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.

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.

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.

Reform Watch May 2012 Round Up…Did you REALLY expect changes?

Yes it’s an election period. And yes, you are tuned to Greece. Who in their right mind would expect a “caretaker administration/service government” to change anything?  Especially anything that involved benefits levels or public sector staffing?

Just testing…We certainly didn’t.  Nonetheless the country kept operating at deficit levels, meaning public sector salaries and pensions were supported by Troika bailout funds, as usual.  Did Greece really move any closer to financial independence over this period? Were those bailout funds well spent or just scattered randomly for public consumption and to sustain businesses/public services that seriously need to restructure?

Below is a brief listing of how certain ongoing structural reforms were “processed” in Greece over the last month. It is basically a “low-performance report.” We are certainly glad we don’t have to compile a detailed matrix of accomplishments for Troika officials prior to disbursing the next cash injection (shape not yet decided) which Greece will so desperately need next month. There is precious little to work with, even for the strongest supporters of Greece in this difficult time. And let’s not forget that the former Papademos government basically sprinted to pass key pieces of reform legislation by mid-April (mostly unimplemented) so the first round of elections could be held in May.

None of this absolves Greece in any way of its requirement to produce a large list of budget cuts for 2013-2014 for Troika approval and vote on dozens of other reform measures by the end of June.  No wonder Greeks prefer politics!

Privatization:  While work on preparing assets already held at the Hellenic Republic Assets Development Fund (TAIDEP in Greek) goes on, policy decisions and transfers of new state assets to the Fund are frozen by edict until the June 17 elections. Socialist parties are doing all they can to stop work at the TAIDEP and some even talk of reversing it.  The status of a number of government assets transferred to the TAIDEP in early May before elections is reportedly under review.

Health Sector:  The new system of electronic prescription management, designed to reduce costs by limiting drug purchases, was partially offline in May for technical reasons.

Tax Issues/Revenue Collections:   Revenue collections have fared poorly this year due to the recession and the extended election period.  Some news reports note a 20-30% decline compared to last year and certain news outlets and high-level government sources  characterized the situation as “desperate” during various political meetings and coalition-formation discussions throughout May. Reforms in the barely functioning tax collection mechanism, especially those designed to fight tax evasion, are not underway now, but major changes required by the Troika should begin in July.

Labor Market:  As of May 14, all “old” collective labor contracts automatically expired. Those contracts could be replaced by so-called individual agreements and could include some wage reductions. This important labor market reform stipulates that a collective contract had to have been signed/reauthorized in the previous three months to be considered valid after May 14.

Public Sector Personnel System:  Just days before the May 6 elections, word was released that the ambitious personnel reviews and job audits planned for the public sector would be delayed due to the elections. Nothing since then, but of course, public sector (BFGPS) paychecks keep coming.

European Community Monitoring Office:  Shortly before the May 6 elections, a site for the Mission’s Headquarters in Gazi was announced.  Public Sector employees already in that building protested immediately.  Since then, not a word.

Bank recapitalization: This is not a structural reform, but since it is linked to the overall PSI package which supports reform, it merits mentioning.  The bulk of the EFSF funds sent to Greece for this purpose in April were disbursed to four participating banks via the Hellenic Financial Stabilization Fund (HFSF) in mid-to-late May, with substantial action (Euros 18 billion) disbursed in the last few days of the month.

 

Scale of reform task facing Greece is monumental

See article below for a good summary (The Irish Times) of what Greece committed to do, under former-PM Papademos, by June 2012 as it received the first “new” bailout tranche under the so-called “Second Memorandum.”  This is not fiction, and that money, disbursed in March, has been spent. The date for the Troika’s next return/review is not yet clear.

http://www.irishtimes.com/newspaper/world/2012/0518/1224316280691.html

Reform Watch Greece survey results…..a long, tough path ahead.

The results are in, Reform Watch Greece’s first survey is complete.  We thank all readers for participating.

