Im­passe threat­ens alarm­ing sit­u­a­tion

Tell-tale signs of eco­nomic stress are vis­i­ble, putting pres­sure on Greece and lenders to reach deal on re­view

Kathimerini English - - Focus - BY NICK MALKOUTZIS

ANAL­Y­SIS There is a risk that if the cur­rent pace of ne­go­ti­a­tions be­tween Greece and its cred­i­tors re­mains un­changed, the sound of the church bells at Easter on April 16 will be drowned out by the alarm bells sig­nalling se­ri­ous dan­ger for the coun­try’s econ­omy.

All sides have ac­cepted that there will not be a break­through at to­day’s Eurogroup meet­ing in Brus­sels. The Greek gov­ern­ment hopes that it will be con­firmed at the end of the gath­er­ing of euro­zone fi­nance min­is­ters that sev­eral loose ends, such as the out-of-court workout and en­ergy mar­ket lib­er­al­iza­tion, will be tied up and that only one is­sue will re­main to be re­solved: La­bor re­form.

This best-case sce­nario pre­sup­poses that there will also be an agree­ment on the roughly 2 per­cent of gross do­mes­tic prod­uct (3.6 bil­lion eu­ros) in new fis­cal mea­sures and ex­pan­sion­ary coun­ter­mea­sures that will form one of the key parts of any set­tle­ment to con­clude the bailout re­view. While this was a topic of dis­cus­sion dur­ing the tele­con­fer­ences be­tween the tech­ni­cal teams rep­re­sent­ing Greece and its cred­i­tors last week, there were doubts about whether any com­mon ground had been found.

Also, as high­lighted in this col­umn a week ago, the path to an agree­ment on la­bor re­forms is full of ob­sta­cles. Mat­ters were com­pli­cated last week when Euro­pean Eco­nomic and Mone­tary Af­fairs Com­mis­sioner Pierre Moscovici said that Brus­sels would like Greece to be “within the frame­work of the Euro­pean so­cial model” as far as its la­bor leg­is­la­tion is con­cerned.

Speak­ing to MEPs in Brus­sels, Moscovici also sug­gested that the Com­mis­sion be­lieves that the rec­om­men­da­tions made by the panel of ex­perts ap­pointed by Athens and the in­sti­tu­tions last year to ex­am­ine the Greek la­bor mar­ket should form the ba­sis for any de­ci­sions. In this re­spect, the Euro­pean Union’s ex­ec­u­tive arm ap­pears to be sid­ing with Athens in this par­tic­u­lar dis­pute, although this has not yet trans­lated into any progress in the dis­cus­sion about the sub­ject.

A euro­zone of­fi­cial who spoke to re­porters in the Bel­gian cap­i­tal last Thurs­day ad­mit­ted that the dis­agree­ment over la­bor re­forms ap­pears to be the big­gest ob­struc­tion to­ward a tech­ni­cal, or staff-level, agree­ment be­ing reached. Fi­nance Min­is­ter Eu­clid Tsakalo­tos told Greek deputies in Athens on the same day that the dif­fer­ences could be over­come be­tween to­day’s Eurogroup and the next one, which is due to take place in Malta on April 7.

It seems, though, that this will re­quire ei­ther Athens or the In­ter­na­tional Mone­tary Fund, or both, to make con­ces­sions be­cause the op­tion of drop­ping la­bor re­forms from this re­view and tag­ging them onto the next one is out of the ques­tion. At least, that is what the euro­zone of­fi­cial told the media on Thurs­day.

This sug­gests that the onus is on all sides to reach a com­pro­mise that will al­low the re­view to be wrapped up and ev­ery­one to move on. “There is no up­side to pro­cras­ti­na­tion,” the un­named euro­zone of­fi­cial said. Of course, the prob­lem for the Greek gov­ern­ment is that the big­gest down­side to any fur­ther de­lay is felt by the coun­try’s econ­omy, and con­se­quently its peo­ple.

