ECB’s decision, to suspend the waiver for the acceptance of Greek bonds as loan collaterals, came as a shock to Greece but was rather expected by the markets (although this does not preclude a strong ‘market reaction’). The decision per se does not have immediately dire consequences for the Greek economy. It raises the cost of borrowing for Greek banks (from 0.05% to 1.5%) but it doesn’t stop their access to liquidity, as this will continue to be provided by the Bank of Greece through the ELA mechanism. The decision is moreover rather sensible from the point of view of Central Bank finance, as Greece indeed cannot be assumed to be in an adjustment programme given the recent pronouncements of the Greek government (recall that the ECB accepted Greek bonds as collaterals, which are not credit-worthy in a market-rating sense, solely on the basis of the implicit guarantee by the Eurogroup that Greece’s solvency is guaranteed as long as the country remains in an adjustment programme).
On a first reading, this decision is above all of a political value and significance, representing a strong message by the ECB that Greece should work swiftly and with pragmatism towards a new (or old) agreement with its Eurozone partners. On a second reading, the message may have multiple recipients, including ones in Germany and elsewhere, signalling to all sides that failure to reach a political agreement will not be ‘accommodated’ with technical rescues by the ECB – the Greek government favours certainly this interpretation.
But I think there is more to this than that. One should not forget that the ECB itself is largely divided on the issue of Greece and of monetary accommodation more generally. Those in its Executive Board that are more amenable to accommodation and have a more forgiving or favourable stance towards Greece, have to battle with those who see the ECB’s activism as an unacceptable departure from its constitutional role and mandate. Under this prism, there is a battle brewing inside the ECB and yesterday was not the time for its executive members to open up their cards and pick up fights. The decision by the ECB maintains its adherence to consensual decision-making, strengthens its credibility with regard to non-politicisation and rules-based policy-making, and gives it space and more degrees of freedom for future decisions concerning the handling of the Greek crisis.
For the Greek government, however, which of these interpretations carries more water makes little difference. The ECB decision signals the end of the short-lived honeymoon period and the optimism created by the rather positive climate in many of the meetings of PM Tsipras and Finance Minister Varoufakis with officials in France, Italy and Brussels. As SYRIZA had already anticipated, tough negotiations lie ahead for the Greek government. And the going has just started to get tough. But it is the realists, not the tough, that should now get going…
Note: This article gives the views of the author, not the position of Greece@LSE, the Hellenic Observatory or the London School of Economics.
Dear Prof Monastiriotis, I don’t know why you keep persisting in your position of creating excuses for the Syriza-ANEL government.
The new government has to stick to the programme that was already agreed: there is no alternative, unless they wish to be asked to leave the eurozone. Greece went bankrupt, it was rescued by the bailout programme, which all the eurozone countries voted for in their parliaments. The bailout programme has technically ended but is on a technical two-month extension until the end of February. Beyond February, however, Greece still can’t survive on its own and will need further assistance from the “troika” of creditors.
As we can see from its ridiculous tsampoukades and its ridiculous ideas that it was going to bring sweeping changes to Europe, the Syriza-ANEL government has no idea how the EU (or the world) works. You do not make unilateral changes to EU agreements, especially when you are the country needing the assistance and have received hundreds of billions of euros from the programme you are trying to violate.
All Syriza needed to do was say “ok, we accept the two-month extension of the troika and bailout but after that we want to make a few changes”. These changes would involve not the stupid budget and stupid attempts to rollback reforms that Syriza have tried to bring in, but perhaps looser oversight (although, given how little trust and much suspicion they have created, I suspect the eurozone wants to increase oversight) and an easing of the debt conditions in the form of an extension of repayments in return for a promise that real, serious efforts will be made for tax collection. Items such as a rise in the minimum wage and some pensions could have been tied to growth rates and collection from taxes. Increased tax collection could also have led to a lowering of some tax rates and the property tax.
Syriza would have had support within the eurozone for something like that, as some governments have made clear. As things stand now, it has no support from anywhere, not from the eurozone, not from non-eurozone EU countries, not from the European Council, not from the European Parliament, not from the European Commission, not from the IMF, not from the ECB and certainly not from the USA. All have repeatedly sent the message to Greece: stick with the programme.
