24 Feb 2015

Missing from the Greek deal: figures

There’s a crucial thing absent from the Greek letter to the Eurogroup, outlining the reforms they intend to carry out: it’s as if Yanis Varoufakis’ laptop was missing the key marked €.

There are no costings for the Greek programme, and therefore no way of calculating how much “fiscal space” Greece has won from the former troika. “Fiscal space” in the Greek crisis is the codeword for non-austerity: how much relief from austerity did the Greek electorate gain by putting the Syriza-ANEL coalition into power?

We won’t know the answer until a crucial blank space is filled in. Greece is supposed to run a primary surplus on its budget – ie the opposite of a deficit – to the tune of 4 per cent of GDP. As the economy is tanking due to uncertainty, and tax receipts dried up in the last two months of the old government, that is impossible – and to achieve it would only require even further cuts to public spending.

So once we know what the overall budget envelope of Greece is going to be this year – and Varoufakis asked for just a 1.5 per cent surplus – we have a baseline against which to cost what they plan to do.

As flagged before it looks like they will be allowed to carry out the humanitarian aspect of Syriza’s so-called Thessaloniki Programme – ie anti-poverty measures. This, plus one of the most aggressive anti-tax avoidance offensives ever planned in the western world, is the centrepiece of Varoufakis’ plan.

If they are allowed to use €10bn in an earmarked fund to recapitalise the banks, then the issues that remain are ones that demarcate the radical left from the centre: privatisations, trade union rights, universal healthcare, pensions and the minimum wage.

On all these things, the fiscal implications are completely reliant on the way you implement them. Reversing privatisations, for example, was always going to be low on Syriza’s list; letting those underway go through sounds like a retreat. But privatising a port where workers have guaranteed union rights, moral support from the ruling party and where the government refuses to take kickbacks  from vested interests, is quite different from the old system. My hunch is that such privatisations that are underway will go very slowly.

On pensions, limiting the Greek tradition of early retirement is going to require a “guaranteed basic income” for the over 50s – a one line promise but radical no less.

Another promise – universal access to healthcare in a country where tens of thousands have lost it – would be a major reform. It would free up the labour market for young people because setting up as self-employed involves crippling self-insurance costs to keep access to healthcare.

It’s common the hear western politicians promise to revive growth and balance the books through efficiency savings and a war on red tape. But Greece is the one country where inefficiency and bureaucracy are so entrenched that it might actually deliver. And it has to – because with or without an € key, Mr Varoufakis’ spreadsheets will not add up otherwise.

The arrangement with creditors still leaves Greece under week by week control, since the government is very short of cash. And if tax receipts don’t rebound, the country could actually need more in terms of short-term loans,

But the fiscal part of this story is not the whole story. What happened on 25 January was a social and psychological revolution: the end of a period that began in December 1944, whereby the left was excluded from power in Greece.

Many people who voted for Syriza are privately up in arms over the scale of the retreat – but they blame Germany first, Europe second and their own government a long, long third. They will, for now, swallow evisceration of their party’s programme on two conditions: one, that the government goes on delivering on non-fiscal policies.

It costs nothing, for example, to dissolve the detested riot squad DELTA, created after the unrest of 2008. The current plan is to “merge it” with the more established, less fascist infiltrated riot squads of the ordinary police. I would also expect the beefed up tax authorities to go in hard on a few symbolic members of the so called oligarchy.

Success in such endeavours would barely register at the ECB, yet be seen as massive delivery on promises by the 42 per cent of voters who voted left on 25 January.

Ultimately however, there may have to be a second big shift in Greece. The Syriza leadership miscalculated the level of support they would get from Italy, Germany, Britain and the USA – all of whom wanted the institutions to cut the Greek government more slack than they got.

The shock in Syriza’s upper echelons, symbolised by the expression on Alexis Tsipras’ face as he addressed the nation on Saturday, was real. It was the shock of realisation that, Germany was stronger than Italy and France combined, and that there really is no space inside the euro for a radical left government.

Since this realisation, many ordinary Greeks, and some previously pro-euro politicians and advisers,  have come to the conclusion that Syriza should prepare Greece for a “controlled exit”. Instead of “we were kicked out”, it would be sold as “we escaped” – and I think however positively today’s deal is spun, the push for Grexit will grow stronger as constraints become obvious.

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