The tell-tale signs of the on­go­ing ero­sion of con­fi­dence and in­creas­ing con­cern about the un­cer­tainty were vis­i­ble in var­i­ous eco­nomic data that were made pub­lic over the past few days.

For ex­am­ple, the bud­get ex­e­cu­tion fig­ures re­leased last Tues­day showed that there was a 2.1-bil­lion-euro pri­mary sur­plus for the first two months of the year, which was 1.2 bil­lion eu­ros more than the tar­get. How­ever, this was about 25 per­cent lower than dur­ing the same pe­riod last year and was partly achieved be­cause ex­pen­di­ture was nearly 900 mil­lion eu­ros lower than it should have been by the end of Fe­bru­ary.

Shaky rev­enues

Apart from the state not pay­ing some of its bills, the other wor­ry­ing sign in the bud­get ex­e­cu­tion data is that tax rev­enues are also start­ing to look a lit­tle shaky. Gross rev­enues beat their tar­get by 170 mil­lion eu­ros but this was on the back of a one-off div­i­dend re­ceived from the Bank of Greece’s 2016 net prof­its, which was 334 mil­lion eu­ros more than ex­pected. Without this, rev­enues would have dipped be­low their tar­get.

There was also a sharp rise in Jan­uary in the rate of un­paid taxes be­ing ac­cu­mu­lated. They in­creased by 1.6 bil­lion eu­ros over the course of the first month of the year, which is the high­est monthly rise on record since 2013, when this data was first pub­lished.

The other warn­ing sign was to be found in the monthly fi­nan­cial state­ment on Greek banks’ Eurosys­tem fund­ing, which was also pub­lished on Tues­day. It showed that there was a 330-mil­lion-euro in­crease in the emer­gency liq­uid­ity as­sis­tance (ELA) fund­ing drawn by Greek banks from the coun­try’s cen­tral bank in Fe­bru­ary. The amount, which was rel­a­tively mi­nor, was not as sig­nif­i­cant as the fact that the in­crease in ELA last month re­versed a trend that be­gan last May, which saw this more ex­pen­sive form of fund­ing de­crease month af­ter month.

The uptick is be­lieved to be linked to the re­cent cli­mate of un­cer­tainty, which has also led to an in­crease in the out­flow of de­posits from Greek banks over the last cou­ple of months.

These is­sues were ad­dressed by the head of the Sin­gle Su­per­vi­sory Mech­a­nism (SSM) of the Euro­pean Cen­tral Bank, Daniele Nouy, dur­ing her visit to Athens last week, when she met with lo­cal bank­ing of­fi­cials. She told Skai TV that the in­crease in the de­posit out­flow and non­per­form­ing loans were “a lit­tle bit dis­ap­point­ing.”

“We hope it is tem­po­rary,” she said in re­la­tion to the news that ELA for Greek banks had in­creased for the first time in sev­eral months.

Nouy’s re­sponse closely re­flects what ev­ery­one who is in­volved with the Greek econ­omy is think­ing at the mo­ment. They are hop­ing that the im­passe in the ne­go­ti­a­tions, which has pushed a num­ber of eco­nomic in­di­ca­tors in the wrong di­rec­tion, is just tem­po­rary and that there will be a break­through soon, open­ing a path to­ward sta­bil­ity and po­ten­tial re­cov­ery.

The warn­ing signs of what dam­age fur­ther de­lay could do to the econ­omy are al­ready dis­cernible, whether you look at macroe­co­nomic or fi­nan­cial data. It is now up to the Greek gov­ern­ment and its cred­i­tors to take no­tice and en­sure that the alarm bells re­main silent over Easter and be­yond.

SSM head Daniele Nouy said last week that the in­crease in bank de­posit out­flow and non­per­form­ing loans was ‘a lit­tle bit dis­ap­point­ing.’

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