The survey was opened here at the end of March, and completion deadline extended until April 15.

Readers should pay attention to the fascinating comments visible by clicking the “detailed report” button for each question.

http://polldaddy.com/surveys/1848809/report

Since there were a wide range of questions asked, a general conclusion is hard to reach. We note the survey indicated respondents gave the Greek governments since 2009 relatively low marks for reform accomplishments while disagreeing with many Troika objectives and strategies. This is not out-of-line with the general pre-election sense of public malaise.

Reform Watch Greece survey #1 – The way forward for Greece

Reform Watch Greece introduces the first of a number of surveys we plan to conduct on structural reform in Greece. Please take a few minutes to answer the questions on the fancy new “Polldaddy” application we are trying this time.  This vehicle should make it possible to analyze results at the end of the survey and even repeat some questions over time so we can build up a usable database.

If you would like to suggest other survey vehicles that we may not be familiar with, please do so in the comments section. And yes readers, there might be a slight bias detected in the questions, since we are run by a group of civic-minded citizens pressing for action.

Survey follows….

Take Our Survey!

The Eurogroup hath spoken – Key decisions to propel Greece forward

So the deal is done.  Early this morning the Eurogroup concluded its deliberations on the Greek bailout. It is no longer a question of whether policy proposal “X” (haircut size, monitoring, payment systems, and prior conditions) is decided.  The issue is now implementation. We attach the final Eurogroup communique from February 21 at the end of this post.   Since more or less the entire financial press in Europe and many of its global affiliates will be reviewing the agreement, we thought Reform Watch Greece should briefly highlight a few key points and provide a short assessment on whether these measures will help structural reform proceed in Greece.

Preamble:  We cite this text section, with extremely blunt language, as evidence that the Eurogroup was intent on sending a clear message to the Greek population that this program is not simply something they can opt to ignore (our italics for emphasis):    “This new programme provides a comprehensive blueprint for putting the public finances and the economy of Greece back on a sustainable footing and hence for safeguarding financial stability in Greece and in the euro area as a whole. The Eurogroup is fully aware of the significant efforts already made by the Greek citizens but also underlines that further major efforts by the Greek society are needed to return the economy to a sustainable growth path.”

Monitoring:  Seemingly bowing to German concerns, the Eurogroup requested the European Commission to enhance and to expand the role of the existing EC Task Force for Greece, including a new permanent on-the-ground role.  Additional EU member states’ expertise is also requested. This proposal is of course certain to generate new political resistance in Greece, across a wide spectrum.  Note: The IMF already has a more or less permanent presence here, via its low profile Resident Representative in Athens.  The communique further states that “Euro area Member States stand ready to provide experts to be integrated into the Task Force. The Eurogroup also welcomes the stronger on site-monitoring capacity by the Commission to work in close and continuous cooperation with the Greek government in order to assist the Troika in assessing the conformity of measures that will be taken by the Greek government, thereby ensuring the timely and full implementation of the programme.”

Debt Repayment Prioritization:  We have already witnessed a series of Greek politicians reacting almost rabidly to the concept that debt service would be given a higher priority than other domestic expenditures, since for many it raises sovereignty concerns. Some have even threatened to press for a debt-servicing moratorium.  In the negotiations over the bailout package, Greece also undertook to insert a modification to its constitution, when possible, allowing this obligation to be fulfilled, but for the foreseeable future a Troika-supervised accounting mechanism managed by the Ministry of Finance and its appointees will actually be utilized.   “The Eurogroup also welcomes Greece’s intention to put in place a mechanism that allows better tracing and monitoring of the official borrowing and internally-generated funds destined to service Greece’s debt by, under monitoring of the troika, paying an amount corresponding to the coming quarter’s debt service directly to a segregated account of Greece’s paying agent.  Finally, the Eurogroup in this context welcomes the intention of the Greek authorities to introduce over the next two months in the Greek legal framework a provision ensuring that priority is granted to debt servicing payments. This provision will be introduced in the Greek constitution as soon as possible.”

