Anna Visvizi est une analyste politique et économique et professeur agrégé à l’American college of Greece, DEREE.
"On Thursday, March 15, the IMF Executive Board approved a four-year €28 billion arrangement under the Extended Fund Facility (EFF) for Greece in support of the authorities’ economic adjustment programme. The IMF’s decision to participate in the EU/IMF €130 billion four-year financial assistance programme for Greece completes the chain of events that was set in motion on October 26, 2011. In line with the agreement reached at that time, following a debt-restructuring arrangement, a new rescue package would be offered to Greece to help it in meeting its payment obligations. The support from the EU and the IMF was conditional upon Greece securing private creditors’ participation in the IIF (Institute of International Finance) brokered bond exchange programme and at the same time on adopting a series of additional reform and fiscal consolidation measures.
Following an invitation to private debt holders issued by the Greek government on February 24, on March 9, 2012 a 95.7% participation rate in the programme was recorded, out of which 85.5% without enacting the collective action clause (CAC). The unprecedented in its nature bond-exchange programme led to questions of whether it constituted a credit-event or not. On March 9, 2012 Fitch moved to downgrade Greece’s rating from C to RD, i.e. restricted default. However, following the official announcement regarding the unexpectedly high participation rate in the programme, Greece’s rating has been upgraded to B- on March 13, 2012.
The value of the bond exchange programme was set at the level of 53.5% (against the initially planned 50%). This means that the bonds in hands of private creditors will be swapped into new ones of a nominal value corresponding to 46.5% of the ‘old’ bonds. The actual loss that the creditors will incur amounts to, on average, 74%, largely due to the loss of future interest payments. The new bonds are issued by the Greek government (31% of the whole) and by the EFSF (15%) under English law (previously the bulk share of Greek bonds had the Greek law clause attached to them). As for the interest rates, depending on the maturity of the bonds, their holders will be granted a 2% profit (for bonds maturing over the period Feb. 2012-Feb. 2015), a 3% profit (for bonds maturing over the period Feb. 2015- Feb. 2020), and a 4,3% profit for bonds maturing over the period Feb. 2020 – Feb. 2042. Moreover, as of 2015 the creditors participating in the bond exchange scheme will be entitled to a minor increase in interest rates should the economic growth in Greece exceed the targets set in the agreement with the EU and the IMF.
It is important to note that the bond exchange programme refers only to the part of the Greek public debt that is held by the private creditors. This constitutes about 2/3 of the Greek debt. In 2011 the value of the Greek debt amounted to ca. €368 bn (ca. 169% of GDP). Accordingly, as a result of the bond exchange programme an effective debt reduction of the value of ca. €106 bn will be achieved, thus reducing the Greek public debt to the value of €262 bn. This in turn will allow lessening the debt burden for Greece by €3.2 bn annually, which – under specific circumstances – will allow reaching the debt level of 120.5% of GDP by 2020 (The report issued by the Troika last week suggests that given the high participation rate in the bond exchange programme, the debt reduction might reach the value of 116.6% of GDP by 2020.)
Although the first tranche (€1.65 billion) of the financial aid was disbursed on Friday, March 16, whereby Standard&Poors announced that Greece was unlikely to leave the eurozone, it remains uncertain how and whether the debt restructuring will lead to a sustained improvement of Greece’s fiscal position. In other words, current developments in Greece as well as developments concerning Greece trigger more questions than answers. This state of enduring perplexity renders any attempt at providing a meaningful analysis of the situation in Greece a rather challenging exercise in that it is necessary to identify and to solve the riddle that it conceals. With this in mind, in the following paragraphs some of the lights and shadows of the current situation in Greece will be pointed to and some conclusions will be drawn.
One of the most important developments of the last week consists of the fact that the Greek parliament approved a law that liberalises cabotage restrictions on cruise vessels. For a country that spreads over 3000 islands this is a ground-breaking decision that, if implemented, bears the potential – to say the least – of boosting trade in goods and services in Greece. According to the estimates of the Association of the Greek Passenger Shipping Companies the cumulative potential value of lifting the restrictions might reach €1billion per year. (Note that in response to that decision, the seafarer union, dominated by the communist party members, announced a rolling 48-strike to start on March 19.)
