By Vassilis Kostoulas
The Dutch ambassador to Greece this week touched on a gamut of issues dealing with the year-long negotiations over the Greek bailout program between creditors and Athens, emphasizing, for instance, that Eurogroup chairman Jeroen Dijsselbloem has cited the prospect of fewer years of high fiscal targets for the country.
Amb. Caspar Veldkamp also detailed the preliminary agreement reached in Malta earlier this month between creditors, including the IMF, and the Greek side, referring specifically to the measures and what he called their “size, sequencing and timing”.
In an interview with “N”, the veteran Dutch diplomat used the word “review” by European partners to refer to the prospect of the Eurozone considering the issue of Greece’s debt sustainability - a particularly burning matter for the IMF.
Moreover, he provided a diplomatic answer to a question over the fate of Jeroen Dijsselbloem as the Eurogroup chairman, emphasizing however, that the latter is well-respected in the Netherlands’ political landscape and has overseen a very healthy Dutch economy.
Veldkamp said there is scant chance for a fourth memorandum to be extended to Greece, therefore, he said it was imperative for the country to eventually return to the markets for its financing needs.
The reference to Dijsselbloem and “fiscal targets” relates to the annual primary budget surplus targets, as a percentage of GDP, which Greek governments will have to achieve after 2018, when the current bailout ends.
The full interview with Amb. Veldkamp:
Why did it take so long for the second review of the program to be concluded?
The preliminary agreement that was achieved last Tuesday signifies an important step forward. We had hoped to conclude the second review several months ago, but that turned out not to be possible. This is not a surprise, because sensitive issues had to be negotiated. Moreover, the IMF’s demands needed to be met. The IMF coming on board on the current bail-out program, with financial involvement, is a political necessity for several creditor countries, including the Netherlands.
Let me emphasize that much has already been accomplished in the first part of the current program. This concerns reform of the financial sector, setting up an independent authority for public revenues, implementation of the first leg of an ambitious income tax and pension reform and creating a privatization agency. These steps are important for bolstering confidence and are resulting in a return of deposits, a reduced dependency on ELA and a much better than expected fiscal performance overall in 2016.
How do you explain the content of the preliminary agreement that has just been concluded?
The process to come to this agreement evolved along high-level talks in March with key players, including minister Euclid Tsakalotos, resulting in an overarching agreement in April at the Eurogroup in Malta.
At Malta, the Greek government and the institutions came to agreement on the size, sequencing and timing of the measures underpinning a growth-friendly rebalancing of the economy. Three main pillars have been adopted. First, Greece committed itself to legislate upfront further pension and income tax reforms, each worth around one percent of GDP, to ensure that Greece's medium-term fiscal strategy is solid and credible. Pension reform will become effective in 2019, unconditionally. Income tax reform is planned to become effective in 2020 in principle, unless front-loaded implementation is needed in order to reach the agreed 3.5% primary surplus target in 2019. Secondly, it was also agreed that Greece can now legislate expansionary measures to be implemented as of 2019 provided that the agreed medium-term targets are met. Apart from possible tax measures, it provides for improvements to the modernized social safety net that Greece is rightly developing. Lastly, discussions also concerned labour market reforms that balance the need for a flexible economy with the vital respect for workers' social rights, in line with European best practices. I understand the Greek government is pleased with the result.
What could be a realistic goal regarding the outcome of the Eurogroup on the 22nd of May?
The aim is to conclude a full agreement on May 22. The preliminary agreement on the policy package is now being complemented by discussions on a credible strategy for ensuring that Greece’s debt becomes sustainable. These discussions will continue in the coming weeks and are based on what the Eurogroup had agreed upon regarding debt relief in its declaration of May of last year.
What is the baseline scenario regarding the IMF's participation in the Greek program with funding? Do you think that figures will be necessary? Or that just a wording - commitment will be enough, as far as the medium-term measures on the Greek debt are concerned?
Since the preliminary agreement on completion of the second review has been achieved, the Eurogroup is now able to review Greece's medium term fiscal trajectory and debt sustainability. Jeroen Dijsselbloem has said on various occasions that the ten-year period of a primary surplus target of 3.5% could be shortened. He is working hard trying to achieve this. Let me not go into details here, since these are still under discussion. When he reaches agreement on this between creditors and the institutions, mainly Germany and the IMF, this will allow all institutions to come to the conclusion that 'the numbers add up' and for the IMF to financially participate.
Which reforms and in which sectors would you think that -at this stage of developments- are a top priority to the institutions in the Greek program?
