lunes, 25 de mayo de 2015

lunes, mayo 25, 2015

May 24, 2015 4:01 pm
 
The fate of Greece lies in Tsipras’s hands
 

If the deal offered by the country’s creditors is reasonable, the prime minister should accept
 
 
 
It is all up to Alexis Tsipras now. The Greek prime minister will decide soon whether or not he wants a deal with his creditors that would allow Athens to service its debt. If he says “no”, Greece will default. At that point, it is possible the country will have to leave the eurozone.
 
What should he do? He will know his own political constraints. I will focus on the economics.
 
The short answer is: if the deal is reasonable, he should accept. So where is the line between reasonable and unreasonable?

The rough answer is whatever it takes to end the uncertainty. No investor is going to put their money into Greece so long as there is a threat of Grexit — a Greek exit from the eurozone. For an agreement to be viable, it would need to reduce the probability of Grexit to zero. The same applies to the policies needed if Mr Tsipras says “no”. On that day he would need a brilliant economic plan.
 
So what economic criteria should he apply to evaluate any offer?

The single most important part of the agreement concerns the fiscal adjustment that Greece’s creditors are asking Athens to undertake. The variable to look out for is the primary surplus — the fiscal balance before payment of interest on debt: essentially the money a country has for debt servicing. There is no such thing as an objectively right or wrong number. But experience shows that large primary surpluses are politically unsustainable. It was the unsustainability of the previous agreement between Greece, its European creditors and the International Monetary Fund that brought Syriza to power.
 
I heard a respected expert on this issue recently proclaim that a primary surplus of 2.5 per cent of gross domestic product would probably work. The Greeks have demanded 1.5 per cent, which is a reasonable opening bid. One of the so-called “non-papers” — the documents officials leak without leaving fingerprints — that are circulating among the negotiators had mentioned a figure of 3.5 per cent, which strikes me as too high. A primary surplus of 4.5 per cent, as was demanded from 2016 onwards by the previous loan agreement , is plainly ludicrous.
 
Greek economic mismanagement brought about the crisis in 2010, but the creditors are responsible for the current mess by insisting on an economically illiterate adjustment programme. They had not taken into account the fact that Greece is a relatively closed economy. This means that most of its GDP is produced and consumed at home. If you force such an economy into extreme austerity during a recession, it stays trapped. The key to a Greek economic revival has to be an end to austerity. This is why Grexit is not necessarily a solution, either, since it might bring even more fiscal consolidation.

Greece would be cut off from international capital markets and unable to run a deficit.
 
What should happen now is what should have happened in 2010 and 2012 when the first and second Greek loan programmes were agreed. Athens should have been allowed to default.

Instead, the creditors offered the country a dangerous pact: we help you roll over the debt; you run excessive primary surpluses in the future.

What would happen if Mr Tsipras was presented with such a choice again, and accepted?

Greece would survive the summer without default but would require a third programme of financial help partly because its public finances have deteriorated so much since January. The probability that this process will derail at some point is high. So is the probability that investors know this.

This is why I am sceptical about another round of extend-and-pretend dishonesty where governments or banks grant loans in the full knowledge that they will never be repaid It did work once. A year ago, investors were nearly euphoric. Greece regained access to financial markets. Real growth had briefly turned positive. But do they really think they can repeat this trick?

I doubt it. I see three plausible recovery scenarios. First, Greece may secure a credible deal with a primary surplus demand the right side of crazy. For this to work, such a deal would need the political backing of Mr Tsipras, the Greek parliament and Greek society. It would need to be opposition-proof because the deal still has to stand even if the government were to change.

A second scenario would be to allow Greece to default on its debt, for creditors to stop any further sovereign transfers and for the eurozone to take over the equity of the Greek banking system. If the Greek banks are no longer owned domestically and guaranteed by the government, there is no way Greece could ever be forced to leave the eurozone. A collapse of the banking system is the reason Grexit could happen.

And, finally, another way to get rid of Grexit fears would be Grexit itself. I would not favour this option. But creditors should know that it is no more irrational than imposing further austerity.

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