Hugo Dixon: Time for Alexis Tsipras to keep his nerve

By Hugo Dixon FEBRUARY 21, 2015 published at The Reuters 

EURO ZONE | EUROPEAN UNION | GERMANY | GREECE
By Hugo Dixon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Alexis Tsipras must keep his nerve. The new Greek prime minister has crossed a Rubicon in asking for an extension to the country’s hated bailout programme while abandoning many election promises. Tsipras should realise there is now no turning back. But he can snatch victory from defeat if he embraces radical reforms with vigour.

Tsipras blinked on Friday night when it became clear that a bank run was gathering pace and capital controls would need to be imposed within days unless he did a deal with his euro zone creditors. The government itself would have gone bust in weeks. The misery inflicted on an already suffering people would have been terrible.

The Greek prime minister has had to accept virtually everything his creditors, led by Germany, demanded. However, Athens did secure a potentially important concession: it will be able to propose its own list of reforms.

On the other hand, Tsipras has had to swallow much bitter medicine. Not only has he had to ask for an extension of the programme with monitoring by the unpopular European Commission, European Central Bank and International Monetary Fund. He has had to promise not to roll back the reforms introduced by previous governments or introduce any controversial measures of his own during the four-month period when he will conduct negotiations on a new long-term deal.

The U-turn will infuriate the powerful hard-left faction of Tsipras’ own Syriza party. But it is in the interests of the Greek people.

Tsipras now has to present his own list of reforms by Monday evening. He must resist any temptation to come up with half-hearted proposals that might appease his extremist colleagues.

Instead, Athens should propose radical reforms that the previous conservative-led government was too conflicted to embrace. It should surprise its euro zone partners with its zeal and so help to restore their trust, which has been shot to bits as a result of Syriza’s bizarre negotiating tactics over the past month.

Tsipras has long said he wants to combat tax evasion, corruption and special privileges, as well as rein in the oligarchs who control swaths of the economy and stifle enterprise. Now is his chance to prove he means business.

Top of Athens’ list should be creating a genuinely independent tax authority. The last government, led by Antonis Samaras, sacked the authority’s boss. Buttressing it with strong legal safeguards would show that Tsipras was serious about tackling evasion, one of Greece’s deepest problems.

This reform could be accompanied by offering a tax amnesty: anybody who owned up to undeclared income would pay a lower tax rate; but those who failed to and were subsequently found out would be hit with the full tax plus penalties.

The prime minister should also promise to remove tax and social security privileges enjoyed by the rich. For example, judges, generals and senior civil servants should have to wait for their pensions as long as ordinary people.

Similarly, the Greek Orthodox church should lose its exemptions from the country’s unpopular property tax. Nor should the government continue to pay for priests’ pensions and salaries. The church should offer to fund them itself.

Tsipras should also revive an idea, nixed by Samaras, to tax the country’s super-rich ship owners. It is astonishing they still slip through the tax net.

Next on Athens’ list should be liberalising markets, such as auditing, retailing and telecoms, which are still gummed up by restrictive practices. This would attract investment and give consumers a better deal. One measure that could grab the headlines would be to free up milk prices.

Tsipras should also set up a “bad bank” along the lines of what Spain and Ireland have done successfully. Hiving off non-performing loans wouldn’t just free the banks to provide credit to the economy. It could also help clear up corruption, as many of the bad loans are provided to oligarchs who are clever at pressuring the banks not to foreclose on them.

There is understandably some fear that a bad bank could end up as a back-door way to help corrupt businesses, by writing down their loans while letting their current owners stay in control. But if the organisation was set up with strong and independent governance, this should not be a risk. On such a basis, the euro zone should be willing to release some of the money it has just clawed back from the country’s bank bailout fund to finance a bad bank.

Greece’s creditors have the country on a short leash. They haven’t said how they will provide Athens with the money to stop it going bust next month. They have also dangled the possibility of relaxing the punishing fiscal austerity, but haven’t said by how much.

If Tsipras can surprise his euro zone partners with radical reforms, they will be more willing to find Athens the cash to avoid bankruptcy – probably by letting it sell more short-term treasury bills to its banks. They will be more likely to relax the fiscal squeeze, so allowing the government to fund some of its more pressing anti-poverty policies. They will also be more amenable to relieving Greece’s vast debt burden, an idea currently on the back burner.

It won’t be easy for Tsipras to do all this, both because of his far-left colleagues and vested interests that support his party. But he is popular enough to do this especially if he secures a new mandate with a referendum or a second election. Now is the time to break with factions and side decisively with the Greek people.

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