Bailout suc­cess finely bal­anced

Whether coun­try’s third pro­gram with lenders will work de­pends largely on get­ting the econ­omy grow­ing

Kathimerini English - - Front Page - BY DIM­ITRIS KONTOGIANNIS

ANAL­Y­SIS The chances of the new bailout agree­ment be­tween Greece and the Euro­pean In­sti­tu­tions suc­ceed­ing are split. Although the fis­cal tar­gets have been low­ered to re­flect the new eco­nomic re­al­ity, the ef­fort will still be sig­nif­i­cant af­ter sev­eral years of re­ces­sion, bar­ring the 2014 in­ter­lude. Fis­cal and re­form fa­tigue cou­pled with do­mes­tic pol­i­tics in­crease im­ple­men­ta­tion risks. The fact that some in Ger­many fa­vor the so-called tem­po­rary Grexit scheme means the new agree­ment will face greater hur­dles along the way. For the new bailout ac­cord to suc­ceed, the Greek econ­omy has to grow but this is not the main sce­nario in the eco­nomic pro­gram this year and next. Greece missed a great op­por­tu­nity to put be­hind it the night­mare of eco­nomic pol­icy pro­grams by suc­cess­fully con­clud­ing the last re­view of the sec­ond bailout pro­gram at the end of last year or the first quar­ter of 2015. There­fore, it will pay the con­se­quences of the new, third pro­gram, but we will have to wait and see whether it will also reap the ben­e­fits. Ac­cord­ing to the Euro­pean Com­mis­sion and the Euro­pean Cen­tral Bank’s re­cent state­ment on Greece, “im­ple­men­ta­tion of the re­form agenda will pro­vide the ba­sis for a sus­tain­able re­cov­ery.” The poli­cies will be built around four pil­lars: restor­ing fis­cal sus­tain­abil­ity, safe­guard­ing fi­nan­cial sta­bil­ity, un­lock­ing the econ­omy’s growth po­ten­tial and mod­ern­iz­ing the state and public ad­min­is­tra­tion. Un­doubt­edly, they are all im­por­tant poli­cies and in­ter­linked to some de­gree. Un­der other cir­cum­stances, we would put the mod­ern­iza­tion of the state ad­min­is­tra­tion as the first pri­or­ity. How­ever, given the sit­u­a­tion and the risks as­so­ci­ated with pro­gram im­ple­men­ta­tion, we have to put eco­nomic growth and in­vest­ments first. This is the eas­i­est way to achieve fis­cal sus­tain­abil­ity and fight re­form fa­tigue. If not, fis­cal con­sol­i­da­tion will be­come more painful and re­forms more dif­fi­cult to ap­ply. The au­di­tors will con­tinue to find out and be frus­trated, for ex­am­ple by the fact that non-pre­scrip­tion drugs can­not be sold any­where ex­cpet phar­ma­cies, as well as that other spe­cial in­ter­est groups, such as uni­formed of­fi­cers, re­tain their pen­sion ex­cep­tions. But eco­nomic growth and in­vest­ments can­not be or­dered by any­one. They are the byprod­uct of nu­mer­ous de­ci­sions, mea­sures and ex­pecta- tions of a num­ber of agents. Pol­i­tics play a role too, since they can up­set even the best cal­cu­la­tions. One only has to ask some of the in­ter­na­tional in­vestors who paid more than 8 bil­lion eu­ros in 2014 to buy shares and bonds of Greek banks, bet­ting on an un­fold­ing eco­nomic re­cov­ery sce­nario or those who bought more than 5 bil­lion eu­ros in Greek gov­ern­ment bonds. They are all record­ing huge losses to­day be­cause they failed to take lo­cal pol­i­tics into ac­count. The po­lit­i­cal land­scape has to be sta­ble and clear for any­one to in­vest in Greece. This should be the case more so now, fol­low­ing the debt restruc­tur­ing in 2012 and the big losses suf­fered by those who bought the Greek turn­around story last year. It is hard to ar­gue this is the case at this point with the rift in the rul­ing SYRIZA party and the bailout agree­ment pass­ing with the votes of op­po­si­tion po­lit­i­cal par­ties. Whether this means a na­tional unity gov­ern­ment or snap elec­tions re­mains to be seen. The re­turn of the Greek econ­omy to growth is para­mount for the new pro­gram to suc­ceed. It is en­cour­ag­ing that de­spite high un­cer­tainty and less credit avail­abil­ity, the Greek econ­omy grew 0.8 per­cent quar­teron-quar­ter in real terms from April through June based on pre­lim­i­nary data by the Hel­lenic Sta­tis­ti­cal Au­thor­ity (ELSTAT). The num­ber, which is of­ten sub­ject to ma­te­rial re­vi­sions later on, may re­flect pur­chases by con­sumers as con­cerns about a pos­si­ble Grexit started mount­ing dur­ing this pe­riod. It also de­picts the im­pact of less aus­ter­ity. But aus­ter­ity is go­ing to come back as tax hikes go into ef­fect, pen­sions are re­duced via higher health con­tri­bu­tions and signs be­come clearer that em­ploy­ment in the pri­vate sec­tor is shrink­ing again af­ter many months of pos­i­tive growth. On the other hand, the tourism in­dus­try seems to be hold­ing its ground de­spite a sharp drop in do­mes­tic travel and hol­i­days ac­cord­ing to ex­perts. As­sum­ing the ac­tual data in com­ing months con­firm this view, this will show how re­silient the tourism in­dus­try is, help­ing mit­i­gate the re­ces­sion­ary ef­fects of cap­i­tal con­trols and other re­stric­tive mea­sures. But this is one of the few pos­i­tive signs in a rather neg­a­tive back­ground cap­tured in the as­sump­tions of the new bailout pro­gram. The base­line sce­nario pre­dicts an eco­nomic con­trac­tion of 2.3 per­cent this year fol­lowed by a smaller drop in 2016. This makes the 2009-16 pe­riod the worst ever for the Greek econ­omy since World War II and even be­fore that. In this re­gard, it is amaz­ing how sto­ically the Greek peo­ple have en­dured all this hard­ship although they are not all in the same boat. It is there­fore im­por­tant that all par­ties in­ten­sify ef­forts to re­turn the Greek econ­omy to growth as soon as pos­si­ble and pol­i­tics should have a pos­i­tive con­tri­bu­tion to this end. If that does not hap­pen, the new bailout pro­gram will fail.

A fish­mon­ger is seen sit­ting on a ta­ble as the main fish mar­ket closes in cen­tral Athens on Fri­day. The 2009-16 pe­riod has been the worst ever for the Greek econ­omy since World War II.

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