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Greece Blinks in EU Negotiations

When Greek voters headed to the polls last month, they were presented with a choice between a motley assortment of radical groups and the mainstream parties. Contrary to the fears of many observers, the center-right New Democracy party eventually prevailed, and with center-left and equally establishmentarian PASOK, the Greek center held, barely. But now the new government of Prime Minister Antonis Samaras is now finding it difficult to make good on campaign promises to secure a bailout on more favorable terms than the first round.

So much for that. The FT now reports that the EU and IMF have turned down Greece’s repeated requests to reduce requirements for receiving a second bailout. Citing worries that international investors would refuse to lend unless Greece stuck to a rigid reform plan, Samaras has decided to drop demands for a longer timetable in implementing new reforms.

Investors’ refusal to cut Greece slack is understandable given Greece’s track record:

The troika made clear that even though economic arguments could perhaps be made for extending the programme, Greece would then need extra bailout funding, which eurozone member states could refuse to provide given the country’s lack of progress to date.

Greece has missed deadlines for key structural reforms – including an overhaul of the tax administration aimed at reducing high annual levels of tax evasion, estimated at about 5 per cent of national output – because of two general elections in the past two months. This year’s budget is already off-track despite improvements in controlling spending, as revenues shrank amid a collection slowdown during the election campaign and a deeper-than-forecast recession.

It looks as though the Greeks may have overestimated their leverage.  Since the Greek economy is so small, a collapse there is less dangerous than a collapsing any of the larger countries.

Next step: Let’s see how Greek voters respond when they find out that their politicians were lying to them once again when they promised better terms during the election.

The test of Greece’s political system has only just begun.

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  • Jacksonian Libertarian

    Once the trail is blazed on exiting the Euro, other nations will soon follow.

  • Kevin

    I have serious doubts that any Greek government’s pledges mean anything. They will say whatever it takes to get the money, enact some reform legislation that will never be implemented and then be back next year for the next bailout when the economy craters even further. It may not even be dishonesty, the government simply lacks the institutional framework and authority to actually implement a deal. Greece is like an addict that will not kick the habit until there is absolutely no money left and it fails repeatedly to get more by pledging to reform, Even then it will relapse or even OD rather than follow through with a plan.

    The choice for the rest of Europe is not what sort of a plan to put forth, but rather is it better to send money knowing it will be squandered, or to watch Greece descend into anarchy. They should stop kidding themselves that reform is possible, at least until Greece goes through the agony of withdrawal first. Reform will only happen when a solid majority of Greeks want it, not because the outside world conditions aid on it.

  • Corlyss

    “It looks as though the Greeks may have overestimated their leverage.”

    I’m still betting on war.

    The Greeks will continue to vote for the party that promises anything to keep them in the union that gives them money. The sensible thing for the union that gives them money is to stop pretending the Greeks will actually do anything beyond taking the money. They won’t. They don’t know the meaning of the word austerity. I feel sorry for them, but the bill for profligacy can’t be avoided forever. It can’t be avoided here either. People don’t like being told they have to suffer, never mind actually suffering.

  • Eurydice

    Greek voters expect their politicians to lie to them. In any case, they didn’t vote for Samaras because he was going to get easier terms, but because he represented the side which wanted to stay in the Euro.

    The thing is that he can step up tax collection (just by sending out the bills that people have been waiting for) but there’s not a lot he can do about a deepening recession. And it doesn’t help business any when every two seconds some EU member or other starts blatting on about how Greece will leave the Euro. I fully understand that the troika doesn’t want to be the first to blink, but there needs to be some wiggle room when it comes to the ratios.

  • WigWag

    All of the vitriol directed towards the Greeks reminded me of what a charming people they really are. If Professor Mead wants to hear directly from Greeks what they think about the developments in their nation, he doesn’t have to travel to Europe. As it happens the neighborhood in Queens adjacent to Jackson Heights where he lives is called Astoria. One of Astoria’s many distinctions is that it has the largest population of Greeks anywhere in the world outside of Athens. The neighborhood is home to literally scores of Greek restaurants, bars, pastry shops and coffee houses. Walk into any of them and you can hear first-hand what Greeks believe is happening to their native country. The conversations are likely to be in Greek, but virtually everyone is bilingual and being as effusive and friendly as Greeks are, they will be happy to give you their opinions in English.

    As an Astoria resident myself, I would be happy to provide Professor Mead with some recommendations for restaurants and bars where the discussion is likely to be particularly lively.

