Letter to Mr Verhofstadt — A Modest Proposal

Dear Mr. Verhofstadt: By now you must have received several thousand messages of praise for your brilliant speech in the European Parliament. Your speech was full of eloquence, real world specifics, a keen sense of history, and an obvious love for Europe and for Greece.  You even offered to come to Athens to help. My question is, when can you start? Would you consider being Prime Minister of a Greek government of national unity?  It is not as crazy as it sounds.  You hit the nail on the head when you said that the Greek political class is the problem; they are all tainted and corrupt, Syriza is part and parcel of that system, and cannot or will not be any different.  As a people we are deeply divided, part of that is history, part of that must just be genetic, and at this time, to fulfill the program you so clearly and concisely elucidated, someone from the “outside” has to do it. Who better than you? First of all, you have done this job before, as Prime Minister of Belgium, a country with the same population size as Greece and one which is, let’s face it, also divided and with its share of dysfunctions.  You already have a plan, outlined with more depth and specificity than anything the Tsipras government provided.  You have a sense of history, not the cliché allusions to Classical Greece but to the real modern state.  You have an energy and optimism singularly lacking, frankly alien, to the Greek political class. Your being a foreigner need not be a problem.  As a Belgian, you are no doubt fluent in several languages, and the only Greek under 60 who could not communicate with true precision with you is Mr. Tsipras himself.  Anyway, given the way you pronounce Trikoupis and Venizelos (the Real One), you will no doubt make headway with Greek as well.  Being a foreigner is your greatest advantage; you have no local base or bias, and Greeks know instinctively that no Greek today can take command of the ship of state.  That is why the “electoral accident” of Tsipras occurred, because there was no real choice. Until now. Greek history is full of precedents of foreigners helping out or taking the helm at key times in our history, enabling us to rise over our divisions.  I prefer a more recent example.  In 2004 a German coach named Otto Rehhagel led a Greek team against 150 to 1 odds to the European Football Championship.  Our people have the will and the guts; we lack the leadership and the reforms. Come to Greece.  (Don’t worry about the citizenship, this is Greece, we can arrange something!)

Yours sincerely, Alexander Billinis, Co-founder,  Reform Watch Greece

The Elena Panaritis Show has been cancelled…is future syndication possible?

Greece is now casting around for a new Representative to the IMF (Executive Director) following the announcement June 1 that former nominee Elena Panaritis is withdrawing her candidacy for the position after a weekend of intensely negative reaction in SYRIZA’s ranks. From a statement she issued Monday: “I did not ask for this position and given that I accepted it only because I felt that I could help the government with my experience of how the IMF works, it is impossible for me to accept the appointment when there is a negative reaction from SYRIZA MPs and members.”

Just a few points need to be made.  Ms. Panaritis was clearly one of Greece’s most qualified potential candidates for this slot. Her knowledge of that rare dialect spoken at International Financial Institutions such as the World Bank and IMF was unmatched.  If another dozen Greek citizens could be found with expertise at roughly equivalent levels, they would likely have served in those institutions previously. It is doubtful other candidates would have had anything close to her wide background in structural reform issues.

So why was such a knowledgeable and media-savvy candidate a problem for so many in SYRIZA?  First, as a World Bank economist notably having led property rights reform in Peru, she could speak the language of reform, not the language of “reform rollback” that most SYRIZA officials sincerely believe they are elected to oversee.   So she was instantly in conflict with the core values of the government she would have been sent to represent. Second, as a nominee of Finance Minister Varoufakis, she was automatically suspect by all those who mistrust him.  Finally, as an economist who had served both the current SYRIZA government (most recently in the Brussels Group) and in George Papandreou’s government (MP at-large), she was clearly seen as an outsider (similar to Varoufakis) and probably fatally, as a “Memorandum supporter.”  Clearly, “structural reform” remains a dirty word in Greece, unless spoken in that special Syrizan-dialect that does not include the words “cutback,” “performance” or “fiscal restraint.”

This turn of events also further indicates the dysfunction of SYRIZA as a cohesive political party.  Cobbled together from a myriad set of alliances, smaller political Marxist-oriented parties, and disaffected Socialists, SYRIZA was only recently judicially recognized to have standing in national elections as a political party.  In coming to terms with SYRIZA, one must understand that this is a political party that is unable to speak with one voice.

The Eurozone presses Greek reforms: Rewind, Reset, Reform, Finally? Part 2

 

Reform Watch Greece has been here a long time (2011), and we have seen our fair share of Greek reform proposals.  Since the Eurogroup quickly blessed the Greek submission February 25^th as enough to work with for the next four months, there is not much point in overanalyzing these starting positions.  Greece will be fortunate if even one quarter of these reforms can be implemented by mid-2015.  Below we provide the text of Greece’s reform proposals as publicized early on February 25, WITH SHORT ANNOTATED COMMENTARY ON EACH SECTION (Bold  headers).

 

 

Dear President of the Eurogroup, In the Eurogroup of 20 February 2015 the Greek government was invited to present to the institutions, by Monday 23rd February 2015, a first comprehensive list of reform measures it is envisaging, to be further specified and agreed by the end of April 2015.

In addition to codifying its reform agenda, in accordance with PM Tsipras’ programmatic statement to Greece’s Parliament, the Greek government also committed to working in close agreement with European partners and institutions, as well as with the International Monetary Fund, and take actions that strengthen fiscal sustainability, guarantee financial stability and promote economic recovery.

The first comprehensive list of reform measures follows below, as envisaged by the Greek government. It is our intention to implement them while drawing upon available technical assistance and financing from the European Structural and Investment Funds.

Truly

Yanis Varoufakis

Minister of Finance

Hellenic Republic

 

RWG Comments:  While this is a good introduction, it needed to mention at least once in this section the Greek side’s commitment to take no measures with a budgetary impact. Its omission tells us something but it was clearly not a deal-breaker.  It also drops an oft-mocked phrase used by Minister Varoufakis in earlier documents about the new government’s “commitment to broader and deeper reforms.”

 

 

1. Fiscal structural policies

Tax policies – Greece commits to:

 Reform VAT policy, administration and enforcement. Robust

efforts will be made to improve collection and fight evasion

making full use of electronic means and other technological

innovations. VAT policy will be rationalised in relation to

rates that will be streamlined in a manner that maximises actual

revenues without a negative impact on social justice, and with a

view to limiting exemptions while eliminating unreasonable

discounts.

 Modify the taxation of collective investment and income tax

expenditures which will be integrated in the income tax code.

 Broaden definition of tax fraud and evasion while disbanding

tax immunity.

 Modernising the income tax code and eliminating from it tax

code exemptions and replacing them, when necessary, with social

justice enhancing measures.

 Resolutely enforce and improve legislation on transfer

pricing.

 Work toward creating a new culture of tax compliance to ensure

that all sections of society, and especially the well-off,

contribute fairly to the financing of public policies. In this

context, establish with the assistance of European and

international partners, a wealth database that assists the tax

authorities in gauging the veracity of previous income tax

returns.