PSI: A large part of the communique deals with PSI modalities, of less concern to us than the implementation of structural reform. We will avoid comment on these points.

A Closing Warning:  The final section of the Eurogroup communique is far more than a comforting closing statement of support. After the timing/details of the decision process are spelled out, the document closes with an emphatic reminder about the need for Greece to fully comply with program conditionality, the so-called “prior actions.”  If Greece had a better track record on structural reforms, we doubt that we would have seen such a clear formulation/warning:   “It is understood that the disbursements for the PSI operation and the final decision to approve the guarantees for the second programme are subject to a successful PSI operation and confirmation, by the Eurogroup on the basis of an assessment by the Troika, of the legal implementation by Greece of the agreed prior actions. The official sector will decide on the precise amount of financial assistance to be provided in the context of the second Greek programme in early March, once the results of PSI are known and the prior actions have been implemented.  We reiterate our commitment to provide adequate support to Greece during the life of the programme and beyond until it has regained market access, provided that Greece fully complies with the requirements and objectives of the adjustment programme.”  In no uncertain terms, the message is, “we are watching you.”

Start full communique text:  “The Eurogroup welcomes the agreement reached with the Greek government on a policy package that constitutes the basis for the successor programme. We also welcome the approval of the policy package by the Greek parliament, the identification of additional structural expenditure reductions of  325 million to close the fiscal gap in 2012 and the provision of assurances by the leaders of the two coalition parties regarding the implementation of the programme beyond the forthcoming general elections.

This new programme provides a comprehensive blueprint for putting the public finances and the economy of Greece back on a sustainable footing and hence for safeguarding financial stability in Greece and in the euro area as a whole.

The Eurogroup is fully aware of the significant efforts already made by the Greek citizens but also underlines that further major efforts by the Greek society are needed to return the economy to a sustainable growth path.

Ensuring debt sustainability and restoring competiveness are the main goals of the new programme. Its success hinges critically on its thorough implementation by Greece.

This implies that Greece must achieve the ambitious but realistic fiscal consolidation targets so as to return to a primary surplus as from 2013, carry out fully the privatisation plans and implement the bold structural reform agenda, in both the labour market and product and service markets, in order to promote competitiveness, employment and sustainable growth.

To this end, we deem essential a further strengthening of Greece’s institutional capacity. We therefore invite the Commission to significantly strengthen its Task Force for Greece, in particular through an enhanced and permanent presence on the ground in Greece, in order to bolster its capacity to provide and coordinate technical assistance.

Euro area Member States stand ready to provide experts to be integrated into the Task Force. The Eurogroup also welcomes the stronger on site-monitoring capacity by the Commission to work in close and continuous cooperation with the Greek government in order to assist the Troika in assessing the conformity of measures that will be taken by the Greek government, thereby ensuring the timely and full implementation of the programme.

The Eurogroup also welcomes Greece’s intention to put in place a mechanism that allows better tracing and monitoring of the official borrowing and internally-generated funds destined to service Greece’s debt by, under monitoring of the troika, paying an amount corresponding to the coming quarter’s debt service directly to a segregated account of Greece’s paying agent.

Finally, the Eurogroup in this context welcomes the intention of the Greek authorities to introduce over the next two months in the Greek legal framework a provision ensuring that priority is granted to debt servicing payments. This provision will be introduced in the Greek constitution as soon as possible.

The Eurogroup acknowledges the common understanding that has been reached between the Greek authorities and the private sector on the general terms of the PSI exchange offer, covering all private sector bondholders. This common understanding provides for a nominal haircut amounting to 53.5%. The Eurogroup considers that this agreement constitutes an appropriate basis for launching the invitation for the exchange to holders of Greek government bonds (PSI).

A successful PSI operation is a necessary condition for a successor programme. The Eurogroup looks forward to a high participation of private creditors in the debt exchange, which should deliver a significant positive contribution to Greece’s debt sustainability.

