Moody’s and ‘pocket money’
Moody’s was expected to upgrade Greece’s credit rating on November 19 and the prime minister’s office and the finance ministers were all standing by. Statements that the decision “confirms the trust of international markets in this government’s policy, a policy that has been vindicated” were already written, but the international credit ratings agency remained silent. It was the second time this had happened, after May’s scheduled assessment. Moody’s explained its rationale behind this decision the other day: It estimated that if the European Central Bank does not continue purchasing Greek bonds after the Pandemic Emergency Purchase Program (PEPP) concludes, and limits itself to merely renewing expiring bonds, Greece will have a problem. The markets will extend limited and expensive credit to Greece, with all the ramifications that entails.
Moody’s does not forget what the domestic political system would rather not think about: our debt. It is also aware of what the domestic political system does not mention, that those willing to purchase Greek bonds are doing so on the condition that, at any moment they choose, they can offload them onto the ECB, which buys them as part of PEPP. When it comes down to it, they trust the ECB, not us. Finally, it is also aware that the emergency purchasing program was rolled out because the whole of Europe was facing issues caused by Covid-19, and this is how we benefited (despite our bonds being rated as “junk”), but in no way is the continuation of this treatment of Greek bonds assured. ECB staff members have implied the opposite and, while Bank of Greece Governor Yannis Stournaras will fight his corner in the ECB Boardroom, dark clouds are looming.
A positive outcome should not be taken for granted. Firstly, because you never know what lies ahead, you need to chart any potential obstacles, dangers and eventualities, and you should always take them into account when setting a future course and be able to honestly inform citizens of the situation. The government, and the wider political system, should be doing what the risk officer of an institution, a bank, or even a commercial, military, or other unit, does. Secondly, because, as discussions in Frankfurt and European capitals foreshadow, complex negotiations lie ahead, especially after Christian “tougher than Schaeuble” Lindner’s appointment as German finance minister. If Greece, a small country both heavily indebted and with a small production capacity, wants to participate in these negotiations with any sort of aspiration, it must at least seem to be serious. If it is serious, so much the better.
We are not, and we are having difficulties hiding it.
A defining example is what took place in Parliament last Monday. Three days after tabling the data on the execution of the 2021 budget, the government pulled 338.5 million euros out of its sleeve to be handed out as “pocket money.” This was what the governing party used to call such subsidies handed out by the SYRIZA government, when they were in the opposition. The prime minister called this a “growth dividend,” even though it did not arise from overperforming revenues but from an increase in debt. As Alternate Finance Minister Theodoros Skylakakis rightly points out, there can be no growth dividend when the country has a primary deficit of 7.3% of GDP. The moral of the story is that the extended pre-election period under way in Greece is treacherous. Populism may have changed its spots and may use different rhetoric, but it is still here. Unfortunately for Greece, it is even unified: It might sound incredible, but is true, that a quaint SYRIZA MP demanded that former deputy minister Dimitris Liakos should be expelled from the party for sinning by penning an article against the “pocket money” given out by the government.
The moral of the story is that the extended preelection period under way in Greece is treacherous. Populism may have changed its spots and may use different rhetoric, but it is still here