to power in January. . . . 1) The economy reversed gear . . . The crisis left deep scars on the Greek economy, with national income contracting by almost 25 per cent between 2008 and 2013. Growth returned in the first nine months of last year as gross domestic product rose by an average of 0.6 per cent quarter-on-quarter. But this progress was partly undone in the three months to December amid profound political instability as the government led by Antonis Samaras failed to elect a new president, triggering a general election. In the fourth quarter last year, Greece’s national output shrank by 0.4 per cent. Consumption was stable compared with the previous quarter, while investment jumped by 18.3 per cent. But exports fared badly, falling by 1.3 per cent even when seasonally adjusted. With imports rising by 6.8 per cent, net exports proved a significant drag on growth. National output was still 1.3 per cent larger than in the last quarter of 2013, but this was because of the economy’s bounce at the start of the year. 2) . . . and the slide has not stopped Indices of economic activity show the slide in output is likely to have continued in January and February. The purchasing managers' index for manufacturing stood at 48.4 in February after falling to 48.3 in January. Both figures are below 50, the point that separates expansion from contraction, and mark a deceleration compared to the first six months of 2014, when manufacturing staged a tentative recovery. New orders fell sharply in February, with exports sliding on the back of political uncertainty. There was some good news for employment, which rose modestly. 3) Deflation has worsened Greece has been mired in deflation for two years, with prices last growing on a yearly basis in February 2013. The trend has worsened in the past few months, with inflation hitting -2.8 per cent in January. The decline is partly the result of the sharp contraction in global oil prices . Transport prices, which include petrol, diesel and other fuels, contracted by 6.9 per cent in the 12 months to January, while housing costs, which include heating, fell by 8 per cent. However, falling energy prices are only part of the explanation. All item categories with the exception of alcoholic beverages and tobacco experienced deflation in the year to January. The trend is unlikely to have stopped in February: data from Markit show manufacturers continued to slash prices last month to halt faltering sales, making the steepest price cuts since last August. 4) The government is running out of cash Greece’s rescue programme was designed to put Athens’ public finances on a more sustainable path. But the stringent austerity administered by the European institutions and International Monetary Fund initially failed to improve the public accounts as the ensuing recession led to a steep fall in tax receipts. Eventually, Greece managed to put its fiscal house in order. In 2013 and 2014 the government ran a primary surplus — that is, balancing its books before interest payments. This achievement has important political implications. Since Athens only needs to borrow to pay its creditors, it can threaten to walk away from its debts knowing it will still be able to pay pensioners and public sector employees. This strengthens its hand in any negotiations with creditors. Since December, however, tax receipts have been weaker than expected. The primary surplus halved to €443m in January from €835m last year, missing its target by €923m, according to Macropolis, the consultancy. This may have important consequences this year. As Silvia Merler, a researcher at think-tank Bruegel, noted: “In 2014, a large part of the final primary surplus was built up in the first two months of the year, with January being one of the most important months for the collection of tax revenues.” January’s shortfall may make it hard for Greece to hit any ambitious primary surplus target set for 2015. 5) Depositors are running away Greece’s crisis has been accompanied by a steady outflow of cash from the banking system, with private sector deposits falling from around €240bn to around €150bn between 2009 and 2012. The primary driver of this process was the fear Athens might leave the euro, prompting capital controls and forced conversion of all deposits into steeply devalued drachmas. This steady bank jog ended in 2012, with Mario Draghi ’s statement that he would do “whatever it takes” to keep the eurozone intact. After the European Central Bank president’s words, Greek deposits stabilised at around €160bn. Syriza’s rise to power and the ensuing stand-off between the new government and the rest of the eurozone prompted more investors to withdraw their cash. Deposits fell by €12.8bn in January as balances hit €148bn, the lowest since August 2005. According to Jeroen Dijsselbloem, chairman of the eurogroup of finance ministers, fears that Greece might experience a full-blown bank run were the primary reason Athens chose to cut a deal with the rest of the eurozone. The question now is whether the exchange of vows between Athens and its partners over the future of the rescue programme will be enough to bring depositors back. _________________________________________________________ Full posting guidelines at: http://www.marxmail.org/sub.htm Set your options at: http://lists.csbs.utah.edu/options/marxism/archive%40mail-archive.com
