Fate of gov’t and bailout un­der scru­tiny

Fa­vor­able con­di­tions could help new ad­min­is­tra­tion in pro­gram’s im­ple­men­ta­tion, but that is not enough

Kathimerini English - - Focus -

ANAL­Y­SIS The Greek econ­o­myis slid­ing back into re­ces­sion as the newly elected gov­ern­ment pre­pares to leg­is­late aus­ter­ity mea­sures and struc­tural re­forms un­der the watch of the coun­try’s in­ter­na­tional lenders. At the same time, pun­dits are split on whether the third bailout pro­gram will be a suc­cess and the new coali­tion gov­ern­ment will be able to carry it out and sur­vive. It is not an easy call.

The econ­omy grew by more than 1 per­cent year-on-year in the first half of the year de­spite the po­lit­i­cal un­cer­tainty and ris­ing ten­sions be­tween the Greek Fi­nance Min­istry and the Eurogroup. This fig­ure may be re­vised in the fu­ture but has cer­tainly sur­prised many econ­o­mists and oth­ers – es­pe­cially the ad­vance of eco­nomic ac­tiv­ity by 1.6 per­cent year-on-year in the sec­ond quar­ter when the pos­i­tive ex­pec­ta­tions and im­proved sen­ti­ment, fol­low­ing last Jan­uary’s gen­eral elec­tions, took a turn for the worse.

Re­cent data on re­tail sales from last July and read­ings from the Pur­chas­ing Man­agers In­dex (PMI), a com­pos­ite in­di­ca­tor of the eco­nomic health of the man­u­fac­tur­ing sec­tor, point to re­ces­sion in the sec­ond half of 2015. This is not sur­pris­ing. One may ar­gue that growth in the first half will help soften the drop for the whole year, mean­ing real GDP may do bet­ter than the pro­jected 2.3 per­cent fall in the bailout pro­gram. How­ever, the dam­age in­flicted by cap­i­tal con­trols is hard to es­ti­mate and the drop in out­put in the sec­ond half may sur­prise on the down­side.

As­sum­ing the smaller-than-pro­jected con­trac­tion in eco­nomic ac­tiv­ity is re­al­ized, the gov­ern­ment will have more breath­ing space to meet this year’s pri­mary bud­get deficit goal of 0.25 per­cent of GDP with­out tak­ing ad­di­tional fis­cal mea­sures, and may even beat the tar­get. Of course the lenders have to con­sent to it. Don’t for­get that the new pro­gram fore­casts real out­put to drop 1.3 per­cent in 2016, when the gen­eral gov­ern­ment bud­get sur­plus ex­clud­ing in­ter­est pay­ments is tar­geted at 0.5 per­cent of GDP.

The highly prob­a­ble re­ces­sion in the sec­ond half of the year may push the un­em­ploy­ment rate higher in com­ing months. Mean­while, the gov­ern­ment will have to bring the first batch of prior ac­tions to Par­lia­ment that have to be voted by Oc­to­ber 15 for the first sub­tranche of 2 bil­lion eu­ros in loans to be dis­bursed by the Euro­pean Sta­bil­ity Mech­a­nism (ESM), and a sec­ond list of prior ac­tions later on. This is in ad­di­tion to a se­ries of min­is­te­rial de­crees that will have to be is­sued to im­ple­ment the bills. This com­bi­na­tion is likely to in­crease so­cial dis­con­tent as var- ious in­ter­est groups, such as farm­ers and pro­fes­sion­als, are ad­versely af­fected and the eco­nomic cli­mate is likely to worsen.

Although it is still early days in the coali­tion gov­ern­ment’s new fouryear term, the fate of the third bailout pro­gram and the gov­ern­ment is at the cen­ter of dis­cus­sions, with pun­dits split into two main camps. The first group thinks the gov­ern­ment has the man­date and plenty of time to im­ple­ment the third bailout pro- gram and suc­ceed. Af­ter all, they ar­gue, it is the SYRIZA-In­de­pen­dent Greeks (ANEL) gov­ern­ment which agreed and signed the deal with the EU in Au­gust. It is also the same gov­ern­ment which took it to the peo­ple and got the man­date to im­ple­ment the agree­ment.

More­over, they note, this gov­ern­ment does not have to worry about an in­terim event, such as lo­cal elec­tions, a pres­i­den­tial elec­tion or a bal­lot for the Euro­pean Par­lia­ment, that could be used by the op­po­si­tion par­ties to cause early elec­tions. There­fore, the cur­rent gov­ern­ment can as­sume the so­cial cost of the third bailout in the first two years and reap the fruit of pre­dicted stronger eco­nomic growth in the last two years of its term to win the elec­tions again.

The op­ti­mists add it will be more dif­fi­cult for more rad­i­cal SYRIZA deputies to desert the party af­ter see- ing the fail­ure of their for­mer col­leagues to en­ter the Par­lia­ment as a new, anti-bailout party. They say the coali­tion gov­ern­ment can count on deputies from other smaller par­ties to boost its cur­rent 155-seat ma­jor­ity in the 300-seat Par­lia­ment to stay in power. The fact that the main op­po­si­tion par­ties are pro-bailout may also work in fa­vor of the new gov­ern­ment.

How­ever, the pes­simists camp does not share the same view. Although they ex­pect the SYRIZAANEL gov­ern­ment to have the bills re­lated to the bailout pro­gram be voted in Par­lia­ment in the next few weeks and months, they pre­dict the im­ple­men­ta­tion of the pro­gram will slow down con­sid­er­ably and may even reach a halt at some point next year. They say this will force the lenders to halt the dis­burse­ment of loans to Greece, ag­gra­vat­ing the sit­u­a­tion and mak­ing anti-bailout voices more vo­cal.

They jus­tify their pre­dic­tion by cit­ing ide­o­log­i­cal op­po­si­tion to many mea­sures and bailout re­forms by some min­is­ters, party deputies and oth­ers as well as tech­ni­cal in­com­pe­tence. They add that the an­tic­i­pated eco­nomic slump ahead and the ris­ing so­cial dis­con­tent will help bring the ob­jec­tions and op­po­si­tion to re­forms to the sur­face faster, pre­cip­i­tat­ing a po­lit­i­cal change that may take var­i­ous forms. The pes­simists say the EU is mak­ing a se­ri­ous mis­take in think­ing the SYRIZA-led gov­ern­ment will im­ple­ment the pro­gram be­cause it will face the least re­sis­tance.

Un­doubt­edly, it is still too early to make a judg­ment about the fate of the third bailout pro­gram and the newly elected gov­ern­ment. How­ever, one has to ad­mit that both camps, op­ti­mists and pes­simists, have some good ar­gu­ments to sup­port their views. The next few months will show which camp is likely to be cor­rect. At this point, we would say it’s fifty-fifty.

It will be more dif­fi­cult for more rad­i­cal SYRIZA deputies to desert the party, af­ter see­ing the re­cent fail­ure of their for­mer col­leagues to en­ter the Par­lia­ment as a new, anti-bailout party.

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