RWG Comments:   With few details it is rather difficult to get a true sense of the priorities, for instance will there be a focused “chase the rich” campaign or simply a raft of new legislation?  Everything here sounds well-intentioned and designed to increase tax collections but we must see which tax code changes are coming in which order and which privileges will remain in place for those groups that helped to elect the current government.  We did not expect Greece’s Eurozone partners to find much fault other than to ask for a timeline and details.

 

 

Public Finance Management – Greece will:

 Adopt amendments to the Organic Budget Law and take steps to

improve public finance management. Budget implementation will be

improved and clarified as will control and reporting

responsibilities. Payment procedures will be modernised and

accelerated while providing a higher degree of financial and

budgetary flexibility and accountability for independent and/or

regulatory entities.

 Devise and implement a strategy on the clearance of arrears,

tax refunds and pension claims.

 Turn the already established (though hitherto dormant) Fiscal

Council into a fully operational entity.

RWG Comments:   Generally positive but without details on the arrears clearance mechanisms to be used, any evaluation is difficult.

 

 

Revenue administration – Greece will modernise the tax and

custom administrations benefiting from available technical

assistance. To this end Greece will:

 Enhance the openness, transparency and international reach of

the process by which the General Secretary of the General

Secretariat of Public Revenues is appointed, monitored in terms

of performance, and replaced.

 Strengthen the independence of the General Secretariat of

Public Revenues (GSPR), if necessary through further

legislation, from all sorts of interference (political or

otherwise) while guaranteeing full accountability and

transparency of its operations. To this end, the government and

the GSPR will make full use of available technical assistance.

 Staff adequately, both quantitatively and qualitatively, the

GSPR and in particular the high wealth and large debtors units

of the revenue administration and ensure that it has strong

investigative/prosecution powers, and resources building on

SDOE’s capacities, so as to target effectively tax fraud by, and

tax arrears of, high income social groups. Consider the merits

of integrating SDOE into GSPR.

 Augment inspections, risk-based audits, and collection

capacities while seeking to integrate the functions of revenue

and social security collection across the general government.

RWG Comments:   This was probably well received, although the systemic changes mentioned are unlikely to have visible short term impact in the Greek context.  We believe use of foreign tax and customs advisors and collectors in the short and medium term would be far more efficient in terms of boosting revenue collection and for training, but this remains an almost taboo subject in Greece. At least the Greek side seems open to use of foreign technical assistance, but Greece has almost always utilized small amounts of help on tax system reform, including the EU Task Force which has been present since the first year of the Greek crisis.

 

 

Public spending – The Greek authorities will:

 Review and control spending in every area of government

spending (e.g. education, defense, transport, local government,

social benefits)

 Work toward drastically improving the efficiency of central

and local government administered departments and units by

targeting budgetary processes, management restructuring, and

reallocation of poorly deployed resources.

 Identify cost saving measures through a thorough spending

review of every Ministry and rationalisation of non-salary and

non-pension expenditures which, at present, account for an

astounding 56% of total public expenditure.

 Implement legislation (currently in draft form at the General

Accounts Office – GAO) to review non-wage benefits expenditure

across the public sector.

 Validate benefits through cross checks within the relevant

authorities and registries (e.g. Tax Number Registry, AMKA

registry) that will help identify non-eligible beneficiaries.

 Control health expenditure and improve the provision and

quality of medical services, while granting universal access. In

this context, the government intends to table specific proposals

in collaboration with European and international institutions,

including the OECD.

RWG Comments:   The proposed cost savings steps noted here are not all new ideas, and in any event will take a long period for implementation.  Cutting high public sector non-wage costs should find favor with creditors, but is not a new concept.  The final bullet in this set is interesting as it is generally moving Greece in the direction of the EU; in earlier periods health sector reforms that lowered direct health care costs (esp access to prescription drugs) ran into intense opposition. Accordingly we need to see these proposals in final form for details.

 

Social security reform – Greece is committed to continue

modernising the pension system. The authorities will:

 Continue to work on administrative measures to unify and

streamline pension policies and eliminate loopholes and

incentives that give rise to an excessive rate of early

retirements throughout the economy and, more specifically, in

the banking and public sectors.

 Consolidate pension funds to achieve savings.

 Phase out charges on behalf of ‘third parties’ (nuisance

charges) in a fiscally neutral manner.

 Establish a closer link between pension contributions and

income, streamline benefits, strengthen incentives to declare

paid work, and provide targeted assistance to employees between

50 and 65, including through a Guaranteed Basic Income scheme,

so as to eliminate the social and political pressure for early

retirement which over-burdens the pension funds.

RWG Comments: We do not see much that is new here, although the focus on eliminating early public and banking sector retirement incentives gets needed attention; some work has been done in this area already.   This segment of proposals should be non-controversial with creditors but will take years for implementation and each cost-cutting step faces strong resistance here in Greece.

 

 

Public administration & corruption – Greece wants a modern

public administration. It will:

 Turn the fight against corruption into a national priority and

operationalize fully the National Plan Against Corruption.

 Target fuel and tobacco products’ smuggling, monitor prices of

imported goods (to prevent revenue losses during the importation

process), and tackle money laundering. The government intends

immediately to set itself ambitious revenue targets, in these

areas, to be pursued under the coordination of the newly

established position of Minister of State.

 Reduce (a) the number of Ministries (from 16 to 10), (b) the

number of ‘special advisors’ in general government; and (c)

fringe benefits of ministers, Members of Parliament and top

officials (e.g. cars, travel expenses, allowances)

 Tighten the legislation concerning the funding of political

parties and include maximum levels of borrowing from financial

and other institutions.

 Activate immediately the current (though dormant) legislation

that regulates the revenues of media (press and electronic),

ensuring (through appropriately designed auctions) that they pay

the state market prices for frequencies used, and prohibits the

continued operation of permanently loss-making media outlets

(without a transparent process of recapitalisation)

 Establish a transparent, electronic, real time institutional

framework for public tenders/procurement – re-establishing

DIAVGEIA (a side-lined online public registry of activities

relating to public procurement)

 Reform the public sector wage grid with a view to

decompressing the wage distribution through productivity gains

and appropriate recruitment policies without reducing the

current wage floors but safeguarding that the public sector’s

wage bill will not increase

 Rationalise non-wage benefits, to reduce overall expenditure,

without imperiling the functioning of the public sector and in

accordance with EU good practices

 Promote measures to: improve recruitment mechanisms, encourage

merit-based managerial appointments, base staff appraisals on

genuine evaluation, and establish fair processes for maximising

mobility of human and other resources within the public sector.

RWG Comments: Many of the topics in this cluster strike us as basic good governance/public administration issues and may be incorrectly classified as structural reform. This is a matter of labeling and semantics.  That said, they can certainly be added to government priorities but not in exchange for other hard reform measures.  Charging powerful Greek media companies for public goods used free (frequencies) will be a major challenge, and is a reform that is over 25 years late.

