Athens-based journalist, prolific economic analyst and blogger (www.economia.gr) Antonis Papagiannidis recently spoke to “Epohi” weekly newspaper (Pavlos Klavdianos: Interview with economist Antonis Papagiannidis, 8.1.2018) sharing his insights on the third review of the ESM support programme for Greece, Portugal's success, Greece' European partners stance, the out-performance of fiscal targets, the Government’s choice to disturb the stratification of economic pressure, Greece's possiblel return to capital markets and the need to need to stimulate demand in the Greek economy*:
I think we agree that we’ve arrived at the start of a critical year
We have. But let’s not forget that this is the second or third time in the last eighteen months that we deem time is critical and that there might possibly be positive prospects. On those previous occasions, it was at the beginning of talks on the substantial reduction of debt or the inclusion of Greek bonds in the ECB's quantitative easing programme. The positive signs that were given were withdrawn. Let's keep this in mind!
No objection. Let's us first take a look at the period until August. How difficult will the road be?
Let's break this in two. First, we have the immediate period January-February, when the third evaluation - the quickest ever - will be completed. Let's not forget that the official term is ‘review, i.e., looking at what has been done. By exaggerating a little ourselves, we call it "evaluation", as if we are being graded. Well this time it is really a review, so it will most likely be rather quick. But then we have a super-intense evaluation and the slightly controversial beginning of the debate on substantial debt relief. Talks, not a decision, and certainly not implementation! These are very important, because when they are added to what has already been done with purchases by the Public Debt Management Agency, with the assistance of the French Rothschild consultants – i.e. issuing a small bond of 3 billion that rolled back and then we went back to the market with better structured PSI bonds – they indicate that if there is a constructive debate on further improving Greek debt conditions, then future attempts of return to capital markets will be easier.
Official sources say – as does the IMF - that short-term measures have also fared better than expected.
This is true, and it also improves the prospects of the measures in the months following January-February. The fourth and final evaluation, as well as the IMF's smaller scale one in March-April, if the Fund remains in the programme, will be simpler. This means that they will not include the requirement of proven application. In the past, chiefly in 2016, such requirements held us back often, not to mention the increased demands of our "partners" back in 2014 that destroyed the efforts of PM Samaras and BoG governor Stournaras. Therefore this time the "successful progress" of things – in line obviously with our lenders’ reasoning that foreclosure auctions begin with tear gas, that the deal on the former Athens airport of Hellenikon is signed etc – the signs i.e. that there will be no procrastinating tactics as in the past to non-horizontal measures (given that horizontal measures are "simple") will improve in the coming months. I also think that if the government feels that things are moving forward it will also give positive signs that will "allow" lenders shift from ingrained position.
What is the basis of this conclusion?
Two further points to note: The first is that huge success called Portugal. I speak as a lender now! What happened there? A deeply annoying (very much like the Greek) government of Socialists, in collaboration with a hard-line Communist Party, the Left Bloc, and Senteno in charge (whom they have now chosen as replacement to Jeroen Dijsselbloem as the next Eurogroup chairman) quietly but steadily bypassed terms agreed on with the Troika. The Supreme Court, for example, rejected pension cuts. The Troika then demanded equivalent measures in the same sector, but the Portuguese got around these as well. Because there was progress with the rest however, the Europeans, especially Schauble, let them pass! The economy consequently, with this slightly milder form of austerity (if you could call it austerity) began to recover. Objections by the troika stopped. They saw private investment and growth rates go up, contrary to entrenched position expectations. Senteno, of course, as Eurogroup President is no paradigm change: Europe is a very slow boat, but there is in a way an indication that demand may be tolerated. The Cypriots, on the other hand, by the end of their financial assistance programme had not finished dealing with serious matters, such as the privatization of their telecommunications, or the "reform" of their public services. The Europeans and the IMF noted that this was "very bad" but they did not insist; and Cyprus is moving ahead in its own way. Let's take all this into account in the coming months...
We also witnessed on our part some kind of flexibility during the last evaluation
The facts are as follows: Firstly, the financial facts, the minor easing. May I remind you of last year's Xmas bonus pension which was clumsily handed out but scored politically and worked as a boost to demand. What is now being done, in a more targeted fashion, with the so-called social dividend handout etc., is the enhancement of liquidity. Otherwise, allow me to say this, growth will begin to stumble again. Secondly, the political facts: for their own particular reasons, the European "partners" want to show that the Greek programme is also succeeding! I am not entirely sure that it will eventually work out in the best interest of the Greek economy but at the moment the feeling is "let's move it further forward". The evaluation that is now being completed is just a seal which, if easily given, then the next one will come easier.
The Government’s attitude however indicates that it is not playing with targets, and this is taken into consideration in Europe.
It is, but only because of the out-performance of fiscal targets. Not only has the government twice insisted on reaching targets but, after insisting, it surpassed them. Lenders are concerned in case the excessive pressure exerted bends growth completely and GDP targets are not met in the following year. For us, the situation is on balance; we are under pressure, but in a different way to that in the past. The government, by disturbing the stratification of economic pressure, has made a very serious social choice, what it calls "partiality". Whether it will work in its favour at the ballot box is a different matter.
What is your opinion, your judgement on BoG governor Stournaras’ intervention?
