Tuesday, July 14, 2015

Has Tsipras played a blinder in getting the deal Greece needs?

Odd question you may think, given the nature of the deal that Greece appears to have been forced to swallow, and the nature of the humiliation.

Tsipras threw a less nasty deal back in the faces of Euro negotiators the week before last, held a referendum to tell the Euro group where to get off, then went back and accepted a worse deal... or was it?

Well, they did get a third bailout and with a bit of luck will get some liquidity back in their banks. The former wasn't on offer last time and the latter wasn't actually necessary until the IMF default which caused a run on Greek banks. So what else have they got?

I suppose it depends on what your looking for. When Syriza won the election, it wanted to end austerity and deal with corruption and the client state built up over the years. Some numbers I came across (from an article in the Telegraph by a Greek barrister, Pavlos Eleftheriadis who is a fellow at Oxford university and a member of a new left of centre Greek party.

Firstly, there is virtually no welfare state or state healthcare in Greece. So 90% of the unemployed get no help except for charity. Those who do not have private medical insurance also have to rely on charity.

Makes you wonder what they spend all that money on then?

Well, the answer is, part the client state. The last right of centre government inherited a state the previous socialist one had burdened with tens or hundreds of thousands of "civil servants" who just collect a salary and do no work for the state. Its answer? Not clear them out but hire 150,000 of their own. So there may be 200,000 of them. Maybe 300,000. At say €10,000 each a year that could be anywhere from €1.5 billion to €3 billion.

You wonder why Greeks don't want to pay taxes for that? I don't.

Then there are some systemic forms of tax avoidance and evasion. At the beginning of the Greek crisis a professor of computer science offered help to collect tax. He compared government databases and found some very poor (according to tax records) Greeks living in some very expensive parts of Athens driving new cars costing over €100,000. The tax inspectors union went to court to shut him down. They won, I kid you not.

Then there is the "My property is not finished yet" scam. Greeks pay a property tax, but only on completed properties. Go ask someone who has been to Greece how many places they have seen which are both lived in (or indeed fully functioning hotels) that are still not quite finished.

Many in Greece think this sort of thing is normal, and that is the way governments work in Europe, perhaps the world. They don't have other terms of reference. However many of the first Syriza cabinet have both worked and studied abroad and not only know that it isn't how other countries work but they can't do what they want to do without first clearing up the mess.

So Syriza got elected. One of the things they were going to do was clean this mess up, and why not, Greece could not afford a welfare state with that burden. In fact, Greece couldn't afford anything much. No left or right of centre government we would call sensible could operate.   The problem was that the vested interests and state clients suddenly turned to Syriza supporters so what could be done?

Alexis Tsipras could not rely on his parliament to get reforms through... so why not do what Jim Callaghan did (according to Dennis Healy)  in the 1970s and effectively call in a third party to crack the whip (In that case the Bennites in his cabinet wanted more and more public spending). And in order to do that whilst looking like a hero at home, he seems to have poked the Germans in the eye and kicked them in the shins so that they came back with some clear conditions on what Greece should do in the way of reforms.

Some of the reforms the Euro group have dumped on Greece I'm sure are unwelcome, however many must secretly please those in Syriza because they know that Greece can't afford for Syriza to do what its political predecessors have done and fill the state payroll with its own clients.

I don't have any evidence for this theory but on the other hand many involved in the negotiations are a long way from being stupid, yet they poked the rest of the Eurozone in the eye, told them to poke their deal (such as it was), held a referendum... and then went back and accepted what looks like a worse deal. Nothing else makes much sense.