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June 28, 2015

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Posted: 28 Jun 2015 12:06 AM PDT

Greece: It’s the Politics, Stupid!

Posted: 27 Jun 2015 09:09 AM PDT

Gloomy European Economist Francesco Saraceno:

It's the Politics, Stupid!: I have been silent on Greece, because scores of excellent economists from all sides commented at length...
But last week has transformed in certainty what had been a fear since the beginning. The troika, backed by the quasi totality of EU governments, were not interested in finding a solution that would allow Greece to recover while embarking in a fiscally sustainable path. No, they were interested in a complete and public defeat of the "radical" Greek government. ...
What happened...? Well, contrary to what is heard in European circles, most of the concessions came from the Greek government. On retirement age, on the size of budget surplus (yes, the Greek government gave up its intention to stop austerity, and just obtained to soften it), on VAT, on privatizations, we are today much closer to the Troika initial positions than to the initial Greek position. Much closer.
The point that the Greek government made repeatedly is that some reforms, like improving the tax collection capacity, actually demanded an increase of resources, and hence of public spending. Reforms need to be disconnected from austerity, to maximize their chance to work.  Syriza, precisely like the Papandreou government in 2010 asked for time and possibly money. It got neither.
Tsipras had only two red lines it would and it could not cross: Trying to increase taxes on the rich (most notably large coroporations), and not agreeing to further cuts to low pensions. if he crossed those lines, he would become virtually indistinguishable from Samaras and from the policies that led Greece to be a broken State.
What the past week made clear is that this, and only this was the objective of the creditors. This has been since the beginning about politics. Creditors cannot afford that an alternative to policies followed since 2010 in Greece and in the rest of the Eurozone materializes.
Austerity and structural reforms need to be the only way to go. Otherwise people could start asking questions; a risk you don't want to run a few months before Spanish elections. Syriza needed to be made an example. You cannot  survive in Europe, if you don't embrace the Brussels-Berlin Consensus. Tsipras, like Papandreou, was left with the only option too ask for the Greek people's opinion, because there has been no negotiation, just a huge smoke screen. Those of us who were discussing pros and cons of the different options on the table, well, we were wasting our time.
And if Greece needs to go down to prove it, so be it. If we transform the euro in a club in which countries come and go, so be it.
The darkest moment for the EU.

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