Don’t Forget Greek Implementation Risk

• By Alen Mattich

In return for the price of yet more loans, the International Monetary Fund, the European Union and the European Central Bank are looking for the Greek parliament to legislate another round of austerity.
Judging by the public outcry and crumbling political will, its ability to do this is by no means certain. But even if the Greek government was to push through another €80 billion or so of cost cuts, tax increases and asset sales, investors would have to believe these can be implemented. And this is a big ask.
Take taxation. Like every other European country, Greece has volumes of statutes on what’s taxable, who’s liable and how it’s to be collected. But these aren’t very meaningful in a society where evasion (never mind avoidance) is endemic, not least because of the bribery culture among bureaucrats and tax collectors. So taxes are imposed but not collected.
Even asset sales won’t necessarily be as advertised. As long as the assets are immovable, in other words under Greek jurisdiction, buyers will need to discount the possibility of eventual renationalization. Which could happen if Greece was to leave the euro after all and shed some of its other legal obligations to the EU. But even if there are safeguards against the state confiscating assets, there’s always the risk it will do the next closest thing: tax the assets to the point where they are worthless to the owners or even a costly liability.
The troika of supranational agencies would have to be able to somehow ensure enforcement on the part of the Greek government.
Would this mean imposing German–or Dutch or Finnish–accountants, tax collectors, police, and judges on the country?
And even if other European states were willing to allow for some slippage in the interest of saving the euro, how much leeway would they be willing to allow Greece in exchange for a fig leaf of reform? Would Greece’s creditors really be willing to accept the risk Greece reverts to the cynical approach it had towards its European paymasters in the years before the crisis?
Until Greece’s rescuers know themselves what type of Greece they’re willing to accept and what measures they’re willing to impose, all these temporary rescues will be just that. They will merely delay the inevitable.