 

 

1. Financial stability

Instalment schemes – Greece commits to

 Improve swiftly, in agreement with the institutions, the

legislation for repayments of tax and social security arrears

 Calibrate instalment schemes in a manner that helps

discriminate efficiently between: (a) strategic

default/non-payment and (b) inability to pay; targeting case (a)

individuals/firms by means of civil and criminal procedures

(especially amongst high income groups) while offering case (b)

individuals/firms repayment terms in a manner that enables

potentially solvent enterprises to survive, averts free-riding,

annuls moral hazard, and reinforces social responsibility as

well as a proper re-payment culture.

 De-criminalise lower income debtors with small liabilities

 Step up enforcement methods and procedures, including the

legal framework for collecting unpaid taxes and effectively

implement collection tools

RWG Comments: The SYRIZA government has legislation ready on tax collection, this segment is simply an explanation of the approach. Creditors will likely want adjustments in some areas, and tougher controls on the moral hazard area. RWG warns against any discounting of the initial tax bill amount for late payers, as this simply encourages the next cycle to wait and game the system before payment.  Bottom line:  Acceptable to adjust penalties for late payers but It must always remain more cost effective to pay a bill when due.

 

 

Banking and Non-Performing loans. Greece is committed to:

 Banks that are run on sound commercial/banking principles

 Utilise fully the Hellenic Financial Stability Fund and

ensure, in collaboration with the SSM, the ECB and the European

Commission, that it plays well its key role of securing the

banking sector’s stability and its lending on commercial basis

while complying with EU competition rules.

 Dealing with non-performing loans in a manner that considers

fully the banks’ capitalisation (taking into account the adopted

Code of Conduct for Banks), the functioning of the judiciary

system, the state of the real estate market, social justice

issues, and any adverse impact on the government’s fiscal

position.

 Collaborating with the banks’ management and the institutions

to avoid, in the forthcoming period, auctions of the main

residence of households below a certain income threshold, while

punishing strategic defaulters, with a view to: (a) maintaining

society’s support for the government’s broad reform program, (b)

preventing a further fall in real estate asset prices (that

would have an adverse effect on the banks’ own portfolio), (c)

minimising the fiscal impact of greater homelessness, and (d)

promoting a strong payment culture. Measures will be taken to

support the most vulnerable households who are unable to service

their loans

 Align the out-of-court workout law with the instalment schemes

after their amendment, to limit risks to public finances and the

payment culture, while facilitating private debt restructuring.

 Modernise bankruptcy law and address the backlog of cases

RWG Comments: Much of this cluster depends on improving the efficiency of the judicial system, not addressed previously but covered below.  Creditors will not be impressed with the focus in this section on social justice instead of banking system efficiency; if anything the outlines presented here appear to weaken the prospects for Greece developing a strong payment culture.

 

 

III. Policies to promote growth

Privatisation and public asset management – To attract

investment in key sectors and utilise the state’s assets

efficiently, the Greek authorities will:

 Commit not to roll back privatisations that have been

completed. Where the tender process has been launched the

government will respect the process, according to the law.

 Safeguard the provision of basic public goods and services by

privatised firms/industries in line with national policy goals

and in compliance with EU legislation.

 Review privatisations that have not yet been launched, with a

view to improving the terms so as to maximise the state’s long

term benefits, generate revenues, enhance competition in the

local economies, promote national economic recovery, and

stimulate long term growth prospects.

 Adopt, henceforth, an approach whereby each new case will be

examined separately and on its merits, with an emphasis on long

leases, joint ventures (private-public collaboration) and

contracts that maximise not only government revenues but also

prospective levels of private investment.

 Unify (HRDAF) with various public asset management agencies

(which are currently scattered across the public sector) with a

view to developing state assets and enhancing their value

through microeconomic and property rights’ reforms.

RWG Comments: Clearly this subject is anathema to much of the SYRIZA electorate which considers inclusion of this issue in the reform list a major loss.  Creditors will need to push hard for changes here as privatization should become the major channel for attracting private investment into Greece and this section still contains excessive restrictions.  We are especially concerned the future of the process will be left in limbo without deeper Greek commitments to do more.

 

 

Labor market reforms – Greece commits to:

 Achieve EU best practice across the range of labour market

legislation through a process of consultation with the social

partners while benefitting from the expertise and existing input

of the ILO, the OECD and the available technical assistance.

 Expand and develop the existing scheme that provides temporary

employment for the unemployed, in agreement with partners and

when fiscal space permits and improve the active labour market

policy programmes with the aim to updating the skills of the

long term unemployed.

 Phasing in a new ‘smart’ approach to collective wage

bargaining that balances the needs for flexibility with

fairness. This includes the ambition to streamline and over time

raise minimum wages in a manner that safeguards competiveness

and employment prospects. The scope and timing of changes to the

minimum wage will be made in consultation with social partners

and the European and international institutions, including the

ILO, and take full account of advice from a new independent body

on whether changes in wages are in line with productivity

developments and competitiveness.

RWG Comments: As in the previous section this subject is problematic to much of the SYRIZA electorate who will view its inclusion in the reform list as a major concession and divergence from the party’s announced policies. Moving in the direction of EU best labor practices is not massively problematic nor an unreasonable target, but reverting to older collective bargaining processes, even with new names and tweaks to the system, will be seen for what it is, a reform rollback.

 

 

Product market reforms and a better business environment – As

part of a new reform agenda, Greece remains committed to:

 Removing barriers to competition based on input from the OECD.

 Strengthen the Hellenic Competition Commission.

 Introduce actions to reduce the burdens of administrative

burden of bureaucracy in line with the OECD’s input, including

legislation that bans public sector units from requesting (from

citizens and business) documents certifying information that the

state already possesses (within the same or some other unit).

 Better land use management, including policies related to

spatial planning, land use, and the finalisation of a proper

Land Registry

 Pursue efforts to lift disproportionate and unjustified

restrictions in regulated professions as part of the overall

strategy to tackle vested interests.

 Align gas and electricity market regulation with EU good

practices and legislation

RWG Comments: Not particularly new, and not problematic, but implementation needs to be given top priority, especially competition policy and the high priority development of a business enabling environment.  The energy sector needs a major focused initiative if Greece is to exploit its competitive advantages, not just a brief mention.

 

 

Reform of the judicial system – The Greek government will:

 Improve the organisation of courts through greater

specialisation and, in this context, adopt a new Code of Civil

Procedure.

 Promote the digitisation of legal codes and the electronic

submission system, and governance, of the judicial system.

RWG Comments: Absolutely essential to Greece’s modernization.

 

 

Statistics – The Greek government reaffirms its readiness to:

 Honour fully the Commitment on Confidence in Statistics, and

in particular the institutional independence of ELSTAT, ensuring

that ELSTAT has the necessary resources to implement its work

programme.

 Guarantee the transparency and propriety of the process of

appointment of the ELSTAT President in September 2015, in

cooperation with EUROSTAT.

RWG Comments: Unclear why this needs to be included as a current reform, since the institutional changes at ELSTAT were completed several years ago.

