9 March 2015

The Greek crisis is far from over


The Greek crisis (unofficial sponsor: Limahl) faces another milestone today. Regular readers may recall that, as part of February’s negotiations to extend Greece’s bailout by four months, the Syriza-led Greek government was permitted to replace certain structural reform measures it had previously agreed to with some new measures more acceptable to Syriza — assuming that they were also regarded as credible by Greece’s Eurozone creditors. It was noted at the time that the first draft of the list of replacement measures did not contain sufficient detail, and more would need to be done for Greece to secure the €7 billion of financing from Eurozone and IMF partners it needed to get through even the four-month extension.

On Friday, Greek Finance Minister Yanis Varoufakis tried fleshing out Syriza’s proposals further. He proposed six measures, ranging from the sensible-if-ineffectual to the frankly bizarre. Very much in the latter category fall Syriza’s proposals to recruit vast numbers of tourists to act as spies detecting cash-in-hand transactions that might be VAT evasion. Possible even crazier is a proposal that no Greek government agency should be able to request information from any citizen that any Greek government agency has previously gathered — with the likely result that almost no crime or regulatory violation will be able to be pursued until the Greek government sets up a seamless IT system. Party on.

One should bear in mind that these six measures are supposed to replace around 30 per cent of the previous structural reforms Greece’s creditors required so that it would be plausible that Greece grows fast enough and gathers enough tax over the medium term to repay its debts. To put it mildly, these six measures ain’t gonna cut it. The Eurogroup head Jeroen Dijsselbloem stated: “The six, those are just the first six. Those absolutely won’t be accepted [at the Eurogroup meeting today] as the 30 percent that they wanted to replace… The Greeks know that too, by the way, they don’t have any pretence that this is it.”

The Greeks themselves seemed… less definitive on the question of its being reasonable for the Eurogroup not to accept the proposals in their current form. Varoufakis was reported in an interview over the weekend as saying that if the Syriza-led government’s proposals were rejected, there would be a referendum (an idea alluded to, also, by Prime Minister Alexis Tsipras). The leader of Syriza’s coalition partner ANEL, who also serves as the defence minister, was less gentle. He was reported as saying that if Europe “hits” Greece, she would respond by sending all her immigrants to Berlin.

Perhaps these shenanigans might yet lead to the Eurozone losing patience in April and creating an acute crisis by the “institutions” (IMF, ECB and European Commission) formally rejecting Greece’s proposals and refusing to disburse the remaining tranches of bailout funds from previous bailout programmes. Or perhaps the Greek government might lose patience and hold a referendum on whether it should accede to Eurozone demands (the result would be a resounding No).

But either way, underneath all of this, another clock is ticking. In the final paragraph of Varoufakis’ Friday letter he stated that “the Greek government believes that, very soon, the two sides ought to begin higher-level discussions regarding a “possible follow-up arrangement”” — i.e. a third bailout. The Spanish Economy minister Luis de Guindos has claimed that talks on a third bailout of €30bn-€50bn are already underway. Does anyone seriously believe the Germans are going to agree to that?

Andrew Lilico is Chairman of Europe Economics.