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June7,20157:35pm

TwodismaleconomicplansforGreece
WolfgangMnchau

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WithoutreformthecountrycannotcoexistwithnorthernEuropeina
monetaryunion

Dreamstime

herearenowtwoproposalsonthetableonefromthecreditorsandonefromGreece.
WhattheyhaveincommonisthatneitherofthemwillfixtheGreekeconomy.Theydonot
evenpretend.Bothdeservetoberejectedflatout.
WheneverEuropeantechnocratsenterlongnegotiations,theygetlostinthetechnicaldetail
andbecomeconstitutionallyincapableofseeingthebiggerpicture.Theycanspendweeks
discussingwhetherthe2016primarysurplus,beforepaymentofinterestondebt,shouldbe1.5
percentor2percentseeminglyunawarethattheerrormarginsofanyoftheirprojections
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exceedthatsmallgapbyalargemultiple.Theeconomicdiplomatshavelostsightofwhatthis
isallaboutallowingGreecetosurvive,andeventuallytoprosper,withintheeurozone.

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Thereisalesscharitableexplanation.Theymightsimplynot
care.Someofthecreditorsareonlyinterestedinkeepingthe
showontheroadcomewhatmay.Inparticular,theyrefuseto
recogniseofficiallythattheirloanstoGreecewillneverberepaid.
TheyknowtheymisledtheirelectoratesaboutGreece,anddonot
wanttobeexposed,atleastnotwhiletheyareinoffice.
ThemaingoalforAlexisTsipras,Greekprimeminister,
meanwhile,istostayinpower.Anagreementoftheextendand
pretendvariety,whichisthelikelyoutcomeofthesenegotiations
iftheyendinsuccess,maysuithim.Andthustheprobabilityofa
lousydealthatsuitsthenegotiatorsbutthatwillnothelpthe

Greekeconomyishigh.
Sowhatswrongwiththetwoproposals?TheGreekoneisdishonest.Thecreditorsproposal
demandsalevelofausteritythatisimpossible,butalsonecessaryifGreeceistobringdownits
debtstoamoresustainablelevelwhilemeetingitsobligations.Thatisabadcombination.
WhatmakestheGreekproposaldishonestisthatthenumbersdonotaddup.Thefiscal
adjustmentsaremilderthanwhatisneededtoachieveaprimarysurplusto3.5percent,a
demandmadebythecreditorswithwhichMrTsiprassaysheagrees.
MrTsiprasmayaswellbesayingtothem:Iamhappytoputinanynumberyoulike.Iam
goingtocheatanyway.Ifalossofmutualtrustistheproblem,thisproposalwillnotfixit.
Stepbackalittleandthesolutionisnothardtosee:lessausterity,morepublicsectorreforms,
andsomecleverdebtrestructuring.Thatwastheoverwhelmingconclusionofarecent
conferencebysomeoftheworldsleadingexpertsonthisissue,asreportedbyRichardPortes
andcoauthorsfromtheLondonBusinessSchoolinarecentarticle.
Wearenottalkingaboutreformsoftheideologicalvariety,onhiringandfiringforexample,or
onendingcollectivebargaining,butsociallyusefulreformssuchascredibletaxcollection,a
modernpublicadministrationoraworkinglegalsystem.
WithoutamodernisationofGreekpublicsectorinfrastructure,thereisnowaythatGreeceand
largepartsofnorthernEuropecancoexistinamonetaryunion.Itwouldbearecipefora
neverending,structuralslump.
HowabouttheargumentthatGreeceshouldacceptabaddealnow,asitwouldbuytimefora
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morecomprehensivenegotiationduringthesummer?Thetroublewiththatargumentisafalse
premise.OnceGreeceacceptsthecurrentdeal,itwillhaveacceptedthebasisofthenext
agreementaswellbecausethefiscalcalculationswillnotchange.Ifyouacceptausteritynow,
youhaveacceptedit.
ThebestnegotiatingtacticforMrTsipraswouldbetorejectthecreditorsofferflatout,and
comebackwithanintelligentplan,onethathasachancetowork.Itwouldhavetoinclude
morereformsthanheisofferingrightnow.Hewouldneedtogobeyondhisfamousredlines
onpensionsoronvalueaddedtax,forexample.
ArealisticprogrammewouldcommitGreeceonlytoabalancedprimarybudgetthisyear,and
modestsurplusesinthefuturelinkedtoeconomicperformance.Thismaynotbeacceptableto
thecreditors.Itmightalreadybetoolateforit.ButatleastMrTsiprascouldclaimthemoral
highground.Hiscurrentproposalisnotinthatleague.Theworstpossibleoutcomewouldbe
anotherextendandpretendtypedeal,leavinganunreformedandcash
deprivedGreeceinapermadepression.
Theeventualconsequencesofsuchapathcouldbeabreakdownofcivilsocietyanddemocracy.
Abaddealalsoincreasesthelikelihoodofaneventualexitfromtheeurozone.Grexit,asthe
latterisknown,isnotagoodoption.Theeurozonehasnorationalinterestinit.
Butwehavetounderstandthat,fromaGreekperspective,itisnottheworstofalloptions.We
areapproachingtheMacbethmomentoftheGreekdrama:Ifitweredonewhentisdone,
thentwerewellitweredonequickly.
munchau@eurointelligence.com
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