Mr. Tóth is an Hungarian fellow of based in Luxembourg. Since Greece’s debt crisis began in 2010, most international banks and foreign investors have sold their Greek bonds and Greece now appears to be in a catch-22 situation. But Mihály Alex Tóth suggests the government’s biggest bail-out challenges are yet to come.

In July 2015 Greece has far the highest national debt in the EU (180%), closure of banks and imposition of capital controls are introduced, unemployment rate is 24.6%, GDP increment is around 0.8%, Alexis Tsipras’ approval rating is 60 percent which indicates solid public support for his anti-austerity views.

In October 2015 there is no noteworthy economic development, 86 million euros bailout package is approved by Eurozone members (third in number) for the country and the prime minister position is filled by the same person, although his approval rating descended to 30% by now.

We could have assumed that at least one factor, namely the political, must have changed radically right after publishing conditions of new financial aid in July. Nobody should have bet on that. Despite making a right-about in austerity and accepting a harsh bailout package, Hellenic folk returned Alexis Tsipras to the prime minister’s seat in a snap legislative election held on 20 September (second one this year) to lead his nation in these instable times.

The time is ticking as major contributors to the national economy, almost 40 000 small- and medium-sized enterprises prepare to declare bankruptcy in the rest of the year. They would join the club of more than 150 000 companies which have made this decision since 2009.

And the worst is still to come

The newly appointed prime minister has got a bit freer functioning given that only one minor coalition partner (the Independent Greeks consisting of Ecologist Greens and independent representatives) was needed to form a government. It already took initial steps by approving first package of austerity measures on 16 October towards fulfilling requirement for first portion of the aid. These provisions like foreseeably future Greek economic policy were based on the prior actions demanded by negotiating partners.

One of them is creation of a €50 billion fund, based in Athens, consisting of some Greek national assets such as planes, airports, ports, infrastructure, banks and energy corporations which it intends to sell. Main tasks of this independent fund are to contribute to debt repayment and to recapitalize banks.

Further reforms need to be put in place to save up sufficient amount. This saving might result 0.25% to 0.5% of GDP in 2015 which could be utilized in other sectors in need. These numbers is thought to be possible to accomplish if the government forces people to retire later as laws requiring age 67 for retirement will be in force by 2025 at the latest.

Besides that full legal independency of the Greek statistic office, ELSTAT, must be ensured, the Tsipras government has to reach 1.8% budget surplus by the end of this year. This figure should be 3.5% in 2018 according to the wish list of the troika. This can be achieved primarily by cutting costs in state administration (reduced travel allowance and perks) and by raising tax rate.

One of the chief demands of the creditors in connection with tax system was cancellation of 30% discount in VAT system for Greek islands. This is going to be implemented progressively by removing this privilege from main tourist destination islands first. VAT system restructuring means increase in number of services on which the highest rate VAT is imposed. Tax evasion is another key issue which must be tackled among contractors, people in the professions and some big companies. At the same time, more social contribution is needed from wealthy layer of Greek society. Agriculture will also be deprived of fuel tax benefits whereas it is anticipated that taxes on farmers’ income doubles by 2017.

Liberalizing the economy is also included in the lenders’ list. It covers deregulation of natural gas market, opening up of restricted professions (solicitors, actuaries, bailiffs), allowing Sunday trading hours, modifications in pharmacy ownership, marketing of milk and designation of bakeries.

Apparently, the government will introduce series of reforms affecting advantages which had been red lines during negotiations before. Realization of these measures might be managed more easily thanks to the skilled members of the new government and to the current composition of the governing coalition. Tsipras insists that Greece will be able to return to bond markets in 22 months after passing laws of 43 reforms till the end of this November. Adaption of the aforementioned reforms is also a prerequisite for receiving next part of the bailout package.

Interim conclusion

Back to the past? Yes. After a short duration of anti-austerity period, Greece stepped on the path previous governments were marching on. With this debt burden on their back it was always unlikely to implement a sustainable anti-austerity economic policy, in spite of that most of the deficit does not originate from the period after the latest financial crises but much earlier.

The economic agenda, with even harsher conditions than before July, is the same as well as the prime minister, although with a more resigned tone: “The measures are recessionary, but we hope that putting Grexit to bed means inward investment can begin to flow, negating them”. However, European gentleman-style negotiation and trust disappeared for a while between one member state and the majority.

Mihály Alex Tóth

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