The Greek government must realize that it has no alternative but to cooperate with its creditors and go ahead with drastic reforms, so as to avoid developments which would be the precursor for the reintroduction of the drachma. In return for that, the creditors should reduce the fiscal target for the coming years and should promise to give Greece some more debt relief provided that the government was still performing after, say, another 6 months. This is how the editor-at-large of the Reuters agency, Hugo Dixon, describes to “N” his viewpoint as far as the solution to the Greek case in the middle of the current negotiation is concerned.
What is in your opinion the predominant scenario for Greece?
The Greek government is going to face a tough four months. It will be under huge pressure from its euro zone partners to do things that go against its election promises. There will be three main milestones. First, in the next few weeks, the government will be under pressure to push forward unpopular reforms if it needs an immediate cash injection from the euro zone. Second, it will need to specify by the end of April the full list of reforms. In the process, the constructive ambiguity that Yanis Varoufakis boasts about will be mostly clarified in the creditors’ favour. Third, the government will need to agree to a new programme by the end of June. This will involve agreeing to more conditions and continued monitoring. None of this will be easy for Tsipras to sell to his left faction.
Meanwhile, the Greek economy will probably continue to shrink and unemployment will keep on rising. I cannot see confidence creeping back again until and unless a new deal is reached at the end of June. Even then, things may look bleak because the government will probably have to make more cuts or introduce new taxes to hit whatever new fiscal target it agrees with its creditors.
Although the main scenario is a new deal at end-June, there is still a risk that Greece will fail to reach agreement with its creditors. In that case, the government would default on its debts and capital controls would be introduced. To recapitalize the banks, depositors would probably need to be bailed in as in Cyprus. This would probably be the precursor for reintroducing the drachma.
How much time would you say that Athens has available, in relation to the financial needs?
It is hard to say how much time Athens has. Varoufakis has said that the March payments have been “sorted”. This has presumably been achieved by extracting the last bits of spare cash from state pension funds and the like. In April, the government doesn’t have such a heavy debt servicing bill. But with tax revenue behind target, cash is likely to be extremely tight.
What kind of reforms do you consider that the Greek economy needs? These proposed by the Eurozone? These proposed by the new Greek government? Some others?
The government has got some good broad brush ideas such as cracking down on tax evasion, corruption and special privileges as well as reining in the power of the oligarchs. But most of the detail is still lacking. The government should do a lot to open up markets which are still gummed up by restrictive practices. It should also set up an arms-length bad bank which would take over the non-performing loans of the banks. This could be used to clean up the banking system and get credit flowing to the real economy. But it is important that it is not used as a back-door way to help well-connected businesses write down their loans.
Do you believe that a Grexit would strike the Eurozone vitally?
Grexit would pose challenges for the rest of the eurozone. I think it would survive the shock but I am not 100% sure.
In your opinion, which are the main points of an appropriate overall solution to the Greek case?
The best solution would be for the government to realise it has no alternative but to cooperate with its creditors and move ahead with vigorous reforms. In return for that, the creditors should reduce the fiscal target not just for this year but for coming years. The creditors should also promise to give Greece some more debt relief by extending the repayment holiday and maturities of its borrowings, provided the government was still performing after, say, another 6 months.
VASSILIS KOSTOULAS
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