March 29, 2015
On February 17, before Eurogroup’s crucial Summit, I wrote a post pointing out the reasons why the Greek government had the momentum and should take advantage of it during the negotiations with its creditors. The Greek government did actually bet on that and achieved to buy out time in order to prepare the demanding list of reforms, get the final approval of Eurozone, and receive the last installment of the second bailout package. One month later, things seem to have be stalled again.
Why we have deadlock in negotiations?
From the one side, the Greek government is making tremendous efforts to adjust three different priorities in a really tightened time schedule: 1. To financially assist and alleviate the most vulnerable parts of the population, while securing the proper streaming of public income; 2. To accommodate the tough demands of Eurozone, especially of Germany, and present a convincing reform package that could release the last installment and bring liquidity in the market; 3. To confront with a grudging, polarizing and completely unproductive and inefficient opposition in domestic politics.
From the other side, Eurozone, IMF and the ECB are implementing similar strategies but with different goals: 1. Most of Eurozone leaders, especially those being ideologically affiliated with EPP and German Chancellor Merkel, provocatively ignore the catastrophic inaction of the previous Greek governments and the humanitarian crisis in the country. Many of them, such as the Portuguese and the Spanish PMs face challenges in the domestic front with the continuous rise of discontent and the lowering of their electoral power; 2. The IMF has repeatedly and officially acknowledged major fallacies and structural “wrongdoings” in the Greek case. Nonetheless, during the last six months the rhetoric of the Managing Director Christine Lagarde has significantly changed towards more stick and less carrot. Her behavior is also affected by French politics and the economic turbulence that the country is facing, while also preparing the field for her coming-back in domestic politics, considering the continuous fall of President Hollande, the revival of Sarkozy and certainly the big challenge that aims to shake France and Europe, Marine Le Pen. In addition, Lagarde wants also to deliver clear messages to France that what is implementing in Greece might well be implemented in France should public finances keep weakening; 3. Mario Draghi from the ECB is putting together an amalgam of policies to revitalize consumption in Eurozone while being firm in his tough stance against Greece, acknowledging that the contagion of the Greek case might negatively affect the performance of other economies in Eurozone. All three (Eurozone, IMF and ECB) are well aware that Greece is a special case that has to be cornered -or put into a safe quarantine- in order to protect the monetary union as a whole, meaning literally to preserve austerity as the cornerstone of the modern policy-making in Eurozone.
In this context, it is well-understood that none of the parts involved would step back or soften its stance. The problem is that the weakest chain link is Greece as it has no strong or clear support inside Eurozone’s leadership to preserve and secure its policy in equal terms. The government of Syriza is vainly trying to explain to its partners in Eurozone that the previous governments have done nothing of what they were about to -other than cutting wages and pensions, proceeding to massive layoffs or increasing taxation in order to increase public income without reforms- and that the government is now trying to put some things back on track endeavoring to increase public income through combating tax evasion and corruption. But the thing is that Greece has lost its credibility in Eurozone.
PROPOSAL: A 3-year opt out plan from debt repayments
The Greek government needs time to implement its program and accommodate both domestic and the creditors’ demands. Results cannot come within 2 or 4 months. It takes time. A lot of time.
The Greek government needs to emphasize on how to revitalize the domestic market that has been shrinking dramatically. It needs to implement a large-scale investment program to create job opportunities and move off the couch all these young and skillful people that are feeling imprisoned in a toxic labor environment. It needs to provide shelter, food and health to all these impoverished people that risk their lives everyday. It certainly needs to bring faith in the public services, strengthen the trust stemming from the society, and rationalize tax policy.
During the next Eurogroup meetings efforts should be focused on how to unlock Greece’s potential, bottom-up and top-down, and create a safe environment for the country and its economy to move ahead to reforms and normalize daily life. In this respect, all parts involved should examine a new intermediate package that would allow the government to redistribute public income according to its strategic priorities, and not to seek for last resorts that further jeopardize financial stability in order to repay its debt without having a penny to invest in the local economy.
In exchange, the Greek government will not seek for the last installment agreed on the second bailout package and will prepare a new agreement that would include a growth-calculated clause for the repayment of debt from 2018. The amount kept in EFSF should be considered as a last resort solution for the government in case it is running out of money throughout this 3-year period, after prior consultation with the institutions.
I strongly believe that this is a beneficial solution for all parts involved: 1. The creditors that have entrusted Greece with a big safety net all these years; 2. The Greek government that is trying to implement common sense and pro-social policies after 7 years of dire austerity; 3. The opposition in Greece that trembles in the idea that the country might exit Eurozone; 4. All rating agencies that are starting squeezing again and downgrading the economy.
Above all, what Eurozone secures through such an agreement is its raison d’être : A monetary union that was established to increase convergence between asymmetric economies with different structural impediments, but with the aim of strengthening prosperity, well-being and peace in a globally interconnected, extremely complex and antagonistic environment.
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