The Eurogroup considers that the necessary elements are now in place for Member States to carry out the relevant national procedures to allow for the provision by EFSF of (i) a buy back scheme for Greek marketable debt instruments for Eurosystem monetary policy operations, (ii) the euro area’s contribution to the PSI exercise, (iii) the repayment of accrued interest on Greek government bonds, and (iv) the residual (post PSI) financing for the second Greek adjustment programme, including the necessary financing for recapitalisation of Greek banks in case of financial stability concerns.

The Eurogroup takes note that the Eurosystem (ECB and NCBs) holdings of Greek government bonds have been held for public policy purposes. The Eurogroup takes note that the income generated by the Eurosystem holdings of Greek Government bonds will contribute to the profit of the ECB and of the NCBs. The ECB’s profit will be disbursed to the NCBs, in line with the ECB’s statutory profit distribution rules. The NCBs’ profits will be disbursed to euro area Member States in line with the NCBs’ statutory profit distribution rules.

– The Eurogroup has agreed that certain government revenues that emanate from the SMP profits disbursed by NCBs may be allocated by Member States to further improving the sustainability of Greece’s public debt.

All Member States have agreed to an additional retroactive lowering of the interest rates of the Greek Loan Facility so that the margin amounts to 150 basis points. There will be no additional compensation for higher funding costs. This will bring down the debt-to-GDP ratio in 2020 by 2.8pp and lower financing needs by around 1.4 bn euro over the programme period. National procedures for the ratification of this amendment to the Greek Loan Facility Agreement need to be urgently initiated so that it can enter into force as soon as possible.

– Furthermore, governments of Member States where central banks currently hold Greek government bonds in their investment portfolio commit to pass on to Greece an amount equal to any future income accruing to their national central bank stemming from this portfolio until 2020. These income flows would be expected to help reducing the Greek debt ratio by 1.8pp by 2020 and are estimated to lower the financing needs over the programme period by approximately 1.8 bn euro.

The respective contributions from the private and the official sector should ensure that Greece’s public debt ratio is brought on a downward path reaching 120.5% of GDP by 2020.

On this basis, and provided policy conditionality under the programme is met on an ongoing basis, the Eurogroup confirms that euro area Member States stand ready to provide, through the EFSF and with the expectation that the IMF will make a significant contribution, additional official programme of up to 130 bn euro until 2014.

It is understood that the disbursements for the PSI operation and the final decision to approve the guarantees for the second programme are subject to a successful PSI operation and confirmation, by the Eurogroup on the basis of an assessment by the Troika, of the legal implementation by Greece of the agreed prior actions. The official sector will decide on the precise amount of financial assistance to be provided in the context of the second Greek programme in early March, once the results of PSI are known and the prior actions have been implemented.

We reiterate our commitment to provide adequate support to Greece during the life of the programme and beyond until it has regained market access, provided that Greece fully complies with the requirements and objectives of the adjustment programme.”  End text. 

Letter from a Greek Private Sector Employee to a Public Sector Employee

In the wake of long overdue public sector reforms, brought on by external pressures (Troika), the Greek government apparently submitted legislation to deal more effectively with illegal and unethical behaviour in the public sector. The first article referred to below and published in Bloomberg and on our Twitter feed January 18 refers to this.

The second article, from a fellow blogger, entitled “Letter from a Greek Private Sector Employee to a Public Sector Employee” was posted in Greek originally. We have translated it below for the benefit of our readers because we thought that it goes to the heart of the matter succinctly.

Letter from a Greek Private Sector Employee to a Public Sector Employee

“Dear public servant, DEKO (Public Sector Corporation) employee etc, earning 1300 Euros (monthly), personally I don’t know you so I have no reason to either believe you or not believe your claims that you are not paid well enough by the state for the work that you do. Statistics though, and my empirical experience tell me that you do not even work enough to earn 500 Euros. Despite this, I don’t know whether as a ministry employee you receive two or two and a half thousand Euros just to keep the armchairs in your office warm.

