Greek Economic Reform Proposals Don't Make The Grade: Grexident Edges Closer

Tim Worstall Contributor
http://www.forbes.com/sites/timworstall/2015/03/29/greek-economic-reform-proposals-dont-make-the-grade-grexident-edges-closer/

We’ve at least one report that the proposals that the Greek Government has put forward over economic reforms to unlock more aid have been found, well, not quite enough. The way that this is going is simply confirming my long held opinion that the most likely way of Greece defaulting and leaving the euro is Grexident: that is, not by any sort of plan, but almost by accident as the various negotiators fail to reach agreement. At the heart of my view over this is the thought that the Greek negotiators, Tsipras, Varoufakis and others from Syriza, think they can get more from the troika (and, in reality, the Germans) than they actually can. Their offers thus fall short as they offer what they think they can get, rather than what is likely to be accepted.

From Friday we had the news that the Greeks were making new offers:

Greece has sent its creditors a long-awaited list of reforms with a pledge to produce a small budget surplus this year in the hope that it will unlock badly needed cash, Greek government officials said on Friday.

The European Union and IMF lenders, informally called the Brussels Group, will start discussing the list later on Friday, a euro zone official said, although a Greek official said the examination would begin on Saturday. Their approval, followed by the blessing of euro zone finance ministers, will be needed for Athens to unfreeze further aid and stave off bankruptcy.

Athens has not indicated whether the latest list will contain a more far-reaching reform program than a previous list of seven reforms on broad issues ranging from tax evasion to public sector reforms, which failed to impress lenders.

I’m getting two sources of gossip: or, rather, two stories coming in from those sources. The first is that the Greek side really doesn’t seem to have understood the other side. Yes, it’s true, Syriza won an election, democracy has its part to play. But that doesn’t mean that Greek democracy gets to play with the money of voters from other countries. This really isn’t about “austerity” any more. This is about whether the German (and other eurozone) taxpayers have to take a loss on the money that has been lent. Just to be clear, there are almost no bankers, no non-Greek bankers, who can be stung for this money. It’s either the Greek taxpayers pay back that debt or the taxpayers of other eurozone countries lose that money. And I’m hearing that the Greeks are simply not quite getting the political pressure the other side is under from the voters who will lose that money.

Sure, no one wants the pain and grief in Greece to go on for a moment longer than it has to. But the word on the street (most especially in Germany, the most important place) is that the Greeks have to buck up and both promise to, and demonstrate that they are, do the right things before there’s going to be any more money put at risk.

Note that this isn’t about what is economically correct (which we can all have a lovely argument about) it’s what is politically possible. No German politician would survive the statement “sure, Greece can have some more money before they promise to reform.”

That’s the first misunderstanding I’m hearing about.

The second is that the Greek proposals just aren’t detailed enough. They’re more aspirations to collect more tax instead of “we will collect more tax by doing a, b and c”. This is inevitable, of course, with a new government that doesn’t quite know how the detailed levers of power work. But it’s a bit too much. So, this evening (Europe time) we get this news:

Greek proposals for a revised bailout program don’t have enough detail to satisfy the government’s international creditors, eurozone officials said, making it more likely that Athens will need to go several more weeks without a new infusion of desperately-needed cash.

Or in more detail:

“The proposals were piecemeal, vague and the Greek colleagues could not explain technically what some of them actually implied,” a eurozone official said. “So, let’s hope that they present something more competent next week.”

I know people slightly involved with these negotiations who are not sure about this. They waver between thinking that the Greek negotiating stance is vague because they think they can gain further funding (which they need to make it through the next few months, while the real and major deal is worked out) by being vague and so this is deliberate. And the same people will then at a different time insist that they’re just not up to speed with how the details of governance works. What you actually have to do if you’re to curb spending and raise revenue collection.

When those involved, however peripherally, are not sure then of course the rest of us are left entirely in limbo.

My own position about the correct public policy hasn’t changed in some years. Exit from the euro, a debt haircut and a devaluation of the new drachma. What does change is how we might reach that desirable outcome: and a chaotic departure would not be the way to do it. But as time goes on the more I think that is possible even if I don’t as yet think it is likely.