Greece’s Pursuit Of Normality Has Only One Starting Point

Greece returns normalityGreece returns normality
Yiannis Mouzakis via Macropolis | If you got your hands on a European Commission report that outlined issues of loss of reform momentum, resistance to public sector changes, loss of fiscal discipline, a delayed privatisation programme hampered by strong political opposition, an absence of consensus that forced withdrawals of asset sale proposals and, most critically, the risk of falling short of fiscal targets agreed in the European Stability Mechanism programme, it is highly probable that the first – perhaps only – country you would think of is Greece.

These are among the things the report highlights:

·       It is crucial to renew the reform momentum, including by legislating critical (but much delayed) reforms.

·       A few new measures were taken or announced in 2016 to address the imbalances in the areas of public and private debt, nonperforming loans and the labour market.

·       Key fiscal-structural measures have yet to be adopted to strengthen the long-term sustainability of public finance.

·       The horizontal reform of public administration (including a new mechanism safeguarding the fiscal sustainability of the wage bill) has still not been approved by the House of Representatives. The parliamentary discussions have been delayed since August 2015 due to political opposition.

·       Pressure for fiscal relaxation has increased and needs to be resisted, as fiscal risks remain significant.

It is essential that legislative steps with a budgetary impact, such as the abolition of the immovable property tax, be compensated through well-specified measures at all government levels.

·       Overall, the 2017 primary balance is expected at 2 percent of GDP and 2.5 percent of GDP in 2018, substantially lower than the targets set during the programme for the outer years of 3 percent and 3-4 percent respectively. This points to a relaxation of fiscal discipline.

·       The implementation of the privatisation plan is facing significant delays.

·       The delays are mostly due to the difficulty of fostering political consensus in Parliament but also due to coordination issues within the administration. Faced with strong political opposition, the government withdrew in May 2016 its legislative proposal for the privatisaation of the Telecommunications Authority.

·       The law on the State-Owned Enterprises’ (SOEs) corporate governance has still not been adopted despite bing submitted for discussion at the Economic and Financial Parliamentary Committee in early April 2015.

·       The justice system is one of the least efficient in Europe. According to data collected through the European Justice Scoreboard (REF), it is among the worst performers regarding the time needed to reach a final judicial decision and the backlog of pending decisions.

What might surprise you, though, about this report is that the country it refers to is not Greece but Cyprus.

Cyprus is one of the adjustment programme graduates and is often held up as a role model for Greece.

When the post-programme surveillance report outlined above was issued at the end of last year, Cyprus was not pushed into uncertainty; there was no talk of political instability or speculation about snap elections.

Hardly anyone noticed even though the issues raised are almost identical to those that Greece has battled over with its lenders and have put a strain on the relationship between Athens and the institutions, fuelling the emotions often associated with the Greek crisis.

In fact, the content of the report raises the question of how Cyprus managed to graduate from its programme with so many critical reforms incomplete and when it is already wavering on fiscal commitments.

The reason that Cyprus enjoys this period of calm is because it exited its programme and although in good faith it complies with the surveillance procedure it can largely set aside those recommendations as its official lenders do not have the coercive power granted by the programme review process.

Greece finds itself, again, stuck in its current review trying to bridge gaps with its creditors on issues such as labour reforms and fiscal targets for 2018 and beyond, while creditors need to bridge differences of opinion between themselves.

Although there is much to be debated regarding whether Cyprus is a beacon of reform, it provides a powerful example for Greece’s political establishment. The Cypriot experience makes it abundantly clear that Greece’s only chance of returning to any kind of normality can be found at the end of its bailout programme.

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.