Thursday

21st Jan 2021

Interview

'Greece has become a small problem'

  • On 5 July 2015, 61 percent of Greek voters rejected austerity, prompting talk of a Grexit (Photo: EUobserver)

At a press conference last Friday (1 July), neither European Commission president Jean-Claude Juncker not Slovak prime minister Robert Fico, whose country now holds the EU presidency, uttered the name Greece.

It was a sea change compared to a year ago, when, on 5 July 2015, 63 percent of Greek voters rejected a bailout plan proposed by its creditors in a referendum.

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The vote took place amid political tension in Greece, whose banks had been forced to impose capital controls, and intensified fears of a Grexit - a Greek exit from the eurozone or even from the EU.

But an even more austere bailout than first proposed went through anyway a few days later, while each subsequent review, such as the last one, in May, added still harsher conditions.

A year on, and for Greek political scientist Dimitri Sotiropoulos from the University of Athens: "Greece has a three-year window during which it can try to attract foreign investment, proceed with structural reforms and hopefully enjoy political stability”.

The bailout programme runs until 2018 and the next general election in Greece is due in 2019.

Sotiropoulos, who spoke to EUobserver in a recent interview at the Prague European Summit, a conference, said that Greece lost one year and a half to two years of time it could have spent fixing the economy on fighting its losing battle with the creditors - the EU and the International Monetary Fund (IMF).

'Silent revolution'

He said the government of prime minister Alexis Tsipras “tried what was an unrealistic option to make European decision makers turn around”.

He added that, if things go well, Greece "will soon hopefully come close to the point where we were towards the end of 2014," before Tsipras came to power.

The most successful part of the current programme has been the reform of the banking sector, Sotiropoulos said.

Four systemic banks - the National Bank of Greece, Alpha Bank, Piraeus and Eurobank - were recapitalised last year and the Greek banks' presence in south-east Europe was preserved.

The three other parts of the programme - fiscal consolidation, competitiveness of the Greek economy and reform of the public sector - have so far produced limited effects, Sotiropoulos said.

The objective of a primary budget surplus (a surplus before payment of debt) of 3.5 percent in 2018 is "quite high," he noted, and has met with two obstacles.

First, Sotiropoulos warned, "if the government continues to try to achieve fiscal consolidation mainly by increasing taxes, there will be a silent revolution of Greeks not paying their taxes anymore."

In recent years, he said, the Greek tax system has been changed several times and tax hikes have "almost exclusively hit owners of real estate, regardless of the size of properties and of the salary strata".

On one hand, Sotiropoulos said, "many Greeks are now really unable to contribute anymore". On the other hand, tax increases have not been accompanied by a plan to battle tax evasion.

'€500 salary is low enough'

As a consequence, many self-employed Greek people - a sector that represent more than a third of the labour force - can continue to avoid paying taxes.

Sotiropoulos also said that tax policies applied to meet the fiscal target set by creditors would be "useless unless Greece obtain a small scale restructuring of its debt" from those creditors.

"Without [debt] relief, the problem will surface again and again," he said.

The part of the bailout plan designed to enhance the competitiveness of the Greek economy also faces problems.

In September, Sotiropoulos said, the Greek government and the creditors will start discussing a reform of the labour market to make it more flexible.

The reform is "necessary," he said, but "wages and salaries have been slashed for the last six years and that didn't make the economy more competitive and provided no stimulus for foreign investment to come in."

"We need a larger package which would not depress income," he said.

He said that political instability, a "large and inefficient bureaucratic apparatus" and a "frequently changing legal framework," especially on tax and the justice system, have so far prevented the economy from rebounding.

"Relaxing the protection of workers and bringing down salaries will not make the economy more competitive," he said.

Referring to the current salary of some young people in Greece, he added that "€500 [a month] is low enough to attract foreign capital".

Public sector

The reform of the public sector remains a crucial and difficult part of what Greece has to achieve under the bailout.

Sotiropoulos said that reforms and salary cuts in recent years made many public sector voters turn to Tsipras’ left-wing Syriza party and its right-wing nationalist ally, Anel. That could prevent the government from making deep reforms for fear of losing their electorate, he said.

But he said that the government should do "more to bring the minimum salary in the public sector on a par with minimum salary in the private sector, because the public sector is still very much attractive and that is not a fair policy option."

He said that the government "needs to find ways to merge public services and to enforce mobility" because some parts of the public sector are now understaffed while others are overstaffed.

Since the bailout agreement last summer and a snap election won in September, the legitimacy of Tsipras' government has been "shrinking," Sotiropoulos noted, especially because of the tax policies that it enforced.

But "opposition is not united, not strong enough, it has not gotten rid of accusations that past policies had a tremendously negative impact on the middle and lower classes and it doesn't have a plan of reform," he said.

In recent years, and ever more so more since last summer, Greek governments have been under creditors' oversight, but Greece's situation has not much improved.

Maverick behaviour

"After 2011-2012, creditors gave up and adapted to the Greek propensity to keep the public sector intact, to be very reluctant in reforms and to limit the austerity package to its financial aspect which is fiscal consolidation without changing Greece's economic model and public structures," Sotiropoulos said.

 Now, he added, "creditors are not insisting enough on structural reforms".

He noted that creditors do not completely agree with each other, but also that they do not really trust "a government that has behaved in maverick fashion" in the past.

Compared to migration, terrorism and now Brexit, "Greece has become a small problem," he added.

A year after Greeks refused austerity but were forced to accept an austere bailout anyway, their economic prospects are uncertain and will depend on the main players' will to act.

"Without serious attempts from the government to implement reforms and serious attempts from creditors to discuss some kind of public debt restructuring, we won't have hope after [the end of the bailout in] 2018," Sotiropoulos said.

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