 

 

1. Humanitarian Crisis – The Greek government affirms its plan

to:

 Address needs arising from the recent rise in absolute poverty

(inadequate access to nourishment, shelter, health services and

basic energy provision) by means of highly targeted

non-pecuniary measures (e.g. food stamps).

 Do so in a manner that is helpful to the reforming of public

administration and the fight against bureaucracy/corruption

(e.g. the issuance of a Citizen Smart Card that can be used as

an ID card, in the Health System, as well as for gaining access

to the food stamp program etc.).

 Evaluate the pilot Minimum Guaranteed Income scheme with a

view to extending it nationwide.

 Ensure that its fight against the humanitarian crisis has no

negative fiscal effect.

 

RWG Comments: Mostly derived from SYRIZA campaign promises and the Thessaloniki program.  Creditors will not find major issues as long as these reforms are not fiscally negative.

 

 

The Eurozone presses Greek reforms: Rewind, Reset, Reform, Finally? Part 1

Reform Watch Greece has been here a long time (2011).  That’s a lot longer than the current SYRIZA government or most of today’s crop of Greece analysts.  We will look at the proposals more systematically in part 2.  Here we provide the text of Greece’s reform proposals as publicized early on February 25.  To the best of our knowledge these proposals got to Brussels after 2300 on February 24, barely making the deadline laid out in the Eurogroup-Greece agreement of February 20.

Please stand by for our commentary in part 2.

Dear President of the Eurogroup,  In the Eurogroup of 20 February 2015 the Greek government was invited to present to the institutions, by Monday 23rd February 2015, a first comprehensive list of reform measures it is envisaging, to be further specified and agreed by the end of April 2015.

In addition to codifying its reform agenda, in accordance with PM Tsipras’ programmatic statement to Greece’s Parliament, the Greek government also committed to working in close agreement with European partners and institutions, as well as with the International Monetary Fund, and take actions that strengthen fiscal sustainability, guarantee financial stability and promote economic recovery.

The first comprehensive list of reform measures follows below, as envisaged by the Greek government. It is our intention to implement them while drawing upon available technical assistance and financing from the European Structural and Investment Funds.

Truly

Yanis Varoufakis

Minister of Finance

Hellenic Republic

1. Fiscal structural policies

Tax policies – Greece commits to:

 Reform VAT policy, administration and enforcement. Robust

efforts will be made to improve collection and fight evasion

making full use of electronic means and other technological

innovations. VAT policy will be rationalised in relation to

rates that will be streamlined in a manner that maximises actual

revenues without a negative impact on social justice, and with a

view to limiting exemptions while eliminating unreasonable

discounts.

 Modify the taxation of collective investment and income tax

expenditures which will be integrated in the income tax code.

 Broaden definition of tax fraud and evasion while disbanding

tax immunity.

 Modernising the income tax code and eliminating from it tax

code exemptions and replacing them, when necessary, with social

justice enhancing measures.

 Resolutely enforce and improve legislation on transfer

pricing.

 Work toward creating a new culture of tax compliance to ensure

that all sections of society, and especially the well-off,

contribute fairly to the financing of public policies. In this

context, establish with the assistance of European and

international partners, a wealth database that assists the tax

authorities in gauging the veracity of previous income tax

returns.

 

Public Finance Management – Greece will:

 Adopt amendments to the Organic Budget Law and take steps to

improve public finance management. Budget implementation will be

improved and clarified as will control and reporting

responsibilities. Payment procedures will be modernised and

accelerated while providing a higher degree of financial and

budgetary flexibility and accountability for independent and/or

regulatory entities.

 Devise and implement a strategy on the clearance of arrears,

tax refunds and pension claims.

 Turn the already established (though hitherto dormant) Fiscal

Council into a fully operational entity.

 

Revenue administration – Greece will modernise the tax and

custom administrations benefiting from available technical

assistance. To this end Greece will:

 Enhance the openness, transparency and international reach of

the process by which the General Secretary of the General

Secretariat of Public Revenues is appointed, monitored in terms

of performance, and replaced.

 Strengthen the independence of the General Secretariat of

Public Revenues (GSPR), if necessary through further

legislation, from all sorts of interference (political or

otherwise) while guaranteeing full accountability and

transparency of its operations. To this end, the government and

the GSPR will make full use of available technical assistance.

 Staff adequately, both quantitatively and qualitatively, the

GSPR and in particular the high wealth and large debtors units

of the revenue administration and ensure that it has strong

investigative/prosecution powers, and resources building on

SDOE’s capacities, so as to target effectively tax fraud by, and

tax arrears of, high income social groups. Consider the merits

of integrating SDOE into GSPR.

 Augment inspections, risk-based audits, and collection

capacities while seeking to integrate the functions of revenue

and social security collection across the general government.

 

Public spending – The Greek authorities will:

 Review and control spending in every area of government

spending (e.g. education, defence, transport, local government,

social benefits)

 Work toward drastically improving the efficiency of central

and local government administered departments and units by

targeting budgetary processes, management restructuring, and

reallocation of poorly deployed resources.

 Identify cost saving measures through a thorough spending

review of every Ministry and rationalisation of non-salary and

non-pension expenditures which, at present, account for an

astounding 56% of total public expenditure.

 Implement legislation (currently in draft form at the General

Accounts Office – GAO) to review non-wage benefits expenditure

across the public sector.

 Validate benefits through cross checks within the relevant

authorities and registries (e.g. Tax Number Registry, AMKA

registry) that will help identify non-eligible beneficiaries.

 Control health expenditure and improve the provision and

quality of medical services, while granting universal access. In

this context, the government intends to table specific proposals

in collaboration with European and international institutions,

including the OECD.

 

Social security reform – Greece is committed to continue

modernising the pension system. The authorities will:

 Continue to work on administrative measures to unify and

streamline pension policies and eliminate loopholes and

incentives that give rise to an excessive rate of early

retirements throughout the economy and, more specifically, in

the banking and public sectors.

 Consolidate pension funds to achieve savings.

 Phase out charges on behalf of ‘third parties’ (nuisance

charges) in a fiscally neutral manner.

 Establish a closer link between pension contributions and

income, streamline benefits, strengthen incentives to declare

paid work, and provide targeted assistance to employees between

50 and 65, including through a Guaranteed Basic Income scheme,

so as to eliminate the social and political pressure for early

retirement which over-burdens the pension funds.

 

Public administration & corruption – Greece wants a modern

public administration. It will:

 Turn the fight against corruption into a national priority and

operationalize fully the National Plan Against Corruption.

 Target fuel and tobacco products’ smuggling, monitor prices of

imported goods (to prevent revenue losses during the importation

process), and tackle money laundering. The government intends

immediately to set itself ambitious revenue targets, in these

areas, to be pursued under the coordination of the newly

established position of Minister of State.

 Reduce (a) the number of Ministries (from 16 to 10), (b) the

number of ‘special advisors’ in general government; and (c)

fringe benefits of ministers, Members of Parliament and top

officials (e.g. cars, travel expenses, allowances)

 Tighten the legislation concerning the funding of political

parties and include maximum levels of borrowing from financial

and other institutions.

