Even After Six Years
of Recession, the Greek Government and 69% of the Public Support the Euro. Across
Europe, there is now a broad consensus that the decision to allow Greece to
join the euro was a mistake. Yet ironically, the one place where this view is
not widely shared is Greece itself.
Even after six years of recession, a 26%
slump in output and unemployment of 27%, the Greek government considers
membership of the single currency an article of faith, while 69% of the public
supports the euro, according to a recent poll by the Pew Research Center.
Perhaps this isn't so surprising. The crisis
did not come out of a clear blue sky. Greece missed multiple opportunities over
many decades to fix a broken political and economic model marked by cronyism,
corruption, bureaucracy and excessive borrowing: following the overthrow of the
military dictatorship in the 1970s, when Greece joined the European Union in
the 1980s and in the run-up to joining the euro in the early 2000s.
The current crisis may be Greece's last
opportunity to turn itself into an effective modern state. Greece's ability and
willingness to make this transition will be put to the test again on Monday
when its official lenders return to Athens for the much-delayed latest review
of progress with its bailout program. The government is running out of time to
reach a new deal with the so-called troika-comprising the International
Monetary Fund, the European Commission and the European Central Bank-to cover a
projected shortfall of between €500 million ($674 million) and €2 billion
($2.69 billion) in next year's budget. At the same time, it must also agree to
further cutbacks for the following two years that will play a role in
determining how the euro zone plans to cover Greece's estimated €10 billion
funding gap in 2015 and 2016.
Athens believes it has a strong case to be
cut some slack. For the first time since the start of the crisis, Greek
economic forecasts are being revised upward; the economy is now widely expected
to shrink by less than 4% this year compared with an IMF forecast in June of
4.2%, and some forecasters now predict a return to growth in 2014.
The government is now confident it will deliver a small primary budget surplus before interest payments this year, a remarkable turnaround from a 15% deficit in 2008. The current-account deficit, which was 11% in 2008, has largely been eliminated. At the same time, unemployment appears to have stabilized and labor costs per hour are now 30% below 2008 levels, restoring much of the competitiveness lost over the previous decade, notes Alpha Bank.
Market sentiment is also improving. Last
week, Greek 10-year government bond yields fell below 8% for the first time
since 2009. Now is not the time, says Athens, for the troika to imperil this
tentative stabilization with new fiscal demands. Or as President Karolos
Papoulias put it rather more bluntly in an emotive speech last week, Greece
will not give in to "blackmail."
Similarly, senior government officials argue
that the troika needs to recognize the challenges Athens faces in trying to
deliver reform while maintaining faith in free markets and democracy.
[…] A commitment to sack 15,000 civil servants over the next two years, with 4,000 to be laid off by the end of 2013, has been a perennial feature of troika reviews and still hasn't been completed. A separate plan to place another 25,000 into a special mobility scheme is also facing difficulties.
Thanks to a crude one-in-for-every-five-out
rule, the civil service has been cut to 23% of the total workforce, closer to
the EU average. But it is still much too large, resources are poorly
distributed across the public administration and there are serious quality
deficiencies in some areas, acknowledge senior government officials.
(Source: wsj.com)
