Monday, September 15, 2014

SYRIZA's Economic Manifesto 2.0

Back in June 2012, SYRIZA had put out its First Economic Manifesto on which I commented at the time. In a recent speech at the International Fair of Thessaloniki, Alexis Tsipras gave a speech which strikes me like an Economic Manifesto 2.0 of SYRIZA. I couldn't find a transcript of the speech so I limit myself to the summary of it published by the Macropolis blog and this summary from the KeepTalkingGreece blog.

The June 2012 Manifesto I had described as an 'arousing document' because it included all the right soundbites which a domestic audience suffering pain and humiliation likes to hear. To me, that was a major strength because without something arousing, a battered society is unliky to develop optimism about a better future. On the other hand, Manifesto 1.0 was short on plausible hard facts; on specific policies which would bring about that better future.

Manifesto 2.0 is short on 'arousing soundbites' and long on hard facts; on specific policies which will bring about a better future. Specifically:

1) Debt forgiveness - at issue is not a relief or a restructuring of sovereign debt; no, Tsipras calls for straightfoward debt forgiveness. He doesn't reveal specific numbers but one can calculate as follows: if debt forgiveness had to reduce sovereign debt to 120% of GDP ('sustainable' as per IMF), one would be talking about roughly 120 BEUR. If it had to reduce sovereign debt to 60% of GDP (Maastricht), one would be talking about roughly 240 BEUR.
2) 6,5 BEUR to restart the economy
3) 5 BEUR for two-year job creation program
4) 2 BEUR for humanitarian crisis

For detailed measures I refer to the above-linked articles. The bottom line is that Manifesto 2.0 plans to reduce sovereign debt by 120-240 BEUR and increase spending by 13,5 BEUR. Clearly, if Greece succeeded in reducing sovereign debt by the mentioned amounts, there would be an annual saving in interest expense of 3-6 BEUR. When asking how the increased spending would be financed, that saving in interest expense is about the only sure source but it depends on a totally unpredictable event (debt forgiveness). All the other sources which Tsipras outlines rest on shaky grounds (cutting down tax evasion and fuel smuggling, EU structural and cohesion funds, etc.). These potential revenue sources have been mentioned by others forever.

Macropolis concludes that "Tsipras' next challenge is to start fleshing out the policies. His aim will be to build his party's credibility with those Greeks who doubt that such a program could be implemented". I would tend to disagree with this assessment. Tsipras' first and foremost task should be to convince those who will have to fund the program that it will work. The ultimate test for Tsipras and SYRIZA is to convince lenders/investors. If he succeeds with that, Greek voters will quickly fall in line.

ADDENDUM on September 16, 2014
Upon reflection, I overlooked one major constituency whom Tsipras should attempt to convince that his program will work. Perhaps it is even the most important constituency. It is not foreign lenders; it is not foreign investors; it is --- Alexis Tsipras' own compatriots, the wealthy Greeks who have enormous sums of money stashed away offshore. To be sure, no wealthy Greek will ever repatriate all of his money, if for no other reason than for fear of having to pay up taxes. However, if they only bring back part of their money, many of Greece's growth financing challenges would be solved in a hurry. Wealthy people have a way of avoiding tax risks: they don't have to bring their money back in their own name. They can bring it back as back-to-back loans or in the name of foreign corporations or whatever. And they will undoubtedly bring money back as soon as they are convinced that the risk-adjusted return is greater in Greece than where they presently have the money. Clearly, should wealthy Greeks ever trust their own country, they probably would find no better investment opportunities than in a country which is on the economic rebound and which has a lot of economic catching-up to do!

1 comment:

  1. ""Tsipras' next challenge is to start fleshing out the policies. His aim will be to build his party's credibility with those Greeks who doubt that such a program could be implemented"."

    Not really. Tsipras is targeting those who have had enough. Those who in newspapers websites, when read the same doubts, answer: "I have nothing to lose". Those who when threatened with "bank run", reply "Ok, Samaras, i have 3 euros left in my bank account, go on and take them". Those who say "I am broke, i 've nothing to lose from Tsipras, that Samaras hasn't already taken from me".

    Tsipras with a 30% of the vote, will have secured the 1st place in the elections. That's all it takes. Populism works well, when a part of the audience is desperate and sees no light with the current policy. Tsipras is selling the story of a new hope.