Greece says enough – for the time being

It was little surprise that Greece’s late response to the demand for details of how they will run their budget was accepted yesterday by the Euro group.

The Greek state government committed itself to change tax codes to raise more money from the better off, and to find ways to improve tax collection and enforcement. They have offered to make many changes to different parts of revenue collection, with more inspections, more audits and more and better staff to do the collecting.

They have also pledged to improve their controls over public spending, concentrating on non wage expenditure which accounts for 56% of the total. They also wish to improve the provision and quality of medical services, with universal access. They are going to consolidate pension funds and seek to reduce early retirements to cut pension spending.

It will cut the number of government Ministries from 16 to 10, cut fringe benefits to MPs, Ministers and top officials, improve public sector tenders and keep wage costs down.

The government has had to accept much of the privatisation programme it inherited and disliked. It now says it will not roll back privatisations already committed. It will rejig future ones with “the emphasis on long leases,joint ventures…and contracts that maximise not only government revenues but also prospective levels of private investment”

The pledge to pay a higher Minimum wage has become “the ambition to streamline and over time raise minimum wages in a manner which safeguards competitiveness and employment prospects. The scope and timing of changes to the minimum wage will be made in consultation with social partners and the European and international institutions…..” taking into account whether changes are in line with productivity developments and competitiveness.

As expected, both sides have had to sacrifice a lot. The Euro area has agreed to lending Greece more money, and to giving more time to trying to negotiate a longer term solution later this year. In the meantime the ECB has now lent more money to Greece. The rest of the zone has to accept promises, which rely heavily on the ability of the new government to raise much more in taxation than previous governments have managed. For its part, Syriza has to accept privatisation of state assets, accept a delay in raising the Minimum Wage, accept Eurozone surveillance of its budget and loan programme, and recognise there is not going to be a large planned fiscal stimulus for the economy.

In summary, the Greeks have not slain the dragon of austerity as they see it, and the Eurozone has not weaned Greece off more loans and assistance. If revenue does not respond quickly to new treatment, the issue of how to pay for the Greek budget will intensify.

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29 Comments

  1. alan jutson
    Posted February 25, 2015 at 6:58 am | Permalink

    I wonder how the Greek Public will respond to all of this.

    Will they simply accept the solutions suggested and agreed to, or will they try to bring down the Government who have just had to face a dose of reality if it wants to remain in the Euro.

    I wish them all well, but I really do wonder if Greece will actually change its ways enough to satisfy its borrowing and spending, whilst it holds off the social dreams on which it was elected.

  2. Leslie Singleton
    Posted February 25, 2015 at 7:32 am | Permalink

    Am I wrong in thinking that the extra is just Emergency Liquidity Assistance rather than real money (joke)? It cannot be real money because the Finance Minister made it ultra clear that he didn’t want or need more money. What chance the debt is lower in four months? Good working definition of zero I’d say. The whole thing is like something out of Greek Mythology except less believable.

  3. John E
    Posted February 25, 2015 at 7:41 am | Permalink

    The new government is not in the pocket of the wealthy vested interests and stands a good chance of addressing the issues with revenue collection, because it genuinely wants to. That is the one thing that the institutions formerly called the Troika like about the new situation.
    Throwing the incumbent parties out and starting afresh may turn out to be an excellent choice by the Greek people. Maybe this democracy thing can still work for the best.

    I am in Spain this week, and Podemos are still taking strength from this.

  4. Simon
    Posted February 25, 2015 at 7:51 am | Permalink

    You would have thought that by now, even Greece, would have sorted out tax evasion, not the most promising way to save money. The next crisis in four months will be just at the time the Commission and all its acolytes are going on holiday. Expect to still be here in 12 months time with no resolution.

  5. agricola
    Posted February 25, 2015 at 7:52 am | Permalink

    So a sense of realism has descended on the Greek government. Question is, will it extend to the Greek people who have failed to get what was promised? If they cannot accept it then Grexit is the logical answer. Personally I think it should have happened once the government realised they were not going to get what they wanted from the EU.

  6. Lifelogic
    Posted February 25, 2015 at 8:02 am | Permalink

    More extend and pretend then, just to delay the problem for a few more months.

    I see that the Tories poll rates are declining to be yet again behind Miliband’s dreadful Labour party. To win an overall Majority they need to be doing hugely better given the constituency bias that Cameron failed to correct thanks to the Libdums. Some uplifting, low tax, cheap energy, far less EU, efficient & smaller government, pro jobs uplifting vision is needed. His current approach of the Tories are pro EU, serial ratting, 299 tax increasing, big state, green crap Labour – but not quite as dreadful – is not working and will not work.

    Very funny listening to Natalie Green yesterday. She clearly is incapable even of basic sums, and refers to letting “interest tax relief” as “landlord rate relief” for some reason. Clearly she has not the slightest clue about the science of energy generation, sensible tax systems or much about the environment.

    The idea of taxing landlords on rents without giving deductions for their interest costs (on any loans used for purchases) is economically moronic and would kill the rental sector dead. Ending up with shortages of rental property and as a tax on tenants.