 Activate immediately the current (though dormant) legislation

that regulates the revenues of media (press and electronic),

ensuring (through appropriately designed auctions) that they pay

the state market prices for frequencies used, and prohibits the

continued operation of permanently loss-making media outlets

(without a transparent process of recapitalisation)

 Establish a transparent, electronic, real time institutional

framework for public tenders/procurement – re-establishing

DIAVGEIA (a side-lined online public registry of activities

relating to public procurement)

 Reform the public sector wage grid with a view to

decompressing the wage distribution through productivity gains

and appropriate recruitment policies without reducing the

current wage floors but safeguarding that the public sector’s

wage bill will not increase

 Rationalise non-wage benefits, to reduce overall expenditure,

without imperilling the functioning of the public sector and in

accordance with EU good practices

 Promote measures to: improve recruitment mechanisms, encourage

merit-based managerial appointments, base staff appraisals on

genuine evaluation, and establish fair processes for maximising

mobility of human and other resources within the public sector

 

1. Financial stability

Instalment schemes – Greece commits to

 Improve swiftly, in agreement with the institutions, the

legislation for repayments of tax and social security arrears

 Calibrate instalment schemes in a manner that helps

discriminate efficiently between: (a) strategic

default/non-payment and (b) inability to pay; targeting case (a)

individuals/firms by means of civil and criminal procedures

(especially amongst high income groups) while offering case (b)

individuals/firms repayment terms in a manner that enables

potentially solvent enterprises to survive, averts free-riding,

annuls moral hazard, and reinforces social responsibility as

well as a proper re-payment culture.

 De-criminalise lower income debtors with small liabilities

 Step up enforcement methods and procedures, including the

legal framework for collecting unpaid taxes and effectively

implement collection tools

Banking and Non-Performing loans. Greece is committed to:

 Banks that are run on sound commercial/banking principles

 Utilise fully the Hellenic Financial Stability Fund and

ensure, in collaboration with the SSM, the ECB and the European

Commission, that it plays well its key role of securing the

banking sector’s stability and its lending on commercial basis

while complying with EU competition rules.

 Dealing with non-performing loans in a manner that considers

fully the banks’ capitalisation (taking into account the adopted

Code of Conduct for Banks), the functioning of the judiciary

system, the state of the real estate market, social justice

issues, and any adverse impact on the government’s fiscal

position.

 Collaborating with the banks’ management and the institutions

to avoid, in the forthcoming period, auctions of the main

residence of households below a certain income threshold, while

punishing strategic defaulters, with a view to: (a) maintaining

society’s support for the government’s broad reform program, (b)

preventing a further fall in real estate asset prices (that

would have an adverse effect on the banks’ own portfolio), (c)

minimising the fiscal impact of greater homelessness, and (d)

promoting a strong payment culture. Measures will be taken to

support the most vulnerable households who are unable to service

their loans

 Align the out-of-court workout law with the instalment schemes

after their amendment, to limit risks to public finances and the

payment culture, while facilitating private debt restructuring.

 Modernise bankruptcy law and address the backlog of cases

 

III. Policies to promote growth

Privatisation and public asset management – To attract

investment in key sectors and utilise the state’s assets

efficiently, the Greek authorities will:

 Commit not to roll back privatisations that have been

completed. Where the tender process has been launched the

government will respect the process, according to the law.

 Safeguard the provision of basic public goods and services by

privatised firms/industries in line with national policy goals

and in compliance with EU legislation.

 Review privatisations that have not yet been launched, with a

view to improving the terms so as to maximise the state’s long

term benefits, generate revenues, enhance competition in the

local economies, promote national economic recovery, and

stimulate long term growth prospects.

 Adopt, henceforth, an approach whereby each new case will be

examined separately and on its merits, with an emphasis on long

leases, joint ventures (private-public collaboration) and

contracts that maximise not only government revenues but also

prospective levels of private investment.

 Unify (HRDAF) with various public asset management agencies

(which are currently scattered across the public sector) with a

view to developing state assets and enhancing their value

through microeconomic and property rights’ reforms.

 

Labor market reforms – Greece commits to:

 Achieve EU best practice across the range of labour market

legislation through a process of consultation with the social

partners while benefitting from the expertise and existing input

of the ILO, the OECD and the available technical assistance.

 Expand and develop the existing scheme that provides temporary

employment for the unemployed, in agreement with partners and

when fiscal space permits and improve the active labour market

policy programmes with the aim to updating the skills of the

long term unemployed.

 Phasing in a new ‘smart’ approach to collective wage

bargaining that balances the needs for flexibility with

fairness. This includes the ambition to streamline and over time

raise minimum wages in a manner that safeguards competiveness

and employment prospects. The scope and timing of changes to the

minimum wage will be made in consultation with social partners

and the European and international institutions, including the

ILO, and take full account of advice from a new independent body

on whether changes in wages are in line with productivity

developments and competitiveness.

 

Product market reforms and a better business environment – As

part of a new reform agenda, Greece remains committed to:

 Removing barriers to competition based on input from the OECD.

 Strengthen the Hellenic Competition Commission.

 Introduce actions to reduce the burdens of administrative

burden of bureaucracy in line with the OECD’s input, including

legislation that bans public sector units from requesting (from

citizens and business) documents certifying information that the

state already possesses (within the same or some other unit).

 Better land use management, including policies related to

spatial planning, land use, and the finalisation of a proper

Land Registry

 Pursue efforts to lift disproportionate and unjustified

restrictions in regulated professions as part of the overall

strategy to tackle vested interests.

 Align gas and electricity market regulation with EU good

practices and legislation

 

Reform of the judicial system – The Greek government will:

 Improve the organisation of courts through greater

specialisation and, in this context, adopt a new Code of Civil

Procedure.

 Promote the digitisation of legal codes and the electronic

submission system, and governance, of the judicial system.

 

Statistics – The Greek government reaffirms its readiness to:

 Honour fully the Commitment on Confidence in Statistics, and

in particular the institutional independence of ELSTAT, ensuring

that ELSTAT has the necessary resources to implement its work

programme.

 Guarantee the transparency and propriety of the process of

appointment of the ELSTAT President in September 2015, in

cooperation with EUROSTAT.

 

1. Humanitarian Crisis – The Greek government affirms its plan

to:

 Address needs arising from the recent rise in absolute poverty

(inadequate access to nourishment, shelter, health services and

basic energy provision) by means of highly targeted

non-pecuniary measures (e.g. food stamps).

 Do so in a manner that is helpful to the reforming of public

administration and the fight against bureaucracy/corruption

(e.g. the issuance of a Citizen Smart Card that can be used as

an ID card, in the Health System, as well as for gaining access

to the food stamp program etc.).

 Evaluate the pilot Minimum Guaranteed Income scheme with a

view to extending it nationwide.

 Ensure that its fight against the humanitarian crisis has no

negative fiscal effect.

