EconoMatters

Greece: “Creative Ambiguity” or Progress?

Creative ambiguity is not going to help secure money from Europe.

Credit: EU Council Eurozone - www.flickr.com

Takeaways


  • #Greece: Will Tspipras introduce legislative proposals to modernize Greece's economy?
  • Can #Greece's #Syriza get key reforms through parliament without losing power?
  • Creative ambiguity about future plans is not going to help Greece secure money from Europe.

Greek Finance Minister Yanis Varoufakis’ recent soundbites have been promising:

    “Greece’s social security system not sustainable.”

That statement could soften the red lines of raising pensions and not raising effective retirement ages.

    “Greece will sink without reforms.”

This statement could justify new reforms and keeping some of the labor and other reforms previously agreed in place — instead of reversing them.

    “No haircut on official sector debt.”

This statement sounds as if he now recognizes the importance of political support in the creditor nations to secure any new funding. Threatening not to repay the bail-out loans in full will not deliver a positive vote in Germany’s Bundestag for a third bail-out this summer.

    “Greece needs realistic asset sales targets.”

Translation: Sales from privatizations may be lower than the creditors would like, but they won’t be zero.

    “Greece needs to make compromises with its creditors.”

With this statement, Varoufakis might be taking on the fiercest left-wing hardliners in Syriza.

On the other hand

As always with Mr. Varoufakis, the positive interpretations above may turn out to be wishful thinking. If Varoufakis was employing his cherished “creative ambiguity” to the full, he could also mean that:

1. the social security system needs to be expanded to ease Syriza’s “humanitarian crisis”,

2. better tax enforcement is the only “structural reform” Greece has needed since 2007

3. instead of defaulting on loans, they would be converted into zero-interest perpetual bonds (i.e., gifts),

4. realistic asset sales targets might not be zero, but much lower than creditors would like

5. the creditors really need to compromise with Greece.

So far, the only compromise Greece seems to be offering is raising a plethora of tax rates from VAT to luxury taxes. Such promises might have pleased the troika five years ago, but today the focus is much more on growth-enhancing structural reforms.

Mr. Varoufakis implicitly acknowledged that Greece will need a third bail-out this summer, not least to make the nearly €7 billion in repayments due to the ECB in July and August. Greece does not want to default on these, but hopes that the European Stability Mechanism (ESM) will somehow pay them for Greece, which is the precisely the definition of a Eurozone bail-out.

Such a bail-out would require parliamentary approvals in several Eurozone countries, not least in Germany. Germany’s government has the necessary majority and political capital to go against public opinion which is by now, thanks to Mr. Varoufakis’ constant flow of antics, firmly against any new aid for Greece.

In contrast, an end of “creative ambiguity” and some trust-inspiring measures such as legislated reforms would greatly enhance Germany’s willingness to help.

That leaves two important questions:

1. When will Mr. Varoufakis introduce legislative proposals for social security and labor market reforms, which are necessary to secure the €7.2 billion left from the old bail-out?

2. Will the Greek government manage to get these approved in parliament without losing its own majority over it?

Traditionally, governments expel dissenters from their parliamentary groupings. Prime Minister Tsipras may get the tough reform legislation passed through parliament with support from the opposition, but he may lose his majority and thus his job over it.

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About Christian Schulz

Christian Schulz is currently Senior Economist at Berenberg Bank in London.

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