by Yves Smith. This article was first published on Naked Capitalism.
One of the things we’ve stressed is that the Greek government’s repeated claims that it is submitting an anti-austerity reform package is untrue. The Greek government committed to achieving a fiscal surplus of 1.0% to 1.5% and has separately said it will always run a fiscal surplus. We have stressed that running a fiscal surplus is an economic dampener, and is even more damaging in a severely depressed economy like Greece.
One could argue that Greece still got a win in the Eurogroup memo of February, in which the agreement stated that the fiscal surplus target for 2015 would be reassessed in light of current conditions. Most observers took that to mean that the scheduled increase to 3.0% was officially off the table, and that that was an important success for Greece. Mind you, the 3.0% goal was widely recognized as unrealistic, but Greece was relieved of the need to make concessions to have it reassessed. But is also important to recognize that this was a qualified gain, since the 1.0%-1.5% target is still austerian.
Greece submitted a new version of its structural reform package yesterday. Peter Spiegel of the Financial Times received a copy and reported on it. His article focused on the state of play, that while the working relations between the two sides is improving, the creditor side still sees the draft as needing a lot of work before anyone can make a decision. The International Business Times reports that its sources say Spiegel’s recap of the latest document is accurate.
From my perspective, Spiegel held a real stunner back till close to the close of his article:
Despite demands from Athens that it should be allowed to reduce its primary budget surplus target — the amount of revenues minus expenditures when payments on debt interest are not counted — the document says the measures could mean a surplus of as much as 3.9 per cent of economic output, which is above the programme’s current 3 per cent target.
So if the Greeks are negotiating in good faith, they are committing themselves to more austerity within 48 hours of Tsipras telling the Greek parliament he would not agree to recessionary measures. I suppose that it technically accurate. He’s volunteered to implement them instead.
Now there is a way the negotiators could come to similar numbers without this being as bad from a negotiating perspective as it appears. The positioning would be, “Look, we know you doubt our estimates of how much we can achieve via improving tax collection and government savings. We’ve allowed for your doubts in these numbers. You can see we still have a lot of room so that even if we come short of what we think we can achieve, we’ll still hit a very respectable fiscal surplus level.”
The danger of putting such a high fiscal surplus level as a possibly attainable goal is that Greece has just suggested that they think it is reasonable to achieve it. They’ve just handed their opponents a huge bargaining chip.
Now it may be that the Greek side was putting forward such a bold promise to try to finesse the fact that it is trying to make some of its other reform measures more aggressive, as in more costly and/or more at odds with the existing structural reform program. Again from the Financial Times:
Although the submission marks another effort by Athens to meet eurozone concerns, the measures are similar to Friday’s initial effort and fail to address several issues that bailout monitors have insisted on, including an overhaul of the Greek pension system and greater labour market liberalisation.
Indeed, the proposal appears to reverse reforms in several of these areas. The document includes €1.1bn in fresh spending this year, more than half of it reinstating a so-called “13th pension” — an extra month’s pay — for low-income pensioners. The document suggests that change would add €600m this year.
It also would suspend a so-called “zero deficit clause” that would force more cuts to state pensions; the measure would add another €326m this year.
And while the document includes five separate measures under the heading “labour market reforms”, they include a gradual increase in the minimum wage and strengthening collective bargaining — both measures that would tend to undo reforms adopted earlier in the rescue programme.
Still, the document includes concessions to eurozone authorities, particularly in the area of privatisations. Some government ministers from the far left of the governing Syriza party have publicly stated that all privatisation of state assets would come to an end.
The only problem with that is that these changes are coming after Greece submitted reforms last Friday. At this point, particularly given the urgency of Greece’s desire to get the €7.2 billion bailout money, Greece should be providing more detail and backup for its proposals, and not making significant 11th hour changes. This at a minimum slows the process, and also raises doubts about competence and good faith.
It’s distressing to see the Greek leadership get in its own way. While the government still is popular, its approval ratings for its negotiation stance have fallen from 80% to 55%. Moreover, public concerns about a Grexit have risen. While readers correctly point out that voters don’t support leaving the Eurozone, that view is to a significant degree the government’s doing. If Syriza leaders really believed a Grexit could be a positive step, or at least was a superior alternative if the creditors were unreasonable, they could have made efforts to persuade citizens. The poll results reflect the government having taken that option off the table and stressing their desire to remain in the Eurozone.
The creditors have been unwilling to change their schedules to accommodate the latest submission by Greece right before the Good Friday/Easter holiday. Greece’s financial crunch is imminent. It seems likely that the Troika will continue to keep Greece in the sweatbox, continuing to give bare minimum increases in the ELA even if Greece fails to roll its T-bills on the 14th and 17th (the logic being the negotiations are still on) and thus is in default on those obligations. The way for them to wring more concessions out of Greece is to deny the government funding for long enough so that it is in danger of or actually does come up short on government salary and pension payments. That has the potential to do enough damage to the government’s popularity as to make it more willing to give ground.
It would be better if I were wrong, but the creditors are concerned about the costs of giving what they see as too many concessions to Greece, since other periphery countries will demand the same breaks. And they certainly act as if they are unfazed by the prospect of Greece running out of dough in the next two weeks. Stay tuned.