Cause and Effect in European Politics and Law

The Game of Greek Roulette Spins to an End

Adelina Marini, June 16, 2015

At first glance this game looked a lot like Russian roulette, but it turned out a bit different. At its core the game is trying to fool the adversary whether the shot is real or has it reached its target. Over the last few weeks the game got rough with both sides – Greece and its creditors – presenting completely contradicting information about the negotiations they are conducting. The European Commission made a decision yesterday to end this game by publishing the positions on the most controversial issues. This happened after European Commission spokesman Margaritis Schinas repeatedly emphasised that the EC is only a mediator in the negotiations as it is not a creditor. The Commission’s decision to publish the positions came as a surprise, although many journalists and analysts have long demanded transparency for the discordances only thickened the fog, instead of clearing matters. The British conservative daily The Times’ correspondent in Brussels Bruno Waterfield posted yesterday on Twitter that the EC was clearly worried it is losing the propaganda war on Greece. 

Five pillars

According to Annika Breidthardt, spokesperson for Economic and Financial Affairs of the EC, the package proposed by the institutions was balanced and made full economic sense. Moreover, she said, the institutions have already made substantial concessions. She outlined five controversial areas. The first is fiscal adjustment. Greece is expected to reach a primary surplus target of 2% of GDP next year and 3.5% of GDP in 2018. Second demand is for improvement of tax administration by creating an independent body for tax and customs administration and to fight tax evasion. Third pillar is a coordinated effort to reinforce the financial system by dealing with non-performing loans. Fourth area is conducting growth-oriented structural reforms. As an example Annika Breidthardt suggested retaining progress in the labour market and opening up of product markets which is expected to bring down prices. 

The fifth controversial area is modernisation of the public sector, mainly by fighting corruption. Most of these propositions can be found in the country-specific recommendations to the Western Balkan countries in the European enlargement process. These five points contain, however, several very controversial issues. The EC claims targets have already been significantly lowered. For example, primary surplus target of 3% that was set in the bailout plan is no longer demanded. It is now just 1% of GDP. Medium-term fiscal target is also reduced from 4.5% of GDP to 3.5%. According to the spokesperson, this is a huge concession that goes together with an additional bonus of moving up the target deadline by two years (2018). 

Regarding the possibly most controversial area – pension cuts – the EC complained of gross misrepresentation of facts. The institutions never called for cuts in individual pensions, Breidthardt said, noting that the pension system was one of the most expensive systems in Greece. Moreover, it is the most expensive in Europe.  According to IMF’s economic advisor Olivier Blanchard, pensions and wages account for about 75% of primary spending. Pension expenditures account for over 16% of Greece’s GDP, and transfers from the budget to the pension system are close to 10% of GDP.  The institutions demand a reduction of pension expenditures of 1%. Mr Blanchard reminds in his blog on IMF’s webpage that it is 1% out of a total 16%. 

Annika Breidthardt announced that the Greek government is committing to cuts of pension system spending by 0.04% of GDP by the year 2016. The EC described the allegations on wage negotiations as highly misleading. No one wants new wage cuts in Greece. The demand is for modernisation of the public-sector wage system in a fiscally neutral manner, using the best international practices. The spokesperson said that this did not necessarily imply wage cuts, but rather that wages should grow in line with productivity.    

The third very controversial issue is VAT. According to the creditors’ appraisal, the Greek VAT system is highly fragmented. It is unanimous that there must be an improvement in collection. The Troika demands broadening of the tax base to 23% while the Greek government suggest some goods to be taxed at a lower rate. The institutions are open to negotiations, provided accounts balance out. On all three subjects the Greek side has voiced to the media unconditional rejection of pension and wage cuts as well as increasing VAT. Greek finance minister Yanis Varoufakis publishes almost weekly articles in international press with mainly theoretical and ideological invocations for not “murdering” Greece. Often his articles are full of philosophical and historic references. Frustration with the lack of progress in the negotiations grows to unprecedented levels to the point of freely discussing a Grexit scenario. 

The Greek problem has a political solution

 Several hours after the publication of the negotiation positions by the EC the boss of the ECB Mario Draghi appeared in front of the European Parliament’s Committee on Economic Affairs and transmitted two messages. The first is that the solution to the problem depends on the Eurogroup, meaning Eurozone member-countries, and the second is that the problem with Greece only underlines how incomplete the Economic and Monetary Union (EMU) is. A major topic on the agenda of the European Council meeting on 25 and 26 June in Brussels, when the second report of the four presidents will be presented. “It should be absolutely clear that the decision on whether to conclude the review of the current programme and disburse further financial support to Greece lies entirely with the Eurogroup, so ultimately with euro area Member States. Hence this is a political decision that will have to be taken by elected policymakers, not by central bankers.” stressed Mr Draghi.

This statement did raise a few brows in the EC. The Eurogroup will meet on Thursday to discuss the situation in Greece. To this moment the countries sharing a common currency are explicit that the review of the program will only end when there is an agreement with Greece about the measures needed, against which further funds from the program will be disbursed. The program’s extension runs out on June 30 and the European Commission confirmed on Monday that this is the only possible deadline so far. Answering the relentless accusations coming from Greece that the Greek government has responsibilities toward their voters, the Commission reminded that the offer of the institutions was consistent with the needs of the Greek people and the other 18 members of the Eurozone “who also are democratically accountable”.   

Answering criticism that the EU is responsible for growing poverty and inequality, Mario Draghi reminded the MEPs that Greece had already received a sizable amount of money. Under the bailout program, consisting of bilateral and multilateral loans from the Eurozone the state has received 223 billion euros. Extended aid to Greek banks amounts to approximately 118 billion euros, more than double the amount from 2014. Liquidity support extended by the ECB amounts to 66% of Greek GDP, the highest share in the Eurozone. One must also add the money from the IMF and the Greek debt relief four years ago. This is a lot of money, the Italian head of the ECB reminded.  

He also stressed that the main reason for inequality was unemployment and urged for focusing on important matters, not technicalities. He sees two important matters. First is reaching an agreement on the policies that Greece should adopt and second is euro area member countries to be able to answer the guarantees expectations by the IMF, which walked out on negotiations in the end of last week due to lack of progress. However, Athens voiced different statements. The spokesperson for the Greek government stated that Prime Minister Alexis Tsipras was expecting an invitation for negotiation renewal from the institutions, while Mario Draghi said in Brussels that Greece had the ball now.  

In the mean time, while financial ministers of the Eurozone are meeting in Luxembourg on Thursday to review the progress of the negotiations, Mr Tsipras will be in Russia until Saturday. He will be attending an economic forum in St. Petersburg and will meet with president Putin, Reuters reported. The agency quotes a Eurozone official that no further offers will be made. It is time for “take it or leave it”, he said. German Commissioner for Digital Economy Günther  Oettinger urged on Monday the construction of an urgent plan to provide for energy supplies, police and hospitals’ salaries in Greece in view of the fast-approaching Greek bankruptcy. The European Commission did not confirm or deny this. Spokesman Schinas only stated that at the moment the EC is fully occupied with the negotiations.   

"We will await patiently until the institutions accede to realism", the Greek Prime Minister told the Efimerida ton Syntakton newspaper. "We do not have the right to bury European democracy at the place where it was born", he added. The game of Greek Roulette draws to an end, with the element of who’s democracy is more democratic. It is very likely there will be no winners, but some will definitely be bigger losers.