Is VAT all you’ve got?

Grabbing a coffee for 20 cents less doesn’t really sound like the start of an economic recovery but who knows, maybe after this week’s decision to cut value added tax at restaurants and cafes, Greece will soon be measuring out its success with coffee spoons.

Naturally, the government has made the most of the skeptical troika finally giving in on a longstanding Greek demand for VAT in the food service sector to be reduced from 23 to 13 percent. Even so, Prime Minister Antonis Samaras announcing the temporary measure in a televised address was a touch excessive given he only informed the nation that a nightclub drink would soon be about 50 cents cheaper. For the government, though, the symbolism of the reduction is perhaps more important than its economic impact.

Samaras presented it as a personal triumph of persistence. Deputy Prime Minister Evangelos Venizelos said it was a sign that the troika had begun listening to Greece. Indeed, the VAT reduction represents something of a milestone in the Greek bailout program as tax hikes have been the norm and a regular source of much anger over the last three years. It was billed as the first tax cut since the program began, which is not quite accurate. Technically, it was the second as a 15 percent reduction in the emergency property tax introduced in 2011 had been agreed a couple of months earlier. This came after pressure from Democratic Left, which was still part of the coalition at the time. There was no televised address, though.

Greece: A reality check

Petros Giannakouris/Associated Press

And like that… poof, the crisis is gone. More bailout loans approved by the Eurogroup, a sovereign rating upgrade from Fitch, economic sentiment at the highest it’s been for the last 40 months, the Athens Stock Exchange becoming the best-performing stock market in the European Union and Greek bond yields dropping below 9 percent for the first time since 2010 have helped give the impression Greece has overcome the worst of its problems and that recovery is within touching distance.

This is certainly the story that the government will, understandably, run with. The three parties in the coalition have taken on considerable political cost in sticking with the EU-IMF fiscal adjustment program and their only hope of survival is to convince a large enough section of the Greek population that the chosen path leads from economic catastrophe to stability and then prosperity.

In Athens, there is also a belief, which seems to be shared by decision makers in Brussels, Berlin and elsewhere, that a change in mood alone will make a significant contribution toward overcoming the crisis. This rising tide to lift Greece’s boat will not only make the program more acceptable to the public, it will also make investors more buoyant, the thinking goes.

Greece’s privatizations: New beginning or false dawn?

Illustration by Manos Symeonakis http://www.cartoonmovement.com/p/6035

Greece’s first major privatization since the crisis began, secured on Wednesday when a private consortium agreed to buy a 33 percent stake in state gambling monopoly OPAP, will bring some relief to the government and its lenders. Athens has been under pressure since the start of its bailout program three years ago to sell state assets so it could raise revenue and pay off some of its mounting debt. Privatization even caused the first major rift between the troika and Greece, when the country’s lenders announced a 50-billion-euro sell-off program in February 2011 before the government.

The target for privatization revenues has since been revised downwards, first to 19 billion euros and then 11 billion euros by 2015. The pressure, however, has not decreased. The sale of the stake in OPAP to Emma Delta for a total of 712 million euros will give the Greek government some breathing space but the troika expects to see more sell-offs soon as more than 2 billion has to be raised this year.

Much has been made of how Greece has dragged its feet, failing to kickstart the privatization process quickly enough. The country’s privatization agency (HRADF) has also been slammed for lacking organization, with one analyst recently labeling its efforts as “simply not up to par on any international standards.” The fund has also been blighted by several changes of leadership.

Talking with the taxi driver about economics

“Good evening and thank you in advance for the generous tip you’re going to leave me.” As welcomes from Athenian taxi drivers go, it was a fairly original and disarming one. I’m not a regular cab customer but have used them enough over the last couple of years to see a change in their attitude. Where they were surly, they now seem resigned. Passengers were once taken for granted; now they’re a rarity.

Take a look at any taxi rank and you will see the yellow-colored cars lining up around the block. At Athens International Airport, where I caught my ride, things are even more dramatic. “I waited seven hours in the queue,” the driver tells me.

Greek taxi drivers say their takings have dropped by more than 50 percent since the crisis began. In the meantime, their costs have skyrocketed: The cost of gasoline has risen, as has the consumption tax on fuel, while social security contributions also shot up. A cabbie needs to make about 15 euros a day profit just to pay for his healthcare and pension cover. This is far from a given in Athens and other cities.

An April Fools economy

The leaders of Greece’s coalition parties are due to meet on Wednesday, a day before the troika returns to Athens to resume its latest inspection of Greek public finances and check on the progress of structural reforms. Reports indicate that among the subjects which will dominate both Wednesday’s talks and subsequent meetings with officials from the European Commission, European Central Bank and International Monetary Fund are the collection of an emergency property tax and installments for unpaid debts to the state.

The talks will take place in the wake of Eurostat figures showing that Greece, for the first time since the crisis began, has the highest unemployment rate (26.4 percent) in the euro area. At the same time, Greece’s leading economic think-tank, IOBE, warned that the current rate of unemployment in this country is unsustainable and that 60 percent of jobless people had been without work for at least 12 months. Also this week, Markit’s PMI showed that manufacturing in Greece, which accounts for almost 15 percent of the economy, continued to fall in March as it has done since September 2009. Meanwhile, the Finance Ministry has reportedly revised this year’s recession figure to 5 percent of GDP from 4.5 percent.

To say that the talks between Greece and the troika will have a touch of the surreal about them given the mauling that the real economy is suffering is probably an understatement.