Reforms and Debts

“No, what Greece now needs desperately is serious, proper reforms. We need a new tax system that helps defeat evasion and curtail political or corporate interference, a corruption-free procurement system, business-friendly licensing procedures, judicial reforms, elimination of scandalous early retirement practices, proper regulation of the media and of political party finances, etc.” – so Yanis Varoufakis in The Irish Times. Quite strong words, that cover at least partially the previous Greek proposal to the Institutions. Partially, because the Greek plan is still vague in some details. For example, it is not clear how tax receipts will improve when tax avoidance is so deeply entrenched and the tax authorities are either overwhelmed with the task or utterly unwilling to accomplish proper duties. Still, there are no good reasons to assume that the current Greek government would be a more clientelist administration then the likes of the Conservative Party or the Socialist Party that used public service as a patronage sector. This sector shrunk substantially over the years (by about 30% from 2009 level) and still is not much more efficient then before.

It has been stressed over and over again that the vast bulk of emergency loans to greece since 2010 went to creditor banks and did not end up in Greek public spending budgets. Rather, the bail out of banks contributed to a further increase of public debt that then resulted in even stronger austerity. This path cannot be continued. Today, about 80 % of Greek debt are hold by the Institutions and their respective state backers. Any debt restructuring or hair cut has implicfations for public budgets of creditor countries. So has a Greek default. Adding additional debt in order to enable proper debt service on previous debt follows the logic of a Ponzi scheme, and will not help at all to lift Greece on a sustainable growth path. Creditor governments have good reasons to alter course, not gradually but substantially. The ground for a Greece-EU compact is prepared and comes down to a monitored and supervised exchange of substantial economic and politiocal reforms against monitored and controlled debt relief. Such an indexation of reforms should be nonitored by an independent gremium, very much desgined like the indepenfdent fiscal council suggested by the Greek government in regards to primary budget surplus monitoring. Debt relief can be easily indexed to reform progress.

Chances are slim that such a direction would be taken. Creditors want to control the debtor and not hand out this prerogative to an independent council. Given the trajectory of the past five years, creditors would have to acceptb that their medicine failed. A new start is necessary.