    For some reason this post on Greece from Professor Mead put me in mind of the terrific 1960 Greek movie, “Never on Sunday” (Pote Tin Kyriaki in Greek). The movie which starred Melena Mercouri and Jules Dassin (who also wrote and directed it)won an Academy Award for its sound track and Mercouri and Dassin were each nominated for best actress and best actor respectively. Although neither won, Mercouri did receive the best actress award at Cannes. The plot of the movie is similar to “Pygmalian” and “My Fair Lady.”

    For your entertainment I have posted two versions of the title song. The first is by Mercouri singing in Greek. The second is by the alluring and sexy Eartha Kitt singing in English.

    Be forewarned; once you hear the tune, it will keep going around and around in your head.

    The Greek version (Mercouri);

    The English version (Kitt);

  • Alex Scipio

    If one were to replace “Greek” and its variations in the comments thus far with “Democrat” or “Democrat voters,” the comments would not materially change.

  • Mark Michael

    The critical issue is whether the creditors of the Greek debt have finally written that debt down, have set aside the reserves to cover their losses when Greece defaults. (This applies to both Greek sovereign debt and Greek private sector bank debt.)

    If they have, nothing much will happen when Greece defaults.

    I’m optimistic. The last round of “fixes” finally sobered up the investor elite that they could no longer count on getting away with their Chicken Little act, “If you ECB, IMF, and national central banks don’t pony up the money, panic will set in, contagion will spread throughout the 17 EU countries! Unemployment will explode to 20% across the EU!” They were forced to take a 50% write-down.

    What will happen in Greece if indeed the bureaucrats do indeed let Greece default without providing any more funds? Well, like those private investors (hedge fund managers, multinational banks, wealthy private investors, etc.) who finally must look out for themselves, each Greek citizen should do the same thing. Look out for him/herself within his extended family, work environment, community and assess his options in a pragmatic way.

    Can they form small businesses with their skill sets that can survive on family relationships, community connections? Find something, anything, that they can make, sell, service? You can emigrate to another EU country still. Are their relatives in more prosperous countries who can identify work prospects for you?

    The time twiddling your thumbs waiting for the political elite to “create jobs” or prosperity is over. Like Godot, no job will appear. And the Second Act ends. No Godot. No job. And an empty stomach, rent to pay, mundane things such as that.

    What if those unelected bureaucrats who mann the IMF, ECB, and the 17 national CBs decide once more to give Greece some more manufactured fiat currency, i.e., more euros? Well, shame on them if they do. Tar. Feathers.

  • Eurydice

    @Mark #7 – There’s no need to wonder about the Greeks – they survived before this and they can survive after. They already have small businesses, family and community connections. They also have large businesses which provide services and products both domestically and internationally. They have an educated and well-traveled population, and they have a large population of diaspora Greeks (almost half again that of of Greece) willing to help in any way they can. It’s not all black-clad old ladies riding donkeys.

  • Mark Michael

    @Eurydice #8 – Well, I’m glad to hear that! I’ve never been to Greece, although it looks lovely in the tourist brochures. There’s no doubt there are impressive Greek-originated multinational companies that have operated for many decades, such as shipping companies, of course. And I’d suspect Greeks are as innovative as any other European country.

    I guess the serious thought is that one reads that Greece does have a heavy regulatory burden on the average small business, on the labor market, and way too many people are still (sort of) employed by government in some capacity. Italy has made some very modest moves to loosen up their regulatory regimes, but I’ve not read much about Greece in that regard. Ditto Spain, Portugal, & Ireland.

    I suspect the actual percentage of workers that riot in the streets is tiny, but the TV pictures convey a false impression to the casual viewer – seems like a lot.

    TANGENT. I just listened to the former (retired) CEO of Wells Fargo Corp. (WFC) give a very blunt talk at Stanford Inst. for Economic Policy Research (SIEPR) about the 2007-08 financial crisis, his view of the TARP program, what mistakes our Fed, SecTreasury, FDIC, SEC, OTS, made, how it could easily have been avoided if the above folks knew what the commonsense thing to have done was, etc, See:

    It’s a long talk – 57 minutes – the last 12 minutes he answers questions. George Schultz asked if a transcript was available & he didn’t respond. John Taylor asked him why the other major financial institution CEOs did not speak out, too, and he simply said “fear of retribution” from the regulators & politicians. (If there were a transcript, I’d not have listened for an hour!)

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