Wednesday, May 04, 2011

Greece: A Year since the Bailout

It has been one year since Greece signed an agreement to receive €110 billion from the IMF and the Europeans. Where does Greece stand today?

First, Greece made a big adjustment effort, cutting its budget deficit from 15.4% of GDP in 2009 to 10.5% in 2010. This is not quite as large as previously thought, and the economy's challenges remain huge, but it is still an enormous change (see here).

Second, it is now clear that Greece can default without having to leave the Eurozone. In mid 2010, the fear was that Greece would not only have to restructure its debt but could also be forced to drop the euro and re-launch a new currency. This seems less likely now: the EU is setting up a structure to allow debt-ridden countries to restructure without dropping the euro. This change has major implications for Greece: it contains the impact of default to economics. Being thrown out of the Eurozone would have sparked a deep systemic crisis in Greece's politics (see here). This now seems unnecessary.

Third, there is finally some momentum towards honest accounting. Greek statistics, which had a horrid reputation for years, are starting to be rehabilitated. The government is trying to conduct an inventory of spending at the central and sub-national levels. Budgetary and spending transparency has risen. Information about public sector employees in the government and state-owned enterprises is not only collected but shared with the public and press. Public property is being cataloged. The government is waging a serious campaign to provide more truthful data. This is great news since lack of honest accounting and lack of accountability go together (see here).

Fourth, taboos some taboos are becoming less taboo. Lifelong tenure for public sector employees could be on the table for discussion. University asylum, which is a guise under which “anarchists” wreck havoc, is now being debated. The public is more supportive of privatization of state-owned companies (see here). What is more, it is the government that is highlighting many of the absurdities in the country. One used to hear complaints in the country's coffee shops over backgammon and frappe. Ministers are now the ones speaking those same words. The debate is not yet far reaching – but it is starting.

Finally, there seems to be support for change. The ruling party has enjoyed the support of a silent majority which recognized the inevitability of its program even though it could not cheer its harshness. In clashes between unions and the government, the public has sided with the government. More Greeks understand the country’s condition and what needs to happen. But their support is conditional: it depends on the burden being shared equally. When the government showed signs of favoritism, public support for the government fell (see here). There are vested interests resisting change, and there are people in the ruling party who do not want to antagonize those interests. But there are more signs that if the (divided) government were to pick big battles, the public would be on its side.

In one year, Greece has changed quite a bit – but it has also remained the same quite a bit. It is easy to look at the next few years and be dismayed. The remaining challenges are enormous and reform has to be squeezed to a very short period. But if one looks back at the past twelve months, there are also good sings – of a government trying to do good and actually doing good much of the time and of a people who will begrudgingly accept a weak economy in the name of reform that is fair. Not the best of times; but not the worst either.

1 comment:

  1. Can't really expect a whole country to change that much over the course of a year, but Greece is definitely getting there. I would really like to have a debate over frappe and a game of backgammon online, if at all possible.

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