Greece's Road to Bailout Exit: 140 Reforms Down, More to Go

(Bloomberg) -- Greece’s hard times aren’t over.

A return to the bond market last week, the pledge of 8.5 billion euros ($9.5 billion) in new loans from euro-area creditors, the possibility of more money from the International Monetary Fund and a S&P Global Ratings outlook upgrade have coalesced to bolster investor sentiment that Greece has turned a corner. 

Trouble is, much depends on the country implementing reforms -- dozens of the 140 measures agreed to are in various stages of application and more than 100 additional actions are needed to access the remaining 26.9 billion euros in funds before the current bailout program ends in August 2018. 

While the evidence of belt-tightening is everywhere in Greece, from falling incomes to rising poverty, the country has less to show in terms of structural overhauls. Creditor demands for more measures threaten to become politically explosive as Greek citizens and businesses count the cost of the financial crisis that has thrown their lives into turmoil over the last seven years.

Take Matina Michou, for example. The 59-year-old, who worked as a bank employee in Athens for 40 years, says it may be a while before she gets her pension.

“I don’t know how much money my final pension is going to be,” she said. “I only have an administrative decision that grants me an upfront temporary pension of 700 euros ($793), which I have not received so far; nor do I know when I’ll be getting it.”

Over the years, creditors have imposed reforms that have affected the daily lives of Greeks, from requiring receipts for tax breaks and e-prescriptions for patients to prevent abuse to pension payout cuts of as much as 50 percent. While Greece’s record of implementing reforms hasn’t won it any kudos, it is now hitting against even more challenging structural measures aimed at profoundly changing entrenched habits.

‘Enormous Impact’

The real problem is with reforms like fixing the tax system and the judiciary that require “long implementation,” said Gerassimos Moschonas, an associate professor of comparative politics at Panteion University in Athens. Belt-tightening measures have had a dramatic effect on life, making further long-lasting reforms difficult, he said.

“The income of an average household has decreased at least 40 percent during the crisis, poverty risk has increased 35.6 percent, pension cuts are enormous and there is over-taxation,” he said.

Since Greece became the epicenter of the European debt crisis in 2010, the country has agreed to austerity measures to restructure its economy, which has shrunk by more than a quarter over the period. In exchange, euro-area creditors and the IMF have provided more than 260 billion euros in bailout funds to keep Greece afloat.

“Progress with structural reforms has fallen far short of what is needed to allow Greece to succeed in the euro zone, but the program foresees some intensification of efforts,” the IMF said in its report on July 20.

What Privatization?

Prime Minister Alexis Tsipras’s government is struggling to squeeze pensions even more, allow Sunday openings for stores -- which could threaten the livelihoods of small mom-and-pop shops that dot the country -- consider further taxes and change labor laws that would make it even harder for employees to go on a strike.

“There’s no serious implementation,” of difficult structural reforms, said Moschonas. “The Greek state has failed” to put them in place even after they were voted in parliament because of a lack of political will and the absence of technical expertise, he said.

“What goes through the parliament and what’s being implemented are two different things,” said Aristides Hatzis, a professor of law and economics at the University of Athens. Amendments, decrees and circulars can change the law completely, “so that it’s not implemented at all in the end,” he said.

Take privatizations, for example. As part of its first bailout in 2010 Greece agreed to privatize Hellinikon, the former Athens airport site. The sale, which was to have concluded in 2014, is still stalled on issues related to archaeological findings and on blockages by local administrations.

Weak Implementation

“Greece has struggled with reform implementation,” the IMF report said. While labor market changes have been implemented, liberalizing product markets and regulated professions have suffered from “weak implementation,” it said.

Delays in implementing what has been agreed prolongs uncertainty and is responsible for Greece losing opportunities, Greek Finance Minister Euclid Tsakalotos said in an interview with Kathimerini newspaper July 30. Greece needs to prioritize implementation, he said.

The same is true of reforms of the tax and judicial systems. “Tax evasion is pervasive” in Greece, the Organization for Economic Co-operation and Development notes in its latest report. The IMF said court backlogs have been mounting. The number of pending tax cases has climbed above 165,000, while the recovery in insolvency cases at 36 cents to the dollar is the lowest in the euro area. Frequent court strikes and the failure to apply the Code of Civil Procedure introduced in 2015 are blamed for the inefficiencies.

“The fact that the burden of the adjustment has been borne largely by wage earners has increased resistance to reform,” the IMF said.

Sunday Opening

After many protests since 2013, Greece gradually allowed stores to remain open for as many as eight Sundays a year. Recently, it allowed shops in four large areas to work on Sundays for six months a year. The Hellenic Confederation of Commerce and Entrepreneurship has appealed against the legislation. Those opposing the measure say it tears the very fabric of Greek society, transferring revenue from small-and- medium-sized businesses to big retail chains and malls.

For Greece’s creditors, implementing reforms is key to the country winning back investor confidence.

“Greece can be the next ESM success story if it sticks to agreed reforms,” European Stability Mechanism Managing Director Klaus Regling said at a conference in Athens June 29.

For other observers, the demand for Greece to do more is seen as “rather farcical,” Eurasia analyst Mujtaba Rahman wrote in client note on July 4.

“We don’t see the Greeks implementing any of these reforms,” Rahman said. “After all, why would they? While having the IMF on board could prove useful leverage against the Eurogroup to deliver Greece the debt relief it has already promised, this probably won’t be worth the political cost of the reforms the IMF is seeking.”

--With assistance from Paul Tugwell and Nikos Chrysoloras

To contact the reporters on this story: Eleni Chrepa in Athens at echrepa@bloomberg.net, Sotiris Nikas in Athens at snikas@bloomberg.net.

To contact the editors responsible for this story: Jerrold Colten at jcolten@bloomberg.net, Vidya Root, Marcus Bensasson