 

 

 

 

Greek Reforms: 70+30 = 50 on a good day

It’s anyone’s guess what will happen at the February 16 Eurogroup session, the weekend European press is filled with every possible scenario and even contains detailed sequenced listings of all of potential outcomes.  We congratulate the SYRIZA media machine and its European partners for rolling out yet another wave of editorials and demonstrations in support of current Greek positions.

But our interest is in the substance, not show.  Is the Eurogroup going to put an end to the rhetoric (not our words, but US Treasury Secretary Lew’s) and get down to the business of locking down Greece’s reform agenda and its financing, or is it going to let this float for another six months? And will PM Tsipras be allowed to slip out from under the prior commitments he rejects by simply renaming the new agreement as a New Greece-whatever development bridge program? We hope not.

We chose the title 70+30=50 because its evident the Greek side is trying to pull a fast one by claiming it can easily accept 70% of the Troika’s structural reforms and will replace the 30% it rejects with 10 new measures it proposes (including elements of the OECD reform toolkit).  It will be a few days until we get the whole picture via communiques and leaks as to exactly what reform was traded for what concession, at what budgetary impact, and learn which sectors of Greek society have benefited by allying with SYRIZA for protection. But certainly the private sector will not come out near the top of the pile.

From what we have seen so far the 30% of the structural reforms the SYRIZA government rejects looks more like 50% or more of the previous reform program and certainly includes the essential competitiveness-enhancing reforms that Greece vitally needs. We are not so cynical as to suggest that the rejected 30% is the core of the reform program and the
acceptable 70% (remainder) are things most Greeks would agree on, since they are not seen as pain-inflicting “measures” by the Greek public. That means these are reforms that produce no job losses, no benefits cuts and no political costs, but sound important, like fighting corruption. 

 

But what we have seen of the SYRIZA “redlines” in these negotiations is totally unacceptable to free-market advocates and we urge the former Troika institutions to take whatever steps are needed to get the Greek side out of the clouds and back to Europe 2015.  Excluding privatization, public sector reform and downsizing, the health sector as well as labor market reform from the reforms required of Athens is essentially giving PM Tsipras a complete free hand to roll back much if not most of what little the Troika has accomplished.  This is equivalent to locking the Greek population in a room with a pack of hungry carnivores and telling them to divide up the few provisions the Eurozone will hand out.

While we see little harm in relaxing the budget deficit targets from the politically-unsustainable level of 4.5% of GDP next year, if the cash is available, the reform-minded Greeks that we work with sincerely hope the Eurozone does not make the concessions the Tsipras government is asking for.  Greece deserves better than to be hung out to dry in the face of a group of deeply anti-reform and anti-private sector ideologues, even if well dressed.

How to ‘Tsipras-Proof’ Greece’s reform program and its accomplishments

 

With Greece’s elections upon us and the spectre of “the day after” ever closer, the team at Reform Watch Greece (RWG), clearly no supporters of the reform record of the current government, has reconvened to lay out a few of its ideas.  As the title of this note suggests, RWG believes the path of structural reform more or less laid out by the Troika offers one of the few workable paths forward for Greece at this time.  Of course a reform plan developed here in country and agreed by the population would be far more acceptable, but for reasons specific to Greece which could fill several articles, this kind of program or consensus hasn’t emerged.  But the lack of a Greek alternative is no reason to reject other reform programs.

We produced these ideas because we want to make it clear that no matter who wins the January 25 elections, we believe that softening the Troika’s positions on the core elements of the Greek reform program would be a major tragedy for this country.  There is no question that the majority of Greeks want the country to remain in the Eurozone; our view is that the election will show what percentage of the population is willing to support a risky attempt to cut a better deal, which implies increased external financial support for Greece in some mode but doesn’t answer many other questions about how funds would be found.  Domestically, that essentially translates into reducing taxes (see below) and otherwise accelerating the pace of visible improvements in the Greek populace’s daily lives, because in essence many haven’t seen any change flowing from structural reform other than a spate of new taxes in the last 24-36 months, which have allowed for Greece’s dramatic fiscal consolidation.   As this leaves most Greek families in a state of slow decapitalization with no clear upside, it is not surprising that a sense of desperation has fed radical politics/reform fatigue and boosted the acceptance of radical solutions here.

This note is not intended as a full playbook, but here are several of the key policy parameters Greece’s negotiating partners should expect to encounter:

1. Zero Reform Rollback (ZRR): This is the bottom line. What Greece actually needs is reform acceleration to make up for lost time since the great pre-Euro-election slowdown in early 2014. It is clear that a SYRIZA single-party government would attempt to move immediately and unilaterally to consolidate its popularity/political base through enacting legislation to reverse certain reforms already in place, along with the associated chest-thumping about the “powerless” Troika paymasters. A coalition government would need time to agree on a platform; accordingly such action would be much slower in that scenario. If market signals and domestic cash flow constraints aren’t enough to bring moderation to the new leaders, the Eurogroup and Greece’s allies need to make it clear that any attempt to roll back Troika-initiated reforms or refloat Greece’s public sector will trigger immediate sanctions and jeopardize discussions on both Greece’s debt as well as prospects for closing out/extending the current Troika bailout program. Because of the mixed messages coming from Europe up to now, SYRIZA officials continue to talk confidently to domestic audiences as though Greece’s partners are merely bluffing and have acquiesced to the inevitable. While some of this is show it appears to many as if this is the final SYRIZA position.
2. It’s Amateur Hour: Greece’s interlocutors will immediately notice a different calibre of politician in the mix. Although many key SYRIZA officers have credible (although not world-class) academic credentials, by and large the new team does not have corporate board/private sector experience or previous international financial institution assignments. Without this depth of experience, a SYRIZA-led Greek government team will immediately be shown to be at a disadvantage in international negotiations, and out of necessity extremely cautious in moving discussions forward. Although good at spinning the Greek press, the long-winded academic approach of the SYRIZA economic advisers that we that have seen to-date might well put the focused western negotiators or the journalists they encounter to sleep.
3. Undeniable Debt Unsustainability (UDU) is the new dogma: There can be no discussion of Greece’s economic situation with a SYRIZA official without the subject of “Greece’s unsustainable debt” being broached in the first minute. A lecture on Europe’s “immorality” in lending to Greece will follow shortly. The party essentially has no unifying core ideology beyond the demand for an upfront write-down of Greece’s debt, although as of late it seems an election-period decision has been taken not to demand such a write-off for Greek debts owed to the IMF or ECB (which would never even allow the subject to be raised). Accordingly there is still no room in SYRIZA’s thinking for maturity extensions, longer grace periods, long-term interest rate cuts and the like on the debts Greece now owes to its Eurozone partners – mostly channelled to the so-called Greek Loan Facility (GLF) and the EFSF (approximately 197 billion Euros). The Greek side will talk tough in public while quietly approaching its partners and explaining the “humanitarian emergency” facing the country. Accepting that Greece’s debt can be engineered onto a sustainable trajectory when combined with continued growth-catalysing structural reform — without the demanded write-down — may be the ultimate result of a prolonged negotiation with the Troika, but it will cost SYRIZA its ideological core. However, once it is made clear to the SYRIZA policy team that insisting on its preferred alternative (an upfront write-down) to this is financial disaster for Greece, we have no doubt an arrangement can be made. Be prepared for intense maneuvering: the Greek side will work furiously to exploit every signal from Eurozone member states and elsewhere that appears to indicate there might be the slightest flexibility on the matter.
4. Privatization efforts cannot remain frozen in time: We continue to believe the privatization program will be the major channel for foreign investment into Greece for the next years. Although many if not most Greeks would prefer to side-line the issue, we believe targets should remain in place which will keep the Greek government focused tightly on these projects in order to raise budget revenue. However, we have witnessed a tendency for the Greek government to relax ethical standards in order to reach a deal at any price in the small group of sales that have progressed. In a number of these cases, companies run by Greek oligarchs, who are not immediately driven away by the almost-impenetrable Greek bureaucracy (as many foreign investors are), tend to take prominent roles. At a minimum, tighter monitoring of the suitability of potential investors is required.
5. The Bank of Greece is sacrosanct: The Eurogroup and especially the ECB should remind the new Greek government to respect the full independence of the Bank of Greece Governor. Prior to the election campaign Mr Tsipras levelled substantial criticism at the appointment of former Finance Minister Yannis Stournaras as Governor, probably because he would be immune to SYRIZA pressures once installed. The ECB must warn Mr Tsipras off this tactic and make it clear that no SYRIZA attempts to undermine Governor Stournaras or the Bank of Greece’s critical role in financial policy making will be tolerated.
6. It’s all about the Primary Surplus: The Greek population has been demanding tax policy changes and protesting loudly about some form of “austerity” or against important reforms since time immemorial, so there is relatively little new other than the breadth of the protest since the current fiscal consolidation began in 2010. However, it is important to deal with Greece’s current long-term requirement, imposed by the Eurogroup, to generate and maintain a large primary budget surplus; flexibility here is critical. These targets were set in the run-up to the November 2012 Eurogroup marathon discussions on the Greek program, after the completion of Greece’s private sector debt restructuring (PSI). From 2016-2017, Greece is obligated to run a primary surplus of 4.5% of GDP, with some flexibility to drop this number slightly in 2018 and beyond. We believe this primary surplus target is politically unsustainable, and said so at the time the decision was made. In fact the current elections might be seen as proof of this theory, and the primary surplus has not yet reached 3% of GDP (Latest estimate is 2.7% for 2014). We recommend this budgetary target be reviewed with an eye to an immediate reduction to a more sustainable surplus level, provided reforms proceed, which of course is the underlying requirement for all the Eurogroup decisions. In our view the primary surplus reduction should be keyed to Greece’s debt service repayment requirements, which in all likelihood can be sharply reduced if maturities are extended and interest rates further lowered.

