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.


2 thoughts on “Let the Reforms Begin! (We hope)

  1. “Greece Drinks the Hemlock” is the title of the NYT-editorial on the passing of austerity measures. I consider the following sentence as the most important one:

    “Greece cannot pay off its debts when it is shutting down its economy. It has to put people back to work”.

    And the sentence following the above I consider the most questionable one:

    “The only way forward is through more debt write-offs and more low-interest European loans, as well as by opening up restricted job markets”.

    Even if all of Greece’s debt were forgiven, it wouldn’t change much in the functioning of the Greek economy. If all restricted job markets were opened up overnight, it might change something but I would only believe it when I saw it.

    Either way, the Greek economy would continue to be an economy which does not generate enough value to justify the standard of living which Greeks justifyably desire. There simply is not enough domestic production to satisfy a greater portion of domestic demand (making horrendous imports necessary and underutilizing domestic resources) and there certainly is not enough domestic production to generate the amount of exports necessary to justify the desired imports. And with all that underutilization of resources, chronic unemployment cannot be avoided.

    Thus, I return to the ‘early promising signals’ which I have described in a previous post. A better future for Greece can be expected when the following sentiments are felt throughout Greek society:

    * an obsession with import substitution
    * an obsession with export expansion
    * an obsession with making tourism/shipping competitive
    * an obsession with private foreign investment; and, last but certainly not least:
    * an obsession with the EU Task Force to do everything possible to modernize Greece’s public administration and to make Greece a governable state

    If and when that happens, the issue of a debt write-off (which may still be necessary) will become a side issue. Creditors have already accepted the fate that existing debt must be considered – to a large extent – as ‘spilled milk’. The difference is that foreigners (creditors and, above all, investors) will be happy totransfer Fresh Money to Greece because they can have the confidence that the money is well spent.

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