Discussions in the last period were concentrated on tax measures, social security, pensions, energy and the opening up of closed professions. A list of about 140 prior actions has been defined for releasing the financial disbursement tranche, of I guess up to or about 7 billion euro. I believe about 60 of these prior actions necessitate primary legislation. I understand the Greek government will get the draft bill with new reforms to parliament as soon as they can. Getting these prior actions done is very important and will be closely monitored by everyone involved. Of course in many cases, steps to properly implement the various reforms will be needed, for example to build the platform for out of court settlements.
The government warns that it will vote for the measures within the context of the second review, but it will not implement them unless sufficient debt relief measures are taken before. It also declares that "if the IMF won’t participate in the program, then it makes no sense for the government to implement the measures that the IMF called for". What is your opinion?
These measures and the conditional countermeasures will start to apply from 2019 on. By that time we will know what the mid-term debt relief will be, since it will be quantified by the end of the programme in mid-2018. In that sense, the government is correct. Regarding the IMF’s involvement, personally I am confident we will get there and again, it is a necessity among several creditors, including the Netherlands.
The fact that in 2016 much more taxes were implemented than it was required under the target of a 0.5% of GDP surplus, has deprived the real economy in Greece of significant resources for investment and employment growth. Are the institutions concerned about this outcome?
The institutions have many economists and they look into the economy and its balances and imbalances. I would certainly ask them this question. Of course, this is also about the policy mix the Greek government wants to choose. A policy mix with high and progressive taxation may be preferred by left-led governments, but not always be the right choice for a country at a specific moment. I do hear many Greek companies complaining about the tax burden. Please note that in the agreed countermeasures, the corporate tax rate is supposed to be lowered.
In the end, it is all about finding the right balances. In my country, we are always struggling to find the right balance between the roles of the market, the state and society. The Netherlands has achieved high performance for its economy, number four in the world in terms of competitiveness, while also being a rather inclusive society with an extensive social welfare system. The two do not contradict each other. Greece can learn from what countries such as the Netherlands do right and wrong.
What are the next steps regarding Jeroen Dijsselbloem’s continuing tenure as the president of the Eurogroup? Do you think that his recent statements about a spendthrift European south cost him support within the Eurozone?
Jeroen Dijsselbloem’s political party, the center-left Labour party, has taken a severe hit in our elections of last March. At the same time, he is highly respected as the Dutch finance minister, from left to right, and our financial-economic household is in good shape. Regarding his remarks that have caused so much uproar, let me say that I believe it was never his intention to insult people. For the last four years he has worked extremely hard to bring the Eurozone closer together and help move Greece forward. I fully agree with what he believes in: Greece can be modernized and can do so within the Eurozone.
Do you consider Greece’s return to the markets in 2018 realistic?
I hope that successful completion of each review and steps regarding debt relief will allow for enough confidence in Greece to make a return to the markets possible. I believe implementation of the reforms agreed upon is important, also in this context. Creditors want to sense and to see implementation and I believe the markets too. I see no chance for a fourth programme. The political space for it is not available, neither in the Netherlands nor in some other creditor countries. This makes a return to the markets all the more necessary.
On the inclusion of Greek government bonds in the ECB’s quantitative easing programme, I know that the IMF and the ECB will each make its own debt sustainability analysis (DSA). Based on the ECB’s document, the ECB board will have to decide on Greece’s participation. This will take time and it is not something that the Eurogroup decides.
In general, are you optimistic about Greece’s economic future?
The country is still in crisis, but there is so much talent and so much potential! I see it at Orange Grove, the start-up incubator that the Dutch embassy initiated here in Athens. It is now run by its own management through the non-profit Athens Start-up Factory and provides a flexible work space, advice and coaching, to young Greek start-up entrepreneurs. Earlier this week, we celebrated the success of a young Greek company that left Orange Grove since it is growing so fast. It is called JoinCargo, which is a kind of Taxibeat for cargo loads. Their commitment and level of human capital is high, and their creativity is abundant. A renowned brand strategist, Peter Economides, especially came to my home to praise JoinCargo and its CEO. Greece needs hundreds of new companies like this.
Of course, Greek media are full of matters regarding the review, debt relief, and the latest statements from the IMF or the Eurogroup. These are indeed important. But they are not enough. History has shown that those economies which recover best from an economic crisis, are the ones that do not only give attention to the macro-economic dimension, but also renew themselves at the level of micro-economics. Then it is about entrepreneurship, innovation and commercialization. Greece needs a new generation of entrepreneurship. Every day I see the talent of our start-ups at Orange Grove, I become optimistic that Greece stands a good chance to recover and become a more dynamic economy in the future.