Wednesday, February 25, 2015

Half full or half empty

The deal was done. Syriza and the EU 'institutions' found a compromise. It is a big compromise on Syriza's behalf, but a bank run made a weak bargaining position even weaker. The old left were quick to shout betrayal and more thoughtful doubts have been expressed by Costas Lapavitsas and, in the UK, by Paul Mason, who sees the possibility of Greece leaving the Euro in a managed exit further down the line.

Making this type of criticism is far easier than managing the reality of tough negotiations with the risk of dramatic consequences if they fail and, for the time being anyway, Syriza's negotiating position is being supported by a majority of Greeks. So, here are three pieces by sympathetic economists in support of the deal.

First, Duncan Weldon stresses the importance of buying time - in defence of 'kicking the can down the road'. And he makes an interesting point, which supports his line that Greek debt can be managed:
Greece’s government debt stands at around 175% of GDP. That is, there is no disputing it, very high indeed. But concentrating on the level of debt is not necessarily the most meaningful way to think about it ...
In many ways, when considering the case of Greece, the most economically meaningful number isn’t the level of debt to GDP, but the cost of servicing that debt measured against GDP i.e. how much of the Greek national income is being swallowed up in servicing debt? That is a better measure of the burden of debt than simply looking at the headline numbers. The results of this analysis are somewhat surprising. In 2014, government debt servicing costs in Greece were just 2.6% of GDP. That’s considerably lower than Portugal (5.0%) or Italy (4.7%) and not that much higher than Germany (1.9%).
Measured as share of tax revenues, Greek government interest payments are now lower than when Greece joined the Euro.
He concludes:
The costs to Greece of the past five years have been enormous, neither Greece nor the creditors have covered themselves in policy making glory. Faced with an ill designed currency union the costs of the shock that hit between 2008 and 2010 was always going to have been high. Imposing extreme austerity on an economy hit by a lack of demand exacerbated that crisis. But a policy of ‘I wouldn’t start from here’ isn’t a real policy. ‘Kicking the can down the road’ was probably a lot better than the alternatives.
James Galbraith, who has previously written on the crisis with Varoufakis, takes on critics and cynics with both barrels in a trenchant defence of the deal. It is worth reading in full. He points out:
To understand the issues actually at stake between Greece and Europe, you have to dig a little into the infamous “Memorandum of Understanding” signed by the previous Greek governments. A first point: not everything in that paper is unreasonable. Much merely reflects EU laws and regulations. Provisions relating to tax administration, tax evasion, corruption, and modernization of public administration are, broadly, good policy and supported by SYRIZA. So it was not difficult for the new Greek government to state adherence to “seventy percent” of the memorandum.
The remaining “thirty percent” fell mainly into three areas: fiscal targets, fire-sale privatizations and labor-law changes. The fiscal target of a 4.5 percent “primary surplus” was a dog as everyone would admit in private. The new government does not oppose privatizations per se; it opposes those that set up price-gouging private monopolies and it opposes fire sales that fail to bring in much money. Labor law reform is a more basic disagreement – but the position of the Greek government is in line with ILO standards, and that of the “programme” was not. These matters will now be discussed. The fiscal target is now history, and the Greeks agreed to refrain from “unilateral” measures only for the four-month period during which they will be seeking agreement.
His conclusion is that the Greek elections could mark a sea-change in political economy:
Alexis Tsipras stated it correctly. Greece won a battle – perhaps a skirmish – and the war continues. But the political sea-change that SYRIZA’s victory has sparked goes on. From a psychological standpoint, Greece has already changed; there is a spirit and dignity in Athens that was not there six months ago. Soon enough, new fronts will open in Spain, then perhaps Ireland, and later Portugal, all of which have elections coming. It is not likely that the government in Greece will collapse, or yield, in the talks ahead, and over time the scope of maneuver gained in this first skirmish will become more clear. In a year the political landscape of Europe may be quite different from what it appears to be today.
Sony Kapoor is less ebullient, but highlights the concessions that Syriza did achieve and sees the value of working with 'the institutions':
Greece has the best chance it has had in years to make a clean break with the past. It may not be on the terms its people wished for, but on a number of matters the moderating influence of the “institutions” will actually make for better policy than what Syriza had in its manifesto. 
The reforms Syriza puts forward, particularly for the longer term will be judged on merit, not on their conformity with German diktat. The triple criteria of “fiscal sustainability”, “financial stability” and “economic growth” make sense and one hopes that the technocrats at the IMF, the European Commission and the OECD do a better job of applying these. If Syriza governs competently it will no doubt also win significant concessions on debt relief and the size of the primary surplus it will be required to maintain. Together, this could easily amount to more than 10% of GDP of fiscal space over its term to be used for much needed investment and humanitarian relief. It will also have a significant positive impact on growth. Whether the reforms look good for Syriza or not, they should be good for Greece and that is all that really matters.
I like his conclusion, it demolishes the facile analogies that were drawn between Greece and Weimar Germany.
It has been remarkable that defying history and developments elsewhere in Europe, the Greek people have, after enduring a great depression, elected a party that is pro-European, pro-Euro and pro-migration. This contrasts sharply with the rise of the anti-European anti-migrant far right in France, the Netherlands and elsewhere
That alone is worth celebrating

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