February 22, 2015
One step before reaching an agreement (?) on Greece’s bailout program, the government dispatched today the revised proposal including the extension of the current loan agreement for the next six (6) months, while introducing a moratorium in the implementation of new austerity measures suggested by troika last November. Meanwhile, the ECB decided yesterday to extend liquidity from ELA to the Greek banks, thus securing the proper function of the banking system. The Greek government and PM Tsipras want time to shift negative prospects of the economy and come back at the end of summer 2015 with entirely new facts regarding public finance performance and negotiate over a broader plan with the creditors. So far, there has been some key macroeconomic data released by IMF and OECD that confute a number of myths with regards to the Greek economy and policy-making these last years.
Figure No. 1: General Government Revenue
Since 2013, the IMF has been officially eloquent in the “wrongdoings” over the Greek bailout programs. In this respect, a number of key facts unveil such anomalies of domestic economy in comparison with the previous years on a 4-year round basis. In this respect, the above figure shows that the general government revenue has not changed dramatically between 1992-2009, before the Greek government resorted to the IMF and sought for the first bailout program few months later.
Certainly, the consecutive austerity measures have increased public income since 2010, therefore it is at least incomprehensible the fact that previous governments were arguing on income gaps in budget plans until 2013, when primary surplus was achieved. Between 2010-13, budget gaps were persistent, whereas in 2014 the government unveiled a primary surplus that has been deconstructed in practice, meaning that it had no impact on real economic performance. Overall, between 2010-14, the governments did achieve to increase public income, but did not achieve to address tax evasion. In the meantime, this increase stemmed from lower and medium incomes, and not from highest incomes that could re-balance the relation between income – tax (i.e. lowest incomes pay lower taxes – highest incomes pay highest taxes).
Fact: Greece had not had major income burdens that could justify a huge public deficit, and thus a bailout program. Budget loopholes were manageable, and if they were not, it was a matter of political decisiveness and commitment to combat tax evasion and increase public income without imposition of austerity measures.
Figure No. 2: Average Reforms Pay-Off
Greece has performed better than any other Eurozone member-state between 2007-14. In other words, and given the special circumstances of the Greek economy, the average reforms pay-off in Greece is extremely positive comparing to other Eurozone and OECD members-states. Nonetheless, these reforms did not bring neither a more productive and efficient bureaucracy, nor economic recovery and gradual development. Trust in domestic market was extremely weak, thus impeding investments.
Fact: Impeccable reforms pay-off was never translated into structural economic developments that could turn domestic market and public finances viable and competitive. It was, again, a matter of political decisiveness and commitment to secure domestic markets against turmoils and capitalize reform packages.
Figure No. 3: Ease for Massive Layoffs
The above figure of OECD proves that since 2010, requirements of bailout programs and austerity prerequisites have turned labor market completely distorted. This was actually the major consequence of austerity, proving also the ease of the previous governments to resort to massive layoffs in order to lower public spending rather than build on combating against broad tax evasion and equalize public income in a more just, fair and democratic manner. Here lies the so-called political cost that previous governments assumed, but without achieving to turn it into their benefit due to the lack of concrete growth policies.
Fact: Layoffs increased immensely and ended up to the creation of sky-rocketed unemployment.
The Greek government is going to use these facts in the coming Eurogroup (or European Council Summit) in order to prove that Greece is in that appalling state of humanitarian crisis because the political decisions of the previous years, coupled with excessive austerity measures, have created a toxic mixture of economic incapacity. The 6-month extension proposal of the current bailout program that would guarantee liquidity along with ECB’s ELA, but without the implementation of new austerity measures, could give time to PM Tsipras to prove that the Greek economy can move again in equal terms with social, human, and labor development. In this respect, and as Germany’s Minister of Finance Schäuble stated yesterday, the problem is not soaring Greek economy, but how Greek economy can stand alone on its feet.
Therefore, Greece’s gradual economic revival is a political issue, not an economic or technical one.
To contact the author Dimitris Rapidis
Author : Dimitris Rapidis