For the past eighteen months I have believed in three things: (1) that the crisis facing Greece was, above all, a political crisis; (2) that the Greek government was serious in facing down powerful constituencies; and (3) that the aegis of an IMF-led program offered the right mix of carrot and stick for Greece to make these changes. I still believe No. 1 but I increasingly doubt No. 2 and No. 3. In fact, the newly proposed property tax was an inflection point for me: it turned me from an optimist into a pessimist.
Why an optimist to start with? For two reasons. First, I believed that Greece needed to be in crisis mode for things to change – deep reforms in the country’s political economy would be unthinkable under a “business as usual” scenario. Second, I believed that the troika’s agenda was, more or less, sensible. It demanded cuts where cuts should be made, and it pressed for reforms where reforms should take place. I did have one worry: I recognized that reform and debt repayment were different things and that if pressed to pick, debt repayment would trump reform.
There was reason to keep being optimist, I think, until just now. In my mind, the Greek program has gone through three phases. The first period came from the signing of the memorandum with the troika in May 2010 to the start of 2011. For about 8-9 months, the government was diligent. It succeeded in cutting the deficit quite impressively, and its deviation from the target could be easily explained by a deeper than expected recession. The government was also resolute in its reform agenda: it faced down truckers, port workers, and others who challenged new laws. It showed a strong commitment to change.
Then it started to waver. Chiefly, it slowed its commitment to change. The second period lasted from the first quarter of 2011 until the passage of the medium term plan in the summer. The period was marked by four trends: a progressive realization that a deeper than expected recession would make the 2011 fiscal targets hard to meet; a second wave of structural reforms but with feeble implementation; the introduction of a broad set of measures, balanced between higher revenues and lower spending, in the form of the medium term strategy; and finally, an outright mutiny in the ruling party that almost toppled the government but that, instead, led to a cabinet reshuffle.
By the end of the summer holidays, the government was again in a tough spot. Its fiscal targets were increasingly beyond reach. At that critical juncture, it chose to plug a fiscal hole by introducing an extraordinary levy on property to be paid through the electricity bill (a measure which, amusingly, the current finance minister called absurd and unfair only a few months earlier). The government is also meeting to consider additional measures, but so far, this is it.
Now, of course, no program goes fully according to plan. It easy to miss targets, to take longer to pass reforms and implement them, to seek consensus by sacrificing expediency. These obstacles are expected. But a politician and a government reveal a lot about themselves by how they handle adversity. Faced with trouble, do they stand on firm principles that will guide them? Do they have a clear purpose and a sense of fairness? Do they know where they want to end up and have some idea of how to get there? Or do they dash for the exit, seeking the path of least resistance, opting for naked opportunism over thoughtful action?
The property tax was naked opportunism. There is no doubt that a government faces a trade-off between good measures that yield results with time and less good measures that yield results instantly. And yet, this excuse becomes progressively less valid as time goes on. This is particularly so when one considers the alternatives available to the government – one being to set up special courts to expedite the collection of tax arrears, the other being to be more aggressive in cutting jobs and wages in the public sector. Together these two actions would enable a third crucial one: a tax break for consumers.
These actions would signal both a willingness to tackle vested interests as well as demonstrate a sense of justice. More fundamentally they would reinforce a government message: we are introducing measures, often unjust, because we need to plug in a hole until the structural reforms kick in. But when you keep saying this, and when the structural reforms keep getting pushed back, how on earth can you keep justifying such measures? The truth is that when confronted with a pure grab versus more painful but more just measures, the government went for a grab. And a government with such instincts does not deserve a mandate to rule.