EASTWEST - Beyond Varoufakis
“They make a desert and called it peace” according to former Greek Finance Minister Yanis Varoufakis, quoting Tacitus’Agricola. If Prime Minister Alexis Tsipras had followed his lead, that desert might have been conjured up for real by now
- Saturday, 01 September 2018
The Greek crisis came to a head in the autumn of 2009 when the socialist Prime Minister George Papandreou revealed that the statistics the Greeks had provided Brussels in order to be granted access to the single currency had been doctored. The markets’ reaction was negative, extremely negative (and who can blame them?).
This led to the start of the aid programme and the need forwidespread reform. The resignation of the eccentric Varoufakis, who had made headlines news at the peak of the country’s debt crisis in 2010, coincided with a pragmatic change of tack by Prime Minister Alexis Tsipras, who forsook the suicidal programme that called for the issue of internal debt bonds and the setting up of a sovereign Bank of Greece.
Today, the end of that aid programme and Greece's renewed financial independence is an important indication that has bolstered the resilience of the single currency, even though a number of structural issues regarding the Greek economy remain and work still needs to be done.
One thing cannot be denied: Greece is now back on its own two feet. With the approval of the Eurogroup on 22 June, the largest financial salvage programme in history has now been completed. After eight years of crisis, the country has now reacquired its financial sovereignty without having to file for bankruptcy.
Athens has approved all of the 88 reforms required to complete the third aid plan and the EU will thus pay out the last loaninstalment, amounting to €15 billion. With 155 votes in favour and 144 against, Tsipras has managed to convince his coalition to pass the recent revision of the reforms, a last bout of austerity to be complied with even after the bailout programme is concluded.
In spite of German resistance, Brussels, the IMF and the ECB have approved the cut to Greek debt by extending the loan payback dates by ten years.
Greek will still be closely monitored, with regular controls put in place to ensure that the list of requested reforms is carried through, but the Tsipras government is now back in charge of its country.
In eight years, Greece will have received a total of€326 billion in credit, of which €274 billion have already been paid out (€242 billion of which were charged to eurozone member states).
For its part, Athens has introduced 450 reforms over the last three years that have led to the consolidation of its public finances and financial stability as well as the modernisationof the state and of its tax administration. After major sacrifices, the demonstrations against the troika, hatred being vented against Germany and the nightly fights breaking out in parliament, the economic results have been forthcoming. After years of recession, in 2017 Greece posted a positive growth of 1.4% and the EU forecasts predict 1.9% in 2018 and 2.3% in 2019.
The same is true of its public accounts.In 2009, Greece had the highest budget deficit in Europe – 15.1%; now it has a budget surplus of 0.8%.
The real economy is also improving.So far it’s mainly been reliant on tourism. According to the Greek tourist sector association, Greek tourism accounts for between 22% and 26% of the country’s GDP and eight out of ten jobs created last year were within this sector.
Even exports have picked up in 2018 (+10%) and industrial production has recorded a considerable increase, as has foreign investment.
Thiscountry has displayed considerable level-headedness by stomaching the largest international privatisation plan in European history. The Chinese have taken over thePiraeus, the Canadians the mines and Germans now manage their airports.
But how are the Greeks faring today? The population will continue to bear the scars of the mistakes committed during20 years of bad government prior to Tsipras.
The unemployment rate is still very high, though it has dropped from 27.5% in 2015 to 20.1% today.This year, by April, there were already 8000 more people in jobs compared to 2017, pointing to an improvement in employment.
There’s no doubt that the austerity has profoundly affected family budgets. The International Monetary Fund has also admitted that it got its multiplier calculations wrong and underestimated the recessive effects that have increased poverty levels within the population.The families now living in a state of poverty are now 21%, twice what they were in 2010. Pensions have dropped on average by 14%, and will drop further with the new reforms. The public sector has lost almost 200,000 jobs. But without international loans and austerity measures, the state wouldn’t have been able to pay any pensions, something few are currently prepared to admit.
The Greek finance minister, Euclid Tsakalotos, has promised the troika to abide by the commitments made but also aims to gradually raise the minimum wage, reinstate collective bargaining and create a public development bank along the lines of the German one.
Government measures introduced in the last couple of years to try and help the sectors of the population that are worse off include the distribution of the budget surplus to the families most in need. Additionally, two million people now have access to the health insurance system and almost 300,000 people (6% of the population) have been granted a solidarity wage.
As the next elections approach in 2019, the government will have to try to stay on this narrow path by balancing its recovery plans while supporting families in need.
Often viewed as a traitor by Greek populists for having buckled under the diktats of the market, a stance that has led to two splits within Syriza, Alexis Tsipras risks paying a high price for his bold decisions during the next electoral campaign: "We’ll drag the country out of the crisis and will be judged accordingly". Very few were expecting that he would be the one to teach the world a lesson on anti-populism. Having started out by backing the wildest forms of demagogy, he then retraced his steps and embraced a much more realist approach, without being swayed by the kind of sovereignist tendencies which always lay the blame of financial disasters on others. Tsipras’ worst enemy is the recollection of the times when everyone was much better off (but the deficit-GDP ratio had reached the 15% mark). His leadership right now is fragile, but his actions have been positive and concerted.
Athens, by fiddling its public books, had brought disaster on its own head. What was lacking at the start in its relationship with Europe was mutual trust, even though both were using the same currency. Europe must continue to support Tsipras now that there’s a light at the end of the tunnel. This might have been achieved by approving the French proposal that would have allowed the debt to be repaid by hitching it on a permanent basis to GDP growth.
Tsipras has proven to be a serious and smart politician, capable of discarding the narrative of the Pied Piper Varoufakis and convincing the Greeks that everyone stood to gain by accepting the sacrifices needed to redress the country's finances. His political survival is in everyone's interest. Against populisms and for a stronger Europe.