In sum, we think a deal with a SYRIZA-led government might be built around these elements: (A) Reducing Greece’s primary surplus obligation, allowing for somewhat more social spending, but not rehiring in the public sector, and an earnest opening to privatization. It is of course understood that programs for job creation in the private sector will be given priority in future development planning. (B) Extension of Greece’s repayment periods to Eurozone countries (GLF/EFSF) and lower interest rates on all official debt where still possible;  (C) Specific reform requirements/benchmarks to be achieved for each year’s interest rate reductions to be certified, providing a clear budgetary incentive to fully implement reforms.

The Greek Middle Class: 1955-2012

Reader please note, this is the unofficial obituary . . .

The Greek Middle Class (hereafter “GMC”) passed away last week, after several years of deteriorating physical and emotional condition. Cause of death is currently being investigated, but decades of spousal abuse from the Greek Public Sector (“GPS“ also known as Big Fat Greek Public Sector “BFGPS“) is believed to be contributory to GMC’s early demise, as are, unfortunately, the conditions in the Greek public hospitals, and lack of heating oil.

GPS is the successor to GMC’s few remaining assets, and has successfully fended off claims from GMC’s relatives in America, Australia, Canada, and elsewhere. GPS wrote a moving death notice but requested “that the family’s privacy be respected . . . [and] particularly that these slanderous and hurtful allegations of spousal abuse cease.”

The funeral was a somber affair, paid for from GMC’s estate. Other middle classes, particularly from Italy, Spain, Portugal, and Ireland, were too ill to attend, and GPS pointedly refused to allow the German Middle Class to attend, calling them, predictably, “Nazis.” The Greek plutocrats were well represented, with lovely bouquets in tow. Father X, formerly of Vatopedi and lately confessor to the grieving GPS, gave a moving graveside eulogy pointedly praising the spousal solidarity exhibited by GPS, and asking for forgiveness for the hapless GMC. In spite of GPS’s advanced state of mourning, GPS still managed to record the eulogy on a recently acquired I-Phone 5.

GMC was born via a difficult birth circa 1955, the birth records were destroyed in the 2007 fire that charred the Peloponnesus so exact date of birth is uncertain. GMC and GPS were third cousins, with business and political interests. GMC was a sensitive and articulate adolescent, but constantly in the shadow of the plutocrats and GPS. Some of GMC’s relatives decamped to America and Australia as a result, but after the marriage of GMC and GPS in 1981, a certain domestic harmony ensued. GPS appreciated GMC’s willingness to work and eventually GMC rose to regional manager of the other Balkan Middle Classes, in the latter 1990s.  GMC also bankrolled their daughter’s education in Britain, at City College in London.

According to a copy of GMC’s diary, smuggled out of the house by a relative from Toronto, the trouble really began in the late 1990s when GPS forced GMC to agree to signing off on a false financial statement to join the Euro Club. Membership had its privileges, though, and for the next few years, the couple partied hard, not just in Mykonos with the VIPs, but all over the world. For a poor kid from the village, it was heady stuff. But keeping up with the VIPs, both local and foreign, was hard going and GPS began to skip paying bills while demanding more and more from GMC’s paycheck. Blackmail and verbal abuse became the order of the day, and GPS actively stirred both the poor and the rich against GMC, further isolating GMC. Also, relatives from America and peers in Europe were pushed away, and eventually GPS’s bad manners and temper resulted in GMC becoming friendless. GMC’s long history of enabling GPS also eroded others’ respect for GMC.

Just as GMC’s health began to deteriorate, GPS forced GMC to work harder, and constantly demanded GMC’s pay. GPS’s health insurance proved to be less than effective, because GPS had stopped paying the premiums, and GMC was not allowed to seek help from relatives or from peers. By this summer, GMC’s pallor had turned a deathly grey, even as GPS was planning yet another ponzi scheme. With the first serious cold snap, and no money for heating oil, GMC gave up the ghost. A few days before, neighbors did hear a muffled argument about yet another financial demand from GPS, but GPS insisted that the neighbors misheard.

A few days after the funeral, GPS was seen in Mykonos arm in arm with VIPs, hardly a grieving spouse.  Among those in GPS’s entourage included officials in charge of the inquiry into GMC’s death.  A finding is expected shortly.

We all eagerly await the findings of the inquiry.