Instead, we have had idiocy upon idiocy, from the appalling events of last week to the Varoufakis and Tsipras roadshow this week, demanding a debt write-off (i.e. shifting Greek debt onto the shoulders of European taxpayers) to the ridiculous pleas of “we just want some time to work out our plan”, which again does not raise trust or credibility but only increases suspicion. Why wasn’t Syriza able to work out a plan beforehand?
Another ridiculous notion that has gripped Greece is that there are going to be “negotiations”. There are no negotiations, this isn’t some kind of effort to find a common position over particular issue. This is about a bailout programme that a bankrupt Greece has been given to keep it alive – you don’t change the terms of such a bailout programme, and certainly not in the way Syriza is attempting.
The ECB’s decision yesterday was a very clear one that had been on the table for months and absolutely in keeping with its very well-known regulations. The only message it is sending is to the Greek government.
Why was this decision perhaps brought forward? That’s obvious: because yesterday Mario Draghi met Greek finance minister Varoufakis, who tried the same sophistry, spin, deceit and lies that he’d tried elsewhere and failed with. Draghi realised that Varoufakis obviously hasn’t yet got the message that Greece must be within a programme agreed to by the whole eurozone if the country wants assistance from the ECB, and so he decided that it was imperative for the new Greek government to get the message as soon as possible.
I wonder. Have you ever studied economics or you simply favor stagnation? Who are you?
By the way did you get the message of the Greek people vote? Or do you care at all ?
“This is about a bailout programme that a bankrupt Greece has been given to keep it alive – you don’t change the terms of such a bailout programme”.
This is also a programme that Greece has been implementing the past 2.5 years. What is happening now is not outright rejection of the programme, but a striving to a step away from austerity after having experienced its counterproductive effects for 2,5 years. It is a response to years of economic stagnation and suffering with no proportionate effects on growth prospects. So why should you not try change such a bailout plan (as you say) if it is both harsh and ineffective? I am not saying to tear it up; I am saying try to change it-
If your comment was written 1 week ago I would probably agree with your stance regarding Syriza´s governing plan. However (!) if the last week has shown us something is that the absolute claims of the pre-election period have been replaced by ambiguous statements which (though dangerous, puzzling etc) are the result of the new government´s aim to compromise. Tsipras and Varoufakis have repeatedly said no to unilateral proposals, and they have even retracted from debt write-off claims.
This is not to say that we should be optimistic, as the direction of domestic reforms is still a very confusing issue for the new government (and I personally cannot see how Tsipras could convince his current cabinet to implement the crucial ones). But we can hope they succeed, and that they will be ready to concede if they cannot. Whatever happens, the right to civilly fight for a growth-enhancing alternative to pure austerity is beyond question.
If ordinary Greeks want to end “austerity” then they can simply pay their taxes. It’s a bit sickening to hear “ordinary” Greek people who I know do everything they can to avoid declaring their full income and who only want to be paid and to pay in cash railing against the supposedly German-imposed austerity.
If Greeks want public spending to increase then they can simply declare all their income and pay their taxes.
Except, the situation we have now is that “ordinary” Greeks want an increase in public spending in Greece that is not paid for by them but by the taxpayers of Germany, France, Spain, Portugal, Italy, Estonia, Slovakia, Slovenia, Latvia, etc., etc. – often countries that themselves have restricted public spending.
The reason the Greek state does not have enough money to spend is because Greeks aren’t paying their taxes. Instead, for several decades Greeks expected not only that they could get away with not paying their full taxes but that they would still receive generous benefits, large pensions and all sorts of exemptions.
It’s simple: if Greeks want an end to “austerity” and increase public spending, then they should declare their full income and pay their taxes in full. Otherwise, can you explain where the money to pay for more public spending will come from? Especially since the Greek government – and especially this particular Greek government – cannot turn to the markets for funding?
It’s obvious that the Greek austerity program isn’t that austere because if it was Greeks would be more interested in eating and working to acquire food than wasting their time with a politician that promises them what is obviously not achievable. They’d probably even consider taking responsibility for themselves.
Do they really think they can vote in a politician who can negotiate more from a bankrupt Europe/world. They are also ignoring the fact that their financier country works harder and pays taxes more reliably than they while having less of a government supported economy.