The Eurogroup has announced its analysis of the surprisingly lengthy and detailed list of policy proposals (see Reuters article) received from the Greek government: “The institutions provided us with their first view that they consider this list of measures to be sufficiently comprehensive to be a valid starting point for a successful conclusion of the review.”
Amidst media reports that the run on Greek banks last week has used up almost all the increased ELA offered by the ECB, the Greek government should be thoroughly frightened about the imminence of an economic catastrophe. Accordingly, the letter reads more like a manifesto for drastic economic reform to turn Greece into a modern market economy. But the commitment on tax reforms portend a revolution in taxation, both historic and prospective.
This list is probably not the last word as Eurogroup called on the Greek government to “further develop and broaden the list of reform measures”. In the next four months, these concepts will have to be turned into operational policies. During that period, investors should expect that vested interests will do what they can to dissuade the Greek Parliament from ratifying such agreements and passing the relevant laws. Presumably, the ECB will calibrate any further increases in ELA so that its exposure to what might become insolvent banks is minimised at all times. That will be an ever-present reminder to Greek Parliamentarians that `there is no alternative’ (TINA).
Assuming the crisis abates satisfactorily, the emergence of a deep `political union of the eurozone’ will be ever more apparent. That may well be manifested in the Report of the Four Presidents to the June European Council meeting.
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© Graham Bishop
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