FNF Greece: The Greek government is running out of time, again

by Nicos Rompapas, Executive Director KEFIM-Markos Dragoumis

Negotiations between the Greek government and its creditors remain in a stalemate, but time is running out. For months members of the government have been stating that Greece has fulfilled its commitments for the second compliance review of reforms and economic progress and that just a few issues remain open. But last week Bloomberg published a leaked letter signed by the Greek Minister of Finance Euclid Tsakalotos stating that just a third of the required measures have been passed, another third is in the process of being passed and the last and most challenging third is still under discussion.

dsc02883aNobody seems to know what the Greek government plans to do. Not even the Greek government itself. There are, as always, statements about red lines not to be passed. But such statements have been repeatedly made and broken in the past. On the other hand there have been rumors that Mr Tsakalotos has threatened to resign if no compromise is reached and it seems unlikely that the IMF and the rest of the institutions will change their requirements. This is a sign of increased tensions within the government but there is little chance that Tsakalotos would resign against Tsipras’ will before an agreement is reached. Tsakalotos is unlikely to cause the government to collapse.

But these short terms problems are minor compared to the major issues that the country is facing. The Greek economy is one of the least free in the EU and the Balkans, ranking on the 86th place according the Economic Freedom Ranking recently presented by Fraser Institute and KEFIM-Markos Dragoumis. What is even more striking is that Greece’s ranking was lower in 2014 than in 2008. This should be no surprise given the halfhearted reforms by conservative and social-democratic governments and the increase of the debt to GDP ratio, increased taxation. And it will be no surprise if Greece drops to the last quartile of the least free economies for 2015, taking into account the capital controls that have been instituted before the 2015 summer referendum.

athen-syntagmaplatzSo, even if a compromise is reached, the situation will remain critical until the current or a future government decides to aggressively restructure the state and the pension system, and pursue free market reforms. As long as there is no underlining consensus in the Greek people and the political establishment on this, the current situation will drag on and the vicious cycle of depression will continue.

Given that, for the time being, there is no such consensus and that no one in Greece, the rest of Europe and the IMF want to see things collapse under their rule, we should expect more stalemate, procrastination and prolonged drama. We will probably have to wait until elections in the Netherlands, Germany and France are over for any major change. Unless Greek elections are announced before then!

Nicos Rompapas is Executive Director of the Greek liberal think tank KEFIM-Markos Dragoumis, which is also a member organisation of the European Liberal Forum (ELF).