Greece: hanging tough for better eurozone deal?

http://www.theguardian.com/world/2015/feb/12/greece-hanging-tough-for-better-eurozone-deal

Version 0 of 1.

It’s easy to see why Angela Merkel and François Hollande were so keen to get an agreement with Vladimir Putin over Ukraine. The eurozone is not really in good enough shape to cope with the aftershocks of one crisis let alone two.

So, Germany and France wanted at least a temporary respite from the problems on Europe’s eastern borders before turning to the more pressing issue of Greece.

On past form, a temporary respite is all that can be expected from Russia’s president. A failure to resolve the underlying issues in Ukraine has meant previous ceasefires have been brief. There is no reason to expect this one to be any different.

Anna Stupnytska, a global economist at the fund manager Fidelity, thinks the west will eventually respond by toughening up sanctions against Moscow, and that that would lead to a full-blown economic crisis within two to three months. Russia is potentially a much bigger threat to the EU than a Greek exit from the eurozone, she says.

In the short-term though, it is Greece that commands the attention. Here, a game of chicken is taking place. The new Greek government wants its debt burden eased. It wants to be freed from its bailout programme. It wants to ditch many of the unpopular and painful policies that were forced on Athens in return for its economic bailout.

Greece’s partners are prepared to offer the Syriza-led government a few concessions, but not nearly as many as required by the prime minister, Alexis Tsipras. Jens Weidmann, president of Germany’s Bundesbank, said in London on Thursday night that support would be possible only if previous agreements were kept. Germany was not alone in its opinion.

Tsipras’s position has two weaknesses. Firstly, Greece’s financial position is getting worse. Tax receipts undershot expectations in January and the banks are only being kept afloat thanks to the support of the European Central Bank. That support could be cut off at any time.

Second, the eurozone is cheered by how relaxed the markets are at the prospect of Greece leaving. The Bank of England governor, Mark Carney, said on Thursday that a Grexit would affect the UK but not by nearly as much as it would have done when the euro was fighting for its life in 2012.

Tsipras clearly thinks the rest of the eurozone is a lot more worried about a country leaving the single currency than it is letting on, and that Greece will get more by hanging tough.

He may be right. There is still time to do a deal, and on past form, after the burning of much midnight oil, one will be done. But make no mistake, the chances of both sides stumbling towards an outcome neither wants are high. And rising.

Workplace blues

Britain’s recent labour productivity performance has been wretched. In the pre-crisis era, output per hour tended to grow by about 2% a year on average. Since 2010 there has been barely any growth at all.

This has been the cause of much head scratching. There is no evidence that the workforce has become less skilled since the recession. Indeed, the arrival in Britain of young, skilled, workers from overseas has probably increased the average quality of the labour force.

There is also no real evidence that Britain skimps when it comes to things like training, investment in new software or design. When it comes to these so-called knowledge-based intangibles, spending as a share of GDP is second only to the US in the G7.

As Ian Brinkley, chief economist at the Work Foundation thinktank, says in a paper published by ACAS, there is a lot going in to British workplaces – the problem is that it is not matched by what is coming out.

The explanation, he suggests, is that something is going wrong in the workplace and this explains why productivity performance has been so poor. Previous ACAS studies have highlighted how the UK has a tendency towards “lean” rather than “learning” workplaces, where the emphasis is on getting people to work harder rather than getting them to work smarter.

Brinkley would like to see the next government create a Commission for Workplace Productivity that would bring employer groups, trade unions and experts, such as ACAS, together. This sounds a bit like turning the clock back to the days when the CBI and the TUC would troop into ACAS in the hope of averting a strike. But given the dangers of Britain becoming locked into a low-wage, low-productivity norm, it is an idea worth trying.