I have no reason to believe that you weren’t receiving the “prompt arrival benefit/bonus,” nor the lump sum pension bonus from your “contributions” (how much more should you be paid?). I don’t know whether you are a tax collection service official receiving kickbacks and extracted bribes from companies so that you don’t impose a “fine,” at the expense of the country of course. I don’t know whether you work in town planning receiving “fakelakia” (little envelopes with cash) from builders to turn a blind eye on their illegalities, at the expense of the state again. I don’t know if you are a teacher who is on holiday for four months of the year and who works 25 hours a week, obliging through your laziness your students to undertake private paid lessons. I don’t know whether you are a customs service official making a little fortune on the side from illegal imports, nor whether you work for DEH (Public Power Corporation) extracting “mizes” (bribes) to award contracts to companies without going to public tender.

If you worked for Olympic Airlines, then you surely stole spare parts and batteries for your car, making sure that the company went under. If you work for OSE, then it’s certain that you had sent goods on consignment on the train system without documentation securing a fee for yourself at the company’s expense of course. If you work for OTE (formerly state owned telephone company), then you surely secured that placement through contacts, a “visma (a power connection)”, joining an already overstaffed company and receiving a fat salary. As an employee of a government television station, you probably never even set foot on the premises. If you are with the police, you would have cancelled traffic violations, you would have engaged in all sorts of illegalities without ever being punished and would have simply enjoyed your coffee and bougatsa whilst on duty being paid a double salary for special assignments. If you declared your occupation as forestry employee, then you would have simply organised a bonus for yourself to turn a blind eye to all the illegal buildings in the forests.  So you’re a member of the military then, eh? Then, at the best of times you would have merely stolen from the army’s food supplies in your capacity as responsible officer for the rations. Perhaps though you work in a hospital and made a cosy arrangement with some suppliers where you issued fake invoices, inflated tenfold, to profit handsomely at the expense of the state. If you are a Public Sector unionist, I don’t even want to think about how fate has treated you cruelly.

I personally, public servant, do not feel sorry for you at all. Thanks to your tolerance and votes and for your convenience and comfort, the Greek public sector grew into the monster that it is. Your contribution was decisive in creating the ogres we call politicians; those incompetents who cannot even follow simple instructions. Swim now, therefore, in the cesspool that was created by your own sewage.”

http://www.businessweek.com/news/2012-01-17/greece-submits-legislation-on-public-sector-disciplinary-action.html

http://wiredandready.net/2012/01/18/dimosio3/

Greek Public Sector Unemployment, or Lack Thereof

According to The Economist, dated 14 January 2012, of 470,000 jobs eliminated in Greece since 2008, “not one has been from the public sector.” Reformwatch.gr seeks to chronicle and to track the pace of reform in Greece necessary for the country to survive as a developed nation in a community of developed nations. If the above figure is true, or even remotely so, there has clearly been no reform.

Actually the quote is not technically correct as there have been many contract employees released from public sector and especially local government administrative slots over the past 18 months, but Minister of Public Sector Reform Reppas has indicated that no public sector employee will be dismissed, in the purest form of cheap electoral politics. Clearly, some Greeks are more equal than others.

We are distressed by the relaxed approach the PASOK elements in the current Greek government have taken to mergers and eliminations of non-essential public sector entities (originally laid out under George Papandreou and handed to Vice PM Pangalos for actual implementation), choosing to “except” a large number of the personnel that had been designated for firing or the “labor reserve” once their employing agencies were abolished/merged.

