Undeserved bashing is the real Greek tragedy

Greek finance minister Yanis Varoufakis and his German counterpart Wolfgang Schäuble. It looked as if Schäuble was about to shut the door on Greece until Angela Merkel intervened.

Greece has been cast as Europe’s bad boy, with other states happy to deliver a kicking, but in fact it fulfilled many of its troika commitments, writes Europe Correspondent Ann Cahill

IN MANY ways nothing is exactly as it seems. For the austere German finance minister Wolfgang Schäuble, it was all a matter of principle, of showing people that once they entered into an agreement they had to stick to it to the letter.

He was fully supported in this by a range of countries with Spain to the fore, with the acquiescence of France, with a milder form of support from Italy and with Portugal, Estonia, and Slovakia behaving like harridans.

But the reasons behind each country’s attitude varied widely. Even as Mr Schäuble insisted that rules were rules, several of those supporting him are doing so to gain brownie points when they break the rules, as they will shortly.

So France, having failed to reach its targets for deficits for several years, will get some leeway again this year, when the European Commission on Friday presents its winter economic package. A new expression of flexibility will give France three extra years, until the election in 2017, to bring its deficit down to 3% of GDP.

Italy has also been showing it is making efforts to adopt the necessary structural recommendations and so will not be hit by demands of austerity to bring its debt more into line. Spain and Portugal — despite not having achieved anything as much in terms of consolidation or increased competitiveness as Greece — are also looking for a pass in the coming report.

The case of the former Soviet countries is slightly different. With Syriza proudly labelling itself as socialist, the idea is anathema to those who suffered under the yoke of the old USSR. In Greece, however, anybody who had communist sympathies despite fighting against the Nazis was locked up right into the 1970s.

The Slovak minister complained that the Greek minimum wage, at €550 a month, was more than theirs and it was unfair that Slovaks should be funding Greece. In fact neither Slovakia nor German taxpayers contributed to the Greek bailout — the Slovaks refused while the German state got its development bank to raise the funds.

Ireland’s attitude has been almost benign with Finance Minister Michael Noonan advising that they “model it on what the Irish experience was ”.

In the meantime the row simmers between the EU institutions with commission president Jean Claude Juncker, who has been more sympathetic to the Greeks, being accused of writing the very delicate letter of application to extend the bailout.

But when it looked as though Mr Schäuble and his team were getting ready to bang shut the door on Greece, describing their “letter” as a Trojan horse, chancellor Angela Merkel stepped in. Not known for taking decisions but for letting situations evolve, she and the Greek prime minister Alexis Tsipris hammered out the basis of the deal and told Brussels to get on board.

The temptation is to ask who has won? The answer is nobody for now. All have survived, but every day will be a challenge for the Greeks.

In some ways while the intellectuals of the new Greek government have had the shine knocked off them, they have at least taken ownership not just of the programme but of their economy. Despite allocating German commission bureaucrats to help reform the state, little or no progress was made in tackling the weak tax collection system and the endemic corruption linking politicians and oligarchs.

Now at least Syriza has said it will do it. And because they have been left penniless, with no money to come from the final programme payment possibly until April, they will need to raise much of the €7.3bn they say they can through reform efforts as quickly as possible.

But almost no matter how well they do, Germany won’t change its mind about the untrustworthiness of the Greeks for quite some time. The Dutch president of the eurogroup, Jeroen Dijsselbloem, who is very close to Germany, talked about rebuilding trust using a Dutch phrase that “trust leaves on horseback and arrives on foot”.

Athens can be left in no doubt about this, having suffered the ignominy of Berlin insisting that it could no longer have any control of the €10.9bn fund set aside to recapitalise its banks if needed. Syriza talked about using this untouched fund to stimulate growth. Germany insisted control of the fund be given to the ECB as though Athens would rush off with it in the night.

Does Greece merit such distrust? They have been guilty of dragging their heels on fulfilling the programme items set for their two bailouts — the last was to finish before Christmas but the troika would not give the all clear, insisting that every box be ticked before handing over the final €7.2 bn.

But the figures show they have in fact achieved more than any other country under all the cherished troika headings, despite losing more GDP than Germany after the First World War.

Greece had the fastest fiscal consolidation at 4.4% of GDP compared to Ireland’s 1.3%; was the most responsive to growth recommendations in the OECD, with Ireland third; and had lowered labour costs to restore competitiveness more than the EU average and Ireland.

Its government revenue as a a percentage of GDP was higher than Ireland’s in 2012, according to the IMF, while it was now easier to fire workers in Greece than in Germany— though still easiest in Ireland.

There are accusations that €226.7bn has been wasted by the Athens government but the figures show that just 11% of it has gone to cover the costs of running the state and covering the primary deficit — which it has now eliminated.

The single biggest slice, €81.3bn, has been used to pay maturing debt, 19% or €48.2bn has been used to recapitalise Greek banks, while 16% or €40.6bn, has been spent on interest repayments.

But the required engine of growth — exports and present in Ireland’s case —was not part of the Greek economy. And Greece allowed the troika to undermine this area by agreeing to push up taxes on energy for instance. The IMF, in a recent report, acknowledged that mistakes were made and that cutting wages was one of them.

Claims that Syriza pulled the plug just as the programme was showing signs that it was working have been questioned also. Positive growth figures, when they are based on a falling GDP, are not an accurate reflection of actual growth although reports of 10,000 jobs being created a month were the brightest light on the horizon, with 25% unemployment and 50% among youths.

The biggest break Athens got is the possible agreement not to have a 4.5% primary fiscal surplus next year — and a lower surplus than the 3% this year — although they will have to agree to some surplus as this is supposed to lower Greek debt from the 175% currently to around 122% by 2020.

Syriza has also shelved one of its main election planks, a series of social legislation planned for last Friday, but abandoned as part of the agreement that they would not take any unilateral action that would affect their commitments with their creditors — the EU to which they owe 60% of their debt, 6% to the ECB and 10% to the IMF.

Greece will be hoping that the eurogroup makes good on its promise to lower the cost of the debt — something they were promised would happen last year when they achieved a fiscal surplus a year early, but which has been put off, first until Eurostat officially reported the surplus then until after the European elections but has still not happened.

In the meantime they have to agree by June to the next phase of measures to right their economy and pay their debts, when they will need the EU institutions to raise and guarantee more money for them on the markets.

And they will also be hoping to keep the biggest actor in the game, the ECB, happy as its contribution to keeping money in Greek ATMs has just about exceeded the level of withdrawals last week.


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