There are two schools of thought as regards exiting the memorandum era. According to one, general conditions have improved. Germany in 2012 borrowed at a low interest rate, but today we are paying her to accept our capital! Portugal was then borrowing at a 3-4% rate as opposed to 2% today. The Greek bond promises a return of 4%. Therefore, international conditions could now support Greece for the limited sums it needs up to 2021. According to the other, as expressed by European Central Bank president Mario Draghi first (that if in Greece they think there is need for some support "we are willing to assist with a support programme") which we here blew out of proportion assuming he said a "new memorandum", which he did not do. It crossed our mind then that maybe he was worried about the bank sector in view of the coming stress tests. When Stournaras noted in the most institutional way, i.e. when he submitted the Interim Report, that it would be better for the government to seek an additional support programme, taking it thus one step further than Draghi, it gained additional weight; because the Bank of Greece, which is the ECB's antenna in Greece, stated something with political content. It was not the best time to say this, because in Greece there is the beginning of the sweet taste of success: we all know that just as one side says something, the other will denounce it! Nevertheless, I think Stournaras acted entirely within the framework of his central banking responsibilities. The storm of criticism against him from the government and a section of the media only elevated an issue that was merely a technical proposition.
What is the feeling relation to how Greece will return to capital markets?
The possibility for Greece to go out to the markets without obligations is gaining weight abroad. We are in danger of e.g. seeing the German government in support of letting Greece sail on its own, and it is utterly perplexing seeing the staunchest supporters of the "let Greece kneel" stance throughout the period of force of the financial assistance programmes to accept her exiting without any kind of support! I insist that the procedure of leaving the programme is one thing, and the policy of leaving is quite another – and the two should be kept distinct.
There are those, of course, who support the choice of borrowing cheap through the ESM, and therefore, a new memorandum.
Those in support of this option - and this comes forcefully also from members of the opposition - must be honest and state "we want to stay remain longer with memoranda" so that we can borrow from ESM. They should further continue by saying "and we want the German parliament to decide for us". The ESM, however, is not a mechanism that assists member-states able to stand on their feet alone, but those with heavily injured economies.
It seems to me from your analysis as a whole that there is ground for a renegotiation of agreed measures, such as the pension cuts in 2020, and the additional imminent tax burdens, because the all-evident urgent need to stimulate demand is also of interest to lenders.
I will not get into the old "if I was a prime minister" talk directed to a government that is negotiating and will be negotiating. And by the way, it would be good if people offered a small gift to Euclid Tsakalotos. It would be easy to say, "but you were once leading the "53+" (faction in SYRIZA), so why are you involved in the memorandum obligations etc", but Euclid is negotiating. It is very difficult for us to understand that "negotiating" means I have initial positions and in the process I lose some to gain other. I think there is indeed considerable room for negotiation. There is room for effective negotiation on the issue of pension carnage, about which the Council of State appears to be concerned. But careful: if we ride in anger again with battle cries calling for the defeat of the nation’s enemies that broke the people etc, declaring that we will return pensions to where they were before, it would be a scary fiasco. Then we would stand to lose way more than we should. Let us look at the approach of the Portuguese, constantly pointing out to the Europeans that if the economy drains out completely there will be deadlock once again. At that critical moment of negotiation the government could arm itself with three weapons. The Opposition says that the 3.5% surplus is not feasible, that it needs to be 2%; the country’s central banker says it has to be 2%; and a third contributor, Nikos Christodoulakis, takes it further by suggesting there needs to be a commitment to investing the 1-1.5% from the 3.5%.
This point was persistently made by Tsakalotos during negotiations for the second evaluation; it was not even supported by the French.
We should bring it back now when closing the negotiation. Overall, I think there is room for negotiation and that this, as you have implied, should go in the way of pensions instead of taxation.
Are you also including the 3.5% surplus as something potentially negotiable?
I believe that if the 3.5% does not come to the table forcefully but technically, it could be.I insist that in the long run, until 2022, it is outside the question. But I'm not a politician...
On the issue of the real economy: Revenue lagged behind, GDP did not go as forecast, and private investment is still at planning stage. Whatisyourassessment?
Something that worries me, that should also worry the government, which should not see this only politically, is that the super-compressed spring that the Greek economy continues to be, is not springing back as quickly as hoped. If it weren’t for that damn injection at the end of 2016 and 2017 to the lowest incomes - with a rapid multiplier - we probably wouldn’t have positive growth rates. An effort is therefore made for that spring to move.
The first one to use the term ‘spring was Yannis Stournaras, and I believe the Prime Minister borrowed it from him. As happened with all economies - the Cypriot, the Portuguese - the economy first got ahead, and then the alleged benefits of so-called reforms began to appear. Our economy is still only looking. Investments are getting ahead, but unfortunately they are mainly in the tourism sector which is vulnerable to geopolitical developments. They are at any rate moving ahead. Sadly, however, even these suffer from the time lag until they directly translate into employment and income. This is a huge problem, because if the 3.5% primary surplus commitment stays in place but there is no actual growth (as opposed to simply budgeted) then this isn’t going somewhere. At the same time, the resilience and tolerance of the people – which have been amazing in my opinion following the trials of 2015 – may surprise us. That is why fewer words and more symbolic moves are needed. The so-called "reforms" will not produce results in the near future.
What do I mean by symbolic? I mean - and this brings me to the third question you raised as regards financial response, that the people are paying taxes. I honestly believe that this government should have done something extraordinarily original: to come out bravely on New Year's Day and say a big, touching thank you to the hundreds of thousands of people who go ahead and pay. The references to people’s taxpaying ability being exhausted, which we journalists are constantly and anxiously making, should not obscure tax compliance. If the Greek game ends up being saved, that is why it shall.
*Translation: Magda Hatzopoulos