Will current breeze turn to a wind of change?

ECB decision on unlimited bond purchases of euro area countries in trouble, even under strong conditionality, along with its acceptance of the ‘pari passu’ treatment of its sovereign bond holdings certainly improved market’s sentiment on the eurozone prospects and was probably among the most critical and concrete actions that have been taken since the beginning of the euro crisis. Although Greece has nothing to gain directly from this support, the indirect positive impact could be significant in the short to medium term as a result of a more stable euro and the emerging change of balances within the eurozone.

At the same time, the rhetoric of key European policymakers on Greece’s issue has turned to cautiously optimistic and the consistently negative press reports and statements of the previous weeks are gradually eliminated, particularly following PM meetings with the German Chancellor and the French President in late August. Here are some of the latest statements as a reminder: German FinMin Wolfgang Schaeuble emphasized during an interview with German Inforadio that he expected Greece to remain in the eurozone adding that speculation about a potential Greek exit from the eurozone was not helpful; French FinMin Pierre Moscovici stated that “there is no question that Greece has made mistakes, but it must stay part of the eurozone. We must support this government”; Austrian FinMin Maria Fekter made a positive statement on Greece, for the first time in many months, stressing Greece’s efforts to fulfill the conditions for the disbursement of the next tranche during her speech at the Austrian parliament.

On the domestic front, MoF said yesterday that the Financial and Economic Crime Unit (SDOE) has frozen the bank accounts (with tens of millions of euros), shares (listed on the Athens and NY stock exchanges) and luxury properties in 121 tax evasion cases involving individuals and legal entities. FinMin stated that “tolerance of tax evaders, no matter how high up they are, is over” adding that “SDOE has orders to seize the assets of those who rob the state and its citizens, who are suffering an unprecedented crisis”. Furthermore, MoF announced today that SDOE will crosscheck 54k individuals, who had transferred €22bn abroad over the period 2009-12, setting as priority 3k individuals moving outside Greece amounts exceeding €1m each. If I am not mistaken this is the first, and hopefully not the last, series of concrete government actions tackling tax evasion signalling political will to address this serious issue.

Furthermore, a legislative act was signed into law abolishing the state’s minimum participation requirement in a number of state-controlled enterprises, namely Hellenic Petroleum, PPC, OPAP, Athens and Thessaloniki Water utilities, Hellenic Post, Piraeus and Thessaloniki Port Authorities and ten other ports, paving the way, in my view, for their privatisation. It is reminded that under the previous legislation, the state was required to retain at least a 51% stake in state-controlled companies of strategic importance, while the stake of a single private shareholder was limited to 20%.

It is also noteworthy the barrage of meetings of PM and FinMin with all key eurozone policymakers, starting from the meeting in Athens with Eurogroup President on August 22, followed by meetings in Berlin and Paris with the two political leaders on August 24 and 25 respectively. The meeting agenda includes today’s meeting as well with the European Council President in Athens, meeting with the ECB President in Frankfurt on September 11 and the French FinMin in Athens on September 13. Since these are the first meetings following the formation of the coalition government, they definitely help exchanging ideas and particularly clarifying Greek government thoughts, efforts and commitments following a rather messy message conveyed before or during the election period.

It is too early to speak about a dramatic change or a clear path towards the end of the crisis. Nevertheless, it must not be overlooked that gaining the ‘external’ confidence and support will be the key element for the approval of the disbursement of the next tranche of €31.5bn, which is expected to pave the way for bank recapitalisation and resume liquidity in the market. More importantly, it is expected to improve economic climate, confidence and credibility facilitating, thus, the efforts to constrain recession and curb unemployment.

A positive outcome in the ‘external’ front could also support or potentially ease the simmering ‘internal’ political and social tensions, which threaten the cohesion of the coalition government, at least until the cost cutting measures are finalised and passed by the Greek parliament. Furthermore, it could also facilitate the implementation of the long-awaited structural reforms and privatisations amid a persistently recessionary environment with strong resistance to change from many vested interests and rising social resentment regarding unbalanced tax burden and wage cuts resulting to a much lower disposable income and consumer spending.

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