    The interest paid is already taxed as profits on the interest paid to the lending bank. Her proposal seems to want to tax it twice. The Landlord might well be making net losses and yet be presented with a tax bill, how are they to pay it? Be taking a further non allowable loan one assumes – not very “sustainable” as the greens likes to say.

    I would like to see the greens do better as they clearly spit the Labour vote from the dim, envious & innumerate left. A shame they are led by such totally absurd & innumerate incompetents.

  7. Ian wragg
    Posted February 25, 2015 at 8:16 am | Permalink

    Another day and another fudge. Greece has no intention of continuing austerity and will make the right noises to get more money. What happens when this tranche runs out
    The cynic in me says the time is being given for the Greeks to get their banks in order before reverting to the Drachma
    I see the dope at the helm of the IPPC has gone. When is the idiot in charge of our energy policy going to be replaced by someone with at least a gcse in physics.

    .

  8. Jerry
    Posted February 25, 2015 at 8:18 am | Permalink

    Seems to me that -broadly speaking- Greece, and thus Syriza, has won. For now, at least, democracy lives on…

    Off topic, I must say that the domestic political events of yesterday were like a Jacobean farce. To stage right, events of an utmost tragic loss whilst stage left, side splitting moments of farce… I thought that Mr Cameron was attempting to duck the Leaders debates when he wanted the Greens included, now I understand, he wanted their Leader present to act as the comic relief!

  9. Sandra Cox
    Posted February 25, 2015 at 8:26 am | Permalink

    Good morning John,

    So, the Greeks have agreed a further loan and extension on their debt.

    On the subject of debt, has the €38 billion “loan” that Juncker was “requesting” recently from UK taxpayers been approved?

    If I recall correctly, it was the one he was “acquiring” for the EU slush fund to relaunch the European economy.

    Do you know exactly how this further tranche of UK taxpayer debt will be applied to assist others in the EU community?

    Thank you.

  10. Denis Cooper
    Posted February 25, 2015 at 8:38 am | Permalink

    As predicted, another fudge designed to keep Greece imprisoned in the eurozone, which is what the eurozone governments wanted – possibly with a few minor exceptions, and they are keeping quiet at present – and the EU institutions wanted. And another lease of life for the bailout programme, with four months before the next potential crisis; time enough for the Syriza-led government of Greece to be brought down and replaced with a new government which would be more willing to comply with external demands, if that seemed necessary as it might.

  11. Posted February 25, 2015 at 9:07 am | Permalink

    German determination has won over deception . It now remains for the Greeks to measure up to this discipline . I have very strong doubts that it is within the Greek character to conform and to accept that outside supervision is more important than their sentiment . Voters that saw “salvation” in their newly elected government and a quick return to their laid back approach to life , now face the reality of more tightening of their belts . There will be more theatrical haggling come mid summer .

  12. Hope
    Posted February 25, 2015 at 10:07 am | Permalink

    Your point about MPs could equally apply here! Cameron made a promise to sort out Westminster, Clegg stated the gates should be closed until it was cleaned up. Once more, the cash for access claims demonstrate the are far too many MPs and Lords on the gravy train and how they use their position for self interest and greed. When will Cameron do anything? 6 years on and still no significant action and the promise of right to recall fudged.

    Hague claiming no arms to the UKraine, Cameron now sending troops! Has Cameron lost the plot or deluded by the power of his Job? Osborne now admits the 2 percent of GDP for military will not be met by 2017. Osborne starts regionalisation of the UK by devolving NHS spending to Manchester. More waste of taxpayers’ money as undoubtedly more public sector jobs and lottery salaries will be created. The Tories have not even sorted out local council gravy trains and abuses of power. Chaotic and muddled thinking with no long term strategy other than to let the EU make decisions that Cameron can follow. Do not worry about the Greeks JR. your leadership causes great concern in the UK.

  13. majorfrustration
    Posted February 25, 2015 at 10:14 am | Permalink

    and all this can be achieved in the next four months? Dream on and pigs can fly. One born every minute. Wake me when the negotiations for the next bailout start- sorry forgot, bailout is a word not recognised in Greek political circles.

  14. Peter Lloyd
    Posted February 25, 2015 at 10:33 am | Permalink

    A very helpful analysis of how the eurozone just isn’t working. Greece needs a devaluation, a default, and a fresh start. This is prolonging the agony and could lead to much worse politics

  15. oldtimer
    Posted February 25, 2015 at 11:43 am | Permalink

    Based on your description, it looks as though the can to be kicked down the road has been beaten into a new shape. Of one thing we can be sure – it is still a can. It is unclear to me how these new measures will actually help Greece regain the competitiveness. Or how it will begin to enjoy properity within the EZ.

  16. Max Dunbar
    Posted February 25, 2015 at 11:47 am | Permalink

    Can’t help but notice the irony.
    Greece, a country now run by a quasi-communist government coalition has pledged to make more cutbacks than Britain, a country run by a supposedly conservative coalition administration.
    Your fourth paragraph on government ministries and fringe benefits to MPs and officials is apposite.

