Grexit Ahoy?

Edward Hugh, brilliant as usual,  shares some insight on the Greek mess and the future of Europe. The misery has only just begun in Greece, and will probably hit other countries as well. Via A Fistful of Euros.

At the end of the day the only difference this whole process makes to the ultimate outcome may turn out to be one of timing. If  Alexis Tsipras of the anti bailout, anti Troika, party Syriza won and started to form a government then the second bailout money would undoubtedly be immediately stopped. On the other hand if the centre right New Democracy wins and is able to form a government, as the latest polls tend to suggest, then the country would quite possibly try to conform to the bailout conditions, but in trying it would almost certainly fail, and then the money would be stopped. Before the last election results, it will be remembered, this was the main scenario prevailing.

Indeed reports coming out of Greece suggest that the end point may be reached more quickly than even previously thought, since the main impact of recent events is that the reform process in the country has been put on hold, meaning that slippage on implementation by the time we get to June will be even greater than it otherwise would have been.

“The only thing we are doing is waiting,” said a government official who declined to be named. Another Greek official close to bailout negotiations said ministers in the outgoing cabinet have not been authorised to negotiate with Greece’s lenders since the May 6 election. A senior party official said the caretaker government would not publish any decrees and all tender procedures were suspended.

Even before the May 6 election, many reforms were put on the backburner to avoid antagonising voters, officials involved in bailout talks say. These include a plan to slash spending by over 11.5 billion euros in 2013-2014, which Greece must agree by late June to meet a key bailout target.

Other measures Greece should have taken by the end of June include a plan to improve tax collection by 1.5 percent of GDP in 2013-2014, a review of social spending to identify 1 percent of GDP in savings, and a pay cut for some public sector jobs by an average of 12 percent.

One key measure is the budget deficit. Athens was broadly on track in the first quarter with a primary surplus on a cash basis of 2.3 billion euros excluding interest payments on debt, versus a 0.5 billion primary surplus in the same period in 2011.

But low value added tax collection and increased transfers to the social security system to offset weak business and employee contributions continue to be soft spots.

Another problem – which the EU and IMF will check before giving any green light on the accounts – is government arrears. Unpaid debts to third parties for over 90 days stood at 6.3 billion euros at end-March or 3.1 percent of projected GDP this year, according to economists at EFG Eurobank.

EU and IMF policymakers, exasperated by repeated delays on all reform areas over the two years of a first, 110-billion euro bailout, have warned they will not deliver any more aid under the new bailout if Athens veers off the reform track yet again.

Looking at the above list, it is hard not to come to the conclusion that it might be in the interests of all concerned for Syriza to win the elections and force the issue. Putting together another weak government that can’t implement will only lead to more fudging, and put us back where we are now in three or six months time.

Full article here.