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Wednesday, July 15, 2015

Greek Drama, Act III – Chorus mourns: “For ages I have seen doom / hurled on the House of…”

What an irony! He came out roaring from the negotiating table; called for a referendum; exhorted his countrymen to say ‘No’ for the austerity measures imposed by the EU creditors. And they sang in chorus with him.

Yet, on Monday  July 13, 2015, after 17 hours of negotiations that were, of course, tense, Tsipras, the hitherto frowning Prime Minister of Greek, finally surrendered much of Greek’s sovereignty to the EU lenders against their agreeing to bail out his country from the current crisis and to keep it in Euro with a 86-billion euro loan.

So, Greece has to finally agree to: one, simplify its VAT rates, widen its tax base, cut back on pension and make the nation’s statistics agency independent; two, put a timetable in place to implement an ambitious pension reform agenda and cuts in public administration to restrict expenditure; and three, launch privatization program involving transfer of euro 50-billion worth of assets to external and independent funds, besides unveiling market reforms to strengthen its financial sector.

And as the final nail in the coffin, Tsipras was reported to have agreed to the close supervision of his domestic economy by the International Monetary Fund (IMF), as also to overhaul the public administration under the sharp eye of the European Commission (EC). 

Thus, what Greece has today agreed to is nearly identical to what it rejected earlier; and in the process paid a heavy penalty: in addition to the known hardliners like Germany, even smaller European countries like Finland, Slovenia, etc. attacked in chorus Greece and Greece’s long record of failed reforms. 

Nevertheless, this meek surrender of Tsipras has undoubtedly averted the ‘Grexit’ that Germany for the first time introduced into the official documents meant for discussion at the table. That said, it must also be admitted that it is not a permanent settlement. There is a long way to travel—the deal must be approved by the Greek Parliament, as also elsewhere.
Undoubtedly, Tsipras is all set to face stiff resistance from the radical left wing of his party. News reports indicate that his loyalists are already hard at work trying to convince a skeptical party that tough cuts could be softened through alternative measures. Intriguingly, Greece’s interior minister, Nikos Voutsis was reported to have said: “I believe the people trust Tsipras and the government to remove these measures in the implementation phase, there can be policies that can cancel them out.” This incidentally, makes one wonder if this [approach to reforms] is what caused the failure of Greece’s earlier bailout programs. And if one recalls what Stefanos Manos, Greece’s finance minister in the early 1990s said, “In Greece we produce practically nothing, and we were taking on massive debts just to live lavishly”, one cannot but conclude that this breach has been in the making for long.

It hardly needs to be stressed here that a successful structural adjustment program like the one being suggested by the EU creditors to Greece now and indeed all along, requires strong country ownership. If a government is uninterested in making the needed adjustments sincerely, it cannot be imposed from outside. At least that is what the IMF says from its experience. And left-wing ideologues are known to harbor a strong suspicion about structural reform programs. 

Now, with the past experience about Greece’s implementing structural reforms being what it is and taking note of the present political setup in Greece, one tends to be skeptical about the success of even the proposed bailout program.

That said, we cannot ignore the fact that Greece, having been already hit by recession and high unemployment rate and going by the newly imposed austerity measures, may not be able to revive its economy. Indeed, it will deepen its political and economic strains. What does it mean then? It certainly calls for rethinking among the creditors too.

Incidentally, research carried out by economists like Danny Cassimon of University of Antwerp and colleagues about the impact of debt relief on growth in countries such as “heavily indebted poor countries” gives a feeling that debt relief boosts growth, of course, only when it is tagged with conditions and there is no reason why this benefit cannot be extended to Greece. Now that Greece has agreed to the conditions imposed by the creditors, they must think of writing off a certain portion of debt so as to encourage the present political setup to launch the required structural reforms in all sincerity and make efforts to revive their economy. Similarly, Greece too, having now accepted the terms and expressed its desire to remain in Euro, must give a sincere try for practicing budgetary principles and austerity measures. Else, every player in the game might end up with no gain.

The current situation reminds one of what that the aged Euripides, who disappointed and being unsure of himself or of anything fled Athens for the woods of the distant Macedonia, said: “Numberless are the forms of the mystery / … / The end which men hoped for comes not , / … / Thus with things occurred even here.”

Nonetheless, let us hope that the collective wisdom of Europe ensures that Greece is alright for EU to be alright.


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