  17. Posted February 25, 2015 at 1:33 pm | Permalink

    I would love to know what Syriza’s voters think.

  18. Posted February 25, 2015 at 1:47 pm | Permalink

    ” If revenue does not respond quickly to new treatment, the issue of how to pay for the Greek budget will intensify.”

    Yes. Absolutely right. The mistake that nearly everyone is making, including the Greek government, is to assume that a government’s budget is within its own control. It isn’t. George Osborne should know that himself after several years of practical experience.

    Any government’s surplus/deficit is subject to factors outside its own control. If taxpayers are scared about their financial future they spend much less. They save, and may choose to save outside the country. Spending less means tax receipts fall. There’s nothing the Greek government can do about that. It’s economic folly, on the part of the Germans, to insist that they can.

  19. Roy Grainger
    Posted February 25, 2015 at 2:03 pm | Permalink

    Typical EU fudge. The problem postponed.

    • Anonymous
      Posted February 25, 2015 at 4:07 pm | Permalink

      The Germans want the Euro to remain, the Greeks want to be in the Euro.

      Therefore the Euro will survive.

  20. Terry
    Posted February 25, 2015 at 2:07 pm | Permalink

    For all parties this is a no win situation. Given their profligate history I cannot see the Greeks abiding by this new agreement. When, some four months down the line they find themselves short of cash again what will they do then? Repeat this farce?

    Likewise for Brussels and the Germans. They are so transfixed by that unworkable Euro currency zone that they will do anything to maintain it. If the Greeks are removed then that will be an open invitation for the other little people to do the same. Portugal, Ireland, Cyprus for example, surely would prefer to control their own finances. They have seen what we can do on our own and must now question the viability of the single currency.

    I suspect that the new Greek PM realises the inherent weakness of the die hard Eurozone and will milk it again within a few months.

    Why cannot the German and French leaders accept that the euro was a bad idea and dismantle it? Or is losing ones face more important than National bankruptcy?

  21. ian wragg
    Posted February 25, 2015 at 4:33 pm | Permalink

    Off topic. I see from the news that Derbyshire is hoping to be a super Council Authority by the GE and Nottingham expects to follow. This is of course driven by the EU regional policy.
    Why do you continue to subsume us into this nonsense without asking the voters. Having devolved budgets will be your way of putting to bed the EVEL question. I suppose all these authorities will have to bid for funds from Brussels and take their guidance on spending. Why isn’t it happening in Scotland, Wales or Northern Ireland.

  22. Posted February 25, 2015 at 5:19 pm | Permalink

    Treading water

  23. Richard1
    Posted February 25, 2015 at 6:22 pm | Permalink

    One thought is that this does show that the EU has the power to constrain an extreme left wing govt like Syrizia from doing what it might want to do. The potential for the EEC to stymie a Foot-Kinnoch Labour govt in the 80s was one of the reasons I at least was pro-EU at the time. Will those of us on the political right have to look to the EU for (relative) rationality against the virulently left wing and anti-business Ed Miliband, should enough people be foolish enough to vote for him?

    On the other hand it also shows that once effective power is handed over to the EU and can’t change hands in elections, extremists are more likely to get elected, and national elections become more and more about what the electorate can get out of the EU. More like a local council election in fact.

  24. Ian wragg
    Posted February 25, 2015 at 6:50 pm | Permalink

    For the record. At noon today with a demand of 43 gigawatt, stupid windmills were supplying 1 gigawatt or about 8% rated output
    You couldn’t make it up.

  25. Iain Gill
    Posted February 25, 2015 at 8:36 pm | Permalink

    why have you made the comments on your old posts “Comments closed”? i.e. totally unreadable?

    If you aint got time to review any further comments to those posts, you could have made the existing comments “read only”?

    cheers

    • Narrow Shoulders
      Posted February 26, 2015 at 1:08 pm | Permalink

      @ IG

      If you click the headline rather than the comments section it is still possible to get in and read the entire entry plus historical comments

  26. fedupsouthener
    Posted February 26, 2015 at 10:52 am | Permalink

    The EU was never a good idea in the first place and much less so, the Eurozone!! I hope to God our politicians never vote to go into the Euro. I often wonder why Scotland is so keen to stay in. Could it be that they see a time in the future when they would need a bailout if independent???

    • Posted February 28, 2015 at 1:28 am | Permalink

      “The EU was never a good idea in the first place and much less so, the Eurozone!”

      The EU worked quite well when it was the EEC. ie a collection of countries on good terms with each other and agreeing to trade freely. What more do we need? If any two countries want to take it further, and have free movement of labour or a common currency then that should be entirely down to them.

      The Eurozone is an economic disaster area. Its a very poor piece of German engineering. The East German Trabi is a marvel by comparison! It is not fit for purpose at all. If it were a car we’d be entitled to send it back for warranty repairs. That’s what the Greeks have done but the maker has declined.

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    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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