What will happen to Greece’s public finances and economy over the next four months while the Syriza-led government negotiates fiscal and economic conditions with the Eurogroup in return for Troika bailout funds under the existing programme that has now been extended until end-June?
Under the provisional agreement with the Eurogroup, the Greek government will not receive any of the outstanding funds of €7.2bn still available (€1.9bn from ECB profits on its Greek government bond holdings made in 2014 and promised to the previous Greek government; €1.8bn from the Eurogroup’s EFSF and €3.5bn from the IMF) until the Eurogroup is happy with its fiscal plans.
And that could take until end-April. As German finance minister Schaueble made clear: Greece was not getting softer conditions, only more time. “Only when we see they have fulfilled this will any money be paid. Not a single euro will be paid out before that,” he said.
But between this weekend and the end of April, the Greek government is supposed to make repayments on maturing short-term government bills and loans back to the IMF. Greece has to pay back IMF loans of just under €2bn by April and it also has to redeem short-term debt of €4.4bn and €2.4bn in March and April respectively.
Where is the money to come from if the Troika won’t cough up on what it promised until agreement on ‘conditionalities’ with the Greek government? Well, before the election of Syriza, the government was running an annualised surplus before paying interest on its debt of about €1.9bn. And it had built up some cash reserves of about €2bn. So all is well, then?
Well, no. Since the election, taxpayers have stopped paying tax, particularly the most well-off and private companies. Tax receipts have collapsed and were 20% short of target. The government actually ran a deficit in January. The primary surplus achieved in 2014 has already been halved. The available money is disappearing to pay for the upcoming debt redemptions.
Now the €6.8bn of government short-term bills could be paid off by issuing new bills that would be bought by the Greek banks (they are already making good profits on these). However, the ECB is saying that the Greek government is already at its limit of €15bn in T-bill issuance outstanding – this is a limit set by the ECB, by the way. The ECB does not want the Greek government to finance its spending by using the Greek banks, in case the government defaults later.
So it’s getting tight to manage to fund public finances over the next two months, unless the IMF waives its debt repayment to help – unlikely! As Finance Minister Yanis Varoufakis put it: “We will definitely have problems in making debt payments to the IMF now and to the ECB in July,” he told Alpha Radio.
So even before we get to a deal with the Eurogroup on what level of austerity measures the new Greek government is supposed to apply to meet fiscal targets, the possibility of default arises.
The four-month extension on the existing Troika programme has been cast by Prime Minister Tsipras and Varoufakis as the best that could be expected to avoid the ECB cutting off funds to the Greek banks and leading to a run on the banks and financial collapse. Tsipras and Varoufakis have argued with their Syriza MPs and followers that they have really got a good deal, in the sense that they can negotiate with the Eurogroup over the terms and measures that will be applied over the next four months. In other words, they have ‘wriggle room’ or ‘fiscal space’.
But as we can see from the latest revenue and spending figures for the government, even if the Eurogroup agrees to a lower primary surplus target than the 3% of GDP they wanted in the old programme, there may not be any surplus to spend at all if tax revenues are not collected.
Yes, the government aims to focus on getting tax arrears, getting taxes out of the oligarchs; and improving tax collection in general. The government claims it can get up to €7bn with its measures. But it will need it (and must convince the Troika too) because it also wants to stop further pension cuts planned under the existing programme (although it has backed down on increasing pensions and the minimum wage or in increasing public sector employment – or at least the wage bill).
Syriza has apparently agreed not to increase income or corporate taxes and yet this is precisely where the most progressive form of taxation could apply. Instead, Varoufakis appears willing to comply with the IMF’s longstanding demand that concessionary VAT rates charged on Aegean Islands should be raised to the standard level. VAT is the most regressive of all taxes.
As for privatisation, what is not commonly realised is that privatisation revenues were supposed to be used to pay down the debt bill and not used to bolster revenues and the primary surplus. The Syriza leadership has agreed to allow existing privatisations through. So Cosco, the Chinese state shipping company, and Maersk of Denmark, the frontrunners among bidders shortlisted for a two-thirds stake in Piraeus Port Authority, will take over. And a consortium led by Frankfurt airport is the preferred bidder for a 40-year(!) concession to run Greece’s regional airports.
Inviting in foreign investment to improve important state assets should not be shunned, in my opinion. After all, that is what the Chinese government does all the time. But they maintain a majority ownership and control the projects. Greece could do the same. Instead, foreign companies will get key sectors of the Greek economy over the next four months. At least, Panagiotis Lafazanis, the energy minister, will apparently stop the sale of the electricity grid and part of the state power utility.
Negotiations on the details of the four-month extension will be tortuous and it is an opportunity for the Syriza government to campaign openly within Europe against austerity measures that the Eurogroup wants to impose and also it gives Syriza time to mobilise the Greek people for the battle ahead.
As PM Tsipras said (wrongly), “we won (actually lost) the first battle and but the war continues”. Austerity must be reversed. Since 2009, successive Greek governments under the direction of the Troika have carried out huge public spending cuts worth 30% of GDP. The public sector wage bill has been reduced by 29%, and now the government has agreed not to increase it. Social benefits have been cut 27% and again the government has agreed not raise this bill.
But Greek public finances at present do not allow for any fiscal space at all, even if the Eurogroup agrees to a lower fiscal target. Tax revenues must come in to meet upcoming debt repayments AND allow for dealing with the humanitarian crisis, boosting employment and wages. Can it be done?
And then what happens after four months? The Greek government and its people must reject any further Troika programme and its conditions (assuming it is offered). They must strike out on their own to control the economy.
That means taking over the banks and the major companies, introducing a plan of investment and growth that mobilises people to support and implement. If that brings the government into a final conflict with other Eurozone governments and the ECB and they threaten to cut off funds and throw Greece out of the Eurozone, so be it.
But there are four months available for the government to campaign within Greece and around Europe for the alternative to the neoliberal economic model and its policies. (see my post, https://thenextrecession.wordpress.com/2015/02/20/troika-grexit-or-plan-b/)
See my facebook site https://www.facebook.com/pages/Michael-Roberts-blog/925340197491022