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The euro crisis
The General Haig school of crisis management
Sep 19th 2011, 17:09 by A.P. | ATHENS
ON WE go. That was the message from Greek politicians at a conference in Athens today put on by The Economist. We believe in the July 21 agreement, insisted Evangelos Venizelos, the Greek finance minister, referring to the deal which will give Greece a second bail-out in return for fiscal and structural reforms.
The troika of institutions monitoring Greek progress under its initial rescue programme, the European Commission, the European Central Bank and the IMF, want proof of that. Bob Traa, the fund's man in Athens, had some pretty blunt words for the Greeks today: implementation of tough reforms had slowed, tax evasion was still a huge issue, public-sector spending needed cutting.
Chances are that the Greeks will just about do enough to unlock the latest tranche of international funding some time next month. The Europeans have shown no sign of developing an alternative strategy to lending Greece more money as a way of staving off default, and the fund can point to the promise of more European cash as a reason not to pull the plug. But the public dialogue between the troika ("do more!") and the Greeks ("we will do more!") looks ever more unconvincing.
First, the effects of austerity are depressingly obvious. Mr Traa said that the fund is now reckoning not just on an economic contraction of more than 5% this year but one of 2% next. Only in 2013 will Greece return to growth, and that's if things go plan. Businesspeople complain of falling revenues, an unstable tax environment and a credit crunch caused by banks unable to fund themselves at economic rates.
Second, the government has no good answer to the question why they will suddenly get to grips with the structural issues that plague the country. "We must do within weeks and months what we have not done in months and decades," said Mr Venizelos at one point during today's conference. That might have sounded like a rallying cry once; now it's a recipe for scepticism. The troika's answer is to apply pressure through the periodic drama of troika reviews and programme disbursements but the result of that is yet another bout of market jitters.
Third, the fact that the crisis has morphed into a euro-wide problem makes everything even harder for Greece. In particular the troika still invests a lot of hope in the country's privatisation programme. Mr Traa, who has a nice line in imagery, said that deals were needed as a way of putting chum in the water; a feeding frenzy would follow. That seems wildly improbable, not just because of the economic outlook but also because there is now talk (just talk, true) of a potential fragmentation of the euro zone. No foreign investor wants to take on the risk, however remote, of having assets denominated into a new currency that will crash in value.
Make no mistake, the reforms being demanded of Greece are necessary. But they depend on a domestic elite that has consistently failed to deliver, are part-monitored by European paymasters with a political interest in forcing the pace of reform, and assume an external environment that is more benign than the one we're in.
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