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June 4, 2015 4:35 pm
An offer that Greece should not refuse
Philip Stephens
Greece should take the deal. The country’s creditors have tabled what has all the appearances of a final offer. Alexis Tsipras’s government should accept it. Athens will not achieve better terms and the alternative of default and likely exit from the euro would be worse for the Greek people.
The signs are not encouraging. The creditors’ proposals were hammered out at a meeting hosted by Angela Merkel. For all the Greek brickbats hurled at Berlin, the German chancellor has been more anxious than many to keep it within the euro. She understands that the geopolitical consequences of its departure would reach well beyond the inevitable financial shock. A fair inference would say Ms Merkel has pushed the International Monetary Fund as far as it will go.
Greece’s immediate response has been that Mr Tsipras would be the one presenting what officials described as a “last, best offer”. A kind interpretation would be that the prime minister has to play the politics of managing anti-euro hardliners in his own party; a harsher one that he has still to realise it really is one minute to midnight.
When politicians promise the impossible, the odds are that they will be found out. That is what has happened to the Syriza government. It offered the voters a shortcut out of the country’s dire economic predicament. They could throw overboard fiscal retrenchment and tough economic reforms and keep the euro. Now it is evident Mr Tsipras cannot deliver. More than that: the pain is unavoidable with or without default, inside or outside the euro.
Another miscalculation (or was it hubris?) was to assume that other European states should be bound by the choice made by Greek voters. Mr Tsipras was given a mandate to seek what he said was a better deal. No one should have expected that the voters of Madrid and Lisbon or Dublin and Berlin would feel an obligation to agree. Greece’s democratic choice does not trump those of other eurozone states.
The negotiating strategy of the Athens government has rested on the hopelessly flimsy assumption that Greece has a better option if its creditors refuse to bend to his demands. Economists can argue about the theoretical impact of default followed by a devaluation but, in the particular case of Greece, the consequences are probably all bad.
Syriza’s laundry lists of proposed structural reforms remain, well, laundry lists
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In the short term a return to the drachma would see living standards fall sharply and, with Greece locked out of international capital markets, the government would be forced to generate the fiscal surpluses it now balks at. Austerity inside the euro would be replaced by harsher austerity without.
Ah, but what about the long-term gains to competitiveness from devaluation? In all likelihood they would be fleeting — lost to the dysfunctionality of the political and economic systems. Without the modernisation demanded by creditors, including overhaul of a clientelist and corrupt bureaucracy, a serious effort to collect taxes, the opening up of closed professions, and reform of public pensions, salvation outside the euro would be a chimera.
There is plenty of scope for debate about whether the specific fiscal targets in the latest offer are plausible. I count myself among those who think the Greek government is probably right when it says that the level of Greek debt is unsustainable. The focus by the creditors on precise numbers for fiscal and pension balances, however, reflects the deeper loss of trust.
Targets for the size of the primary surplus a year or two hence can be changed. What matters are the circumstances. The missing ingredient since Syriza’s election victory has been any confidence on the side of creditors that greater fiscal leeway would be accompanied by a serious commitment to overhaul the country’s governance. Mr Tsipras promised that, as an outsider, he would sweep away the corruption and cosy cartels. The impression he has given since is that one set of clients is being replaced by another.
If Athens wants other leaders to take seriously its view that austerity is counterproductive, the only way to do it is to embark on the political and economic reforms needed to underpin a return to growth. Sure, this is more than a two- or three-year project. But resolve and direction count. No one would argue with the slippage of a percentage point here in the size of the country’s primary surplus if the Greek government was breaking up the oligopolies, cleaning up government and stamping out endemic tax evasion.
Instead, Syriza has talked itself into believing that the rest of Europe, and above all Germany, is out to “punish” Greece. Laundry lists of proposed structural reforms have remained, well, laundry lists. The economy has gone backwards. And, yes, in a way it does now seem somewhat perverse to prescribe more austerity.
There is no guarantee that even if a deal is struck it will last. As long as Mr Tsipras and his colleagues feel more comfortable in blaming others for Greece’s woes, the country’s prospects will remain resolutely grim.
The consequences of Grexit for the rest of the eurozone would be at the very least dangerous. But here, sadly, Greece’s partners are trapped in their own paralysis. They know they must turn a monetary into an economic union, but lack the will to do so. This does not look like a story with a happy ending.
