This MoU is very comprehensive, detailed and impressive. If implemented diligently will be remarkably good for Greece.
The reform measures are broadly divided into four pillars
- Restoring fiscal sustainability
- Safeguarding financial stability
- Growth, Competitiveness and Investment
- A modern state and public administration
The overall emphasis should have been more on structural reforms, institutional reforms, investment programs and sustainable debt restructuring than on austerity measures. The outcomes this MoU expects are too ambitious. With the economic situation having deteriorated further, the fiscal targets expected are very ambitious. But I expect a course correction in the short-to-mid term when the austerity measures are relaxed.
Many criticize the deal as an attack on Greece’s sovereignty and as the most intrusive economic supervision program by the EU on a member state. That is an unfair criticism. In the EU and even more so in the Eurozone, each country pools its sovereignty. That is the whole basis behind a shared currency. On the one hand, people criticise that there is a monetary union but it is not backed by a fiscal union and political union. On the other hand, when you try to move towards a political union, people criticise as surrendering more sovereignty. In any case during the last 5 years after the financial crisis far-reaching measures have been adopted where the Eurozone members have given up budgetary oversights to the EU level. In this deal with the Greece, it goes a little further because repeated recommendations have been ignored not least in the decades before but even in the last 5 years. Greece also has a very poor EU transposition rate (where you transpose the EU directives into national law). They lost out on considerable amount of EU structural funds because of their inability to come out with viable projects. These measures to have extra oversight are completely necessary. To transform a country mired in corruption, inefficient bureaucracy, weak institutions, notorious tax collection, close supervision is needed. It has to be clearly understood that the creditor nations are concerned that this should be the last bailout. It has to be made as comprehensive as possible and learn from previous mistakes where repeated promises have been broken. One cannot keep on pouring water into a leaky bucket. You have to seal all the leaks and monitor if there are any further leaks. The return of the troika (EU, ECB and the IMF) or now the Quadriga (ESB joining them) to Athens is not such a bad thing.
There is a difference between Greece and the other Eurozone members that were bailed out. There is considerable institutional weakness in Greece when compared to Portugal, Spain and Ireland and is more comparable to the central and east European (CEE) countries before they joined the EU. There has to be a shake-up of the institutions in Greece. The European Commission has considerable experience in building institutions successfully in the CEE through the enlargement process. The present MoU with the Greece has a strong imprint of the European Commission and the Quadriga is more or less a similar monitoring scheme here.
The democratic deficit that I have with this MoU is that there is very little fiscal space for the Tsipras government to govern. As I mentioned earlier the primary surplus should have been relaxed even further.
This MoU has been successfully agreed despite the initial German reservations regarding the comprehensiveness of the MoU. The German finance minister has given his complete backing for this MoU, which is again a big relief.
Alexis Tsipras is the best leader capable of taking Greece forward. In the last one month with three parliamentary sittings, his government has passed more reforms than any in the past 5 years. He has the political mandate in terms of huge public support behind him, his detachment from the traditional Greek politician-business nexus, his determination to take Greece out of the present crisis and to fight against corruption.
More than 40 Syriza MPs voted against the government or abstained in the last bailout vote prompting many commentators to expect a possible fresh election. There might not be an election at this stage, which would cause a lot more political, social and economic hardship. My expectation is that Tsipras would survive the confidence motion despite the opposition parties New Democracy and PASOK along with many from his own Syriza party not voting for him. A better option would be to ally with the centrist To Potami party to form a stable majority.
The trust between the Tsipras government and the creditors has been restored to a robust level to everyone’s relief thanks to the Greek government passing all the prior actions in the parliament with comfortable majority and the Greek negotiators being very constructive. The MoU would come into force on Thursday with all the parliaments giving the necessary consent before that. Greece is expected to get a total of EUR 86 billion in 3 years besides EUR 50 billion from the privatisation fund (long term) and EUR 35 billion through EU funds over a 7 year period.
Most of the creditor nations especially Germany wants the IMF part of the bailout agreement. But the IMF insists that the debt has to be sustainable before they contribute bailout money although they are part of the creditors at a technical level where they would be monitoring the implementation along with the EU and the ECB. Along with this, the European institutions came out with their own debt sustainability analysis where they conclude that debt is not sustainable as the economic and financial situation in Greece has strongly deteriorated in recent weeks. The necessity and urgency of debt restructuring has been significantly raised by these developments. The creditors would agree to extend the maturities of the loan even longer, reduce the interest rate further and possibly to a moratorium in debt repayment to make the debt more sustainable in the next days. Even if there is a delay, it should definitely happen after the probable first positive review of the implementation in autumn. Then the IMF would come on board completely. After the first review in autumn, if the Tsipras government is very diligent, I even expect the creditors to relax on the fiscal targets and make it more realistic.
theeveroptimist 