Another important law that was passed recently by the parliament concerns the liberalisation of pharmacy working hours. Although heavily opposed by the association of pharmacists, this move in an incremental way, will improve competition on the market, will enhance the quality of services offered, and – as many pharmacists emphasise – will help them to increase their revenue.
A qualitatively different development is exemplified by the so-called ‘potato movement’. It turns out that several potato producers, angered with the humiliating prices offered for their product by the intermediaries, decided to bypass them by advertising and selling their potatoes on-line at a price satisfactory both for the producers and for the consumers. This move proved to be so successful that several producers across the country started doing the same, with many people offering their help on a voluntary basis and with the media picking up on this topic. The ‘potato movement’ has become, nevertheless, subject to harsh criticism on the part of the intermediaries (arguing that the quality of potatoes was disputable) and on the part of the communist party (arguing that it does not lead to any substantial improvement in people’s lives).
The point here is that for many people in Greece the ‘potato movement’ represented a first successful encounter with a market economy free of unnecessary institutional burdens. And even if the today’s volunteers will turn into official intermediaries in the future, the oligopoly of the current system has been irreversibly broken and the spirit of entrepreneurship has been ignited.
From a different perspective, the above positive developments have been overshadowed by the following:
Under the pressure of the Troika, regardless of the rhetoric to the contrary, the economic adjustment programme for Greece increasingly bears similarities to the failed programme of May 2010. That is to say, overemphasis on taxation coupled with a vibrant discourse on the (largely constructed) problem of tax evasion in Greece triggers, once again, serious concerns about the viability of the economic adjustment programme and about the purposefulness of the bond-exchange scheme. Recent surveys suggest that about 50% of entrepreneurs anticipate that they will be unable to deliver on their tax obligations in 2012. Moreover, the same survey indicates that only in 2012 ca. 60.000 enterprises will be liquidated, thus leading to further decrease in budget revenue on account of taxation.
On a different count, it is somewhat worrying that the debate on growth and growth enhancing measures in Greece is limited to arguments on liquidity and thus on providing small and medium-sized enterprises with access to loans. In a similar manner, the undisbursed as yet funds from the EU cohesion policy, are talked about by many in Greece as having the potential of triggering miraculous growth. The problem with this one-sided approach to the question of growth is that as long as it is not coupled with the imperative of deep structural reforms and other measures enhancing real competitiveness of the Greek economy (i.e. new industrial policy, smart specialisation etc.), it is impossible to think of a sustainable growth in Greece; not to mention that the FDI has been completely downplayed in respective debate.
Finally, as the socialist party, PASOK, called its supporters on Sunday, March 18, to elect the party’s new leader, with Evangelos Venizelos being the only candidate, the current analysis has to turn to the uncertain influence of the party-politics on future developments in Greece. According to the most recent agreements, the parliamentary elections in Greece will take place at the beginning of May. Although the opinion polls show the conservative party Nea Democratia (ND) as the most probable winner of the elections (25% of potential votes), given the fact that the two most important left-wing parties may win as much as 27.5% of votes, it is highly questionable whether ND will be able to win a majority of votes in the parliament.
As the left-wing parties opposed the agreement concerning the debt-exchange programme and the financial assistance scheme for Greece, following the elections, ND may be forced to cooperate with PASOK. Experience suggests, however, that such cooperation will lead the emergence of hurdles and stop-overs in the reform process rather than to anything else.
The riddle that the situation in Greece presents is complex; its solution is conditional on a number of future developments; and the debate on Greece that unfolds is full of misconceptions. As a result, the way of addressing the crisis that the EU and the IMF promote rather than tackling the core of the problem of the Greek economy, i.e. the dysfunctional public sector and overregulation, de facto penalises the private sector by continuous excessive increases in taxation."