23 March 2014

Simon Nixon: Greece able to call its own tune

Writing for the WSJ, Nixon says the extent to which Athens got its way on vital issues relating to the budget, bank recapitalisation and structural reform is a mark of how far a recovering economy, buoyant markets and increasing confidence in PM Samaras have changed the terms of engagement.

The improving economic outlook certainly gave Mr Samaras the upper hand in negotiations over the budget. At the start of the bailout review, the IMF insisted Greece faced a substantial deficit in 2013 and demanded further fiscal tightening. Athens stuck by its more optimistic forecasts, refusing to take actions that would prolong the depression. That decision was vindicated when Greek government figures showed that the country achieved a 1.1 per cent surplus before interest costs in 2013.

This year the economy is likely to grow by 1.1 per cent, reckons Alpha Bank. Meanwhile, an estimated €4 billion funding gap in 2014—which has arisen because of the eurozone's failure to hand over profits from the ECB's holdings of Greek bonds as promised—is also shrinking fast, helped by banks repaying government aid. Athens is even talking about issuing a bond, raising the possibility it won't need a third bailout. This improving outlook also tilted the balance in the negotiation with the Troika over the scale of the required recapitalisation of the banking system.

Of course, the strength of the recovery will also hinge on progress with structural reforms, essential to help the economy rebalance. Disputes over the pace of reforms have dogged Greece's bailout programme from the start amid complaints that Athens is too reluctant to confront vested interests.

Last year, the Organisation for Economic Cooperation and Development identified 329 measures that it said could boost Greece's GDP by 2.5 per cent by removing specific impediments in the retail, tourism, building and food-processing industries. The Troika wanted Athens to commit to implementing these measures in full. Athens wanted flexibility over the timing given its fragile political position with a parliamentary majority of just three and European Parliament elections in May.

Not so long ago, Mr Samaras's plea for sympathy might have fallen on deaf ears. Even now, some Troika officials privately accuse him of blackmail. But he believes he deserves credit for holding the country together while delivering the fastest pace of reforms in the OECD.

What's more, the radical left-wing Syriza party is only one percentage point ahead of his New Democrats in the polls—not enough for a decisive breakthrough—and facing tensions within its ranks. Independent parliamentarians may be more willing to back the government in tight votes to prevent early elections. That suggests Mr Samaras continues to offer the best insurance against what eurozone leaders and markets agree is the biggest risk to the Greek recovery and the prospects of ending the crisis: fresh political instability. No wonder they are willing to give him the benefit of the doubt.

Full article

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