Greece’s Proposals to End the Crisis

June 18, 2015

Yannis Varoufakis, Wolfgang Schäuble, Christine Lagarde, Mario Draghi

After todays meeting of the Eurogroup, which consists of all the finance ministers of the eurozone, failed to reach an agreement on the Greek crisis there have been many leaked reports of what was and was not proposed by the Greek delegation. In response Yanis Varoufakis the Greek Finance Minister has published in full his presentation at the Eurogroup of the Greek government’s position. It very clearly sets out the Greek position.

The full text is here.

Here is a an extract:

“A few days ago Olivier Blanchard, the IMF’s Chief Economist published a piece entitled ‘Greece: A Credible Deal Will Require Difficult Decisions by All Sides.’ He is right, the three operative words being ‘by all sides’. Dr Blanchard added that: “At the core of the negotiations is a simple question. How much of an adjustment has to be made by Greece, how much has to be made by its official creditors?”

That Greece needs to adjust there is no doubt. The question, however, is not how much adjustment Greece needs to make. It is, rather, what kind of adjustment. If by ‘adjustment’ we mean fiscal consolidation, wage and pension cuts, and tax rate increases, it is clear we have done more of that than any other country in peacetime.

  • The public sector’s structural, or cyclically adjusted, fiscal deficit turned into a surplus on the back of a ‘world record beating’ 20% adjustment
  • Wages fell by 37%
  • Pensions were reduced by up to 48%
  • State employment diminished by 30%
  • Consumer spending was curtailed by 33%
  • Even the nation’s chronic current account deficit dropped by 16%.
  • No one can say that Greece has not adjusted to its new, post-2008, circumstances. But what we can say is that gigantic adjustment, whether necessary or not, has produced more problems than it solved:

  • Aggregate real GDP fell by 27% while nominal GDP continued to fall quarter-in-quarter-out for 18 quarters non-stop to this day
  • Unemployment skyrocketed to 27%
  • Undeclared labour reached 34%
  • Banks are labouring under non-performing loans that exceed 40% in value
    Public debt has exceeded 180% of GDP
  • Young well-qualified people are abandoning Greece in droves
  • Poverty, hunger and energy deprivation have registered increases usually associated with a state at war
    Investment in productive capacity has evaporated.
  • So, the first part of Dr Blanchard’s question “how much of an adjustment has to be made by Greece?” needs to be answered: Greece needs a great deal of adjustment. But not of the same kind that we have had in the past. We need more reforms not more cutbacks. For instance,

    We need to adjust to a new culture of paying taxes, not to higher VAT rates that strengthen the incentive to cheat and drive law-abiding citizens into greater poverty.

    We need to make the pension system sustainable by eradicating unpaid labour, minimising early retirements, eliminating pension fund fraud, boosting employment – not by eradicating the solidarity tranche from the lowest of the low of pensions, as the institutions have demanded, thus pushing the poorest of the poor into greater poverty and conjuring up massive popular hostility against another set of so called reforms.

    In our proposals to the institutions we have offered:

  • An extensive (but optimised) privatisation agenda spanning the period 2015-2025
  • The creation of a fully independent Tax and Customs Authority (under the aegis and supervision of Parliament)
  • A Fiscal Council that oversees the state budget
  • A short-term program for limiting foreclosures and managing non-performing loans
  • Judicial and civil procedure code reforms
  • Liberalising several product markets and services (with protections for middle class values and professions that are part and parcel of society’s fabric)
  • Elimination of many nuisance charges
  • Public administration reforms (introducing proper staff evaluation systems, reducing non-wage costs, modernising and unifying public sector payrolls).
  • In addition to these reforms the Greek Authorities have engaged the Organisation of Economic Cooperation and Development (OECD) to help Athens design, implement and monitor a second series of reforms. Yesterday I met with the OECD’s Secretary General Mr Angel Gurria and his team to announce this joint reform agenda, complete with a specific roadmap:

  • A major Anti-corruption Drive and relevant institutions to support it – especially in the area of procurement
  • Liberalising the construction sector, including the market and standards of construction materials
  • Wholesale trade liberalisation
  • Media – electronic and press code of practice
  • One-Stop Business Centres that eradicate the bureaucratic impediments to doing business in Greece
  • Pension System Reform – where the emphasis is on a proper, long-term, actuarial study, the phasing out of early retirements, the reduction in the operating costs of the pensions funds, pension fund consolidation – rather than mere pension cuts.
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