… or so it seems. Kerin Hope reports in the FT that
[t]he Greek parliament has approved a law proposed by the leftwing Syriza-led government overturning civil service reforms by the previous government aimed at streamlining the country’s inefficient public sector.
13’000 civil servants are to be rehired. The “institutions” have not been consulted. The municipal police force will be revived.
Peter Spiegel reports in the FT that
Greece is so far off course on its $172bn bailout programme that it faces losing vital International Monetary Fund support unless European lenders write off significant amounts of its sovereign debt, the fund has warned Athens’ eurozone creditors.
Update (May 6, 2015)
According to other reports the IMF downplays disagreement among lenders. Peter Spiegel and Stefan Wagstyl report in the FT:
Officials involved in the talks said the IMF was not seeking large-scale debt relief immediately. Instead, it was warning that any concessions to Athens that allowed the government to post lower budget surpluses — the likely trajectory of the current talks — would require debt relief to make up the difference.
And Ht reports in the NZZ: According to an IMF spokesperson
Poul Thomsen, der Chef der Europaabteilung des Fonds, [hat] in jener Sitzung darauf hingewiesen, dass der Bedarf an zusätzlicher Finanzierung und an Schuldenerleichterungen zur Sicherstellung der Schuldentragfähigkeit umso grösser werde, je mehr man in den Verhandlungen von den ursprünglichen, 2012 vereinbarten Massnahmen und Zielen (des zweiten Hilfspakets) abweiche.
… Doch Moscovici betonte am Dienstag, über die Schulden werde man erst nach einer Einigung über das Reformpaket reden können. Es ist ein offenes Geheimnis, dass dannzumal auch über ein drittes Hilfspaket gesprochen werden muss.
Richtig ist laut Verhandlungskreisen, dass der IMF an den Treffen der «Brussels Group» eine besonders harte Haltung gegenüber Athen einnimmt. Er muss seine eigenen Regeln unter anderem bezüglich der Schuldentragfähigkeit einhalten, um weitere Gelder auszahlen zu können. Am anderen Ende des Spektrums der beteiligten Institutionen steht die EU-Kommission, die ein Auseinanderbrechen der Euro-Zone um fast jeden Preis verhindern will. Werde deren Irreversibilität angetastet, komme sofort die Frage auf, wer der Nächste sei, sagte Moscovici.
In the meantime, the Greek government argues that disagreement among “institutions” makes it impossible to find a compromise. Panagis Galiatsatos reports in the NZZ:
… der Internationale Währungsfonds (IMF) bestehe mit Vehemenz auf strukturellen Reformen (Rentenreform, Liberalisierung des Arbeitsmarkts) und mehr Flexibilität bei der Bestimmung der Primärüberschusses, weil er von einem weiteren Schuldenschnitt ausgehe. Im Gegensatz dazu verlange die EU-Kommission, die einen Schuldenschnitt partout nicht wolle, hohe Primärüberschüsse. Das beweise, dass die Gläubiger in keinem Verhandlungsfeld kompromissbereit seien, während die griechische Regierung Kompromissbereitschaft signalisiert habe.
In the FT, Heba Saleh and Siona Jenkins report about the human trafficking business along the Mediterranean coasts. The price for a crossing from Turkey to Greece or from Libya to Italy is roughly USD 1000.
In a Project Syndicate column, Yanis Varoufakis argues that negotiations between Greece and European and international partners have “brought about much convergence.” Disagreements remain. His government believes that due to policy mistakes in the last few years Greece has been caught in an “austerity trap” and a “reform trap.”
In the FT, Kerin Hope and Tony Barber portray left-wing members of the Greek Syriza government. These include:
Panayotis Lafazanis, minister for productive recovery, energy and the environment. He is quoted as saying “My way is no memorandum [Syriza’s term for the bailout agreement], no euro”.
Nikos Voutsis, minister for the interior and administrative reconstruction. He has reversed hiring restrictions; performance evaluation; wants to reinstate the municipal police force; and favors softer policing and more lenient treatment of prisoners.
Aristides Baltas, minister of culture and education. He is quoted as saying that education “should not be governed by the principle of excellence . . . it is a warped ambition.” He wants to eliminate restrictions on the duration of undergraduate studies; abolish university entrance exams; ban police from campuses; and grant students decisive powers to elect university officials.
In a blog post, John Cochrane explains why a Greek default need not trigger Grexit. And he warns that associating the two could trigger a (faster) bank run.
In the FT’s Brussels Blog, Peter Spiegel links to Alexis Tsipras’ letter to Angela Merkel and comments on it.
Reinhard Müller discusses legal aspects of recent Greek demands for German reparations in the FAZ. In the past, both German and international courts have ruled against similar demands.
In the NZZ, Elena Panagiotidis reports about the atrocities committed by German occupying forces during World War II and reviews the history of unsuccessful Greek demands for reparation (by government) and compensation (by individuals).
Addendum (March 25):
An article in The Economist provides still another perspective.
An article in The Economist contains the following figure:
Yanis Varoufakis’ recent letter to Jeroen Dijsselbloem contains proposals to outsource tax enforcement.
Ferdinando Giugliano describes Athen’s “uphill struggle despite [the] eurozone deal” in the FT.