High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/f6127244-09e1-11e5-b6bd-00144feabdc0.html#ixzz3cCCqXVrl
June 4, 2015 4:35 pm
An offer that Greece should not refuse
Philip Stephens
Greece should take the deal. The country’s creditors have tabled what has all the appearances of a final offer. Alexis Tsipras’s government should accept it. Athens will not achieve better terms and the alternative of default and likely exit from the euro would be worse for the Greek people.
The signs are not encouraging. The creditors’ proposals were hammered out at a meeting hosted by Angela Merkel. For all the Greek brickbats hurled at Berlin, the German chancellor has been more anxious than many to keep it within the euro. She understands that the geopolitical consequences of its departure would reach well beyond the inevitable financial shock. A fair inference would say Ms Merkel has pushed the International Monetary Fund as far as it will go.
Greece’s immediate response has been that Mr Tsipras would be the one presenting what officials described as a “last, best offer”. A kind interpretation would be that the prime minister has to play the politics of managing anti-euro hardliners in his own party; a harsher one that he has still to realise it really is one minute to midnight.
When politicians promise the impossible, the odds are that they will be found out. That is what has happened to the Syriza government. It offered the voters a shortcut out of the country’s dire economic predicament. They could throw overboard fiscal retrenchment and tough economic reforms and keep the euro. Now it is evident Mr Tsipras cannot deliver. More than that: the pain is unavoidable with or without default, inside or outside the euro.
Another miscalculation (or was it hubris?) was to assume that other European states should be bound by the choice made by Greek voters. Mr Tsipras was given a mandate to seek what he said was a better deal. No one should have expected that the voters of Madrid and Lisbon or Dublin and Berlin would feel an obligation to agree. Greece’s democratic choice does not trump those of other eurozone states.
The negotiating strategy of the Athens government has rested on the hopelessly flimsy assumption that Greece has a better option if its creditors refuse to bend to his demands. Economists can argue about the theoretical impact of default followed by a devaluation but, in the particular case of Greece, the consequences are probably all bad.
Syriza’s laundry lists of proposed structural reforms remain, well, laundry lists
Tweet this quote
In the short term a return to the drachma would see living standards fall sharply and, with Greece locked out of international capital markets, the government would be forced to generate the fiscal surpluses it now balks at. Austerity inside the euro would be replaced by harsher austerity without.
Ah, but what about the long-term gains to competitiveness from devaluation? In all likelihood they would be fleeting — lost to the dysfunctionality of the political and economic systems. Without the modernisation demanded by creditors, including overhaul of a clientelist and corrupt bureaucracy, a serious effort to collect taxes, the opening up of closed professions, and reform of public pensions, salvation outside the euro would be a chimera.
There is plenty of scope for debate about whether the specific fiscal targets in the latest offer are plausible. I count myself among those who think the Greek government is probably right when it says that the level of Greek debt is unsustainable. The focus by the creditors on precise numbers for fiscal and pension balances, however, reflects the deeper loss of trust.
Targets for the size of the primary surplus a year or two hence can be changed. What matters are the circumstances. The missing ingredient since Syriza’s election victory has been any confidence on the side of creditors that greater fiscal leeway would be accompanied by a serious commitment to overhaul the country’s governance. Mr Tsipras promised that, as an outsider, he would sweep away the corruption and cosy cartels. The impression he has given since is that one set of clients is being replaced by another.
If Athens wants other leaders to take seriously its view that austerity is counterproductive, the only way to do it is to embark on the political and economic reforms needed to underpin a return to growth. Sure, this is more than a two- or three-year project. But resolve and direction count. No one would argue with the slippage of a percentage point here in the size of the country’s primary surplus if the Greek government was breaking up the oligopolies, cleaning up government and stamping out endemic tax evasion.
Instead, Syriza has talked itself into believing that the rest of Europe, and above all Germany, is out to “punish” Greece. Laundry lists of proposed structural reforms have remained, well, laundry lists. The economy has gone backwards. And, yes, in a way it does now seem somewhat perverse to prescribe more austerity.
There is no guarantee that even if a deal is struck it will last. As long as Mr Tsipras and his colleagues feel more comfortable in blaming others for Greece’s woes, the country’s prospects will remain resolutely grim.
The consequences of Grexit for the rest of the eurozone would be at the very least dangerous. But here, sadly, Greece’s partners are trapped in their own paralysis. They know they must turn a monetary into an economic union, but lack the will to do so. This does not look like a story with a happy ending.
