Tuesday, 22 May 2018

    Greece is still a mess, but a manageable one

    German voters have been convinced the eurozone will survive, pension funds should take heart

    To those of a nervous disposition Greece is, like the corpse in the river in the classic Gothic thriller Deliverance, a problem lurking just below the surface which threatens to re-emerge at any point, wreaking havoc once again in the eurozone.

    Greece continues to be watched over by its “troika” of lenders: the European Commission, European Central Bank and International Monetary Fund.

    Like the gods on Mount Olympus, they intervene periodically in the Greek people’s earthly affairs. In October the gods were displeased after spotting a €2bn hole in Greece’s 2014 budget. Troika officials worry that the hole could prove even larger than this, because of delays in overhauling the country’s tax system.

    In the light of this latest development, how much should pension funds fret about Greece?

    If Greece left, financial markets would start betting on the exit of other member states

    In 2011 and 2012 eurozone stock markets — and even the euro currency itself — plunged on every fresh sign that Greece was unable or unwilling to take the austerity measures necessary to persuade EU institutions to continue their financial support. Investors knew that if Greece failed to swallow the bitter medicine it would be thrown out of the eurozone — and if Greece left, financial markets would start betting on the exit of other member states.

    The survival of the euro itself was thrown into doubt.

    Greece remains a mess — largely because of the strong streak of incompetence that still runs through its public sector. For example, a new property tax is due to be introduced next year, but no-one knows whether the Greek state is up to the job of implementing it.

    What matters more than the patchy achievements of the Greek government is that Greek politicians have clearly, for the first time in decades, been making a genuine attempt to balance the budget. They deserve, if not quite an alpha, certainly a beta for effort.

    There has been progress. Public sector salaries have been cut, for example, yet the public sector still barely manages to run the country.

    Why should effort be more important than actual achievement? There was never any doubt that the eurozone could afford to keep the small Greek economy going.

    The Greek crisis was always as much about morality as finance

    What mattered was that Angela Merkel, German chancellor and holder of the purse strings, could show voters that Greece was trying to reform itself. The Greek crisis was always as much about morality as finance.

    Through their attempts at reform, Greek politicians have shown the Germans they know where the bodies are buried. Now they are digging them up and disposing of them.

    As a result, the chances look good that the eurozone will stay in one piece, and that the euro will remain a safe currency for pension funds.

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