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24 February 2015

Greece: the good news appears to continue

The Eurogroup has announced its analysis of the surprisingly lengthy and detailed list of policy proposals received from the Greek government.

The Eurogroup has announced its analysis of the surprisingly lengthy and detailed list of policy proposals (see Reuters article) received from the Greek government: “The institutions provided us with their first view that they consider this list of measures to be sufficiently comprehensive to be a valid starting point for a successful conclusion of the review.”

Amidst media reports that the run on Greek banks last week has used up almost all the increased ELA offered by the ECB, the Greek government should be thoroughly frightened about the imminence of an economic catastrophe. Accordingly, the letter reads more like a manifesto for drastic economic reform to turn Greece into a modern market economy.  But the commitment on tax reforms – see examples in bullet points below – portend a revolution in taxation, both historic and prospective.

  • Establish with the assistance of European and international partners, a wealth database that assists the tax authorities in gauging the veracity of previous income tax returns
  • The government and the GSPR will make full use of available technical assistance.  Staff adequately, both quantitatively and qualitatively, the GSPR and in particular the high wealth and large debtors units of the revenue administration and ensure that it has strong investigative/prosecution powers, and resources building on SDOE's capacities, so as to target effectively tax fraud by, and tax arrears of, high income social groups

The programme is intended to force a seismic shift in deeply-ingrained business cultures. Success could well produce an economic turnaround such as the UK experienced under Mrs Thatcher in the 1980’s. But the vested interests are likely to resist this bitterly – as they have done since the crisis broke in 2010. The difference is that the people have now spoken decisively that things have to change and EU membership is a guarantee of continued democracy. Indeed, the role of the European Arrest Warrant could prove to be catalytic as it is available for offences carried out under Greek law and is applicable to `revenue’ offences.

This list is probably not the last word as Eurogroup called on the Greek government to “further develop and broaden the list of reform measures”. In the next four months, these concepts will have to be turned into operational policies. During that period, investors should expect that vested interests will do what they can to dissuade the Greek Parliament from ratifying such agreements and passing the relevant laws. Presumably, the ECB will calibrate any further increases in ELA so that its exposure to what might become insolvent banks is minimised at all times. That will be an ever-present reminder to Greek Parliamentarians that `there is no alternative’ (TINA).

Assuming the crisis abates satisfactorily, the emergence of a deep 'political union of the eurozone' will be ever more apparent. That may well be manifested in the Report of the Four Presidents to the June European Council meeting.

© Graham Bishop

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