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institute (ELSTAT).
Success of the economic adjustment program would depend heavily on the sustained implementation of agreed policies over the coming years. To this end, political commitment is needed, which is mainly regarded as scanty at the moment, but so is the technical capacity of the Greek administration to deliver.
Evaluation of the Third Economic Adjustment Programme for Greece
Till 2016, there has not been much scholarly work discussing the prospect of the third economic adjustment program. Nonetheless, comparing the third economic adjustment program with the previous two bailouts, one could sketch out the possible influences the third economic adjustment program would have on the Greek sovereign debt crisis. Here, the four reasons that rendered the first and second economic adjustment programs a failure are used as criteria regarding whether the third economic adjustment program would function in a better manner.
The missing targets. In chapter three, it was mentioned that the first two bailouts were
not aiming at the right direction; they did not intend to fix the structural problems of the EMU, nor were the funds focusing on propelling the Greek economy. Taking a closer look at the conditionality in the third economic adjustment program, one could find out that the ideology of the Troika concerning how a debt crisis should be solved has not changed; the emphasis is still predominantly placed on fiscal retrenchment, along with generating enough
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revenue through taxes and privatization. Meanwhile, the terms do not touch upon reforming the EMU structure, meaning that none of political integration, common European funds or bonds, or Europe-wide fiscal consolidation would emerge.
In the meantime, in Stiglitz’s (2016) opinion, with regard to the Greek sovereign debt crisis solutions, focus is too often put on saving the banks instead of human well-being;
success of the disposal was measured too often in sovereign bond spreads rather than meaningful improvements in employment rates.
Shin (2015) compares the Greek bailouts to the East Asian financial crisis in the 1990s.
Shin consistently expresses his amazement that, after all the tumbling and turmoil in the financial crisis in East Asia, the IMF still took the same route in the hope that the Greek sovereign debt crisis could be solved. He states that the drastic capital outflows from a
country in the absence of regulatory mechanisms are the most destabilizing factor that created the financial crises in both Greece and East Asia, and that the conditionality imposed by the IMF and Troika’s austerity packages has exacerbated just that. Should the Greek government wish to increase revenues and repay debts, the only sensible way to achieve the goal is to assist the private sector in growing the economy in a sustainable way. And that, in economic terms, would mean budget deficits in the form of the government-sponsored work projects, infrastructure building and renovation, and an increase in its social and educational spending.
Yet, the bailouts are doing just the opposite, curtailing those spending.
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In short, efforts to deal with two aspects of the missing targets of the programs, the structural defect of the EMU and the objectives of the bailout terms, still do not appear present in the third economic adjustment program.
Incomplete implementation of the program. The progress of the implementation of
the third economic adjustment program is monitored by the EC, in liaison with the ECB, the ESM and, wherever possible, the IMF. The reviews of Athens’s implementation of the program are to take place every three months and when needed can be supplemented by interim missions. Due to the ongoing nature of the program, it is still too early to judge whether Greece would fully implement the requirements. Yet, stated on EC’s official website, the disbursement would be provided only when the conditionality is implemented by Greece.
At this point, two tranches have been issued, with the preconditions that Greece comply with the first and second milestones, which included, among others, fiscal policies, tax policy reforms, and revenue administration reforms. (Directorate-General for Economic and
Financial Affairs, 2015; European Commission, 2015.) Accordingly, it can be concluded that Greece has so far complied with what the creditors asked for.
One worrisome problem, nevertheless, remains. While the ECB has greatly expanded liquidity, there still exist concerns that only a small portion of the liquidity will actually be applied to creating new jobs or making real investments. Much of the funds given before went to finance investments in fixed assets, such as land, providing no stimulus to the
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economy. (Stiglitz, 2016) In addition, money loaned to Greece in the bailouts has usually been, for a large part, given back again to the lenders; the number is essentially tinkered for the purpose of helping the creditors get what they are owed back instead of being pumped into the real economy. In Stiglitz’s (2016) view, the new deal is no different. Concurring, Colasanti (2016) points out that about half of the money that will have been funneled to Greece under the three economic adjustment programs will have been used to deal with the Greek public debt. Only the remaining half will have been used to finance Greek public expenditure.
Moreover, if one compiles the numbers provided in Request from the Greek Government
and ESM’s Assessment (Directorate-General for Economic and Financial Affairs, 2015), it
could be postulated that the future financing needs through the course of 2015 to 2018 for Greece stand at 35.9 billion euros for debt amortization, 17.8 billion euros for interest payments, seven billion euros for clearance of arrears, and 25 billion euros for bank
recapitalization and resolution costs of the financial sector. That is in total 78.7 billion euros, while the total financial assistance in the third economic adjustment program is 86 billion euros. Apparently, not much is left for the Greek government to really efficiently use, if it intends to or has the ability to implement the program at all. While the exact effect of the third economic adjustment program remains to be seen, how the capital will be directed is arguably self-evident. The major part of the program once again serves to cover the debt
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repayment and interest payment to existing creditors; this time the ECB and the IMF are the creditors. (Rocholl and Stahmer, 2016)
Bortz (2016) also points out that although calculating methods may differ between scholars, scholars generally arrive at similar conclusions: the rescue funds will predominantly go back to the original creditors, where the Greek people would benefit the least.
To sum up, regarding the implementation of the bailouts, there are reasons for
pessimism. Generally speaking, scholars do not expect the funds of the economic adjustment program to be directed effectively towards solving core problems, such as boosting the real economy. And judging from the financial needs, there is already a meager portion that is scheduled to go towards the real economy.