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For Alexis Tsipras, last week’s “capitulation” to lenders’ demands and his about-turn on the principles and declarations against austerity that got him elected, was bad.
For Greece, parliament reluctantly voting the ‘prior actions’ package and the mild Cabinet shuffle that followed the rebellion from within his own party, was good.
But the Prime Minister faces a second “crash test” on Wednesday with deputies voting on the measures that have been proposed in order to get a multi-billion line of financing and a lifeline to the cash-strapped banks.
Hopefully, reason will prevail and these measures too, will pass, as this will mean an effective implementation of a plan that was generally ignored over the past five years, bringing matters to the edge of the abyss Greece finds itself today.
Already, banks re-opened on Monday, after two weeks of long queues at ATMs where Greek were humiliated to a daily withdrawal of 60 euros. However, the difference with the capital controls that were imposed on Cyprus just over two years ago was that Greek savers were not subjected to the harsh bail-in to prop up their banks. The experiment in Cyprus, generally worked but the Eurogroup decided not to go down the same path.
Another measure tested in Cyprus, rather unsuccessfully, was the long capital controls that were imposed not only on individuals but also on businesses, with affected SMEs and the services sector accounting for about 90% of the island’s economic output. As a result, small business continue to suffer even today, because the money supply running dry in 2013 has decimated companies’ cash flows, forced many to resort to layoffs and a lot are still struggling to pay their taxes and dues, which the government does not seem to understand.
Learning from the experiment of Cyprus and from the snail-paced reforms on the island, that slowed down the financing tranches from the Troika, Athens must learn to act fast in order to remove as much of the capital controls as possible, and as fast as possible. Otherwise, the Greek economy will simply slow down and halt to a final stop, without any indication of when it can restart again.
European politicians and economists have generally admitted that the belief that fiscal austerity would raise income, rather than lower it, was a mistake and many are trying to make amends, at least by showing more compassion towards the Greeks.
Furthermore, instead of taking the deal on offer last January in exchange for debt relief, Athens lost too much time.
But provided the government carries out its promises on privatisation, labour market and pension reform, these structural reforms are far more important than the fiscal targets, while Greece will now also benefit from unlimited monetary support from the ECB through the ‘quantitative easing’ programme.
To ensure a sustainable recovery, perhaps it is about time Tsipras gets serious and opposition forces lend a hand. Otherwise, we will be faced with yet another tragedy.
