The Greek government imbroglio

Tsipras is betting on his partners’ fear in a bid to get them to cave to his demands. He is conscious of waging a dangerous guerrilla war that could plunge his country into utter disarray. But he reckons that prospect would also trigger an open crisis in the Euro zone, sharply hitting confidence. Forcing a Grexit would severely damage all countries, hampering current efforts aimed at harnessing recovery.

Yet, he underestimates the EU´s resoluteness in refusing to give in to extremist pressures. The possibility that any concession might fuel a rebellious mood elsewhere dwarfs any chance for compromise. Rejecting assistance from the fire brigade when your house is in flames doesn’t convey a favourable impression to your partners. They might abandon all hope of providing you with help, choosing instead to ring fence themselves against the ensuing flames.

Tsipras has chosen the wrong battleground. Pressing for immediate debt relief, he has blatantly missed the point. Creditors are all too aware that Greece would need an impossible 7% in nominal growth for the next 30 years to service its public liabilities. Focusing on this long-term problem hampers his ability to address those that are currently throttling the Greek economyRaising competitiveness is a must. Yet, in the short run, the most acute problem lies in the deep-rooted credit crunch destroying the country’s ability to preserve businesses and keep jobs afloat.

The City has gauged that underperforming banking assets amount to no less than 40%. As Greek entities tap the ECB’s liquidity facilities under less favourable terms than other countries, harsh credit conditions represent a formidable hurdle in a domestic context. Addressing this blatant shortcoming stands as the paramount objective to ensure recovery. The EBA and the ECB are both to blame for rubberstamping a mild picture of a rotten and ill-functioning financial system. The common supervisors should act swiftly to redress their dismal record- the sooner the better.

Greece´s public finances are a shambles. Accepting help from partners seems unavoidable, despite all the efforts undertaken by Greek authorities to avoid that scenario. Tsipras should engage in a sweeping reform plan to stop the current profligate use of public resources, while he should also embark on increasing income tax. Fighting widespread corruption and pilfering will be the real test for the new government, and whether or not they can produce a decisive shift in running the administration. Fellow EU members would appreciate that move.

With time running out, the Greek authorities would be well advised to engage in a fruitful discussion on how to bolster their prospects. Shelving proposals for a barely disguised debt restructuring could unblock the current stalemate. With just a few days left before the ECB threat of cutting short financial support materializes, Tsipras should seize the opportunity and focus on enhancing economic performance which is still lagging behind despite all the sacrifices of recent years.


About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.

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