Let the Reforms Begin! (We hope)

Along with a large part of the Greek population, the authors of Reform Watch Greece engaged in various summer rituals, including extended vacation periods. We used this period to gather substantial anecdotal information about the economic, political and social situation in Greece’s regions, which will be compiled later. We also closely followed the dramatic July-August period filled with dozens of “to do” pronouncements by the Samaras Government in Greece and the sometimes perceptible reactions of its foreign partners.
While in this summer period the primary government focus has been on lining up painful but needed expenditure reductions to Greece’s budget in the 2013-2014 period, in line with commitments in the Second “Rescue” Memorandum agreed early this year, we have actually seen a few announcements which appear to be setting the stage for some critically needed new (and Troika-agreed) structural reforms. While implementation of most of these reforms remains in the future tense, two important developments over the summer allow us to check off at least a few reform boxes. We will monitor these and other reform developments over the autumn period.
Of note:
The “stealth” privatization of Greece’s Agricultural Bank (ATE) through a rapidly implemented rescue plan including the sale of much of the ATE Bank’s network to Greece’s privately owned Piraeus Bank. This has set the stage for a new round of bank consolidations while moving a large number of banking outlets out of the public sector. ATE was split into a “viable” unit which was transferred to Piraeus Bank while the government will wind down the so-called “bad segment” of ATE, holding its non-performing assets. The Syriza opposition is challenging the plan’s implementation but for now the transfers have gone forward.

The beginning of the consolidation of Greece’s numerous public sector entities, with a number announced for closure or “transfer and consolidation.” The Samaras government announced its intentions to preserve all jobs in these organizations by offering transfers to effected employees. This is still a work in progress with another, larger group of organizations to be shut down set to be announced later this year.

Time to Streamline

Greece is about to learn the composition of its latest government coalition. Unfortunately this has become an all-too-regular event.  We wish the new government the very best as it takes Greece’s long-overdue structural reforms forward.

Here at Reform Watch Greece we sincerely hope the announcement does not include a Ministry of Development, Competitiveness and Shipping, or a hastily renamed new version thereof. We believe retaining this Ministry (or a close relative) denotes a government intention to continue its excessive level of state intervention in the Greek economy, something that has to end if Greece is to become investment-friendly.

The Ministry of Development et al that we currently know it is a result of multiple iterations of re-creation.  It never delivered the desired results, and over the years became a major bureaucratic obstacle to most investors.  Essentially parts of the 1980’s era Ministry of Economy/Economic Coordination were merged with the old Ministry of Commerce along with various scientific/commercial research organizations.  From time to time, control of Greece’s shipping industry has been thrown into the mix as well.  The shipping sector is critical to the Greek economy and should be handled in a separate ministry; the handling of this industry in recent years has been quite amazing, if not scandalous.

See this dizzying summary of the political tinkering over the years: http://en.wikipedia.org/wiki/Ministry_of_Development,_Competitiveness_and_Shipping_(Greece)

Streamlining and removal of  much of the Ministry of Development’s work would allow for a significant and truly meaningful downsizing of the central government, and would send the desired (and missing) signal to all that Greece is serious about creating a business enabling environment.  Zeroing out of the permits managed by the Ministry of Development would be the single most important signal the government could send that it is serious about business.

With very few exceptions, the permits issued by the Ministry of Development should be set by legislation to expire by the end of the year, with no need to renew them again.

We suggest a very small core group from the Ministry of Development be assigned to a new National Commission for Investment and Competitiveness that would report to the Prime Minister or Deputy Prime Minister and should include most of the “Invest in Greece” organization as well. Work on managing the EU funding which Greece receives can also be handled here.

The functions that the Development Ministry now performs regarding market price and quality controls (pulled from the old Commerce Ministry) should be spun off into a National Directorate for Consumer Protection.

As noted earlier, A Ministry of Shipping is needed, and can handle Aegean development issues as well.

The time to “Reinvent” the Greek government has arrived.  Keeping the Ministry of Development as it is now structured also signals “business as usual” on the business conference circuit (they will be overjoyed), where no meeting/conference with high-level business executives or foreign investors can be considered complete without a speech from the all-knowing Minister of Development.  Surely Greece deserves more than an ornamental relic from earlier times.

Austerity without Justice

Austerity, yes! Justice, maybe

In a few hours we will know whether fear trumped rage in this latest round of Greece’s election drama.

Were the European leaders and bankers right in threatening Greeks with the direst of consequences should they support openly anti-Troika parties?

Was the Global Left, Occupy Wall Street and the “austerity hurts” crowd closer to the point – that Greece could not and should not be subjected to more of the pain of structural adjustment?

Does it matter?

The implementation of Greece’s reform program has three major hallmarks:

–Little or no domestic constituency for reform

–Underperformance on agreed targets at almost every juncture

–Confusion about Greece’s administrative capacity to undertake reforms

At least up to the present, limited penalties were imposed by the Troika for Greece’s sustained underperformance on reform targets.  So in a perverse way, underperformance has paid off and kept the cash flowing in.  Look at the so-called “closed professions” and see how little has changed.  For example, recall how the IMF’s debt sustainability reports for Greece were revised almost monthly last year to make the case for a deeper haircut at each juncture, yielding Greece more debt relief at each new stage of the discussion.

We suggest that the majority of the Greek people are reacting normally to a structural reform program that has few if any visible “up front” benefits.  Building a domestic constituency for reform will be a long process, but up to now the issue has been a clear lack of justice, giving the population no stake.  Tax increases alienated a large segment of the population early on.  Finally, horizontal cuts in wages and pensions, a choice made by the Papandreou-led PASOK government itself, spread the pain across many layers of Greek society instead of the appropriate target, the bloated public sector.  The Troika should not have accepted PASOK’s “job-preservation is paramount” arguments, since this shifted the pain of adjustment heavily onto the already overburdened private sector and hastened the collapse in economic activity, while barely reducing the Greek state’s revenue requirements.

This could be changed, and quickly, if leaders decided that the missing sense of justice would be addressed as a priority.   Any of these ideas could have been attempted in the last two years and would have reduced the rage we are seeing today, in addition to producing some visible evidence that things could change for the better and that crime did not pay.

Ideas include: 

–Effective prosecution of the corrupt political and business elite based on a reformed judicial system. But in the meantime, set up special tribunals focusing on public procurement scandals.

–Repair and extensive modernization of the taxation system, allegedly ALWAYS underway, to include use of foreign advisors in the debt collection process.

–Re-evaluation of politicians’ asset declarations.  Moving the “look-back” period on these assets to 1974, as many are proposing.

–High priority auditing of public sector jobs so the downsizing and mergers of public sector organizations can be accelerated.  Prosecution of those found to have made hiring decisions based on political criteria as well as fast-track removal of the individuals illegally hired from those jobs, with pension benefits cancelled.

–Thorough scrutiny of all offshore business activities linked to Greece, via special tribunals.

The skeptics will say these ideas are politically unacceptable. We suggest they focus pain where it should be focused, so to demonstrate to the Greek people that unavoidable austerity (at least for the short-term) can be implemented with some sense of justice, social responsibility and reform.