As Solon beautifully expressed in last month’s Private Sector Death Spiral posting, the current existential financial crisis in Greece has become an opportunity for the Public Sector to squeeze the life out of the remaining private sector, with the apparent blessing (or gross negligent disregard) of “The Troika.” The insanity of this situation ought to be self-evident. We are frequently asked why the Troika allows such back-pedaling on administrative reform. It is as if “Reform” in Greece has taken a page from Stalin’s Five Year Plan playbook. Stalin destroyed the kulaks, the small independent farmers, to finance his industrialization drive. In Greece, the private sector and the entrepreneur might not be going to the gulag, but they are increasingly out on the street, homeless, in order to finance the unproductive but protected Public Sector. This lack of logic would offend even Stalin.

Not only do figures like those quoted by The Economist demonstrate that the purpose of reform has been defeated and perverted, it also opens wide the possibilities for severe social unrest, as the private sector who suffers the bulk of the pain sees that the Public Sector is either partially shielded from its effects, or, more ominously, dishes it out. All of this at a time when Greece, still in extensive deficit spending mode, needs international support to pay monthly pensions and Public Sector salaries. Greece deserves better.

Proud Yes, Powerless No!

Collective responsibility in any democratic society is borne by all citizens. Citizens are obliged to be informed about the issues affecting their society, their country. Political leaders are voted into office by the citizenry, they are therefore “popular representatives”, and in any democracy, through the power of the vote, the people, and civil society, have the ability to send them home if they disagree with the way that they govern the country. It is difficult, therefore, for the people to evade the collective responsibility that they allowed the country to be governed by two political parties, which had the support of the vast majority of the electoral body, resulting in the economic and moral meltdown of today.  In fact, one can argue quite credibly that the moral bankruptcy preceded the economic bankruptcy in Greece.

We noted in our previous post (In search of a leader with reformist vision) that Greece today urgently needs the healthy reformist sectors of society to come to the forefront. Our concern is essentially that there still has not emerged the critical mass of citizens pushing for structural reform. Too many have been bought off/co-opted by having family members in/or dependent on the less productive segments of the public sector, so the whole issue of reform is forced ahead only by the Troika at each bail-out tranche review. The few Greeks and focused elements of civil society which support structural reform are such a minority that they cannot, it seems, even form a political party. So we will not let Greek society off the “collective” hook until the consciousness shifts, and those who defend “poor little Greece” in the Western media are actually doing more harm than good unless they forcefully support Greece’s small number of true reformers (not Papandreou style speech-writers). The wave of creative destruction we are seeing now across the country is inevitable — Greece’s considerable human and capital resources have to be reallocated to functions which allow them to generate something of value. Like it or not, the free market is doing it, since government here is unable/ unwilling to. This hurts some (weaker) elements of Greek society excessively and it may take a generation. Civil society/NGO’s could be helping more…

To this extent, we are, therefore, astonished by the way some authors who clearly should know better gloss over the true problems in Greece.  The article below is an example of a superficial feel-good effort to explain the problems without any real data. Whilst the author does state that the two main problems are corruption and incompetence, he then glosses over this telling us that most Greeks are upset with the Troika and their own politicians…forgetting to mention that corruption and incompetence are to be found at every social level and in almost every sector of society. Moreover he fails to even touch on what this all says about an entire society that was actively milking the system for decades, but had no idea that this would lead to economic and social collapse.

Totally unconvincing!  We live in Greece and know what is happening. The sad fact is that a critical mass of Greek people does not appear to want structural reform or modernization of the economy and especially Greek society; many still want a return to the good old days when handouts were readily available, especially to those connected to the power structure.  Reorganization of Greece from the ground up has been recommended by just about everybody, check our previous posts.  Those elements of civil society which have focused on the problems, like the newly independent media (bloggers) and groups like Transparency International, are still relatively ineffective, although gaining some ground.  Why don’t the authors of the article below even attempt to explain how or why Greece has delayed on Troika-mandated reforms for over 18 months now?  They can’t, so the whole point of this plea for mercy is wasted.  And Greece continues spiraling down……

http://www.telegraph.co.uk/news/worldnews/europe/greece/8998359/Proud-but-powerless-the-Greece-that-I-love.html