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You can find the current article at its original source at http://www.theguardian.com/business/nils-pratley-on-finance/2015/jul/13/greece-eu-tall-orders-agreement-desparation
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| Tall orders in an agreement born of desparation | Tall orders in an agreement born of desparation |
| (about 4 hours later) | |
| Past Greek bailouts were accompanied by declarations that the deal on the table was realistic, comprehensive and good for both parties. There was confidence that Greece’s debts would soon be cruising back towards the target of 120% of GDP by 2020 and, long before then, the country would be able to finance itself in the markets. | Past Greek bailouts were accompanied by declarations that the deal on the table was realistic, comprehensive and good for both parties. There was confidence that Greece’s debts would soon be cruising back towards the target of 120% of GDP by 2020 and, long before then, the country would be able to finance itself in the markets. |
| The tone is very different this time. The early-morning declaration from Brussels stressed “the crucial need to rebuild trust with the Greek authorities” and stated that “ownership [of the bailout and reform programme] by the Greek authorities is key”. | The tone is very different this time. The early-morning declaration from Brussels stressed “the crucial need to rebuild trust with the Greek authorities” and stated that “ownership [of the bailout and reform programme] by the Greek authorities is key”. |
| In other words, Germany’s and others’ confidence in Greece’s commitment to reform is at rock bottom. The creditors want every measure nailed down before they start to dispatch €82bn-€86bn funds from the European Stability Mechanism. | In other words, Germany’s and others’ confidence in Greece’s commitment to reform is at rock bottom. The creditors want every measure nailed down before they start to dispatch €82bn-€86bn funds from the European Stability Mechanism. |
| Thus the package of reforms demanded of Athens starts with the big stuff – reforms to VAT and pensions, plus quasi-automatic spending cuts if budget surpluses are not met – and quickly descends into minuscule measures. Greek bakers and ferry owners, for example, must feel the blast of competition. | Thus the package of reforms demanded of Athens starts with the big stuff – reforms to VAT and pensions, plus quasi-automatic spending cuts if budget surpluses are not met – and quickly descends into minuscule measures. Greek bakers and ferry owners, for example, must feel the blast of competition. |
| Meanwhile, the new privatisation fund must raise €50bn in three years, a staggering sum. A privatisation programme was first commanded back in 2012 and has raised about €3bn so far. It may be possible to shove enough airports, railways, electricity pylons and even banks into the fund to come up with a theoretical €50bn valuation. But turning these assets into that sum in hard cash is a very tall order. Foreign investors are not going to volunteer to pay full prices in the current climate. | Meanwhile, the new privatisation fund must raise €50bn in three years, a staggering sum. A privatisation programme was first commanded back in 2012 and has raised about €3bn so far. It may be possible to shove enough airports, railways, electricity pylons and even banks into the fund to come up with a theoretical €50bn valuation. But turning these assets into that sum in hard cash is a very tall order. Foreign investors are not going to volunteer to pay full prices in the current climate. |
| Yet the fund has a central role in the bailout arithmetic: €25bn is earmarked to recapitalise the banks, €12.5bn will go on paying down debt and the last €12.5bn will be re-invested in the economy. Alexis Tsipras, Greek prime minister, secured a concession by ensuring the fund will be administered in Athens but it was a tiny victory. Raising €50bn – about a quarter of current GDP – from privatisations would be tricky even if the world’s finest civil servants were deployed. | Yet the fund has a central role in the bailout arithmetic: €25bn is earmarked to recapitalise the banks, €12.5bn will go on paying down debt and the last €12.5bn will be re-invested in the economy. Alexis Tsipras, Greek prime minister, secured a concession by ensuring the fund will be administered in Athens but it was a tiny victory. Raising €50bn – about a quarter of current GDP – from privatisations would be tricky even if the world’s finest civil servants were deployed. |
| The obvious next question: what happens if these ambitious targets are not met? If the Greek economy starts to show decent growth, the creditors might not quibble over every last detail, or whether the privatisations have yielded €5bn or €50bn. But that is one hell of an assumption. | The obvious next question: what happens if these ambitious targets are not met? If the Greek economy starts to show decent growth, the creditors might not quibble over every last detail, or whether the privatisations have yielded €5bn or €50bn. But that is one hell of an assumption. |
| As many economists have pointed out, it seems more likely that the demand for budget surpluses (size yet to be specified) will slow recovery further and make the financial targets seem like wishful thinking. In that case, Greece’s exit from the euro would be back on the agenda. | As many economists have pointed out, it seems more likely that the demand for budget surpluses (size yet to be specified) will slow recovery further and make the financial targets seem like wishful thinking. In that case, Greece’s exit from the euro would be back on the agenda. |
| In the medium term, it is still a likely outcome. Greece is being asked to implement a tougher programme that was rejected in a referendum a fortnight ago, and it is hard to know if the political will exists to make the reforms happen. Meanwhile, the country has been offered no debt write-off, just a “grace period” on repayments if reforms are implemented in full. On the other side, the leaders of Germany, Finland and other countries clearly feel constrained by their own electorates. This really is the last Greek bailout. | In the medium term, it is still a likely outcome. Greece is being asked to implement a tougher programme that was rejected in a referendum a fortnight ago, and it is hard to know if the political will exists to make the reforms happen. Meanwhile, the country has been offered no debt write-off, just a “grace period” on repayments if reforms are implemented in full. On the other side, the leaders of Germany, Finland and other countries clearly feel constrained by their own electorates. This really is the last Greek bailout. |
| The fact of a deal buys some time for the elusive “trust” to reappear. But this agreement was born out of desperation – Greece’s desire to get its banks open again, and Germany’s fear of being blamed for a country’s exit from the euro. It’s not an auspicious start. | The fact of a deal buys some time for the elusive “trust” to reappear. But this agreement was born out of desperation – Greece’s desire to get its banks open again, and Germany’s fear of being blamed for a country’s exit from the euro. It’s not an auspicious start. |
| CBI’s plea for pay-data “flexibility” is premature | |
| “Today I’m announcing a really big move: we will make every single company with 250 employees or more publish the gap between average female earnings and average male earnings,” says David Cameron in the Times today. “That will cast sunlight on the discrepancies and create the pressure we need for change, driving women’s wages up.” | |
| It’s definitely an interesting move by the prime minister: you would be hard-pressed to find a single FTSE 100 or FTSE 250 company that would currently volunteer this information. Will it create the intended pressure for change? Possibly, in the long term. | |
| Before that happens, though, expect to hear lobbying from companies designed to spare their embarrassment. That seems to be the gist of the CBI’s response: “While we believe publishing pay gap data could be misleading, we will work with the Government to ensure that rules on what is published are flexible enough to be relevant to each company.” | |
| Flexible? What does the CBI mean? Let’s start with accurate data, and have any debate about mitigating circumstances when the facts are out in the open. |