The only antidote to propaganda and malicious ‘leaks’ is transparency. After so much disinformation on my presentation at the Eurogroup of the Greek government’s position, the only response is to post the precise words uttered within. Read them and judge for yourselves whether the Greek government’s proposals constitute a basis for agreement.
Five months ago, in my very first Eurogroup intervention, I put it to you that the new Greek government faced a dual task:
We had to earn a precious currency without depleting an important capital good.
The precious currency we had to earn was a sense of trust, here, amongst our European partners and within the institutions. To mint that precious currency would necessitate a meaningful reform package and a credible fiscal consolidation plan.
As for the important capital we could not afford to deplete, that was the trust of the Greek people who would have to swing behind any agreed reform program that will end the Greek crisis. The prerequisite for that capital not to be depleted was, and remains, one: tangible hope that the agreement we bring back with us to Athens:
- is the last to be hammered out under conditions of crisis;
- comprises a reform package which ends the 6-year-long uninterrupted recession;
- does not hit the poor savagely like the previous reforms did;
- renders our debt sustainable thus creating genuine prospects of Greece’s return to the money markets, ending our undignified reliance on our partners to repay the loans we have received from them.
Five months have gone by, the end of the road is nigh, but this finely balancing act has failed to materialise. Yes, at the Brussels Group we have come close. How close? On the fiscal side the positions are truly close, especially for 2015. For 2016 the remaining gap amounts to 0.5% of GDP. We have proposed parametric measures of 2% versus the 2.5% that the institutions insist upon. This 0.5% gap we propose to bridge over by administrative measures. It would be, I submit to you, a major error to allow such a minuscule difference to cause massive damage to the Eurozone’s integrity. Convergence had also been achieved on a wide range of issues.
Nevertheless, I will not deny that our proposals have not instilled in you the trust that you need. And, at the same time, the institutions’ proposals that Mr Juncker conveyed to PM Tsipras cannot engender the hope that our citizens need. Thus, we have come close to an impasse.
At this, the 11th hour, stage of the negotiations, before uncontrollable events take over, we have a moral duty, let alone a political and an economic one, to overcome this impasse. This is no time for recriminations and accusations. European citizens will hold collectively responsible all those of us who failed to strike a viable solution.
Even if some, misguided by rumours that a Greek exit may not be so terrible or that it may even benefit the rest of the Eurozone, are resigned to such an event, it is an event that will unleash destructive powers no one can tame. Citizens from all over Europe will target not the institutions but their elected finance ministers, their Prime Ministers and Presidents. After all, they elected us to promote Europe’s shared prosperity and to avoid pitfalls that may harm Europe.
Our political mandate is to find an honourable, workable compromise. Is it so difficult to do so? We do not think so. A few days ago Olivier Blanchard, the IMF’s Chief Economist published a piece entitled ‘Greece: A Credible Deal Will Require Difficult Decisions by All Sides.’ He is right, the three operative words being ‘by all sides’. Dr Blanchard added that: “At the core of the negotiations is a simple question. How much of an adjustment has to be made by Greece, how much has to be made by its official creditors?”
That Greece needs to adjust there is no doubt. The question, however, is not how much adjustment Greece needs to make. It is, rather, what kind of adjustment. If by ‘adjustment’ we mean fiscal consolidation, wage and pension cuts, and tax rate increases, it is clear we have done more of that than any other country in peacetime.
- The public sector’s structural, or cyclically adjusted, fiscal deficit turned into a surplus on the back of a ‘world record beating’ 20% adjustment
- Wages fell by 37%
- Pensions were reduced by up to 48%
- State employment diminished by 30%
- Consumer spending was curtailed by 33%
- Even the nation’s chronic current account deficit dropped by 16%.
No one can say that Greece has not adjusted to its new, post-2008, circumstances. But what we can say is that gigantic adjustment, whether necessary or not, has produced more problems than it solved:
- Aggregate real GDP fell by 27% while nominal GDP continued to fall quarter-in-quarter-out for 18 quarters non-stop to this day
- Unemployment skyrocketed to 27%
- Undeclared labour reached 34%
- Banks are labouring under non-performing loans that exceed 40% in value
- Public debt has exceeded 180% of GDP
- Young well-qualified people are abandoning Greece in droves
- Poverty, hunger and energy deprivation have registered increases usually associated with a state at war
- Investment in productive capacity has evaporated.
So, the first part of Dr Blanchard’s question “how much of an adjustment has to be made by Greece?” needs to be answered: Greece needs a great deal of adjustment. But not of the same kind that we have had in the past. We need more reforms not more cutbacks. For instance,
- We need to adjust to a new culture of paying taxes, not to higher VAT rates that strengthen the incentive to cheat and drive law-abiding citizens into greater poverty
- We need to make the pension system sustainable by eradicating unpaid labour, minimising early retirements, eliminating pension fund fraud, boosting employment – not by eradicating the solidarity tranche from the lowest of the low of pensions, as the institutions have demanded, thus pushing the poorest of the poor into greater poverty and conjuring up massive popular hostility against another set of so called reforms