The Greek government continues to climb down substantively on its promises of resistance to the dictates of its creditors as time pressure intensifies.
Last Friday, Greece submitted a longer reform list. The problem, from the Troika’s perspective, is that it was longer in the wrong way: more proposals, when what they need is sufficient detail so they can judge the fiscal impact. Recall that Greece is allowed to swap reforms out of the existing structural reform package if it can demonstrate to “the institutions” that there will be no negative impact. Bloomberg’s recap:
The 15-page draft, which was discussed Sunday in Brussels, requires more information and details and was a long way from serving as the basis of a deal, said one of the aides, who asked not to be named because the talks were private….
“The implication from early on has been that the Greek side doesn’t have enough flesh on bones of some of the new proposals,” said Michael Michaelides, a rates strategist at Royal Bank of Scotland Group Plc in London. “The surprising thing about even current proposals given leaks is the seeming lack of technocratic input, which would have helped the Greek case.”
And the information given wasn’t just too sketchy; it was disorganized. Bess Levin wasn’t exaggerating via her headline Greece Jotted Down Some Notes On The Back Of A Cocktail Napkin And Submitted It To Us: EU. From Peter Spiegel in the Financial Times:
People on both sides of the negotiations say that despite three days of talks, the list is not comprehensive as yet. “There was no such thing as an original list,” insists an official from one of the bailout monitoring institutions. “There were contributions, tables, pieces of paper.”
Indeed, on the Greek side, some involved in the discussions say a fuller, longer, and more detailed document is in the works. They argue the issue is not, as many among the bailout monitors claim, a lack of detail. The issue is getting all the details – some 72 reforms, according to one person in the Athens camp – into a well-organised document, in English, without mistakes in substance or politics.
Um, if the Bloomberg summary is correct, and Greece presented 72 reforms in 15 pages, or even 30 pages, that’s not enough information to assess fiscal impact. Angela Merkel pointed out what the issue is from the creditor perspective: while Greece, like Ireland, can have some latitude in what reforms it implements, “In the end, the overall framework must add up.” And as before, there’s a subtext of the Greek side seeming to believe that things are negotiable that just aren’t. One of the thing that is not negotiable has been the process set forth in the Eurogroup memo, which was that the Troika needed to review, negotiate, and finally approve its plans. They would then be sent for Eurogroup approval before the funds will be released. Greece lost the better part of a month trying to circumvent that process in a failed effort to get around the IMF and ECB. Now Greece is saying it has delivered enough detail when it is in fact the Troika that is the judge of whether it has enough information to make a determination. However, the Greek team does appear to be pushing hard to firm up their program.
Nevertheless, the Greek side seems to be unprepared for the degree of skepticism that some of their plans are encountering, and that the reservations might actually have a reasonable foundation. Again from Peter Spiegel:
Still, EU officials remain unimpressed, arguing that most of the measures rely on crackdowns on waste, fraud and tax evasion – estimates that are frequently unreliable even in jurisdictions with a proven record of efficient tax collection – and new efficiencies in public administration, something frequently promised by all governments seeking to squeeze cash out of the system, with mixed results.
The Eurogroup finance ministers have a phone call set for Wednesday, but it is clear the Greece reform list will not yet be ready for their review. Late next week appears to be the earliest conceivable time, and that seems heroic, particularly since the Good Friday/Easter weekend is coming up, and officials don’t expcet to be back in the saddle before next Tuesday. Greece has a €450 million payment to the IMF scheduled for April 9, but the IMF allows for slippage if a borrower intends to pay. The obligations that Greece can’t finesse are T-bills maturing on April 14 and 17 (€1.4 and €1.0 billion, respectively).
Greece continues to abandon campaign promises while standing fast with its bold claim that it is rejecting austerity and keeping its red lines. Tsipras called a parliamentary session Monday that was set to run 70 minutes but took over four hours. While the reform terms are still in flux, Greece has already given up on holding back on privatizations (it has them in its budget, projecting €1.5 billion from them this year), looks to be ready to cave on the unpopular property tax, Enfia, which Syriza attacked during its campaign, and has evidently given up on the campaign promise of a minimum wage increase. On the last issue, the government is now saying simply that it will not implement labor market liberalization. It has thus retreated to trying to fight the Troika to a standstill on labor market “reforms,” which mean reducing labor bargaining power.
Greek PM Tsipras: Red Lines Are Pension, Wage Cuts & Austerity
— Live Squawk (@livesquawk) March 30, 2015
#Greece PM Tsipras say he can't agree to recessionary measures, liberalization of labor law, raise of VAT in food & medicine.
— Yannis Koutsomitis (@YanniKouts) March 30, 2015
Tsipras said he would achieve an honorable compromise. But that has far too much of a “peace with honor” sound about it. Despite the government’s repeated claims that it is rejecting austerity, it conceded on that issue long ago when Yanis Varoufakis said Greece would achieve a primary surplus of 1.0% to 1.5% of GDP and would continue to run primary surpluses. A government surplus is dampening even in the best of times; during a depression, it guarantees that the economy will get worse.
At best, all Greece will have achieved is trading austerity for austerity lite. But with the primary surplus targets it has set, it may not even achieve that much in the way of lessening of its pain. The main impact will likely be to shift more of the burden to the wealthy, and Greece may also get some humanitarian relief from the EU to improve the optics and assuage the creditors’ consciences (at least for the ones that actually possess them). That is not a meaningless outcome, but it clearly falls short of what Tsipras is trying to convince his coalition members and the Greek public that he will obtain. them.