Slow to Reform, Greece Needs Bailout Extension

European and IMF officials are unconvinced Greece is ready to return to market financing.

Greek prime minister Antonis Samaras talks with German chancellor Angela Merkel in Berlin, September 26
Greek prime minister Antonis Samaras talks with German chancellor Angela Merkel in Berlin, September 26 (Bundesregierung)

Greece is likely to have to ask other eurozone countries for an extension of its bailout program because a new credit line has yet to be agreed upon, the Reuters news agency reported on Wednesday.

After receiving two bailouts, worth €240 billion in total, from other European Union countries and the International Monetary Fund since 2010, Greece wants to switch back to market financing from the start of next year. To guard against the possibility that lenders will still doubt the country’s ability to repay its debts and drive up its borrowing costs as a result, a new credit line — which Greece would tap in an emergency — is due to be extended when eurozone finance ministers hear from representatives of the European Central Bank, the European Commission and the International Monetary Fund in Brussels on Monday. The three have jointly administered Greece’s two bailouts.

Greek prime minister Antonis Samaras has staked his government’s political survival on exiting the bailout by the end of the year.

But officials say his government will fall over €2 billion short of its budget commitments. They have also asked for clarification on proposed pension reforms.

German weekly Der Spiegel reported earlier that measures intended to ensure that Greece meets the conditions of its bailout aren’t moving forward in parliament.

One provision aims to increase the quality of administration in the country by partially pegging officials’ pay to their performance. Another foresees swifter settlement of tax debts. The latter measure, though, offers tardy taxpayers the possibility of paying up over the course of up to one hundred installments, a plan that irked the country’s international creditors.

Especially Northern European countries have tired of what they perceive as Greece’s repeated attempts to water down necessary reforms.

There has been improvement. The economy is growing for the first time since 2007. The unemployment rate is falling even if a quarter of Greeks are still out of work. Excluding one-off expenditures to recapitalize its banks, Greece’s deficit equaled just over 2 percent of gross domestic product last year, down from nearly 16 percent at the height of the crisis in 2009.

But according to Der Spiegel, the country still hasn’t a reliable national land registry office. Experts came from the Netherlands to help set up such a system. “Earlier this year, the project was put out to a public tender but the Greeks later simply canceled it.”

Attempts to establish a truly independent tax administration have met similar resistance.

Privatization targets have repeatedly been missed. Greece was originally expected to raise €50 billion by selling off state property. That number was later cut in half and the target date postponed to 2020. Nevertheless, little progress has been made.

The government could theoretically eliminate much of its debt — equal to 175 percent of economic output last year — by selling real estate and shares it owns in publicly-traded companies. The state owns, or partly owns, casinos, docks, hotels, resorts, railways and utility companies. Few have been privatized.

Pavlos Eleftheriadis, an Oxford law professor, argues in Foreign Affairs magazine that the reason Greece has failed to liberalize its economy is that the country’s elites have a vested interest in keeping things as they are.

Since the early 1990s, a handful of wealthy families — an oligarchy in all but name — has dominated Greek politics. These elites have preserved their positions through control of the media and through old-fashioned favoritism, sharing the spoils of power with the country’s politicians. Greek legislators, in turn, have held on to power by rewarding a small number of professional associations and public-sector unions that support the status quo. Even as European lenders have put the country’s finances under a microscope, this arrangement has held.

In the years leading up to the crisis, Greece expanded its public sector by an estimated 150,000 workers to over one million, or 21 percent of the workforce. Public health expenditures grew from 5 to 7 percent of economic output; public spending on pensions rose from 11.8 to 13 percent. Even a conservative government could do little to halt the expansion because many parliamentarians owed their election to influential oligarchs or trade unions who opposed changes.

Despite the huge government bureaucracy and high welfare spending, average Greeks without political connections have seen little benefit. Millions lack insurance. According to Eleftheriadis, over 90 percent of those unemployed today receive no government assistance.

Leave a reply