My colleague Harris Dellas argues in swissinfo.ch that it is too easy to blame a tax dodging elite for the Greek malaise; tax evasion is much more prevalent, not least because a large share of the population is self employed, and institutionally ingrained. He doubts that the current government is better equipped to address the problem than earlier ones. And he fears that Grexit could turn Greece into a failed state.
Also, an open letter (in Greek and German, PDF) by Greek academics (mostly living abroad I presume). They doubt that the current Greek government actually helps to restore the country’s dignity as intended.
On Project Syndicate, Daniel Gros argues that
Greece’s official creditors have granted it long enough grace periods and low enough interest rates that the [debt] burden is bearable. Greece … spends less on debt service than Italy or Ireland, both of which have much lower (gross) debt-to-GDP ratios.
… only governments with access to market finance can use expansionary fiscal policy … it is disingenuous to claim that the troika forced Greece into excessive austerity. Had Greece not received financial support in 2010, it would have had to cut its fiscal deficit from more than 10% of GDP to zero immediately. … the troika actually enabled Greece to delay austerity.
On Project Syndicate, Raquel Fernández and Jonathan Portes offer four lessons from the Argentinian default in 2001 for Greece:
… if the economics are on your side, you can and should ignore politicians prophesying disaster. … a short period of political turmoil can cost surprisingly little compared to a long period of mindless pursuit of misconceived policies. But … Greece must acknowledge that its fundamental problems are of its own making. … Greece is unlikely to enjoy the breathing space provided by a commodity boom. If it is to place itself on the road to a sustainable recovery, it has no time to lose.
In a Vox column, Thomas Philippon suggests a 3% rather than 4.5% primary surplus target on fairness grounds. His central points are:
Greece ran a reckless fiscal policy during the boom years, wasting much of the money that it received. There is no question that Greece needs a strong dose of fiscal consolidation. However, Greece’s debt should have been restructured much earlier. This restructuring was prevented by legitimate fears of contagion, and it is not fair to ask Greece to pay for that delay, which reflected a general lack of preparedness among Eurozone policymakers.
Philippon’s estimate is similar to another estimate by Paolo Manasse.
John Cochrane does not believe that a Greek default would trigger Grexit.
Claire Jones reports in the FT that the ECB starts tightening Greek lenders’ access to liquidity already now, earlier than expected.
Here is the ECB press release and further reporting in the FT.
In a Vox column, Paolo Manasse estimates that
rather than running a structural primary surplus of the order of 5% of potential output, as envisaged in the IMF projection …, Greece could get away with a number close to 3.75%.
Chris Giles reports in the FT that Greek lenders consider extending the maturity of Greece’s debt.
An IMF staff report published in May and entitled “The Fund’s Lending Framework and Sovereign Debt—Preliminary Considerations” proposes to drop an exemption related to systemic importance and to give a larger role to debt maturity extensions.
Prior to 2002, when a member state sought funds in excess of established limits, the Fund often waived these limits on the basis of “exceptional circumstances,” and did so in a discretionary manner. Growing concerns over the problems this may create (moral hazard, early exit of private creditors, delays in necessary debt reduction measures, large-scale Fund financing operations) and the Argentinian collapse of 2001 triggered a review that gave rise to the 2002 exceptional access framework.
This required as a precondition for Fund support that debt be sustainable with a high probability. Whenever debt sustainability was clearly not given or remained in doubt, the framework called for debt restructuring with the aim to render the remaining debt sustainable. In retrospect, this restructuring requirement is viewed as too inflexible since it generates restructuring costs even when it turns out ex post that a restructuring was not actually needed.
During the Euro area crises, the Fund did not judge debt sustainability of the most affected countries to be very likely and the exceptional access framework of 2002 therefore would have required a debt restructuring as a precondition for IMF funding. However, pointing to high risks of international systemic spillovers of a debt restructuring, the Fund waived in 2010 the requirement that debt had to be sustainable with a high probability. By now, this modification of the exceptional access framework is also seen as unsatisfactory because systemic exemption structurally favors large member states and does not address the problems that gave rise to the 2002 framework. Against this background, a reform proposal is put forward.
The reform proposal is guided by two objectives: To improve debt service capacity without imposing debt reduction as a prerequisite; and to avoid that private sector claims are fully honored while debt sustainability remains in doubt. According to the proposal, the IMF would require as precondition for funding that measures are taken to improve debt sustainability even if they do not necessarily restore sustainability with high probability. Chief among those measures, the proposal suggests that creditors should be asked to agree on a maturity extension (re-profiling). That is, private creditors would remain exposed to the default risk and would be forced to contribute to the refinancing.
Collective action clauses might be needed to win creditors over. For a majority of them to be voluntarily participating, they must perceive the maturity extension as likely leading to renewed market access of the sovereign. Even in the absence of a payment default, re-profiling would likely trigger a credit event if collective action clauses were activated, and a credit downgrade among rating agencies.
Hans-Werner Sinn accuses the troika of reporting a Greek primary budget surplus for 2013 where there actually is a primary deficit, according to a CESifo press release.
Christoph Eisenring reports in the NZZ about a critical internal assessment of the IMF’s recent policy vis-a-vis Greece. The relaxation of the “medium term solvency” requirement for IMF lending in a situation of acute contagion risk should be reconsidered; contagion should be addressed with different instruments; debt should be restructured earlier than happened in the Greek case; and bail-ins should be favoured.