Who is blocking conclusion of Greece's second bailout review?
by Alberto Paez and Martin Foehler (December 9, 2016)
Greek PM Tsipras announced yesterday the intention of the government to distribute €617 mln to low-income pensioners and freeze VAT rise in the Aegean Islands for as along as the refugee crisis looms. On Monday's Eurogroup, Greece also secured a first part of debt relief, as short-term measures were agreed. Projection of the economy for 2017 generates optimism, although there is considerable dealy in the conclusion of the second review of the fiscal consolidation program.
Three are the crucial issues in the agenda: the first is the labour reform package and the fight of the Greek government to convince EU institutions for the need to restore collective bargaining and keep the threshold of collective dismissals untouched. The second isssue is the level of primary surpluses from 2018 onwards, with the Greek side arguing for lower surpluses that could turn growth sustainable. The third issue is the participation of the IMF in the program, not only as a so-called technical advisor, but as lender. This might necessitate additional austerity measures that Athens is reluctant to adopt, even discuss.
In all three issues, it does not seem there is much room for compromise. The Greek side develops a convincing argumentation, but creditors seem to assume a biased stance impeding positive developments. On the labour reforms, Greek Minister Efi Achtsioglou asks for the reinstatement of collective bargaining in the context of EU laws, the European Pillar of Social Rights, and ILO recommendations, while on the primary surpluses quagmire, Minister of Finance Euclid Tsakalotos asks for lower targets after 2018 so that the domestic economy can become more competitive, i.e. reduce taxes, increase consumption power, soar the market. On the last issue -IMF's presence in the Greek program- things seem quite complicated.
Until recently, the Fund was asking for additional measures to step in, but yesterday, Gerry Rice, spokesperson of the IMF, said that the Fund is not asking for additional measures, but lower primary around 1.5% between 2018-28. This statement comes to change the context of negotiations and generate deeper concerns over the future of the Greek program.
At this stage, it is certain that IMF and Germany are trying to impede a positive resolution, buying out time at the expense of the Greek economy and society. Berlin and Washington develop the same strategy with regards to Greece, but having different goals. IMF behaves as an agent of last resort, pushing Greece on the ropes and devaluate the potetial of the economy, while Germany awaits to see for how long the Syriza government will stay in power amid growing grievances. Both ignore the uncertainty they create in Eurozone economies, something that ECB governing body understands,thus deciding to extend quantitative easing until the end of 2017, estimating that stagnation and economic slowdown will remain Eurozone's key features for the next year.
The Greek drama continues, but the role of different actors becomes clearer. The major challenge for Eurozone is not to survive, but for how long it can remain in its current structure.
Alberto Paez and Martin Foehler are Policy Analysts at Bridging Europe
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